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No Easy Arthrex Fix as Full-Court Review Looms, Attorneys Say

Dec. 3, 2019, 10:30 AM

The whirlwind of activity set off by a Federal Circuit finding that administrative patent judges were unconstitutionally appointed suggests a full-court rehearing is all but certain—even if a resolution isn’t clear, attorneys say.

The Oct. 31 ruling has sparked a congressional hearing, prompted concern from other Federal Circuit judges, and launched a run of constitutional challenges to overturn U.S. Patent and Trademark Office decisions. At least two constitutional challenges have succeeded in wiping out rulings from the agency’s Patent Trial and Appeal Board, a tribunal favored by pharmaceutical and big tech companies in countering infringement lawsuits.

Arthrex v. Smith & Nephew Inc. may provide patent holders and patent validity challengers with a new opportunity to make their case before the PTAB, which could strain resources at the PTO. Parties in at least 20 disputes have raised constitutionality challenges to PTAB decisions since Arthrex.

Attorneys for the Trump administration have said in court documents that the government will seek en banc review of Arthrex , and some practitioners see the case heading to the Supreme Court. Some House lawmakers have floated the idea of a legislative fix. But the month-long fallout from the ruling suggests a burden that might be difficult to lift, practitioners say.

Arthrex opened a can of worms, and I don’t see an obvious good resolution to all these issues that have been raised,” Kia Freeman, an intellectual property attorney at McCarter & English LLPM, said.

The Arthrex Effect

The decision’s effect began the day it was issued.

A three-judge panel for the U.S. Court of Appeals for the Federal Circuit said PTAB judges were principal officers who need to be appointed by the president and confirmed by the Senate. The court severed the part of the law that prevented the judges from being fired without cause, which made them inferior officers who could be appointed by the agency’s director.

After changing the judges’ status, the court ruling vacated the PTAB’s decision to kill part of Arthrex’s patented surgical device and returned the dispute to the board, whose judges were now constitutionally appointed.

The same day the Federal Circuit issued Arthrex, it pointed to the ruling in canceling an oral argument and returning to the PTAB a dispute over a Uniloc patent. Uniloc had argued that the PTAB’s appointments of administrative judges violated the U.S. Constitution, an argument made by other patent litigants that could result in new PTAB proceedings.

Retired Federal Circuit Chief Judge Randall Rader is among several practitioners who say the court moved too quickly with Arthrex. He cited the court’s ruling in In re Alappat, a dispute involving technology patentability, which “had pretty conclusively labeled the predecessor to the PTAB” as inferior officers subject to the PTO director’s control.

Whether PTAB judges were inferior or principal officers “is the key to the whole controversy” in Arthrex, Rader said. “Courts should take more care to get it right from the outset and resolve developed issues instead of creating new issues and difficulties,” he said in an email.

Part of the ruling has come under fire from inside the Federal Circuit.

Judge Timothy B. Dyk, joined by Judge Pauline Newman, said in a concurrence in Bedgear, LLC v. Fredman Bros. Furniture Co. that vacating and remanding PTAB rulings after Appointments Clause challenges “imposes large and unnecessary burdens on the system of inter partes review.” But they didn’t dispute their fellow judges’ constitutionality finding and granted Bedgear LLC’s request to vacate PTAB decisions and send them back for new proceedings.

Imminent En Banc

Dyk’s concurrence, in which the court granted Bedgear’s request to vacate and remand PTAB disputes, may indicate that the Federal Circuit hasn’t had its last say on Arthrex, as could recent activity in Polaris Innovations Limited v. Kingston Technology Co. Inc., practitioners said.

In Polaris, a dispute over tech patent claims, the court asked the parties and the government to file briefings to address constitutional questions raised in the disputes, including whether the remedy the court applied in Arthrex “obviates the need to vacate and remand.” One of the judges on the Polaris panel, Jimmie V. Reyna, was also on the Arthrex panel.

The actions taken in both Polaris and Bedgear offer “indications that there are judges wanting to reconsider some aspects of Arthrex,” Kerry Taylor, a patent attorney at Knobbe Martens Olson & Bear, LLP said.

The Department of Justice asked for an extension on the briefing schedule in Polaris, saying the government “intends to file a petition for rehearing en banc in Arthrex.”

An en banc rehearing likely will address the vacate-and-remand remedy rather than the constitutional question or the ability for then PTO to fire the judges without cause, practitioners say.

“There seems to be some difference of opinion, at least with respect to the so-called retroactive piece of the puzzle,” said Arti Rai, a Duke University law professor.

Rai testified about Arthrex’s impact at a House Judiciary IP subcommittee hearing Nov. 19, where lawmakers criticized the Federal Circuit’s altering of PTAB judges’ job protections and suggested potential legislative fixes.

Getting rid of Arthrex’s vacate-and-remand remedy might be difficult under the “plain language” of the U.S. Supreme Court’s 2018 Lucia v. S.E.C decision, which the Arthrex panel cited in its decision, Rai said. The plain language suggests “you do need to remand as a due process matter.”

An en banc review might not be the last stop for Arthrex, especially if there’s a deep split among the full court, attorneys said.

“Depending on the ruling, how many consents and dissents, Supreme Court review is going to be likely as well,” said Gary Sorden, intellectual property attorney at Cole Schotz P.C.

John Whealan, associate dean for intellectual property law studies at George Washington University Law School, who also testified before Congress on Arthrex, said the case “has a decent shot at getting a cert petition granted” at the high court. He also said an en banc review is on the horizon, with both the remedy and constitutional question in play.

Yet experts contend it may be some time before the issues opened up by Arthex near a resolution.

“Usually, I think there could be a few ways to resolve, but here I don’t see a clear path to resolution,” Freeman said.

The case is Arthrex, Inc. v. Smith & Nephew, Inc., 2019 BL 418700, Fed. Cir., No. 2018-2140, 10/31/19

To contact the reporter on this story: Ian Lopez in Washington at ilopez@bloomberglaw.com

To contact the editors responsible for this story: Rebecca Baker at rbaker@bloomberglaw.com; Keith Perine at kperine@bloomberglaw.com