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Highly technical appellate court ruling casts long shadow over Patent Office trials


A highly technical ruling on an obscure issue late last month by the Federal Circuit Court of Appeals has cast a pall over proceedings conducted within the US Patent and Trademark Office (USPTO), one which Congress may have to dispel.

Recall that the 2011 America Invents Act established the Patent Trial and Appeals Board (PTAB), a tribunal within the USPTO that provided a faster, cheaper, easier mechanism to challenge granted patents.

Since fully coming online in 2013, the PTAB has rendered invalid tens of thousands of patent claims. Depending on whom you believe, these proceedings have either inhibited inventors from receiving the just deserts of their efforts or helped reduce the overall cost of intellectual property litigation nationwide. (Both can also be true.)

These PTAB trials have been subject to numerous challenges, including constitutional ones, but not until this past Halloween had the Federal Circuit — the court with exclusive jurisdiction over patent appeals — actually found them unsound.

In Arthrex v. Smith & Nephew, the Federal Circuit found that the administrative patent judges (APJs) named to the PTAB bench did not pass constitutional muster because their appointments were not confirmed by the Senate.

Under the Appointments Clause, Article II, Section 2, Clause 2 of the Constitution:

The President . . . shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law.

In evaluating whether an appointed official qualifies as a principal “Officer” requiring the Senate’s advice and consent, the Federal Circuit considered:

1) whether an appointed official has the power to review and reverse the officers’ decision; (2) the level of supervision and oversight an appointed official has over the officers; and (3) the appointed official’s power to remove the officers.

The court then concluded that because neither the USPTO director nor the Secretary of Commerce “exercise[s] sufficient direction and supervision” over PTAB judges, they must be considered “Officers” within the meaning of the Appointments Clause and therefore required Senate confirmation. Thus, at least in theory, the entire PTAB bench does not pass constitutional muster, and its rulings are null and void.

The Federal Circuit did, however, suggest a remedy: curtailing the judges’ federal employee protections, meaning they would serve at the director’s pleasure and be terminable at will. Alternatively, new PTAB judges could be confirmed by the Senate, a far more arduous process than their current appointment mechanism.

So what happens next? Well, the Arthrex case may be reheard by the full Federal Circuit, which happens with more momentous decisions. It may also be reviewed by the Supreme Court, whose word is final.

But assuming it stands, the case imperils pending appeals of PTAB decisions where the participants have not yet waived any potential Appointments Clause arguments.

More generally, it casts a shadow over the PTAB’s entire operation, as the administrative judges suffer from a certain legitimacy deficit.

At a hearing last week before the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property, and the Internet, various practitioners and academics suggested several alternative ways forward. Proposals included appointing a chief PTAB judge who would be subject to Senate approval and who would review the rulings of “inferior,” unconfirmed judges; creating a body of additional Senate-confirmed PTAB judges who would review these rulings; or empowering the USPTO director himself to review them.

Whether or not any of these fixes, or those suggested by the Federal Circuit, would require legislation remains an open question. In the meantime, numerous judges are twisting in the wind, as are the cases they’re hearing.