Arthrex 'proud' that Supreme Court agrees system for choosing patent judges is flawed

Arthrex has won a contentious patent fight it took all the way to the Supreme Court.

At least, in part.

In a narrow, long-anticipated decision the Supreme Court agreed with the local medical device manufacturer's argument that the system for choosing U.S. patent judges is not only flawed, but unconstitutional.

The ruling, written by Chief Justice John Roberts, concludes the "unreviewable authority" wielded by the administrative patent judges is "incompatible with their appointment by the Secretary of Commerce" as inferior officers.

Further, he writes the patent judges, known for short as APJs, "exercise executive power, and the President must be ultimately responsible for their actions," which hasn't happened under the system.

The decision came via a majority vote of 5-4.

In a statement, John Schmieding, a senior vice president and general counsel for Arthrex said the company is "proud that a majority of the Supreme Court agreed with our position" on the patent judges.

"This is another step to ensure that patent property rights are reviewed under a constitutionally fair process, and Arthrex is honored to have had the opportunity to fight for the Constitution," he said. 

In case you missed it:Arthrex takes patent fight to United States Supreme Court, awaits crucial decision

Previously:Arthrex's North Naples campus qualifies as certified wildlife habitat

Supreme Court case arose out of patent dispute with competitor

The Supreme Court case arose out of a patent dispute between Arthrex and Smith & Nephew, a British-based competitor, that began years ago. The dispute led to an unfavorable decision by the Patent Trial and Appeal Board against Arthrex.

The board found the challenged patent claims "unpatentable," seeing them as anticipated or obvious, based on art published before Arthrex applied for protection.

After the panel ruled in Smith & Nephew's favor, Arthrex sought relief from the Federal Circuit of the U.S. Court of Appeals, with national jurisdiction, claiming the judges had been unconstitutionally appointed, so they had no power to render a final decision on its patent claims.

Ultimately, the appeals court agreed with Arthrex, but offered a remedy the company didn't like or see as a cure — eliminating the judges' tenure protections, making them removable at will by their bosses, without cause. Arthrex argued the court decision did nothing to solve the real issue the company raised — a lack of a higher authority to review and overturn the administrative patent judges' decisions.

Neither side in the legal spat liked the outcome from the Federal Circuit. After that court denied a rehearing, both sides appealed to the Supreme Court.

The Supreme Court granted a review in October, consolidating the appeals into a single case. The case involved two questions: Was there a constitutional violation and if so, did the Federal Circuit properly resolve it?

Supreme Court offers a new fix to constitutional problem

On the second question, the Supreme Court ruled against the lower court's remedy, proposing its own. 

Arthrex sought to dismantle the entire structure of the patent board system.

In a majority vote, the Supreme Court disagreed, ruling the patent judges' decisions must be subject to review by the director of the U.S. Patent and Trademark Office, making them "properly function as inferior officers."

The decision could open up the door for Arthrex to get the board's unfavorable decision on its patent overturned, or invalidated. It's not yet clear how the review process would work.

Pioneers in arthroscopic, or minimally invasive, surgical technology, used for the repair of knees, shoulders, hips and other joints, Arthrex and Smith & Nephew have been involved in costly and drawn-out patent disputes with one another for nearly 20 years.

The Supreme Court case stemmed from Smith & Nephew's challenge of various claims in a patent owned by Arthrex for knotless sutures used to reattach tissue to bone.

In 2018, Smith & Nephew asked for a review by a three-judge panel of the Patent Trial and Appeal Board.

The challenge came after the two settled a lawsuit Arthrex brought over the same patent.

Since its creation nearly 10 years ago, the patent board has canceled thousands of claims, leading critics to dub it a patent "death squad." In some cases, they could be multimillion-dollar, or even billion-dollar decisions one Supreme Court justice noted while hearing the Arthrex case.

Before the Supreme Court justices, Smith & Nephew and the U.S. government, which joined the case on its side, argued the system for choosing the patent judges was constitutional and made sense because the judges carried out, but didn't make policy.

Arthrex, however, saw the appointment process as unbalanced.

In a nutshell, the company argued the patent board's structure violated the Appointments Clause of the U.S. Constitution because the judges weren't chosen by the President and confirmed by the Senate, like other principal officers, such as department heads, federal judges and ambassadors.

Instead, the Secretary of Commerce chooses the patent judges, in concert with the United States Patent and Trademark Office director.

Arthrex asserted it should be left up to Congress, not the courts, to decide a remedy, but it did not win on that point.

Supreme Court's remedy stirs controversy

The Supreme Court ruled 7-2 that the proper fix is to give the director of the patent office more power over the patent judges and their decisions, including the ability to overturn them. However, it stated the director “need not review every decision," creating uncertainty and stirring controversy in the new process.

In an email, Matthew J. Dowd, a founder and managing partner in Dowd Scheffel PLLC, based in Washington, D.C., who's known for his expertise in patent and intellectual property matters, said the Supreme Court's ruling is a "great win for Arthrex," as the court agreed with its "basic constitutional argument."

However, he said, the "remedy crafted by the court is far more controversial," with many seeing it as merely an opportunity for the patent office's director to "rubber-stamp" the decisions of the Patent Trial and Appeal Board.

At this point, it's unclear how the patent office will implement the new procedures, Dowd noted.

"There is general consensus that the remedy will make the PTAB process even more expensive — which is not what Congress intended — and which will further harm small and independent inventors and innovators," he said.

The Obama Administration created the Patent Trial and Appeal Board in 2012 under the America Invents Act. At the time, then-president Obama described the act as “long overdue reform," saying it was "vital to our ongoing efforts to modernize America’s patent laws," keeping them current with the rest of the world.

The legislation, designed to curtail patent infringement litigation, gave the board the power to review questionable patents and revoke them. The judges' powers and decisions have proved controversial, not just in the Arthrex case.

Supreme Court justices have scrutinized the tribunal six times since its creation.

There are more than 200 administrative patent judges in the U.S. Patent and Trademark Office, who will no longer have "unreviewable authority," with the high court's ruling in the hard-fought Arthrex case.