Earlier today, the U.S. Supreme Court decided the administrative patent judges (APJs) of the Patent Trial and Appeal Board (PTAB) were not constitutionally appointed, and that the patent owner, Arthrex, Inc., is entitled to a remand for a rehearing by the Director of the United States Patent and Trademark Office. United States v. Arthrex, Inc., 593 U.S. _ (June 21, 2021). The Court was sharply divided, however, over both the problem and the solution, leaving much of the details to the Federal Circuit to work out in this case, as well as the numerous cases it has remanded to the PTAB in view of its decision in Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320 (Fed. Cir. 2019).

Smith & Nephew, Inc. sought inter partes review (IPR) against Arthrex patents and received both an institution decision and a favorable final written decision canceling the claims it had challenged. Arthrex did not request rehearing, but appealed and argued for the first time on appeal that IPRs are unconstitutional because APJs are not constitutionally appointed. The Federal Circuit agreed that APJs are not constitutionally appointed, but held that the remedy was to treat them as at-will employees to ensure the Director’s control over their decisions. The Supreme Court affirmed the holding that APJs are not constitutionally appointed—although on a somewhat different basis—holding that the Federal Circuit’s remedy was wrong because it did not address the core problem, the Director’s lack of unfettered control over the final agency decision. Instead, the Court ordered a remand to the Director, a remedy Justice Thomas’ dissent notes was never sought.

Under the Appointments clause in Article II of the U.S. Constitution, certain officers must be appointed by the President with the advice and consent of the Senate. However, Congress may authorize the President and others, including department heads, to appoint “inferior Officers” without Senate consent. The plurality decision by Chief Justice Roberts explains that, while Congress may provide for these alternative appointments, it may not eliminate agency head control over both the officers and their actions. The plurality acknowledged that the Director (as agency head) retains considerable control over APJs, but this control still permits the Director to avoid accountability. Indeed, the Director’s most direct control over a decision (rather than an APJ) follows a statutory scheme in which the Director may appoint a new PTAB panel to rehear the case, with the Director having only a single vote out of at least three. According the plurality, this was still not enough control or direct accountability. Because the problem was related to the Director’s accountability, the plurality held that the remedy must focus on this problem, and thus “severed” section 6(c) of the Patent Code to cure the constitutional defect. Under the Court’s precedent, a statute may be struck down in whole or in part to cure a constitutional defect. Here, the plurality consider it sufficient to modify §6(c) to permit the Director to order a rehearing (which the statute reserved to the PTAB) and to decide the rehearing alone (versus the statute’s requirement for action by at least three PTAB members). Only three other Justices (Alito, Kavanaugh, and Barrett) joined the plurality decision, leaving it without a majority.

Justice Gorsuch concurred in the unconstitutionality of APJ appointments, giving a majority (5-4) to affirm the problem Arthrex had identified. Gorsuch disagreed with the plurality on the remedy, however, agreeing with Arthrex that choosing a solution should be left to Congress. Justice Breyer, in a decision that Justices Sotomayor and Kagan joined, reached an opposite conclusion. Breyer would not have found a constitutional problem, but reluctantly agreed with the plurality that if a problem existed, the plurality’s solution was correct. Thus, Breyer, Sotomayor, and Kagan partly joined the plurality for a 7-2 majority on the solution. Justice Thomas added a long dissent (which Breyer, Sotomayor, and Kagan partly joined) urging that the Court’s Appointments clause decisions have grown confused and impinge on Congressional power to legislate appropriate solutions for different administrative problems.

In the short term, the Court’s decision raises as many questions as it answers. The Court affirmed that APJs were unconstitutionally appointed as the Federal Circuit had held, but it substituted its own remedy without addressing the many appeals (and certiorari petitions) pending since the Federal Circuit decided Arthrex. The Federal Circuit’s solution had been criticized because it created an administrative logjam by remanding not only Arthrex but any appeal from an IPR decided before Arthrex in which the Appointments issue had been properly raised. This dumped hundreds of cases back on the PTAB, which then stayed them pending the Supreme Court’s decision. Moreover, scores of me-too petitions are pending at the Supreme Court awaiting the outcome in Arthrex. Rather than indicating how these cases should be treated, the plurality cryptically stated, “the appropriate remedy is a remand to the Acting Director for him to decide whether to rehear the petition filed by Smith & Nephew.” Slip op. 22. Although stated in terms of Smith & Nephew’s petition, context indicates that the Court is really talking about the PTAB’s final written decision.

This remedy leaves many questions about all of the cases at various points in the review pipeline. Presumably the Court will remand the scores of me-too certiorari petitions for the Federal Circuit to remand to the Board, although in cases like this where the lead petitioner seeks to vindicate a public interest rather than a personal one, it does not follow automatically that the Court will reward late comers. Bigger questions surround the other cases stayed at the PTAB or in the appeal pipeline. If a patent owner in a case the Federal Circuit remanded to the PTAB did not file a certiorari petition, will the Federal Circuit treat the issue as waived or will it recall its mandate and order a remand to the Director instead? Perhaps the acting Director will preempt the problem by entering an order taking jurisdiction over the cases, citing the Supreme Court’s decision. Similarly, the Federal Circuit has brushed aside requests in post-Arthrex appeals for a remand on the theory that its remedy (remand to an at-will PTAB) cured the problem, but with that cure voided, what will it do with such cases? Presumably the ones already final are over, but the ones still pending might be entitled to a remand after all because the remedy is different, which calls into question whether the unconstitutionality had actually been cured. Also, cases that raised an Appointments issue but either did not fully brief it or proposed the “wrong” remedy might be held to have forfeited the issue, or not. After all, severance is held to cure defects retroactively, which might give the Federal Circuit reason to limit the effects of a sprawling procedural logjam.

Finally, the Supreme Court’s emphasis on Director accountability draws into question another aspect of post-Arthrex Federal Circuit precedent. In Ciena Corp. v. Oyster Optics, LLC, 958 F.3d 1157, 1161 (2020), the Federal Circuit held that a petitioner cannot benefit from Arthrex because it consents to the PTAB’s jurisdiction. The Supreme Court’s emphasis on the Director’s accountability for a decision, however, does not depend on the nature of the injured party.

Barring an unlikely rehearing at the Supreme Court, we now know that APJs were unconstitutionally appointed and that a rehearing by or a remand to the Director cures the defect. What that will mean in the hundreds of affected cases will be worked out at the Federal Circuit and the PTAB over the next several months. To explore how the decision might affect your particular situation or case, please contact Mike Rosato, Matt Argenti, Rick Torczon, or another member of Wilson Sonsini’s Post-Grant Review practice.