Arthrex: ‘patents have become more political’
In a decision highly anticipated by patent owners, the US Supreme Court has delivered its final ruling in US v Arthrex—a fractured opinion that lawyers say leaves burning questions around its political implications.
The key takeaways are that SCOTUS has dictated that judges for the Patent Trial and Appeal Board (PTAB) are unconstitutionally appointed, and in its remedy, has handed power to the US Patent and Trademark Office (USPTO) director to assess inter partes review decisions.
As Karen Sebaski, counsel at Holwell Shuster & Goldberg, explained: “The majority found that the ‘clear course’ was to sever the relevant statute ‘insofar as it prevents the director from reviewing the decisions of the PTAB on his own’ and to permit the director to review final PTAB decisions and, upon review, issue decisions himself.”
But two questions now loom large: does this ruling ultimately hand too much sway to the USPTO director? And will it exert any meaningful difference in the field of patents?
‘Vast discretionary power’
According to Aziz Burgy, partner at Axinn, while the decision has ultimately preserved the existing system, it has greatly expanded the influence of the USPTO director.
“SCOTUS saved the IPR system by creating a surgical solution that allows decisions to be reviewable by the USPTO director. It will undoubtedly make the selection of the new appointee even more important, as this decision gives vast discretionary power to the USPTO director,” he said.
David Gindler, partner at Milbank, believes that this shift could carry significant political ramifications as it expands the powers of the director—a political appointee—to review the PTAB’s IPR cases and reach his or her own decisions.
“This new power creates the risk that the director may be politically motivated—or perceived as politically motivated—to cancel patents that carry with them significant financial or social consequences,” warned Gindler.
The ruling, he explained, could herald lobbying campaigns intended to influence the director’s decision. “A potential example that comes to mind is patents related to the COVID-19 vaccines. Patents have become less free of political influence than might have been the case in the past,” he cautioned.
What remains to be seen is exactly how the director will conduct such reviews, noted Janelle Waack, member of Bass, Berry & Sims. “What matters is that the director has the discretion to review decisions rendered by the APJs. In that way, the US President remains responsible for the exercise of executive power—and through him, the exercise of executive power remains accountable to the people. Currently, there is not a director in place, so the next appointment to that position will carry greater weight and responsibility due to Arthrex.”
Agency politics
Christopher Walker, law professor at Ohio State University, pointed to the varying and contrasting experiences at other US federal bodies, adding that only “time will tell” whether the ruling portends a significant or far-reaching impact.
“At many agencies, the head reviews very few adjudication decisions. At some agencies, such as the Social Security Administration, the agency head has even delegated that final decision-making authority to the Social Security Appeals Council.”
But he warned: “At other agencies, the politics of agency-head review are real. Immigration adjudication comes immediately to mind, as the attorney general has used agency-head review to make sweeping and politically charged changes to immigration policy.”
Brent Babcock, partner at Womble Bond Dickinson, believed that the language in the majority opinion delivered by the majority Justices in the splintered opinion could present a potential conundrum in the future.
“The language is directed simply to ‘decisions of the PTAB’. Could this language open the door for requiring director review of other decisions from a PTAB panel, such as institution decisions and/or other important decisions?” he asks.
Meanwhile, uncertainty remains around the fate of approximately 100 PTAB appeals that have already been stalled due to legal wrangling prompted by Arthrex, added Babcock.
“The question is: what will happen to those appeals now? It would appear that they may need to be remanded to the PTAB for an opportunity for a new director-level review of the underlying decisions,” he said.
Others, however, take a more conservative view of the USPTO’s director’s perceived growth in influence, and its long-term effect on patents.
SCOTUS' remedy was correct, according to Joseph Matal, partner at Haynes and Boone and a former USPTO director, who insisted: "The director already had the power to select a special panel to rehear any PTAB decision and to promulgate regulations governing AIA proceedings. A one-person review does not substantially increase the director’s power."
“The director’s authority is executive and remains circumscribed to allow the US President to maintain adequate control, including the power of direct removal,” agreed Derek McCorquindale, partner at Finnegan.
“Additionally, any review conducted by the director will still be subject to judicial review at the United States Court of Appeals for the Federal Circuit.”
No immediate ‘practical’ effects
While the long-term implications remain unclear, the decision is unlikely to create any immediate practical differences to patent practitioners who need to navigate the PTAB, according to McCorquindale.
“There is no apparent requirement for the director to make an affirmative decision to review any particular board decision, except the one in Arthrex itself. And it is unlikely the director will exercise this discretionary review power with much regularity,” he said.
McCorquindale predicted that in many cases, parties may decide that it is better to proceed to other forms of review, rather than expend time and resources on the director’s reconsideration “with typically long odds”.
“From a practical perspective, I don’t anticipate the director reversing a three-judge panel’s determination too often,” echoed Axinn's Burgy. “The sheer volume of IPR decisions will hinder the director from granularly reviewing each one on his or her own. Second, and perhaps more importantly, the three-judge panels consist of seasoned patent practitioners who will have carefully applied the law to the facts of the case,” he says.
William Milliken, director in Sterne, Kessler & Fox’s trial and appellate group, agreed that the ruling is unlikely to cause a massive upheaval to the PTAB’s proceedings in the short-term.
“We do not expect this decision to cause a major disruption to the current post-grant proceeding regime. It is possible that the office will in the near future issue guidance concerning the mechanics of this new layer of potential review,” he said.
Slower, more expensive IPRs?
The practical significance of this decision most likely will be seen in other settings, according to Don Falk, a partner in Mayer Brown’s IP practice.
“The court’s keen scrutiny of the functions and powers of this particular class of executive officers, along with its innovative remedy for a separation-of-powers violation, may pave the way for robust judicial intervention into other nontraditional regulatory and adjudicative schemes,” he predicted.
Arthrex, added Gindler, also leaves unanswered the constitutional question of whether PTAB judges must be removable at will by the agency head—the Secretary of Commerce. “I think we can expect to see more constitutional challenges to PTAB judges’ authority based on the appointments clause and the vesting clause in the future,” said Gindler.
In the long term, lawyers say that the changes could slow down the IPR process. “In all likelihood, [the] Arthrex decision will increase the cost, duration, complexity, and predictability of PTAB trials,” asserted WBD’s Babcock.
This could pose significant implications in cases with parallel district court infringement proceedings. Since 2018, the PTAB has widely applied the NHK-Fintiv rule, which holds that the existence of a parallel district court lawsuit should preclude an IPR.
Added Gindler: “Adding more time to the IPR process makes it even harder for defendants to obtain a final outcome, until well after all district court proceedings have concluded.”
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