The U.S. Court of Appeals for the Federal Circuit ruled last week in In re: Palo Alto Networks that USPTO Director Vidal’s discretion to not review the PTAB’s institution decisions does not violate the Appointments Clause. Coincidentally, just a few days earlier, Director Vidal decided, for the first time, to exercise Director review of the PTAB’s denial of institution of a PGR filed by Boehringer Ingelheim. Both decisions mark a turning point in the post-Arthrex era.
In Arthrex v. Smith & Nephew, the Supreme Court had concluded that the administrative patent judges (APJs) of the PTAB were unconstitutionally appointed under the America Invents Act (AIA) because they had “sole authority” to render final decisions in violation of the Appointments Clause. According to the Supreme Court, by “assign[ing] APJs ‘significant authority’ in adjudicating the public rights of private parties, while also insulating their decisions from review and their offices from removal,” the statute ran afoul of the Appointments Clause.” The Supreme Court held Section 6(c) of the AIA unenforceable “to the extent that its requirements prevent the Director from reviewing final decisions rendered by APJs.” The Supreme Court further added that “[w]hat matters is that the Director have the discretion to review decisions rendered by APJs.” In turn, the USPTO established interim procedures for parties to request Director review of final written decisions from IPR and PGR proceedings.
The case in In re: Palo Alto Networks involved a challenge to institution decisions rather than the provisions governing final written decisions at issue in Arthrex. In this case, the PTAB denied institution of an IPR and PGR. Palo Alto Networks (PAN) then filed Requests for Director Rehearing of the non-institution grounds. The USPTO responded that “at this time, the [USPTO] does not accept requests for Director review of decisions on institution … parties may only request Director review of final written decisions issued in inter partes reviews and post-grant reviews…. The requests, therefore, will not be considered.”
PAN filed a writ of mandamus challenging the agency’s refusal to accept its Requests for Director Rehearing as violating the Appointments Clause. In the meantime, Director Vidal updated the interim guidance to state that the “Office does not accept requests for Director review of institution decisions” but that “the Director has always retained and continues to retain the authority to review such decisions sua sponte after issuance (at the Director’s discretion).”
The Federal Circuit distinguished the facts of Arthrex with In re: Palo Alto Networks on the basis that PAN’s challenge involved the procedures relating to institution decisions rather than the provisions governing final written decisions (at issue in Arthrex). The Federal Circuit concluded that there is no structural impediment to the Director’s authority to review institution decisions either by statute or by regulation, thereby further distinguishing the facts in In re: Palo Alto Networks from Arthrex (where a structural impediment of Director review had existed). The Federal Circuit also noted that “the Director plainly has the authority to revoke the delegation or to exercise her review authority in individual cases despite the delegation.” Thus, the Federal Circuit concluded this arrangement with the Director retaining review power did not offend the Appointments Clause. Accordingly, the Federal Circuit concluded that the “delegation of authority as to whether to institute IPR and PGR proceedings to the Board and the Director’s policy refusing to accept party requests for Director rehearing of decisions not to institute do not violate the Appointments Clause.”
Just days before the Federal Circuit issued its opinion in In re Palo Alto Networks, Director Vidal decided sua sponte to review the Board’s decision to not institute a PGR filed by Boehringer Ingelheim Animal Health USA Inc. of a patent owned by Kansas State University Research Foundation. According to Director Vidal: “Director review of the Board’s Decision is appropriate because this case raises issues of particular importance to the Office and the patent community.” No further details were provided in the order issued by Director Vidal. Director Vidal’s decision marks the first time that any Director has decided sua sponte to review the Board’s non-institution decision.
The facts in the Boehringer Ingelheim matter are rather unique and it appears that the Director will not, in most instances, grant review of the Board’s non-institution decision. Thus, unless the facts are particularly important to the Office and the community, a party can likely expect that the Director will not grant a review of any non-institution decision by the Board and that the current USPTO rules of not accepting requests for Director review of decisions on institution will likely remain in effect based on the Federal Circuit’s decision in In re: Palo Alto Networks.
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