The Morning After - Dissecting Judge Cacheris's Preliminary Injunction

In considering GSK's motion for preliminary injunction, the four factors relevant to the Court’s decision to grant or deny the injunction are: (1) the likelihood of the plaintiff’s success on the merits; (2) irreparable harm if the injunction is not granted; (3) the balance of hardships between the parties; and (4) the public interest.

LIKELIHOOD OF SUCCESS ON THE MERITS

GSK first argued that they will succeed on the merits because the PTO lacks the authority to promulgate substantive rules and therefore the PTO’s interpretation of the Patent Act is not owed Chevron deference. Instead, under Adams Fruit, the PTO is entitled no deference, since Section 2(b)(2) of title 35 does not vest the PTO with any substantive rulemaking power.

Judge Cacheris sided with GSK here, noting that

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. Thus, the Court will find that there is a genuine possibility that GSK will succeed on this issue.

Limiting Continuations

Regarding Final Rule 78, which limits the number of continuing applications, GSK argued that Section 120 of Title 35 prohibits the PTO from limiting the number of continuing applications that may be filed (Section 120 states that later filed applications “shall have the same effect” as pending previously-filed applications). While the PTO relied on the "prosecution laches" holdings from the CAFC (In re Borgese, In re Henricksen, Symbol Tech.), Judge Cacheris noted that

Section 120 as interpreted in [these cases] prevents the PTO from crafting its own limitations to the number of continuation applications that may be filed . . . the Federal Circuit held that the doctrine of prosecution laches “should be used sparingly lest statutory provisions be unjustifiabaly vitiated.” . . . This holding suggests that a decision by the PTO to limit the number of continuing applications would run contrary to the mandate of Section 120.

Limiting RCE's , and the 5/25 Rule

GSK further argued that 35 U.S.C. § 132 prohibits the promulgation of Final Rule 114, which governs RCEs. Section 132(b) requires that the PTO “prescribe regulations to provide for the continued examination of applications for patent at the request of the applicant.” The PTO argued that Final Rule 114 complies with Section 132, even though it requires that a petition and showing accompany the filing of a second RCE.

Likewise, for Final Rules 75 and 265 (limiting the number of claims), it was argued that, under 35 U.S.C. 111 and 112, the PTO doesn't have the authority to place a limit on the number of claims an applicant may file. In both these instances, the court found this matter a wash:

Given the limited briefing of this issue by both parties, the Court will find that, for the purposes of this motion, neither party can claim a strong likelihood of success on this issue.

Retroactivity of the Continuation Rules

Here, GSK made a clever move: instead of arguing that rights in patent applications were threatened, GSK argued that rights in trade secrets were threatened, since these potential secrets were sacrificed in the act of filing a patent application (this was also argued in the AIPLA amicus brief).

[A]s GSK noted at oral argument, by seeking patent protection inventors like GSK sacrifice their trade secrets, and the United State Supreme Court has found that trade secrets are property rights . . . GSK, then, has voluntarily surrendered its property rights in exchange for a guarantee from the PTO that it will have a “full and fair opportunity to seek a spectrum of patent protection adequate to protect [its] investments.” . . . While “an individual [that] discloses his trade secret to others who are under no obligation to protect the confidentiality of the information, or otherwise publicly discloses the secret,” loses that property right . . . 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.

Examination Support Documents

GSK argued that Final Rule 265, which delineates the requirements of an ESD, is unconstitutionally vague because it fails to provide “any boundaries on the scope of the search.” Specifically, GSK complains that the “rule does not indicate whether the applicant must conduct electronic searches, manual searches, or both; in which countries’ databases the applicant must search; or which libraries it must search." According to GSK, the ESD requirement forces applicants to “search the patent literature of the entire world, as well as
unspecified yet relevant ‘non patent literature.’”

While the PTO maintained that the ESD requirements are clear (noting the "Guidelines for ESD" document published last month), GSK countered that the need for official guidance suggests an admission of vagueness. Moreover, any guidance documents generated by the PTO outside of the notice and comment rulemaking process violate the Administrative Procedure Act. The court sided with GSK:

[B]ecause the Court believes that GSK has raised serious concerns as to whether a reasonably prudent person would be able to comply with the ESD requirements, the Court will find that GSK has demonstrated a real likelihood of success on this issue.

IRREPARABLE HARM

Briefly stated, the court found the uncertainty over the new rules to be a key factor in determining harm:

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 sided with GSK, since the harship on the PTO was related to "sunk costs already incurred by training personnel and changing the computer systems." The PTO's position, pending the resolution of the case, would be to merely maintain the status quo. In contrast, the harm to GSK would be "immediate" once the rules went in effect.

THE PUBLIC INTEREST

The court sided with GSK, that argued that "stability" in the patent office was key, and also found the amicus briefs persuasive (hint, hint):

GSK asserts that preserving the status quo while the litigation proceeds is important for maintaining stability for patent holders. Innovation is encouraged when patent holders and applicants have certainty about how their patents will be treated. 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. Many companies rely upon the stable, reliable protection afforded by the current patent system in determining whether it is cost effective to abandon their trade secret protection by pursuing a patent. Implementation of the Final Rules changes those companies’ calculus and immediately decreases their ability to
pursue costly new innovations.

NOTE: GSK also argued that the rules violated the APA, since they were "arbitrary and capricious." While the court didn't exactly embrace the USPTO's position, Judge Cacheris stated that

Though the Final Rules would reduce the PTO’s backlog by only 2.7% and, by their own admission, are insufficient to reduce the backlog to a reasonable level, PTO models show that they will have an impact on the backlog . . . Thus, the PTO’s rationale appears to be sufficient to satisfy arbitrary and capricious review, and the Court will find that GSK has not shown a real likelihood of success on this issue.

How long does the injunction last? "This Order shall expire upon the entry of a final judgment in this matter, unless otherwise ordered by the Court."

Read the Opinion here (link)

View the order here (link)