The Federal Circuit recently weighed in on the ability of the U.S. Patent and Trademark Office (USPTO) to effect proposed controversial changes to the rules under which patent applications can be prosecuted. The Federal Circuit held limiting the number of continuation applications invalid, and directed the lower court to reconsider whether the other proposed rules are valid. The proposed changes included limits on continuation applications and requests for continued examination (RCEs) as well as the number of claims an applicant can pursue without requiring applicants to provide their own search and patentability review. The case originated when Triantafyllos Tafas, an individual, and GlaxoSmithKline filed suit in 2007 against USPTO Acting Director John Doll in federal district court and successfully enjoined implementation of the rules as being beyond the authority of the USPTO. The USPTO appealed to the Federal Circuit, which issued its opinion on March 20, 2009, in Tafas v. Doll, No. 2008-1352.

The proposed rules at issue in Tafas were Final Rules 75 and 265 (the claim limitation rules), 78 (the continuation rule), and 114 (the RCE rule). The continuation and RCE rules were issued to address the large and growing backlog of unexamined patent applications. The continuation rule allows an applicant to file two continuation applications as a matter of right. 37 CFR § 1.78(d)(1)(i). In order to pursue any additional continuation application, an applicant “must file a petition ‘showing that the amendment, argument, or evidence sought to be entered could not have been submitted during the prosecution of the prior-filed application.’ ” Tafas at 2 (quoting 37 CFR § 1.78(d)(1)(i)). If this showing cannot be made, the application will not be entitled to the filing date of the earlier application. The RCE rule places a similar restriction on RCEs. An applicant is allowed only one RCE as a matter of right under the rule. Additional RCEs must be filed with a petition “showing that the amendment, argument, or evidence sought to be entered could not have been submitted prior to the close of prosecution in the application.” 37 CFR § 1.114(g).

The claim limitation rules were intended to address the USPTO’s difficulty in examining applications that contain a large number of claims. Under the claim limitation rules, an applicant must submit an examination support document (ESD) if an application includes more than five independent claims or 25 total claims. 37 CFR § 1.75(b)(1). In order to satisfy Final Rule 265, which establishes the requirements for ESDs, an applicant must “conduct a preexamination prior art search, provide a list of the most relevant references, identify which limitations are disclosed by each reference, explain how each independent claim is patentable over the references, and show where in the specification each limitation is disclosed in accordance with 35 USC § 112, ¶ 1.” Tafas at 3 (citing 37 CFR § 1.265(a)).

In Tafas v. Doll, the Federal Circuit held that “Final Rules 75 [the claim limitation rule], 78 [the continuation rule], 114 [the RCE rule], and 265 [the claim limitation rule governing ESDs] are procedural rules that are within the scope of the USPTO’s rulemaking authority,” but “Final Rule 78 [the continuation rule] conflicts with 35 USC § 120 and is thus invalid.” Id. at 6-7. The Federal Circuit affirmed-in-part and vacated-in-part the district court’s grant of summary judgment, which held that all four rules exceeded the rulemaking authority of the USPTO. On remand, the district court must decide whether rules pertaining to RCEs and claim limitations are arbitrary and capricious, impermissibly vague or retroactive, or in conflict with the Patent Act in a manner not addressed by the Federal Circuit. Id. at 31.

On appeal, the Federal Circuit described the analytical framework for determining whether the Final Rules fall within the scope of the USPTO’s rulemaking authority. First, the rules must be procedural rather than substantive. According to the Patent Act, the USPTO “may establish regulations, not inconsistent with law.” 35 USC § 2(b)(2). The Federal Circuit “agree[d] with the district court that § 2(b)(2) ‘does not vest the USPTO with any general substantive rulemaking power.’ ” Tafas at 7 (quoting Tafas v. Dudas, 541 F. Supp. 2d at 811). Therefore, only “procedural rules promulgated under § 2(b)(2) or § 132(b)” are within the USPTO’s delegated rulemaking authority. Id. at 10. Second, the procedural rules must be consistent with the Patent Act. When deciding this issue, the Federal Circuit applied the level of deference described in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), discussed infra. Id.

Relying on JEM Broad. Co. v. FCC, 22 F.3d 320 (D.C. Cir. 1994), the Federal Circuit determined that all of the rules at issue are procedural. JEM Broad. Co. “noted that a ‘critical feature of the procedural exception [in section 553 of the APA] is that it covers agency actions that do not themselves alter the rights or interests of parties, although [they] may alter the manner in which the parties present themselves or their viewpoints to the agency.” Tafas at 14 (quoting JEM Broad. Co. at 326). The Final Rules, according to the Court, are procedural for this reason. Although they “may ‘alter the manner in which the parties present . . . their viewpoints’ to the USPTO, . . . they do not, on their face, ‘foreclose effective opportunity’ to present patent applications for examination.” Id. at 14 (quoting JEM Broad. Co. at 326, 328).

Since the Final Rules are procedural, the Federal Circuit held that they are entitled to the Chevron level of deference when determining their consistency with the Patent Act. Id. at 20. In the Chevron analysis, the Court “must first determine ‘whether Congress has directly spoken to the precise question at issue.’ ” Id. at 19 (quoting Chevron, 467 U.S. at 842). If Congress’s intent is clear, the courts and agencies must align their decisions and rules with the legislature. If a statute is silent or ambiguous, however, the courts must determine “whether the agency’s answer is based on a permissible construction of the statute.” Id. at 21 (quoting Chevron at 843). In this situation, “the agency’s construction must be adopted unless ‘the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion.’ ” Id. at 21 (quoting National Cable & Telecommunications Ass’n v. Brand X Internet Services, 545 U.S. 967, 982 (2005)).

With regard to the continuation rule, Final Rule 78, the Federal Circuit held that 35 USC § 120 is unambiguous. According to 35 USC § 120, any application that “meets four requirements ‘shall have the same effect, as to such invention, as though filed on the date of the prior application.’ ” Id. at 22 (quoting 35 USC § 120). Therefore, “Rule 78 is invalid because it attempts to add an additional requirement—that the application not contain amendments, arguments, or evidence that could have been submitted earlier—that is foreclosed by the statute.” Id. at 23. Although procedural, Final Rule 78 is outside the scope of the USPTO’s rulemaking authority because it is at odds with the Patent Act.

The Federal Circuit reached a different conclusion with respect to the RCE rule, Final Rule 114, because 35 USC § 132 is not unambiguous. The Court deferred to the USPTO’s reasonable interpretation of the statute because § 132(a) does not unambiguously dictate “that its provisions be applied on a per application basis,” and “§ 132(b) does not unambiguously require the USPTO to grant unlimited RCEs.” Therefore, the Federal Circuit held that Final Rule 114 is within the scope of the USPTO’s rulemaking authority because it is procedural and consistent with the Patent Act.

Similarly, the Federal Circuit also held that the claim limitation rules, Final Rules 75 and 265, do not conflict with the Patent Act. Since these rules do not, “on their face, effectively foreclose applicants from successfully submitting ESDs,” they do not “place an absolute limit on claim numbers in violation of § 112, ¶ 2.” Id. at 29. The Federal Circuit supported this decision by stating that it “has already upheld the USPTO’s authority to require from applicants ‘such information as may be reasonably necessary to properly examine or treat the matter.’ ” Id. at 29 (quoting 37 CFR § 1.105). Since “Final Rules 75 and 265 do not require an applicant to make a prima facie case of patentability,” the USPTO still “bears the initial burden of proving unpatentability.” Id. at 30. The ESD, according to the Federal Circuit, simply creates an additional procedural step that does not shift the burdens of examination. Id. Final Rules 75 and 265 are, therefore, procedural rules that are not inconsistent with the Patent Act. Accordingly, Final Rules 75 and 265, like Final Rule 114, are within the scope of the USPTO’s rulemaking authority.

Despite this holding, the district court may still deem the remaining rules also invalid on remand. The Federal Circuit expressly stated that the district court is left to decide whether the RCE rule and claim limitation rules are arbitrary and capricious, impermissibly vague or retroactive, or in “conflict with the Patent Act in ways not specifically addressed in this opinion.” Id. at 31. Until the district court addresses these issues, the fate of these rules remains unknown.