Arthrex, Inc. v. Smith & Nephew, Inc., Appeal No. 2018-2140 (Fed. Cir. Oct. 31, 2019)

In the most important case to affect America Invents Act review proceedings this year, the Federal Circuit struck down a portion of the America Invents Act as unconstitutional because the appointment of PTAB judges violates the Appointments Clause.  In this write-up, we address the Court’s decision, its fix to the constitutionality issue, and then summarize the effects in terms of past decisions and cases going forward.


IPRs are “hybrid” proceedings similar to court proceedings.  A party, subject to certain requirements, can file a petition with the PTAB, requesting that it consider the patentability of certain claims of an issued patent.  The Patent Act, 35 U.S.C. § 314, requires that the Director of the U.S. Patent and Trademark Office (“PTO”) determine whether to institute an IPR proceeding; however, the Director delegated that authority to the PTAB, see 37 C.F.R. § 42.4(a).  The PTAB consists of the Director, Deputy Director, Commissioners for both Patents and Trademarks, as well as Administrative Patent Judges (“APJ”).  The Director is appointed by the President; the Deputy Director and Commissioners are appointed by the Secretary of Commerce; and the APJs are appointed by the Secretary of Commerce, “in consultation with the Director.”  Once an IPR (or other AIA proceeding) is instituted, a three-judge panel of PTAB members conducts the IPR proceeding; that panel can consist of any of the PTAB members.  If review is not dismissed before the conclusion of the proceedings, the PTAB issues a final written decision determining patentability of the challenged claims, and after the time for appeal has expired or any appeal has been terminated, the Director issues a certificate canceling any claim of the patent if it was determined unpatentable.

The Problem 

During an IPR, the PTAB held that one of Arthrex’s patents was invalid as anticipated.  On appeal, Arthrex challenged for the first time the Administrative Patent Judges (“APJs”) who made up the PTAB panel, and asserted an Appointments Clause challenge.  

The panel of PTAB members in this case, as is typical, consisted of three APJs appointed by the Secretary of Commerce.  APJs are “Officers of the United States”—i.e., someone who exercises significant authority pursuant to the laws of the United States and as such are accountable to elected Executive officials.  The critical issue was whether APJs, as the law is currently written, are “principal officers” or “inferior officers.”  The law is clear that principal officers must be appointed by the President under the Appointments Clause.  Courts look to three factors, indicating the level of control and supervision appointed officers have over officers and decision-making, in determining whether an officer is a principal or an inferior officer for Appointments Clause purposes – 1) whether the 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.

Arthrex argued that the APJs were principal officers who must be, but who were not, appointed by the President. 

As to review power, the Court found that the review within the agency over APJ panel decisions is insufficient to support a conclusion that APJs are principal officers. 

As to supervision power, the Court found that because the Director has the authority to promulgate regulations governing the conduct of IPRs, to issue policy directives and management supervision of the PTO, the Director’s oversight of APJs is more than merely “high-level, arms-length control,” as Arthrex argued.  Moreover, no decision by the PTAB can be designated or de-designated as precedential without the Director’s approval, and all precedential decisions are binding on future panels.  For these and other reasons, the Court held that the Director’s administrative supervisory authority over the APJs, including authority over even their pay, weighs in favor of a conclusion that APJs are inferior officers.

Finally, as to removal power, the Court, looking to the Supreme Court’s view that removal power over an officer is “a powerful tool for control” when unlimited, found that under the current law, both the Secretary of Commerce and the Director lack unlimited removal authority, thus supporting a conclusion that APJs are principal officers.  While Smith & Nephew and the Government argued that the Director has the authority to remove an APJ from any IPR mid-case, as well as to refuse to assign any APJ to any panel, the Court explained that the Director’s authority to assign certain APJs to a certain panel is not the same as the authority to remove an APJ from judicial service without cause.  The issue, then, is whether the Director has the authority to remove an APJ from service at will and without cause from office as opposed to from an IPR panel.  The former, according to the Court, is “a powerful tool for control of an inferior.”  But the Patent Act does not provide statutory authority for removal of the APJs from office; rather, it allows that APJs may be removed from employment at the USPTO subject to the provisions relating to Federal employees, that is, they may be removed “only for such cause as will promote the efficiency of the service.”  Moreover, while the Director has the authority to promulgate regulations governing IPRs and provides written policy directives, the Director does not have the ability to modify a decision issued by APJs, even to correct legal misstatements.  Ultimately, APJs issue decisions that are final on behalf of the Executive Branch and they are not removable from office without cause, thus weighing in favor of a decision that APJs are principal officers. 

The Court thus held that APJs are principal officers, requiring that their appointment be by the President with confirmation by the Senate, and not by the Director as the law is currently structured, creating an Appointments Clause violation rendering the current structure of the PTAB unconstitutional.

The Fix

As a result of this holding, the Court considered remedial approaches it could take to address the constitutionality issue.  Taking the narrowest viable approach to remedying the violation of the Appointments Clause, the Court invalidated and severed the Patent Act’s provision that APJs are subject to the removal restrictions discussed above.  In other words, the Court removed the clause from the Patent Act restricting the Director from removing APJs from office without cause. With this modification, the Court held that APJs become inferior rather than principal officers, thus remedying the Appointments Clause violation.

However, because the final written decision in this IPR issued while there was an Appointments Clause violation, the Court vacated and remanded the case.  And because it would be unfair to send the case back to the same panel to rubber-stamp the ruling they made when they were in violation of the Appointments Clause, the Court remanded to a new panel of APJs for rehearing.  That panel has the discretion whether to rely on the papers as submitted or instead open the case up for supplementation and re-argument.

Impact on Other Cases

Although the case effectively found the AIA to be unconstitutional, the effect on decisions is narrow, in part because the Court remedied the Constitutional defect by severing a portion of the Patent Act.  Thus, while all PTAB AIA decisions prior to October 31 were unconstitutional, all PTAB decisions after October 31 are again in compliance with the Appointments Clause. 

Additionally, the case only has an effect on AIA reviews that have a reached a final written decision.  It does not affect cases where no final decision has been reached.  Accordingly, all pending AIA reviews are now unaffected—the panel will have satisfied the Appointments Clause by the time it passes final judgment by means of the final written decision.

Furthermore, the case will not affect AIA reviews where a final written decision has been rendered but an opening appeal brief before the Federal Circuit has already been filed and an Appointments Clause challenge was not addressed in the opening brief.  See our discussion of three follow up cases decided by the Federal Circuit the following day, which are discussed immediately below.  In cases where an opening appeal brief has been filed, an Appointments Clause challenge will only be allowed if it was brought up in the opening appeal brief.  See below, Uniloc 2017.

Because in most cases an opening appeal brief is filed within six months of issuance of the final written decision, the effect of the Court’s decision in Arthrex will be essentially limited to AIA reviews where (i) a final written decision was issued in the last six months—provided an opening appeal brief was not filed, and (ii) cases where a party preserved an Appointments Clause challenge in an opening appeal brief.

All of those cases are likely to see a remand for rehearing by a new PTAB panel.

The opinion can be found here.


Customedia Tech., LLC v. Dish Network Corp., Appeal No. 2018-2239, et al (Fed. Cir. Nov. 1, 2019)

Customedia Tech., LLC v. Dish Network Corp., Appeal No. 2019-1001 (Fed. Cir. Nov. 1, 2019)

These follow-on cases from the Arthrex decision, issued the following afternoon, established that an Appointments Clause challenge under Arthrex will not be allowed for cases where the opening appeal brief has already been filed.  In each of these cases, Customedia submitted notices of supplemental authority after its opening appeal brief was filed.  The Federal Circuit held: 

We conclude that Customedia has forfeited its Appointments Clause challenges. “Our law is well established that arguments not raised in the opening brief are waived.” . . . Customedia did not raise any semblance of an Appointments Clause challenge in its opening briefs or raise this challenge in a motion filed prior to its opening briefs. Consequently, we must treat that argument as forfeited in these appeals.

The opinions can be found here and here.

Uniloc 2017 LLC v. Facebook, Inc., Appeal No. 2018-2251 (Fed. Cir. Nov. 1, 2019) (non-precedential)

In a separate case where an Appointments Clause challenge was raised in the opening briefs, the Federal Circuit struck the case from the oral arguments calendar for November 4, 2019 and remanded to the PTAB.

The opinion can be found here.

Idenix Pharms. LLC v. Gilead Sciences, Inc., Appeal No. 2018-1691 (Fed. Cir. Oct. 30, 2019).

In an appeal from a post-trial motion to find claims invalid as enabled, the Federal Circuit affirmed, and further found the claims invalid for failure to meet the written description requirement.  The patent at issue covers pharmaceuticals used for treating hepatitis C.  It claims a molecular structure with five carbon atoms to which different atoms or groups of atoms can be attached, and a methyl group in one of the positions and a “non-hydrogen substituent” at two other positions.  This yields literally billions of possibilities of molecular structures, and the patent itself disclosed a large number of possibilities.  The district court also held that the pharmaceutical must be efficacious in treating hepatitis C.  Thus, the claims have both a structural requirement (molecular structure) and a functional requirement (treatment of the disease).  After a jury trial, the district court found the claims invalid because a person would not know which of those billions of molecules would be able to treat hepatitis C.  The Federal Circuit affirmed in a 25-page opinion authored by Chief Judge Prost.  Judge Newman dissented.

The opinion can be found here.

Liqwd, Inc. v. L’Oreal USA, Inc., Appeal No. 2018-2152 (Fed. Cir. Oct. 30, 2019)

In this case, the Federal Circuit vacated and remanded a post-grant review determination that claims of Liqwd’s keratin treatment patent were unpatentable as obvious.  While the Court agreed with the PTAB’s determination that all limitations were disclosed in the prior art, it found that the Board erroneously disregarded as irrelevant a factual finding that L’Oreal would not have developed its accused products without access to Liqwd’s confidential, unpublished patent application.  The Court distinguished its prior decision in Iron Grip Barbell Co. v. USA Sports, Inc., 392 F.3d 1317 (Fed. Cir. 2004), in which it had found that evidence of similarity to an issued patent did not rise to “copying” as relevant to objective indicia of non-obviousness, which “require[d] the replication of a specific product.”  Collecting authority recognizing such “copying” where an accused infringer made development choices based on public information about a patented invention, the Court held that “where there is evidence of actual copying efforts, that evidence is always relevant.”  Because substantial evidence supported the Board’s conclusion that L’Oreal’s development resulted from its access to Liqwd’s confidential patent application, the Court vacated and remanded for the Board to weigh that evidence accordingly in its obviousness analysis. 

The opinion can be found here.

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