Today, the Federal Circuit issued its Opinion in Tafas v. Doll, Case No. 2008-1352 (previously known as Tafas v. Dudas). In a 2-1 decision, with Judge Rader dissenting, the Federal Circuit surprisingly upheld a series of United States Patent and Trademark Office (“USPTO”) rules that will likely increase the cost and burden associated with filing new patent applications. In what may be a Pyrrhic victory for patent prosecutors, the panel did strike down the USPTO rule that would have limited applicants to two continuation or continuation-in-part applications per application family.

The USPTO issued its Changes to Practice for Continued Examination Filings, Patent Applications Containing Patentably Indistinct Claims, and Examination of Claims in Patent Applications (“New Rules”) on August 21, 2007. 72 Fed. Reg. 46716. Four of the New Rules were before the Court:

  • Rule 78, which limited the number of continuations and continuations-in-part an applicant could file as a matter of right;
  • Rule 114, which limited the number of requests for continued examination (“RCEs”) an applicant could file as a matter of right; and
  • Rules 75 and 265, which limited the number of claims an applicant could present without conducting a detailed and costly patentability search and submitting an Examination Support Document.

Dr. Triantafyllos Tafas, a named inventor of several patents and pending patent applications and Glaxo Group Limited and its affiliates (collectively, “GSK”) sued in the United States District Court for the Eastern District of Virginia seeking preliminary and permanent injunctive relief from the New Rules and a declaratory judgment that the New Rules violated the Constitution, the Patent Act, the Administrative Procedure Act (“APA”), and the Regulatory Flexibility Act. The District Court issued a preliminary injunction on October 31, 2007 – the eve of the effective date of the New Rules – against the implementation of the New Rules.

On cross-motions for summary judgment, the District Court permanently enjoined the USPTO from implementing the New Rules in April 2007. Relying upon several Federal Circuit cases, the District Court concluded that 35 U.S.C. § 2(b)(2) limited the USPTO’s rulemaking authority to procedural matters and “does not vest the USPTO with any general substantive rulemaking power.” Concluding that the New Rules were substantive in nature because they “alter the rights of applicants such as GSK and Tafas under the Patent Act,” the District Court accordingly held that the New Rules exceeded the scope of the USPTO’s rulemaking authority and were therefore “otherwise not in accordance with law” and “in excess of statutory jurisdiction [and] authority” under the APA. The District Court declined to address whether the New Rules should be afforded Chevron deference or are contrary to the Patent Act.

The Federal Circuit affirmed in part, vacated in part, and remanded the case to the District Court. While the Federal Circuit rejected the USPTO’s contention that it was entitled to Chevron deference with respect to its own rulemaking authority, Judges Prost and Bryson did afford such deference to “the USPTO’s interpretations of statutes that pertain to [its] delegated authority . . . .” With that framework, the majority classified Rules 78, 114, 75, and 265 as “procedural” because “[i]n essence, they govern the timing of and materials that must be submitted with patent applications.”

Applying Chevron deference to these “procedural” rules, the majority found the USPTO’s efforts to limit continuation and continuation-in-part applications inconsistent with 35 U.S.C. § 120 and therefore affirmed the District Court’s finding that Rule 78 is invalid. The remaining rules, however, passed the majority’s Chevron muster – at least insofar as the issues before the panel. While the panel vacated the District Court’s grant of summary judgment as to Rules 114, 75, and 265, it did not conclude that these rules are necessarily valid. Specifically, the court left open the equally complex questions of “whether any of the Final Rules, either on their face or as applied in any specific circumstances, are arbitrary and capricious; whether any of the Final Rules conflict with the Patent Act in ways not specifically addressed in this opinion; whether all USPTO rulemaking is subject to notice and comment rulemaking under 5 U.S.C. § 553; whether any of the Final Rules are impermissibly vague; and whether the Final Rules are impermissibly retroactive.”

Judge Rader dissented, believing that all four rules were “substantive” insofar as they “drastically change the existing law and alter an inventor’s rights and obligations under the Patent Act . . . .” Thus, while Judge Rader agreed with the majority’s ultimate conclusion regarding Rule 78, he disagreed with the majority’s conclusion regarding Rules 114, 75, and 265, and would have affirmed the District Court’s grant of summary judgment in its entirety.

It remains to be seen how the USPTO will react to the Federal Circuit’s decision, particularly in view of the intervening change of administrations. Nonetheless, practitioners would be well advised to behave as if the New Rules will affect at least those applications filed after the Federal Circuit’s decision, if not also those applications pending as of the date of the decision, in an effort to minimize adverse client impact should the New Rules be made effective.

In light of the substantial interest in the case as evidenced by the numerous amici filings, it is likely the appellees will petition for rehearing en banc, and we would not be surprised if the Federal Circuit granted such a petition.