Fixing a Hole in the PTAB:  A Divided Supreme Court Revises an Unconstitutional Process for Challenging Patents

patented_dburton-300x252-1In a case that was closely watched by the patent bar, United States v. Arthrex, Inc., the Supreme Court ruled on June 21st of this year that the process by which administrative judges are appointed to the Patent Trial and Appeal Board to conduct "inter partes reviews" (IPR) of issued U.S. patents is unconstitutional.  The Court, though, held that the process could be remedied, simply by the Court declaring unenforceable the statutory provisions that make IPR decisions unreviewable by the Director of the United States Patent and Trademark Office (PTO).  The IPR process will therefore, as coach Jim Valvano said about basketball teams in the March Madness tournament, "survive and advance"; the varied opinions by which the Court reached that result are of interest, as discussed below.

As background, the IPR process was included in the America Invents Act of 2011 to address criticisms that the PTO in recent decades has issued too many dubious patents.  While review of a patent application is ex parte -- only the applicant and the PTO are involved -- "inter partes" review of an issued patent allows anyone other than the patent owner to petition the Patent and Trademark Appeal Board ("PTAB") of the PTO to cancel a patent, on the ground that the patentee improperly purports to have invented what was already in the public domain or was "obvious" (as defined by 35 U.S.C. Section 103).  If the petition is accepted, there is an adversarial proceeding before a panel of three or more Administrative Patent Judges (APJs) selected for the case, culminating in a "trial."  After the trial, the panel issues a written decision, which is appealable to the Court of Appeals for the Federal Circuit. 35 U.S.C. Section 319.

IPRs have been frequently used (there have been over 3,000 written decisions issued by the PTAB as of September 2020), and in Oil States Energy Services, LLC v. Greene's Energy Grp., LLC, 138 S. Ct. 1365 (2018), the Supreme Court ruled that, despite its adjudicatory nature, the IPR procedure was not an unconstitutional exercise of Article III judicial power by a federal agency.  Oil States, though, did not address the issue raised in Arthrex, which is whether the APJs that make up the Patent Trial and Appeal Board are appointed constitutionally.  The Appointments Clause (Art. II, Section 2 of the Constitution) requires that certain officers of United States, referred to as "principal officers" in the caselaw (although they are simply called "Officers" in the text of the Constitution), be nominated by the President with the advice and consent of the Senate. In contrast, Congress can authorize appointment of "[I]nferior Officers" by the President alone, or by "Heads of Departments."  

Under 35 U.S.C. Section 6, APJs are appointed to the PTAB by the Secretary of Commerce, with no Congressional input.  Thus, their manner of appointment does not comply with that of a "principal officer."  However, APJs can "issue a final decision binding the Executive Branch," since the only statutory avenue for relief from an unfavorable PTAB decision is in the courts. Arthrex, Slip Op. at 19.

That last fact is the main reason Chief Justice Roberts' majority opinion in Arthrex concluded that the appointment process for APJs is unconstitutional.  To Justice Roberts, regardless of where APJs fall on an org. chart, their ability to issue decisions cancelling issued patents without any executive branch supervision means that "the nature of their responsibilities is inconsistent with their method of appointment."  Id. at 8.  "[A]dequate supervision entails review of decisions issued by inferior officers."  Id. at 15.

Oddly, as Justice Thomas pointed out in his dissent, the majority opinion never expressly says whether APJs are "principal officers" akin to the "Ambassadors, other public ministers and Consults, Judges of the Supreme Court" listed in the Appointments Clause. Justice Roberts countered that it does not matter: if APJs are principal officers, then they are not "appointed in the manner required by the Appointments Clause"; if inferior officers, then they are "exceeding the permissible scope of their duties under that Clause."  Arthrex, Slip Op. at 19.  "[B]oth formulations describe the same constitutional violation."  Id.

In dissent, Justice Thomas was not as troubled by the lack of executive branch review of the PTAB's decisions.  He cited the Director of the PTO's ability to select panel members in particular cases, and the Director's authority to shape PTAB policies and procedures.  In his view, even under the majority's "functional" approach, APJs are clearly "inferior officers" in the PTO bureaucracy.  Consistently with his "originalist" philosophy, Justice Thomas also relied on the historical understanding of what type of offices are "inferior."  Thomas Op. at 3-10.

The three Justices of the Court's liberal wing agreed with Justice Thomas' analysis, with Justice Breyer writing an additional dissent that hearkened back to the early 20th century progressive ideal of ceding power to a cadre of experts who make decisions on objective, scientific bases, rather than based on politics, as he asserted that Congress made the APJs' decisions independent because of "the need for expertise" and "the importance of avoiding political interference."  Breyer Op. at 5.  Similarly, an Ohio State law professor is quoted in an article about the Arthrex decision ("In Arthrex, Justices Deal New Blow to Agency Independence," Law 360, June 22, 2021) for the idea that lack of supervision is a feature, not a bug: Congress was "trying to insulate decisions from politics and political accountability, and so they thought they'd get these really smart Ph.D. scientists and engineers to sit on these boards and decide the cases based on their expertise."  Ultimately, in Justice Breyer's view, the policy choice of how to organize an agency is for Congress, and the judiciary has no grounds under the Appointments Clause to interfere, particularly where, under this statutory scheme, the Director can still "exercis[e] policy control over the APJs," and the independent nature of the APJs' work does not "break the chain of accountability" of the President for "bad nominations."  Breyer Op. at 5.

Breyer's views were outvoted 5 to 4.  Yet, as noted above, the majority's decision did not spell the end for the IPR process, since Justice Roberts stated that the unconstitutional part of the law could be "severed," via a ruling by the Court that the Director's powers necessarily include "the authority to provide for a means of reviewing PTAB decisions."  Arthrax, Slip Op. at 21.  Any provisions in the statutes relating to IPRs that restrict the Director's power to review are unenforceable.  Id.

Notably, no group of five Justices agreed on everything other than the result. While Justice Gorsuch agreed that the IPR process as enacted violated the Appointments Clause, he parted company with Justice Roberts on the remedy.  In a dissent on that issue, Gorsuch opined that fixing the problem was Congress' role, which meant that only three other Justices who joined Justice's Roberts opinion on the merits concurred with him on the proper remedy.  However, Justice Breyer stated that if the statute were unconstitutional, then Justice Roberts' approach was correct, so he agreed with (and supplied the necessary majority for) the Court's "remedial holding."  Breyer Op. at 7.

How much will Arthrex change the IPR landscape, assuming that the PTO, following Justice Roberts' pathway to constitutionality, adopts a process for review of decisions by the Director of PTAB?  My guess is not much.  The review process will probably resemble that for the International Trade Commission, whose orders become effective unless disapproved within 60 days by the President (19 U.S.C. § 1337(j)).  Since 1975, when the disapproval process was enacted, it appears Presidential disapproval has occurred only six times (the last time was in 2013).  So the only practical result of Arthrex may be to give the Director of the PTO a theoretical -- but seldom-invoked -- ability to overrule the PTAB.

The main takeaway for practitioners is that IPRs will go on.  Nevertheless, complacency may not be warranted, in that Justice Gorsuch, in his separate opinion, dolefully predicted that more constitutional issues will arise from the unusual statutory scheme for IPRs.

About The Author

Don Burton | Faruki Attorney