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Corporate counsel beware: A tool many companies use to get broader patent protection is in jeopardy. Companies of all sizes may face severely restricted rights later this year if recently proposed rules by the United States Patent and Trademark Office take effect. The proposed rules will force many applicants to choose between a lengthy and expensive appeals process or accept unduly restrictive patent coverage. In practical terms, this means that the cost and uncertainty associated with pursuing broad patent protection for critical new technologies will rise dramatically if these new rules are adopted. To understand the impact of the proposed changes, consider the following example. Your company has invented an important new technology for which you seek the broadest patent protection. In the usual course of examination of your patent application, the patent examiner may reject your broad patent claims based on “prior art,” i.e., previous work by others in the field. While the PTO has many highly skilled examiners who provide an important public service in blocking unworthy patent claims, too many of its initial rejections are mistakes due to rushed examination, lack of understanding of the invention, and incomplete knowledge of the prior art. As the patent applicant, you have an opportunity to rebut the mistaken rejection and amend the patent claims, causing the examiner to give the application a second review. If the examiner maintains the rejection or presents a new rejection in this second review, the examination process ends unless you appeal the rejection to a higher review panel or opt to pay a fee to “continue” the application and repeat the process again. Currently, patent applicants can repeat this process without limit. Very often, this persistence proves necessary to convince the examiner of the merits of the invention and hence achieve the broadest patent protection. Another example shows a more controversial use of the patenting system that is intentionally targeted by the proposed rule changes. Once the examiner indicates a readiness to allow the patent claims, some patent owners will file another continuation application, while at the same time allowing the original patent application to become an issued patent. This way, the patent owner can get an issued patent and still pursue additional or broader claims. This continuation process could be repeated indefinitely with the original patent application spawning a family of related patents, with each one focusing on a slightly different aspect of the original invention and having differing claims. Each continuation application is entitled to the priority of the original patent application, and therefore is shielded from “prior art” challenge by anything that came to light after the original filing date. Some patent owners will monitor changes in the market and modify the claims in the continuation applications to intentionally cover implementations of the invention in competitor’s products. This practice, sometimes referred to as “late claiming,” can represent a strategic threat to competitors in blocking their ability to “design around” a patent. The “late claiming” strategy has made certain notorious patent owners very wealthy from patent royalties, spawning an industry practice that is pejoratively referred to as “patent trolling.”
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Under the proposed rules, the PTO will take away the right to unlimited continuations and will allow the patent applicant to “continue” the examination process only once. The patent applicant may not want to use up its one chance to “continue” the application to overcome a patent examiner’s rejection so as to keep open the option of a subsequent “continuation” application as part of a “late claiming” strategy. For a patent applicant facing a final rejection of claims, the only recourse would be appeal to the Board of Patent Appeals and Interferences. But a patent appeal is a much more rigid, costly and time-consuming process. In addition to dramatically increasing the cost and time commitment of patenting, the applicant on appeal risks loss of patent coverage in an appellate decision that cannot be easily reversed. According to the PTO, these changes to the rules are necessary to combat the large and growing backlog of unexamined applications. The increasing number of patent filings in the U.S. has indeed put pressure on the PTO to keep up with its examination obligation without jeopardizing patent quality. The PTO considers the unlimited right to “continue” an application a contributing factor to the backlog problem, estimating that 30 percent of all applications filed in 2005 were continuation applications. The Federal Trade Commission and corporations such as IBM, Apple Computer and eBay all support the proposed rules as a solution to the backlog problem. In particular, eBay, the subject of numerous patent infringement suits, applauds the proposed rules for targeting those that are “abusing the patent system” by not distinctly claiming the invention until after multiple generations of continuations have been filed. The FTC favors the proposed rules as limiting the ability of patent owners to practice the “late claiming” technique, which the FTC regards as harmful to market competition. On the other hand, other corporations and industry groups such as the American Intellectual Property Law Association fault the PTO for proposing changes that take away patent applicant rights without first considering other constructive measures to combat the backlog problem, such as increasing the size, training and resources available to the examiner corps, privatizing certain administrative tasks such as publications and searching, and making creative use of the fee structure to discourage undesired or abusive behavior by applicants. Other practitioners predict that the proposed rules will only shift the backlog to the appeals process. PTO solicitor John Whelan recently indicated that the PTO hopes to issue a final decision on the proposed rules before Jan. 1. Companies that wish to protect their intellectual property assets through the patent system should take the following steps now: 1. File continuation applications now rather than wait for the changes. Applicants that anticipate filing any continuation, divisional or continuation-in-part applications in the future should do so now rather than face the proposed rules or the uncertainty of other rules that may take effect. The PTO is likely to implement the rule changes prospectively, so that any applications already on file at the time of the rule changes may be governed by the previous rules. Companies should evaluate their most important inventions now to identify candidates for continuation applications. 2. Increase the number of claims filed with the applications. Applicants should ensure that more claims are presented for examination now under the current examination regime. All patent applications should include a wide assortment of different claim types and breadths. This way, there is a greater likelihood of getting sufficient patent protection and less need for continuation applications later. You should think about alternative implementations of the invention, and be sure that claims are crafted now to cover those implementations. 3. Lobby the PTO and Congress. Although the deadline for public comment on these proposed changes was May 3, the PTO is still holding town hall meetings with various stake-holders and soliciting other possible alternatives to address the backlog problem. The proposed rule changes may ultimately require a statutory amendment rather than mere administrative rulemaking, and so Congress will likely need to step into the debate. See In re Henriksen, 399 F.2d 253, 262 (C.C.P.A. 1968) (holding that only Congress, not the PTO, can limit the number of continuation applications). Many industry groups have a lobbying function that could be used to influence the ultimate adoption of the new rules. The effectiveness and quality of the patent system is critical to maintaining the technological edge of U.S. companies. Corporate decision makers need to be aware of these potential changes to the patent rules that may impact their ability to obtain the broadest patent protection for their inventions. Companies should take action now in anticipation of these new rules to ensure that inventions are adequately protected. Brian Berliner is a partner in O’Melveny & Myers’ Los Angeles office. His practice focuses on representing high technology companies, particularly with respect to the acquisition, management and enforcement of intellectual property rights. � Practice Center articles inform readers on developments in substantive law, practice issues or law firm management. Contact Sheela Kamath with submissions or questions at [email protected].

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