District Court Invalidates USPTO Interpretation of Patent Term Adjustment RCE Carve-Out

06 November 2012 PharmaPatents Blog

In a decision issued November 1, 2012 in Exelixis, Inc. v. Kappos, the U.S. District Court for the Eastern District of Virginia has found that the USPTO’s interpretation and application of the “RCE carve-out” provision of the Patent Term Adjustment (PTA) statute is contrary to law. Although I wrote about some “RCE carve-out” challenges just last week, the decision here reaches an even broader interpretation of the statute.

Under the district court’s interpretation, 35 USC § 154(b)(1)(B)(i) only comes into play if a Request for Continued Examination (RCE) is filed within the three-year period from the application’s filing date. Under this interpretation, a significantly greater number of patents may be entitled to significantly greater PTA awards. It is too early to know whether the USPTO will appeal this decision. In the meantime, patent holders with affected patents may wish to consider pursuing additional PTA in a Request for Reconsideration filed with the USPTO or in a district court proceeding, if the deadline for pursuing such an action has not passed.

Patent Term Adjustment

The PTA statute (35 USC § 154(b)) was created to compensate for delays in the patent examination process that can eat away at the effective term of the patent, now that patent term is measured from the earliest U.S. priority date rather than the patent grant date. The statute provides “guarantees” against different types of USPTO delays, and requires a day-for-day deduction of Applicant delays against USPTO delays.

“A” delay accrues when the PTO fails to act in accordance with set timeframes (such as issuing a first office action within 14 months, issuing a second action or allowance within 4 months of a response, and issuing a patent within 4 months of the Issue Fee payment).

“B” delay accrues when the PTO fails to issue a patent within three years of the actual filing date of the patent application.

“C” delay accrues when the application is involved in an interference or appeal, or is subject to a secrecy order.

The RCE Carve-Out

The filing of an RCE can impact the PTA award for B delay under 35 USC § 154(b)(1)(B)(i), which provides:

(B) GUARANTEE OF NO MORE THAN 3-YEAR APPLICATION PENDENCY.- Subject to the limitations under paragraph (2), if the issue of an original patent is delayed due to the failure of the United States Patent and Trademark Office to issue a patent within 3 years after the actual filing date of the application in the United States, not including-

(i) any time consumed by continued examination of the application requested by the applicant under section 132(b) ….

The USPTO’s interpretation of the RCE carve-out is set forth in 37 CFR § 1.703(b)(1):

(b) The period of adjustment under § 1.702(b) is the number of days, if any, in the period beginning on the day after the date that is three years after the date on which the application was filed under 35 U.S.C. 111(a) or the national stage commenced under 35 U.S.C. 371(b) or (f) in an international application and ending on the date a patent was issued, but not including the sum of the following periods:

(1) The number of days, if any, in the period beginning on the date on which a request for continued examination of the application under 35 U.S.C. 132(b) was filed and ending on the date the patent was issued ….

Under the USPTO’s interpretation, once an RCE is filed, the patent no longer accrues “B” delay, although it might still accrue “A” delay and/or “C” delay.

The Question Presented 

As characterized by the district court, Exelixis raised the following question:

Whether 35 § 154(b)(1)(B) requires that an applicant’s PTA be reduced by the time attributable to an RCE, where, as here, the RCE is filed after the expiration of AIPA’s guaranteed three year period.

The district court found that the statute’s “plain language neither addresses nor requires” that PTA be deducted under those circumstances.

(Exelixis also challenged the RCE carve-out on narrower grounds, as I have written about previously.)

The District Court’s Analysis  

The district court reviewed the historical context of the PTA statute–the transition to a patent term measured from the application’s filing date and Congressional intent to compensate applicants for USPTO delays. The court also reviewed the patent prosecution process, and noted that RCEs can be a normal step.

Against this backdrop, the court considered the statutory language. The court presented the relevant language as follows:

Subject to the limitations under paragraph (2), if the issue of an original patent is delayed due to the failure of the United States Patent and Trademark Office to issue a patent within 3 years after the actual filing date of the application in the United States, not including:

(i) any time consumed by continued examination of the application requested by the applicant under section 132(b);

. . .

the term of the patent shall be extended 1 day for each day after the end of that 3-year period until the patent is issued.

 The court reasoned:

Simply put, the goal of this subparagraph, as its title indicates, is a “Guarantee of no more than 3-year application pendency.” It accomplishes this goal by (i) starting a three year clock on the date the application is filed, (ii) tolling the running of this clock if, within the three year period, any of three events occur, including an RCE filing, and (iii) adding a day for day PTA to the patent term for any delay in the issuance of the patent after the three year clock, less any tolling, runs out.

As understood by the district court, the “not including” portion of subparagraph (B) … clearly and unambiguously modifies and pertains to the three year period and does not apply to, or refer to, the day for day PTA remedy.” Rather, the statute’s “second calculation is simply a day for day addition to the PTA for every day beyond the end of the three year clock until the patent issues.”

The district court found that this interpretation is not only “compelled” by the plain language of the statute, but also comports with its “structure and purpose.” In this regard, the court found it significant that the statute does not treat the filing of an RCE as “applicant delay” that warrants a PTA reduction under §154(b)(2)(C). The district court therefore could not support the USPTO’s interpretation, which ”in essence construed subparagraph (B) to punish the applicant for filing the RCE,” rather than treating RCE’s as a “valuable tool in the patent prosecution process.”

The district court noted that under this reading, the statute “does not address the filing of an RCE after the expiration of the three year clock.” Rather, the statute “makes clear that once the three year clock has run, PTA is to be awarded on a day for day basis regardless of subsequent events.” The court explains that, under the PTA statute, “RCE’s are something for which the three year clock should be tolled, but not something that reduces the PTA.”

The USPTO’s Arguments

The district considered and rejected the following USPTO arguments:

First, the PTO argues that a proper reading of subparagraph (B) requires the insertion of the word “then” prior to the phrase “not including” that is followed by (i), (ii), and (iii). According to the PTO, inserting the word “then” at that point allows subparagraph (B) to be read so that time consumed by an RCE is deducted from the day for day remedy for the PTO’s failure to meet the three year guarantee deadline. The short and dispositive answer to this argument is that the word “then” does not appear in the statute and the PTO’s insertion of the word in its reading is not a construction of the provision but rather a re-writing of it.


Next, the PTO argues that its construction of subparagraph (B) deserves Skidmore … deference. …. Again, the short answer here is that Skidmore deference is unwarranted, when, as here, the statute is unambiguous. [The court also noted that the USPTO's interpretation would not have been entitled to Chevron deference because the statute is not ambiguous.]


Finally, the PTO argues that its reading of subparagraph (B) avoids absurd results. Under the PTO’s view, the plain language of subparagraph (B) may lead to disparate treatment of some similarly situated applicants, depending on whether the applicant files the RCE before or after the expiration of the three year period. But such disparities arise only at the margins and the Federal Circuit rejected similar arguments in Wyeth ….

Thus, the court held:

The plain and unambiguous language of subparagraph (B) requires that the time devoted to an RCE tolls the running of the three year clock if the RCE is filed within the three year period. And, put simply, RCE’s have no impact on PTA if filed after the three year deadline has passed

No Sympathy for USPTO Delays 

In several places in its opinion, the district court notes that the USPTO itself can solve many of the problems it alleges will arise under the court’s interpretation by examining applications earlier, so that an RCE (if necessary) would be filed before the three-year clock has run. While I disagree with some of the court’s specific suggestions for forcing earlier RCE filings, I welcome the court’s reminder that the filing of an RCE more than three years after the application’s filing date more often than note stems from the USPTO delays that the statute was intended to address.

Addressing the RCE Backlog 

Lurking behind this decision is the significant backlog that applications endure after an RCE has been filed. Internal USPTO policies, including the “count” system for quantifying examiner production and the docketing system for prioritizing examiner workloads, disincentivize the examination of RCEs with notable effects. According to the USPTO’s Data Visualization Center, the average delay from an RCE to the next office action is the highest it has ever been (at 5.6 months as of August 2012) and has been climbing steadily for the past two years. (Anecdotally, it is not unusual for RCE to experience delays of one year or longer, depending on the technology center and examiner workload.) Not surprisingly, the backlog of RCEs awaiting continued examination also has been growing steadily, from just over 42,000 in August 2010 to just shy of 100,000 in August 2012 (99,274 as reported by the USPTO).

Although USPTO officials recently have indicated that they are working to address the RCE backlog, these numbers show that the problem is growing with every day of USPTO delay. While Director Kappos is rightfully proud of the reduced number of new applications awaiting examination, until the RCE backlog is addressed, it appears that the USPTO may be shifting applications from one category to another, without completing its mandate to fully examine applications and grant patents that could help promote innovation and stimulate the economy.

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