Major Proposed Changes to Terminal Disclaimer Practice (and You are Not Going to Like it)

by Dennis Crouch
The USPTO recently issued a notice of proposed rulemaking that could significantly impact patent practice, particularly in the realm of terminal disclaimers filed to overcome non-statutory double patenting rejections.  Under the proposed rule, a terminal disclaimer must include an agreement that the patent will be unenforceable if it is tied directly or indirectly to another patent that has any claim invalidated or canceled based on prior art (anticipation or obviousness under 35 U.S.C. 102 or 103). The new enforceability requirement would be in addition to the existing provisions that require a terminal disclaimer to match the expiration date of the disclaimed patent to the referenced patent and promise enforcement only during common ownership.
This is a major proposal that fundamentally alters the effect of terminal disclaimers.  The proposed rule would add a new condition that directly impacts enforceability based on validity finding of claims in a separate patent. This is a substantial departure from current practice that looks one claim at a time – even within a single patent.   The proposal here also shifts the balance of power further in favor of patent challengers and in a way that further undermines the statutory presumption of validity.
USPTO’s Justifications: Promoting Competition and Reducing Litigation Costs
The USPTO cites several reasons for the proposed changes. The primary concern is that an owner of multiple patents on obvious variations of an invention could deter competition, because the cost of challenging the validity of each patent separately may be prohibitive. By tying the disclaimed patents together, a competitor could potentially invalidate multiple patents by proving one claim is anticipated or obvious, significantly reducing litigation costs.  The USPTO also suggests the changes will promote innovation by making it harder to maintain patents on trivial variations. If applicants know their continuation patents may be more vulnerable, they may be more selective in what they pursue.
The USPTO does not cite any specific studies in the notice of proposed rulemaking to support the changes to terminal disclaimer practice. The justifications provided are based on general concerns about the potential anti-competitive effects of patents on obvious variations of an invention and the high costs of challenging such patents. The USPTO also references the Biden Administration’s efforts to promote competition across industries, but does not provide empirical data or economic analysis to quantify the expected impacts of the proposed rules.
Potential Impacts on Patent Applicants and Owners
For patent applicants and owners, the proposed changes present some tough choices. Filing a terminal disclaimer with the new requirements means accepting the risk that an entire patent’s enforceability could hinge on the strength of a single claim in another patent. Applicants may be more likely to argue against double patenting rejections or pursue other claim amendments rather than simply filing a disclaimer.
The proposed rule could also influence patent filing strategies more broadly. Applicants may become warier of filing continuation applications with only minor variations, opting instead to pursue more distinct inventions. There may be a push to include more claims of varying scope in initial applications, to avoid needing follow-on patents – or to ‘force’ a restriction requirement that avoids the OTDP issue.
The notice comes at an interesting time when many are calling for a policy move going the other way – eliminating non-statutory OTDP as a vestige of pre-1995 patent law.
I would encourage folks to provide comments to the USPTO. The Federal eRulemaking Portal at www.regulations.gov will be open for 60 days beginning on May 10 ,2024.
Questions to address:

What in your experience shows that the current approach to OTDP deters competition or enhances innovation?
Are the proposed enforceability requirements for terminal disclaimers appropriate and within the legal authority of the USPTO?
What impact would the proposed rules have on your own patent filing and enforcement strategies? (Please be specific, including discussion of particular technology or market areas).
Are there alternative approaches the USPTO should consider to balance the  interests at stake here?
What unintended consequences or challenges do you foresee arising from the proposed rules, and how might they be mitigated?

Many will question the USPTO’s authority to make this change.  The notice does address the source of rulemaking authority beyond the USPTO’s general rulemaking powers under 35 U.S.C. 2(b)(2), which grants the Office authority to establish regulations governing patent proceedings. The notice also points to  In re Van Ornum , 686 F.2d 937 (CCPA 1982), which upheld the USPTO’s authority to require terminal disclaimers to include specific language that the patent would be unenforceable unless the two bound patents were commonly owned. In the case, the CCPA majority opinion by Judge Rich upheld the regulation as within the USPTO’s rulemaking authority, rejecting the appellants’ arguments that it was contrary to statute and case law. The court found the regulation justified to prevent potential harassment through multiple assignees asserting patents with obvious variant claims. Judge Baldwin dissented, arguing that the non-alienation requirement exceeded the USPTO’s authority by governing post-issuance conduct and patent enforceability, and that it was inconsistent with the free alienability of patents under 35 U.S.C. 261. In an attempt to show some humbleness, the notice distinguishes the proposed rule from a hypothetical requirement that applicants admit their claims are obvious, which some commenters argued would exceed the USPTO’s authority. The proposed rule focuses instead on enforceability conditions and does not purport to determine the validity of disclaimed claims.
While the notice asserts the proposed changes are within the USPTO’s rulemaking authority, it is likely that this question of authority will be a point of challenge from stakeholders who oppose the rules. Comments supporting or questioning the USPTO’s legal basis for the changes will likely be an important part of the public feedback.