Tafas v. Dudas, (E.D.Va. April 1, 2008)
On April 1, 2008, Judge James C. Cacheris of the United States District Court for the Eastern District of Virginia held that the final claim and continuation rules (Final Rules) published by the United States Patent and Trademark Office (USPTO) are substantive in nature. Based on this determination, the court found the Final Rules to be null and void as “otherwise not in accordance with law” and “in excess of statutory jurisdiction [and] authority” and permanently enjoined the USPTO from implementing the Final Rules. This article examines the court's decision in three parts: the first part provides a brief background summary of the case and the Final Rules; the second part discusses the court's ruling and underlying reasoning; and the third part includes some practical implications of the decision particularly with regard to other proposed rules by the USPTO as well as the pending patent reform in Congress.
Background: The Proposed Claim and Continuation Rules
According to current U.S. patent practice before the USPTO, an applicant has a right to file an unlimited number of continuation or continuation-inpart applications, Requests for Continued Examination (RCEs), and claims. In January 2006, the USPTO published two sets of proposed rules delineating changes to the examination process that together would effectively limit the number of continuing applications, RCEs, and claims that an patent applicant could file as a matter of right. The USPTO reasoned that the proposed rules were necessary because the increasing number of continuating applications as well as the increasing number and complexity of claims in applications were hindering the Office's ability to examine a growing backlog of new applications.
After a public comment period during which the USPTO received hundreds of written comments expressing disapproval and commenting on the possible illegality of the proposed rules, the USPTO published Final Rules on August 21, 2007. The Final Rules were set to become effective on November 1, 2007. Plaintiffs Triantafyllos Tafas (Tafas) and Smithkline Beecham Corporation, doing business as GlaxoSmithKline (GSK), however, filed complaints against the USPTO on August 22 and October 9, 2007, respectively, and Judge James C. Cacheris of the U.S. District Court for the Eastern District of Virginia preliminarily enjoined the implementation of the Final Rules on October 31, 2007. Subsequently, both sides filed motions for summary judgment, the plaintiffs seeking to permanently enjoin the USPTO from implementing the Final Rules based on the argument that they constitute unlawful agency action under Section 706(2) of the Administrative Procedure Act (APA).
In contrast with current practice, one aspect of the Final Rules would have allowed an applicant to file only two continuation or continuation-in-part applications, plus a single RCE, as a matter of right after an initial application (the "2+1 rule"). Further continuation or continuation-in-part applications and RCEs beyond these limits would have required the applicant to file a "petition and showing" that explains why the amendment, argument, or evidence could not have been presented previously.
Pursuant to another aspect of the Final Rules, an applicant would have been limited to a total of 5 independent claims and 25 total claims per application (the "5/25 rule"). An applicant seeking to exceed these limits under the Final Rules would be required to provide an "examination support document" (ESD) including an applicant conducted search and, among other things, a "detailed explanation" of "how each of the independent claims is patentable over the cited references." Additionally, the Final Rules would have been retroactive to applications filed before the effective date under certain circumstances. They also contained other provisions to prevent avoidance of the 2+1 rule and/or the 5/25 rule by applicants.
The Final Rules are Null and Void
Many patent attorneys and applicants alike were relieved when, on April 1, 2008, Judge Cacheris declared the Final Rules null and void as “otherwise not in accordance with law” and “in excess of statutory jurisdiction [and] authority.” In deciding to permanently enjoin the USPTO from implementing the Final Rules, the district court rested its decision on a single issue, i.e., whether the rules are substantive in nature. The district court looked to the statute to determine the extent of rulemaking authority granted to the USPTO by Congress. Specifically, 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." Furthermore, pursuant to the statute, the USPTO may enact regulations that "facilitate and expedite processing of patent applications," and "govern the . . . conduct of agents, attorneys, or other persons representing applicants or other parties before the Office."
Contrary to the USPTO's arguments that the Final Rules are procedural and/or fall within the expressly delegated rulemaking authority, however, the district court found the Final Rules to be substantive and that the USPTO lacks any general substantive rulemaking power. The district court broadly defined “substantive rule” as any rule that “affect[s] individual rights and obligations” and determined that the Final Rules change existing law and alter the rights of applicants under the Patent Act. In this regard, the district court stated that "[t]he 2+1 Rule and the 5/25 Rule, which limit continuing applications, RCEs, and claims, and the ESD requirement, which shifts the examination burden to applicants, constitute a drastic departure from the terms of the Patent Act" and that "[b]y so departing, the Final Rules effect changes in [applicants'] existing rights and obligations." The court reasoned as follows.
First, with respect to continuation and continuation-in-part applications, the court found that the Final Rules effectively impose an impermissible “hard limit” that “deprives applicants of their valuable rights under 35 U.S.C. § 120 to an unlimited number of continuation and continuation-in-part applications as a matter of right.” In so deciding, Judge Cacheris recognized that although the continuation rules would not completely prohibit applicants from filing additional continuations beyond the first two, the rules would nevertheless effectively bar further continuations "because the USPTO intends to deny additional applications in almost all circumstances."
Second, with respect to RCEs, the district court pointed to the plain language of 35 U.S.C. § 132 which requires the USPTO to provide continued examination of each application at the request of the applicant. Moreover, the district court read the language “shall" and “at the request of the applicant" in Section 132(b) as evidence that Congress intended to allow for an unlimited number of RCEs at the discretion of the applicant. Therefore, similar to the rules on continuing applications, the Final Rules regarding RCEs would effectively impose a hard limit that alters applicants' rights.
Third, as to the 5/25 rule, the district court stated that the Patent Act has never placed any mechanical limits on the number of claims an applicant may file and that other mechanisms exist (e.g., Section 112) by which the USPTO can limit claims as necessary on a case-by-case basis for undue multiplicity. Furthermore, the court viewed the ESD requirement as substantive because it requires far more than just "additional information" and, in fact, effectively shifts the burden of examination from the USPTO to the Applicant.
In sum, the district court struck down as null and void each and every aspect of the Final Rules solely based on their substantive nature and the USPTO's general lack of substantive rulemaking power.
What Now?: Practical Implications of the Ruling
Although the Final Rules are on hold for now, some commentators have indicated that the USPTO intends to appeal the district court ruling to the Court of Appeals for the Federal Circuit (CAFC). Even if the USPTO appeals the decision, we are not likely to see a decision anytime soon.
The district court ruling may, however, have other collateral consequences both in terms of other proposed USPTO rules packages and currently pending patent reform legislation. The USPTO currently has several other sets of proposed rules expected to be published in the near future such as, for example, rules regarding changes to Markush group claiming, rules regarding changes to Information Disclosure Statement requirements, and rules regarding changes to the appeals process. One or more of these packages may be effectively invalid (or will at least require serious revision) in view of the breadth of the district court's ruling. Like the ESD requirement related to the 5/25 rule, for example, the proposed IDS rules may be considered to impermissibly shift the examination burden from the government to applicants. The USPTO will likely take a closer look at each of these packages in light of the decision here to determine whether they are likely to be considered procedural or substantive.
As to the patent reform legislation currently pending before Congress, the USPTO is also likely to make a strong push for a grant of substantive rulemaking authority. At this point, only the version passed by the House (H.R.1908) includes additional USPTO regulatory authority. The current Senate bill does not include such a provision. It is also worth noting that both bills currently include a section requiring so-called "Applicant Quality Submissions" or "Additional Information" granting the Director of the USPTO authority to require patent applicants to submit a search report and analysis relevant to patentability as well as any other information relevant to patentability. Nevertheless, many of the provisions in both bills are still being hotly contested and it is unclear if and/or when the pending legislation will be passed.
All in all, it is business as usual for now with respect to the mechanics of prosecution practice before the Office, notwithstanding other recent Supreme Court and Federal Circuit decisions related to such cornerstones of patent law like obviousness. In any event, Applicants and attorneys alike should continue to closely follow the USPTO's actions and the pending patent reform so that proactive steps can be taken to properly protect valuable rights.
