By Donald Zuhn —

On Friday, the Federal Circuit issued its decision in Tafas v. Doll (formerly Tafas v. Dudas).  The Tafas appeal concerns the validity of four rules in the continuation and claims rules package promulgated by the U.S. Patent and Trademark Office on August 21, 2007.  The four rules at issue are:  Rule 75, which requires applicants submitting more than five independent or 25 total claims to file an Examination Support Document (ESD); Rule 78, which limits applicants to two continuation applications per application family absent a petition and showing; Rule 114, which limits applicants to one RCE per application family absent a petition and showing; and Rule 265, which establishes the requirements for an ESD.

In an opinion authored by Judge Prost and joined by Judge Bryson, a split panel determined that Rules 75, 78, 114, and 265 are procedural, but that Rule 78 is inconsistent with 35 U.S.C. § 120.  Judge Rader dissented in part, contending that all four of the rules at issue are substantive.

Judge Prost (at left) begins her discussion by rejecting the USPTO's argument that the District Court erred for failing to give the Office's interpretation of its rulemaking authority under 35 U.S.C. § 2(b)(2) proper deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1984).  However, with respect to the USPTO's argument that the District Court also failed to accord the Office Chevron deference with respect to its interpretations of various sections of the Patent Act, and its belief that the continuation and claims rules were consistent with such interpretations, Judge Prost finds that "the USPTO's interpretations of statutes that pertain to the USPTO's delegated authority are entitled to Chevron deference."  Thus, for rules that are within the scope of the Office's delegated authority (i.e., procedural rules promulgated under 35 U.S.C. §§ 2(b)(2) and 132(b)), the Court must "give Chevron deference to the USPTO's interpretation of statutory provisions that relate to the exercise of delegated authority."

Having decided that the USPTO is to be afforded Chevron deference with respect to procedural rules, Judge Prost next turns to the issue of whether the continuation and claims rules at issue are substantive or procedural.  Noting that the parties "vigorously disagree . . . as to how the boundary between 'substantive' and 'procedural' rules should be defined," Judge Prost disagrees with the District Court's "broad and absolute" reading of Chrysler Corp. v. Brown (1979) as defining as substantive "any rule that 'affect[s] individual rights and obligations.'"  Instead, she finds the D.C. Circuit's approach in JEM Broad. Co. v. FCC (D.C. Cir. 1994) to be more persuasive.  (In view of Judge Prost's use of JEM, it's interesting, but perhaps not surprising, that she cites Professor Mark Lemley and fellow Circuit Judge Kimberly Moore's article on "Ending Abuse of Patent Continuations" in a footnote on page two of the opinion.)

In JEM, the Federal Communications Commission adopted "hard look" rules in response to a significant number of "carelessly prepared and speculative applications" for broadcasting licenses.  Under the FCC's rules, applications that failed to include necessary information or contained incorrect or inconsistent information were dismissed with no opportunity to cure the defect.  Noting that the D.C. Circuit had "recognized that the rules could result in the loss of substantive rights, but found that they were nonetheless procedural because they did not 'foreclose effective opportunity to make one's case on the merits,'" Judge Prost concludes that the continuation and claims rules are procedural because "[i]n essence, they govern the timing of and materials that must be submitted with patent applications," adding that while the rules "may 'alter the manner in which the parties present . . . their viewpoints' to the USPTO, . . . they do not, on their face, 'foreclose effective opportunity' to present patent applications for examination."

With respect to Rules 78 and 114, Judge Prost states that:

As a result, Judge Prost finds these rules to be procedural under a JEM analysis.  While acknowledging that the Office's responses during the notice and comment period suggested that the USPTO would "deny additional applications in almost all circumstances" such that Rules 78 and 114 would create "hard limits" on continuation and RCE filings, the majority states that "we decline to rely on these responses, which are not binding on the USPTO," adding that courts "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."

With respect to Rules 75 and 265, Judge Prost states that:

As a result, Judge Prost finds these rules to also be procedural under a JEM analysis.  However, because she states that the search requirement of Rule 265 "does not necessarily require a visit to every library in every corner of the world," but rather only requires "[a] reasonable, cost-effective search," the implementation of Rules 75 and 265 would also lead to an inevitable increase in the number of lawsuits filed by applicants against the USPTO.  While Judge Prost is "mindful of the possibility that the USPTO may in some cases attempt to apply the rules in a way that makes compliance [with Rules 75 and 265] essentially impossible and substantively deprives applicants of their rights," she notes that in such circumstances, "judicial review will be available."  Judge Prost also dismisses the concern that "even the most diligently prepared ESD will inevitably open the applicant to inequitable conduct allegations that will entail costly litigation and a possible finding of unenforceability," as being "too speculative to void the rules."  As with the Office's interpretation of the new rules, the majority states that:

Finding that the four rules at issue are procedural, Judge Prost turns to the question of whether the four rules are consistent with the Patent Act.  Judge Prost begins with Rule 78, which, like the District Court, she determines to be inconsistent with 35 U.S.C. § 120, albeit on "narrower grounds."  In particular, Judge Prost notes that while "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,'" new Rule 78 "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."  With respect to In re Henriksen (C.C.P.A. 1968) and In re Bogese (Fed. Cir. 2002), Judge Prost dismisses these cases as being unhelpful to the USPTO's cause, the former concerning the permissible length of a chain of serial continuations, rather than the total number of continuations that may be filed, and the latter concerning prosecution history laches (Judge Prost notes that Rule 78 "simply captures too many applications that would not be even remotely susceptible to a prosecution history laches challenge").

As for Rules 114, 75, and 265, Judge Prost finds none of these rules to be inconsistent with the Patent Act.  First, she finds the application of an RCE limit to application families rather than individual applications to be not inconsistent with 35 U.S.C. § 132 because that section does not "unambiguously dictate[] that its provisions be applied on a per application basis."  In addition, with respect to the argument that Congress intended RCEs to be subject only to the applicant's discretion, Judge Prost states "[i]t is plausible that, as the USPTO suggests, § 132(b) simply directs the USPTO to 'prescribe regulations' to govern the applicant's ability to request continued examination which must, in some circumstances, be granted" (emphasis added).  As for the possibility that Rules 75 and 265 create a hard limit on the number of claims that an applicant can file, the majority states that:

In response to the argument that Rule 265 creates a duty to conduct a prior art search, the majority states that "[w]e agree with the USPTO that [the cases cited by the District Court] do not speak to whether the USPTO may impose such a duty by regulation," and therefore, "[o]n this record, we see no persuasive reason to prohibit the USPTO from requesting the information required by Final Rule 265, even if the applicant must take action to acquire that information."  Reiterating her procedural analysis, Judge Prost also dismisses the argument that Rules 75 and 265 improperly transfer examination burdens from the Office to applicants, stating that these rules "do not require an applicant to make a prima facie case of patentability," adding that "[a]n examiner cannot reject an application because he believes that the applicant failed to find the most material references or if he is otherwise not persuaded by the applicant's view of the prior art."

After concluding that Rules 75, 78, 115, and 265 are procedural, and further, that Rule 78 is inconsistent with the Patent Act, Judge Prost notes that:

In his concurring opinion, Judge Bryson helpfully provides the USPTO with a roadmap for modifying Rule 78 to render it consistent with 35 U.S.C. § 120 — at least as far as he is concerned.  Stating that "the most difficult question in this case . . . is whether Final Rule 78 is a valid regulation in light of 35 U.S.C. § 120," Judge Bryson notes that while he agrees that the rule is invalid, he thinks "it is important to emphasize the narrow scope of the court's decision."  Stating that "a rule limiting the number of continuances co-pending with the first-filed application is necessarily contrary to the statute and invalid," Judge Bryson argues that this "does not answer the question whether the rule is invalid as applied to serial continuances."  While he acknowledges that "[f]or the last 40 years, . . . section 120 has been understood to confer upon patent applicants the right to file any number of successive continuation applications after the first application has been abandoned or issued as a patent," he contends that "[i]t would not be unreasonable, however, to construe the phrase 'an application similarly entitled' [in § 120] to mean an application that satisfies all the preceding requirements set forth in section 120, including the requirement of co-pendency with the initial application."  Judge Bryson notes that while the majority properly struck down Rule 78, that does not mean "a revised rule that addressed only serial continuances and limited such continuances to only two — the first co-pending with the original application and the second co-pending with the first — would be struck down as reflecting an impermissible interpretation of section 120."  Thus, in view of Judge Bryson's analysis, the USPTO could impose a two-continuation limitation — or whatever limit the Office deemed necessary to resolve its backlog — on any continuation that was not filed while the original application was still pending.  In other words, for applicants wishing to file continuations serially, the 2+1 rule (two continuations + one RCE) would merely become the 3+1 rule.

Judge Rader (at right), writing in dissent with respect to all but the majority's finding that Rule 78 is inconsistent with the Patent Act, states that "in my view, the Final Rules are substantive, not procedural."  Noting that "[t]he distinction between substantive or non-substantive rules requires a difficult judgment," Judge Rader admonishes that he "would not so casually discard, as this court does today, this court's precedent for identifying a 'substantive' rule."  In particular, Judge Rader states that:

With respect to the majority's reliance on JEM, Judge Rader argues that "as JEM illustrates, the test for substantive, ultra vires rules is a case-by-case inquiry, not a rigid application of a sentence out of context in JEM."  Noting that the public participation during the notice and comment period was "overwhelming (itself an indication of the substantive impact of the rules?)," Judge Rader adds that "[m]any of the comments shared a common concern:  that the Final Rules 'had a significant effect on private interests, and marked a change in existing law or policy,'" and states that he "share[s] that concerned view."

Judge Rader concludes his dissent by outlining how each of the four rules at issue would have "sufficiently grave" effects.  His analysis regarding the probable impact of Rule 75 is of particular interest:

Judge Rader also explains that:

    By Kevin E. Noonan —

It has been quite some time since most in the patent community have given much thought to the ill-advised "claims and continuation" rules promulgated by the Patent and Trademark Office on August 21, 2007 that were preliminarily enjoined on Halloween, 2007 (one day before they were to go into effect) and permanently enjoyed on April Fool's Day, 2008.  But with the Federal Circuit's decision last Friday overturning the bases for enjoining three of the four rules at issue, it is a good time to be reminded of what was (and now once again is) at stake.  A few caveats, however, are in order.

First, the injunction was imposed on summary judgment, so District Court Judge Cacheris has not heard the merits of the parties' arguments.  Second, Judge Cacheris based his ruling on only one of the grounds asserted by Dr. Tafas and GlaxoSmithKline, leaving several others that the Court never ruled upon.  Third, as pointed out on Patent Docs last week, Judge Prost, writing for the fractured majority, set forth a roadmap of issues for the District Court to consider, any one of which could be further grounds for invalidating and enjoining anew the "new rules."  Fourth, the delay in President Obama's appointment of a Commerce Secretary has also delayed the appointment of a new Director for the Patent Office, and there is no indication of who that individual might be or what that person's views on changing any of these rules might be.  Finally, the rules package was an interconnected whole, intended to block any "loopholes" that would permit an applicant (albeit at increased cost) from filing additional claims and continuations.  Thus, even if the Federal Circuit's determination that one of the proposed new rules (Rule 78) is contrary to statute (35 U.S.C. § 120) and thus outside the scope of the Office's rulemaking authority under 35 U.S.C. § 2(b)(2)(A) is the only aspect of the decision that survives the expected impending continued litigation, failure to implement this aspect of the rule might doom the entire endeavor.

The Federal Circuit considered four of the "new rules" in the continuation and claims package:  Rules 75, 78, 114, and 265.  Prior posts in this space have reviewed the metes and bounds of these rules extensively in the past, and this post is meant merely as a refresher; in-depth treatment can be found in those prior posts.

Rule 75(b):

The prior (and still current) version of Rule 75(b) merely requires that claims "differ substantially from each other and are not unduly multiplied."  The proposed changes to Rule 75(b), which increased the rule by 522 words and added 5 new subparts, embodied the limitation to 5 independent claims and 25 total claims in any application (Rule 75(b)(1)), unless the applicant supplied an examination support document (ESD) pursuant to proposed new Rule 265 (see below).  Rule 75(b)(2)(A) defined as an independent claim any claim that referenced another claim but did not incorporate by reference all the limitations of the referenced claim, or that was directed to a different statutory class ("a method of using the subject matter of claim x" would thus not be considered a dependent claim).  Proposed rule 75(b)(3) provided a notice provision to permit an applicant to amend an application to be in compliance with the rule (and thus bypass the need to submit an ESD).

Proposed Rule 75(b)(4) prohibited an applicant from avoiding the strictures of the claims limitations by filing more than one application; the rule provided that the Office would consider together the claims in commonly-owned applications that contained "patentably-indistinct" claims, and would then add together all the claims of the two applications to determine whether the applications were in compliance with the claims limitations.  The intent was explicit in the Final Rule Notice, where the Office stated that Rule 75(b)(4) is intended "to preclude an applicant from submitting multiple applications to the same subject matter (with claims that are patentably indistinct), each with five or fewer independent claims or twenty-five or fewer total claims, for the purpose of avoiding the requirement to submit an examination support document."

Rule 78:

This rule, which the Federal Circuit held was inconsistent with 35 U.S.C. § 120, embodies the limitations on continuation applications, and was even more expressly directed towards preventing applicants from avoiding the effects of the rules package.  It was also the most extensive of the rules, having the following relevant provisions:

Rule 78(d):  there are several subparts to this portion of the proposed rules, but the most important provision precludes an applicant from filing more than two continuation applications in any application family (wherein the definition of an "application family" includes continuation and continuation-in-part applications but excludes divisional applications). 

Rule 78(f) required an applicant prosecuting an application to identify all other commonly-owned applications having (a) a common inventor and (b) a filing or priority date within 2 months of the filing or priority date of the application in question.  This section of the proposed rule also created a rebuttable presumption that such commonly-owned applications sharing a common inventor and "substantial overlapping disclosure" contained at least one patentably-indistinct claim.  The Office under these circumstances could then require that the patentably-indistinct claims be cancelled in all but one of the related applications.

Rule 114:

This proposed rule would permit an applicant to file only a single request for continued examination (RCE) without a petition and showing, and this limitation would apply to an entire application family (i.e., an application and all continuation and continuation-in-part applications claiming priority thereto).  While divisional applications are not part of an application "family" for the purposes of this proposed rule, each such divisional application is also entitled to a single RCE.  This was the "+1" part of the "2+1" rule imposed in combination with proposed Rule 78.  The petition required for filing a second RCE would require a showing that an amendment, argument, or evidence sought to be entered with the RCE could not have been submitted earlier in prosecution.  Importantly, the requirement for a showing would not be satisfied by submitting an IDS containing art not known to anyone with Rule 56 duty prior to 3 months before the RCE is requested (including art identified, inter alia, by a foreign patent office in a counterpart application).

Rule 265:

This proposed rule describes the examination support document (ESD) required when an applicant files more than 5 independent claims and 25 total claims in an application.  The provisions are simple, and in view of the inequitable conduct implications, frightening; an ESD must contain:

• A preexamination search statement;
• Listing of references deemed most closely related to the subject matter of each claim;
• Identification of claim limitations disclosed by each reference;
• Detailed explanation of patentability; and
• Showing of support under 35 U.S.C. § 112, ¶ 1.

The preexamination search statement must contain:

• A statement that a preexamination search in compliance with 37 C.F.R. § 1.265(b) was conducted.
• An identification of:

Unlike current Information Disclosure Statements, an ESD requires that the content of the references be disclosed with particularity, especially with regard to the relevance of each reference to the claimed invention.  "The ESD must include a de
tailed explanation that particularly points out how each of the independent claims is patentable over the references cited in the listing of references," as well as explaining why the claims are novel and non-obvious with regard to the references, as well as evidence of support in the specification in compliance with 35 U.S.C. § 112, ¶ 1.

These are, in brief, the "new rules" given new life by the Federal Circuit's decision.  There is no reason to believe that the current Office administration does not remain committed to them.  Although that administration has indicated that the rules would not be imposed retroactively to pending applications (this was one of the grounds for GSK's opposition to the rules), any failure to impose any version of these "new rules" will do precisely what the Office was trying to avoid:  provoke a deluge of new filings intended to avoid the effects of the rules.  This is what happened immediately before the changes occasioned by implementation of the GATT provisions on June 7, 1995, and before the publication rules of the American Inventor Protection Act (AIPA) on November 28, 2000.  Two years ago we would have assumed that exacerbating the examination backlog was an important Office goal.  Today, in view of falling allowance rates (and maintenance fees) and falling application rates (down 5% in absolute terms and 10% less than Office expectations), these considerations may be less pressing for the Office.  They are no less important, however, for American innovation, especially because the Office has also stopped hiring new examiners due to budget shortfalls.  It would be ironic indeed if the Office eventually imposed some version of these rules in an effort to increase revenues by making worse the problem that provided the ostensible motivation for the rules in the first place.

    By Donald Zuhn —

In a 55-page opinion issued earlier today, the Federal Circuit determined that the four rules at issue in Tafas v. Dudas are procedural, but that Rule 78 is inconsistent with 35 U.S.C. § 120 (i.e., that portion of the rule which limits the number of continuation applications), and therefore, affirmed-in-part, vacated-in-part, and remanded.  Judge Prost authored the opinion for the panel, with Judge Bryson filing a concurring opinion and Judge Rader filing an opinion concurring in part and dissenting in part.  Judge Prost concluded that:

Patent Docs will provide a more comprehensive analysis of the decision in a subsequent post.