CaliforniaCalifornia TexasTexas New JerseyNew Jersey North CarolinaNorth Carolina1Tafas/GSK: The Trail From Preliminary Injunction tothe Federal Circuit and BeyondPresented by: Jerry R. SelingerPatterson & Sheridan, LLPjselinger@pattersonsheridan.com
2Timeline Overview January 3, 2006 - PTO publishes proposed newrules dealing “Continuing Applications” and“Patentably Indistinct Claims” 500+ comments over four months August 21, 2007 - PTO publishes the “FinalRules,” to be effective as of November 1, 2007 August 22, 2007 - Tafas lawsuit filed October 9, 2007 - GSK suit filed
3Overview of Final Rules 78/114 Final Rules 78 and 114 two continuations or CIPs, plus one request forcontinued examination, are allowed as a matter ofright Applicants may request additional examination with a“petition and showing” Why the argument, amendment or evidence could nothave been presented in a prior application Applicants may file a “suggested restriction requirement” If accepted, the divisional is treated as an initialapplication
4Overview of Final Rules 75/265 Final Rules 75/265 Permits 5/25 as a matter of right Applicants can present additional claims byfiling an “examination support document” Because of Final Rules 78/114, an applicantcan file up to 15/75 claims without an ESD But all patentably indistinct claims from allcommonly owned applications get included inthe total
5Crib Notes Version of GSK’s PI/TRO Brief The Final Rules are ultra vires They constitute substantive rules for which the PTOlacks statutory authority No Chevron deference The Final Rules are inconsistent with the Patent Act The Final Rules are arbitrary and capricious The Final Rules have impermissible retroactive impact Pre-examination search obligation is impermissiblevague
6Crib Notes Version of PTO Response History of the Final Rules Applicants delaying conclusion of examination toassess commercial viability of inventions Applicants filing deficient initial applications and usingcontinuations to work out issues of patentability GSK discloses a broad array of inventions, but delaysclaiming them until it is advantageous for it to do so.
7PTO Response continued Plaintiffs are not likely to succeed on the merits PTO acted within its statutory grant ofrulemaking authority, 35 U.S.C. § 2(b)(2), inenacting the Final Rules “The rules do not affect the truly substantive rights ofthe patent applicant.” The rules govern application processing, just asterminal disclaimer practice and the threshold showingfor reissue of a patent
8PTO Response continued Plaintiffs are not likely to succeed on the merits Final Rules are Consistent with the Patent Actand are Reasonable Under Chevron, 467 U.S. 837, the court must defer tothe PTO’s rule because it is based on a “permissibleconstruction” of the statute [§ 120] Section 120 is not absolute, citing Symbol Techs., 277F.3d 1361 (Fed. Cir. 2002) and In re Bogese, 303 F.3d1368 (Fed. Cir. 2002)
9PTO Response continuedRule 78 (continuing application rule) In re Henriksen, 399 F.2d 253 (CCPA 1968)involved an absolute limit, unlike the PTOrules. (Its also very old.) Section 120 cannot be construed asabsolutely unlimited in view of § 112 and §251 (reissue) Section 120 does not authorize purposefuldelay
10PTO Response continued Rule 114 (request for continued examination) Section 132 cannot be construed asabsolutely unlimited PTO has complied with the mandate inSection 132(b) to prescribe regulations for thecontinued examination of applications Rules 75/265 (claim limits rules) Chevron deference Not incomprehensibly vague; and noconstitutionally-protected interest
11PTO Response continued Final Rules are not retroactive A regulation is impermissibly retroactive only if it “would impair rights a party possessed when heacted,  increase a party’s liability for past conduct,or  impose new duties with respect to transactionsalready completed.” Landgraf, 511 U.S. 244, 280(1994) (emphasis added). Filing of applications do not create any rights; patentapplications do not give rise to property rights.Marsh, 128 U.S. 605, 612 (1888).
12Amicus briefs are not a matter of right Motions for leave to file amicus briefs, by AIPLA (October 25) HEXAS et al. (October 26) Elan Pharma. (October 29)
13The road to oral argument PTO initial position on amicus briefs – untimely PTO also objects to AIPLA as containing newarguments So, I went to DC to argue the motion for leave Where the Judge invited oral argument by amicion the merits
14AIPLA Position at the PI/TRO Stage The retroactive impact of applying the FinalRules to pending applications will causeirreparable harm – loss of trade secrecy throughpublication The public interest favors interim injunctive relief
1510/31 District Court Opinion PTO does not have general substantiverulemaking authority GSK created “a colorable question” as towhether the Final Rules are truly substantive. GSK raised “serious concerns” as to whetherthe rules comport with the Patent Act. Rule 78 Symbol Techs. suggests PTO cannot limit thenumber of continuing applications Petition option does not tip the balance.
1610/31 District Court Opinion Rule 114 Neither party showed strong likelihood ofsuccess Rules 75/265 Neither party showed strong likelihood ofsuccess GSK has not shown a real likelihood of successon whether the rules are arbitrary and capricious
1710/31 District Court Opinion The Landgraf presumption against statutory retroactivityis not limited to cases involving “vested rights.” Petition requirement “imposes new duties” on completedtransactions, i.e., with respect to initial applications Rules retroactively alter the bargain on which inventorsrely in surrendering their trade secret rights [citing AIPLAamicus brief]. GSK has a “real likelihood of success” on this issue
1810/31 District Court Opinion GSK has shown likelihood of success onprevailing on claim that Rule 265 (ESD) isunconstitutionally vague Public interest is served by continuing the statusquo- noting all three amicus briefs support a PI
19Cross Motions for Summary Judgment Tafas The Final Rules Are Contrary to the PatentAct Violate 35 U.S.C. § 120 Substantive rules - violate 35 U.S.C. § 2 Violate International Treaties Violate 35 U.S.C. §§ 41, 112 by altering duties and fees Violate 35 U.SC. §§ 121, 122, 132 Violate 35 U.SC. §§ 101, 111, 112, 131 and 151 byaltering the burden of proof and causing loss ofsubstantive rights Violate Bayh-Dole Act
20Cross Motions for Summary Judgment Tafas (continued) The Final Rules violate the U.S. Constitution The Final Rules were proposed and enactedcontrary to the APA The Final Rules were promulgated in violationof the Regulatory Flexibility Act
21Cross Motions for Summary Judgment GSK PTO cannot promulgate rules inconsistent with established lawand is entitled to no deference when it seeks to do so Arbitrary and mechanical limits in Final Rules 78, 114 and 75 arecontrary to established patent law Pre-exam search requirement for ESDs is incomprehensiblyvague PTO has no authority to implement the Final Rules retroactively Because the PTO failed to adequately consider the Taking ofConstitutionally protected property rights in patent applications,its actions are arbitrary, capricious and contrary to law Rule 75 is not a logical outgrowth of the proposed rules Limits as a whole are arbitrary and capricious
22Cross Motions for Summary Judgment PTO Final Rules do not violate the Patent Act PTO is entitled to Chevron deference, whether they areprocedural or substantive (but they are procedural) Final Rules are consistent with the Patent Act [§§ 111,112, 120, 131, 132 and 151] Tafas challenges PTO did not act in an arbitrary or capriciousmanner Final Rules are not retroactive
23Cross Motions for Summary Judgment PTO (continued) Final Rules constitutional under the Fifth Amendment Tafas cannot prevail on his Patent Clause claim GSK does not raise an actionable constitutionalvagueness challenge The Final Rules did not require notice under the APA,but in all events are a logical outgrowth of theproposed rules PTO complied with the regulatory flexibility act
24Amicus Briefs Three filed in support of the PTO Far more filed in support of Tafas and GSK, includingAIPLA
25Amicus Briefs AIPLA – focused on retroactivity Trade secrets have been published, and tradesecrecy thus surrendered, in reliance onfundamental principles of law that haveapplied for more than a century Retroactive impact on common prosecutionpractices PTO’s options for mitigating the harsh newrestrictions are for the vast majority ofapplicants illusory [“SRR,” “ESD,” and petition]
26Amicus Briefs AIPLA (continued) The retroactive Application of the Final Rulesviolates Landgraf They “impair rights a party possessed when he acted” Rights are not limited to vested rights Owners of patent applications have sufficient rights totrigger Landgraf 35 U.S.C. §§ 261, 181, 183, 154(d), treated asproperty by the IRS, and in bankruptcy They impose new duties with respect to transactionsalready completed The retroactive application of the Final Rulesviolates Bowen
27Summary Judgment Decision The “Final Rules are substantive in nature andexceed the scope of the PTO’s rulemakingauthority under 35 U.S.C. § 2(b)(2).” The Final rules are “void” as “’otherwise not inaccordance with law’” and “’in excess ofstatutory jurisdiction [and] authority’” Court declines to reach the other issues raisedby the parties.
28Decision Details Section 2(b)(2) empowers the PTO to establishregulations ‘not inconsistent with law” to “governthe conduct of proceedings in the Office,” This does not vest the PTO with any generalsubstantive rulemaking authority. Merck, 80 F.3d 1543 (Fed. Cir. 1996) and itsprogeny Animal Legal Def. Fund, 932 F.2d 920 (Fed.Cir. 1991) Recent congressional debate about whetherto grant the PTO substantive rulemakingauthority
29Decision Details PTO efforts to abolish the substantive-proceduraldistinction rejected as contrary to Federal Circuit andSupreme Court case law PTO does not have authority to issue substantiverules PTO does not have authority to make substantivedeclarations interpreting the Patent Act. PTO argument that Final Rules are procedural becausethey do not alter substantive requirements for novelty,nonobviousness or definiteness rejected
30Decision Details Final Rules are not rules relating to applicationprocessing that have substantive collateralconsequences They are substantive rules that change existinglaw and alter the rights of applications under thePatent Act
31Decision Details Changes “constitute a drastic departure from theterms of the Patent Act as they are presentlyunderstood.” Final Rule 78 Petition standard “effectively imposes a hard limit onadditional applications.” This “may also impact applicants’ rights under Sections102 and 103” Final Rule 114 “clear departure” from the plain language of section 132 “shall” in the statute allows for an unlimited number ofRCEs at the applicant’s discretion
32Decision Details Final rules 75/265 Section 112 does not place any mechanical limits onthe number of claims an applicant may file ESD requirement changes existing law and (contrary toexisting Federal Circuit law) shifts the examinationburden from the PTO to applicants Applicants have no duty to conduct a prior art search Language in §§ 102, 103, 131
33THE BROAD ISSUES ON APPEAL What deference must the court give to the PTO’sposition that it has the authority to promulgatethe Final Rules? What deference must the court give to the PTO’sposition that the Final Rules are “consistent” withthe Patent Act? Are the Final Rules substantive rules and/ornon-substantive rules inconsistent with thePatent Act?
34THE APA AND THE PTO 5 U.S.C. § 553(b) defines different processrequirements depending on whether a regulationis (a) “substantive” or (b) “interpretative” or“procedural” More importantly, congress has not authorizedthe PTO to issue “substantive” regulations. Chevron, 467 U.S. 837, defines “explicit” and“implicit” legislative delegations of authority toagencies.
35THE FEDERAL CIRCUIT DECISION Agreement that the PTO lacks substantiveauthority Majority rejected PTO demand for deference toits view of whether it has authority to issuesubstantive regulations Majority agreed that PTO interpretations ofstatute pertaining to its delegated authority getChevron deference.
36THE OPINION CONTINUED Critical point of departure between majority anddissent start from Chrysler Corp. v. Brown, 441U.S. 281 (1979). Majority limited Chrysler to distinguishingsubstantive from interpretative rules, and “notdispositive on the issue of whether the FinalRules are procedural.” Majority relied on JEM, 22 F.3d 320 (D.C. Cir.1994) which held that rules dismissingapplications for FCC licenses without a right tocure were not substantive.
37THE OPINION CONTINUED Majority relied on JEM, 22 F.3d 320 (D.C. Cir.1994) which held that rules dismissingapplications for FCC licenses without a right tocure were not substantive. Noted statement in JEM that agency actions thatdo not themselves alter rights or other interestsof parties are procedural, even if they alter theway in which parties present themselves or theirviewpoints.
38THE OPINION CONTINUED And on statement in JEM that rules did notchange substantive standards by which FCCevaluates licenses, even thought they mightresult in loss of substantive rights. Then, the Majority held that the Final Rules wereprocedural because “[i]n essence, they governthe timing of and materials that must besubmitted with patent applications.”
39THE OPINION CONTINUED It dismissed impact of Rules 78 and 114,because “applicants who include all arguments,amendments and evidence available at the timeof filing” will not be limited by Rule 78. And with like reasoning for RCEs. The Majority refused to accord weight to thePTO’s published responses which stronglysuggest the PTO intends to deny additionalcontinuations in almost all instances. Responses are “not binding on the PTO” Phrased as “likely” or “unlikely” The courts are “free to entertain challenges”
40THE OPINION CONTINUED Turning to the ESD rules, Marjority disagreed with districtcourt that they shifted the burden to applicants. Distinguished burdens of proof and persuasion Looked at 2 other PTO rules that required applicants to providesome information in specific circumstances. Declined to draw line between procedure and substance based ondistinctions between the prior rules and those under challenge If PTO applies Rules in draconian fashion, “judicial review will beavailable” Rebuffed inequitable conduct concerns – not within the PTO’scontrol and “applicants are expected to be forthright about theirinventions”
41THE OPINION CONTINUED But even a procedural rule that is inconsistent with anexpress provision of the Patent Act is invalid Rule 78 is inconsistent with 35 U.S.C. § 120 because it addedan additional requirement to those set forth in the statute. But accepted argument that there is an ambiguity in section 120concerning permissible length of a chain of serial continuationapplications But deferred to PTO’s “reasonable interpretation” of 35 U.S.C. §132 concerning RCEs And found that the ESD rules merely add an additionalprocedural step for the submission of applications
42THE CONCURRING OPINION It is neither necessary nor helpful to considerwhether the regulations are “substantive,”“interpretative,” or “procedural” The question of whether the PTO could enact arule addressing only serial continuations andlimiting such continuations to two remains open.
43THE DISSENT The Final Rules are substantive The case involves determining whether the Rules aresubstantive or other, so Federal Circuit precedentconcerning rules classification remains relevant The majority took a sentence from JEM out of context JEM held the rule was “not so significant” as to beclassified substantive Proper test is a “case by case” inquiry
44THE DISSENT CONTINUED Chamber of Commerce, 174 F.3d 206 (D.C. Cir.1999) rule imposing on employers “more than the incidentalinconveniences of complying with an enforcementscheme” was substantive Here, many of the 500+ comments evidenced morethan incidental inconveniences Agreed with the district court that the Final Rulesconstitute “a drastic departure from the terms of thePatent Act.”
45THE DISSENT CONTINUED The potential loss of priority date for failing tomeet the ESD requirements was “sufficientlygrave” to mark Rule 78 as substantive Rule 114 (RCE), as it interacts with Rule 78,imposes a new burden on inventors that requiremore than adherence to existing law, and issubstantive
46THE DISSENT CONTINUED ESD rules “drastically affects” an applicant’srights and obligations under the Patent Act With less ability to protect the subject matterdisclosed, “an inventor will have less incentive todisclose the full dimension of the technologicaladvance.” “Final Rule 75 frustrates the quid pro quocontemplated by the Patent Act.”
47THE DISSENT CONTINUED Rules 265 imposes a new obligation ofconducting a prior art search and opining aboutpatentability over the closest prior art. These burdens go beyond “adherence toexisting law” and are more than “incidentalinconveniences of complying with anenforcement scheme” The district court got it right
48OBSERVATIONS Politics at play Concern that the district court decision might limitfuture reasonable actions by regulation But the PTO took a knowing risk Regulations promulgated under one administrationleft to another to deal with
49OBSERVATIONS CONTINUED Chrysler, 441 U.S. 281 “the central distinction among agency regulationsfound in the APA is that between ‘substantiveregulations’ on the one hand and ‘interpretative rules,general statements of policy, or rules of agencyorganization, procedure, or practice’ on the other” Characteristic inherent in concept of substantive rule– is “affecting individual rights and obligations” Facts in Chrysler Reverse FOIA Was disclosure “authorized by law” based on a substantiveagency regulation? Regulations seemed substantive but were not properlypromulgated as such
50OBSERVATIONS CONTINUED Chrysler draw a critical distinction between substantiveand non-substantive regulations Regulations were regarded as substantive because theyimpacted, among other things, the confidentiality rightsof those who submit information to the government While some procedural regulations also affectsubstantive rights, the Chrysler test remains controllinglaw The test for whether a regulation is substantive shouldbe “case by case” based on the overall impact
51OBSERVATIONS CONTINUED Reminder of circumstances not likely to besufficient to justify an additional continuation Submitting newly discovered prior art Amending claims as a result of newly discovered priorart Learning the examiner is under a misunderstanding The examiner changing position on claim construction Realizing a limitation is unduly limiting Tailoring claims to protect a newly commerciallyviable product Tailoring claims to react to a newly discoveredcompeting product
52OBSERVATIONS CONTINUED Acquiring the necessary financial resources Responding to an adverse court decision Finding errors made by a practitioner Physical disability of the applicant Theory v. Reality?? What strategy for patentprotection do practitioners adopt in the face ofthesePTO signpoints? ESD – additional costs of compliance Is that merely procedural?
53OBSERVATIONS CONTINUED Consider effect on remand issues of decisionthat continuation rule is invalid ESD rules are not so draconian as to makecompliance impossible RCE and claim limitation rules are procedural andvalid
54What Now? PTO Options Appeal – Fed. R. App. P. 4 (a)(1)(B) – 60days after the judgment or order appealedfrom is entered - Lobby congress for substantive rulemakingauthority Consider alternatives such as enhanced fees Work with users?
55What Now? GSK/Tafas Options File petition for rehearing en banc Lobby the new administration March 24, 2009 letter from AIPLA
56The Saga Continues Thanks for your attention