“Although an inferior officer generally cannot issue a final agency decision, he may perform the functions and duties of an absent [presidentially-appointed, senate-confirmed] officer on a temporary, acting basis.” – Federal Circuit Chief Judge Kimberly Moore
On May 27, the U.S. Court of Appeals for the Federal Circuit issued a decision in Arthrex, Inc. v. Smith & Nephew, Inc. (Arthrex II) affirming both a final written decision issued by the Patent Trial and Appeal Board (PTAB) invalidating patent claims owned by Arthrex, as well as several arguments raised by Arthrex challenging the denial of Director review decided by the U.S. Patent and Trademark Office’s Commissioner for Patents. The opinion, authored by Chief Judge Kimberley Moore, reasoned that the USPTO did not violate the U.S. Supreme Court’s mandate in Arthrex I despite the fact that no presidentially-appointed, senate-confirmed Director was in place at the USPTO when the agency denied Arthrex’s request for Director review.
CAFC: Hirshfeld Denial Gave Arthrex the Remedy Ordered by SCOTUS in Arthrex I
Last June, the Supreme Court issued its decision in Arthrex I in which it affirmed a Federal Circuit ruling that the hiring process of administrative patent judges (APJs) at the PTAB violated the Appointments Clause of the U.S. Constitution as APJs wielded the power of principal officers. SCOTUS, however, modified the constitutional remedy by declaring unenforceable a statute preventing Director review of PTAB decisions. Then in October, the USPTO issued an order signed by Drew Hirshfeld, the Commissioner for Patents who was at that time performing the functions and duties of the USPTO Director, denying Arthrex’s request for Director review.
In oral arguments before the Federal Circuit in late March, Arthrex argued that Hirshfeld’s lack of Presidential appointment and Senate confirmation presented the same decision-making framework that the Supreme Court found unconstitutional in Arthrex I. Until the Senate’s confirmation of Kathi Vidal, the current Director of the USPTO, no principal officer existed to properly delegate the Director review process to the Commissioner for Patents according to Arthrex. In questioning, Chief Judge Moore seemed skeptical of the position taken by the USPTO and Smith & Nephew that all Director duties were delegable and that the fact that President Biden could have named an Acting Director would satisfy issues raised by Arthrex under the Appointments Clause and the Federal Vacancies Reform Act (FVRA).
However, the Federal Circuit decision authored by Chief Judge Moore disagreed with Arthrex’s position that it never got the remedy ordered by the Supreme Court in Arthrex I. “Although an inferior officer generally cannot issue a final agency decision, he may perform the functions and duties of an absent [Presidentially-appointed, Senate-confirmed] officer on a temporary, acting basis,” Chief Judge Moore wrote.
Chief Judge Moore: ‘Arthrex’s Appointments Clause Challenge Runs Headlong Into Eaton‘
Much of the Federal Circuit’s reasoning on Arthrex’s Appointments Clause challenge followed the Supreme Court’s 1898 ruling in United States v. Eaton, a case which Smith & Nephew relied upon heavily during oral arguments. In Eaton, the Supreme Court rejected an Appointments Clause challenge to the consul general to Siam’s unilateral appointment of a missionary to serve as vice consul general before leaving the office for health reasons. The Federal Circuit found that the present case was indistinguishable from Eaton, noting that the Supreme Court’s Arthrex I ruling directed the remand to the USPTO’s Acting Director, which may be an inferior officer appointed without Senate confirmation under 5 U.S.C. § 3345(a)(3).
The Federal Circuit rejected Arthrex’s arguments that Eaton only applied to situations where Congress creates a temporary mechanism for Presidential appointments, finding that Congress already authorized the President, acting through the Director, to delegate the Director’s duties under 35 U.S.C. § 3(b)(3)(B). The Federal Circuit also denied Arthrex’s argument that the Commission was not performing the Director’s duties “for a limited time” like the appointment in Eaton, holding that Arthrex already conceded that Hirshfeld’s tenure was limited to the time at which the Senate confirmed President Biden’s nominee for USPTO Director, and that the timeframe within which Hirshfeld denied Arthrex’s request for Director review after he assumed the Director’s functions and duties was 268 days, shorter than the timeframe of the appointment at issue in Eaton.
The Federal Circuit next rejected Arthrex’s arguments under the FVRA after finding that making decisions on rehearing requests is a delegable duty. Chief Judge Moore wrote that the FVRA statute codified at 5 U.S.C. 3348(a)(2) includes a narrow definition of the “duties and functions” that must be performed by a constitutionally appointed officer. Although the legislative history of the FVRA indicated competing considerations in passing the bill, including the viewpoint held by some lawmakers that “[t]he bill applies to all vacancies in Senate-confirmed positions in executive agencies,” the plain language of the statute indicated that the only function or duties that are void absent a constitutionally appointed officer are those duties “required by statute to be performed by the applicable officer.” While the Federal Circuit acknowledged that this interpretation renders Section 3348(a)(2) “vanishingly small,” Arthrex’s position would call into question the issuance of 668,000 U.S. patents over the past decade that were signed by an inferior officer filling in for the Director.
Rehearing Requests are Delegable, PTAB Decision is Supported by Substantial Evidence
Interpreting Arthrex I, the Federal Circuit found that review of Director rehearing requests was a delegable duty. While the Supreme Court in Arthrex I remanded for review by the USPTO Director or Acting Director, the Court cautioned that “the Director need not review every decision of the PTAB. What matters is that the Director have the discretion to review decisions rendered by APJs.” The Director’s general delegation authority under Section 3 of U.S. Code Title 35 was not cabined by any statute identified by Arthrex to support the argument that rehearing requests are nondelegable. Although Arthrex argued that 5 U.S.C. § 3347(b) indicated that the Director’s general delegation authority cannot satisfy the FVRA, the Federal Circuit held that this statute only applied to executive agencies, which by definition under 5 U.S.C. § 105 are limited to executive agencies, government corporations or independent establishments, and not to the USPTO.
The Federal Circuit also rejected Arthrex’s argument that the denial of its rehearing request by the Commissioner for Patents violated the separation of powers mandated by the U.S. Constitution under the Take Care Clause. As Arthrex argued, Section 3(b)(2)(C) of U.S. Code Title 35 states that the Commissioner for Patents is only removable “for misconduct or nonsatisfactory performance,” which arguably limits the President’s ability to remove the Commissioner. “Although the President must have cause to remove the Commissioner from that position, he needs no cause to remove the Commissioner from his role as the Director’s temporary stand-in,” Chief Judge Moore wrote.
Moving on to the merits of the PTAB’s underlying decision invalidating Arthrex’s patent claims, the Federal Circuit found the PTAB’s decision supported by substantial evidence. While Arthrex contended that the effective filing date of its challenged patent claims had priority to the publication of the asserted prior art reference, an intervening Arthrex patent application stemming from its parent patent application lacked written description for the flexible eyelet claimed by the patent at issue. Arthrex also challenged the PTAB’s analysis of the written description requirement under 35 U.S.C. § 112 in inter partes review (IPR) proceedings, which by statute are limited to Section 102 novelty and Section 103 obviousness grounds. However, although 35 U.S.C. § 311(b) limits the invalidity grounds that may be raised in IPR petitions, the Federal Circuit found that statute didn’t limit the grounds that the PTAB could consider to resolve Section 102 or 103 arguments. Thus the Federal Circuit held that Arthrex did not identify any reversible error in the PTAB’s ruling that Arthex’s patent claims were anticipated by the prior art, invalidating those claims under Section 102.
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