Justices Craft Their Own Remedy for Violation of Constitution’s Appointments Clause

24 June 2021 PTAB Trial Insights Blog
Authors: George E. Quillin Jeanne M. Gills

This article was originally published on SCOTUSblog on June 24, 2021, and is reproduced below in full with permission.

On Monday, the justices ruled 5-4 that the “unreviewable authority” of administrative patent judges meant those APJs were appointed in violation of the Constitution’s appointments clause. The justices then ruled 7-2 that the remedy was one of the court’s own making — that the director of the U.S. Patent and Trademark Office now has the discretion to review those APJ decisions. Both rulings occurred in United States v. Arthrex, Inc.

A decade ago, Congress enacted a patent-reform bill, the Leahy-Smith America Invents Act. In the AIA, Congress created a new adjudicatory regime for challenging the validity of an issued patent. The AIA also created a board of APJs — the Patent Trial and Appeal Board — empowered to issue final decisions on the validity of a challenged patent. But, unlike the heads of executive branch agencies and other top officials who are appointed by the president with Senate confirmation, the APJs are appointed by the secretary of commerce.

Arthrex, a company that makes medical devices, is the owner of a patent that was challenged by a rival company, Smith & Nephew, and invalidated by the PTAB. On appeal, the U.S. Court of Appeals for the Federal Circuit ruled that the appointment of the APJs violated the appointments clause, as we explained more fully in our case preview. The government intervened to defend the constitutionality of the statute. No party was satisfied with the appellate decision, and each party asked the Supreme Court to hear the case; the court granted all three petitions and consolidated them.

Chief Justice John Roberts delivered the opinion of the court. In Part I of his majority opinion, the court laid out the procedural background, in Part II its analysis of the constitutional violation, and in Part III the remedy.

With regard to the constitutional violation, Roberts (joined by Justices Samuel Alito, Neil Gorsuch, Brett Kavanaugh and Amy Coney Barrett) noted that the starting point for each party’s analysis was Edmond v. United States, which held that an “inferior officer must be ‘directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate.’” The court believed Edmond aided resolution here because APJs had the ability to render a final decision on behalf of the United States without any review by any principal officer of the executive branch, and the fact that only the PTAB had the power to grant rehearings compounded the problem. In the court’s view, these “restrictions on review relieve the [USPTO] Director of responsibility for the final decisions rendered by APJs purportedly under his charge.” The court regarded the director’s ability to cancel or confirm a patent claim as a ministerial duty dictated by the APJs’ final decision with the “chain of command run[ning] not from the Director to his subordinates, but from the APJs to the Director.” Citing its decision in Free Enterprise Fund v. Public Company, the court noted that given “the insulation of PTAB decisions from any executive review, the President can neither oversee the PTAB himself nor ‘attribute the Board’s failings to those whom he can oversee.’” 

The court concluded that “the unreviewable executive power exercised by APJs is incompatible with their status as inferior officers.”

Roberts next turned to fashioning a remedy. This part of his opinion was officially joined only by Alito, Kavanaugh and Barrett, but in a separate opinion, Justice Stephen Breyer (joined by Justices Sonia Sotomayor and Elena Kagan) indicated agreement with Roberts’ reasoning on the remedy, thereby providing seven total votes for the remedial holding. Roberts began by noting the court’s general severability practice: “[W]hen confronting a constitutional flaw in a statute, we try to limit the solution to the problem by disregarding the problematic portions while leaving the remainder intact.” He thus declined to grant Arthrex’s requested relief of holding the entire “inter partes review” regime created by the AIA unconstitutional and dismissing the proceeding below. Rather, he opted for a “tailored approach” wherein the director “may review final PTAB decisions and, upon review, may issue decisions himself on behalf of the Board.” Roberts settled on that remedy even though 35 U.S.C. § 6(c) states that “[o]nly the Patent Trial and Appeal Board may grant rehearings.”

Review by the director would follow the “almost-universal model of adjudication in the Executive Branch” and would align the PTAB with the Trademark Trial and Appeal Board, Roberts wrote. Even if the government’s solution of at-will removal of APJs would cure the constitutional problem, he wrote that review “by the Director better reflects the structure of supervision within the PTO and the nature of APJs’ duties.” He concluded:

35 U. S. C. § 6(c) is unenforceable as applied to the Director insofar as it prevents the Director from reviewing the decisions of the PTAB on his own. The Director may engage in such review and reach his own decision. When reviewing such a decision by the Director, a court must decide the case “conformably to the constitution, disregarding the law” placing restrictions on his review authority in violation of Article II.

With respect to the specific dispute over the Arthrex patent, Roberts held that the appropriate remedy was a remand to the acting director for a decision on whether to rehear the case. “Under these circumstances, a limited remand to the Director provides an adequate opportunity for review by a principal officer,” he wrote. “Because the source of the constitutional violation is the restraint on the review authority of the Director, rather than the appointment of APJs by the Secretary, Arthrex is not entitled to a hearing before a new panel of APJs.”

Gorsuch concurred in part (joining in Parts I and II of the majority opinion) and dissented in part (rejecting Roberts’ severability analysis in Part III). Gorsuch was most troubled that officials could withdraw a vested property right while accountable to no one within the executive branch. He agreed that Article II vests “executive Power” with the president alone, that the Constitution provides for a chain of authority with principals supervising inferior officers, and that the PTAB regime “breaks this chain of dependence.” However, Gorsuch found Roberts’ remedy lacking. He explained that his approach would not be to sever but would instead involve a more “traditional path”: “identifying the constitutional violation, explaining our reasoning, and ‘setting aside’ the PTAB decision in this case.” Gorsuch reasoned that the “majority’s severability analysis defies, rather than implements, legislative intent” where “the Court gifts the Director a new power that he never before enjoyed, a power Congress expressly withheld from him and gave to someone else — the power to cancel patents through the IPR process. Effectively, the Court subtracts statutory powers from one set of executive officials and adds them to another.”

Breyer (joined by Sotomayor and Kagan) also concurred in part and dissented in part (agreeing with Parts I and II of Justice Clarence Thomas’ dissent). Breyer’s disagreement with the majority’s appointments-clause analysis was premised on two arguments. First, “the Court should interpret the Appointments Clause as granting Congress a degree of leeway to establish and empower federal offices,” which he deemed sufficient to validate the statute here. “All told,” Breyer wrote, “the Director maintains control of decisions insofar as they determine policy. The Director cannot rehear and decide an individual case on his own; but Congress had good reason for seeking independent Board determinations in those cases — cases that will apply, not create, Director-controlled policy.” Second, Breyer continued, the court “should conduct a functional examination of the offices and duties in question rather than a formalist, judicial-rules-based approach.” He believed that Congress intended to give APJs a certain amount of independence and that “there is no reason to believe this scheme will prevent the Director from exercising policy control over the APJs or will break the chain of accountability that is needed to hold the President responsible for bad nominations.” Nonetheless, Breyer agreed that “that any remedy should be tailored to the constitutional violation,” (i.e., that APJs’ decisions are not reviewable by the director alone), and because he found that the “Court’s remedy addresses that specific problem,” he concurred with its remedial holding.

Thomas dissented. His dissent was premised on his view that the appointments clause does not require Senate confirmation of APJs who are inferior to at least two officers below the president (i.e., the director and the secretary of commerce). Thomas reasoned that APJs are already inferior officers and would keep the patent scheme intact rather than rewrite the director’s statutory powers. In Thomas’ view, the director and secretary are also “functionally superior” because they supervise and direct the work APJs perform. He also deemed the director’s control greater than the control in Edmond because the director: (1) may designate which APJs hear certain cases and may remove them without cause; (2) has ample power to rein in APJs to avoid erroneous decisions or have them fired by the secretary; (3) decides in the first instance whether to institute or not, a decision that is final and non-appealable; (4) selects which APJs will hear the challenge or can designate himself, his deputy director, and the commissioner of patents; (5) decides which PTAB decisions bind other panels as precedent; and (6) can add other members (including himself) to an APJ panel to have a case reheard.  

Collectively, Thomas reasoned that the director’s broad oversight ensures that APJs “have no power to render a final decision on behalf of the United States unless permitted to do so by other Executive officers.” Thomas also took issue with the court not taking a clear position on whether APJs are inferior or principal officers and whether the appointment process complies with the Constitution. In Thomas’ view, if the appointment of the APJs is not the “source” of the constitutional violation (as the court held), then that should resolve the suit. Rather, Thomas viewed the majority opinion as policing “the dispersion of executive power among officers,” an analysis he found flawed. Thomas concluded that however the court’s opinion is interpreted (APJs are principal offers that the court converted to inferior, or APJs are inferior officers lacking supervision), the remedy is unsupported. In his view, applying the Edmond test would lead to the conclusion that APJs “are formally and functionally inferior to the Director and to the Secretary,” thus requiring no changes to the current statutory scheme.

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