Federal Circuit Hears Oral Argument on Tafas Appeal

    By Donald Zuhn --

Last Friday, the Federal Circuit heard oral argument in the Tafas v. Dudas appeal.  Arguing on behalf of Defendants-Appellants Director Jon Dudas and the U.S. Patent and Trademark Office was USPTO General Counsel James Toupin.  Plaintiffs-Appellees SmithKline Beecham Corp., SmithKline Beecham plc, and Glaxo Group Ltd. (GSK) were represented by John Desmarais, a partner with Kirkland & Ellis LLP, and Plaintiff-Appellee Dr. Triantafyllos Tafas was represented by Steven Moore, a partner with Kelley Drye & Warren LLP.

Mr. Toupin argued first, and for seventeen and a half minutes, the Patent Office's General Counsel was peppered with questions from the panel, which consisted of Circuit Judges Rader, Bryson, and Prost.  Mr. Desmarais went next, addressing the Court for just over eighteen minutes, followed by Mr. Moore, who argued for almost eight minutes.  Mr. Toupin closed oral argument with another twelve and a half minutes of rebuttal.  An audio recording of the oral argument can be found here.  For practitioners and applicants who have not had a chance to listen to the nearly one-hour long oral argument in this case, a few highlights are offered below.

Mr. Toupin (at right) began by stating that "[a]ll of the regulations at issue here fit squarely within the plain meaning of governing the conduct of proceedings before the Office, and seek to expedite the process of patent applications," adding that Lacavera v. Dudas, 441 F.3d 1380 (Fed. Cir. 2006), and Bender v. Dudas, 490 F.3d 1361 (Fed. Cir. 2007), indicate that "the PTO's interpretation of [35 U.S.C.] § 2 is entitled to Chevron deference."  The Court, however, reminded Mr. Toupin that whether the PTO was entitled to Chevron deference was "kind of the issue here."  Questioning the Office's counsel on the issue of deference, the Court asked:

Court:  You want Chevron deference, but you only get that deference if you're acting within the scope of your authority, and [if not,] that's a matter on which there is no deference, right?

Mr. Toupin:  No.  Under Bender and Lacavera, the Court accorded the agency Chevron deference with respect to . . .

Court:  Under Borlem, we said very clearly:  only if you're within your statutory mandate, and the courts decide whether you're within the scope of your authority.

On the issue of deference, the Court concluded by "asking" whether Mr. Toupin was "arguing that we ought to allow the [agencies] to themselves define their own limits of their power and receive deference for that?"

Moving on to the limits on continuation applications imposed by the new rules, the Court stated that:

Court:  The question remains, and I think you alluded to this earlier, that it's still . . . what you've done [with the continuation and claims rules] still has to be in accordance with law, and my concern there goes to the [35 U.S.C. §] 120 and the continuation issue.  It seems to me, and tell me if you disagree, that [§] 120 sets out quite clearly certain criteria for when an application is entitled to a priority date.  And as I read your proposed regulations, they create a very explicit exception.  In other words, they say an application -- except for the third or more application that doesn't involve new matter -- you don't get the priority date.  And that bumps up, in my view, to the language in the statute.

Mr. Toupin:  First, that's not an accurate interpretation of the rule itself because additional continuations are permissible on a showing that with reasonable diligence one could not have brought the matter previously.

The Court, not satisfied with Mr. Toupin's reply, snapped back that "[t]he statute says 'shall have the same effect' -- shall have the same effect whether it's the third, the fifth, or the first, as long it's copending at the time [applicants] make the request."  The Court then asked:

Court:  Do you disagree that the statute is absolutely clear that there's no exception or exclusion for third and fourth applications that do not provide anything that wasn't otherwise available?

Mr. Toupin:  What the Court held in . . .

Court:  Can you just answer the question as to whether you think the statute is clear?

Mr. Toupin:  No, your Honor.  What the Court held in the Henricksen case was that it was not clear on the face of the statute, unequivocally clear on the face of the statute, that an applicant [could not be] limited to two continuations, and it therefore held the Board erred in finding that it was clear.

Leaving the issue of continuation limits behind, the Court then turned to claims limits imposed by the new rules:

Court:  Looking at the other rule, the 5/25 rule, do you read [35 U.S.C. §] 112 as -- the "or more" language -- as creating some kind of limit?

Mr. Toupin:  [A]s the Court held in Rubinfield, "or more" requires an applicant to submit at least one claim.

Court:  "Or more."  Does "or more" have a limit in it?  How many is "or more"?  Is six "or more"?

Mr. Toupin:  Six is literally "or more."

Court:  Thank you.

Mr. Toupin reminded the Court that "[t]he agency, of course, has not here imposed a limit on the number of claims," and instead had "only imposed a requirement that over a certain number of claims the applicant should provide additional information to assist in the examination."  One of the oral argument's most interesting exchanges followed:

Court:  Well, there's a little problem with that too.  Wouldn't you be crazy to use that [Examination Support Document (ESD)] procedure and subject yourself to inequitable conduct if you make a slightly wrong comment in the wrong place?

Mr. Toupin:  To the contrary, your Honor . . .

Court:  You're going to go out and advise your clients to use the ESD procedure routinely?  . . .  You're advising a pharma company now, and you've got clinical trials under way, and you know you're going to need to, down the road  . . .  identify your species that are the best ones.  You're going to need continuations to cover your real inventions.  You're going to need more claims because you're not only claiming the species but the various formulations and the administration methods.  . . .  And you're going to say:  "Well it's okay, we can go beyond five and we can go beyond the continuations limit because, ahhh, we can clarify it all with ESDs?"  That's the advice you're going to give your client?

Mr. Toupin:  Well, look, first, your Honor . . .

Court:  "Yes" is your answer?  I bet you're not going to be hired by very many pharmaceutical companies.  I just think you sent yourself to the electronics industry.

The Court concluded its questioning of the Patent Office's counsel by pointing out that in promulgating the new rules, the PTO had "shifted the burden here . . . that the burden is kind of shifted to [an applicant] not only to prove that you deserve the extra claims, but that you deserve the patent based on your own reading of the prior art, which if you [make a] mistake in the slightest, it's going to cost you your head."

By any comparison, the Court's questioning of Mr. Desmarais and Mr. Moore was much less contentious.  With Mr. Desmarais (at left), the Court probed the issue of prosecution laches and whether its decision in In re Bogese informed the current appeal.  Using the facts in Bogese, the Court posed the following hypothetical:

Court:  Could the PTO issue a rule that says applicants who file twelve continuations over an eight-year period without advancing prosecution when given the opportunity will forfeit their patent right?

Mr. Desmarais:  This Court made it clear in the prosecution laches trilogy -- in Symbol II, In re Bogese, and Symbol IV -- that mechanical rules aren't the way to handle this.

The Court noted, however, that unlike in Bogese, the new rules give applicants "an out," stating that "[t]hey say just explain your reasons, or why you shouldn't have done it earlier, and you can have more [continuations]."  Mr. Desmarais countered by stating:

That's the problem with the current rules.  They're saying now with the current rules [that] when you get to the third [continuation], you have to sign a declaration that says you cannot have done this earlier.  That's not what [§] 120 says.

On the issue of whether the new rules would actually address the PTO's growing backlog of applications, the Court and GSK's counsel engaged in the following exchange:

Court:  What do you do with the factual predicate here?  [The PTO is] falling behind at least 100,000 applications a year.  Something's got to happen.

Mr. Desmarais:  Yeah, something absolutely should happen, and that analysis and what should happen is something for Congress to deal with.  . . .  So what has Congress been doing?  Since 2005, Congress has been debating patent reform.  They have been considering should we give the PTO authority to mess with § 120.  They have been considering should we give the PTO substantive rulemaking authority.  They debated it in 2005, 2006, 2007, 2008 -- it hasn't passed yet, but they know it's their job and they're attending to it.  It's not for the PTO to say we're tired of waiting for Congress, and to come in, grab the law themselves, and start to change it.  They can't do that.

The difference in the tenor of the Court's questioning of Mr. Toupin and Mr. Desmarais was no more apparent than when the Court asked Mr. Desmarais whether pharmaceutical companies "could well need" more than the two continuations, five independent claims, and 25 total claims provided by the new rules.  GSK's counsel responded with an impassioned plea on behalf of the pharmaceutical industry:

You will, in my view, cripple the pharmaceutical industry with these rules.  . . .  The problem for the pharmaceutical industry, and why these rules are so problematic, is [a pharmaceutical company] come[s] up with a class of compounds -- which is a big genus of compounds, that's what they invent in the laboratory -- it then takes them literally a decade, literally a decade and millions of dollars, to find the species that works.  Many of [these species] fail along the way.  They go into clinicals, phase I, phase II, whatever, and [a pharmaceutical company] may put in $100 million, or $200 million, or $300 million, and [the species] may fail in the clinic.  [The company has] to go back and pick another one and try again.  If you limit them to two continuations, and the third only if they couldn't have done it earlier, you're going to cripple them because they're going to get into the process, multi-years into the process, hundreds of millions of dollars into the process, and then they're going to find the compound that actually works and saves human lives, and they're not going to be able to patent it.  And you know what happens if they can't patent it?  They're not going to take it to market.

The Court then turned to Mr. Moore (at right), asking Tafas' counsel whether there should be any limits on the numbers of claims an applicant can file:

Court:  Do you think if someone came in with 1,000 claims, and said to the examiner:  "Get busy"?  . . .  Do you think the examiner could say, or the PTO could say as a policy matter:  "No, that's just too many claims.  There's no way that you need a thousand claims.  We're just not going to look at a thousand claims"?

Mr. Moore:  Under the law today, no.  They could not say that.  But we do know what they do.  I mean, we all know what they do.  They will restrict those 1,000 claims into 1,000 applications.

As to whether the Office could address the problem with additional claims fees, the Court queried:

Court:  Could they ask you to pay an extra fee if you want more than 25 claims?  Could they double, or triple, or quadruple the fee?

Mr. Moore:  Under the current statutes, the fees are set by Congress.  So I don't think they can set fees.

On rebuttal, Mr. Toupin covered the issues of retroactivity and the vagueness of the ESD rule (both of which had been first addressed by Mr. Moore), and then the Court tossed a few more questions Mr. Toupin's way:

Court:  I know we're straying a little into policy here rather than direct law, but Mr. Desmarais made the point that this could be crippling for the pharmaceutical industry.  Was that considered as part of the notice and comment period and was that considered by the Office in [promulgating the new rules] in the first place?

Toupin:  Absolutely, your Honor.  Our original proposal was one continuation or RCE as of right, and any additional [continuation or RCE] would require a showing.  We changed that explicitly in response to concerns about the effect [of the new rules] on commercialization to 2+1 [i.e., two continuations plus one RCE].

The Court concluded by asking Mr. Toupin if he knew whether the use of delayed examination would "affect patent term restoration under the Hatch-Waxman Act," to which Mr. Toupin responded that he did not.

Patent practitioners, applicants, and assignees will now await the Federal Circuit's decision.

Comments

[EG]

Don,

I listened to the mp3 file, and it sounds like Toupin was dunked in a "blood bath." Unless something very odd happens, Cacheris's decision below is going to be affirmed, and these rules are going to be dead. The only question I see is how strong this Federal Circuit panel words its decision.

[Donald Zuhn]

EG:

While I tend to agree with your assessment, I'm hoping that the panel wasn't merely "testing" the strength of the Office's arguments because it was leaning towards reversing the District Court going into oral argument.

Don

[EG]

Don,

I agree that sometimes the judges ask the tough questions of the side they support. But given Judge Rader's dialogue with Toupin about the advisability of filing ESDs, and the general tenor and tone of the questions asked by Rader, Prost, and Bryson collectively, I think this panel looked with a very jaundiced eye at the PTO's position. Again, I think the only question is how hard this panel comes down on what the PTO did here.

[Sean]

Don, even your last sentence belies the fact that you expect an affirmance -- you didn't include the Patent Office among the group awaiting the decision!

Thanks for the summary...I had seen reports of the hearing, but no transcript excerpts. Very informative.

[Patrick]

Excellent summary, thanks!

[Baltazar]

Hi Don. I'll be very surprised if the Court reverses Cacheris's decision below.