A Victory for the Small Guy – Finally

Bill NaifehUSPTO Regulations

For those of you who do not know, the United States patent system has been under assault for the past several years.  Many patent practitioners believe that its most destructive assailant was President Bush’s appointee for the director of the United States Patent and Trademark Office (“USPTO”), Jon W. Dudas.  Certainly from my perspective, it appears that Mr. Dudas did his utmost best to weaken the system.

Many believe that a number of large multi-national companies hate the United States’ patent system – this seems to be especially true for software, technology and telecom multi-nationals.  These companies will accumulate thousands of patents in their respective patent portfolios.  It is widely believed that they then cross-license their portfolios to other multi-national companies.  Thus, avoiding patent litigation suits among themselves.  Such a policy is conceptually similar to the cold war defensive policy of “Mutual Assured Destruction.”

What seems to really annoy the large multi-national companies are the “ankle biters” – mid-size to smaller companies who have innovative ideas and will try to aggressively protect their ideas.  Occasionally, these companies sue one of the large multi-nationals and often receive millions if not hundreds of millions in damages.  A weak patent system, therefore, would hurt smaller companies much more than larger companies.

Under Dudas, it appeared to many that the USPTO became aligned with the interests of certain large multi-national corporations.  During his reign, the USPTO lobbied Congress for modifications to U.S. patent laws in ways which would be very unfavorable to the interests of small businesses.  The USPTO proposed a series of regulations designed to make the building of a patent portfolio much more difficult and expensive – which naturally would have the most negative effect on small businesses.  One of the most draconian measures enacted under the reign of Jon Dudas were regulations effectively outlawing U.S. continuation practice (“the Claims and Continuations Regulations”).

By way of background, U.S. continuation practice is somewhat unique in the world.  It allows an entire patent portfolio to be built around a few key patent applications.  Thus, a small business can start with just a few applications, then patent other aspects contained in the applications at a later date – while claiming back to an original priority date.  The effective use of continuation practice allows a company to claim various aspects of inventions and systems at a later date.  Filing continuations at a later date has at least two advantages: (1) many companies can afford to invest more in their patent portfolios later in their life, and (2) a later date, more is known about prior art and competitor’s filings.  This allows for a more strategic and effective use of patent applications.

When the USPTO announced the Claims and Continuation Regulations, an independent inventor, Dr. Tafas brought suit to enjoin the rules.  GlaxoSmithKline also filed suit and these suits were joined in the U.S. District Court of the Eastern District of Virginia.  The district court granted the preliminary injunction.  In April 2008, the district court ruled in favor of GlaxoSmithKline and Dr. Tafas on the merits and permanently enjoined the rules, preventing the agency from implementing them. The agency appealed to the U.S. Court of Appeals for the Federal Circuit.

In March 2009, a panel of the Federal Circuit concluded that the Claims and Continuations Rules were all procedural in nature and within the agency’s rulemaking authority.  The Court also concluded that the rules, except for the Continuations Rule, were consistent with the patent law.  In 2009, the Federal Circuit granted rehearing en banc, and ordered additional briefing that would have commenced in the coming weeks.

Last week, the new Director of the USPTO, David Kappos, rescinded the highly controversial regulations.  Furthermore, the USPTO also announced that it will file a motion to dismiss and vacate the federal district-court decision in a lawsuit filed against the USPTO that sought to prevent the rules from taking effect.  GlaxoSmithKline – one of two plaintiffs in the Tafas v. Kappos lawsuit – will join the USPTO’s motion for dismissal and vacatur.

“The USPTO should incentivize innovation, develop rules that are responsive to its applicants’ needs and help bring their products and services to market,” Kappos said. “These regulations have been highly unpopular from the outset and were not well received by the applicant community.  In taking the actions we are announcing today, we hope to engage the applicant community more effectively on improvements that will help make the USPTO more efficient, responsive, and transparent to the public.”

“We are grateful to GlaxoSmithKline for working with us to file this joint motion to both dismiss the appeal and vacate the district court’s decision.  This course of action represents the most efficient way to formally and permanently move on from these regulations and work with the IP community on new ways to take on the challenges these regulations were originally designed to address.”

Personally, I want to say “thank you” to David Kappos for taking a step to protect the interests of small and mid-size businesses in the United States.