U.S. Government Petitions for Certiorari in Arthrex Case

By Kevin E. Noonan --

Last fall, the Federal Circuit decided in Arthrex, Inc. v. Smith & Nephew, Inc. that Administrative Patent Judges (APJs) serving on the Patent Trial and Appeal Board (PTAB) were principal officers and thus had been improperly appointed under the Appointments Clause, and accordingly vacated a PTAB determination in an inter partes review proceeding and remanded for consideration by a panel of properly appointed APJs (see "Federal Circuit Holds APJs Are Principal Officers").  Thereafter, in Polaris Innovations Ltd. v. Kingston Technology Co., the Federal Circuit relied on its Arthrex decision to vacate and remand a PTAB determination in an IPR.  One significant difference in the procedural posture of these cases is that in Arthrex the constitutional issue was raised for the first time on appeal, where in Polaris the patentee had raised the issue before the PTAB in the first instance.  The U.S. Government has now petitioned the Supreme Court for certiorari to review, and overturn, the Federal Circuit's decision, supported by a brief by the Solicitor General.

The Questions Presented in the petition are two:

1.  Whether, for purposes of the Appointments Clause, U.S. Const. Art. II, § 2, Cl. 2, administrative patent judges of the U.S. Patent and Trademark Office are principal officers who must be appointed by the President with the Senate's advice and consent, or "inferior Officers" whose appointment Congress has permissibly vested in a department head.

2.  Whether the court of appeals erred by adjudicating an Appointments Clause challenge brought by a litigant that had not presented the challenge to the agency.

The first question is substantive, the second procedural; this stratagem gives the Court a way to dispense with the case by holding that the CAFC improperly considered the issue in the first place should the Court otherwise not be inclined to decide the separation-of-powers question in these instances.

The government's brief in support of its petition asserts that the Supreme Court should review the Federal Circuit's decision because it invalidates an act of Congress and erred in reaching its conclusion.  The brief sets forth the players:

• the Director, who is a principal officer appointed by the President and confirmed by the Senate, can be dismissed at will by the President.  35 U.S.C. 3(a)(1);
• the PTAB, an "administrative tribunal within the USPTO.  35 U.S.C. 6"; and
• Administrative Patent Judges (APJs), who are "persons of competent legal knowledge and scientific ability who are appointed by the Secretary [of Commerce], in consultation with the Director."

Important for the decision below, the Solicitor General reminds the Court that APJs, like most civil servants, can only be removed for "cause," specifically "only for such cause as will promote the efficiency of the service," 5 U.S.C. 7513(a).

The brief makes the case in the Background section that the Director "controls" ("direct and supervise") APJs.  For example, "[t]he Director also has plenary authority to decide which Board members will hear each case, and he may alter a panel's composition at any time," citing 35 U.S.C. 6(c).  The Director also has plenary power to decide what PTAB decisions are (or are not) precedential (i.e., the Director has to agree).  Further powers wielded by the Director is "unreviewable discretion to institute, refuse to institute, or de-institute particular [inter partes] reviews," citing 35 U.S.C. 314(a) and (d); and Thryv, Inc. v. Click-to-Call Techs., LP, 140 S. Ct. 1367, 1373-75 (2020).

In Arthrex, as the Solicitor General explains, the Federal Circuit considered the issue because "the case "implicates the important structural interests and separation of powers concerns protected by the Appointments Clause," and that "[t]imely resolution [wa]s critical to providing certainty to rights holders and competitors alike."

The appellate court recognized that, under Edmond v. United States, 520 U.S. 651 (1997), inferior officers are "officers whose work is directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate."  The petition sets forth the three Edmond factors used by the Federal Circuit to render its decision (review authority, supervisory authority, and removal authority), noting the first supported the view that APJs were principle officers and the second supported the converse view while the third supported principal officer status.  And the brief notes the remedy:  "sever[ing] the application of Title 5's [efficiency-of-the service] removal restrictions" to administrative patent judges."

In Polaris, the Federal Circuit applied the rule in Arthrex; in Polaris the Appointments Clause challenge was timely made.  Here the Solicitor General's brief noted the internal dissention at the Federal Circuit in considering the decision, which was followed by a fractured opinion issued in the denial of rehearing en banc, which rendered "five separate opinions, joined by a total of eight judges."

The government presents several arguments supporting the certiorari grant.  First, there is the significance of the consequences.  The brief argues that, as a general rule a court invalidating a statute is "the gravest and most delicate duty that this Court is called upon to perform," citing Rostker v. Goldberg, 453 U.S. 57, 64 (1981), quoting Blodgett v. Holden, 275 U.S. 142, 148 (1927).  This significance is compounded here because the decision is one that affects "more than 200 agency adjudicators, in an agency that administers intellectual-property rights affecting vast swaths of the Nation's economy" according to the Solicitor General's brief.

And the Solicitor General reminds the Court that "no other circuit is likely to issue a conflicting decision or to offer its own views on the Appointments clause" because of the unique exclusive jurisdiction the Federal Circuit exercises over patent law questions.  And as is frequently the case, the "sharply divided separate opinions" of the Federal Circuit on the question of en banc review is asserted in analogy to circuit court splits available in other areas of the law to signal a need to Supreme Court consideration (although this argument is not always persuasive; see "U.S. Supreme Court on Eligibility: Nothing to See Here, Move Along").

On the merits, the government argues that the Federal Circuit erred because the government disagrees with the Federal Circuit's interpretation and application of the Edmond decision.  The government contends that Edmond directed that "a court should consider the cumulative effect of the supervisory mechanisms available to various superior officers" (emphasis in the brief).  The Solicitor General argues that PTAB judges are "directed and supervised" "at least to the same degree" as the judges whose appointment was at issue in Edmond.  The brief sets forth the authority exercised over PTAB judges by the Secretary of Commerce and the Director.  First, they are authorized to appoint and remove PTAB judges, their removal being subject to the same regulations as other civil servants which "generally permits removal for any legitimate reason with a connection to 'the work of the agency,'" citing Brown v. Department of the Navy, 229 F.3d 1356, 1358 (Fed. Cir. 2000).  In addition, the Director has "unfettered authority" to control the PTAB judges' activities regarding which cases they will adjudicate.

Second, the statute gives the Director "broad authority" to establish policies binding on PTAB judges, the brief enumerating many of these powers, and emphasizing the "sole discretion" with which the Director can exercise these powers.

Third, the brief argues that the Director's supervisory powers extend to the specific proceedings before the PTAB, including the "unilateral[, unreviewable] authority to decide whether to institute a proceeding."

Consequently, the government argues:

The work of a USPTO administrative patent judge thus is superintended by presidentially appointed, Senate-confirmed officers at virtually every step.  An administrative patent judge decides only those Board cases, if any, that the Director assigns him.  In deciding those cases, the judge must apply the patent laws in accordance with regulations, policies, and guidance the Director has issued, and with past decisions the Director has designated as precedential.  Once the Board issues its final written decision, that decision can be deemed precedential (or not) by the Director, countermanded prospectively by further guidance he issues, or both.  And any proceeding in which the judge participates may always be reheard de novo by a review panel whose members the Director also selects—a panel that typically includes the Director himself and two other particular senior Executive officials.

The brief then sets forth the government's reasons why the Federal Circuit's reasoning for coming to a contrary conclusion was erroneous.  The first of these is the Court's failure to consider the "cumulative effect" of supervision and direction imposed on APJs by the Secretary and Director, and instead focusing on whether any of the three specific supervisory mechanisms (review, supervision, removal) were in place.  While acknowledging that these factors can be "relevant" to the inquiry the Solicitor General argues that it was error for the Court to consider these factors in isolation and "treat[] them as ends in themselves."  And the brief notes that the characteristics advanced in the government's arguments -- the Director's "broad policy and supervisory authority" -- were acknowledged by the Federal Circuit but overridden by a combination of the two other factors ("review" and "removal") considered by the Court.

The government criticizes this "checklist" approach as being inconsistent with the Edmond admonition that the proper calculus is to determine "whether, when all of the existing control mechanisms are considered together, the officer's 'work is directed and supervised' by superiors to a sufficient degree."  In particular, the brief asserts that the inability to remove an APJ without cause (which the Federal Circuit considered in determining that a PTAB APJ is a principal officer) is an indirect means of "induc[ing]the subordinate to do the superior's will," which is much less significant when the superior has direct means to do so (e.g., by inter alia "establish[ing] binding substantive rules that administrative patent judges must follow and to choose which judges will apply them in every case").  The brief argues that the removal power here is just as robust as in Edmond, as is the ability of the Director to review PTAB decisions.

The government synthesizes these arguments by stating that the Federal Circuit erred by "considering each mechanism of supervision and direction separately, and by discounting prerogatives that did not independently satisfy the panel's benchmarks, [thereby] overlook[ing] the ways that the various powers the Secretary and Director possess work together."

The Federal Circuit's second error requiring Supreme Court review identified in the government's brief was its "willingness to excuse the patent owner's administrative forfeiture" by not raising its constitutional objection before the PTAB in the first instance.  In addition, the Solicitor General argues that the Federal Circuit erred by adopting a "categorical exception to ordinary rules of administrative exhaustion" in this case.

The government begins its argument be enunciating the consequences of the Federal Circuit's decision, which permitted appellants to challenge PTAB decisions on Appointment Clause grounds without having raised the issue below, resulting in the Court vacating "more than 100 [PTAB] decisions."  This has "unwound the significant efforts of the agency and the litigants in the administrative proceedings—often spanning a year or longer—to determine the patentability of the challenged claims" and "[i]f allowed to stand, the Federal Circuit's forfeiture ruling in Arthrex will force the prevailing parties in many other cases to relitigate issues before newly constituted Board panels," leading to "duplicative proceedings."  The government reminds the Court that there is a public interest involved here, wherein "duplicative proceedings are unlikely to yield any meaningful public benefit, and many patent claims that the Board has found unpatentable will remain in force, creating uncertainty in numerous patent-reliant industries throughout the Nation's economy."

The Solicitor General supports this argument by citing precedent to the effect that fairness to "those who are engaged in the tasks of administration" generally requires objections to be timely made before the administrative body; such administrative and judicial economy principles are not unique to the question before the Court.  The rule "protects administrative-agency authority" and "promotes efficiency," according to the brief.  This should have been dispositive before the Federal Circuit, according to the government, and the appellate court had previously applied the principle in this manner, e.g. in In re DBC, 545 F.3d 1373 (Fed. Cir. 2008), and Trading Techs. Int'l, Inc. v. IBG LLC, 771 Fed. Appx. 493 (2019) (per curiam).

Moreover, the government argues that there are no exceptional circumstances here that justify the Federal Circuit straying from the proper application of this principle.  The Solicitor General rejects Arthrex's argument that Freytag v. Commissioner, 501 U.S. 868, 895 (1991), provides "broad discretion to excuse such forfeitures whenever separation-of-powers are raised" because the Freytag decision recognized the general rule and opined that it should only be the rare case where a Court should exercise this discretion.  But that decision did not establish a general rule that courts should excuse forfeiture in any case where a separation-of-powers question is raised, according to the brief.  Arthrex's second reason, also deficient in the government's view, is that raising the issue before the PTAB would have been "futile" because "the Board lacked authority to "correct[] the problem.'"  The Solicitor General asserts the Director's "unfettered discretion" to refuse to institute an IPR would have afforded "complete relief" if, in response to having raised the argument before the Board the Director refused to institute the proceeding.  And even absent this (which appears to be an impractical way to resolve a constitutional issue) the government argues that raising the issue below "might have facilitated subsequent judicial review of Arthrex's constitutional claim," citing Elgin v. Department of the Treasury, 567 U.S. 1, 16 (2012).

The brief concludes by reminding the Court that these two cases present different issues (e.g., Polaris does not implicate the forfeiture issue, a decision on which regarding Arthrex could prevent the Court from reaching the separation-of-powers issue) and thus the Court should grant certiorari in both cases.

Arthrex and Smith and Nephew also have both filed certiorari petitions, the former of which will be considered in a subsequent post and the latter of which has been considered here.

Comments

[skeptical]

I believe that the attempted second prong has recently been affirmed that one need not raise the issue below. This was a case decided within the last year, and it seems troubling that a brief from the US Government would overlook such an on point item.

[Kip]

Can you please post the PDF files for the Arthrex cases so we can read them?