U.S. patent board is unconstitutional, but problem can be fixed: appeals court

(Reuters) - A federal appeals court on Thursday declared unconstitutional the structure of the federal tribunal that reviews the validity of patents, but said the problem could be fixed by severing a law restricting the removal of its judges.

The decision by the U.S. Federal Circuit Court of Appeals in Washington, D.C., which reviews patent litigation, likely reduces the threat that scores of decisions by the Patent Trial and Appeal Board could be set aside.

In a 3-0 ruling, the court said its decision would be “limited” to cases in which the board had issued final written decisions, and litigants appealed the constitutionality of how its judges were appointed.

It said allowing administrative patent judges to be removed at will by the director of the U.S. Patent and Trademark Office would make the judges “inferior officers,” comply with the U.S. Constitution’s Appointments Clause, and preserve Congress’ chosen means to review patent grants.

“We believe that this, the narrowest revision to the scheme intended by Congress for reconsideration of patent rights, is the proper course of action and the action Congress would have undertaken,” Circuit Judge Kimberly Ann Moore wrote.

Thursday’s decision came in an appeal by medical device company Arthrex Inc of a decision by the three-judge patent board panel that some claims related to its patent for a knotless suture securing assembly were unpatentable.

The appeals court said the case, brought by rival Smith & Nephew and its ArthroCare unit, should be heard by a new panel.

Those companies had warned in court papers that a more far-reaching decision could “open the floodgates” to litigation, and let hundreds of patentees that suffered defeats before the patent board to “get a do-over.”

Lawyers for Arthrex and Smith & Nephew did not immediately respond to requests for comment.

Scott McKeown, a partner at Ropes & Gray, estimated that 50 to 75 cases may be reheard because of Thursday’s decision.

“The impact on pending cases will be limited to proceedings where parties have gotten decisions under the old, unsevered portion of the statute, but have not filed their appeal briefs,” he said. “The concern had been that all patent decisions from the board could have been deemed null and void.”

Some conservatives supported the patent board’s creation in 2011 to rein in trial lawyers, as well as patent “trolls” that acquire patents for the purpose of seeking licensing fees.

But in recent years they have become critical of board decisions favoring larger companies over smaller rivals.

The case is Arthrex Inc v Smith & Nephew Inc et al, U.S. Federal Circuit Court of Appeals, No. 2018-2140.

Reporting by Jonathan Stempel in New York; Editing by Richard Chang