AIPLA Reports

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Current Developments in Intellectual Property Law
Copyright © 2007 AIPLA

November 1, 2007

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Patents/Claims and Continuations Rules/Court Challenge
Court Grants Preliminary Injunction Blocking New PTO Rules
SmithKline Beecham Corp. v. Dudas, E.D. Va., No. 1:07cv1008 (JCC/TRJ), 10/31/07.

Judge James Cacheris of the Eastern District of Virginia on October 31, 2007 entered a preliminary injunction blocking the implementation of the PTO’s recently finalized rules on patent claiming and continuations practice.

The decision was handed down from the bench after nearly two hours of oral argument from attorneys for SmithKline, the PTO, and several amici, and by the end of the day, Judge Cacheris had issued his Memorandum Opinion explaining the decision.  The preliminary injunction order blocks implementation of the entire PTO rules package, bars the PTO from issuing further rules on continuations and claims while the suit is pending, and is effective until there is a final judgment in the case. The court said that for the present he would leave it to the parties to work out and present a briefing schedule for approval.

To read the court's order and memorandum decision,click here.

SmithKline Oral Argument

As for the attorney argument, John M. Desmarais, of Kirkland & Ellis, appeared for SmithKline, contending that the PTO’s new rules disrupt the settled expectations of patent practitioners that are based on more than 100 years of judicial rulings.  The PTO’s rules ignore those court decisions that 35 U.S.C. §120 permits multiple continuations and impose a blanket limitation that dramatically prejudices pending applications, according to Desmarais.  Where courts have permitted PTO to limit continuation practice, it has been in cases of prosecution laches after particular practices by particular parties were evaluated and sanctioned, he explained.  Those case, nonetheless, cautioned against any blanket prohibition, he added.

The harm from these rules, Desmarais argued, will be felt immediately by owners of pending applications, who will have to take prompt action on November 1 to bolster or abandon claims that were prosecuted under a different regime.  Those rules will affect over 700,000 applications, he noted, and agreed with Judge Cacheris that the problem to be cured involves less than 3 percent of those applications.  He noted that numerous amici have sided with the position of SmithKline, and that the PTO claim of acting in the public interest is supported by no evidence at all. 

Moreover, Desmarais continued, Senator Charles Schumer (D-NY), who has been active in patent reform legislation, recognized in a letter to the PTO that the rules should be delayed until their legality can be determined. He also pointed out that repeated attempts in Congress to give the PTO substantive rulemaking authority have failed time and time again, stressing that interpretations of the patent statute has been committed to the courts.

On the issue of likely success on the merits, Desmarais maintained that the rules are based on a statutory interpretation by the PTO which conflicts with statutory interpretations by the judiciary.  Because the PTO lacks substantive rulemaking authority, it is not entitled to Chevron deference and its interpretations cannot prevail over court interpretations, he contended.  Moreover, the PTO has improperly applied the rules retroactively to pending applications, Desmarais argued, explaining that the rules impair trade secret rights held by applicants before their applications are published.

PTO Oral Argument

Assistant U.S. Attorney Lauren Wetzler told the court that a preliminary injunction is extraordinary relief that should be highly disfavored on the eve of the effective date for an agency rulemaking.  She stressed the ample administrative record in this case, demonstrating that public participation was broad and that agency consideration was careful.

When asked by Judge Cacheris about the harm that a delay would cause the PTO, Wetzler referred to the agency’s substantial investment in training and cited the disruptive effect and “costly stand-down” which a preliminary injunction would require.  Responding to the argument that the training investment was necessary for implementation even if the rules are delayed, Wetzler said that the delay would require the training to be redone because it is not reasonable to expect examiners to retain that training over the delay period.

The rules are also well within the PTO’s regulatory authority under 35 U.S.C. §2(b)(2) to make rules governing proceedings in the Office, Wetzler continued. She said these rules are not substantive because they do not affect the standards for obtaining a patent such as novelty or non-obviousness.  There is no conflict with the Patent Act because Section 120 says nothing about the number of continuations that must be afforded, and the Federal Circuit has made clear that the PTO is entitled to impose reasonable limits on applicants’ conduct in prosecution.

Wetzler disputed SmithKline’s contentions that the rules cause applicants harm, explaining that the regulations are not mechanical and blanket prohibitions but rather leave applicants with a variety of alternatives to do what they need to do.  Nor did SmithKline offer an persuasive reason why it must take action on its pending applications immediately, Wetzler added, noting that claims can still be amended, restrictions can be suggested, and petitions can be filed within four months of filing a continuation.  Although SmithKline complains about strategic decisions that need to be made, that is far too speculative to qualify as irreparable harm, she maintained.

Referring to the letter from Senator Schumer, Wetzler pointed out that the statement of a single senator does not speak for the Senate as a whole.

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