Legal Alert: Supreme Court Hears Oral Arguments in Arthrex

On March 1, the Supreme Court heard arguments in Arthrex, Inc. v. Smith & Nephew, Inc., No. 19-1458. The case presented two questions: (1) whether, for purposes of the Appointments Clause, administrative patent judges (APJs) are principal officers who must be appointed by the President with the Senate's advice and consent, and (2) whether, if APJs are principal officers, the United States Court of Appeals for the Federal Circuit cured the Appointments Clause defect in the statute by severing the application of 5 U.S.C. § 7513(a), the provision that restricted removal of APJs.

Below is a brief summary of some of the high points of the day's arguments.

Argument of the United States and Smith & Nephew

In defense of the existing system, for the United States, Deputy Solicitor General Malcolm L. Stewart argued that APJs should be considered inferior officers because the Director of the USPTO exercises several powers over them. Mr. Stewart focused particularly on two of the Director's powers: (1) the power to issue policy guidance that will be binding on board panels generally, and (2) the power, as a member of the board, to participate in the board's decision-making process in individual cases by assigning himself to rehearing panels. For Smith & Nephew, counsel Mark A. Perry's chief argument was that principal officers are those who are one step removed from the President and who make policy, such as ambassadors, cabinet officers, and the heads of administrative agencies, while inferior officers are further removed and merely carry out policy. Perry offers that APJs are three steps removed from the President and carry out policies set by the Director, rendering them inferior officers.

In their questioning, several justices focused on the issue of the reviewability of APJ decisions. Chief Justice Roberts and Justice Kagan appeared to express doubt that the Director's supervisory powers were sufficient to render APJs inferior officers simply because he can issue guidelines and assign himself to three-member rehearing panels. Chief Justice Roberts felt this more akin to "twisting the arms" of APJs, while Justice Kagan pointed out that the Director could still be overruled by the two other APJs on a rehearing panel. Justice Kavanaugh noted that the non-reviewability of APJ decisions by someone who is appointed by the President with the advice and consent of the Senate is a break from historical precedent. Justice Barrett focused instead on the Director's removal power, stating that, because APJs are entitled to the protections of the Merit Systems Protection Board, the Director does not have the final word on their removal. Justice Alito listed several of the Director's powers and then asked Mr. Perry, Smith & Nephew's counsel, how many of those powers the Director could lose and still be considered a principal officer. The dividing line, according to Mr. Perry, is the officer's relationship to the President — unlike the Director, an officer who is three steps removed from the President can never be considered a principal officer.

Argument of Arthrex

For Arthrex, counsel Jeffrey A. Lamken's main argument was that an officer cannot be considered inferior if there is no superior who can review his or her decisions. Lamken advanced that APJs offer the executive branch's final word in resolving patent disputes because no other authority in the executive branch has the power to review their decisions or overturn their exercise of government authority. The remedy would be appropriately left to Congress, which could either (1) require APJs to be appointed by the President with the advice and consent of the Senate, or (2) grant the Director the express authority to review board panel decisions. The Federal Circuit's remedy of striking tenure protections is not sufficient to cure the constitutional defect, according to Mr. Lemken, because an APJ's decision would remain the executive branch's final word even after his or her dismissal.

Chief Justice Roberts began by asking Mr. Lemken to articulate concerns over the current scheme, wherein the Director allows APJs an opportunity to adjudicate without the risk of their decisions being overturned by politically accountable actors. Mr. Lemken responded that political accountability for decision-makers protects the public from executive overreach, and stripping accountable principal officers of the authority to overturn decision-makers defeats that protection. Justice Thomas was interested in how much review authority the Director should exercise, and whether pro forma or rubber stamp authority would suffice. The important point, according to Mr. Lemken, was not how the Director exercised his review power, but rather the availability of that power. Justice Sotomayor acknowledged that she did not necessarily see a constitutional problem with the current scheme, noting that heads of departments were historically principal officers who made policy, while all others were inferior officers who merely adjudicated claims based on policies. Justice Kavanaugh also seemed to harbor concerns over finding the current scheme unconstitutional, as he recognized that declaring the appointment of APJs unconstitutional without providing a remedy would take down the whole system, which the Court generally frowns upon. Justice Gorsuch focused on potential remedies, listing several statutory provisions and asking Mr. Lemken for an indication of which might be severed to cure the constitutional defect. Mr. Lemken reiterated that, while the court could strike any of the listed provisions, Congress should be the ultimate authority.

A decision in the case is expected in early summer 2021. We will continue to monitor Arthrex and will provide additional updates when the Court issues its opinion.