The Games PTO Plays: Exelexis and Patent Term Adjustment
Younger patent attorneys and many clients are not aware that the period during which a patent remains in force (the patent term) was at one time 17 years from the date of issue rather than 20 years from the filing date of the patent application. The change was made in Section 534 of Pub. L. 103-465, so that “the term of a patent granted on an application filed on or after June 8, 1995…shall be measured from the filing date of the earliest filed application.” The result is that under the current law, every patent application absorbs all delays that are caused either by the U.S. Patent and Trademark Office (USPTO) or by the applicant, such that the lifetime (20 years from the filing date) of the patent is reduced by any such delays. Statistics from the USPTO’s Data Visualization Center reveal the very real problems that current patent applicants find in obtaining the full 20-year patent term.
The change from 17 years from issue date to 20 years from filing date was put into place at a time (1994) when the time from the filing of a patent application to the issue of the patent was much shorter than it is today. For example, the 1995 Inspector General’s Report, Table I, lists the pendency time of the average patent application between 1990 and 1994 increasing from 18.3 months in 1990 to only 19.0 months in 1994. In sharp contrast, the “traditional total pendency” during the eleven months ending November 2012 was 40.7 months as shown in the USPTO Data Visualization Center. Remarkably, the bulk of this time (26.1 months) was time in which the patent applicant was waiting for the first Office Action. This is not a surprise when one considers the increase in the number of patent applications filed and the resulting backlog. In 1994, 185,087 patent applications were filed and 189,646 were “disposed of,” that is, issued or abandoned, so there was apparently no increase in the backlog. In contrast, the application backlog as of September 2012 was 608,283. The USPTO under Director Kappos has made significant improvements in this backlog, but it is still very large. Current patent applicants can expect to wait almost 20 months from their filing date to the first response, or “office action,” from the USPTO.
As a step towards fairness to the patent applicant, in 1999 the Patent Term Adjustment (PTA) section was passed by Congress as 35 USC Section 154(b)(1). Under this section, the patent term is adjusted for both PTO delays and applicant delays; the patent term is increased day-by-day for each PTO delay, this figure being offset by any delays caused by the patent applicant. For example, the patent term is increased for each day beyond 14 months from filing to the first Office Action. This adjustment is called “A-delay.” Also, if the PTO does not issue a patent within 3 years of the filing date, a day-to-day increase in the patent term occurs. This adjustment is called “B-delay.” However, both A-delay and B-delay are reduced by applicant delay under 35 USC 154(b)(2)(C) “by a period equal to the period of time during which the applicant failed to engage in reasonable efforts to conclude prosecution of the application.”
Section 154(b), unfortunately, sets up a “game-playing situation” by the USPTO and the applicant. The USPTO has an incentive to minimize PTA , in order to comply with its mission of speedy patent examination. In contrast, the applicant who experiences very long pendency times has an incentive to maximize PTA in order to preserve as much patent term as possible. Some sophisticated examiners also have a conflict between their management’s goal to minimize PTA and the patent examiner compensation system, known as the “count” system. Under this system, an Examiner is credited with 2.00 “counts” for each application “disposed of,” i.e., issued or abandoned. However, if the Examiner can force the patent applicant to file a Request for Continued Examination (RCE), the Examiner will get an additional 0.5 count and may then get an additional 2.00 counts for each subsequent RCE. Under this system, the Examiner is incentivized to delay patent issuance, while USPTO management is attempting to speed up patent issuance. The USPTO changed the count system on September 30, 2009, so that the counts for subsequent RCEs are reduced. Perhaps due to this change, the backlog of unexamined patent applications has decreased from 716,428 in October 2011 to 608,283 in September 2012. Yet, the Examiner is still credited for each RCE that the patent applicant is forced to file.
Applicants may also “game” the system. In some circumstances, the applicant may wish to delay issuance of a patent until the corresponding technology has been commercialized, thus allowing greater returns from a patent infringement suit. The applicant can do this by filing RCEs. However, in some technologies, particularly pharmaceuticals, there is a huge cost to such delays, because the enormous investment in a new drug requires as much patent term as possible to recoup that investment. Alternatively, the applicant can appeal to the newly-renamed Patent Trial and Appeal Board (PTAB). However, this is no quick route to issuance: statistics show that an appeal will increase the pendency of a patent application from 39 months to almost 90 months. If the patent applicant is ultimately successful, the USPTO will award PTA for the time consumed by the appellate review and processing between a notice of allowance and patent issuance – but not if the applicant appeals unsuccessfully. Consequently, after two final rejections, the applicant has no way of knowing whether or not filing an RCE or alternatively an appeal will result in the most preservation of B-delay.
To summarize the foregoing, USPTO has an overall incentive to minimize PTA, even though the individual Examiner has an incentive, indirectly, to maximize his or her return by forcing the filing of one or more RCEs. Strangely, the individual Examiner’s incentive maps to the incentive of some patent applicants to delay issuance of a patent, as discussed above. However, one would think that such applicants would be in the minority: most patent applicants want either the patent to issue quickly or to have the patent term extended by any USPTO delays.
Statistics from the Data Visualization Center shed some light on the consequences of filing an RCE: “traditional total pendency” increases from 31.7 months (no RCE) to 38.6 months (RCE filed). If 35 USC 154(b)(1)(B) is interpreted to include the time from filing an RCE to a notice of allowance, it would appear that an average of 2.6 months (38.6 – 36) of B-delay would be awarded. But not if the filing of an RCE prevents the accumulation of further B-delay.
The recent U.S. District Court (E. D. Va.) case Exelixis, Inc. v. Kappos (Exelixis I) (http://scholar.google.com/scholar_case?case=17511648728905193088&hl=en&as_sdt=2&as_vis=1&oi=scholarr) illustrates how USPTO has interpreted 35 USC 154(b)(1)(B) to minimize B-delay. In that case, the USPTO argued that any B-delay stops accumulating as soon as a patent applicant files an RCE, although it still might accrue A-delay (and C-delay, which I have not discussed). However, in Exelixis I, Judge Ellis found that USPTO’s interpretation of such an “RCE carve-out” is contrary to the law of 35 USC 154(b). This case has been appealed.
Incredibly, the same court recently issued a decision in different Exelixis case, (Exelixis II) (http://scholar.google.com/scholar?scidkt=9615730813307455082&as_sdt=2&hl=en) that affirms the USPTO’s interpretation of 35 USC 154(b)(1)(B); Judge Brinkema’s decision is in direct conflict with Judge Ellis’s decision in Exilixis I. This case will probably also be appealed.
The result of the appeal could be momentous for patent applicants. If the appeals court upholds the USPTO interpretation, any patent application that is pending with an RCE filed before or after 3 years from the filing date of the patent application will lose the accrual of all B-delay after the RCE is filed. For example, suppose an application is filed on January 1, 2013. If the USPTO does not issue a patent by January 1, 2016, B-delay will start accumulating. Suppose, then, that the patent does not issue until January 1, 2018: the patent term will be extended by 2 years. However, if the patent applicant files an RCE before or after after January 1, 2016, such a filing will stop the accrual of B-delay. Again supposing that the patent does not issue until January 1, 2018, the patent’s term will be reduced by 2 years. For industries such as “big pharma,” huge losses may be involved.
One gets the distinct impression that the USPTO operates in a fantasy world in which all applicants and patent examiners do a thorough prior art search so that a correct decision to issue or reject the patent application occurs during the initial filing, without the need for the applicant either to file an RCE or to appeal. (See Exelixis II: “…such delay emanates solely from an applicant’s original failure to file an application fit for a notice of allowance.”) Therefore, the USPTO apparently views the filing of an RCE as a penalty against an applicant who has intentionally “failed to engage in reasonable efforts to conclude prosecution of the application.” If the USPTO prevails in Exelexis I and Exelexis II, many patent applicants will lose substantial portions of the 20-year patent term that was introduced in 1995. This seems unreasonable given the very lengthy prosecution period now as compared to 1994.