17 Jul
2021

The Arthrex fix is no fix at all

The long-awaited SCOTUS Arthrex decision does not provide the solution to the problem at the heart of the case, while the USPTO’s plans to implement it are deeply flawed. That spells trouble, argues Paul Morinville in this week’s Saturday Opinion slot

In United States v Arthrex, Chief Justice Roberts fixed a Constitutional defect in the authority of Patent Trial and Appeal Board (PTAB) administrative patent judges (APJs) by severing a clause in 35 USC § 6(c) that prevented the USPTO Director from reviewing the PTAB’s final decisions. “The appropriate remedy is a remand to the Acting Director for him to decide whether to rehear the petition,” he concluded.  

Of course, the Chief Justice meant also “subject to all other requirements of law”, rather than unfettered discretion to just say “no”. A summary denial without explanation is a recipe for immediate vacatur by the Federal Circuit

Now rehearings are no longer the exclusive domain of the PTAB and the USPTO must provide at least one path of review that flows to the director.

Many have commented that creating a solution that comports with Arthrex is no big deal.  However, there are substantial roadblocks lurking with the Supreme Court’s fix that directly conflict with the Administrative Procedure Act (APA) and the Vacancies Act.  

On 29 June, the USPTO released USPTO implementation of an interim Director review process following Arthrex (Interim Regulation) enabling director review of PTAB decisions.  Under this regulation, the director may now sua sponte review a final written decision or, alternatively, a party involved in a PTAB procedure may request director review of a final written decision. 

Who is the Acting Director?

The first basic question is identifying the acting director.  In Arthrex, the Supreme Court prescribed that the appropriate remedy for the case at hand “is a remand to the Acting Director for him to decide whether to rehear the petition …”. Drew Hirshfeld’s current role is “performing the functions and duties of the Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office”.   

Therefore, Hirshfeld is not the Acting Director.  Instead, he is Commissioner for Patents who is simply “performing the functions and duties” of the director. 

Mandatory legal obligations

Arthrex requires both new regulations and rescission and amendment of old ones. For example, 37 CFR §§ 42.108 and 42.208 on institution provide that “the Board will authorize the review to proceed”, or “the Board may deny all grounds for unpatentability”, or that “review shall not be instituted unless the Board decides that the information presented in the petition demonstrates” certain likelihoods of success. The exclusive power of the board to authorise, deny or decide as written in current regulations may no longer hold, as such institution decisions may be subject to the director’s review and approval.

Similarly, 37 CFR § 42.71(c) providing that “[a] decision by the Board on whether to institute a trial is final and nonappealable” is no longer valid, as that prerogative is now reserved to the director. Likewise, current 37 CFR § 42.72 provides that the board has exclusive authority to “terminate a trial without rendering a final written decision”, a provision that is no longer valid, as such decision is subject to the director’s review and ultimate decision.

A PTAB trial procedure is governed by regulation.  The Supreme Court’s interpretation of Section 6(c) in Arthrex requires authority for the director to “review decisions rendered by APJs”, which in turn invokes the obligation to “prescribe regulations … governing inter partes review”. In enacting the AIA, the director cannot govern PTAB trial proceedings by anything other than regulations. And the only way to make or change regulations is through the rulemaking statutes in the APA.

Only a year ago, the Federal Circuit pointed out the obvious: the Precedential Opinion Panel (POP) has neither grant of rulemaking authority nor procedural foundation in the Patent Act or the APA, and has no carve-out from the many statutes that govern rulemaking. 

There is huge issue lurking in USPTO Interim Regulation. Under the Vacancies Act, an acting director is authorised to perform the functions and duties of the director.  This authority includes oversight of the rulemaking process, but new regulations created during the vacancy cannot be put into effect until the vacancy is properly filled by a new director. So, while the USPTO can perform regulatory rulemaking to address Arthrex, the USPTO cannot implement those new regulations until a new director is appointed by the President, confirmed by the Senate and sworn in.

A “final determination” of a PTAB proceeding must be issued within one year from the date of institution, which is extendable on good cause for six months. This gives the USPTO a maximum of 18 months to issue a final determination.  If new regulations cannot go into effect until a new director is confirmed, and a final determination must be issued within 18 months, the PTAB is in a bind.

If the PTAB proceeds under its Interim Regulation, all decisions made are void ab initio (void from the beginning) according to the Vacancies Act. If the PTAB proceeds in violation of law, the judgments will be attacked as void. But if the PTAB holds all trials in abeyance until all constitutionally and statutorily required procedures and personnel are in place, the delay will cause due process concerns.

Seemingly to address due process concerns, in the PTAB’s 1 July Boardside Chat, Chief APJ Boalick stated that the director’s rehearing of the final written decision would not exceed the time limitations because the issuance of a final written decision stops the clock. It is unclear how the USPTO contorts final written decision to mean final determination when a final determination has not been made by the director.  Boalick’s contortion changes the AIA statutory time limits of a PTAB proceeding from 18 months to infinity.

The Interim Regulation does not identify a person, office or group to which director reviews will be delegated. The Supreme Court has explained why due process requires that decision-makers must be known and named.  It would be impossible to enforce the APA’s protections against conflicts of interest, partiality, ex parte communications, etc, if the identity of decision-makers remains unknown.

The fix for Arthrex

It is not enough to publish what the USPTO thinks the process should be on a website and call it regulation. The Interim Regulation is arbitrary and capricious, regulatory fiat by USPTO untethered from APA statutory law mandating notice-and-comment rulemaking.

Because processes that control PTAB proceedings are regulations that are now invalid under Arthrex, until the USPTO properly follows APA notice-and-comment rulemaking, the USPTO cannot institute a trial or issue a final written decision. The regulations empowering it to do so are invalid and anything done under invalid regulations is also invalid. 

The only solution is to start the rulemaking process and put PTAB proceedings on hold until a permanent director has been nominated, confirmed and sworn in.  The APA offers a well-paved road: the USPTO can issue an interim rule in the Federal Register and then follow up with notice-and-comment rulemaking. Other agencies do so hundreds of times a year.

Shortcuts like POP and the Interim Regulation cannot substitute for the mandatory rulemaking that the USPTO is obligated to perform under the APA.  The director has plenary discretion to deny institution.  Therefore, for this transition period, the PTAB must deny all institutions to ensure “the efficient administration of the Office, and the ability of the Office to timely complete proceedings”.

Anything else will be a train wreck as cases that will take years to unravel through appeals to Article III courts pile on top of one another.

Paul Morinville is the founder and former president of US Inventor Inc, an organisation that advocates in Washington DC for strong patent protection for inventors and startups