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Federal Circuit to Probe Power of Patent Agency’s Acting Leader

March 29, 2022, 9:15 AM

Attorneys for Arthrex Inc. and Smith & Nephew Inc. are being asked to focus their arguments before the Federal Circuit on Wednesday on issues surrounding whether the interim patent office director has the authority to review administrative patent challenges.

The U.S. Court of Appeals for the Federal Circuit asked counsel to be prepared to address a list of questions, including whether there’s any obstacle to the president designating Drew Hirshfeld, who is performing the director’s duties while nominee Kathi Vidal awaits a full Senate vote, as the acting director, according to a court order.

The case is part of the fallout from last year’s U.S. Supreme Court decision in U.S. v. Arthrex, which gave the director of the U.S. Patent and Trademark Office the power to overturn decisions from the Patent Trial and Appeal Board in the inter partes review process.

The case will hinge on what the Federal Circuit panel will think of the procedural challenges, said Mel Bostwick, a partner at Orrick, Herrington & Sutcliffe LLP in Washington.

“If the panel gives those challenges the back of their hand or decides they don’t have merit, then they’ll address at long last whether the IPR ruling itself was substantially correct,” she said.

The issue could also take some time to resolve, Bostwick added. “We could be in some sort of limbo where they have to send it back to the PTO, but it can’t be resolved unless and until Kathi Vidal is confirmed,” she said.

Other questions the court listed in the order included whether an acting director denying rehearing would overcome the alleged constitutional issue and whether the director or acting director can delegate review of Patent Trial and Appeal Board decisions to an inferior officer.

Back Again

The dispute comes back to the Federal Circuit after the appeals court and the Supreme Court ruled that PTAB judges lacked the authority to invalidate Arthrex’s patent claims because the board’s judges weren’t appointed by the president and confirmed by the Senate, a violation of the Appointments Clause.

The high court found that the remedy to Arthrex’s problem was for the director to be able to review the board’s decisions.

Arthrex never got that remedy, it argued in its brief. Hirshfeld denied Arthrex’s petition for director review. Hirshfeld’s action violates the Appointments Clause, the Federal Vacancies Reform Act, and the separation of powers, Arthrex argued.

Because Hirshfeld was the commissioner for patents, he wasn’t a Senate-confirmed principal officer who would meet the Supreme Court’s requirement, according to Arthrex’s brief.

“By assigning Arthrex’s petition to Commissioner Hirshfeld, the PTO once again denied Arthrex the constitutionally required opportunity for principal-officer review,” Arthrex said. “Just like the panel of APJs (administrative patent judges) who previously invalidated Arthrex’s patent claims, Commissioner Hirshfeld is an inferior officer appointed by the Secretary of Commerce.”

‘Wreak Havoc’

Arthrex’s strict reading of the Federal Vacancies Reform Act could have consequences for other agencies, said Christopher Loh, a New York-based Venable LLP attorney.

Smith & Nephew in its brief argued that Arthrex’s argument would “wreak havoc on the PTO—much less other agencies.” Several functions at the patent office and other agencies wouldn’t be able to be carried out during transition periods unless a director or deputy director is in place, Smith & Nephew said in its brief, emphasizing that Hirshfeld’s position is consistent with the federal vacancies law.

“The key issue for me is whether or not the Federal Vacancy Reform Act applies and if it does, whether or not it’s as draconian as Arthrex is making it out to be, or whether it has some wiggle room as Smith & Nephew says,” Loh said. “Smith & Nephew points out there could be potential knock out effects regarding not just the PTO but all sorts of agencies where, if you have a presidential transition, a lot of the officers resign, and the question arises of how is the agency supposed to practically operate in those circumstances.”

This latest challenge, Loh added, presents a question that will only be relevant until Vidal is confirmed. This problem is likely only for the short term, he said.

“Eventually the PTO will get a director,” Loh said, “and the window of time during which there’s actually going to be a case or controversy that the parties can fight about in court is going to disappear.”

MoloLamken LLP and Carlson, Gaskey & Olds PLC represent Arthrex. Gibson, Dunn & Crutcher LLP and Wolf, Greenfield & Sacks P.C. represent Smith & Nephew.

The case is Arthrex, Inc. v. Smith & Nephew, Inc., Fed. Cir., No. 18-2140, oral argument 3/30/22.

To contact the reporter on this story: Samantha Handler in Washington at shandler@bloombergindustry.com

To contact the editors responsible for this story: Renee Schoof at rschoof@bloombergindustry.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com