En Banc Denial in Arthrex

by Dennis Crouch

Arthrex, Inc. v. Smith & Nephew, Inc. and U.S. as intervenor (Fed. Cir. 2020) (en banc denial)

None of the parties in this case were happy with the Federal Circuit’s original decision in Arthrex and all filed petitions for en banc rehearing.  Those petitions have now been denied in what appears to be a 8-4 split with Judges Newman, Wallach, Dyk, and Hughes expressly dissenting from the denial.  Judge Moore authored the original opinion in the case and also authored an opinion here defending that original opinion. She was joined on the opinion by her original panel members of Judges Reyna and Chen as well as Judge O’Malley explaining that (1) the original decision was correct and (2) conducting a rehearing would “only create unnecessary uncertainty and disruption.”

The Arthrex panel followed Supreme Court precedent to conclude that the administrative patent judges (APJs) of the USPTO’s Patent Trial and Appeal Board were improperly appointed principal officers. It further followed the Supreme Court’s direction by severing a portion of the statute to solve that constitutional problem while preserving the remainder of the statute and minimizing disruption to the inter partes review system Congress created.

Judge Moore Op. Concurring in the en banc denial.  This quote mentions the the “severing” element of the original panel decision. In particular, the court invalidated the removal restrictions of 5 U.S.C. § 7513 as it applies to APJs — thus making it easier for the USPTO director to remove APJs at will. This move – according to the court – was sufficient to shift APJs from principal Officers to inferior Officers and thus “save” the system.

Judge O’Malley wrote her own concurring opinion that included the following statement:

While I agree with Judge Dyk and Judge Hughes that Title 5’s protections for government employees are both important and long-standing, I do not believe Congress would conclude that those protections outweigh the importance of keeping the remainder of the AIA intact—a statute it debated and refined over a period of more than six years.

The leading dissent by Judge Dyk argues that the severance choice here is an improper, “draconian remedy” that “rewrites the statute contrary to Congressional intent.  Judges Hughes and Wallach each wrote their own dissenting opinions – arguing that APJs were already inferior officers based upon the extensive control and authority exerted by the USPTO director.

= = = = =

The basic issue in the case is the Constitutionality of the appointments process for Administrative Patent Judges (APJs) sitting on the Patent Trial & Appeal Board (PTAB).  The Appointments Clause of the U.S. Constitution indicates that all “Officers of the United States” shall be nominated and appointed by the US President with the Advice and Consent of the Senate.  The provision then goes on to say that Congress has the power to alter this process for “inferior Officers, as they think proper.” In particular, Congress may allow inferior Officers to be appointed by “Heads of Departments.”  U.S. Const. Art. II, Sec. 2, Cl. 2.  An improperly appointed officer isn’t really an officer at all and so should have no power to render judgment to cancel privately held property rights.

APJs used to be hired by the USPTO Director.  However, Prof John Duffy shook that cage in his 2007 article: Are Administrative Patent Judges Unconstitutional?, 2007 Patently-O Patent L.J. 21. In the article, Duffy argued that APJs are likely best classified as inferior Officers and thus could be appointed by a Head of Department — namely the Secretary of Commerce.  Congress quickly acted on Duffy’s submission and altered the law to fix the problem.

The America Invents Act (AIA) greatly increased the power of APJ with the advent of inter partes review (IPR) proceedings and the other AIA trials.  The PTAB has become the most frequented patent court in the country and thousands of patents have been cancelled based upon APJ rulings.

After losing before the PTAB in an inter partes review, Arthrex appealed to the Federal Circuit with the argument that the increased power granted by the AIA ratches APJs up to the status of principal Officers rather than inferior Officers.  The result of that conclusion would be that APJs would need Presidential Appointment with Senate consent.  In Arthrex, the Federal Circuit agreed with the contention, but rather than requiring Presidential Appointment, the court decided instead to invalidate a statute that provides job security to APJs.  Since job security (ability to be easily fired by someone other than the President) is an element of the inferior/principal Officer distinction, the Federal Circuit found that severing that portion of the statute was enough to change the nature of the role.

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The case offers an interesting constitutional query – but is also being used as a tool for those who are hoping for the IPR system to fail.

27 thoughts on “En Banc Denial in Arthrex

  1. 7

    The case offers an interesting constitutional query – but is also being used as a tool for those who are hoping for the IPR system to fail.

    Actually, the Constitutional violation is itself the failure of the IPR system. There is a reason that individuals exercising the authority of the United States must be appointed by the President with the consent of the Senate.

    Breaking these safeguards has resulted in massive invalidation rates by many biased and unqualified individuals, a total capture of the patent system by corporate interests.

    Why would sending 270 APJs through Senate confirmation cause the IPR system to fail? Are you suggesting they could not pass a confirmation vote?

    1. 7.1

      +1 Josh. Yet again.

      The only thing worse than a Death Squad PTAB . . . is an unconstitutional one; which is exactly what we here have.

      The only sure and certain cure for this cancer is to excise it before it kills anymore American innovation, new company formations, and untold 1,000’s of great new jobs.

  2. 6

    From the winning side of the decision:
    “The curative severance was consistent with the Supreme
    Court’s approach to a separation of powers violation in Free
    Enterprise Fund. 561 U.S. at 508 (severing a “for-cause”
    removal restriction as unconstitutional). It similarly
    aligned with the D.C. Circuit’s approach in Intercollegiate,
    which severed a removal restriction to rectify an Appointments Clause violation. 684 F.3d at 1340–41.”
    Dissents argue that these cited decisions do not apply here and/or are not retroactive. But they also seem muddle APJs [formerly called “Examiners in Chief”] with the very different and statutory Federal Administrate Judges system, which they are not. Those administrative Judges are used by the PTO only for attorney disciplinary hearings.

    1. 6.1

      perhaps a minor nit:

      “From the currently winning side of the decision:”

      Even though the there is a denial of en banc, and the Supreme Court may or may not pick this up, the Fat Lady has not yet sung.

      (by the way, you add a nice point there)

  3. 5

    Arthrex, Inc. v. Smith & Nephew, Inc. and U.S. as intervenor (Fed. Cir. 2020) (en banc denial)

    If two of the dissents were that APJs were already inferior officers, isn’t this decision really 10 to 2 for the same result?

  4. 4

    Frankly, this whole things so ad hoc and beyond what judges should be doing that I cannot even get my head around it.

    In a normal working democracy, the judges would have come up with some opinion that led directly to Congress passing new legislation to fix the problem.

    This is nuts. And changing the contract the patent judges made with the federal government to quit their jobs and come work for the USPTO seems to be a taking.

    1. 4.2

      Also, are there cases where judges have taken similar action?

      It seems very odd to me that a judge would be structuring the work relationship between an employee and the federal government.

    2. 4.3

      I guess what is getting me about this is that the structure of the work relationship was determined by Congress and the President.

      If the court says that such a person cannot perform the duties that the Congress and President are having them do, then I think that should be the end of it. Congress and the President then should have to restructure the relationship.

      Everything that the employee did to that point was under the old relationship so the idea that somehow this cures what happened before is fiction.

      And so what you have is a problem at a fixed point in time. Congress and the President are supposed to fix that not the courts particularly at this level.

      But I guess the bizarre thing about this is that somehow everything the patent judges up to this point is supposedly OK since now the relationship has been changed by a judge. That is on its face ridiculous.

    3. 4.4

      NW, the decision seems to suggest a fix for that:
      “Nothing in the Arthrex decision prevents Congress from legislating to provide an alternative fix to the Appointments Clause issue. Congress can reinstate title 5 removal protections for APJs while ensuring that the inter partes review system complies with the Appointments Clause, if it so chooses.”

      1. 4.4.1

        There is a big difference between Congress and the President having to make changes and the court making changes where the Congress and the President can then redo what the court did.

        The very nature of the remedy seems to me to be out of bounds of what courts should be doing. And it is not some desire to get rid of IPRs. Rather I suspect if this were some less controversial law that the CAFC would have just said it is unconstitutional so go and fix it Congress and President.

        There is also the unsettling fact that somehow magically all the work to date is supposed good now that things are “fixed.”

      2. 4.4.2

        Finally, I’d say for IPRs that this “fix” probably just makes them more unpredictable as patent judges who to my knowledge are not the same as APJs will be more in tune with the whims of the director and the director’s policies may change with each new President.


          Yes, Director influence on the PTAB seems to have already occurred with imposition of the most recent Director’s 101 Examiner Guidelines in spite of Fed. Cir. decisions that those Guidelines are not the law.


            You are confusing and conflating different issues Paul.

            Any and all Office 101 materials (well before the 2019 PEG) can be characterized with your mis-aimed snippet.

            In fact, ask Cleveland Clinic about that.

  5. 3

    Judge O’Malley’s “I do not believe Congress would conclude that those protections outweigh the importance of keeping the remainder of the AIA intact” sure sounds like an “all or nothing, non-severable” view of the AIA.

    Last I remember, it was being pointed out that there were indications of not one but TWO instances of a severable amendment having been advanced (with the second one clearly not providing for a ‘will of Congress,’ but the first quite possibly indicating that very fraility.

    1. 3.1

      …pardon the repeat — remnants of a narrative controlling “G-G-G” word that had been added to a George Carlin filter had blocked the first post at 2.

    2. 3.2

      “..the importance of keeping the remainder of the AIA intact” is clearly a statement of severability. But unusual here in that the portion of a statute being held unconstitutional is not part of the AIA statute itself.

      1. 3.2.1

        It (being the implementation of the AIA in the reformulation of the BPAI into the PTAB) is a part of the same Act of Congress. IIRC, it does not matter if some of that Act is codified, and some of it merely reflects existing codification (as in, the part the court here re-wrote — and we should be abundantly clear that the exercise of judicial power in this instance is NOT one of ‘interpretation,’ but is very much one of actual legislative re-writing).

      2. 3.2.2

        clearly a statement of severability

        I chuckle at the admission (seeing how much even the concept brought nothing but derision from the likes of you and Greg).


          On the contrary, regular readers here will remember that only you repeatedly argued for non-severability of the AIA. In this decision even dissenters do not support that: “To be sure, I do not suggest that the inappropriateness of the Title 5 invalidation should lead to invalidation of the entire AIA statutory scheme.”

          What I do suggest is that Congress almost certainly would prefer the opportunity to itself fix any Appointments Clause problem before imposing the panel’s drastic remedy.”
          [It goes on to say: “What I do suggest is that Congress almost certainly would prefer the opportunity to itself fix any Appointments Clause problem before imposing the panel’s drastic remedy. Supreme Court precedent and circuit authority support a temporary stay to allow Congress to implement a legislative fix in the Appointments Clause context.”
          Temporary? Waiting for an already disfunctional Congress, now also in a national health crisis, to act, if ever?


            Mr. Snipe From the Sidelines,

            Maybe you want to acknowledge the full position and how I moved back when I could not locate the amendment that I thought to be in place and then removed….

            And then also recall how in the last exchange on the matter, that someone provided the record for that amendment, how I analyzed the situation, and mentioned that that situation did not arise to a ‘will of Congress.’

            And then finally — realize that that newly analyzed section may have only been a smokescreen for a FIRST amendment and withdrawal that WOULD have established a ‘will of Congress’ AND that would have vouched for the veracity of my legal arguments — arguments you refused to even engage.

  6. 2

    Judge O’Malley: “I do not believe Congress would conclude that those protections outweigh the importance of keeping the remainder of the AIA intact.

    My oh my, that sounds like the ‘ol Glub Glub Glub, non-severe-ability position.

    Last time this was visited, there were possible indications of TWO separate provisions, with the second quite possibly being a diversion for the first.

  7. 1

    Good. All their decisions remain in doubt until the Supreme Court takes it up. The upcoming decision in Seila Law v. Consumer Financial Protection Bureau will add further uncertainty.

    If the USPTO is determined to revoke our issued patents, they should to ask the Senate to confirm their execution squad.

    1. 1.1

      ” … they should to ask the Senate to confirm their execution squad.”

      Yet, knowing the amount of American innovation the PTAB has unconstitutionally wiped out, why would the Senate even consider confirming such (patent) killers?

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