“If the surviving part of the statute results in ‘an effect altogether different from that sought by the measure viewed as a whole,’ severance is not appropriate.” – From Arthrex petition
On December 16, the U.S. Government, Arthrex, Inc., and Smith & Nephew, Inc. each submitted petitions for rehearing and/or rehearing en banc asking the full Federal Circuit to reconsider its October 31 ruling in Arthrex v. Smith & Nephew, Inc, which made Patent Trial and Appeal Board (PTAB) judges “inferior officers” under the U.S. Appointments Clause, in order to skirt the problem that they had been unconstitutionally appointed under the America Invents Act. Many have criticized the quick-fix approach.
The case stems from Arthrex, Inc.’s appeal from the final written decision of the PTAB holding certain claims of its U.S. Patent No. 9,179,907 unpatentable as anticipated. On appeal, Arthrex argued that the appointment of the PTAB’s Administrative Patent Judges (APJs) by the Secretary of Commerce violated the Appointments Clause of the U.S. Constitution. The Court somewhat surprisingly agreed and remedied the problem by simply “severing any ‘problematic portions while leaving the remainder intact,’” as outlined in Free Enterprise Fund v. Public Company Accounting Oversight Board and Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Board.
An Insufficient Solution
Arthrex in its petition told the Court that it overlooked two key constitutional arguments it had made in its opening brief:
- that Congress would not have enacted the IPR statute without tenure protections for APJs.
- that APJs are principal officers because they have the power to issue Final Written Decisions absent meaningful review by an officer nominated by the President and confirmed by the Senate.
In a nutshell, Arthrex argues in its petition that because independence, impartiality, the power to issue Final Written Decisions, and tenure protections are all inextricable elements of the statute governing inter partes review proceedings, “striking the removal provisions would thus lead to a statute that Congress would have refused to adopt.” The petition continues: “Though the Arthrex panel severed one provision in an effort to address the constitutional concerns, the statute cannot be saved and must be ruled unconstitutional. Accordingly, the Final Written Decision here must be vacated and the case dismissed.”
Arthrex notes that the standard for severability laid out in Alaska Airlines, Inc. v. Brock is that a statute may be severed unless “it is evident that the Legislature would not have enacted those provisions which are within its power, independently of that which is not.” If the surviving part of the statute results in “an effect altogether different from that sought by the measure viewed as a whole,” severance is not appropriate. Given the similarity of IPRs to district court litigation, Congress could not have intended to allow for APJs who lack impartiality and independence, says the petition. Arthrex further argues that the severance remedy does not solve the constitutional defect because Final Written Decisions still are not reviewable by other executive officers. “Nothing in the IPR statute empowers the Director to review and reverse the Final Written Decisions of APJs,” says the petition.
Everything Was Already Fine
Smith & Nephew’s request for rehearing en banc rests on the argument that APJs already were inferior officers and should not have been held principal officers, necessitating the severance approach, to begin with. The Federal Circuit’s ruling was contrary to Supreme Court precedent articulated in Lucia v. SEC; Free Enterprise Fund v. Public Co. Accounting Oversight Bd.; and Edmond v. United States, argues Smith & Nephew. “The panel subordinated the Supreme Court’s central concern with supervision to considerations of whether Senate-confirmed officers could remove APJs at will or reverse individual decisions,” says the petition.
Smith & Nephew goes on to argue that the USPTO Director’s supervisory role over APJs actually “ensures robust political accountability” by controlling APJ assignments and whether to institute IPRs at all, controlling whether institutions proceed to Final Written Decisions, etc. The Court rewrote the Edmond holding as a “rigid three-part test” and overlooked the parallel between the Director’s ability to remove APJs from panels and the facts of the Edmond case, in which the Court said that because military judges could be removed from their judicial assignment without cause, this weighed in favor of finding them inferior officers.
Ultimately, argues Smith & Nephew, the Court should grant rehearing either to confirm that APJs are inferior officers, making any remedy moot, or to decide on the appropriate solution if APJs are found by the full court to still be principal officers. Such a finding would necessitate consideration of two questions, as articulated in the pending Polaris Innovations Ltd. v. Kingston Tech. Co case at the Federal Circuit:
– First, does a judicial order striking APJs statutory removal protections suffice to “convert” them into inferior officers?
– Second, must final decisions from panels of APJs who were subject to those removal protections be vacated and remanded for additional proceedings?
The Court Must Correct the Panel’s Legal Errors
The U.S. government’s petition for rehearing en banc acknowledges that the panel decision at issue “addresses a novel constitutional question of far-reaching significance for the Nation’s patent system.” The petition says that the panel made “several important legal errors” in its analysis and the full court must review the decision in order to correct them.
First, the panel incorrectly held that APJs were principal officers by “asserting without explanation” that the Director’s authority to select and remove APJs to serve on PTAB panels, thus enabling the Director to effectively remove an APJ from judicial duties, was “immaterial.” “The panel thus effectively read a constitutional problem into, rather than out of, the statute,” writes the government.
Secondly, the panel ruled on this important constitutional issue in an altogether inappropriate case, argues the government, because the patent owner waived its Appointments Clause challenge by failing to present it to the Board. And lastly, these errors were compounded by the panel’s decision to remand the case for a new hearing by a new panel of APJs, which the government says is “sweeping relief” that is reserved only for timely Appointments Clause challenges. “Even were there some constitutional defect, Arthrex’s failure to raise the issue earlier should have constrained the decision whether and how to vacate and remand,” says the petition.
Furthermore, there are other remedies available if the USPTO does think there is a constitutional problem. For instance, the USPTO could have “adopted a saving construction of the statute,” had Arthrex initially presented the issue, and decided not to institute the IPR in the first place.
Rehearing should be granted, and the panel opinion should be reversed to avoid chaos, argues the government:
If the panel’s holding and remand rule hold sway, hundreds of PTAB decisions could be remanded for adjudication before new PTAB panels, a massive undertaking imposing significant costs on the public fisc and impeding the agency’s ability to complete IPR proceedings promptly.
Arthrex is sure to make for an interesting 2020, since constitutional law scholars seem to agree that the Supreme Court will be interested in the facts of the case, even if the Federal Circuit refuses to grant the petitions.
See more on this case at the links below:
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