November 4, 2019Client Alert

Federal Circuit Rules that PTAB Judges were Unconstitutionally Appointed

On October 31, 2019, in Arthrex, Inc., v. Smith & Nephew, Inc., et al., the United States Court of Appeals for the Federal Circuit issued a decision declaring that the appointment of administrative patent judges (APJs) to the Patent Trial and Appeal Board (PTAB) was unconstitutional because the judges have been acting as principal officers in contravention of the Appointments Clause of the Constitution. In a unanimous decision, the court found the least intrusive remedy is to excise a restriction in the Patent Act that prevents the U.S. Patent and Trademark Office (USPTO) Director from removing the judges at will, effectively demoting the APJs to inferior officers and remedying the constitutional violation. The court then held that this decision will impact cases in which a final written decision has been issued in a PTAB proceeding and in which, on appeal of that decision, the constitutionality of the judges’ appointment is raised. Arthrex, Inc., v. Smith & Nephew, Inc., et al., No. 2018-2140 (Fed. Cir. Oct. 31, 2019).

This decision hinged on the distinction between “principal officers” and “inferior officers” under the Appointments Clause, U.S. Const., art. II, § 2, cl. 2. The Supreme Court previously explained that the difference between principal and inferior officers depends on “(1) whether an appointed official has the power to review and reverse the officers’ decision; (2) the level of supervision and oversight an appointed official has over the officers; and (3) the appointed official’s power to remove the officers.” Edmond v. United States, 520 U.S. 651, 664–65 (1997).

In reviewing these factors, the Federal Circuit found that APJs in their current role have been acting as principal officers, rather than inferior officers, because the Director of the USPTO does not have sufficient review power over the APJs’ panel decisions and has limited power of removal over the judges from their positions. The Patent Act does not authorize the Director of the USPTO to remove APJs other than in language found in 35 U.S.C. § 3(c). This section provides, “[o]fficers and employees of the Office shall be subject to the provisions of title 5, relating to Federal employees.” The court found that this section effectively placed heavy substantive and procedural limitations on the Director’s ability to remove APJs, allowing removal only for misconduct or other good cause. These limitations on removal, coupled with the finality of the APJs’ panel decisions, rendered the APJs principal officers under the Appointments Clause.

Because the APJs have been acting as principal officers, the court held that their appointments violate the Appointments Clause, which requires that a principal officer be appointed by the President of the United States with the advice and consent of the Senate. APJs are not appointed in such a way: under 35 U.S.C. § 6(a), the Secretary of Commerce appoints APJs in consultation with the Director of the USPTO.

In order to remedy the unconstitutional appointment of APJs under the Patent Act, the Federal Circuit struck the limitations on removal of the APJs from the Patent Act, a decision the court refers to as “the narrowest viable approach” to save the Act’s constitutionality. The court decided to partially sever 35 U.S.C. § 3(c) from the Act, limiting the effect of its severance only to APJs and their removal. The court reasoned that, if the Director has the ability to remove the APJs, the APJs are no longer principal officers, but merely inferior officers, whose appointments by officials other than the President of the United States are constitutional.

The Federal Circuit vacated the final written decision made by the unconstitutionally appointed panel of APJs acting as principal officers, and remanded the case to be heard by a new, now-constitutionally appointed panel of APJs acting as inferior officers. The court left it to the discretion of the new panel whether to look to the existing written record or to allow additional briefing on the issues. The Federal Circuit also stated that it sees the impact of this case being limited to cases where final written decisions were issued and where litigants present an Appointments Clause challenge on appeal, further noting that it saw “no constitutional infirmity in the institution decision as the statute clearly bestows such authority on the Director pursuant to 35 U.S.C. § 314.”

Thus, the practical result of this decision extends to those parties who are currently or who may be considering appealing a final written decision. It is important for impacted parties and practitioners to carefully analyze whether they want to make an Appointments Clause argument in their appeal of the final written decision, especially in light of the discretion given to the new panel to look only to the existing record. There may be value in making such an argument if the new panel allows additional briefing and the parties can modify or supplement the arguments that did not persuade the original panel. However, it may be wiser and more economical to appeal to the Federal Circuit on the merits than to spend additional resources on the risk that the new panel merely reaches the same conclusion as the original panel. It will be prudent to work closely with your attorney to decide the appropriate plan of action.

For more information, please contact your Michael Best attorney, J. Donald Best, or Kenneth M. Albridge.

back to top