Cantor Fitzgerald VP Comments on Markush Rules

    By Donald Zuhn --

Last month, we reported on the U.S. Patent and Trademark Office's supplementary notice concerning its Alternative Claims Notice of Proposed Rule Making (frequently referred to as Markush rules).  While the Patent Office asserted that the new alternative claims rules "involve rules of agency practice and procedure for which prior notice and an opportunity for public comment are not required pursuant to 5 U.S.C. 553 (or any other law), and thus neither a regulatory flexibility analysis nor a certification under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) is required under 5 U.S.C. 603," the Patent Office nevertheless decided to "subject the proposed rules to a regulatory flexibility analysis to provide a further opportunity for comment on the small business impact of the proposed rules."  As we noted in an earlier report, comments on the alternative claims rules were due on or before April 9, 2008.

Yesterday, we received a copy of the comments submitted by David Boundy (at left), the Vice President of Intellectual Property for Cantor Fitzgerald L.P.  In his letter, Mr. Boundy concluded that "[t]he PTO’s rulemaking procedure for the Continuations, Claims, IDS, Appeal and Markush Rules violated the Regulatory Flexibility Act, the Paperwork Reduction Act, 5 C.F.R. § 1320.01 et seq., and Executive Order 12,866," and contended that the still pending IDS, alternative claims, and appeals rules packages "should be withdrawn."

The Regulatory Flexibility Act requires an agency to “make a reasonable good faith effort” to address the costs that a regulation would impose on small entities.  According to Mr. Boundy, "[s]o much is omitted from the [PTO's supplementary notice], and what is considered is considered on such a flimsy basis, as to raise genuine questions whether the PTO can meet even the most lenient standard of 'reasonable good faith.'"

With respect to the Office's obligations under the Paperwork Reduction Act, Mr. Boundy notes that "the entire thrust of the Markush Rule is to compel applicants to file more patent applications, at an acknowledged paperwork cost of about $10,000 each, in an acknowledged minimum number of at least 13,000 per year -- totaling about $130 million per year," and he argues that "[t]he PTO’s refusal to account for the staggering Paperwork costs of the divisional applications required by the Markush Rule is beyond the pale."  In a comment perhaps directed to those members of Congress who would confer additional authority upon the Patent Office, Mr. Boundy challenges the Office to "explain to Congress why [it] has done such a poor job of complying with its Paperwork Reduction Act responsibilities," and "explain to Congress how it can exercise authority under proposed 'Applicant Quality Submissions' any more responsibly than it has exercised authority under existing law."

Executive Order 12,866 requires that the Patent Office account for the economic effects of the alternative claims rules, unless the rules are deemed to have effects that are "not significant."  Mr. Boundy explains that "[t]he designation 'not significant' is reserved for regulations that have only minor consequences and elicit little or no controversy, such as housekeeping actions."  With respect to the alternative claims rules, Mr. Boundy contends that "it seems certain that a minimum of 100,000 additional applications will be required if applicants are to avoid regulatory burdens of lost patent protection," and that at $16,000 per application (the PTO's own estimate), "the burdens of the Markush rule cognizable under E.O. 12,866 are $16 billion per year."  As a result, the alternative claims rules exceed the $100 million threshold for an "economically significant" rule.

Mr. Boundy concludes his letter by addressing information that came to light only as a result of the GSK case.  In particular, he notes that "[w]hen the PTO produced its documents in the Tafas v. Dudas litigation, the absence of any consideration by the PTO of any factor economically-relevant to the public became starkly clear by the absolute absence of any analysis of economic effects on applicants in the administrative record."  According to Mr. Boundy, the omission of such an analysis is an indictment of senior PTO management, who he asserts are "no longer trusted by the PTO’s customer base."  He adds that senior PTO management has:

convinced the patent bar that they have no understanding of the patent system, are unwilling or unable to look at any effect that would occur outside the PTO’s four walls . . . and have too little respect for the rule of law to be able to avoid the legal fiasco that led to the PTO’s defeat . . . in Tafas v. Dudas.

For Mr. Boundy, the ultimate solution is to find "PTO management that can demonstrate sufficient understanding of the issues to earn the trust of stakeholders," rather than to support management that continues to force "economically-irrational rulemaking" upon the patent community.

Comments

[babaloo]

Couldn't have said it better myself!