Arthrex Update: With Responses Due Next Week, Amici Urge Federal Circuit to Grant Rehearing

In December, petitions for rehearing were filed at the U.S. Court of Appeals for the Federal Circuit by each party involved in Arthrex, Inc. v. Smith & Nephew, Inc., including the United States government as intervenor in the case. The panel decision in that case, rendered on October 31 of last year, severed a tenure provision protecting administrative patent judges (APJs) at the Patent Trial and Appeal Board (PTAB). This severance was determined by the Federal Circuit to overcome a constitutional challenge brought by Arthrex that APJs were principal officers of the United States, and thus their appointments by the U.S. Secretary of Commerce, rather than the President of the United States, with the advice and consent of the Senate, didn’t pass muster under the Constitution’s Appointments Clause. In their petitions for rehearing, Arthrex argued that the removal of the tenure provision was an insufficient solution, Smith & Nephew contended that the fix was incorrect because APJs were already inferior officers, and the U.S. government urged rehearing so that several legal errors made by the original Federal Circuit panel could be corrected.

On January 3, Federal Circuit Clerk Peter Marksteiner informed the parties in Arthrex that they could file a single response to the petitions for rehearing. Those petitions are due by January 17 and the parties have been informed that no extensions of time for submitting responses will be granted. By the end of December, the Federal Circuit had received a pair of amicus briefs in the case, one from the Association for Accessible Medicines (AAM) and the other from the New York Intellectual Property Law Association (NYIPLA).

Brief for the Association for Accessible Medicines in Support of Rehearing En Banc

AAM is a trade organization  representing manufacturers, distributors and suppliers in the generic pharmaceutical and biosimilar sector. AAM notes in its brief that its members depend on PTAB trials to challenge patent claims that could block their generic products. The Federal Circuit panel decision casts a large number of inter partes review (IPR) proceedings into doubt and could subject AAM members to duplicative proceedings, potentially delaying their ability to bring generic medicines to market, argues AAM.

At the outset, AAM says that the rehearing petitions from Smith & Nephew and the U.S. government adequately argue why the panel decision incorrectly identified APJs as principal officers, due in large part to the U.S. Patent and Trademark Office (USPTO) Director’s authority over APJs. AAM’s brief focuses more on the need for en banc review in order to clear up widespread confusion caused by the decision and the ultimate effects of that confusion on the patients who rely on generic and biosimilar medicines.

The Federal Circuit panel decision in Arthrex enabled litigants to raise an Appointments Clause challenge on appeal, entitling them to remand to the PTAB for a decision by a new panel. As Circuit Judge Timothy Dyk noted in his concurring decision in Bedgear, LLC v. Fredman Bros. Furniture Co., the Arthrex decision imposes unnecessary burdens on the IPR system, “requiring potentially hundreds of new proceedings.” AAM argues that these new burdens primarily affect APJs, who now have less employment protection than the patent examiners whose work the APJs must review. Other uncertainties created by the Arthrex decision include whether the Appointments Clause challenge can be raised on appeal after opening briefs have been filed, and the effective date by which APJ appointments became constitutional such that PTAB decisions aren’t subject to automatic remand.

The issues surrounding automatic remands based on Appointments Clause challenges “is particularly injurious to AAM’s members and the patients who benefit from their products.” Generic and biosimilar producers will keep products off the market to avoid the potential of patent issues requiring them to compensate brand-name drug makers. AAM cites several cases involving Appointments Clause challenges brought by brand-name drug patent owners that could drag out validity proceedings for another twelve months, “during which time patients are deprived of more affordable medicines… In essence, the panel’s decision could effectively amount to an unwarranted extension of the thirty-month statutory stay of FDA approval to which generic pharmaceutical manufacturers are subject upon commencement of patent litigation.”

Finally, AAM argues that the Arthrex panel’s remedy was overly broad in response to any supposed constitutional violation and a misapplication of the U.S. Supreme Court’s 2018 decision in Lucia v. S.E.C. The incentive created by SCOTUS in Lucia to raise a constitutional appointments challenge should only extend to one party, here Arthrex, and not to the many parties lifting the same argument used by Arthrex. Further, although Arthrex was excused from raising the Appointments Clause challenge before the PTAB because of the exceptionality of the case, other parties who don’t raise that argument at the PTAB should be deemed to have waived that challenge.

Brief for New York Intellectual Property Law Association in Support of Intervenor’s Petition for Rehearing En Banc

Many of NYIPLA’s approximately 1,000 member attorneys participate in both IPR proceedings before the PTAB and the appeals of those trials to the Federal Circuit. The panel decision in Arthrex raises issues that are important to the heart of PTAB practice and may affect many of the 10,000 PTAB trials conducted as of November 2019 and the greater than 40 percent of the Federal Circuit’s docket that is comprised of PTAB appeals. NYIPLA’s amicus brief  argues that the Federal Circuit should grant en banc rehearing and adopt the formulation of the issues in Arthrex as articulated by the U.S. government’s petition for rehearing.

First, NYIPLA argues that en banc review is required to determine whether APJs are principal or inferior officers. While the Arthrex panel relied upon several Supreme Court cases to reach the determination that APJs are principal officers, each of the SCOTUS decisions relied upon concluded that the officers in question were inferior officers. Only one case, the U.S. Court of Appeals for the D.C. Circuit’s 2012 decision in Intercollegiate Broadcasting System v. Copyright Royalty Board, provided any authority for finding that APJs were principal officers. “[I]n view of the dearth of other supporting authority from the Supreme Court, the full Federal Circuit should address this issue.”

Even if APJs are principal officers, NYIPLA questions whether the removal of tenure provisions was an adequate remedy to cure the Appointments Clause issue. The Federal Circuit’s holding is subject to substantial debate on several issues, including whether the statute’s severance, which only applies to APJs, is an improperly promulgated judicial rewrite; whether the severance is consistent with Congressional intent; and whether that severance is consistent with labor laws and USPTO union contracts. Further, there are questions as to whether the Arthrex decision only applies prospectively or can be applied retrospectively as is contemplated by Dyk’s concurrence in Bedgear.

Like AAM, NYIPLA believes that rehearing of Arthrex is required to confirm how an Appointments Clause challenge can be properly raised by a party to an IPR proceeding. The Arthrex panel determined that it would have been futile to raise that challenge at the PTAB, which doesn’t have the authority to grant relief on such a challenge. However, panel decisions subsequent to Arthrex have evidenced confusion regarding the proper point by which the constitutional argument may be made on appeal. NYIPLA also notes that similar issues are being raised in petitions for rehearing filed by parties to other Federal Circuit cases and the court itself has requested additional briefing on these issues in at least one ongoing case.

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