What Arthrex Means for the Future of Administrative Adjudication: Reaffirming the Centrality of Agency-Head Review
Today the Supreme Court issued its decision in United States v. Arthrex, the case raising an Appointments Clause challenge to administrative patent judges (APJs) on the Patent Trial and Appeals Board (PTAB) at the U.S. Patent and Trademark Office (USPTO). In a 5-4 decision on the merits (and 7-2 on the remedy), the Court holds that administrative patent judges violate the Appointment Clause because they issue final decisions not subject to agency-head review. A distinct majority then remedies that constitutional defect by giving the USPTO Director final decisionmaking authority.
Arthrex was a deeply fractured decision, with different majorities for the merits and the remedy. I’ll discuss each in turn, and conclude with a brief note on the decision’s implications for administrative adjudication.
On the merits, the decision is fractured 5-4, with Chief Justice Roberts penning the opinion for Court (Parts I and II). Similar to the Federal Circuit’s decision below, the Court engaged in a formalist interpretation of the Appointments Clause. Under the statutory provisions of the Patent Act (as added by the America Invents Act), the agency head has a significant level of supervision and oversight of administrative patent judges, but the agency head does not have the power to review and reverse their decisions and can remove the administrative patent judges “only for such cause as will promote the efficiency of the service.”
The Supreme Court holds, however, that as a constitutional matter “[o]nly an officer properly appointed to a principal office may issue a final decision binding the Executive Branch in the proceeding before us.” Because administrative patent judges issue the final decisions yet aren’t appointed by the President and confirmed by the Senate as required for principal officers under the Appointments Clause, that’s a constitutional violation. There are five votes for that holding: Roberts, Alito, Gorsuch, Kavanaugh, and Barrett.
Unsurprisingly, Justice Breyer, joined by Justices Sotomayor and Kagan, dissents on the merits to advance a more functionalist approach to determining officer status, finding administrative patent judges to be inferior officers. Here’s a taste:
I continue to believe that a more functional approach to constitutional interpretation in this area is superior. As for this particular suit, the consequences of the majority’s rule are clear. The nature of the PTAB calls for technically correct adjudicatory decisions. And, as in Wiener, that fact calls for greater, not less, independence from those potentially influenced by political factors. The Court’s decision prevents Congress from establishing a patent scheme consistent with that idea.
But there are further reasons for a functional approach that extend beyond the bounds of patent adjudication. First, the Executive Branch has many different constituent bodies, many different bureaus, many different agencies, many different tasks, many different kinds of employees. Administration comes in many different shapes and sizes. Appreciating this variety is especially important in the context of administrative adjudication, which typically demands decisionmaking (at least where policy made by others is simply applied) that is free of political influence. Are the President and Congress, through judicial insistence upon certain mechanisms for removal or review, to be denied the ability to create independent adjudicators?
Second, the Constitution is not a detailed tax code, and for good reason. The Nation’s desires and needs change, sometimes over long periods of time. In the 19th century the Judiciary may not have foreseen the changes that produced the New Deal, along with its accompanying changes in the nature of the tasks that Government was expected to perform. We may not now easily foresee just what kinds of tasks present or future technological changes will call for. The Founders wrote a Constitution that they believed was flexible enough to respond to new needs as those needs developed and changed over the course of decades or centuries. At the same time, they designed a Constitution that would protect certain basic principles. A principle that prevents Congress from affording inferior level adjudicators some decisionmaking independence was not among them.
Finally, the Executive Branch and Congress are more likely than are judges to understand how to implement the tasks that Congress has written into legislation. That understanding encompasses the nature of different mechanisms of bureaucratic control that may apply to the many thousands of administrators who will carry out those tasks. And it includes an awareness of the reasonable limits that can be placed on supervisors to ensure that those working under them enjoy a degree of freedom sufficient to carry out their responsibilities. Considered as a group, unelected judges have little, if any, experience related to this kind of a problem.
Perhaps more surprisingly, the three dissenters above also join Parts I and II of Justice Thomas’s separate dissent, which argues as a matter of precedent and original understanding that administrative patent judges are inferior officers:
The Court now partially agrees with the Federal Circuit. Although it cannot quite bring itself to say so expressly, it too appears to hold that administrative patent judges are principal officers under the current statutory scheme. See ante, at 10–14. But it concludes that the better way to judicially convert these principal officers to inferior ones is to allow the Director to review Board decisions unilaterally. Ante, at 21 (plurality opinion); ante, at 7 (BREYER, J., concurring in part and dissenting in part).
That both the Federal Circuit and this Court would take so much care to ensure that administrative patent judges, appointed as inferior officers, would remain inferior officers at the end of the day suggests that perhaps they were inferior officers to begin with. Instead of rewriting the Director’s statutory powers, I would simply leave intact the patent scheme Congress has created.
Or as Justice Thomas puts it in the introduction to his dissent (technically before Part I that Breyer, Sotomayor, and Kagan join):
For the very first time, this Court holds that Congress violated the Constitution by vesting the appointment of a federal officer in the head of a department. Just who are these “principal” officers that Congress unsuccessfully sought to smuggle into the Executive Branch without Senate confirmation? About 250 administrative patent judges who sit at the bottom of an organizational chart, nestled under at least two levels of authority. Neither our precedent nor the original understanding of the Appointments Clause requires Senate confirmation of officers inferior to not one, but two officers below the President
In the final part of his opinion (Part IV), Justice Thomas encourages the Court to reconsider the “functionalist element” in its Appointments Clause precedents to “align with the text, history, and structure of the Constitution.”
As I predicted last year when the Supreme Court granted certiorari review in Arthrex, if the Court were to find a constitutional violation here (and I predicted it would), the judicial remedy would be a mess.
The Federal Circuit had sought to remedy the issue by excising removal protections for administrative patent judges, such that the agency head could remove administrative patent judges at will. As Alan Morrison and others have argued, it is questionable whether the Federal Circuit’s constitutional fix even works. Perhaps more importantly, that remedy—as a policy matter—is awful. It increases constitutional tensions in agency adjudication between the decisional independence of administrative judges and the political control of agency adjudication. (I’ve written more about those constitutional tensions here.) It is no surprise that the American Bar Association has urged Congress to address these concerns with a statutory fix.
In Part III of his opinion (joined only by Alito, Kavanaugh, and Barrett), Roberts does not adopt the Federal Circuit’s approach. To be sure, he doesn’t say the Federal Circuit’s approach is insufficient. Nor does he mention the policy concerns of at-will removal for agency adjudicators. Instead, he decides to refashion the statutory review structure to give the agency head (the USPTO Director) final decisionmaking authority*:
We conclude that a tailored approach is the appropriate one: Section 6(c) cannot constitutionally be enforced to the extent that its requirements prevent the Director from reviewing final decisions rendered by APJs. Because Congress has vested the Director with the “power and duties” of the PTO, [35 U.S.C.] §3(a)(1), the Director has the authority to provide for a means of reviewing PTAB decisions. See also §§3(a)(2)(A), 316(a)(4). The Director accordingly may review final PTAB decisions and, upon review, may issue decisions himself on behalf of the Board. Section 6(c) otherwise remains operative as to the other members of the PTAB.
For what it’s worth, in The New World of Agency Adjudication, Melissa Wasserman and I agreed (p.188) with the Court that “[p]erhaps the most direct route to increase the Director’s control over adjudicative outcomes would be to create Director review of PTAB decisions.” It’s just that we envisioned Congress providing this fix. As I noted on Twitter earlier this month, it would be aggressive to judicially restructure the statutory review scheme to grant agency-head review—something that seems contrary to pretty clear congressional intent. And yet that’s what the plurality does here.
With the four dissenters on the merits, where did the fifth vote for the remedy come from? Not Justice Gorsuch. He wouldn’t sever the unconstitutional provision but, instead, would just set aside the PTAB’s decision and remand to the agency:
In circumstances like these, I believe traditional remedial principles should be our guide. Early American courts did not presume a power to “sever” and excise portions of statutes in response to constitutional violations. Instead, when the application of a statute violated the Constitution, courts simply declined to enforce the statute in the case or controversy at hand. See Seila Law, 591 U. S., at _ (THOMAS, J., dissenting in part) (slip op., at 15); see also Walsh, N. Y. U. L. Rev., at 769. I would follow that course today by identifying the constitutional violation, explaining our reasoning, and “setting aside” the PTAB decision in this case. See Novartis AG v. Torrent Pharmaceuticals Ltd., 853 F. 3d 1316, 1323–1324 (CA Fed. 2017) (holding that the standard in 5 U.S.C. §706 governs judicial review of PTAB decisions).
Justice Thomas similarly argues that if there were a constitutional violation here, the proper remedy would be to vacate the agency’s decision and remand for a new hearing before properly appointed officers:
But neither reading of the majority’s opinion—(1) that administrative patent judges are principal officers that the Court has converted to inferior officers, or (2) that administrative patent judges are inferior officers whose decisions must constitutionally be reversible by the Director alone—supports its proposed remedy. Take the principal officer view. If the Court truly believed administrative patent judges are principal officers, then the Court would need to vacate the Board’s decision. As this Court has twice explained, “the ‘appropriate’ remedy for an adjudication tainted with an appointments violation is a new ‘hearing before a properly appointed’ official.” Lucia, 585 U. S., at _ (slip op., at 12) (quoting Ryder v. United States, 515 U. S. 177, 183, 188 (1995)). If administrative patent judges are (or were) constitutionally deficient principal officers, then surely Arthrex is entitled to anew hearing before officers untainted by an appointments violation. But, the Court does not vacate the Board’s decision. In fact, it expressly disavows the existence of an appointments violation. Ante, at 23 (plurality opinion).
Instead, the fifth (and sixth and seventh) vote for the Chief Justice’s creative remedy comes from Part II of Breyer’s dissent (and concurrence in the judgment):
For the reasons I have set forth above [in Part I], I do not agree with the Court’s basic constitutional determination. For purposes of determining a remedy, however, I recognize that a majority of the Court has reached a contrary conclusion. On this score, I believe that any remedy should be tailored to the constitutional violation. Under the Court’s new test, the current statutory scheme is defective only because the APJ’s decisions are not reviewable by the Director alone. The Court’s remedy addresses that specific problem, and for that reason I agree with its remedial holding.
Many viewed Arthrex as a potential blockbuster for administrative law—similar to Lucia v. SEC, which held that administrative law judges are at least inferior officers under the Appointments Clause, and Seila Law v. CFPB, which held that the CFPB’s single-director for-cause removal structure violates the separation of powers. In other words, Arthrex, some argued, had the potential to further advance political control of the administrative state and perhaps even further lead to a reconsideration of Humphrey’s Executor‘s removal protection of multi-member independent agencies.
As Melissa Wasserman and I explored in The New World of Agency Adjudication, however, PTAB adjudication is an outlier. This constitutional challenge is narrow and only affects administrative adjudication systems where the agency head lacks final decisionmaking authority—a very small subset of adjudicative systems. And the Arthrex remedy is narrow, as the Court severs the unconstitutional part of the statute (as opposed to striking down the whole adjudication scheme as unconstitutional) and does not eliminate tenure protections for agency adjudicators (as the Federal Circuit had done). The Court just conforms PTAB adjudication to the standard model for federal administrative adjudication where there is agency-head review.
On the other hand, the Court’s decision in Arthrex has the potential to be a pretty big deal for patent adjudication. It sends a strong message that patent adjudication isn’t special in the administrative state. Just like the vast majority of agency adjudicative decisions, the presidentially appointed, Senate-confirmed head of the agency has the final say. In that sense, “patents are political“; patent adjudication, like almost all other federal agency adjudications, is subject to political accountability. In administrative law, that is par for the course. But it is understandable why patent scholars and practitioners might shudder. As Justice Gorsuch put it in his dissent in Oil States Energy Services v. Greene’s Energy Group, “Powerful interests are capable of amassing armies of lobbyists and lawyers to influence (and even capture) politically accountable bureaucracies.” There’s a reason why in Oil States Gorsuch (and other scholars and judges, including Roberts) didn’t think agencies should be able to adjudicate patent rights.
There are, however, compelling policy rationales in federal administrative adjudication for granting the agency head final decisionmaking authority. In The New World of Agency Adjudication, Melissa and I identified three main policy reasons (Part IV.A): (1) to ensure agency heads control the regulatory structure they supervise; (2) to help ensure consistency in adjudicative outcomes; (3) to help the agency head gain greater awareness of how a regulatory system is functioning.” In a recent report to the Administrative Conference of the United States entitled Agency Appellate Systems, Matt Wiener and I flesh out additional policy reasons for agency appellate review (which apply with somewhat similar force to agency-head review).
In other words, once Congress decides to subject disputes to agency adjudication, there are compelling policy reasons for providing agency-head review—even for patent adjudication. I just always thought such a remedy would require Congress to act to amend the Patent Act. (See, e.g., Congress Can and Should Fix the Constitutional Status of Administrative Patent Judges.) Today, however, the Supreme Court does that legislative work itself.
So the Arthrex decision strikes me as the right policy outcome, perhaps just issued by the wrong branch of government.
* In an earlier version of this post, I suggested that Chief Justice Roberts invokes constitutional avoidance to interpret the statute to grant agency-head review. As Will Baude kindly noted on Twitter, that is not correct. This post has been updated to reflect that Part III of Roberts’s opinion instead finds constitutionally unenforceable the statutory provision that reserves final decisionmaking authority to administrative patent judges on the PTAB. See 35 U.S.C. § 6(c) (“Each appeal, derivation proceeding, post-grant review, and inter partes review shall be heard by at least 3 members of the Patent Trial and Appeal Board, who shall be designated by the Director. Only the Patent Trial and Appeal Board may grant rehearings.”). With that statutory provision eliminated (presumably just “only” in the last sentence of Section 6(c)), Roberts concludes that the Court can read the USPTO Director’s general supervisory authority under the Patent Act to provide for agency-head final decisionmaking authority. Although Roberts doesn’t expressly rely on constitutional avoidance, this is nevertheless a very creative and aggressive rewriting of the statutory review framework. For instance, citing Melissa and my article for the proposition that agency-head review “is consistent with the ‘standard federal model’ for agency adjudication,” Gorsuch responds: “It’s easy enough to see why a group of staid judges selecting among policy choices for itself might prefer a ‘standard’ model. But if there is anything we know for certain about the [America Invents Act], it is that Congress rejected this familiar approach when it came to PTAB proceedings.”