Tafas v. Doll: Limits on Continuations Invalid; Other Claim Limits May Be OK

The Federal Circuit largely upheld rules promulgated by the PTO to help relieve its enormous backlog of patent applications. The district court had determined that the rules were substantive and therefore beyond the PTO’s legal authority. In Tafas v. Doll, 559 F.3d 1345 (Fed. Cir. 2009), a split Federal Circuit panel disagreed, finding the rules to be procedural in nature, though it did not reverse the district court. Instead, it affirmed the district court ruling as to one of the four rules in question because it conflicted with the statute, and remanded the case for further inquiry into the legality of method and manner in which the other rules were promulgated. The PTO’s rules have been the subject of much debate in the patent community, and most expect the case to proceed to an en banc rehearing.

Background

In 2007, the United States Patent and Trademark Office (PTO) implemented new rules that, among other things, placed limits on the number of continuations and claims an applicant could file. The Rules can be found at 72 Fed. Reg. 46,716-813 (Aug. 21, 2007) (the “Final Rules”). A major purpose of the Final Rules was to help streamline and tighten up the patent application system in an effort to address the enormous backlog at the PTO.

A large percentage of the patent community reacted very negatively to the Final Rules, and several parties sued the PTO to enjoin their enforcement and have them declared invalid. The leading court battle became the combined cases of Tafas v. Dudas et al and Smithkline Beecham Corp. v. Dudas et al, 541 F. Supp. 2d 805 (E.D. Va. 2008).

In Tafas v. Dudas, a federal district court in Virginia found that the PTO did not have the legal authority to promulgate the Final Rules. The district court determined that the PTO only had legal authority to promulgate procedural rules, not substantive rules. Because the Final Rules change existing law or policy in a way that affects individual rights and obligations, they were substantive rules and therefore invalid. Accordingly, the district court granted a motion for summary judgment in favor of the rules’ challengers and granted a permanent injunction against enforcement of the Final Rules. See LawUpdates’ full commentary on Tafas v. Dudas here: http://www.lawupdates.com/commentary/608

The PTO appealed to the U.S. Court of Appeals for the Federal Circuit. Dudas, the head of the PTO, resigned before the appellate court’s decision; until President Obama identifies Dudas’ replacement, the acting head of the PTO is John J. Doll. Hence, the style of the case changed to Tafas v. Doll, but this is the appeal from the district court’s opinion in Tafas v. Dudas. Tafas v. Doll, 559 F.3d 1345 (Fed. Cir. 2009).

Four Final Rules at issue on appealFour of the Final Rules were at issue on appeal: Rules 75, 78, 114, and 265:

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

Final Rule 78 permits an applicant to file only two continuation applications as a matter of right. If the applicant wishes to file additional continuations thereafter, the application has to 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.” If the applicant cannot make that showing, the PTO will delete any existing reference to a prior-filed application.

Final Rule 114 is similar to Rule 78, except it applies to Requests for Continued Examination (RCE).

Final Rule 265 sets forth the requirements for the ESDs required by Rule 75. An ESD includes a preexamination prior art search, a list of relevant references and their limitations, an explanation of how each separate claim is patentable despite the references, and an explanation of how each claim limitation is disclosed and enabled by the specification.

Federal Circuit deems all four rules procedural in nature, but still voids Rule 78

In a split decision, the Federal Circuit disagreed with the district court and concluded that all four rules were procedural in nature, not substantive. The Court agreed that the PTO does not have substantive rulemaking authority, but that the Court will grant deference to the PTO’s interpretation of “statutory provisions that relate to the exercise of delegated authority,” pursuant to Chevron USA Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 (1984). 559 F.3d at 1354.

In determining that the Final Rules in question were procedural, not substantive, in nature, the Federal Circuit followed the decision in JEM Broad. Co. v. FCC, 22 F.3d 320 (D.C. Cir. 1994). Under that decision, the Final Rules could be deemed procedural if they do not “foreclose effective opportunity to make one’s case on the merits.” JEM at 327-28. The Court noted that as long as applicants were diligent and submitted all documents in compliance with the rules, the Final Rules are not “so significant a burden that applicants will be effectively foreclosed from obtaining the patent rights to which they are entitled.” 559 F.3d at 1356.

Even though the Court deemed the rules procedural, it still invalidated Rule 78 because it conflicted with Section 120 of the Patent Act (35 U.S.C. Section 120).  559 F.3d at 1360. Section 120 states that “(a)n application for patent . . . filed by an inventor or inventors named in the previously filed application shall have the same effect, as to such invention, as though filed on the date of the prior application.” 35 U.S.C. Section 120. The aspect of Rule 78 that would allow the PTO to delete any reference to a prior-filed application if the applicant failed to make a proper showing with his continuing application is contrary to this statutory provision. Accordingly, the Federal Circuit affirmed the district court’s granting of summary judgment that Final Rule 78 was invalid.

The validity of Final Rules 75, 114 and 265 is still in question

But the case is not over. Even though the Federal Circuit ruled that the rules were procedural in nature, and it only actually affirmed the invalidation of Rule 78, it did not make a final ruling as to the other three Final Rules. While the Federal Circuit did vacate the district court’s grant of summary judgment invalidating those rules, it did not reverse the decision outright.

Instead, the Federal Circuit remanded the case on those three Rules back to the district court for further inquiry and proceedings. Specifically, the Court asked the district court to review and determine: “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 U.S.C. § 553; whether any of the Final Rules are impermissibly vague; and whether the Final Rules are impermissibly retroactive.” 559 F.3d at 1365.

Conclusion

Obviously, the issues presented in Tafas v. Doll – including the extent of the PTO’s authority in making rules that substantially impact applicants’ rights and obligations—are far from over. In his dissent, Judge Randall Rader said that while he agrees that the PTO only has authority to promulgate rules that are procedural in nature, he disagrees that the four Final Rules in question are procedural. He would have affirmed the district court’s decision “(b)ecause the Final Rules drastically change the existing law and alter an inventor’s rights and obligations under the Patent Act, they are substantive and the PTO exceeded its statutory rulemaking authority under 35 U.S.C. § 2(b)(2).” 559 F.3d at 1368.

Judge Rader may not be alone in that opinion. It is likely that the Court will approve a rehearing en banc, and Rader may end up representing the majority opinion of the larger panel of judges. Moreover, some pundits theorize that under the Obama administration, which has yet to identify a new PTO head, the PTO may decide not to implement the rules at all.

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Yuri Mikulka

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