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Federal Circuit’s Validation of PTO Rules May Prove Unsettling to Inventors


Sunstein | Winning IP View more articles

The Rules had been challenged by Triantafyllos Tafas, an inventor, and by GlaxoSmithKline, the pharmaceutical giant. The PTO asserted that the Rules were mere procedural changes needed to streamline the application process and to whittle down a notorious backlog of paperwork. The lower court held, however, that the Rules were substantive, not procedural, and therefore beyond the authority of the PTO to adopt.

The Rules relate to continuation applications (Rule 78), requests for continued examination (RCEs) (Rule 114), and the number of claims that may be included in a patent application (Rules 75 and 265).

The Federal Circuit panel agreed with the lower court—the Eastern District of Virginia—only on one point: the PTO’s proposed restrictions on continuation applications conflict with the Patent Act and therefore cannot stand. The panel ruled, however, that the PTO had properly promulgated the remaining three Rules.

The case is far from finally decided, and the Rules will not soon take effect, if ever they do. The Federal Circuit panel remanded the matter, leaving it to the district court to decide several other challenges to the Rules, including whether they are “arbitrary and capricious,” are impermissibly vague or retroactive, or conflict with the Patent Act in ways not addressed by the Federal Circuit.

The impact of the Tafas decision is quite uncertain, and not only because the district court may strike down the Rules for any of these reasons. The possibility also exists that the case will be heard by the entire Federal Circuit and/or by the Supreme Court, either of which may change the decision of the three-judge panel. On top of that, the Obama administration may install leadership at the PTO that will be more sympathetic to inventors and that would withdraw the Rules.

Are the Rules procedural or substantive? The panel is split

Judges Prost and Bryson held that all the Rules were procedural, borrowing from another appellate court the reasoning that rules are procedural if they do not “foreclose effective opportunity to make one’s case on the merits.” This criterion led them to conclude that all four Rules were within the PTO’s rulemaking authority. These judges went on to conclude that three of the Rules passed an initial validity threshold. (As noted below, they invalidated Rule 78 as contrary to statute.)

The third judge, Judge Rader, took the position that all the Rules were substantive and therefore impermissible. He said:

Because the Final Rules drastically change the existing law and alter an inventor’s rights and obligations, they are substantive and the PTO exceeded its statutory rulemaking authority under 35 U.S.C. § 2(b)(2).

Most patent attorneys who work with entrepreneurs and inventors every day would probably agree with Judge Rader’s view. Although some may feel that such a drastic change would be for the better, it is clear to practitioners that inventors will face a much more onerous task trying to protect their inventions if the Rules take effect. Thus, they seem substantive, not merely procedural.

Continuations and RCEs — Rules 78 and 114

Continuation applications allow inventors to file follow-on applications to pursue subject matter disclosed—but not necessarily claimed—in the original application. Such applications receive the benefit of the original application’s filing date for all the subject matter disclosed in the original application.

RCEs allow inventors to continue, by paying a fee, the prosecution of an application at the PTO after a final office action.

Rule 78: Under current law, there is no limit on the number of continuation applications that an inventor may file. Rule 78 would effectively limit inventors to two continuation applications.

Inventors use continuation applications for a variety of reasons. Budgetary constraints sometimes prevent the inventor from pursuing all the subject matter at the same time. In other instances, the PTO may reject some claims but allow others, and an inventor will want to have the allowed claims issue in a patent while pursuing the rejected claims in a continuation application.

Limiting the number of continuation applications would tend to force inventors to front-load their patent expenditures to ensure that they get proper protection for all that they have invented. Inconveniently, this heavy investment in a patent will often occur before market acceptance of the applicant’s products has been established.

Inventors would also have to pursue a greater number of expensive appeals of rejections, whereas under current practice many appeals can be avoided by filing continuation applications or RCEs. And while these appeals are pending, competitors can practice the invention, potentially placing the viability of the inventor’s business in jeopardy.

The Tafas v. Doll panel held unanimously that Rule 78, relating to continuation applications, was invalid because it was inconsistent with the Patent Act, which explicitly requires that qualifying applications gain the benefit of the initial application’s priority date. See 35 U.S.C. § 120. Because Rule 78 imposed an additional requirement—that the application not contain amendments, arguments or evidence that could have been submitted earlier—it was invalid.

Judge Prost’s majority opinion and Judge Bryson’s concurring opinion reveal an interesting, and troubling, take on § 120. They note that the provision could be interpreted literally to limit inventors to only two generations of continuation applications—despite the forty-year acceptance of a broader interpretation that § 120 does not limit the number of generations that an inventor is allowed.

They also noted—with Judge Bryson particularly clear on the point—that if the PTO were to adopt this construction of § 120, the court would be obligated to accept it. If this suggestion were implemented in a new rule by the PTO, the effect on inventors would still be drastic, albeit somewhat less so than it would have been with a valid Rule 78. If such a reversal of forty years of precedent is not substantive rulemaking, one has to wonder what would be.

Rule 114, which effectively limits inventors to a single RCE, would not seem to make much sense in the absence of Rule 78 limiting the number of continuation applications. If an inventor does not have the ability to file an RCE, the inventor could simply file a continuation application with similar effect.

Limits on Number of Patent Claims — Rules 75 and 265

Rules 75 and 265 require inventors to submit extensive and expensive supporting material, called an “examination support document” (ESD), for any application that includes more than five independent claims or 25 total claims.

The ESD would involve a prior art search, a list of the most relevant references, an identification of which limitations are disclosed by each reference, and an explanation of how each independent claim is patentable over the references.

Because Rule 78 was invalidated, Rules 75 and 265 have less impact than they would otherwise have had. Specifically, if an inventor had been limited to no more than two continuation applications under Rule 78, he would have been forced to pursue many more claims in the original application, and, in that effort, Rules 75 and 265 would force him to spend much more money to prepare the required ESDs. The apparent demise of Rule 78 may lessen the need to file applications with numerous claims, thus avoiding or postponing the need to prepare and file an ESD.

Still, if these Rules are eventually implemented, they will disturb the expectations of inventors and entrepreneurs concerning their rights and obligations in seeking a patent. We will closely follow, and report on, any new developments.

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