By Denise Kettelberger of Merchant & GouldDenise M. Kettelberger, Ph.D.is a partner with Merchant & Gould. She practices general
Intellectual Property law with an emphasis on biotechnology and pharmaceutical patents. She can be
reached at 612-332-5300.
In what some are calling the most important patent law decision of the year, the
Eastern District of Virginia granted a preliminary injunction against the USPTO on October 31, 2007 in
the consolidated cases of SmithKline Beecham Corp. v. Dudas and Tafas v. Dudas
(Memorandum Opinion, October 31, 2007). The injunction blocked
implementation of controversial Final Rules on Continuations and Claims (“Changes to Practice
for Continued Examination Filings, Patent Applications Containing Patentably Indistinct Claims, and
Examination of Claims in Patent Applications”, 72 Fed. Reg. 46716-46843 (August 21,
2007) (to be codified at 37 C.F.R. pt.1) on the eve of the November 1 effective date. Status quo
is maintained until the Court renders a final decision on the merits.
At present, the Final Rules are dangling in the Courts, and much uncertainty
remains. This article seeks to summarize the issues and views of those involved, and proposes
ultimately that now is the time for all involved to engage in meaningful
discourse on workable alternative strategies to assist the USPTO with its backlog issues while
maintaining the integrity of the U.S. Patent system. The debate from this point forward must
focus on collaboration, not division. Patent reform is a common goal, but that reform must be
designed in a manner that will benefit, and not harm, the US Patent system, innovation, the economy,
and public welfare.
Issues
The Final Rules, if eventually implemented in their current form, will profoundly
impact U.S. patent practice for years to come. In brief, the new rules limit applicants to two
continuations and one RCE per patent family as a matter of right; 5 independent and 25 total claims per
"patentably distinct" application as a matter of right; and establish new reporting
requirements for related and co-pending applications. According to the USPTO, these Final Rules,
together with other new rules directed to information disclosure, appeals, Markush and generic claims,
and accelerated examination, are necessary to improve the quality of issued patents, increase
efficiencies in the patent examination process, and reduce the backlog of pending applications.
But opponents of the Final Rules, including the plaintiffs before the Eastern District of
Virginia as well as hundreds of prior commentators, assert the USPTO acted outside its rule-making
authority in promulgating these rules and that the Final Rules amount to an unconstitutional taking
under the Fifth Amendment by failing to “promote the progress of science and the useful
arts”. (See,
http://www.uspto.gov/web/offices/pac/dapp/opla/presentation/focuspp.html.) The many
comments included those of the Patent Public Advisory Counsel (PPAC), established by the American
Intellectual Property Act of 2000 to advise the USPTO on such matters. The PPAC strongly urged
the USPTO not to implement the proposed rules, listing among six troubling aspects
"a serious concern that the USPTO has exceeded its statutory and rulemaking
authority . . . ." (PPAC comments page 16). Even Senator Charles Schumer,
a co-sponsor of the Senate's Patent reform bill, wrote to Undersecretary Dudas urging delay in
implementing the Final Rules, questioning USPTO authority for such rulemaking, and suggesting the
Final Rules may have the unintended consequence of stifling innovation. (Copy available on PLI
website: http://www.pli.edu/patentcenter/claims-con-challenge.asp?view=plink&id=145)
The USPTO defended its statutory authority under 35 U.S.C. § 2(b)(2) to
govern the conduct of proceedings in the Office, arguing the Final Rules do not affect the substantive
rights of patent applicants, and emphasizing (among other arguments) that the Final Rules are not
retroactive.
The Virginia Court's Opinion
Judge James Cacheris issued a 39 page Memorandum Opinion within hours of
granting the preliminary injunction from the bench. The Opinion weighed the four factors
relevant to a decision to grant or deny the injunction: likelihood of success on the merits,
irreparable harm to if the injunction was not granted, balance of hardships between the parties, and the
public interest. All four factors were found in GSK's favor.
The Court found “a genuine possibility” that GSK would succeed on the
issue of the Final Rules reaching beyond the statutory authority of the USPTO. (Memorandum Opinion,
p.21) In particular, the Court found that GSK raised serious concerns if the Final Rules comport with the
Patent Act, as well as created a colorable question if the Final Rules are truly substantive.
Section 2 empowers the USPTO to “establish regulations, not inconsistent with the law,”
and to “set reasonable deadlines and requirements for the prosecution of applications,”
but does not “vest the USPTO with any general substantive rulemaking
power.” (Id. at 20) In re Van Ornum, offered by
the USPTO in support of its authority for substantive rule-making, was distinguished because the
regulation at issue in that case comported with statutory and case law, helping the USPTO’s
position “only if this Court disagrees with GSK’s additional contention that the Final Rules
are inconsistent with the Patent Act.”
GSK also demonstrated a likelihood of success that 35 U.S.C. § 120 prevents
the USPTO from limiting continuing applications. (Id. at 23-24) Citing
In re Henriksen, the Court stated, “This holding suggests that a decision by the
USPTO to limit the number of continuing applications would run contrary to the mandate of Section
120.” (Id.)
Neither party was found to show likelihood of success on the issues of limited RCEs
and number of claims, the court citing inadequate briefing by the parties on these issues. The
USPTO’s rationale for the Final Rules, including modeling of their impact on the backlog of cases
was found to satisfy “arbitrary and capricious review.”
On the issue of retroactivity, the Supreme Court’s definition was invoked by
the Court: a regulation is retroactive only if it “would impair rights a party possessed
when he acted, increase a party’s liability for past conduct, or impose new duties with respect to
transactions already completed.” Landgraf v. USI Film Prods., 511 U.S. 244,
280 (1994). Recognizing trade secrets are surrendered by disclosure in a patent application, and
that such surrender is made in exchange for “full and fair opportunity to seek a spectrum of
patent protection adequate to protect [its] investments” (citing Amicus Curiae
AIPLA), the Court disagreed with the USPTO’s assertion that patent applications are not property
rights or completed transactions subject to retroactivity. “[T]he Final Rules
retroactively alter the bargain on which inventors like GSK rely in making their decision to surrender
their rights. The Final Rules thus impair GSK’s right to this bargain.” GSK
was found to have demonstrated a real likelihood of success on the retroactivity issue.
A real likelihood of success that the requirements for an Examination Support
Document (ESD) were unconstitutionally vague was also found, because “this Court believes that
GSK has raised serious concerns as to whether a reasonably prudent person would be able to comply
with the ESD requirements.”
On finding GSK likely to suffer irreparable harm if the preliminary injunction were
not granted, the Court noted the uncertainty caused by the new rules would cause harm to investments
and be a disincentive to research and filing of new applications. In particular, “there is still
some question as to whether following the complicated steps outlined by the USPTO [petition and ESD]
will indeed guard against lost patent protection.” The Court
concluded GSK would be unable to recover their losses, should the Final Rules be ultimately
found invalid.
Balance of hardships was considered. On one side, the USPTO argued the
cost of reversing massive changes, not easily undone and a return to inefficiencies and increased
errors of the present system. The Court noted GSK, on the other side, “will instantly
suffer from uncertainty regarding the protection afforded their patents and their corresponding
investment risk, in addition to the costs of attempting to comply with the Final Rules.” This
immediate loss tilted the balance in favor of GSK.
Maintaining the status quo rather than implementing rules that may or
may not remain in effect was found to be in the public interest, giving the Court time to consider the
validity of the Final Rules before they go into effect. Finding all four factors to favor GSK’s
motion for preliminary injunction, the motion was granted. The Court’s Order enjoined
the USPTO from issuing Final Rules on continuations and claims, and unless overturned on appeal, is
effective until the entry of a final judgment in the matter.
The USPTO website instructs its employees to continue processing and examining
patent applications under the rules and procedures in effect on October 31, 2007, “until further
notice.” Customers of the USPTO are also instructed to “monitor this Web
site for any updated information.” In the meantime, the status quo remains
in effect.
While the preliminary injunction provides some relief for patent applicants, the
uncertainty of the final result will continue to chill innovation and investment. Pending legislation
in the form of separate and different Senate and House bills on patent reform adds to the
uncertainty. The House bill, but not the Senate bill, contains a proposal that would retroactively
give the USPTO authority to promulgate "regulations on quality and timeliness of applications and
their examinations." This expressly includes “specifying the circumstances under
which an application for patent may claim the benefit under sections 120, 121, and 365(c) of the filing
date of a prior filed application for patent.”
At the heart of all this controversy are divergent stakeholders, each trying to do
what's best for the U.S. Patent system, economy, and public good. The USPTO believes the
proposed changes to the patent system are needed to manage the flow of patent applications and to
improve quality by issuing fewer patents. The PPAC, NIH, AIPLA, BIO, Senator Schulmer, and
other commentators suggest unintended consequences of the USPTO rule packages are not worth the
small gain in efficiencies the USPTO may experience.
Non-Party Views
The National Institutes of Health (NIH) in response to the proposed USPTO
rule package on Markush claiming particularly notes the unintended consequence of the
combined rule packages on public health: "While the USPTO's goals are laudable, the
proposed Markush Rules, in conjunction with the new Continuation and Claims Examination Rules, will
disproportionately and negatively impact the pharmaceutical, biotechnology and related arts, thereby
adversely affecting the development of innovative biomedical technologies that benefit public
health."
The PPAC, in its comments to the Proposed Continuation and Claims Rules,
questioned if the proposed rules were appropriately tailored to address the stated problems, suggested
alternative approaches, and recommended "a more studied and cautious approach before
adoption of this kind of sweeping change." The PPAC further urged an additional
assessment of the underlying reasons for implementation of the rules and whether impacting all
applicants was warranted in light of that assessment.
The comments of the American Intellectual Property Law Association (AIPLA),
acknowledging its willingness to support reasonable efforts to improve efficiencies of examination and
quality of patents, suggests that under the proposed continuation and claims rules an inventor would be
"far less able to adequately protect their property." Rather than leading to greater
efficiencies, decreased pendancy, and improved quality, the proposed rules would more likely
"protract the examination process and divert scarce resources from examining to administrative
tasks." Instead, the AIPLA urges an analysis of the underlying reasons and root causes for
continuing applications and excess claims, and proposing alternative solutions that might be more
adequate to address these reasons.
What's next?
What happens next? In the past, patent reform was suggested, debated, and
fully vetted among members of the public, patent bar, the USPTO, and USPTO customers. The
concerns of these stakeholders were taken into account in the final rule or law. This process has
not occurred for the current USPTO-proposed set of patent reform rules.
With the House and Senate urging consensus among the patent bar and users and
the first set of patent rules dangling in the Courts, what better time than now to focus attention on
alternative strategies? All stakeholders are now acutely educated about the issues and concerns
of other parties. Its time for all stakeholders in the patent process, including the USPTO, to begin
a true collaborative effort in designing patent reform that will benefit, and not harm the US
Patent system, innovation, the economy, and public welfare.
