ARTHREX, INC. v. SMITH & NEPHEW, INC.

Before Moore, Reyna, and Chen. Appeal from the Patent Trial and Appeal Board.

Summary: During vacancies of Director and Deputy Director of the U.S. Patent and Trademark Office, the Commissioner of Patents may exercise the Director’s authority to decide rehearing of inter partes review decisions without violating the Appointments Clause of the Constitution.

Smith & Nephew, Inc. and ArthroCare Corp. petitioned for inter partes review of Arthrex, Inc.’s patent, arguing that certain claims of the patent are anticipated by prior art. The Board instituted inter partes review and ultimately found in favor of the petitioners. Arthrex appealed, arguing in part that the Board lacked constitutional authority to issue final decisions. Specifically, Arthrex contended that Administrative Patent Judges (“APJs”) are not nominated by the President and confirmed by the Senate as the Appointments Clause of the Constitution requires for principal officers. The Federal Circuit agreed, holding that the appropriate remedy was to (1) sever the statutory limitations on the removal of APJs and (2) remand for rehearing by a new panel of APJs. Though the Supreme Court agreed that APJs could not issue a final decision binding the Executive Branch, it vacated and remanded the matter. In doing so, the Court ordered an alternative remedy; that is, to (1) exempt the Director of the U.S. Patent and Trademark Office from 35 U.S.C. § 6(c), which precludes anyone but the Board from granting rehearing of a Board decision, and (2) remand the case to the Acting Director to determine whether to rehear the case. On remand, Arthrex sought rehearing by the Director. However, as both the offices of the Director and Deputy Director were vacant, the Commissioner for Patents was charged with addressing Arthrex’s request, pursuant to an agency order. The Commissioner denied rehearing and ordered that the Board’s decision is final. Arthrex appealed.

In the instant appeal, Arthrex asserted it did not receive the remedy that the Supreme Court ordered and that the Commissioner’s exercise of the Director’s authority violated the Appointments Clause. The Federal Circuit acknowledged that, because the Commissioner is not a Presidentially-appointed, Senate-confirmed (“PAS”) officer, the Commissioner ordinarily may not issue a final decision binding the Executive Branch. However, the Court proceeded to explain that, per United States v. Eaton, 169 U.S. 331 (1898), an inferior officer may temporarily perform the duties of an absent PAS officer on an acting basis. In upholding the applicability of Eaton, the Court further explained that, as was the case in Eaton, the Commissioner’s time performing the Director’s duties was limited even though the agency order did not specify the Commissioner’s tenure; for the Commissioner would hold the role only so long as the offices of the Director and Deputy Director remained vacant. In light of the foregoing, the Federal Circuit concluded that the Commissioner’s exercise of the Director’s authority did not violate the Appointments Clause.

Arthrex also averred that the Federal Vacancies Reform Act (“FVRA”) prevented the Commissioner from ruling on the rehearing request. The Federal Circuit rejected this argument as well, as the FVRA only limits who may temporarily perform the non-delegable duties of a PAS officer; the Director’s authority to decide rehearing requests is a delegable one.

Editor: Paul Stewart

Written by: Alexander G. Trimes & Christie Matthaei