Since Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. 2019) was decided three and a half months ago, the Federal Circuit has vacated and remanded four cases to the Patent Trial and Appeal Board (the “PTAB” or “Board”) for proceedings consistent with the decision. In two of the decisions vacating and remanding the PTAB’s decisions, the Federal Circuit panels expressed concern with the Arthrex decision. In view of the growing number of concurring opinions, it appears increasingly likely that the Federal Circuit will grant the petitions for en banc rehearing filed in Arthrex.
The Federal Circuit in Arthrex found that administrative patent judges (“APJs”) were principal officers. Because removal of APJs was limited to “such cause as will promote the efficiency of the service,” the court concluded that the APJs were appointed in violation of the Appointments Clause of the Constitution. The court cured the constitutional defect going forward by severing the “efficiency of the service” portion of the statute and allowing APJs to be removed without cause. The case was remanded for a new hearing with a new panel of constitutionally appointed APJs. A more detailed discussion of the analysis in Arthrex can be found here.
Subsequently in Bedgear, LLC v. Fredman Bros. Furniture Co., 783 F. App’x 1029 (Fed. Cir. 2019), Judge Dyk and Judge Newman filed a concurrence expressing concerns with the Arthrex decision. Although the judges were bound to follow Arthrex, Judge Dyk and Judge Newman criticized the remedy of requiring a new hearing before a new panel. According to the concurrence, a new hearing is not required, imposes large unnecessary burdens on the inter partes review system, and involves unconstitutional prospective decision-making.
More recently, in Polaris Innovations Ltd. v. Kingston Tech. Co., Inc., No. 2018-1831, 2020 WL 504974, at *1 (Fed. Cir. Jan. 31, 2020), Judge Hughes and Judge Wallach concurred to note their disagreement with the merits and question the remedy set forth in the Arthrex panel decision. Judge Hughes and Judge Wallach disagreed with the characterization of the APJs as principal officers. According to the concurrence, the Supreme Court has declined to set forth exclusive criteria for distinguishing between principal and inferior officers. The hallmark of an inferior officer is whether a presidentially-nominated and senate-confirmed principal officer directs and supervises the inferior officer’s work at some level.
The Polaris Innovations concurrence criticized Arthrex for “pay[ing] insufficient attention to the significant ways in which the Director directs and supervises the work of the APJs and, instead, focuses on whether the Director can single-handedly review and reverse Board decisions, and whether APJs are removable at will.” The director has significant powers of direction and supervision over the Board and individual APJs, including the power to issue binding policy guidance, institute and reconsider institution of an inter partes review without appellate review, select APJs to preside over an instituted inter partes review, single-handedly designate or de-designate any final written decision as precedential, and convene a panel of three or more members of his choosing to consider rehearing any Board decision.
Further, the concurrence criticized the Arthrex decision for “misapprehend[ing] the applicable efficiency of the service standard that protects APJs.” Under the “efficiency of the service” standard, APJs may be disciplined and removed for “misconduct [that] is likely to have an adverse impact on the agency’s performance of its functions.” Although the APJs may not be removed without cause, the Supreme Court has not required that a civil servant be removable at will to qualify as an inferior officer. Consequently, Judge Hughes and Judge Wallach concluded that the APJs are inferior officers rather than principal officers.
Judge Hughes and Judge Wallach further questioned whether the remedy proposed by the Arthrex panel comports with congressional intent. The severed “efficiency of the service” standard for removal of APJs originates in Title 5 of the United States Code and applies to Federal employees generally. The concurrence emphasized that the Arthrex panel severed a separate statute in a separate title of the United States Code, and only to APJs. Further, the “efficiency of the service” standard had been part of the statute in various forms for over 30 years and Congress made no changes to this portion of the statute with the most recent revisions of the America Invents Act in 2011. Nevertheless, Judge Hughes and Judge Wallach “reluctantly conclude[d]” that the “efficiency of the service” standard could be severed as it applies to the removal protections for APJs because “the bar for non-severability is so high, and Congress can, at the end of the day, make another legislative choice if it disagrees with the outcome here.”
Based on the concurring opinions discussed above, it appears that at least Judge Dyk, Judge Newman, Judge Hughes, and Judge Wallach have concerns regarding the Arthrex decision. Whether the Federal Circuit will grant the petitions for en banc rehearing in Arthrex remains to be seen.