Reading Arthrex’s Tea Leaves – Three Exchanges at the Oral Argument That May Hint at the Fate of Patent Judges

26 March 2021 PTAB Trial Insights Blog
Authors: Randy J. Pummill George E. Quillin

The oral argument in the combined Arthrex cases was held on March 1, 2021. While the parties argued what they considered to be the key issues in their merits briefing, the oral argument provided insight into how the justices are approaching the case. An initial summary of the oral argument was covered here. This article highlights three exchanges between the justices and the advocates that may hint at the Court’s leanings towards its final decision.

In Arthrex, which has been covered in the PTAB Trial Insights Blog, the parties ask the Court to determine whether administrative patent judges (APJs) are principal or inferior officers under the Appointments Clause. Arthrex has argued that because APJ decisions are not subject to review by a principal officer, APJs must themselves be principal officers. Smith & Nephew and the United States have argued that direct review of APJ decisions is not necessary and that the level of indirect control the Director has over APJs is sufficient for them to be inferior officers.

If the Court does determine that APJs are principal officers, the Court will need to determine what remedy is appropriate to bring their appointments into compliance with the Constitution. Smith & Nephew argued that the remedy adopted by the Federal Circuit, striking tenure protections for APJs, was sufficient. The United States has alternatively suggested that the Court consider striking other parts of Title 35, with particular focus on 35 U.S.C. § 6(c). Arthrex has argued that in the face of many possible solutions, the final remedy should be left to Congress to determine.

Lack of Review Makes the PTAB a “Strange Bird”

Several justices expressed concerns with the structure of the PTAB lacking automatic review by a superior. In an exchange with Mr. Perry (representing Smith & Nephew), Justice Kagan called the structure an “unaccountably strange bird.”1 Justice Gorsuch called the structure a significant departure from the Administrative Procedure Act, and Justice Kavanagh said that this is a “yellow flag, if not a red flag.”2 Making a reference to Justice Scalia’s dissent in Morrison v. Olson,3 Justice Kavanagh went on to say: “And what I'm worried about—this is the wolf. … [T]his gives a model for Congress to eliminate agency review of [administrative law judge] decisions … and that would allow Congress to give extraordinary power to inferior officers, which is not how our government is ordinarily structured.”4 Justice Kavanagh, at least, appears to be concerned about how much flexibility Congress has in setting up adjudicatory systems within an agency.

It’s a concern that doesn’t have an easy resolution. Mr. Perry acknowledged that the current PTAB structure is different from any other agency, but he argued that the flexible structure fits within the framework described in Justice Scalia’s dissent in Morrison. Particularly, he noted that APJs are not able to invalidate patents—this power lies only with the Director. He noted that even in the IPR underlying this case, the Director has yet to issue a certificate canceling Arthrex’s patent.

The justices have a difficult task in balancing the desire to give Congress the flexibility needed to create effective agencies while ensuring that an agency structure doesn’t violate the separation of powers. The justices did not openly state that the current PTAB structure violates the Constitution, but their questions show that they consider the PTAB structure to be an oddity that should be given a closer look.

Is Executive Control of APJs Contrary to a Fair Adjudication?

Justice Sotomayor pushed Mr. Perry regarding the fairness of adjudication when the APJs are controlled by the executive branch. Her question echoed concerns of Justice Gorsuch. Can an adjudicator controlled by the executive be relied on to produce fair decisions, or would that be, as Justice Sotomayor put it, “totally at odds with an adjudicatory system of any kind?”5

Mr. Perry noted that there is tension between independence and presidential control in all adjudicatory arrangements and that Congress has fashioned many different structures to balance this tension.

In a similar vein, Chief Justice Roberts and Justice Gorsuch expressed concerns about the due process implications of leaving the PTAB structure as it is. The Chief Justice presented a hypothetical situation where, after a final determination by the Board, the Director grants rehearing.6 Before the rehearing, the Director issues guidance in a hypothetical case with similar facts that comes to an opposite conclusion. Since the PTAB is bound by the Director’s guidance, the result in the rehearing is thus fixed by the Director single-handedly. Chief Justice Roberts noted that such a scenario would “make something of a charade out of the adjudication.”7 Mr. Perry highlighted the “structural allocation of power from the President through the Secretary through the Director to the APJs that is being respected and being followed in the chain of command,” but otherwise was disinclined to engage the due process question. Instead, he argued that because due process was not raised in the petition, the Court should not consider the issue.

Justice Gorsuch asked Mr. Perry whether the Director’s power to appoint APJs, including extracting promises from the prospective judge about how they will rule, could raise due process concerns. Mr. Perry conceded that these situations may raise due process concerns, but again argued that the issue before the Court related only to the Appointments Clause, and that the Court should not take up the due process question in this case.8

Mr. Perry is certainly correct that the issue of due process does not appear expressly in the questions presented on which the Court granted review. The Court in Oil States previously considered and rejected the argument that the IPR system violates due process.9 However, the questions posed by the justices here get at different parts of the IPR system compared to what the Court considered in Oil States. Even if the Court decides that APJs are inferior officers, it may also decide that the arrangement violates the due process rights of patent holders. If nothing else, this line of questioning by the justices shows that the Court might not be dismissing Arthrex’s concerns about fairness and due process out of hand.

Severing 35 U.S.C. § 6(c)

Justices Kavanagh, Barrett, and Gorsuch asked Mr. Lamken (representing Arthrex) about severing part of 35 U.S.C. § 6(c). This is a potential remedy suggested by the United States in the event that the Court determines that APJs are principal officers. The last sentence of this section of the statute limits the power to grant rehearings to the PTAB. If the Court were to strike this portion of the statute, the United States has argued, the Director could then “review and reverse any Board decisions with which he disagrees”10 or order rehearing and assign himself as a member of the rehearing panel,11 in effect giving the Director review power of APJ decisions.

Arthrex argued that striking this provision of the statute would not actually fix the problem at hand. According to Arthrex, removing this provision of section 6(c) would leave the statute silent on the issue of who could order a rehearing, in which case that power would default to the PTAB as the body issuing the decision. When Justice Gorsuch continued to press on this question, Mr. Lamken noted that section 6(c) also requires IPR panels to have at least three members, so even if the Director assigned himself to a rehearing panel, he would still be outnumbered 2-to-1. Justice Gorsuch suggested that requirement could also be removed, to which Mr. Lamken replied “[T]hat isn’t a surgical solution. That’s vivisection.”12 Even after this exchange, Justice Barrett continued to press the issue, saying that section 6(c) “seems to be the big problem”13 and asked Mr. Lamken for case law that would prevent the Court from striking the provision.

From these exchanges, it is apparent that at least these justices are giving serious consideration to severing section 6(c) as a potential remedy. Justice Barrett was especially careful not to reveal her position on the status of APJs. But the fact that these three justices spent a significant amount of time on the possibility of severing section 6(c) may be telling.

What’s Next for Arthrex?

Now that the Court has heard oral argument in the case, a decision should come in the next couple of months. The PTAB Trial Insights Blog will post an analysis once the final decision is issued.

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Arthrex Oral Trans. at 37.

Id. at 42.

Morrison v. Olson, 487 U.S. 654 (1988).

4 Arthrex Oral Trans. at 37.

Id. at 36.

Id. at 29.

Id.

Id. at 40-41.

Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC, 138 S. Ct. 1365 (2018).

10 U.S. Reply at 41.

11 Arthrex Oral Trans. at 92.

12 Id. at 77.

13 Id. at 85.

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