By David Boundy --
A notice and comment period of great importance to the patent community opened last week, and this period is scheduled to remain open only until March 16th. This period arises as a result of a "Memorandum for the Heads of Executive Departments and Agencies" (74 Fed. Reg. 5977) issued by President Obama on January 30, 2009, directing the Director of the Office of Management and Budget (OMB) to produce a set of recommendations for a new Executive Order on Federal regulatory review. In a notice published in the Federal Register, the OMB Director has invited public comments on how to improve the process and principles governing Federal regulatory review.
Regulatory Oversight and Executive Order 12,866
Executive Order 12,866 [1] is one of a handful of laws administered by the OMB [2]. The Executive Order requires agencies to analyze costs, benefits, and effects (both economic and non-economic) and to do cost-benefit balancing. The Executive Order gives the OMB the authority to review rulemakings and approve or disapprove rules. Importantly, the Executive Order requires an agency to regulate for the benefit of "the American people," not for the benefit of the agency itself. Before regulating, an agency must:
• Examine whether the problem arises out of existing regulations or other law;
• Consider all alternatives (including not regulating, and, presumably, internal reforms) to make sure that the problem is best addressed by regulation, and that the regulation proposed is the best and most cost-effective solution to the problem;
• Study the problem and the regulation to ensure that the regulation is cost-benefit positive, using the best reasonably obtainable information [3]; and
• "[T]ailor its regulations and guidance documents to impose the least burden on society . . . consistent with obtaining the regulatory objectives."
Guidance Documents and the Final Bulletin for Agency Good Guidance Practices
Executive Order 12,866 was amended in January 2007 to cover "guidance documents," those informal agency documents issued within the supervisory authority of agencies to their employees, and as nonbinding general guidelines for the public. "Guidance documents" include agency manuals, agency personnel training materials, public notices interpreting agency rules or statutes, statements of policy that do not rise to hard-edged rules, and the like [4].
Concurrently in January 2007, the OMB issued the "Final Bulletin for Agency Good Guidance Practices" [5]. Together, Executive Order 12,866 and the Final Bulletin establish the following requirements for agency guidance documents:
• When a guidance document uses mandatory language with respect to an agency or agency employee, that language is binding on the agency or employee, unless the employee obtains pre-clearance from fairly high up in the agency (not necessarily the agency head, but higher than a first-line manager).
• The agency is required to post contact information for an office in charge of overseeing employees to ensure compliance, and to ensure that guidance documents are not improperly treated as binding.
• Modifications to "economically significant guidance documents" (the M.P.E.P. is such a document) require notice and comment.
• The agency must list all guidance documents (examiner memoranda, examiner training materials, and the like) on a web page, and clearly identify which are still in effect and which are not [6].
These commonsense requirements phased in over 2007, and went into full effect in August 2007. The Department of Commerce designated the M.P.E.P. as a "significant guidance document," the category that requires the highest level of scrutiny and care by an agency, in spring 2007.
This Request for Comment
The Obama administration is currently reviewing Executive Order 12,866 as a central part of its reevaluation of Bush-era regulatory policy. The current Executive Order is tailored around agencies that issue substantive regulations, for example, environmental and workplace safety agencies. In previous revisions of regulatory review Executive Orders, the OMB received relatively little public comment on regulatory review processes for agencies that have only procedural rule making authority, and that have complicated adjudicatory processes governed by procedural regulations. Additionally, current Executive Order 12,866 reflects Bush Administration priorities. One expects that the Obama administration will generally give agencies greater freedom to regulate.
The Federal Register notice specifically requests comments on these topics:
• Disclosure and transparency;
• Encouraging public participation in agency regulatory processes;
• The role of cost-benefit analysis;
• The role of distributional considerations, fairness, and concern for the interests of future generations;
• Methods of ensuring that regulatory review does not produce undue delay;
• The role of the behavioral sciences in formulating regulatory policy; and
• The best tools for achieving public goals through the regulatory process.
Thus, the patent bar has an unusually effective and unusually important chance to have a big impact on the process of rulemaking, and on White House oversight of the USPTO. Even though this round of comment is specifically directed to an update of Executive Order 12,866, the OMB has treated the Executive Order and Good Guidance Practices as closely-related subject matter, and comments that addressing either document will be helpful to the OMB. Comments that might be helpful to the OMB would include the following:
• Agencies that have only procedural rulemaking authority, and that do not participate in, oversee, or study proceedings relating to enforcement, conduct, or commercial transactions in their subject matter areas, might not understand how procedure can affect costs and outcomes, or what the practical economic effects are, and might be required to seek more external help before regulating.
• Agencies whose senior officials earn bonuses calibrated to "objective factors" that would be influenced by proposed regulations might have conflicts of interest. When those objective factors have been omitted from the agency's annual report for several years, that undisclosed conflict might raise issues that should be disclosed as part of any rulemaking.
• Agencies that have very little "revolving door" inflow of personnel from the private sector and therefore have little insight into the real-life economic effects of agency rules. Such agencies might be required to seek additional input before regulating.
• How should Executive Order 12,866 be strengthened so that agencies can't "cheat"? For example, the economic effect of a regulation is classified by the agency in order to signal to the OMB how much scrutiny it should give the rule during regulatory review. But this gives agencies great temptation to fail to evaluate economic effect (so the effect can be estimated at zero), or under-report. How should the OMB ensure that agencies fairly and accurately assess and report economic effects to the OMB? What key terms should be defined to prevent cheating? Are there particularly egregious examples of cheating that the OMB should use as case studies to design anti-cheating mechanisms? [7] How should OMB handle future rule making requests from agencies that have cheated in the past?
• When and how should an agency regulate its internal conduct, the procedures that its own employees are to follow? If a statute provides that senior agency officials "shall be responsible for the management and direction of all activities" of the agency, and perform their duties in a "fair, impartial and equitable manner," and requires that the agency's rules be "cost effective," what implementing regulations should agencies be required to adopt? What regulations for conduct of agency employees should the agency be required to provide so that agency employees are not left to their own devices?
• What can the OMB do to help agencies ensure that they enforce existing rules governing intra-agency conduct? [8] What supervisory checks should agencies be required to provide to ensure that rogue employees cannot run wild? How should an agency be required to account for the costs it imposes on the public by failing to supervise its employees? For the costs of failing to provide predictable regular procedures? How should those facts affect the agency's efforts to impose regulations on the public? Are there agencies that the OMB should know about, so that the OMB can exercise supervisory authority over agency supervisors, and assist them in complying with Good Guidance Practices and the intra-agency provisions of Executive Order 12,866? The OMB would be interested in examples of bad agency behavior that can be supported with a record -- pure anecdote is seldom helpful.
• What steps should agencies take to implement Good Guidance Practices? What kinds of ombudsman or supervisory access should agencies provide to ensure that the public can quickly and efficiently gain employee compliance with agency guidance? How should an agency's employee compensation systems be designed to ensure that they do not incentivize breaches of the agency's procedural rules? Are there examples of bad agencies that the OMB should know about, to use as case studies to set standards and rules to be followed by agency supervisory personnel?
Comments Go to the White House Office of Management and Budget
Those interested in submitting comments should note that the comments go to the OMB, and not the USPTO. The IDS Rule, Markush Rule, and Appeals Rule were "delayed" (likely indefinitely, until the USPTO starts over with new Notices of Proposed Rulemaking that cure major procedural defects in these Notices of Proposed Rulemaking and other submissions -- and omitted submissions -- to the OMB) due to helpful comments received by the OMB during its comment periods directed to these rules. The Federal Register notice asks that comments be emailed to [email protected]. In addition, comment letters concerning the USPTO should be copied to the OMB Desk Office having oversight responsibility for the USPTO, at [email protected].
Notes:
[1] As amended by Executive Orders 13,258 and 13,422.
[2] Other regulatory oversight laws administered by the OMB include the Paperwork Reduction Act, 44 U.S.C. §§ 3501-3519, the Information Quality Act, and the Final Bulletin on Agency Good Guidance Practices. These are the laws under which the OMB "delayed" the Appeals Rule, IDS Rule, Markush Rule, and a major revision to the M.P.E.P. that the USPTO was attempting to "fly under the radar" last month (see Harold Wegner, "Sub-Federal Register 'Rulemaking' Now at the PTO in Defiance of the Emanuel Memorandum?" January 21, 2009).
[3] For the Continuations and Claims rules, the USPTO based its cost analysis solely on interviews with Office staff, and (at least based on the record produced in Tafas v. Dudas) never asked a single practicing patent attorney to estimate compliance costs or economic effects of impaired patent rights (see "Certification Analysis under the Regulatory Flexibility Act: Changes to Practice for Continued Examination Filings, Patent Applications Containing Patentably Indistinct Claims, and Examination of Claims in Patent Applications").
[4] This merely reinforces the general principle that the Administrative Procedure Act (APA) "broadly defines an agency 'rule' to include nearly every statement an agency may make," Batterton v. Marshall, 648 F.2d 694, 700–01 (D.C. Cir. 1980) (citing 5 U.S.C. § 551(4), definition of "rule"). A "regulation" is merely one species of the broader genus of "rule."
[5] Executive Office of the President, "Final Bulletin for Agency Good Guidance Practices," OMB Memorandum M-07-07 (Jan. 18, 2007), 72 Fed. Reg. 3432 (Jan. 25, 2007); and "Implementation of Executive Order 13422 (amending Executive Order 12866) and the OMB Bulletin on Good Guidance Practices," OMB Memorandum M-07-13 (April 25, 2007).
[6] Additionally, the APA requires that all rules be published, and the agency must run a Federal Register to inform the public where that publication may be found.
[7] The USPTO classified the IDS, Markush, and Appeal rules as "not significant," that is, having essentially zero economic effect. The USPTO classified the Continuations and Claims rules into the middle category, "other significant," (0 < economic effect < $100 million per year) by splitting the rules apart (but only for E.O. 12,866 purposes -- they were treated as a single rule for Paperwork Reduction Act purposes), and reporting to the OMB only the costs of each as if implemented separately.
[8] For example, an email from the office of Deputy Commissioner for Examination Policy John Love recently stated that examiners have absolute freedom to ignore much of the M.P.E.P. (particularly Chapter 2100), because the USPTO refuses to provide any enforcement mechanism. Though 37 C.F.R. § 1.181(a)(1) states that every non-appealable action of an examiner is petitionable (and the Board has repeatedly held that M.P.E.P. examination procedure is not appealable), 35 U.S.C. § 3 requires that the Director and Commissioner supervise "every aspect" of examination, and the White House requires agencies to require employees to obtain supervisory pre-clearance before departing from guidance, the apparent view of the Office of Patent Examination Policy is that there are no predictable or enforceable patent examination policies.
David Boundy (at left) is Vice President of Intellectual Property for Cantor Fitzgerald L.P.
David,
Nice replies to 6 on Patently-O. I realize you're perfectly capable of defending yourself (and told 6 as much), but I couldn't resist putting 6 (who in my view expresses an extremely dangerous attitude for a government employee) in his place. My continued support and prayers for your efforts for making the USPTO accountable for its actions.
Posted by: EG | March 06, 2009 at 09:27 AM