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Smith & Nephew, Inc v. Arthrex, Inc., sub. nom United States v. Arthrex et al. (No. 19-1434)

Patent – Decided: June 21, 2021

Issues: (1) Whether administrative patent judges (APJs) of the US Patent and Trademark Office (USPTO) are principal officers who must be appointed consistent with the Appointments Clause of U.S. Const. Art. II, § 2, Cl. 2; and (2) whether the Federal Circuit cured any Appointments Clause defect in the America Invents Act (AIA) by severing the application of “good cause” removal requirements to APJs appointed under the AIA.

The Supreme Court has issued its long-awaited resolution to the Appointments Clause challenge raised by Arthrex v. Smith & Nephew, opinion issued sub nom United States v. Arthrex.

In short, the Federal Circuit held that the PTAB judges had not been constitutionally appointed, struck certain provisions of the America Invents Act to remedy the issue, and remanded then-pending appeals for further IPR proceedings before new panels of PTAB judges.

In a 5-4 decision written by Chief Justice John Roberts, the Supreme Court agreed with the Federal Circuit that the PTAB judges were unconstitutionally appointed, but disagreed with the Federal Circuit’s remedy.

The Supreme Court echoed the views of the Federal Circuit with respect to why the PTAB judges’ appointments violated the Appointments Clause. According to the Supreme Court, the Director of the USPTO did not exercise adequate “review by a superior executive officer” because PTAB judges “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 Supreme Court further disagreed that the availability of rehearing (including rehearing initiated by the Director heard by a hand-selected panel of her choosing) was enough to give the Director constitutionally sufficient control, finding that even if successful in producing an outcome favored by the Director, “such machinations blur the lines of accountability demanded by the Appointments Clause.” “The parties are left with neither an impartial decision by a panel of experts nor a transparent decision for which a politically accountable officer must take responsibility.”

The Federal Circuit remedied the lack of oversight by giving the Director more influence over PTAB judges, empowering the Director to fire PTAB judges at will (and striking the statutory “for-cause” protections granted to PTAB judges). The Supreme Court disagreed, finding a different remedy to be appropriate.

Rather than giving the Director indirect influence over decisions via threats to fire PTAB judges, the Court chose to enhance the Director’s power to review PTAB decisions directly. The Court struck the statutory prohibition on rehearing which provided that “only the [PTAB] may grant rehearings” and held that the Director thereby “may review final PTAB decisions and, upon review, may issue decisions himself on behalf of the board.” Thus, the Supreme Court held, the Director is now empowered to substantively review, adopt, or disregard PTAB decisions about patentability in the IPR process.

Notably, the Supreme Court stated that adopting its chosen remedyrequests for review by the Directoreliminated the need to remand to a panel of new PTAB judges, which the Federal Circuit previously held was required to remedy the Appointments Clause defect. “Because the source of the constitutional violation is the restraint on the review authority of the Director, rather than the appointment of APJs by the Secretary,” patentees are “not entitled to a hearing before a new panel of APJs.”

Following the decision in Arthrex, on August 2, 2021 the Director issued its first written decision, denying review. The order, IPR 2020-00081, simply stated “that the Patent Trial and Appeal Board’s Final Written Decision in this case is the final decision of the agency.”

In time, the circumstances under which the Director will grant review may become clearer, including whether the Director will attempt to develop legal standards for review, whether the Director will issue written opinions on rehearing (or simply orders), and how frequently the Director will use this new-found power.

See earlier Supreme Court Corner looks at this case here and here, and a more in-depth look at the decision here.