Court Blocks PTO Rules on Eve of Effective Date; All Four Equitable Relief Factors Suggest Injunction

Tafas v. Dudas (E.D. Va. October 31, 2007)

After a two-year long notice, comment, and review process, the US Patent & Trademark Office (PTO) published a set of final rules in August 2007 to effectively limit the number of claims filed in each patent application and to limit the number of continuation applications stemming from an original patent application.  (Current rules allow unlimited claims and unlimited continuations).  Tafas, an individual inventor, immediately filed suit — asking the Virginia based Federal Court to block the rules. Later, Glaxo Smithkline (GSK) filed a preliminary injunction to stop the rules before their November 1, 2007 effective date. Other parties, including the AIPLA, Élan, Hexas, the Roskamp Institute,and Tikvah Therapeutics, IBM, SanDisk, & Senator Schumer, then filed briefs or declarations supporting preliminary relief.

In granting the requested preliminary injunction, the district court walked through the four relevant factors: (1) likelihood that the plaintiff will succeed on the merits of the case; (2) irreparable harm without an injunction; (3) a balance of hardships weighing in favor of an injunction; and (4) the public interest supporting an injunction.  Although the four factors are considered as a whole, the first to factors are clearly the most important and must always be proven.

Likelihood of Success: In its brief analysis of the issues, the court found a “genuine possibility” that the PTO will lose. In particular, the Court noted two particular GSK arguments as likely winners: (1) the facial illegality of limiting the number of continuation applications under 35 USC 120; and (2) problems created by the retroactive effect on settled rights. A third argument – vagueness of the ESD requirements – also has some value according to the Court.

Continuation Applications: 35 USC 120 can be read various ways, but the Court found that Federal Circuit law “suggests that a decision by the PTO to limit the number of continuing applications would run contrary to the mandate of Section 120.”  See Symbol. This conclusion is made easier because the PTO would deserve no rulemaking deference for any rules that extends into substantive grounds. GSK’s position on the illegality of claim limitations is not as strong because there is no statutory provision to the contrary. Thus, the court found that “neither party can claim a strong likelihood of success on this issue.”

Retroactive Effect: The doctrine of retroactive effect is interesting here. Unless expressly granted by Congress, an agency’s rulemaking cannot be retroactive. The court found vested rights in the ability to file continuations and claims under the old rules. Those rights vested at the time when the patentee chose to file for patent protection and give up trade secret protection.

While “an individual [that] discloses his trade secret to others who are under no obligation to protect the confidentiality of the information, or otherwise publicly discloses the secret,” loses that property right, Rucklehaus, 467 U.S. 1002, the Final Rules retroactively alter the bargain on which inventors like GSK rely in making their decision to surrender their rights. The Final Rules thus impair GSK’s right to this bargain.

ESD Requirements: The after publishing the final rules, the PTO published a series of clarification papers and guidelines for how to properly prepare an examination support document (ESD) under the new rules. The Court turned that guidance on its head — suggesting an admission of vagueness and noting that the additional guidance cannot be used to help vague rules overcome due process violations.

An alternative way to block the rules is to show that they are “arbitrary and capricious.” The Court found the PTO’s reasoning coherent enough to give the agency a pass.

Thus, the PTO’s rationale appears to be sufficient to satisfy arbitrary and capricious review, and the Court will find that GSK has not shown a real likelihood of success on this issue.

Irreparable Harm: The Court agreed that the “uncertainty” created by the new regulations was sufficient to cause irreparable harm because they would change investment and patent filing incentives. Without an injunction, GSK would be unable to recover from its lost protection if the rules are ultimately determined to be invalid.

Balance of Hardships: For the preliminary injunction, the balance of hardships weigh in GSK’s favor because GSK’s woes are instant once the new rules are effective. On the other hand, the PTO will simply experience a gradual continued increase in pendency.

Public Interest: The public interest is in a stable patent system. Thus, a preliminary injunction to preserve the status quo is appropriate.

Notes:

• PI Order (describing the scope of injunction);
• Discussion of Hearing
• Documents filed for the PI Hearing
• Emergency Motions at the CAFC

Comments

[me]

Much of the Judges argument hinges on the rules not being substantive, or under 120 - if these fail we are all in trouble.

File Amici! Don't trust - - -

[Edwin D. Schindler]

As a practical matter, today's District Court decision is a preview of the Court's eventual decision on the up-coming summary judgment motions. It's a "preliminary" injunction, that is "temporary" in name only.

Since GlaxoSmithKline brought a pre-enforcement challenge to the PTO's proposed Rule changes and was found to have demonstrated a likelihood of success on all legal issues (except, as I recall, RCEs, which was essentially a "draw" and which are not truly necessary, as long as continuation practice is unlimited), absent an intervening change in statutory law, which is highly unlikely, today's decision establishes the "law of the case" and the District Court is extremely unlikely to reverse itself on the law when rendering a decision on the summary judgment motions to be filed in the coming month. To pretend otherwise is a legal fiction!

When pre-enforcement/facial challenges are brought, which raise strictly questions of law, if the plaintiff proceeds with a motion that is nominally labelled one for "preliminary injunction," the reality is that it is a motion for summary judgment. The entirety of the case on the merits has effectively been decided - don't expect the District Court to rule in the PTO's favor on any legal issue. With the PTO Rules having been enjoined, the PTO is unable to later argue differently (e.g., by pointing to how the Rules are being implemented) than it has already argued on GSK's motion for preliminary injunction. The parties have extensively briefed all legal issues, leaving little new legal argument left to be presented to the District Court that would justify a different outcome.

The PTO will lose on summary judgment in the District Court and, if it wants to lose again, it can proceed to the Federal Circuit, which would conduct a de novo review and reach the same legal conclusions. Logically, however, it makes little sense for the PTO not to file an interlocutory appeal to the Federal Circuit from the grant of GSK's motion for preliminary injunction, since the PTO's defense in the District Court of its ill-conceived Rule changes is O-V-E-R !!

[Edwin D. Schindler]

Regarding Jill Browning's comments elsewhere on PatentlyO.com:

"Of course, the preliminary injunction is not a decision on the merits of the rules —it is only preliminary relief. A full decision will likely be delayed until at least early January."

The preliminary injunction IS a "decision on the merits of the rules," as there is extensive case law that legal rulings made on a motion for preliminary injunction establish the "law of the case." Further, even if this were not so, it is virtually inconceivable for any human being - and this would even include federal judges! - to so completely reverse a recent, prior decision as "wrong" without some intervening event, in this case, a significant change in the legal landscape, that would justify finding today's decision incorrect or "overruled."

Law school and "legal lip service" about the "preliminary" nature of decisions rendered on prelimianry injunction motions as found in the case law to one side, today the District Court "decided the merits" of the judicial challenge to the PTO rules - and the PTO lost badly and the PTO knows it!