June 22, 2021
On June 21, a divided Supreme Court issued its widely anticipated opinion in United States v. Arthrex, Inc. that both (1) held that the USPTO director’s inability to review final written decisions rendered by the Patent Trial and Appeal Board (PTAB) administrative patent judges (APJs) resulted in an Appointments Clause violation, and (2) fashioned a remedy to the constitutional issue by severing a portion of the Patent Act to permit the director to review such decisions. Three additional opinions were issued by the Court joined by various justices, either dissenting in part or in whole.
The central issue in this case relates to whether the PTAB APJs are principal officers whose appointment without Senate approval violates the Appointments Clause of the Constitution or inferior officers whose decisions must be subject to some level of review by a principal officer. In the decision below, as reported here, the Federal Circuit found that “[t]he lack of any presidentially-appointed officer who can review, vacate, or correct decisions by the APJs combined with the limited removal power lead[s] us to conclude . . . that [APJs] are principal officers.” Having identified a constitutional violation of the Appointments Clause, the Federal Circuit found that it could remedy the issue by severing and invalidating the statutory limitation on the removal of the APJs such that they were subject to oversight and control by the director of the USPTO. Although the Federal Circuit denied rehearing en banc, the Supreme Court granted certiorari and heard oral arguments in March 2021, as reported here.
In a narrow 5–4 margin, five justices (Chief Justice Roberts and Associate Justices Alito, Kavanaugh, Barrett, and Gorsuch) agreed that the current regime of APJ decision-making resulted in a violation of the Appointments Clause. A plurality opinion of the Court, penned by Chief Justice Roberts, acknowledged that the “starting point” for assessing whether the APJs are properly classified as “inferior” officers or “principal” officers began with their precedent as set forth in Edmond v. United States. In Edmond, the Court found that Coast Guard Court of Criminal Appeals judges were constitutionally appointed inferior officers in part because the judges had “no power to render a final decision on behalf of the United States unless permitted to do so by other Executive officers.”
Unlike in Edmond, the Court here took issue with the fact that PTAB APJs have the power to render a final written decision in IPR proceedings “without any such review by their nominal superior or any other principal officer in the Executive Branch,” such as the USPTO director. Although the Court acknowledged that the director possesses some powers of “administrative oversight,” including control over the initial decision to institute an IPR, the ability to designate past opinions as precedential, and the ability to convene precedential opinion panels to rehear decisions, the Court found this to be insufficient. And although the director is also afforded the ability to remove an APJ without cause and refuse to designate that APJ on future panels, the Court found that this also gave the director “no means of countermanding the final decision already on the books.”
The Court ultimately concluded, premised on the historical importance of political accountability for final decisions binding the Executive Branch, that “the unreviewable authority wielded by APJs during inter partes review is incompatible with their appointment by the Secretary of Commerce to an inferior office,” thus resulting in an Appointments Clause violation.
Turning to the appropriate remedy, the Court found that “the structure of the PTO and the governing constitutional principles chart a clear course: Decisions by APJs must be subject to review by the Director.” The Court recognized 35 U.S.C. § 6(c) as the culprit because it improperly insulated APJs from supervision by providing that “only the [PTAB] may grant rehearings”—not the director—and found that the “tailored approach” to remedy the constitutional violation would be to sever section 6(c). Interestingly, the Court did not find that the Federal Circuit’s proposed remedy of severing APJ tenure protections was improper or insufficient to remedy the constitutional violation—rather, the Court merely found that its remedy of permitting review by the director “better reflects the structure of supervision within the PTO and the nature of APJs’ duties.”
Finally, the Court determined that it would be proper to provide a limited remand to the director to review the underlying final written decision invalidating Arthrex’s patent because it would provide “an adequate opportunity for review by a principal officer.” As Chief Justice Roberts explained, “[w]hat matters is that the Director have the discretion to review decisions rendered by APJs. In this way, the President remains responsible for the exercise of executive power—and through him, the exercise of executive power remains accountable to the people.”
The other three opinions issued by the justices either dissenting in part or in whole from the plurality were primarily grounded in separation-of-powers concerns.
In an opinion concurring in part and dissenting in part, Justice Gorsuch joined the plurality in agreeing that the lack of reviewability over APJ decisions resulted in a constitutional violation: “APJs are executive officers accountable to no one else in the Executive Branch. A panel of bureaucrats wields unreviewable power to take vested property rights.” Although Justice Gorsuch expressed his continued distaste with the Court’s prior decision in Oil States, reported on here, he characterized the present decision as “a very small step back in the right direction.”
However, Justice Gorsuch dissented from Chief Justice Roberts’s opinion, arguing that the Court’s remedy of severability invoked separation-of-powers concerns between the judiciary and legislature. Believing that there was not “only one possible way out of the problem,” Justice Gorsuch opined that this could not be resolved “as a matter of statutory interpretation” and was better left to Congress. In particular, Justice Gorsuch likened Chief Justice Roberts’s analysis to a “legislative séance,” since the Court could not possibly “know what those in a past Congress might think about a question they never expressed any view on—and may have never foreseen.”
In his opinion, Justice Breyer, joined by Justices Sotomayor and Kagan, dissented from the plurality’s finding that a constitutional violation had occurred, but concurred with their proposed remedy assuming it had. Unlike the plurality, Justice Breyer argued that the APJs are properly classified as inferior officers under Edmond due to their supervision by the Secretary of Commerce and the Director of the USPTO. Just like Justice Gorsuch, Justice Breyer was concerned about the separation of powers between the judicial and legislative branches. “More broadly, I see the Court’s decision as one part of a larger shift in our separation-of-powers jurisprudence,” wrote Justice Breyer. “In my view, today’s decision is both unprecedented and unnecessary, and risks pushing the Judiciary further into areas where we lack both the authority to act and the capacity to act wisely.”
Justice Thomas dissented in whole, and was joined by Justices Breyer, Sotomayor, and Kagan in his finding that there was no constitutional violation related to the APJs’ appointment. Although Justice Thomas agreed that the director does not have the ability to “singlehandedly reverse decisions,” he found that the director nonetheless has “powerful checks” over PTAB decisions to render APJs inferior officers, citing in part to the director’s authority to sua sponte convene a precedential opinion panel to review a panel’s decision. Based on both Edmond and historical guidance, Justice Thomas argued that there could be no constitutional violation; thus the remedy was unnecessary and improper: “Perhaps the majority thinks Arthrex should receive some kind of bounty for raising an Appointments Clause challenge and almost identifying a constitutional violation. But the Constitution allows us to award judgments, not participation trophies.”
This decision is relevant for anyone who is currently involved in IPR proceedings or is considering filing a petition for IPR. Although the Court’s limited remedy preserves the IPR regime as a whole, the USPTO director is now permitted to review panel decisions issued by APJs. It is unclear how the USPTO will implement this new director review, and participants in IPRs will be looking for guidance in the near term. However, this will likely present one additional opportunity for a party displeased with the outcome of a final written decision to argue for a rehearing. Furthermore, the fractured nature of this decision may invite a future Court to revisit parts of this holding in future decisions.