Arthrex, Inc. v. Smith & Nephew, Inc., 35 F.4th 1328 (Fed. Cir. 2022) (Moore, Reyna, Chen)

Smith & Nephew petitioned for IPR of Arthrex’s ’907 patent, which claims a surgical device with an “eyelet” through which a suture is threaded. Smith & Nephew argued in relevant part that certain claims were anticipated by a published patent application called ElAttrache. The Board ultimately found the challenged claims unpatentable. Arthrex appealed, challenging the Board’s decision on the merits and arguing that the IPR process was unconstitutional because the Board’s administrative patent judges were principal officers who, under the Constitution’s Appointments Clause, must be appointed by the president with the advice and consent of the Senate.

The case ultimately went to the Supreme Court, which held that, because APJs are not presidentially appointed and Senate confirmed (PAS) officers, they may not issue final decisions on behalf of the Executive Branch. To remedy the constitutional violation, the Supreme Court held that the PTO Director must have the authority to grant rehearing of Board decisions. The court remanded the case “to the Acting Director for him to decide whether to rehear” it.

On remand, Arthrex requested Director rehearing. At the time, the office of the Director was vacant, as was the office of the Deputy Director. Under the applicable regulation, in such a scenario the Director’s duties fall to the Commissioner for Patents. The Commissioner thus considered—and denied—Arthrex’s request for rehearing. Arthrex appealed again on both procedural and substantive grounds.

Procedurally, Arthrex argued that the Commissioner’s denial of its request for Director rehearing violated the Appointments Clause, the Federal Vacancies Reform Act (FVRA), and the Constitution’s separation of powers. The Federal Circuit rejected each of these arguments.

On the Appointments Clause issue, the court rejected Arthrex’s contention that, because the Commissioner is not a PAS officer, he does not have authority to issue final decisions on behalf of the Executive Branch. The Federal Circuit reasoned that, under the Supreme Court’s 1898 decision in United States v. Eaton, “the Appointments Clause allows an inferior officer to temporarily wield the powers of an absent PAS officer.” The Commissioner was thus constitutionally able to exercise the Director’s review power during “the period in which the Director and Deputy Director offices remained vacant.” The court noted that its holding was consistent with the Supreme Court’s earlier remand “to the Acting Director.”

The court next addressed Arthrex’s arguments based on the FVRA, a statute that sets forth certain requirements for appointing individuals to temporarily perform the “functions and duties” of PAS officers. The statute’s plain language, the court concluded, makes clear that it applies only to non-delegable functions and duties. And the court concluded that Director review of Board decisions is a delegable function because “nothing in the Patent Act indicat[es]” otherwise. “That the Appointments Clause requires that a PAS officer have review authority,” the court explained, “does not mean that a principal officer, once bestowed with such authority, cannot delegate it to other agency officers.” Accordingly, the court held that the FVRA was inapplicable.

The court likewise concluded that the Commissioner’s exercise of the Director’s review power did not violate the separation of powers. The President’s “unfettered power” to “remove the Commissioner from his role as the Director’s temporary stand-in,” the court held, meant that the President retained full ability to take care that the laws be faithfully executed.

As to substance, Arthrex argued that the Board’s anticipation finding based on ElAttrache was erroneous because the reference was not prior art. Specifically, Arthrex argued that the ’907 patent was entitled to claim priority to the ’280 application—whose filing date precedes ElAttrache’s publication—through a series of intervening applications. The Board had found otherwise based on its conclusions that (i) the ’907 patent claims cover both flexible and rigid eyelets and (ii) the intervening ’707 application lacks written description support for the flexible eyelet embodiment and thus severs the chain of priority. While the ’707 application incorporates by reference the ’280 application—which does describe a flexible eyelet—the ’707 application “criticize[s]” that configuration. So, the Board concluded, “a skilled artisan would have understood the ’707 application to do away with flexible eyelets and require rigid eyelets.”

The Federal Circuit affirmed the Board’s decision. The Board’s determination that the ’707 application “require[s]” a rigid eyelet, the court held, was supported by substantial evidence. And the Board’s finding that the ’707 application’s incorporation by reference of the ’280 application “did not outweigh” this evidence was not “unreasonable,” since “the ’707 application denigrates flexible eyelets and exclusively describes alternatives to overcome their disadvantages.”

Arthrex also argued that the Board lacked statutory authority to decide whether the ’707 application met the written-description requirement because the scope of an IPR is limited to obviousness and anticipation grounds. The Federal Circuit rejected this argument as well. Smith & Nephew’s asserted invalidity ground was anticipation, the Federal Circuit explained, and the Board “needed to determine whether the ’707 application satisfied the written description requirement” to analyze that ground. “The Board therefore did not exceed its authority.”

RELATED CASES

• In re Palo Alto Networks, Inc., 44 F.4th 1369 (Fed. Cir. 2022) (holding that the Director’s policy of refusing to accept requests for Director review of Board decisions denying institution did not violate the Appointments Clause because Director retained the discretion to review such decisions of her own accord).
• In re Google LLC, 2022 WL 4283110 (Fed. Cir. Sep.16, 2022) (granting Director’s motion to remand for additional proceedings on the basis that the Board’s affirmance of examiner’s anticipation rejection was “erroneous”).

This article appeared in the Federal Circuit Appeals from the PTAB and ITC: Summaries of Key 2022 Decisions report.