On March 1, 2021, the Supreme Court heard oral argument in United States v. Arthrex, No. 19-1434, a case that will address whether administrative patent judges (APJs), who preside over inter partes reviews (IPRs) at the United States Patent and Trademark Office (USPTO), are unconstitutionally appointed principal officers, and, if so, whether that constitutional violation can be cured by severing "for cause" employment protections for APJs.
If the Supreme Court in Arthrex concludes that APJs are unconstitutionally appointed principal officers, then the remedy the Supreme Court adopts or recommends could reshape current practice and procedure for IPRs and other USPTO proceedings.
Arthrex comes to the Supreme Court from an October 31, 2019 Federal Circuit decision, Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. 2019), which held that APJs are unconstitutionally appointed principal officers.
Under the Appointments Clause, U.S. Const. art. II, § 2, cl. 2, principal officers must be appointed by the President with the advice and consent of the Senate. In Edmond v. United States, 520 U.S. 651 (1997), the Supreme Court explained that three factors distinguish principal officers from inferior officers: "(1) whether [a presidentially] appointed official has the power to review and reverse the officers' decision; (2) the level of supervision and oversight an appointed official has over the officers; and (3) the appointed official's power to remove the officers."
Based on the first and third Edmond factors, the Federal Circuit concluded that APJs were unconstitutionally appointed principal officers, noting that only two presidentially appointed officials—the Secretary of Commerce and the USPTO Director—provide direction to APJs; that "[t]here is no provision or procedure providing the Director the power to single-handedly review, nullify or reverse a final written decision issued by a panel of APJs"; and that the Secretary and Director can remove APJs "only for such cause as will promote the efficiency of the service" under 5 U.S.C. 7513(a).
The Federal Circuit then purported to remedy the constitutional violation by severing 5 U.S.C. 7513(a)'s "for cause" employment protections for APJs. The Federal Circuit explained that "we believe severing the restriction on removal of APJs renders them inferior rather than principal officers. Although the Director still does not have independent authority to review decisions rendered by APJs, his provision of policy and regulation to guide the outcomes of those decisions, coupled with the power of removal by the Secretary without cause provides significant constraint on issued decisions."
The United States and Smith & Nephew petitioned the Supreme Court for certiorari, arguing that the Federal Circuit erred in holding that APJs were unconstitutionally appointed principal officers. According to the United States and Smith & Nephew, the Director's supervisory powers—including the Director's ability to decide which cases APJs will adjudicate, the Director's ability to set IPR policy and procedure, and the Director's unappealable discretion to institute or not institute IPRs—sufficed under Edmond to render APJs inferior officers.
The Supreme Court granted certiorari on October 13, 2020.
In response, Arthrex asserted that, while the Federal Circuit properly determined that APJs were unconstitutionally appointed principal officers, severance of "for cause" employment protections for APJs was an inappropriate remedy for the constitutional violation. Arthrex argued that any fix should come from Congress, and suggested three possible remedies: "Congress could provide for APJs to be appointed by the President and confirmed by the Senate," "Congress could grant the Director authority to review APJ decisions," or "Congress could reject inter partes review."
Oral Argument Analysis
The questions asked at oral argument suggest that the Supreme Court will hold that APJs are unconstitutionally appointed principal officers and may remedy that problem by providing some form of agency review.
Several justices appeared uncomfortable with the United States' and Smith & Nephew's argument that the Director's supervisory powers alone sufficed to render APJs inferior officers, and with the absence of a bright-line test under Edmond to distinguish principal from inferior officers. Justice Sotomayor, for example, noted that Arthrex appeared to have a cleaner argument, i.e., "you're not an inferior officer if you can make final decisions that are unreviewable by the Director."
Many of the questions to Arthrex were directed to challenging Arthrex's argument that the Court could not address the purported Appointments Clause violation simply by severing portions of 35 U.S.C. 6(c) to give the USPTO Director the discretion to review APJ decisions unilaterally. Several justices also remarked that the lack of any final agency review at the USPTO was outside the norm.
The United States' Argument
Malcolm Stewart, Deputy Solicitor General for the Department of Justice, argued for the United States. In defending the United States' position that APJs were constitutionally appointed inferior officers, Mr. Stewart began his portion of the oral argument by enumerating the Director's supervisory powers over APJs. Justice Roberts noted that, despite those supervisory powers, "the one thing [the Director] can't do is just change the decision of the APJ."
Justice Thomas asked Mr. Stewart how the United States would determine whether those supervisory powers were sufficiently "substantial." Mr. Stewart answered that the "usual hallmark of supervisory authority is that the supervisor can tell the subordinate how to do the job before the subordinate does it. And the Director has ample tools there."
Justice Breyer asked Mr. Stewart where the line was between an "officer" and an "employee." Mr. Stewart answered that the United States had conceded in its briefs that APJs were officers, but took the opportunity to note that the 5 U.S.C. 7513(a) removal provision applicable to APJs also applies to USPTO employees, which "signals that Congress didn't intend for these officers to exercise any unusual level of independence from the Director."
Justice Sotomayor characterized the Edmond test for determining "inferior officer" status as "amorphous" and asked what the advantage would be of keeping it. Mr. Stewart answered that, in view of the growth of the number of officers and employees within the executive branch, a bright-line test requiring Senate confirmation for all officers would be "administratively inconvenient."
Justice Alito asked Mr. Stewart whether a statute would be constitutional if, hypothetically, it gave a deputy solicitor general "final and unreviewable authority to decide whether the United States will take an appeal in any case involving the interpretation or application of one particular provision of one particular regulatory statute." Mr. Stewart conceded that, while this would present a "close case," an ordinary PTAB panel decision is subject to rehearing, and the Director has some ability to determine whether rehearing is granted.
Justice Kagan asked Mr. Stewart to clarify the scope of the Director's authority to control a rehearing if he were part of the rehearing panel. Mr. Stewart admitted that the Director would not be able to dictate factual determinations by the other two members of a three-member rehearing panel.
Justice Gorsuch asked Mr. Stewart to explain what supervisory power the President or a presidentially appointed official wields over a particular APJ decision. In response, Mr. Stewart acknowledged that there was no procedure for the Director to override factual findings by other APJs in panels on which the Director sat.
Justice Kavanaugh noted a "lack of historical precedent" for decisions by administrative law judges to be free from review within their own agencies. Mr. Stewart acknowledged that, while it is "the norm" for an agency head to have authority to review agency decisions, Edmond holds that such review authority need not be "plenary."
Justice Barrett questioned whether, in view of 5 U.S.C. 7513(a)'s "for cause" employment protections, the Merit Systems Protection Board (MSPB), rather than the USPTO Director, has the last word on APJ termination decisions. Mr. Stewart noted that, while APJs would have the protection of the MSPB if they were removed from federal service altogether, "in addition to removing APJs from federal service altogether, the Director can remove them from their judicial assignments."
Smith & Nephew's Argument
Mark Perry argued for Smith & Nephew. Justice Roberts questioned Mr. Perry on whether the Director's indirect power to change an APJ adjudication (for example, by ordering rehearing, appointing a rehearing panel that thought like him, and sending the prior APJ who decided the case "to Siberia") would run afoul of due process. Mr. Perry answered that "[d]ue process is a separate issue, not presented in the petition, not presented in this case."
Justices Thomas and Alito, echoing Justice Sotomayor's question to Mr. Stewart, expressed the concern that it was difficult to determine under Edmond the extent of supervisory powers that would suffice to render someone an "inferior officer." Mr. Perry explained that "principal officers sit at the right hand of the President," whereas APJs are "three steps removed": "the Secretary definitely is. The Director may be. The APJs definitely are not."
Referring to Justice Gorsuch's question to Mr. Stewart, Justice Sotomayor asked Mr. Perry whether direct control by the President over individual APJ decisions would be at odds with an "adjudicatory system of any kind." Mr. Perry answered that the Director's power to give APJs advance guidance "preserves both the political accountability and avoids those due process-type problems that may arise in individual circumstances."
Following up on Justice Kavanaugh's question to Mr. Stewart, Justice Kagan asked how the USPTO had come to adopt an "unusual kind of structure with no automatic opportunity for review in the agency head." Mr. Perry answered that the USPTO has a long tradition, arising out of the patent examining process, of appointing employees and inferior officers to decide questions of patentability without Director-level review.
Justice Kavanaugh again expressed concern that the current system of APJ appointments "would allow Congress to give extraordinary power to inferior officers, which is not how our government is ordinarily structured." Mr. Perry emphasized that APJs in fact do not cancel patents; rather, the Director holds final authority under 35 U.S.C. 318(b) to confirm or cancel any patent.
Justice Barrett asked Mr. Perry, if APJs were deemed to be unconstitutionally appointed principal officers, what form of remedy would be appropriate. Mr. Perry answered that the most appropriate remedy would be to sever portions of the statute requiring board rehearing, 35 U.S.C. 6(c), so that the Director could unilaterally review APJ decisions.
Jeffrey Lamken argued for Arthrex. Mr. Lamken began by asserting that the Director's supervisory powers were inadequate to render APJs inferior officers ("punishing APJs for decisions or guidance to prevent future error doesn't undo decisions already made"), and that fashioning an appropriate remedy was a task for Congress, rather than the Court.
Justice Roberts asked why it wasn't acceptable for the executive branch to shield factual determinations by agency adjudicators from being overturned by "politically accountable people." Mr. Lamken responded that when adjudicatory functions are performed by the executive branch, "the key protection against executive overreach, which is accountability to the people for the decisions, has to be observed."
Justice Roberts also asked whether the accountability function provided by agency review could be implemented as a practical matter, given the sheer number of APJ decisions. Mr. Lamken answered that "if the Director thinks they're too numerous to merit his attention, the public and the President can hold him accountable for that decision."
Justice Thomas asked what form of agency review would alleviate Arthrex's accountability concerns. Mr. Lamken answered that granting the Director the discretion to review APJ decisions would be sufficient. Justice Thomas then asked that if the Director had the discretion to delegate review authority back to APJs, how that situation would differ from current APJ rehearing procedure. Mr. Lamken answered that a decision by the Director to delegate review authority would make him accountable to the President and the public.
Justice Breyer asked whether, given the complexity of the federal government, it would ever be constitutional for Congress to grant unreviewable authority to agency officials. Mr. Lamken narrowed the question to "adjudications," and answered that adjudicators in the executive branch either must be accountable for individual decisions or have a superior who can review or overturn those decisions.
Justice Alito asked Mr. Lamken what relief Arthrex thought the Court should provide, given Arthrex's position that the fix should come from Congress. Mr. Lamken answered that "this Court should hold that this IPR cannot proceed because the system is not constitutional. And then any remedy beyond that, any revision to the statute would be a matter for Congress to address."
Justice Sotomayor, suggesting that APJs would be considered inferior officers by historical standards, observed that if an APJ "makes a mistake under the policy set by the Director, that is going to be reviewed by the courts." Mr. Lamken countered, "[i]f that were the test [for being an inferior officer], then the heads of departments and the members of the cabinet would be inferior officers also because their decisions can be reviewed by the courts."
Justice Kagan asked whether agency review would suffice to address Arthrex's accountability concerns if, as in Edmond, such review were barred where there is "competent evidence in the record," Mr. Lamken conceded that the ability of a principal officer to review an inferior officer's decision "is a critical but perhaps not always sufficient condition." Justice Kagan also suggested that the Director, through the exercise of supervisory powers, "can probably get the precise result he wants" in a high percentage of cases. Mr. Lamken disagreed that the Director could exert that degree of control by, "for example, front-running APJ decisions with pay-specific guidance, manipulating panel size or panel composition to achieve results, [and] de-instituting to try and avoid bad decisions."
Justice Gorsuch asked why it wouldn't be an appropriate remedy simply to sever the portion of 35 U.S.C. 6(c) requiring board rehearing, so that the Director could unilaterally review APJ decisions. Mr. Lamken explained that trying to insert the Director "as a single decision-maker, where Congress provided for people to sit in panels of three… isn't a surgical solution. That's vivisection."
Justices Kavanaugh and Barrett, seeking to pinpoint the locus of the severability issue, asked several questions directed to whether a lack of agency review in 35 U.S.C. 6(c) was the source of the constitutionality problem. Mr. Lamken answered no, "because the problem stems also from the fact that the officers are not appointed by the President and Senate-confirmed. Either one would be sufficient to address the problem." Mr. Lamken further explained that the Court should defer to Congress where multiple remedies were possible.
Justice Barrett noted that it seemed odd to deem APJs principal officers "because they exercise this one piece of authority that seems to go beyond what an inferior officer can do." Mr. Lamken responded that if an officer "is the final decision maker for the executive branch," and has no superior in that context, he is a principal officer.