Federal Circuit Says PTAB Judges Are Not Constitutionally Appointed
The U.S. Court of Appeals for the Federal Circuit, in an opinion authored by Judge Moore, has ruled that the current statutory scheme for appointing Administrative Patent Judges (APJs) to the Patent Trial and Appeal Board (PTAB) violates the Appointments Clause of the U.S. Constitution as it makes APJs principal officers. APJs are presently appointed by the Secretary of Commerce, but principal officers must be appointed by the U.S. President under the Constitution, Article II, § 2, cl. 2. To remedy this, the statutory removal provisions that are presently applied to APJs must be severed so that the Secretary of Commerce has the power to remove APJs without cause, said the Court.
Dismissing the government’s and appellees’ arguments that the Appointments Clause issue had been waived by the appellant, Arthrex, Inc., because Arthrex had not raised the issue with the PTAB, the Federal Circuit said that “this is an issue of exceptional importance, and we conclude it is an appropriate use of our discretion to decide the issue over a challenge of waiver.”
Officers, Not Employees
The Court first held that APJs are undoubtedly Officers, rather than employees, because they “exercise significant authority” as set out in Buckley v. Valeo:
Under 35 U.S.C. § 6(a), APJs “hold a continuing office established by law . . . to a position created by statute.” Lucia, 138 S. Ct. at 2053. The APJs exercise significant discretion when carrying out their function of deciding inter partes reviews. They oversee discovery, 37 C.F.R. § 42.51, apply the Federal Rules of Evidence, 37 C.F.R. § 42.62(a), and hear oral arguments, 37 C.F.R. § 42.70. And at the close of review proceedings, the APJs issue final written decisions containing fact findings and legal conclusions, and ultimately deciding the patentability of the claims at issue. See 35 U.S.C. § 318(a). The government itself has recognized that there is a “functional resemblance between inter partes review and litigation,” and that the Board uses “trial-type procedures in inter partes review.”
Furthermore, neither the government, as Intervenor, nor the appellees, Smith & Nephew, Inc., Arthrocare Corp., disputed that APJs are Officers rather than employees.
PTAB Judges are Principal Officers
The remaining question was therefore whether APJs are principal or inferior officers. In deciding this question, the Court took into account three factors set out in Edmond v. United States (1997):
“(1) whether an 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.”
Since the Secretary of Commerce and the Director of the USPTO are the only two presidentially-appointed officers that provide direction to the USPTO, and “neither of those officers individually nor combined exercises sufficient direction and supervision over APJs to render them inferior officers,” the Court found that APJs must be principal officers.
With respect to review power over final decisions of the APJs, the USPTO Director has no power to single-handedly review, nullify or reverse decisions rendered by a panel of APJs, wrote the Court. As for the government’s and appellees’ arguments that the Director does have tools at his or her disposal to intervene in PTAB proceedings, the Court was unpersuaded:
That authority offers no actual reviewability of a decision issued by a panel of APJs. At most, the Director can intervene in a party’s appeal and ask this court to vacate the decision, but he has no authority to vacate the decision himself. And the statute only gives the parties to the inter partes review the power to appeal the decision, not the Director…. The Director cannot, on his own, sua sponte review or vacate a final written decision.
The Court was also not impressed by the mechanism of the Precedential Opinion Panel, which allows the Director to designate certain decisions precedential and to convene panels comprising the Director, the Commissioner for Patents, and the Chief Administrative Patent Judge:
To be clear, the Director does not have the sole authority to review or vacate any decision by a panel of APJs. He can only convene a panel of Board members to decide whether to rehear a case for the purpose of deciding whether it should be precedential. No other Board member is appointed by the President. The government certainly does not suggest that the Director controls or influences the votes of the other two members of his special rehearing panel. Thus, even if the Director placed himself on the panel to decide whether to rehear the case, the decision to rehear a case and the decision on rehearing would still be decided by a panel, two-thirds of which is not appointed by the President.
Addressing the government’s final argument on review power, that the Director can decide not to institute an inter partes review in the first instance, which constitutes review power, the Court disagreed. “We do not agree that the Director’s power to institute (ex ante) is any form of review (ex post). For the past several years, the Board has issued over 500 inter partes review final written decisions each year. The relevant question is to what extent those decisions are subject to the Director’s review.”
On the topic of supervision power, however, the Federal Circuit found that the Director’s administrative oversight authority actually weighed in favor of a finding that APJs are inferior officers because the Director has the authority to promulgate regulations governing the conduct of inter partes review; to issue policy directives and management supervision of the USPTO; to provide guidance on applying the patent law to certain fact patterns; and because no decision of the Board can be designated or de-designated as precedential without the Director’s approval, among other reasons.
Finally, when considering the Director’s power to remove APJs, the Court found that “under the current Title 35 framework, both the Secretary of Commerce and the Director lack unfettered removal authority,” again weighing in favor of classifying APJs as principal officers. While the government argued that the Director has broad authority to exclude or remove APJs from particular panels or cases, or to designate panels, the Court held that “the Director’s authority to assign certain APJs to certain panels is not the same as the authority to remove an APJ from judicial service without cause…. The only actual removal authority the Director or Secretary have over APJs is subject to limitations by Title 5…[which] creates limitations on the Secretary’s or Director’s authority to remove an APJ from his or her employment at the USPTO. Specifically, APJs may be removed ‘only for such cause as will promote the efficiency of the service.’”
Such limitations, which effectively mean that APJs can only be removed for misconduct that would have an adverse impact on the agency, mean that the Director’s or Secretary’s supervision powers fall short of those necessary to render the APJs inferior officers, said the Court.
Thus, in spite of the USPTO Director’s oversight authority, which may weigh in favor of finding APJs inferior officers, overall, “the control and supervision of the APJs is not sufficient to render them inferior officers,” said the Court, adding:
The lack of control over APJ decisions does not allow the President to ensure the laws are faithfully executed because ‘he cannot oversee the faithfulness of the officers who execute them. These factors, considered together, confirm that APJs are principal officers under Title 35 as currently constituted. As such, they must be appointed by the President and confirmed by the Senate; because they are not, the current structure of the Board violates the Appointments Clause.
Having thus found the appointment of APJs to be in violation of the Appointments Clause, the Court reasoned that the narrowest remedy would be to sever the current restriction on removal of APJs from the statute, which would render them inferior officers. The Court followed the approach set forth by the Supreme Court in Free Enterprise Fund v. Public Company Accounting Oversight Board (2010) and followed by the U.S. Curt of Appeals for the D.C. Circuit in Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Board (2012). The Court said:
Title 5 U.S.C. § 7513(a) permits agency action against those officers and employees “only for such cause as will promote the efficiency of the service.” Accordingly, we hold unconstitutional the statutory removal provisions as applied to APJs, and sever that application. Like the D.C. Circuit in Intercollegiate, we believe severing the restriction on removal of APJs renders them inferior rather than principal officers. Although the Director still does not have independent authority to review decisions rendered by APJs, his provision of policy and regulation to guide the outcomes of those decisions, coupled with the power of removal by the Secretary without cause provides significant constraint on issued decisions.
The Court ultimately ruled that the PTAB’s determination that Arthrex’s claims were unpatentable as anticipated must be vacated and remanded to a new panel of APJs.
There will be more to come on this decision as industry reactions roll in.