Remanding to PTAB After Demoting Judges: Too Far or Not Far Enough?

12 November 2019 PTAB Trial Insights Blog
Authors: Jonathan I. Tietz George E. Quillin

On October 31, the Federal Circuit held that PTAB judges were principal officers appointed in violation of the Appointments Clause and, to remedy the violation, severed the portion of the Patent Act conferring them (through Title 5) with for-cause removal protection. As we wrote, it was unclear at the time what this might mean for pending and recently decided cases—including another case that was set for Appointments-Clause arguments just a few days after the Arthrex decision issued. Now, the fallout from Arthrex is beginning to become apparent, as litigants contest whether the Arthrex remedy was appropriate—and who has waived it.

In particular, a November 7 order in Bedgear v. Fredman, No. 18-2082, vacated and remanded that case under Arthrex but featured a concurrence by Judges Dyk and Newman questioning whether the Arthrex remedy was appropriate. In light of this disagreement, the potential for rehearing en banc or Supreme Court review leaves considerable uncertainty as to Arthrex’s fate.

Appointments Clause Issue Waived if Not Presented on Appeal

In Arthrex, Inc. v. Smith & Nephew, Inc., No. 18-1584 (Oct. 31, 2019), the Federal Circuit noted that Appointments Clause challenges were not waivable at the PTAB (which had no power to remedy such a violation) but were, indeed, waivable on appeal. Citing the Supreme Court’s conclusion in Freytag v. Commissioner, 501 U.S. 868, 878–79 (1991), that Appointments Clause objections are “nonjurisdictional structural constitutional objections,” the Federal Circuit specified that such a challenge “can be waived when not presented” on appeal. Under that view, an Arthrex-type remand is only available to pending Federal Circuit appeals in which the issue was already raised (or in which the time to raise the issue has not yet passed) or to PTAB decisions made before Arthrex but for which an appeal had not yet been filed.

Indeed, because of waiver, the Federal Circuit declined to vacate and remand in Customedia Technologies LLC v. DISH Network Corp., No. 19-1001 (Nov. 1, 2019). Customedia had filed a motion the day after Arthrex insisting that the PTAB decision be vacated and remanded. But Customedia had not raised the issue in its opening brief, and so that same afternoon the Federal Circuit held that the issue had been waived.

Another appeal, Kingston Technology Co. v. Polaris Innovations Ltd., No. 18-1778 (Nov. 6, 2019), saw the Federal Circuit issue a Rule 36 affirmance of the PTAB’s decision below and deny a last-minute motion by Kingston for remand under Arthrex. (That motion was opposed by Polaris, who, in two co-pending appeals, was itself arguing an Appointments Clause violation.)

There is a pragmatic contrast, then, with the aftermath of TC Heartland LLC v. Kraft Food Brands Group LLC, 137 S. Ct. 1514 (2017). In that case, the Supreme Court overruled the Federal Circuit’s previous interpretation of the patent venue statute, effectively narrowing the availability of venue to patent litigants. The issue of waiver came up in its wake, as under the Federal Rules of Civil Procedure, district-court litigants waive venue affirmative defenses not presented during the pleadings.

In In re Micron, No. 17-138 (Nov. 15, 2017), the Federal Circuit held that litigants who had not previously raised the TC Heartland venue issue had not waived it, as TC Heartland was a “change in law.” Thus, before that decision the defense was not “available to the party” under Federal Rule of Civil Procedure 15(g)(2).

Some post-Arthrex litigants might make “change in law” arguments, too. On the other hand, In re Micron assessed specific language in Rule 12(g)(2) that explicitly referred to waiver of defenses “available to the party but omitted from its earlier motion,” while Customedia and Kingston involved a discretionary appellate-law rule that arguments not raised in an opening brief are waived—which on its face does not require the argument to be “available” at the time of filing the opening brief for waiver to apply.

The appellate opening-brief waiver rule is discretionary, and so the Federal Circuit could consider “change in law” arguments. Indeed, doing so would extend some circuits’ practice of adopting “intervening decision” exceptions to the waiver doctrine.

True, those exceptions generally occur in the context of appellate waiver of issues not presented to a district court. See generally 19 Moore’s Federal Practice § 205.05(2). But some circuits have also allowed supplemental briefing for issues not raised in an opening brief if there was an intervening change in case law. See, e.g., DSC Commc’ns Corp. v. Next Level Commc’ns, 107 F.3d 322, 326 n.2 (5th Cir. 1997) (noting that a party that waived an issue by failing to include it in its opening brief could raise the issue in a supplemental brief based on an intervening change of law); United States v. Vazquez-Rivera, 407 F.3d 476, 487–88 (1st Cir. 2005) (similar); cf. Bekele v. Lyft, Inc., 918 F.3d 181, 186–87 (1st Cir. 2019) (finding waiver of argument not raised in opening brief in part because there was no substantial change in applicable law between opening and supplemental briefs).

Bedgear Concurrence Contends that Arthrex Remedy Goes Too Far

The remedy chosen by the Federal Circuit in Arthrex—to sever the for-clause removal protections of administrative patent judges (APJs) at the PTAB—was not the only option. The court there discussed several other possibilities, including modifying the three-judge panel requirement, allowing the Director to singlehandedly overturn decisions, and construing the for-cause removal provisions themselves permissively. But it concluded that severance of the protections and remand for a new hearings was the narrowest, most appropriate remedy.

Not all judges at the Federal Circuit agree.

In Bedgear, LLC v. Fredman Bros. Furniture Co., No. 18-2082 (Fed. Cir. Nov. 7, 2019), in which the appellant had raised the Appointments Clause issue in its opening brief, the panel, bound by Arthrex, vacated and remanded three PTAB decisions. Judge Dyk, though, argued in a concurrence joined by Judge Newman that, although they were bound by Arthrex, they disagreed with its remedy, which was “not required by Lucia v. S.E.C., 138 S. Ct. 2044 (2018), impose[d] large and unnecessary burdens on the system of inter partes review, requiring potentially hundreds of new proceedings, and involve[d] unconstitutional prospective decision-making.”

Judge Dyk’s discussion centered on whether the severance of for-cause removal protections was retroactive. In his view, the severance applied retroactively, and the PTAB judges were thus properly appointed from the start. But the panel, he wrote, had applied its reasoning prospectively, more like a legislator or an agency than a court:

“Agencies and legislatures generally act only prospectively, while a judicial construction of a statute or a holding that a part of the statute is unconstitutional . . . are necessarily retrospective as well as prospective.”

Distinguishing Lucia, Judge Dyk pointed out that in that case a remand was necessary because the supposed fix had been “an agency fix”—the SEC had issued an order “ratifying” its prior appointments while the case was pending. But agency rulemaking can only be prospective. In contrast, here there was a “judicial fix”—the panel in Arthrex had held that the constitutionally objectionable portion of the Patent Act was simply void.

As Judge Dyk argued, a court’s interpretation of a statute determines what it has always meant since its enactment. As the Supreme Court wrote in Harper v. Virginia Dep’t of Taxation, 509 U.S. 86, 97 (1993),

“[w]hen [a c]ourt applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review and as to all events, regardless of whether such events predate or postdate [the court’s] announcement of the rule.”

To be consistent with Harper and related precedent, Judge Dyk wrote, “the statute here must be read as though the PTAB judges had always been constitutionally appointed, ‘disregarding’ the unconstitutional removal provisions.”

Judge Dyk also pointed out that the Supreme Court decisions relied upon in Arthrex themselves applied statutory interpretation retroactively in Appointments Clause cases. For instance, in Free Enterprise Fund v. PCAOB, 561 U.S. 477 (2010), the Supreme Court found that statutory removal protections for SEC board members were unconstitutional. Severing these protections, the Court then refused to invalidate prior actions of the board because after severance, “properly viewed, under the Constitution, . . . the Board members are inferior officers” and “have been validly appointed by the full Commission.” Id. at 510, 513. Likewise, in Edmond v. United States, 520 U.S. 651 (1997), the Court had construed a statute regarding authority to appoint judges of the Coast Guard Court of Criminal Appeals, but found that its statutory construction rendered the judges inferior officers with valid appointments. There, it did not remand but instead affirmed the lower court’s judgment.

The D.C. Circuit’s refusal to give retroactive effect to its severance of for-cause removal protections for Copyright Royalty Judges in Intercollegiate Broadcasting System v. Copyright Royalty Board, 684 F.3d 1332 (2012), Judge Dyk wrote, was an outlier. Indeed, Judge Dyk wrote, “[i]n Appointments Clause cases, the Supreme Court has required a new hearing only where the appointment’s defect had not been cured or where the cure was the result of non-judicial action.”

On the practical side, Judge Dyk also expressed concern at the administrative issue of potentially requiring hundreds of new hearings. (And the benefit is potentially low if new panels are likely to adhere closely to a previous panel’s findings or record.) Arthrex, too, he wrote, “creates a host of problems in identifying the point in time when the appointments became valid.”

Given Judge Dyk’s arguments, there is considerable potential for a change to Arthrex if the case is reheard en banc or a petition for certiorari is granted.

Polaris Contends that Arthrex Remedy Does Not Go Far Enough

We previously wrote about Polaris Innovation’s Appointments Clause challenge to PTAB judges, Polaris Innovations Ltd. v. Kingston Technology Co., No. 18-1768, which was filed before, but argued after, Arthrex. In its opening brief, Polaris had argued that any fix would necessarily be prospective and would require vacating and remanding for a hearing before constitutionally appointed PTAB judges. Polaris Innovations, No. 18-1768, Doc. 21, Principal Brief (July 10, 2018).

Later, in its reply brief, Polaris argued that the proper remedy would be dismissal of the case entirely because no properly appointed panel existed. But Polaris also pointed to eliminating the PTAB judges’ removal protections, vacating, and remanding for a new hearing. Polaris Innovations, No. 18-1768, Doc. 59, Reply Brief (June 5, 2019).

Arthrex came down on October 31. Polaris was argued on November 4 before Judges Reyna, Wallach, and Hughes; there, the panel instructed the parties to limit their arguments to the constitutional issue. (Judge Reyna was on the Arthrex panel.)

At oral argument, Polaris expanded its preferred remedy even further: striking down IPR entirely.

The severance of for-cause removal, it contended, still leaves PTAB decisions unreviewable before they become final. Further, Polaris argued, the America Invents Act’s text does not permit the Federal Circuit sufficient flexibility of statutory interpretation to change the extent of review. Polaris argued that precedent requires reviewability, and that for-cause removal after a PTAB judge’s bad decision fails to correct for that decision at all. Reviewability, though, would require a Congressional fix.

For its part, the panel proposed supplemental briefing on the issue and expressed hesitation at making a decision before the Arthrex decision was final after any possible petitions for rehearing. Additionally, the panel asked during oral argument: what other government agencies would be affected in the aftermath of Arthrex?

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