Red flag warning: Patent stakeholders beware shifting terminal disclaimer practice

The Federal Circuit made waves in the obviousness-type double patenting pool last summer with its decision in In re: Cellect, LLC, holding that unlike patent term-extended patents, the life of patent term-adjusted patents can be cut short by obviousness-type double patenting. Nos. 2022-1293, 2022-1294, 2022-1295, 2022-1296 (Fed. Cir. August 28, 2023). The outcome of the case is not yet settled.¹ See Norton Rose Fulbright’s September 2023 publication, "Obviousness-type double patenting, terminal disclaimers and best IP practices."

Not to be outdone, the US Patent and Trademark Office (USPTO) recently issued a tsunami of a proposed rule that, if implemented, would upend current terminal disclaimer practice in response to obviousness-type double patenting rejections.² Under this proposed rule, the USPTO will not issue a subject patent with a claim that conflicts with a claim of a reference patent unless a terminal disclaimer filed with the subject patent includes an agreement that the subject patent will not be enforced if any claim of the reference patent is invalidated by prior art. The terminal disclaimer would be unidirectional, encumbering only the subject patent and not the reference patent.

This proposed rule was issued in response to President Biden’s Executive Order 14036 that was intended to ensure that patents incentivize innovation but do not unjustifiably delay competition and a letter from several US Senators raising concerns about multiple patents covering a single product.³ After receipt of the Executive Order and the Senators’ letter, the USPTO issued a request for comments on exploratory initiatives to promote robust and reliable patent rights across all technology areas, including whether the USPTO should require applicants to stipulate when filing a terminal disclaimer to obviate a nonstatutory double patenting rejection that the claims are not patentably distinct from the prior claims.⁴

Instead of a stipulation that claims of a subject patent are not patentably distinct from those of a reference patent, however, the USPTO’s current proposed rule requires an agreement that the subject patent will not be enforced if the reference patent to which the subject patent is tied by a terminal disclaimer has any claim that is finally held unpatentable or invalid. The primary value of a patent, though, arguably lies in the patentee’s right to enforce the patent and exclude others from practicing the patented invention. Because of this, the USPTO’s distinction between the current requirement for agreement as to unenforceability of the subject patent under certain conditions and the previously proposed stipulation that filing a terminal disclaimer is an admission of unpatentability is a distinction without a difference. A rational patent owner will not enforce patent claims it has stipulated are unpatentable, even if it has not explicitly agreed to refrain from such conduct.

The USPTO asserts that requiring the currently-proposed agreement will promote competition by reducing the cost of invalidating multiple patents tied by terminal disclaimers, resulting in reduced barriers to market entry and lower costs for consumers. However, the USPTO fails to cite support for its proposed rule change and instead alludes to general concerns about the potential anti-competitive effects of terminal disclaimers and the high costs of challenging patents tied by terminal disclaimers.

Strikingly, several former USPTO officials, including Directors Iancu and Kappos, Former Deputy Directors Peter and Slifer and Former Commissioner for Patents Hirshfeld, agree that the USPTO’s proposed rule goes too far. The officials argue that rendering patents unenforceable in the manner proposed by the USPTO is a dramatic departure from the current requirement that each patent claim be considered on its own merits. The officials also expressed concern that the proposed rule is substantive rather than procedural, exceeding both foundational case law and the agency’s statutory rulemaking authority, and that the USPTO has not sufficiently demonstrated that terminal disclaimer practice harms the economy or that the new rule would improve matters. In an unusual move, the officials have called on Director Vidal to immediately withdraw the proposed rule to avoid uncertainty in the innovation economy.

If implemented, the USPTO’s proposed rule will challenge patent owners to make difficult filing and prosecution strategy decisions. Filing a terminal disclaimer will risk an entire subject patent’s enforceability on the independent strength of each of the claims in a reference patent, and so applicants are more likely to argue double patenting rejections. Alternatively, applicants may avoid the draconian rule altogether by filing multiple, patentably-indistinct independent claims in a single application to provoke a restriction requirement and take advantage of 35 USC § 121’s safe harbor provision. These changes to filing and prosecution strategies will increase the burden and expense of patent prosecution for both patent applicants and the USPTO.

The rule also has the potential to be wielded as a powerful weapon by infringers. Attacking a reference patent tied to a subject patent by a terminal disclaimer would allow infringers to unfairly render subject patents unenforceable without challenging the claims of the subject patent on their own merits.

Both the courts and the USPTO are under pressure to address perceived problems with nonstatutory obviousness-type double patenting rejections and terminal disclaimer practice. However, the USPTO’s proposed rule, which contradicts fundamental principles of the U.S. patent system and does not sufficiently address stakeholders’ concerns, does not seem to be a satisfactory solution.

Those interested in reviewing comments on the USPTO’s proposed rule can visit the Federal eRulemaking Portal at www.regulations.gov using the docket number PTO-P-2024-0003.

1 Cellect has petitioned the Supreme Court to rule on the fate of obviousness type patenting and the Federal Circuit’s disparate treatment of patent term adjustment under 35 U.S.C. § 154(b) versus patent term extension under 35 U.S.C. § 156. Petition for Writ of Certiorari, Cellect LLC v. Vidal, No. ___ (May 20, 2024).

2 Terminal Disclaimer Practice To Obviate Nonstatutory Double Patenting, 89 FR 40439 (proposed May 10, 2024).

3 Promoting Competition in the American Economy, 86 FR 36987 (July 14, 2021).

4 Request for Comments on USPTO Initiatives To Ensure the Robustness and Reliability of Patent Rights, 87 FR 60130 (proposed October 4, 2022).