Federal Circuit Issues Several Rulings Defining Contours of Arthrex Decision

By Steve Brachmann
May 17, 2020

“The Federal Circuit’s recent decisions show several limits to the impact of Arthrex, which has spurred a large number of PTAB appeals since the Court denied a motion to stay issuance of the Arthrex mandate this March.’”

federal circuitRecently, the U.S. Court of Appeals for the Federal Circuit has issued several rulings defining some of the contours of the impact of its decision last year in Arthrex v. Smith & Nephew, in which the Federal Circuit found that administrative patent judges (APJs) at the Patent Trial and Appeal Board (PTAB) had been unconstitutionally appointed because they were principal officers under the Appointments Clause. The Federal Circuit’s recent decisions show several limits to the impact of Arthrex, which has spurred a large number of PTAB appeals since the Federal Circuit denied a motion to stay issuance of the Arthrex mandate this March, requiring the PTAB to conduct remanded proceedings under the case.

Ciena Corp. v. Oyster Optics: Petitioners Cannot Seek Remand Under Arthrex

On May 5, the Federal Circuit denied a motion to remand to the PTAB under Arthrex in Ciena Corporation v. Oyster Optics. In denying the motion to remand  filed by Ciena last November, the Federal Circuit explained that Ciena did not have the ability to request a remand to the PTAB under Arthrex because Ciena was the party petitioning the PTAB for a validity trial and not the patent owner in the case. By affirmatively seeking the PTAB as a forum to adjudicate the validity of a patent asserted against it in district court, Ciena forfeited its right to challenge the legality of the PTAB’s ruling under the Appointments Clause.

In its reply in support of its motion to remand , Ciena cited a pair of decisions from the U.S. Supreme Court which it believed compelled the Federal Circuit to consider its appeal. In both Commodity Futures Trading Commission v. Schor (1986) and Freytag v. Commissioner (1991), the Supreme Court forgave waivers to constitutional challenges because of potential structural concerns regarding the separation of federal powers. However, the Federal Circuit determined that, although Schor and Freytag support the idea that courts can forgive waivers if structural constitutional concerns are implicated, the court was not compelled to do so and should only exercise such discretion in rare cases. The Federal Circuit noted that in Freytag, the Supreme Court exercised its own discretion and didn’t find that the U.S. Court of Appeals for the Fifth Circuit had erred by not addressing the Appointments Clause challenge in its earlier decision. Further, the Federal Circuit had already held that appeals under Arthrex could be waived in a per curiam order issued the day after the Arthrex decision was issued.

The Federal Circuit also found that Ciena’s consent to the PTAB’s jurisdiction doomed its appeal even if the appellate court decided to hear Ciena’s constitutional challenge. As in Schor, U.S. district court existed as an alternative venue for Ciena and Schor found that separation of powers concerns are reduced when a party invoked a forum of its own volition. Consent to that forum was a large factor in the Court ultimately denying the constitutional challenge in Schor. While Schor involved proceedings at the Commodity Futures Trading Commission, the Supreme Court has extended that holding to bankruptcy court proceedings as well as voir dire conducted by a magistrate judge. Any constitutional challenge brought by Ciena was extinguished both by consent to the PTAB’s jurisdiction and filing a stay of the district court proceedings, the Federal Circuit found.

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Caterpillar Paving v. Wirtgen America: No Remand for Final Decisions Issued After Arthrex

On May 6, the Federal Circuit issued a short opinion dismissing a motion to vacate and remand a PTAB ruling in Caterpillar Paving Products v. Wirtgen America. In this ruling, the Federal Circuit further cabined the impact of Arthrex by finding that APJ appointments became constitutional through Arthrex’s severance of statutory removal provisions which had limited the Secretary of Commerce’s ability to remove APJs. The Federal Circuit found that Arthrex immediately cured the constitutional defect under the Appointments Clause, preventing parties from seeking remand even if a portion of the PTAB proceedings being appealed occurred prior to the Arthrex decision.

The Federal Circuit found that Arthrex’s ruling was expressly limited to appeals from the PTAB where final decisions were issued prior to Arthrex being published last October. Caterpillar argued that the ruling didn’t “cure a year’s worth of constitutional violations influencing the Board’s thinking and conclusions.” However, in Arthrex, the Federal Circuit wrote that the impact of the ruling in that case was “limited to those cases where final written decisions were issued and where litigants present an Appointments Clause challenge on appeal.”

In its response to Caterpillar’s motion to remand , Wirtgen argued that Caterpillar had forfeited any right to make a constitutional challenge under Arthrex because it never raised such a challenge to the PTAB at any point of the proceedings. Caterpillar could have asked the PTAB the review the constitutionality of the institution decision in the two weeks between the Arthrex ruling and the PTAB’s final decision appealed by Caterpillar. Wirtgen also attacked the merits of Caterpillar’s argument that Arthrex was applicable to institution decisions or oral hearings at the PTAB as Arthrex was only directed at final decisions.

VirnetX v. Cisco Systems: Freytag Extends Arthrex to Inter Partes Reexaminations

Then, on May 13, the Federal Circuit issued a pair of orders denying petitions for rehearing in VirnetX v. Cisco Systems. In these rulings, the Federal Circuit affirmed an earlier decision to extend Arthrex and apply it to PTAB proceedings beyond inter partes review (IPR), including inter partes reexaminations. The Federal Circuit rejected arguments from Cisco and the U.S. Patent and Trademark Office that APJs should be considered constitutionally appointed when working on reexams.

The Federal Circuit, citing to Freytag, noted that the court should analyze the authority exercised by an appointee in all of the appointee’s duties when assessing a constitutional challenge under the Appointments Clause. The appellate court found that Freytag stood for the proposition that, if an appointee’s exercise of authority was unconstitutional because of the authority exercised in performing some duties, then all agency actions rendered by that appointee are subject to vacatur. The Federal Circuit did say, however, that Freytag doesn’t necessarily make Arthrex applicable to all PTAB proceedings, noting the similar nature of IPRs and inter partes reexams both in terms of final decisions from APJs on patent eligibility and the limited oversight power of the USPTO Director.

In its motion to remand , VirnetX noted that Arthrex drew an important distinction between APJs and their statutory predecessors, Examiners-in-Chiefs. Those officials had been subject to Presidential confirmation and Senate approval prior to 1975 amendments to Title 35, despite the fact that today’s APJs wield significantly more authority. In VirnetX’s reply in support of its motion to remand , it pointed out that, even if Cisco was correct to argue that the Appointments Clause analysis was function-specific, Cisco didn’t offer any principled distinction between the roles performed by an APJ in IPRs and inter partes reexams. In denying the petitions for rehearing, the Federal Circuit agreed, noting that Cisco was unable to show a mechanism by which the USPTO Director could review APJ decisions in reexams.

 

The Author

Steve Brachmann

Steve Brachmann is a freelance journalist located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He writes about technology and innovation. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients and is available for research projects and freelance work.

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.

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There are currently 3 Comments comments. Join the discussion.

  1. Josh Malone May 17, 2020 1:34 pm

    The correct answer is to send them through Senate confirmation like real judges do. Many will fail, but that is the point.

  2. Anon May 18, 2020 6:50 am

    I think that a rather large elephant in the room is whether or not the judicial branch itself has the Constitutional power to cure a Constitutional problem by directly re-writing statutory law with the view that their re-write is what “Congress would have chosen to do.”

    ALL subsequent “contouring” is suspect if the first act is ultra vires.

  3. jacek May 18, 2020 12:24 pm

    No question that Arthrex will stay with us until Congress takes action.
    Quick question. What do you think is the reason for the recent drop in IPR instituted by PTAB, recently reported by Unified Patents? Is it the political calculation to avoid ever-increasing public scrutiny?

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