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January 14, 2008

Suspicious Procedures

An amici curiae brief filed late last month by Polestar Capital Associates and The Norseman Group in the Tafas v. Dudas USPTO rules imbroglio tears the agency a new one:

The PTO failed its procedural rulemaking obligations. The PTO asserted that certain documents did not exist; yet now they have suddenly appeared in the administrative record. The PTO’s procedures are “suspicious” at best, and suggest that the “administrative record” is not an accurate or representative record of open-minded and reasoned decision making, but rather an ex post collection of documents cherry picked for this litigation.

The brief:

This Court has previously admonished the PTO to reexamine its “suspicious procedures.” But here, the PTO failed its procedural rulemaking obligations. First, material data, analysis, and computer models were not disclosed as required by the APA. Because of the lack of disclosure, the PTO’s “10,000 page” record fails a number of APA requirements: the record lacks foundation, cannot be reliably understood, could not be fairly commented on during notice and comment, and could not receive proper executive branch review. Second, documents that were in the record have now been expunged from the “administrative record” given to this Court. Third, in replies to Freedom of Information Act (FOIA) requests in 2006 and 2007, the PTO asserted that certain documents did not exist; yet now they have suddenly appeared in the administrative record. The PTO’s procedures are “suspicious” at best, and suggest that the “administrative record” is not an accurate or representative record of open-minded and reasoned decision making, but rather an ex post collection of documents cherry picked for this litigation.

There are at two legal consequences to the PTO’s procedural failures.

First, the PTO’s inadequate rulemaking procedures denied the public a meaningful opportunity for notice and comment. The PTO’s selective disclosure of material information compromised review by the Office of Management and Budget (“OMB”) and Small Business Administration (“SBA”) during April-July 2007. Further, the Court cannot assess the reliability or validity of the PTO’s conclusions because the PTO withheld its analyses. This renders the new Rules “arbitrary and capricious” and “without procedure required by law,” 5 U.S.C. § 706(2)(A) and (D).

Second, information that the PTO disseminated for public comment, and used as the foundation for its “Town Hall” presentations, did not adhere to the PTO’s own information quality rules. Agency failure to follow its own regulations, or to adhere to information quality principles, is symptomatic of decision-making that is incapable of reaching a reasoned outcome consistent with statutory confines.

The only logical conclusion -

It is a “well-settled rule that an agency's failure to follow its own regulations is fatal to the deviant action.” IMS, P.C. v Alvarez, 129 F.3d 618, 621 (D.C. Cir. 1997). The PTO repeatedly chose not to follow its own regulations. The Office ignored respected analytic procedures that have been in place for more than 25 years; failed to abide by guidance the Office itself issued in 2002 and which it had committed itself to follow; and circumvented another law by reverse engineering a “determination” that small entities would not be significantly affected by its regulations.

The new Rules must be “held unlawful and set aside.” 5 U.S.C. § 706(2). The PTO should be instructed to conduct any future rulemaking proceedings with the transparency and the safeguards required by the Administrative Procedure Act and other procedural law applicable to rulemaking.

Background -

On January 3, 2006, the agency published two Notices of Proposed Rulemaking. These two Notices did not disclose the PTO’s estimates of burden for complying with the requirements of the new Rules, and did not disclose any estimate by the PTO of the economic burden of the loss of patent value that would be caused by the new Rules. There was no disclosure of any of the PTO’s data, assumptions, computer models, analysis methodology, or measurement protocols. Many of the factual assertions in the Notices lacked any disclosed support whatsoever.

The PTO created a web page on the new rules that remained static, offering nothing about its decision-making process. The agency withheld data on the bases of its rules derivations. Freedom of Information Act (FOIA) requests were shucked off. Only later did smatterings dribble out. But, the brief contends, the PTO has still not disclosed essential information about its decision-making.

Five months after the close of Notice and Comment, on October 19, 2006, Commissioner Doll offered to make the PTO’s model available to hand-picked parties on an ex parte basis...

But October 2006 was well after the May cutoff for public comment. Commissioner Doll’s offer was thus effectively a concession that the PTO “hid the peanut” during notice and comment, Hanover Potato, 989 F.2d at 130 n.9. Such a course of action was “arbitrary and capricious” and “without observance of procedure.”

"Arbitrary and Capricious" Agency Action -

Agencies are required to disclose the factual bases for any rules they propose to adopt or adopt in final form.5

5 The PTO’s brief asserts that no notice and comment was required. The PTO is wrong, for at least four reasons. First, the rules are “substantive,” as others have argued. Second, an agency is required to use notice and comment procedures for any rule to which the agency intends to give “force of law” or apply with “legally binding consequences” against the public. Manufactured Housing Institute v. EPA, 467 F.3d 391, 399 (4th Cir. 2006). The PTO repeatedly states in the Final Rule notice that it intends the new Rules to have binding effect, up to and including abandonment of an application. 37 C.F.R. § 1.75(b)(3), § 1.78(b)(5). The PTO also states that it intends to enforce the new rules against attorneys personally as a disciplinary matter. 72 Fed. Reg. 46779, col. 2. Third, “If a new agency policy represents a significant departure from long established and consistent practice that substantially affects the regulated industry, the new policy is a new substantive rule and the agency is obliged, under the APA, to submit the change for notice and comment.” Shell Offshore Inc. v. Babbitt, 238 F.3d 622, 630 (5th Cir. 2001). Reversal of previous policy is discussed in GSK’s brief at pp. 24-25. Fourth, procedural rules that change “the very character” of a proceeding are substantive, and require notice and comment. In re Fibreboard Corp., 893 F.2d 706, 711 (5th Cir. 1990). Under any of these four tests, full and fair notice and comment was required.

The continuation rules are rightly skewered.

The Final Rule notice frequently reiterates the PTO’s substantive judgment that “new” applications are more important than “old” applications. E.g., 72 Fed. Reg. at 46718 col. 3, 46719 col. 1 and 3. Congress did not intend such discrimination. § 120 provides that a continuation application “shall have the same effect” as a “new” application. The PTO cites no indication that Congress ever expressed any preference for “new” applications or antipathy toward “old” applications. The PTO has no authority to express its substantive judgment on the issue, let alone encode that judgment in binding rules.

Additionally, the rules attempt to undo Congress’ intent by causing substantial expropriation of property rights. Congress protected inventors from PTO delay by implementing “patent term adjustment” in 35 U.S.C. § 154(b): patent term is extended when PTO delays exceed certain limits. However, both the “streamlined examination procedure” set forth at 72 Fed. Reg. 46721, col. 1-2, and the closing of current “voluntary divisional” practice in favor of the “file all claims at once and let the PTO involuntarily divide” strategy required by § 1.78(d)(1) force an applicant to walk away from term adjustment.


To my knowledge, Stephen Albainy-Jenei at Patent Baristas got the scoop. Nice work sir!

Posted by Patent Hawk at January 14, 2008 1:12 AM | The Patent Office


Patent Hawk,

Thanks for this post. I suspect that Steve got the Polestar Brief from me, but I'm glad he posted a summary of the Polestar Brief on the Patent Baristas web site. I got the Polestar Brief from the MVS File Wrapper Blawg, so I can't take credit for it either.

The Polestar Brief is a must read for all those who practice before the PTO as to the repeated and egregious flaws in the PTO rule making process, both on these set of Rules, and the upcoming Rules. Frankly, this Brief should also be a must read for all those admin law academia (including those signing on the Lemley et al. Amicus Brief in support of the PTO) who can't or won't address the reality of an agency playing fast and loose with the APA (as well as the RFA and OMB) procedures. What makes the Polestar Brief even more compelling is that it has a well-supported and documented factual basis, most of which comes from the PTO's administrative record (or lack thereof), as well as statements from various PTO official.

Posted by: EG at January 14, 2008 7:53 AM

I have confidence that the Odin law firm's brief on behalf of Norseman will be successful, or if not, they will at least end up together in Valhalla with the rest of us patent lawyers.

Posted by: Anonymous at February 7, 2008 12:22 PM

If the allegations in the Polestar brief are true, it appears ot me that one or more attorneys for the PTO may have been guilty of professional misconduct which could subject them to discipline, but I'm not holding my breath for either the court or anyone with knowledge of the facts to file appropriate complaints, however much they may be warranted.

Posted by: Jeff Spangler, Arlington, VA at February 14, 2008 8:01 PM