In Arthrex Inc. v. Smith & Nephew, Inc., Appeal 2018-2140 (Fed. Cir. Oct. 31, 2019), the Federal Circuit concluded that the PTAB’s Administrative Patent Judges (APJs) are “principal” officers and their appointment by the Secretary of Commerce therefore violates the Constitution’s Appointments Clause. The issue arose in an appeal of a decision by a panel of APJs canceling claims in Arthrex’s patent in a recent inter partes review (IPR). But because that decision occurred while there was an Appointments Clause violation, the court vacated and remanded the IPR to be decided by a different panel of APJs.The court also severed text from the patent statute that limited the removal of APJs by the Director, thereby transforming them from “principal” officers to “inferior” officers, so as to remedy the constitutional violation. Following this decision, APJs will not lack authority to render final written decisions in IPRs.
The Appointments Clause states that “[The President] … shall nominate, and by and with the Advice and Consent of the Senate, shall appoint … Officers of the United States, whose Appointments are … established by Law: but the Congress may by Law vest the Appointment of such inferior Officers … in Heads of Departments.” U.S. Const., art. II, § 2, cl. 2. The court concluded that APJs exercise the type of significant authority that qualifies them as “Officers of the United States.” The court noted that the Patent Office Director exercises sufficient supervision such that APJs may be considered as inferior officers. But the court also noted that APJs issue final decisions on behalf of the United States without further agency review by the Director or another presidentially-appointed officer, and that APJs cannot be removed from their office without cause. On balance, therefore, the court determined that APJs are principal officers. And as such officers, “they must be appointed by the President and confirmed by the Senate; because they are not, the current structure of the Board violates the Appointments Clause.” Slip Op. at 20.
The court fixed the Appointments Clause violation by severing from 35 USC § 3(c) the requirement that APJs can be removed from office only for cause, a requirement incorporated by reference to Title 5’s removal (from office) protections in 5 U.S.C. § 7513(a). Specifically, the court held “unconstitutional the statutory removal provision as applied to APJs, and sever[ed] that application.” Id. at 25, 26. Severing that removal restriction, said the court, renders APJs inferior rather than principal officers even though the Director does not review their final written decisions. After the court’s decision, APJs, as inferior officers, are properly appointed by the Secretary of Commerce, consistent with the Constitution’s Appointments Clause. On remand, to cure the Constitutional violation that accompanied the Board’s earlier decision, a new panel of APJs must be designated and grant a new hearing.
The Federal Circuit “see[s] the impact of this case as limited to those cases where final written decisions were issued and where litigants present an Appointments Clause challenge on appeal.” Id. at 29. When the government intervened in the appeal in mid-March 2019, it identified about a dozen other pending appeals that apparently raise the same Constitutional challenge. That list has likely grown over the past half year and may continue to grow in Arthrex’s wake. Those cases may await a remand to a new panel for a new hearing, similar to the disposition in Arthrex. Time will tell whether the Board reaches any different decisions the second time around in these remanded cases. The longer-lasting impact, unstated by the court, may be on the APJs, who may now be removed from office without cause.