Court Opinion

ID: 9614797
Source: CourtListenerOpinion
Date Created: 2023-08-22 04:28:22.896682+00
Date Added: 2024-06-11T13:25:52.958947
License: Public Domain

RADER, Circuit Judge,
concurring in part and dissenting in part.
I concur with this court’s conclusion that the PTO is not entitled to Chevron deference with respect to its own rulemaking authority. However, in my view, the Final Rules are substantive, not procedural. Thus, I would affirm the district court’s conclusion that the PTO exceeded its statutory rulemaking authority in promulgating these rules. For that reason, I concur in part with this court’s ultimate conclusion regarding Final Rule 78, but dissent in part with respect to Final Rules 114, 75, and 265.
This case presents a threshold question about the nature of these rules- — substantive or procedural. The organic act of the PTO “does NOT grant the Commissioner the authority to issue substantive rules.” Merck & Co. v. Kessler, 80 F.3d 1543, 1550 (Fed.Cir.1996) (emphasis in original). Unlike grants of rulemaking authority to many other administrative agencies, the PTO does not enjoy substantive rulemak-ing authority. Accordingly, the legislative branch has retained the responsibility for developing substantive patent law. To the extent that the PTO’s Final Rules are substantive, this court cannot permit the PTO to exceed its authority.
The distinction between substantive or non-substantive rules requires a difficult judgment. This distinction arises most often in the context of interpreting the exception to the requirement for notice and comment procedures in the Administrative Procedure Act (“APA”). 5 U.S.C. § 553(b)(A). In the most common scenario, an agency has promulgated a rule without undergoing the strictures of notice and comment rulemaking. The reviewing court must then, when necessary, apply the APA’s exemption for “interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice.” Id. In other words, the courts may only sustain non-substantive rulemak-ing in those cases. See, e.g., Animal Legal Def. Fund v. Quigg, 932 F.2d 920 (Fed.Cir.1991); JEM Broad. Co. v. FCC, 22 F.3d 320 (D.C.Cir.1994); Am. Hosp. Ass’n v. Bowen, 834 F.2d 1037 (D.C.Cir.1987). These cases have set forth a balancing test to identify a non-substantive rule: a rule is sufficiently non-substantive “where the policies promoted by public participation in rulemaking are outweighed by the countervailing considerations of effectiveness, efficiency, expedition and reduction in expense.” Guardian Fed. Sav. & Loan Ass’n v. Fed. Sav. & Loan Ins. Corp., 589 F.2d 658, 662 (D.C.Cir.1978).
The instant case, however, presents a different situation. These PTO rules have no procedural defects. Instead, this case asks this court to ensure that the PTO has not exceeded its rulemaking authority. Thus, in the present context, this court misapplies the teachings of cases such as Animal Legal Defense Fund and Cooper Technologies Co. v. Dudas, 536 F.3d 1330 (Fed.Cir.2008). These cases focus on the distinction between “interpretative” and “substantive” rules. Parsing the difference between “interpretive,” “procedural,” and “policy” rules may be relevant in the context of categorizing a rule into one of the APA’s exceptions to notice and comment rulemaking, but has no relevance to the question of exceeding a grant of rule-making authority. In the unique context of this case, it makes no sense to classify a *1369rule as “procedural” or “interpretative.” Either of those labels leads to the same conclusion — that the rule is non-substantive. See Cooper Techs., 536 F.3d at 1336 (finding the PTO’s interpretation of “original application” in 35 U.S.C. § 4608 to be “procedural” within the meaning of 35 U.S.C. § 2(b)(2) because it was “ ‘interpretative’ ... rather than ‘substantive’ ”); see also Animal Legal Def. Fund, 932 F.2d at 927 (contrasting “substantive” rules with the general category of “exempt ‘interpretative’ rules of section 553(b)”). Thus, I would not so casually discard, as this court does today, this court’s precedent for identifying a “substantive” rule.
The Supreme Court provided valuable guidance on the substantive/nonsubstan-tive inquiry in Chrysler Corp. v. Brown, 441 U.S. 281, 99 S.Ct. 1705, 60 L.Ed.2d 208 (1979). In Chrysler, the Court defined an inherent characteristic of a “substantive” or “legislative-type” rule, namely, such rules “affect!] individual rights and obligations.” Id. at 302, 99 S.Ct. 1705. Contrary to this court’s analysis today, the Chrysler Court’s reasoning was in no way limited to defining the boundary between interpretative and substantive rules. The Court sought to draw a broad distinction between substantive and non-substantive rules — the same inquiry presented in this case. Id. Shedding light on this distinction, the Court recognized that “[a] ‘substantive rule’ is not defined in the APA,” but that the term is best defined by “negative inference.” Id. at 301-02, 99 S.Ct. 1705 (emphasis added). Put differently, a rule is “substantive” if it is not an “interpretive rule[ ], general statement! ] of policy, or rule[ ] of agency organization, procedure, or practice.” Id. at 301, 99 S.Ct. 1705.
Both this court and the Court of Appeals for the District of Columbia Circuit have relied on Chrysler in building a body of jurisprudence germane to the substantive/nonsubstantive inquiry. Central to this jurisprudence is the recognition that classifying a rule as substantive or non-substantive is a case-by-case exercise, poorly suited for bright-line rules. See, e.g., Bowen, 834 F.2d at 1045 (“Determining whether a given agency action is interpretive or legislative is an extraordinarily case-specific endeavor.... [Ajnalogizing to prior cases is often of limited utility in light of the exceptional degree to which decisions in this doctrinal area turn on their precise facts.”); Chamber of Commerce v. Dep’t of Labor, 174 F.3d 206, 212 (D.C.Cir.1999) (“[T]he question whether a rule is substantive or procedural for the purposes of § 553(b) is functional, not formal.”).
No doubt, the Chrysler Court’s inquiry — whether a rule “affects individual rights and obligations” — if analyzed in a vacuum, would blur the line between substantive and non-substantive rules. See, e.g., Bowen, 834 F.2d at 1046 (“[T]he mere fact that a rule may have a substantial impact does not transform it into a legislative rule.”); Neighborhood TV Co. v. FCC, 742 F.2d 629, 637 (D.C.Cir.1984) (“[Ejvery change in rules will have some effect on those regulated.”) (internal quotation marks omitted). For this reason, as the D.C. Circuit stated in JEM, the “critical feature” of a procedural, non-substantive rule is that “it covers agency actions that do not themselves alter the rights or interests of parties, although it may alter the manner in which the parties present themselves or their viewpoints to the agency.” JEM, 22 F.3d at 326. Although the court’s opinion today seizes upon this instructive language from JEM, it sadly overlooks JEM’s ensuing statement: “[t]he issue, therefore, is one of degree ... our task is to identify which substantive effects are sufficiently grave .... ” Id. at 327 (emphases added) (internal quotation marks omitted). Assessing the challenged *1370FCC rule’s impact, which merely curtailed “a license applicant’s right to a free shot at amending its application,” the court in JEM concluded that the rule was “not so significant ” as to be classified as substantive. Id. (emphasis added). Thus, as JEM illustrates, the test for substantive, ultra vires rules is a case-by-case inquiry, not a rigid application of a sentence out of context in JEM.
To my eyes, this question of degree must guide this court’s assessment of the substantive nature of the PTO’s Final Rules. This court has confronted that question before and gauged a rule’s impact on parties’ rights and obligations by examining the rules’ changes to existing law or policy. See, e.g., Cooper Techs., 536 F.3d at 1336; Animal Legal Def. Fund, 932 F.2d at 927. The D.C. Circuit has also adopted this language as relevant to the inquiry. See, e.g., Bowen, 834 F.2d at 1045 (“Substantive rules are ones which grant rights, impose obligations, or produce other significant effects on private interests, or which effect a change in existing law or policy.”) (internal citations and quotation marks omitted). For example, in Cooper Technologies, this court held that a PTO rule giving effect to the term “original application” was non-substantive because it “does not effect any change in existing law or policy; rather, it is a prospective clarification of ambiguous statutory language regarding a matter of procedure.” 536 F.3d at 1336. Similarly, in Bowen, a manual promulgated by the Department of Health and Human Services was a “classic procedural rule[ ]” because, in mapping out an enforcement strategy for third party contractors, it “impose[d] no new burdens on hospitals.” Bowen, 834 F.2d at 1050-51.
The D.C. Circuit’s 1999 decision in Chamber of Commerce is particularly instructive. 174 F.3d at 206. In that case, the court considered a new directive promulgated by the Occupational Safety and Health Administration (“OSHA”) establishing a new compliance program for dangerous workplaces. Id. at 208. The Directive provided that the agency would reduce the probability of an onerous inspection if a workplace implemented a so-called comprehensive safety and health program (“CSHP”). Id. Although “[m]ost of the [CSHP] requirements are procedural,” the Directive was clear that compliance with the Occupational Safety and Health Act was “not in itself sufficient” for compliance with the newly promulgated CSHP. Id. Plaintiffs challenged the Directive on the ground that it was a substantive rule, and OSHA had not undergone the requisite notice and comment procedures. Id. at 209. The court agreed with the plaintiffs, holding that the rule was substantive “[a]t least to the extent that participation in the CCP requires more than adherence to existing law....” Id. at 211 (emphasis added). Indeed, because the Directive imposed upon employers “more than the incidental inconveniences of complying with an enforcement scheme,” it was plainly substantive. Id. at 211-12 (internal quotation marks omitted).
Implicit in the majority’s holding that the Final Rules are procedural is that the rules fit within the “procedural” exception to the APA’s notice and comment requirement. Yet applying this logic, the PTO would never be subject to the APA’s notice and comment procedures because it only has statutory authority to promulgate rules that fall within exceptions to notice and comment, i.e., non-substantive rules. Here, the PTO provided a notice and comment period. In other words, the PTO recognized that “the policies promoted by public participation in rulemaking ... out-weighted] ... countervailing considerations of effectiveness, efficiency, expedition and reduction in expense.” See Guardian Federal, 589 F.2d at 662 (providing that notice and comment is not re*1371quired when these “countervailing considerations trump public participation”). The public participation during that period was overwhelming (itself an indication of the substantive impact of the rules?). Many of the comments shared a common concern: that the Final Rules “had a significant effect on private interests, and marked a change in existing law or policy.” I share that concerned view.
II
Contrary to this court’s holding today, the Final Rules are not “incidental inconveniences of complying with an enforcement scheme.” The Final Rules are substantive. The Final Rules affect individual rights and obligations, and mark a startling change in existing law and patent policy. As the district court correctly noted,
The 2 + 1 Rule and the 5/25 Rule, which limit continuing applications, RCEs, and claims, and the ESD requirement, which shifts the examination burden onto applicants, constitute a drastic departure from the terms of the Patent Act as they are presently understood. By so departing, the Final Rules effect changes in GSK’s and Tafas’s existing rights and obligations.
Tafas v. Dudas, 541 F.Supp.2d 805, 814 (E.D.Va.2008) (emphasis added). I will briefly consider each Final Rule in turn.
A. Final Rule 78
Final Rule 78 restricts to two the number of continuation applications entitled to an earlier priority date, unless the applicant files a petition showing that the amendment, argument, or evidence could not have been submitted during the prosecution of the prior-filed application (“petition and showing”). As this court notes today, that rule contravenes the language of 35 U.S.C. § 120. The statute is clear: later filed continuation applications “shall have the same effect, as to such invention, as though filed on the date of the prior application.” 35 U.S.C. § 120 (emphasis added). Final Rule 78 is not “a prospective clarification of ambiguous statutory language regarding a matter of procedure,” Cooper Techs., 536 F.3d at 1336, because the statute mandates that continuations “shall have the same effect.” Section 120 creates a substantive right to claim the earlier priority date in later-filed continuation applications.
In fact, this court’s predecessor considered the language of 35 U.S.C. § 120: “[T]here is no statutory basis for fixing an arbitrary limit to the number of [continuing] applications” that can retain the benefit of the priority date. In re Henriksen, 55 C.C.P.A. 1384, 399 F.2d 253, 254 (1968). The court recognized that placing “a limit upon continuing applications is a matter of policy for the Congress.” In re Hogan, 559 F.2d 595, 604 n. 13 (CCPA 1977). In other words, Final Rule 78 attempts to usurp legislative prerogatives. If the Act contemplated a limit on the number of continuation applications available as a matter of right, then a limitation to that effect would appear in § 120. Instead § 120 says the opposite.
The Office argues that Final Rule 78 is not substantive because the petition and showing requirement provides an alternative avenue for seeking additional continuations. The PTO’s argument admits far too much. In order to receive the benefit of priority for later-filed continuation applications, which was previously available as a matter or right, the applicant must now justify the right with further showings. This new “petition and showing” hurdle is neither required nor contemplated by § 120. In mechanically applying only one statement from JEM, the majority opinion ignores that the “substantive effect” of failing to meet this new obligation — the loss of priority date — is “suffi*1372ciently grave” to make this rule substantive. See JEM, 22 F.3d at 327.
B. Final Rule 114
The same holds true with respect to Final Rule 114, imposing a limit of one request for continued examination (“RCE”) per application family. The American Inventor’s Protection Act of 1999 stated that the RCE provisions “shall apply to all applications” filed on or after June 8, 1995. The Act did not impose or contemplate a restrictive RCE practice. To the contrary, subject to the doctrine of prosecution laches, applicants could file an RCE as a matter of right.
The impact and reach of the Final Rules 78 and 114 (“the 2 + 1 Rule”) significantly affects patent prosecution. Several amicus briefs point out reasonable scenarios where an applicant may choose to file an RCE during prosecution, e.g., in order to provoke an interference, to clarify claim scope in anticipation of litigation, and to submit an information disclosure statement (“IDS”). Yet these Final Rules could interfere with those reasonable scenarios.
By way of example, consider the following scenario: An applicant receives a Notice of Allowance for application A. Before paying the issue fee, the applicant discovers a material prior art reference in a foreign application. Mindful of the duty to disclose material information to the Office, that applicant would file an RCE, an IDS citing the reference, and an amendment to account for the newly discovered prior art. So far so good, but what if the reference is not only material to application A, but also material to continuation applications B and C, members of the same application family that have also received Notices of Allowance? Under the 2 + 1 Rule, the applicant would have exhausted the two continuations and one RCE. What happens to applications B and C? Even if the submission of newly-discovered prior art satisfied the “petition and showing” requirement (which the PTO has said it will likely not), the “petition and showing” requirement is legislative because it imposes a new burden on the inventor. Because they require “more than adherence to existing law,” Final Rules 78 and 114 are substantive. See Chamber of Commerce, 174 F.3d at 211.
C. Final Rule 75
Final Rule 75 limits an application to five independent claims or twenty-five claims total. Placing an arbitrary limit on the number of claims in an application drastically affects an applicant’s rights and obligations under the Patent Act. To be specific, this rule alters obligations under 35 U.S.C. §§ 102, 103, 112, and 131. For instance, § 112, ¶2 requires that “[t]he specification shall conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as his invention.” 35 U.S.C. § 112, ¶ 2 (emphasis added). Placing a mechanical cap on the number of claims in an application hinders an applicant’s right (and obligation) to “particularly [point] out and distinctly [claim] the subject matter which the applicant regards as his invention.” Id. Indeed, “one or more claims” suggests at least one, not a ceiling to the number of claims in an application. Once again, if the Act wished to specify an upper limit on the number of claims, it could do so right at this point. Instead the “or more” requirement places no limit on the number of claims. The Act instead articulates a clear policy in favor of allowing as many claims as an applicant is willing to pay for.
As the majority opinion acknowledges, this court’s precedent suggests no limit on the number of claims. See In re Wakefield, 57 C.C.P.A. 959, 422 F.2d 897, 900 *1373(1970) (“[A]n applicant should be allowed to determine the necessary number and scope of his claims.... ”); In re Chandler, 50 C.C.P.A. 1422, 319 F.2d 211, 225 (1963) (“[A]pplicants should be allowed reasonable latitude in stating their claims in regard to number and phraseology employed. The right of applicants to freedom of choice in selecting phraseology which truly points out and defines their inventions should not be abridged.”). This court should and does understand that some inventions are easier to describe, or lend themselves well to drawings. Others are more complicated and may take several iterations of claims in order to capture and fully disclose one’s invention.
By analogy, this rule has a similar effect to imposing a five-page limit on applications. Although that notion is obviously too simplistic and problematic, this court’s rationale would apparently make that hypothetical rule possible as a procedural rule that merely “[alters] the manner in which the parties present themselves or their viewpoints to the agency.” JEM, 22 F.3d at 326. To my eyes, much more is at stake.
Likewise, limiting an applicant to five independent claims ignores the varying scopes and methods of claiming inventions across different technologies. For example, in a pharmaceutical application, an applicant may claim not only the genus compound, but also a number of species, intermediates, methods of making, and methods of use. Asking an inventor to limit her application to five independent claims disproportionately affects technologies with greater complexity and greater public interest in disclosure. See Neighborhood TV, 742 F.2d at 637 (“In determining whether a rule is substantive, we must look at its effect on those interests ultimately at stake in the agency proceeding.”).
This court today forgets that an inventor’s incentive to disclose is commensurate with the protection available. With less ability to claim myriad methods of making, methods of use, species and intermediates, and more, an inventor will have less incentive to disclose the full dimension of the technological advance. Final Rule 75 frustrates the quid pro quo contemplated by the Patent Act.
D. Final Rule 265
On appeal, the PTO submits that limiting an application to five independent claims, or twenty-five claims total, is not a mechanical limitation, but just a trigger to the requirement to file an Examination Support Document (“ESD”). Final Rule 265 goes too far, however, by requiring an applicant to “conduct a broad search of patents, patent applications, and literature, and provide, among other things, a ‘detailed explanation’ of ‘how each of the independent claims is patentable over the cited references.’ ” Tafas, 541 F.Supp.2d at 816 (quoting 37 C.F.R. § 1.265(a)). Setting aside its onerous burden and its risk to cause later allegations of inequitable conduct, the ESD requirement improperly shifts the burden of proving patentability onto the applicant — a direct conflict with this court’s interpretation of section 102.
Section 102 provides “[a] person shall be entitled to a patent unless ” and section 131 provides that “[t]he director shall cause an examination to be made of the application.” 35 U.S.C. §§ 102, 131. Thus, the PTO bears the burden of putting forth a prima facie case of unpatentability. See In re Oetiker, 977 F.2d 1443, 1445 (Fed.Cir.1992). Indeed, this court has recognized that an applicant does not have the duty to perform a prior art search. Frazier v. Roessel Cine Photo Tech, Inc., 417 F.3d 1230, 1238 (Fed.Cir.2005).
*1374Although this court has upheld the PTO’s authority to request “such information as may be reasonably necessary to properly examine or treat the matter,” Star Fruits S.N.C. v. United States, 393 F.3d 1277, 1282 (Fed.Cir.2005), Rule 105 relates to information that is already in the applicants’ possession; it does not impose an affirmative duty to perform a prior art search or opine regarding patentability over the closest reference. See 37 C.F.R. § 1.105. In contrast, the ESD requirement places a new obligation on the inventor. The ESD is something more than supplying the Office with an English language translation or turning over information already in the applicant’s possession. It shifts the burden of proving patentability onto the applicant.
This shift of the burden of proof (or production, for that matter) onto the applicant significantly alters practice before the PTO and represents “a change in existing law or policy.” Animal Legal Def. Fund, 932 F.2d at 927. Satisfaction of the ESD requirement requires “more than adherence to existing law” and amounts to “more than the incidental inconveniences of complying with an enforcement scheme.” See Chamber of Commerce, 174 F.3d at 211-12. As such, Final Rules 75 and 265 are substantive.
Ill
Because the Final Rules drastically change the existing law and alter an inventor’s rights and obligations under the Patent Act, they are substantive and the PTO exceeded its statutory rulemaking authority under 35 U.S.C. § 2(b)(2). For the reasons stated above, I would affirm.