Friday, March 20, 2009

Tafas decided. Rule 78 is out, but ...

The CAFC determined that the USPTO does get Chevron deference on procedural rules. Of course, what is a procedural rule?

With the analytical framework established, we turn to whether the Final Rules are
substantive or procedural. The parties agree that the USPTO has authority under
§ 2(b)(2) to promulgate procedural rules. They vigorously disagree, however, as to how
the boundary between “substantive” and “procedural” rules should be defined.

The CAFC looked to the JEM case (JEM Broad. Co. v. FCC, 22 F.3d 320,
326 (D.C. Cir. 1994)):

In doing so, the court noted that a “critical
feature of the procedural exception [in section 553 of the APA] is that it covers agency
actions that do not themselves alter the rights or interests of parties, although [they]
may alter the manner in which the parties present themselves or their viewpoints to the
agency.” Id. at 326 (emphasis added) (quotation marks omitted). The “critical fact” that
was “fatal to JEM’s claim,” the court held, was that the “hard look” rules “did not change
the substantive standards by which the FCC evaluates license applications.” Id. at 327.
The court recognized that the rules could result in the loss of substantive rights, but
found that they were nonetheless procedural because they did not “foreclose effective
opportunity to make one’s case on the merits.” Id. at 327-28 (quoting Lamoille Valley
R.R. Co. v. Interstate Commerce Comm’n, 711 F.2d 295, 328 (D.C. Cir. 1983)).
While we do not purport to set forth a definitive rule for distinguishing between
substance and procedure in this case, we conclude that the Final Rules challenged in
this case are procedural. In essence, they govern the timing of and materials that must
be submitted with patent applications. The Final Rules may “alter the manner in which
the parties present . . . their viewpoints” to the USPTO, but they do not, on their face,
“foreclose effective opportunity” to present patent applications for examination. JEM, 22
F.3d at 326, 328.

The PTO's rules were found by the CAFC procedural, and therefore entitled to Chevron deference.
The Chevron "two step" began.

Step 1: For such provisions, we must first determine “whether Congress has directly spoken to
the precise question at issue. If the intent of Congress is clear, that is the end of the

Step 2: “[I]f the statute is silent or
ambiguous with respect to the specific issue, the question for the court is whether the
agency’s answer is based on a permissible construction of the statute.”

Henriksen was mentioned: Additionally, the district court cited
this court’s predecessor for the propositions that “there is no statutory basis for fixing an
arbitrary limit to the number of [continuing] applications,” id. (quoting In re Henriksen,
399 F.2d 253, 254 (CCPA 1968)) (alteration provided by the district court), and that “a
limit upon continuing applications is a matter of policy for the Congress,” id. (quoting In
re Hogan, 559 F.2d 595, 604 n.13 (CCPA 1977)). In light of the USPTO’s presumed
“inten[t] to deny additional applications in almost all circumstances,” the district court
found that Final Rule 78 set forth a “mechanical rule” that “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.” Id. at

The limitation on the number of continuations did not get past step 1 of the Chevron two-step:

We agree with the district court that Final Rule 78 is inconsistent with § 120,
although we rely on narrower grounds.
The narrower ground: Thus, Rule 78 is invalid because it attempts to add an additional requirement—that the application not contain amendments, arguments, or evidence that
could have been submitted earlier—that is foreclosed by the statute.

The bottom line:

However, we find that Final Rule 78 conflicts with 35 U.S.C. § 120 and is thus invalid.
Accordingly, we affirm the district court’s grant of summary judgment that Final Rule 78
is invalid, vacate its grant of summary judgment with respect to Final Rules 75, 114, and
265, and remand for further proceedings consistent with this opinion.

The opinion is fragmented into a majority, a concurrence, and a dissent (by Judge Rader, dissenting
on everything except the decision on Rule 78). Overall, it was a good day for the USPTO, in that
they got a remand on 3 rules, and a narrow ruling on Rule 78.

**UPDATE. To IAM blog:

Of --All I would add is that it is decisions such as this which show why there is such behind-the-scenes manouvering currently being conducted with regard to the next wave of judges --, see

The statute section in question is 120, not 121 [decision:"Because we conclude that the four rules are procedural, but that Rule 78 is inconsistent with 35 U.S.C. § 120, we affirm-in-part,
vacate-in-part, and remand." vs. IAM: "The Federal Circuit invalidated the “continuation” limitation as being inconsistent with the plain language of 35 USC § 121"]

**Update. Note the discussion by Professor Field on IPFrontline, titled 35 U.S.C. § 2(b)(2)(B) after Tafas v. Doll , which includes

Judge Rader dissents with regard to the classification of the rules in question. He begins by saying, “in my view, the Final Rules are substantive, not procedural.” Id. at *19. Yet he writes: “In the unique context of this case, it makes no sense to classify a rule as ‘procedural’ or ‘interpretative.’ Either of those labels leads to the same conclusion — that the rule is non-substantive.” Id. at 20. His later observations seem not only to dismiss the idea that a non-substantive rule can be both procedural and interpretive, but also cast doubt on the commitment to his initial point.

Beyond finding the PTO’s contested rules to be procedural and thus not facially invalid, Tafas II leaves many questions open: “This opinion does not decide any of the following issues: whether any of the Final Rules, either on their face or as applied in any specific circumstances, are arbitrary and capricious; whether any of the Final Rules conflict with the Patent Act in ways not specifically addressed in this opinion; whether all USPTO rulemaking is subject to notice and comment rulemaking under 5 U.S.C. § 553; whether any of the Final Rules are impermissibly vague; and whether the Final Rules are impermissibly retroactive.” Id.

Among those, the question concerning applicability of APA § 553 is most bothersome. It seems to reopen a central question about the meaning of § 2(b)(2)(B), something that, as noted above, was convincingly answered, if in dicta, in Cooper Technologies. That is particularly unsettling when, as seems true, all contested rules, regardless of obligation, were promulgated by notice and comment rulemaking.


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