Authored by James W. Edmondson and Raymond M. Gabriel
The worldwide recession and drop in corporate profits has caused many companies to drastically reduce intellectual property budgets, just as the cost for prosecuting and obtaining U.S. patents has increased. Meanwhile the demand for patents continues. The result is that in-house IP staff now needs to do more with less.
Patent prosecution costs are up primarily because of higher firm billing rates and more hours billed. The higher rates stem from competition for qualified associates among patent law firms during the 1990s and the early part of this decade. The greater number of hours billed are a result of the Supreme Court's 2007 decision in KSR International Co. v. Teleflex.
In KSR, the Supreme Court rejected the Federal Circuit's "teaching-suggestion-motivation" (TSM) test for patent claim obviousness. The Federal Circuit had established the TSM test as an easy-to-understand, bright-line rule to reduce the subjective application of the obviousness standard. Under the TSM test, PTO examiners had to show that, for someone of ordinary skill, prior art provided some teaching, suggestion or motivation to modify or combine the prior art to come up with the claimed invention.
The Supreme Court rejected the TSM test, holding that the Federal Circuit addressed the obviousness question in a narrow and rigid manner that was inconsistent with Supreme Court precedent. This answered the narrow question before the Court, but "dicta" in the opinion far exceeded the holding. With these in mind, the PTO issued new examination guidelines for obviousness, essentially instructing PTO examiners to follow what was implied in KSR.
Under the new guidelines, claims can be rejected on account of obviousness when, in the examiner's opinion:
• Prior art elements have been combined according to known methods to yield predictable results.
• There has been simple substitution of one known element for another to obtain predictable results.
• There has been use of a known technique to improve similar devices or methods in the same way.
• A known technique has been applied to a known device or method ready for improvement, to yield predictable results.
• It's a case of "obvious to try" choosing from a finite number of identified, predictable solutions, with a reasonable expectation of success.
• Known work in one field of endeavor prompted variations that work for use in the same field or a different field.
• There has been some teaching, suggestion, or motivation in the prior art that would have led someone of ordinary skill to modify or combine the prior art (not the same as the strict TSM test).
In December of last year, The Federal Circuit affirmed the breadth of these new guidelines in Perfect Web Technologies Inc. v. InfoUSA Inc. The Federal Circuit, relying on KSR, held that the "obvious-to-try" rationale is
proper where a finite number of identified, predictable solutions lead to a reasonable expectation of success. It also upheld the obviousness of a claim where it was the product of ordinary skill and common sense.
Evidence indicates that since 2007 the new guidelines have contributed to a significant decrease in allowance rates and a significant increase in obviousness rejections. The allowance rate varied only slightly from 2005 to 2007, from 55 percent to 52 percent. A precipitous drop occurred in 2008, the year after KSR, when the allowance rate dropped to 44.2 percent. It continued to drop, to 41 percent in mid-2009.
Over this same time period, obviousness rejections increased dramatically. Evidence suggests that over 60 percent of office actions mailed by the PTO in 2009 included at least one obviousness rejection. It appears likely, therefore, that the increase in obviousness rejections has contributed significantly to the decrease in allowance rates.
U.S. patent counsel, as they confront and analyze the increasing number of obviousness rejections, are billing more hours and generating more fees for both continuing examination requests (RCEs) and PTO late fees.
In order to succeed with their reduced budgets, in-house IP staff and U.S. patent counsel need to break this pattern of continued obviousness rejections and move applications quickly to allowance. They need to consider additional ways to reduce cost, as well, including more efficient interaction and communication, and in some cases alternative fee arrangements.
In light of the new guidelines, many common pre-KSR rebuttals fail to meet obviousness rejections, while still driving up attorney costs and RCE fees. To strengthen their responses, in-house IP staff and patent counsel need to tailor their rebuttals to the revised guidelines. Avoiding pre-KSR arguments is one way applicants can avoid repeated obviousness rejections and thus reduce attorney billable hours.
Explaining how a reference "teaches away" from the claimed invention is a strong argument endorsed in KSR and in the new guidelines. Examiners cannot properly combine or modify references where it is contrary to accepted wisdom or discouraged by the prior art.
One well-known case of "teaching away" involved application claims reciting a battery with magnesium and cuprous chloride electrodes activated by water. The electrodes were known, but the prior art taught that using them in a water-activated battery was impracticable. The Supreme Court held, in this case, that the prior art "taught away" from the claimed battery.
However, in cases where the prior art merely discloses a different approach to the one claimed, it does not constitute a "teaching away," because such prior art disclosure does not criticize, discredit, or otherwise discourage the claims.
Another rebuttal endorsed by the new guidelines is the argument that prior art would be rendered unsatisfactory for its intended purpose by the claim. Patent application claims and prior art on modular office furniture provides a simple example: Prior art teaches modular walls having grooves in one wall for receiving hooks from another modular wall. The prior art discloses that the groove and hook design provides for quick assembly and disassembly. A patent application claims modular furniture with walls bolted permanently together. Modifying the groove and hook design with bolts would render the prior art unsatisfactory for its intended purpose, i.e., quick assembly and disassembly. Claims directed toward modular cubical walls that are bolted together, therefore, should not be obvious.
In another example, claims directed to an oil seal requiring rigidity were found to be patentable over prior art teaching an oil seal lacking rigidity. Modifying the prior art with a rigid oil seal would have required substantial reconstruction and redesign, changing the basic principle under which the prior art was designed to operate.
Another cost-saving strategy is the so-called Rule 132 Declaration. KSR and the new guidelines expressly endorse rebuttals based on the "secondary indicia of nonobviousness" — for example, for example, long-felt but unsolved need, or commercial success. These "secondary indicia" can be placed before the PTO in the form of a declaration, under 37 C.F.R. § 1.132. Such a declaration also can be used to support one or more of the other effective rebuttals discussed above.
In the past, applicants often waited until receiving a Final Office Action to interview the examiner. But by this point in the process, even if the examiner and patent counsel reached a tentative agreement on the claims, the examiner would require filing an RCE, which increased costs. Conducting an early interview after the first office action provides greater flexibility. During an interview, presenting strong rebuttal arguments or working with the examiner helps arrive at patentable claims before a final office action.
The PTO itself has emphasized early interviews and cooperation between examiners and applicants as a way to accelerate a claim. In certain technology areas, applicants who choose to participate in the PTO's "Enhanced First Action Interview Pilot Program" are entitled to an interview with the examiner before the first office action. The PTO released statistics in October 2009, showing that this program increased the allowance rate six-fold after a first office action, when compared to traditional applications.
Another strategy is to amend allowable dependent claims early. In a first office action, examiners often will indicate that limited dependent claims would be allowable if rewritten as independent claims. In the past, applicants often waited for a final office action to amend these claims. Amending them as independent claims after a first office action, to place them in condition for allowance, provides the applicant with more flexibility.
If allowed, the applicant can cancel the broad rejected claims and take benefit from the allowable narrower claims. The broader rejected claims can be preserved in a continuation or divisional application.
Above all, response timing is important. Examiners are entitled to refuse to enter claim amendments after final office action. Presenting strong rebuttal arguments, amending claims, and/or adding new more limited claims early, after a first action instead of waiting for a final action, can help avoid filing and paying for RCEs.
In general, improving communication and cooperation can significantly reduce the overall cost of prosecution. By shifting responsibilities between in-house IP staff and patent counsel, timely responses can be filed to avoid paying PTO late fees.
In-house IP staff often are in a better position to discuss applications and prior art with the inventors or other persons "of ordinary skill" in the field. Instead of having patent counsel provide technical comments on an office action, it may in many cases be more effective for patent counsel to comment only on the legal issues. For example, patent counsel can recommend appropriate responses to double-patenting rejections.
On the other hand, in-house IP staff, with access to in-house technical experts, often are in a better position to analyze technical issues, such as why a prior art reference teaches away from the claims.
In-house IP staff can then provide technical comments to patent counsel for preparation of a draft response to the office action, for timely revision and approval by in-house staff. By involving in-house technical experts early, repeated back-and-forth communication between in-house IP staff and patent counsel can be reduced to cut costs.
With escalating costs, in-house IP staff requests for alternative fee arrangements have become more common. This issue can be approached as a standard business negotiation, with both sides willing to give something. For example, in return for considering alternative fee arrangements, in-house IP management may guarantee a minimum amount of work annually to the firm.
Alternative fee arrangements might include fixed fees for writing and filing patent applications, with the actual amount dependent on factors such as complexity and technical requirements.
Reasonable fee discounts also should be considered for preparing and filing responses to office actions (including obviousness rejections). One fee discount option is a straight percent discount (e.g. ten percent) on each invoice. Another is a ceiling for billed hours. With a $3,000 fee ceiling, for example, any hours and fees above that are simply not billed.
These are just examples. When it comes to alternative fee arrangements, the options are limited only by the imagination and ingenuity of the parties, keeping in mind the client's need to obtain patent rights within a budget and outside counsel's need to make a reasonable profit.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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