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Analysis of order enjoining claim and continuation limit rules: almost 100% in Glaxo's favor
November 01, 2007

All in all, the order granting Glaxo's motion for a preliminary injunction barring enforcement of the USPTO's new claim and continuation limit rules is about everything Glaxo (and patent prosecutors) could have hoped for. The court found that each of the four factors considered when deciding whether to grant an injunction favored Glaxo, although the legal analysis for the contentions underlying the factors, particularly the likelihood of success factor, was brief. This was to be expected given the short time from briefing to hearing, but it also means that we did not get much insight into the district court's take on several of the legal issues. The court also granted leave for the various amici to submit briefs, and refused to strike the declaration of former USPTO director Harry Manbeck in support of Glaxo's motion, although the court noted it would not consider any "legal conclusions" present in the declaration.

More detailed analysis of the order after the jump.

The four factors considered when determining whether to grant preliminary injunctive relief are (1) likelihood of success on the merits, (2) irreparable harm if the injunction is denied, (3) the balance of hardships between the parties, and (4) the public interest. The court analyzed each of these factors in turn.

Likelihood of Glaxo's success on the merits

Glaxo essentially made seven challenges to the new rules: (1) the new rules are substantive, and are thus ultra vires and outside the USPTO's authority to enact, (2) the new rules on continuations are inconsistent with § 120, (3) the new rules regarding RCEs are inconsistent with § 132, (4) the restrictions on claims are inconsistent with §§ 111-112, (5) the rules are arbitrary and capricious, (6) the new rules are impermissibly retroactive, and (7) the ESD requirement is impermissibly vague. The court found Glaxo demonstrated a likelihood of success for #1, 2, 6, and 7, that neither party demonstrated likelihood of success for #3 and 4, and that Glaxo's likelihood of success for #5 was low.

With regard to the substantive nature of the rules, the court linked the success on that issue with success on whether the rules are inconsistent with the Patent Act:

That case [In re Van Ornum, 686 F.2d 937, 945 (C.C.P.A. 1982)], then, is helpful to the PTO only if this Court disagrees with GSK's additional contention that the Final Rules are inconsistent with the Patent Act. As the Court will explain, GSK raises serious concerns as to whether the Final Rules comport with the Patent Act. In addition, the Court also believes that GSK has created a colorable question as to whether the Final Rules are truly substantive.

The court next turned to whether the limitation on continuation applications was inconsistent with § 120. The court noted the Federal Circuit law "suggests that a decision by the PTO to limit the number of continuing applications would run contrary to the mandate of Section 120." While the USPTO argued that it had not limited the number of continuing applications, the court found that Glaxo "demonstrated a likelihood of success on this issue."

Turning next to the limit on RCEs, the court noted that the parties had provided "limited briefing of this issue." As a result, the court held that neither party had demonstrated a strong likelihood of success on this issue. The court came to the same conclusion regarding the limitation on claims. The court had little difficulty turning away Glaxo's challenge that the rules were arbitrary and capricious, noting that the PTO's justification was "sufficient to satisfy arbitrary and capricious review."

Next the court addressed the retroactivity issue. Glaxo contended that because the rules applied to already-filed applications, they were impermissibly retroactive in application. The USPTO countered that procedural rules applying to already-pending cases are not retroactive as the Supreme Court has defined the term, and thus the rules were permissible. The Supreme Court held in Landgraf that a regulation is only retroactive if it "would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed." The USPTO argued that because patent applications don't create any rights and are not "transactions already completed," the rules' application to pending applications was not impermissibly retroactive.

The court noted that Landgraf does not limit "the presumption against statutory retroactivity to cases involving 'vested rights.'" Here, Glaxo did not argue that it had rights in pending patents, instead arguing that the limits affect already-completed transactions, namely the previous filing of continuation applications and RCEs. Also, at oral argument, counsel for Glaxo noted that in deciding to file a patent application, applicants give up any trade secret rights they may have in the disclosed invention. Trade secret rights are property rights, and thus "the Final Rules retroactively alter the bargain on which inventors like GSK rely in making their decision to surrender their rights. The Final Rules thus impair GSK's right to this bargain." As a result, the court stated "that GSK has demonstrated a real likelihood of success on the issue." (emphasis added)

Last, the court considered the requirements for an ESD, specifically whether they were impermissibly vague. Glaxo pointed out that the USPTO had to provide additional guidance after promulgation of the rules on how to comply with the ESD requirement, and argued that this constituted an "admission of vagueness." The court agreed with Glaxo, stating that it "believes that GSK has raised serious concerns as to whether a reasonably prudent person would be able to comply with the ESD requirements," and that "the Court will find that GSK has demonstrated a real likelihood of success on this issue." (emphasis added)

In sum, the court found that the likelihood of success factor favored Glaxo.

Irreparable harm

The court also found that the irreparable harm factor favored Glaxo. As described by the court:

When the Final Rules go into effect, inventors lose some of the patent protection on pending applications they had come to rely upon under the current system. GSK would be unable to sue to reinstate lost patent protection or obtain monetary compensation if the Final Rules are vacated.

. . .

The mere cost of implementing otherwise reasonable regulations is not in itself irreparable harm. However, a "[plaintiff] should not be forced into the position of choosing to either violate an allegedly invalid ordinance and suffer the inherent consequences of doing so or comply with the same and suffer a loss with little hope of recovery."

. . .

Although GSK cannot pinpoint an exact amount of monetary loss, the uncertainty caused by the regulations will cause harm to their investments and provide a disincentive to their filing of new patent applications for researching new pharmaceutical products. In addition, there is still some question as to whether following the complicated steps outlined by the PTO will indeed guard against lost patent protection. Finally, GSK will be unable to recover their losses if the Final Rules are ultimately determined to be invalid. Therefore, the Court finds that GSK is likely to suffer irreparable harm if the preliminary injunction is not granted.

Balance of hardships

Here the court heard the USPTO's tale of woe regarding implementation of the rules, and how much hardship will be caused by "forcing a large organization in the midst of instituting a massive change to stop and reverse course," including having to use sub-standard systems and the possibility of "costly computer problems," not to mention the millions already spent on training. Glaxo responded that many of these costs are already expended "to implement rules the organization knew might not go into effect." The court found that Glaxo

will instantly suffer from uncertainty regarding the protection afforded their patents and their corresponding investment risk, in addition to the costs of attempting to comply with the Final Rules. Thus, the Court finds that, although the hardship to the PTO is not nonexistent, the uncertainty and loss of investment suffered immediately by GSK tilts the balance of the hardships in their favor.

Public interest

Finally, the court turned to the public interest. The USPTO argued that the public interest is best served by implementation of the rules as scheduled, because they "promote efficiency and timeliness and are needed immediately to alleviate the harm entrepreneurs suffer because of the current system’s uncertainty." Glaxo countered that "preserving the status quo while the litigation proceeds is important for maintaining stability for patent holders." The court noted that:

The fact that three amicus briefs were filed by organizations representing a wide array of industries, all urging the Court to grant the preliminary injunction because their interests will otherwise be harmed, further demonstrates the possibility of potential immediate harm to the public if the rules are allowed to go into effect on November 1.

. . .

Allowing the implementation of rules that may or may not remain in effect is likely to cause much greater uncertainty and squelching of innovation than a preliminary injunction giving the Court time to consider the validity of the Final Rules before they go into affect [sic]. Accordingly, the Court will find that the public interest is most served by continuing the status quo and granting the TRO.

Looks like PLI's call to action had its desired effect: the presence of amicus briefs supporting Glaxo helped tilt this factor in Glaxo's favor.

Conclusion

In sum the court stated it would:

(1) grant GSK’s Motion for a Preliminary Injunction; (2) deny the PTO’s Motion to Strike Exhibit E of the Memorandum in Support of GSK’s Motion; (3) grant the Motion of Amicus Curiae AIPLA for Leave fo [sic] File its Brief in Support of GSK’s Motion; (4) grant HEXAS, The Roskamp Institute, and Tikvah’s Joint Motion in Support of Motion for Leave to File Amici Curiae Brief in Support of GSK’s Motion; and (5) grant the Motion of Amicus Curiae Elan Pharmaceutical Corp. for Leave to File its Brief in Support of GSK’s Motion.

Of course, it isn't over. As injunctions are immediately appealable, the USPTO may seek to appeal the preliminary injunction to the Federal Circuit. This doesn't seem like the best course of action, however, because of the standard of review and the nature of the proceedings. The Federal Circuit would review the injunction for abuse of discretion, and the record would be somewhat limited. Because of this, it would seem to be a better tactical decision for the USPTO to get through the district court, get a summary judgment ruling (in favor of either party), and appeal that judgment. It would also speed the case along by removing one layer of appeal from the process. We'll see how the case progresses.

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