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The Federal Circuit holds that the Structure of the PTAB is Constitutional

November 10, 2021

Is the Patent Trial and Appeal Board (“Board”) constitutional? This was a question asked by Mobility Workx in Mobility Workx, LLC v. Unified Patents, LLC, 2021-1441, 2021 WL 4762265 (Fed. Cir. 2021). Mobility Workx raised this challenge on appeal from a decision by the Board finding that Mobility Workx’s patents were unpatentable as obvious. On appeal Mobility Workx argued, among other things, that the Board’s structure violated due process and the Appointments Clause. The Federal Circuit held that Mobility Workx’s constitutional arguments were without merit and remanded to the Director to determine whether to grant a rehearing. Id. at *1. Judge Newman, however, filed a dissenting opinion arguing that Mobility Workx’s due process arguments and challenge under the Appointments Clause deserved further review.

I. Facts

Mobility Workx owns U.S. Patent No. 8,213,417 (“the ’417 patent”). In 2018, Unified Patents filed a petition seeking an inter partes review (“IPR”) of claims to the ’417 patent as obvious over alleged prior art. Mobility Workx, LLC, 2021 WL 4762265, at *2. In 2019, the Board determined that the challenged claims were unpatentable. Id.; Unified Patents Inc. v. Mobility Workx, LLC, IPR2018-01150, 2019 WL 6481774 (P.T.A.B. Dec. 2, 2019). Mobility Workx appealed the decision of the Board, requested a remand under United States v. Arthrex, Inc., 141 S. Ct. 1970 (2021),1 and made several constitutional challenges. Mobility Workx, LLC, 2021 WL 4762265, at *1. Mobility Workx’s arguments included challenging: (i) the structure of the Board; (ii) the Director’s delegation of his authority to institute AIA proceedings; (iii) reviewing a pre-AIA patent in an AIA review proceedings; and (iv) the authority of the PTAB—rather than the Director of the USPTO—to institute IPR’s under the Appointments Clause following the Supreme Court’s decision in Arthrex. Id. at *2, *8.

II. Discussion

Mobility Workx raised two constitutional challenges to the structure of the Board. First, that the “Board members have an interest in instituting AIA proceedings to generate fees to fund the agency and ensure future job stability.” Id. at *2. Second, that “individual [APJs] have a personal financial interest in instituting AIA proceedings in order to earn better performance reviews and bonuses.” Id. Each are discussed below in turn.

Mobility Workx argued that the structure and funding of the Board violates due process because the “the fee-generating structure of AIA review[] creates a temptation for the Board to institute AIA proceedings in order to collect post-institution fees [] and fund the agency.” Id. at *4, *5 (internal quotations and citations omitted). Specifically, Mobility Workx alleged that the Chief APJ, Deputy Chief APJ, and Vice Chief APJ perform two unconstitutionally permissible functions, they (i) participate in AIA review proceedings and provide policy direction and (ii) oversee fiscal planning and expenditures of the Board. Id. at *5. Mobility Workx alleged that this is an “impermissible mixing of judicial and administrative/executive roles,” citing Tumey v. Ohio, 273 U.S. 510 (1927) and Ward v. Monroeville, 409 U.S. 57 (1972). Mobility Workx, LLC, 2021 WL 4762265, at *5.

The Federal Circuit reasoned that Mobility’s argument was unfounded. First, unlike the mayors in Tumey and Ward,2 the Director and not the Chief APJ, Deputy Chief APJ, and Vice Chief APJ, is responsible for the agency’s finances. Id. Like Dugan v. Ohio,3 the role of the APJs in budgetary decisions is remote because while the USPTO is a fee-funded agency with its annual operating costs paid through collecting fees, its budget is set by the President and then Congress. Id. at *6. Therefore, the Federal Circuit found no due process violation under Tumey based on the fee-structure of the Board and funding of the agency.

Next, Mobility Workx argued that “individual APJs have an unconstitutional interest in instituting AIA proceedings because their own compensation in the form of performance bonuses is favorably affected.” Id. at *7. APJs receive payment under a fixed rate of basic pay set by the Director (35 U.S.C. § 3(b)(6)) and by a performance bonus. The performance bonus is determined through an annual review where the individual APJ must “generally earn at least 84 decisional units per year.” Id. at *7. Mobility Workx argued that this performance bonus creates an incentive for APJs to institute IPR proceedings. The Federal Circuit disagreed. The Federal Circuit reasoned that unlike Tumey and Ward where fees were only collected for convicted defendants, an APJ’s number of decisional units is based on the number of decisions authored and not the outcome of those decisions. Id. Therefore, the Federal Circuit found no due process violation based on the structure of the APJ’s performance bonus.

Lastly, Mobility Workx raised an Appointment Clause challenge based on the Supreme Court’s decision in Arthrex. Mobility Workx argued that the Director should “confirm[]the challenged claims, or, in the alternative, dismiss [Unified Patent’s] petition for failing to reach a final determination within the 12-month statutory period for final determination in an [IPR].” Id. at *8-9 (internal quotations omitted). The Federal Circuit agreed that under Arthrex and the newly established USPTO procedures, the Director should be allowed to review the final written decision of the APJ panel. Id. Therefore, the Federal Circuit remanded to the Board to allow Mobility Workx to request a rehearing. Id. at *9.

III. Judge Newman’s Dissent

While Judge Newman agreed with the decision to remand this case to the Director for review of the final written decision of the Board, Judge Newman argued that Mobility Workx raised new Appointment Clause constitutional issues that were not discussed in Arthrex, including the procedure for institution of an IPR at the USPTO. Mobility Workx, LLC v. Unified Patents, LLC, 2021-1441, 2021 WL 4762265, at *9 (Fed. Cir. 2021) (Newman, J., dissenting). Judge Newman discussed two Appointment Clause concerns raised by Mobility Workx: (i) an IPR institution is a final nonappealable decision by an inferior officer without oversight; and (ii) there exists an appearance of bias when decisions for unpatentability are made by the same APJs who decide to institute IPRs.

First, Judge Newman argued that “[t]he institution decision is final and nonappealable and its conduct raises Appointments Clause issues.” Id. at *10. Judge Newman took issue with the procedure of institution because, “as it is currently conducted by the PTAB, [it] is a final decision of an inferior officer, without supervision or control by a principal officer of the agency.” Id. Judge Newman reasoned that the America Invents Act (“AIA”) originally assigned the authority to institute IPRs to the Director, not the board. Id. (citing 35 U.S.C. § 314). After implementation of the AIA, however, the agency assigned institution to the Board without any control, supervision, or review by the Director. Mobility Workx, LLC v. Unified Patents, LLC, 2021-1441, 2021 WL 4762265, at *11 (Fed. Cir. 2021) (Newman, J., dissenting). Judge Newman argued that the constitutional challenge raised by Mobility Workx was not “whether PTAB members have the skill to make the institution and to do so impartially,” but instead “whether this final nonappealable decision requires the authority of a principal officer.” Id. at *12. Based on the Supreme Court’s decision in Arthrex, where the Court reasoned that “only an officer properly appointed to a principal office may issue a final decision binding the Executive Branch,” Judge Newman argued that the procedure for institution should be further briefed in view of Arthrex considering whether the “removal of institution from the Director is in accordance with law and the Constitution.” Id. at *12 (citing Arthrex, 141 S. Ct. at 1985).

Next, Judge Newman discussed pre-judgment bias and structural bias. As for pre-judgment bias, Judge Newman highlighted how the same panel of APJs decide “whether to institute review,” “conduct the trial,” and “decides the question.” Id. at *13. Judge Newman reasoned that this brings to the forefront the possibility of conscious and unconscious bias, as well as the appearance of bias. Judge Newman argued that this pre-judgment bias could be solved by “restoring the Director to the statutory role in the institution procedure,” as articulated by the AIA. Id. at *15. As for structural bias, Judge Newman mentioned Mobility Workx’s argument of Board fees and compensation structure that was previously discussed by the majority opinion. Judge Newman disagreed with the majority’s finding of no due process. Id. at *15-16. Judge Newman identified Mobility Workx’s citation to Esso Standard Oil Co. v. Cotto which identified that “a pecuniary interest need not be personal to compromise,” and argued that it is the Court’s responsibility to be “adequately scrupulous in their avoidance of bias and the appearance of bias.” Id. (citing 389 F.3d 212, 219 (1st Cir. 2004)). Judge Newman’s dissent may invite future potential litigants to raise due process concerns based on the appearance of bias, even unconscious bias, especially at the USPTO where Judge Newman argued that institution decisions are made by the same APJs who decide patentability.

IV. Conclusion

While the Federal Circuit in Mobility Workx, Inc. v. Unified Patents, LLC found that Mobility Workx’s constitutional challenges were unfounded, Judge Newman raised several potential new Appointment Clause concerns within the structure and function of the PTAB since the Arthrex decision that may pave the road for future litigations.

1The Supreme Court in United States v. Arthrex held that the authority given to the Board’s panel Administrative Patent Judges (“APJ”) is inconsistent with the Appointments Clause as the APJs are appointed by the Secretary of Commerce to an inferior Office. The Supreme Court remedied this unconstitutionality by dismissing statutory restrictions that prevented the Director of the United States Patent and Trademark Office (“USPTO”) from reviewing APJs final decisions during IPRs.
2In Tumey v. Ohio the Supreme Court determined that the mayor’s court, where the mayor presided over proceedings and received a compensation only if the defendant was convicted, and the structure of the mayor’s court, where the fees paid by the convicted parties funded the village, violated due process. Mobility Workx, LLC, 2021 WL 4762265, at *4. In Ward v. Monroeville, the Supreme Court found a due process violation because the mayor had significant responsibilities for the village’s finances and the fines paid by convicted defendants provided a substantial portion of the village’s funds. Id.
3In Dugan v. Ohio, 277 U.S. 61 (1928) the Supreme Court found that the mayor’s court did not violate due process because the mayor did not have “an impermissible financial interest in convictions” as the mayor received a fixed salary that was not dependent on fees from the conviction of defendants, and the mayor did not have “an impermissible interest in generating revenue for the city” as the mayor was only one of a five members of the city commission. Mobility Workx, LLC, 2021 WL 4762265, at *4.