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Patent Term Adjustment: The Federal Circuit Addresses the Interpretation of Certain Sections of 35 U.S.C. §154(b)

Novartis AG v. Lee (Fed. Cir. 2014)

Before TARANTO, NEWMAN, and DYK

On January 15, 2014, the Federal Circuit issued a panel decision involving the interpretation of certain sections of 35 U.S.C. §154, regarding patent term adjustment ("PTA").  This "Novartis panel" decision, written by Judge Taranto, made three important holdings. 

First, the Novartis panel rejected Novartis's proposed interpretation of §154(b)(4)(A), and instead held that 35 U.S.C. §154(b)(3) addresses all patent term adjustment determinations. 

Second, the Novartis panel agreed with the U.S. Patent and Trademark Office ("PTO") that no patent term adjustment is available for any time in continued examination (e.g., after the filing of a Request for Continued Examination (RCE) under 35 U.S.C. §132(b)), even if the continued examination was initiated more than three years after the filing date of the application.  

Third, the Novartis panel agreed with Novartis' interpretation of §154(b)(1)(B), holding that examination presumptively ends at allowance, when prosecution is closed and there is no further examination on the merits in the absence of a special reopening.  However, the Novartis panel held that the time from allowance to issuance, regardless of whether it is a continued examination case or not, should be counted toward the United States Patent and Trademark Office's (PTO's) three-year allotment. 

It should be noted that the Federal Circuit vacated the judgments as to patent term adjustment for the '436 and '622 patents in Exelixis Inc., v. Lee (Decided January 15, 2014), and remanded the case for redetermination in accordance with the holding in Novartis, as described herein.  

I.    The Legal and Factual Background

35 U.S.C. §154(b) makes three patent term guarantees: (A) guarantee of prompt patent and trademark office responses; (B) guarantee of no more than 3-year application pendency; and (C) guarantee or adjustments for delays due to interferences, secrecy orders, and appeals. The statute provides that "the term of the patent shall be extended 1 day for each day" that the PTO does not meet certain response deadlines (§154(b)(1)(A)); the PTO fails to issue the patent after three years, subject to exclusions (§154(b)(1)(B); and for delays due to an interference, secrecy order, or successful applicant appeal (§154(b)(1)(C)).  

Between 2009 and 2011, Novartis filed four lawsuits in the District of Columbia claiming improper patent term adjustments for twenty-three of its patents.  Novartis claimed that the Director of the USPTO's ("Director's") determination of patent term adjustment relied on two mistaken interpretations of §154(b)(1)(B).  First, the Director treated time spent in continuing examination, regardless of when the continuing examination was initiated by the applicant, as not counting toward the statute's allotment of three years before PTA begins to accrue.  Second, the Director treated: (1) the time from the initiation of continued examination toward allowance and, (2) the time from allowance to issuance, both as not counting toward the three year allotment as well.  Novartis argued that both of the above interpretations put forth by the Director were contrary to §154(b)(1)(B).

Novartis made an additional claim in district court that it was entitled to have its patent term adjustments recalculated to conform to Wyeth v. Kappos, 591 F.3d 1364 (Fed. Cir. 2010).  Novartis also claimed that denial of the statutorily authorized patent term adjustments constituted a taking of its property under the Fifth Amendment.

The district court dismissed Novartis's claims with respect to nineteen of its patents as untimely, and granted Novartis relief on its remaining claims.  The district court ruled that the PTO's interpretation of §154(b)(1)(B) was "contrary to law."  The district court did not reach the merits on Novartis's Fifth Amendment claim. 

With regard to the dismissals as being untimely, the district court held that the applicable limitations rule was the 180-day rule of §154(b)(4).  Nineteen of Novartis's patent term adjustment claims were filed more than 180 days after the PTO denied reconsideration of its PTA determination and, thus, were untimely.   Both parties appealed the ruling of the district court to the Federal Circuit.  

II.  The Statutory Provisions at Issue

35 U.S.C. §154(b)(1)(B) states:

(B) Guarantee of no more than 3-year application pendency.—Subject to the limitations under paragraph (2), 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 of the application in the United States, not including—

(i) any time consumed by continued examination of the application requested by the applicant under section 132(b);

(ii) any time consumed by a proceeding under section 135(a), any time consumed by the imposition of an order under section 181, or any time consumed by appellate review by the Board of Patent Appeals and Interferences or by a Federal court; or

(iii) any delay in the processing of the application by the United States Patent and Trademark Office requested by the applicant except as permitted by paragraph (3)(C),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.

35 U.S.C. §§154(b)(3)(A) and (B) state:

(3) Procedures for patent term adjustment determination.—

(A) The Director shall prescribe regulations establishing procedures for the application for and determination of patent term adjustments under this subsection.

(B) Under the procedures established under subparagraph (A), the Director shall—

(i) make a determination of the period of any patent term adjustment under this subsection, and shall transmit a notice of that determination with the written notice of allowance of the application under section 151; and

(ii) provide the applicant one opportunity to request reconsideration of any patent term adjustment determination made by the Director.

35 U.S.C. §154(b)(4)(A) states:

(4) Appeal of patent term adjustment determination.—

(A) An applicant dissatisfied with a determination made by the Director under paragraph (3) shall have remedy by a civil action against the Director filed in the United States District Court for the Eastern District of Virginia within 180 days after the grant of the patent. Chapter 7 of title 5 shall apply to such action. Any final judgment resulting in a change to the period of adjustment of the patent term shall be served on the Director, and the Director shall thereafter alter the term of the patent to reflect such change.

III. 35 U.S.C. §154(b)(3) Addresses ALL Patent Term Adjustment Determinations

On appeal to the Federal Circuit, Novartis argued that §154(b)(4)(A) applies only to "a determination made by the Director under paragraph (3)" of subsection  (b).  As a result, according to Novartis, the 180-day period is not applicable to Novartis's challenges because the Director did not make those patent term adjustment determinations under paragraph (b)(3) of the statute.

The Novartis panel rejected Novartis's proposed statutory interpretation.  Instead, the Novartis panel held that the "[t]he applicable version of paragraph (b)(3) – the whole of which subparagraph (b)(4)(A) refers to – addresses all patent term adjustment determinations, not just some." 

In rejecting Novartis's proposed statutory interpretation, the Novartis panel also determined that Novartis has not demonstrated why the 180-day rule of paragraph (b)(4) should be equitably tolled for Novartis.  The Novartis panel stated that, "nothing stood in the way of Novartis's timely pressing the very claim Wyeth pressed…a litigant cannot secure equitable tolling based on the argument "not that it lacked sufficient facts on which it could sue, but rather it did not know the legal theory on which its refund claim might succeed." Venture Coal Sales Co. v. United States, 370 F.3d 1102, 1107 (Fed. Cir. 2004); see Commc'ns Vending Corp. of Arizona Inc. v. FCC, 365 F.3d 1064, 1075 (D.C. Cir. 2004). (Emphasis in original). 

The Novartis panel further rejected Novartis's Fifth Amendment claim, stating that the "[f]or the patents as to which it did not timely file suit under §154(b)(4), it was only Novartis's failure to comply with reasonable filing deadlines that prevented it from securing any patent term adjustment authorized by Wyeth."

IV. Patent Term Adjustment Is Not Available for Any Time Spent in Continued Examination, Regardless of When Continued Examination is Initiated

With regard to patent term adjustment for applications which have undergone continued examination, the PTO argued that "any time consumed by continued examination," no matter when it is initiated, does not count toward depleting the allotment of three years the PTO has before any patent adjustment time begins to accrue. More specifically, the PTO argued that no adjustment time should be available for any time in continued examination, even if continued examination was initiated more than three calendar years after the filing date.  The Novartis panel agreed with the PTO on these points.

Specifically, the Novartis panel determined that:

the patent term adjustment time should be calculated by determining the length of the time between application and patent issuance, then subtracting any continued examination time (and other time identified in (i), (ii), and (iii) of (b)(1)(B)) and determining the extent to which the result exceeds three years.

Therefore, even in instances where continued examination is initiated by the application more than three calendar years after the filing date of the application, patent term adjustment is not available for any of the time spent in continued examination.

V.  Examination Ends at Allowance

Also related to continued examination, Novartis argued that the "time consumed by continued examination" should be limited to the time before allowance, as long as no subsequent examination actually occurs.  Therefore, even if an examination undergoes continued examination, the time spent by the application after allowance, but before issuance of the patent, should count as part of the three year allotment given to the PTO.    

The Novartis panel agreed with Novartis on this point, and determined that allowance-to-issuance time is not to be distinguished according to whether there is a continued examination in prosecution. The Court further reasoned that, regardless of whether continued examination occurred or not, any allowance-to-issuance time is "plainly attributable to the PTO."

Furthermore, the Novartis panel also stated that "[a]n "examination" presumptively ends at allowance, when prosecution is closed and there is no further examination on the merits in the absence of a special reopening." 

Therefore, in determining PTA, any time spent from receiving a Notice of Allowance to the issuance of a patent should be counted toward the PTO's three-year allotment (even in cases of continued examination).

VI.       Possible en banc Review

The Novartis panel decision is to be given deference by other panels of the Federal Circuit and is binding on district courts, but it is not necessarily binding on other panels of the Federal Circuit. 

The USPTO and/or Novartis may appeal the Novartis decision and ask for a rehearing by the Federal Circuit en banc.  An en banc hearing is a situation where the case is heard before all judges of the Federal Circuit. Moreover, it should be noted that a decision en banc is binding upon all panels of the Federal Circuit (as well as all district courts), and thus must be followed by all federal courts unless/until overruled by the Supreme Court. 

If the Federal Circuit perceives Novartis as involving a question of exceptional importance, or believes that en banc consideration is necessary to secure or maintain uniformity of the court's decisions, it could take up Novartis en banc so as to speak definitively on the issue.

VII.     Recommendations

It remains important to carefully review all calculations and/or preliminary determinations on patent term adjustment, particularly in the wake of Novartis, to see if there are any instances where the PTA was improperly calculated under the rulings set forth in the Novartis ruling.  This is particularly applicable for any applications that have undergone continued examination during prosecution; as well as the timing for the filing of challenges to PTA in accordance with the statute.   

We strongly recommend continuing to examine and review all incoming patent applications which have been allowed; as well as performing a thorough review of all issued patents for potential adjustments in patent term. 

In cases where it appears the patent term adjustment has been improperly calculated and/or should be modified in view of Novartis, we recommend considering all options available for challenging the patent term, both administrative and judicial.      

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