Apparently, the U.S. Court of Appeals for the Federal Circuit could not bear to see an end to the drama between the U.S. Patent and Trademark Office and its customers over proposed patent application rules.  The CAFC set out a mixed opinion on the rules proposed by the USPTO saying that they are procedural but in conflict with law in part.  Tafas v. Doll, __ F.3d __ (Fed. Cir. 2009)(Prost, J.).

The result can be summed up in the courts statement that:

[W]e are mindful of the possibility that the USPTO may in some cases attempt to apply the rules in a way that makes compliance essentially impossible and substantively deprives applicants of their rights.  In such cases, judicial review will be available under 5 U.S.C. § 706. 

Thus, if the USPTO sticks it to you, you get to spend all your time and money trying to convince a court to overturn the result.  Nice.

To recap, the USPTO tried to issue new rules labeled Changes to Practice for Continued Examination Filings, Patent Applications Containing Patentably Indistinct Claims, and Examination of Claims in Patent Applications, 72 Fed. Reg. 46,716 (Aug. 21, 2007).

Two of the new rules, Final Rule 78 and Final Rule 114, pertain to continuation applications and requests for continued examination (“RCEs”) and were issued – according to the USPTO — to address the “large and growing backlog of unexamined patent applications.”

Rule 78 governs the availability of continuation and continuation-in-part applications.  Under the rule, an applicant is entitled to file two continuation applications as a matter of right.  An applicant wanting to file more than two continuation applications must file a petition “showing that the amendment, argument, or evidence sought to be entered could not have been submitted during the prosecution of the prior-filed application.”

Rule 114 provides for similar treatment of RCEs.  Under the rule, an applicant is allowed one RCE as a matter of right.  For each additional RCE, the applicant must file a petition “showing that the amendment, argument, or evidence sought to be entered could not have been submitted prior to the close of prosecution in the application.”

Rule 75 requires an applicant who submits either more than five independent claims or twenty-five total claims to provide the examiner with information in an examination support document (“ESD”).

Rule 265, requires an applicant to conduct a preexamination prior art search, provide a list of the most relevant references, identify which limitations are disclosed by each reference, explain how each independent claim is patentable over the references, and show where in the specification each limitation is disclosed in accordance with 35 U.S.C. § 112, ¶ 1.

In the original case, the district court first determined that that the USPTO did not have substantive rule-making authority but does have procedural rule-making authority.  The district court then declared that the Final Rules were invalid after finding that they are “substantive rules that change existing law and alter the rights of applicants” under the Patent Act.”

The USPTO then appealed.

The CAFC agreed that the USPTO only had procedural authority but said that all four rules were procedural and that the USPTO had the authority to go ahead and make them.  But, it said that Rule 78, which limited continuations and CIPs, was in conflict with U.S. patent law and was not valid. While the CAFC found that the other rules were not in conflict with existing law, the court remanded the matter to the district court to determine if the USPTO followed the proper procedures in enacting those rules.

The USPTO argued that the crux of the matter is not whether the rules are substantive or procedural, but whether they fit within a reasonable interpretation of USPTO authority to “establish regulations, not inconsistent with law, which . . . shall govern the conduct of proceedings in the Office . . . [and] facilitate and expedite the processing of patent applications.”  Also, the USPTO argued that even if the substantive/procedural framework is applicable, the Final Rules are clearly procedural.

First, the CAFC set out that § 2(b)(2) “does not vest the USPTO with any general substantive rulemaking power,” rejecting the USPTO’s argument that the substantive/procedural distinction is immaterial in this case.

While the USPTO also argued that Chevron deference is required for the threshold question of whether § 2(b)(2) vests the USPTO with substantive rulemaking authority and that its interpretation of various sections of the Patent Act, and its accordant belief that the Final Rules are consistent therewith, is also entitled to deference, the CAFC disagreed:

We are not persuaded by the USPTO’s arguments in this case that Chevron deference should be extended to the issue of whether § 2(b)(2) provides substantive rulemaking authority.  …  Because we decline to accord deference with respect to the question of whether the USPTO has substantive rulemaking authority, our conclusion above that the USPTO does not have such authority is unaffected by Chevron.

[On] review of a procedural rule that has been issued by the USPTO, we will give Chevron deference to the USPTO’s interpretation of statutory provisions that relate to the exercise of delegated authority.

The parties agreed that the USPTO has authority to make procedural rules.  They disagree, however, as to how the boundary between “substantive” and “procedural” rules should be defined.

The CAFC set forth the only slightly helpful outline stating:

While we do not purport to set forth a definitive rule for distinguishing between substance and procedure in this case, we conclude that the Final Rules challenged in this case are procedural.  In essence, they govern the timing of and materials that must be submitted with patent applications.  The Final Rules may “alter the manner in which the parties present . . . their viewpoints” to the USPTO, but they do not, on their face, “foreclose effective opportunity” to present patent applications for examination.

We are of course aware that the impact of Final Rules 78 and 114 will be largely dependent on how the USPTO interprets when amendments, arguments, and evidence “could not have been submitted during the prosecution of the prior-filed application” or “prior to the close of prosecution.”

The district court looked at public comments to conclude that the USPTO “intends to deny additional applications in almost all circumstances” such that Final Rules 78 and 114 are in fact “hard limits” on continuation applications and RCEs.

The CAFC, living in a parallel universe where the Patent Office works to accommodate the needs of its customers [applicants] said that it is “not binding on the courts, which will be free to entertain challenges to the USPTO’s application of the Final Rules, including its view of when amendments, arguments, and evidence could not have been submitted earlier, under the standard set forth in 5 U.S.C. § 706.”

The district court found that Final Rule 78’s requirement for the third and subsequent continuation applications was inconsistent with the text of 35 U.S.C. § 120 and this court’s precedent.

The CAFC held that:

We agree with the district court that Final Rule 78 is inconsistent with § 120, although we rely on narrower grounds.  Section 120 unambiguously states that an application that meets four requirements “shall have the same effect, as to such invention, as though filed on the date of the prior application.”  …

The use of “shall” indicates that these are the exclusive requirements, and that all applications that meet these requirements must receive the benefit provided by § 120.  …

Thus, Rule 78 is invalid because it attempts to add an additional requirement—that the application not contain amendments, arguments, or evidence that could have been submitted earlier—that is foreclosed by the statute.  Because the statute is clear and unambiguous with respect to this issue, the USPTO’s reliance on Chevron and Brand X is unavailing.

Expect everyone to find something to dislike about this ruling.  Don’t expect an en banc hearing.  Will Congress ever step up and fix this mess?

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  1. “Don’t expect an en banc hearing.” Why do you say that?

  2. “Will Congress ever step up and fix this mess?” The “mess” in my opinion is the every increasing backlog. I think that KSR, Bilski, and the recession will fix that, as will the hiring and RETENTION of more examiners. (Also, new and better PTO management will help.)

  3. @ Patent Prosecutor: With a remand to the District Court on a large number of outstanding issues, this case is probably not yet ready for an en banc rehearing. Look for en banc review only after the next appeal, on whether the USPTO was arbitrary & capricious in its rulemaking.

  4. Steve,

    Another thought to consider. Having gotten over my initial (and very emotional) reaction to Judges Prost and Bryson having “precedential amnesia”, the fact is with the continuation limitation portion of this Rule package blocked by even the Federal Circuit, the PTO has no choice but to modify this package to take that block into account, or else the package won’t be internally consistent, and thus highly vulnerable to further legal attack. That being said, you have to wonder whether the PTO has the energy (and the backing of the current Obama administration) to continue this fight if Tafas/GSK pursue this suit (likely) in district court, including renewing the other arguments that Cacheris chose not to address.

    Any reissuing of these Rules (Cacheris may even block any attempt to reissue these Rules until the current Tafas/GSK suit is over), which the PTO dare not do without offering “comment and notice” to the public, would create another “firestorm” of comments where those commenting will be watching the PTO carefully as to how they cross the “t”s and dot the “i”. Any slip here by the PTO will certainly draw fire, including potential additional suits (now that blood has already been drawn) challenging the reissued Rules. That potentially means a drawn out battle taking years to resolve, which leaves you wondering whether the Obama administration would expend its political capital to let such “blood letting” occur for an issue that didn’t start on its watch. More significantly, given the current budget crisis facing the PTO (and of its own making by causing the allowance rate to dive to close to 40%), one must wonder whether the PTO has the resources to push these Rule packages much farther.

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