Arthrex, Inc. v. Smith & Nephew, Inc., Appeal Nos. 2018-2140 (Fed. Cir. Mar. 23, 2020)

In its only precedential decision this week, the Federal Circuit denied petitions for panel rehearing and rehearing en banc of its precedential decision in Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. 2019). In that case, the Court found that USPTO administrative patent judges (“APJs”) of the Patent Trial and Appeal Board are “principal officers” who must be appointed by the president and confirmed by the Senate, and thus that all then-sitting APJs had been unconstitutionally appointed. To remedy the defect, the Court severed the statutory removal protections of 5 U.S.C. § 7513(a) as applied to APJs, rendering sitting APJs inferior rather than principal officers. Our previous write-up of that case is available here.

Judge Moore, joined by Judges O’Malley, Reyna, and Chen, concurred in the denial of the petitions for rehearing. Judge Moore agreed with the reasoning of the original Arthrex panel that the Patent Act permitted the Director of the USPTO insufficient control over APJs to render them inferior officers, as Congress had intended, and that the narrowest remedy to avoid disruption of ongoing P.T.A.B. reviews was to sever Title 5’s removal protections for APJs such that they could be removed by the Director at will. Judge Moore argued that rehearing the case en banc “would have unraveled an effective cure,” and that proposals advanced by dissenting judges, including stays to permit Congress and the USPTO to enact a remedy, would result in additional disruption and delay in the inter partes review system.

Judge O’Malley, jointed by Judges Moore and Reyna, wrote a separate concurring opinion to emphasize that, contrary to Judge Dyk’s dissent, the severance remedy should not be retroactively applied, such that prior APJ actions would be rendered constitutional nunc pro tunc. Instead, Judge O’Malley observed that in still-pending appeals where Appointments Clause challenges had been preserved, the appellants should be entitled to the same relief of vacatur and remand.

Judge Dyk, joined by Judges Newman and Wallach, and joined in part by Judge Hughes, dissented. Judge Dyk argued that the invalidation of removal protections for APJs was a draconian remedy contrary to congressional intent, and suggested a temporary stay to permit Congress or the USPTO to devise a less disruptive remedy, such as providing for review of P.T.A.B. decisions by a panel including the USPTO Director. Judge Dyk further argued that remand in the case was not required, as any remedy should be applied retroactively to render prior APJ decisions constitutional. Judge Dyk also questioned the panel’s conclusion that APJs were principal officers under the existing statutory structure, noting that APJs play no role in articulating article policy, and that their authority was cabined by Federal Circuit review of P.T.A.B. decisions.

Judge Hughes, joined by Judge Wallach, also dissented. Judge Hughes affirmatively argued that APJs are not principal officers in light of the Director’s significant control over P.T.A.B. activities, including issuing binding policy guidance, instituting inter partes reviews, selecting panel compositions, designating or de-designating P.T.A.B. decisions as precedential, and removal of APJs for cause. Judge Hughes also disagreed with the panel’s severance remedy, and agreed with Judge Dyk that Congress should be given the opportunity to craft an appropriate fix.

Judge Wallach also dissented, also disagreeing with the panel’s determination that APJs are principal officers under the existing statutory structure.

The opinion can be found here.

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