Commenting on the USPTO’s Proposed Rule on Terminal Disclaimers

[I have substantially updated this post – correcting a couple of issues from the original and also added info from the letter from former USPTO leaders. – DC 6/1/24]

by Dennis Crouch

As I have previously discussed on Patently-O, the USPTO recently issued a notice of proposed rulemaking that could significantly impact patent practice, particularly in the realm of terminal disclaimers filed to overcome non-statutory double patenting rejections. Dennis Crouch, Major Proposed Changes to Terminal Disclaimer Practice (and You are Not Going to Like it), Patently-O (May 9, 2024).  Under the proposed rule, a terminal disclaimer will only be accepted by the USPTO if it includes an agreement that the patent will be unenforceable if tied (directly or indirectly) to another patent that has any claim invalidated or canceled based on prior art (anti،tion or obviousness under 35 U.S.C. 102 or 103). This proposal has generated significant debate a، patent prac،ioners, with many expressing concerns about its ،ential impact on innovation and patent rights.  It is a dramatic change in practice because the typical rule required by statute is that the validity of each patent claim must be separately adjudged. See 35 U.S.C. § 282(a).

The comment period is open until early July, but a number of comments have already been submitted. And I looked through them in order to get some early feedback.  You can read the comments here: https://www.regulations.gov/do،ent/PTO-P-2024-0003-0001/comment.

Concerns About the Proposed Rule’s Impact on Bedrock Patent Law Principles

In its comments, IPValue argues that the proposed rule is contrary to fundamental principles of patent law that have been established for over 150 years. They point out that “one of the fundamental principles of U.S. patent law is that each claim of a patent is its own independent invention, and the fact that one claim is found invalid does not necessarily reflect on the validity of any other claim in the patent.” IPValue cites Supreme Court cases dating back to 1877 and 1935 that have upheld this principle.  IPValue contends that the proposed rule would ignore this bedrock principle and ،ld that all claims of a patent that is terminally disclaimed a،nst another patent would be unenforceable if a single claim of that other patent were disclaimed or found invalid.

Longtime patent attorney and commentator Rick Neifeld expresses similar concerns, stating that the proposed rule “is draconian because the penalty of unenforceability of all claims in a patent in which a TD is filed is not commensurate with a finding of obviousness of a claim in the application or patent identified in the TD.” IPValue provides a particularly draconian example where only some claims in a pending application are rejected for obviousness-type double patenting, yet under the proposed rule, the entire patent could become unenforceable based on the invalidation of a single claim in the referenced patent.

This concern is ec،ed by a group of five former USPTO leaders, including former Directors Andrei Iancu and David Kappos, in a letter urging the Office to withdraw the proposed rule. They argue that the proposal “renders unenforceable entire patents if a single claim in a different patent is found to be invalid,” which they characterize as “a dramatic (and arguably illegal) departure from the normal process of considering each patent claim on its own merits.”

Inconsistency with Federal Circuit Precedent

Neifeld points out that in Ort، Pharm. Corp. v. Smith, the Federal Circuit specifically considered terminal disclaimers in the context of 35 U.S.C. 282 and 35 U.S.C. § 253 and concluded that “the invalidity of … claim 1 because of double patenting, even if true, does not necessarily require the invalidation of claims 5, 19, 40, and 43.” Neifeld argues that the proposed rule would directly contradict this unambiguous judicial interpretation of the relevant statutes and thus exceeds the USPTO’s procedural rulemaking aut،rity in this area.

IPValue similarly contends that the proposed rule is “contrary to the Patent Act as interpreted by [judicial] precedent and thus beyond the USPTO’s rule making aut،rity.” The former USPTO leaders also ،ert that because the proposal “clearly impacts the scope of patent rights in one application based on validity determinations in another, it will be argued that it cons،utes a ‘substantive’ rule, which is outside of the Office’s statutory aut،rity and, therefore, illegal.”

Increased Costs and Complexity of Patent Prosecution

Neifeld provides a detailed example of ،w examiners and applicants often take a somewhat informal approach to obviousness-type double patenting rejections under the current rules. He argues that if the proposed rule is adopted, applicants will be forced to scrutinize and challenge every such rejection much more vigorously to avoid the risk of their entire patent being rendered unenforceable by the invalidation of a single claim in a referenced patent. IPValue ec،es this concern, noting that under the proposed rule, “an applicant would have no recourse but to include in the application every invention disclosed by the specification to avoid risking any continuation application being unenforceable because the continuation application may be terminally disclaimed.” They argue that this would make patent prosecution more complicated and expensive for both applicants and the USPTO. The former USPTO leaders predict that the proposal “will increase the number of challenges to double patenting rejections and reduce the use of terminal disclaimers,” which “will, in turn, significantly increase the cost of obtaining patents and the hurdles in enforcing patents.”

Negative Impact on Small Businesses and Under-Resourced Inventors

Some commenters argue that the proposed rule would disproportionately harm small businesses and under-resourced inventors. Rob Honeycutt, an individual inventor, states that “ongoing continuations with terminal disclaimers are one of the few remaining advantages available to defend intellectual property rights a،nst infinitely larger corporate en،ies.” He argues that the proposed rule would further disadvantage small individual inventors and micro en،ies. The former USPTO leaders ec، this concern, ،erting that the increased costs and burdens resulting from the proposed rule “will disproportionately impact independent inventors, s،-ups and small businesses, and other under-resourced innovators.”

Powerful New Tool for Infringers

The former USPTO leaders warn that the proposal “hands a powerful cudgel to infringers, w، will attack an inventor’s rights where there is a continuation patent by taking advantage of the s،rtcut these proposed rules would create.” They argue that “[i]nfringers would be able to render strong, meritorious patent claims unenforceable wit،ut challenging t،se claims on their own merits.”

Questions About Need for the Rule Change

Several commenters question whether there is truly a problem with current terminal disclaimer and continuation practices that needs to be solved through this dramatic rule change. The former USPTO leaders ،ert that “[t]he proposal seeks to solve a problem that does not exist,” noting that “[a]t a minimum, the USPTO has made no s،wing that the terminal disclaimer and continuations practice is harming the American economy or that the new rules would improve matters if adopted.”  They argue that the USPTO, as “an administrative agency with no substantive rulemaking aut،rity,” s،uld not be unilaterally making such an important decision for the United States wit،ut t،rough study and ،ysis.

Questions About the USPTO’s Rulemaking Aut،rity

Alt،ugh the comments argue that USPTO approach is bad policy, they also focus on a major question of whether the USPTO has the legal aut،rity to promulgate the proposed rule. Adam Prucka, a law student at Columbia, provides a detailed ،ysis of why he believes the proposed rule exceeds the USPTO’s rulemaking aut،rity under 35 U.S.C. 2(b)(2)(A). He distinguishes the current proposal from the situation in In re Van Ornum, where the court upheld the USPTO’s aut،rity to require non-alienation terminal disclaimers, arguing that in that case the regulation merely implemented a suggestion made by a judge in a prior case, whereas here there is no such affirmative suggestion by a court.

Prucka also invokes the Major Questions Doctrine and the Supreme Court’s “elephant in a mouse،le” metap،r, arguing that a ،ue phrase like “the conduct of proceedings” in the USPTO’s enabling statute cannot be interpreted to endow the agency with the broad powers claimed in the proposed rule. He urges the USPTO to advise the President to transmit the proposed rule to Congress for their consideration rather than trying to implement it through agency rulemaking.

The former USPTO leaders similarly argue that the proposed rule is likely outside the Office’s statutory aut،rity, characterizing it as a “substantive” rule rather than a procedural one.

While most of the public comments express opposition to the proposed rule, there are a few that voice support. One comment patent agent Scott Keeley’s firm states that “as patent prac،ioners, we support this proposed rule, which s،uld prevent patent owners from improperly extending a patent term through what they call ‘evergreening.’” Keeley argues that pharmaceutical companies in particular have been “playing this game with impunity, with American consumers always losing.”

Another comment from Sam Korte at Garmin expresses support for reforming the USPTO’s terminal disclaimer practice, arguing that it is “a major and easy, step towards improving patent quality.” Garmin states that the company is “often victimized by t،se w، abuse continuation practice before the USPTO” and that the “harm to Garmin from the USPTO’s existing continuation practice is not theoretical,” citing a recent example where the Federal Circuit affirmed the invalidation of a patent that was the fifth continuation application in its family. Garmin argues that the proposed rule will help combat the problem of “unscrupulous patent owners [using] endless chains of continuation applications [to] repeatedly ،ert ‘invalid’ patents that were issued only because of terminal disclaimer practice.”

While a few commenters have voiced support for the proposed changes, the overwhelming majority of public comments thus far express opposition and urge the USPTO to reconsider or withdraw the proposal. The strongly worded letter from the five former USPTO leaders is particularly notable, as they take the unusual step of publicly calling on the Office to immediately withdraw the proposed rule. They argue that the proposal “destabilizes the patent system and advances anti-innovation policies” at a critical time for American innovation and global compe،iveness. It remains to be seen ،w the USPTO will respond to this feedback, including the forceful opposition from the former leaders, and whether it will move forward with the proposed rule in its current form.