In April 2008, a district court granted GlaxoSmithKline’s and inventor Triantafyllos Tafas’ motion for summary judgment in its case seeking to enjoin the Office’s patent claims and continuing applications rules package. Judge James Cacheris of the US District Court for the Eastern District of Virginia said in his opinion that the proposed rules were substantive, rather than procedural, and that the Office did not have the authority to implement them.
In May, the Office officially filed a Notice of Appeal with the CAFC.
Several attorneys who attended the oral arguments in December 2008 told Managing IP that the Court seemed receptive to GSK and Tafas’ arguments and that they expected the appeal to be dismissed. But in a majority opinion authored by Judge Sharon Prost, the Court found all but one of the Final Rules valid and disagreed with Cacheris’ view that they were substantive and therefore not within the PTO’s scope.
The Court did agree that the Office does not have the right to enforce substantive rules, since its statutory rulemaking authority is limited to “the conduct of proceedings in the Office”. It also rejected the USPTO’s argument that it should be afforded deference in interpreting US statute related to its ability to make substantive rules. However, the Court determined that the Final Rules on Claims and Continuations were procedural, rather than substantive, and that deference to the Office is appropriate with respect to reviewing procedural rules.
Grounding its analysis in this interpretation, the Court upheld the lower court’s finding that Final Rule 78, which limits the number of continuing applications that can be filed, conflicts with the section of the US Patent Act relating to an applicant’s entitlement to the benefit of an earlier filing date in amended applications. But the Court vacated the district court’s grant of summary judgment with respect to the other rules in question and remanded the case back to the lower court.
Notably, the Court acknowledged “the complexity of this case and the numerous arguments presented on appeal” and designated a number of other grounds upon which the lower court might still find the rules invalid:
“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 USC § 553; whether any of the Final Rules are impermissibly vague; and whether the Final Rules are impermissibly retroactive.”
The Final Rules upheld by the Court limit applicants to filing one request for continued examination (RCE) and only five independent and 25 total claims, before having to submit additional information via an examination support document (ESD). The ESD is viewed by patent applicants and attorneys as unduly burdensome, as well as an invitation to inequitable conduct charges.
“The ESD is an onerous and expensive document to produce – it will increase the cost of hiring patent attorneys and will reduce the number of filings,” said Brad Wright of Banner & Witcoff.
Robert Greene Sterne of Sterne Kessler Goldstein & Fox agreed and said that the uncertainty created by the rules will discourage investment and stifle innovation, especially in an economic crisis: “With the shortage of capital, any step like this will make it harder and will kill companies. We need to turn the economic downturn into a huge innovation explosion. We need a system that is fair, fast and cost-effective.”
Sterne said the decision is “creating a shockwave through the patent community”.
“The PTO is run by officials that have never been in the real [patent] world, so they don’t get it and they don’t want to get it,” Sterne told Managing IP. He added: “They have an administrative and organisational agenda to reduce their backlog of work, [but] in this down economy we’ve got to encourage innovation and investment in innovation.”
Given the importance of the decision, it is likely that GSK and Tafas will ask the Federal Circuit to re-hear the case en banc, or with a full panel of all 12 judges. “I think the Court would be well-advised to review the case en banc,” said Sterne.
There is also the possibility that a new administration will choose not to implement the rules, although Wright said that is unlikely. “I think a new administration will take a fresh look at them, but Obama is very in favour of patent reform and the PTO has been pushing the fact that they’re overburdened – it’s quite probable that they’ll implement them.”
In a recent interview with Managing IP, acting director of the USPTO John Doll admitted that a new administration would have to carefully weigh whether to go forward with the rules and said “they're certainly not the silver bullet that cures the ills of all the system".
Courtenay Brinckerhoff of Foley & Lardner said that the ruling “leaves a number of questions unanswered” and that “the possible impact of the new Obama administration, current patent reform efforts by Congress, and the state of the economy on the Patent Office's intention to pursue any or all of these rules raise even bigger questions”.
The outcome of the case could be greatly influenced by the Obama Administration’s choice for USPTO director, who is still unknown. “I think if you put a political appointee in the Office, it would be catastrophic,” said Sterne.
“We don’t have time for somebody to learn on the job. She or he needs to be able to rally this agency and make it perform at the level it’s capable of. We need someone to make the hard decisions, provide the insight and not just sell the party line.”
Managing IP will be providing regular updates on this case online.
