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PTAB Judge Appointments Unconstitutional – Federal Circuit Remedial Declaration Reverberates

November 4, 2019

What Do We know?

1. On October 31, 2019, in Arthrex, Inc. v. Smith & Nephew, Inc., the Federal Circuit (Judge Moore) held that PTAB Judges are “principal officers,” not “inferior officers,” under the Appointments Clause (Article II, Section 2) of the Constitution. Therefore, the statutory practice of having PTAB Judges appointed by the Secretary of Commerce in consultation with the USPTO Director (35 U.S.C. § 6(a)), rather than by the President with the advice and consent of the Senate, is unconstitutional.

2. The Federal Circuit attempts to remedy the unconstitutional appointment process by holding that statutory protections against removal of a federal employee (5 U.S.C. § 7513(a)) are unconstitutional as applied to PTAB Judges and “must be severed.” Severing the removal protections would permit the Commerce Secretary, presumably at the recommendation of the USPTO Director, to remove any PTAB Judge from his or her position at any time “without cause.”

3. The Federal Circuit states that “we believe severing the restriction on removal of APJs renders them inferior rather than principal officers.” The Federal Circuit’s remedial declaration, therefore, presumes to render the appointment of all PTAB Judges constitutional.

4. The Federal Circuit did not reach the merits. The panel vacated and remanded the case, holding that “a new panel of APJs must be designated and a new hearing granted.”

5. The Federal Circuit acknowledged PTAB’s remand discretion to proceed “on the existing written record . . . or allow additional briefing or reopen the record in any individual case.”

Observations and Practice Tips:

1. Any party on the wrong side of a PTAB final written decision should consider whether to raise the Arthrex Appointments Clause issue in a request for reconsideration by the PTAB or in the opening brief on appeal to the Federal Circuit. The Federal Circuit already has rejected an effort to raise the issue after filing the opening appeal brief. See Customedia Techns. v. DISH Network. However, if PTAB chooses to rely on the existing written record rather than reopening the record on remand, substantive reversals will be few and far between.

2. En banc consideration of Arthrex appears likely, given the uncertainty it has injected into PTAB post-grant review proceedings. Without en banc review, the uncertainty will continue as litigation over the Appointments Clause issue continues, including dozens of pending appeals. One concern is the prospect of multiple conflicting decisions from the Federal Circuit, as happened with motion to amend practice in the Aqua Products case.

3. The impact of Arthrex on PTAB judges likely will be a short-term increased workload. The Director, moreover, has provided clear policy direction to ensure more consistency among PTAB panels: changing claim construction to the district court Phillips standard, implementing new claim amendment rules, designating new precedential decisions, and forming the Precedential Opinion Panel to resolve thorny issues.

4. Judge Moore’s opinion emphasizes that the Director does not have the power to “single-handedly review, nullify or reverse a final written decision” of the Board. While acknowledging the Director’s substantial supervisory powers over PTAB Judges, including the power to designate each PTAB Judge on an Inter Partes Review panel (35 USC 6(c)), Judge Moore did not conclude that the Director can remove any PTAB Judge from any IPR panel.

5. Judge Moore found that PTAB Judges may be removed from service “only for such cause as will promote the efficiency of the service.” 5 USC § 7513(a). The opinion interprets this “for cause” removal standard, applicable to any federal employee, as one of “misconduct” and concludes that such a barrier to removal indicates PTAB Judges are principal officers not inferior officers.

6. Is the Federal Circuit’s holding, that PTAB Judges are unconstitutionally appointed principal officers, consistent with the Director’s appointment as a principal officer in whom the “powers and duties of the United States Patent and Trademark Office shall be vested?” 35 U.S.C. § 3(a)(1).

7. Does the Director, subject to the policy direction of the Commerce Secretary, have the power to review, approve, modify, nullify, or reverse any and all proposed final written decisions in PTAB post-grant review proceedings? 35 U.S.C. § 2(b)(2)(A).

8. Does a court have the authority to declare statutory employment protections invalid only for PTAB Judges but not for other federal employees? If so, does such a remedial declaration justify a finding that PTAB Judges are, henceforth, properly appointed “inferior officers?”

9. If PTAB Judges are truly principal officers, why isn’t the remedy to have all PTAB Judges nominated by the President, with the advice and consent of the Senate?

10. Questions abound. Stay tuned for en banc review.

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