Arthrex Wins Supreme Court Battle but May Still Lose the War

A Pyrrhic victory is a victory that inflicts such a devastating toll on the victor that it’s tantamount to defeat.

The phrase originates from a quote from Pyrrhus of Epirus, whose triumph over the Romans in in 279 BCE destroyed most of his army.

Arthrex, Inc. may be feeling a bit like Pyrrhus after its recent victory in the US Supreme Court.

Arthrex owns a patent for “surgical device for reattaching soft tissue to bone without tying a knot.” Arthrex sued Smith & Nephew, Inc. for allegedly infringing that patent. Smith & Nephew then sought inter partes review (IPR) of the Arthrex patent.

As the Supreme Court explained in its decision,

inter partes review is an adversarial process by which members of the PTAB reconsider whether existing patents satisfy the novelty and nonobviousness requirements for inventions.

The IPR procedure is relatively new. It was enacted in 2012 as part of the America Invents Act. Administrative Patent Judges (APJs) on the Patent Trial and Appeal Board (PTAB) conduct IPRs.

As Bloomberg notes,

The Patent Trial and Appeal Board has invalidated more than 2,000 patents since it began work in 2012. Apple says it alone has used the board to successfully attack almost 200 patents, many held by entities interested only in filing lawsuits and extracting royalties. Congress set up the board, known as PTAB, in 2011 as a faster and cheaper alternative to litigation.

But some smaller inventors see a chance to undercut the board, saying it’s become an anticompetitive tool for large companies.

Federal Circuit Judge Randall Rader once called the PTAB a “death squad” for patents:

There’s a tension throughout the system … you’ve got an agency with 7,000 people giving birth to property rights, and then you’ve got, in the same agency, 300 or so people on the back end … acting as death squads, kind of killing property rights.

After three AJPs on the PTAB concluded that Arthrex’s patent was invalid, Arthrex appealed to the Federal Circuit, arguing that the whole IPR system was invalid under the US Constitution.

The Arthrex case had the potential to shut down the entire PTAB (at least until Congress took remedial action). For that reason, the US Government intervened in the case. Apple (the main user of the PTAB IPR system) also filed a brief (surprisingly) backing Arthrex.

The issue before the Court arose under the Appointments Clause of the US Constitution:

That Clause specifies how the President may appoint officers who assist him in carrying out his responsibilities. Principal officers must be appointed by the President with the advice and consent of the Senate, while inferior officers may be appointed by the President alone, the head of an executive department, or a court. Art. II, §2, cl. 2. Arthrex argued that the APJs were principal officers and therefore that their appointment by the Secretary of Commerce was unconstitutional.

The Court held that “the unreviewable authority wielded by APJs during inter partes review is incompatible with their appointment by the Secretary to an inferior office.”

In other words, Arthrex won.

Not so fast, said the Court:

In general, “when confronting a constitutional flaw in a statute, we try to limit the solution to the problem” by disregarding the “problematic portions while leaving the remainder intact.”

Thus, held the Court, “Decisions by APJs must be subject to review by the Director.”

In other words, the PTAB could continue to exist with a fairly minor administrative adjustment.

The Court then remanded the case back to the Acting Director of the US Patent and Trademark Office – leaving Arthrex pretty much back where it started from.

The typical cost to defend an IPR is between $250,000 and $1 million and taking a case all the way to the Supreme Court is also quite expensive.

Thus, Arthrex may be wondering whether winning the patent “war” was worth it.

Categories: Patents