United States v. Arthrex, Inc.

• Decision Date: 21 June 2021
• Docket Number: Nos. 19-1434,19-1452,19-1458,s. 19-1434
• Parties: UNITED STATES, Petitioner v. ARTHREX, INC., et al.; Smith & Nephew, Inc., et al., Petitioners v. Arthrex, Inc., et al.; Arthrex, Inc., Petitioner v. Smith & Nephew, Inc., et al.
• Court: U.S. Supreme Court

141 S.Ct. 1970

210 L.Ed.2d 268

UNITED STATES, Petitioner

v.ARTHREX, INC., et al.;

Smith & Nephew, Inc., et al., Petitioners

v.Arthrex, Inc., et al.;

Arthrex, Inc., Petitioner

v.Smith & Nephew, Inc., et al.

Nos. 19-1434

19-1452

19-1458

Supreme Court of the United States.

Argued March 1, 2021

Decided June 21, 2021

Malcolm L. Stewart, Deputy Solicitor General, Washington, DC, for Petitioner United States.

Mark A. Perry, Washington, D.C., for Smith & Nephew, Inc., et al.

Jeffrey A. Lamken, New York, NY, for Arthrex, Inc.

Anthony P. Cho, David J. Gaskey, Jessica E. Fleetham, David L. Atallah, Carlson, Gaskey & Olds, P.C., Birmingham, MI, Charles W. Saber, Salvatore P. Tamburo, Blank Rome LLP, Washington, D.C., John W. Schmieding, Trevor Arnold, Arthrex, Inc., Naples, FL, Jeffrey A. Lamken, Robert K. Kry, James A. Barta, MoloLamken LLP, Washington, D.C., Jordan A. Rice, MoloLamken LLP, Chicago, IL, Mark A. Perry, Counsel of Record, Kellam M. Conover, Brian A. Richman, Max E. Schulman, Gibson, Dunn & Crutcher LLP, Washington, D.C., Jessica A. Hudak, Gibson, Dunn & Crutcher LLP, Irvine, CA, Charles T. Steenburg, Nathan R. Speed, Richard F. Giunta, Wolf, Greenfield & Sacks, P.C., Boston, MA, Mark J. Gorman, Smith & Nephew, Inc., Cordova, TN, for Respondents.

Elizabeth B. Prelogar, Jeffrey B. Wall, Acting Solicitors General Counsel of Record, Malcolm L. Stewart, Deputy Solicitor General, Michael D. Granston, Deputy Assistant Attorney General, Jonathan Y. Ellis, Assistant to the Solicitor General, Scott R. Mcintosh, Melissa N. Patterson, Courtney L. Dixon, Attorneys, Jeffrey Bossert Clark, Acting Assistant Attorney General, Department of Justice, Sopan Joshi, Senior Counsel to the Assistant Attorney General, Washington, D.C., David L. Berdan, General Counsel, Thomas W. Krause, Solicitor, Farheena Y. Rasheed, Deputy Solicitor, Molly R. Silfen, Daniel Kazhdan, Associate Solicitors United States Patent and Trademark Office, Alexandria, Va., for Petitioner.

Chief Justice ROBERTS delivered the opinion of the Court with respect to Parts I and II.

The validity of a patent previously issued by the Patent and Trademark Office can be challenged before the Patent Trial and Appeal Board, an executive tribunal within the PTO. The Board, composed largely of Administrative Patent Judges appointed by the Secretary of Commerce, has the final word within the Executive Branch on the validity of a challenged patent. Billions of dollars can turn on a Board decision.

Under the Constitution, "[t]he executive Power" is vested in the President, who has the responsibility to "take Care that the Laws be faithfully executed." Art. II, § 1, cl. 1 ; § 3. The Appointments Clause provides that he may be assisted in carrying out that responsibility by officers nominated by him and confirmed by the Senate, as well as by other officers not appointed in that manner but whose work, we have held, must be directed and supervised by an officer who has been. § 2, cl. 2. The question presented is whether the authority of the Board to issue decisions on behalf of the Executive Branch is consistent with these constitutional provisions.

I

A

The creation of a workable patent system was a congressional priority from the start. The First Congress established the Patent Board—consisting impressively of Secretary of State Thomas Jefferson, Secretary of War Henry Knox, and Attorney General Edmund Randolph—to issue patents for inventions they deemed "sufficiently useful and important." § 1, 1 Stat. 109–110. Jefferson, a renowned inventor in his own right, "was charged with most of the responsibility" to administer the new patent system. Federico, Operation of the Patent Act of 1790, 18 J. Pat. Off. Soc. 237, 238–239 (1936). The Patent Board was a short-lived experiment because its members had much else to do. Jefferson candidly admitted that he had "been obliged to give undue & uninformed opinions on rights often valuable" without the "great deal of time" necessary to "understand & do justice by" patent applicants. Letter from T. Jefferson to H. Williamson (Apr. 1, 1792), in 6 Works of Thomas Jefferson 459 (P. Ford ed. 1904).

In 1793, Congress shifted to a registration system administered by the Secretary of State. See 1 Stat. 319–321. The Secretary no longer reviewed the substance of patent applications but instead issued patents through a routine process "as a ministerial officer." Grant v. Raymond , 6 Pet. 218, 241, 8 L.Ed. 376 (1832). The courts would make the initial determination of patent validity in a subsequent judicial proceeding, such as an infringement suit. See 1 Stat. 322. This scheme unsurprisingly resulted in the Executive Branch issuing many invalid patents and the Judicial Branch having to decide many infringement cases. See S. Doc. No. 338, 24th Cong., 1st Sess., 3 (1836). Judge William Van Ness—who before taking the bench had served as second to Aaron Burr in his duel with Alexander Hamilton—lamented that Congress had left the door "open and unguarded" for imposters to secure patents, with the consequences of "litigation and endless trouble, if not total ruin, to the true inventor." Thompson v. Haight , 23 F.Cas. 1040, 1041–1042 (C.C. S.D.N.Y. 1826). Congress heeded such concerns by returning the initial determination of patentability to the Executive Branch, see 5 Stat. 117–118, where it remains today.

The present system is administered by the Patent and Trademark Office (PTO), an executive agency within the Department of Commerce "responsible for the granting and issuing of patents" in the name of the United States. 35 U.S.C. §§ 1(a), 2(a)(1). Congress has vested the "powers and duties" of the PTO in a sole Director appointed by the President with the advice and consent of the Senate. § 3 (a)(1). As agency head, the Director "provid[es] policy direction and management supervision" for PTO officers and employees. § 3 (a)(2)(A).

This suit centers on the Patent Trial and Appeal Board (PTAB), an executive adjudicatory body within the PTO established by the Leahy-Smith America Invents Act of 2011. 125 Stat. 313. The PTAB sits in panels of at least three members drawn from the Director, the Deputy Director, the Commissioner for Patents, the Commissioner for Trademarks, and more than 200 Administrative Patent Judges (APJs). 35 U.S.C. §§ 6(a), (c). The Secretary of Commerce appoints the members of the PTAB (except for the Director), including the APJs at issue in this dispute. §§ 3 (b)(1), (b)(2)(A), 6(a). Like the 1790 Patent Board, the modern Board decides whether an invention satisfies the standards for patentability on review of decisions by primary examiners. §§ 6(b)(1), 134(a).

Through a variety of procedures, the PTAB can also take a second look at patents previously issued by the PTO. §§ 6(b)(2)–(4). One such procedure is inter partes review. Established in 2011, inter partes review is an adversarial process by which members of the PTAB reconsider whether existing patents satisfy the novelty and nonobviousness requirements for inventions. See § 6(a) of the America Invents Act, 125 Stat. 299. Any person—other than the patent owner himself—can file a petition to institute inter partes review of a patent. 35 U.S.C. § 311(a). The Director can institute review only if, among other requirements, he determines that the petitioner is reasonably likely to prevail on at least one challenged patent claim. § 314(a). Congress has committed the decision to institute inter partes review to the Director's unreviewable discretion. See Thryv, Inc. v. Click-To-Call Technologies, LP , 590 U.S. ––––, ––––, 140 S.Ct. 1367, 1372-1373, 206 L.Ed.2d 554 (2020). By regulation, the Director has delegated this authority to the PTAB itself. 37 CFR § 42.4(a) (2020).

The Director designates at least three members of the PTAB (typically three APJs) to conduct an inter partes proceeding. 35 U.S.C. § 6(c). The PTAB then assumes control of the process, which resembles civil litigation in many respects. § 316(c). The PTAB must issue a final written decision on all of the challenged patent claims within 12 to 18 months of institution. § 316(a)(11); see SAS Institute Inc. v. Iancu , 584 U.S. ––––, ––––, 138 S.Ct. 1348, 1354-1355, 200 L.Ed.2d 695 (2018). A party who disagrees with a decision may request rehearing by the PTAB. 35 U.S.C. § 6(c) ; 37 CFR § 42.71(d).

The PTAB is the last stop for review within the Executive Branch. A party dissatisfied with the final decision may seek judicial review in the Court of Appeals for the Federal Circuit. 35 U.S.C. § 319. At this stage, the Director can intervene before the court to defend or disavow the Board's decision. § 143. The Federal Circuit reviews the PTAB's application of patentability standards de novo and its underlying factual determinations for substantial evidence. See Oil States Energy Services, LLC v. Greene's Energy Group, LLC , 584 U.S. ––––, ––––, 138 S.Ct. 1365, 1371-1372, 200 L.Ed.2d 671 (2018). Upon expiration of the time to appeal or termination of any appeal, "the Director shall issue and publish a certificate canceling any claim of the patent finally determined to be unpatentable, confirming any claim of the patent determined to be patentable, and incorporating in the patent by operation of the certificate any new or amended claim determined to be patentable." § 318(b).

B

Arthrex, Inc. develops medical devices and procedures for orthopedic surgery. In 2015, it secured a patent on a surgical device for reattaching soft tissue to bone without tying a knot, U.S. Patent No. 9,179,907 (’907 patent). Arthrex soon claimed that Smith & Nephew, Inc. and ArthroCare Corp. (collectively, Smith & Nephew) had infringed the ’907 patent, and the dispute eventually made its way to inter partes review in the PTO. Three APJs formed the PTAB panel that conducted the proceeding and ultimately concluded that a prior patent application "anticipated" the invention claimed by the ’907 patent, so that Arthrex's patent was invalid. See App. to Pet. for Cert. in No. 19–1434...