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Tafas/GSK: The Trail From Preliminary Injunction to the Federal Circuit and Beyond

Presented by: Jerry R. Selinger

Patterson & Sheridan, LLP

jselinger@pattersonsheridan.com

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Timeline Overview

January 3, 2006 - PTO publishes proposed new rules dealing “Continuing Applications” and “Patentably Indistinct Claims” 500+ comments over four months

August 21, 2007 - PTO publishes the “Final Rules,” to be effective as of November 1, 2007

August 22, 2007 - Tafas lawsuit filed October 9, 2007 - GSK suit filed

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Overview of Final Rules 78/114 Final Rules 78 and 114

two continuations or CIPs, plus one request for continued examination, are allowed as a matter of right

Applicants may request additional examination with a “petition and showing” Why the argument, amendment or evidence could not

have been presented in a prior application Applicants may file a “suggested restriction requirement”

If accepted, the divisional is treated as an initial application

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Overview of Final Rules 75/265

Final Rules 75/265

Permits 5/25 as a matter of right Applicants can present additional claims by

filing an “examination support document” Because of Final Rules 78/114, an applicant

can file up to 15/75 claims without an ESD But all patentably indistinct claims from all

commonly owned applications get included in the total

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Crib Notes Version of GSK’s PI/TRO Brief

The Final Rules are ultra vires They constitute substantive rules for which the PTO

lacks 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 impermissible

vague

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Crib Notes Version of PTO Response History of the Final Rules

Applicants delaying conclusion of examination to assess commercial viability of inventions

Applicants filing deficient initial applications and using continuations to work out issues of patentability

GSK discloses a broad array of inventions, but delays claiming them until it is advantageous for it to do so.

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PTO Response continued Plaintiffs are not likely to succeed on the merits

PTO acted within its statutory grant of rulemaking authority, 35 U.S.C. § 2(b)(2), in enacting the Final Rules

“The rules do not affect the truly substantive rights of the patent applicant.”

The rules govern application processing, just as terminal disclaimer practice and the threshold showing for reissue of a patent

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PTO Response continued Plaintiffs are not likely to succeed on the merits

Final Rules are Consistent with the Patent Act and are Reasonable

Under Chevron, 467 U.S. 837, the court must defer to the PTO’s rule because it is based on a “permissible construction” of the statute [§ 120]

Section 120 is not absolute, citing Symbol Techs., 277 F.3d 1361 (Fed. Cir. 2002) and In re Bogese, 303 F.3d 1368 (Fed. Cir. 2002)

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PTO Response continuedRule 78 (continuing application rule)

In re Henriksen, 399 F.2d 253 (CCPA 1968) involved an absolute limit, unlike the PTO rules. (Its also very old.)

Section 120 cannot be construed as absolutely unlimited in view of § 112 and § 251 (reissue)

Section 120 does not authorize purposeful delay

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PTO Response continued Rule 114 (request for continued examination)

Section 132 cannot be construed as absolutely unlimited

PTO has complied with the mandate in Section 132(b) to prescribe regulations for the continued examination of applications

Rules 75/265 (claim limits rules) Chevron deference Not incomprehensibly vague; and no

constitutionally-protected interest

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PTO Response continued Final Rules are not retroactive

A regulation is impermissibly retroactive only if it “[1] would impair rights a party possessed when he acted, [2] increase a party’s liability for past conduct, or [3] impose new duties with respect to transactions already completed.” Landgraf, 511 U.S. 244, 280 (1994) (emphasis added).

Filing of applications do not create any rights; patent applications do not give rise to property rights. Marsh, 128 U.S. 605, 612 (1888).

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Amicus 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)

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The road to oral argument PTO initial position on amicus briefs – untimely

PTO also objects to AIPLA as containing new arguments

So, I went to DC to argue the motion for leave

Where the Judge invited oral argument by amici on the merits

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AIPLA Position at the PI/TRO Stage The retroactive impact of applying the Final

Rules to pending applications will cause irreparable harm – loss of trade secrecy through publication

The public interest favors interim injunctive relief

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10/31 District Court Opinion PTO does not have general substantive

rulemaking authority GSK created “a colorable question” as to

whether the Final Rules are truly substantive. GSK raised “serious concerns” as to whether

the rules comport with the Patent Act.

Rule 78 Symbol Techs. suggests PTO cannot limit the

number of continuing applications Petition option does not tip the balance.

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10/31 District Court Opinion Rule 114

Neither party showed strong likelihood of success

Rules 75/265 Neither party showed strong likelihood of

success GSK has not shown a real likelihood of success

on whether the rules are arbitrary and capricious

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10/31 District Court Opinion The Landgraf presumption against statutory retroactivity

is not limited to cases involving “vested rights.”

Petition requirement “imposes new duties” on completed transactions, i.e., with respect to initial applications

Rules retroactively alter the bargain on which inventors rely in surrendering their trade secret rights [citing AIPLA amicus brief].

GSK has a “real likelihood of success” on this issue

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10/31 District Court Opinion GSK has shown likelihood of success on

prevailing on claim that Rule 265 (ESD) is unconstitutionally vague

Public interest is served by continuing the status quo- noting all three amicus briefs support a PI

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Cross Motions for Summary Judgment Tafas

The Final Rules Are Contrary to the Patent Act

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 by

altering the burden of proof and causing loss of substantive rights

Violate Bayh-Dole Act

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Cross Motions for Summary Judgment

Tafas (continued) The Final Rules violate the U.S. Constitution The Final Rules were proposed and enacted

contrary to the APA The Final Rules were promulgated in violation

of the Regulatory Flexibility Act

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Cross Motions for Summary Judgment GSK

PTO cannot promulgate rules inconsistent with established law and is entitled to no deference when it seeks to do so

Arbitrary and mechanical limits in Final Rules 78, 114 and 75 are contrary to established patent law

Pre-exam search requirement for ESDs is incomprehensibly vague

PTO has no authority to implement the Final Rules retroactively Because the PTO failed to adequately consider the Taking of

Constitutionally 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

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Cross Motions for Summary Judgment PTO

Final Rules do not violate the Patent Act PTO is entitled to Chevron deference, whether they are

procedural 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 capricious manner

Final Rules are not retroactive

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Cross 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 constitutional

vagueness challenge The Final Rules did not require notice under the APA,

but in all events are a logical outgrowth of the proposed rules

PTO complied with the regulatory flexibility act

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Amicus Briefs Three filed in support of the PTO Far more filed in support of Tafas and GSK, including

AIPLA

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Amicus Briefs AIPLA – focused on retroactivity

Trade secrets have been published, and trade secrecy thus surrendered, in reliance on fundamental principles of law that have applied for more than a century

Retroactive impact on common prosecution practices

PTO’s options for mitigating the harsh new restrictions are for the vast majority of applicants illusory [“SRR,” “ESD,” and petition]

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Amicus Briefs AIPLA (continued)

The retroactive Application of the Final Rules violates Landgraf

They “impair rights a party possessed when he acted” Rights are not limited to vested rights Owners of patent applications have sufficient rights to

trigger Landgraf 35 U.S.C. §§ 261, 181, 183, 154(d), treated as

property by the IRS, and in bankruptcy They impose new duties with respect to transactions

already completed

The retroactive application of the Final Rules violates Bowen

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Summary Judgment Decision The “Final Rules are substantive in nature and

exceed the scope of the PTO’s rulemaking authority under 35 U.S.C. § 2(b)(2).”

The Final rules are “void” as “’otherwise not in accordance with law’” and “’in excess of statutory jurisdiction [and] authority’”

Court declines to reach the other issues raised by the parties.

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Decision Details Section 2(b)(2) empowers the PTO to establish

regulations ‘not inconsistent with law” to “govern the conduct of proceedings in the Office,”

This does not vest the PTO with any general substantive rulemaking authority. Merck, 80 F.3d 1543 (Fed. Cir. 1996) and its

progeny Animal Legal Def. Fund, 932 F.2d 920 (Fed.

Cir. 1991) Recent congressional debate about whether

to grant the PTO substantive rulemaking authority

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Decision Details PTO efforts to abolish the substantive-procedural

distinction rejected as contrary to Federal Circuit and Supreme Court case law PTO does not have authority to issue substantive

rules PTO does not have authority to make substantive

declarations interpreting the Patent Act. PTO argument that Final Rules are procedural because

they do not alter substantive requirements for novelty, nonobviousness or definiteness rejected

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Decision Details Final Rules are not rules relating to application

processing that have substantive collateral consequences

They are substantive rules that change existing

law and alter the rights of applications under the Patent Act

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Decision Details Changes “constitute a drastic departure from the

terms of the Patent Act as they are presently understood.” Final Rule 78

Petition standard “effectively imposes a hard limit on additional applications.”

This “may also impact applicants’ rights under Sections 102 and 103”

Final Rule 114 “clear departure” from the plain language of section 132 “shall” in the statute allows for an unlimited number of

RCEs at the applicant’s discretion

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Decision Details Final rules 75/265

Section 112 does not place any mechanical limits on the number of claims an applicant may file

ESD requirement changes existing law and (contrary to existing Federal Circuit law) shifts the examination burden from the PTO to applicants

Applicants have no duty to conduct a prior art search Language in §§ 102, 103, 131

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THE BROAD ISSUES ON APPEAL What deference must the court give to the PTO’s

position that it has the authority to promulgate the Final Rules?

What deference must the court give to the PTO’s position that the Final Rules are “consistent” with the Patent Act?

Are the Final Rules substantive rules and/or non-substantive rules inconsistent with the Patent Act?

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THE APA AND THE PTO 5 U.S.C. § 553(b) defines different process

requirements depending on whether a regulation is (a) “substantive” or (b) “interpretative” or “procedural”

More importantly, congress has not authorized the PTO to issue “substantive” regulations.

Chevron, 467 U.S. 837, defines “explicit” and “implicit” legislative delegations of authority to agencies.

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THE FEDERAL CIRCUIT DECISION Agreement that the PTO lacks substantive

authority Majority rejected PTO demand for deference to

its view of whether it has authority to issue substantive regulations

Majority agreed that PTO interpretations of statute pertaining to its delegated authority get Chevron deference.

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THE OPINION CONTINUED Critical point of departure between majority and

dissent start from Chrysler Corp. v. Brown, 441 U.S. 281 (1979).

Majority limited Chrysler to distinguishing substantive from interpretative rules, and “not dispositive on the issue of whether the Final Rules are procedural.”

Majority relied on JEM, 22 F.3d 320 (D.C. Cir. 1994) which held that rules dismissing applications for FCC licenses without a right to cure were not substantive.

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THE OPINION CONTINUED Majority relied on JEM, 22 F.3d 320 (D.C. Cir.

1994) which held that rules dismissing applications for FCC licenses without a right to cure were not substantive.

Noted statement in JEM that agency actions that do not themselves alter rights or other interests of parties are procedural, even if they alter the way in which parties present themselves or their viewpoints.

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THE OPINION CONTINUED And on statement in JEM that rules did not

change substantive standards by which FCC evaluates licenses, even thought they might result in loss of substantive rights.

Then, the Majority held that the Final Rules were procedural because “[i]n essence, they govern the timing of and materials that must be submitted with patent applications.”

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THE OPINION CONTINUED It dismissed impact of Rules 78 and 114,

because “applicants who include all arguments, amendments and evidence available at the time of filing” will not be limited by Rule 78. And with like reasoning for RCEs.

The Majority refused to accord weight to the PTO’s published responses which strongly suggest the PTO intends to deny additional continuations in almost all instances. Responses are “not binding on the PTO” Phrased as “likely” or “unlikely” The courts are “free to entertain challenges”

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THE OPINION CONTINUED Turning to the ESD rules, Marjority disagreed with district

court that they shifted the burden to applicants. Distinguished burdens of proof and persuasion Looked at 2 other PTO rules that required applicants to provide

some information in specific circumstances. Declined to draw line between procedure and substance based on

distinctions between the prior rules and those under challenge If PTO applies Rules in draconian fashion, “judicial review will be

available” Rebuffed inequitable conduct concerns – not within the PTO’s

control and “applicants are expected to be forthright about their inventions”

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THE OPINION CONTINUED But even a procedural rule that is inconsistent with an

express provision of the Patent Act is invalid Rule 78 is inconsistent with 35 U.S.C. § 120 because it added

an additional requirement to those set forth in the statute. But accepted argument that there is an ambiguity in section 120

concerning permissible length of a chain of serial continuation applications

But deferred to PTO’s “reasonable interpretation” of 35 U.S.C. § 132 concerning RCEs

And found that the ESD rules merely add an additional procedural step for the submission of applications

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THE CONCURRING OPINION It is neither necessary nor helpful to consider

whether the regulations are “substantive,” “interpretative,” or “procedural”

The question of whether the PTO could enact a rule addressing only serial continuations and limiting such continuations to two remains open.

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THE DISSENT The Final Rules are substantive

The case involves determining whether the Rules are substantive or other, so Federal Circuit precedent concerning rules classification remains relevant

The majority took a sentence from JEM out of context JEM held the rule was “not so significant” as to be

classified substantive Proper test is a “case by case” inquiry

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THE DISSENT CONTINUED Chamber of Commerce, 174 F.3d 206 (D.C. Cir.

1999) rule imposing on employers “more than the incidental

inconveniences of complying with an enforcement scheme” was substantive

Here, many of the 500+ comments evidenced more than incidental inconveniences

Agreed with the district court that the Final Rules constitute “a drastic departure from the terms of the Patent Act.”

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THE DISSENT CONTINUED The potential loss of priority date for failing to

meet the ESD requirements was “sufficiently grave” to mark Rule 78 as substantive

Rule 114 (RCE), as it interacts with Rule 78, imposes a new burden on inventors that require more than adherence to existing law, and is substantive

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THE DISSENT CONTINUED ESD rules “drastically affects” an applicant’s

rights and obligations under the Patent Act With less ability to protect the subject matter

disclosed, “an inventor will have less incentive to disclose the full dimension of the technological advance.”

“Final Rule 75 frustrates the quid pro quo contemplated by the Patent Act.”

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THE DISSENT CONTINUED Rules 265 imposes a new obligation of

conducting a prior art search and opining about patentability over the closest prior art.

These burdens go beyond “adherence to existing law” and are more than “incidental inconveniences of complying with an enforcement scheme”

The district court got it right

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OBSERVATIONS Politics at play

Concern that the district court decision might limit future reasonable actions by regulation

But the PTO took a knowing risk Regulations promulgated under one administration

left to another to deal with

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OBSERVATIONS CONTINUED Chrysler, 441 U.S. 281

“the central distinction among agency regulations found in the APA is that between ‘substantive regulations’ on the one hand and ‘interpretative rules, general statements of policy, or rules of agency organization, 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 substantive

agency regulation? Regulations seemed substantive but were not properly

promulgated as such

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OBSERVATIONS CONTINUED Chrysler draw a critical distinction between substantive

and non-substantive regulations Regulations were regarded as substantive because they

impacted, among other things, the confidentiality rights of those who submit information to the government

While some procedural regulations also affect substantive rights, the Chrysler test remains controlling law

The test for whether a regulation is substantive should be “case by case” based on the overall impact

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OBSERVATIONS CONTINUED Reminder of circumstances not likely to be

sufficient to justify an additional continuation Submitting newly discovered prior art Amending claims as a result of newly discovered prior

art 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 commercially

viable product Tailoring claims to react to a newly discovered

competing product

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OBSERVATIONS 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 patent protection do practitioners adopt in the face of thesePTO signpoints?

ESD – additional costs of compliance Is that merely procedural?

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OBSERVATIONS CONTINUED Consider effect on remand issues of decision

that continuation rule is invalid ESD rules are not so draconian as to make

compliance impossible RCE and claim limitation rules are procedural and

valid

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What Now? PTO Options

Appeal – Fed. R. App. P. 4 (a)(1)(B) – 60 days after the judgment or order appealed from is entered -

Lobby congress for substantive rulemaking authority

Consider alternatives such as enhanced fees Work with users?

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What Now? GSK/Tafas Options

File petition for rehearing en banc Lobby the new administration

March 24, 2009 letter from AIPLA

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The Saga Continues Thanks for your attention