Briefing begins in US v. Arthrex

US vs. Arthrex, 19-1434 (Supreme Court 2020).

Earlier this year the Supreme Court granted writ of certiorari on the PTAB appointments clause issues stemming from the Federal Circuit’s determination that (1) PTAB judges were Officers of the United States who should have been appointed by the President (rather than by the Secretary of Commerce), but (2) the appointments problem was curable by eliminating any statutory job security held by the judges (this reduced them to “inferior officers” who are properly appointed by a head of department, such as the Secretary of Commerce).  The court agreed to hear the first two questions, but not the third (regarding waiver/forfeiture).

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, if administrative patent judges are principal officers, the court of appeals properly cured any Appointments Clause defect in the current statutory scheme prospectively by severing the application of 5 U.S.C. 7513(a) to those judges.
3. Whether the court of appeals in Arthrex erred by adjudicating an Appointments Clause challenge that had not been presented to the agency.

July 22, 2020 Memorandum for the United States.

The case involves three parties.

• Arthrex, whose patent is being challenged in inter partes review. Arthrex brought the appointments clause challenge, but strongly disagrees with the severing “cure.”
• Smith & Nephew, the IPR petitioner. Smith & Nephew fundamentally argues that the the PTAB judges are at most inferior officers and thus were properly appointed.
• US Gov’t intervened in the lawsuit to defend the PTAB decision, and also argues that PTAB judges are inferior officers.

The first round of merits briefing has been filed by the US and Smith&Nephew.  As discussed below, neither party addressed the second question — they will have an opportunity to do so after Arthrex files its opening brief later this month. Additional amicus briefs are expected this week.

• Opening Brief for the United States
• Opening Brief for S&N
• Amicus Brief from Prof. John Harrison

US Gov’t Brief:  In its brief, the US argues strongly that PTAB administrative patent judges “are inferior officers whose appointment Congress permissibly vested in the Secretary of Commerce.”  US Government did not address the second question of curing the Appointments problem.

For its analysis, the US attempted to align its argument with the Supreme Court’s approach in Edmond v. United States, 520 U.S. 651 (1997) (Inferior officers must be “directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate.”).

The Gov’t brief walks through the ways that the Secretary of Commerce and USPTO Director (both presidential appointees) possess authority to direct and supervise PTAB judges:

• The Secretary (in consultation with the PTO director) appoints the judges.
• The Secretary can remove the judges for “efficiency” purposes and that includes “failing to follow their supervisors’ instructions.”
• The PTO Director has “unfettered power to decide which adjudicators will sit on any Board panel.”
• The PTO Director has power to “promulgate regulations governing Board proceedings; issue binding policy directives, including instructions regarding how the patent laws and USPTO policies apply to particular fact patterns; and determine which Board decisions are precedential and therefore binding on future panels.”
• “The Director has additional prerogatives regarding the conduct of individual proceedings. He may decide unilaterally whether a particular inter partes or post-grant review will proceed at all, and he possesses substantial authority over any rehearings that the Board may grant.”

Role of Rulemaking: Note here that that one important question arises regarding the extent that the Director has “given-up” authority by rulemaking and by tradition.  Under the promulgated regulations as currently in operation, the PTO Director has delegated substantial authority to the PTAB and to the Chief Judge.  An important example of this is that the PTAB determines institution decisions. A question for the Court will be the extent that those prior rulemakings should be considered when analyzing the officer-status of PTAB judges.

Mechanical Turks: In its opinions, the Federal Circuit also analyzed the situation using Edmond. In its brief, the US asserts that the court’s approach is “deeply flawed.”  Most importantly, the US argues that Edmond should be seen as providing for a flexible and open ended analysis of the level of supervision and control; whereas the Federal Circuit followed a more “mechanistic” of distilling Edmond into three discrete criteria and then focusing solely on those.

Burdensome: An additional important criteria here has to do with the burdensome nature of having the President Nominate and the Senate Confirm a large number of administrative officials. From 1836-1975, the patent judges (then called examiners-in-chief) were appointed by the President.  However, the expansion of the patent system (and administrative state in general) began to identify those appointments as an unneeded burden on the President and thus shifted their appointment to the Secretary of Commerce.  I expect that some members of the court – such as Justice Gorsuch – will see this justification as carrying little weight.