By Kevin E. Noonan —

Arthrex recently filed a certiorari petition with the Supreme Court in Arthrex v. Smith & Nephew Inc. (a case related to Arthrex, Inc. v. Smith & Nephew, Inc., which has also the subject of petitions from the U.S. government and Smith & Nephew).

The Questions Presented are:

1.  Whether the retroactive application of inter partes review to patents that were applied for before the America Invents Act violates the Fifth Amendment.

2.  Whether a court of appeals can invoke forfeiture principles to refuse to address a constitutional claim in a pending appeal despite an intervening change in law.

The latter of these Questions were also presented in the U.S. government's and Smith & Nephew's petitions; the former is unique to Arthrex and addresses a question the Court has been unwilling to address directly.  Although it is reasonable to assume that the Court will not respond in the affirmative this question does address one of the grounds of appealing a Patent Trial and Appeal Board decision left open by the Supreme Court's decision in Oil States Energy Serv. LLC v. Greene's Energy Grp. LLC.  Arthrex notes that the Court is already considering a petition on this issue in Celgene Corp. v. Peter, but this case differs because Celgene had both applied for and been granted its patent prior to enactment of the Leahy-Smith America Invents Act in 2011.  Arthrex asks the Court to consolidate these cases to decide whether invalidating a patent arises to a Fifth Amendment taking in each factual context.

The forfeiture issue arises in this petition because Arthrex is asking the Court to review this Federal Circuit decision that did not consider its constitutionality challenge under the Appointments Clause because Arthrex had not raised the issue before the Patent Trial and Appeal Board.  This raises the question according to Arthrex of "[w]hether a court may refuse to address constitutional claims on forfeiture grounds despite an intervening change in law," which the petition characterizes as "another important and recurring issue."

But the focus of the petition is Arthrex's contention that applying inter partes review retroactively to patents filed or granted prior to enactment of the AIA constitutes an unconstitutional taking in violation of the Fifth Amendment.  In support of this argument, Arthrex cites the effect of the IPR regime:

Hundreds of inter partes reviews are filed each year, and more than 60% challenge patents issued before the America Invents Act.  Around 15% more challenge patents like Arthrex's for which the application was filed before the statute's enactment but granted afterward.  Innovators like Arthrex disclosed their inventions to the public in reliance on the patent regime that prevailed at the time. Revoking patents through a new and far more lethal mechanism is a classic bait and switch that violates basic Fifth Amendment norms against retroactivity.

These facts establish that the question of the constitutionality of IPRs are "an important and recurring issue" and Arthrex notes several other cases have recently raised unconstitutionality claims, including Genentech, Inc. v. Hospira, Inc., OSI Pharm. LLV v. Apotex Inc., Enzo Life Sciences, Inc. v. Becton Dickinson & Co., and Collabo Innovations, Inc. v. Sony Corp., as well as Celgene.  This issue "will affect thousands of cases for years to come" Arthrex contends, illustrating the point by noting that "[m]ore than 10,400 petitions for inter partes review have been filed since the proceedings began in September 2012." And in view of the timing of patent term and inter partes review, it is not a surprise according to Arthrex that this is the case.  Arthrex estimates that nearly one in seven patents challenged in inter partes review proceedings are those like the Arthrex patent at issue that were filed before but granted after enactment of the AIA.

Turning to the distinctions between IPRs and prior reexamination statutes, Arthrex emphasizes the "fundamental" differences wherein "[i]nter partes review is far more potent than its predecessors," such as the requirement in prior reexamination regimes that a challenger show a "substantial new question of patentability," citing 35 U.S.C. § 303(a) (emphasis in petition), in contrast to the "more likely than not" standard that at least one patented claim is unpatentable for IPRs.  (In fairness, this circumstance is what Congress clearly intended, rightly or wrongly.)  Importantly, the petition notes that prior reexamination regimes permitted the patentee to amend claims to retain patentable claim scope, whereas the PTAB implemented the IPR provisions of the AIA to make any such opportunity infrequent if not entirely ephemeral.

The petition also asks the Court to consider that IPRs negatively affect the fundamental choice each inventor faces to "keep [the] invention secret and reap its fruits indefinitely," Bonita Boats, Inc. v. Thunder Craft Boats, Inc., or choose to apply for a patent that "enabl[es] others to 'practice [the invention] and profit from its use."  This bargain is disrupted by "[a] legal system where Congress can change the rules after an inventor has already made that choice casts a pall over others facing the same decision."  The petition provides the Court with a real world perspective:  "[c]ompanies invest hundreds of billions of dollars each year creating new technologies," citing a Congressional study, which is particularly costly in medicine-related fields according to Arthrex's petition.  The cost imposed by IPRs amounts to loss of 2/3rds of the value of patents pre-AIA Arthrex contends.

The petition supports its assertion that the Federal Circuit erred by citing precedent that stands for the proposition that "the presumption against retroactive legislation is deeply rooted in [the Court's] jurisprudence, and embodies a legal doctrine centuries older than our Republic," Landgraf v. USI Film Prod., and "[e]lementary considerations of fairness" counsel that "settled expectations should not be lightly disrupted."  These concerns are particularly important in property rights, Arthrex argues, as "matters in which predictability and stability are of prime importance."  The petition cites Lynch v. Mathis, Cherokee Nation v. Leavitt, Perry v. U.S., and Lynch v. U.S. in support of this proposition generally, as well as McClurg v. Kingsland and Richmond Screw Anchor Co. v. U.S. with regard to patents.  Contrary to recent Supreme Court pronouncements (Oil States), the petition argues that patents are property rights and entitled to these constitutional protections, relying on Fla. Prepaid Postsecondary Educ. Expense Bd. V. Coll. Sav. Bank, Ex parte Wood (1824), and 35 U.S.C. § 261.

But according to Arthrex, the AIA breaks the bargain with an inventor because it "dramatically expands the opportunities for attaching a patent and thus diminishes the value of the rights conferred."  The petition notes the significantly higher burden imposed by the clear-and-convincing quantum of evidence needed to invalidate a patent in district court (that difference being one of the principal motivations for enacting IPRs in the first place).  And the petition notes the troublingly frequent fulfillment of the potential for the PTAB and district courts to come to different conclusions regarding validity.  Arthrex asserts that the practical difference between prior reexamination regimes and IPRs is that the "fatality" rate of patents changed from one in three to two in three with at least concomitant reduction in patent value.

Finally, the petition argues the Federal Circuit erred in basing its decision in part on the fact here that Arthrex's patent granted after AIA enactment because the proper assessment of retroactivity is when a party acted, which in this case Arthrex argues was when they decided to disclose the invention and put protection at risk (essentially arguing a reliance interest).

Addressing the issue of whether this case is an appropriate vehicle for the Court's consideration of the issues, Arthrex argues that while even on its own it would be the different procedural postures between this case and Celgene gives the Court the opportunity, should they consolidate the cases, to decide the retroactivity questions for patents that granted before or after enactment of the AIA.

The petition then sets forth Arthrex's argument regarding whether the Court should review the Federal Circuit's holding that its Appointments Clause decision should apply to all pending appeals.  This portion of the petition recapitulates Arthrex's arguments on appeal and in its certiorari petition (discussed in a forthcoming post).  In brief, Arthrex argues that the Federal Circuit correctly recognized the constitutional infirmity in how PTAB APJs are appointed.  In addition to arguing that the Federal Circuit had fashioned an improper remedy (severing the removal provisions in the statute from being applied to APJs), Arthrex argues that the Court should consider the issue here because how to apply the earlier decision to pending appeals constitutes an "important and recurring issue" needing the Court to resolve.  In this regard, the petition cites later Federal Circuit decisions that refused to apply the Arthrex holding (and remanding to the PTAB for renewed IPR before properly appointed APJs), see Customedia Techs. Inc. v. Dish Network Corp.; Bos. Sci. Neuromodulation Corp. v. Nevro Corp.; Ciena Corp. v. Oyster Optics LLC; and Sanofi-Aventis Deutschland GmbH v. Mylan Pharmaceuticals Inc.

Forfeiture, the Federal Circuit's holding in these cases, is error according to Arthrex because it is contrary to Supreme Court precedent that an intervening change in the law should nullify the consequences of failing to bring a ground of appeal in the first instance at trial (or here, before the PTAB).  This cited precedent includes Curtis Publi'g Co. v. Butts; Hormel v. Helvering; and Joseph v. U.S. as well as cases where the Court has permitted consideration of an unbrought constitutional challenge without an intervening change in the law, including Nguyen v. U.S.; Freytag; and Glidden Co. v. Zdanok.

The petition concludes with the suggestion that the Court in the alternative postpone a decision on certiorari grant in this case until certiorari petitions are filed in the Customedia and Sanofi cases, or such petitions in the later Arthrex' case.

By Kevin E. Noonan —

Last fall, the Federal Circuit decided in Arthrex, Inc. v. Smith & Nephew, Inc. that Administrative Patent Judges (APJs) serving on the Patent Trial and Appeal Board (PTAB) were principal officers and thus had been improperly appointed under the Appointments Clause, and accordingly vacated a PTAB determination in an inter partes review proceeding and remanded for consideration by a panel of properly appointed APJs (see "Federal Circuit Holds APJs Are Principal Officers").  Thereafter, in Polaris Innovations Ltd. v. Kingston Technology Co., the Federal Circuit relied on its Arthrex decision to vacate and remand a PTAB determination in an IPR.  One significant difference in the procedural posture of these cases is that in Arthrex the constitutional issue was raised for the first time on appeal, where in Polaris the patentee had raised the issue before the PTAB in the first instance.  The U.S. Government has now petitioned the Supreme Court for certiorari to review, and overturn, the Federal Circuit's decision, supported by a brief by the Solicitor General.

The Questions Presented in the petition are two:

1.  Whether, for purposes of the Appointments Clause, U.S. Const. Art. II, § 2, Cl. 2, administrative patent judges of the U.S. Patent and Trademark Office are principal officers who must be appointed by the President with the Senate's advice and consent, or "inferior Officers" whose appointment Congress has permissibly vested in a department head.

2.  Whether the court of appeals erred by adjudicating an Appointments Clause challenge brought by a litigant that had not presented the challenge to the agency.

The first question is substantive, the second procedural; this stratagem gives the Court a way to dispense with the case by holding that the CAFC improperly considered the issue in the first place should the Court otherwise not be inclined to decide the separation-of-powers question in these instances.

The government's brief in support of its petition asserts that the Supreme Court should review the Federal Circuit's decision because it invalidates an act of Congress and erred in reaching its conclusion.  The brief sets forth the players:

• the Director, who is a principal officer appointed by the President and confirmed by the Senate, can be dismissed at will by the President.  35 U.S.C. 3(a)(1);
• the PTAB, an "administrative tribunal within the USPTO.  35 U.S.C. 6"; and
• Administrative Patent Judges (APJs), who are "persons of competent legal knowledge and scientific ability who are appointed by the Secretary [of Commerce], in consultation with the Director."

Important for the decision below, the Solicitor General reminds the Court that APJs, like most civil servants, can only be removed for "cause," specifically "only for such cause as will promote the efficiency of the service," 5 U.S.C. 7513(a).

The brief makes the case in the Background section that the Director "controls" ("direct and supervise") APJs.  For example, "[t]he Director also has plenary authority to decide which Board members will hear each case, and he may alter a panel's composition at any time," citing 35 U.S.C. 6(c).  The Director also has plenary power to decide what PTAB decisions are (or are not) precedential (i.e., the Director has to agree).  Further powers wielded by the Director is "unreviewable discretion to institute, refuse to institute, or de-institute particular [inter partes] reviews," citing 35 U.S.C. 314(a) and (d); and Thryv, Inc. v. Click-to-Call Techs., LP, 140 S. Ct. 1367, 1373-75 (2020).

In Arthrex, as the Solicitor General explains, the Federal Circuit considered the issue because "the case "implicates the important structural interests and separation of powers concerns protected by the Appointments Clause," and that "[t]imely resolution [wa]s critical to providing certainty to rights holders and competitors alike."

The appellate court recognized that, under Edmond v. United States, 520 U.S. 651 (1997), inferior officers are "officers whose work is directed and supervised at some level by others who were appointed by Presidential nomination with the advice and consent of the Senate."  The petition sets forth the three Edmond factors used by the Federal Circuit to render its decision (review authority, supervisory authority, and removal authority), noting the first supported the view that APJs were principle officers and the second supported the converse view while the third supported principal officer status.  And the brief notes the remedy:  "sever[ing] the application of Title 5's [efficiency-of-the service] removal restrictions" to administrative patent judges."

In Polaris, the Federal Circuit applied the rule in Arthrex; in Polaris the Appointments Clause challenge was timely made.  Here the Solicitor General's brief noted the internal dissention at the Federal Circuit in considering the decision, which was followed by a fractured opinion issued in the denial of rehearing en banc, which rendered "five separate opinions, joined by a total of eight judges."

The government presents several arguments supporting the certiorari grant.  First, there is the significance of the consequences.  The brief argues that, as a general rule a court invalidating a statute is "the gravest and most delicate duty that this Court is called upon to perform," citing Rostker v. Goldberg, 453 U.S. 57, 64 (1981), quoting Blodgett v. Holden, 275 U.S. 142, 148 (1927).  This significance is compounded here because the decision is one that affects "more than 200 agency adjudicators, in an agency that administers intellectual-property rights affecting vast swaths of the Nation's economy" according to the Solicitor General's brief.

And the Solicitor General reminds the Court that "no other circuit is likely to issue a conflicting decision or to offer its own views on the Appointments clause" because of the unique exclusive jurisdiction the Federal Circuit exercises over patent law questions.  And as is frequently the case, the "sharply divided separate opinions" of the Federal Circuit on the question of en banc review is asserted in analogy to circuit court splits available in other areas of the law to signal a need to Supreme Court consideration (although this argument is not always persuasive; see "U.S. Supreme Court on Eligibility: Nothing to See Here, Move Along").

On the merits, the government argues that the Federal Circuit erred because the government disagrees with the Federal Circuit's interpretation and application of the Edmond decision.  The government contends that Edmond directed that "a court should consider the cumulative effect of the supervisory mechanisms available to various superior officers" (emphasis in the brief).  The Solicitor General argues that PTAB judges are "directed and supervised" "at least to the same degree" as the judges whose appointment was at issue in Edmond.  The brief sets forth the authority exercised over PTAB judges by the Secretary of Commerce and the Director.  First, they are authorized to appoint and remove PTAB judges, their removal being subject to the same regulations as other civil servants which "generally permits removal for any legitimate reason with a connection to 'the work of the agency,'" citing Brown v. Department of the Navy, 229 F.3d 1356, 1358 (Fed. Cir. 2000).  In addition, the Director has "unfettered authority" to control the PTAB judges' activities regarding which cases they will adjudicate.

Second, the statute gives the Director "broad authority" to establish policies binding on PTAB judges, the brief enumerating many of these powers, and emphasizing the "sole discretion" with which the Director can exercise these powers.

Third, the brief argues that the Director's supervisory powers extend to the specific proceedings before the PTAB, including the "unilateral[, unreviewable] authority to decide whether to institute a proceeding."

Consequently, the government argues:

The work of a USPTO administrative patent judge thus is superintended by presidentially appointed, Senate-confirmed officers at virtually every step.  An administrative patent judge decides only those Board cases, if any, that the Director assigns him.  In deciding those cases, the judge must apply the patent laws in accordance with regulations, policies, and guidance the Director has issued, and with past decisions the Director has designated as precedential.  Once the Board issues its final written decision, that decision can be deemed precedential (or not) by the Director, countermanded prospectively by further guidance he issues, or both.  And any proceeding in which the judge participates may always be reheard de novo by a review panel whose members the Director also selects—a panel that typically includes the Director himself and two other particular senior Executive officials.

The brief then sets forth the government's reasons why the Federal Circuit's reasoning for coming to a contrary conclusion was erroneous.  The first of these is the Court's failure to consider the "cumulative effect" of supervision and direction imposed on APJs by the Secretary and Director, and instead focusing on whether any of the three specific supervisory mechanisms (review, supervision, removal) were in place.  While acknowledging that these factors can be "relevant" to the inquiry the Solicitor General argues that it was error for the Court to consider these factors in isolation and "treat[] them as ends in themselves."  And the brief notes that the characteristics advanced in the government's arguments — the Director's "broad policy and supervisory authority" — were acknowledged by the Federal Circuit but overridden by a combination of the two other factors ("review" and "removal") considered by the Court.

The government criticizes this "checklist" approach as being inconsistent with the Edmond admonition that the proper calculus is to determine "whether, when all of the existing control mechanisms are considered together, the officer's 'work is directed and supervised' by superiors to a sufficient degree."  In particular, the brief asserts that the inability to remove an APJ without cause (which the Federal Circuit considered in determining that a PTAB APJ is a principal officer) is an indirect means of "induc[ing]the subordinate to do the superior's will," which is much less significant when the superior has direct means to do so (e.g., by inter alia "establish[ing] binding substantive rules that administrative patent judges must follow and to choose which judges will apply them in every case").  The brief argues that the removal power here is just as robust as in Edmond, as is the ability of the Director to review PTAB decisions.

The government synthesizes these arguments by stating that the Federal Circuit erred by "considering each mechanism of supervision and direction separately, and by discounting prerogatives that did not independently satisfy the panel's benchmarks, [thereby] overlook[ing] the ways that the various powers the Secretary and Director possess work together."

The Federal Circuit's second error requiring Supreme Court review identified in the government's brief was its "willingness to excuse the patent owner's administrative forfeiture" by not raising its constitutional objection before the PTAB in the first instance.  In addition, the Solicitor General argues that the Federal Circuit erred by adopting a "categorical exception to ordinary rules of administrative exhaustion" in this case.

The government begins its argument be enunciating the consequences of the Federal Circuit's decision, which permitted appellants to challenge PTAB decisions on Appointment Clause grounds without having raised the issue below, resulting in the Court vacating "more than 100 [PTAB] decisions."  This has "unwound the significant efforts of the agency and the litigants in the administrative proceedings—often spanning a year or longer—to determine the patentability of the challenged claims" and "[i]f allowed to stand, the Federal Circuit's forfeiture ruling in Arthrex will force the prevailing parties in many other cases to relitigate issues before newly constituted Board panels," leading to "duplicative proceedings."  The government reminds the Court that there is a public interest involved here, wherein "duplicative proceedings are unlikely to yield any meaningful public benefit, and many patent claims that the Board has found unpatentable will remain in force, creating uncertainty in numerous patent-reliant industries throughout the Nation's economy."

The Solicitor General supports this argument by citing precedent to the effect that fairness to "those who are engaged in the tasks of administration" generally requires objections to be timely made before the administrative body; such administrative and judicial economy principles are not unique to the question before the Court.  The rule "protects administrative-agency authority" and "promotes efficiency," according to the brief.  This should have been dispositive before the Federal Circuit, according to the government, and the appellate court had previously applied the principle in this manner, e.g. in In re DBC, 545 F.3d 1373 (Fed. Cir. 2008), and Trading Techs. Int'l, Inc. v. IBG LLC, 771 Fed. Appx. 493 (2019) (per curiam).

Moreover, the government argues that there are no exceptional circumstances here that justify the Federal Circuit straying from the proper application of this principle.  The Solicitor General rejects Arthrex's argument that Freytag v. Commissioner, 501 U.S. 868, 895 (1991), provides "broad discretion to excuse such forfeitures whenever separation-of-powers are raised" because the Freytag decision recognized the general rule and opined that it should only be the rare case where a Court should exercise this discretion.  But that decision did not establish a general rule that courts should excuse forfeiture in any case where a separation-of-powers question is raised, according to the brief.  Arthrex's second reason, also deficient in the government's view, is that raising the issue before the PTAB would have been "futile" because "the Board lacked authority to "correct[] the problem.'"  The Solicitor General asserts the Director's "unfettered discretion" to refuse to institute an IPR would have afforded "complete relief" if, in response to having raised the argument before the Board the Director refused to institute the proceeding.  And even absent this (which appears to be an impractical way to resolve a constitutional issue) the government argues that raising the issue below "might have facilitated subsequent judicial review of Arthrex's constitutional claim," citing Elgin v. Department of the Treasury, 567 U.S. 1, 16 (2012).

The brief concludes by reminding the Court that these two cases present different issues (e.g., Polaris does not implicate the forfeiture issue, a decision on which regarding Arthrex could prevent the Court from reaching the separation-of-powers issue) and thus the Court should grant certiorari in both cases.

Arthrex and Smith and Nephew also have both filed certiorari petitions, the former of which will be considered in a subsequent post and the latter of which has been considered here.

By Kevin E. Noonan —

While the Federal Circuit's decision last fall in Arthrex, Inc. v. Smith & Nephew, Inc. raised issues about the appointment of Administrative Patent Judges (APJs) serving on the Patent Trial and Appeal Board (PTAB), it should be remembered that it also wiped out a PTAB decision in favor of Smith & Nephew in the underlying inter partes review of Arthrex's U.S. Patent No. 9,179,907 on anticipation grounds (which, given the deferential nature of Federal Circuit review on factual issues, the challenger had every expectation the PTAB decision would be affirmed).  At the end of June, Smith & Nephew (S&N) had its opportunity to explain to the Supreme Court why the Federal Circuit was wrong and why the Court should grant certiorari and reverse (petition).

The Question Presented is simple, direct, and dispositive:

Whether administrative patent judges are "principal" or "inferior" Officers of the United States within the meaning of the Appointments Clause.

Predictably, S&N argues that the Federal Circuit erred in deciding that Administrative Patent Judges (APJs) are "principal officers" needing Presidential appointment and confirmation by the Senate under the Appointments Clause, contending that the Court's precedents establish these requirements not to lie with regard to "first-line administrative adjudicators" (and relying on the Government's separate petition for support of this principle).  The basis:  such administrative adjudicators are 'directed and supervised at some level' by other Executive Officers" and hence are inferior officers, citing Edmond v. United States (the same case that the Federal Circuit held supported its conclusions to the contrary).  The petition recounts the policy (and constitutional structure) basis for the Appointments Clause, to "preserve public accountability relative to important Government assignments" (again, citing Edmond).  Inferior officers, on the other hand, do not require this level of scrutiny, because "administrative convenience . . . was deemed [by the Founders] to outweigh the benefits of the more cumbersome procedure" (Edmond).  The petition then orients the U.S. Patent and Trademark Office into the Executive Branch with regard to these considerations, noting that it is an administrative agency established by statute, 35 U.S.C. § 1(a), in the Department of Commerce and overseen by the Director who is also the Undersecretary of Commerce for Intellectual Property (and a principle officer).  The PTAB, for its part, is "an adjudicatory body within the PTO," citing Oil States Energy Servs., LLC v. Greene's Energy Grp., LLC and established by statute as well; 35 U.S.C. § 6(b).  APJs are appointed by the Secretary of Commerce, 35 U.S.C. § 3(b), and their compensation and tenure are determined by these officials as civil servants.  With regard to their procedural roles in the IPR process, the brief is careful to note the Director's "sole and unreviewable discretion whether to institute," citing Thryv, Inc. v. Click-To-Call Techs., LP.  The petition also characterizes the Director's role in designating APJ panels to hear the IPR and that the statute and regulations do not "limit the Director's authority to alter the panel's composition and size on his own initiative at any time" under 35 U.S.C. § 6(c), providing an extensive litany of how the Director has "direction and supervision" over the corps of APJs before, during, and after an IPR proceeding and including being able to render these decisions precedential (or not) or ordering rehearing (under circumstances that can result, for appropriate reasons, in overturning the original decision).

With regard to the issue S&N hopes to bring before the Court, the petition sets forth the nature of the disputes between the parties, including District Court litigation where Arthrex prevailed and the IPR where S&N prevailed, and that Arthrex raised its constitutional challenge under the Appointments Clause for the first time on appeal.  The remainder of the introductory portion of the petition concerned the Federal Circuit's rationale in rendering the decision below and its suggested remedy.  S&N also includes (in the discussion of the case as well as provided in Appendices) opinions of several Federal Circuit judges (including Judges Hughes, Wallach, Dyk, and Newman) disagreeing with the panel majority's conclusions.

The petition highlights the consequences by bringing to the Court's attention the Federal Circuit's vacating "more than 100" PTAB decisions and extension of these consequences to inter partes reexamination (VirnetX Inc. v. Cisco Sys., Inc.) and ex parte reexamination (In re JHO Intellectual Prop. Holdings, LLC, No. 19-2330, Dkt. 25 (Fed. Cir. June 18, 2020)).

The Reasons for Granting the Petition section of the petition is where S&N makes its concise arguments for the Court to grant review.  The petition asserts that the Federal Circuit had "departed from this Court's long and unbroken line of Appointments Clause jurisprudence" in making its decision, citing Lucia v. SEC and Freytag v. Comm'r, and ruled contrary to the "[l]ong settled and established practice" of the co-equal branches is entitled to "great weight" in the Appointments Clause context," citing NLRB v. Noel Canning.  S&N's argument is a simple one (like the Government's argument in its petition):  S&N disagrees with the Federal Circuit's interpretation of the Edmond case.  Specifically, S&N argue that the "multipart test" applied to interpreting Edmond was error, as was the determination that being "not removable without cause" particularly relevant to the issue.  Citing Seila Law LLC v. Consumer Fin. Prot. Bureau, S&N argues that what determines whether an appointed official is a principal or inferior officer is simply whether that officer's work is "directed and supervised" by a superior officer (here, the Director and ultimately the Secretary of Commerce).  The Court's directives on what the term "directed and supervised" means, or what it means to have a superior has been straightforward ("he has a superior" under Edmonds) but this oversight "need not take any particular form, check any 'exclusive criterion' . . . , or even be 'plenary,'" citing Free Enter. Fund v. Pub. Co. Accounting Oversight Bd.  In view of the Court's penchant for considering cases before it in terms of what the Founder's understood or intended, the petition sets forth "Founding-era dictionary" definitions for "superior" and "inferior" with regard to the relationship between officers.  The petition argues against there being a "nebulous line" between superior and inferior officers so as to "preserve the balance between 'public accountability' and 'administrative convenience' struck by the Appointments Clause.  And that the Court's three decisions (Edmond, Freytag, and Lucia) were consistent with this regime.

Returning to the statutory scheme, the petition then sets forth how APJ's are inferior officers "soup to nuts," citing that the Director:

• provides "policy direction and management supervision" for APJs, 35 U.S.C. § 3(a)(2)(A);
• controls whether to institute IPRs in the first place, id. § 314(a);
• controls how many and which APJs serve on which panels, id. § 6(c);
• provides "exemplary applications of patent laws to fact patterns" that are binding on APJs, Pet. App. 14a;
• controls whether a panel's decision will be precedential, SOP 2 at 11–12;
• controls whether a decision will be reheard by a Precedential Opinion Panel, SOP 2 at 4–5;
• controls how many and which APJs rehear a case, 35 U.S.C. § 6(c); and
• decides whether to dismiss an entire IPR proceeding rather than allow a panel's decision to become final, Pet. App. 131a–132a (Hughes, J., dissenting from the denial of rehearing en banc).

The petition also applies these supervisory roles to the IPR context, including several that are not reviewable (initiation, reconsideration, termination).  The consequence of these controls, S&N argues, is that "'[t]he Director'—a principal Officer who is removable at will—'bears the political responsibility'" for the work APJs do," citing Saint Regis Mohawk Tribe v. Mylan Pharm. Inc.  (Somewhat amusingly, S&N cites one of the more vociferous commentators for "regularly tak[ing] the Director to task" for his decisions as an example of the "political accountability" intended under the Appointments Clause.)

If the Director's control isn't enough, S&N contends that the Secretary of Commerce is another principal officer who exerts control over the APJs sufficient to render them inferior officers, providing in likewise all the tools at the Secretary's command to exert such control, for example "failure to follow instructions," citing Cobert v. Miller.

The Federal Circuit failed to properly consider these indicia of supervision and direction, according to S&N, and instead applied the multipart test.  This was error, according to S&N, because the panel misapplied Supreme Court's Edmond precedent.  The petition analogizes the Director's level of control over APJs with that asserted by the Judge Advocate General over military judges in Edmond, contending that both superiors had the power to remove the respective judges under their control from their assignments and that the Federal Circuit erred in interpreting the removal power to apply to being able to discharge them from employment.

And the petition characterizes the Federal Circuit as having "elevated form over substance in asking whether 'the Director [has] the power to single-handedly review, nullify or reverse' a Board decision," again analogizing the lack of finality by the adjudicators here and in Edmond ("APJs cannot, in any meaningful sense, speak the last word for the Executive Branch 'unless permitted to do so by other Executive officers,'" citing Edmond).  Of course, even the Director (and the Secretary) are subject to supervision by the Federal Circuit, where the Director has the right to be a party in any appeal.  35 U.S.C. § 143.

S&N asserts another reason the Court should grant certiorari to review and correct the Federal Circuit's purported error:  the political branches have had a "uniform and longstanding view" that APJs are inferior officers.  The evidence for this proposition asserted by S&N includes that the statutory procedure for naming APJs contains no provisions for Presidential appointment or Senate confirmation, citing In re DBC for a judicial interpretation of 35 U.S.C. §§ 6(a),(d)).  Indeed, Congress was prompted to act by "an influential article" that contended APJs were not being appointed properly.  S&N asserts that the Federal Circuit panel improperly disregarded the "great weight" that should be given to "longstanding and settled practices" of co-equal governmental branches, citing NLRB v. Noel Canning and Fin. Oversight & Mgmt. Bd. for P.R. v. Aurelius Inv., LLC.  Again, the petition (wisely) goes back in history to cite several cases where the Appointment Clause was interpreted so that "the political branches' chosen method of appointment in determining whether an official was an inferior Officer."

The petition concludes with a section arguing that the Court should grant certiorari not merely because the Federal Circuit erred but because this case is "the ideal vehicle for deciding whether APJs are principal or inferior officers."  The reasons asserted by S&N include that even the Federal Circuit recognized that the the status of APJs is an "issue of exceptional importance" that has "wide-ranging effect on property rights and the nation's economy," about which the Government also agrees in their petition.  This also implicates the separation of powers, because the Federal Circuit's decision "usurped Congress's prerogative to vest the appointment of APJs . . . 'as they think proper.'"  The decision below has also interfered with the PTAB's implementation of the post-grant regime enacted by Congress in the Leahy-Smith America Invents Act, evidenced by the "more than 100 [IPR] decisions" vacated by the Federal Circuit since the Arthrex decision last fall, as well as the extension of the disqualification of APJs in other proceedings including inter partes reexamination and ex parte reexamination.  This will result in "a tidal wave of new Appointment Clause challenges" to the PTAB's competency, with the attendant disruption in the Board's business (not to mention, but they do, that similar challenges could arise in other administrative agencies where rights are adjudicated by ALJs).  In addition, the issues are focused in this case to the principal/inferior officer distinction and have been extensively briefed and argued below by the parties and the government, with several Federal Circuit judges providing their sharply divided opinions on the issue.

Finally, the petition acknowledges the forfeiture issue contained in the government's petition and provides its reasoning why this issue is another reason for the Court to grant certiorari (and notes that it will write more fulsomely in response to the other petitions submitted to the Court in this case.

Such other petitions, including one by Arthrex, will be discussed in future posts.