On June 21, 2021, the Supreme Court in United States v. Arthrex Inc., No. 19-1434, held that the authority wielded by administrative patent judges (APJs) in inter partes review proceedings (IPRs) violates the Appointments Clause of the Constitution. The Supreme Court remedied that constitutional violation by permitting the director of the Patent and Trademark Office to directly review IPR decisions.
The validity of a patent previously issued by the Patent and Trademark Office (PTO) can be challenged in an IPR, a proceeding conducted before the Patent Trial and Appeal Board (PTAB), an executive tribunal within the PTO. The PTAB, composed largely of APJs appointed by the secretary of commerce and supervised by the PTO director, has the final word within the executive branch on the validity of a challenged patent.
The Appointments Clause, U.S. Const. art. II, § 2, cl. 2, draws a distinction between principal officers and inferior officers. Under the Appointments Clause, only the president, with the advice and consent of the Senate, can appoint principal officers, including the secretary of commerce and the PTO director. In contrast, the Appointments Clause allows inferior officers to be appointed by the president, by the head of an executive department, or by a court. In Edmond v. United States, 520 U.S. 651 (1997), the Supreme Court clarified that an inferior officer must be “directed and supervised at some level by others who were appointed by Presidential nomination.”
The Court’s Opinion
In an opinion authored by Chief Justice Roberts, and joined by Justices Alito, Gorsuch, Kavanaugh, and Barrett, the Supreme Court in Arthrex held that such direction and supervision is lacking with respect to APJs in IPRs, because APJs in IPRs have the power to render a final decision on behalf of the United States as to the validity of patents, “without any such review by their nominal superior or any other principal officer in the Executive Branch…. In all the ways that matter to the parties who appear before the PTAB, the buck stops with the APJs, not with the Secretary or Director.”
The Supreme Court rejected arguments by the United States government, and by Petitioner Smith & Nephew, that the supervisory powers of the director and secretary are sufficient to render APJs inferior officers. For example, although the director potentially can influence the outcome of an IPR by selecting APJs predisposed to his views or by intervening in rehearing proceedings, the Supreme Court observed that neither the director nor any other principal officer can directly review an IPR final decision by APJs. The Supreme Court also observed that the secretary cannot “meaningfully control” APJs through the threat of termination, because she can remove them only for cause pursuant to 5 U.S.C. §7513(a), and cannot fire them at will.
The Supreme Court concluded that the appropriate remedy for the constitutional violation was to sever those portions of 35 U.S.C. § 6(c) that prevent the director from reviewing IPR decisions.
The Supreme Court explained that under § 6(c), each IPR “‘shall be heard by at least 3 members of the [PTAB]’ and ‘only the [PTAB] may grant rehearings.” According to the Supreme Court, “[t]he upshot is that the Director cannot rehear and reverse a final decision issued by APJs. If the Director were to have the authority to take control of a PTAB proceeding, APJs would properly function as inferior officers. We conclude that a tailored approach is the appropriate one: Section 6(c) cannot constitutionally be enforced to the extent that its requirements prevent the Director from reviewing final decisions rendered by APJs…. The Director accordingly may review final PTAB decisions and, upon review, may issue decisions himself on behalf of the Board.” (internal citations omitted).
The Supreme Court noted that this remedy would apply only to the “Director’s ability to supervise APJs in adjudicating petitions for inter partes review. We do not address the Director’s supervision over other types of adjudications conducted by the PTAB, such as the examination process for which the Director has claimed unilateral authority to issue a patent.”
The Supreme Court remanded to the PTO acting director the decision whether to rehear the IPR petition filed by Smith & Nephew in the Arthrex IPR. The Supreme Court reasoned that, “[b]ecause the source of the constitutional violation was 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.”
Concurrences and Dissents
Justice Gorsuch concurred with the Court’s opinion that the Appointments Clause had been violated, but dissented from the Court’s remedy. According to Justice Gorsuch, application of the “severance doctrine” to 35 U.S.C. § 6(c) “gifts the Director a new power that he never before enjoyed, a power Congress expressly withheld from him and gave to someone else—the power to cancel patents through the IPR process. Effectively, the Court subtracts statutory powers from one set of executive officials and adds them to another.”
Justice Thomas dissented, asserting that the Appointments Clause had not been violated. According to Justice Thomas, “[t]here can be no dispute that administrative patent judges are, in fact, inferior: They are lower in rank to at least two different officers [i.e., the Director and Secretary].” Justice Thomas also asserted that “there is no precedential basis (or historical support) for boiling down ‘inferior-officer’ status to the way Congress structured a particular agency’s process for reviewing decisions.”
Justice Breyer filed an opinion concurring in part and dissenting in part, which Justices Sotomayor and Kagan joined. Justice Breyer agreed with Justice Thomas that the Appointments Clause had not been violated. According to Justice Breyer, the language of the Appointments Clause “strongly suggest[s] that Congress has considerable freedom to determine the nature of an inferior officer’s job, and that courts ought to respect that judgment.” And, “[g]iven the technical nature of patents, the need for expertise, and the importance of avoiding political interference, Congress chose to grant the APJs a degree of independence. These considerations set forth a reasonable legislative objective sufficient to justify the restriction upon the Director’s authority that Congress imposed.”
Although Justice Breyer disagreed with the Court’s determination that the Appointments Clause had been violated, he agreed with the Court’s remedy: “Under the Court’s new test, the current statutory scheme is defective only because the APJ’s decisions are not reviewable by the Director alone. The Court’s remedy addresses that specific problem, and for that reason I agree with its remedial holding.”