Judge Kimberly Ann Moore of the U.S. Court of Appeals for the Federal Circuit.

The administrative judges who hear challenges to patent validity at the U.S. Patent and Trademark Office are principal officers who should have been nominated by the president and confirmed by the U.S. Senate, the U.S. Court of Appeals for the Federal Circuit ruled Thursday.

Instead of throwing the 270 or so APJs off the Patent Trial and Appeal Board, the court said it will solve the problem by interpreting the Patent Act as providing the PTO director authority to remove APJs from service at will. "We conclude that severing the portion of the Patent Act restricting removal of the APJs is sufficient to render the APJs inferior officers and remedy the constitutional appointment problem," Judge Kimberly Moore wrote for a unanimous panel in Arthrex v. Smith & Nephew. Judges Jimmie Reyna and Raymond Chen concurred.

The decision—telegraphed in oral arguments earlier this month—will nevertheless cause a substantial disruption at the PTAB. Following the lead of a 2018 Supreme Court ruling on SEC judge appointments, the Federal Circuit ruled that any final written decisions from the PTAB that are pending on appeal, and where a party has raised the appointments issue, must be sent back to the PTAB for reconsideration by a different panel of judges. That reconsideration must include a new oral hearing, Moore wrote.

The Department of Justice and USPTO warned in supplemental briefs filed Tuesday that such a ruling could mean new hearings for "hundreds" of parties. The PTO had asked the court to limit any such relief to parties who had raised the appointments issue while before the PTAB, a much smaller subset. But Moore reasoned that it would have been futile for parties to raise the issue at the PTAB because the APJs would not have had the authority to declare their own appointments unconstitutional.

The upshot of Thursday's decision, if it's not reconsidered en banc or overturned by the Supreme Court, is an increased workload for PTAB judges in the short term and uncertain job security in the long term. "Never a dull moment," quipped Ropes & Gray partner Scott McKeown, who flagged the potential decision on Ropes' Patents Post Grant blog last week.

A spokesman for the PTO said the agency did not have immediate comment on what steps it might take in response to the decision. Another Federal Circuit panel is scheduled to hear arguments on the same issue in a separate case Monday. That could provide clues as to whether an en banc challenge might be worthwhile.

The Supreme Court ruled in Lucia v. SEC that administrative judges who aren't under close supervisory control of presidential appointees are principal officers who must be nominated by the president and confirmed by the Senate. As Moore put it Thursday, "The Appointments Clause ensures that the individuals in these positions of significant authority are accountable to elected Executive officials. … It further ensures that the President, and those directly responsible to him, does not delegate his ultimate responsibility and obligation to supervise the actions of the Executive Branch."

The PTO had argued that PTAB judges are inferior officers because the PTO director, a presidential appointee, exercises supervision in a variety of ways. The director sets rules and regulations for the patent validity challenges established by the 2011 America Invents Act. The director also has the power to appoint and remove judges from the three-judge panels that preside over those challenges, and can overturn decisions he disagrees with, the PTO argued.

Moore disagreed that the PTO director's supervisory powers extend that far. "The lack of any presidentially-appointed officer who can review, vacate, or correct decisions by the APJs combined with the limited removal power lead us to conclude … that these are principal officers," she wrote.

The least intrusive way to meet the constitutional obligation under Lucia is to interpret the Patent Act as giving the director complete control to remove PTAB judges from service, rather than only to promote "efficiency," as the law was previously interpreted.

"Like the D.C. Circuit in Intercollegiate, we believe severing the restriction on removal of APJs renders them inferior rather than principal officers," Moore wrote. "Although the Director still does not have independent authority to review decisions rendered by APJs, his provision of policy and regulation to guide the outcomes of those decisions, coupled with the power of removal by the Secretary without cause provides significant constraint on issued decisions."