Facing strong opposition from a rare alliance of the pharma and tech industries as well as past agency leaders, the U.S. Patent and Trademark Office (USPTO) has withdrawn a proposed new rule directed at Terminal Disclaimer Practice To Obviate Nonstatutory Double Patenting that arguably could have led to a sizable number of existing patents facing unwarranted invalidation. This development is good news for many of our clients who hold strategic patent portfolios.

Terminal Disclaimer practice is a non-statutory mechanism that permits patent owners to obtain, via the filing of continuation applications, more than one patent directed to various portions of the full scope of the invention in a streamlined manner, by agreeing that the term of the patent being terminally disclaimed will not extend beyond the term of another patent or patents forming the basis of a non-statutory double patent rejection. As indicated in the recent Allergan v. MSN Laboratories Federal Circuit case, the purpose of the obviousness-type double patenting (ODP) doctrine, “is to prevent patentees from obtaining a second patent on a patentably indistinct invention to effectively extend the life of a first patent to that subject matter.” The patent owner must also agree that the patents will remain commonly owned.

Why would a patent applicant agree to a terminal disclaimer? One reason is a reduction in time and cost to obtain additional, and often more informed and improved, patent protection from continuation applications claiming priority to an earlier application.

The USPTO’s rationale for the proposed rule change was to prevent multiple patents directed to obvious variants of an invention from potentially deterring competition. However, the proposed rule change would have added a new requirement that would have resulted in the ability to invalidate all patents in a patent grouping that were directly or indirectly tied together via a terminal disclaimer, if even a single claim from a single patent in the grouping was ultimately found invalid for lack of novelty or obviousness. The impact a company might experience from a sudden invalidation of an entire group of patents could be devastating.

The proposed rule changes were primarily directed at the pharmaceutical industry in an attempt facilitate lowering drug prices by discouraging or weakening patent thickets covering drugs that make it to the market. However, because the proposed rule applies to all patents irrespective of industry, over 300 comments were received by the USPTO, including opposition from stakeholders in multiple industries, including the life sciences, electronics, and tech sectors. In addition, former USPTO Directors and Commissioners weighed in and indicated that the “proposed rules provide perverse incentives and threaten serious harm to America’s innovation economy. They are contrary to law, and it will be argued that they exceed the Office’s rulemaking authority.”

While the USPTO cited resource constraints for its decision to withdraw the proposed rule, the fact remains that the proposed rule change could have resulted in a significant taking of existing intellectual property covering numerous important products currently, or soon to be, on the market. The potential disruptions across multiple industries and to innovators that could have been caused by the rule change are difficult to imagine. Director Kathi Vidal will soon be leaving the USPTO. It is uncertain who will replace her, but should a future agency leader wish to resume a similar rulemaking, it is certain to again face significant opposition.