The PTAB’s post-Arthrex future

With the June 21 decision in United States v Arthrex (June 21, 2021) the US Patent and Trademark Office (USPTO) Patent Trial and Appeal Board (PTAB) has made its sixth trip to the US Supreme Court and has survived its second constitutional challenge there—an impressive record for an agency adjudicatory body that is not even a decade old.

The remaining legal challenges to the board’s authority have been rejected by the US Court of Appeals for the Federal Circuit and appear to hold little promise. These challenges range from the implausible (arguments that Congress cannot update procedures for enforcing pre-existing patentability requirements [Celgene v Peter (2019); Genentech v Hospira (2020)]) to the ridiculous (that a company can evade validity review by transferring its patents to an Indian tribe [Saint Regis Mohawk Tribe v Mylan Pharms (2018)]).

The PTAB’s judges, and those who rely on the board to test patents asserted against them, may thus feel entitled to finally breathe a sigh of relief. At least those attacks on the board that have been mounted in the courts appear to have all run aground.

Concerns about commandeering and manipulation

Aspects of the court’s opinion, however, give cause for worry—particularly in light of recent events at the board. The most noteworthy passages of the majority opinion are those which characterise and comment on the mechanisms that are used to “supervise” the board.

The court noted the government’s argument that the director can “manipulate the composition of the PTAB rehearing panel” with “administrative patent judges (APJs) assumed to be more amenable to his preferences” and can eventually impose his views through such “handpicking (and if necessary, repicking)”. It also remarked on the government’s assertion that the director may “jump in before the board issues” its decision if he “catches wind of an unfavourable ruling on the way” (Arthrex).

It doesn’t take much reading between the lines to sense what the court thinks of such practices. The chief justice’s opinion concludes that these “machinations” are “the problem”, not “the solution” and that they produce neither a “transparent decision” by the director nor “an impartial decision by a panel of experts”.

“Now that Arthrex has established that the USPTO’s leader has full authority to revise a board decision on rehearing, this should be made the exclusive means for doing so.”

The court’s comments are of particular concern in view of complaints that have been emanating from the agency—now too numerous to be ignored—about interference in the board’s decision-making.

These complaints generally describe the same scenario: that board panels are being required to submit decisions for pre-release review to political appointees or designees and are frequently ordered to change their outcomes. Others have alleged that only certain judges are assigned to “sensitive” issues, and that some have been subject to adverse employment actions or even blacklisted from inter partes cases altogether because of their decisions.

The substance of these complaints will soon be fleshed out in detail. The chairman and ranking member of the House Judiciary Committee’s IP Subcommittee recently instructed the Government Accountability Office (GAO) to investigate these issues, including matters such as the “prescribing or changing of APJs on a panel” and “changing a decision in a case”.

The need for transparency and judicial independence

In the meantime, agency and administration officials would be wise to consider where this is all going and attempt to mitigate the consequences. Arthrex’s apparent disapproval of the commandeering and manipulation of board panels hardly breaks new legal ground.

The US Supreme Court has long demanded that “in administrative proceedings of a quasi-judicial character, the liberty and property of the citizen shall be protected by the rudimentary requirements of fair play”—(Morgan v United States [1938]; see also Withrow v Larkin [1975]: “A fair trial in a fair tribunal is a basic requirement of due process. This applies to administrative agencies which adjudicate as well as to courts.”)—and that chief among these is a requirement of a “fair and open hearing”.

The principle that the parties to a proceeding must be allowed to know who is actually deciding their case is basic and widely accepted. The most obvious problem with a departure from the rule is that it denies the parties their right to seek recusal for bias.

The US Supreme Court has held that “not only is a biased decision-maker constitutionally unacceptable but our system of law has always endeavoured to prevent even the probability of unfairness”(Withrow).

Courts have required recusal of administrative officers because of pecuniary interests, personal animosity, closed-mindedness (Air Transport Ass’n of America v National Mediation Bd [2011]), and other “circumstances and relationships” (MFS Securities v SEC [2004] quoting In re Murchison [1955]) that would undermine due process. But the parties to a case cannot vindicate this right if they are never informed who their actual decision-maker is.

The manipulation and commandeering of board panels also strikes at the high court’s more basic expectations of how administrative hearings are conducted. In its landmark decision in Butz v Economou (1978), the US Supreme Court extended to agency adjudicators the same immunity from suit that is enjoyed by Article III judges, concluding that they must be allowed to decide cases without fear of the “harassment or intimidation” of a losing party’s follow-on lawsuit.

In so holding, however, the court made clear that it decision was predicated on an understanding that “agency adjudication contains many of the same safeguards as are available in the judicial process”. In particular, Butz emphasised that administrative proceedings are “structured so as to assure that the hearing examiner exercises his independent judgment on the evidence before him, free from pressures by the parties or other officials within the agency”.

The court also placed reliance on the Administrative Procedure Act’s (APA) guarantee that agency judges are “assigned to cases in rotation so far as is practicable”.

Don’t wait to fix these problems

The US Supreme Court has never declared that the APA’s rules are constitutionally mandatory, but it hardly seems prudent to test the proposition—and the GAO report is coming.

Now that Arthrex has established that the USPTO’s leader has full authority to revise a board decision on rehearing, this should be made the exclusive means for doing so. The agency (or Congress) should prohibit ex parte contacts with board panels deciding inter partes cases, and should require objective and transparent criteria for the assignment and rating of judges.

The PTAB has come to play a critical role in the US patent system. With the shift from judge trials to jury trials in patent cases over the last few decades and the rise of the plaintiffs’ magnet jurisdictions, the board is often the only place where an asserted patent can be accurately and effectively tested (Judge Matal: “Jury trials are not an adequate substitute for patent validity review at the PTAB,” Thomson Reuters, April 23, 2021).

PTAB review has emerged as an essential protection for manufacturers of advanced technology, providing them with the legal and technical certainty that they need to be able to invest in plants and equipment in the US. And in the ex parte system of patent examination, reliable validity review plays an important role in keeping everyone honest.

When it comes to the PTAB’s management and its internal policies and procedures, the nation has much more at stake than just the board’s win-loss record at the US Supreme Court.

This article reflects only the present personal considerations, opinions, and/or views of the authors, which should not be attributed to any of the authors’ current or prior law firm(s) or former or present clients.