Arthrex, Inc. v. Smith & Nephew, Inc., Appeal No. 2018-2140 (Fed. Cir. May 27, 2022)

In a return to the Federal Circuit, this case again sets precedent concerning Patent Office Director review of Patent Trial and Appeal Board (PTAB) decisions.  In a prior iteration of the appeal, the Supreme Court held that inter partes reviews (IPRs), created by the America Invents Act, were unconstitutional because the PTAB judges who decide them are not appointed pursuant to the Appointments Clause of the U.S. Constitution.  The Supreme Court remedied this by judicially reforming the statute to allow the Director of the Patent Office to review IPR decisions, and remanding the case “to the Acting Director of the Patent Office for him to decide whether to rehear” the case.  See our write-up of the Supreme Court’s decision here.

On remand, Arthrex requested “rehearing by the Director.”  However, the Director office was vacant, as was the Deputy Director office.  Arthrex’s rehearing petition was thus heard by the Commissioner for Patents, pursuant to a standing directive in the case of vacancies at the top of the Patent Office.  The Commissioner denied rehearing.  Arthrex appealed, questioning whether the Commissioner’s decision was sufficient under the Supreme Court’s prior decision and under the Federal Vacancies Reform Act and the Constitution’s Separation of Powers.  It also challenged the PTAB’s decision on the merits.  Like the Federal Circuit, we address the more interesting issues first.

First, the Court considered Arthrex’s challenge that the Commissioner’s exercise of the Director’s authority violated the Appointments Clause of the U.S. Constitution.  The Commissioner for Patents is not a Presidentially-appointed, Senate-confirmed officer, and thus may not ordinarily issue a final decision binding the Executive Branch.

However, inferior officers, such as the Commissioner, “may perform the functions and duties of [a Presidentially-appointed, Senate-confirmed] officer on a temporary, acting basis.”  The Court relied on United States v. Eaton, 169 U.S. 331 (1898), for this principle.  There, the consul general to Siam appointed a missionary to the position of vice consul general.  The consul general then took a leave of absence to return home, where he died.  The Supreme Court held that an inferior officer “charged with the performance of the duty of [a] superior for a limited time, and under special and temporary conditions,” need not be Presidentially appointed and Senate confirmed.  Otherwise, “the discharge of administrative duties would be seriously hindered.”

Based on Eaton, the Federal Circuit held that the Commissioner was duly authorized to fulfill the role of the Director on a temporary, acting basis.  Moreover, the Supreme Court had reaffirmed Eaton in its own prior decision in this (the Arthrex) case.  Thus, the Court held that the Commissioner’s actions did not violate the Appointments Clause.

Next, the Court considered Arthrex’s challenge that the Commissioner did not violate the Federal Vacancies Reform Act.  That statute allows acting officers to perform the duties of appointed officers in certain circumstances when a vacancy arises.  Arthrex argued that the statute applied in this situation.  The Court, however, held that the plain language of the statute applies only to non-delegable duties of the appointed officer.  Although this left the statute’s scope “vanishingly small,” the Court held that this does not “justify departing from the plain language of the statute.”  The Court provided considerable analysis for this argument.

That left open the question of whether the Director’s ability to review IPR decisions under the Supreme Court’s prior decision was “non-delegable.”  The Federal Circuit held it was not.  In what may be the most procedurally consequential portion of the decision, the Federal Circuit held that “under the Patent Act this discretion includes the discretion to delegate review of rehearing requests.”  The Court relied on the Supreme Court’s permissive language when it reformed the statute in the prior appeal: “The Director accordingly may review final [Board] decisions.”  Because the power to review was held to be delegable by the Director, the Commissioner’s decision did not violate the FVRA.  Astute observers will keep an eye on how the Director applies this holding as the IPR procedures continue to evolve.

Third, the Court considered—and rejected—Arthrex’s separation of powers argument, finding it “has no merit.”  The argument was based on statutory limits on the right of the President to remove the Commissioner from office.  The Court separated the Commissioner’s duties as between his appointed role as Commissioner and his temporary role here acting as Director.  The Court noted that the President may not have the power to remove the Commissioner in his role as Commissioner, but the President nonetheless has the power to remove him as acting Director “with the stroke of a pen.”  Thus, there was no violation of the separation of powers.

Finally, the Federal Circuit reviewed the PTAB’s decision on the merits, and found no reversible error in the Board’s anticipation analysis.  The decision largely turned on whether the patent claims could claim priority to an earlier application.  That question turned on whether each application in the chain satisfied the written description requirement for the claims at issue.  PTAB had held that an intervening application did not include a key limitation, and the Court agreed.

The decision can be found here.

By Nika Aldrich

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This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.

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