Testing the Limits of Procedural Rulemaking: How the Federal Circuit Can Use Tafas v. Dudas to Clarify the Authority of the Patent Office

• Jurisdiction: United States,Federal
• Citation: Vol. 10 No. 2008
• Publication year: 2008

Michael Neuerburg ⁰

In an effort to reduce the backlog of unexamined patent applications, the United States Patent and Trademark Office created a controversial new set of rules for patent applicants. In Tafas v. Dudas, a Federal District Court judge issued a permanent injunction against the rules, finding their enactment to be outside the Patent Office's authority. On appeal, the Court of Appeals for the Federal Circuit will have the opportunity to define better both the rulemaking authority of the Patent Office and the Circuit's approach to the distinction between substantive and procedural rules. This Recent Development proposes a more flexible approach toward classifying a rule as substantive or procedural than that used by the District Court in Tafas and discusses how this approach would affect the analysis of the Patent Office's rulemaking authority.

I. Introduction

Attempting to speed up the patent examination process, the United States Patent and Trademark Office ("PTO") created a set of rules called the "Changes to Practice for Continued Examination Filings, Patent Applications Containing Patentably Indistinct Claims, and Examination of Claims in Patent Applications," or more simply, the "Final Rules."¹ These rules were to be enacted on November 1, 2007, and would have placed additional and unprecedented obligations or limitations on many patent applicants.² However, in the case of Tafas v. Dudas,³ the United States District Court for the Eastern District of Virginia issued a preliminary injunction against enactment of the Final Rules the day before they were to be enacted, followed by a decision and permanent injunction on April 1, 2008.⁴ The court held that the Final Rules were substantive and thus outside the PTO's authority, citing cases from the United States Court of Appeals for the Federal Circuit ("Federal Circuit") which hold that the PTO does not have substantive rulemaking power.⁵ The PTO has appealed, and Tafas v. Dudas is pending before the Federal Circuit.

The stated goal of the Final Rules is to reduce the backlog at the Patent Office by creating a more "focused and effective examination process" for patent applications.⁶ One important factor affecting the complexity of a patent application, and thus the time required to examine it, is the number of claims in the application.⁷ Applications with twenty-five or more claims average an examination period that is four to six months longer than the examination period for applications with five or fewer total claims.⁸ According to the PTO, applications with more than twenty-five claims also have a significantly higher error rate than applications with fewer than twenty-five claims.⁹ Final Rule 75 (the "5/25 rule") would require any application with more than five independent claims or more than twenty-five total claims to include extra documentation (called an examination support document, or "ESD") with claim explanation and prior art search information.¹⁰ The PTO argues that because applications with many claims are comparatively time-consuming and difficult to examine, it is fair and efficient to require such applications to include extra documentation designed to streamline the examination process.¹¹ The court rejected the 5/25 rule as substantive because the rule would create a significant new obligation for patent applicants, since applicants had previously never been required to perform a prior art search.¹²

Another important factor contributing to application examination time is the use of continuation applications and Requests for Continued Examination ("RCEs"). Both continuation applications and RCEs are methods by which an applicant may pay the Patent Office to extend the examination of an application family.¹³ There is no limit on how many continuation applications or RCEs an applicant may file.¹⁴ Final Rules 78 and 114 (collectively the "2+1 rule") would require any applicant who wished to file more than two continuation applications or one RCE that the continuation application or RCE contained material that could not have been presented previously.¹⁵ The PTO justifies Rules 78 and 114 as discouraging unnecessary continuation applications and RCEs, thereby encouraging efficiency by applicants and reducing the backlog of unexamined patents.¹⁶ The District Court, on the other hand, considered the rules to infringe upon a patent applicant's right to an unlimited number of continuation applications and RCEs.¹⁷

The District Court was correct in ruling that the 5/25 rule and the 2+1 rule are beyond the authority of the PTO to enact, and the Federal Circuit should affirm the ruling on appeal. As recently as August 19, 2008, the Federal Circuit reaffirmed that 35 U.S.C. § 2(b)(2), the broadest grant of authority to the PTO, "does not authorize the Patent Office to issue 'substantive' rules.' "¹⁸ The 5/25 rule is substantive under the Court's definition because requiring an EDS would be a significant new obligation to the applicant.¹⁹

Rules 78 and 114 are also a policy change from the previous regime of unlimited continuation applications and RCEs. whether the rules "affect individual rights or obligations"²⁰ of applicants is a more difficult question. The District Court in Tafas found a right to unlimited continuation applications and RCEs through statutory interpretation, but it is not clear that the court's interpretation of the Patent Act deserves more weight than the PTO's interpretation.²¹ Circumstances beyond an applicant's control may cause an applicant to use her continuations for something other than perfecting her claims,²² thus the 2+1 rule could act to keep an applicant from fully claiming her invention.²³ Although this may be a rare occurrence, the inventor's right to receive patent protection for her invention is central to the idea of patenting,²⁴ so that even rare occurrences should be strenuously avoided. Furthermore, the nature of certain types of invention research may require that the related patent applications be updated over time through continuations.²⁵ The District Court's analysis of Rules 78 and 114 is too limited; the analysis of Rule 114 is particularly problematic.²⁶

Part II considers the background for the District Court's decision in Tafas: First, the Federal Circuit's holding that the Patent Office lacks substantive rulemaking authority, and the Federal Circuit's definition of "substantive;" second, a discussion of when the Patent Office should be required to perform notice and comment rulemaking under the Administrative Procedure Act ("APA"); third, an explanation of why the Final Rules are not entitled to deference from the courts; and finally, proposed improvements to the process of characterizing a rule as substantive or procedural are set forth. Part III examines the Final Rules through the framework discussed in Part II(D): First, Rule 75, the 5/25 rule; second, Rule 78, allowing only two continuation applications as a matter of right; and third, Rule 114, allowing only one RCE as a matter of right.

II. Background and Analytical Framework

This section discusses the underpinnings of the Tafas decision: why the Patent Office does not have substantive rulemaking authority; when notice and comment rulemaking is required of the Patent Office; what, if any deference is required toward the Final Rules, and a proposed structure for characterizing rules as substantive or procedural.

A. The PTO does not have the authority to make substantive rules

The District Court did not make new law when it ruled that the Patent Office does not have substantive rulemaking authority. The Patent Act's broadest grant of authority, 35 U.S.C. § 2(b)(2),²⁷ says that the PTO "may establish regulations, not inconsistent with law, which shall govern the conduct of proceedings in the Office."²⁸ In 1991, the Federal Circuit stated that "a substantive declaration with regard to the Commissioner's interpretation of the patent statutes . . . does not fall within the usual interpretation of such statutory language."²⁹ In 1996, the Federal Circuit stated the rule even more clearly:

As we have previously held, the broadest of the PTO's rule making powers--35 U.S.C. § 6(a)--authorizes the Commissioner to promulgate regulations directed only to "the conduct of proceedings in the [PTO]"; it does not grant the Commissioner the authority to issue substantive rules. [Citing Animal Legal Defense Fund]. . . . Congress has not vested the Commissioner with any general substantive rule making power . . . .³⁰

This holding from Merck & Co. v. Kessler³¹ has been frequently cited by the Federal Circuit, as recently as August 21, 2008, for the proposition that the Patent Office lacks substantive rulemaking authority.³² Thus, not only has the holding that the PTO lacks substantive rulemaking authority been frequently and recently affirmed, but Congress has also had well over a decade to correct the Federal Circuit's interpretation.³³

The Federal Circuit's definition of "substantive," most recently cited in Cooper Techs. Co. v. Dudas,³⁴ is that "a rule is 'substantive' when it 'effects a change in existing law or policy' which 'affect[s] individual rights and obligations.'"³⁵ Both Tafas and Cooper Techs. used this definition of "substantive" when analyzing whether the rules in question are substantive or procedural.³⁶ To define procedural rules, the Federal Circuit in Cooper Techs. simply used the language of the Patent Act: rules which "govern the conduct of proceedings in the Office"³⁷ are procedural.³⁸ This definition is something of a tautology, and therefore less helpful in determining whether a rule is substantive or procedural.

In discussing whether the Final Rules are substantive or procedural, the PTO's appellant's brief emphasizes how the Final Rules relate to "proceedings in the Office," but the brief contains very little analysis of the practical impact of the rules on applicants.³⁹ The PTO argues that the Final Rules cannot be...