In Arthrex Ruling, SCOTUS Says Director Review of Decisions, Not Power to Remove APJs, is What Matters

By Eileen McDermott
June 21, 2021

“What matters is that the Director have the discretion to review decisions rendered by APJs. In this way, the President remains responsible for the exercise of executive power—and through him, the exercise of executive power remains accountable to the people.” – Supreme Court plurality opinion in Arthrex

ArthrexThe Supreme Court has issued its ruling in Arthrex v. Smith & Nephew, taking a different approach to curing the statute than did the U.S. Court of Appeals for the Federal Circuit (CAFC) in 2019, and ultimately vacating and remanding the case back to the Acting Director of the U.S. Patent and Trademark Office (USPTO). While the CAFC held that the statute could be severed and rendered constitutional by making Patent Trial and Appeal Board (PTAB) Administrative Patent Judges (APJs) removeable at will, the Supreme Court said that remedy was not sufficient. The Court said: “[R]egardless whether the Government is correct that at-will removal by the Secretary would cure the constitutional problem, review by the Director better reflects the structure of supervision within the PTO and the nature of APJs’ duties.”

The full 72-page ruling was splintered and includes the following sections:

  • Justice Roberts delivered the opinion of the Court with respect to Parts I and II, in which Justices Alito, Gorsuch, Kavanaugh, and Barrett joined;
  • Roberts delivered an opinion with respect to Part III, in which Alito, Kavanaugh, and Barrett joined.
  • Gorsuch filed an opinion concurring in part and dissenting in part.
  • Justice Breyer filed an opinion concurring in the judgment in part and dissenting in part, in which Justices Sotomayor and Kagan joined.
  • Justice Thomas filed a dissenting opinion, in which Breyer, Sotomayor, and Kagan joined as to Parts I and II.

The Federal Circuit’s 2019 decision in Arthrex was authored by CAFC Judge Moore and held that the statutory scheme for appointing APJs to the PTAB violated the Appointments Clause of the U.S. Constitution, as it made APJs principal officers. APJs are appointed by the Secretary of Commerce, but principal officers must be appointed by the U.S. President under the Constitution, Article II, § 2, cl. 2. To remedy this, the statutory removal provisions that had been applied to APJs had to be severed so that the Secretary of Commerce would have the power to remove APJs without cause, said the CAFC.

But the High Court today said that the case must be sent back to the USPTO Acting Director, who will decide whether to rehear Smith & Nephew’s petition for inter partes review (IPR). The Court also held that “because the source of the constitutional violation is the restraint on the review authority of the Director, rather than the appointment of APJs by the Secretary, Arthrex is not entitled to a hearing before a new panel of APJs.”

The plurality opinion held that it is 35 U. S. C. §6(c) that poses the constitutional problem for the PTAB. That provision says that “only the Patent Trial and Appeal Board may grant rehearings” of appeals, derivation proceedings, post-grant reviews, and inter partes reviews. Thus, said the Court, this provision “is unenforceable as applied to the Director insofar as it prevents the Director from reviewing the decisions of the PTAB on his own. The Director may engage in such review and reach his own decision.” The plurality opinion concluded:

Today, we reaffirm and apply the rule from Edmond that the exercise of executive power by inferior officers must at some level be subject to the direction and supervision of an officer nominated by the President and confirmed by the Senate. The Constitution therefore forbids the enforcement of statutory restrictions on the Director that insulate the decisions of APJs from his direction and supervision. To be clear, the Director need not review every decision of the PTAB. What matters is that the Director have the discretion to review decisions rendered by APJs. In this way, the President remains responsible for the exercise of executive power—and through him, the exercise of executive power remains accountable to the people.

Industry comment has begun to roll in and IPWatchdog will publish those reactions soon. While the ultimate remedy is narrow, a number of questions have already been raised by the ruling, including what the broader implications may be for other government agencies that operate similarly to the USPTO; the practicality of USPTO Director review of potentially thousands of decisions; whether giving final say on these decisions to a political appointee is fair; and more. Stay tuned for further coverage.

 

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.

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 as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 4 Comments comments. Join the discussion.

  1. Anon June 21, 2021 1:19 pm

    The Supreme Court “scrivens” its version of “source” – an aspect that NO PARTY before it had advanced – and in the process rewrites the law (as written by Congress) with a result nowhere contemplated or indicated BY Congress.

    How in the world is any single US attorney “OK” with this?

    Is anyone that is “OK” have a sense of Rule of Law and the proper Separation of Powers (and the limitations of Common Law law writing)?

  2. ipguy June 21, 2021 3:03 pm

    Once again the SCOTUS has provided the clarity we have all been clamoring for!

  3. Brian June 21, 2021 4:02 pm

    Is the Director going to rehear both “the petition” and “the FWD” for all the 300+ cases and issue a decision ?

    The rule making says, in the PTAB Process you can have a rehearing at the institution stage and then after FWD, is the SCOTUS decision clear on what is the next step for ALL the cases?

    The decision says “petition” in one paragraph and “final decision” in another paragraph:

    “The Director accordingly may review final PTAB decisions and, upon review, may issue decisions himself on behalf of the Board.”

    “We also conclude that the appropriate remedy is a remand to the Acting Director for him to decide whether to rehear the petition filed by Smith & Nephew.”

  4. Pro Say June 21, 2021 4:41 pm

    Dear Congress,

    You can all resign now.

    The Executive and Judicial branches will take it from here.

    Thank you for your past service.

    Truly yours,

    SCOTUS

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