By Gregory Curfman
For the second time in the span of just three years, the Patent Trial and Appeal Board (PTAB) within the U.S. Patent and Trademark Office (USPTO) is under scrutiny by the Supreme Court.
How the Supreme Court decides this latest PTAB case, United States v. Arthrex, will have important implications for patent law and for administrative law more generally.
In a 2018 case, Oil States Energy Services v. Greene’s Energy Group, the court examined the constitutionality of the patent review procedure to assess the validity of previously issued patents conducted by the PTAB, referred to as inter partes review.
In Arthrex, the Court is being asked to review the constitutionality of the administrative patent judges (APJs) that comprise the PTAB. The case arose after the PTAB invalidated part of a patent held by Arthrex (a global medical device company) on a surgical device in an inter partes review requested by a rival device manufacturer.
On March 3, 2021, the Court heard arguments for Arthrex (and two consolidated cases). While the PTAB survived the Court’s review in Oil States, the eventual outcome in Arthrex is far less certain and may threaten the continued existence of the PTAB.
The America Invents Act Creates the PTAB
Before 2011, challenges to the validity of issued patents in the context of patent infringement lawsuits were filed solely in Article III courts. Such litigation is typically quite protracted and expensive.
To provide an alternative legal pathway for challenging patent validity, in 2011, Congress formulated a provision included in the Leahy-Smith America Invents Act that created the PTAB, which initiated its patent review procedure, inter partes review, in 2012.
Inter Partes Review
Inter partes review of patent validity is conducted by a panel of three APJs, who are appointed by the Secretary of the Department of Commerce in conjunction with the Director of the USPTO. APJs are therefore appointees of the Executive Branch, not the Judicial Branch.
There are several important procedural differences between inter partes review by the PTAB and review of patent validity by Article III courts.
Once inter partes review of a patent is granted, APJs are required to submit an opinion regarding validity within one year, thus providing a more expedited process for patent review than would usually be provided in federal litigation.
In contrast to review of patent validity by the courts, any party can request review by the PTAB at any time. However, only one patent may be challenged at a time in inter partes review (whereas there is no limit in the number of patents challenged in litigation).
After an inter partes review is completed and the opinion submitted, the PTAB’s decision may be appealed to an Article III court, typically the U.S. Court of Appeals for the Federal Circuit.
United States v. Arthrex
In United States v. Arthrex, the members of the PTAB, i.e., the APJs (now numbering in the hundreds), are the focus of the constitutional challenge.
The central legal question is whether the APJs are inferior officers, as the government contends, or principal officers, as Arthrex contends.
On the basis of the Appointments Clause (Article II, Section 2, Clause 2), principal officers are appointed by the president with confirmation by the Senate, while inferior officers are appointed by the Secretary of the Department (the Secretary of Commerce in the case of APJs).
Arthrex argues that, because the opinions of APJs in inter partes reviews cannot be independently overruled by the Director of the USPTO, APJs must be considered, on the basis of the authority vested in them by the America Invents Act, principal officers.
The Director, at his or her discretion, may require a second inter partes review with a newly assembled 3-judge panel, of which the Director may be one of the judges. However, this authority does not solve the constitutional problem that APJs were not appointed as principal officers in accordance with the Appointments Clause, and yet their rulings in inter partes reviews cannot be independently overruled by the Director himself or herself.
As a consequence, the lower court (the Federal Circuit) ruled in Arthrex that APJs are principal officers, but the court proceeded to find a constitutional remedy by severing the tenure provision for APJs in the America Invents Act, thus demoting them to inferior officers.
Conclusion – A Remedy?
If the court affirms the opinion of the Federal Circuit that APJs are principal officers and that the PTAB, as its members are currently appointed, is unconstitutional, the follow-on question is whether the Supreme Court, like the Federal Circuit, will provide a constitutional remedy.
Offering a remedy may be perceived by the justices as making law rather than interpreting it, and it is conceivable that the court instead will remand, thus leaving it to Congress to decide on an appropriate course of action for the PTAB. As Justice Gorsuch noted during the oral arguments in Arthrex, this could take a long time, and in the meantime, would the USPTO have to function without a PTAB? A related question is whether Congress would decide not to decide and, in effect, eliminate the PTAB?
If, on the other hand, the court determines that APJs are inferior officers, then no remedy is required, and the PTAB will again survive to live another day, as it did after Oil States. The composition of the court, however, has changed since Oil States was decided, with Justices Kennedy and Ginsberg now replaced by Justices Kavanaugh and Barrett.
On the basis of the justices’ many questions and comments during oral arguments, it appears that this will be a close case and one with significant ramifications.
While inter partes review may be becoming of less interest as a mechanism to challenge pharmaceutical patents, it is too early to define clear trends. The data show, however, that in each of the years 2015 and 2016, nearly 150 petitions for inter partes review of Orange Book patents were submitted, while in 2020 that number had declined to less than 20.
Though the tool of inter partes review to challenge patents may be falling out of favor in the health context, the Supreme Court’s decision in Arthrex will have major implications for patent law and administrative law, generally. A judgment is expected by June.