June 29, 2021
United States v. Arthrex Inc., 594 U.S. __ (2021) (Roberts, C.J.)
Response by Jasper L. Tran
Geo. Wash. L. Rev. On the Docket (Oct. Term 2020)
Slip Opinion | SCOTUSblog
Unconstitutional Appointment of Patent Death Squad
Can legal scholarship change the law?1 Apparently so—a recent exemplar appears in United States v. Arthrex, one of the three intellectual property (IP) decisions handed down near the end of the 2020 term.2 In this deeply fractured Supreme Court decision—with different majorities for the merits and the remedy—five justices held that administrative patent judges (“APJs”) of the Patent Trial and Appeal Board (“PTAB”), who are appointed as inferior Officers under the Appointments Clause3 and have traditionally wielded “unreviewable authority” during inter partes review (“IPR”) to cancel patents, have unconstitutionally acted as principal Officers, and should therefore have been nominated by the President and confirmed by the Senate.4 To remedy such an Appointments Clause violation, seven justices voted to judicially convert these principal Officers to inferior Officers by allowing the U.S. Patent and Trademark Office (“USPTO”) Director to discretionarily review the PTAB’s IPR decisions.5
This case traces its humble beginnings to Professor John Duffy’s 2007 essay, titled Are Administrative Patent Judges Unconstitutional?, which contends that APJs are, at minimum, inferior Officers under the Appointments Clause because their ability to cancel patents is a “significant authority” that warrants the jurisdiction of the Appointments Clause.6 Scholars have dubbed the failure to follow the constitutional procedures outlined in article II, section 2, clause 2 for the proper appointment of an Officer as the “Duffy Defect” in that appointment—a “triple 2” violation.7 And decisions of defectively appointed Officers, such as PTAB judges in this case, are presumptively invalid and subject to collateral attack.8 Since 2007, Duffy’s essay has sparked a renewed interest in the Appointments Clause, ultimately leading to Arthrex’s ruling 14 years later.9
The Court found such a Duffy Defect in the appointment of PTAB judges pursuant to the Leahy-Smith America Invents Act (“AIA”), which Congress passed a decade ago. The AIA created the administrative regime of IPR, which allows anyone except the patent owner to challenge the validity of an issued patent before the PTAB in the USPTO—an agency within the Department of Commerce.10 The PTAB judges are appointed by the Secretary of Commerce and not confirmed by the Senate, which has a Duffy Defect in that appointment because they issue opinions on behalf of the government in cases involving patents potentially worth “[b]illions of dollars.”11 This power to speak for the government is reserved for principal “Officers of the United States,” such as Article III judges.12
The facts of this case are straightforward. In November 2015, Arthrex, Inc., a medical device company, sued Smith & Nephew, Inc. for patent infringement in the Eastern District of Texas.13 A year later, Smith & Nephew filed IPR to challenge the validity of Arthrex’s patent.14 In May 2018, the PTAB invalidated Arthrex’s patent.15 Arthrex appealed, arguing that PTAB judges were unconstitutionally appointed.16 The Federal Circuit agreed, ruling that the proper remedy was to remove PTAB judges’ tenure protections and remand for a new hearing at the PTAB,17 which “satisfied no one.”18 Arthrex, Smith & Nephew, and the government asked the Supreme Court to weigh in.19 Arthrex argued for the overturn of the PTAB’s invalidity decision. Both Smith & Nephew and the government argued that PTAB judges were constitutionally appointed but disagreed on the remedy if the court were to find a Duffy Defect.
Writing for the conservative majority, Chief Justice Roberts began with a discussion of Congressional intent to create “a workable patent system,” rather than a discussion of property rights.20 The majority noted that the parties do not dispute that PTAB judges are Officers.21 It then relied on Edmond v. United States to explain the distinctions among inferior-Officer, principal-Officer, and no-officer-at-all.22 In Edmond, the Court found Coast Guard Court of Criminal Appeals judges, appointed by the Secretary of Transportation, to be inferior Officers because they have “no power to render a final decision on behalf of the United States unless permitted to do so by other Executive officers.”23 In contrast, the power to issue decisions in the name of the government, insulated from any executive review, belongs to principal Officers.24
Here, five justices found that the PTAB judges’ unreviewable executive power to cancel patents conflicts with the Appointments Clause’s design to “preserve political accountability” to the public through a clear “chain of command” down from the President.25 To guarantee “accountability” for the appointees’ actions, the President wields the nomination power because, as Hamilton wrote in the Federalist, the “blame of a bad nomination would fall upon the president singly and absolutely,”26 whose “sole and undivided responsibility . . . will naturally beget a livelier sense of duty and a more exact regard to reputation.”27 The Senate is also accountable and shares the public blame “for both the making of a bad appointment and the rejection of a good one.”28 But the President can neither oversee the PTAB judges himself nor attribute their failings to those whom he can oversee, rendering the “chain of command” defective.29 In particular, although the USPTO Director “is the boss” of more than 250 PTAB judges in most ways, the Director lacks the critical ability to override the APJs’ significant power to cancel issued patents.30 The PTAB judges are, in short, appointed as inferior Officers but unconstitutionally acting like principal Officers.
To remedy this Duffy Defect, seven justices voted to rewrite the statute, 35 U.S.C. § 6(c), giving the Director discretionary power to unilaterally and directly review the PTAB’s IPR decisions and reach her own decision, while effectively leaving the existing PTAB system in place and not vacating existing IPR decisions.31 The Director’s review would follow the “almost-universal model of adjudication in the Executive Branch” and align the PTAB with the Trademark Trial and Appeal Board (“TTAB”).32 “Because the source of the constitutional violation is the restraint on the review authority of the Director, rather than the appointment of APJs by the Secretary” of Commerce, Arthrex and others similarly situated are not entitled to a hearing before a new panel of PTAB judges.33 Put succinctly, the clever fix is to simply and narrowly make the PTAB judges’ unreviewable authority reviewable by the Director.
The majority expressly limits its narrow holding to only IPR and declines to address the Director’s supervision over other types of PTAB adjudications, including the examination process for issuing patents.34 The majority also leaves unanswered the broader constitutional question of whether PTAB judges must be removable at will by the agency head—the Secretary of Commerce.35 While it is currently unclear how inserting the Director’s review into the existing IPR system will work in practice,36 what is clear is that PTAB’s “final written decision[s]” under 35 U.S.C. § 318(a) will not be truly final until the Director has had an opportunity to review and finalize them.37
Consequently, Arthrex has expanded the Director’s power to review the PTAB’s IPR cases and reach her own decisions. As Justice Gorsuch’s dissent suggested, the new power creates risk that the Director, as a political appointee, may be politically motivated—or perceived as politically motivated—to cancel patents that carry with them significant financial or social consequences.38 This puts more pressure on the currently unfilled Director post in the Biden Administration. It is not difficult to imagine lobbying campaigns aimed to influence the Director’s decision.39 Recent examples of patents at potential risk include those related to COVID vaccines.40 Not to put too fine a point on it, patents have become less free of political influence than they might have been in the past, as patents are certainly political.41 Arthrex sends a strong message that patent adjudication is not special in the administrative state and reaffirms the long-observed pattern of no patent exceptionalism in the justices’ eyes.42
More broadly, this case has provided a clear roadmap for Congress to rethink current regulatory regimes and design adjudicative regimes in the future: outside of patent law, Arthrex’s ruling may upend a handful of adjudicative agencies with internal administrative-law bodies that have final decision-making authority like the PTAB, such as the Department of Health and Human Services, the Department of Labor, and the Social Security Administration.43 Under Arthrex, those administrative law judges are, like APJs, appointed as inferior Officers, but unconstitutionally acting as principal Officers. These apparent Duffy Defects may lead to future constitutional challenges based on the Appointments Clause (as well as the Vesting Clause), including those unresolved by Arthrex.44 Ideas, after all, have consequences,45 and those originated in law reviews can indeed later change the law.
Jasper L. Tran practices IP litigation with Milbank LLP in Los Angeles. All views expressed herein are his own and not necessarily reflective of the Firm or its clients.
1 See Richard Delgado, How to Write a Law Review Article, 20 Univ. S.F. L. Rev. 445, 446 (1986) (positing that one of the “reasons” to “write a law review article” is “because you want to change the law”); Steven M. Barkan, Can Law Publishers Change the Law?, 11 Legal Reference Servs. Q. 29, 29 (1992). But see Larissa Katz, The Law Review Mission: A Student Editor’s Point of View, 39 Alberta L. Rev. 684, 687 (2001) (noting that “an academic conclusion . . . does not directly change the law” (emphasis added)). This question is worth asking because judges have long questioned, if not criticized, law reviews’ usefulness. As Justice Breyer sardonically puts it: “There is evidence that law review articles have left terra firma to soar into outer space.” Stephen G. Breyer, Response of Justice Stephen G. Breyer, 64 N.Y.U. Ann. Surv. Am. L. 33, 33 (2008) (emphasis added). Or in even harsher terms by Judge Posner: “In recent years legal scholarship has undergone changes so fundamental as to suggest the need for a reassessment of law as an academic discipline, as a subject of study, and as an intellectual institution.” Richard A. Posner, Legal Scholarship Today, 115 Harv. L. Rev. 1314, 1314 (2010).
2 United States v. Arthrex Inc., 594 U.S. __ (2021); Jasper L. Tran & Kristen C.A. Kido, Google v. Oracle: Copying Declaring Code Is Fair Use, Geo. Wash. L. Rev. On the Docket (Apr. 18, 2021) (responding to Google LLC v. Oracle Am., Inc., 141 S. Ct. 1183 (2021)); Minerva Surgical Inc. v. Hologic Inc., No. 20-440 (U.S.). An earlier, well-known exemplar is Prosser’s The Assault Upon the Citadel (Strict Liability to Consumer), the publication of which “proceeded to change the law of torts.” Ronald D. Rotunda, Law Reviews—The Extreme Centrist Position, 62 Ind. L.J. 1, 7 (1986) (citing Dean Prosser, The Assault Upon the Citadel (Strict Liability to Consumer), 69 Yale L.J. 1099 (1960)).
3 U.S. Const. art. II, § 2, cl. 2 (The President “shall nominate, and by and with the Advice and Consent of the Senate, shall appoint . . . all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.”) To wit, the Appointments Clause distinguishes between “principal Officers,” who must be appointed by the President with Senate confirmation, and “inferior Officers,” who may be appointed by the President alone, Courts of Law, or Heads of Departments if Congress permits by statute.
4 Arthrex, slip op. at 18–19. The PTAB’s ability to cancel issued patents has resulted in its nickname of the patent “death squad,” where patents go to die. See, e.g., Peter J. Pitts, ‘Patent Death Squads’ vs. Innovation, Wall St. J. (June 10, 2015, 7:23 PM), https://www.wsj.com/articles/patent-death-squads-vs-innovation-1433978591 (noting that former Chief Judge Rader of the Court of Appeals for the Federal Circuit and other experts in patent law “have referred to the 300-odd administrative judges, attorneys and legal aids on the board as ‘patent death squads.’”). APJs even appear incentivized to “kill patents.” For instance, a recent study examining data from the UPSTO, Lex Machina and FederalPay.org during the fiscal year 2016 for PTAB judges’ bonus structure shows an average bonus of $255 per decision for instituting IPR proceedings, but only $208 when denying institution of the same. After institution, the APJs earned an average bonus of $314 per final written decision when invalidating claims, but only $2 for final written decisions that upheld all challenged claims. Britain Eakin, PTAB Judges’ Bonus Structure Draws Scrutiny in New Report, Law360 (June 23, 2021, 5:42 PM EDT), https://www.law360.com/articles/1396001/ptab-judges-bonus-structure-draws-scrutiny-in-new-report.
5 Arthrex, slip op. at 22.
6 John F. Duffy, Are Administrative Patent Judges Unconstitutional?, 2007 Patently-O Pat. L.J. 21 (2007), republished at 77 Geo. Wash. L. Rev. 904 (2009) (discussing the Supreme Court’s interpretation of “significant authority” in Buckley v. Valeo, 424 U.S. 1, 126 (1976)).
7 See Stacy M. Lindstedt, Developing the Duffy Defect: Identifying Which Government Workers Are Constitutionally Required to Be Appointed, 7 Mo. L. Rev. 1143, 1144 (2011); John T. Plecnik, Officers Under the Appointments Clause, 11 Pitt. Tax Rev. 201, 215–17 (2014); Gary Lawson, Appointments and Illegal Adjudication: The America Invents Act Through a Constitutional Lens, 26 Geo. Mason L. Rev. 26, 56 n.205 (2018); Christopher J. Walker, Constitutional Tensions in Agency Adjudication, 104 Iowa L. Rev. 2679, 2696 (2019).
8 Plecnik, supra note 7, at 215.
9 Id.; see also David R. Stras & Ryan W. Scott, Are Senior Judges Unconstitutional?, 92 Cornell L. Rev. 453, 494–95 (2007) (questioning senior judges’ status under the Appointments Clause, focusing on whether Congress can delegate new duties to an existing Officer without reappointment). Arthrex cites Duffy’s 2009 essay that was republished in The George Washington Law Review. Arthrex, slip op. at 5 (Gorsuch, J., concurring in part and dissenting in part) (citing Duffy, supra note 6, 77 Geo. Wash. L. Rev. at 911).
10 Leahy-Smith America Invents Act of 2011, Pub. L. No. 112-29, 125 Stat. 284, 293 (2011) (codified in various sections of Title 35 of the U.S. Code). See generally Hung H. Bui, An Overview of Patent Reform Act of 2011: Navigating the Leahy-Smith America Invents Act Including Effective Dates for Patent Reform, 93 J. Pat. & Trademark Off. Soc’y 441 (2011) (discussing the AIA’s changes).
11 Arthrex, slip op. at 1.
12 U.S. Const. art. II, § 2, cl. 2.
13 Arthrex Inc. v. Smith & Nephew, Inc., No. 15-cv-1756, Dkt. 1 (E.D. Tex. Nov. 10, 2015).
14 Smith & Nephew, Inc. v. Arthrex Inc., No. IPR2017-00275, Paper 1 (P.T.A.B. Nov. 15, 2016).
15 Id., Smith & Nephew, Inc. v. Arthrex Inc., No. IPR2017–00275, 2018 WL 2084866 (P.T.A.B. May 2, 2018).
16 Arthrex, slip op. at 5–6.
17 Arthrex, Inc. v. Smith & Nephew, Inc., 941 F.3d 1320, 1340 (Fed. Cir. 2019).
18 Arthrex, slip op. at 6.
19 Id.
20 Id. at 2.
21 Id. at 8.
22 Id. at 9 (citing Edmond v. United States, 520 U.S. 651 (1997)).
23 Arthrex, slip op. at 9 (quoting Edmond, 520 U.S. at 665).
24 Id. at 7–8.
25 Id. at 7, 13 (quoting Edmond, 520 U.S. at 663).
26 Id. at 7–8 (quoting The Federalist No. 77 (Alexander Hamilton) at 517 (J. Cooke ed. 1961)).
27 Id. at 8 (quoting The Federalist No. 76 (Alexander Hamilton) at 510–11 (J. Cooke ed. 1961)).
28 Id. at 8 (quoting Edmond, 520 U.S. at 660).
29 Id. at 13 (quoting Free Enter. Fund v. Pub. Co. Acct. Oversight Bd., 561 U.S. 477, 496 (2010)). Joining Justice Thomas in dissent, Justices Breyer, Sotomayor, and Kagan noted that the majority holds, “[f]or the very first time, . . . that Congress violated the Constitution by vesting the appointment of a federal officer in the head of a department.” Arthrex, slip op. at 1 (Thomas, J., dissenting).
30 Arthrex, slip op. at 10.
31 Id. at 22 (citing 35 U.S.C. § 6(c)). Two days after Arthrex, the Federal Circuit issued a sua sponte order in all pending appeals where a party had raised an Appointment Clause challenge, stating: “(1) Within 14 days from the date of this order, the parties that raised an Appointments Clause challenge shall file a brief, not to exceed 10 pages double-spaced, explaining how they believe their cases should proceed in light of Arthrex. Responses from the other parties, including the United States Patent and Trademark Office, subject to the same length restrictions, are due within 14 days thereafter. (2) All deadlines and proceedings are stayed.” Seth Lloyd & Brian Matsui, Early Hints About What Happens Next After Arthrex, JDSupra (June 24, 2021), https://www.jdsupra.com/legalnews/early-hints-about-what-happens-next-6418979/.
32 Arthrex, slip op. at 21.
33 Id. at 23. Both Justices Gorsuch and Thomas dissented on this point, as they would have vacated the existing PTAB decisions. See Arthrex, slip op. at 16–17 (Thomas, J., dissenting); Arthrex, slip op. at 2 (Gorsuch, J., concurring in part and dissenting in part). Additionally, Justice Gorsuch would then leave the problem to Congress to fix. See Arthrex, slip op. at 5–6 (Gorsuch, J., concurring in part and dissenting in part).
34 Arthrex, slip op. at 22.
35 See id. at 21–22; Christopher J. Walker, The Supreme Court Decides to Hear Arthrex Case to Consider Appointments Clause Challenge to Administrative Patent Judges, Yale J. on Reg. Notice & Comment (Oct. 13, 2020), https://www.yalejreg.com/nc/the-supreme-court-decides-to-hear-arthrex-case-to-consider-appointments-clause-challenge-to-administrative-patent-judges/; see also Fleming v. U.S. Dep’t of Agriculture, 987 F.3d 1093, 1103 (D.C. Cir. 2021) (finding USDA ALJs as inferior Officers under the Appointments Clause and removable at will by the Secretary of Agriculture).
36 See, e.g., Dennis Crouch, United States v. Arthrex: Supreme Court Preserves the PTAB, Patently-O (June 21, 2021), https://patentlyo.com/patent/2021/06/arthrex-supreme-preserves.html (“Big questions for the patent system going forward: how does this Director-Review work and how much political lobbying is appropriate?”). For instance, it could be the case that Arthrex may result in increasing the cost, duration, complexity, and unpredictability of IPR proceedings, which could have significant implications in cases with parallel district court proceedings, particularly those in “rocket-docket” venues like the Eastern and Western Districts of Texas. Adding more time to IPR proceedings may make it even harder for defendants to obtain final outcomes, particularly in Texas but perhaps elsewhere, until well after all district court proceedings have concluded.
37 See William Milliken, 5 Practical Takeaways from High Court Arthrex Ruling, Law360 (June 22, 2021, 5:56 PM), https://www.law360.com/articles/1396534/5-practical-takeaways-from-high-court-arthrex-ruling (discussing the implications of the Arthrex decision on PTAB decisions made under 35 U.S.C. § 318(a)).
38 See Arthrex, slip op. at 9–10 (Gorsuch, J., concurring in part and dissenting in part).
39 See id. (warning about the influence of “lobbyists” (quoting Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC, 138 S. Ct. 1365, 1381 (2018) (Gorsuch, J., dissenting)).
40 That is, the expanded power of the Director is another avenue to cancel challenged patents related to COVID vaccines, in addition to President Biden’s patent waiver on COVID vaccines. See, e.g., A Patent Waiver on COVID Vaccines Is Right and Fair, 593 Nature 478 (May 25, 2021).
41 See Arthrex, slip op. at 6 (Breyer, J., concurring-in-judgment, dissenting-in-part) (“The nature of the PTAB . . . calls for greater, not less, independence from those potentially influenced by political factors.”); Dennis Crouch, Patents are Political, Patently-O (June 21, 2021). For the historical background on the politics of the patent system, see generally Christopher Beauchamp, The First Patent Litigation Explosion, 125 Yale L.J. 848, 924–33 (2016).
42 See Timothy R. Holbrook, Explaining the Supreme Court’s Interest in Patent Law, 3 IP Theory 62, 71–72 (2013). For a discussion on patent exceptionalism (i.e., the belief that patent law is best understood as distinct from other areas of law), see generally Robin Feldman, Ending Patent Exceptionalism and Structuring the Rule of Reason: The Supreme Court Opens the Door for Both, 15 Minn. J.L. Sci. & Tech. 61 (2014).
43 See Jimmy Hoover, In Arthrex, Justices Deal New Blow to Agency Independence, Law360 (June 22, 2021, 9:11 PM), https://www.law360.com/employment-authority/articles/1396489/in-arthrex-justices-deal-new-blow-to-agency-independence (noting “that the Department of Health and Human Services, the Department of Labor, and the Social Security Administration, to name a few, all have internal administrative law bodies with final decision-making authority” that may be at risk after Arthrex).
44 See Arthrex, slip op. at 14–15 (Thomas, J., dissenting) (noting that “[a]lthough the parties raise only an Appointment Clause challenge . . . the [majority] appears to suggest that the real issue is that this [PTAB] scheme violates the Vesting Clause.” (citing U.S. Const. art. II, § 1, cl. 1) (emphasis in original)).
45 Richard M. Weaver, Ideas Have Consequences (1948); see also Abrams v. United States, 250 U.S. 616, 630 (1919) (Holmes, J., dissenting) (“[T]he ultimate good desired is better reached by free trade in ideas—that the best test of truth is the power of the thought to get itself accepted in the competition of the market, and that truth is the only ground upon which their wishes safely can be carried out.”); Lamont v. Postmaster Gen., 381 U.S. 301, 308 (1965) (Brennan, J., concurring) (“The dissemination of ideas can accomplish nothing if otherwise willing addressees are not free to receive and consider them. It would be a barren marketplace of ideas that had only sellers and no buyers.”).
