Supreme Court Says Patent Review Judges Are Unconstitutional, But It Can Be Fixed If USPTO Director Can Overrule Their Decisions

from the well-that-creates-some-other-problems dept

As you may recall, a few weeks ago I wrote about how Congress was asking the GAO to investigate whether the director of the US Patent & Trademark Office had been interfering in determinations made by the Patent Trial and Appeal Board (PTAB). I'm not going to go into all of the background again (please read the original for that), but under the America Invents Act, a process for reviewing patents after they were granted was set up, known as the Inter Partes Review (IPR) process. This was important, because the granting of patents is a non-adversarial process, where patent examiners are not given very much time to actually review everything. So the IPR process allowed those (especially those with prior art) to kick off a process by which the PTAB would recheck to see if the original examiner made a mistake in granting a 20 year monopoly to someone.

Unfortunately, because the members of the PTAB are designated as Administrative Patent Judges (APJs), there was the question of whether or not they needed to be appointed by the President with Senate confirmation to abide by the Appointments Clause of the Constitution. That question has been hanging out in the Supreme Court for many months -- with the decision finally coming down this week. In arguing against this notion, the USPTO itself had claimed that the APJs were "interior officers" that don't need Senate confirmation, and part of their "proof" was that the Director of the PTO could review their decisions. This raised some alarms in Congress, because it certainly wasn't their intention (from everything stated so far) to allow the Director of the PTO to put their finger on the scale of what is and what is not patentable.

The full opinion from the Supreme Court is a bit of a mess -- with different Justices signing onto different parts. But the key bits to pull out of this are that the Supreme Court found that the APJs are (or have been) "Principal Officers" meaning they should have been appointed by the President and confirmed by the Senate.

History reinforces the conclusion that the unreviewable executive power exercised by APJs is incompatible with their status as inferior officers. Since the founding, principal officers have directed the decisions of inferior officers on matters of law as well as policy. Hamilton articulated the principle of constitutional accountability underlying such supervision in a 1792 Treasury circular. Writing as Secretary of the Treasury to the customs officials under his charge, he warned that any deviations from his instructions “would be subversive of uniformity in the execution of the laws.” 3 Works of Alexander Hamilton 557 (J. Hamilton ed. 1850). “The power to superintend,” he explained, “must imply a right to judge and direct,” thereby ensuring that “the responsibility for a wrong construction rests with the head of the department, when it proceeds from him.”

However, in then immediately inserts its own remedy, saying that everything is fixable if the Patent Office Director actually can review the IPR decisions.

In sum, we hold that 35 U. S. C. §6(c) is unenforceable as applied to the Director insofar as it prevents the Director from reviewing the decisions of the PTAB on his own. The Director may engage in such review and reach his own decision. When reviewing such a decision by the Director, a court must decide the case “conformably to the constitution, disregarding the law” placing restrictions on his review authority in violation of Article II

So, the good news here is that the important PTAB/IPR process remains alive. But it does seem quite worrisome that the end result is that any Director of the Patent Office can now step in and overrule the PTAB. One would hope that the political ramifications of doing so would prevent it, but it does seem that it's now possible that a Director who just doesn't like the whole IPR/PTAB process (and there are many patent system fans who hate it) could just automatically deny every single IPR.

And that seems very worrisome. Of course, all of this could be solved by making the APJs Senate confirmable, but apparently no one wants to bother with doing that. Alternatively, we could rethink the entire patent approval process altogether, so that it doesn't need to go back and realize it granted 20 year monopolies for no good reasons... but, you know, that would take actual effort.

Filed Under: appointments clause, oversight, patent appeals board, patent review, patentability, patents, ptab, supreme court, uspto

Copyright Royalty Board Found Unconstitutional; Appeals Court Magically Makes It Constitutional Again

from the say-what-now? dept

We've written a few times about constitutional challenges to the legitimacy of the Copyright Royalty Board. As we noted from the beginning, it's pretty clear that, as a matter of fact, the CRB is unconstitutional in that it violates the Appointments Clause. That clause requires judicial appointments to be made only by the President, the courts or the heads of executive branch departments. However, the CRB is appointed by the Librarian of Congress, which you might notice is a part of the legislative branch, not the executive branch, and the Librarian of Congress is a position at a much lower level than a "department head" required under the Appointments Clause. If all that seems pretty technical, you're right -- which is also why we thought that the court cases pursuing this line or reasoning were a waste of time. At best, we said, the courts would agree that the CRB was unconstitutional, and then just have a department head "re-appoint" the same judges.

Back in February, when the appeal to one of these cases was being heard -- the one brought by Intercollegiate Broadcasting Services (IBS), who represents a bunch of college radio stations -- we noted that from the questions raised it seemed clear that the appeals court agreed that, on a technicality, the CRB was unconstitutional, but its main interest was in figuring out how to "minimize" the impact of admitting that a ton of royalty rates have been set and enforced based on an unconstitutional process. And, indeed, that analysis turned out to be entirely accurate.

The ruling has come out and the DC circuit appeals court has agreed that the CRB is unconstitutional... but immediately "fixes" the problem with one change and one statement. The "statement" is that even though no one really considered the Librarian of Congress a "department head" as described in the Appointments Clause, the court now says that the position is, in fact, a Department head. And the one change is that by saying that the Librarian of Congress can not just appoint the judges, but also fire them... suddenly everything is good again:

But we agree with Intercollegiate that the position of the CRJs, as currently constituted, violates the Appointments Clause... To remedy the violation, we follow the Supreme Court’s approach in Free Enterprise Fund v. Public Company Accounting Oversight Bd... by invalidating and severing the restrictions on the Librarian of Congress’s ability to remove the CRJs. With such removal power in the Librarian’s hands, we are confident that the Judges are “inferior” rather than “principal” officers, and that no constitutional problem remains.

Because of this magical sleight of hand, the appeals court decides that it need not even consider the question of whether the crazy rates that the CRB has set up in the past (when it admits they were unconstitutional) should be reviewed. In other words, this one turned out more or less as expected: even if it was obvious to nearly everyone that the CRB is unconstitutional, a little employment jujitsu suddenly makes it constitutional again. There are all sorts of reasons to be annoyed at the CRB and the royalty setting process -- but the arguments over constitutionality were a sideshow all along.

Filed Under: appointments clause, constitution, copyright royalty board, librarian of congress

Appeals Court Hears Case Over Constitutionality Of Copyright Royalty Board

from the missing-the-point-a-bit dept

The Copyright Royalty Board is a horrific abomination of a judicial process -- it's basically a board of three totally out-of-touch judges who get to pick out of thin air what certain copyright royalties will be. They have a terrible track record, agreeing to set "webcasting" rates that would have effectively killed off most internet webcasting. Even more ridiculous is that they only realized they were writing a death sentence for webcasting after basically everyone involved in webcasting protested. Legal challenges to the rates haven't gone well, though some are still ongoing, and many webcasters have cut separate deals to stay alive (barely) but without having to pay the CRB's insane rates.

Some, however, have continued to fight certain aspects of the CRB rates... but many have also started to focus on legal challenges concerning the very constitutionality of the CRB itself. This is based on people remembering the Appointments Clause of the Constitution, that basically says judge appointments may only be made by the President, the courts or the heads of a department. That's a problem. The CRB is appointed by the Librarian of Congress, who is not the head of a department (hell, isn't even technically a part of the executive branch, since the Library of Congress is -- you guessed it -- a part of Congress).

Anyway, last week an appeals court listened to an appeal about this and related issues in a case brought by Intercollegiate Broadcasting Services (IBS), a group that represents the interests of various college radio stations. They have particular concerns about all of this, because many (if not all) college radio stations re-stream their broadcasts online, even though many of those streams probably violate the law (even if the original broadcasts are perfectly legal). This is due to the insanity of having different rules for internet streaming as compared to radio. IBS actually raised a whole bunch of constitutional questions about not just the CRB, but also the DMCA itself.

Unfortunately, the court is only focusing on the CRB constitutionality at this point. As I've noted with other similar cases, while it may feel good to challenge the constitutionality of the CRB based on the Appointments Clause, it seems like a distraction to me. At best, the courts will throw out the old rulings, and dismiss the judges... but that almost certainly will lead to the same, or a similar, panel of judges being immediately reappointed under the proper rules. And in the meantime, the more important detailed challenges to the actual webcasting rates or things like the constitutionality of the DMCA get left by the wayside....

The linked analysis of the appeals court hearing suggests that the court recognizes what is obvious to pretty much everyone: the CRB appointments are pretty clearly unconstitutional. This isn't a complex part of the Constitution. It's just that it's been ignored for years. But the court is looking for ways to "minimize" the impact of such a ruling. So even if they find (correctly) that the appointments were unconstitutional, I wouldn't expect much to change in the long run.

Filed Under: appointments clause, constitutionality, copyright, copyright royalty board, royalty rates, webcasting

Constitutionality Of The Copyright Royalty Board To Finally Get Tested In Court

from the will-it-matter? dept

Last year, we noted that, it seemed clear that the Copyright Royalty Board was unconstitutional. This was due to a technical legal process change a few years ago (which also impacted the patent appeals board). Still, I noted that this probably wasn't a huge deal, because even if the CRB were found to be directed by improperly chosen judges, it would likely be "corrected" quickly by having the President (or a dept head) "reappoint" those same judges. Still, it's been odd that courts have been wary of addressing this issue. Earlier this summer two separate court rulings punted on the issue and refused to address it, instead focusing on other issues.

However, Live365 has now filed a lawsuit where this is the key issue, so hopefully a court will finally address it. Live365, of course, is at the mercy of the Copyright Royalty Board, and its ridiculous royalty rates, which make it nearly impossible to build a webstreaming business. Still, I'm not sure how much of an impact such a lawsuit can really have in the long run. As mentioned, even if it is found that the board is unconstitutional (which, a pretty plain reading of the Constitution suggests it is), it's not clear if anything really changes. The board will just get reappointed. At best this could throw out old CRB rulings. So it could be helpful to buy some time, but it's not clear if it addresses the underlying problem of why three old judges get to decide the business model of a bunch of companies.

Filed Under: appointments clause, constitutionality, copyright royalty board

Not That It Matters... But Appeals Court Rejects Webcasters' Challenge Over Copyright Royalties

from the and-ignores-constitutionality-issue dept

Last week, we noted that the DC Appeals court had rejected a challenge to the Copyright Royalty Board's rates set for satellite radio. Michael Scott notes that the same court has also rejected the challenge to webcasting rates. Of course, this is mostly a moot discussion, because just days before the decision, SoundExchange and some big webcasters worked out a deal -- though there are serious questions about how reasonable these rates really are to webcasters. Still, this latest ruling once again highlights just how out of touch the Copyright Royalty Board is with reality. If the current negotiated rates threaten to put a lot of webcasters out of business, and the CRB's original rates were even higher, doesn't that suggest a pretty serious problem both with the CRB and with the appeals process? Separately, it looks like the court had no problem at all ignoring the constitutional questions about the Copyright Royalty Board for a second time. It's as if no one wants to actually follow what the Constitution says...

Filed Under: appointments clause, constitution, copyright, copyright royalty board, webcasting

Appeals Court Punts On The Constitutionality Of Copyright Royalty Board

from the another-issue-for-another-time dept

While much of the focus on royalty rates has focused on the settlement between webcasters and SoundExchange, in a separate issue, an appeals court has sided with the Copyright Royalty Board in the rates it set for satellite radio (SoundExchange wanted the rates to be even higher, of course). The court found no reason to rule against the CRB, finding no evidence that the rates were "arbitrary, capricious, or unsupported by substantial evidence." But, perhaps drawing more focus was that, in this case, there were some side questions about the very legitimacy of the Copyright Royalty Board itself. This is due to a recognition (first in the patent space) that some of these appointments appear to violate the appointments clause of the Constitution.

While I do have serious questions about the legitimacy of the CRB, it's got a lot less to do with the appointments clause, and a lot more to do with the question of why judges are setting universal royalty rates in an industry, rather than letting the market set the rate -- especially when the CRB judges often do not appear to be particularly internet literate. So the whole appointments issue seems like a side show. Even if a court were to find that the CRB violates the appointments clause, I'm sure a hasty solution would be worked out, whereby those allowed to make appointments (the president or heads of cabinet-level departments) would simply rubber stamp the appointments.

Either way... it doesn't seem to matter just yet. In ruling on the latest case, basically the issue was punted, saying that the matter wasn't raised in a timely manner, and therefore the question will be ignored for now.

Filed Under: appointments clause, constitution, copyright, copyright royalty board

Supreme Court To Review One Small Aspect Of Sarbanes-Oxley

from the this-doesn't-seem-like-a-big-deal... dept

I'm no fan at all of Sarbanes-Oxley, the overly draconian corporate governance law that was passed in the wake of the Enron scandal. Obviously, given the financial messes that we're going through today, it did little to stop financial shenanigans. The reality is that the law did lots of superficial (but extremely expensive) things to basically have someone to pin the blame on, should anything go wrong -- but did little to actually prevent fraud. I'm all for good corporate governance, and efforts to root out fraud -- but Sarbanes-Oxley did no such thing. And, worse, it had pretty massive unintended consequences, such as adding millions to the cost (in pure economic waste) of going public, making it a lot trickier for startups to go public, even if they were completely ready under every other condition. Sure, we had too many IPOs during the dot com boom, but Sarbanes-Oxley made the barrier to going public much greater than it ever should be.

So, I was happy to see headlines suggesting that the Supreme Court is reviewing the law and could possibly throw it out. However, the details are a lot more mundane. Basically, some lawyers are challenging a very narrow part of the law, questioning whether or not it violates the "appointments clause" of the Constitution, which requires that certain officials be appointed by the President or a Cabinet member. So, in this case, officials to a board overseeing Sarbanes-Oxley were appointed by the SEC, rather than a cabinet level representative.

This is nothing to get worked up about.

You may recall, challenging various laws or appointments under this clause has suddenly become popular. We covered a very similar challenge to appointments to the Patent Appeals Board, as well as a similar claim about appointments to the Copyright Royalty Board (and it also came up as an issue during the debate over the TARP program. Of course, with the Patent Appeals Board, all it took was for Congress to make a quick fix to the law, making it so that the law required the Cabinet level member to make the appointment with the "help" of the lower level director who did the original appointments. In other words, nothing really changed other than who signed the appointments.

The only potential "difference" here is that if the Supreme Court sides with those saying this rule is unconstitutional, the entire Sarbanes-Oxley would need to be put back to a vote with any changes, and the thought is that this could open up the law to be fixed. Of course, that may be wishful thinking, as it would also open up the law to be made much, much worse -- and given the populist attacks on corporate governance and corporate malfeasance these days, it seems quite likely that what comes out would be much, much worse in terms of impact... but any oversight board would be appointed at the cabinet level.

Filed Under: appointments clause, sarbanes-oxley