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Lead Article: Will Arthrex Increase the Rare Involvement of the USPTO Director in Inter Partes Reviews?

July 13, 2021

On June 21, the Supreme Court decided United States v. Arthrex, Inc., in which the question before the Court was whether “the authority of Administrative Patent Judges (APJs) to issue decisions on behalf of the Executive Branch is consistent with the Appointments Clause of the Constitution.”  No. 19-1434, -- S. Ct. --, 2021 WL  2519433, at *1 (June 21, 2021).  A 5-4 majority answered that question in the negative and determined that the APJs of the Patent Trial and Appeal Board (PTAB) who decide Inter Partes Review (IPR) proceedings lack sufficient oversight within the Executive Branch.  But instead of striking the entire IPR scheme, the Court crafted a constitutional remedy which grants direct oversight authority to the Director of the United States Patent and Trademark Office (USPTO).  The Court’s ruling raises immediate questions regarding how the Director will exercise this newfound authority and how IPR proceedings may change moving forward.  The USPTO answered some of those questions on June 29 through the issuance of an “interim” procedure meant to implement the Supreme Court’s decision; other questions remain impossible to answer with any certainty until the USPTO issues a more fulsome set of regulations or final guidance.  In any event, it appears likely that practitioners will encounter more IPR proceedings in which the path from a final PTAB decision to a Federal Circuit appeal is delayed by an additional level of review within the USPTO.  

A. A Brief Overview of the IPR Process  

The Leahy-Smith America Invents Act of 2011 (AIA) established the PTAB, which is an executive adjudicatory body within the USPTO.  Through a variety of procedures set forth in the AIA, the PTAB reviews the validity of patents that the USPTO previously issued.  One such procedure is IPR, an adversarial process resembling civil litigation in many respects, in which PTAB panels reconsider whether existing patents satisfy the novelty and non-obviousness requirements for inventions.  The panels are comprised of three APJs, who typically have expertise in the subject matter at issue in the patent.  

An IPR is initiated when any person or entity, other than the patent owner and who has not previously “filed a civil action challenging the validity of a claim of the patent,” files a petition with the PTAB.  See 35 U.S.C. §§ 311, 315.  The patent owner is permitted to respond to the petition, see 35 U.S.C. § 313, after which the PTAB must issue what is known as an “institution decision.”  If the PTAB determines that the information presented in the petition demonstrates that there is a “reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition,” the PTAB will “institute” the IPR and proceed to a full adjudication on the merits.  See 35 U.S.C. § 314.  If this threshold showing is not made, the IPR is over before it begins; the decision whether to institute is not appealable to the Federal Circuit.  See id.  

At the conclusion of an IPR proceeding, the PTAB panel issues a final written decision (FWD) that adjudicates the validity of the challenged patent claims.  Although the FWD is immediately appealable to the Federal Circuit Court of Appeals by any party to the IPR that can satisfy Article III standing requirements (Article III standing is not required to file a petition for IPR in the first instance), a dissatisfied party in the IPR can also ask that the PTAB rehear the case.  Under the provisions of the AIA, “[o]nly the [PTAB] may grant rehearings” of its own adjudications.  35 U.S.C. § 6(c).  In other words, the AIA gives no other person within the USPTO or the Executive Branch the ability to review or overturn a PTAB decision.  

B. The Procedural Backdrop for the Court’s Decision in Arthrex 

The Arthrex case began like many IPRs: after patent owner Arthrex filed an infringement suit against Smith & Nephew in the Eastern District of Texas, Smith & Nephew filed a petition to institute an IPR proceeding against the patent.  See Smith & Nephew, Inc. v. Arthrex, Inc., IPR2017–00275, 2018 WL 2084866 (May 2, 2018).  The PTAB instituted IPR and at the conclusion of the proceeding determined that several claims of Arthrex’s patent (U.S. Patent No. 9,179,907) were unpatentable.  Id. 

Arthrex did not request that the PTAB rehear the case and instead appealed the decision to the Federal Circuit.  See Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. 2019).  On appeal, Arthrex raised its constitutional challenge for the first time, asserting that the APJs of the PTAB were “principal officers” of the Executive Branch who must be appointed by the President with the advice and consent of the Senate, and that their appointment by the Secretary of Commerce was therefore unconstitutional.  See id. at 1327.  The Federal Circuit agreed, and to remedy the constitutional violation, invalidated the provision of the AIA that protected the APJs from termination without cause.  See id. at 1331-38.  Making APJs removable at will and without cause by the Secretary of Commerce, the Court held, prospectively “renders them inferior rather than principal officers” who may be appointed without Senate confirmation.  Id. at 1338.  

All parties—including the United States who had intervened in the Federal Circuit appeal after Arthrex raised its constitutional challenge—were dissatisfied with the Federal Circuit’s decision.  The parties appealed to the Supreme Court, which granted their petitions for certiorari to consider whether the PTAB’s structure is consistent with the Appointments Clause, and the appropriate remedy if it is not.  

C. The Supreme Court’s Decision 

Pursuant to the Appointments Clause of the Constitution (Art. II, § 2, cl. 2.), Senate confirmation is required for appointed “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.”  However, “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.”  In the AIA, Congress provided that APJs would be appointed as inferior officers by the Secretary of Commerce as head of a department.  See 35 U.S.C. § 6(a).  

Chief Justice Roberts, writing for a five-justice majority (Justices Roberts, Alito, Gorsuch, Kavanaugh, and Barrett), held that the nature of the APJ’s responsibilities is inconsistent with their method of appointment.  Without expressly determining whether the APJs are unlawfully appointed superior officers or inferior officers who have been granted too much authority, the majority held that because the “APJs have the ‘power to render a final decision on behalf of the United States’ without any such review by their nominal superior or any other principal officer in the Executive Branch,” the APJs “accordingly exercise power that conflicts with the design of the Appointments Clause ‘to preserve political accountability.’”  Arthex, 2021 WL 2519433, at *7-8.  

Chief Justice Roberts then prescribed a constitutional remedy, with six other members of the Court (Justices Alito, Kavanaugh, Barrett, Breyer, Sotomayor, and Kagan) either joining or concurring in this portion of the Opinion: “Decisions by APJs must be subject to review by the Director [of the USPTO].”  Id. at *12.  The Court held that 35 U.S.C. § 6(c) “cannot constitutionally be enforced to the extent that its requirements prevent the Director from reviewing final decisions rendered by APJs.”  Id.  Thus, the Court’s decision renders this provision of the AIA “unenforceable as applied to the Director insofar as it prevents the Director from reviewing the decisions of the PTAB on his own,” and the Court granted the Director the ability to “engage in such review and reach his own decision.”  Id.  The Court concluded, “the Director need not review every decision of the PTAB.  What matters is that the Director have the discretion to review decisions rendered by APJs.”  Id. at *13.  

D. What New Authority Did the Director Obtain and How Might That Authority Be Exercised?  

In order to assess how IPR proceedings might change moving forward, it is important to first consider the powers that the Director already had prior to the Court’s decision.  What appears to have troubled the 5-justice majority in Arthrex was that the AIA afforded the Director no direct mechanism to review—and if necessary, set aside—any PTAB determination.  See id. at *8.  But to be sure, both the AIA and the PTAB’s own procedures already gave the Director less direct—but equally effective—means to impact the outcome of any given IPR.  

More specifically, although the Arthrex majority took issue with the provision of 35 U.S.C. § 6(c) that afforded “only” the PTAB the power to “grant rehearings,” the Director has always had the ability to expand and then choose the makeup of any expanded PTAB panel, thereby selecting APJs who would share the Director’s viewpoint(s) and issue a different outcome on rehearing.  The USPTO’s current Standard Operating Procedure (SOP) 1, while noting that expanding panels “is not favored and ordinarily will not be used,” states that an “expanded panel may be used, where appropriate, to secure and maintain uniformity of the Board’s decisions, e.g., in related cases ordinarily involving different three judge panels.”  Under the SOP, the decision to expand a panel must be “approved by the Director,” and by statute, the Director is granted the authority to determine who sits on each panel.  35 U.S.C. § 6(c).  Directors may even appoint themselves to sit on panels.  35 U.S.C. § 6(a).  In this way, the Director has always had a means to order an IPR reheard by an expanded panel of the Director’s choosing.  

Under the USPTO’s current SOP 2, the Director also has the ability to sua sponte convene what is known as a “Precedential Opinion Panel.”  These panels are meant to “decide issues of exceptional importance (e.g., involving agency policy or procedure).”  This ability of Directors to select and convene such a panel, at their “sole discretion,” represents yet another way in which Directors previously could have exercised oversight over PTAB panels.  

In at least one case before the Federal Circuit, the USPTO admitted to using expanded panels to force “case-specific readjudication” after the initial determination of a panel.  See Oral Argument at 48:00-25, Yissum Research Dev. Co. v. Sony Corp., 626 F. App’x 1006 (Fed. Cir. 2015) (available at default.aspx?fl=2015-1343.mp3).  In other words, by expanding a panel through the mechanisms set forth in either SOP 1 or SOP 2, the USPTO Director is able to “ensure that her policy position is being enforced by the panels.”  Id. at 47:20-45; see also, e.g., Nidec Motor Corp. v. Zhongshan Broad Ocean Motor Co. Matal, 868 F.3d 1013, 1020 (Fed. Cir. 2017) (Dyk, concurring) (expressing “concern[ ] about the PTO’s practice of expanding administrative panels to decide requests for rehearing in order to ‘secure and maintain uniformity of the Board’s decisions.’”).  

Putting aside the question of whether the oversight authority afforded to the USPTO Director through SOP 1 and SOP 2 renders the APJs inferior officers under the Appointments Clause—which was the main point of contention between the majority and the dissent in Arthrex—the practical question is whether the majority’s holding that the Director may now engage in a more direct review of any IPR decision “and reach his own decision” will have an impact on cases going forward.  A little over one week after the Arthrex decision, on June 29, the USPTO implemented what it refers to as “an interim Director review process following Arthrex.”  The USPTO has also posted a series of “Arthrex Q&As” to its website, which provide additional guidance.  The interim review process, as currently designed, will work as follows:

(1) After the PTAB has issued a FWD, the Director may review the decision sua sponte, or a party to the proceeding can request Director review within 30 days.  

(2) A party may also request Director review following rehearing by a PTAB panel, within 30 days.  

(3) If Director review is initiated sua sponte, the parties to the proceeding will be given notice and may be given an opportunity for briefing.

(4) The Director’s review may address any issue, including issues of fact and issues of law, and will be de novo.  

(5) The Director review process will also apply in Post Grant Review (PGR) proceedings, which already closely resemble IPRs.  

(6) For now, the SOP for convening a Precedential Opinion Panel will remain in effect.  

The USPTO has indicated that “the current process is envisioned as an interim procedure that may change based on input from the public and experience with conducting Director reviews.  More information and updates will be provided in the near term to facilitate transparency of the process.”  Therefore, in the weeks and months to come, the USPTO will likely issue a more fulsome final guidance or propose regulations regarding how the Director will directly review IPR and PGR decisions.  Outstanding questions that should be considered by any litigant contemplating IPR or presently engaged in IPR include: 

(1) Will the Director only be able intervene after the Board has issued a FWD, or can the Director review institution denials as well? 

(2) How much time will the Director be afforded after the issuance of a FWD to determine whether to review the case sua sponte ?  And then how much time will the Director be afforded to conduct his review and issue a decision?  

(3) The current guidance states that the parties “may be given an opportunity for briefing.”  Under what circumstances will briefing be permitted and what limitations will be placed on that briefing?  For example, can the parties raise new arguments to the Director that were not already before the PTAB? 

(4) How much time overall will the Director’s review add to the proceedings? 

Although there are unanswered questions, practitioners should expect clarity on much of the above in the near-future.  Practitioners should also expect that the USPTO Director will become involved in more IPR proceedings going forward.  For although the Director has always had the ability to expand panels and to rehear cases, the instances in which this has happened are rare.  Cf. Vestas-Am. Wind Tech., Inc. v. Gen. Elec. Co., No. IPR2018-01029, 2018 WL 6658514, at *3 (P.T.A.B. Dec. 17, 2018) (declining request for rehearing by an expanded panel where doing so would not be necessary “to secure and maintain uniformity of the Board’s decisions.”).  Yet, now that the Director has been granted express authority to review each and every IPR and PGR decision—regardless of the issues presented—it is reasonable to conclude that the Director’s oversight will become a factor in more PTAB proceedings going forward, and not just in those proceedings that involve “related cases” (SOP 1) or “issues of exceptional importance” (SOP 2).  Unless and until the Director issues guidance or proposes regulation that would prevent his review in all cases and for whatever reason, Arthrex makes clear that given the current framework of the AIA, the Director must “have the discretion to review decisions rendered by APJs.”  It stands to reason that this broad grant of discretion will be exercised with greater frequency than the more circumscribed discretion afforded in SOP 1 and SOP 2.