Last week, the United States Court of Appeals for the Federal Circuit issued an opinion in Arthrex, Inc. v. Smith & Nephew, Inc., 2018-2140 (Oct. 31, 2019), holding the way Administrative Patent Judges (APJs) are appointed to the Patent Trial and Appeal Board (PTAB) unconstitutional.
Smith & Nephew filed a petition for inter partes review (IPR) challenging an Arthrex patent. A three-judge panel of APJs heard the IPR. The PTAB instituted review, and issued a final written decision finding all challenged claims unpatentable. Arthrex appealed, alleging among other things that the method of appointing APJs violates the Appointments Clause of the Constitution.
On appeal, the Federal Circuit first addressed whether to decide the constitutional challenge given that it was first raised on appeal. The Court concluded that the challenge constituted “one of those exceptional cases that warrants consideration despite Arthrex’s failure to raise” it at the PTAB. The Court emphasized that timely resolution of the issue was critical to providing certainty to those who rely on IPRs to resolve concerns over patent rights.
On the merits of the constitutional challenge, the Court explained the Appointments Clause sets out two categories of “Officers of the United States”—principal officers and inferior officers. Principal officers must be appointed by the President, while inferior officers may be appointed by the Secretary of Commerce. The Court concluded it was clear, and undisputed, that APJs are officers, and not mere employees. The Court further concluded APJs are principal officers, not inferior officers, emphasizing “[t]he lack of any presidentially-appointed officer who can review, vacate, or correct decisions by the APJs combined with [] limited removal power.” Because principal officers must be appointed by the President and confirmed by the Senate, and APJs are not, the Court held “the current structure of the Board violates the Appointments Clause.” Having so decided, the Court next determined whether there existed any remedial approach it could take to address the constitutionality defect. The Court concluded that severing a portion of the statute, which placed removal restrictions on APJs, represented the narrowest possible modification to the statute and cured the constitutional problem by rendering APJs inferior, rather than principal, officers. Because the APJs that rendered the IPR decision on appeal were not constitutionally appointed at the time the decision was rendered, the Court vacated and remanded for a new hearing on the merits before a new panel of APJs.