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Supreme Court Preserves PTAB But Requires USPTO Director Discretionary Review of PTAB Decisions

June 23, 2021

The US Supreme Court issued its highly anticipated decision on June 21 in United States v. Arthrex, Inc., addressing whether the authority of administrative patent judges (APJs) of the Patent Trial and Appeal Board (PTAB) to issue decisions is consistent with the Appointments Clause of the Constitution. Although the majority held that the unreviewable authority of the APJs violates the Appointments Clause, it nonetheless remedied this violation and preserved the PTAB by giving the US Patent and Trademark Office (USPTO) Director the right to review PTAB decisions.

BACKGROUND

The Arthrex saga began on October 31, 2019 when the US Court of Appeals for the Federal Circuit held that the appointment of APJs to the PTAB violates the Appointments Clause, and is thus unconstitutional.[1] Despite this holding, the Federal Circuit declined to take the drastic step of invalidating the entirety of the Leahy-Smith America Invents Act (AIA).[2] Instead, it remedied the violation by invalidating the APJs tenure protections such that they could be removed at will by the Secretary of Commerce.[3] The Federal Circuit’s decision led to over 100 PTAB decisions being vacated and remanded to the PTAB for further proceedings to be conducted before newly-designated APJ panels.

Following this decision, the Arthrex parties petitioned for rehearing en banc, which was ultimately denied on March 23, 2020.[4] Arthrex, Smith & Nephew, and the US government each filed separate petitions for writ of certiorari asking the Supreme Court to review the Federal Circuit’s holdings in Arthrex. The Supreme Court granted certiorari for all three petitions on October 13, 2020 and consolidated the three cases.

SUPREME COURT’S MAJORITY OPINION

In his opinion, Chief Justice John Roberts first addressed the constitutionality of APJs under the Appointments Clause.[5] This portion of the opinion, which was joined by Justices Samuel Alito, Neil Gorsuch, Brett Kavanaugh, and Amy Coney Barrett, held that because of their unreviewable authority, the appointment of APJs violates the Appointments Clause.[6] In reaching this conclusion, the Supreme Court’s opinion walks through the Appointments Clause and explains that “[o]nly the President, with the advice and consent of the Senate, can appoint noninferior officers, called ‘principal’ officers.”[7] Congress, however, can dispense with joint appointments for inferior officers and can “vest the appointment of such officers ‘in the President alone, in the Courts of Law, or in the Heads of Departments.’”[8]

With this framework, the Chief Justice’s opinion analyzes whether APJs are properly categorized as inferior officers by looking at the Court’s 1997 opinion in Edmond v. United States, 520 U.S. 651 (1997) as their starting point. The opinion holds that “[a]n inferior officer must be ‘directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate.’”[9] Because APJs “have the ‘power to render a final decision on behalf of the United States’ without any such review by their nominal superior or any other principal officer in the Executive Branch,” the APJs are not inferior officers.[10] Thus, their appointment by the Secretary to an inferior office violates the Appointments Clause.[11]

The Chief Justice’s opinion next addresses the appropriate way to resolve the violation of the Appointments Clause, concluding the appropriate remedy is empowering the Director to review decisions by APJs.[12] Although only four justices joined this portion of the opinion, Justices Stephen Breyer, Sonia Sotomayor, and Elena Kagan agreed with the remedial holding “[f]or purposes of determining a remedy.”[13] Justice Clarence Thomas did not address remedy, and Justice Gorsuch dissented with respect to remedy and would have held the entire regime of inter partes review unconstitutional.[14]

In reaching this conclusion, the four-justice plurality explained that “Congress vested the Director with the ‘powers and duties’ of the PTO, 35 U.S.C. § 3(a)(1), tasked him with supervising APJs, § 3(a)(2)(A), and placed the PTAB ‘in’ the PTO, § 6(a).”[15] Thus, “[b]ecause Congress has vested the Director with the ‘power and duties’ of the PTO, § 3(a)(1), the Director has the authority to provide for a means of reviewing PTAB decisions. The Director accordingly may review final PTAB decisions and, upon review, may issue decisions himself on behalf of the Board.”[16],

CONCLUSION

In sum, one majority held that although APJs’ unreviewable authority violates the Appointments Clause, a different majority held that the proper remedy is providing the USPTO Director with the authority to review PTAB decisions. Importantly, the plurality emphasized that the Director has discretion in deciding whether to review PTAB decisions, stating:

To be clear, the Director need not review every decision of the PTAB. What matters is that the Director have the discretion to review decisions rendered by APJs.”[17]

Despite providing this remedy for discretionary Director review of PTAB Decisions, some questions remain as to its application in practice.

First, questions remain as to the procedures for Director review of PTAB decisions, as well as what this review process will entail. The USPTO will need to issue guidance on these new procedures.

Second, the PTAB has a Precedential Opinion Panel (POP) in place that operates at the discretion of the Director to decide issues of exceptional importance to the PTAB. It remains unclear how this POP will operate given the new Director review policies.

Third, following the Federal Circuit’s Arthrex decision, a number of cases were remanded and remain backlogged with the PTAB. Because the justices noted that Arthrex was not entitled to a hearing before a new panel of APJs,[18] it remains unclear how the PTAB will handle the backlog of cases.

Fourth, the majority opinion notes, the review of the APJs decisions “must at some level be subject to the direction and supervision of an officer nominated by the President and confirmed by the Senate.”[19] However, at present time, the current acting Director of the USPTO has not yet been confirmed by the Senate. Thus, it remains unclear if he has the authority to begin discretionary review of PTAB decisions.

We will continue monitoring the evolving effects of this decision.

CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors, Maria E. Doukas (Chicago), Dion M. Bregman (Silicon Valley), and William R. Peterson (Houston) or any of the following lawyers from Morgan Lewis’s post-grant proceedings team:

Boston
Joshua M. Dalton

Century City
Andrew V. Devkar

Chicago
Jason C. White

Houston
C. Erik Hawes
Rick L. Rambo

Philadelphia
Louis W. Beardell, Jr.

San Francisco
Brent A. Hawkins

Silicon Valley
Andrew J. Gray IV
Ahren C. Hsu-Hoffman
Michael J. Lyons

Washington, DC
Jeffrey G. Killian, Ph.D.
Robert Smyth, Ph.D.



[1]     Arthrex Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. 2019).

[2]     Id. at 1338-1340.

[3]     Id.

[4]     Arthrex, Inc. v. Smith & Nephew, Inc., 953 F.3d 760, 761 (Fed. Cir. 2020).

[5]     United States v. Arthrex, Inc., No. 19-1434, 2021 WL 2519433 (U.S. June 21, 2021).

[6]     Id., at *11.

[7]     Id., at *6.

[8]     Id.

[9]     Id.

[10]    Id., at *7-11.

[11]    Id., at *11.

[12]    Id., at *12.

[13]    Id., at *21.

[14]    Id., at *13-18.

[15]    Id., at *12 (plurality opinion).

[16]    Id.

[17]    Id., at *13 (plurality opinion) (emphasis added).

[18]    Id.

[19] Id.