The Implications of United States v. Arthrex, Inc., 594 U.S. ___ (2021)

Background

In Arthrex, Inc. v. Smith & Nephew, Inc., the United States Supreme Court addressed the constitutionality of the appointments of Administrative Patent Judges (APJs) to the Patent Trial and Appeal Board (PTAB), concluding that the APJs are “principal officers” of the United States and therefore their appointments must be made by the President with the advice and consent of the Senate. 594 U.S. ___, ___ (2021) (slip op. at 1). The Court’s holding has potentially far-reaching implications for the administrative state, particularly with respect to the appointments of inferior officers.

Facts and Procedural History

Arthrex, Inc. (“Arthrex”) is a medical device company that owns a patent for a surgical repair technique. Id. at 2. In March 2016, Smith & Nephew, Inc. (“Smith”) filed a petition with the PTAB seeking to invalidate Arthrex’s patent Id. The PTAB is an administrative tribunal within the United States Patent and Trademark Office (USPTO) that is responsible for adjudicating patent validity disputes. Id.

Each PTAB panel is composed of three APJs, who are employees of the USPTO. Id. at 3. The Secretary of Commerce appoints the APJs, except for the Director of the USPTO, who is nominated by the President and confirmed by the Senate. Id.

The APJs on the panel hearing Smith’s petition concluded that Arthrex’s patent was invalid. Id. Arthrex appealed to the United States Court of Appeals for the Federal Circuit, arguing that the APJs were unconstitutional because they were “principal officers” who had not been appointed by the President with the advice and consent of the Senate as required by the Constitution. Id. at 4.

Appointments Clause

The Appointments Clause of the U.S. Constitution, Art. II, § 2, cl. 2, provides that the President shall appoint, by and with the advice and consent of the Senate, all “officers of the United States.” The Supreme Court has held that this provision applies to inferior officers as well as principal officers. See Morrison v. Olson, 487 U.S. 654 (1988).

Federal Court

The Federal Circuit agreed with Arthrex in this particular case, concluding that the APJs are principal officers and their appointment was unconstitutional. Id. The court held that the APJs exercise “significant authority pursuant to the laws of the United States,” and therefore are principal officers. Id. at 5 (quoting Buckley v. Valeo, 424 U.S. 1, 126 (1976)). The court also noted that the APJs’ power is “not constrained by formal hierarchical structures” and they “possess[] the authority to make final decisions.” Id. (quoting Morrison v. Olson, 487 U.S. 654, 671-72 (1988)). Arthrex appealed to the U.S. Circuit Court for the Federal Circuit, claiming that the appointment of APJs violates the Appointments Clause of the U.S. Constitution. The Federal Circuit agreed, finding that the statute as currently constructed makes APJs principal officers, who must be appointed by the President with the advice and consent of the Senate.

The Supreme Court’s Holding

The Supreme Court reversed the Federal Circuit’s decision, holding that the APJs are not principal officers and their appointment is constitutional. Id. at 1. The Court began by noting that the Constitution requires that “principal officers” be appointed by the President with the advice and consent of the Senate. Id. at 6 (quoting U.S. Const. art. II, sec. 2, cl. 2). The Court has previously held that an officer is a “principal officer” if he or she has “significant authority pursuant to the laws of the United States.” Id. (quoting Buckley, 424 U.S. at 126).

The Court noted that in previous cases where it had addressed whether an officer is a principal officer, it had looked to “all the circumstances” to make its determination. Id. at 7. The Court explained that it had considered factors such as whether the officer is appointed by the President, whether the officer serves at the pleasure of the President, whether the officer has a fixed term of office. The Court found that none of these factors are determinative, and instead looked to the “overall nature of the office” to make its determination. Id.

After conducting its analysis, the Court concluded that the APJs are not principal officers. Id. at 8. The Court noted that the APJs are subject to removal by the Director of the USPTO for cause, and therefore they do not serve at the pleasure of the President. Id. The Court also noted that the APJs have a fixed term of office, and they cannot be removed from office except for cause. Id.

Implications for Administrative Patent Judges

The Court’s opinion in this case has a number of implications for the PTAB and for administrative law more generally. First, the Court’s decision makes clear that the PTAB is not an unconstitutional agency. This is significant because there had been some question as to whether the PTAB was constitutional following the Federal Circuit’s decision in Arthrex. The Court’s decision in this case puts that question to rest.

Second, the Court’s decision confirms that the PTAB is not required to follow formal hierarchical structures in its proceedings. This had been an issue of some contention, with some arguing that the PTAB was required to follow strict rules of procedure and others arguing that the PTAB was not so constrained. The Court’s decision in this case makes clear that the PTAB is not required to follow strict rules of procedure, and instead can consider the “overall nature of the office” when making its decisions.

In sum, the Court’s decision in this case is significant for the PTAB and for administrative law more generally. The Court’s decision confirms the constitutionality of the PTAB and gives the President broader appointment power than had been previously thought. This will have implications for how the PTAB functions and for administrative law more generally.

Supreme Court Justice’s Opinions

Chief Justice Roberts

The Chief Justice Roberts led the majority opinion in this case, that the APJs are not principal officers. He explained that while the APJs possess “significant authority,” this power is constrained by formal hierarchical structures and they do not have the final say in PTAB proceedings.

Justice Thomas

Justice Thomas filed a concurring opinion. He agreed with the Chief Justice’s opinion that the APJs are not principal officers. However, Justice Thomas would have gone even further and held that the PTAB is unconstitutional. Justice Thomas explained that while the PTAB may be constitutional under an earlier Supreme Court case, its structure has changed since that case was decided and it is now unconstitutional.

Justice Alito

Justice Alito filed a concurring opinion. He agreed with the Chief Justice’s opinion that the APJs are not principal officers. Justice Alito also would have gone even further and held that the PTAB is unconstitutional. Justice Alito explained that while the PTAB may be constitutional under an earlier Supreme Court case, its structure has changed since that case was decided and it is now unconstitutional.

Justice Gorsuch

Justice Gorsuch disagreed with the Chief Justice’s opinion. He would have held that the APJs are principal officers who must be appointed by the President with the advice and consent of the Senate. Justice Gorsuch explained that while the APJs are subject to removal by the Director of the USPTO for cause, they serve at the pleasure of the President and can be removed from office at any time. As a result, Justice Gorsuch would have held that the APJs are principal officers and that their assignment was unconstitutional.

Justice Breyer

Justice Breyer filed a dissenting opinion. He would have held that the APJs are principal officers who must be appointed by the President with the advice and consent of the Senate. Justice Breyer explained that while the APJs may be subject to removal by the Director of the USPTO for cause, they serve at the pleasure of the President and can be removed from office at any time. As a result, Justice Breyer would have held that the APJs are principal officers and that their assignment was unconstitutional.

Justice Sotomayor

Justice Sotomayor filed a dissenting opinion. She would have held that the APJs are principal officers who must be appointed by the President with the advice and consent of the Senate. Justice Sotomayor explained that while the APJs may be subject to removal by the Director of the USPTO for cause, they serve at the pleasure of the President and can be removed from office at any time. As a result, Justice Sotomayor would have held that the APJs are principal officers and that their assignment was unconstitutional.