By Dugie Standeford for Intellectual Property Watch
A US federal court in Virginia has temporarily blocked the US Patent and Trademark Office (USPTO) from implementing controversial new rules governing patent application continuations. The rules, set to come into effect on 1 November, sparked strong opposition from many patent attorneys who argued that capping the number of patent claims and continuing applications would harm inventors seeking to protect intellectual property rights in the fast-moving high-technology sector (IPW, Patent Policy, 10 September 2007).

Separately, Portugal, which holds the EU presidency, floated a revised proposal for a European patent litigation system. The draft, although seen by critics as much improved over earlier versions, leaves several key issues unresolved, said Kevin Mooney, a UK attorney with Simmons & Simmons and president of the European Patent Lawyers Association (EPLAW).

Seekers of US patents are currently allowed unlimited continuation requests and requests for continued examination (RCE). The USPTO, which wants to make its patent examination process more efficient by forcing applicants to be more precise, narrowed the number of permissible continuation applications to two and RCEs to one, and capped the number of claims at 25 per application. Above those thresholds, patent-seekers must show why they need additional continuations or RCEs.

The rules were challenged first by Connecticut inventor Triantafyllos Tafas, who argued that they substantially changed the regulatory landscape by cutting off future continuing applications, forcing Tafas to lose his potential rights to the inventions that flow from his original work (Tafas v. Dudas). Tafas also claimed the USPTO had exceeded its congressionally-delegated authority by enacting retroactive regulations and unconstitutionally taking his property. Tafas’s case was later joined with a challenge by pharmaceutical giant GlaxoSmithKline (GSK).

The court found a strong likelihood that GSK’s arguments – among them that only Congress has the power to make substantive USPTO regulations, that limiting the number of continuing application violates the Patent Act, and that the rules should not be applied retroactively – would ultimately be successful. It granted plaintiffs’ request for a preliminary injunction.

Ruling a “Relief” for Some

“I was certainly relieved,” said patent attorney Michael Siekman, of Wolf, Greenfield & Sacks in Boston. The original consensus seemed to be that the rules would probably be modified in some way as a result of the litigation, but that they were unlikely to be temporarily enjoined, he said. Few thought Tafas’s lawsuit had much chance, but “the patent bar’s hopes – pretty much all patent attorneys are opposed to the new rules – were raised when GSK joined the fight,” he said.

But GSK provided evidence of real harm to itself and potential customers of future drugs it would not be able to bring to market under the new rules, Siekman said. Its case was also buoyed by a statement from a former Commissioner of Patents who contradicted many of the USPTO’s arguments in support of the rules, as well as from briefs submitted by patent attorneys and biotechnology and information technology companies, he said.

The USPTO “fully acknowledged the scope” of GSK’s victory and announced on its website that it will abide by the injunction, Foley & Lardner Partner Harold Wegner noted in an online post. He predicted the agency would not immediately seek an appeal of the order.

The rules were the USPTO’s way of trying to clear its backlog of patent applications and to provide better quality service in a shorter time, but they created major headaches for companies with significant research and development activity, said John Donohue of Woodcock Washburn’s litigation group in Philadelphia. The injunction could give all sides a chance to resolve the matter, he said.

A key stumbling block to reaching consensus appears to be “the reluctance of the present USPTO leadership, in advance of any rulemaking, to reach out to industry” about either the agency’s needs or those of its key customers, Donohue said. The solution will probably not come either from patent reform legislation or from an agreement by the pharmaceutical industry to limit the number of its continuing applications, he told Intellectual Property Watch.

Passage of the Patent Reform Act will not address the agency’s backlog problem, said Donohue. Nor is industry likely to agree to cut back on continuing applications.

The USPTO’s approach to addressing its backlog by restricting continuations is “a head in the sand approach,” Donohue said. What it really needs is more and better trained examiners and leadership willing to work with industry, he added.

Patent Reform Developments

In September, the US House of Representatives approved broad changes to the US patent system (IPW, Patent Policy, 9 September 2007). However, provisions in both the House and Senate patent reform bills that would have given the USPTO the right to enact substantive rules were dropped, Siekman said. The House version allows the USPTO to limit continuation applications, subject to congressional review, he said.

The Senate measure omits the substantive rulemaking authority provision altogether, Siekman said. The bill has not been voted on yet, and momentum for patent reform may have been lost for various reasons, he said.

The Senate “continues an internal struggle” over patent reform, University of Missouri Associate Law Professor Dennis Crouch noted on his weblog Patently O. While a majority of senators support the proposed reform measures, the majority does not yet have the 60 votes needed to close debate, he said. However, “patent reform is an area quite friendly to horse trading” because it does not prompt as much potential voter response as some other issues, he said.

Nevertheless, lobbying for and against the Senate bill continues. On 23 October, around 430 members of the Innovation Alliance, which represents a wide range of industry sectors, urged lawmakers to reject the “misguided” measure as written, saying it weakens IP protections. In its 24 October letter to Senate leaders signed by 128 businesses and associations in the high-tech, financial, energy, chemical, media and manufacturing sectors, however, the Coalition for Patent Fairness urged swift passage.

EU Patent Litigation

The Portuguese presidency is attempting to broker a deal for a European patent litigation system, a proposal that stalled after its reintroduction in 2006. In a series of three documents, the Presidency outlined a system of specialised courts to handle EU-wide patent-related matters.

The current proposal calls for a court of first instance with one central court and local and regional divisions, a court of second instance and a registry. Each division would be a distinct body but they would all be linked with the European Court of Justice.

First instance divisions would have exclusive civil jurisdiction in cases involving actions for actual or threatened patent infringement or for declarations of non-infringement, direct actions for counterclaims for invalidity, actions or claims for damages, legal costs and other related issues, and injunctions and provisional measures. Second instance courts would handle appeals from the lower divisions.

The October draft represents a “considerable improvement” over earlier versions, said EPLAW’s Mooney. The original proposal provided for the strict bifurcation of issues regarding whether a patent is valid, requiring such cases to be heard only in the central chamber and not in regional courts, he said. This is the system in Germany now (though it is changing) and it is “hugely unacceptable” to EPLAW members because of the time-consuming shifts between courts, he said.

But other sources said the proposal for an EU patent court may be an attempt to validate grants by the European Patent Office (EPO) of software and business methods patents. By selecting trusted judges and designing courts in which only those judges are allowed to decide patent validity issues, the plan seeks to validate EPO actions, the sources said. They also questioned the need for a cross-border court in patent issues, saying it will drive up litigation costs and would only be advantageous for large companies who can bankroll such lawsuits.

The presidency now proposes that pure validity claims and declarations of non-infringement start in the central court, and that infringement cases be brought in both the central and regional divisions, Mooney said. Thus, if, in an infringement case filed in regional court, there is a counterclaim for invalidity, the case will stay where it is.

But questions remain, Mooney said. The draft appears to say that judges qualified in science, technical disciplines, patent law and litigation will sit only in the central chamber, not in regions. Most patent lawyers would prefer having no technical judges at all, with courts appointing experts to help out in complex cases, he said.

In addition, industry will want the right to handle patent matters as it does now until it is assured the new system is working, Mooney said. Industry’s position on the current draft is not known, but a 16 October position paper on an earlier version by the European Information, Communications and Consumer Electronics Technology Industry Associations, Business Software Alliance, European Association of Automotive Suppliers and European Committee of Domestic Equipment Manufacturers urged policy-makers against “adopting unhelpful compromises” for the sake of change. Instead, they should aim for greater quality, cost-effectiveness, efficiency and legal certainty, they said.

Several countries, including the United Kingdom, vehemently opposed the first draft, Mooney said. The second was less controversial and drew greater support; the third is even better. However, he added, “we’re still right at the beginning of the process.”

Dugie Standeford may be reached at info@ip-watch.ch.