By Donald Zuhn --
On Friday, the Federal Circuit issued its decision in Tafas v. Doll (formerly Tafas v. Dudas). The Tafas appeal concerns the validity of four rules in the continuation and claims rules package promulgated by the U.S. Patent and Trademark Office on August 21, 2007. The four rules at issue are: Rule 75, which requires applicants submitting more than five independent or 25 total claims to file an Examination Support Document (ESD); Rule 78, which limits applicants to two continuation applications per application family absent a petition and showing; Rule 114, which limits applicants to one RCE per application family absent a petition and showing; and Rule 265, which establishes the requirements for an ESD.
In an opinion authored by Judge Prost and joined by Judge Bryson, a split panel determined that Rules 75, 78, 114, and 265 are procedural, but that Rule 78 is inconsistent with 35 U.S.C. § 120. Judge Rader dissented in part, contending that all four of the rules at issue are substantive.
Judge Prost (at left) begins her discussion by rejecting the USPTO's argument that the District Court erred for failing to give the Office's interpretation of its rulemaking authority under 35 U.S.C. § 2(b)(2) proper deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1984). However, with respect to the USPTO's argument that the District Court also failed to accord the Office Chevron deference with respect to its interpretations of various sections of the Patent Act, and its belief that the continuation and claims rules were consistent with such interpretations, Judge Prost finds that "the USPTO's interpretations of statutes that pertain to the USPTO's delegated authority are entitled to Chevron deference." Thus, for rules that are within the scope of the Office's delegated authority (i.e., procedural rules promulgated under 35 U.S.C. §§ 2(b)(2) and 132(b)), the Court must "give Chevron deference to the USPTO's interpretation of statutory provisions that relate to the exercise of delegated authority."
Having decided that the USPTO is to be afforded Chevron deference with respect to procedural rules, Judge Prost next turns to the issue of whether the continuation and claims rules at issue are substantive or procedural. Noting that the parties "vigorously disagree . . . as to how the boundary between 'substantive' and 'procedural' rules should be defined," Judge Prost disagrees with the District Court's "broad and absolute" reading of Chrysler Corp. v. Brown (1979) as defining as substantive "any rule that 'affect[s] individual rights and obligations.'" Instead, she finds the D.C. Circuit's approach in JEM Broad. Co. v. FCC (D.C. Cir. 1994) to be more persuasive. (In view of Judge Prost's use of JEM, it's interesting, but perhaps not surprising, that she cites Professor Mark Lemley and fellow Circuit Judge Kimberly Moore's article on "Ending Abuse of Patent Continuations" in a footnote on page two of the opinion.)
In JEM, the Federal Communications Commission adopted "hard look" rules in response to a significant number of "carelessly prepared and speculative applications" for broadcasting licenses. Under the FCC's rules, applications that failed to include necessary information or contained incorrect or inconsistent information were dismissed with no opportunity to cure the defect. Noting that the D.C. Circuit had "recognized that the rules could result in the loss of substantive rights, but found that they were nonetheless procedural because they did not 'foreclose effective opportunity to make one's case on the merits,'" Judge Prost concludes that the continuation and claims rules are procedural because "[i]n essence, they govern the timing of and materials that must be submitted with patent applications," adding that while the rules "may 'alter the manner in which the parties present . . . their viewpoints' to the USPTO, . . . they do not, on their face, 'foreclose effective opportunity' to present patent applications for examination."
With respect to Rules 78 and 114, Judge Prost states that:
As a result, Judge Prost finds these rules to be procedural under a JEM analysis. While acknowledging that the Office's responses during the notice and comment period suggested that the USPTO would "deny additional applications in almost all circumstances" such that Rules 78 and 114 would create "hard limits" on continuation and RCE filings, the majority states that "we decline to rely on these responses, which are not binding on the USPTO," adding that courts "will be free to entertain challenges to the USPTO's application of the Final Rules, including its view of when amendments, arguments, and evidence could not have been submitted earlier."
With respect to Rules 75 and 265, Judge Prost states that:
As a result, Judge Prost finds these rules to also be procedural under a JEM analysis. However, because she states that the search requirement of Rule 265 "does not necessarily require a visit to every library in every corner of the world," but rather only requires "[a] reasonable, cost-effective search," the implementation of Rules 75 and 265 would also lead to an inevitable increase in the number of lawsuits filed by applicants against the USPTO. While Judge Prost is "mindful of the possibility that the USPTO may in some cases attempt to apply the rules in a way that makes compliance [with Rules 75 and 265] essentially impossible and substantively deprives applicants of their rights," she notes that in such circumstances, "judicial review will be available." Judge Prost also dismisses the concern that "even the most diligently prepared ESD will inevitably open the applicant to inequitable conduct allegations that will entail costly litigation and a possible finding of unenforceability," as being "too speculative to void the rules." As with the Office's interpretation of the new rules, the majority states that:
Finding that the four rules at issue are procedural, Judge Prost turns to the question of whether the four rules are consistent with the Patent Act. Judge Prost begins with Rule 78, which, like the District Court, she determines to be inconsistent with 35 U.S.C. § 120, albeit on "narrower grounds." In particular, Judge Prost notes that while "Section 120 unambiguously states that an application that meets four requirements 'shall have the same effect, as to such invention, as though filed on the date of the prior application,'" new Rule 78 "attempts to add an additional requirement -- that the application not contain amendments, arguments, or evidence that could have been submitted earlier -- that is foreclosed by the statute." With respect to In re Henriksen (C.C.P.A. 1968) and In re Bogese (Fed. Cir. 2002), Judge Prost dismisses these cases as being unhelpful to the USPTO's cause, the former concerning the permissible length of a chain of serial continuations, rather than the total number of continuations that may be filed, and the latter concerning prosecution history laches (Judge Prost notes that Rule 78 "simply captures too many applications that would not be even remotely susceptible to a prosecution history laches challenge").
As for Rules 114, 75, and 265, Judge Prost finds none of these rules to be inconsistent with the Patent Act. First, she finds the application of an RCE limit to application families rather than individual applications to be not inconsistent with 35 U.S.C. § 132 because that section does not "unambiguously dictate that its provisions be applied on a per application basis." In addition, with respect to the argument that Congress intended RCEs to be subject only to the applicant's discretion, Judge Prost states "[i]t is plausible that, as the USPTO suggests, § 132(b) simply directs the USPTO to 'prescribe regulations' to govern the applicant's ability to request continued examination which must, in some circumstances, be granted" (emphasis added). As for the possibility that Rules 75 and 265 create a hard limit on the number of claims that an applicant can file, the majority states that:
In response to the argument that Rule 265 creates a duty to conduct a prior art search, the majority states that "[w]e agree with the USPTO that [the cases cited by the District Court] do not speak to whether the USPTO may impose such a duty by regulation," and therefore, "[o]n this record, we see no persuasive reason to prohibit the USPTO from requesting the information required by Final Rule 265, even if the applicant must take action to acquire that information." Reiterating her procedural analysis, Judge Prost also dismisses the argument that Rules 75 and 265 improperly transfer examination burdens from the Office to applicants, stating that these rules "do not require an applicant to make a prima facie case of patentability," adding that "[a]n examiner cannot reject an application because he believes that the applicant failed to find the most material references or if he is otherwise not persuaded by the applicant's view of the prior art."
After concluding that Rules 75, 78, 115, and 265 are procedural, and further, that Rule 78 is inconsistent with the Patent Act, Judge Prost notes that:
In his concurring opinion, Judge Bryson helpfully provides the USPTO with a roadmap for modifying Rule 78 to render it consistent with 35 U.S.C. § 120 -- at least as far as he is concerned. Stating that "the most difficult question in this case . . . is whether Final Rule 78 is a valid regulation in light of 35 U.S.C. § 120," Judge Bryson notes that while he agrees that the rule is invalid, he thinks "it is important to emphasize the narrow scope of the court's decision." Stating that "a rule limiting the number of continuances co-pending with the first-filed application is necessarily contrary to the statute and invalid," Judge Bryson argues that this "does not answer the question whether the rule is invalid as applied to serial continuances." While he acknowledges that "[f]or the last 40 years, . . . section 120 has been understood to confer upon patent applicants the right to file any number of successive continuation applications after the first application has been abandoned or issued as a patent," he contends that "[i]t would not be unreasonable, however, to construe the phrase 'an application similarly entitled' [in § 120] to mean an application that satisfies all the preceding requirements set forth in section 120, including the requirement of co-pendency with the initial application." Judge Bryson notes that while the majority properly struck down Rule 78, that does not mean "a revised rule that addressed only serial continuances and limited such continuances to only two -- the first co-pending with the original application and the second co-pending with the first -- would be struck down as reflecting an impermissible interpretation of section 120." Thus, in view of Judge Bryson's analysis, the USPTO could impose a two-continuation limitation -- or whatever limit the Office deemed necessary to resolve its backlog -- on any continuation that was not filed while the original application was still pending. In other words, for applicants wishing to file continuations serially, the 2+1 rule (two continuations + one RCE) would merely become the 3+1 rule.
Judge Rader (at right), writing in dissent with respect to all but the majority's finding that Rule 78 is inconsistent with the Patent Act, states that "in my view, the Final Rules are substantive, not procedural." Noting that "[t]he distinction between substantive or non-substantive rules requires a difficult judgment," Judge Rader admonishes that he "would not so casually discard, as this court does today, this court's precedent for identifying a 'substantive' rule." In particular, Judge Rader states that:
With respect to the majority's reliance on JEM, Judge Rader argues that "as JEM illustrates, the test for substantive, ultra vires rules is a case-by-case inquiry, not a rigid application of a sentence out of context in JEM." Noting that the public participation during the notice and comment period was "overwhelming (itself an indication of the substantive impact of the rules?)," Judge Rader adds that "[m]any of the comments shared a common concern: that the Final Rules 'had a significant effect on private interests, and marked a change in existing law or policy,'" and states that he "share[s] that concerned view."
Judge Rader concludes his dissent by outlining how each of the four rules at issue would have "sufficiently grave" effects. His analysis regarding the probable impact of Rule 75 is of particular interest:
Judge Rader also explains that:
Panel: Circuit Judges Rader, Bryson, and Prost
Opinion by Circuit Judge Prost, concurring opinion by Circuit Judge Bryson, opinion concurring in part and dissenting in part by Circuit Judge Rader