Federal Circuit Issues Nearly Earth-Shattering Ruling for PTAB

On October 31, the Court of Appeals for the Federal Circuit vacated and remanded the case Arthrex Inc. v. Smith & Nephew, Inc., Arthrocare Corp. 18-2140.  What was once a simple patent dispute has now resulted in a ruling that nearly disrupted the foundations of the Patent Trial and Appeal Board (PTAB), the administrative court responsible for patent appeals.

Arthrex Inc. appealed from the final written decision of the PTAB, which held claims 1, 4, 8, 10-12, 16, 18 and 25-28 of U.S. Patent No. 9,179,907 unpatentable. Arthrex argued the appointment of the Board’s Administrative Patent Judges (“APJs”) by the Secretary of Commerce, set forth in Title 35 of the United States Code, violated the Appointments Clause of the U.S. Constitution. Arthrex claimed that the decision was invalid because the sitting judges were unconstitutionally appointed. As such, they argue, the case should be remanded to a new panel of APJs to which Arthrex is entitled.

Smith & Nephew and Arthrocare argued that Arthrex lost its right to an Appointment Clause challenge because it did not raise the issue before the PTAB. Arthrex countered that it would have been futile to raise the Appointments Clause challenge before the Board because it lacked authority to grant relief.

The court concluded “APJs are principal officers. The lack of any presidentially-appointed officer who can review, vacate, or correct decisions by the APJs combined with the limited removal power lead us to conclude, like our sister circuit in Intercollegiate, which dealt with the similarly situated CRJs, that these are principal officers. While the Director [of the United States Patent and Trademark Office] does exercise oversight authority that guides the APJs procedurally and substantively…the control and supervision of the APJs is not sufficient to render them inferior officers.” Furthermore, the court stated, “The current structure of the Board under Title 35 as constituted is unconstitutional.”

Regarding the timeliness claim, the court stated, “[w]e agree with Arthrex that its Appointments Clause challenge was properly and timely raised before the first body capable of providing it with the relief sought – a determination that the Board judges are not constitutionally appointed.”

“We conclude that this Constitutional challenge is one in which the Board had no authority to provide any meaningful relief and that it was thus futile for Arthrex to have raised the challenge before the Board… We have decided only that this case, where the final decision was rendered by a panel of APJs who were not constitutionally appointed and where the parties presented an Appointments Clause challenge on appeal, must be vacated and remanded…finally, on remand we hold that a new panel of APJs must be designated and a new hearing granted.”  

The court decided to cure the unconstitutionality of Title 5, by following the precedents set forth in Free Enterprise Fund and Intercollegiate. By  “severing the words by concluding that those removal restrictions are unconstitutional as applied to APJs,” APJs would be legally classified as inferior officers and not subject to the same Appointments Clause restrictions. This preserved the PTAB statutory scheme and the intention for APJs to be inferior officers.  

The decision had the potential to invalidate the entire existence of the PTAB.  PTAB was created in 2012 as a result of the Leahy-Smith America Invents Act, and is an administrative forum where patent disputes can be resolved before involving the traditional courts.