United States: USPTO Rules Changes Stopped By Injunction

As reported in the September issue of IP Update (Vol. 10, No. 9) the rule changes that were set to come into effect on November 1, 2007, were introduced by the U.S. Patent and Trademark Office (USPTO) in the face of a growing backlog of applications. A September 2007 General Accounting Office (GAO) report to Congress quantifies the current backlog at 730,000 applications. The USPTO also reported that in fiscal year 2007, its almost 5,000 patent examiners examined approximately 360,000 applications.

The rule changes were drastic—the previously unlimited numbers of claims in an application were effectively limited to five independent and 25 total claims. In addition, the new rules allowed for only two continuing applications and one request for continuing examination during prosecution of a patent application. (IP Update, Vol. 10, No. 9). The intent, said the USPTO, was to make the patenting process more effective and more efficient.

The public response was immediate. The day after the USPTO announcement, individual inventor Tafas filed suit against the USPTO, seeking to enjoin implementation of the new rules. A few weeks later, this initial attack was strongly reinforced when pharmaceutical giant Glaxo SmithKline (GSK) joined the suit. In the meantime, under an air of uncertainty following the initial USPTO announcement, firms scrambled to understand the rule changes and to prepare their clients to deal with their effects.

However, on October 31, 2007—just one day before the rules were to take effect—a dramatic turn of events occurred. Judge James C. Cacheris of the U.S. District Court for the Eastern District of Virginia, at the conclusion of a long, tense and packed hearing, issued an order preliminarily enjoining the proposed rule changes from coming into force. The USPTO hurriedly informed its personnel of the injunction.

In reaching its decision, the court analyzed the four factors relevant necessary to provide preliminary injunctive relief: the likelihood of success on the merits of Tafas’ and GSK’s claims; whether irreparable harm would occur if the injunction were not granted; the balance of hardships between parties; weighing of the public interest.

Regarding likelihood of success on the merits, the plaintiffs successfully argued that Congress never granted the USPTO authority to make substantive rule changes, which effectively truncated a statutory entitlement to file continuation applications, as well as that the rule changes were indeed substantive. Furthermore, the plaintiffs argued (apparently persuasively) that the rule changes were unfairly retroactive since many pending applications that would be subject to the new rules had long since been published, effectively extinguishing any trade secrets they contained, even though the new rules effectively limited the applicant’s ability to exhaustively claim the subject matter they disclosed and vague.

As for irreparable harm, the court agreed that GSK had shown it was likely to suffer irreparable harm if the injunction was not granted due to a loss of patent rights in their over 2,000 pending patent applications. GSK convinced the court that the new rules would truncate the number of available claims and that therefore the full patent protection of the inventions developed and applied for under the old rules would not be granted.

On the balance the hardships, the USPTO alleged that because of the millions of dollars spent in training staff and retooling computers, they would endure the hardship of stopping and reversing course in the midst of massive changes to their organization. However, GSK argued that the harm suffered by the USPTO is in the form of sunk costs already incurred for actions taken to implement rules that they knew might not go into effect. As such, any costs incurred by a preliminary injunction would be merely to maintain the status quo. Although the court agreed that the USPTO would have some hardship, it found that the uncertainty and loss of investment that would be suffered immediately by GSK tipped the balance in its favor.

As to the public interest factor, the USPTO argued that the rule changes would promote efficiency and timeliness and were needed immediately to lessen the harm inventors suffer due to the untenable delays under the current rules. The USPTO also argued that an injunction would only serve to spread further uncertainty as how to proceed with prosecution. However, GSK asserted that preserving the status quo would best serve patent holders. The three amicus briefs (filed in support of the motion for preliminary injunction) served to demonstrate to Judge Cacheris the depth of the opposition to the new rule changes, as well as how prevalent that opposition was in many diverse organizations. In weighing this factor, Judge Cacheris concluded that the public interest factor was weighed in favor of preserving the status quo.

Considering all the factors, Judge Cacheris granted the motion and enjoined the USPTO. As a result the patent community can take a (very short) deep breath and return to business as usual—for now. A trial on the merits is scheduled in early 2008 and it is expected that the case will be decided later next year. Meanwhile, the parties are engaged in public bickering over the plaintiffs’ discovery requests to the USPTO (which include notices to depose high ranking USPTO officials). While all this is going on, the USPTO is reportedly busy working on more rule changes.

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