Federal Circuit Deals Setback to Patentees

March 30, 2009

A number of recent decisions may affect long standing patent rights and prosecution strategies. The most recent is the March 20, 2009 U.S. Court of Appeals for the Federal Circuit (CAFC) decision that ruled that the United States Patent and Trademark Office (USPTO) had the necessary authority to impose rule changes that would:

  1. Limit the number of claims in patent applications;
  2. Limit the number of Requests for Continued Examinations (RCEs);
  3. Require costly pre-examination searches by applicants in certain situations; and
  4. Limit the number of continuation applications that may be filed as a matter of right.

The CAFC concluded that the rules at issue were procedural and that only one of the four rules (limiting the number of continuation applications (Rule 78)) was inconsistent with existing patent law. The CAFC remanded the case to the district court to determine whether the drafting and review process of the three remaining rules was proper.

The USPTO initiated these rules in response to growing backlogs of patent applications and perceptions of poor quality patents being issued. In January 2006, two related notice and comment rulemaking proceedings were issued. After receiving and considering public comments, the USPTO published the new rules on August 21, 2007, with an effective date of November 1, 2007. Shortly after the Final Rules were published in the Federal Register, Triantafyllos Tafas, SmithKline Beecham Corporation, and Glaxo Group Limited (“Plaintiff-Appellees”) filed suit against the USPTO in the federal district court for the Eastern District of Virginia. On October 31, 2007, the district court preliminarily enjoined enforcement of the Final Rules. Tafas v. Dudas, 511 F. Supp. 2d 652 (E.D. Va. 2007) (“Tafas I”).

Subsequently, the district court granted the Patentee’s motion for summary judgment and permanent injunction, concluding that the rules were impermissibly substantive, inconsistent with law, arbitrary and capricious, incomprehensibly vague, impermissibly retroactive, and procedurally defective. Tafas v. Dudas, 541 F. Supp. 2d 805, 814 (E.D. Va. 2008) (“Tafas II”). Specifically, the district court found that the rules created limits on continuation applications, RCEs, and claims that were inconsistent with several sections of the Patent Act. The district court further concluded that because the USPTO lacked substantive rulemaking authority under Merck & Co., Inc. v. Kessler, 80 F.3d 1543, 1550 (Fed. Cir. 1996), the rules exceeded the USPTO’s statutory jurisdiction in violation of 5 U.S.C. § 706(2). Tafas II, 541 F. Supp. 2d at 814.

The USPTO appealed to the CAFC, which affirmed-in-part and vacated-in-part concluding that the rules were procedural and not substantive. However, the CAFC remanded the case to the district court to consider: (1) whether any of the rules, either on their face or as applied in any specific circumstances, are arbitrary and capricious; (2) whether any of the rules conflict with existing patent law in ways not specifically addressed in the opinion; (3) whether all USPTO rulemaking is subject to notice and comment rulemaking under 5 U.S.C. § 553; (4) whether any of the rules are impermissibly vague; and (5) whether the rules are impermissibly retroactive. Judge Bryson, concurring with the majority decision, agreed that Rule 78 was contrary to existing patent laws, but left open the question of whether the USPTO may be able to revise the rule to make it consistent with existing patent laws.

In support of Patentees, Judge Rader issued a 14-page dissent, arguing that all of the rules were substantive and therefore exceeded the USPTO’s authority. Judge Rader reasoned that the rules “drastically change the existing law and alter an inventor’s rights and obligations,” leaving an inventor with less incentive to disclose the full dimension of the technological advance.

For additional information, please contact any member of the McGuireWoods Intellectual Property Litigation Group.