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Patent Law Commentary
Tafas v. Dudas: USPTO’s Efforts to Limit Patent Applicant Rights Are Void
Tafas v. Dudas, et al.
Posted: 05/12/2008
By: John R. Carr, Esq.
Companies Mentioned: Smithkline Beecham Corp. (d.b.a. GlaxoSmithKline, plc.), United States Patent and Trademark Office
Introduction
In an effort to attack its notorious backlog, the USPTO enacted a group of rule changes that placed limits on, among other things, the number of claims a patent applicant could include and the number of times an applicant could amend and continue his application. Traditionally, patent applicants could take unlimited bites at the apple in their pursuit of their patent. In Tafas, the court struck down the rule changes as null and void, and exceeding the scope of the USPTO’s authority. While the Office has the power to enact procedural rules regarding the process, it cannot enact substantive rules – these rules are substantive since they dramatically alter existing policy and the rights and obligations of patent applicants.
Detailed Commentary
Background
It’s no secret that the U.S. Patent and Trademark Office is drowning in backlog, suffering from a lethal combination of more patent applications being filed—that are more complicated and technical than ever before—and insanely high turnover of overworked patent examiners. The Government Accountability Office found that from 2002 through 2006, one patent examiner left for nearly every two the agency hired; most claim they leave because they can’t handle the agency’s rigorous (some say unreasonable) production goals.
In 2007, it took the USPTO an average of more than 25 months to give new patent applicants their first response, with total pendency averaging 31.9 months. The GAO’s Robin Nazzaro testified before a House Subcommittee recently that the patent application backlog has risen 73% since 2002, to 730,000 patent-applications, and the backlog is expected to reach 1.3 million applications by 2011. [The USPTO examined 362,227 applications in 2007 and issued just over 184,000 patents.]
The USPTO doesn’t like to discuss its turnover rates. Instead, it blames the backlog on the patent applicants – some applications don’t have enough (or any) supporting documents, some have far, far too much. And then, patent applicants can essentially take limitless bites at that apple; once the application is in, they can file a limitless number of claims, revisions and continuances in pursuit of approval. Whether the cause of the backlog is insufficient funding, poorly-compiled applications, tired and/or green examiners, or something else, the system is obviously in a dire situation.
The USPTO decided to be pro-active about it and promulgate regulations that would tighten up the system: the “Changes to Practice for Continued Examination Filings, Patent Applications Containing Patentably Indistinct Claims, and Examination of Claims in Patent Applications,” 72 Fed. Reg. 46,716-843 (Aug. 21, 2007) (the “Final Rules”). Among the changes in the Final Rules were a finite limit on the number of continuations and “requests for continued examination” (“RCE”) an applicant could file as a matter of right, and a limit on the number of claims an applicant could include as a matter of right without providing “examination support documents” (“ESD”).
USPTO exceeded its statutory rulemaking authority
But there was a problem with the USPTO’s efforts: in April, 2008, in the combined cases of Tafas v. Dudas et al and Smithkline Beecham Corp. v. Dudas et al, ____ F. Supp. 2d _____, 2008 WL 859467 (Nos. 1:07cv846 and 1:07cv1008) (E.D. Va. , April 1, 2008), a federal district court in Virginia found that the USPTO does not have the legal authority to promulgate those rules. Because the Final Rules constitute a change in existing law or policy that affect individual rights and obligations, they are substantive rules—the USPTO only has legal authority to promulgate procedural rules, not substantive rules. Accordingly, the court held that the Final Rules constituted an unlawful agency action under the Administrative Procedure Act (“APA”) and declared them null and void.
In its argument, the USPTO claimed: a) there was no procedural-substantive distinction limiting its statutorily-granted rulemaking authority, and b) even if there were such a distinction, the Final Rules are procedural in nature, since they don’t implicate the “core patentability” requirements set out in the Patent Act, 35 USC §§ 1 et seq. The court rejected both of these arguments.
USPTO can only promulgate procedural rules
Section 2(b)(2) of the Patent Act enables the USPTO to establish regulations that “facilitate and expedite the processing of patent applications.” While the Tafas court acknowledged that the Patent Act provides the USPTO with broad authority to govern the conduct of its proceedings, including setting reasonable deadlines and requirements for patent application prosecution, it found that the authority did not extend to substantive rulemaking. 2008 WL 859467, *4.
The court reviewed the holdings in previous cases as well as previous Congressional hearings and debates discussing the scope of the USPTO’s authority. Ultimately, based on the “balance of the case law in the Federal Circuit and Supreme Court,” the Tafas court held that “the USPTO does not have the authority to issue substantive rules, and it does not have the authority to make substantive declarations interpreting the Patent Act… any rules that may be deemed substantive will be declared null and void.” Id. at *6.
The Final Rules are substantive because they affect individual rights
Neither the APA nor the Patent Act offer a definition of a “substantive” rule, so the court looked to federal precedent to develop this definition: “[a] substantive rule [] change[s] existing law and alter[s] the rights of applicants such as [plaintiffs] under the Patent Act.” 2008 WL 859467, *7. The court went on to show in great detail how the Final Rules “constitute a drastic departure from the terms of the Patent Act as they are presently understood,” thus effecting changes in applicants existing rights and obligations. Id.
For example, the Final Rules effectively change existing law by depriving an applicant of the statutory right to an unlimited number of continuation and continuation-in-part applications. As a result, the applicant loses his statutory discretion over how extensively and doggedly he wants to pursue the patent because the USPTO has the power to end the pursuit after only two continuation requests. Id.
As another example, by requiring the applicant to produce supporting documentation if he wants to include more than 25 total claims, the Final Rules effectively and unlawfully shift the examination burden of proof from the USPTO to the applicant. Both case law and the statutory provisions are clear that the USPTO has both the burden of examination and the burden of proof to make a prima facie case of unpatentability first, which then shifts the burden to the applicant to rebut that showing. The USPTO’s effort to alter the burden is an unauthorized substantive change. Id., at *8-9.
As the result of the court’s determination that the Final Rules were thus substantive in nature, the court found them “void as ‘otherwise not in accordance with law’ and ‘in excess of statutory jurisdiction [and] authority’” (quoting the APA). Id. at *4. The only governmental entity with the ability to make substantive laws regarding patent prosecution, therefore, is Congress.
Mixed reaction, but generally a good result for applicants
For the most part, the Tafas ruling is a positive one for patent applicants, as the Final Rules would have likely had a negative impact on applicants. First, applicants will often take the narrower claims which might be allowed and pursue claims of a broader scope in a continuation application. Removing any limit on the number of continuations will allow applicants to continue this process of attempting to pursue the broadest claim coverage possible, thereby enhancing and increasing the value of an applicant’s patent portfolio—broader scope of protection generally translates into a more valuable patent portfolio, which is more attractive to potential investors.
Moreover, the cost of prosecuting patent applications would rise significantly under the Final Rules. Due to the limitations and restrictions of the Final Rules, the bulk of the work on an entire patent family would have to be completed up-front, including filing of all divisional applications. Under the current practice of serial filing of divisional applications, small and start-up companies can manage the patent prosecution expenses over time for technologies that take a while to get to market. The Final Rules’ elimination of the serial filing ability would make the patent process prohibitive for many small businesses and entrepreneurs.
Even though the Tafas ruling is a good result for patent applicants and a clear, firm upholding of the rule of law, one significant problem remains: the USPTO backlog. Suggestions as to how to attack the backlog range from increasing agency funding to enabling the hiring of more examiners, to changing the production requirements for USPTO examiners to make them happier, more efficient and willing to stay at their jobs.
As a final matter, patent applicants and patent practitioners should be aware of the fact that S. 1145, the Patent Reform Act of 2007, which has already passed through the House of Representatives arguably grants the USPTO the ability to implement substantive rule changes. Therefore, applicants and practitioners can expect that the Office will more than likely attempt to effectuate more substantive rule changes now and into the future.
Patent Law Summary
Read the related Patent Law summary: USPTO Rules Are Void For Being Contrary to Law, VA District Court Declares
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