This Term the Supreme Court will decide two cases that could shape the constitutional future of agency adjudication.
First, in Oil States Energy Services v. Greene’s Energy Group, the Court will decide whether certain agency adjudications at the U.S. Patent and Trademark Office unconstitutionally strip parties of their property rights in issued patents. Second, in Lucia v. SEC—the subject of this symposium—the Court will consider whether administrative law judges (ALJs) at the SEC are unconstitutional because they are inferior “officers of the United States” yet were not appointed the President, the head of a department, or a federal court as required by Article II. In Lucia, the Solicitor General not only agrees with the petitioner that SEC ALJs are inferior officers but also urges the Court to provide guidance on how that status affects the statutory removal protections currently in place.
These two cases illustrate the constitutional tensions in modern agency adjudication, at least in the context of adjudicating private rights (or at least quasi-private rights). On the one hand, the Appointments Clause and related constitutional removal principles seem to dictate that agency adjudicators must be appointed and easily removed by the President or heads of departments, in order to provide for sufficient presidential control over federal regulatory activities. This point of agency-head control is driven home quite nicely by David Zaring’s law professor amicus brief in Lucia, in which he empirically explores how the Commission itself—not the SEC ALJs—”is both the de facto and de jure final word in administrative proceedings.”
Yet, on the other hand, such policy or political control over agency adjudication that implicates liberty or property interest perhaps raises due process concerns of an agency being both the enforcer and the adjudicator. As an administrative law professors’ amicus brief in Lucia underscored, “One of the core features of the [Administrative Procedure Act of 1946] was a complicated set of statutory safeguards to assure that the hearing examiners (later renamed ALJs) who were to preside over most agency hearings did not act in ways that reflected bias in favor of the agency that employed them.” That “core feature” of impartiality is absent in an agency adjudicative system, such as at the SEC, where the Commission itself has the final word.
Agency-head control, moreover, has the potential to intrude on the “judicial power of the United States” that Article III vests in the Supreme Court and the lower courts, to judges that enjoy life tenure and salary protection. I’ll return to this point later in the post to flesh out the argument a bit more.
Patent adjudication provides a helpful case study to explore these constitutional tensions. As Melissa Wasserman and I detail in our article The New World of Agency Adjudication (forthcoming next year in the California Law Review), Congress in the America Invents Act of 2011 created a novel agency tribunal—the Patent Trial and Appeal Board (PTAB) within the U.S. Patent and Trademark Office—to adjudicate disputes between private parties as to the validity of issued patents. This is the agency adjudication at issue in Oil States. Our article situates PTAB adjudication within administrative law’s larger landscape of agency adjudication. By surveying this new world of agency adjudication, we conclude that PTAB adjudication is actually not that unusual.
We also identify, however, one core feature of the new world of agency adjudication that is absent at the PTAB: the Director of the Patent and Trademark Office does not have final decision-making authority. During oral argument in Oil States, Chief Justice Roberts raised concerns about this oddity, focusing on how the Director has attempted to exercise such control over PTAB adjudication by ordering rehearing and stacking the Board on rehearing with those who share her substantive vision.
To bring PTAB adjudication within the mainstream of modern agency adjudication, our article concludes by recommending that the agency head be given final decision-making authority. The thrust of our recommendation is normative, in that agency-head control allows for better agency-head/presidential control of agency policymaking and more consistency in adjudicatory outcomes within the agency. But agency-head control also has a constitutional dimension, in at least two respects.
First, as Gary Lawson argues in an article forthcoming in the George Mason Law Review, the Director’s lack of final decision-making authority could be unconstitutional under the Appointments Clause. Under the current statutory scheme, the administrative patent judges that constitute the PTAB—not the Senate-confirmed Director alone—have final decision-making authority. Therefore, Lawson argues, we have an Appointments Clause problem that is distinct from that at issue in Lucia: administrative patent judges are not just inferior officers of the United States but principal officers who must be appointed by the President with advice and consent of the Senate. As principal officers, under the Constitution the President arguably should also have more direct control over their removal.
Second, in distinguishing between Article III courts, Article I legislative courts, and agency adjudicative tribunals, federal courts scholars have emphasized the fact that the agency head has final policymaking authority. In other words, agency-head control has been identified (by Hart & Weschler’s, at least) as among the key characteristics that differentiate agency tribunals from legislative courts and make agency adjudicators “true adjuncts” of federal courts, such that they do not unconstitutionally possess “essential attributes of the judicial power” under Article III. In its seminal 1932 decision in Crowell v. Benson, the Court recognized other key characteristics: agency adjudicatory authority over “specialized, narrowly confined factual determinations,” the agency’s expertise in that particularized area of the law, and the statutory requirement that such agency decisions become enforceable only by an order of an Article III court.
It is a bit of a puzzle why agency-head control would qualify as a characteristic that makes agency adjudication constitutionally consistent with Article III judicial power. After all, if the agency head has final decision-making authority, doesn’t that reinforce the political nature of the adjudication? Put differently, it is difficult to understand how an agency is just an adjunct of an Article III court when the agency adjudicator’s determination can be undone by the agency head in order to advance the agency’s and/or the presidential administration’s policy preferences. That seems contrary to Article III’s vesting of judicial power in government officials who are insulated from influence by the political branches via tenure and salary protections.
Indeed, in Stern v. Marshall, the Roberts Court seemed to narrowly read Crowell’s “adjunct” theory of agency adjudication of private rights. In holding that Article I bankruptcy courts are unconstitutional, the Court refused to apply Crowell broadly to encompass bankruptcy courts as Article III adjuncts. Instead, Chief Justice Roberts, writing for the Court, read Crowell as specific to “the context of expert administrative agencies that oversee particular substantive federal regimes.” And, in particular, the Stern Court noted that Crowell’s constitutional approval of agency adjudication of private rights occurred only because the agency adjudicator there was a “true ‘adjunct’ of the District Court.” That is because, the Court observed, “the administrative adjudicator [in Crowell] had only limited authority to make specialized, narrowly confined factual determinations regarding a particularized area of law and to issue orders that could be enforced only by action of the District Court.”
It’s possible that the Supreme Court in Oil States strikes down PTAB adjudication as unconstitutional because patent rights are property rights that must be adjudicated by an Article III court and with a jury trial. I think that outcome is quite unlikely. Even if the Court ends up holding that parties have a private property interest in issued patents, it likely will still allow agency adjudication of patents issued after Congress’s 2011 creation of PTAB adjudication, under some theory that such agency adjudication is a condition embedded in the post-2011 patent property grant. In other words, PTAB adjudication would only be eliminated as a constitutional matter for patents issued before 2011. (Richard Epstein has argued that this would be an unconstitutional condition.)
Such a decision in Oil States would not mark the end of the constitutional inquiry into PTAB adjudication. As noted above, the Court may well soon confront an Appointments Clause challenge based on the agency head’s lack of final decision-making authority. As Melissa and I outline in our article, Congress could easily fix that constitutional problem by amending the Patent Act to allow for agency-head review. (As we discuss in the article, there are other means short of statutory amendment that could help address the normative problems created by the lack of such agency-head policymaking control.) Even if Congress were to fix that constitutional infirmity, federal courts may still need to confront whether agency adjudicators of private (or quasi-public) rights—like the PTAB*—are “true adjuncts” of Article III courts. The Stern Court’s narrower reading of Crowell seems to leave in flux the constitutional future of agency adjudication of private rights.
The same would be true of SEC adjudication after Lucia. Even if Congress (or the executive branch) were to remedy any constitutional deficiencies found by the Lucia Court in the appointment (and removal) of SEC ALJs, we would still be left with constitutional questions. Like with patent agency adjudication, questions would remain about whether the SEC is just a “true adjunct” of Article III courts or otherwise a permissible agency adjudicator of the rights at issue in SEC adjudications. Second, we would need to confront the potential due process concerns of the political appointees at the agency being both the enforcer and adjudicator in a given case.
This post has no doubt raised more questions than provided answers. I expect the same will be true of the Court’s decisions in Lucia and Oil States later this year. I plan on further exploring these constitutional tensions in agency adjudication, in light of the Court’s ultimate decisions in Oil States and Lucia, in my contribution to the Iowa Law Review’s Administering Patent Law Symposium that will take place in the fall.
* I have purposefully included “private or quasi-private rights” in framing these issues, as the categorization of patent rights is in dispute in Oil States. The Oil States Court could answer the constitutional questions there by categorizing patent rights as not any type of private right, such that Crowell’s adjunct theory of agency adjudication may not apply at all.
This post is part of a symposium on Lucia v. SEC. All of the posts can be read here.