By Nate Andrews and Matt Johnson

Judge Dyk and Judge Newman disagree with the Arthrex remedy requiring rehearing.  In Arthrex, the Federal Circuit panel of Judges Moore, Reyna, and Chen held the appointment of Administrative Patent Judges (APJs) was an unconstitutional violation of the Appointments Clause (U.S. Const. art. II, § 2, cl. 2.), severed a portion of the Patent Act to cure the unconstitutionality, and remanded the case for hearing before a new panel of constitutionally appointed APJs.  Arthrex, Inc. v. Smith & Nephew, Inc., et al., No. 18-2140 (Fed. Cir. 2019).  Last Thursday, The Federal Circuit applied Arthrex to vacate and remand three inter partes review (IPR) decisions by the Patent Trial and Appeal Board (PTAB).  Bedgear, LLC v. Fredman Bros. Furniture Company, Inc., No. 18-2082 (Fed. Cir. 2019).  In Bedgear, Judge Dyk, joined by Judge Newman, concurred in the judgement and wrote separately to dispute the remand and rehearing remedy in Arthrex.

Judge Dyk wrote that governing Supreme Court authority does not require rehearing by a new panel of APJs.  The problem is that “the panel [in Arthrex] improperly declined to make its ruling retroactive so that the actions of APJs in the past were compliant with the constitution and the statute.”  Bedgear, 2 (Dyk, J., concurring in the judgement).  Instead of retroactively applying the constitutional fix as set forth by the Supreme Court – Judge Dyk explained – the panel in Arthrex made its constitutional fix for APJs prospective only, which thus required rehearing before a new panel of APJs.  Id.  According to Judge Dyk, the judicial solution in Arthrex applies both prospectively and retroactively.  Id.

To explain this rule of retroactive effect, Judge Dyk stepped through three points from three Supreme Court cases.  First, statutory interpretation sets forth a court’s “understanding of what the statute has meant continuously since the date when it became law.”  Rivers v. Roadway Exp., Inc., 511 U.S. 298, 313 n.12 (1994) (internal citations omitted).  Second, such a “general rule of retrospective effect” applies to constitutional decisions.  Harper v. Virginia Dep’t of Taxation, 509 U.S. 86, 94 (1993).  Thus, a court’s application of a federal law “is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review and as to all events, regardless of whether such events predate or postdate [the court’s] announcement of the rule.”  Id. at 97.  Third, the Supreme Court has applied the retroactivity principle to remedies.  Reynoldsville Casket Co. v. Hyde, 514 U.S. 749 (1995).  Thus, in Judge Dyk’s view the remedy provided in Arthrex is governed by the principle of retroactivity.  As such, the constitutional solution in Arthrex applied retroactively to cure the APJs of any Appointments Clause problems and removed any need for rehearing.

Judge Dyk distinguished Lucia v. S.E.C. – relied upon in Arthrex – by noting that the principle of retroactivity applies only to judicial solutions of constitutional problems and not to agency solutions.  138 S. Ct. 2044 (2018).  Thus, in Lucia, the fact that the Administrative Law Judges (ALJs) at the Securities and Exchange Commission (SEC) were unconstitutionally appointed by someone other than the department head – in conflict with the Appointments Clause – necessitated that agency action must solve the constitutional problem, i.e., the agency head must appoint the ALJs in compliance with the Constitution.  This distinction, according to Judge Dyk, makes all the difference because “[a]gencies and legislatures generally act only prospectively, while a judicial construction of a statute or a holding that a part of the statute is unconstitutional and construing the statute to permit severance are necessarily retrospective as well as prospective.”  Bedgear, 3 (Dyk, J., concurring in the judgement).

Judge Dyk also acknowledged the circuit split between the Fifth Circuit and DC Circuit.  Id. at 6 n.4; See Collins v. Mnuchin, 938 F.3d 553 (5th Cir. 2019); Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd., 684 F.3d 1332 (D.C. Cir. 2012); Kuretski v. Comm’r, 755 F.3d 929 (D.C. Cir. 2014).  However, Judge Dyk found no basis for rejecting the principle of retroactivity in considering the other critical Supreme Court cases – relied upon in ArthrexFree Enterprise Fund v. Public Co. Accounting Oversight Bd., 561 U.S. 477 (2010) and Edmond v. United States, 520 U.S. 651 (1997).  Judge Dyk explained, “In Appointments Clause cases, the Supreme Court has required a new hearing only where the appointment’s defect had not been cured or where the cure was the result of non-judicial action.”  Bedgear, 9 (Dyk, J., concurring in the judgement).

Takeaway

Bedgear makes a potential en banc rehearing more likely.  With Judge Dyk and Judge Newman disagreeing with the Arthrex panel on the remedy and the procedural burden on the PTAB of rehearing potentially hundreds of IPRs, this case has strong factors favoring rehearing en banc.  Judge Dyk also drew explicit attention to the circuit split, which again combined with the procedural burden on the PTAB, favors the Supreme Court granting certiorari depending on the outcome of a potential en banc rehearing.  Of course, neither rehearing en banc nor certiorari are ever guaranteed, but Arthrex is shaping up as a likely candidate.

We will continue to monitor Arthrex and related decisions for updates.

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Matt Johnson is one of the Firm's primary contacts on practice before the PTAB. Matt consults on nearly every one of Jones Day's over 290 PTAB cases to date. He currently serves as co-chair of Jones Day's PTAB practice.