Did the Patent Office Win? Tafas v. Doll Opens the Door to Substantial Changes in the USPTO's Practice, But Finds That Limits on Continuation Applications Exceed USPTO Authority

20 March 2009 Publication
Author(s): Courtenay C. Brinckerhoff

Legal News Alert: Intellectual Property

The U.S. Patent and Trademark Office (USPTO) scored a partial but significant victory in its efforts to reduce the backlog of pending patent applications. On March 20, 2009, a divided Federal Circuit panel found, with one significant exception, that several of the USPTO’s proposed new rules were procedural and thus potentially within the scope of the USPTO’s rulemaking authority. However, the panel noted that these rules may be subject to challenge on a variety of other grounds that the courts have not yet addressed. If these rules survive further challenge, patent application practice and procedure will change substantially.

In particular, the Federal Circuit held that the USPTO’s efforts to limit the number of continuation or continuation-in-part applications that could be filed as a matter of right were inconsistent with statute. The Federal Circuit, therefore, affirmed the injunction prohibiting the USPTO from enforcing this new rule.

The Federal Circuit, however, vacated summary judgment that several of the New Rules were improper. The case was remanded for further proceedings that might include additional challenges to the New Rules (1) limiting the availability of requests for continuing examination (RCE) and (2) imposing a requirement that applications including more than five independent claims or 25 total claims be accompanied by a detailed examination support document (ESD). The Federal Circuit found that these rules were procedural and at least potentially proper. The Court specifically identified possible avenues for challenges that were not foreclosed by its opinion.

In January 2008, the USPTO started the process of changing the rules governing patent prosecution. Four of these proposed New Rules were at issue before the Federal Circuit:

  • New Rule 78 allows an applicant to file two continuation or continuation-in-part applications as a matter of right. Under Rule 78, additional continuation applications would not be entitled to the filing date of the parent applications unless the applicant showed that the amendment, argument, or evidence could not have been submitted during the prosecution of the prior-filed application.
  • New Rule 114 imposes a limit of one RCE per application family.
  • New Rule 75 limits applications either to five independent claims or 25 total claims unless the applicant also gives the USPTO an ESD.
  • New Rule 265 describes the ESD’s contents. To comply with Rule 265, an ESD must (1) include the results of a prior art search, (2) list the most relevant prior art references, (3) identify which limitations are disclosed by each reference, (4) explain how each independent claim is patentable over the references, and (5) show where each limitation is disclosed in the specification.

These new rules, which the USPTO claims were needed to address the growing backlog of patent applications, were controversial. Triantafyllos Tafas, an individual inventor, and GlaxoSmithKline (GSK) sued to enjoin enforcement of the rules. Mr. Tafas and GSK argued that the new rules were outside the scope of the USPTO’s rulemaking authority, inconsistent with law, arbitrary and capricious, incomprehensibly vague, impermissibly retroactive, and procedurally defective.

The District Court preliminarily enjoined enforcement of these rules and eventually granted summary judgment that the new rules were invalid. The District Court held that these rules were “substantive rules that change existing law and alter[ed] the rights of applicants” under the U.S. Patent Act. Because the USPTO has the authority to make procedural, but not substantive, rules, the District Court held that the rules were invalid.

The Federal Circuit Opinion
The USPTO appealed the District Court’s summary judgment. The USPTO’s appeal presented two arguments. First, the USPTO argued that the District Court should have deferred to the USPTO’s interpretation of the scope of its rulemaking authority. In essence, the USPTO’s argument was that the New Rules were proper because the USPTO determined that they were proper. Second, the USPTO argued that even under the District Court’s limited interpretation of the scope of the USPTO’s rulemaking authority, the New Rules were proper.

The Federal Circuit, speaking through Judge Prost, first addressed the question of whether the District Court should have deferred to the USPTO’s interpretation of the scope of its own rulemaking authority. The Court held that the USPTO’s determination was not entitled to deference and, therefore, rejected the USPTO’s first argument. The Federal Circuit then affirmed its prior holdings that the USPTO only had authority to issue rules that govern “the conduct of proceedings” before the office, i.e., procedural rules.

The Federal Circuit next addressed the question of whether the proposed rules were, in fact, procedural or substantive. To make this determination, the Court had to draw a line between procedural and substantive rules.

The boundary the Federal Circuit adopted differed significantly from that drawn by the District Court. The District Court had held that any rule that affects individual rights and obligations was substantive. The Federal Circuit, however, rejected this broad definition. The Court recognized that procedural rules frequently affect substance. Relying on the D.C. Circuit’s analysis in JEM Broadcasting Co. v. FCC, 22 F.3d 320 (D.C. Cir. 1994), the Federal Circuit held that procedural rules may affect the timing and manner in which the applicants present arguments to the USPTO, but may not change the substantive standards by which the USPTO examines an application. In other words, as long as a procedural rule does not deprive an applicant of an effective opportunity to present applications for examination, it is proper.

Applying this standard to the New Rules, the Federal Circuit determined that each of the rules was procedural. The Court held that the New Rules limiting the number of continuation and RCE applications were procedural because an applicant who diligently presents all amendments, arguments, and evidence during the examination process will not be limited by the rules. The Court recognized that the impact of these New Rules will depend upon how the USPTO applies them and suggested that case-by-case challenges to the USPTO’s decisions on those petitions might be appropriate.

Similarly, the Federal Circuit upheld the New Rules limiting the number of claims that can be filed without providing an ESD and establishing the contents of the ESD. The Court recognized that these New Rules, while potentially imposing large burdens of production on applicants, do not (on their face) change the burden of persuasion — an examiner must still set forth a prima facie case of unpatentability. The Federal Circuit recognized that the USPTO might interpret some of the ESD requirements — particularly the search requirement — in ways that would make compliance practically impossible, and invited case-by-case challenges in such situations. The Court also set aside concerns, expressed in amicus briefs, about the exposure to inequitable conduct charges and prosecution history estoppel arising from statements made in an ESD, stating that those concerns were irrelevant to the USPTO’s authority to require an ESD.

Finally, the Federal Circuit examined whether the New Rules conflicted with the Patent Act. The Court determined that New Rule 78, which limited the number of continuation applications that could be sought as a matter of right, was inconsistent with 35 U.S.C. § 120. Section 120 says that continuation applications that meet four requirements “shall” be entitled to the benefit of the parent’s filing date. Because New Rule 78 sought to add additional requirements, it was inconsistent with the statute and, therefore, invalid.

The Federal Circuit determined that the rules regarding RCE applications, limits on claims, and the ESD contents were not inconsistent with the Patent Act. For example, § 132 does not contain clear statutory language mandating that the USPTO accept an unlimited number of RCE applications; the Court, therefore, deferred to the USPTO’s interpretation of the statute as permitting limits. Similarly, because the ESD requirement does not impose an absolute limit on the number of claims, the Court found that it did not need to address whether the Patent Act allowed such a limit.

Concurrence and Dissent
Judge Bryson concurred in the Court's opinion. He wrote separately to express his view that categorizing regulations as “substantive” or “procedural” was neither necessary nor helpful. Rather, in his view, the question is whether the regulations were of the type Congress empowered the agency to make, regardless of the labels to be applied.

Judge Bryson also noted the narrow nature of the Court’s holding that New Rule 78 — the limit on continuation applications — conflicted with the Patent Act. In Judge Bryson’s view, the conflict arises because the New Rule does not permit more that two continuation applications to be filed in parallel. He suggested that a revised rule that addressed only serial continuation applications might well be consistent with the Patent Act.

Judge Rader concurred with the Court’s judgment regarding the continuations rule and dissented from the panel’s opinion regarding the other rules. Because the New Rules impose burdens that are not “incidental inconveniences of complying with an enforcement scheme,” Judge Rader concluded that all of the New Rules exceed the USPTO’s rulemaking authority, are impermissible substantive, and invalid.

Future Action
This Federal Circuit decision is a significant milestone in the USPTO’s efforts to address its application backlog, but it is not the end of the story. Further litigation may yet stop the implementation of these rules, or the USPTO, under the new Obama administration, may change its mind and not implement the New Rules.

Unless further appellate review is granted, the case will be remanded to the District Court. The Federal Circuit’s opinion carefully identified issues that the District Court remains free to consider:

This opinion does not decide any of the following issues: 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.

Further appellate review might also be sought. Any of the parties to the Federal Circuit appeal might file a petition for rehearing or rehearing en banc. Because the Federal Circuit circulates precedential opinions for internal comment before issuance, these petitions typically have a very low chance of success. Similarly, any of the parties can petition the Supreme Court for review. Certiorari petitions also have a very low chance of being granted.

Finally, the Obama administration has not identified its choices for USPTO leadership. It is possible that the new leadership might decide not to implement these New Rules. 

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

Sharon R. Barner
Chair, Intellectual Property Department
Chicago, Illinois

George C. Best
Partner, Intellectual Property Department
Palo Alto, California

Courtenay C. Brinckerhoff
Vice-Chair, Chemical & Pharmaceutical Practice
Washington, D.C.