The Complexities of the USPTO Proposed Attributable Ownership Rules

11 April 2014 PharmaPatents Blog

The USPTO proposed attributable ownership rules would require the public disclosure of the “attributable owner” of patent applications and patents. As discussed in this article, the proposed definition of  “attributable owner” reaches far beyond title holder (assignee), and includes parties with standing to enforce the patent (including exclusive licensees), ultimate parent entities as defined in 16 CFR § 801.1(a)(3), and hidden beneficial owners. This article provides an overview of some of the complexities of the proposed rules and their potential conflict with other areas of law and public policy. 

The Proposed Rules Exceed USPTO Authority

In the Federal Register Notice, the USPTO claims it can promulgate the proposed attributable ownership rules under 35 USC § 2, “which … govern the conduct of proceedings within the Office.” Yet, § 2 by its own terms restricts the USPTO’s rule-making authority to regulations “not inconsistent with law,” and it is well-settled that the USPTO does not have substantive rule-making authority. The proposed rules exceed the USPTO’s authority on both counts.

None of 35 USC §§ 111, 251, 371 or any other statutes in the patent act contain a requirement for disclosing the attributable owner. Under the proposed rules, however, the attributable owner must be disclosed from filing to allowance of an application, and at key points during the life of a patent. This is contrary to statute.

More importantly, the rules are substantial. As proposed, failure to disclose the attributable owner would lead to abandonment. A rule that imposes a new requirement that is not required by any statute on the threat of loss of rights cannot be cast as “procedural.”

The Federal Register Notice models its attributable ownership rules on those for assignment of title. But assignment is covered by a statute (35 USC § 261) that permits assignment and recordation, but makes that voluntary. Under the statute, there is no requirement for disclosure of even the titleholder, let alone other ownership rights. By imposing additional requirements on applicants and patent holders, the proposed rules are inconsistent with existing law.

The Proposed Rules Go Beyond Rules Promulgated Under the American Invents Act

The America Invents Act (AIA) created new inter partes proceedings conducted before the USPTO Patent Trial and Appeal Board (PTAB) that require the disclosure of the “real party-in-interest”(RPI) and its “privies”. The USPTO promulgated those rules based on relevant statutes, legislative history, and case law. See 77 Fed Reg 48756, 48759-60 (Aug. 14, 2012). The AIA rules that resulted from this process “aim to strike a balance between the public’s interest in maintaining an understandable file history and the parties’ interest in protecting truly sensitive information” and provide for confidential disclosure. No such balance is reflected in the proposed rules, which are much more far-reaching and do not include any provisions to protect confidential information.

Also, where the AIA rules recognize that the determination of RPI and privity can involve complex, multi-factored determinations, the Federal Register Notice asserts that the attributable owner determination can be completed in no more than 6 minutes! Given the breadth of “attributable owner” and the difficulties parties already have complying with the AIA rules (as reflected in several PTAB decisions on the issue), it is clear that the USPTO has grossly underestimated the burden of complying with the proposed rules.

The Proposed Rules Import the Complexities But Not the Protections of the Federal Trade Commission Regulations

The proposed rules incorporate the “ultimate parent” definition of 16 CFR § 801.1(a)(3), which was developed by the Federal Trade Commission to determine whether a merger or commercial activity raises antitrust concerns, and only comes into play when a proposed transaction meets a minimum value threshold (currently $75.9M). The USPTO has not explained why it is appropriate to use a complex definition that currently applies to only high-value transactions that raise antitrust concerns as the basis for a disclosure requirement that would apply to every patent application. Moreover, the Federal Register Notice does not point out that the FTC maintains the “ultimate parent” information in confidence, whereas attributable ownership information provided to the USPTO would be made public, or that parties can seek advice from the FTC on the parameters of 16 CFR § 801.1(a)(3), while the USPTO has not offered such assistance.

The Proposed Rules Import the Complexities of Standing Requirements

The proposed rules would require the disclosure of entities having standing to enforce a patent, or who are necessary parties to litigation. These can be complex legal questions that can depend on the terms of confidential license agreements. Even non-assigned patent applications can raise complex issues relating to marital property laws and divorce decrees.

The Proposed Rules Interfere With Judicial Authority

Courts have recognized the benefits of permitting parties to keep the terms of settlement agreements confidential, particularly where sensitive competitive information is at stake. The proposed rules, however, could require the disclosure of key terms of settlements if they affect “attributable ownership.” The proposed rules therefore could directly interfere with a court’s authority to permit settlements under seal.

Along the same vein, the proposed rules undercut their own stated purpose of minimizing unnecessary litigation. Most patent litigations are settled, and most settlement agreements sealed or otherwise maintained confidential.  Forcing parties to publicly disclose settlement terms could make parties hesitant to settle, and thereby prolongs litigation.

The Proposed Rules Conflict With Corporate and Security Laws

The disclosure requirements of various corporate, security, banking, and other laws are carefully tailored to the purpose of the relevant legislation. One of the most robust disclosure requirements is the requirement for publicly traded companies to disclose material information to the SEC. Even under the SEC scheme, however, certain information may be kept confidential. As the SEC explains:

Sometimes disclosure of information required by the regulations can adversely affect a company’s business and financial condition because of the competitive harm that could result from the disclosure.

The proposed rules do not reflect the careful crafting embodied in other disclosure laws and do not include protections for maintaining sensitive information in confidence.

The Proposed Rules Conflict With Trade Secret Policy

The Obama Administration recently has taken steps to strengthen trade secret laws in order to address complaints that China and other foreign nations are stealing U.S. corporate trade secrets. Yet, the proposed rules would require patent applicants and patent holders to reveal confidential business information (such as licensing information) that could put them at a competitive disadvantage.

Requiring disclosure of confidential information may constitute a regulatory taking. For example, the Federal Circuit noted in United States Marine, Inc. v. United States, 722 F.3d 1360, 1373 (Fed. Cir. 2013) (citing Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984)):

The Supreme Court has held that a government use or disclosure of a trade secret can constitute a taking for which, under the Fifth Amendment, the United States must pay just compensation.

Further, the Trade Secrets Act (18 U.S.C. § 1905) makes it a violation of criminal law for any federal employee to publish, divulge, or disclose a private company’s confidential information that comes to him in the course of his employment.

The Federal Register Notice does not recognize or address any of these issues.

The Proposed Rules Undermine the Goal of International Harmonization

Although the USPTO is working with other national patent offices to promote “global patent harmonization” (as announced in this April 3 press release), the proposed rules would mark a significant departure from the practices of other patent offices that are members of the IP5, Trilateral Offices, and Tegernsee Group. No other patent office requires disclosure of any entity other than the titleholder or entity entitled to pursue a patent on the invention.

The USPTO Will Have Difficulty Administering the Proposed Rules

As noted in this article, the USPTO does not make good use of the patent assignment information it already has, and does not make it easy for the public to locate patent assignment information that has been voluntarily recorded. It is difficult to see how the USPTO will be able to administer the proposed rules and collect and use even more complicated information in a meaningful way. In addition to resolving the conflicts and complexities outlined above, the USPTO should take a hard look at its internal capabilities to process the information it would require before it forces patent applicants to undertake the onerous burden of determining and providing attributable owner information.

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