Federal Circuit Upholds USPTO’s Limits On Patent Claims (At Least For Now)

March 23, 2009

Over the last decade, the United States Patent and Trademark Office’s patent allowance rate has decreased from over 70% in 1999 and 2000 to roughly 42% in the first quarter of 2009, notwithstanding a steady increase in the number of applications during this period.  Perhaps consistent with this trend, the USPTO has made efforts to place new limitations on the prosecution of patents, including four new rules that the agency recently attempted to implement to restrict the number of claims that may be included in each patent application, as well as the number of continuation applications that may be filed.  On Friday, March 20, 2009, in a closely watched decision, the Federal Circuit in Tafas v. Dudas upheld the USPTO’s authority to make these rules and disallowed only one of the four rules as being in conflict with the Patent Act.  The case is to be remanded to the district court to consider additional arguments pertaining to the validity of the rules.

Shortly after the rules were published in the Federal Register in August of 2007, Dr. Triantafyllos Tafas, an inventor of robotic microscopes, and pharmaceutical giant GlaxoSmithKline brought suit against the USPTO in the Eastern District of Virginia.  The district court granted a preliminary injunction against implementation of the four rules at issue.  On summary judgment, the district court subsequently held that the USPTO had acted outside of its statutory rulemaking authority in violation of 5 U.S.C. § 706(2).  The USPTO appealed.

Limits on Continuations and Requests for Continued Examination

Final Rules 78 and 114 limit the number of continuation applications and requests for continued examination ("RCEs") that patent applicants can request as a matter of right, respectively.  Although the Federal Circuit determined that the USPTO had the authority to issue Final Rule 78, it also held that a limit on continuations was inconsistent with 35 U.S.C. § 120 and therefore invalid, because it placed additional restrictions on a patent applicant’s ability to claim priority to an earlier-filed application that were absent from the "exclusive requirements" of § 120.  The Federal Circuit upheld Rule 114, which limits an applicant to one RCE as of right for an entire family of applications.  Subsequent RCEs must be filed with a 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.  37 C.F.R. § 1.114.

Limits on the Number of Claims

Final Rules 75 and 265 require applicants submitting more than five independent claims or twenty-five total claims with an application to provide an examination support document ("ESD") to the examiner.  The ESD imposes a number of new burdens on patent applicants, including submission of:  (1) a preexamination prior art search, (2) a list of the most relevant prior art references, (3) a list of the claim limitations disclosed by each reference, (4) an explanation of how each independent claim is patentable over the references, and (5) an identification of where in the specification each claimed limitation is disclosed and enabled, in accordance with 35 U.S.C. § 112 ¶ 1. 

Notwithstanding various concerns regarding the practical implications of the ESD requirement – most notably, "that even the most diligently prepared ESD will inevitably open the applicant to inequitable conduct allegations" – the Federal Circuit dismissed such concerns as "too speculative to void the rules."  Moreover, the Court observed that "doubt about the judiciary’s ability to apply its own doctrine in a way that yields fair results and discourages frivolous allegations should not preclude the USPTO from promulgating rules that are within its statutory authority."

In dissent, Judge Rader noted that the additional burdens imposed by ESDs would disproportionately affect "technologies with greater complexity and greater public interest in disclosure," where an applicant may have a compelling need for more than five independent claims – e.g., the pharmaceutical industry, where "an applicant may claim not only the genus compound, but also a number of species, intermediates, methods of making, and methods of use."

"Substantive" or "Procedural" Rules?

Much of the case turned on the Federal Circuit panel’s conclusion that the rules were "procedural" rather than "substantive" in nature, and therefore within the scope of the USPTO’s rulemaking authority under 35 U.S.C. § 2(b).  The majority opinion, authored by Judge Prost, emphasized that it did not "purport to set forth a definitive rule for distinguishing between substance and procedure," but that because the rules at issue governed "the timing of and materials that must be submitted with patent applications," they were more procedural than substantive.  Although they might alter the "manner" in which parties present their viewpoints to the USPTO, they did not "foreclose effective opportunity" to present those viewpoints.  (Citing the D.C. Circuit’s decision in JEM Broad. Co. v. FCC, 22 F.3d 320 (D.C. Cir. 1994).)

Even though he joined in Judge Prost’s opinion, Judge Bryson wrote separately to emphasize that he did "not think it necessary, or particularly helpful, to consider whether those regulations would be deemed ‘substantive,’ ‘interpretive,’ or ‘procedural.’"  Judge Rader, on the other hand, argued emphatically that the Final Rules were substantive rather than procedural, because they "drastically change the existing law and alter an inventor’s rights and obligations under the Patent Act."

The lack of consensus among the three-member panel concerning the nature of the new rules – along with the already heavy participation of numerous amici curiae – indicates that this case may be a good candidate for an en banc rehearing.  Even if the majority opinion ultimately holds, numerous issues pertaining to the new rules still need to be decided, including:  whether any of the rules are "arbitrary and capricious," whether they conflict with the Patent Act in ways not specifically addressed by the Federal Circuit, whether all USPTO rulemaking is subject to "notice and comment" rulemaking under 5 U.S.C. § 553, and whether any of the rules are impermissibly vague or retroactive.

Gibson, Dunn & Crutcher LLP 

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