Justices Appear Conflicted About Status of Administrative Patent Judges

03 March 2021 PTAB Trial Insights Blog
Authors: George E. Quillin Jeanne M. Gills

This article was originally published on SCOTUSblog on March 3, 2021, and is reproduced below in full with permission.

On Monday, the justices heard 90 minutes of argument in United States v. Arthrex, Inc. and two consolidated cases about whether hundreds of administrative patent judges of the U.S. Patent and Trademark Office are “principal officers” of the United States. Arthrex, a medical technology firm, argues that they are — and that they therefore violate the Constitution’s appointments clause. Smith & Nephew, Inc. (another firm in a patent dispute with Arthrex) and the federal government (which intervened to defend the statute that created the patent judges) contend that no violation exists because the judges are “inferior officers,” though they disagree on the remedy if the court finds otherwise. By the end of Monday’s argument, there was no clear consensus among the justices on how to resolve a dispute that implicates not just patents, but also the Constitution’s separation of powers.

Under Article II, Section 2, clause 2, principal officers in the executive branch must be appointed by the president with the advice and consent of the Senate. Administrative patent judges, or APJs, are appointed by the secretary of commerce “in consultation with” the director of the USPTO. The central issue in the case is whether the patent judges hold the sort of independence and power that can be exercised only by properly appointed principal officers. At a high level, all the parties agree that the issue turns on whether the judges are sufficiently supervised and controlled by the USPTO director.

Malcolm Stewart opened for the government, arguing that the director can exercise the same two powers the court identified when it upheld Congress’ appointment procedure for military court judges in Edmond v. United States: promulgating rules of procedure and removing individuals from their judicial assignments, as well as other important tools of control.

Chief Justice John Roberts commented that the Patent Trial and Appeal Board – which Congress created in a 2011 law and on which administrative patent judges sit – was making decisions, with the director’s role limited to twisting arms or stacking panels. Stewart responded that the director’s power to have the board rehear decisions with which the director disagrees “is not plenary, but it is substantial.” When asked by Justice Clarence Thomas what constitutes “substantial,” Stewart urged the court to “focus primarily on the mechanisms of control that are available in the first instance … because the usual hallmark of supervisory authority is that the supervisor can tell the subordinate how to do the job before the subordinate does it.” Here, he said, the director can do that by issuing binding guidance to the patent judges.

Justice Samuel Alito posed a hypothetical statute that allowed a deputy solicitor general to make a final decision about whether to appeal certain types of lawsuits involving the United States. “Nobody, not the attorney general or the president himself, can countermand that. Would that be constitutional?” That’s “a close call,” said Stewart.

Justice Sonia Sotomayor questioned “the advantage of us keeping the Edmond test” over the bright-line test proposed by Arthrex – namely, that officials qualify as inferior officers only if a presidentially appointed superior officer can review and modify their decisions. Stewart said that formulating a bright-line test would almost inevitably lead to anomalous results in some categories of cases.

Justice Elena Kagan asked how the rehearing process works, especially the three-member precedential opinion panel on which the director sits. She noted that the director “doesn’t have full authority over the other two” patent judges on the panel because “the other two might disagree with him.”

Justice Neil Gorsuch referred to the court’s 2020 decision in Seila Law v. Consumer Financial Protection Bureau, holding that executive officials must always remain “subject to the ongoing supervision and control of the elected President.” With administrative patent judges, in contrast, Gorsuch said that “there’s no chain of dependence running to the president with respect to the supervision of a particular decision.” Stewart countered: “Arthrex’s position wouldn’t change any of that. That is, holding that the APJs are principal officers who must be appointed by the president with Senate confirmation wouldn’t give the president any greater power of control over their decisions in the event that they were inconsistent with the policy of the agencies.”

Justice Brett Kavanaugh expressed concern regarding both “the lack of historical precedent” for the absence of review of patent judges’ decision-making “by someone who’s appointed by the president with advice and consent of the Senate,” and “the lack of accountability … by someone who’s accountable in the usual way that the appointments clause demands.” Stewart responded: “If you think that that is the constitutional problem and … the constitutional rule is some Senate-confirmed official has to have plenary authority to revisit the decisions of the underlings, then the appropriate remedy would be to sever the provision in the statute that says only the board can grant rehearings.”

Justice Amy Coney Barrett asked about removal as a form of control. Stewart pointed out that the patent judges could be reassigned to other tasks within the Patent Trial and Appeal Board. She asked whether that is “sufficient control,” and Stewart asserted that it is.

Mark Perry then argued for Smith & Nephew that the patent judges are inferior officers because the director gives them substantive guidance, has unilateral institution and assignment power, can order review of any board decision, and takes final actions by confirming or canceling patent claims.

Roberts said that the adjudicatory regime for patent challenges “really doesn’t sound like any kind of adjudication that we would accept, you know, in a system characterized by due process.” Perry responded: “Due process is a separate issue, not presented in the petition, not presented in this case.”

Thomas wondered what test courts should use for distinguishing principal officers from inferior officers. Perry responded with two options: Principal officers “sit at the right hand of the president,” whereas inferior officers are several steps removed; or the totality-of-circumstances test regarding supervision and control under Edmond. Thomas commented that “it’s really difficult to discern how much [supervision and control] would be required under your test.”

Alito asked about the magic dividing line. Perry pointed to “the relationship to the president.” “An officer three steps removed from the president,” he said, “is never or almost never going to be a principal officer because he is a subordinate.”

Sotomayor, regarding a supposed need to have someone in the president’s direct control, asked, “Isn’t that totally at odds with an adjudicatory system of any kind?” Perry acknowledged “an inherent tension in agency adjudicatory-type proceedings between adjudicative independence and presidential control.”

Kagan asked questions about the history behind the 2011 law — the Leahy-Smith America Invents Act, or AIA — and whether it is “just an unaccountably strange bird.” Perry noted: “Congress for a brief period vested the appointment in the director and then changed it to the secretary to avoid appointments clause problems. … And that determination, we think, is entitled to a certain amount of deference.”

Gorsuch asked whether it is “fair to say that, yes, this is a rare bird … this is an unusual animal in the sense that there isn’t final review in the agency head.” Perry agreed that “it is unusual, but it is also well and historically founded and — and, until now, unchallenged.

Kavanaugh stated his concern that the AIA is a “wolf” in sheep’s clothing, in the words of the late Justice Antonin Scalia, referring to statutes whose full negative reach is not immediately obvious. “What I’m worried about is this gives a model for Congress to eliminate agency review of [APJ] decisions and kind of fragment and take away from agency control going forward, because … this would … allow Congress to give extraordinary power to inferior officers, which is not how our government is ordinarily structured.” Perry pointed to Scalia’s jurisprudence in response: “First, this system fits neatly within … Justice Scalia’s dissent in Morrison v. Olson,” he said. “Second, I cannot emphasize enough that the director maintains the final authority under [the law] to confirm or cancel any patent.”

Barrett asked how the court should choose among remedies, assuming Smith & Nephew lost on the question of principal or inferior officers. Perry said the remedy depends on what the court determines to be the constitutional problem: “So, for example, if the real problem here is the lack of agency reviewability, then the most direct line to a solution would be to sever the provision requiring board rehearing so that the director could unilaterally review.”

Jeffrey Lamken argued for Arthrex that patent judges are principal officers and that Congress should choose the remedy.

Roberts asked, “Why isn’t it okay that the executive allow the adjudicators a significant degree of leeway?” Lamken answered: “Allowing unaccountable officers to decide those cases finally, stripping any accountable principal of authority to overturn them, defeats that structural protection.” Roberts also asked about the practicality of what Arthrex was proposing: If there are “[h]undreds and hundreds of administrative hearing examiners … making these sorts of decisions, the notion of meaningful review of each one seems to me to be fanciful.” Lamken argued that the director would be accountable for decisions he chose not to review, but he cannot say he has no legal authority to review them and still be accountable.

Thomas peppered Lamken with questions. “How much review are you talking about to address your concerns?” It’s the availability of review, was the answer. “So, if I understand you, if Congress amended the relevant provision and gave discretion to the director, that would solve your problem?” Yes. Thomas: “Assuming that Congress addresses the problem by providing the director with discretion, could the director then delegate that authority to the APJs and the various structures within the organization to basically the way it exists now by statute, but the director accomplishes that by delegation? Would that be okay?” That would be permissible, Lamken said. Thomas pressed: “So, I mean, if you could be in the exact same posture that you’re in right now, as long as he does it by delegation rather than by statute?” Not the exact posture, answered Lamken, because if authority were given to patent judges by delegation, the director could withdraw the delegation.

Justice Stephen Breyer questioned why this was an unusual method of adjudication; Lamken said that “what’s critical is the authority of a principal officer to be able to overturn the decision.”

When asked by Alito what the outcome should be if the court agreed that the current scheme violated the appointments clause and that Congress should fix it, Lamken said that Smith and Nephew’s challenge to Arthrex’s patent should be dismissed.

Sotomayor asked Lamken to “tell me why the individual decision based on a quasi-law precedent and policy set by the director is a final decision that that director won’t be held responsible for.” Lamken responded: “If the director has no authority to overturn it, then the director isn’t responsible for it. It’s not his fault.”

Kagan asked whether review by the director under a clear-error standard would be enough, and Lamken said “probably” so. She also asked about an “egregious error” standard and further asked about the standard in Edmond. “Your Honor, of course, the [U.S. Court of Appeals for the Armed Forces] could also review all errors of law” by the military judges at issue in Edmond, Lamken said. “And we would think that the PTO director would have to be able to do that as well.”

Kagan also queried, “Wouldn’t you think that the director can probably get the precise result he wants in a higher percentage of these cases than the CAAF could have gotten in Edmond?” Lamken responded: “I don’t think so, because, you know, for example, he cannot conceivably anticipate every conceivable factual scenario, every conceivable distinction, every single thing that an adjudicator might come up with along the way.”

Gorsuch asked whether removing text in section 6(c) of the AIA that places the director on equal footing with administrative patent judges on rehearing panels would fix the problem. Lamken responded that “trying to take the director and insert him above the board, where Congress made him only one member, trying to insert the director as a single decision-maker, where Congress provided for people to sit in panels of three, that isn’t a surgical solution. That’s vivisection.”

Kavanaugh expressed Lamken’s position as follows, and Lamken agreed: “You take the position that [APJs] within the executive branch may be somewhat of an uneasy constitutional solution, but it’s historically settled, we have tenure protection, plus agency review, and that gives due process but also gives ultimate agency control of policy.” Lamken was also fine with delegation of authority by the director: “I think that’s right. When a principal officer has authority and then chooses to delegate it to another … that principal officer is then accountable for the choice to delegate.” Kavanaugh asked: “Isn’t the nature of the constitutional problem here the lack of director review, which would mean us saying 6(c) is the constitutional problem?” Lamken disagreed “because the problem stems also from the fact that the officers are not appointed by the president and Senate-confirmed.”

Barrett asked about the propriety of judicial blue-penciling. Lamken cautioned against that approach “in the sense that this court doesn’t make that sort of judicial policy decision when the possibilities are multiple … and they point in complete opposite directions.”

Turning to the appointments clause issue, Barrett remarked that “in many respects, [APJs are] inferior officers, and we might say that Congress has given them this one authority, this case-specific review authority, that is one that is inconsistent with the inferior officer role, but it does — it does seem odd, doesn’t it, to say that they are principal officers because they exercise this one piece of authority that seems to go beyond what an inferior officer can do.” Lamken pointed to the court’s 1991 decision in Freytag v. Commissioner of Internal Revenue, which held that if an officer has authority that goes beyond that of an inferior officer, if the officer is the final decision maker for the executive branch where he has no superior in that context, that officer is then a principal officer for all purposes and cannot continue in that office absent a proper appointment.

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