In United States v. Arthrex, the Supreme Court in a 5-4 majority opinion held on Monday that the unreviewable authority wielded by Administrative Patent Judges (APJs) during inter partes review violates the United States Constitution because they are inferior officers appointed by an agency and not the President. To cure the violation, the Supreme Court empowered the Director of the USPTO with the discretion to review decisions rendered by APJs.
The holding relied primarily on the distinction between “principal officers” and “inferior officers” and the authority each is permitted to exercise under the Constitution. The Appointments Clause provides that only the President, with the advice and consent of the Senate, can appoint principal officers. In contrast, an inferior officer does not require Presidential or Senate approval, but in turn must be “directed and supervised” at some level by an appropriately appointed principal officer.
In practice, APJs are appointed by the Secretary of Commerce. Once in office, APJs issue final decisions on patentability and occupy a permanent position unless removed by the Secretary for cause. Section 6(a) of the American Invents Act (AIA) establishes that the only administrative avenue to review decisions made by APJs is a petition for rehearing, which only the PTAB – consisting of APJs - may grant. While the Director does have tools of administrative oversight available, neither the Director nor any other principal officer can directly review decisions by APJs. It was this lack of oversight by a principal officer that doomed the current administrative scheme.
The decision below reached the same conclusion, but the Court of Appeals for the Federal Circuit attempted to remedy the situation by striking the “for cause” provision of the AIA, thereby giving the Director an increased measure of control over APJs. The Federal Circuit reasoned that doing so would allow the Secretary to remove PTAB judges, thereby providing the necessary oversight required of inferior officers.
The Supreme Court found the Federal Circuit’s remedy wanting and instead addressed the violation more directly by rendering 35 U.S.C. §6(c) unenforceable to the extent it prevents the Director from reviewing a decision. By doing so, the Supreme Court granted the Director oversight over APJ decisions – creating the requisite oversight for inferior officers.
In the case at hand, the Supreme Court remanded the case to the acting Director to decide whether to rehear the petition. The Supreme Court also stated that Arthrex is no longer entitled to a hearing before a new panel of APJs.
By granting the Director these powers, the Supreme Court was able to simultaneously correct the constitutional problem created by the APJ appointment process and give the USPTO a way to minimize the disruption of both past and pending proceedings. Given the number of IPRs, the ability of the Director to review decisions will be limited, so we do not expect that a large percentage of decisions will be reviewed, although the Office of the Director might institute additional internal procedures to provide consistency in the Director’s review.