Comment 2: A large number of comments, citing past history, raised concern that annual practitioner maintenance fee payments would be diverted, and therefore opposed the annual practitioner maintenance fee on the basis that the fees would not be used to operate the roster maintenance process, including the disciplinary system.

Response: The USPTO has operated with full access to fee collections for the past four years. Annual practitioner maintenance fees collected under section 11.8(d) will be used to support maintenance of the roster of registered attorneys and agents, including the disciplinary system.

That’s reassuring, considering the extent to which PTO funds have been diverted to other causes in the past ($422.5 million diverted since 1992).  But is it a promise the Office can rightfully make?

Clearly it isn’t.  Sure the Office currently has full access to the fees it collects.  But, that could be a temporary situation.  Congress has never provided a permanent end to fee diversion (the current fix is the latest temporary fix), and something tells me Congress will be looking for new sources of cash in the coming months.

And the Office knows this.  Indeed, it wasn’t that long ago that the Department of Justice, with Associate Counsel from the Patent and Trademark Office sitting alongside, argued in Figuerora v. United States that Congress could divert all patent fees to other, non-patent purposes if it chose to do so.  Judge Newman’s direct question on this point during oral argument, and government counsel’s response, is illustrative:

Judge Newman - “Is the government’s position that…Congress could appropriate the entire [patent fee] income…and allow the backlog to continue to increase in the patent office if, in fact, [that's] what Congress decided to do?”

Government counsel: “Yes, your Honor. It’s our position that Congress’ legislation is not limited by the preamble’s promotion language on which the Appellant relies.”

The promise that Practitioner Maintenance Fee monies will be used to support OED activities is, simply put, one that the Office cannot make.  It might be true next year, and the year after, but fee diversion will always remain a possibility until Congress implements a permanent fix.

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The Patent Office is, in essence, running parts of a professional bar association for its members.  It administers the system for entering the association, maintains the membership rolls, and oversees the disciplinary system.  Each of these is a vital component of a self-regulating professional association; the absence (or malfunction) of any one of which would endanger the legitimacy of the association.

Oddly, though, patent practitioners have never had to pay the costs of running these functions.  Since taking and passing the patent bar and being admitted to practice, I haven’t paid a single nickel to any association that oversees enrollment and discipline (though I’ve paid many nickels to AIPLA and other groups).  Nor has any other patent practitioner who has remained in good standing (unless they wanted a certificate of good standing, perhaps with the ’suitable for framing’ $10 upcharge).  In essence, we’ve enjoyed several benefits of having a professional association without having to pay for any of them.

What’s worse - we’ve actually managed to pass the costs associated with running our “association” onto fee-paying customers of the Office.  Certainly someone has been footing the bills for all these years.  We all know the Office is able to float its own boat, so it seems fair to assume that the Office of Enrollment and Discipline has been operating on patent fees paid by applicants.  Indeed, the final rule notes that, through the new fee, “USPTO will recover the costs associated with these activities from the practitioners instead of the public in general.”

I’d much rather see an independent federal patent bar association oversee these functions (and these fees), but such a beast is not likely to be born anytime soon and we, as professionals, cannot shirk our obligation to pay for these functions while we wait for one to arise.  So, in the meantime, I support the Office in its decision to take this bold step.

But, with that said, I have a a few concerns about this new direction.

First, the Office needs to provide complete and accurate accountings for income raised by the fee and expenses paid with the collected monies.  Unfortunately, the Office cannot, without an asterisk, promise practitioners that the fees we pay will always be used only for OED purposes.  It is possible that, in the future, these fees would be used for other Office expenses unrelated to maintaining the membership, or even other non-Office and/or non-patent purposes.  On this point, it is disturbing that the Office summarily dismissed the fee diversion comments received in connection with the “practitioner maintenance fee” draft rule in “don’t worry about it” fashion, especially when juxtaposed with the government’s argument in Figuerora v. United States (the patent fee diversion challenge).  The oral argument from Figuerora is enlightening:

Judge Newman - “Is the government’s position that…Congress could appropriate the entire [patent fee] income…and allow the backlog to continue to increase in the patent office if, in fact, [that's] what Congress decided to do?”

Government counsel: “Yes, your Honor. It’s our position that Congress’ legislation is not limited by the preamble’s promotion language on which the Appellant relies.”

Second, the Office needs to provide legitimate avenues through which practitioners can provide meaningful input on the enrollment and discipline systems.  Policies, procedures and personnel should all be subject to some degree of input from practitioners.  The patent statute gives the Office significant discretion in connection with the establishment and operation of these systems (see 35 U.S.C. s. 2(b)(d), the same section cited by the Office for the authority to impose the practitioner fee).  Now that a fee is being exacted, the Director should make it a priority to exercise that discretion in a manner that opens these systems to the bar.

Lastly, the Office should work with Congress to reduce patent fees paid by applicants by the amount of money that will be collected through the new practitioner maintenance fee.  The amount is minimal, I know, but it’s the principle that matters.  The final rule indicates that patent applicants have been paying for the enrollment and discipline systems for all these years.  If the new fee is designed to pay for these services going forward, the assessment on applicants should be removed.

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You can view and/or download a .pdf of the rule here.

The rule will become effective on December 17, 2008.  The Office will provide “adequate notice” to practitioners in advance of the due date.  The fee for maintaining active status is, currently, $118.  The fee for voluntary, inactive status (for “practitioners who have retired or are unable to continue their practice, but still desire to maintain a recognized professional association with the USPTO”) is, currently, $25.

I’ll write more about the rule once I have time to ponder it a bit more, but my initial thought is this: it’s about time.

Lest anyone think the monies collected by the new Rule will be applied to the issue/maintenance fee shortfall, the Office ensures the bar that they will be used “to enable the Office to maintain a roster of registered practitioners and, consequently, better protect the public from unqualified practitioners.”

I do have two questions following my brief review of the rule

• could the Office have picked a worse name for this new fee?  ”The Practitioner Maintenenace Fee?”  Seriously.  How about “Annual dues?”
• Why did it take five years to take this rule from draft (published on December 12, 2003) to final (published today)?

Hat tip to the Filewrapper blog.

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But is the lower allowance rate actually resulting in fewer patents being granted?

When asked this question, I thought the answer was obvious, but had to admit I didn’t know.  So I collected some data from USPTO and charted year-over-year weekly patent grants.  Turns out, about 13% fewer utility patents have been granted so far in 2008 as compared to the same year-to-date period in 2006.

The difference was a bit smaller than I would have guessed, but the exercise revealed an interesting pattern to the grant process and got me thinking about issue and maintenance fees, and the potential impact of lost income on the PTO fee structure.

Check out this chart illustrating the weekly utility grant data, posted in the new Metrics section of Promote the Progress, for a detailed analysis.

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Consider these events:

1.  The Patent and Trademark Office introduced the controversial continuation and claim limit rules during the first week of the year way back in 2006.  Happy New Year!

2.  When making the rules final, the Office decided to draw the line in the sand on November 1, 2007, placing the deadline for filing rules-inspired continuation applications on Halloween.  Happy Halloween!

3.  On that same day, the United States District Court for the Eastern District of Virginia issued a preliminary injunction, temporarily preventing the Office from implementing the rules.  Happy  Halloween, part two!

4.  On April 1, 2008, District Court Judge Cacheris permanently enjoined Director Jon Dudas and the Patent and Trademark Office from implementing the controversial continuation and claim limit rules.  Nope, this was no April Fool’s joke.

5.  The Court of Appeals for the Federal Circuit has scheduled oral argument in the appeal of the new rules injunction for December 5, 2008, which, of course, is the annual Day of the Ninja.

All kidding aside, the timing of the oral argument is a bit strange, too.  Consider this - we have a lame duck administration with lame duck policies, and a President-elect with a yet-to-be announced Director of the Patent and Trademark Office and yet-to-be announced administrative policies.  Will the new PTO administration support the rules?  Will they pursue them with the same fervor as Director Dudas? Or, will the new PTO administration choose to abandon the rules, perhaps in an effort to mend fences in the partnership that used to exist between the Office and its stakeholders?

The court has a calendar to manage, of course, and the hearing date is probably the result of standard scheduling procedures.  But, arguing this case in December is probably the strangest event on the new rules timeline.  What if the PTO wins on appeal but the new administration doesn’t support the rules?  What if they lose but the new team has somewhat less passion for the rules than the Dudas adminstration does?  Do they appeal again, as the current administration has promised?

In the end, with either a win or a loss, it’s possible the rules might just disappear depending on the policies of the new administration, meaning our resource-strapped Patent and Trademark Office might have just wasted untold amounts of time and money.

With a hearing in December, the court will likely hand the new administration a ruling as the ink is drying on the new business cards.  I’m betting on February 14th, Valentine’s Day.

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The opinion pays little attention to the double patenting/evergreening issue, dismissing it in very short order.  The Sanofi “selection” patent at issue claims a species of, but does not claim priority to, an earlier genus patent.  While recognizing that “attempts to extend the time limit of exclusivity of a patent may be contrary to the objectives of the Patent Act,” the Court reasoned that evergreening strategies - such as selection patents - do not necessarily lead to illegal double patenting. Indeed, the Court recognized the benefit provided by selection patents:

“…selection patents encourage improvements over the subject matter of the original genus patent because that selection does something better than or different from what was claimed in the genus patent.”

While the evergreening/double patenting aspect of the decision is significant, the Court’s treatment of the obviousness challenge is perhaps more interesting.  In considering whether the claims of the selection patent are obvious over the disclosure of the genus patent (”the ‘875 patent”), the Court stated:

“Here, when the relevant factors are considered,  the invention was not self‑evident from the prior art and common general knowledge in order to satisfy the test.  While there were five well‑known methods to separate this racemate into its isomers, there was no evidence that a person skilled in the art would have known which of the five known separation techniques would work with this racemate.  Further, [Sanofi] spent millions of dollars and several years developing the racemate up to the point of preliminary human clinic trials before it was discovered that the dextro‑rotatory isomer was active and non‑toxic. As the ‘875 patent did not differentiate on the basis of efficacy and toxicity, what to select or omit was not then self‑evident to a person skilled in the art. It was also not self‑evident from the ‘875 patent or common general knowledge what the beneficial properties of the dextro‑rotatory isomer of this racemate or its bisulfate salt would be and therefore what was being tried ought to work.  The course of conduct and the time involved throughout demonstrate that the advantage of the dextro‑rotatory isomer was not quickly or easily predictable.”

That language has to encourage the pioneering side of the pharmaceutical industry, which seems to have suffered blow after blow from United States patent law in recent years.  Indeed, in the waning days before the Supreme Court of the United States issued its landmark obviousness decision in KSR v. Teleflex, the Court of Appeals for the Federal Circuit issued an opinion in Pfizer v. Apotex (yes, that Apotex) that treats the “science of selection” quite differently than the Supreme Court of Canada did in Apotex v. Sanofi-Synthelabo.

The Pfizer court considered the validity of a patent that can fairly be characterized as a ’selection’ patent - Pfizer scientists had identified and patented a salt form of a compound it disclosed in an earlier patent.  The later patent did not claim priority to the earlier patent, giving Apotex an opening for its obviousness argument.

The court flatly rejected Pfizer’s argument that a conclusion of obviousness would disregard the ‘discovery’ made by its scientists through ‘trial and error procedures.’ Indeed, the court turned this argument on its head, considering the nature of the testing in precisely the opposite manner intended by Pfizer. While careful to note the statutory requirement that “patentability shall not be negatived by the manner in which the invention was made” (citation omitted), the Court concluded that consideration of the ‘routine testing’ performed by Pfizer, which led to the ‘discovery’, was appropriate here because “the prior art provided not only the means for creating acid addition salts but also predicted the results, which Pfizer merely had to verify through routine testing.”

The court even went so far as to distinguish the ‘routine testing’ involved in ’selection science’ from the work of an inventor:

“At most, then, Pfizer engaged in routine, verification testing to optimize selection of one of several known and clearly suggested pharmaceutically-acceptable salts to ease its commercial manufacturing and marketing of the tablet form of the therapeutic amlodipine. Creating a “product or process that is more desirable, for example because it is stronger, cheaper, cleaner, faster, lighter, smaller, more durable, or more efficient . . . to enhance commercial opportunities . . . is universal - and even common-sensical.” (citing Dystar Textilfarben v. C.H. Patrick).

“The experimentation needed, then, to arrive at the subject matter claimed in the…patent was nothing more than routine application of a well-known problem solving strategy and, we conclude, the work of a skilled artisan, not of an inventor.” (internal citation and quotations omitted) (citing Dystar).

The Pfizer decision issued just 39 days before KSR did.  In the days and months leading up to the Supreme Court’s KSR decision, the CAFC seems to have set out on a path of tightening its obviousness law, with Dystar and Pfizer as visible trail blazes.  Interestingly, the Court of Appeals for the Federal Circuit considered Apotex’s challenge of Sanofi’s US patent after Dystar but before Pfizer and KSR.  Sanofi, no doubt, benefitted from this timing - the court rejected the obviousness argument at that time.  You’ve got to wonder whether the court would have decided the issue differently if it had been considered later in the journey down the new path.

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The two controversial rules packages have remained in limbo for years, leaving many to wonder whether they would be the subject of a final push for finalization in the waning days of the Jon Dudas-directed administration. The AIPLA report seemingly kills this possibility.

At the time of writing this post, the USPTO “Proposed Rule Changes” page does not mention this announcement.

The fate of these proposed rule changes, like that of many other reform efforts of the Office, now lies in the hands of the to-be-named new Director.

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Most important to patent applicants, the report estimates that the required ’search reports’ would add an additional $5,000 to $10,000 to each patent application (a range apparently provided by the Patent and Trademark Office). The Office notes that the sum total to the private sector for this provision alone would “substantially exceed the annual threshold” for unfunded private sector mandates established by the Unfunded Mandates Reform Act (UMRA).

Those costs are easy to get a handle on…and are probably fairly accurate (and, notably, are considerably less than the $26k that the dreaded examination support document could cost if the new rules survive).

According to the CBO estimate, though, there’s a lot of budgetary uncertainty that arises out of the two special-interest provisions of the bill.

First, section 13 would allow the Director of the Office to accept late filings of applications in certain cases of unintentional delay. This special-interest provision has been kicked around for nearly two years and now it seems that it is directed at a particular pharmaceutical patent (we suspected so). Indeed, the Office calls the drug out specifically:

“CBO anticipates that enacting this provision would lead PTO to accept an application for extension of the patent term for a drug known by the trade-name Angiomax. The firm that holds the patent for Angiomax missed the statutory filing deadline by one day for its application to restore the patent term authorized under the Drug Price Competition and Patent Term Restoration Act. Under the bill, we expect that PTO would grant nearly five years of additional patent protection to that product.” (emphasis added)

The Office notes that this provision would not only have a direct impact on the generic drug industry (via lost revenue due to the extended patent term), but also that it would indirectly impact health insurance premiums and tax revenues:

“CBO anticipates that the increase in net costs for private health insurance plans would result in higher insurance premiums, thus increasing the amount spent by employers for tax-favored health insurance and reducing the amount spent on taxable wages. That change would reduce federal revenues from income taxes and payroll taxes by an estimated $3 million over the 2010-2013 period and $30 million over the 2010-2018 period. Social Security payroll taxes, which are off-budget, would account for about 30 percent of those totals.”

Second, section 14 would essentially eliminate infringement of patents relating to “check collection systems,” all but guaranteeing lawsuits against the federal government for Fifth Amendment takings. CBO estimates that the affected patent holders will ultimately prevail in such lawsuits…to the tune of “about $1 billion, representing a royalty of 0.5 cents per check on more than 200 billion checks cleared by financial institutions that would be authorized to infringe on the rights of patent holders under the bill.”

You can view/download a .pdf of the Congressional Budget Office Cost Estimate for s.1145, the Patent Reform Act of 2007, here.

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The primary rationale advanced by the Senators can be paraphrased as such:

Congress has neglected to modernize our patent system to keep pace with the boom in American innovation. Recent Supreme Court decisions have nudged things in the right direction…[b]ut the Court is constrained in its decisions by the laws on the books….If we are to maintain our position at the forefront of the global economy and continue to lead the world in innovation and production, we need an efficient and streamlined patent system that issues high-quality patents while limiting wheel spinning and counterproductive litigation.

The article specifically notes the post grant review, forum shopping (venue), and inequitable conduct reform measures contained in the bill. It also carefully addresses the controversial damages provision which appears to be the key sticking point at this time:

We must also restore fairness to the rules that govern how courts determine damages when a patent is infringed. The threat of excessive damages is ruthlessly curtailing progress, and the loss of jobs and innovation is directly linked to litigation costs. But we must be careful to strike the right balance so that violating the intellectual property rights of others does not just become an acceptable cost of doing business. The goal of our reforms is to ensure that patent holders will be able to obtain appropriate compensation in case of infringement.

The Senators close with an interesting note about the bill’s progress to date:

As legislators, we know we are headed in the right direction when everyone is complaining that the entire bill is not going their way. We see this as a necessary, albeit somewhat difficult, part of the legislative process. But we welcome it. But at the end of day, we are confident that we will resolve the remaining issues in ways that should make everyone comfortable and will ensure final passage.

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In an attempt to get the best information for its audience, Fortune went straight to the United States Patent and Trademark Office.

Good idea, right?

I’m not so sure.

Jennifer Rankin Byrne, the Office spokeswoman interviewed for the article, properly told the author that patentability might exist for any business method that underlies the web site idea.

So far, so good.

She didn’t stop there, though. Nope. In an apparent attempt to reference the basic requirements for patentability (utility, novelty, and nonobviousness), Ms. Rankin Byrne noted that:

“…it would have to be representing something very innovative and new….”

(emphasis mine)

What?

It has to be ‘very innovative‘? Since when? Since the Supreme Court decided KSR v. Teleflex, perhaps?

To make matters worse, she never mentioned the nonobviousness requirement:

“It would have to be some new, novel technology or old technology that’s used in a new way. It would have to be representing something very innovative and new. It would have to be something more than a concept. The person applying for the patent would have to explain in a very detailed way how it would work,” Rankin Byrne said.

Some PTO watchers may see this official comment as harmless, while others may view it as accurately reflecting current examination policy.

No matter.

What matters to me is how the article’s audience views it.

Seems to me that the Patent Office just sent a strong message directly to our small business community: We only grant patents on very innovative inventions, so please don’t waste your time disclosing your plain old novel, useful and nonobvious inventions.

NOTE: Fortunately, the author of the article included a paragraph that notes the proper requirements for patentability.

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