May 1, 2008 (Vol. 28, No. 9)
Courtenay C. C. Brinckerhoff
If Congress Gets Involved, the Outcome Won’t Necessarily Be Any Better for Biotech Firms
Patent reform has been a hot topic for several years now. Applicants complain about the U.S. Patent & Trademark Office (PTO) backlog, the PTO complains about low-quality patent applications, and industries complain about patents that some believe should not have been granted.
The PTO, Congress, and even the courts have taken steps to reform the U.S. patent system, but as of today, the prospect of meaningful patent reform remains uncertain. A U.S. district court recently blocked the PTO’s major attempt at reform, and all eyes are now on Congress, which continues to debate the Patent Reform Act of 2007.
Biotech applicants should be aware that Congress may devise a patent reform solution that causes even more problems than the PTO’s proposed rule changes with provisions that could significantly increase the already high costs of patent prosecution for biotechnology inventions.
In January 2006, the PTO proposed significant rule changes to address the backlog of unexamined patent applications. After an extended notice and comment period and several town meetings across the country, the PTO published the final Claims and Continuations rules in August 2007, with a stated effective date of November 1, 2007.
The rules would have made significant changes to patent prosecution by (1) limiting the number of continuation applications that can be filed without justification to two applications and one Request for Continued Examination (RCE) per application family, (2) limiting the number of claims that can be presented without having to provide a detailed patentability analysis (an Examination Support Document, or ESD) to 25 claims, and (3) requiring identification of, and in some cases justification of, certain commonly owned, copending applications.
While the PTO promoted the new rules as a solution to the backlog and patent quality issues, applicants railed against the substantive loss of rights that the continuation and claim limits might cause, the high costs and inequitable conduct risks associated with ESDs, and the burden of complying with the copending application disclosure rules.
Challenge to PTO’s Requirements
Just after the final rules were published, a sole inventor Triantafyllos Tafas challenged their validity in the U.S. District Court for the Eastern District of Virginia where the PTO is located. Soon thereafter, Smithkline Beecham (GlaxoSmithKline) brought a similar suit, and the two cases were joined.
The case challenged the validity of the Claims and Continuations rules under the Administrative Procedure Act, which governs the rule-making authority of federal agencies like the PTO. Smithkline Beecham and Tafas argued that the rules exceeded the PTO’s authority, because although the PTO only has authority to promulgate rules that “govern the conduct of proceedings in the Office,” the Claims and Continuations rules impacted the substantive rights of applicants, such as the right to file an unlimited number of continuation applications and an unspecified number of claims.
Both parties sought a preliminary injunction to stop the rules from taking effect, and on October 31, 2007, literally hours before the rules were to go into effect, the court granted extraordinary relief, finding that Smithkline Beecham and Tafas were likely to prevail in their challenge to the rules. Five months later on April 1, the district court issued a final opinion and order invalidating the Claims and Continuations rules and permanently enjoining the PTO from implementing the rules.
The basis of the court decision was that the rules “are substantive in nature and exceed the scope of the USPTO’s rulemaking authority.” The court characterized the rules as “chang[ing] existing law and alter[ing] the rights of applicants…under the Patent Act” and found that the rules “constitute a drastic departure from the terms of the Patent Act as they are presently understood.”
In reaching its decision, the court recognized applicants’ “valuable rights…to an unlimited number of continuation and continuation-in-part applications,” interpreted the RCE statute as “allow[ing] for an unlimited number of RCEs…[at] the discretion of the applicant,” and found that “the Patent Act does not place any mechanical limits on the number of claims an applicant may file.” The court also determined that the ESD requirement improperly “shift[ed] the examination burden away from the USPTO and onto applicants.” The court found that the rules were void, because the PTO does not have “any general substantive rule-making power.”
The court’s decision is important on several fronts. First, it once again blocked the Claims and Continuation rules from taking effect, a decision that is welcomed by most applicants, particularly those in biotechnology arts where continuations and RCEs are often needed to obtain a full scope of patent protection.
Second, it held that the PTO does not have “substantive” rule-making authority and so cannot promulgate rules that affect the “individual rights and obligations” of applicants. That holding, if not reversed on appeal or abrogated by Congress, means that the PTO cannot promulgate any substantive rules and casts doubt on the validity of the pending proposed Information Disclosure Statement (IDS) rules and proposed Alternative Claim Language (Markush group) rules.
The court’s criticism of the proposed ESD requirements also undermines the proposed IDS rules, which would require applicants to provide a patentability analysis with prior art submissions and to update the analysis when claims are amended.
In view of the far-reaching effects of the district court decision, the PTO is likely to pursue an appeal and has 60 days from April 1 to do so. If the appeal follows a normal schedule, however, it could be up to a year or more before a final decision is rendered.
With the PTO at least temporarily disqualified as an agent of patent reform, all eyes are now on Congress and the Patent Reform Act of 2007. While many of the draft provisions relate to postgrant issues such as postgrant review, interlocutory appeals of claim construction decisions, and damages calculations in patent infringement suits, several provisions directly address issues raised by the now-defunct Claims and Continuations rules.
The PTO is expected to ask Congress to legislatively reverse its district court defeat. Indeed, the House version of the Patent Reform Act would give the PTO express authority to limit continuation practice. If passed, such a provision would effectively overrule the district court’s decision blocking the Claims and Continuations rules.
Both the House and Senate versions would create a new requirement for Applicant Quality Submissions (AQS), which would include a prior-art search report and patentability analysis. If passed, applicants could be required to submit something like an ESD in all cases regardless of the number of claims, although applicants that qualify as a newly defined micro entity would be exempt from the AQS requirement.
The PTO is lobbying for these changes and has particularly focused on the AQS requirement, which it has characterized as “the strongest step toward improved patent quality.” The Patent Office believes that the AQS requirement will “reduce the number of poor quality and imprecise applications” and thereby dramatically reduce the patent application backlog and improve patent quality.
Patent bar organizations are voicing strong opposition to the AQS provisions, emphasizing the associated high costs and the inequitable conduct issues they would raise. As no other national patent office requires applicants to conduct their own search and analysis, an AQS requirement could make the U.S. patenting process particularly expensive and onerous.
So, while many applicants are celebrating the district court decision invalidating the Claims and Continuation rules, Congressional action could result in similar or even more burdensome requirements. If Congress gives the PTO the authority to limit continuation applications, applicants may have to adjust patent prosecution strategies and be prepared to invest more resources earlier in the patenting process, because the opportunities for establishing patentability may be limited.
If Congress enacts the AQS requirement, applicants may have to adjust their patent budgets to take into account the costs and inequitable conduct risks of a prior-art search and patentability analysis. While some applicants may respond by increasing their patent budgets, others may have to limit the number of patent applications filed not because their inventions are not patentable (as the PTO assumes) but because their budgets are limited.
Biotechnology companies, which already experience high patenting costs due to the complexity of the technology and the sometimes convoluted examination process, may particularly feel pinched if these patent-reform provisions become law.
Courtenay C. Brinckerhoff is a partner and member of the biotechnology & pharmaceutical, chemical & pharmaceutical, and appellate practice
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