Patent Judges Could Get Congressional Fix After Federal Circuit Ruling

Legal experts testify that best option is for all decisions of the Patent Trial and Appeal Board to be reviewed by PTO director; House IP subcommittee wants to restrict ruling that PTAB judges were not constitutionally appointed.

An appeals court ruling altering the status of Patent Trial and Appeal Board (PTAB) judges has caused such an uproar among patent owners that the House Judiciary Subcommittee on Courts, Intellectual Property and the Internet called a hearing to ask legal experts what Congress can do to provide a legislative fix.

The four witnesses who testified agreed that the best option would be for Congress to require that all decisions made by the US Patent and Trademark Office's PTAB be reviewed by the PTO director.

The 19 November hearing was held just three weeks after the US Court of Appeals for the Federal Circuit issued a decision in Arthrex Inc. v. Smith & Nephew Inc. that the appointment of PTAB administrative patent judges (APJs) by the Secretary of Commerce violates the Appointments Clause of the US Constitution. The court found that since APJs are principal officers they must be appointed by the President. To "remedy" the problem, the court ruled that the Secretary of Commerce has the authority to fire them. (Also see "'Super Dramatic' Ruling On PTAB Judges' Unconstitutional Status Will Have 'Limited Fallout'" - Pink Sheet, 4 Nov, 2019.)

IP Subcommittee Chairman Hank Johnson, D-GA, said this removes the civil service protections given to these judges.

"I find it inconsistent with the idea of creating an adjudicatory body to have judges who have no job security," he said. "It goes against the idea of providing independent, impartial justice if a judge is thinking about his or her livelihood while also weighing the facts of a case. Many Article I judges have fixed-year terms – and Article III judges have life tenure – for this reason."

Potential Solutions

Johnson said the subcommittee needs to consider whether Congress must act to provide a solution to the Federal Circuit's ruling. He noted that the full Federal Circuit or the US Supreme Court could uphold or modify the decision. The government has said it intends to seek an en banc rehearing.

"I worry that we cannot trust the courts to fix this," Johnson stated. "We are living through an era where the Supreme Court is taking increasingly extreme positions about the constitutionality of the administrative structures that have existed since the New Deal."

Johnson posed five possible solutions to the appointments clause problem:

• Requiring all PTAB judges to be appointed by the president and confirmed by the Senate;

• Having PTAB decisions subject to review by the PTO director;

• Having PTAB decisions reviewable by a special panel of Senate-appointed PTAB judges;

• Requiring decisions to be reviewed by the PTAB chief judge, which would be made into a Senate-confirmed position; and

• Dividing PTAB into two parts, one to hear ex parte proceedings and the other to hear inter partes proceedings.

John Duffy, University of Virginia School of Law, said having the PTO director review board decisions is the easiest thing to do and would not require changing the appointment of any existing officers.

The other witnesses – Robert Armitage, former general counsel at Eli Lilly & Co.; John Whealan, George Washington University Law School; and Arti Rai, Duke University School of Law – agreed.

Rai said having one sentence in the patent statute that the director shall have a right of review would be the best option. "It would be surgical, it would be quick, and hopefully not too controversial," she said.

'Tremendous Upheaval'

In his written testimony, Whealan, former USPTO solicitor, testified that the questions surrounding the Arthrex decision are "causing tremendous upheaval." He said that although the government intends to seek rehearing en banc, the Federal Circuit has already begun applying the ruling in other cases.

On the same day the Arthrex decision issued, the same Federal Circuit panel issued an order in another case, Uniloc 2017 LLC v. Facebook Inc., that vacated the PTAB's decision and remanded the case for proceedings consistent with Arthrex. Whealan said that a week later, a different panel in Bedgear LLC v. Fredman Brothers Furniture Company Inc. vacated other PTAB decisions in light of Arthrex. And in other cases, the government has begun asking panels to stay proceedings pending a final disposition of the rehearing petition it intends to file in Arthrex.

Whealan said it is also unclear who should benefit from the Arthrex decision. The Federal Circuit said that parties are not entitled to raise the appointments clause challenge to PTAB decisions unless they did so in their opening briefs. In such a situation, litigants would be entitled to a new PTAB hearing before a new panel of judges.

But Whealan said Federal Circuit judges have since filed a concurrence questioning whether any litigants are entitled to a new hearing. In addition, he said other Federal Circuit panels and judges have invited further briefing on whether Arthrex imposed the proper remedy.

Subcommittee Ranking Member Martha Roby, R-Ala., asked what impact the Arthrex decision is having on companies.

Whealan replied that the companies he talks to complain about the uncertainty it has caused. "A lot of money and time is being spent right now trying to figure this out," he said.

Retroactive Application

Armitage cited Federal Circuit Judge Timothy Dyk's concurrence in the court's 7 November judgment in Bedgear. Dyk agreed that the panel was bound to follow Arthrex but he said it was not necessary to require a new hearing before a new panel of PTAB judges. He said that under Supreme Court precedent, Arthrex should not be applied retroactively and that prior decisions of PTAB judges are not invalid.

"I go to bed hoping Dyk is right," Armitage said, as this would give Congress time to act and assure that nothing bad happens until then. He said one bad outcome would be for PTAB decisions to be of questionable constitutionality so one does not know if decisions invalidating patents really invalidated them.

Rai commented that the Arthrex decision makes the due process problem more complicated. For example, she said, if a litigant wants to say that there is a procedural due process problem with the way that IPRs are working, it could point to the fact that now judges can be fired at will.

"It's up to you to do the right thing and fix this," Rai told the subcommittee.