The OMB Isn't Listening, Either

    By Kevin E. Noonan --

The Office of Management and Budget (OMB), the part of the Executive Branch charged with, among other things, assessing the economic impact of rules and regulations promulgated by various agencies of the Federal government, today issued its decision regarding the U.S. Patent and Trademark Office's "Changes to Information Disclosure Statement Requirements and Other Related Matters" (new Information Disclosure Statement (IDS) rules).  The new IDS rules were published for comment on July 10, 2006, and submitted to the OMB on July 27, 2007.

The OMB determined that there would be no significant economic impact from the new IDS rules, which is the position espoused by the Patent Office.  (The OMB made the same decision, based on the same types of representations, with regard to the new continuation and claims rules now enjoined by Judge Cacheris in the GSK v. Dudas case, which is currently pending.)  This would be unremarkable, except for the fact that OMB received a great deal of information (and a great deal more information than it had regarding the new continuation and claims rules) that is directly contrary to its decision.  On October 17th, David Boundy of Cantor Fitzgerald, joined by representatives from across the technology, business, and not-for-profit spectrum (see list below), sent a detailed letter to Susan E. Dudley, the Administrator of OMB's Office of Information and Regulatory Affairs, pointing out the deficiencies in the Patent Office's analysis of the economic effects of the proposed IDS rules (see "Cantor Fitzgerald VP Criticizes IDS Rule in Letter to OMB").  After reminding Ms. Dudley of the Patent Office's "shenanigans" concerning the purported lack of economic impact of the proposed continuation and claims rules, Mr. Boundy set forth an analysis showing that the new IDS rules would "impose billions of dollars of burden on patent applicants and owners."  Despite the assertions by the Patent Office that the new IDS rules would generate a "savings" for the Office, the amount was not specified on the Patent Office's submission to the OMB nor was it reflected in the FY 2008 budget, according to Mr. Boundy.  He also alleged that the rules were contrary to binding case law, since they impose restrictions on the submission of prior art to the Office, contrary to an applicant's duty of candor.  According to Mr. Boundy's letter, the Patent Office will force applicants to violate the duty of candor merely to "ease the USPTO's workload," despite the imposition of application, search, and examination fees meant to defray the cost of Office activities.

The substance of Mr. Boundy's letter focused on the mechanics of compliance with the duty of candor, and how the proposed IDS rules interfere with an applicant being able to comply.  He describes the "Hobson's choice" faced by applicants who will be permitted only to submit the "most material information" or to submit an Examination Support Document, the folly of which has been discussed in previous posts (see "USPTO Releases ESD Guidelines" and "37 C.F.R. § 1.265: Examination Support Document").  He also argues, as GSK argued in the preliminary injunction hearing before Judge Cacheris on the continuation and claims rules, that the proposed IDS rules will harm innovation and the patent system by discouraging one of its most important features:  public disclosure of inventions.  If defensible patent protection is uncertain, he argues, inventors and companies will utilize trade secret protection more often, to the public's (ultimate) detriment.

The letter also contains both practical and theoretical reasons why the proposed IDS rules are not viable, and evidence that their impact will fall on just those sectors (the most innovative and "important" industries) that can be expected to be (otherwise) at the forefront of innovation.  He even includes alternative proposals, including deferred examination and expanded peer-to-peer art search and review efforts.  The letter is also supported by an economic analysis by Phillip Steiner showing a $2 billion dollar economic impact, excerpts of testimony on the issue before Congress by Ronald Stern, the president of the patent examiner's union, and a statistical analysis from Jennifer Johnson of Zymogenetics, illustrating how the proposed IDS rules will have a disparate impact on biotechnology and the pharmaceutical arts.  In addition to Mr. Boundy's letter, letters were submitted by Dr. Richard Belzer (see "OMB Receives Second Letter Criticizing Proposed IDS Rule") and others.

All of which, of course, fell on the deaf ears of the OMB.  It is clear that the various agencies meant to protect Americans from just this sort of ill-advised and economically dangerous rulemaking are all "singing from the same hymnbook," and that the only remedy (short of a court challenge as with the continuation and claims rules) is to wait out the waning days of the current administration.  The Patent Office has not announced when it will be promulgating these rules by publication of the final rules in the Federal Register, or whether Deputy Director Peterlin will be "pre-announcing" them to reporters at The Wall Street Journal, as she did with the new continuation and claims rules.  However, prudence suggests that the leaders of the industries that will be most affected by these rules changes get to work now, not later, to make plans to challenge the rules, either in the courts or otherwise.  U.S. innovation was fortunate in having Judge Chacheris' clear-minded reasoning in setting aside (for now) the misguided continuation and claims rules.  We may not be that lucky a second time.

Those joining in Mr. Boundy's letter:

• Bryan P. Lord, General Counsel, AmberWave Systems Corp
• Dr. James E. Butler, Senior Director, Patents, Amylin Pharmaceuticals
• Michael C. Schiffer, Vice President, General Patent Counsel, Beckman Coulter Inc.
• David W. Highet, Vice President and Chief Intellectual Property Counsel, BD
• Margaret M. Dunbar, Director, Intellectual Property, Burnham Institute for Medical Research
• David L. Gollaher, President & CEO, California Healthcare Institute
• Dean Alderucci, Chief Operating Officer and Assistant General Counsel, Innovation Division, Cantor Fitzgerald L.P.
• Duane Roth, CEO, CONNECT
• Jeffrey A. Birchak, Vice President, Intellectual Property, Fallbrook Technologies Inc.
• David P. Vandagriff, Vice President - Intellectual Property, Helius, Inc.
• Shirley Hubers, Vice President, Heritage Woods, Inc.
• Marcus J. Millet, on behalf of Lerner, David, Littenberg, Krumholz & Mentlik, LLP
• Michael Erlanger, Chairman and CEO, Marketcore, Inc.
• Mark Nowotarski, Editor, Insurance IP Bulletin
• Joe Kiani, Chairman and CEO, Masimo Corp.
• Mark Leahey, Executive Director, Medical Devices Manufacturers' Assn.
• Neal Gutterson, Ph.D., President and Chief Executive Officer, Mendel Biotechnology, Inc.
• Paul K. Laikind, Director, President, and CEO, Metabasis Therapeutics, Inc.
• Reza Green, Chief Patent Counsel, Novo Nordisk Inc.
• Douglas G. Lowenstein, Chairman & CEO, Polestar Capital Partners LLC
• Liza K. Toth, Associate Chief Intellectual Property Counsel, Senior Director, SanDisk Corporation
• Thomas Fitting, Chief Patent Counsel, The Scripps Research Institute
• Kerry A. Flynn, Vice President, Intellectual Property, Shire
• Derek P. Freyberg, Vice President, Intellectual Property, Telik, Inc.
• David A. Manspeizer, Vice President - Intellectual Property and Associate General Counsel, Wyeth
• Jennifer K. Johnson, Senior Associate General Counsel, Patents, ZymoGenetics, Inc.

For more information on this topic, please see:

• "More on Second Letter to OMB Criticizing the IDS Rule," October 24, 2007
• "OMB Receives Second Letter Criticizing Proposed IDS Rule," October 23, 2007
• "Cantor Fitzgerald VP Criticizes IDS Rule in Letter to OMB," October 18, 2007

Comments

[anon]

The PTO could've have made real progress by dropping 1.56 and progressing to the EPO standard. Instead, this is going to be another quagmire.

If they are going to hire people without patent experience to lead the PTO at least hire a business person who can cut through it.

[DJF]

The notion that the new IDS rules will have no economic impact reminds me of a classic Dilbert strip. Dogbert is talking to Alice, who's going to a trade show.

Dogbert: "To be successful at the trade show, you'll need a trade show booth from the Dogbert Trade Show Booth Company. For maximum profts, I recommend the deluxe model."

Alice: "How will the deluxe model maximize my company's profits?"

Dogbert: "Oh, so now this is about *your* company?"

Someone call Scott Adams - they've obviously made Catbert the head of the USPTO and put Dogbert in the OMB, since clearly, the only question the PTO and the OMB considered was whether the new rules would have an economic impact on the USG.

[Kevin E. Noonan]

Dear Anon:

I'm not sure the PTO can "drop" Rule 56. I think the first sentence of the rule, that a patent is affected by a public interest, would make courts all the way up to the Supreme Court impose the duty regardless of the rule. I confess that I haven't confirmed this, but I think the PTO rule was implemented because courts recognized inequitable conduct as a defense to patent infringement, not the other way around. In any event, the idea that a person could obtain a patent by "fraud" should be even more anathema than that an obvious invention be patented. So I think we are "stuck" with the duty of candor no matter what else the PTO may do.

Thanks for the comment.

[EG]

Kevin,

Your right that we're "stuck" with the "duty of candor" and that SCOTUS is the unfortunate source of this "duty". As I've stated on other blogs, what is especially bad about the new IDS Rules is their "rigid" formula for how much can be cited (and of what length) which doesn't address the reality of how much art is "reasonable to cite", where that art might come from (and when), how "inequitable conduct" is applied (and misapplied) in the courts, etc. The fact is, the PTO hierarchy doesn't care because it is locked in to its own political agenda, namely reducing the backlog (or at least look like they're trying to reduce the backlog). We can only hope that another GSK/Tafas challenges these insane IDS Rules in court and that we give them all the help (including Amicus help) that they need.

[anon]

Kevin - Do you think that the EPO and JPO are ridden with fraudulently obtained patents? Since when has IC had anything to do with actual fraud. (A patent would still be invalid for actual material misrepresentation, as opposed to some failure to cite an office action issued by the same Examiner in your dog's cousin's design application).

[Kevin E. Noonan]

Dear Anon:

I don't think so; apparently, most infringers think so, and the Supreme Court thinks it enough of a potential problem that Rule 56 is necessary.

I agree with the sentiment that inequitable conduct has been stretched to cover everything from actual fraud to completely innocent activity. For example, I know of a case where the defendants have alleged inequitable conduct over references that were submitted to, and considered by, the Patent Office. Doesn't matter - since defendants' opinion on what these references "mean" is different that our client's, it was inequitable conduct for them not to inform the Patent Office about that opinion.

My point was that it is extremely unlikely that Rule 56 will be eliminated.

Thanks for the comment.