ARTHREX, INC., Appellant v. SMITH & NEPHEW, INC., ARTHROCARE CORP., Appellees UNITED STATES, Intervenor
2018-2140
United States Court of Appeals for the Federal Circuit
October 31, 2019
Appeal from the United States Patent and Trademark Office, Patent Trial and Appeal Board in No. IPR2017-00275.
ANTHONY P. CHO, Carlson, Gaskey & Olds, PC, Birmingham, MI, argued for appellant. Also represented by DAVID LOUIS ATALLAH, DAVID J. GASKEY, JESSICAE ZILBERBERG.
CHARLES T. STEENBURG, Wolf, Greenfield & Sacks, PC, Boston, MA, argued for appellees. Also represented by RICHARD GIUNTA, TURHAN SARWAR; MICHAEL N. RADER, New York, NY.
MELISSA N. PATTERSON, Appellate Staff, Civil Division, United States Department of Justice, Washington, DC, argued for intervenor. Also represented by COURTNEY DIXON, SCOTT R. MCINTOSH, JOSEPH H. HUNT; SARAH E. CRAVEN, THOMAS W. KRAUSE, JOSEPH MATAL, FARHEENA YASMEEN RASHEED, Office of the Solicitor, United States Patent and Trademark Office, Alexandria, VA.
Before MOORE, REYNA, and CHEN, Circuit Judges.
Arthrex, Inc. appeals from the final written decision of the Patent Trial and Appeal Board holding claims 1, 4, 8, 10–12, 16, 18, and 25–28 of U.S. Patent No. 9,179,907 unpatentable as anticipated. Arthrex appeals this decision and contends that the appointment of the Board‘s Administrative Patent Judges (“APJs”) by the Secretary of Commerce, as currently set forth in
BACKGROUND
Arthrex owns the ‘907 patent, which is directed to a knotless suture securing assembly. Smith & Nephew, Inc. and Arthrocare Corp. (collectively “Petitioners” or “Appellees”) filed a petition requesting inter partes review of claims 1, 4, 8, 10–12, 16, 18, and 25–28 of the ‘907 patent.
Inter partes review is a “hybrid proceeding’ with ‘adjudicatory characteristics’ similar to court proceedings.” Saint Regis Mohawk Tribe v. Mylan Pharms., 896 F.3d 1322, 1326 (Fed. Cir. 2018). After a petitioner files a petition requesting that the Board consider the patentability of issued patent claims, the Director of the United States Patent and Trademark Office (“USPTO”) determines whether to institute an inter partes review proceeding.
The inter partes review of the ‘907 patent was heard by a three-judge panel consisting of three APJs. The Board instituted review and after briefing and trial, the Board issued a final written decision finding the claims unpatentable as anticipated. J.A. 12, 14, 42.
ANALYSIS
A. Waiver
Appellees and the government argue that Arthrex forfeited its Appointments Clause challenge by not raising the issue before the Board. Although “[i]t is the general rule . . . that a federal appellate court does not consider an issue not passed upon below,” we have discretion to decide when to deviate from that general rule. Singleton v. Wulff, 428 U.S. 106, 120–21 (1976). The Supreme Court has included Appointments Clause objections to officers as a challenge which could be considered on appeal even if not raised below. Freytag v. Commissioner of Internal Revenue, 501 U.S. 868, 878–79 (1991); Glidden Co. v. Zdanok, 370 U.S. 530, 535–36 (1962).
In Freytag, the Supreme Court exercised its discretion to decide an Appointments Clause challenge despite petitioners’ failure to raise a timely objection at trial. 501 U.S. at 878–79. In fact, the Court reached the issue despite the fact that it had not been raised until the appellate stage.
The Court explained that the structural and political roots of the separation of powers concept are embedded in the Appointments Clause. It concluded that the case was one of the “rare cases in which we should exercise our discretion to hear petitioners’ challenge to the constitutional authority.” Id. at 879. We believe that this case, like Freytag, is one of those exceptional cases that warrants consideration despite Arthrex‘s failure to raise its Appointments Clause challenge before the Board. Like Freytag, this case implicates the important structural interests and separation of powers concerns protected by the Appointments Clause. Separation of powers is “a
Appellees and the government argue that like In re DBC we should decline to address the Appointments Clause challenge as waived. DBC recognized that the court retains discretion to reach issues raised for the first time on appeal, but declined to do so in that case. 545 F.3d 1373, 1380 (Fed. Cir. 2008). The court predicated its decision on the fact that if the issue had been raised before the Board, it could have corrected the Constitutional infirmity because there were Secretary appointed APJs and that Congress had taken “remedial action” redelegating the power of appointment to the Secretary of Commerce in an attempt to “eliminat[e] the issue of unconstitutional appointments going forward.” Id. at 1380. As the court noted, “the Secretary, acting under the new statute, has reappointed the administrative patent judges involved in DBC‘s appeal.” Id. at 1381. Not only had Congress taken remedial action to address the constitutionality issue, the Secretary had already been implementing those remedies limiting the impact. Id. No such remedial action has been taken in this case and the Board could not have corrected the problem. Because the Secretary continues to have the power to appoint APJs and those APJs continue to decide patentability in inter partes review, we conclude that it is appropriate for this court to exercise its discretion to decide the Appointments Clause challenge here. This is an issue of exceptional importance, and we conclude it is an appropriate use of our discretion to decide the issue over a challenge of waiver.
B. Appointments Clause
Arthrex argues that the APJs who presided over this inter partes review were not constitutionally appointed. It argues the APJs were principal officers who must be, but were not, appointed by the President with the advice and consent of the Senate.
The Appointments Clause of Article II provides:
[The President] . . . shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.
An “Officer of the United States,” as opposed to a mere employee, is someone who “exercis[es] significant authority
Under
The remaining question is whether they are principal or inferior officers. The Supreme Court explained that “[w]hether one is an inferior’ officer depends on whether he has a superior,” and “inferior officers’ are officers whose work is directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate.” Edmond v. United States, 520 U.S. 651, 662–63 (1997). There is no “exclusive criterion for distinguishing between principal
1. Review Power
The Supreme Court deemed it “significant” whether an appointed official has the power to review an officer‘s decision such that the officer cannot independently “render a final decision on behalf of the United States.” Edmond, 520 U.S. at 665. No presidentially-appointed officer has independent statutory authority to review a final written decision by the APJs before the decision issues on behalf of the United States. There are more than 200 APJs and a minimum of three must decide each inter partes review.
There is no provision or procedure providing the Director the power to single-handedly review, nullify or reverse a final written decision issued by a panel of APJs. If parties are dissatisfied with the Board decision, they may request rehearing by the Board or may appeal to this court.
The government argues that the Director has multiple tools that give him the authority to review decisions issued by APJs. The government argues that the Director possesses the power to intervene and become a party in an appeal following a final written decision with which he disagrees. See
Additionally, the government points out that the Director “may designate any decision by any panel, including the Precedential Opinion Panel, as precedential . . . .” Id. at 8. These powers do not, however, provide the type of reviewability over APJs’ decisions comparable to the review power principal officers in other cases have had. See, e.g., Edmond, 520 U.S. at 664–65; Masias v. Secretary of Health and Human Servs., 634 F.3d 1283, 1294–95 (Fed. Cir. 2011) (special masters under the Vaccine Act were inferior officers in part because their decisions were “subject to review by the Court of Federal Claims” (an Article I court)). To be clear, the Director does not have the sole authority to review or vacate any decision by a panel of APJs. He can only convene a panel of Board members to decide whether to rehear a case for the purpose of deciding whether it should be precedential. No other Board member is appointed by the President. The government certainly does not suggest that the Director controls or influences the votes of the other two members of his special rehearing panel. Thus, even if the Director placed himself on the panel to decide whether to rehear the case, the decision to rehear a case and the decision on rehearing would still be decided by a panel, two-thirds of which is not appointed by the President. There is no guarantee that the Director would even be in the majority of that decision. Thus, there is no review by other Executive Branch officers who meet the accountability requirements of the Appointments Clause. Moreover, the Standard Operating Procedure makes clear that the Director would convene such a panel only in cases of “exceptional importance”: to potentially set precedent for the Board. In other words, this form of review—constrained to a limited purpose—is still conducted by a panel of APJs who do not meet the requirements of the Appointments Clause and represents the exception.
Finally, the government alleges that the Director has review authority over Board decisions because he can decide not to institute an inter partes review in the first instance. We do not agree that the Director‘s power to institute (ex ante) is any form of review (ex post). For the past several years, the Board has issued over 500 inter partes review final written decisions each year. The relevant question is to what extent those decisions are subject to the Director‘s review.
The situation here is critically different from the one in Edmond. In Edmond, the Supreme Court considered whether military judges on the Coast Guard Court of Criminal Appeals were principal as opposed to inferior officers. 520 U.S. at 655. There, the Court of Appeals for the Armed Forces, an Executive Branch entity, had the power to reverse decisions by the military judges and “review[ed] every decision of the Court of Criminal Appeals in which: (a) the sentence extends to death; (b) the Judge Advocate
2. Supervision Power
The extent to which an officer‘s work is supervised or overseen by another Executive officer also factors into determining inferior versus principal officer status. See Edmond, 520 U.S. at 664. The Director exercises a broad policy-direction and supervisory authority over the APJs. The Director is “responsible for providing policy direction and management supervision” for the USPTO.
The Director has the authority to promulgate regulations governing the conduct of inter partes review.
Not only does the Director exercise administrative supervisory authority over the APJs based on his issuance of procedures, he also has authority over the APJs’ pay.
The Director‘s administrative oversight authority is similar to the supervisory authority that was present in both Edmond and Intercollegiate. In Edmond, the Judge Advocate General “exercise[d] administrative oversight” and had the responsibility of “prescrib[ing] uniform rules of procedure” for the military judges. 520 U.S. at 664. Likewise, in Intercollegiate, the Librarian of Congress was responsible for approving the Copyright Royalty Judges’ (“CRJs”) “procedural regulations . . . and [] overseeing various logistical aspects of their duties.” 684 F.3d at 1338. And the Register of Copyrights, who was subject to the control of the Librarian, had “the authority to interpret the copyright laws and provide written opinions to the CRJs.” Id. The Director possesses similar authority to promulgate regulations governing inter partes review procedure and to issue policy interpretations which the APJs must follow. Accordingly, we conclude that the Director‘s supervisory powers weigh in favor of a conclusion that APJs are inferior officers.
3. Removal Power
The Supreme Court viewed removal power over an officer as “a powerful tool for control” when it was unlimited. Edmond, 520 U.S. at 664. Under the current
Appellees and the government argue that the Director can remove an APJ based on the authority to designate which members of the Board will sit on any given panel. See
The government analogizes the Director‘s designation power to the Judge Advocate General‘s power in Edmond, which allowed him to remove a military judge “from his judicial assignment without cause.” 520 U.S. at 664. The Director‘s authority to assign certain APJs to certain panels is not the same as the authority to remove an APJ from judicial service without cause. Removing an
The only actual removal authority the Director or Secretary have over APJs is subject to limitations by
nexus between the misconduct and the work of the agency, i.e., that the employee‘s misconduct is likely to have an adverse impact on the agency‘s performance of its functions.” Brown v. Department of the Navy, 229 F.3d 1356, 1358 (Fed. Cir. 2000).5 Moreover,
The government argues that the Secretary‘s authority to remove APJs from employment for “such cause as will promote efficiency of the service”—the same standard applied to any other federal employee—underscores that APJs are subject to significant supervision and control. It argues that
The APJs are in many ways similar to the CRJs in Intercollegiate for purposes of determining whether an officer is principal or inferior. The CRJs issued ratemaking decisions that set the terms of exchange for musical works. Intercollegiate, 684 F.3d at 1338. The APJs issue written decisions determining patentability of patent claims. Both are intellectual property decisions upon which “billions of dollars and the fates of entire industries can ride.” Id. In Intercollegiate, the Librarian approved procedural regulations, issued ethical rules, and oversaw logistical aspects of the CRJs’ duties. Id. Additionally, the Register of Copyrights provided written opinions interpreting copyright law and could correct any legal errors in the CRJs’ decisions. Id. at 1338–39. Similarly, the Director has the authority to promulgate regulations governing inter partes review and provides written policy directives. He does not, however, have the ability to modify a decision issued by APJs, even to correct legal misstatements. The Director‘s inability to review or correct issued decisions by the APJs likens those decisions to “the CRJs’ rate determinations [which] are not reversible or correctable by any other officer or entity within the executive branch.” Id. at 1340. Moreover, the limitations on removal in
4. Other Limitations
We do not mean to suggest that the three factors discussed are the only factors to be considered. However, other factors which have favored the conclusion that an officer is an inferior officer are completely absent here. For example, in Morrison v. Olson, 487 U.S. 654 (1988), the Court concluded that the Independent Counsel was an inferior officer because he was subject to removal by the Attorney General, performed limited duties, had limited jurisdiction, and had a limited tenure. Edmond, 520 U.S. at 661. Unlike the Independent Counsel, the APJs do not have limited tenure, limited duties, or limited jurisdiction.
Interestingly, prior to the 1975 amendment to
Having considered the issues presented, we conclude that APJs are principal officers. The lack of any presidentially-appointed officer who can review, vacate, or correct decisions by the APJs combined with the limited removal power lead us to conclude, like our sister circuit in Intercollegiate, which dealt with the similarly situated CRJs, that these are principal officers. While the Director does exercise oversight authority that guides the APJs procedurally and substantively, and even if he has the authority to de-designate an APJ from inter partes reviews, we conclude that the control and supervision of the APJs is not sufficient to render them inferior officers. The lack of control over APJ decisions does not allow the President to ensure the laws are faithfully executed because “he cannot oversee the faithfulness of the officers who execute them.” Free Enterprise Fund, 561 U.S. at 484. These factors, considered together, confirm that APJs are principal officers under
C. Severability
Having determined that the current structure of the Board under
The government suggests possible remedies to achieve this goal. As to
The government next argues that we could construe the statute as providing the Director the authority to unilaterally revise a Board decision before it becomes final. We see no language in the statute that could plausibly be so construed. The statute is clear that Board decisions must be rendered by at least three Board judges and that only the Board can grant rehearing.
Allowing the Director to appoint a single Board member to hear or rehear any inter partes review (appeal, derivation proceeding, and post grant review), especially when that Board member could be the Director himself, would cure the Constitutional infirmity. While the Board members would still not be subject to at-will removal, their decision would not be the “final decision on behalf of the United States unless permitted to do so by other Executive officers.” Edmond, 520 U.S. at 665. This combined with the other forms of supervision and controlled exercised over APJs would be sufficient to render them inferior officers. We conclude, however, that severing three judge review from the statute would be a significant diminution in the procedural protections afforded to patent owners and we do not believe that Congress would have created such a system. Eliminating three-APJ panels from all Board proceedings would be a radical statutory change to the process long required by Congress in all types of Board proceedings. The current three-judge review system provides a broader collection of technical expertise and experience on each panel addressing inter partes reviews, which implicate wide cross-sections of technologies. The breadth of backgrounds and the implicit checks and balances within each three-judge panel contribute to the public confidence by providing more consistent and higher quality final written decisions.6 We are uncomfortable with such a sweeping change to the statute at our hands and uncertain that Congress would have been willing to adopt such a
The government also suggested partially severing
The D.C. Circuit followed this approach in Intercollegiate, by invalidating and severing the restriction on the Librarian‘s removal power over CRJs. 684 F.3d at 1340. The court held unconstitutional all language in the relevant removal statute other than, “[t]he Librarian of Congress may sanction or remove a Copyright Royalty Judge.” Id. The Court determined that giving the Librarian of Congress unfettered removal power was sufficient such “that the CRJs’ decisions will be constrained to a significant degree by a principal officer (the Librarian).” Id. at 1341. And the constraint of that power was enough to render the CRJs inferior officers. Id.
Severing
Severability turns on whether “the statute will function in a manner consistent with the intent of Congress.” Alaska Airlines, Inc. v. Brock, 480 U.S. 678, 685 (1987) (emphasis omitted). In Free Enterprise Fund, the Court severed the removal provision because it concluded that “nothing in the statute‘s text or historical context” suggested that Congress “would have preferred no Board at all to a Board whose members are removable at will.” 561 U.S. at 509. Indeed, we answer affirmatively the question: “Would the legislature have preferred what is left of its statute to no statute at all?” Ayotte, 546 U.S. at 330. It is our view that Congress intended for the inter partes review system to function to review issued patents and that it would have preferred
The narrowest remedy here is similar to the one adopted in Intercollegiate, the facts of which parallel this case. Thus, we conclude that the appropriate remedy to the constitutional violation is partial invalidation of the statutory limitations on the removal of APJs.
The decision to partially invalidate statutory removal protections limits the effect of the severance to APJs and to their removal protections. We are mindful that the alternative of severing the “Officers and” provision from
Because the Board‘s decision in this case was made by a panel of APJs that were not constitutionally appointed at the time the decision was rendered, we vacate and remand the Board‘s decision
We agree with Arthrex that its Appointments Clause challenge was properly and timely raised before the first body capable of providing it with the relief sought—a determination that the Board judges are not constitutionally appointed. Our decision in DBC is not to the contrary. In DBC, the Appointments Clause challenge was to the particular APJs who were appointed by the Director, rather than the Secretary. We observed that if the issue had been raised before the agency, the agency could have “corrected the constitutional infirmity.” DBC, 545 F.3d at 1379. At that time, there were APJs who had been appointed by the Secretary who could have decided the case and thus the agency could have cured the constitutional defect. In DBC, we observed that in LA Tucker and Woodford, had the issue been raised at the agency, the agency could have corrected the problem. See id. at 1378 (citing Woodford v. Ngo, 548 U.S. 81 (2006); United States v. LA Tucker Truck Lines, 344 U.S. 33 (1952)). Ryder v. United States, 515 U.S. 177 (1995), cited by the government, likewise involved a challenge made to a particular judge, and the problem could have been cured by reassigning the case to a different judge at the trial level. In contrast, here the Director is the only Presidentially-appointed, Senate confirmed member of the Board. The Board was not capable of correcting the constitutional infirmity. We conclude that this Constitutional challenge is one in which the Board had no authority to provide any meaningful relief and that it was thus futile for Arthrex to have raise the challenge before the Board.
The Lucia court explained that Appointments Clause remedies are designed to advance structural purposes of the Appointments Clause and to incentivize Appointments Clause challenges. Lucia, 138 S. Ct. at 2055 n.5. We conclude that both of these justifications support our decision today to vacate and remand. See Collins v. Mnuchin, 938 F.3d 553, 593 (5th Cir. 2019) (recognizing, “the Court has invalidated actions taken by individuals who were not properly appointed under the Constitution.“). The Supreme Court held in Freytag that Appointments Clause challenges raise important structural interests and separation of powers concerns. We conclude that challenges under these circumstances should be incentivized at the appellate level and accordingly the remedy provided is appropriate. We have decided only that this case, where the final decision was rendered by a panel of APJs who were not constitutionally appointed and where the parties presented an Appointments Clause challenge on appeal, must be vacated and remanded. Appointments Clause challenges are “nonjurisdictional structural constitutional objections” that can be waived when not presented. Freytag, 501 U.S. at 878–79. Thus, we see the impact of this case as limited to those cases where final written decisions were issued and where litigants present an Appointments Clause challenge on appeal.
Finally, on remand we hold that a new panel of APJs must be designated and a new hearing granted. See Appellant‘s Supp. Br. at 12 (“This Court should thus order a remand to a new PTAB panel for a new oral argument.“) The Supreme Court has explained that when a judge has heard the case and issued a decision on the merits, “[h]e cannot be expected to consider the matter as though he had not adjudicated it before. To cure the constitutional error, another ALJ . . . must hold the new hearing.” Lucia, 138 S. Ct. at 2055. Lucia suggests that the remedy is not to vacate and remand for the same Board judges to rubber-stamp their earlier unconstitutionally rendered decision. Like Lucia, we hold that a new panel of APJs must be designated to hear the inter partes review anew on remand. To be clear, on remand the decision to institute is not suspect; we see no constitutional infirmity in the institution decision as the statute clearly bestows such authority on the Director pursuant to
VACATED AND REMANDED
COSTS
The parties shall bear their own costs.