On Monday, March 1, 2021, the Supreme Court heard oral arguments in the closely-watched patent case, United States v. Arthrex. As we previewed a couple days prior to argument, two main issues were considered by the Court. First, for purposes of the Appointments Clause, whether administrative patent judges (APJs) of the Patent Trial and Appeal Board (PTAB) are principal or inferior officers. And second, if APJs are indeed principal officers, whether the Federal Circuit properly cured any Appointments Clause defect through the remedy it provided. Here are the details.
Malcom L. Stewart, United States Deputy Solicitor General, began oral argument on behalf of the United States by walking through the director’s supervisory powers over the APJs that, according to the government, render the APJs inferior officers. Chief Justice Roberts pointed out that “the one thing that [the director] can’t do is just change the decision of the APJ” and that the listed supervisory powers “all seem to be more or less ways of twisting the arms of the APJs.” That said, Chief Justice Roberts asked Stewart to explain how this is not contrary to the transparency and accountability purposes of the Appointments Clause. Stewart argued that the supervisory mechanisms are indeed transparent and that the director assumes responsibility for any binding guidance issued on hypothetical facts. Furthermore, Stewart contended that after a final written decision is issued, it “will be the decision of the executive agency only if it is not reheard. And . . . the director’s power over rehearings is not plenary, but it is substantial.”
In response to that argument, Justice Thomas asked Stewart how the Court is to discern what is “substantial”? Stewart acknowledged that “we don’t have a bright-line test for this,” but that the Court “should focus primarily on the mechanisms of control that are available in the first instance, issuing binding guidance and so forth, because the unusual hallmark of supervisory authority is that the supervisor can tell the subordinate how to do the job before the subordinate does it. And the director has ample tools there.” Justice Kagan later revisited this issue and asked Stewart to clarify the director’s current power over rehearings. Stewart explained “the director can not only convene this panel; the director can issue policy guidance that explain[s] the rules of the law as the director understands them, and other panels members are obliged to [] go along. The only thing that really can slip through the cracks in the PTO setting is factual determinations with which the director might disagree . . . .”
Justice Alito then presented a hypothetical and asked Stewart whether it would be constitutional. The hypothetical proposed a scenario in which a deputy solicitor general (SG) had final and unreviewable authority to decide whether the United States would take an appeal in any case involving a particular statutory provision. Additionally, the SG could decide which deputy would review each case, “the SG or the attorney general [could] issue guidelines on the meaning of the provision and the standard to be applied in deciding to take an appeal, but, once a deputy [] makes a decision, . . . nobody, not the attorney general or the President himself, can countermand that.” Stewart assessed the hypothetical under Morrison vs. Olson and opined that it would be a close call but that one might conclude that deputy SG is an inferior officer, relying mainly on the limitation on the deputy’s authority to only a narrow category of cases and on “the fact that the [SG] could promulgate substantive standards that would bind the deputy in making his decision.” Justice Alito pushed Stewart a bit further and modified the hypothetical so that “all of the deputies collectively could review the decision of [] this one deputy.” And in response, Stewart simply stated that he thought that modification “would change it somewhat.”
The next set of questions came from Justice Sotomayor, who began by characterizing the government’s test for deciding whether an officer is inferior or principal as “amorphous” in comparison to the other side’s “fairly straightforward line” for making the same determination. Justice Sotomayor then asked Stewart: “what is your final test being judged against?” Stewart argued in response that “we don’t have a bright-line test, but that’s in part because this Court has emphasized that there is no exclusive criterion for determining inferior versus principal officer status. [And] there’s such an enormous number of officers and employees within the Executive Branch that any attempt to [] formulate a bright-line test would almost inevitably lead to anomalous results in some [] categories of cases.”
Justice Gorsuch next pointed to the Court’s interpretation of the Constitution in Seila Law and asked how the government’s argument squares with this interpretation since it appears that “there’s no chain of dependence running to the President with respect to the supervision of a particular decision.” Stewart attempted to draw connections between the powers of the President and the decisions of the APJs, however, Justice Gorsuch found Stewart’s explanations unpersuasive as they were all relating to removal rather than supervision and control.
Justice Kavanaugh turned to the concern that the lack of agency review in the current structure “is a real break from tradition.” Stewart acknowledged this deviation and conceded that it “certainly is the norm for the [] agency head to have the capacity to [] review their decisions.” However, according to Stewart, Edmond made clear that “that doesn’t have to be plenary review.” Stewart continued on to argue that if the Court were to view agency review as requiring “some Senate-confirmed official to have plenary authority to revisit [] decisions . . . then the appropriate remedy would be to sever the provision in the statute that says only the board can grant rehearings.”
The last questions for Stewart came from Justice Barrett, who focused on the director’s removal powers. Justice Barrett asked Stewart to address whether the director really has “sufficient control” through his removal powers, when such removal merely consists of reassigning APJs to a different kind of adjudicative work other than inter partes review. Stewart responded simply by opining, “[y]es, I mean, especially if the director thought the problem with these officials is that in inter partes reviews, that you’re not being sufficiently compliant with the director’s instructions.”
Mark Perry argued second for Smith & Nephew and Chief Justice Roberts began by addressing the Due Process concerns that would result if the director exercised all the powers Smith & Nephew alleges he possesses. Perry replied by stating that “Due Process is a separate issue, not presented in the petition, not presented in this case.” Justice Gorsuch likewise later attempted to address Due Process concerns with the structure of the PTAB and Perry, again, respectfully denied arguing such issues since there are no Due Process allegations in this case. In response, Chief Justice Roberts yielded the floor to Justice Thomas who simply inquired: “[w]hat would be your test for whether someone is an [] inferior officer?” Perry offered two different tests. The first, according to Perry, would be based on chain of command and would require that “principal officers sit at the right hand of the President.” The second would be “the Edmond totality of the circumstances test” which is relies on supervision and control. Justice Thomas then followed up by asking Perry “how much supervision and control” would be sufficient. Perry then contended that “the ultimate test is whether the President and his direct reports remain accountable for the operations of the agency.”
Justice Breyer then asked Perry if there are any other examples of executive officials having essentially unreviewable authority. Perry pointed to AUSAs and their ability “to make on-the-call decisions every day in court” and further explained that “there are many such officers, but [] they are generally given the opportunity to decide narrow, case-specific, application-specific questions rather than broad questions of national policy. That[’s] the dividing line in our government.” Next, Justice Alito went through every way listed in Smith & Nephew’s brief that the director has control over the APJs, eliminating them one by one and asking Perry at what point do we cross the line and there is no longer sufficient control. Although reluctant at first to provide a “magic divider,” Perry eventually suggested that eliminating the relationship to the President would cross the line since “[a]n officer three steps removed from the President is [] never or almost never going to be a principal officer.”
Justice Sotomayor revisited Justice Gorsuch’s question to Stewart regarding “the need to have someone in the direct control of the President,” and asked, “isn’t that totally at odds with an adjudicatory system of any kind?” Perry explained that the balance between “adjudicative independence and presidential control” may be (and has been) struck by Congress “so long as the channels of authority are preserved.” According to Perry, “it’s the advance offering of guidance [that] is more important in this context.” Specifically, that “the director can identify problems coming out of PTAB panels and direct future PAB panels not to make those mistakes, preserves both the political accountability and avoids those due-process type problems that may arise in individual circumstances.”
Next, Justice Kagan turned to the “unusual” structure of having no automatic opportunity for review by the agency head, and asked whether there is a story behind it all and if there is anything the Court should take from that. Perry simply responded that “[i]t is the long and proud history of the Patent Office.” According to Perry, administrative agents have decided interferences since 1836 and “they have always been appointed by the Secretary.” Moreover, Perry argued that the Court should give some deference to the fact that “Congress for a brief period vested the appointment in the director and then changed it to the Secretary to avoid Appointments Clause problems.” Justice Gorsuch followed up on the unusual, yet historical, nature of PTAB proceedings, asking, “is it fair to say that, yes, this is a rare bird in that in this area . . . this is an unusual animal in the sense that there isn’t final review in the agency head?” To which Perry replied, “[i]t is unusual, but it is also well and historically founded and, [] until now, unchallenged.”
Justice Kavanaugh continued the discussion on the “unusual” lack of agency review within the PTAB structure and expressed his concern that “this would be a model going forward, and that would allow Congress to give extraordinary power to inferior officers.” Perry responded by contending, “I cannot emphasize enough that the director maintains the final authority under 318(b) to confirm or cancel any patent.” And according to Perry, “Congress has made a different determination here, but it is absolutely consistent with the dictates of the Appointments Clause.”
Lastly, Justice Barrett moved on to the remedy issue and asked, if the Court found the appoint of the APJs to be unconstitutional, why the Court should exercise the authority to sever? In response, Perry argued broadly that the choice of remedy “depend[s] on where, if anywhere, the Court were to find a constitutional violation.” And according to Perry, “[i]t is not where the Federal Circuit found it” and “it’s certainly not where Arthrex has identified it, which is to take down this whole system.”
Jeffrey Lamken argued last for Arthrex and Chief Justice Roberts began with the question: “why isn’t it okay that the executive allow the adjudicators a significant degree of leeway because they ‘re just that? They’re adjudicators . . . .” Lamken argued that although “the Constitution permits adjudication in the Executive Branch in part because some adjudication is executive in nature[, ] placing that function in the executive means that the key protections against executive overreach, which is accountability to the people for the decisions, has to be observed.” In that regard, Lamken contended that a principal officer’s response that “I have no authority to overturn those bad decisions, Congress stripped me of that power. That’s the opposite of accountability. . . . If we’re going to have accountability in adjudication, it has to be accountability for individual cases.”
The next question came from Justice Alito, who asked Lamken to clarify what form of relief Arthrex should receive if the Court were to find that the current scheme violates the Appointments Clause. Lamken argued that “this Court should hold that this IPR cannot proceed because the system is not constitutional. And then any remedy beyond that, any revision to the statute would be a matter for Congress to [] address.” Justice Gorsuch and Justice Kavanaugh both later returned to the issue of relief. Justice Gorsuch asked Lamken why, in Arthrex’s opinion, severing the provision in Section 6(c) to give the director the ability to grant rehearing would not solve the problem in this case. According to Lamken, it would not solve the issue here because the director still wouldn’t have unilateral authority to decide cases on rehearing since the statute would still require decisions to be “issued in panels of three in which the director is, at best, outnumbered two to one.” Lamken continued on to argue that rewriting the statute to make the director
a single decision-maker, where Congress provided for people to sit in panels of three, that isn’t a surgical solution. That’s vivisection. . . . [And] a radical alteration of the scheme Congress established. Panels of three were an important protection against idiosyncratic thinking. They ensure a necessary breadth of expertise. They provide a check ensuring [] that you have decision makers with different backgrounds. And it would be a departure from historical practice of having the [] APJs sit in panels of three.
Justice Gorsuch lastly asked Lamken to comment on a point made by some, that waiting for Congress to fix the problem could take a long time. Lamken responded that Congress “has before it ready-made solutions” since Congress has already held hearings and has already addressed the problem with respect to the Trademark Trial and Appeals Board.
Justice Sotomayor returned to the history of the patent office and expressed her view that such history suggests “that principal officers were intended to be policymakers, and individuals who merely adjudicated claims based on set policies were not principal officers.” Justice Sotomayor articulated that, for her, “it’s clear that APJs are not policymakers” and thus, “cannot influence the course of law” and in light of that view, asked Lamken to explain “why the individual decision based on quasi-law precedent and policy set by the director is a final decision that [the] director won’t be held responsible for.” According to Lamken, the simple answer is that since the director has no authority to overturn a final decision, then the director is not responsible for it.
Next, Justice Kagan pressed Lamken for some clarification on “how Edmond is at all consistent with some of the statements [Lamken had] been making.” Potential inconsistency in Lamken’s statements arose from his earlier emphasis on an agency head’s ability to say “I have no authority to overturn” or “it’s not my fault” being the downfall, while in Edmond the CAAF could have said, since there is competent evidence, it’s not our fault. In response, Lamken harmonized his prior accountability position with the facts in Edmond by agreeing with Justice Kagan that “the ability [] of a principal officer to review the supposed inferior’s decision is a critical but perhaps not always sufficient condition.” However, while conceding to consideration of other evidence, Lamken stood his ground on the importance of the ability to review by arguing “[b]ut you really can’t call them an inferior officer if the answer is for the superior, I have no authority to review your decisions at all under any circumstances.”
Justice Barrett closed out oral argument for Lamken by asking two questions. First, Justice Barrett asked Lamken if there is any case in which this Court has identified multiple issues working together to create a constitutional problem but chose only one “locus” of the problem to resolve. Lamken responded by contending that “this Court doesn’t make that sort of judicial policy decision when the possibilities are multiple and they point in [] complete opposite directions.” Justice Barrett then asked Lamken to address the apparent oddity of characterizing the APJs as principal officers when they have many roles and responsibilities of inferior officers and only “one piece of authority that seems to go beyond what an inferior officer can do.” Lamken assured Justice Barrett that is would not be odd, but rather precisely in line with this Court’s precedent since this is exactly how the Court ruled in Freytag.
Stewart, arguing again on behalf of the United States, focused the majority of his rebuttal on Lamken’s position that the director cannot properly be held accountable. According to Stewart, this belief is “incorrect” since
the losing party in an IPR can always ask the director to convene a new panel to grant rehearing and to put the director himself on that panel. And if the director declines to take that step, he can be held accountable for allowing the panel decision to remain in place. The only imperfection in the director’s accountability and review authority is that the director could eb outvoted by the other two members of the panel than he convenes, but those other two members of the panel would be bound by any directives of law that the director had issued. . . . Mr. Lamken attempts to confine the rule he is advocating to adjudicative officials, but there’s really no principal basis for striking that limitation. Edmond makes clear that administrative adjudicators are subject to the same Appointments Clause principles as other [] federal officers.
The Court repeatedly wrestled with how to articulate a legal test to distinguish between principal and inferior officers that could be uniformly applied amongst the expansive variety of institutional structures. This back and forth struggle made for many difficult questions and hypothetical scenarios for all three parties. Ultimately, the Court appeared uncomfortable with the current unusual, yet historical, structure of the PTAB, but whether or not they are willing to take it down was unclear. We will continue to follow this case and, as always, you can find all relevant documents and all of our coverage on our “Supreme Court Cases” page.