JONES DAY TALKS®: Appointments of PTAB Judges Ruled Unconstitutional

In Arthrex, Inc. v. Smith & Nephew, Inc., the Federal Circuit has held that appointments of Administrative Patent Judges of the Patent Trial and Appeal Board ("PTAB") were in violation of the Appointments Clause of the U.S. Constitution. Jones Day's Matt Johnson and Dave Cochran discuss the potential ramifications of this decision and talk about what parties to PTAB matters should do now. 

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A full transcript of the podcast can be found below:

Dave Dalton:

Regular listeners to this podcast have heard us talk about the Patent Trial and Appeal Board, or PTAB, where issues of patentability are often resolved. Back on October 31st, Halloween of all days, a federal circuit panel held that PTAB's administrative patent judges were improperly appointed. Now, what does this mean for the thousands of decisions reached by PTAB, and for the hundreds of cases pending? We have Jones Day's Matt Johnson, and Dave Cochran here to tell us. I'm Dave Dalton. You're listening to Jones Day Talks.

Matt Johnson is one of Jones Day's primary contacts for matters before the PTAB. He currently co-chairs the firm's PTAB sub practice, and is the administrator of Jones Day's PTAB litigation blog. Find that at PTABlitigationblog.com. Dave Cochran provides patent prosecution, portfolio development, due diligence, patent litigation, PTAB litigation, appellate and international patents services. He has prosecuted hundreds of patent applications throughout the world and has been lead technical lawyer on more than 50 patent litigation matters at various US district courts.

Dave, Matt, thanks for being here today.

Dave Cochran:

Yeah, thanks Dave.

Dave Dalton:

Hey Dave, one of the things we've talked about in our prior chats, here on Jones Day Talks, relative to the PTAB, is the PTO's efforts, especially Director Iancu, to improve operations of the PTAB, make those operations feel fair to all parties, petitioners and patent owners. Generally speaking, how's all that been going?

Dave Cochran:

It's actually been going really well. I would say in the last year or so, year and a half, things at the PTAB have really become more streamlined. And you may recall from our prior discussions about the patent trial and appeal board, that in the last six years, this has become the number one place for patent disputes in the United States, greater than any of the district courts. Only Delaware and the Eastern district of Texas really rival the patent trial and appeal board, in terms of the number of cases, the number of disputes that they hear.

Dave Dalton:

Sure.

Dave Cochran:

And the other thing that's really interesting is, almost half of the appeals that go to the court of appeals for the federal circuit, which hear all of our patent appeals, almost half of those now, or more than half, are coming from the PTAB. So it has really become the place to be.

So streamlining operations there has become really critical. And there's a number of things the patent office has done, including they came up with an updated trial practice guide, which came out this summer. It helps practitioners understand the rules of the road for how these proceedings are going to occur. That's been really helpful. They also formed this new body, called the precedential opinion panel, or the POP. And this is a group of the director and the chief administrative law judge, and others that can hear issues that apply across the board to PTAB actions, and issue precedential decisions that people can follow. So instead of, we've got almost 200 administrative law judges in panels of three, issuing decisions every day, and sometimes the decisions are contrary to each other.

So the precedential opinion panel was put in place this year, in order to deal with that. That's been really helpful. They've also had some rulemaking efforts to try to streamline, again, some of the activities at the PTAB. Such as the motion to amend practice, which has been a difficulty for patent owners. So all things considered, yeah, things have been going much smoother, I would say. At the PTAB, in terms of the administration-

Dave Dalton:

Sounds like a success story. In terms of the volume of cases they're seeing. Sounds to me like they keep trying to improve everything. Some of the ... I wouldn't say "reforms," they weren't reforms. Some of the improvements to processes they put in place recently. So sounds like PTAB's rolling. Hey Matt, what would you add to that? Anything?

Matt Johnson:

Yeah. I think the efforts to make PTAB process more predictable, more streamlined, have been very successful over the last year or two, through Director Iancu's leadership. And a couple of those that they've mentioned are interesting. The rulemaking and the precedential opinion panel, they're interesting because they provide avenues for stakeholders to provide their input proactively, rather than reactively. So, for instance, the precedential opinion panel. It's a live case that has an issue that's of importance to the PTAB. And when they convene one of these precedential opinion panels, they'll allow amicus briefing from third parties, to chime in and help the PTAB decide what direction to go on this interesting, often procedural, issue. So that they're not just making the decision for that one case, but they're going to come up with a board precedent, going forward, that considers what, hopefully, everyone has to think about it.

Dave Dalton:

Okay. So things are going well at the PTAB. Good processes in place, better levels of predictability. All is well, but, a little bit of a curve ball or a bump in the road, right, Matt? Tell us what happened?

Matt Johnson:

Yeah, exactly. It was Halloween the federal state circuit gave the PTAB world a bit of a jolt, a bit of a scare. Rolled in a precedential decision, that all the appointments of PTAB judges over the last seven years were unconstitutional. Potentially throwing the system into a bit of chaos. This is the Arthrex V Smith & Nephew case. It does potentially call into question, oh, about 3,000 final written decisions that the board's come to, over the last seven years. More immediately, there 600 or so instituted PTAB cases, between institution decision and final written decision, and a couple hundred cases that are from between the PTAB's final written decision and ultimate resolution of an appeal at the federal circuit. So there's a lot of cases that this potentially affects.

Dave Dalton:

Can you repeat those numbers again? You gave me some notes before, but I can't believe that. That's in the thousands you said, over the last seven years, right?

Matt Johnson:

Yeah. They have 3,000 final written decisions, 600 currently pending cases, 200-300 that are in the appeal phase. So the impact here is potentially really large. And what the federal circuit found in the Arthrex decision was, that the PTAB judges really exercise significant authority, pursuant to the United States' laws. And because they exert that authority, they have to have proper supervision, either themselves being properly appointed by another branch of the government, or the president with confirmation by the Senate, or be overseen by such a party. And the federal circuit said, "Really, these PTAB judges don't have the appropriate level of supervision." And so their appointments were unconstitutional.

Dave Dalton:

Good grief. Now, like I said, things seem to be going pretty well. And now you have something like this come about. Let's go back to Dave. So potentially, PTAB judges were unconstitutionally appointed, over the last seven years. This is no small thing. Are we looking at a potentially chaotic situation, moving forward?

Dave Cochran:

Well, yes and no. The panel, in this precedential case, was ... I think they realized that just saying, "All 3,000 or so final decisions of the PTAB, over the last seven years, are now unconstitutional." was a real problem that they couldn't stomach. So they were very careful, they crafted a remedy to this problem, of whether administrative law judges of the PTAB are principal officers, which have to be appointed by the president and approved by the Senate? Or are they merely inferior officers, which they could be appointed by the secretary of commerce or the director of the patent office?

So they crafted a remedy, what they basically did was, they said, "Well, these PTAB judges ... If we get rid of the part of the statute, which effectively protects their job, prevents them from being fired without cause. Then, they'll be subject to supervision by the director, who can now basically fire them at will. They become at-will employees." And so they basically removed this employment protection for the PTAB judges. And because of that, they magically became constitutionally appointed. But only from that point forward, they only provided it perspectively.

So the net effect of that is that, and the remedy is such, that it only will affect cases that are essentially, on appeal. That have had a final written decision, and have had the oral hearing. And are on appeal to the court of appeals to the federal circuit. And, where the parties have raised this appointments clause issue. So it has dramatically restricted the number of PTAB cases that this will actually apply to. So instead of being all 3,000 final decisions, it's a much smaller universe of cases that are potentially going to be affected by this.

Dave Dalton:

Okay, so it certainly could have been worse. All right, Matt, talk to us about the current state of play. What's going on right now?

Matt Johnson:

As Dave said, the federal circuit really tried to self-limit the chaos that has been caused by this decision, that all PTAB judges have been unconstitutionally appointed, thus farther. Their suggested remedy, as Dave said, limited to cases that are currently in the appeal phase of their trials, was to remand the cases on appeal back to the PTAB. And, in order to avoid the remand just being a rubber stamp of the original decision, the federal circuit panel said that the case has to be remanded to the PTAB, for a new oral hearing and new final written decision, by a different panel of judges. So they've limited it to these couple hundred cases that are on appeal. And they said, "How do we fix it? We send it back. New hearing, new final written decision."

Dave Dalton:

Okay.

Matt Johnson:

Still, even if we're limited to just a couple hundred cases on appeal, still a potentially large effect on some big cases, with a lot of value, a lot of money at stake.

So, still a big deal here. And I think the federal circuit has further recognized, through some dissents and concurrences among the judges and in follow on cases, that the whole federal circuit may not be in exact alignment, exact agreement, as to what the appropriate remedy is, for the PTAB judges being unconstitutional appointments.

It looked at first like there may be a flood of remands back to the PTAB, potentially a couple hundred remands in a very short period of time.

Dave Dalton:

Right.

Matt Johnson:

US government, in the Arthrex case, has indicated that they're going to ask for en banc rehearing. And the federal circuit has taken some steps to slow that pace of remands, while they decide whether to take this up on rehearing because, I think a little concerned about remanding a couple hundred cases, in view that the Arthrex decision and remedy may, ultimately change, in the meanwhile.

Dave Dalton:

When might we know if that's going to be reheard, en banc, I guess, is what I'm asking?

Matt Johnson:

The government's request for rehearing is due here in the next week or two. So we should, within a few weeks after that, hear the federal circuit's decision on whether to take up the case on rehearing. I think, based on reading the tea leaves, I think there's a really strong likelihood. There are definitely some judges who have expressed some uncomfort with the current state of play of the Arthrex decision. And so I think there's going to be some further arguing and potentially, some massaging of the Arthrex state of play, before we're done here.

Dave Dalton:

Okay. And certainly, we'll stay on top of that. Let's wrap up with this. I'll go to both of you, Dave first. What should interested parties do right now? Because we're Jones Day Talks, we just don't opine, we give people good practical information. Dave Cochran, if you've got something, maybe going to PTAB, if you have something? What are you telling your clients right now? What should PTAB interested parties be looking for or doing?"

Dave Cochran:

Well, as always Dave, if someone is interested in understanding what's happening at the patent trial and appeal board, the first thing you should do is go to the Jones Day PTAB litigation blog. Which is PTABlitigationblog.com, where, as you know, we provide a complete coverage of what's happening at the PTAB on a daily basis. And in fact, I think we've already written seven or eight or 10 articles, just on this issue.

Dave Dalton:

Right.

Dave Cochran:

So that's what I would recommend. If you want to know what's happening at the PTAB, Jones Day PTAB litigation blog, that's where you go.

Dave Dalton:

Stay tuned. All right. Matt, anything want to add before we wrap up?

Matt Johnson:

Yeah. I think that if you have specific questions about the Arthrex state of play, we're at the cutting edge of this and ready to talk about it, and really, give some in-depth strategy advice. We have, internally, starting points for advice on all postures of PTAB matters, from those that are early on, to those that are at the appeal stage, to those that are fully wrapped up and passed their federal circuit mandate. We have ideas for some things that folks should consider, in possibly defending against or taking advantage of the Arthrex state of play. So, definitely up for chatting with folks about this. And it's something that we're thinking about very carefully and keeping an eye on, day-to-day, hour-to-hour.

Dave Dalton:

I've said it before, I'll say it again. I don't know how you guys keep up. Any part of the law is complicated, but with what you guys deal with, in IP in general, and this area in particular, it's just astounding to me. And how you guys do it, I don't even want to know, but it's all good that you do. Hey, we've got a couple of podcasts coming up with you guys, in the next month or so. We're going to revisit this issue, however it comes out, once this moves forward or as the story advances. And also, early next year, we'll do a look back at PTAB for 2019 and maybe what to look for in 2020. So we're looking forward to those programs. You guys are always great. So thanks for being with us today.

Dave Cochran:

Thank you, Dave.

Dave Dalton:

All right. Hey, you can find complete bios of Dave Cochran and Matt Johnson at jonesday.com. Be sure and visit the IP page, the intellectual property page. And go to our insights tab, there you'll find all sorts of podcasts, publications, videos, white papers, and other real good information there. You can subscribe to Jones Day Talks on Apple Podcasts and wherever else your podcasts can be found. I'm Dave Dalton. You've been listening to Jones Day Talks. We'll talk to you next time.

Speaker 4:

Thank you for listening to Jones Day Talks. Comments heard on Jones Day Talks should not be construed as legal advice regarding any specific facts or circumstances. The opinions expressed on Jones Day Talks are those of lawyers appearing on the program, and do not necessarily reflect those of the firm. For more information, please visit jonesday.com.