Tafas v. Dudas/Doll – 5 Years Later But Still Very Pertinent

On April Fool’s day 2008 the entire patent field released a great sigh of relief (and wondered if the reports of success were only a joke).  On that day Dr. Triantafyllos Tafas and GlaxoSmithKline (“GSK”) succeeded in enjoining the U.S. Patent Office from implementing its proposed continuation and claim restriction rules, “Changes to Practice for Continued Examination Filings, Patent Applications Containing Patentably Indistinct Claims, and Examination of Claims in Patent Applications” (the “Final Rules”), which sought to revise the rules of practice in patent cases relating, in part, to the filing of continuing applications and requests for continued examination.

Although such Final Rules were widely criticized by most companies in the United States, a sole individual, Dr. Triantafyllos Tafas, a co-inventor of a computerized automated microscope, stood alone against the Rules package for nearly three months against the might of the USPTO.  Dr. Tafas filed suit because he truly believed the U.S. patent system was being manipulated by a few large entities to the significant detriment of research-intensive entities such as emerging companies, universities, and research institutes, particularly those in the chemical, bioengineering, pharmaceutical, and biotech fields.  Dr. Tafas’ beliefs grew from his experience attempting to start his company in Europe where he found few investors willing to invest in small companies whose only major asset was a patent portfolio.  However, he found investors in the U.S. to be much more respectful of U.S. patents and willing to invest in companies with a good patent portfolio, irrespective of whether they were owned by a large multinational or the new kid on the block.  This cemented Dr. Tafas’ belief in the importance of the U.S. patent system.

After three months of litigation, Dr. Tafas was joined by only one other brave entity, GSK, which was impelled into the case at the urging of its Senior Vice President and Chief Intellectual Property Counsel, Sherry Knowles.  Both Dr. Tafas  and GSK argued that the Final Rules exceeded the rulemaking power of the USPTO and thus constituted an unlawful agency action under Section 706(2) of the Administrative Procedure Act.  Judge Cacheris of the United States District Court for the Eastern District of Virginia agreed, finding that the Final Rules were substantive in nature and exceed the scope of the USPTO’s rulemaking authority under Merck & Co., Inc. v. Kessler, 80 F.3d 1543, 1550 (Fed. Cir. 1996).  Judge Cacheris granted a permanent injunction prohibiting the USPTO from putting the new rule changes into effect on April 1, 2008 [1] and a sigh of relief rocketed through the patent departments of American industry.

The district court found that the Final Rules created limits on continuation applications, requests for continued examination, and claims — all of which were inconsistent with several sections of the Patent Act and prior Federal Circuit precedent.  Specifically, the court found, in part, that the proposed restriction on the number of continuation applications and claims constituted a substantive rule which the USPTO had no right to promulgate:

The 2+1 Rule and the 5/25 Rule, which limit continuing applications, RCEs, and claims… constitute a drastic departure from the terms of the Patent Act as they are presently understood…

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[U]nder the existing patent system an applicant may file an unlimited number of continuation or continuation-in-part applications, RCEs, and claims. As to continuation and continuation-in-part applications, Section 120 provides that such applications “shall have” the benefit of the priority date of the initial application… Though Final Rule 78 does not completely prohibit applicants from filing more than two continuation or continuation-in-part applications, because the USPTO intends to deny additional applications in almost all circumstances… the… requirement[s] effectively imposes a hard limit on additional applications… Final Rule 78 and the hard limit it imposes changes existing law and deprives applicants of their valuable rights under 35 U.S.C. § 120 to an unlimited number of continuation and continuation-in-part applications as a matter of right.

Tafas v. Dudas, 541 F. Supp. 2d at 814.

On appeal, the Federal Circuit agreed with the district court that the USPTO does not have the statutory authority to engage in substantive rulemaking: “We agree with the district court that § 2(b)(2) does not vest the USPTO with any general substantive rulemaking power.” [2]  That opinion, however, was later vacated after a petition for rehearing en banc was granted.

While the rehearing en banc was pending, on October 8, 2009 the USPTO announced that it would rescind the entire proposed Final Rules, calling them “controversial” and “highly unpopular.” [3]  After the rules were rescinded, the USPTO and GSK together moved to vacate the district court’s judgment – which would have eliminated the injunction prohibiting the USPTO from ever again promulgating the rescinded rules and would have eviscerated any persuasive and/or precedential effect of the Tafas v. Dudas ruling and the underlying permanent injunction.  Dr. Tafas strongly opposed vacatur and the Federal Circuit ultimately agreed, denying USPTO and GSK’s motion and permitting the holding in Tafas v. Dudas to stand. [4]

Time has taught us that Dr. Tafas’ success in maintaining the decision of Tafas v. Dudas was auspicious.  On February 9^th and 10^th of this year the USPTO published new proposed rules for the “contested cases” created by the America Invents Act (“AIA”): Inter Partes Review, Post Grant Review and Derivation proceedings.  Notably, the proposed rules included an estoppel provision which would have been devastating for patentees, especially in light of Inter Partes Review under the AIA, which is heavily balanced in favor of the petitioner (opposer) of the patent and against patent owners (especially patent owners that do not have deep pockets to defend themselves).  Under Proposed Rule 42.73(d)(3) a patent owner would be precluded from later obtaining, in any other PTO proceeding, any patent claim that “could have been” filed any Post Grant Review or Inter Partes Review proceedings.  Specifically, proposed Rule 42.73(d)(3) provided:

(3) Patent applicant or owner. A patent applicant or owner whose claim is canceled is precluded from taking action inconsistent with the adverse judgment, including obtaining in any patent:

(i) A claim to substantially the same invention as the finally refused or cancelled claim;

(ii) A claim that could have been filed in response to any properly raised ground of unpatentability for a finally refused or cancelled claim; or

(iii) An amendment of a specification or of a drawing that was denied during the trial proceeding.

Not surprisingly, this proposed rule came under heavy fire from the public with many people pointing out that the USPTO was simply renewing its attempt to restrict continuation application practice.  These opponents noted that nowhere in the AIA was the USPTO given such substantive rulemaking authority, and, in addition, any attempt to limit continuations in such a manner was contradictory to Tafas v. Dudas — which had already held the limitation of continuations to exceed the USPTO’s statutory rulemaking authority.  For example, the ABA-IPL, AIPLA and IPO submitted a joint committee comment arguing that the proposed rules exceeded the USPTO’s statutory mandate under the AIA and would contradict the holdings of Tafas v. Dudas and Tafas v. Doll:

The Committee is concerned that certain aspects of the PTO’s Proposed Rules directed to amended claims are not required by the text of the AIA, and may be viewed as not entirely consistent with the statutory language.  For example, PTO Proposed Rule 42.73(d)(3)(ii) would preclude a patent owner from obtaining from the Office in another proceeding a patent claim “that could have been filed in response to any properly raised ground of unpatentability for a finally refused or cancelled claim.”  This would estop a patent owner who loses a claim in an IPR or PGR proceeding from pursuing a claim in a continuation application or any other application that could have been filed in response to a properly raised objection.  This rule, nowhere authorized in the AIA, would be unfair to patent owners. It also appears to exceed the PTO’s rulemaking authority.  See Tafas v. Doll, 559 F.3d at 1352.

ABA-IPL, AIPLA, and IPO Committee Comment, April 9, 2012, pp. 16-17. (emphasis added, citation in original).

The final rules, issued by the USPTO on August 14, 2012, completely removed the restriction which would estop a patent owner from obtaining in a continuation application any claim that “could have been filed” in a Post Grant Review or Inter Partes Review proceeding. Instead the estoppel to patent owners was limited to claims which were cancelled or refused, or where a party’s requested amendment of the specification or drawing was denied:

(3) Patent applicant or owner. A patent applicant or owner is precluded from taking action inconsistent with the adverse judgment, including obtaining in any patent:

(i) A claim that is not patentably distinct from a finally refused or canceled claim; or

(ii) An amendment of a specification or of a drawing that was denied during the trial proceeding, but this provision does not apply to an application or patent that has a different written description.

Final Rule 42.73(d)(3)

The USPTO’s attempt to extend estoppel to a patent owner in the manner first proposed would clearly have exceeded the scope of the statute and directly conflicted with the rule established in Tafas v. Dudas, a case which shall remain in our jurisprudence thanks to Dr. Tafas.