Are administrative patent judges principal officers of the United States under the Appointments Clause, and if so, how should the Court remedy their unconstitutional appointment?
This case asks the Supreme Court to decide whether administrative patent judges are principal or inferior officers under the Appointments Clause. If administrative patent judges are principal officers, the court must also determine the proper remedy for the Appointments Clause violation. Administrative patent judges are executive officers in the U.S. Patent and Trade Office (“USPTO”) who are appointed by the Secretary of Commerce in consultation with the Director of the USPTO (the “Director”). Petitioners United States and Smith & Nephew argue that the Federal Circuit erred in holding that the APJs are principal officers. The United States and Smith & Nephew contend that they are inferior officers because the Director—a principal officer—extensively supervises their work. The United States contends that the Federal Circuit’s remedy of severing the portion of the statute that protected the APJs from being removed except for good cause was appropriate. In contrast, Smith & Nephew contend Arthrex is only entitled to a declaratory judgment, but if the Court grants relief beyond a declaratory judgment, Smith & Nephew agree with the Federal Circuit’s severance remedy. Respondent Arthrex counters that APJs are principal officers because they render decisions on behalf of the United States that are not subject to review by a superior Executive officer. Arthrex further argues that if APJs are principal officers, the Court’s remedy should be to invalidate the entire inter partes review system and allow Congress to fix it as they see fit. This case has drastic implications for past patentability decisions and how patents are reviewed moving forward.
Questions as Framed for the Court by the Parties
(1) Whether, for purposes of the Constitution’s appointments clause, administrative patent judges of the U.S. Patent and Trademark Office are principal officers who must be appointed by the president with the Senate’s advice and consent, or “inferior Officers” whose appointment Congress has permissibly vested in a department head; and (2) whether, if administrative patent judges are principal officers, the court of appeals properly cured any appointments clause defect in the current statutory scheme prospectively by severing the application of 5 U.S.C. § 7513(a) to those judges.
Arthrex Inc. (“Arthrex”), a medical device company, owned the ’907 patent over a surgical assembly used to repair bone tissue. United States v. Arthrex Inc. at 1325. In 2018, Smith & Nephew, Inc. filed a petition for inter partes review of the patent to a three-member panel of the Patent Trial and Appeal Board (“PTAB”), challenging the patentability of the ‘907 patent. The PTAB consists of the Director, the Deputy Director of the USPTO, the Commissioner for Patents, the Commissioner for Trademarks, and administrative patent judges (“APJs”). The Director is the only officer on the PTAB that is appointed by the President and confirmed by the Senate. APJs are officers who are appointed by the Secretary of Commerce (the “Secretary”). Id. at 1326 n.2. In this case, the panel consisted of three APJs who ruled in favor of Smith & Nephew, finding the ‘907 patent unpatentable. Id. at 1326.
Arthrex appealed the PTAB’s ruling that claimed the surgical device was unpatentable to the United States Court of Appeals for the Federal Circuit (“Federal Circuit”). Id. at 1325. Arthrex claimed, inter alia, that APJs are principal officers and must be appointed by the President with the advice and consent of the Senate. Id. Since they were appointed by the Secretary, Arthrex claimed their appointment was an unconstitutional violation of U.S. Const. art. II, § 2, cl. 2, also known as the Appointments Clause. Id.
In October 2019, the Federal Circuit agreed with Arthrex. Relying on Edmond v. United States, the Federal Circuit focused on three factors to determine that APJs are principal officers: review power, removal power, and supervisory power. After finding that two of three factors, removal power and review power, weighed in favor of finding the APJs as principal officers, the Federal Circuit concluded that the APJs were, in fact, principal officers.
To remedy the Appointments Clause issue, the Federal Circuit followed the Supreme Court’s approach in Free Enterprise Fund v. Public Company Accounting Oversight Board and invalidated the provision in the Patent Act that limited the Secretary’s ability to remove the APJs. Id. at 1337. In other words, the remedy made the judges removable at will. Id. The Federal Circuit opted for this approach because it reasoned that Congress would have preferred to retain the APJs without any removal protections than to have invalidated the entire patent system. Id. Following the Supreme Court’s recent decision in Lucia v. SEC, the Federal Circuit then remanded Arthrex’s case for a new hearing in front of a new panel of the PTAB. Id.
On October 13, 2020 the United States Supreme Court granted certiorari to hear this case.
APPROPRIATE TEST TO ESTABLISH A PRINCIPAL OR INFERIOR OFFICER
Petitioners United States and Smith & Nephew (“Petitioners”) argue that, under Edmond v. United States, courts should apply a context-specific approach to determine whether an officer is “sufficiently supervised” to be an inferior officer. Brief for Petitioner, the United States at 20; Opening Brief for Petitioner, Smith & Nephew, Inc. and Arthrocare Corp. at 20. According to Petitioners, this approach entails looking at the “supervisory structures as a whole,” as opposed to any specific individual factors, to determine whether an officer, to quote Edmond, is “directed and supervised at some level.” Opening Brief for Smith & Nephew, Inc. and Arthrocare Corp. at 32; see also Brief for the United States at 20. Petitioners state that this approach is consistent with the original meaning of the Appointments Clause and broader separation of powers principles. Brief for the United States at 19–20, 24–25; Opening Brief for Smith & Nephew, Inc. and Arthrocare Corp. at 20–23. The United States points out that when the first Congress created early offices in the Executive Branch, inferior officers were officers whose critical characteristic was that they were subordinate to, and supervised by, a principal officer. Brief for the United States at 19–20. Relatedly, Smith & Nephew states that founding-era dictionaries define “inferior” along the lines of a subordinate relationship, and the use of the term “inferior” in other parts of the Constitution is consistent with that definition. Opening Brief for Smith & Nephew, Inc. and Arthrocare Corp. at 20–22. The United States further contends that by adopting this approach, the Court would respect Congress’s broad power to create a federal office and define that office’s powers. Brief for the United States at 24.
Respondent Arthrex maintains that, under Edmond, an officer is a principal officer if that officer can render a decision on behalf of the United States that is not subject to further executive review. Brief for Respondent, Arthrex, Inc. at at 16–17. Arthrex argues that this inquiry advances the main purpose of the Appointments Clause, which is to ensure the public is able to hold the Executive Branch accountable for its officers’ decisions. Id. at 17–18. Arthrex, citing to Alexander Hamilton’s writings in the Federalist Papers, contends the Appointments Clause requires the President’s involvement when appointing principal officers to ensure that the public knows the President is responsible for that officer’s nomination; if the public is unhappy with that officer’s decisions, it will know to hold the President accountable. Id. at 17. For inferior officers, however, Arthrex states the Appointments Clause does not require Presidential involvement because inferior officers are “supervised and controlled by” by the presidentially‑nominated principal officers. Id. at 17–18. Thus, Arthrex concludes that any officer making a final decision must be appointed by the President because the public must ultimately be able to hold the President accountable for that officer’s decision. Id. at 18. Arthrex contends that if an inferior officer were able to make a final decision that the public disagreed with, the public would have no one to hold accountable for that decision. Id.
STATUS OF ADMINISTRATIVE PATENT JUDGES
Petitioners United States and Smith & Nephew contend that APJs are inferior officers because their work is directed and supervised by two principal officers: the Director of the USPTO and the Secretary. Brief for the United States at 16; Opening Brief for Smith & Nephew, Inc. and Arthrocare Corp. at 19. Petitioners argue that the Secretary and the Director possess a range of tools to supervise and direct the APJs’ work. Brief for the United States at 25–26; Opening Brief for Smith & Nephew, Inc. and Arthrocare Corp. at 25. For instance, Petitioners point out that the Secretary has control over how APJs are appointed and removed, and the Director has the power to refuse to assign an APJ to any case through the Director’s assignment power. Brief for the United States at 27–29; Opening Brief for Smith & Nephew, Inc. and Arthrocare Corp. at 26–28. In combination with other supervisory powers, Petitioners contends that APJs are subject to at least as much supervision as the Coast Guard of Criminal Appeals judges, who were deemed inferior officers in Edmond. Brief for the United States at 26; Opening Brief for Smith & Nephew, Inc. and Arthrocare Corp. at 27.
Respondent Arthrex contends that APJs are principal officers because they are able to render a final decision on behalf of the USPTO that is not subject to further executive review. Brief for Respondent at 19. Arthrex argues that Edmond established that administrative judges who can issue decisions that are not subject to further executive review or modification from a supervisor are principal officers. Id. at 20. Arthrex points out that APJ decisions are not appealable to anyone in the Executive Branch; rather, their decisions are only appealable to the Federal Circuit, an Article III court. Id. at 23. In addition, Arthrex argues that only the PTAB can grant rehearings of prior decisions; since each panel of the Board must consist of at least three members, and it is only possible for one principal officer, the Director, to sit on the panel, no principal officer is singly able to review or reverse a final decision by the PTAB. Id. Arthrex thus maintains that APJs’ final decisions, in their capacity on the PTAB, are insufficiently reviewed by a principal officer and that they therefore must be principal officers. Id.
REMEDY FOR UNCONSTITUTIONAL APPOINTMENT
Petitioner United States argues that if APJs are unconstitutionally appointed principal officers, the Supreme Court should uphold the Federal Circuit’s remedy of severing the APJ’s tenure protections. Reply and Response Brief for Petitioner, the United States at 31. The United States argues that severing the removal restrictions would be the “narrowest possible modification to the scheme Congress created.” Id. The United States contends that the approach Arthrex advocates for—holding the current inter partes review regime unconstitutional—is unsound. Id. at 34. The United States maintains that, contrary to Arthrex’s claims, severing the tenure-restrictions remedies the constitutional violation and is consistent with Congress’s intent. Id. Moreover, the United States argues that making APJs removable at-will provides adequate supervision of their work and Congress has a history of allowing agency heads who are removable at-will to decide cases. Id.
Petitioner Smith & Nephew argues that if APJs are principal officers, the only relief the Court should grant is a declaratory judgment; if the Court grants relief beyond a declaratory judgment, Smith & Nephew contend that it should uphold the Federal Circuit’s severance remedy. Response and Reply Brief for Petitioner, Smith & Nephew, Inc. and Arthrocare Corp. at 36, 44. Smith & Nephew argue Arthrex is not entitled to anything other than a declaratory judgment because Arthrex did not raise its Appointments Clause challenge before the agency. Id. Smith & Nephew point out that the general rule in Appointments Clause cases is that the challenger is only entitled to additional relief beyond the merits of its Appointments Clause challenge when it makes a timely challenge. Id. at 37–39. Here, however, Smith & Nephew state Arthrex did not raise the issue before the APJ Board, and therefore it is not timely. Id. But if the Court grants Arthrex further relief, Smith & Nephew contend that it should uphold the Federal Circuit’s severance remedy because severing tenure protections was the narrowest remedy to fix the constitutional problem. Id. at 44–45. Further, Smith & Nephew points out that in recent cases involving similar separation of powers problems, the Court has opted to sever portions of the relevant statutory regime to remedy the constitutional problem. Id. at 45.
Respondent Arthrex argues that the Federal Circuit erred in severing the APJ’s tenure restrictions, and instead, the Supreme Court should hold the inter partes review regime unconstitutional. Brief for Respondent at 45, 59. Arthrex contends that APJs remain principal officers even without tenure protections; moreover, severing the tenure protections is not consistent with Congress’s intent. Id. at 45, 47. Arthrex states that, even with the Federal Circuit’s remedy, APJs are still principal officers because they are still able to issue decisions that are not subject to further review by a principal officer. Id. at 45. Arthrex argues that even though APJs can now be fired at will, they are still able to speak on behalf of the USPTO. Id. To adequately supervise APJs, Arthex contends principal officers must be able to review their decisions. Id. But because Arthrex maintains that there are various ways in which the issue regarding “lack of review” can be remedied, it believes that the court should dismiss the entire inter partes review system and let Congress fix the problem. Id. at 59.
Regarding congressional intent, Arthrex argues that Congress would not have created an agency regime where APJs do not have tenure protection or review by a principal officer. Id. at 45. As evidence, Arthrex points out that Congress has historically considered removal protections to be critical to ensuring impartiality among adjudicators, and impartiality is essential for APJs. Id. at 48, 52–53. Thus, Arthrex maintains, not only does severing tenure protections not fix the problem, it is also contrary to congressional intent. Id.
PATENT QUALITY AND MARKET ECONOMICS
The Association for Accessible Medicines (“AAM”), in support of the United States, maintains that eliminating the entire inter partes review system, as Arthrex requests, would increase litigation and reduce patent quality overall, which would facilitate monopolies in certain patent-heavy markets like medicine and technology. See Brief of Amicus Curiae Association for Accessible Medicines, in Support of Petitioners at 5. Because, on average, the USPTO only has “about 20 hours to evaluate a patent application,” PTAB offers a more exhaustive evaluative framework to the hasty ex parte proceeding of the USPTO. Id. For example, in the pharmaceutical context AAM argues that, but for the expeditious and rigorous procedure of the PTAB, many inadequate drug patents would be confirmed, potentially flooding the market with bad patents. Id. AAM maintains this would trigger additional litigation, causing delays in market drug entry that would correspondingly drive up the prices of generics given the reduced competition. Id. at 10. AAM further contends that without the comprehensive PTAB scheme, certain biologic drugs, for instance, would much more easily monopolize their share of the market. Id. at 11. AAM asserts that competitors would then be squeezed out of the market because their patent claims would be subject to a drawn-out patent review process. Id. at 12. AAM asserts this is because no alternative processes exists that match PTAB’s reputation for quality and timeliness. Id. at 12. AAM also maintains that a transformation in the PTAB’s review process risks activating an endless stream of litigation that could prevent generic competitors from entering the market for a decade or longer. Id. AAM argues that the patent industry could avert this dilemma if the Supreme Court holds that APJs are inferior officers, thus guaranteeing their continued timely review. Id.
39 Aggrieved Inventors (“Aggrieved Inventors”), in support of Arthrex, counter that the current inter partes regime starves out potential competition from would-be startups who are otherwise incapable of raising sufficient capital to compete with established corporations. See Brief of Amici Curiae 39 Aggrieved Inventors, in Support of Respondent at 4–6. Aggrieved Inventors note that, while it may seem counterintuitive that patents help foster competition, in reality small businesses, particularly in the technology sector, start out financially disadvantaged relative to established companies. Id. Aggrieved Investors maintain small startups often hedge their risk of failure by using their pre-existing patent rights as upfront collateral with potential investors. Id. Aggrieved Investors insist that a startup’s ability to raise capital early on would not be possible without a ruling that the APJs were principle officers. Id. at 32. Aggrieved Investors assert that such a ruling would allow ample opportunity for comprehensive vetting of would-be APJs to ensure they are not subject to any biases in favor of large technology companies. Id. Aggrieved Investors say that proper patent vetting would not be possible without a transparent appointment process, which could only be accomplished through presidential appointment by ruling APJs were principal officers. Id.
RISK OF STRUCTURAL CHANGE TO OTHER PATENT REVIEW AGENCIES
Acushnet and Cleveland Golf (“A&C”), in support of the United States, contend that finding APJs to be principal officers could have disastrous effects on other administrative agencies also tasked with reviewing patent claims. See Brief of Amici Curiae Acushnet and Cleveland Golf, in Support of Petitioners at 18. A&C argue that if the Court fundamentally reforms PTAB and finds APJs to be principal officers, it risks complicating the work of non-administrative law judges dispersed across other federal agencies also responsible for evaluating patent claims. Id. at 19. A&C assert that such a decision could foreseeably open the floodgates for scrutinizing how non-PTAB federal patent examiners evaluate patent claims. Id. A&C claim that since other patent review agencies examine patents aggregately worth billions of dollars, a fundamental change to how APJs are appointed could potentially hamper a multibillion-dollar industry by introducing unwarranted complications into the system. Id. at 18. A&C say that because PTAB sets the benchmark for the other patent review systems, other federal agencies may follow suit if APJs are ultimately deemed inferior officers. Id.
Joshua J. Malone (“Malone”), in support of Arthrex, contests that the structural problem lies not in the spillover effects that a PTAB reform would have on other agencies, but rather in the lack of qualifications by APJs themselves who are neither independent nor sufficiently credentialed to render decisions on patent validity. See Brief of Amicus Curiae Joshua J. Malone, in Support of Respondent at 4. Malone asserts that many of the judges “were selected by the former head of patents at Google,” suggesting that they could not be impartial. Id. at 4–5. Malone says this assertion is anecdotally supported by the observation that one such judge, who previously worked for Apple, sided in favor of the company 96% of the time. Id. Malone further argues that PTAB have more power over patent certification than Article III trial judges because the former could essentially ignore district court findings at their leisure, thereby effectively setting their own rules. Id. at 10–11. Malone hence argues that APJs must be principal officers because a transparent appointment process would limit the influence of outside companies on PTAB, thereby improving the overall quality of PTAB decisions. Id. Malone contends that because PTAB is the benchmark for federal patent review, other agencies would likewise improve the quality of their patents by adapting themselves to the higher standards that would directly result from the Court’s finding that APJs were principal officers. Id.
- Dion M. Bregman, Maria E. Doukas, & Vishal J. Parikh, Supreme Court Will Review Arthrex Cases Regarding Whether PTAB Judges Are Constitutional, Morgan Lewis (Oct. 16, 2020).
- Doug Nemec & Cassandra Baloga, In Arthrex, Supreme Court To Review Constitutionality of Patent Board’s Structure, Skadden, Arps, Slate, Meagher & Flom (Dec. 22, 2020).