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April 1, 2008


Judge James C. Cacheris in the Eastern District of Virginia, on killing the examination limits railroaded into existence by the USPTO:

Because the USPTO's rulemaking authority under 35 U.S.C. § 2(b)(2) does not extend to substantive rules, and because the Final Rules are substantive in nature, the Court finds that the Final Rules are void as "otherwise not in accordance with law" and "in excess of statutory jurisdiction [and] authority." 5 U.S.C. § 706(2).

Background on the patent prosecution process.

Patent examination is governed by the Patent Act. See 35 U.S.C. §§ 1 et seq. To obtain patent protection on an invention, an applicant first files a written patent application with the USPTO. Id. § 111. The first application filed for a given invention is a "parent" or "initial" application. A parent application contains two primary parts: a "specification," which describes the invention and how to make and use it, and one or more "claims," which identify the scope of the legal protection that the invention should receive. Id. § 112. A claim may be in either "independent," "dependent," or "multiple dependent" form. Id.

Once the application is filed, a patent examiner determines whether the claimed invention meets certain statutory requirements such as novelty, nonobviousness, and definiteness, among others. See id. §§ 102, 103, 112. If an application fails to meet these demands, the examiner will issue an "Office Action" containing the grounds for rejection. Id. §§ 131, 132(a). Upon receiving an Office Action, an applicant may amend his claims, argue against the rejection, or present evidence showing why the invention is patentable. 37 C.F.R. § 1.111 (2006). The patent examiner must then respond by either allowing some or all of the claims or by issuing another rejection. 35 U.S.C. § 151. This back-and-forth exchange between an applicant and an examiner is commonly referred to as the "prosecution" of an application.

After receiving a final rejection, an applicant may: (1) appeal to the Board of Patent Appeals and Interferences and from there to the United States Court of Appeals for the Federal Circuit; (2) file a "request for continued examination" ("RCE") of the application; or (3) file a "continuation" or "continuation-in-part" application. Id. §§ 120, 132(b), 134, 141, 145; 37 C.F.R. § 1.114 (2006). Continuation and continuation-in-part applications use the same specification as the pending parent application and enjoy the benefit of the filing date of the parent application (the "priority date"), while amending claims or offering further evidence or arguments as to the patentability of the claimed invention. See 35 U.S.C. § 120. Although an applicant may wait until a final rejection to file a continuation or continuation-in-part application, they are not required to do so.

In situations where an applicant claims more than one independent and distinct invention in an initial application, the examiner may impose a "restriction requirement" that forces an applicant to separate their multiple independent inventions into "divisional" applications that claim a single invention. Id. § 121. The applicant must choose one of the inventions to prosecute in their initial application, and can prosecute the remaining inventions in their divisional applications, which also claim the priority date of the parent application. Id.

On the USPTO-proposed rules:

On January 3, 2006, the USPTO issued two separate notices of proposed rulemaking in the Federal Register: "Changes to Practice for Continuing Applications, Requests for Continued Examination Practice, and Applications Containing Patentably Indistinct Claims," 71 Fed. Reg. 48 (Jan. 3, 2006), and "Changes to Practice for the Examination of Claims in Patent Applications," 71 Fed. Reg. 61 (Jan. 3, 2006)(collectively, the "Proposed Rules"). The Proposed Rules delineated changes to the examination process that would limit the number of continuing applications, RCEs, and claims that an applicant could make as a matter of right. The USPTO justified the proposed changes on the ground that the growing number of continuation applications and increasing number and complexity of claims in applications had crippled the USPTO's ability to examine newly-filed applications. See 72 Fed. Reg. at 46716-21. After a four-month public comment period where the USPTO received hundreds of written comments, many of which expressed disapproval of the Proposed Rules, see 72 Fed. Reg. at 46744-830, the USPTO published the Final Rules on August 21, 2007.

Under the old system, an applicant could file an unlimited number of continuation or continuation-in-part applications, RCEs, and claims. The Final Rules modify that system in several ways. First, Final Rules 78 and 114 (collectively, the "2+1 Rule") permit an applicant as a matter of right to file two continuation or continuation-in-part applications, plus a single RCE, after an initial application. 72 Fed. Reg. at 46838, 46841; 37 C.F.R. §§ 1.78(d)(1)(i)-(iii), 1.114(f). If the applicant wants to engage in further prosecution, a third continuation or continuation-in-part application or a second RCE can be filed with a "petition and showing" that explains why the amendment, argument, or evidence could not have been presented previously. 72 Fed. Reg. at 46839, 46841; 37 C.F.R. §§ 1.78(d)(1)(vi), 1.114(g). In extraordinary situations, if an applicant believes that the petition and showing requirement would work an injustice, it may petition for a waiver of the rule. 37 C.F.R. § 1.183 (2006). The 2+1 Rule also applies retroactively to patent applications already filed before the effective date of the Final Rules. See 72 Fed. Reg. at 46716-17.

Second, Final Rule 75 (the "5/25 Rule") permits an applicant to present a total of five independent claims or twenty-five total claims for examination without providing any further information about those claims. 72 Fed. Reg. at 46836; 37 C.F.R. § 1.75(b)(1). An applicant who wants to exceed either limitation must provide an "examination support document" ("ESD") containing information about the claims that may assist the examiner in determining the patentability of the claimed invention. 72 Fed. Reg. at 46836; 37 C.F.R. § 1.75(b)(1). Final Rule 265, as well as certain supplemental guidance issued by the USPTO, establishes the requirements for an ESD. See 72 Fed. Reg. at 46842-43; 37 C.F.R. § 1.265. In addition, both the 5/25 Rule and the ESD requirement apply retroactively to pending applications for which a first Office Action on the merits was not mailed before the effective date of the Final Rules. See 72 Fed. Reg. at 46716.

Final Rules 75 and 78 also alter the existing examination process in other ways. Final Rule 75 defines how claims referring to different statutory classes of invention will be treated and how multiple dependent claims will be counted for purposes of the 5/25 Rule. 72 Fed. Reg. at 46836-37; 37 C.F.R. §§ 1.75(b)(2) & (b)(5)(c). Final Rule 78 defines the terms "divisional," "continuation," and "continuing application" to eliminate any confusion over how the 2+1 Rule applies, and clarifies that a "voluntary divisional" application does not exist under Section 121 of the Patent Act and that a continuation-in-part application cannot be filed off of a divisional. 72 Fed. Reg. at 46837-38; 37 C.F.R. §§ 1.78(a) & (d). Finally, Final Rule 78 requires patent applicants to identify related patent applications and sets forth a rebuttable presumption that applications meeting certain conditions contain patentably indistinct claims, thereby preventing applicants from evading the 2+1 and 5/25 Rules by attempting to simultaneously prosecute indistinct applications. 72 Fed. Reg. at 46840; 37 C.F.R. §§ 1.78(f)(1) & (2).

On the lawsuit:

On August 22, 2007, Tafas filed a Complaint against the USPTO. He then filed an Amended Complaint on September 7, 2007, seeking, among other things, preliminary and permanent injunctions prohibiting the USPTO from implementing the Final Rules and a declaratory judgment that the Final Rules violate the Constitution, the Patent Act, the APA, and the Regulatory Flexibility Act ("RFA"). On October 9, 2007, GSK filed a Complaint against the USPTO, and two days later filed an Amended Complaint, seeking relief largely similar to that sought by Tafas. On October 15, 2007, GSK moved for a Temporary Restraining Order and preliminary injunction enjoining the implementation of the Final Rules, which this Court granted on October 31, 2007. GSK, Tafas, and the USPTO then filed their respective Motions for Summary Judgment on December 20, 2007, and the USTPO followed on January 22, 2008 with a Motion to Strike certain exhibits filed by Tafas, Amici Curiae Polestar Capital and Norseman Group, and Amicus Curiae Dr. Ron D. Katznelson in connection with summary judgment.

GSK and Tafas claim that the Final Rules, which change the patent system by modifying several long-established rules governing patent examination by the USPTO, are unlawful agency action under Section 706(2) of the APA and should be declared null and void.

The USPTO argues that the Final Rules are entirely lawful and that it should be permitted to go forward and implement these much needed changes.

The standard for review:

Agency action may be set aside if, upon reviewing the administrative record, the court finds that the agency action is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," "contrary to constitutional right, power, privilege, or immunity," "in excess of statutory jurisdiction, authority, or limitations, or short of statutory right," or "without observance of procedure required by law." 5 U.S.C. §§ 706(2)(A)-(D).

The decision:

GSK, Tafas, and the USPTO make numerous arguments for summary judgment in their favor. After thorough examination of the parties' briefs, the arguments of roughly two dozen amici curiae, and the extensive administrative record, the Court finds that the Final Rules are substantive in nature and exceed the scope of the USPTO's rulemaking authority under 35 U.S.C. § 2(b)(2). Consequently, the Court will grant summary judgment to GSK and Tafas and void the Final Rules as "otherwise not in accordance with law" and "in excess of statutory jurisdiction [and] authority." 5 U.S.C. § 706(2). In addition, because the Court believes that one who judges least judges best, it will not reach the other issues raised by the parties, resting instead on the determination of a single dispositive issue.

Section 2(b)(2) of Title 35 empowers the USPTO to "establish regulations, not inconsistent with law," to "govern the conduct of proceedings in the Office." 35 U.S.C. § 2(b)(2)(A). The USPTO may promulgate regulations that "facilitate and expedite the processing of patent applications," id. § 2(b)(2)(C), and "govern the . . . conduct of agents, attorneys, or other persons representing applicants or other parties before the Office," id. § 2(b)(2)(D). See also Lacavera v. Dudas, 441 F.3d 1380, 1383 (Fed. Cir. 2006)(interpreting Section 2(b)(2) as providing the USPTO with the "broad authority to govern the conduct of proceedings before it"); In re Borgese II, 303 F.3d 1362, 1368 (Fed. Cir. 2002)(finding that Section 2(b)(2) empowers the USPTO to "set reasonable deadlines and requirements for the prosecution of applications").

Under Federal Circuit precedent, however, Section 2(b)(2) does not vest the USPTO with any general substantive rulemaking power. Merck & Co., Inc. v. Kessler, 80 F.3d 1543, 1550 (Fed. Cir. 1996); see also Eli Lilly & Co. v. Bd. of Regents of Univ. of Wash., 334 F.3d 1264, 1269 n.1 (Fed. Cir. 2003)(citing Merck); Brand v. Miller, 487 F.3d 862, 869 n.3 (Fed. Cir. 2007)(same). Merck involved an interpretive "Final Determination" by the USPTO regarding the interrelationship between the Hatch-Waxman Act and the Uruguay Round Agreements Act. See 80 F.3d at 1550. In concluding that the USPTO's interpretation was not entitled to Chevron deference, the Federal Circuit found that the USPTO's broadest rulemaking power - Section 6(a), the identical predecessor to Section 2(b)(2)(A) - "authorizes the Commissioner to promulgate regulations directed only to 'the conduct of proceedings in the [USPTO]'; it does NOT grant the Commissioner the authority to issue substantive rules." Id. at 1549-50 (emphasis in original) (quoting Animal Legal Def. Fund v. Quigg, 932 F.2d 920, 930 (Fed. Cir. 1991)). Furthermore, "substantive declaration[s] with regard to the Commissioner's interpretation of the patent statutes, whether it be section 101, 102, 103, 112 or other section," also fall outside the bounds of Section 2(b)(2)'s mandate to regulate the "conduct of proceedings" before the Office. Animal Legal Def. Fund, 932 F.2d at 930.

In addition, the fact that 35 U.S.C. § 2(b)(2)(B) requires the USPTO to engage in notice and comment rulemaking in accordance with 5 U.S.C. § 553 does not empower the USPTO to promulgate substantive rules. While Section 553 of the APA ordinarily requires notice and comment rulemaking only when an agency intends to promulgate a substantive rule, notice and comment must also occur when required by statute. See 5 U.S.C. § 553(b). Here, the various provisions of Section 2(b)(2) are joined by an "and," not an "or." This use of the conjunctive means that under Section 2(b)(2) the USPTO may establish regulations, not inconsistent with law, that govern the proceedings in the Office, and that those rules must be made in accordance with 5 U.S.C. § 553. 35 U.S.C. § 2(b)(2)(emphasis added). In other words, the structure of Section 2(b)(2) makes it clear that the USPTO must engage in notice and comment rulemaking when promulgating rules it is otherwise empowered to make - namely, procedural rules. The requirement of compliance with Section 553 cannot be read as creating substantive rulemaking authority by implication. See Whitman v. Am. Trucking Ass'ns, 531 U.S. 457, 468 (2001)("Congress . . . does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions - it does not, one might say, hide elephants in mouseholes.").

This reading of Section 2(b)(2) is further supported by the fact that, since 2005, Congress has debated and considered whether it should grant the USPTO substantive rulemaking authority but has declined to do so. See, e.g., H.R. 2795, 109th Cong. § 8 (June 8, 2005)("The Director may by regulation limit the circumstances under which an application for patent, other than a divisional application that meets the requirements for filing under section 121, may be entitled to the benefit under section 120 of the filing date for a prior-filed application."); S. 3818, 109th Cong. § 6(e) (Aug. 3, 2006)(granting the USPTO authority to promulgate rules to "carry out" the Patent Act); H.R. 1908, 110th Cong. § 14(a) (Sept. 10, 2007)("The powers granted under paragraph (2) of subsection (b) include the authority to promulgate regulations to ensure the quality and timeliness of applications and their examination, including specifying circumstances under which an application for patent may claim the benefit under sections 120, 121, and 365(c) of the filing date of a prior filed application for patent."). The Court may rely on congressional inaction when it signals Congress's satisfaction with the status quo. See Zuni Pub. Sch. Dist. No. 89 v. Dep't of Educ., __ U.S. __, 127 S. Ct. 1534, 1540-41 (2007)(highlighting congressional inaction as bearing on a dispute concerning agency authority).

The USPTO had sought to erase the distinction between procedural and substantive rulemaking authority, arguing that the rules were okay "because they "govern the conduct of proceedings in the Office" by "facilitat[ing] and expedit[ing]" the application process."

Despite this attempt to abolish the substantive/procedural distinction, however, the balance of the case law in the Federal Circuit and the Supreme Court indicates that the distinction exists, and that it is pertinent to this dispute. Both Merck and Animal Legal Defense Fund acknowledge the divide, and the law in those cases is clear: Section 2(b)(2)'s authority is limited to rules governing the "conduct of proceedings" before the Office, the USPTO does not have the authority to issue substantive rules, and it does not have the authority to make substantive declarations interpreting the Patent Act. See Merck, 80 F.3d at 1549-50; Animal Legal Def. Fund, 952 F.2d at 930. Contrary to the USTPO's contention, the holding in Merck is not mere dicta. Instead, the Court's delineation of the USPTO's rulemaking authority under Section 2(b)(2) formed the basis for its conclusion that the "Final Determination" at issue in that case was not entitled to Chevron deference. See Merck, 80 F.3d at 1549-50. Furthermore, while the USPTO is correct that the ultimate issue in Animal Legal Defense Fund was whether a USPTO policy notice should have been subject to notice and comment rulemaking, in deciding that question the Court nevertheless made a strong statement about the procedural, rather than substantive, nature of Section 2(b)(2)'s statutory predecessor. See 932 F.2d at 930-31. Accordingly, the Court finds that Section 2(b)(2) does not permit the USPTO to promulgate substantive rules, and any rules that may be deemed substantive will be declared null and void.

Failing that, the USPTO wanted the rules enforced "because they are clearly procedural."

While the APA does not define a "substantive rule," any rule that "affect[s] individual rights and obligations" is substantive. Chrysler Corp. v. Brown, 441 U.S. 281, 302 (1979); see also Animal Legal Def. Fund v. Quigg, 932 F.2d at 927 (stating that substantive rules are those that "effect[] a change in existing law or policy which affect[] individual rights and obligations"); Am. Hosp. Assoc. v. Bowen, 834 F.2d 1037, 1045 (D.C. Cir. 1987)(defining substantive rules as those that "grant rights, impose obligations, or produce other significant effects on private interests . . . or which effect a change in existing law or policy")(internal citations omitted). Despite the USPTO's arguments, the Court finds that the Final Rules are neither procedural rules nor rules relating to application processing that have substantive collateral consequences, but substantive rules that change existing law and alter the rights of applicants such as GSK and Tafas under the Patent Act. The 2+1 Rule and the 5/25 Rule, which limit continuing applications, RCEs, and claims, and the ESD requirement, which shifts the examination burden onto applicants, constitute a drastic departure from the terms of the Patent Act as they are presently understood. By so departing, the Final Rules effect changes in GSK's and Tafas's existing rights and obligations.

The judge then patiently explained, beginning on page 20 of the decision, how the proposed rule changes were substantive.

The decision. The order.

Expect an appeal. Expect the appeal to fail.

Posted by Patent Hawk at April 1, 2008 9:09 AM | The Patent Office


The PTO hierarchy got their collective butts kicked here. The opinion Cacheris wrote was carefully done, and is as close to reversal proof as it can get. The Federal Circuit would laugh the PTO out of court if they appeal. These Rules are now completely "dead in the water" (assuming Congress doesn't upset this applecart, which appears unlikely unless they do something quickly this month). And as others have commented, the other PTO Rules packages are in similar jeopardy. Justice did prevail this time. Hopefully the PTO hierarachy will realize they've been beaten, fair and square, and cease and desist from this rhetorical nonsense. And three cheers and a 21-gun salute to Dr. Tafas, GSK and their collective attorneys for daring to take on this nonsense.

Posted by: EG at April 2, 2008 3:46 AM

So now that Jonnie and Margie have had rigid elongated objects interposed in their orifices, are they gonna sue the judge for sexual harrassment?

Posted by: Observer at April 2, 2008 7:21 AM