In Arthrex Inc. v. Smith & Nephew Inc. et al., case number 18-2140, the U.S. Court of Appeals for the Federal Circuit recently considered whether the appointment of the Board’s Administrative Patent Judges (“APJs”) by the Secretary of Commerce, as currently set forth in Title 35, violates the Appointments Clause of the U.S. Constitution.  The Federal Circuit held that the statute as currently constructed makes the APJs principal officers.  To remedy the violation, the Federal Circuit concluded that severing the portion of the Patent Act restricting removal of the APJs is sufficient to render the APJs inferior officers and remedy the constitutional appointment problem.  As the final written decision on appeal issued while there was an Appointments Clause violation, the appropriate course of action was for this case to be remanded to a new panel of APJs.

As some background, inter partes review is a “‘hybrid proceeding’ with ‘adjudicatory characteristics’ similar to court proceedings.”  After a petitioner files a petition requesting that the Board consider the patentability of issued patent claims, the Director of the United States Patent and Trademark Office (“USPTO”) determines whether to institute an inter partes review proceeding.  A three-judge panel of Board members then conducts the instituted inter partes review.  If an instituted review is not dismissed before the conclusion of the proceedings, the Board issues a final written decision determining the patentability of challenged claims. Once the time for appeal of the decision expires or any appeal has been terminated, the Director issues and publishes a certificate canceling any claim of the patent finally determined to be unpatentable.

Turning to the specific issues, the Federal Circuit first concluded that APJs are principal officers. The Federal Circuit reasoned the lack of any presidentially-appointed officer who can review, vacate, or correct decisions by the APJs combined with the limited removal power lead the Federal Circuit to conclude that these are principal officers. While the Director does exercise oversight authority that guides the APJs procedurally and substantively, and even if he has the authority to de-designate an APJ from inter partes reviews, the control and supervision of the APJs are not sufficient to render them inferior officers. The lack of control over APJ decisions does not allow the President to ensure the laws are faithfully executed because “he cannot oversee the faithfulness of the officers who execute them.” These factors, considered together, confirm that APJs are principal officers under Title 35 as currently constituted, according to the Court. As such, they must be appointed by the President and confirmed by the Senate.  And, because they are not, the Court concluded the current structure of the Board violates the Appointments Clause.  Thus, the Federal Circuit concluded that severing the portion of the Patent Act restricting removal of the APJs is sufficient to render the APJs inferior officers and remedy the constitutional appointment problem.

Having determined that the current structure of the Board under Title 35 as constituted is unconstitutional, the Federal Circuit next considered whether there is a remedial approach to address the constitutionality issue in this case.  The Federal Circuit concluded that challenges under these circumstances should be incentivized at the appellate level.  Thus, the Federal Circuit held that a new panel of APJs must be designated on remand and a new hearing granted.  The Federal Circuit reasoned that when a judge has heard the case and issued a decision on the merits, “[h]e cannot be expected to consider the matter as though he had not adjudicated it before. To cure the constitutional error, another ALJ . . . must hold the new hearing.”

However, the Federal Circuit also instructed that “on remand the decision to institute is not suspect; we see no constitutional infirmity in the institution decision as the statute clearly bestows such authority on the Director pursuant to 35 U.S.C. § 314. Finally, we see no error in the new panel proceeding on the existing written record but leave to the Board’s sound discretion whether it should allow additional briefing or reopen the record in any individual case.”

Finally, the Federal Circuit also specifically noted that it has decided only that this case, where the final decision was rendered by a panel of APJs who were not constitutionally appointed and where the parties presented an Appointments Clause challenge on appeal, must be vacated and remanded. Appointments Clause challenges are “nonjurisdictional structural constitutional objections” that can be waived when not presented. Thus, the Federal Circuit instructed that the impact of this case was limited to those cases where final written decisions were issued and where litigants presented an Appointments Clause challenge on appeal.