FTC Backs USPTO Terminal Disclaimer NPRM as Others Warn it Exceeds Agency Authority
“The comments submitted by PTAAARMIGAN, 73 Patent Professionals and US Inventor doubled down on the NPRM’s ‘multiple violations’ of the laws that govern rulemaking, and said that the blatant omission of relevant information and analyses ‘communicates an attitude of contempt for the rule of law.’”
The deadline for comments on the U.S. Patent and Trademark Office’s (USPTO’s) notice of proposed rulemaking (NPRM) on terminal disclaimer practice was July 9 and several key organizations weighed in just as the door was closing. One of those commenters was the Federal Trade Commission (FTC), which claimed in its comment letter that “[t]he use of terminal disclaimers linking similar patent claims can exacerbate the exclusionary impact of patent thickets by forcing potential market entrants to incur the high cost of challenging multiple duplicative patents.”
As we have reported previously, the NPRM was issued in May, and has to do with the judicially created, non-statutory doctrine of “obviousness-type double patenting”(ODP). ODP has become codified by the USPTO such that the Office will reject claims to more than one patent that vary in only minor ways from one another unless there is a promise by the patentee “not to extend the patent exclusivity term or allow multiple parties to harass an alleged infringer.” This is done via a “terminal disclaimer.”
According to the NPRM: “Even with the protections currently provided by a terminal disclaimer, multiple patents tied by terminal disclaimers that are directed to obvious variants of an invention could deter competition due to the prohibitive cost of challenging each patent separately in litigation or administrative proceedings.”
For this reason, the USPTO is proposing to require that a terminal disclaimer must include an “additional agreement that the patent with the terminal disclaimer will not be enforced if any claim of the second patent is invalidated by prior art.”
According to the Office, the intention of the NPRM is to “promote competition by lowering the cost of challenging groups of patents tied by terminal disclaimers, resulting in reduced barriers to market entry and lower costs for consumers.”
No Authority
Many of the comments submitted rejected the USPTO’s proposal and some said the rule is outright illegal.
The Council for Innovation Promotion (C4IP) said that the proposed rule “exceeds the scope of the Office’s rulemaking authority” and that it will “undoubtedly be challenged in the courts” if promulgated. C4IP’s comments make four key claims: 1) that the proposal would inject uncertainty into patents, harming and slowing innovation; 2) that the Office has failed to demonstrate a need for the proposal; 3) that it is contrary to law, in part because it would overrule statute and case law by “mandating the unenforceability of all the claims in a patent, despite the fact that several statutes require invalidity be determined on a claim-by-claim basis”; and 4) that, combined with the recent fee-setting proposals, which could increase the cost of requests for continued examination by 700% in some cases, the NPRM illegally undermines continuation practice and should be withdrawn.
The comments submitted by Patent and Trademark Attorneys, Agents and Applicants for Restoration and Maintenance of Integrity in Government (PTAAARMIGAN), 73 Patent Professionals and US Inventor doubled down on the NPRM’s “multiple violations” of the laws that govern rulemaking, and said that the blatant omission of relevant information and analyses “communicates an attitude of contempt for the rule of law.”
The Innovation Alliance also told the Office that the rule conflicts with established patent law and exceed the USPTO’s rulemaking authority, and also warned that the impact of the rule will be industry agnostic and broad:
“The proposal will affect inventors engaged in long-term research and development in critical and emerging technologies like wireless communications, advanced semiconductors, artificial intelligence, cloud computing, and countless others that hold multiple related patents on complex technologies, slowing or chilling innovation industries key to U.S. global competitiveness.”
Van Ornum Was Different
The Innovation Alliance, PTAAARMIGAN and C4IP all told the Office that its reliance on the case of In re Van Ornum to assert its authority to issue the rules fails because the rules there were “procedural rules that had some substantive impact” (C4IP). Van Ornum was also consistent with statements in earlier case law, while the opposite is true for the current NPRM. “[T]he regulation there simply promulgated a rule that was not only ‘not inconsistent with law,’…it was expressly credited by the courts as an important ‘solution’ to a problem in the judicially-created doctrine of nonstatutory double patenting,” said the Innovation Alliance comments. “That is not the case here…”
You’ve Got a Friend in the FTC
The USPTO did find support from the FTC, however. The agency’s comments said that its interest lies in the anticompetitive effects of “patent thickets,” a practice it has submitted comments on previously, in response to the National Institute of Standards and Technology’s (NIST’s) Draft Interagency Guidance Framework for Considering the Exercise of March-In Rights. According to the FTC’s comments on the terminal disclaimer rule, citing to an article by Professors Mark Lemley and S. Sean Tu:
“Under the current rules, incumbent firms can use terminal disclaimers to help create and enlarge patent thickets that insulate them from competition. For instance, a patent holder can rely on terminal disclaimers to overcome a nonstatutory double patenting rejection from the USPTO and quickly add more patents that fence off an existing technology from rivals behind a patent thicket.”
The FTC added in a statement that “the proposed rule will reform terminal disclaimer practice in a manner that reduces gamesmanship by patent holders, as well as the number, size, and impact of patent thickets.” The Commission voted 3-2 to submit the comment, with Commissioners Andrew N. Ferguson and Melissa Holyoak voting no.
The Commission proposed its own controversial rules package in January 2023 that would ban most employers from using non-compete agreements. It approved the rule in April 2024, but a recent district court ruling could have implications for its implementation.
Loper Bright Looms
The USPTO’s NPRM on terminal disclaimers had received 341 comments as of July 10. It is unclear how the Supreme Court’s recent decision to overturn the doctrine of Chevron deference might also impact the Office’s ability to implement the rule. “One concrete implication [of the Loper Bright decision] is that the PTO will not be able to rely on Chevron to justify the proposed rulemaking regarding terminal disclaimer practice,” Will Milliken of Sterne Kessler told IPWatchdog.
Sherry Knowles also wrote in a recent analysis for IPWatchdog of the Loper Bright decision that “[i]n the case of terminal disclaimers, the courts and the USPTO are taking power constitutionally given to Congress. Would the Supreme Court be as willing to give back the power the courts have taken from Congress, as it was in Loper to take back power that it voluntarily gave away? It is never as easy to give back as to take back, especially for those in government.”
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Author: BrianAJackson
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Eileen McDermott
Eileen McDermott is the Editor-in-Chief of IPWatchdog.com. Eileen is a veteran IP and legal journalist, and no stranger to the intellectual property world, having held editorial and managerial positions at […see more]
