The Supreme Court recently granted three petitions for certiorari challenging the Federal Circuit’s holding in Arthrex v. Smith & Nephew that administrative patent judges of the Patent Trial and Appeal Board (PTAB) are unconstitutionally appointed. Under the Patent Act, PTAB judges are appointed by the Secretary of Commerce in consultation with the Director of the Patent and Trademark Office (PTO), both of whom are presidentially appointed. In Arthrex—an appeal from an inter parties review challenge to Arthrex’s ‘907 patent—Arthrex argued that PTAB judges are “principal” officers under the Constitution’s Appointments Clause and must be appointed by the President, with the advice and consent of the Senate, rather than “inferior” officers, who can be appointed by heads of departments.
The Federal Circuit agreed and ruled the appointments unconstitutional. Relying on the three-factor test for distinguishing principal and inferior officers set forth in Edmond v. United States, the court analyzed: (i) whether the Secretary of Commerce and Director of the PTO have power to review and reverse PTAB judges’ decisions; (ii) the level of supervision and oversight the Secretary and Director have over PTAB judges; and (iii) the Secretary and Director’s power to remove PTAB judges. Applying this test, the court found that neither the Secretary nor the Director individually nor combined exercises sufficient direction and supervision over PTAB judges to render them inferior officers. Nevertheless, the court found it possible to remedy the Appointments Clause infirmity by severing the Patent Act’s protections against removing PTAB judges from office, making them inferior rather than principal officers. The court thus invalidated and severed those protections.
The Supreme Court will review both the Appointments Clause and severability rulings, and its decision will have sweeping implications. As of November 2019, the PTAB had held over 10,000 trials in post-grant proceedings, and since the Federal Circuit denied rehearing, the fate of those trials lies with the Supreme Court. Further, in the year since the Federal Circuit issued its decision, more than 100 cases have been remanded to the PTAB for rehearing based on Arthrex, and all of those cases have been stayed pending the outcome at the high Court. The implications may even extend beyond the patent world, given that the PTO appoints judges to the Trademark Trial and Appeal Board (TTAB) in the same way PTAB judges are appointed (though Congress is considering a bipartisan resolution to the Appointments Clause issue for TTAB judges in The Trademark Modernization Act of 2020, H.R. 6196).
Oral argument at the Supreme Court will likely be scheduled for early 2021. We will monitor the case and, as developments merit, report back.
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