The Leahy-Smith America Invents Act (AIA), which was passed by Congress and signed into law by President Barack Obama in 2011, created what is now known as the Patent Trial and Appeal Board (PTAB), which is one of the administrative arms of the United States Patent and Trademark Office. Public Law 112–29, sec. 7(c) (effective Sept. 16, 2012), 125 Stat. 284. The purpose of PTAB, which typically assigns a panel of three different administrative patent judges (APJs) to hear different disputes, is simple—to provide a legal mechanism by which to review issued patents that may have been inappropriately granted. This mechanism is known as the inter partes review (IPR).
By way of background, IPR is a legal proceeding at the PTAB to determine patent invalidity. This proceeding is often seen as a cheaper and quicker alternative to seeking litigation and resolving patent disputes in federal courts. During the IPR, a petitioner files a petition with the PTAB seeking to invalidate claims of a patent based on certain prior art. In response to the petition, a patent owner files a response explaining why it is without merit. The PTAB then decides whether to institute trial based on the IPR petition and the patent owner’s response. If trial is instituted, the parties conduct substantive discovery, including taking expert deposition and moving to exclude evidence. After weighing all the issues, including admissibility of evidence and deposition testimony, the PTAB issues a final written decision on the patentability of the patent claims under challenge.
Without a doubt, the AIA affords PTAB and its APJs with great authority to decide whether a patent is invalid. But are PTAB’s judges properly appointed under the Appointments Clause such that they are empowered to make such a decision? The Appointments Clause requires that only “principal Officers” of the United States appointed by the President and confirmed by the Senate may “exercis[e]” such “significant authority pursuant to the laws of the United States.” Buckley v. Valeo, 424 U.S. 1, 126 (1976) (per curiam). All APJs before 1975 were so nominated and confirmed and would have been empowered to make such decisions for purposes of the clause. Id. at n.22. The current APJs, however, are not. In the absence of such appointment, this article will explain why these PTAB APJs are not empowered to render final written decisions eliminating patent owners’ rights.
PTAB Judges Who Decide IPRs Are Officers
of the United States
Anyone who occupies a “‘continuing’ position established by law” and “exercis[es] significant authority pursuant to the laws of the United States” is an “officer” under the Appointments Clause, and not merely an employee. Lucia v. SEC, 138 S. Ct. 2044, 2051 (2018) (internal citations omitted). In Freytag, for example, the Supreme Court held that special trial judges (STJs) of the U.S. Tax Court were constitutional “officers” subject to the requirements for such officers under the Appointments Clause, and not mere employees of the Executive Branch. Freytag v. Commissioner, 501 U.S. 868, 881 (1991). Even though the STJs “lack[ed] authority to enter a final decision” on behalf of the government, they nevertheless were officers because they had “significan[t] . . . duties and discretion,” occupied an office “established by Law” with “duties, salary, and means of appointment . . . specified by statute,” “t[ook] testimony, conduct[ed] trials, rule[d] on the admissibility of evidence, and ha[d] the power to enforce compliance with discovery orders” in their adjudications. Id. Moreover, the Supreme Court in Lucia, applying the factors set forth in Freytag, held that administrative law judges that render decisions in Securities and Exchange Commission (SEC) adjudications are “Officers of the United States” subject to the Appointments Clause, not mere employees. Lucia, 138 S. Ct. at 2047.
Applying the criteria set forth in Freytag and Lucia, it appears that PTAB judges who decide IPRs are “officers” under the clause. First, they occupy non-temporary offices established by law. 35 U.S.C § 6 (2012). They have duties, salaries, and means of appointment specified by statute. Id.; 35 U.S.C §§ 6(b) (specifying duties), 3(b)(6) (establishing salary), 6(a) (creating position and specifying means of appointment). Thus, their office is not limited in tenure or temporary. Instead, it is “continuing and permanent” and not “occasional or temporary.” Lucia, 138 S. Ct. at 2051 (citing Germaine, 99 U.S. at 511-512).
Second, PTAB judges exercise significant authority pursuant to the laws of the United States. 35 U.S.C § 6 (2012). Just like the officers in Freytag and Lucia, they take testimony (37 C.F.R. § 42.53), conduct trials (35 U.S.C. §§ 316(a)(5), 326(a)(5)), compel compliance with discovery orders (37 C.F.R. § 42.52), apply federal rules of evidence (37 C.F.R. § 42.62), rule on admissibility of evidence (37 C.F.R. §42.64), and conduct discovery (37 C.F.R. § 42.51). See also Office Patent Trial Practice Guide, 77 Fed. Reg. 48,756, 48,757-68 (Aug. 14, 2012) (rules and procedures governing IPRs and PGRs). Like SEC ALJs, PTAB judges also have capacious power to sanction a party for a wide range of misconduct including their “[f]ailure to comply with an applicable rule or order in the proceeding” (37 C.F.R. § 42.12(a)(1)) and “[a]buse of discovery” (37 C.F.R. § 42.12(a)(5)). See also Lucia, 138 S. Ct. at 2053. In this context, the director has limited authority. The Patent Act provides that “The Director shall determine whether to institute an inter partes review . . . .” 35 U.S.C § 314(b). But in practice, the authority to institute IPR rests with PTAB judges to whom the director has delegated such authority. The U.S. Supreme Court recognizes this delegated power in the Cuozzo opinion when it specifically refers to “agency” or “Patent Office” instead of “Director” in the context of 35 U.S.C § 314(d). Compare 35 U.S.C § 314(d) (“The determination by the Director whether to institute an inter partes review . . . .”) with Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2137 (2016) (“And, the statute says that the agency’s initial decision ‘whether to institute an inter partes review . . . .’”); see also id. at 2140 (“It states that the ‘determination by the [Patent Office] whether to institute an inter partes review . . . .”).
Third, PTAB judges have the power to render final decisions on behalf of the United States that extinguish the rights of patent owners. 35 U.S.C. §§ 318, 328; compare Lucia, 138 S. Ct. at 2053–54, with Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2137) (2016). In this sense, PTAB judges play a more autonomous role than STJs in Freytag or ALJs in Lucia, because their decisions are always final and not reviewable by the director or even the Secretary of Commerce. Lucia, 138 S. Ct. at 2053-54. Even more, the board’s IPR decisions enjoy an exceedingly deferential standard of review: the only review that parties may obtain as of right is an appeal to this court and not the director or any other Article III courts (35 U.S.C. §§ 319, 329), where this court affords the board broad discretion, does not reweigh evidence, and upholds all factual findings supported by substantial evidence in the record.
Before the AIA amended the Patent Reform Act of 2009 to create IPR proceedings, it might have been debatable whether APJs were officers. At that time, their actions were generally reviewable de novo in trial courts, and rarely involved the elimination of existing patent rights; instead, those actions relate mostly to the granting of new rights (e.g., patent applications) or the decision of who should own interfering ones (e.g., reexamination proceedings). Kappos v. Hyatt, 566 U.S. 431, 434 (2012); In re Teles AG Informationstechnologien, 747 F.3d 1357, 1360 (Fed. Cir. 2014). But this constitutional question of whether APJs were officers was answered affirmatively in 2008 when Congress legislatively transferred the statutory appointment authority from the director to the Secretary of Commerce after recognizing APJs as inferior officers. Pub. L. No. 110–313, 122 Stat. 3014–3015 (2008); see also Cong. Rec. H7233 (daily ed. July 28, 2008) (statement of Rep. King) (“[A] straightforward reading of article II, section 2, which I strongly endorse, suggests the 1999 authority that Congress bestowed on the Patent and Trademark Office Director to appoint administrative law judges is unconstitutional, inconsistent with article II, section 2.”). Since the passage of the AIA, however, PTAB judges enjoy unfettered power to issue final decisions on behalf of the USPTO finding patent claims unpatentable and ruling mandatory claim cancellation—decisions unreviewable by anyone in the USPTO except this court. Their status as constitutional officers is undeniably clear.
PTAB Judges Who Issue Final IPR Decisions
Are Principal Officers
Without a doubt, PTAB judges are principal officers. As discussed below, PTAB judges exercise significant independent discretion, are not removable from the competitive service except for cause, and issue final decisions conclusive upon patent rights without direction and supervision and with only limited and deferential review. Collectively, these characteristics demonstrate that PTAB judges act as principal officers.
First, PTAB judges are not subject to peremptory removal but enjoy the same good-cause removal protections as any member of the competitive service. 5 U.S.C. §§ 7521, 432.102(b)(6), 2102(a); 35 U.S.C. § 3(c). And even then, their removal for cause does not affect their official status as principal officers because their decisions remain final, valid, and irreversible by the director.
In a precedential decision that the Office of Legal Counsel adopted and characterized in 1978 as “generally accepted,” the Court of Claims held that whether an officer is an “inferior” officer under the clause depends not on whether he is “petty or unimportant,” but whether he is “subordinate or inferior to those officers in whom respectively the power of appointment may be vested—the President, the courts of law, and the heads of departments,” in other words, “one who is bound to obey another.” Collins v. United States, 14 Ct. Cl. 568, 574 (1878). PTAB judges are not such officers because no other agency or Executive Branch officer has the power to review or overrule their decisions. As Supreme Court succinctly set forth in Cuozzo, the board’s “decision to cancel a patent . . . has the same effect as a district court’s determination of a patent’s invalidity.” Cuozzo, 136 S. Ct. at 2143. By statute, their decision is final. 35 U.S.C. §§ 314(d), 319. PTAB judges’ unfettered discretion as principal officers is even more apparent in the case of IPR institution where their initial decision to institute IPR is final and nonappealable (i.e., unreviewable by even this Court). Cuozzo, 136 S. Ct. at 2137-38; 35 U.S.C. § 314(d). Once they issue a final decision, “the Director must ‘issue and publish a certificate’” even if he disagrees. Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, 138 S. Ct. 1365, 1372 (2018); see also 35 U.S.C. § 318(b).
Second, no one in the agency directs or supervises PTAB judges. No member of the agency can order rehearing of their final decisions, including the director and the Secretary of Commerce. The power to grant rehearing of the board’s decisions in IPRs rests with only the board itself. 35 U.S.C. § 6(c); 37 C.F.R. §§ 42.71(a), (d). Neither the director nor the Secretary of Commerce has statutory authority to intervene. PTAB judges, who render final decisions eliminating patent rights with no availability of review by officers in the agency and the Executive Branch, are necessarily principal officers. See also Lawson, Appointments and Illegal Adjudication: The AIA Through a Constitutional Lens, 26 Geo. Mason U. L. Rev. (manuscript at 46) (“PTAB is the final authority within the executive department . . . on matters of substantive law” and “[t]hat is the very definition of a principal officer.”), available here.
The courts of appeals that have addressed the question of whether officers are principal or inferior in similar circumstances also have found officers with similar authority to that of PTAB judges to be principal officers. See, e.g., Ass’n of Am. R.R. v. United States DOT, 821 F.3d 19, 39 (D.C. Cir. 2016) (holding that railroad passenger rate arbitrators are “principal Officers” because the act “doesn’t provide any procedure by which the arbitrator’s decision is reviewable by the [Surface Transportation Board] . . . . The result? A final agency action . . . . Without providing for the arbitrator’s direction or supervision by principal officers, [the relevant statute] impermissibly vests power to appoint an arbitrator in the STB.”), reh’g and reh’g en banc denied (D.C. Cir. 2016) (per curiam); Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Board, 684 F.3d 1332, 1336-40 (D.C. Cir. 2012) (holding that Copyright Royalty Board members who exercised significant discretion and issued final agency decisions were “principal Officers” for constitutional purposes).
Because PTAB judges are neither directed nor supervised by the director, and their decisions are final and not subject to any higher level of review within the Executive Branch, they are principal officers subject to the Appointments Clause.
Principal Officers Must Be Nominated by the President
and Confirmed by the Senate
Until 1975, all USPTO administrative patent judges were nominated by the President and confirmed by the Senate. 35 U.S.C. § 3 (1952). The Patent Act was then amended to eliminate such nomination and confirmation. 35 U.S.C. § 3 (1975). Today, all PTAB judges are “appointed by the Secretary of Commerce in, consultation with the Director” of the USPTO. 35 U.S.C. § 6(a) (2008).
The current means of appointment of APJs would satisfy the Appointments Clause if APJs were inferior officers. But as discussed above, they are principal officers and should be nominated by the President and by and with the advice and consent of the Senate.
As the Supreme Court noted in Oil States, “granting patents is one of ‘the constitutional functions’ that can be carried out by ‘the executive or legislative departments’ without judicial determination.” Oil States, 138 S. Ct. at 1374. When PTAB judges “adjudicate the patentability of inventions,” they are “exercising the executive power.” Freytag, 501 U.S. at 868. The exercise of that power, therefore, cannot go unchecked; instead, it can only be made by officials who can be held accountable to the President from whom the executive power is vested. See U.S. Const. Art. II, § 1, cl. 1; see also Free Enter. Fund, 561 U.S. at 496–97, 514 (stating that a structure in which “[n]either the President, nor anyone directly responsible to him . . . has full control over the Board . . . is contrary to Article II’s vesting of the executive power in the President” because “his ability to execute the laws—by holding his subordinates accountable for their conduct—is impaired” and in turn “the President could not be held fully accountable for discharging his own responsibilities”); Edmond v. United States, 520 U.S. 651, 660 (1997) (“By requiring the joint participation of the President and the Senate, the Appointments Clause was designed to ensure public accountability for both the making of a bad appointment and the rejection of a good one.”); Freytag, 501 U.S. at 884 (“The Framers understood . . . that by limiting the appointment power, they could ensure that those who wielded it were accountable to the political force and the will of the people.”). Because PTAB judges are principal officers not nominated by the President by and with the advice and consent of the Senate, their appointment violates the Appointments Clause.
PTAB Judges’ Decisions Should Be Set Aside
Because the manner of the APJs’ appointment violates the Appointments Clause, their decisions should be set aside. Appointments Clause violations present a “structural constitutional objection” that implicates “the strong interest of the federal judiciary in maintaining the constitutional plan of separation of powers.” Freytag, 501 U.S. at 878–79. Given that the PTAB judges, as principal officers, are neither constitutionally appointed nor administered oaths to defend the Constitution, an appropriate remedy is necessary. Such “a ‘remedy must of course be limited to the inadequacy that produced the injury in fact . . . .’” Gill v. Whitford, No. 16-1161, 138 S. Ct. 1916, 2018 U.S. LEXIS 3692, at *5 (2018) (quoting Lewis v. Casey, 518 U.S. 343, 357 (1996)).
In Ryder v. United States, the Supreme Court held that a claimant “is entitled to a decision on the merits” as the effect of a violation is not prospective only but controls the hearing and trial: the Constitution requires a new proceeding in front of a constitutionally appointed panel, with no validity given to the prior acts. 515 U.S. 177, 182–88 (1995). Furthermore, Section 706 of the Administrative Procedure Act, which applies to IPRs, provides that upon a finding of constitutional violation, the reviewing court “shall . . . set aside agency action, findings, and conclusions found to be . . . contrary to constitutional right [or] power.” 5 U.S.C. § 706(2)(B).
The Supreme Court held in Lucia that the appropriate remedy for an Appointments Clause violation is a “new ‘hearing before a properly appointed official’” other than the officials who already “heard [the] case and issued [the] decision” appealed from. Lucia, 138 S. Ct. at 2055. To the extent that this Court does not simply reverse the board’s decision, PTAB’s decisions should be re-heard, if at all, before members of the board who are constitutionally appointed.
Alex Chan is a senior attorney at Tensegrity Law Group LLC in Redwood City, California.
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