An order from the Federal Circuit on October 15 suggests the court may be close to holding that the PTAB has been operating in violation of the Appointments Clause, which could significantly disrupt PTO operations.  The case presents important questions: whether the PTAB’s judges have been lawfully appointed, and if not, what happens to decisions that have been issued by panels of those judges?

The Appointments Clause of Article II specifies that certain government positions must be filled through presidential appointment and Senate confirmation and that Congress may provide for unilateral appointment of other “inferior Officers” by the President, courts, or department heads. The appointment of PTO Administrative Patent Judges (APJs) has previously been challenged as unconstitutional under the Appointments Clause, which prompted an amendment to 35 U.S.C. § 6 that shifted the authority to appoint APJs from the PTO Director to a department head—the Secretary of Commerce. In re DBC, 545 F.3d 1373, 1377–81 (Fed. Cir. 2008). But it now appears that may not have resolved the issue.

During the oral argument in Arthrex, Inc. v. Smith & Nephew, Inc. (No. 18-2140) on October 1, the judges’ questions suggested that if the Director lacks unfettered authority to remove APJs, those APJs may be independent decision-makers and thus “principal officers” of the United States who must be appointed by the President and confirmed by the Senate.  None of the current APJs have been appointed that way.

Whether the Director has sufficiently unfettered removal power over APJs may hinge on 35 U.S.C. § 3(c), which provides that “Officers and employees of the Office shall be subject to the provisions of title 5, relating to Federal employees.”  Title 5 limits the grounds for removing a federal employee, making actual removal notoriously difficult.  If that poses a constitutional problem, the court recognized that one possible solution would be to redline the statute and strike the words “Officers and.”  That approach would follow from Supreme Court precedent holding that constitutionally objectionable language should be read out of a statute whenever possible to preserve the remaining provisions.  Doing so in this case would strip APJs of their civil service protections and make removing them much easier—so much easier, the court appeared to suggest, that APJs could no longer be considered superior officers requiring Senate confirmation.

The government, which has intervened to address the constitutional question, suggested an alternative solution: eliminating the statutory requirement for three-judge PTAB panels.  The panel did not appear to favor that approach.

In its October 15 order, the panel has tipped its hand even more than it did at the argument, asking the parties (and the government) to brief the following question:

Should the Court conclude that there was an Appointments Clause violation, based on a conclusion that PTAB Judges are principal officers that are not properly appointed, but that a portion of the Patent Act may be severed and excised to cure the constitutional infirmity, should the case then be vacated and remanded for a new hearing before the Board pursuant to Lucia v. SEC, 138 S. Ct. 2044 (2018)?

That question should sound alarm bells at the PTAB.  In Lucia, the Supreme Court confirmed an Appointments Clause violation relating to ALJs for the Securities and Exchange Commission, but the deficient appointment process had been remedied between the time of the original SEC action and the Supreme Court’s decision. As a remedy, the Supreme Court required that a new decision be made by a different judge.  Given how the Federal Circuit argument went in this case, the court’s order suggests the panel may be on the verge of stripping APJs of their Title 5 civil service protections.  Moreover, given the remedy in Lucia, the panel may also be seriously considering an order requiring that every PTAB decision issued before it corrects the statute will need to go back to a different panel.  Of course, that would likely be required only when the issue was timely raised.  Nevertheless, such a ruling could cause significant disruptions and delays, and in some cases could lead to new outcomes.  Given the potentially wide-ranging effects of such a decision, this case is well worth monitoring for further developments.