Arthrex II: The USPTO Has a Director Again, But Questions About Validity of USPTO Operations Under Hirshfeld Persist

In late March, the U.S. Court of Appeals for the Federal Circuit heard oral arguments in Arthrex, Inc. v. Smith & Nephew, Inc. (Arthrex II) to determine whether the U.S. Patent and Trademark Office (USPTO) had effectively addressed the constitutional violation under the Appointments Clause that was identified in previous rulings from the Federal Circuit and the U.S. Supreme Court (Arthrex I). While the impact of the Federal Circuit’s ruling will likely be cabined by the recent Senate confirmation of Kathi Vidal to serve as USPTO Director, the decision could call into question the validity of at least the USPTO’s Patent Trial and Appeal Board (PTAB) operations during the tenure of Drew Hirshfeld as performing the duties and functions of the USPTO Director up to Vidal’s confirmation.

Arthrex: Hirshfeld’s Review of PTAB Rulings Doesn’t Satisfy SCOTUS Mandate from Arthrex I

In Arthrex I, both the Federal Circuit and the Supreme Court found that the hiring process for administrative patent judges (APJs) at the PTAB violated the Appointments Clause of the U.S. Constitution as APJs were principal officers that weren’t nominated by the President and confirmed by the Senate as the clause requires. The Supreme Court modified the constitutional remedy, requiring the Acting Director of the USPTO to perform reviews of requests for review of PTAB rulings, curing the constitutional defect by vesting review authority in a Presidential appointee who has been through the confirmation process. Following Arthrex I, however, some commentators noted that there was some question whether Hirshfeld, who was not Acting Director of the USPTO and was not a principal officer confirmed to his position by the Senate, could legally satisfy the Supreme Court’s mandate requiring review of PTAB decisions by a principal officer.

Such an argument as to the legality of the PTAB review process under Hirshfeld was raised by Arthrex in a supplemental brief  filed with the Federal Circuit in late January. Arthrex argued that review by Hirshfeld created the same Appointments Clause issue identified in Arthrex I due to Hirshfeld’s lack of Senate confirmation. “The Supreme Court made clear in this very case that only a principal officer may issue final agency decisions that are not subject to review by any superior officer,” Arthrex noted. The Supreme Court’s decision eliminated the restraint against Director review of PTAB decisions in 35 U.S.C. § 6(c), which states that only the PTAB can grant rehearings of its decisions, but Arthrex argued that the USPTO has not had a Director capable of providing review that satisfies the Supreme Court’s legal reasoning throughout the entirety of the Biden Administration thus far. The USPTO’s general delegation authority cannot cure the issue, Arthrex contends, because no principal officers existed to either delegate those powers or review Hirshfeld’s decisions.

Arthrex also raised issues with Hirshfeld’s legal authority under the Federal Vacancies Reform Act (FVRA), which prescribes specific mechanisms to authorize an acting official to perform the duties and functions of an agency director. While the USPTO argued that there’s no express statutory provision preventing the delegation of any functions or duties of the Director under either Titles 15 or 35 of U.S. Code, Arthrex contended that Arthrex I establishes the fact that PTAB review by the Director is a non-delegable duty. The fact that Arthrex I left Section 6(c) operable with respect to USPTO officials other than the Director, thereby preventing their ability to grant rehearings of PTAB decisions, underscores the non-delegable nature of the Director’s duty to review PTAB decisions on request. Arthrex also argued that Hirshfeld’s review violated case law on separation of powers as Hirshfeld is not removable at will by the President but only for misconduct or unsatisfactory performance, which impedes the President’s ability to supervise the head of a federal agency.

In late February, Smith & Nephew filed a supplemental brief in response, which argued that if Arthrex’s interpretation of the Appointments Clause and the FVRA were credited, the Federal Circuit would throw into question every PTAB final written decision and patent issued by the USPTO during Hirshfeld’s tenure. Under Smith & Nephew’s reading of Arthrex I, the Supreme Court only required discretion to review PTAB positions held by an individual holding the office of Director. Smith & Nephew also pushed back on Arthrex’s claim that Hirshfeld was not removable from his office at the President’s will as President Biden has had the authority under the FVRA to name an Acting Director of the USPTO at any time. Further, Smith & Nephew contends that Arthrex’s arguments under the FVRA violate the letter and spirit of that law, and decades of settled practice at the USPTO show that Director duties have been delegated to subordinates during times of transition between different presidential administrations.

Can the USPTO Create Its Own Director Succession Plan Outside of the FVRA?

Oral arguments at the Federal Circuit were held before Chief Judge Kimberly Moore as well as Circuit Judges Raymond Chen and Jimmie Reyna. During Arthrex’s argument, Chief Judge Moore raised concerns that Arthrex’s strict interpretation of the Appointments Clause could render the FVRA unconstitutional. Robert Kry, counsel for Arthrex, responded that the Appointments Clause issue stemmed from the USPTO creating its own succession plan outside of the confines of the FVRA:

The reason why Congressional authority matters is that… Congress has to create offices, whether principal or inferior, under the Constitution. So, it is one thing for Congress to set up a mechanism where an inferior officer can temporarily exercise the functions of a vacant principal office; it’s another thing where Congress has not created that mechanism or has created the mechanism but… the agency simply makes up its own succession plan. That defies a different aspect of the Appointments Clause, which is the role of Congress in defining federal offices.

During the oral argument of Joshua Salzman, counsel representing the U.S. government, Chief Judge Moore opined that it couldn’t be the case that both the Appointments Clause and FVRA were satisfied because President Biden could have named an Acting Director. She also took some issue with the position taken by the USPTO and Smith & Nephew that all of the Director’s duties were delegable. Judge Chen also noted how simple it would have been for President Biden to remedy the issue by following Acting Director appointment procedures under the FVRA:

If Arthrex is correct, then what would have needed to have happened is President Biden on January 20, 2021 signing some sheet with a list of, I don’t know, a thousand names authorizing a whole bunch of different people in a lot of different agencies and departments to serve as the acting principal officer to carry out all the functions and duties throughout the Executive Branch… Otherwise the work of the PTO would have to stop, because as I understand the statute, somebody has to occupy the Director position at all times, because that office of the Director is the one authorized to delegate everything that happens at the USPTO.

Smith & Nephew: Under Collins, Courts Shouldn’t Weigh Relative Import of Agency Proceedings

Charles Steenburg, counsel representing Smith & Nephew, spent much of his oral argument discussing patentability issues under Section 112’s written description requirement, but did turn briefly to the question of the validity of Hirshfeld’s review of PTAB rulings:

I’ll begin with the Court’s question… whether the review of final written decisions of the Board needs to be done by the Director/Acting Director. As the government noted, the answer is no, and we would submit that for exactly the same reasons the Director/Acting Director does not need to lay eyes on a patent application that’s approved, in this case now up to the point of 20,000 applications that have been granted over the last 14 months.

Steenburg acknowledged that there had been some suggestion that the Federal Circuit might be able to distinguish IPR proceedings from patent granting on the basis that the revocation of a patent is more impactful. However, he noted that the Supreme Court in Oil States v. Greene’s Energy Services had established that IPR patent validity trials involve the same basic matter as patent examination, and further that the Supreme Court’s holding from Collins v. Yellen (2021) indicated that courts are not well-suited to weigh the relative import of disparate regulatory and enforcement procedures at federal agencies.

The Federal Circuit’s decision in Arthrex II may well put to rest any questions about the validity of the USPTO’s operations during Hirshfeld’s tenure. With Kathi Vidal’s Senate confirmation as USPTO Director now complete, there are expectations that at least some constitutional issues regarding PTAB operations will no longer remain a legal issue for the Biden Administration moving forward.

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