Caseflicks

Supreme Court of the United States • 2021

United States v. Arthrex, Inc.

594 U.S. 1 | 210 L. Ed. 2d 268 | 141 S. Ct. 1970

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Takeaway

In short, Arthrex requires that APJs’ final inter partes-review decisions be subject to discretionary review by the Senate-confirmed PTO Director, preserving presidential accountability for the exercise of executive power.

Background

Arthrex obtained a patent for a surgical device. After Arthrex asserted the patent against Smith & Nephew and ArthroCare, those companies petitioned the Patent Trial and Appeal Board (PTAB) for inter partes review. A three-member PTAB panel of Administrative Patent Judges (APJs) held Arthrex’s patent claims unpatentable.

APJs are appointed by the Secretary of Commerce, not by the President with Senate confirmation. Although the PTO Director—who is presidentially appointed and Senate-confirmed—has substantial administrative control over the PTAB, the governing statute made PTAB decisions final within the Executive Branch. Only the PTAB itself could grant rehearing; the Director could not directly review and reverse an APJ panel’s final decision.

The Federal Circuit held that APJs were principal officers because their final decisions were not reviewable by a superior executive officer and because they lacked at-will removal protection. It held their appointments unconstitutional, severed their statutory tenure protections to make them removable at will by the Secretary, vacated the PTAB decision, and ordered a new hearing before a different APJ panel. All sides sought Supreme Court review.

Issues

Issue #1

Whether APJs may issue final, unreviewable Executive Branch decisions in inter partes review even though they are appointed by the Secretary of Commerce as inferior officers.

Holding

No. APJs’ authority to issue final decisions on behalf of the Executive Branch without review by a presidentially appointed and Senate-confirmed officer is incompatible with their appointment as inferior officers.

Reasoning

The Appointments Clause permits department heads to appoint inferior officers, but principal officers must be nominated by the President and confirmed by the Senate. Under Edmond v. United States, inferior officers must be directed and supervised at some level by officers who received presidential appointment and Senate confirmation. The central defect was that APJs could render the Executive Branch’s final decision on patent validity without approval or review by any such superior officer.

The PTO Director had significant administrative tools: he could decide whether to institute review, select APJs for panels, issue regulations and policy guidance, designate precedent, and influence future cases. But those tools did not let him directly review and reverse an APJ panel’s final written decision. Indirect influence through panel selection or policy guidance did not supply the transparent, politically accountable supervision that Article II requires.

The Secretary’s ability to remove APJs only for cause did not solve the problem. Reassignment or eventual removal could affect future work, but it could not alter a final decision already binding on the Executive Branch. Nor did Federal Circuit review provide the required supervision, because judicial review is outside the Executive Branch and cannot make the President accountable for executive action.

History supported the Court’s conclusion. From the founding onward, department heads generally possessed authority to supervise subordinate officers’ legal and policy determinations, including through review of adjudicative decisions. Modern agency adjudication likewise ordinarily permits review by the agency head or another principal officer.

The Court limited its holding to this setting: APJs adjudicate public-rights disputes and issue decisions that bind the Executive Branch, while their decisions are insulated from executive review and their offices from at-will removal. The Court did not announce an exclusive test for principal and inferior officers or resolve every question about supervision in other contexts.

Issue #2

What remedy should apply for the constitutional defect in the PTAB’s inter partes-review structure.

Holding

The Court held that the statutory restriction preventing the PTO Director from reviewing final PTAB decisions is unenforceable as applied to the Director. The Director may review and decide such cases, and the case was remanded for the Acting Director to determine whether to rehear Smith & Nephew’s petition.

Reasoning

The Court applied the usual rule of partial invalidation: when a statute has a constitutional flaw, courts should preserve as much of the statutory scheme as possible. Congress placed the PTAB within the PTO, vested the PTO’s powers and duties in the Director, and charged the Director with management supervision. Those features showed that allowing Director review fit the statutory structure better than dismantling inter partes review altogether.

Section 6(c) required inter partes reviews to be heard by at least three PTAB members and stated that only the PTAB could grant rehearing. The Court held that this provision could not be enforced insofar as it prevented the Director from reviewing a final APJ decision himself. The Director may therefore review a final PTAB decision and issue a decision on behalf of the Board, although the rest of Section 6(c) remains operative for other Board members.

The Court rejected the Federal Circuit’s chosen fix of invalidating APJs’ tenure protections. Director review better matched the PTO’s hierarchical design and directly addressed the constitutional problem: the absence of review by a principal officer. The Constitution did not require the Director to review every APJ decision; it required that he have discretion to do so.

Because APJs were lawfully appointed to adjudicate the matter in the first instance, the constitutional defect concerned only their power to issue a final, unreviewable Executive Branch decision. Arthrex therefore was not entitled to a new hearing before a new APJ panel. A limited remand gave the Acting Director the constitutionally necessary opportunity to decide whether to rehear the case.

Concurrences

Justice Breyer

Reasoning

Justice Breyer, joined by Justices Sotomayor and Kagan, agreed with Justice Thomas that APJs were already inferior officers and that the statutory arrangement was constitutional. In his view, the Appointments Clause gives Congress substantial latitude to structure inferior offices, and courts should not impose a rigid requirement that a superior officer be able to personally reverse every adjudicative decision.

He favored a functional approach that considers Congress’s purposes and the practical operation of the agency. The Director controlled APJ pay, institution decisions, panel assignments, rules, policy guidance, and precedential designations. Those powers gave the Director adequate policy control, while Congress could reasonably preserve some adjudicative independence for technically demanding patent cases.

Justice Breyer nevertheless agreed with the remedial disposition because, once a majority had found a constitutional defect in the lack of unilateral Director review, permitting such review was a narrow remedy tailored to that specific defect. He warned that the majority’s formal approach unnecessarily limits Congress’s ability to design independent administrative adjudicators.

Dissents

Justice Gorsuch

Reasoning

Justice Gorsuch joined the Court’s conclusion that APJs could not wield final, unreviewable executive authority while remaining unaccountable to a superior in the Executive Branch. He agreed that the inter partes-review structure broke the Article II chain of democratic accountability.

He dissented from the remedy. In his view, the constitutional problem arose from the combination of statutory provisions giving APJs power to cancel patents and denying the Director review, and Congress had supplied no severability instruction choosing which provision should yield. Several possible cures existed, including Director review, presidential appointment and Senate confirmation of the adjudicators, or returning patent-cancellation disputes to Article III courts.

Justice Gorsuch would not make that policy choice for Congress. He argued that a court should decline to enforce an unconstitutional statutory application in the case before it and set aside the PTAB decision, rather than effectively rewrite the statute to give the Director a review power Congress expressly withheld. He also reiterated his concern that assigning cancellation of issued patents to executive adjudicators raises broader separation-of-powers and due-process problems.

Justice Thomas

Reasoning

Justice Thomas, joined by Justices Breyer, Sotomayor, and Kagan as to the merits, concluded that APJs were inferior officers and that their appointments by the Secretary of Commerce were constitutional. APJs sit well below both the PTO Director and the Secretary of Commerce in the Executive Branch hierarchy, and they are therefore formally subordinate officers.

In Justice Thomas’s view, APJs were also functionally supervised under Edmond. The Director oversees PTO policy and management, controls whether to institute inter partes review, selects panel members, sets APJ pay, issues binding procedural rules and policy guidance, and determines which PTAB opinions will be precedential. The Director could also influence individual matters by assigning or expanding panels and could use the Precedential Opinion Panel process to secure rehearing.

The dissent rejected the majority’s proposition that an inferior officer may never issue a final decision unless a superior executive officer can directly reverse it alone. Edmond examined the full set of supervisory mechanisms and did not establish a categorical final-review rule. Early patent statutes also allowed nonprincipal decisionmakers to resolve particular patent disputes finally, which undermined the majority’s historical account.

Justice Thomas further argued that the Court neither clearly identified APJs as principal officers nor found a defect in their appointments, yet still rewrote the statute to grant the Director a new power. If APJs were improperly appointed principal officers, Arthrex should have received a new hearing before properly appointed officials. If their appointment was valid, no Appointments Clause violation occurred. On either understanding, he maintained, the Court lacked a basis for its remedy.