Arthrex, Inc. v. Smith & nephew, Inc., 103119 FEDFED, 2018-2140

Docket Nº:2018-2140
Opinion Judge:Moore, Circuit Judge.
Party Name:ARTHREX, INC., Appellant v. SMITH & NEPHEW, INC., ARTHROCARE CORP., Appellees UNITED STATES, Intervenor
Attorney:Anthony P. Cho, Carlson, Gaskey & Olds, PC, Birmingham, MI, argued for appellant. Also represented by David Louis Atallah, David J. Gaskey, JessicaE Zilberberg. Charles T. Steenburg, Wolf, Greenfield & Sacks, PC, Boston, MA, argued for appellees. Also represented by Richard Giunta, Turhan Sarwar;...
Judge Panel:Before Moore, Reyna, and Chen, Circuit Judges.
Case Date:October 31, 2019
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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ARTHREX, INC., Appellant

v.

SMITH & NEPHEW, INC., ARTHROCARE CORP., Appellees

UNITED STATES, Intervenor

No. 2018-2140

United States Court of Appeals, Federal Circuit

October 31, 2019

Appeal from the United States Patent and Trademark Office, Patent Trial and Appeal Board in No. IPR2017-00275.

Anthony P. Cho, Carlson, Gaskey & Olds, PC, Birmingham, MI, argued for appellant. Also represented by David Louis Atallah, David J. Gaskey, JessicaE Zilberberg.

Charles T. Steenburg, Wolf, Greenfield & Sacks, PC, Boston, MA, argued for appellees. Also represented by Richard Giunta, Turhan Sarwar; Michael N. Rader, New York, NY.

Melissa N. Patterson, Appellate Staff, Civil Division, United States Department of Justice, Washington, DC, argued for intervenor. Also represented by Courtney Dixon, Scott R. McIntosh, Joseph H. Hunt; Sarah E. Craven, Thomas W. Krause, Joseph Matal, Farheena Yasmeen Rasheed, Office of the Solicitor, United States Patent and Trademark Office, Alexandria, VA.

Before Moore, Reyna, and Chen, Circuit Judges.

Moore, Circuit Judge.

Arthrex, Inc. appeals from the final written decision of the Patent Trial and Appeal Board holding claims 1, 4, 8, 10-12, 16, 18, and 25-28 of U.S. Patent No. 9, 179, 907 un-patentable as anticipated. Arthrex appeals this decision and contends that the appointment of the Board's Administrative Patent Judges ("APJs") by the Secretary of Commerce, as currently set forth in Title 35, violates the Appointments Clause, U.S. Const., art. II, § 2, cl. 2. We agree and conclude that the statute as currently constructed makes the APJs principal officers. To remedy the violation, we follow the approach set forth by the Supreme Court in Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010) and followed by the D.C. Circuit in Intercollegiate Broadcasting System, Inc. v. Copyright Royalty Board, 684 F.3d 1332 (2012). As the Supreme Court instructs, "'[g]enerally speaking, when confronting a constitutional flaw in a statute, we try to limit the solution to the problem,' severing any 'problematic portions while leaving the remainder intact.'" Free Enterprise Fund, 561 U.S. at 508 (quoting Ayotte v. Planned Parenthood of Northern New Eng., 546 U.S. 320, 328-29 (2006)). We conclude that severing the portion of the Patent Act restricting removal of the APJs is sufficient to render the APJs inferior officers and remedy the constitutional appointment problem. As the final written decision on appeal issued while there was an Appointments Clause violation, we vacate and remand. Following Lucia v. S.E.C., 138 S.Ct. 2044 (2018), the appropriate course of action is for this case to be remanded to a new panel of APJs to which Arthrex is entitled.

Background

Arthrex owns the '907 patent, which is directed to a knotless suture securing assembly. Smith & Nephew, Inc. and Arthrocare Corp. (collectively "Petitioners" or "Appellees") filed a petition requesting inter partes review of claims 1, 4, 8, 10-12, 16, 18, and 25-28 of the '907 patent.

Inter partes review is a "'hybrid proceeding' with 'adju-dicatory characteristics' similar to court proceedings." Saint Regis Mohawk Tribe v. Mylan Pharms., 896 F.3d 1322, 1326 (Fed. Cir. 2018). After a petitioner files a petition requesting that the Board consider the patentability of issued patent claims, the Director of the United States Patent and Trademark Office ("USPTO") determines whether to institute an inter partes review proceeding. 35 U.S.C. § 314.1 A three-judge panel of Board members then conducts the instituted inter partes review. Id. § 316(c).2 If an instituted review is not dismissed before the conclusion of the proceedings, the Board issues a final written decision determining the patentability of challenged claims. Id. § 318(a). Once the time for appeal of the decision expires or any appeal has been terminated, the Director issues and publishes a certificate canceling any claim of the patent finally determined to be unpatentable. Id. § 318(b).

The inter partes review of the '907 patent was heard by a three-judge panel consisting of three APJs. The Board instituted review and after briefing and trial, the Board issued a final written decision finding the claims unpatenta-ble as anticipated. J.A. 12, 14, 42.

Analysis

A. Waiver

Appellees and the government argue that Arthrex forfeited its Appointments Clause challenge by not raising the issue before the Board. Although "[i]t is the general rule . . . that a federal appellate court does not consider an issue not passed upon below," we have discretion to decide when to deviate from that general rule. Singleton v. Wulff, 428 U.S. 106, 120-21 (1976). The Supreme Court has included Appointments Clause objections to officers as a challenge which could be considered on appeal even if not raised below. Freytag v. Commissioner of Internal Revenue, 501 U.S. 868, 878-79 (1991); Glidden Co. v. Zdanok, 370 U.S. 530, 535-36 (1962).

In Freytag, the Supreme Court exercised its discretion to decide an Appointments Clause challenge despite petitioners' failure to raise a timely objection at trial. 501 U.S. at 878-79. In fact, the Court reached the issue despite the fact that it had not been raised until the appellate stage.

The Court explained that the structural and political roots of the separation of powers concept are embedded in the Appointments Clause. It concluded that the case was one of the "rare cases in which we should exercise our discretion to hear petitioners' challenge to the constitutional authority." Id. at 879. We believe that this case, like Freytag, is one of those exceptional cases that warrants consideration despite Arthrex's failure to raise its Appointments Clause challenge before the Board. Like Freytag, this case implicates the important structural interests and separation of powers concerns protected by the Appointments Clause. Separation of powers is "a fundamental constitutional safeguard" and an "exceptionally important" consideration in the context of inter partes review proceedings. Cascades Projection LLC v. Epson America, Inc., 864 F.3d 1309, 1322 (Fed. Cir. 2017) (Reyna, J., dissenting from denial of petition for hearing en banc). The issue presented today has a wide-ranging effect on property rights and the nation's economy. Timely resolution is critical to providing certainty to rights holders and competitors alike who rely upon the inter partes review scheme to resolve concerns over patent rights.

Appellees and the government argue that like In re DBC we should decline to address the Appointments Clause challenge as waived. DBC recognized that the court retains discretion to reach issues raised for the first time on appeal, but declined to do so in that case. 545 F.3d 1373, 1380 (Fed. Cir. 2008). The court predicated its decision on the fact that if the issue had been raised before the Board, it could have corrected the Constitutional infirmity because there were Secretary appointed APJs and that Congress had taken "remedial action" redelegating the power of appointment to the Secretary of Commerce in an attempt to "eliminat[e] the issue of unconstitutional appointments going forward." Id. at 1380. As the court noted, "the Secretary, acting under the new statute, has reappointed the administrative patent judges involved in DBC's appeal."

Id. at 1381. Not only had Congress taken remedial action to address the constitutionality issue, the Secretary had already been implementing those remedies limiting the impact. Id. No such remedial action has been taken in this case and the Board could not have corrected the problem. Because the Secretary continues to have the power to appoint APJs and those APJs continue to decide patentability in inter partes review, we conclude that it is appropriate for this court to exercise its discretion to decide the Appointments Clause challenge here. This is an issue of exceptional importance, and we conclude it is an appropriate use of our discretion to decide the issue over a challenge of waiver.

B. Appointments Clause

Arthrex argues that the APJs who presided over this inter partes review were not constitutionally appointed. It argues the APJs were principal officers who must be, but were not, appointed by the President with the advice and consent of the Senate.

The Appointments Clause of Article II provides: [The President] . . . shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think...

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