As we reported earlier today, a Federal Circuit panel this morning issued a precedential order in VirnetX Inc. v. Cisco Systems, Inc. The order is important. It highlights the potential reach of the Federal Circuit’s decision earlier this year in Arthrex, Inc. v. Smith & Nephew, Inc. Indeed, it suggests that Administrative Patent Judges are unconstitutionally appointed with respect to every aspect of their work: not just inter partes reviews, and not just inter partes reexaminations, but also everything else, including ex parte reexaminations, covered business method review, and ex parte appeals.
In Arthrex, the Federal Circuit found the appointments of Administrative Patent Judges to be unconstitutional in the context of an inter partes review proceeding. In this case, VirnetX, the Federal Circuit likewise found their appointments to be unconstitutional in the context of an inter partes reeexamination.
In this order, the panel explained why it rejected the argument from the Director of the United States Patent and Trademark Office and Cisco Systems, Inc. in their petitions for panel rehearing. The Director and Cisco argued that the court erred in extending Arthrex beyond the context of inter partes reviews to this appeal from a decision of the Patent Trial and Appeal Board in an inter partes reexamination. Specifically, the Director and Cisco asserted that APJs should be deemed constitutionally appointed officers at least when it comes to their duties reviewing appeals of inter partes reexaminations.
In rejecting these arguments, the panel quoted Freytag v. Commissioner, 501 U.S. 868 (1991), for the point that, “'[i]f a special trial judge is an inferior officer for purposes of’ some responsibilities, then ‘he is an inferior officer within the meaning of the Appointments Clause, and he must be properly appointed.’” Moreover, the panel indicated that Freytag requires “’look[ing] not only to the authority exercised in [an appellant]’s case but to all of that appointee’s duties’ when assessing an Appointments Clause challenge.” And the panel noted that, “once appointed to the Board, the APJs’ duties include both conducting inter partes reviews and reviewing appeals of inter partes reexaminations.” As a result, the panel reasoned that, “if these APJs are unconstitutionally appointed principal officers because of their inter partes review duties in light of Arthrex, it would appear that under Freytag vacatur would be appropriate for all agency actions rendered by those APJs regardless of the specific type of review proceeding on appeal.”
In other words, the panel indicated that APJs are likely unconstitutionally appointed with respect to every aspect of their work.
The panel’s order, however, noted that it “need not go so far” given that this case relates only to inter partes reexamination. It then noted relevant similarities between inter partes review and inter partes reexamination. It also rejected the Director’s and Cisco’s arguments, for example because they did not show the Director has “review authority or supervision over the APJs’ final decisions” in inter partes reexamination proceedings.