Arbitration, the PTAB, and the Supreme Court

In my book, Arbitrating Patent Disputes, A Practical Guide (ABA Books), one of the first issues I deal with is whether parties should agree to use arbitration to resolve disputes.  There are many good reasons to use arbitration to resolve patent disputes, including lower expense, faster resolution, ability to help pick the decision-maker, finality, privacy, and the like.  There are attributes of arbitration – like limited discovery, relaxed evidentiary rules, and lack of appeal – that trouble some parties. And yet, resolving patent disputes in court is typically so expensive that arbitrating them is usually a better way to go.

Arbitration or the PTAB?

But parties should also consider other ways of resolving patent disputes put in place by the Leahy-Smith America Invents Act.  One is inter partes review at the Patent Office.  A  party can take a patent back to the patent office for a sort of administrative trial challenging the validity of the patent based on prior art.  If the challenger can show there is reasonable chance at least one claim of the patent is invalid, the matter goes to a hearing  before panel of Administrative Patent Judges (APJs) at the Patent Trial and Appeal Board (the PTAB). The process is to be completed within 12 to 18 months of institution. 

Thus, like arbitration, inter partes review may be a faster and cheaper way to resolve a patent dispute than a federal trial.  And the decisionmakers tend to be more specialized.  Inter partes review thus has become popular.  So why not go for patent office review instead of arbitration to resolve patent disputes?

There are still compelling reasons to choose arbitration over PTAB review.  First, your dispute may not involve the invalidity of a patent based on prior art.  The question may be whether a particular product is covered by the patent and, therefore, royalties are due.  Or the dispute may be over royalty calculations or other disputes likely to be involved in a contract involving patent-related matters.  The PTAB won’t resolve any of those issues.  Second, PTAB proceedings are still public governmental proceedings.  

Put succinctly, inter partes review is a one-trick pony, limited to patent validity issues based on prior art.  Arbitration can be used to resolve any issue that may arise in your patent dispute. 

The PTAB and the Supreme Court

But recently, another issue brought use of inter partes review at the PTAB into question:  it might be unconstitutional.

Which brings us to the Supreme Court and United States V. Arthrex, Inc.

Anthrex, Inc., a developer of medical devices, was disappointed that PTAB APJs found its patent invalid after an inter partes review.  It argued in its appeal to the Federal Circuit that PTAB APJs were properly classified under the appointments clause of the Constitution as “Principal Officers,” who must be appointed by the President with the advice and consent of the Senate.  But PTAB APJs were just appointed by the Secretary of Commerce.  So, Anthrex argued, they were unconstitutionally appointed, and their decision could not stand.  

The Federal Circuit agreed.  It noted that neither the Secretary of Commerce nor the Director of the Patent Office had the authority to review APJs’ decisions or remove them from office at will.  The Director could only challenge their decisions in an appeal to the Federal Circuit.  To fix the constitutional violation, the Federal Circuit made the APJs removable at will. This, it said, rendered them inferior officers and not principal officers.  It then sent the case down to a new panel of APJs who, with their fresh inferior status, were no longer acting in violation of the appointments clause.

No one involved in the case liked the Federal Circuit’s approach.  They sought Supreme Court review, and they got it.

The Supreme Court agreed that the manner of appointing APJs violated the constitution.  But it had a different take than the Federal Circuit on how to fix it.  It reasoned that what made the APJs principal officers was that their decisions were final and unreviewable by the Director.  If they were inferior officers, the Director would have the power to review and overturn their decisions.  So, the Court invalidated as unconstitutional the portion of the America Invents Act that insulated the decisions of the APJs from the Director’s review.  With their decisions subject to review by the Director, the APJs were no longer acting as principal officers.  The case would be remanded to the Director for review.  That fixed the constitutional problem, according to the Court. 

Where does all this leave us?

This leaves us back pretty much where we were before constitutionality of inter partes review became an issue, but not quite.  Inter partes review is still available at the Patent Office.  But it may not be quite as fast because the Director will have to have some process for the parties seeking review before him or her.  Exactly what that process will be is currently unknown. So, we don’t know how long it is likely to drag things out at the Patent Office or exactly what rules will apply to the Director’s review. 

So today, many reasons suggest parties should consider arbitration rather relying on inter partes review.  But a possible constitutional attack on the result is no longer one of them.