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IP Alert: Commissioner of Patents Had Authority to Review IPRs While Moonlighting as USPTO Director

June 2, 2022

On May 27, in Arthrex, Inc. v. Smith & Nephew, Inc., the Federal Circuit agreed that the Commissioner for Patents, performing the duties of the Director of the USPTO, had the authority to decide a request for rehearing of a final written decision in an inter partes review (IPR) issued by the Patent Trial and Appeal Board (PTAB). The Federal Circuit held that the Commissioner’s denial of the request for rehearing did not violate either 1) the Appointments Clause of the Constitution 2) the Federal Vacancies Reform Act (FVRA), or 3) the Constitution’s separation of powers.

This decision is the latest in a series of consequential decisions resulting from a single IPR brought by Smith & Nephew against Arthrex, Inc.’s (Arthrex) patent directed to a surgical device for securing sutures. Initially, the PTAB found that various claims of Arthrex’s patent were invalid. Arthrex appealed and argued, inter alia, that the PTAB lacked the constitutional authority to issue final decisions because the appointment of Administrative Patent Judges (APJs) by the Secretary of Commerce, rather than the President, violated the Appointments Clause. The Federal Circuit agreed, issuing a statutory fix to address the Appointments Clause issue and remanding for rehearing by a new panel of APJs. Further details of that decision may be found here.

The Supreme Court vacated the Federal Circuit’s decision and held that the USPTO director’s inability to review final written decisions rendered by APJs resulted in an Appointments Clause violation. The Supreme Court fashioned a remedy to the constitutional issue by severing a portion of the Patent Act to permit the Director to review such decisions. The Supreme Court then remanded “to the Acting Director for him to decide whether to rehear” the case. A detailed discussion of that decision may be found here.

On remand, Arthrex requested “rehearing by the Director.” However, the office of both the Director, and the Deputy Director, were vacant, and the Commissioner of Patents, pursuant to an internal standing order of the USPTO, was performing “the non-exclusive functions and duties of the [Director].” The Commissioner denied rehearing, and Arthrex once again appealed to the Federal Circuit.

Arthrex argued that it did not receive the remedy the Supreme Court ordered because it did not get a rehearing by a presidentially appointed, Senate-confirmed principal officer (a PAS officer), and the Commissioner’s exercise of the Director’s authority to decide rehearing petitions violated the Appointments Clause, the FVRA, and the Constitution’s separation of powers.

The Federal Circuit disagreed. First, while the Commissioner is not a PAS officer, the Federal Circuit found that the Appointments Clause allows an inferior officer to perform the functions and duties of an absent PAS office on a temporary, acting basis, and that Arthrex’s arguments to the contrary would require the Federal Circuit to ignore the Supreme Court’s remand to the “Acting Director” and also to find the FVRA to be unconstitutional to the extent that it permits inferior officers to perform a PAS officer’s duties in an acting capacity.

Second, the Federal Circuit held that the Commissioner’s decision to deny Arthrex’s rehearing request did not violate the FVRA, which dictates who may temporarily perform a PAS officer’s functions and duties, because the FVRA only applies to non-delegable duties, and deciding rehearing requests is a delegable duty. The Federal Circuit noted that adopting Arthrex’s position would have significant consequences, including calling the validity of 668,000 patents signed by the Commissioner into question, as well as all the IPR decisions issued during the Commissioner’s tenure as acting Director.

Last, the Federal Circuit found no merit in Arthrex’s argument that the Constitution’s separation of powers precludes the Commissioner from performing the Director’s duties because the Commissioner is removable only for misconduct or unsatisfactory performance. The Federal Circuit noted that the President need no cause to remove the Commissioner from his role as the Director’s stand-in, because the President could simply appoint a new Director under the FVRA.

On the merits of Arthrex’s challenge to the PTAB’s decision finding various claims of its patent invalid, the Federal Circuit affirmed.

This decision is primarily of interest to IPR practitioners and other practitioners of administrative law who may be considering challenges to an inferior officer’s authority to perform functions and duties of an absent PAS officer of an administrative agency, such as the USPTO. Here, the Federal Circuit decided to preserve the status quo rather than potentially invalidating over half a million patents and numerous IPR decisions.

For more information on this topic, please contact Fitch Even partner Paul B. Henkelmann.

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