Arthrex Files Certiorari Petition in Arthrex case

By Kevin E. Noonan --

Arthrex recently filed a(nother) certiorari petition with the Supreme Court, this time in Arthrex, Inc. v. Smith & Nephew, Inc., which has also been the subject of petitions from the U.S. government and Smith & Nephew.  (This is the later-decided case between the parties, and has as its hallmark the Federal Circuit's decision that Administrative Patent Judges (APJs) at the Patent Trial and Appeal Board, or PTAB, were improperly appointed under the Appointments Clause because they are principal officers requiring Presidential appointment and Senate approval).

The Questions Presented are:

1.  Whether the court of appeals' severance remedy is consistent with congressional intent, where Congress has long considered tenure protections essential to secure the independence and impartiality of administrative judges.

2.  Whether the court of appeals correctly held that the elimination of APJ tenure protections was sufficient to render APJs inferior officers, even though their decisions still are not reviewable by any principal executive officer.

The genesis of the questions Arthrex petitions the Court to review, according to its petition, is "Congress's decision to grant administrative patent judges ("APJs") final authority to revoke previously issued patents" wherein there is "[n]o superior officer in the Executive Branch can review their decisions."  These characteristics are those of principal officers, Arthrex argues, and the Federal Circuit was correct in so deciding.  Where the Federal Circuit erred, in Arthrex's view, was in not leaving it to Congress to remedy the situation but rather by imposing a judicial fix:  it "eliminated the tenure protections that shield APJs from politics and improper influence."  "That remedy," Arthrex contends, "not only contravenes congressional intent, but fails to cure the Appointments Clause violation."  This is because the inter partes review procedures enacted in the Leahy-Smith America Invents Act (AIA) were intended to be "adjudicative and fair," and this intent would be thwarted if as a consequence of the Federal Circuit's decision APJs could be removed "for policy reasons, political reasons, or no reason at all."  And Arthrex argues that the remedy does not cure the constitutional infirmity, because APJs remain principal officers to the extent that "they still have the power to issue final decisions on behalf of the agency without any possibility of review by a principal officer."  This cannot be what Congress intended (i.e., where "the fate of patents rests with subordinate officers issuing final decisions while trying to please their superiors and preserve their jobs"), Arthrex argues in view of the importance ("the backbone") of intellectual property to the American economy.

After a brief history of APJs (originally, "examiners-in-chief"), including their status as principal officers from 1861 until 1975 (when Congress changed the law) and a synopsis of their powers and duties, the petition asserts that it was only in 1980 (when Congress created "an administrative scheme" that was ex parte reexamination) that the PTAB's predecessor, the Board of Patent Appeals and Interference, was permitted to invalidate a duly-granted patent.  (Technically, the BPAI was not created until 1984 when Congress merged the Board of Appeal with the Board of Interferences.)  The petition makes the distinction that in enacting IPRs, Congress created (intentionally) the first adjudicative "scheme" as opposed to the earlier "examinational" proceedings.

Following an explanation of the proceedings below (both before the PTAB and the Federal Circuit), the petition makes its substantive arguments for the Court to grant the petition.  First, Arthrex argues that severability, as the Federal Circuit fashioned it in its remedy, is deserving of the Court's review because the tenure protections of the statute that would be severed have evinced Congressional intent to ensure impartial adjudications in review of administrative agency actions.  The Federal Circuit rewrote the statute in a way that would "give it an effect altogether different from that sought by the measure viewed as a whole" which is improper, citing Murphy v. Nat'l Collegiate Athletic Ass'n, 138 S. Ct. 1461, 1482 (2018).  This required the Federal Circuit to conclude that "Congress was more concerned about providing a potent new mechanism for canceling patents than about the impartiality of the adjudicative process through which those property rights may be revoked."  But this is a decision for Congress not the courts, Arthrex argues.  In addition, as a consequence of reduced impartiality and independence, the integrity of the IPR regime will be compromised.  This concern has historical antecedents, including Ramspeck v. Fed. Trial Exam'rs Conference, 345 U.S. 128, 130, 132 & n.2 (1953), and several reports from committees looking into the situation, including Report of the Special Committee on Administrative Law, 61 Ann. Rep. A.B.A. 720, 723 (1936); Administrative Management in the Government of the United States 37 (1937); Attorney General's Comm. on Admin. Procedure, Final Report 46 (1941); Administrative Procedure: Hearings Before the H. Comm. on the Judiciary, 79th Cong. 81 (June 21, 1945), under circumstances where administrators were dependent for their "day-to-day" employment.  Arthrex argues that Congress heeded these concerns by enacting the Administrative Procedures Act in 1946 which established the civil service protections the Federal Circuit severed in its decision below, codified as 5 U.S.C. § 7521(a); this interpretation was supported by portions of the legislative history quoted by Arthrex in its petition.

Arthrex's argument isn't based solely on Congressional intent; the petition argues that there are "significant due process concerns at stake" requiring the parties to be afforded a "fair trial in a fair tribunal," citing Withrow v. Larkin, 421 U.S. 35, 46 (1975).  APJs' neutrality is threatened by removing these civil service protections Arthrex argues because "it permits superiors to exert subtle yet powerful influence over adjudications without the accountability that comes from a transparent review process."  These concerns are particularly relevant to the administrative adjudications provided by the Leahy-Smith America Invents Act because of the drastic change those proceedings occasioned on U.S. patent law.  An important requirement for the type of adjudications Congress intended (mimicking civil litigation) requires a "disinterested decisionmaker," Arthrex argues.

For all these reasons Arthrex asserts that the Federal Circuit's decision "fundamentally distorted" the IPR regime because it "discarded a safeguard Congress has long considered imperative for agency adjudicators" and which is "indispensable to make the trial-like proceedings Congress created in the AIA actually fair." The petition cites in support dissents from denial of rehearing en banc from several of the Federal Circuit judges (including Judges Dyk and Hughes) and cites similar concerns from Members of Congress.  There is also a risk that courts reviewing the decisions from other agencies having ALJs appointed under the same constitutionally flawed procedure will mimic the Federal Circuit and thus put neutrality in agency adjudications at risk in 27 different agencies and 2,000 ALJs, as well as 10,000 adjudicators who are not ALJs.  All of which are reasons for the Court to grant certiorari, Arthrex argues, because "[a]bsent review, other courts could follow the same path, imperiling the fairness of administrative proceedings across the government."

Turning to jurisprudential principles the petition argues that the Federal Circuit's severance provisions "def[y] settled principles," because courts are unable to produce by severance a statute giving it effects "altogether different from [those] sought by the measure viewed as a whole" (i.e., as Congress enacted it), citing Murphy.  The Federal Circuit panel used as its basis for severance of APJ protections that Congress would have intended to have "a Board whose members are removable at will rather than no Board at all" due to the importance of the IPR proceedings enacted under the AIA.  The flaw in that reasoning, according to Arthrex, is that "Congress was trying to improve patent review—not mow down patents by any means necessary" (although there have been occasions that reasonable patent practitioners might have questioned that conclusion).  Arthrex concludes that Congress "plainly intended" APJs to have "the tenure protections it has long considered essential to independent and impartial adjudication" at least in view of the "billions of dollars of intellectual property" that their decisions can affect.

The other source of error Arthrex asserts in its petition is an eminently practical one:  "[i]t does not fix the problem" which is that because "there is still no principal executive officer who can review APJ decisions" APJs themselves are principal officers.  This portion of the petition disputes the Federal Circuit's application of the Edmond v. U.S. decision which Arthrex argues established under parallel facts and circumstances that Coast Guard Court of Criminal Appeals judges were inferior officers.  520 U.S. 651 (1997).  Similarly, in Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010), the Court itself relied on review vel non of decisions to find that members of the Board were inferior officers.  Justice Alito raised "serious questions under the Appointments Clause" for railroad arbitrators in Department of Transportation v. Association of American Railroads, 575 U.S. 43 (2015).  Arthrex further argues that in cases (including Freytag v. Commissioner, 501 U.S. 868 (1991), and Lucia v. SEC, 138 S. Ct. 2044 (2018)) where the Court found ALJs to be inferior officers their decisions were reviewable by a principal officer.

This distinction is important because "a hallmark of principal officer status" is being able to speak for the United States without review by a superior.  Arthrex finds this tradition existing "from the earliest days of the Republic" and is a tradition extending from those antecedents in patent law (back to the original Patent Act, Act of Apr. 10, 1790, ch. 7, §1, 1 Stat. 109, 109-110).  The primacy of principal officers is "a cornerstone of the modern administrative state" Arthrex contends, reflecting "long-continued policy of Congress [to] jealously confine[] the power of final decision in matters of substantial importance to a few principal administrative officers" (citing inter alia the APA, codified at 5 U.S.C. § 557(b)).  Arthrex characterizes the authority of APJs to render decisions appealable only to Article III courts (specifically, the Federal Circuit and the Supreme Court) as being a "sharp departure from precedent and tradition" unless APJs are principal officers.

Finally, Arthrex argues that the Federal Circuit exceeded its jurisprudential bounds by not leaving it to Congress to amend the statute, and that it promotes "inertia" by providing its own remedy as imperfect as Arthrex argues it is.  Congress, after all, "is far better positioned to determine how best to revise the statute" because it "can edit a statute as it sees fit."  It can also "weigh competing policy concerns," employ a broader perspective regarding the "full impact" of any statutory revisions, "select from a range of historically grounded remedies that are not available to the courts," or even abandon inter partes review entirely, citing the STRONGER Patents Act of 2019, H.R. 3666, 116th Cong. (July 10, 2019) (thus providing a provocative but not entirely unrealistic closing to the petition).

Comments

[Paul F Morgan]

Re one assertion above, interfering claims were removed from issued patents by the same PTO personnel by losing PTO interference proceedings for long before 1980. [The then-available civil suit review thereof was rarely successful.]

[Paul F Morgan]

Re: "Finally, Arthrex argues that the Federal Circuit exceeded its jurisprudential bounds by not leaving it to Congress to amend the statute."
Are they arguing that the Fed. Cir. should have just ignored a Constitutional challenge by a party?

[skeptical]

Mr. Morgan,

I find it LESS a matter of "just ignore" and MORE a matter of attempting an action by the wrong branch of the government.

The Judicial Branch does NOT have the authority to directly rewrite the law written by Congress (with the weak excuse of "but we think that they would rewrite the law this way")

[Kevin E. Noonan]

Arthrex is appealing the severance provision - they have no dispute with the Federal Circuit finding in their favor on the constitutional issue.

And as for the interference situation, there the rationale was that one of the parties was not entitled to its patent because their inventors were not the first to invent - a question of competence rather than validity.