Supreme Court Questions Power of Patent ‘Death Squad’ (1)

U.S. Supreme Court justices indicated they might curb the power of the board that has invalidated more 2,000 patents, hearing a constitutional clash being closely watched by the nation’s technology companies.

In a 90-minute telephone argument, members of the court’s conservative wing suggested they thought Congress violated the Constitution when it gave the Patent Trial and Appeal Board the authority to invalidate patents without direct review by a presidentially appointed official. Critics have dubbed the board, created through a 2011 law, a “death squad” because of its tendency to toss out patents.

“These are multi-million, sometimes billion-dollar decisions being made not by someone who’s accountable in the usual way that the appointments clause demands,” Justice Brett Kavanaugh said, referring to the constitutional provision at the center of the case.

A decision ordering changes to the board, known as PTAB, could have broad ramifications. Many of the nation’s largest technology companies, including Apple Inc. and Alphabet Inc.’s Google, are backing the board as an efficient means of voiding patents that never should have been issued. Some smaller inventors say the board has become an anticompetitive tool for large companies.

The appointments clause, which requires “principal officers” to be nominated by the president and confirmed by the Senate, has been a focus of the court’s conservatives in recent years. It was at the center of a decision last year giving the president power to fire the director of the Consumer Financial Protection Bureau.

Monday’s arguments suggested at least five of the court’s conservatives were prepared to say the patent board’s setup violated the appointments clause. Justice Neil Gorsuch described PTAB as “an unusual animal in the sense that there isn’t final review in the agency head.”

How to Fix

The tougher question for the conservatives might be what do about the constitutional problem. A lawyer representing Arthrex Inc. urged the justices to throw out a PTAB ruling that invalidated part of a company patent on a surgical device -- and leave it to Congress to find a way to make the board constitutional.

But Kavanaugh said the court was typically loath to “take down the whole system.” He and Justice Amy Coney Barrett asked whether the court could simply give the director of the Patent & Trademark Office the power to review and reverse board decisions. That would involve stripping out a provision that says only the board itself can reconsider its decisions.

Arthrex’s opponent in the case, Smith & Nephew Plc, is defending the PTAB system, as is the Justice Department. They say patent judges are “inferior officers,” who under the Constitution don’t have be presidential appointees.

That argument drew support from the court’s liberal wing. Justice Sonia Sotomayor questioned whether the 250-plus judges who serve on the board have the type of policy making authority that would make them “principal officers.”

“It’s clear that APJs are not policy makers,” Sotomayor said, referring to the judges. “All of the policies are vested in the director.”

‘Death Squad’

The Supreme Court said in a 1997 case involving Coast Guard judges that inferior officers are people “whose work is directed and supervised at some level by others who were appointed by presidential nomination with the advice and consent of the Senate.”

The term “death squad” was coined by Randall Rader, the former chief judge of the U.S. Court of Appeals for the Federal Circuit, which oversees all patent disputes. The patent office has since altered its rules, giving patent owners a better shot at surviving the challenges.

The PTAB already survived one challenge at the Supreme Court. In 2018, justices found the panel wasn’t unconstitutionally wielding powers that belong to the courts.

The court is scheduled to rule by late June. The lead case is U.S. v. Arthrex, 19-1434.

(Updates with excerpts from arguments starting in third paragraph.)

To contact the reporters on this story:
Greg Stohr in Washington at gstohr@bloomberg.net;
Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editors responsible for this story:
Jon Morgan at jmorgan97@bloomberg.net

Elizabeth Wasserman

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