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15 March 2021
On 1 March 2021 the Supreme Court heard oral arguments in United States v Arthrex (19–1434). This case addresses whether administrative patent judges (APJs) – who preside over inter partes reviews at the United States Patent and Trademark Office (USPTO) – are unconstitutionally appointed principal officers and, if so, whether that constitutional violation can be cured by severing 'for cause' employment protections for APJs.
If the Supreme Court in Arthrex concludes that APJs are unconstitutionally appointed principal officers, the remedy that the court adopts or recommends could reshape practice and procedure for inter partes reviews and other USPTO proceedings.
Arthrex came to the Supreme Court from a 31 October 2019 Federal Circuit decision – Arthrex, Inc v Smith & Nephew, Inc (941 F3d 1320 (Fed Cir 2019)) – which held that APJs are unconstitutionally appointed principal officers.
Under the Appointments Clause of the US Constitution (Article 2(2)(2)), principal officers must be appointed by the president with the Senate's advice and consent. In Edmond v United States (520 US 651 (1997)), the Supreme Court explained that three factors distinguish principal officers from inferior officers:
(1) whether [a presidentially] appointed official has the power to review and reverse the officers' decision; (2) the level of supervision and oversight an appointed official has over the officers; and (3) the appointed official's power to remove the officers.
Based on the first and third Edmond factors, the Federal Circuit concluded that APJs are unconstitutionally appointed principal officers, noting that:
The Federal Circuit purported to remedy the constitutional violation by severing the for cause employment protections set out in 5 US Code 7513(a) for APJs. The Federal Circuit explained as follows:
We believe severing the restriction on removal of APJs renders them inferior rather than principal officers. Although the Director still does not have independent authority to review decisions rendered by APJs, his provision of policy and regulation to guide the outcomes of those decisions, coupled with the power of removal by the Secretary without cause provides significant constraint on issued decisions.
The United States and Smith & Nephew petitioned the Supreme Court for a review, arguing that the Federal Circuit had been wrong to hold that APJs are unconstitutionally appointed principal officers. According to the United States and Smith & Nephew, the following supervisory powers held by the USPTO director sufficed under Edmond to render APJs inferior officers:
The Supreme Court granted a review on 13 October 2020.
In response, Arthrex asserted that while the Federal Circuit had properly determined that APJs are unconstitutionally appointed principal officers, the severance of for cause employment protections for APJs was an inappropriate remedy for the constitutional violation. Arthrex argued that any fix should come from Congress and suggested three possible remedies:
The questions asked at oral argument suggested that the Supreme Court will hold that APJs are unconstitutionally appointed principal officers and may remedy that problem by providing some form of agency review.
Several justices appeared uncomfortable with:
Justice Sotomayor, for example, noted that Arthrex appeared to have a cleaner argument: "you're not an inferior officer if you can make final decisions that are unreviewable by the Director."
Many of the questions to Arthrex challenged its argument that the court could not address the purported Appointments Clause violation simply by severing portions of 35 US Code 6(c) to give the USPTO director the discretion to review APJ decisions unilaterally. Several justices also remarked that the lack of any final agency review at the USPTO was outside the norm.
Deputy Solicitor General for the Department of Justice Malcolm Stewart argued for the United States. In defending the United States' position that APJs are constitutionally appointed inferior officers, Stewart began his oral argument by enumerating the USPTO director's supervisory powers over APJs. Justice Roberts noted that, despite those supervisory powers, "the one thing [the Director] can't do is just change the decision of the APJ".
Justice Thomas asked Stewart how the United States would determine whether those supervisory powers were sufficiently substantial. Stewart answered that "the usual hallmark of supervisory authority is that the supervisor can tell the subordinate how to do the job before the subordinate does it. And the Director has ample tools there".
Justice Breyer asked Stewart where the line is between an officer and an employee. Stewart answered that the United States had conceded in its briefs that APJs were officers, but noted that the 5 US Code 7513(a) removal provision applicable to APJs also applies to USPTO employees, which "signals that Congress didn't intend for these officers to exercise any unusual level of independence from the Director".
Sotomayor characterised the Edmond test to determine inferior officer status as "amorphous" and asked what the advantage would be of keeping it. Stewart answered that in view of the growth of the number of officers and employees within the executive branch, a bright-line test that required Senate confirmation for all officers would be "administratively inconvenient".
Justice Alito asked Stewart whether a statute would be constitutional if, hypothetically, it gave a deputy solicitor general:
final and unreviewable authority to decide whether the United States will take an appeal in any case involving the interpretation or application of one particular provision of one particular regulatory statute.
Stewart conceded that while this would present a "close case", an ordinary Patent Trial and Appeal Board panel decision is subject to a rehearing and the USPTO director has some ability to determine whether a rehearing is granted.
Justice Kagan asked Stewart to clarify the scope of the USPTO director's authority to control a rehearing if they were part of the rehearing panel. Stewart admitted that the director would not be able to dictate factual determinations by the other two members of a three-member rehearing panel.
Justice Gorsuch asked Stewart to explain what supervisory power the president or a presidentially appointed official wields over a particular APJ decision. In response, Stewart acknowledged that there is no procedure for the USPTO director to override factual findings by other APJs in panels on which they sat.
Justice Kavanaugh noted a "lack of historical precedent" for decisions by administrative law judges to be free from review within their own agencies. Stewart acknowledged that while it is "the norm" for an agency head to have authority to review agency decisions, Edmond holds that such review authority need not be "plenary".
Justice Barrett questioned whether, in view of the for cause employment protections set out in 5 US Code 7513(a), the Merit Systems Protection Board (MSPB), rather than the USPTO director, has the last word on APJ termination decisions. Stewart noted that while APJs would have MSPB protection if they were removed from federal service altogether, "in addition to removing APJs from federal service altogether, the Director can remove them from their judicial assignments".
Mark Perry argued for Smith & Nephew. Roberts questioned Perry on whether the USPTO director's indirect power to change an APJ adjudication (eg, by ordering a rehearing, appointing a rehearing panel that thought like him and sending the prior APJ who decided the case "to Siberia") would fall foul of due process. Perry answered that "[d]ue process is a separate issue, not presented in the petition, not presented in this case".
Thomas and Alito, echoing Sotomayor's question to Stewart, expressed the concern that it was difficult to determine under Edmond the extent of supervisory powers that would suffice to render someone an inferior officer. Perry explained that "principal officers sit at the right hand of the President", whereas APJs are "three steps removed": "the Secretary definitely is. The Director may be. The APJs definitely are not".
Referring to Gorsuch's question to Stewart, Sotomayor asked Perry whether direct control by the president over individual APJ decisions would be at odds with an "adjudicatory system of any kind". Perry answered that the USPTO director's power to give APJs advance guidance "preserves both the political accountability and avoids those due process-type problems that may arise in individual circumstances".
Following up on Kavanaugh's question to Stewart, Kagan asked how the USPTO had come to adopt an "unusual kind of structure with no automatic opportunity for review in the agency head". Perry answered that the USPTO has had a long tradition, which arose out of the patent examining process, of appointing employees and inferior officers to decide patentability questions without director-level review.
Kavanaugh again expressed concern that the current APJ appointment system "would allow Congress to give extraordinary power to inferior officers, which is not how our government is ordinarily structured". Perry emphasised that APJs do not cancel patents; rather, the USPTO director holds final authority under 35 US Code 318(b) to confirm or cancel any patent.
Barrett asked Perry what form of remedy would be appropriate if APJs were deemed to be unconstitutionally appointed principal officers. Perry answered that the most appropriate remedy would be to sever the portions of the statute that require board rehearing (35 US Code 6(c)) so that the USPTO director could unilaterally review APJ decisions.
Jeffrey Lamken argued for Arthrex. Lamken began by asserting that the USPTO director's supervisory powers were inadequate to render APJs inferior officers – "punishing APJs for decisions or guidance to prevent future error doesn't undo decisions already made" – and that fashioning an appropriate remedy was a task for Congress, rather than the court.
Roberts asked why it was unacceptable for the executive branch to shield factual determinations by agency adjudicators from being overturned by "politically accountable people". Lamken responded that when adjudicatory functions are performed by the executive branch, "the key protection against executive overreach, which is accountability to the people for the decisions, has to be observed".
Roberts also asked whether the accountability function provided by agency review could be implemented as a practical matter, given the sheer number of APJ decisions. Lamken answered that "if the Director thinks they're too numerous to merit his attention, the public and the President can hold him accountable for that decision".
Thomas asked what form of agency review would alleviate Arthrex's accountability concerns. Lamken answered that granting the USPTO director the discretion to review APJ decisions would be sufficient. Thomas then asked how a situation in which the director had the discretion to delegate review authority back to APJs would differ from the current APJ rehearing procedure. Lamken answered that a decision by the director to delegate review authority would make them accountable to the president and the public.
Breyer asked whether, given the federal government's complexity, it would ever be constitutional for Congress to grant unreviewable authority to agency officials. Lamken narrowed the question to adjudications and answered that adjudicators in the executive branch must either be accountable for individual decisions or have a superior who can review or overturn those decisions.
Alito asked Lamken what relief Arthrex thought the court should provide, given its position that the fix should come from Congress. Lamken answered that:
this Court should hold that this IPR cannot proceed because the system is not constitutional. And then any remedy beyond that, any revision to the statute would be a matter for Congress to address.
Sotomayor, suggesting that APJs would be considered inferior officers by historical standards, observed that if an APJ "makes a mistake under the policy set by the Director, that is going to be reviewed by the courts". Lamken countered:
[i]f that were the test [for being an inferior officer], then the heads of departments and the members of the cabinet would be inferior officers also because their decisions can be reviewed by the courts.
Kagan asked whether agency review would suffice to address Arthrex's accountability concerns if, as in Edmond, such review were barred where there is "competent evidence in the record". Lamken conceded that a principal officer's ability to review an inferior officer's decision "is a critical but perhaps not always sufficient condition". Kagan also suggested that the USPTO director, through the exercise of supervisory powers, "can probably get the precise result he wants" in a high percentage of cases. Lamken disagreed that the director could exert that degree of control by "for example, front-running APJ decisions with pay-specific guidance, manipulating panel size or panel composition to achieve results, [and] de-instituting to try and avoid bad decisions".
Gorsuch asked why it would not be an appropriate remedy to simply sever the portion of 35 US Code 6(c) that requires board rehearing so that the USPTO director could unilaterally review APJ decisions. Lamken explained that trying to insert the director "as a single decision-maker, where Congress provided for people to sit in panels of three… isn't a surgical solution. That's vivisection".
Kavanaugh and Barrett, seeking to pinpoint the locus of the severability issue, asked several questions directed to whether a lack of agency review in 35 US Code 6(c) was the source of the constitutionality problem. Lamken answered no, "because the problem stems also from the fact that the officers are not appointed by the President and Senate-confirmed. Either one would be sufficient to address the problem". Lamken further explained that the court should defer to Congress where multiple remedies are possible.
Barrett noted that it seemed odd to deem APJs principal officers "because they exercise this one piece of authority that seems to go beyond what an inferior officer can do". Lamken responded that if an officer "is the final decision maker for the executive branch" and has no superior in that context, he is a principal officer.
For further information on this topic please contact Christopher Loh at Venable LLP by telephone (+1 410 244 7400) or email (email@example.com). The Venable LLP website can be accessed at www.venable.com.
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