by Dennis Crouch
Arthrex, Inc. v. Smith & Nephew, Inc. (Fed. Cir. 2022).
In 2021, the Supreme Court sided with the patentee in holding that the AIA trial system violated the Appointments Clause of the U.S. Constitution. The Court concluded that PTAB judges were wielding the substantial power of the U.S. Gov’t by cancelling already-issued patent claims. The Constitution provides that officers wielding such power must be directly tied to the US President via presidential nomination and confirmation by the US Senate. But, PTAB judges are appointed by the Secretary of Commerce and do not undergo Senate confirmation. Rather than burning down the entire house, the Supreme Court partially rewrote the statute — adding the presidentially appointed USPTO director as an intermediary with power to accept or reject any PTAB decision stemming from an AIA trial.
The PTAB had originally sided with the patent challenger (Smith & Nephew) in finding the claims unpatentable. After the Supreme Court decision, the case was remanded back to the Patent Office so that the USPTO Director could have the final word from the administrative agency. Commissioner for Patents Drew Hirshfeld denied the petition for director review. Although Hirshfeld is currently the USPTO’s highest ranking official, he is not the USPTO Director, nor is he the Acting Director rather he continues in his role as Commissioner for Patents while still “performing the functions and duties of the Director.” Further, Hirshfeld was not nominated by the President or confirmed by the Senate. Rather, just like the PTAB judges found Constitutionally inadequate, Hirshfeld is an inferior officer appointed by the Secretary of Commerce.
Arthrex has now appealed its case back to the Federal Circuit — arguing that Hirshfeld’s denial does not meet the strict requirements imposed by the Constitution and the Supreme Court. The basic argument here is simple — the Supreme Court held that the PTO’s final agency decision in an IPR must come from a presidentially appointed principal officer.
One issue here is the practicalities of running an administrative agency such as the PTO in the interim following resignation of a presidentially nominated director. From the beginning of the Republic (1791), Congress has authorized temporary appointments in situations where the full nomination-confirmation process might take too much time to complete. Today, this process is generally provided for by the Federal Vacancies Reform. That law outlines mechanisms for allowing a temporary acting Director absent Senate confirmation. However, Hirshfeld does not qualify even for this statutory work-around because he was not the Deputy Director nor was he personally selected by the President.
One aspect of the appointments clause is to draw a direct link to the President. A final difficulty for Hirshfeld is that his appointment has a 5-year tenure protection and can only be removed early for cause. 35 U.S.C. 4(b)(2). These tenure protections further limit Presidential power over agency action.
In response, Smith & Nephew rely heavily on United States v. Eaton, 169 U.S. 331 (1898). In Eaton, the Supreme Court permitted approved of a non-presidential appointment of an officer “under special and temporary conditions.” However, there is a strong suggestion that Eaton was an inferior Officer rather than principal Officer case. Dir. Hirshfeld has now been standing-in as director for more than one year — on the four-year-timeline of the Presidency, this is starting to appear permanent.
Oral arguments in this round of the appeal are set for March 30, 2022.
- Arthrex Dir Authority – Arthrex Brief;
- Arthrex Dir Authority – Smith & Nephew Brief;
- USPTO Org Order
Although it is not entirely clear, it appears to me that the original merits panel of Chief Judge Moore, and Judges Reyna and Chen will retain the case and here this petition as well. This trio decided the original case, with Judge Moore writing the opinion. The Federal Circuit and Supreme Court both agreed that the PTAB judges were principal officers if the IPR statute was strictly followed. The Federal Circuit offered a different remedy (removing PTAB judge tenure) than the Supreme Court (adding Director Review). Following the Supreme Court decision, the same panel issued the order to remand the case for Director Review. However, that remand included a statement that the “court retains jurisdiction over this appeal” and that the appellate proceedings are simply stayed. Thus, the appeal pending now is using the same docket number (18-2140) and, I expect, will be in front of the same set of judges.