Guest Post by Prof. Rai: In the Constitutional Cross-Hairs: PTAB Judges and Administrative Adjudication

Guest post by Arti K. Rai, Elvin R. Latty Professor of Law and Faculty Director, The Center for Innovation Policy, at Duke Law.

Last Thursday, in Arthrex v. Smith & Nephew (Fed. Cir. 2019), a panel of the Federal Circuit held that the administrative patent judges (APJs) at the PTAB are “principal officers” who must, under the Appointments Clause of the Constitution, be appointed by the President and confirmed by the Senate.  In contrast, the current patent statute provides for APJs to be appointed by the Secretary of Commerce in consultation with the PTO Director.  The panel further determined that it could remedy the constitutional defect by severing APJ removal protections, thereby rendering them inferior officers who can be appointed by “Heads of Departments” like the Commerce Secretary.

As this post details, the panel did a careful job of addressing one of the most knotty constitutional issues raised by PTAB adjudication.  But precisely because the issue is knotty, the panel’s decision is unlikely to represent the last step in the road.  Indeed, the USPTO has already indicated that it may seek en banc review.

All parties agreed, as did the panel (citing Professor John Duffy’s prominent 2007 Patently-O paper), that APJs are officers within the meaning of the Appointments Clause.  The only question was whether APJs are principal or inferior officers.

The panel’s conclusion regarding principal officer status rested on Justice Scalia’s 1997 opinion for the Court in Edmond v. United States.  In that case, the Court held that inferior officers must be “directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate.”

According to the panel, PTAB judges lack adequate direction and supervision for two reasons: first, “presidentially appointed officers” cannot “review, vacate, or correct decisions by the APJs”; and, second, these presidentially appointed officers (specifically the Secretary of Commerce and Director) have only “limited removal power.” Although severing APJ removal protections would not give the Director review power over individual decisions, it would, according to the panel, be sufficient to demote APJs to inferior status.

The road ahead will likely be tumultuous.  At the Supreme Court, administrative law has long been a battlefield between various flavors of formalist and functionalist reasoning about how agencies fit into the executive branch and interact with the legislative and judicial branches.  Indeed, in taking its relatively formal approach to the distinction between principal and superior officer, the Edmond Court had to distinguish the considerably less formalist opinion in Morrison v. Olson, written only 9 years earlier.  In Morrison, Justice Scalia had written a stinging dissent, castigating the majority for relying on multiple indicia of inferiority, including limited responsibility, and for not recognizing that “inferior” necessarily means subordinate. Nine years later, Justice Scalia was able to secure 8 votes for his position. (Justice Souter concurred only in part.)

The Arthrex decision also comes during a period of even greater-than-usual Supreme Court turmoil over administrative adjudication.  Most relevant for present purposes, the Court has already decided a steady stream of constitutional and nonconstitutional cases involving the PTAB.  In the most prominent of these cases, Oil States Energy Services v. Greene’s Energy Group, an ideologically diverse coalition of seven Justices ultimately concluded that administrative adjudication of granted patents survived constitutional scrutiny.  But Justice Gorsuch, joined by Chief Justice Roberts, dissented in strong terms, warning against the perils of adjudication by judges who don’t enjoy Article III protections.

Of course, as the Arthrex opinion illustrates, under more formal versions of Appointments Clause jurisprudence, decisions made by actors who are not subject to significant direction and control by a presidentially appointed official may themselves be unconstitutional.  The Supreme Court’s 2018 decision in Lucia v. SEC makes it clear that the Court’s more formalist Justices, including Justices Gorsuch and Roberts, continue to take the Appointments Clause very seriously.  In that decision, all of the Justices who tend to embrace formalism, joined by Justice Kagan, held that as a constitutional matter the administrative law judges of the SEC were officers (albeit inferior officers) who had to be appointed by the politically accountable Commission.

As commentators have discussed, the juxtaposition of Oil States and Lucia in the 2018 term illuminates potential constitutional tensions in administrative adjudication.  Some formalist academics who are particularly concerned about the tension have suggested simply removing large swaths of adjudication from the administrative state and placing it instead in Article III.

Conventional administrative law has taken a different, but still relatively formal, approach.  Conventionally, whether the judge is an administrative law judge (ALJ) (a specific type of judge who enjoys very strong protections against removal) or some other type of administrative judge, she has some level of decisional independence and protection against firing.  However, the judge’s decisions are subject to a right of review by a politically appointed agency head.

What about the patent statute? The statute gives the Director overall responsibility for USPTO “policy direction and management supervision” as well as power to promulgate regulations by which the PTAB is bound.  As for specific PTAB decisions, it provides for “rehearing” of such decisions.

Consistent with the academic literature (for example, this article I coauthored) suggesting that the rehearing mechanism be used to distill from the hundreds of PTAB opinions issued each year certain precedential opinions that bind the agency, the Director has set up an elaborate “Precedential Opinion Panel” (POP) process to rehear PTAB cases that raise important issues. The POP is selected by the Director and by default consists of the Director, the Commissioner for Patents, and the Chief Judge.

The Arthrex panel did note the Director’s general supervisory powers over the PTAB, his regulatory authority, the rehearing provision, and the POP procedure. It emphasized, however, that neither the statute nor the POP procedure explicitly provide for a right of rehearing over specific cases by the Director only.  Presumably, any functional ability the Director might have to persuade the Commissioner for Patents and the Chief Judge is insufficient.

If the Supreme Court were to take the case, what it might decide is anyone’s guess. The cleanest path forward is therefore surgical Congressional intervention that gives the Director an explicit, unilateral right of review.  This approach would cure any perceived constitutional infirmity without subjecting APJs to at-will firing.  If subordination is the key to inferior status, then both formalists and functionalists might agree that, for adjudication, subordination through transparent and reasoned review of the adjudicator works better than subordination through firing.

24 thoughts on “Guest Post by Prof. Rai: In the Constitutional Cross-Hairs: PTAB Judges and Administrative Adjudication

  1. 7

    link to 717madisonplace.com

    The entire oral argument is worth a listen; however, here are some points of note:

    Polaris suggested that the court’s correction of the statute that was implemented in Arthrex is insufficient and recommended the nuclear option — invalidate the statute; then let Congress fix it.

    The government needs to check in with various agencies as well as the Solicitor General before deciding whether to request en banc review. It sounded as if the government might not reach a decision on whether to request en banc review for another 42 days.

    The lack of an issued mandate in Arthrex is causing procedural obstacles. Polaris v. Kingston is perhaps a better vehicle for en banc review given the issues at play; but, the Polaris court can’t apply Arthrex until the mandate issues. So, the timing of a decision in Polaris will be tricky to keep Arthrex and Polaris on relatively parallel tracks for en banc review requests. (Meanwhile, in Customedia v. Dish, decided last week, the CAFC applied Arthrex — prior to a mandate issuing in Arthrex !?!)

    There are lingering due process issues with respect to the Director’s instruments of persuasion for controlling Board members.

    This constitutionality challenge has been raised once before prior to the Arthrex case. Apparently, in one of the Trading Technologies cases, the issue was raised and the Federal Circuit issued a Rule 36 Judgment. I believe that panel was Judges Newman, Dyk, and Wallach.

    The government believes that it was not permitted to use a statutory right when the government was not given a chance to intervene in the Uniloc case that was remanded to the Board last week in view of Arthrex:

  2. 6

    The “formalist” tag is hilarious. The funniest part is that the people referred to are only “formalist” when it suits their goals.

    File next to “originalist” and other nice phrases for “n-u-t-ca-se who wants to roll back the clock so slavery and subjugation can get some of that old-timey respect they deserve.”

    1. 6.1

      You do realize that “roll back the clock for slavery respect” would be a democrat thing (in that “rolled-back” era), eh?

      1. 6.1.1

        “Derp derp mindless hand waving derp hey I’m a rightwing nertjob DERP preaching to know-nothings derpitty derp!””

        1. 6.1.1.1

          Yay, Malcolm’s Derp Dance

  3. 5

    CAFC suggested fix to make the PTAB Judges (decision makers) inferior by taking away the Title 5 protection, would run afoul because, an “at will” employed PTAB panel would be a a due process violation because the 14th amendment case law requires independent decisionmakers and 5th amendment also require this!

    Any thought ?

    1. 5.1

      Can you tie those amendments to your notion of “independent decision maker” a little more concretely?

      Thanks,

      1. 5.1.1

        link to uscivilliberties.org

        Passed in 1946, the Administrative Procedure Act (APA) created a new corps of ‘‘hearing examiners,’’ later renamed administrative law judges (ALJs). The statute provided that for all programs designated by Congress (which ultimately included much of federal regulation, such as securities and labor), each adjudication would occur before an ALJ. Though employed by their respective agencies, the ALJs, to this day, have no responsibilities besides adjudication; never communicate with investigative or prosecutorial personnel ex parte; and *****cannot be fired unless the agency convinces an outside board that there is good cause to do so. *****

        If it becomes “At will” and the director can fire then anytime .. does it not create an issue ?

        1. 5.1.1.1

          Is an APJ the same as an ALJ?

          Also, what your provide does not seem to draw “independent decision maker” to the 5th and 14th Amendments. I was looking for a more substantive reasoning to those Amendments from the proposition of ‘independent.’

        2. 5.1.1.2

          I agree Brian, and further demoting the APJ to inferior officers by making them ‘at will’ supports the Gorsuch dissent in Oil States. Under the CAFC holding, the PTAB is now even worse than a Privy Court it’s a “King’s court,” with the King himself judges via his proxies.

          1. 5.1.1.2.1

            Oil States or not, it is interesting to note that the “demotion” to “at-will” firing is by way of a mechanism in the larger scheme of our government to enforce accountability.

            I “get” that the notion of the Administrative State (and the somewhat power of absorbing the other branches of the government into that “state”) has somewhat dulled the notion that the Executive branch is there to execute, rather than adjudicate.

            To tie this loosely back to my reply at 5.1.1.1, examiners do not adjudicate.

  4. 4

    The PTAB is an unmitigated disaster. Inventors have zero confidence that the USPTO will stand behind our patents no matter how thorough they are examined. The current APJs have proven incompetent, biased, and incompatible with a reliable patent grant. Making APJs removable without cause only makes it worse, due to the frequency of elections. Director Iancu has at least two options to accelerate a long term legislative solution. He can remove them all and replace them with competent and fair individuals. Or he can deny all petitions. Meanwhile wealthy infringers like Apple, Google, and Smith & Nephew can take their validity complaints up in a real court.

    1. 4.1

      Josh Malone is a self-interested entitled inf-@-nt who never has enough money and who recites whatever patent maximalist script is handed to him.

      Just relax in your Texas compound, Balloon boy, and give us all a break.

    2. 4.2

      There is no doubt that CJ Smith selected for anti-patent bias. I interviewed with CJ Smith for the position of patent judge. My take away was that he wanted people that were anti-patent. He asked a question or two that made it clear that he wanted me to proclaim that I would control patents.

      Remember this was when Lee/Google were running the USPTO.

  5. 3

    Under our Constitution, the CAFC doesn’t have the legal authority to crystal ball mind-read what they believe Congress would want or do.

    The PTAB death squad must fall.

    Mr. Director: You know what you must do; what is best for our Country.

    Forget En Banc.

    Instead, immediately cancel all PTAB trials. Institute no new ones.

    The reign of terror on American innovation by the PTAB must end.

    1. 3.1

      “Death squad”?

      Oh, brother, not these cl-0-wns again.

      No wonder David Bound’s conscience is so shocked! Those poor executed patents … lined up and massacred by the “death squad” without rational explanation, exactly like the Na-z-is killed the J-e-w-s!!

      Gob help us all. Where are you to save us, Balloon Boy??

  6. 2

    I think the PTAB judges can be shuffled between the ex parte work and the trial work at will by the director.

    I think that makes them inferior and there is no Constitutional problem.

    1. 2.1

      You are making the same mistake here, Night Writer, that Paul makes in thinking that somehow the PTAB’s “inferior officer” status is clear in the case of ex parte appeals, but contestable in the case of IPRs/PGRs. Not so.

      The Director has no more supervisory power over the PTAB when it hears interferences or ex parte appeals than when the PTAB hears IPRs or PGRs. One would reach the same result in the “are they ‘officers’ or ‘inferior officers'” analysis if one looks at the ex parte appeal process as one reaches when looking at IPRs.

      The only reason why this issue presents in an IPR instead of an ex parte appeal is because there is more money at stake in this IPR than there might be in most ex parte appeals, and therefore it was worth the appellant’s while to pay the fees necessary for an appellate lawyer to gin up this argument. Fundamentally, however, the analysis is exactly the same regardless of what end of the PTAB’s work one examines.

      This is also why Pro Say‘s “[t]he PTAB death squad must fall” line is so totally off base. Excising IPRs and PGRs from title 35 would do nothing to remedy the constitutional defect that Arthrex has exposed. Attacking the legitimacy of IPRs and PGRs in view of this decision is a total red-herring (although a predictable one, given the animosity that IPRs have generated among the patent prosecution community).

      1. 2.1.1

        Maybe you right Greg.

      2. 2.1.2

        Greg @ 2.1: “Excising IPRs and PGRs from title 35 would do nothing to remedy the constitutional defect that Arthrex has exposed.”

        While I agree that such excising would do nothing to remedy the defect (sorry for any misunderstanding); my point was instead that the defect renders IPRs and PGRs (can CMBs even be instituted anymore since there’d be less than the required one year max time-to-decision given their Sept ’20 expiration?) unconstitutional.

        As others are and have pointed out, the CAFC’s herculean fix to make constitutional . . . that which is unconstitutional . . . must fail.

        And by the time this gets to SCOTUS, it will fail.

        1. 2.1.2.1

          Thanks for the clarification. Why are you merely calling on the Director to “cancel all PTAB trials [and i]nstitute no new ones.” If you really believe what you are saying, presumably you should also be urging him to de-docket all ex parte appeals, and to mothball all ongoing interferences as well, no?

  7. 1

    Re: “Some formalist academics who are particularly concerned about the tension have suggested simply removing large swaths of adjudication from the administrative state and placing it instead in Article III.”
    “Formalist academics” is a polite term for out of touch with reality. Fortunately the Sup. Ct. is well aware that it would be quite impossible for already overloaded, inefficient and costly-proceedings Federal Article III courts to take on hundreds of thousands of administrative decisions.
    If, as this article suggests, a key issue is whether the PTAB can act with no control by the politically appointed Director, that is not reality either. The Director and two of his direct reports are Board members by statute, and can request reconsideration of Board decisions in which they appoint themselves for a new PTAB panel. The Director could undoubtedly also take other actions.

    1. 1.1

      The Director and two of his direct reports are Board members by statute, and can request reconsideration of Board decisions in which they appoint themselves for a new PTAB panel. The Director could undoubtedly also take other actions.

      Maybe this bespeaks a sufficient measure of oversight for the Director’s, and maybe it does not. No matter how many of the Directors direct-reports are ex officio members of the PTAB, it remains the case that the Director cannot order a re-hearing, but can only achieve a re-hearing by persuading these other PTAB members. The situation overall is a close enough case that I cannot say that the CAFC got it wrong (although I suppose that if a higher court overturns this panel decision, it would also not be clear to me that the higher court would be wrong).

      1. 1.1.1

        If the Director’s reasons for reversing the decision are rational (i.e., because a mistake was a made) then this really is a distinction without a difference.

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