The USPTO's Proposed Terminal Disclaimer Rule: A Litigator's Perspective

By Joshua Rich --

As discussed at length in a previous post on this blog (see "USPTO Proposed Rule Change to Terminal Disclaimer Practice"), the U.S. Patent and Trademark Office has proposed amending the form of terminal disclaimer to be used by patent applicants.  Specifically, it proposes requiring terminal disclaimers filed to obviate nonstatutory (or obviousness-type) double patenting to include an agreement that the patent will be enforceable only if no claim of any patent to which it is tied by terminal disclaimers has been found by a final decision of a court or the USPTO to be invalid or unenforceable.  There is a real problem that the USPTO is trying to solve, but it is not directly linked to nonstatutory double patenting.  Given that incomplete overlap between the problem and the proposed solution, it seems pretty clear that the proposed amended form of terminal disclaimer is the wrong tool for the job.

Generally speaking, double patenting is a problem that arises when an applicant seeks more than one patent from a given chain.  It comes in two types:  statutory and nonstatutory.  Statutory double patenting arises when the applicant seeks more than one patent that claims the same invention; it is the equivalent of an anticipation rejection that is based on the applicant's own claims in another patent in the same chain.  It is termed statutory because it is based on the Patent Act's indication that "[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title."[1]  Unlike the interpretation of some patent claims, courts have found that "a" there really means only one.  There is no solution to statutory double patenting, other than amending the claims of the rejected application.  Nonstatutory double patenting is the equivalent of obviousness for a single applicant.  It is a judicially-created doctrine that prevents an applicant from obtaining two patents that claim different, but too closely related inventions.  There is a solution to nonstatutory double patenting -- terminal disclaimers.

Terminal disclaimers align the terms of two or more related patents in order to solve two distinct problems.  The first problem is unfair extension of the exclusivity period beyond what could be obtained if the claims issued in a single patent.  Given the possibility of delayed issuance due to USPTO delay (a greater problem with pre-AIA patents, but still an issue) or other term adjustment, the two or more patents could have different terms that would add up to more than twenty years.  The terminal disclaimer solves that problem by shortening the term of a second patent to match the expiration of an earlier-issued patent.  The second problem is that the sale of one or more of the patents could lead to competitors being liable to two different patent owners for basically the same invention.  The purchaser could not have directly obtained the patent it seeks to assert because the claims would have been rejected as obvious over the unsold patent (or vice versa); it is just due to the quirk of the applicant being the same entity that allowed them to issue.  So a terminal disclaimer prevents alienation of the two patents from one another, to avoid the unfair possibility of "double jeopardy."

More recently, a different type of patent gamesmanship has developed:  parties obtaining a raft of closely-related patents to cover every aspect of a product or process.  Whether in the form of a "patent thicket" protecting the owner's product or a patent assertion entity's patent horde, the broad portfolio allows the patent owner to pick and choose which of the patents to assert against numerous defendants.  The extent of the portfolio allows the owner to keep some patents in reserve, asserting only a portion of the portfolio against each defendant (sometimes the same patents, sometimes a different group).  By doing so, the patent owner can bludgeon potential licensees into a favorable settlement on the entire portfolio or run the risk of serial litigation.[2]  In the end, most defendants end up taking the easier route of settling, even if they believe the assertion of each patent in the portfolio would be tenuous, at best.

It is this more recent problem that the new terminal disclaimer rule seeks to avoid.  As the USPTO phrased it, "This action is being taken to prevent multiple patents directed to obvious variants of an invention from potentially deterring competition and to promote innovation and competition by allowing a competitor to avoid enforcement of patents tied by one or more terminal disclaimers to another patent having a claim finally held unpatentable or invalid over prior art."[3]  It is true that the ability of patent owners to evergreen their patent litigation strategy by picking and choosing which patents to assert tamps down innovation.  But the proposed solution has lots of problems of its own.

First, it is more likely than not that demanding a patent owner yield other patents and claims upon the invalidation of one claim is not a proper exercise of agency discretion in rulemaking.  The Patent Act is very clear in establishing that every claim of every patent is independently presumed valid.[4]  The proposed new terminal disclaimer turns that presumption on its head if even a single claim has been found invalid, either through post-grant proceedings or litigation.  While the USPTO has said it has taken (and is taking) the presumption of validity into consideration in the rulemaking process, it is hard to reconcile the rule with the statute.  And it is especially questionable in an era when the Supreme Court is looking for a reason to overrule Chevron deference to agency interpretation of statutes.[5]  So this whole process may end up a frolic and detour, with compelled conditions of terminal disclaimers that cannot be enforced.

Second, the remedy of inability to assert patents later may come too much later to have real teeth.  The rule would prohibit assertion of other patents only after another claim has been finally adjudicated invalid or unenforceable.[6]  That means not only that the USPTO proceedings or district court litigation must be completed, but also that the appeal must be resolved.  But most litigation never goes to trial, let alone through appeal.  Instead, most parties settle, especially the parties threatened by patent assertion entities, who may be offered a far less costly deal if they settle before litigation begins.  So it may be many years from the first assertion of a patent in a terminal disclaimer family before any assertion of other patents is estopped.  That is especially true because patent owners' behavior may be altered by the incentives dictated by the terminal disclaimer, including potentially settling with a payment to the defendant to remove an invalidation from the books.

Third, there may be very substantial unintended consequences from the proposed changes in prosecution, post-grant proceedings, and litigation.  In prosecution, there will be more incentive for parties anticipating litigation of the family to avoid terminal disclaimers.  They may seek to fight against nonstatutory double patenting rejections much harder (including through appeal) to avoid the potential prejudice of a terminal disclaimer.  That shifts a burden from litigating parties to patent examiners.  In post-grant proceedings, there will be an incentive for accused parties to find the broadest claim of the weakest patent in the family to challenge, even if the patent has not be asserted against them (or anyone).  The accused parties can then fight the battle on a different front of their choosing as a proxy for litigation.  This would turn the process on its head, shifting power from patent owners to accused parties, without much benefit for innovation.  Finally, in litigation, the behavior of patent owners is more likely to be bimodal -- either they will want to settle early more often (and avoid potential invalidation of any patents) or they will fight tooth and nail to make sure the asserted claims are not invalidated.  In short, the proposed rule may cause changes in behavior, but they may not be the changes the USPTO is searching for.

[1] 35 U.S.C. § 101 (emphasis added).

[2] The proposed terminal disclaimer would give accused parties a stronger position than they could get even if they had won in litigation against the first invalid patent.  The Federal Circuit has held that a terminal disclaimer alone is not sufficient evidence to support the application of collateral estoppel in litigation of a second patent after the first has been found invalid.  XY, LLC v. Trans Ova Genetics LC, 968 F.3d 1323, 1334 (Fed. Cir. 2020).

[3] 89 Fed. Reg. 40439 (Mar. 10, 2024).

[4] 35 U.S.C. § 282.

[5] Chevron deference, named after the Supreme Court's Chevron v. Natural Resources Defense Council decision, involves courts deferring to administrative agencies' reasonable interpretation of statutes within their area of expertise.  The Supreme Court has been asked to overrule Chevron deference in this term's Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce cases.  Regulations that appear to be based on unreasonable statutory interpretations will provide more fuel to the fire burning down deference to the USPTO and other administrative agencies.

[6] The proposed rule also suggests that a statutory disclaimer would give rise to the prohibition on assertion of other patents, but a party knowing that to be the case would be unlikely to disclaim the claims -- it makes more sense to fight on, instead of giving up the portfolio of related patents all at once.

Comments

[Bosco]

Excellent post, thank you! I hope the USPTO will take heed and redirect its efforts.

[Geoff Wales]

The OTDP objection is not limited to continuations, but may be made against other patents/applications.

There will be no accepting any examiner requirement for a terminal disclaimer with the rule change, so the country better start building those appeal courts.

I'd check the definition of 'evergreening' in a normal dictionary, not an IMAK dictionary. Words not pictures.