Federal Circuit Will Not Reconsider Arthrex Appointment Clause Ruling

“Instead of a limited review of weak patents that Director Kappos assured me would amount to no more than 500 cases a year, the AIA has created a tsunami of new cases…. The current judicial squabble over Arthrex and its implications may at least have the virtue of prompting Congressional review on the impact of the PTAB on national innovation policy.” – Judge Randall Rader

denied - https://depositphotos.com/4540592/stock-photo-denied-rubber-stamp.htmlThe U.S. Court of Appeals for the Federal Circuit has denied rehearing en banc in Arthrex v. Smith & Nephew, a decision that made the Patent Trial and Appeal Board’s (PTAB’s) administrative patent judges (APJs) “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. Five of the 12 Federal Circuit judges wrote separately to explain their reasons for denying, or dissenting from denial on, rehearing.

Concurrence with Decision to Deny: Moore, O’Malley, Reyna, Chen

Judge Moore wrote to concur with the denial, and Judges O’Malley, Reyna and Chen joined, saying that granting rehearing “would only create unnecessary uncertainty and disruption.” Moore added that the Arthrex panel followed Supreme Court precedent in concluding that APJs were improperly appointed principal officers, and also followed precedent in its solution which severed a portion of the statute “to solve that constitutional problem while preserving the remainder of the statute and minimizing disruption to the inter partes review system Congress created.”

Moore explained that the Presidentially appointed Director of the USPTO lacks the authority to independently alter or control a PTAB final written decision; thus, prior to Arthrex, APJs had the authority to render a final decision on behalf of the United States without being constitutionally appointed. Further, the “panel…recognized that the Director lacked the powerful tool for control that is the authority to remove APJs at will and without cause.” With respect to the curative severance adopted by Arthrex, which was proposed by the USPTO, Moore stated that the severance “properly retained the portions of the statute necessary to effectuate Congress’ basic objective of providing an agency mechanism where the validity of issued patents may be challenged.” Moore also noted that since APJs are now constitutionally appointed, inter partes review decisions are no longer rendered by unconstitutional panels.

A second concurring opinion was authored by Judge O’Malley, joined by Judge Moore and Judge Reyna. O’Malley agreed with Judge Moore that the Arthrex panel properly concluded that APJs are principal officers who were improperly appointed to their adjudicative positions. O’Malley separately addressed Judge Dyk’s dissent, which set forth that the Arthrex panel’s decision to sever the application of removal protections from the AIA “retroactively renders all APJs decisions constitutional, thereby obviating the need for panel rehearings in any cases decided by the AIA.” O’Malley noted that the dissent confuses the remedy with the constitutional fix necessary to allow APJs to render decisions in future proceedings under the AIA and the “decision that the statute can be rendered constitutional by severance does not remedy any past harm- it only avoids continuing harm in the future.” Thus, O’Malley concluded that the dissent’s attempt to read retroactive application of the severance orders, which were designed to obviate future or ongoing violations, into the cited Supreme Court case law, was misplaced.

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The Dissent: Dyk, Newman, Wallach, Hughes

Judge Dyk wrote to dissent from the denial of rehearing, with Judges Newman and Wallach joining. Judges Hughes and Wallach each also wrote separately.

Judge Dyk said that the Arthrex panel’s approach to remedying the Appointments Clause problem was not consistent with Supreme Court precedent, citing United States v. Booker, 543 U.S. 220, 246 (2005). Severability is only appropriate where the remaining statute would function according to congressional intent, wrote Judge Dyk, but “by eliminating Title 5 removal protections for APJs, the panel is performing major surgery to the statute that Congress could not possibly have foreseen or intended.”

Dyk added that Congress and the USPTO should be given a chance to fix the problem of removal protections for APJs. He traced the history of administrative law judges, who originally did not have removal protections andwere treated like any other agency employee. Many users complained about this arrangement, saying that it made the judges seem like “mere tools of the agency concerned and subservient to the agency heads in making their proposed findings of fact and recommendations,” as articulated in Ramspeck v. Fed. Trial Examiners Conference (1953). To remedy this, Congress included a provision in the Administrative Proccedures Act (APA) that indicated ALJs would be “removable…only for good cause.” While this provision did not protect the ALJs of the PTO, similar concerns led to the same protections being extended to them, and those protections survived the overhaul of patent law with the 2012 America Invents Act (AIA):

In sum, ALJs in general and APJs in particular have been afforded longstanding and continuous protection from removal. The panel gives little weight to the existing statutory protections in its severance analysis. Moreover, here, the provision being partially invalidated is not even part of the Patent Act but is instead in Title 5. Elimination of those protections cannot be squared with Congressional design.

Ultimately, said Judge Dyk, Congress or the USPTO itself could more efficiently and effectively fix the problem.

Dyk also disagreed with the Arthrex panel’s decision to set aside and remand all hearings where the appointments clause issue was properly raised on appeal for a new hearing before a new panel. “Since no Congressional or agency action is required in order to render the appointment of the PTAB judges constitutional, when the PTAB judges decided cases in the past, they did not act improperly. Thus, the past opinions rendered by the PTAB should be reviewed on the merits, not vacated for a new hearing before a different panel.”

Lastly, Dyk said that the question of whether PTAB judges are principal officers remains open to question. PTAB judges do not articulate agency policy and are subject to review by the CAFC. “It is hard for me to see how…review by an Article III court (which severely cabins the authority of PTAB judges) does now prevent PTAB judges from being principal officers,” wrote Judge Dyk. Ultimately, Dyk concluded:

Even if the panel were correct that the present structure of IPR proceedings violates the Appointments Clause, the draconian remedy chosen by the panel—invalidation of the Title 5 removal protections for APJs—rewrites the statute contrary to Congressional intent. That remedy should not be invoked without giving Congress and the United States Patent and Trademark Office (“PTO”) itself the opportunity to devise a less disruptive remedy.

In Judge Hughes’ separate dissent, with whom Judge Wallach also joined, he said that APJs are inferior officers because the USPTO Director has significant control over their activities, but that he also would defer to Congress to fix the problem in any event. In Wallach’s separate dissent, he explained that he disagreed with the original Arthrex decision on the merits. “Given the significant direction to and supervision of an [APJ] by the USPTO Director, an APJ constitutes an inferior officer properly appointed by the Secretary of Commerce,” wrote Judge Wallach.

Unsurprising, But Still Disturbing

IPWatchdog Founder and CEO Gene Quinn said the denial was expected, but unsettling in that it lays bare the discord that has lately characterized the Court:

The Federal Circuit’s decision not to rehear Arthrex en banc is as disturbing as it is unsurprising. Everyone inside the beltway knows that either Congress will enact a so-called Arthrex fix and moot the issue, or that the Supreme Court will take the case because the opportunity to opine on a patent related constitutional issue will be like catnip for the Justices. So, anything the Federal Circuit did beyond what the panel already did would be a complete waste of time and energy. Still, there were five opinions that consumed some 58 pages, either concurring with the decision or dissenting from the denial to rehear the case en banc.

The sole reason the Federal Circuit was created some 40 years ago was to bring certainty and stability to patent law. This court has horribly failed the industry by refusing to agree on anything. For a court that claims to be so overworked that it must dispose of literally half of its docket with one-sentence Rule 36 summary affirmances, spending so much time and energy across 58 pages of completely meaningless analysis and disagreement goes beyond unconscionable.

Clearly, the Federal Circuit panel that decided the Arthrex case overstepped its bounds and did not have the authority to turn Administrative Patent Judges into employees at will. But at the end of the day that simply doesn’t matter. The Patent Trial and Appeal Board must be preserved at all costs and will be, either by Congress or a Supreme Court decision ratifying the original panel.

Chief Judge Randall Rader (CAFC, ret.) at the AIPLA annual meeting in 2014.Retired Federal Circuit Chief Judge Randall Rader had this to say about it:

With four judges dissenting, the Federal Circuit declines to review en banc its controversial decision in ARTHREX.  While the court split on questions of the status of PTAB ALJs and also of the proper correction for a breach of the Constitution’s Appointments Clause,  the real issue is far more fundamental: Does review by the PTAB open a “second window” that potentially casts a cloud of legal uncertainty over every issued patent for its entire life?  Congress enacted the AIA only after agreeing that it had closed this “second window.” Instead of a limited review of weak patents that Director Kappos assured me would amount to no more than 500 cases a year, the AIA has created a tsunami of new cases.  Indeed, every patent important enough to give rise to District Court litigation now must survive delays and proceedings far beyond the rejected “second window.” The current judicial squabble over ARTHREX and its implications may at least have the virtue of prompting Congressional review on the impact of the PTAB on national innovation policy.

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The Author

Eileen McDermott

Eileen McDermott is the Editor-in-Chief of IPWatchdog.com. Eileen is a veteran IP and legal journalist, and no stranger to the intellectual property world, having held editorial and managerial positions at several publications and industry organizations. She has acted as editorial consultant for the International Trademark Association (INTA), chiefly overseeing the editorial process for the Association’s twice-monthly newsletter, the INTA Bulletin. Eileen has also served as a freelance editor for the World Intellectual Property Organization (WIPO); as senior consulting editor for the Intellectual Property Owners Association (IPO) from 2015 to 2017; as Managing Editor and Editor-in-Chief at INTA from 2013 to 2016; and was Americas Editor for Managing Intellectual Property magazine from 2007 to 2013.

Eileen McDermott

Rebecca Tapscott is an intellectual property attorney who has joined IPWatchdog as our Staff Writer. She received her Bachelor of Science degree in chemistry from the University of Central Florida and received her Juris Doctorate in 2002 from the George Mason School of Law in Arlington, VA.

Prior to joining IPWatchdog, Rebecca has worked as a senior associate attorney for the Bilicki Law Firm and Diederiks & Whitelaw, PLC. Her practice has involved intellectual property litigation, the preparation and prosecution of patent applications in the chemical, mechanical arts, and electrical arts, strategic alliance and development agreements, and trademark prosecution and opposition matters. In addition, she is admitted to the Virginia State Bar and is a registered patent attorney with the United States Patent and Trademark Office. She is also a member of the American Bar Association and the American Intellectual Property Law Association.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 21 Comments comments. Join the discussion.

  1. Josh Malone March 23, 2020 2:53 pm

    This whole thing is nonsense.

    1. Over 2,100 patents were invalidated by illegal judges before the Arthrex “fix”. It is not any different than if the janitor had signed the decisions. They had no authority to invalidate patents.

    2. Over 100 patents have been invalidate subsequent to the Arthrex “fix”. Yet it is exactly the same pool of APJs as before! Many lack technical expertise, have apparent conflicts of interest, and were selected by Michelle Lee for their anti-patent bias. They continue to overruled examiners and Article III courts and invalidate and extremely high percentage of patents. How can this be considered a “fix”?

    3. Giving the Director removal authority does not make them inferior officers. They still make the final decision for the agency. This is not the practice of any other agency accept the Consumer Financial Protection Board, which is soon to be struck down by SCOTUS.

    This effort to sweep the corruption under the rug will fail.

  2. Pro Say March 23, 2020 5:01 pm

    SCOTUS / Congress: Arthrexit.

    Cure the unconstitutional cancer that is the PTAB.

  3. Ternary March 23, 2020 10:29 pm

    “… granting rehearing “would only create unnecessary uncertainty and disruption.” ” What do we have now? Necessary uncertainty?

    It has become an invalidation mill, with the CAFC rubber stamping PTAB invalidations under Rule 36, with no explanation to the inventor community and providing no certainty whatsoever. The only certainty appears to be that you most likely will lose your patent on a willy-nilly basis, with not a sliver of certainty for reasonable recourse.

    Chief Judge Rader has it right: “… that potentially casts a cloud of legal uncertainty over every issued patent for its entire life?” He should drop the question mark.

  4. Steve March 24, 2020 5:37 am

    Surprised to see Newman on the dissenter’s list….but now it’s clear to me who the patent pirates like:
    The Dissent: Dyk, Newman, Wallach, Hughes

  5. ValuationGuy March 24, 2020 8:25 am

    I wasn’t surprised to see Newman dissent….as i don’t think she felt the original decision was much good. My personal opinion is that she joined the dissent that best suited her views of the original decision rather than waste her resources writing a separate dissent. She is 95 now….and as Gene made clear (and Rader (and Gene’s friend former Chief Judge Michel) somewhat confirmed)…none of the CAFC judges reasoning is going to prevent either Congress or the SCOTUS from weighing in now.

  6. Anon March 24, 2020 8:50 am

    Steve,

    Even a giant sleeps, but the views from that giant that is Newman are based more on her application of the underlying law and less on ultra vires ideological drivers.

    Perhaps a better litmus test was the last en banc discussion related to 101, and what the CAFC revealed as to the ‘Simians in a cage, being trained with a fire hose’ effect of interacting with Supreme Court fire-hosing.

  7. TFCFM March 24, 2020 11:09 am

    Puff and blow. There’s no question that Congress absolutely, positively intended to create the PTAB in essentially its current form and to practice essentially as it currently does. That Congress failed to perfectly cross every ‘T’ and to perfectly dot every ‘I’ does not justify throwing out the entire system and requiring Congress to start from scratch — all the more so when a simple, workable fix essentially makes the alleged (but fake) “problem” go away.

    The panel’s decision does precisely what the US Supreme Court says it should have done. Moreover, folks who disagree now have the opportunity to point out to that same Supreme Court how, they allege, this is not so. (Congress also retains the authority to change any part of the ‘fix’ it dislikes.)

    Much ado about nonsense.

  8. Night Writer March 24, 2020 11:52 am

    I guess what is getting me about this is that the structure of the work relationship was determined by Congress and the President.
    If the court says that such a person cannot perform the duties that the Congress and President are having them do, then I think that should be the end of it. Congress and the President then should have to restructure the relationship.
    Everything that the employee did to that point was under the old relationship so the idea that somehow this cures what happened before is fiction.
    And so what you have is a problem at a fixed point in time. Congress and the President are supposed to fix that not the courts particularly at this level.
    But I guess the bizarre thing about this is that somehow everything the patent judges up to this point is supposedly OK since now the relationship has been changed by a judge. That is on its face ridiculous.

  9. Brad Olson March 24, 2020 12:09 pm

    I really enjoy it when Gene opens up a cold can of Whoop. He raises an interesting point on the apparent level of collegiality at the Court gleaned from his review of the medley of rehearing denial opinions. It will likely be the SCOTUS that issues a “wait till your father gets home” type of opinion that we will all have to live with going forward. Stay healthy everyone.

  10. Anon March 24, 2020 1:19 pm

    all the more so when a simple, workable fix essentially makes the alleged (but fake) “problem” go away.

    Ever hear of Rule of Law, TFCFM? Your posts continue to carry that ‘Ends justify the Means’ vibe that places you with some very disreputable blog commentators.

  11. Martin Nguyen March 24, 2020 2:09 pm

    Thank you Brad @9 for reminding us to “stay healthy”.
    During these days, I think we should also find a way to prepare and help, especially the US economy after this “Coronavirus crisis” is over. With that in mind, I believe promoting US small businesses could be the number one reason since small businesses are the driving force for our economy. And IP protections play a major role to motivate small business owners to take risks.
    So, let us ask the Congress to work together to promote US small businesses.
    Best wishes to you all and be safe!

  12. TFCFM March 25, 2020 11:23 am

    Anon@#10: “Your posts continue to carry that ‘Ends justify the Means’ vibe…

    I apologize if my “vibe” disturbs your groove or makes me appear to be less than a hep cat.

    The issue is simply how to handle an imperfectly-crafted statute when Congressional intent is clear. If we made Utter, Unassailable Perfection the standard for enforcing any statutory scheme, we’d be essentially without any statutes (statutes being drafted by unavoidably imperfect human beings). Surely, a badly-enough-fouled-up statutory scheme might well be discarded in such a situation, justifiably requiring Congress to re-start from scratch.

    In a situation such as this, however, where the intent of Congress was clear, where the overwhelming majority of a statutory scheme unquestionably satisfies Constitutional requirements, and where a minor fix to a trivial feature of that scheme corrects a Constitutional mere-informality, a judicial fix — of the sort precisely prescribed by the Supreme Court — is appropriate.

    At most, if review of the current fix is appropriate, that rule ought to be by the Supreme Court the proposed the ‘fixing’ rule, rather than by the same judges who applied the ‘fix,’ joined by a few colleagues. If the ‘fix’ is questionable (and I don’t disagree that it is), the question is best answered by the judicial gods who created the ‘elephant’ (the how/if-to-fix rule) than by additional blind men attempting to describe that ‘elephant’.

  13. Night Writer March 25, 2020 3:09 pm

    @12 TFCFM

    Stunning nonsense. PR at it finest and worse. For example,

    “If the ‘fix’ is questionable (and I don’t disagree that it is), the question is best answered by the judicial gods who created the ‘elephant’ (the how/if-to-fix rule) than by additional blind men attempting to describe that ‘elephant’.”

    Probably not a single person that understood the Constitution would agree with that.

  14. Anon March 25, 2020 4:41 pm

    TFCFM,

    What you may want to be referring to (even if you don’t quite get there) is the statutory presumption of severability.

    That may — and critically, may NOT — apply to the massive legislation package known as the AIA.

    This has been an ongoing discussion on this and other blogs since the AIA was passed.

    Note as well that the measures taken here are NOT mere ‘interpretation,’ but actively rise to re-writing of legislature.

    You profess to be an attorney right? You should have a better handle on Separation of Powers.

  15. TFCFM March 26, 2020 10:22 am

    Anon@#14: “That [severability] may — and critically, may NOT — apply to the massive legislation package known as the AIA.

    We don’t disagree on that point. The first layer of appellate courts has ruled (rightly or wrongly) that severability applies. Kicking the issue around some more in that first layer is not going to determine the correctness of that ruling. Instead, kicking the ruling up to the next level (Supreme Court) will do so. THAT is why this decision is a no-brainer.

    Anon: “…the measures taken here are NOT mere ‘interpretation,’ but actively rise to re-writing of legislature

    What the Federal Circuit purports to have done is the sort of judicial re-writing that the Supreme Court has (apparently, at least) authorized and required. Again, whether the Federal Circuit’s action comports with Supreme Court precedent is a question for the Supreme Court, not the Federal Circuit which is — again — why the next review is appropriately at the Supreme Court level.

    (This latter point also raises the issue I originally mentioned — that Utter Perfection cannot be the standard, else even a single typo or trivial inconsistency would doom the most carefully-crafted legislation. Were that the standard, it is questionable whether any law enacted in the history of our Republic could withstand such scrutiny. There is also no basis for applying so outrageously-rigorous a standard ONLY to laws you dislike.)

  16. TFCFM March 26, 2020 10:30 am

    TFCFM@#12: “If the ‘fix’ is questionable (and I don’t disagree that it is), the question is best answered by the judicial gods who created the ‘elephant’ (the how/if-to-fix rule) than by additional blind men attempting to describe that ‘elephant’.

    TW@#13: “Probably not a single person that understood the Constitution would agree with that.

    I’ll admit it’s not the clearest thing I’ve ever written, but it attempts to analogize the tale of The-Blind-Men-and-the-Elephant with interpretation of judicial precedent, rather than with “the Constitution.”

    To put it another way, the Supreme Court has made a rule about situations in which judicial revision to a statute is an appropriate judicial practice. The Federal Circuit (obviously bound by Supreme Court precedent) purports that it has correctly understood and applied the Supreme Court’s rule in a three-judge-panel decision. Some other judges not on the panel aren’t sure that the rule was understood/applied correctly. Clarity will more likely emerge from having the court that made the rule (the Supreme Court) decide whether the rule has been correctly understood and applied than from having the lower-court judges quibble and speculate about those issues.

    “The Constitution” is substantially irrelevant to this observation (other than that it recognizes that Federal Circuit is among the courts that are “inferior” to the Supreme Court).

  17. Anon March 26, 2020 11:53 am

    The first layer of appellate courts has ruled (rightly or wrongly) that severability applies

    I do not think that they have so ruled — directly. A de facto application is not the same as a holding, and I do not recall if the question has been squarely put to ANY court as of yet (it remains a matter of first impression, and full arguments have NOT been heard).

    is not going to determine the correctness of that ruling

    That’s why it needs to actually be addressed front and center.

    Instead, kicking the ruling up to the next level (Supreme Court) will do so. THAT is why this decision is a no-brainer.

    The SC is NOT likely to tackle this – for several reasons, one of which is ripeness, and another is avoidance of Constitutional questions.

    the sort of judicial re-writing that the Supreme Court has (apparently, at least) authorized and required

    We will agree to disagree, at least in part because this merely sidesteps the proper application of Common Law law writing, and if directly argued would not likely survive on the merits.

    Again, whether the Federal Circuit’s action comports with Supreme Court precedent is a question for the Supreme Court, not the Federal Circuit which is — again — why the next review is appropriately at the Supreme Court level.

    Your error on lack of seeing the issue as unripe (and still a matter of first impression) ruins your position here.

    Were that the standard

    You seem unaware that the standard default presumption of severability can indeed be lost by the actions of Congress. Your point here then turns to be a non sequitur to resolving any actual issue of whether or not severability applies — PER CONGRESS. As I mentioned, this topic has been addressed many times in the past (and by me, in extensive detail). May I suggest that you do a little legwork before throwing your hat in the ring?

    There is also no basis for applying so outrageously-rigorous a standard ONLY to laws you dislike

    You triple down in error with this single statement that shows YOUR feelings. First, there ARE plenty of basis for applying what is second NOT an ‘so outrageously-rigorous a standard, and third, my liking or disliking has NOTHING to do with the legal points at hand.

    “The Constitution” is substantially irrelevant to this observation (other than that it recognizes that Federal Circuit is among the courts that are “inferior” to the Supreme Court).

    Another clear error on your part, as Separation of Powers is clearly a Constitutional aspect in play here.

    Thanks for striking out so many times in one at bat.

  18. TFCFM March 27, 2020 9:40 am

    Anon@17: “Your error on lack of seeing the issue as unripe…”

    This statement, better than any other, demonstrates that you either are not reading or are not understanding (deliberately or otherwise) what I write.

    I am *precisely* arguing that the issue is ripe for appellate review (and the Supreme Court is the proper appellate body).

    (Moreover, the Supreme Court is not bound by you waving the vague flag of “common law!!!!”)

    Both your replies and my replies to you are mere-wastes-of-keystrokes. I envy the free time you obviously have to tap out such wordy, unintelligible masses of jargon slaw.

  19. Anon March 27, 2020 12:11 pm

    This statement, better than any other, demonstrates that you either are not reading or are not understanding (deliberately or otherwise) what I write.

    I am *precisely* arguing that the issue is ripe for appellate review (and the Supreme Court is the proper appellate body).

    And you would be precisely wrong — for the reasons that I have given.

    Before you toss that stone of ‘did not read” from your lofty perch in your glass house, you had better read the item you are responding to first.

    The issue has NOT been directly before the lower court, and the issues have NOT been argued to (both for and against).

    You are free to characterize your own keystrokes in any way you want to. You are not free to label my inputs in that manner.

  20. TFCFM March 30, 2020 9:22 am

    Puff. Blow. Repeat.

    (Yawn)

  21. Anon March 30, 2020 2:40 pm

    TFCFM,

    For you, the reply is merely to note your modus operandi:
    BS, Run Away, Repeat.

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