Novartis v. Lee: A New Method for Calculating U.S. Patent Term Adjustment

Authored by Elizabeth A. Doherty, Ph.D.; Jolie D. Lechner, Ph.D.; and Anthony C. Tridico, Ph.D.

On January 15, 2014, the Federal Circuit issued its much-awaited decision in Novartis v. Lee,¹ concerning the effect of a Request for Continued Examination (RCE) on patent term. Based on this court decision, many future U.S. patents may be entitled to a longer term, generally anywhere from a few days to a few months.

In 1995, the United States changed its patent term from 17-years from patent issuance to 20-years from first application filing or national stage entry. This change prompted the U.S. Congress to create a system of patent term adjustment (PTA) to compensate patent holders for certain application-processing delays at the U.S. Patent and Trademark Office (USPTO). See 35 U.S.C. § 154. Under the PTA system, a patent holder may be granted an extended term when: (A) the USPTO takes too long to begin examination or to respond to papers filed by the applicant; (B) the application takes more than 3 years to issue as a patent; and (C) patent issuance is delayed due to an appeal, secrecy order, or derivation proceeding. See 35 U.S.C. § 154(b)(1)(A)-(C). These processing delays are commonly called "A delay," "B delay," and "C delay." Extended term due to one or more of these delays, however, may be reduced by certain actions by the patent applicant that are deemed to delay prosecution. See § 154(b)(2)(C). Due to the importance of a long patent term in some industries, the USPTO's interpretation of the PTA statute has been challenged in court several times over the last few years.

Novartis challenged the USPTO's interpretation of Section 154(b)(1)(B) of the statute, which concerns how to calculate "B delay," which may be awarded to patents that take more than 3 years to issue. Novartis argued that the USPTO has incorrectly calculated the B delay in situations where a Request for Continued Examination (RCE) is submitted during prosecution.

In relevant part, Section 154(b)(1)(B) states that:

if the issue of an original patent is delayed due to the failure of the United States Patent and Trademark Office to issue a patent within 3 years after the actual filing date [or national stage entry date] . . . not including—
(i) any time consumed by continued examination of the application requested by the applicant under section 132(b);²
(ii) . . . ; or
(iii) . . . , the term of the patent shall be extended 1 day for each day after the end of that 3-year period until the patent is issued.

The USPTO has interpreted Section 154(b)(1)(B)(i) to mean that filing an RCE cuts off the B delay period. Thus, in practice, the USPTO has calculated the B delay by determining the number of days from the filing date or national stage entry date of the application up to the issue date of the patent or, if an RCE was filed, up to the filing date of the first RCE. If those days total more than 3 years, then extra term may be awarded for each day over 3 years. (See the chart below for an illustration.)

According to the Federal Circuit, Novartis challenged the USPTO's interpretation of the statute on two grounds, arguing that: (1) an RCE is only meant to limit the B delay when the RCE is filed within the first 3 years of prosecution, and (2) the "time consumed by continued examination," referred to in the statute, is limited to the time between RCE filing and allowance of the application since allowance terminates examination. Slip Op. at 13-15. The USPTO countered that its interpretation of the statute is correct. Id. The Federal Circuit agreed with the USPTO on the first point, holding that an RCE limits B delay regardless of when during prosecution it is filed. Id. at 13-14. But the Court agreed with Novartis that the time period from allowance to patent issuance is not part of the "continued examination" process referred to in the statute and, accordingly, may contribute to the B delay. Id. at 15-16. In short, the Court held that the B delay period for an application in which an RCE was filed equals the time that exceeds 3 years from filing or national stage entry date up to the filing of the first RCE, plus the time from allowance to issuance of the patent.³ Because there is almost always lag time between allowance and issuance, the B delay period will almost always be longer under the Court's determination than under the previous USPTO calculation method. (See depiction below for a graphical representation.)

This holding is significant as it would extend the terms of many future patents, typically by a few days to a few months.

In addition, some recently issued patents might be eligible for extended terms in light of the decision, particularly those issued within the past few months. Specifically, patent holders have up to 7 months after the issue date to petition the USPTO for recalculation of a PTA award. See 35 U.S.C. § 154(b)(3)(B)(ii); 37 C.F.R. §§ 1.705(b) and 1.136(a)(1).⁴ As the Federal Circuit also determined in Novartis v. Lee, patent holders whose petitions to the USPTO to recalculate PTA have been denied can challenge the denial in court within 180 days. Novartis v. Lee, Slip Op. at 5 and 8-11; 35 U.S.C. § 154(b)(4)(A). Accordingly, patent holders for whom long patent terms are important may wish to review their recently issued U.S. patents to identify any patents that took longer than 3 years to issue and in which RCEs were filed during prosecution. Patent holders may wish to consider whether they are eligible to petition for additional patent term for those patents in light of the Novartis decision.⁵

Endnotes
¹ Novartis AG v. Lee, Nos. 2013-1160, -1179, 2014 WL 128577 (Fed. Cir. Jan. 15, 2014); and see Exelixis, Inc. v. Lee, Nos. 2013-1175, -1198, 2014 WL 128612 (Fed. Cir. Jan 15, 2014).

² 35 U.S.C. § 132(b) is the section of the U.S. patent statute providing for RCEs. See also 37 C.F.R. § 1.114, which sets forth the USPTO procedural rules for RCEs.

³ In some instances an RCE is filed after allowance of the application, such as to submit an Information Disclosure Statement. In the Court's view, this is a special scenario "and an appropriate adjustment can be made when [it] occur[s]." Slip Op. at 16.

⁴ Patent holders with pending petitions for recalculation of PTA may also wish to consider updating their petitions in light of the decision, if possible.

⁵ It is possible that either Novartis or the USPTO will request a rehearing in the case or will appeal the decision to the U.S. Supreme Court, as the associated deadlines have not yet expired. Thus, patent applicants and holders may wish to continue following the case. The USPTO has also not yet issued guidelines regarding the Novartis decision. In addition, future Congressional legislation might affect the applicability of the decision. For example, a patent reform bill passed by the U.S. House of Representatives in December 2013 proposes, among other things, to amend the PTA statute to reinstitute the previous USPTO B delay calculation method (i.e., the pre-Novartis method). (H.R. 3309, Section 9.) If this bill is signed into law without amendment, it may effectively overrule the Federal Circuit's decision.

Originally printed in CIPA Journal. 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.