Arthrex v. Smith & Nephew: SCOTUS Preserves Inter Partes Review

We last wrote about the Arthrex case back in November of 2019 and this blog is a continuation now that the case has finally reached a decision by the Supreme Court. In our previous blog, we described how the United States Court of Appeals for the Federal Circuit ruled that the appointment of the Patent Trial and Appeal Board’s (“PTAB”) Administrative Patent Judges (“APJs”) violated the Appointments Clause of the U.S. Constitution. This decision was based on the lack of direction and supervision of APJs by the presidentially-appointed Secretary of Commerce or Director of the USPTO as well as the lack of independent statutory authority to review the final written decisions by the APJs during inter partes revew. These factors resulted in the United States Court of Appeals for the Federal Circuit to decide that APJs are acting as principal officers, in violation of Appointments Clause, and to remedy the constitutional violation the tenure protections of APJs were invalidated.

On June 21, 2021, the U.S. Supreme Court delivered its written opinion in United States v. Arthrex, Inc. in which it vacated the judgement of the United States Court of Appeals for the Federal Circuit and remanded the case to the Acting Director of the USPTO. In its opinion, the Court addressed the responsibilities of the APJs and, as was the case in the previous ruling, focused on the requirement that APJs, as inferior officers, are required to be directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate. In the case of APJs, the majority opinion concluded that lack of review by a superior officer meant that the APJs wielded unreviewable authority during inter partes review which elevates them to a higher position than an inferior officer, in violation of the Appointments Clause.

The Court then addressed the appropriate remedy for the violation of the Appointments Clause and crafted a tailored approach to overcome the Constitutional violation. The remedy described in Part III of the Court’s opinion created a new framework for review by the Director of the USPTO of PTAB decisions and the ability of the Director to issue decisions on behalf of the PTAB. In crafting this remedy, the Court overcame the lack of review by a Presidential nominee and therefore preserved the status of APJs as inferior officers. The Court was careful to note that this decision “concerns only the Director’s ability to supervise APJs in adjudicating petitions for inter partes review” and does not address over types of adjudications conducted by the PTAB.

It is unclear at this stage how this Director-level review will be made available for parties in inter partes review proceedings and by what standard the Director will review petitions for rehearing by disappointed parties. In 2020 there were more than 1,400 inter partes review petitions and over 400 Final Written Decisions by the PTAB. Given these number, it is unlikely that the Director of the USPTO will review all decisions by APJs, but this framework enabled the Court to preserve the inter partes review process and we are forced to wait and see how this new power by a political appointee will impact the post-grant proceedings of the PTAB.

Allen v. Cooper: North Carolina’s Piracy of Blackbeard’s Pirate Ship

In a recent decision by the Supreme Court in Allen v. Cooper, Governor of North Carolina the Court opined that States are immune from copyright infringement. While the Court noted that Congress may still act to remove this blanket immunity that the States have over copyright infringement, this holding makes clear that States generally have freedom to behave as copyright pirates until Congress acts. Following this decision, we have already seen action by multiple members of Congress, asking the U.S. Copyright Office and U.S. Patent and Trademark Office to begin a study on the extent of patent and copyright infringement by State governments.

This case dates back to 1996 when a marine salvage company named Intersal discovered the shipwreck of the Queen Anne’s Revenge off the North Carolina Coast. The ship at the center of this case was a French slave ship that was captured by Blackbeard and became his flagship before running aground on a sandbar in North Carolina. Following the discovery, ownership of the shipwreck was held by North Carolina under federal and state law but the State hired Intersal to conduct recovery operation. Intersal then hired videographer Frederick Allen to document the recovery efforts. Allen recorded videos and took photos of the recovery efforts for over a decade and registered copyrights in all of his works.

The actions the led to the suit started when North Carolina began using Allen’s works in various publications. In 2013, Allen altered the State that it was infringing his copyrights and a settlement was reached where the State paid Allen $15,000 and defined the parties’ respective rights to Allen’s works. Allen later alleged that the State had, without permission and presumably in breach of the settlement, posted more of his videos and photos. The State refused to admit any wrongdoing and Allen filed suit in Federal District Court charging the State with copyright infringement. North Carolina then moved to dismiss the lawsuit on the grounds of state sovereign immunity. Allen argued that the Copyright Remedy Clarification Act (“CRCA”) of 1990 removed the States’ sovereign immunity in copyright infringement cases and the District Court agreed, finding a clear congressional intent in the Act’s text that supported Allen’s argument. The Fourth Circuit then reversed based on an alternative reading of case law and the case was then heard by the Supreme Court.

The primary argument here is whether Congress has the authority to abrogate the State’s immunity. As a general principle, a federal court may not hear a suit brought by any person against a nonconsenting State. However, such a suit is allowed if Congress has (1) enacted unequivocal statutory language abrogating the State’s immunity from suit and (2) there is some constitutional provision that allows Congress to encroach on the State’s sovereignty. In the early 1990s, Congress passed two statutes related to the abrogation of State’s immunity from patent and copyright infringement suits and this case addresses the copyright statute and whether the statue has the necessary constitutional basis to allow a person to file a suit against a nonconsenting State.

The Supreme Court discussed the history of the two statutes passed in the 1990s that intended to remove the States’ immunity from patent and copyright suits. The CRCA specifically states that a State stands in the identical position as a private defendant – exposed to liability and remedies in the same manner and to the same extent. The Court concluded that the first prong described above was met and that there could be no doubt that Congress intended to abrogate the States’ immunity from copyright infringement suits. This left the final prong, whether Congress had authority, as the only question remaining to determine if Allen could bring his case against North Carolina.

The Court then addressed the authority that Allen believed provided Congressional authority. The first was Article I where Congress was provided the power to promote the progress of science and use arts by granting copyrights and patents. However, previous decisions by the Court held that Article I cannot be used to circumvent the limits sovereign immunity places upon federal jurisdiction. The Court summarized this by stating that “the power to secure an intellectual property owner’s exclusive Right under Article I stops when it runs into sovereign immunity.” Next, Allen argued that Section 5 of the Fourteenth Amendment provides the necessary constitutional authority because it gives Congress the power to enforce limitations on the States’ authority it the States’ deprive any person of life, liberty, or property, without due process of law. However, the Court went into detail about how the statute, when created, was not aimed to redress or prevent unconstitutional conduct by the States’ and was therefore does not trigger the power provided by Section 5 of the Fourteenth Amendment. The majority of the Court concluded their opinion by saying that while the arguments presented in this case to do not support the removal of States’ immunity from copyright infringement, Congress is not prevented from utilizing the series of opinions, including Allen v. Cooper, to tailor a statute that would abrogate States’ immunity and “bring digital Blackbeards to justice.”

Arthrex v. Smith & Nephew: Inter Partes Review and Unconstitutional Appointment of APJs

On Halloween, the United States Court of Appeals for the Federal Circuit delivered its opinion in Arthrex, Inc., v. Smith & Nephew, Inc. that the appointment of the Patent Trial and Appeal Board’s Administrative Patent Judges (“APJs”) violates the Appointments Clause of the U.S. Constitution. The background of this case involved Arthrex receiving a final written decision in the inter partes review of its patent finding the claims unpatentable as anticipated. Anthrex subsequently appealed the written decision of the PTAB arguing that the APJs presiding over the inter partes review were not constitutionally appointed.

A brief background on the appointment and power of the APJs is required to understand the potential impact of this decision. APJs are appointed by the Secretary of Commerce in consultation with the Director of the USPTO. This leads to the question of whether the APJs are defined as inferior officers or principal officers. The Court described the functions of APJs in determining how to define these officers and highlighted the significant discretion APJs exercise when carrying out their functions in the inter partes review process. It was noted that their decisions on patentability are final and subject only to rehearing by the Board or appeal to the CAFC. The Court then described the defining characteristics of inferior officers as compared with principal officers as being: (1) whether the officer has a superior, (2) whether the superior was appointed by Presidential nomination, and (3) the level of supervision and direction over the officer by the superior.

The Court then explained that the two presidentially-appointed officers at the USPTO, the Secretary of Commerce and the Director of the USPTO, provide direction to the USPTO. While these officers provide direction, the Court held that neither officer individually nor combined exercised sufficient direction and supervision over APJs to render them inferior officers. The Court’s opinion was based on the lack of independent statutory authority to review the final written decision by the APJs before that decision is issued on behalf of the United States. Another factor considered by the Court was the removal power over an officer, which the Supreme Court described as “a powerful tool for control.” APJs, the court noted, may be removed “only for such cause as will promote the efficient of the service,” meaning that the APJ may be removed when his or her misconduct is likely to have an adverse impact on the agency’s performance. With this in mind, the Court held that APJs are principal officers and thus the current structure of the Board violates the Appointments Clause because the APJs are appointed by the President and confirmed by the Senate.

In an effort to resolve the Constitutional conflict, the Court suggested removal of the employment protections that currently exist and providing the presidentially-appointed officers at the USPTO broad removal powers over APJs. It is unclear what the lasting impact of this decision will be, but recently, the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property, and the Internet conducted a hearing that included a discussion of the Arthrex decision. A variety of solutions were presented and discussed to resolve the issue created by the Arthrex decision and time will tell if a legislative fix will soon emerge.

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