The U.S. Court of Appeals for the Federal Circuit has decreed that the regulations governing appointment of judges to the Patent Trial and Appeal Board (PTAB) violate the U.S. Constitution a decision that gives a medical device maker a new bite at patent litigation, but which also raises the question of whether a large number of PTAB decisions will have to be relitigated.
The case of Arthrex v. Smith & Nephew, Inc. addressed a dozen claims found in the 9,179,907 patent held by Arthrex Inc., of Naples, Fla. The Patent Trial and Appeal Board a three-judge panel of administrative patent judges (APJs) appointed to handle inter partes reviews (IPRs) for the Patent and Trademark Office (PTO) determined that the claims in question were unpatentable because they were anticipated by prior art.
The question for the Federal Circuit, however, was whether the APJs were employees of the PTO or principal officers. In the latter case, their presence on the board is unconstitutional, Arthrex argued, and the Federal Circuit agreed, stating that the statute, "as currently constructed, makes the APJ's principal officers."
The Federal Circuit said APJs, as principal officers, must be appointed by the president of the U.S., but these judges are nonetheless appointed by the Secretary of Commerce. Arthrex did not raise the issue during the IPR, but the Federal Circuit said despite that oversight on Arthrex's part, the question is "of exceptional importance," and thus it was an appropriate use of the court's discretion to decide the issue.
Significance of authority a deciding factor
The Federal Circuit concluded that APJs are officers rather than employees of the PTO due to the significant authority they exercise. The court then invoked a three-step exercise to determine whether such judges are principal rather than inferior officers. Thanks in part to the inability of the director of the PTO a position currently held by Andrei Iancu to remove these judges, they are deemed principal officers.
Consequently, PTAB judges can be removed for few causes, such as for misconduct, leading the Federal Circuit to consider a narrow mechanism of resolution, which rendered the PTAB judges inferior officers. Thus, the Federal Circuit remanded the case to PTAB, albeit with a mandate that the rehearing be conducted with a new panel of judges.
Mike Heim, founding partner and managing director of Heim, Payne & Chorush LLP, of Houston, told BioWorld that the Federal Circuit is not saying that the judges have to be appointed by the U.S. president. The emphasis on the court's part was on whether a presidentially appointed office holder has sufficient control over the process. "That's where the bulk of the decision is focused," Heim said, adding that one of the issues is that the PTO director has no authority in the statute or regulations to independently reverse the PTAB's findings.
At most, there is a process by which another three-judge panel can be put in place to re-hear a case before PTAB, but Heim said that doesn't happen very often, and that this is about the limits of the PTO director's oversight up to now.
Heim said the remedy proposed by the Federal Circuit "is an interesting one," in that it boils down in part to saying, "we're going to fix this by allowing the PTO director to fire these people for cause." The ability to dismiss a PTAB judge at will essentially solves the problem, he said, adding that the new panel of judges who will hear the Arthrex case will be operating under this at-will determination. The new panel may be able to revisit the case with the existing record, but the Federal Circuit's decision could spark appeals of prior cases in which no appeal has been filed. Heim declined to speculate as to how many cases that might be.
The basis for an at-will dismissal of a PTAB judge might revolve around unusual findings that seem to fly against practice or the statute. "If [the agency] had the time to study some of these decisions, I do think that they could find some people that are outliers," Heim said, which would give the PTO some way to control the IPR process. Whether any such tracking process is in play at PTO is unknown.
"The thing that is most interesting to me is that people are challenging these IPRs," usually with little success, Heim said. "At a high level, this is at least a first chink in the [IPR] process," he said, adding that PTO director Andrei Iancu is widely appreciated for his efforts to clean up the IPR process. Still, the statute is the issue, and so "the fix is a change in the statute and the regulation to allow a more enhanced review process."
Iancu can now rein in outliers
There is a statutory provision for how the PTO director can remove the PTAB judges, but there has to be a serious case to be made for such a move, although lack of efficiency might suffice. The Federal Circuit determined this was insufficient to meet the terms of the statute. "It remains to be seen what the director is going to do" with this new authority, Heim said, but this outcome "now gives him the ability to rein in the outliers in some of these decisions."
As to whether there will be a petition for certiorari at the Supreme Court, Heim said, "I think anytime there's a constitutional issue that's raised, particularly in the patent law area, I have to assume it is going to get to the Supreme Court" at least as a petition for cert. When asked whether the Supreme Court would decline inasmuch as the Federal Circuit has seemingly fixed the problem, he said the Supreme Court might still want to take a look, although the nine justices have demonstrated less interest in patent cases over the past couple of years.
Heim said he does not expect the federal government to petition for cert, but there may be some parties lining up at the Federal Circuit to try to overturn PTAB decisions, which might be an incentive for the Supreme Court to examine the question. He said it is not clear what position the U.S. Solicitor General would take on such a petition, particularly since Solicitor General Noel Francisco has a sparse track record where patent law is concerned.