Federal Circuit Denies Rehearing in Arthrex v. Smith & Nephew

Authors: Dorothy Whelan and Rob Courtney

The Federal Circuit issued an order Monday denying both panel rehearing and rehearing en banc inArthrex v. Smith & Nephew, 931 F.3d 1320 (Fed. Cir. 2019).

Judge Moore, in a concurrence joined by Judges O'Malley, Reyna, and Chen, stated that a rehearing would only create unnecessary uncertainty and disruption. The Arthrex panel followed Supreme Court precedent in finding that the administrative patent judges (APJs) of the Patent Trial and Appeal Board (PTAB) were improperly appointed principal officers, as well as in severing a portion of the statute to remedy the constitutional deficiency. The panel's curative severance was the narrowest possible modification to the scheme Congress intended, and further decisions by the Federal Circuit significantly limited the number of appeals that needed to be remanded based on preserved Appointments Clause challenges.See Customedia Techs., LLC v. Dish Network Corp., 941 F.3d 1174, 1175 (Fed. Cir. 2019) (holding that Appointments Clause challenges not raised prior to or in the appellant's opening brief are waived). Rehearing the caseen bancwould have unraveled an effective cure and created additional disruption by increasing the potential number of cases that would require reconsideration on remand. Judge Moore also criticized Judge Dyk's proposal, in dissent, of staying consideration of the issue while Congress or the U.S. Patent and Trademark Office (USPTO) considers an agency restructuring, citing separation of powers issues and noting that the "proposed fix" in the dissent should not be presumed to pass constitutional muster.

Judge O'Malley, in a separate concurrence joined by Judges Moore and Reyna, agreed with Judge Moore's concurrence that the panel correctly decided that the APJs of the PTAB were principal officers who were improperly appointed to their adjudicative positions and that the curative severance was proper. She wrote separately to address one issue in Judge Dyk's dissent: that the court's decision to sever the application of Title 5's removal protections from the remainder of the American Invents Act (AIA) retroactively renders all prior APJ decisions constitutional, thereby obviating the need for panel rehearings in any cases decided under the AIA. In her view, Judge Dyk's suggestion confuses theremedythe panel deemed appropriate in this case with the constitutionalfixit deemed necessary to allow APJs to render future decisions in proceedings under the AIA. The decision that the statute can berenderedconstitutional by severance does not remedy any past harm it only avoids continuing harm in the future.

Judge Dyk, in a dissent joined by Judges Newman and Wallach and in part by Judge Hughes, would have reheard the appeal en banc. He stated that the panel's remedy of invalidating Title5 removal protections from APJs is "draconian" and "rewrites the statute contrary to Congressional intent." He urged that such a remedy should not be invoked unless and until Congress and the USPTO have had a chance to form an alternative remedy. He further concluded that even if the Title 5 remedy were adopted, this would not require invalidation of preexisting Board decisions. He also criticized the panel's reliance onLucia v. SEC, 138 S. Ct. 2044, 2055 (2018) in determining the official status of APJs, stating that agency supervision is not the sole distinction between principal officers and inferior officers.

Judge Hughes, in a dissent joined by Judge Wallach, would have reheard the appeal en banc. In his view, APJs are inferior officers because of the Director's significant control over their activities and the activities of the PTAB. And even if they could properly be considered principal officers, he argued that the panel's curative severance was inconsistent with Congressional intent regarding Title 5 removal protections for APJs.

Judge Wallach, dissenting, also would have reheard the appealen banc. In his view, the Director's significant direction and supervision of APJs specifically the Director's ability to select a panel's members and to designate and de-designate a panel's decisions as precedential were enough to render them inferior officers.

For more information, please see our summary of the original Arthrex decision here and our analysis of it here.

The opinions expressed are those of the authors on the date noted above and do not necessarily reflect the views of Fish & Richardson P.C., any other of its lawyers, its clients, or any of its or their respective affiliates. This post is for general information purposes only and is not intended to be and should not be taken as legal advice. No attorney-client relationship is formed.