Comments Invited

We invite you to participate in this rulemaking by submitting written comments, data, or views. We also invite comments relating to the economic, environmental, energy, or federalism impacts that might result from adopting the proposals in this document. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. To ensure the docket does not contain duplicate comments, commenters should send only one copy of written comments, or if comments are filed electronically, commenters should submit only one time.

We will file in the docket all comments that we receive, as well as a report summarizing each substantive public contact with FAA personnel concerning this proposed rulemaking. Before acting on this proposal, we will consider all comments we receive on or before the closing date for comments. We will consider comments filed after the comment period has closed if it is possible to do so without incurring expense or delay. We may change this proposal in light of the comments we receive.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued AD No.: 2008-0061, dated March 27, 2008, to correct an unsafe condition for ECD Model MBB-BK 117 C-1 and C-2 helicopters. EASA states that during testing at maximum certification altitude, a few helicopters could not reach the specified OEI power threshold. The cause was identified as an engine acceleration limitation due to a lower delivered fuel flow than the engine fuel flow demand needed to achieve the OEI rating at high altitude. They state that this condition could occur at altitudes exceeding 10,000 feet depending on the engine and FCU characteristics.

We are proposing this AD because we evaluated all known relevant information and determined that an unsafe condition exists and is likely to exist or develop on other products of these same type designs.

ECD has issued Alert Service Bulletin (ASB) No. ASB-MBB-BK117-60-121, Revision 4, (ASB121) for Model MBB-BK 117 C-1 helicopters and ASB MBB BK117 C-2-71A-003, Revision 3 (ASB003), for Model MBB-BK 117 C-2 helicopters. Both ASBs are dated December 11, 2007, and apply to Turbomeca Arriel 1E2 engines. Both ASBs specify a “MAX N1 CHECK” for helicopters with FCUs that have not been modified by Turbomeca modification TU 358, for takeoffs, landings, and hovering in-ground effect (IGE) or hovering out-of-ground effect (OGE) higher than 10,000 feet or flight above 13,000 feet. The ASBs specify limiting the maximum permissible flight altitude if the OEI rating cannot be achieved. The ASBs also specify the measures are no longer necessary when you modify both engines (Modification TU 358). EASA classified these ASBs as mandatory and issued AD No.: 2008-0061, dated March 27, 2008, to ensure the continued airworthiness of these helicopters.

This proposed AD would require compliance with specified portions of the manufacturer's service bulletin including installing a placard that corresponds to the maximum permissible flight altitude, amending the RFM to revise the maximum permissible operating altitude for both the MBB-BK 117 C-1 and C-2 helicopters, and inserting revised performance charts into the RFM for the C-1 model. This proposed AD would also require maintenance “MAX N1 CHECKs” to determine the modified maximum operational altitudes. This proposal would also require, if the engine or an FCU or module 2 or 3 is replaced, repeating the maintenance “MAX N1 CHECK.” Finally, this proposal specifies that modifying both engines with Turbomeca Modification TU 358 is terminating action for the requirements of this proposed AD. After the modification of both engines, you may remove the placards and flight manual revisions required by this AD.

We do not reference the effective date stated in the EASA AD because it has passed. We have modified the initial placard wording to make it clear that before performing the topping check, the “operating altitude” for takeoff, landing, and hovering is a pressure altitude (PA) of 10,000 feet, but flight up to a maximum 13,000 feet is permitted as long as the helicopter stays at an airspeed above effective translational lift. After the topping check is performed, the “operating altitude” limitation refers to all modes of flight.

We estimate that this proposed AD would affect 108 helicopters of U.S. Registry.

We estimate that operators may incur the following costs in order to comply with this AD. It would take about 1 work-hour per helicopter to affix a placard and insert the RFM pages at an average labor rate of $85 per work-hour. We estimate 54 maintenance flight checks for higher altitude operators would be required at $1,000 each. There are no parts costs. Based on these figures, we estimate the total cost impact of the proposed AD on U.S. operators to be $63,180.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed, I certify this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);

3. Will not affect intrastate aviation in Alaska to the extent that it justifies making a regulatory distinction; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared an economic evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

Comments Invited

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2012-0111; Directorate Identifier 2011-NM-089-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD based on those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA Airworthiness Directive 2011-0040, dated March 8, 2011 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

Required actions also include, for certain airplanes, a magnetic particle inspection of the bogie pivot pin for corrosion and base metal cracks. The corrective actions include replacing any cracked or damaged pivot pin bush with a new or serviceable pivot pin bush, and replacing any corroded or cracked bogie pin with a new bogie pin. You may obtain further information by examining the MCAI in the AD docket.

Airbus has issued the following service bulletins:

• Airbus Mandatory Service Bulletin A330-32-3240, including Appendix 1, dated December 8, 2010 (for Model A330-200 series airplanes and Model A330-300 series airplanes);

• Airbus Mandatory Service Bulletin A340-32-4281, including Appendix 1, dated December 8, 2010 (for Model A340-200 series airplanes and Model A340-300 series airplanes); and

• Airbus Mandatory Service Bulletin A340-32-5096, including Appendix 1, dated December 8, 2010 (for Model A340-541 airplanes and A340-642 airplanes).

The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design.

Based on the service information, we estimate that this proposed AD would affect about 29 products of U.S. registry. We also estimate that it would take about 22 work-hours per product to comply with the basic requirements of this proposed AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of the proposed AD on U.S. operators to be $54,230, or $1,870 per product.

In addition, we estimate that any necessary follow-on actions would take about 6 work-hours and require parts costing $21,222, for a cost of $21,732 per product. We have no way of determining the number of products that may need these actions.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);

3. Will not affect intrastate aviation in Alaska; and

4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

A. Background and Statutory Authority

The Consumer Product Safety Improvement Act of 2008, (“CPSIA,” Pub L. 110-314) was enacted on August 14, 2008. Section 104(b) of the CPSIA requires the Commission to promulgate consumer product safety standards for durable infant and toddler products. These standards are to be “substantially the same as” applicable voluntary standards or more stringent than the voluntary standard if the Commission concludes that more stringent requirements would further reduce the risk of injury associated with the product. The term “durable infant or toddler product” is defined in section 104(f)(1) of the CPSIA as a durable product intended for use, or that may be reasonably expected to be used, by children under the age of 5 years. Infant swings are one of the products specifically identified in section 104(f)(2)(F) as a durable infant or toddler product.

In this document, we propose a safety standard for infant swings. The proposed standard is based on the voluntary standard developed by ASTM International (formerly the American Society for Testing and Materials), ASTM F 2088-11b, “Standard Consumer Safety Specification for Infant Swings” (“ASTM F 2088-11b”). The ASTM standard is copyrighted but can be viewed as a read-only document, only during the comment period for this proposal, at: http://www.astm.org/cpsc.htm, by permission of ASTM.

The information discussed in this preamble supporting the proposed safety standard for infant swings can be found in the staff briefing package, which is available at http://www.cpsc.gov/.

ASTM F 2088-11b defines an “infant swing” as a “stationary unit with a frame and powered mechanism that enables an infant to swing in a seated position. An infant swing is intended for use with infants from birth until a child is able to sit up unassisted.” ASTM F 2088-11b also covers “cradle swings,” which are defined as “an infant swing which is intended for use by a child lying flat.” Cradle swings are distinguishable from other types of swings because they enable a child to lie flat on their back, even when the swing is in motion. ASTM F 2088-11b also covers “travel swings,” which are a “low profile, compact swing having a distance of 6 in. or less between the underside of the seat bottom and the support surface (floor) at any point in the seat's range of motion.”

Based on a 2005 survey conducted by American Baby Group, titled, “2006 Baby Products Tracking Study,” and Centers for Disease Control and Prevention birth data, we estimate that approximately 2.7 million infant swings are sold in the United States each year. We estimate that there are at least 10 manufacturers or importers supplying infant swings to the U.S. market. Eight firms are domestic manufacturers, and two are domestic importers with a foreign parent company.

The Juvenile Products Manufacturers Association (“JPMA”) is the major U.S. trade association that represents juvenile product manufacturers and importers. The JPMA provides a certification program that allows manufacturers and importers to use the JPMA seal if they voluntarily submit their products for testing to determine if they meet the voluntary standard. Currently, infant swings produced by 5 of the 10 firms, 4 manufacturers and 1 importer, have been certified by the JPMA as compliant with the ASTM voluntary infant swing standard.

Section 104(b)(1)(A) of the CPSIA requires us to consult representatives of “consumer groups, juvenile product manufacturers, and independent child product engineers and experts” to “examine and assess the effectiveness of any voluntary consumer product safety standards for durable infant or toddler products.” ASTM F 2088 is the primary infant swing standard in effect in the United States. Through the ASTM process, we consulted with manufacturers, retailers, trade organizations, laboratories, consumer advocacy groups, consultants, and members of the public.

ASTM F 2088 was first published in September 2001. It has been updated seven times, with the latest edition, ASTM F 2088-11b, published in November 2011. The key provisions of the current ASTM infant swing standard include: definitions; general requirements; performance requirements; specific test methods; and requirements for marking, labeling, and instructional literature.

a. Definitions. ASTM F 2088-11b contains definitions for key terms found in the standard.

b. General Requirements and Specific Test Methods. ASTM F 2088-11b contains general requirements that infant swings must meet, as well as mandated test methods that must be used to ensure that the product meets those requirements. It includes:

• Restrictions on sharp edges and points, small parts (as well as their protective caps), lead paint, and wood parts;

• Specifications to prevent scissoring, shearing, and pinching;

• Specifications on openings (intended to prevent finger and toe entrapment), labeling (intended to prevent labels from being removed and ingested or aspirated), and coil springs; and

• Requirements for toy accessory items, including mobiles that accompany infant swings.

c. Performance Requirements and Specific Test Methods. ASTM F 2088-11b contains performance requirements that infant swings must meet, as well as mandated test methods that must be used to ensure that the product meets those requirements. The standard includes:

• Structural integrity requirements, including dynamic and static load requirements, which are meant to ensure that the swing can withstand a certain amount of force;

• Stability requirements, meant to ensure that the swing does not tip over;

• Requirements to prevent unintentional folding of the swing;

• Restraint system requirements;

• A requirement to ensure that infants are not able to slip through the leg opening and strangle (because their bodies can slip through, but their heads cannot);

• Requirements for cradle swings to ensure that infants will remain flat; and

• Requirements for the battery compartment of swings, which require, for example that the compartment contain a means to prevent battery leakage.

d. Marking, Labeling, and Instructional Literature. ASTM F 2088-11b has requirements for marking, labeling, and instructions that must accompany an infant swing, including warnings advising caregivers to:

• Always use the restraint system in the swing;

• Never leave an infant unattended in a swing;

• Stop using the swing when an infant is able to climb out of it;

• Always use the most reclined seat position in swings with a certain adjustable seat recline until the infant can hold their head up unassisted; and

• Never place travel swings on an elevated surface.

There have been 2,268 incidents reported to us regarding infant swings from January 1, 2002 through May 18, 2011. All the incidents involved children under the age of 3 years. Of those reported incidents, there were 15 fatalities, 600 nonfatal injuries, and 1,653 noninjury incidents. We believe that the incidents captured in this data reflect the range of hazard patterns seen in infant swings.

Table 1 is a summary of the 15 fatalities reported to us from January 1, 2002 through May 18, 2011. We analyzed each fatality and determined: (1) The cause of the infant's death, which is usually based on the conclusion of the medical examiner; and (2) whether the infant swing caused or contributed to the fatality. There were five deaths that can be categorized as slump-over deaths. These fatalities, as well as the two other fatalities that were caused by the infant swing, are explained in more detail in Section E of this preamble.

Table 2 lists the hazards seen in infant swings. We determined the percentage of the incident reports attributable to each hazard, as well as the percentage of reported injuries attributable to each hazard. The percentages have been rounded up or down to represent a whole number. The hazards are explained in more detail in Section E of this preamble.

Information on fatalities, injuries, and noninjury incident reports that are attributable to unreasonable product misuse are mentioned only in the tables in this section. Examples of unreasonable product misuse include: placing two children in a swing meant for one child, or failing to use the restraint system. In addition, information is included only in the tables in this section on fatalities, injuries, and noninjury incident reports where: (1) it is unknown whether the infant swing contributed to the incident; or (2) there is insufficient information included in the report to determine what happened.

Fatalities, injuries, and noninjury incidents where the swing caused or contributed to the incident are discussed fully in Section E of this preamble.

Infant swing hazards are best analyzed in conjunction with an assessment of the existing provisions of ASTM 2088-11b. In this section, we describe each hazard in detail. Following the description of the hazard is a summary of the requirements currently found in ASTM 2088-11b, if any provisions exist in the standard that are meant to address the hazard. If the existing standards are not adequate to address the hazard, we present our recommended changes. In most cases, it is helpful to compare the existing language in ASTM F 2088-11b with the proposed language containing our recommended changes. When this is done, bold lettering indicates new language, and language that is struck through indicates language that we propose should be deleted. In each case, consistent with section 104 of the CPSIA, the change must be more stringent than the existing voluntary standard in order to further reduce the risk of injury associated with the hazard.

Of the 15 reported fatalities, 5 deaths have been deemed slump-over deaths. In 3 instances, the medical examiner or investigating officials specifically described the infant as being “slumped over.” In 2 additional cases, the description of the infant's position suggests slump-over deaths. Slump-over deaths occur when very young children (in these cases, infants between the ages of 2 weeks old and 3 months old) lack the neck muscle tone and strength to keep their head up. In 4 of the 5 slump-over deaths, the official cause of death, as determined by the medical examiner, is positional asphyxia. Positional asphyxiation occurs when the position of the child's body (such as compression of their neck from their head being slumped over) prevents the child from breathing. In one case, the cause of death was undetermined, but we have concluded, based on a review of the fatality, that it was a slump-over death.

Section 8.3.1(4) of ASTM F 2088-11b requires the following warning label on all infant swings that have an adjustable seat recline with a seat back angle greater than 50°: “Use only in most reclined seat position until infant can hold head up unassisted.” Infant swings with a seat back angle greater than 50° require the infant to be able to support their head, while a swing with a seat back angle less than 50° is more reclined and allows the infant to lay their head on the seat back.

We have determined that there is no engineering solution, such as a restraint, that would adequately address slump-over deaths. By including the warning statement in ASTM F 2088-11b, the ASTM committee recognizes the need for the statement in order to prevent slump-over deaths in infant swings. We agree and are not proposing any additional changes to the voluntary standard to address this issue. However, we are seeking comments related to slump-over deaths in section L of this preamble.

Issues related to restraints comprised 27 percent of the reports we received from the public. Restraint issues accounted for 33 percent of the reported injuries. Most of the reported injuries are attributable to restraint design issues, while the remainder are attributable to restraint failure.

Restraint design hazards arise when the restraint system is unable to contain a child in the swing seat, even when the restraint is assembled properly and is functioning according to the manufacturer's intent. Common reports in this category include infants who are able to lean forward or to the side and fall out of the seat. Some infants are strong enough to push themselves back and up with their feet, causing them to fall backward out of the swing, usually landing headfirst. One infant fatality and one fall that resulted in a hospitalization are attributable to restraint design problems.

Restraint failures include belt buckles or straps that break. In some reports, the restraint system detaches from the swing completely. When the restraint system does fail in some way, the result is usually a fall from the swing, which can result in serious injuries.

Section 6.4 of ASTM F 2088-11b requires all infant swings to have a waist and crotch restraint system. The standard also requires that swing restraint systems be tested to ensure that the attachment points of the system can withstand a certain amount of force, comparable to the amount of force an infant might apply. Manufacturers must ensure that the restraint system is attached to the swing and will not become detached through normal use.

ASTM F 2088-11b also contains a shoulder strap/harness requirement for infant swings with a seat back angle greater than 50°. Infants seated in swings with a seat back angle greater than 50° are much more likely to be able to lean forward or to the side, or be able to push backward. When this happens, the infant may fall out of the seat completely, or they may come into contact with the frame of the swing. Having shoulder straps on swings with a seat back angle exceeding 50° will aid in keeping the infant positioned in the swing seat.

The shoulder strap requirement is intended to address many restraint issues. The proposed rule would change section 7.12, which provides the method for testing seat back angles in order to determine whether the seat back angle is greater than 50°. Currently, the method involves placing a hinged board in the seat swing and using an inclinometer to measure the seat back angle. The proposed rule would result in more accurate, repeatable testing, by clarifying the test method to include: (1) Placing the seat in the most upright use position (currently the language only requires placing the seat in “the most upright position”); (2) removing all positioning accessories, such as pillows, that might interfere with the measurement; (3) positioning the belt restraint systems in order to limit interference with the measurement; and (4) mandating that the hinged board be made of steel because it better replicates the weight of a child in a seat. Currently, the hinged board can be made of wood. These changes would result in a more stringent standard by ensuring that measurements are more accurate and repeatable, thus, reducing the number of injuries associated with swings.

Currently, ASTM F 2088-11b contains the following test method for measuring the seat back angle at section 7.12:

We are proposing that section 7.12 of ASTM F 2088-11b be replaced by the following language:

Broken, detached, and loose components, such as arm, leg, motor housing, and hardware account for the third highest number of injuries (20%) and second most number of incident reports (25%). When part of the frame fails, or when hardware (such as screws) fall out of the product, the swing is likely to collapse with the infant seated inside the swing.

Currently, the ASTM standard requires that the durability of a swing's arm, leg, motor housing, and hardware be tested by dropping a 25 pound weight onto the seat of the swing 50 times, or cycles. This is called dynamic loading in the ASTM standard and is meant to test the structural integrity of the swing. If any part of the swing breaks, or changes in such a way that would cause the product not to fully support a child, the swing fails the test.

The proposed rule would make two changes to the dynamic load test that is found in section 7.2.1 of ASTM F 2088-11b. One change is a significant modification, and the other is a test clarification. The modification would increase the number of cycles from 50 to 500. We tested swing samples from different manufacturers, as well as a range of models and designs. The testing revealed that 500 cycles was the point at which the least robust swings started to show signs of fatigue that might result in structural failures of the swing components. Increasing the number of test cycles from 50 to 500 will lead to a reduction in injuries in infant swings that occur when the arm, leg, motor housing, or hardware of a swing fails.

The proposal also would make a clarification to the dynamic load test. Currently, when setting up the swing, if the product has more than one height position, recline position, or facing direction, the product must be tested in the configuration most likely to fail. The proposed rule would account for tray positions and any other adjustable features. This will result in more repeatable and accurate testing, which will reduce the risk of injury in swings.

Currently, ASTM F 2088-11b contains the following test method at sections 7.2.1.2 and 7.2.1.3:

We are proposing that sections 7.2.1.2 and 7.2.1.3 of ASTM F 2088-11b be replaced by the following language:

Seat issues account for 16 percent of reported incidents and 12 percent of injuries. Seat issues can be broken down into two subcategories of hazards. One is seat design issues, and the other is seat failure issues. Reports included in the seat design subcategory include seats that lean, or deflect, to one side. If a seat deflects substantially, the infant could fall out of the swing or bump against the swing frame. Some reports include scenarios where infants attempt to reach an object outside the swing, the seat deflects, and the victim falls out of the seat. Swing seat deflection is most common in swings supported by a single swing arm, which offers less support.

Seat failures include the following scenarios:

• The infant swing seat detaches from the swing frame completely;

• The back of the seat does not hold in the upright position and falls unexpectedly;

• The seat itself folds inward; and

• For swings with a fabric seat that fits over a frame, the fabric padding slips off.

In most cases, if the seat fails, the infant will fall out of the seat. In one case, it was determined that a seat failure contributed to an infant's death.

Currently, ASTM does not require testing for seat deflection. Our testing revealed that some swing seats deflect significantly. After reviewing the incidents reported to us, we noticed that swings supported by a single arm, which might make the swing less structurally sound, may be more likely to have seats that deflect in a way that could be dangerous for the occupant.

Currently, seat failure issues are addressed by dynamic loading (described in section [E][4] of this preamble on broken, detached, and loose swing components) and by static loading, which requires the tester to place a 75-pound weight (or three times the manufacturer's maximum recommended weight, whichever is greater) in the center of the swing seat. At the conclusion of the static load test, if the swing seat fails in any way, for example by detaching from the frame or folding inward, the product fails the static load test.

In regard to seat design issues, the proposed rule would add a new performance requirement and a new test method to the static load requirements that would measure seat deflection. The proposed new test method would require the tester to place a 5-pound weight onto the seat and measure the distance from the lowest point on the swing seating surface to the floor. Nominally loading the seat with 5 pounds will account for the presence of cloth seats that relax significantly when not weighted, which could interfere with the measurement. The tester then would place a 75-pound weight (or three times the manufacturer's maximum recommended weight, whichever is greater) onto the swing and record the same measurement. The two measurements are compared, and the change in vertical deflection cannot be more than 4 inches. This test will reveal whether the swing is likely to deflect or deform under severe loading conditions. In addition to the seat deflection test, the swing must still meet the current static load requirement (using the same 75-pound weight) and cannot fail in any way that could create a hazardous environment for the child.

In regard to seat failures, we believe that more robust dynamic load testing will reveal any seat failure issues that are likely to occur in the swing. The modification and testing clarification to the dynamic load test, as described in section (E)(4)(c) of this preamble, will enable testers to better assess any hazards related to the seat, such as the possibility that the seat will detach from the swing frame.

In addition to the modification and testing clarification to the dynamic load test, described in section (E)(4)(c) and contained in section (E)(4)(d) of this preamble, we propose a new static load performance requirement and test method. We are proposing that the following section 6.1.2.1 be added to ASTM F 2088-11b:

Currently, ASTM F 2088-11b contains the following test method at section 7.2.2.2:

We are proposing that section 7.2.2.2 be replaced by the following language and that the language currently found in 7.2.2.2 of ASTM F 2088-11b be moved to 7.2.2.3 and changed as follows:

Thirteen percent of reported incidents are attributable to inadequate space between the infant seat and the swing frame. This hazard is responsible for the second most number of injuries (22%). When there is inadequate clearance between the seat and frame, an infant's head can become caught, or the infant's limbs can hit the swing frame while the swing is in motion.

We believe that this hazard can be addressed by ensuring that the infant is kept securely within the seat's boundaries. If an infant is unable to maneuver outside the seat's boundaries, the infant's head is unlikely to be trapped in the swing frame or their limbs are unlikely to get into a position where they may hit the frame. The shoulder restraint requirement, mandated in ASTM F 2088-11b for swings with a seat back angle greater than 50°, is sufficient to address situations involving inadequate clearance between the seat and seat frame.

In section (E)(3)(c) of this preamble, we describe several clarifications to the seat back angle test used to determine which swings require a shoulder harness. These clarifications will result in a more stringent standard, by ensuring that measurements are more accurate and repeatable, thus, reducing the number of injuries associated with swings.

We propose adding several clarifications to the seat back angle test that is used to determine which swings require a shoulder harness. These clarifications have been discussed previously in section (E)(3)(c) of this preamble, and the proposed changes are contained in section (E)(3)(d) of the preamble.

Infant swings typically rely on a/c power, batteries, or a combination of both, to operate the product. Nine percent of the reports we received related to electrical or battery issues associated with infant swings. Common reports included: The motor overheating, batteries leaking, or the detection of smoke. Issues related to electrical or battery problems accounted for 1 percent of all reported injuries.

Currently, ASTM F 2088-11b contains standards that regulate battery compartments only. Section 6.7 of ASTM 2088-11b requires that the battery compartment be marked permanently to show the correct battery polarity, size, and voltage. Battery compartments are also required to have a means to contain the electrolyte material in the event that the battery leaks. ASTM 2088-11b also contains a requirement prohibiting nonrechargeable batteries from being recharged with a/c power. In addition, section 8.4 of ASTM 2088-11b requires all swings that use more than one battery to contain warnings. The warnings advise consumers not to mix old and new batteries, not to mix different kinds of batteries, and not to leave batteries in the swing when storing the product for long periods of time. There are no other requirements regarding the design and operation of the electrical components of swings.

The proposed rule would impose several new requirements to address hazards related to the electrical components of swings. We are proposing: (1) An electrical overload test; (2) an accessible component temperature requirement; and (3) a requirement to ensure that swings that run on a/c power are safe.

Electrical components (such as motors, batteries, and circuit boards) in a swing can overheat, and this can cause the components to melt, smoke, explode, or cause a fire. We are proposing a test to address this hazard; the proposed test is substantially similar to the test found in the ASTM F 963-08, “Standard Consumer Safety Specification for Toy Safety” (“ASTM F 963-08”). The proposed test would check to ensure that a normal electrical load cannot overload the electrical circuit. It would require the swing to be locked in a fixed position and operated continuously until a peak temperature can be recorded. For swings that operate continuously, the test would be stopped 60 minutes after the peak temperature is recorded. Under the proposal, a swing will fail the overload test if it causes battery leakage, explosion, smoke, or a fire. For swings that operate on batteries and a/c power, the proposal would require both power sources, as well as any type of battery that can be used, to be tested separately to ensure that they all meet the requirement.

The proposed accessible component temperature requirement would state that, during the electrical overload test, no accessible component may achieve a temperature exceeding 160°. Accessible components are those that a child or caregiver would be able to touch. This test is meant to protect the public from burns caused by very hot electrical components.

The proposed rule also would require swings that run on a/c power ( i.e., swings that come with an electrical cord that is plugged into a wall socket) to comply with 16 CFR part 1505, the requirements for electrically operated toys and other electrically operated articles intended for children. The regulations at 16 CFR part 1505 contain established labeling, manufacturing, design, construction, and performance requirements intended to ensure that toys and electrical items intended for children are safe for their use.

The addition of new requirements for electrical components, including the electrical overload test, the accessible component temperature requirement, and the a/c power requirement, will reduce the number of injuries associated with swings. These provisions would ensure that motors and batteries do not overheat and catch fire, that accessible components do not become hot enough to burn a child or a caregiver, and that swings that run on a/c power are safe, as measured by well-established CPSC regulations already in place that govern electrical toys and other products intended for children.

Currently, the introductory heading of ASTM F 2088-11b section 6.7 is:

Public Participation and Request for Comments

We encourage you to participate in this rulemaking by submitting comments and related materials. All comments received will be posted without change to http://www.regulations.gov and will include any personal information you have provided.

If you submit a comment, please include the docket number for this rulemaking (USCG-2011-1172), indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation. You may submit your comments and material online (via http://www.regulations.gov ) or by fax, mail, or hand delivery, but please use only one of these means. If you submit a comment online via http://www.regulations.gov , it will be considered received by the Coast Guard when you successfully transmit the comment. If you fax, hand deliver, or mail your comment, it will be considered as having been received by the Coast Guard when it is received at the Docket Management Facility. We recommend that you include your name and a mailing address, an email address, or a telephone number in the body of your document so that we can contact you if we have questions regarding your submission.

To submit your comment online, go to http://www.regulations.gov , click on the “submit a comment” box, which will then become highlighted in blue. In the “Document Type” drop down menu select “Proposed Rule” and insert “USCG-2011-1172” in the “Keyword” box. Click “Search” then click on the balloon shape in the “Actions” column. If you submit your comments by mail or hand delivery, submit them in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying and electronic filing. If you submit comments by mail and would like to know that they reached the Facility, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period and may change the rule based on your comments.

To view comments, as well as documents mentioned in this preamble as being available in the docket, go to http://www.regulations.gov , click on the “read comments” box, which will then become highlighted in blue. In the “Keyword” box insert “USCG-2011-1172” and click “Search.” Click the “Open Docket Folder” in the “Actions” column. You may also visit the Docket Management Facility in Room W12-140 on the ground floor of the Department of Transportation West Building, 1200 New Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. We have an agreement with the Department of Transportation to use the Docket Management Facility.

Anyone can search the electronic form of comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc. ). You may review a Privacy Act notice regarding our public dockets in the January 17, 2008, issue of the Federal Register (73 FR 3316).

We do not now plan to hold a public meeting. But you may submit a request for one on or before March 2, 2012, using one of the four methods specified under ADDRESSES . Please explain why you believe a public meeting would be beneficial. If we determine that one would aid this rulemaking, we will hold one at a time and place announced by a later notice in the Federal Register .

The legal basis for the proposed rule is 33 U.S.C. 1231; 46 U.S.C. Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; Public Law 107-295, 116 Stat. 2064; and Department of Homeland Security Delegation No. 0170.1, which collectively authorize the Coast Guard to define safety zones.

This rule is necessary to provide for the safety of life and navigation, for both participants and spectators involved with the America's Cup World Series in the vicinity of Newport, RI.

The state of Rhode Island Economic Development Corporation (RI EDC) is sponsoring the America's Cup World Series from June 22 to July 1, 2012, in the East Passage of Narragansett Bay in the vicinity of Newport, RI. The Series is composed of daily racing of high-speed, high-performance sailing vessels in the East Passage of Narragansett Bay, Rhode Island, adjacent to Newport. These races are part of a world-wide series of races designed to identify an international challenger to compete for the America's Cup in final event of the racing series, scheduled for 2013 in San Francisco, California. The racing of these America's Cup-class vessels in Narragansett Bay is expected to generate national and international media coverage, and attract thousands of spectators on hundreds of recreational vessels and numerous excursion vessels.

The Coast Guard is establishing safety zones in conjunction with the America's Cup World Series to ensure the protection of the maritime public and event participants from the hazards associated with these events. The Coast Guard anticipates some concern by mariners, especially commercial vessel operators, that vessel transits through the East Passage of Narragansett Bay may be restricted for a portion of each day for 10 consecutive days. The East Passage of Narragansett Bay is the site of many marine events each year and vessel traffic, particularly recreational vessel traffic, frequently transit the Bay using the West Passage so as to avoid or minimize any delay. The West Passage of Narragansett Bay may also be a viable option for many tug/barge combinations and smaller commercial vessels.

Some commercial and/or recreational vessels may require or desire to transit the East Passage of Narragansett Bay for a variety of reasons, including destination, familiarity with the waterway, tide restrictions, etc. Recreational vessels may be able to continue transits through the East Passage, even during enforcement of these safety zones, as there will be sufficient room for most recreational vessels to pass to the west of the safety zones. Also, the Coast Guard routinely works with the local marine pilot organization and shipping agents to coordinate vessel transits during marine events in the East Passage, and will continue to do so for the ACWS to avoid major interruptions to shipping schedules.

The Coast Guard proposes to add two temporary safety zones under 33 CFR T165.1172.

One temporary safety zone, labeled safety zone “North”, will extend from Newport Harbor in the vicinity of Fort Adams, across the East Passage to west of Rose Island.

A second temporary safety zone, labeled safety zone “South”, will extend from the vicinity of Castle Hill, across the East Passage and northeast to a point west of Goat Island.

The ACWS will require use of only one safety zone each day, either the “North” or “South” safety zone, depending on wind direction or other environmental factors. The actual safety zone to be enforced will be announced no later than 10 a.m. each day via Coast Guard broadcast notice to mariners and local media. Safety zone enforcement will be effective from Friday, June 22, 2012 through Sunday, July 1, 2012, and will begin each day at 11 a.m. and continue until the ACWS races are completed for the day, but no later than 5 p.m.

We developed this proposed rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 of these statutes or executive orders.

This proposed rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order.

We expect the economic impact of this proposed rule to be minimal. Although this regulation may have some impact on the public, the potential impact will be minimized for the following reasons: Vessels will only be restricted from the East Passage of Narragansett Bay from the designated safety zone for a maximum of six hours per day for a maximum of 10 days; there is an alternate route, the West Passage of Narragansett Bay, that does not add substantial transit time, is already routinely used by mariners, and will not be affected by these safety zones; many vessels, especially recreational vessels, may transit in all portions of the affected waterway except for those areas covered by the proposed safety zones; and vessels may enter or pass through the affected waterway with the permission of the COTP or the COTP's representative.

Notifications of the ACWS and associated safety zones will be made to mariners through the Rhode Island Port Safety Forum, local Notice to Mariners, event sponsors, and local media well in advance of the event.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this proposed rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities. This proposed rule would affect the following entities, some of which might be small entities: owners or operators of vessels intending to transit, fish, or anchor in the East Passage of Narragansett Bay, Rhode Island, during the ACWS races.

The proposed rule would not have a significant economic impact on a substantial number of small entities for the following reasons: vessels will only be restricted from the designated safety zone for a maximum of six hours per day for a maximum of 10 days; vessels may transit in all portions of the affected waterway except for those areas covered by the proposed safety zones, and vessels may enter or pass through the affected waterway with the permission of the COTP or the COTP's representative.

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment ( see ADDRESSES ) explaining why you think it qualifies and how and to what degree this rule would economically affect it.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed under FOR FURTHER INFORMATION CONTACT . The Coast Guard will not retaliate against small entities that question or complain about this proposed rule or any policy or action of the Coast Guard.

This proposed rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this proposed rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this proposed rule would not result in such expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This proposed rule would not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This proposed rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this proposed rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children.

This proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this proposed rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies.

This proposed rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this proposed rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have made a preliminary determination that this action appears to be one of a category of actions which do not individually or cumulatively have a significant effect on the human environment.

A preliminary environmental analysis checklist supporting this determination is available in the docket where indicated under ADDRESSES . This proposed rule involves the establishment of temporary safety zones in conjunction with the America's Cup World Series, a high-speed, high-performance sailing vessel racing event. It appears that this action will qualify for Coast Guard Categorical Exclusion (34)(g), as described in figure 2-1 of the Commandant Instruction.

We seek any comments or information that may lead to the discovery of a significant environmental impact from this proposed rule.

Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Security measures, Waterways.

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 165 as follows:

On September 16, 2011, the Leahy-Smith America Invents Act was enacted into law (Pub. L. 112-29, 125 Stat. 284 (2011)). The purpose of the Leahy-Smith America Invents Act and these proposed regulations is to establish a more efficient and streamlined patent system. The preamble of this notice sets forth in detail the procedures by which the Board will conduct a new administrative proceeding called a derivation proceeding. Derivation proceedings were created to ensure that the first person to file the application is actually a true inventor. This new proceeding will ensure that a person will not be able to obtain a patent for the invention that he did not actually invent. If a dispute arises as to which of two applicants is a true inventor (as opposed to who invented it first), it will be resolved through derivation proceeding by the Board. The USPTO is engaged in a transparent process to create the procedures for derivation proceedings. The proposed rules would provide a set of rules relating to Board trial practice for derivation proceedings.

Section 3(i) of the Leahy-Smith America Invents Act amends 35 U.S.C. 135 to provide for derivation proceedings and to eliminate the interference practice as to applications and patents having an effective filing date on or after March 16, 2013 (with a few exceptions). Derivation proceedings will be conducted in a manner similar to inter partes reviews and post-grant reviews. Unlike patent interferences, derivations will be conducted in a single phase without the use of a “count.” An inventor seeking a derivation proceeding must file an application. 35 U.S.C. 135(a). An inventor, however, may copy an alleged deriver's application, make any necessary changes to reflect accurately what the inventor invented, and provoke a derivation proceeding by the timely filing of a petition and fee.

In particular, 35 U.S.C. 135(a), as amended, will provide that an applicant for patent may file a petition to institute a derivation proceeding in the Office. 35 U.S.C. 135(a), as amended, will provide that the petition must state with particularity the basis for finding that a named inventor in the earlier application derived the claimed invention from an inventor named in the petitioner's application and, without authorization, filed the earlier application. 35 U.S.C. 135(a), as amended, also will provide that the petition must be filed within one year of the first publication by the earlier applicant of a claim to the same or substantially the same invention, made under oath, and be supported by substantial evidence. 35 U.S.C. 135(a), as amended, will also provide that if the Director determines that the petition demonstrates that the standards for instituting a derivation proceeding are met, the Director may institute a derivation proceeding and that the determination of whether to initiate a derivation proceeding is final and nonappealable. A derivation is unlikely to be declared even where the Director thinks the standard for instituting a derivation proceeding is met if the petitioner's claim is not otherwise in condition for allowance. Cf. Brenner v. Manson, 383 U.S. 519, 528 n.12 (1966); accord Ewing v. Fowler Car Co., 244 U.S. 1, 7 (1917).

35 U.S.C. 135(b), as amended, will provide that, once a derivation proceeding is initiated, the Patent Trial and Appeal Board will determine whether a named inventor in the earlier application derived the claimed invention from a named inventor in the petitioner's application and, without authorization, filed the earlier application. 35 U.S.C. 135(b), as amended, will also provide that the Patent and Trial and Appeal Board may correct the naming of the inventor of any application or patent at issue in appropriate circumstances, and that the Director will prescribe regulations for the conduct of derivation proceedings, including requiring parties to provide sufficient evidence to prove and rebut a claim of derivation.

35 U.S.C. 135(c), as amended, will provide that the Patent Trial and Appeal Board may defer action on a petition for derivation proceeding for up to three months after a patent is issued from the earlier application that includes a claim that is the subject of the petition. 35 U.S.C. 135(c), as amended, will further provide that the Patent Trial and Appeal Board also may defer action on a petition for a derivation proceeding or stay the proceeding after it has been initiated until the termination of a proceedings under chapter 30, 31, or 32 involving the patent of the earlier applicant.

35 U.S.C. 135(d), as amended, will provide that a decision that is adverse to claims in an application constitutes the final refusal of the claims by the Office, while a decision adverse to claims in a patent constitutes cancellation of the claims, if no appeal or other review of the decision has been taken or had. 35 U.S.C. 135(d), as amended, will provide that a notice of cancellation must be endorsed on copies of the patent distributed after the cancellation.

Section 3(i) of the Leahy-Smith America Invents Act further adds two new provisions, 35 U.S.C. 135(e) and (f). In particular, new paragraph (e) will provide that the parties to a derivation proceeding may terminate the proceeding by filing a written statement reflecting the agreement of the parties as to the correct inventors of the claimed invention in dispute. 35 U.S.C. 135(e) will provide that the Patent Trial and Appeal Board must take action consistent with the agreement, unless the Board finds the agreement to be inconsistent with the evidence of record. 35 U.S.C. 135(e) will further provide that the written settlement or understanding of the parties must be filed with the Director and, at the request of a party, will be treated as business confidential information, will be kept separate from the file of the involved patents or applications, and will be made available only to Government agencies on written request, or to any person on a showing of good cause.

New paragraph (f) of 35 U.S.C. 135 will allow the parties to a derivation proceeding to determine the contest, or any aspect thereof, by arbitration within a time specified by the Director, and will provide that the arbitration is governed by the provisions of title 9, to the extent that title is not inconsistent with 35 U.S.C. 135. 35 U.S.C. 135(f) will also provide that the parties must give notice of any arbitration award to the Director, that the award is not enforceable until such notice is given, and that the award, as between the parties to the arbitration, is dispositive of the issues to which it relates but does not preclude the Director from determining the patentability of the claimed inventions involved in the proceeding. The Director will delegate to the Board authority to resolve patentability issues that arise during derivation proceedings when there is good cause to do so.

This notice proposes new rules to implement the provisions of the Leahy-Smith America Invents Act for instituting and conducting derivation proceedings before the Patent Trial and Appeal Board (Board). 35 U.S.C. 135(b), as amended, will provide that the Director will prescribe regulations setting forth standards for the conduct of derivation proceedings. This notice proposes to add a new subpart E to 37 CFR part 42 to provide rules specific to derivation proceedings.

Additionally, the Office in a separate rulemaking is proposing to add part 42, including subpart A, (RIN 0651-AC70) that would include a consolidated set of rules relating to Board trial practice. More specifically, the proposed subpart A of part 42 would set forth the policies, practices, and definitions common to all trial proceedings before the Board. The proposed rules in the instant notice and discussion below may reference the proposed rules in subpart A of part 42. Furthermore, the Office in separate rulemakings proposes to add a new subpart B to 37 CFR part 42 (RIN 0651-AC71) to provide rules specific to inter partes review, a new subpart C to 37 CFR part 42 (RIN 0651-AC72) to provide rules specific to post-grant review, and a new subpart D to 37 CFR part 42 (RIN 0651-AC73; RIN 0651-AC75) to provide rules specific to transitional program covered business method patents.

Title 37 of the Code of Federal Regulations, Chapter I, Part 42, Subpart E, entitled “Derivation” is proposed to be added as follows:

Section 42.400: Proposed § 42.400 would set forth policy considerations for derivation proceedings.

Proposed § 42.400(a) would provide that a derivation proceeding is a trial and subject to the rules set forth in subpart A.

Proposed § 42.400(b) would delegate to the Board the Director's authority to resolve patentability issues when there is good cause to do so. See the last sentence of 35 U.S.C. 135(f), as amended. For example, an issue of claim indefiniteness (35 U.S.C. 112) might need to be resolved before derivation can be substantively addressed on the merits. Resolution of such issues promotes procedural efficiency, and may even encourage party settlement, by providing clear guidance on the scope of the contested issues.

Section 42.401: Proposed § 42.401 would set forth definitions specific to derivation proceedings, in addition to definitions set forth in § 42.2 of this part.

Definitions proposed:

Agreement or understanding under 35 U.S.C. 135(e): The proposed definition would reflect the terminology used in 35 U.S.C. 135(e), as amended, to describe a settlement between parties to a derivation proceeding.

Applicant: The proposed definition would make it clear that reissue applicants are considered applicants, and not patentees, for purposes of a derivation proceeding.

Application: The proposed definition would make it clear that a reissue application is an application, not a patent, for purposes of a derivation proceeding. Specifically, the proposed definition includes both an application for an original patent and an application for a reissued patent.

Petitioner: The proposed definition of petitioner incorporates the statutory requirement (35 U.S.C. 135(a), as amended) that the petitioner be an applicant.

Respondent: The proposed definition of respondent identifies the respondent as the party other than the petitioner.

Section 42.402: Proposed § 42.402 would provide who may file a petition for a derivation proceeding.

Section 42.403: Proposed § 42.403 would provide that a petition for a derivation proceeding must be filed within one year after the first publication of a claim to an invention that is the same or substantially the same as the respondent's earlier application's claim to the invention. Such publication may be the publication by the USPTO of an application for patent or patent or by the World Intellectual Property Organization of an international application designating the United States. 35 U.S.C. 135(a), as amended, will provide that a petition for instituting a derivation proceeding may only be filed within the one-year period of the first publication to a claim to an invention that is the same or substantially the same as the earlier application's claim to the invention. The proposed rule is consistent with 35 U.S.C. 135(a), as amended, because the earlier application's first publication of the allegedly derived invention triggers the one-year bar date. While the statute's use of the phrase “a claim” is ambiguous inasmuch as it could include the petitioner's claim as a trigger, such a broad construction could violate due process. For example, the petitioner could be barred by publication of its own claim before it had any knowledge of the respondent's application. Such problems may be avoided if the trigger for the deadline is publication of the respondent's claim.

Section 42.404: Proposed § 42.404 would provide that a fee must accompany the petition for a derivation proceeding and that no filing date will be accorded until payment is complete.

Section 42.405: Proposed § 42.405 would identify the content of a petition to institute a derivation proceeding. The proposed rule is consistent with 35 U.S.C. 135(b), as amended, which will allow the Director to prescribe regulations setting forth standards for the conduct of derivation proceedings, including requiring parties to provide sufficient evidence to prove and rebut a claim of derivation.

Proposed § 42.405(a) would require a petition to demonstrate that the petitioner has standing. To establish standing, a petitioner, at a minimum, must timely file a petition that demonstrates that the named inventor on the earlier filed application derived the claimed invention and filed the earlier application without authorization from the petitioner. This proposed requirement attempts to ensure that a party has standing to file the petition and would help prevent spuriously instituted derivation proceedings. This proposed rule also ensures that the petitioner has taken steps to obtain patent protection for the same or substantially same invention, thus promoting the useful arts. Facially improper standing would be a basis for denying the petition without proceeding to the merits of the decision.

Proposed § 42.405(b) would require that the petition identify the precise relief requested. The petition must provide sufficient information to identify the application or patent subject to a derivation proceeding. The petition must also demonstrate that the claimed invention in the subject application or patent was derived from an inventor named in the petitioner's application and, without authorization, the earliest application claiming such invention was filed. The petitioner must further show why the claim is not patentably distinct from the invention disclosed to the respondent. For each of the respondent's targeted claims, the petitioner must likewise identify how the claim to the allegedly derived invention is to be construed. Where the claim to be construed contains a means-plus-function or step-plus-function limitation as permited under 35 U.S.C. 112, sixth paragraph, the construction of the claim must identify the specific portions of the specification that describe the structure, material, or acts corresponding to each claimed function. The proposed rule would provide an efficient means for identifying the legal and factual basis supporting a prima facie case of relief and would provide the opponent with a minimum level of notice as to the basis for the allegations of derivation.

Proposed § 42.405(c) would provide that a derivation showing is not sufficient unless it is supported by substantial evidence and at least one affidavit addressing communication and lack of authorization, consistent with 35 U.S.C. 135(a), as amended. The showing of communication must be corroborated.

Section 42.406: Proposed § 42.406 would provide requirements for the service of a petition in addition to the requirements set forth in § 42.6(e).

Proposed § 42.406(a) would require that the petitioner serve the respondent at the correspondence address of record. Petition may also attempt service at any other address known to the petitioner as likely to effect service. Once a patent has issued, communications between the Office and the patent owner often suffer. Ray v. Lehman, 55 F.3d 606 (Fed. Cir. 1995) (patentee's failure to maintain correspondence address contributed to failure to pay maintenance fee and therefore expiration of the patent). While the proposed rule requires service at the correspondence address of record, in many cases, the petitioner will already be in communication with the owner of the earlier application at a better service address than the official correspondence address.

Proposed § 42.406(b) would address the situation where delivery to an earlier application's correspondence address does not result in actual service. When the petitioner becomes aware of a service problem, it would be required to promptly advise the Board of the problem. The Board may authorize other forms of service, such as service by publication in the Official Gazette of the United States Patent and Trademark Office. Cf. 37 CFR 1.47(c) (notice by publication).

Section 42.407: Proposed § 42.407(a) would provide requirements for a complete petition. 35 U.S.C. 135(b), as amended, will provide that the Director establish regulations concerning the standards for the conduct of derivation proceedings. 35 U.S.C. 135(a), as amended, will provide that a derivation proceeding may be instituted where the Director determines that a petition demonstrates that the standards for instituting a derivation proceeding are met. Consistent with statute, the proposed rule would require that a complete petition be filed along with the fee and that it be served at the correspondence address of record for the earlier application.

Proposed § 42.407(b) would provide petitioners a one month time frame to correct defective requests to institute a derivation proceeding, unless the statutory deadline in which to file a petition for derivation has expired. In determining whether to grant a filing date, the Board would review the requests for procedural compliance. Where a procedural defect is noted, e.g., failure to state the claims being challenged, the Board would notify the petitioner that the request was incomplete and identify any non-compliance issues.

Section 42.408: Proposed § 42.408 would provide that an administrative patent judge institutes and may reinstitute a derivation proceeding on behalf of the Director.

Section 42.409: Proposed § 42.409 would make it clear that an agreement or understanding filed under 35 U.S.C. 135(e) would be a settlement agreement for purposes of § 42.74.

Section 42.410: Proposed § 42.410 would provide for arbitration of derivation proceedings. Proposed § 42.410(a) will provide that parties to a derivation proceeding may determine such contest, or any aspect thereof, by arbitration, except that nothing shall preclude the Office from determining the patentability of the claimed inventions involved in the proceeding. The proposed rule is consistent with 35 U.S.C. 135(f) because it would permit arbitration but would not preclude the Office from independently determining issues of patentability during the course of the proceeding. Proposed § 42.410(b) provides that the Board will not set a time for, or otherwise modify the proceeding for, an arbitration unless the listed procedural requirements are met.

Section 42.411: Proposed § 42.411 would provide that an administrative patent judge may decline to institute or continue a derivation proceeding between an application and a patent or another application that are commonly owned. Common ownership in a derivation proceeding is a concern because it can lead to manipulation of the process. The proposed rule would be stated permissively because not all cases of overlapping ownership would be cause for concern. The cases of principal concern involve a real party in interest with the ability to control the conduct of more than one party.

Section 42.412: Proposed § 42.412 would provide for public availability of Board records.

A. Administrative Procedure Act (APA): This notice proposes rules of practice concerning the procedure for requesting a derivation and the trial process after initiation of such a review. The changes being proposed in this notice do not change the substantive criteria of patentability. These proposed changes involve rules of agency practice and procedure and/or interpretive rules. See Bachow Commc'ns Inc. v. FCC, 237 F.3d 683, 690 (DC Cir. 2001) (rules governing an application process are procedural under the Administrative Procedure Act); Inova Alexandria Hosp. v. Shalala, 244 F.3d 342, 350 (4th Cir. 2001) (rules for handling appeals were procedural where they did not change the substantive standard for reviewing claims); Nat'l Org. of Veterans' Advocates v. Sec'y of Veterans Affairs, 260 F.3d 1365, 1375 (Fed. Cir. 2001) (a rule that clarifies interpretation of a statute is interpretive).

Accordingly, prior notice and opportunity for public comment are not required pursuant to 5 U.S.C. 553(b) or (c) (or any other law), and thirty-day advance publication is not required pursuant to 5 U.S.C. 553(d) (or any other law). See Cooper Techs. Co. v. Dudas, 536 F.3d 1330, 1336-37 (Fed. Cir. 2008) (stating that 5 U.S.C. 553, and thus 35 U.S.C. 2(b)(2)(B), does not require notice and comment rulemaking for “interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice”) (quoting 5 U.S.C. 553(b)(A)). The Office, however, is publishing these changes and the Initial Regulatory Flexibility Act analysis, below, for comment as it seeks the benefit of the public's views on the Office's proposed implementation of these provisions of the Leahy-Smith America Invents Act.

B. Regulatory Flexibility Act: The Office estimates that no more than 50 petitions for derivation will be filed in fiscal year 2013. This will be the first fiscal year in which derivation petitions will be available.

The Office has reviewed the percentage of applications and patents for which an interference was declared in fiscal year 2011. Applications and patents known to be owned by a small entity represent 19.62% of applications and patents for which interference was declared in FY 2011. Based on the assumption that the same percentage of applications and patents owned by small entities will be involved in a derivation proceeding, 20 small entity owned applications or patents would be affected by derivation review of the 100 parties to the 50 derivation proceedings.

1. Description of the Reasons That Action by the Office Is Being Considered: On September 16, 2011, the Leahy-Smith America Invents Act was enacted into law (Pub. L. 112-29, 125 Stat. 284 (2011)). Section 3(i) of the Leahy-Smith America Invents Act amends 35 U.S.C. 135 to provide for derivation proceedings and eliminate the interference practice as to applications and patents that have an effective filing date on or after March 16, 2013 (with a few exceptions). 35 U.S.C. 135(b), as amended, will require that the Director prescribe regulations to set forth the standards for conducting derivation proceedings, including requiring parties to provide sufficient evidence to prove and rebut a claim of derivation.

2. Succinct Statement of the Objectives of, and Legal Basis for, the Proposed Rules: The proposed rules seek to implement derivation proceedings as authorized by the Leahy-Smith America Invents Act.

3. Description and Estimate of the Number of Affected Small Entities: The Small Business Administration (SBA) small business size standards applicable to most analyses conducted to comply with the Regulatory Flexibility Act are set forth in 13 CFR 121.201. These regulations generally define small businesses as those with fewer than a specified maximum number of employees or less than a specified level of annual receipts for the entity's industrial sector or North American Industry Classification System (NAICS) code. As provided by the Regulatory Flexibility Act, and after consultation with the Small Business Administration, the Office formally adopted an alternate size standard as the size standard for the purpose of conducting an analysis or making a certification under the Regulatory Flexibility Act for patent-related regulations. See Business Size Standard for Purposes of United States Patent and Trademark Office Regulatory Flexibility Analysis for Patent-Related Regulations, 71 FR 67109 (Nov. 20, 2006), 1313 Off. Gaz. Pat. Office 60 (Dec. 12, 2006). This alternate small business size standard is SBA's previously established size standard that identifies the criteria entities must meet to be entitled to pay reduced patent fees. See 13 CFR 121.802. If patent applicants identify themselves on a patent application as qualifying for reduced patent fees, the Office captures this data in the Patent Application Location and Monitoring (PALM) database system, which tracks information on each patent application submitted to the Office.

Unlike the SBA small business size standards set forth in 13 CFR 121.201, the size standard for USPTO is not industry-specific. The Office's definition of a small business concern for Regulatory Flexibility Act purposes is a business or other concern that: (1) Meets the SBA's definition of a “business concern or concern” set forth in 13 CFR 121.105; and (2) meets the size standards set forth in 13 CFR 121.802 for the purpose of paying reduced patent fees, namely an entity: (a) Whose number of employees, including affiliates, does not exceed 500 persons; and (b) which has not assigned, granted, conveyed, or licensed (and is under no obligation to do so) any rights in the invention to any person who made it and could not be classified as an independent inventor, or to any concern which would not qualify as a non-profit organization or a small business concern under this definition. See Business Size Standard for Purposes of United States Patent and Trademark Office Regulatory Flexibility Analysis for Patent-Related Regulations, 71 FR at 67112 (Nov 20, 2006), 1313 Off. Gaz. Pat. Office at 63 (Dec. 12, 2006).

As discussed above, it is anticipated that 50 petitions for derivation will be filed in fiscal year 2013. The Office has reviewed the percentage of applications and patents for which an interference was declared in fiscal year 2011. Applications and patents known to be owned by a small entity represent 19.62% of applications and patents for which interference was declared in FY 2011. Based on the assumption that the same percentage of applications and patents owned by small entities will be involved in a derivation proceeding, 20 small entity owned applications or patents would be affected by derivation proceeding.

The Office predicts that it will institute 10 derivation proceedings based on petitions seeking derivation filed in fiscal year 2013. This estimate is based on the low number of interference proceedings declared as well as the limited number of eligible applications.

During fiscal year 2011, the Office issued 21 decisions following a request for reconsideration of a decision on appeal in inter partes reexamination. The average time from original decision to decision on reconsideration was 4.4 months. Thus, the decisions on reconsideration were based on original decisions issued from July 2010 until June 2011. During this time period, the Office mailed 63 decisions on appeals in inter partes reexamination. See BPAI Statistics—Receipts and Dispositions by Technology Center, http://www.uspto.gov/ip/boards/bpai/stats/receipts/index.jsp (monthly data). Based on the assumption that the same rate of reconsideration (21 divided by 63 or 33.3%) will occur, the Office estimates that 2 requests for reconsideration will be filed. Based on the percentage of small entity owned patent applications or patents that were the subject of an interference declared in fiscal year 2010 (19.62%) it is estimated that 1 small entity will file a request for a reconsideration of a decision dismissing the petition for derivation in fiscal year 2013.

The Office reviewed motions, oppositions, and replies in a number of contested trial proceedings before the trial section of the Board. The review included determining whether the motion, opposition and reply were directed to patentability grounds and non-priority non-patentability grounds. Based on the review, it is anticipated that derivation proceedings will have an average of 23.4 motions, oppositions, and replies per trial after institution. Settlement is estimated to occur in 20% of instituted trials at various points of the trial. In the trials that are settled, it is estimated that only 50% of the noted motions, oppositions, and replies would be filed.

After a trial has been instituted but prior to a final written decision, parties to a derivation proceeding may request an oral hearing. It is anticipated that 5 requests for oral hearings will be filed. Based on the percentage of small entity owned patent applications or patents that were the subject of an interference declared in fiscal year 2010 (19.62%), it is estimated that 2 small entities will file a request for oral hearing derivation proceedings instituted in fiscal year 2013.

Parties to a review or derivation proceeding may file requests to treat a settlement as business confidential, request for adverse judgment, and arbitration agreements and awards. A written request to make a settlement agreement available may also be filed. Given the short time period set for conducting trials, it is anticipated that the alternative dispute resolution options will be infrequently used. The Office estimates that 2 requests to treat a settlement as business confidential, 2 written requests to make a settlement agreement available, 2 requests for adverse judgment, default adverse judgment, or settlement notices and 2 arbitration agreements and awards will be filed. Based on the percentage of small entity owned patent applications or patents that were the subject of an interference declared in fiscal year 2010 (19.62%), it is estimated that 1 small entity will file a request to treat a settlement as business confidential, 1 small entity will file a request for adverse judgment, default adverse judgment notice, or settlement notice, and 1 small entity will file an arbitration agreement and award in the derivation proceedings instituted in fiscal year 2013.

Parties to a derivation proceeding may seek judicial review of the final decision of the Board. The Office projects that no more than 5 derivation proceedings filed in fiscal year 2013 will be appealed. Based on the percentage of small entity owned patent applications or patents that were the subject of an interference declared in fiscal year 2010 (19.62%), it is estimated that 2 small entities will seek judicial review of final decisions of the Board in the derivation proceedings instituted in fiscal year 2013.

4. Description of the Reporting, Recordkeeping, and Other Compliance Requirements of the Proposed Rule, Including an Estimate of the Classes of Small Entities Which Will Be Subject to the Requirement and the Type of Professional Skills Necessary for Preparation of the Report or Record: Based on the trends of declared contested cases in fiscal year 2011, it is anticipated that petitions for derivation will be filed across all technologies with approximately 16% being filed in electrical technologies, approximately 17% in mechanical technologies, and the remaining 67% in chemical technologies and design. A derivation petition is likely to be filed by an entity practicing in the same or similar field as the patent. Therefore, it is anticipated that 16% of the petitions for review will be filed in the electronic field, 17% in the mechanical field, and 67% in the chemical or design fields.

Preparation of the petition would require analyzing the patent claims, locating evidence supporting arguments of communication, and preparing the petition seeking review of the patent. The procedures for petitions to institute a derivation proceeding are proposed in §§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.22, 42.24(a)(4), 42.63, 42.65, and 42.402 through 42.406.

The skills necessary to prepare a petition seeking a derivation proceeding and to participate in a trial before the Patent Trial and Appeal Board would be similar to those needed to prepare a request for inter partes reexamination, and to represent a party in an inter partes reexamination before the Patent Trial and Appeal Board. The level of skill is typically possessed by a registered patent practitioner having devoted professional time to the particular practice area, typically under the supervision of a practitioner skilled in the particular practice area. Where authorized by the Board, a non-registered practitioner may be admitted pro hac vice, on a case-by-case basis based on the facts and circumstances of the trial and party, as well as the skill of the practitioner.

The cost of preparing a petition for inter partes review is anticipated to be same as the cost for preparing a request for inter partes reexamination. The American Intellectual Property Law Association's AIPLA Report of the Economic Survey 2011 reported that the average cost of preparing a request for inter partes reexamination was $46,000. Based on the work required to file and prepare such request, the Office considers the reported cost as a reasonable estimate. Accordingly, the Office estimates that the cost of preparing a petition for inter partes review will be $46,000.

The cost of preparing a petition for post-grant or covered business method patent review is estimated to be 33.333% higher than the cost of preparing a petition for inter partes review because the petition for post-grant or covered business method patent review may seek to institute a proceeding on additional grounds such as subject matter eligibility. Therefore, the Office estimates that the cost of preparing a petition for post-grant or covered business method patent review would be $61,333. It is expected that petitions for derivation would have the same complexity and cost as a petition for post-grant review because derivation proceedings raise issues of communication, which have similar complexity to the issues that can be raised in a post-grant review, i.e., public use and sale and written description. Thus, the Office estimates that the cost of preparing a petition for derivation would also be $61,333.

Following institution of a trial, the parties may be authorized to file various motions, e.g., motions to amend and motions for additional discovery. Where a motion is authorized, an opposition may be authorized, and where an opposition is authorized, a reply may be authorized. The procedures for filing a motion are proposed in §§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.22, 42.24(a)(5), 42.51, 42.52, 42.53, 42.54, 42.63, 42.64, and 42.65. The procedures for filing an opposition are proposed in §§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.23, 42.24(b), 42.51, 42.52, 42.53, 42.54, 42.63, 42.64, and 42.65. The procedures for filing a reply are proposed in §§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.23, 42.24(c), 42.51, 42.52, 42.53, 42.54, 42.63, and 42.65. As discussed previously, the Office estimates that the average derivation proceeding is anticipated to have 23.4 motions, oppositions, and replies after institution.

The AIPLA Report of the Economic Survey 2011 reported that the average cost in contested cases before the trial section of the Board prior to the priority phase was $322,000 per party. Because of the overlap of issues in patentability grounds, it is expected that the cost per motion will decline as more motions are filed in a proceeding. It is estimated that a motion, opposition, or reply in a derivation is estimated at $34,000, which is estimated by dividing the total public cost for all motions in current contested cases divided by the estimated number of motions in derivations under 35 U.S.C. 135, as amended. Based on the work required to file and prepare such briefs, the Office considers the reported cost as a reasonable estimate.

After a trial has been instituted but prior to a final written decision, parties to a review or derivation proceeding may request an oral hearing. The procedure for filing requests for oral argument is proposed in § 42.70. The AIPLA Report of the Economic Survey 2011 reported that the third quartile cost of an ex parte appeal with an oral argument is $12,000, while the third quartile cost of an ex parte appeal without an oral argument is $6,000. In view of the reported costs, which the Office finds reasonable, and the increased complexity of an oral hearing with multiple parties, it is estimated that the cost per party for oral hearings would be $6,800 or $800 more than the reported third quartile cost for an ex parte oral hearing.

Parties to a derivation proceeding may file requests to treat a settlement as business confidential, request for adverse judgment, and arbitration agreements and awards. A written request to make a settlement agreement available may also be filed. The procedures to file requests that a settlement be treated as business confidential are proposed in §§ 42.74(c) and 42.409. The procedures to file requests for adverse judgment are proposed in § 42.73(b). The procedures to file arbitration agreements and awards are proposed in § 42.410. The procedures to file requests to make a settlement agreement available are proposed in § 42.74(c)(2). It is anticipated that requests to treat a settlement as business confidential will require 2 hours of professional time or $680. It is anticipated that requests for adverse judgment will require 1 hour of professional time or $340. It is anticipated that arbitration agreements and awards will require 4 hours of professional time or $1,360. It is anticipated that requests to make a settlement agreement available will require 1 hour of professional time or $340. The requests to make a settlement agreement available will also require payment of a fee of $400 specified in proposed § 42.15(d). The fee proposed would be the same as currently set forth in § 41.20(a) for petitions to the Chief Administrative Patent Judge.

Parties to a review proceeding may seek judicial review of the judgment of the Board. The procedures to file notices of judicial review of a Board decision, including notices of appeal and notices of election provided for in 35 U.S.C. 141, 142, 145, and 146, are proposed in §§ 90.1 through 90.3. The submission of a copy of a notice of appeal or a notice of election is anticipated to require 6 minutes of professional time at a cost of $34.

5. Description of Any Significant Alternatives to the Proposed Rules Which Accomplish the Stated Objectives of Applicable Statutes and Which Minimize Any Significant Economic Impact of the Rules on Small Entities:

Size of petitions and motions: The Office considered whether to apply a page limit and what an appropriate page limit would be. The Office does not currently have a page limit on inter partes reexamination requests. The inter partes reexamination requests from October 1, 2010 to June 30, 2011, averaged 246 pages. Based on the experience of processing inter partes reexamination requests, the Office finds that the very large size of the requests has created a burden on the Office that hinders the efficiency and timeliness of processing the requests, and creates a burden on patent owners. The quarterly reported average processing time from the filing of a request to the publication of a reexamination certificate ranged from 28.9 months to 41.7 months in fiscal year 2009, from 29.5 months to 37.6 months in fiscal year 2010, and from 31.9 to 38.0 months in fiscal year 2011. See Reexaminations—FY 2011, http://www.uspto.gov/patents/Reexamination_operational_statistic_through_FY2011Q4.pdf .

By contrast, the Office has a page limit on the motions filed in contested cases, except where parties are specificially authorized to exceed the limitation. The typical contested case proceeding is subject to a standing order that sets a 50 page limit for motions and oppositions on priority, a 15 page limit for miscellaneous motions (§ 41.121(a)(3)) and oppositions (§ 41.122), and a 25 page limit for other motions (§ 41.121(a)(2)) and oppositions to other motions. In typical proceedings, replies are subject to a 15 page limit if directed to priority, 5 page limit for miscellaneous issue, and 10 page limit for other motions. The average contested case was terminated in 10.1 months in fiscal year 2009, in 12 months in fiscal year 2010, and 9 months in fiscal year 2011. The percentage of contested cases terminated within 2 years was 93.7% in fiscal year 2009, 88.0% in fiscal year 2010, and 94.0% in fiscal year 2011. See BPAI Statistics—Performance Measures, http://www.uspto.gov/ip/boards/bpai/stats/perform/index.jsp.

Comparing the average time period for terminating a contested case, 10.0 to 12.0 months, with the average time period, during fiscal years 2009 through 2011, for completing an inter partes reexamination, 28.9 to 41.7 months, indicates that the average interference takes from 24% (10.0/41.7) to 42% (12.0/28.9) of the time of the average inter partes reexamination. While several factors contribute to the reduction in time, limiting the size of the requests and motions is considered a significant factor. Proposed § 42.24 would provide page limits for petitions, motions, oppositions, and replies.

Federal courts routinely use page limits in managing motions practice as “[e]ffective writing is concise writing.” Spaziano v. Singletary, 36 F.3d 1028, 1031 n.2 (11th Cir. 1994). Many district courts restrict the number of pages that may be filed in a motion including, for example, the District of Delaware, the District of New Jersey, the Eastern District of Texas, the Northern, Central, and Southern Districts of California, and the Eastern District of Virginia.

Federal courts have found that page limits ease the burden on both the parties and the courts, and patent cases are no exception. Eolas Techs., Inc. v. Adobe Sys., Inc., No. 6:09-CV-446, at 1 (E.D. Tex. Sept. 2, 2010) (“The Local Rules' page limits ease the burden of motion practice on both the Court and the parties.”); Blackboard, Inc. v. Desire2Learn, Inc., 521 F. Supp. 2d 575, 576 (E.D. Tex. 2007) (The parties “seem to share the misconception, popular in some circles, that motion practice exists to require federal judges to shovel through steaming mounds of pleonastic arguments in Herculean effort to uncover a hidden gem of logic that will ineluctably compel a favorable ruling. Nothing could be farther from the truth.”); Broadwater v. Heidtman Steel Prods., Inc., 182 F. Supp. 2d 705, 710 (S.D. Ill. 2002) (“Counsel are strongly advised, in the future, to not ask this Court for leave to file any memoranda (supporting or opposing dispositive motions) longer than 15 pages. The Court has handled complicated patent cases and employment discrimination cases in which the parties were able to limit their briefs supporting and opposing summary judgment to 10 or 15 pages.” (Emphasis omitted)).

The Board's contested cases experience with page limits in motions practice is consistent with that of the federal courts. The Board's use of page limits has shown it to be beneficial without being unduly restrictive for the parties. Page limits have encouraged the parties to focus on dispositive issues, easing the burden of motions practice on the parties and on the Board.

The Board's contested cases experience with page limits is informed by its use of different approaches over the years. In the early 1990s, page limits were not routinely used for motions, and the practice suffered from lengthy and unacceptable delays. To reduce the burden on the parties and on the Board and thereby reduce the time to decision, the Board instituted page limits in the late 1990s for every motion. Page limit practice was found to be effective in reducing the burdens on the parties and improving decision times at the Board. In 2006, the Board revised the page limit practice and allowed unlimited findings of fact and generally limited the number of pages containing argument. Due to abuses of the system, the Board recently reverted back to page limits for the entire motion (both argument and findings of fact).

The Board's current page limits are consistent with the 25 page limits in the Northern, Central, and Southern Districts of California, and the Middle District of Florida and exceed the limits in the District of Delaware (20), the Northern District of Illinois (15), the District of Massachusetts (20), the Eastern District of Michigan (20), the Southern District of Florida (20), and the Southern District of Illinois (20).

In a typical proceeding before the Board, a party may be authorized to file a single motion for unpatentability based on prior art, a single motion for unpatentability based upon failure to comply with 35 U.S.C. 112, lack of written description, and/or enablement, and potentially another motion for lack of compliance with 35 U.S.C. 101, although a 35 U.S.C. 101 motion may be required to be combined with the 35 U.S.C. 112 motion. Each of these motions is currently limited to 25 pages in length, unless good cause is shown that the page limits are unduly restrictive for a particular motion.

A petition requesting the institution of a trial proceeding would be similar to motions currently filed with the Board. Specifically, petitions to institute a trial seek a final written decision that the challenged claims are unpatentable, where derivation is a form of unpatentability. Accordingly, a petition to institute a trial based on prior art would, under current practice, be limited to 25 pages, and by consequence, a petition raising unpatentability based on prior art and unpatentability under 35 U.S.C. 101 and/or 112 would be limited to 50 pages.

Petitions to institute derivation proceedings, while distinct from interference practice, raise similar issues to those that may be raised in interferences in a motion for judgment on priority of invention. Currently, motions for judgment on priority of invention, including issues such as conception, corroboration, and diligence, are generally limited to 50 pages. Thus, the proposed 50 page limit is considered sufficient in all but exceptional cases.

The proposed rule would provide that petitions to institute a trial must comply with the stated page limits, but may be accompanied by a motion that seeks to waive the page limits. The petitioner must show in the motion how a waiver of the page limits is in the interests of justice. A copy of the desired non-page limited petition must accompany the motion. Generally, the Board would decide the motion prior to deciding whether to institute the trial.

Current Board practice provides a limit of 25 pages for other motions and 15 pages for miscellaneous motions. The Board's experience is that such page limits are sufficient for the parties filing them and do not unduly burden the opposing party or the Board. Petitions to institute a trial would generally replace the current practice of filing motions for unpatentability, as most motions for relief are expected to be similar to the current contested cases miscellaneous motion practice. Accordingly, the proposed 15 page limit is considered sufficient for most motions but may be adjusted where the limit is determined to be unduly restrictive for the relief requested.

Proposed § 42.24(b) would provide page limits for oppositions filed in response to motions. Current contested case practice provides an equal number of pages for an opposition as its corresponding motion. This is generally consistent with motions practice in federal courts. The proposed rule would continue the current practice.

Proposed § 42.24(c) would provide page limits for replies. Current contested case practice provides a 15 page limit for priority motion replies, a 5 page limit for miscellaneous (procedural) motion replies, and a 10 page limit for all other motions. The proposed rule is consistent with current contested case practice for procedural motions. The proposed rule would provide a 15 page limit for reply to petitions requesting a trial, which the Office believes is sufficient based on current practice. Current contested case practice has shown that such page limits do not unduly restrict the parties and, in fact, have provided sufficient flexibility to parties to not only reply to the motion but also help to focus on the issues. Thus, it is anticipated that default page limits would minimize the economic impact on small entities by focusing on the issues in the trials.

Discovery: The Office considered a procedure for discovery similar to the one available during district court litigation. Discovery of that scope has been criticized sharply particularly when attorneys use discovery tools as tactical weapons, which hinder the “just, speedy, and inexpensive determination of every action and proceedings.” See Introduction to An E-Discovery Model Order available at http://www.cafc.uscourts.gov/images/stories/announcements/Ediscovery_Model_Order.pdf. Accordingly, this alternative would have been inconsistent with objective of the Leahy-Smith America Invents Act that the Director, in prescribing rules for the inter partes, post-grant and covered business method patent reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings. Prescribing the same standard for derivations allows for efficient proceedings using practices that are consistent as possible. It is envisioned that the public burden would be reduced by setting discover standards consistently across all trial proceedings at the Board.

Additional discovery increases trial costs and increases the expenditures of time by the parties and the Board. To promote effective discovery, the proposed rule would require a showing that the additional requested discovery is in the interests of justice, placing an affirmative burden upon a party seeking the discovery to show how the proposed discovery would be productive. The Board's experience in conducted contested cases, however, is that such showings are often lacking and authorization for additional discovery is expected to be rare.

The Office is proposing a default scheduling order to provide limited discovery as a matter of right and provide parties with the ability to seek additional discovery on a case-by-case basis. In weighing the need for additional discovery, should a request be made, the Board would consider the economic impact on the opposing party. This would tend to limit additional discovery where a party is a small entity.

Pro Hac Vice: The Office considered whether to allow counsel to appear pro hac vice. In certain cases, highly skilled, but non-registered attorneys have appeared satisfactorily before the Board in contested cases. The Board may recognize counsel pro hac vice during a proceeding upon a showing of good cause. Proceedings before the Office can be technically complex. Consequently, the grant of a motion to appear pro hac vice is a discretionary action taking into account the specifics of the proceedings. Similarly, the revocation of pro hac vice is a discretionary action taking into account various factors, including incompetence, unwillingness to abide by the Office's Rules of Professional Conduct, prior findings of misconduct before the Office in other proceedings, and incivility.

The Board's past practice has required the filing of a motion by a registered patent practitioner seeking pro hac vice representation based upon a showing of: (1) How qualified the unregistered practitioner is to represent the party in the proceeding when measured against a registered practitioner, and, (2) whether the party has a genuine need to have the particular unregistered practitioner represent it during the proceeding. This practice has proven effective in the limited number of contested cases where such requests have been granted. The proposed rule, if adopted, would allow for this practice in the new proceedings authorized by the Leahy-Smith America Invents Act.

The proposed rules would provide a limited delegation to the Board under 35 U.S.C. 2(b)(2) and 32 to regulate the conduct of counsel in Board proceedings. The proposed rule would delegate to the Board the authority to conduct counsel disqualification proceedings while the Board has jurisdiction over a proceeding. The rule would also delegate to the Chief Administrative Patent Judge the authority to make final a decision to disqualify counsel in a proceeding before the Board for the purposes of judicial review. This delegation would not derogate from the Director the prerogative to make such decisions, nor would it prevent the Chief Administrative Patent Judge from further delegating authority to an administrative patent judge.

The Office considered broadly permitting practitioners not registered to practice by the Office to represent parties in trial as well as categorically prohibiting such practice. A prohibition on the practice would be inconsistent with the Board's experience, and more importantly, might result in increased costs particularly where a small entity has selected its district court litigation team for representation before the Board, and has a patent review filed after litigation efforts have commenced. Alternatively, broadly making the practice available would create burdens on the Office in administering the trials and in completing the trial within the established timeframe, particularly if the selected practitioner does not have the requisite skill. In weighing the desirability of admitting a practitioner pro hac vice, the economic impact on the party in interest would be considered which would tend to increase the likelihood that a small entity could be represented by a non-registered practitioner. Accordingly, the alternatives to eliminate pro hac vice practice or to permit it more broadly would have been inconsistent with the efficient administration of the Office and the integrity of the patent system.

Default Electronic Filing: The Office considered a paper filing system and a mandatory electronic filing system (without any exceptions) as alternatives to the proposed requirement that all papers are to be electronically filed, unless otherwise authorized.

Based on the Office's experience, a paper based filing system increases delay in processing papers, delay in public availability, and the chance that a paper may be misplaced or made available to an improper party if confidential. Accordingly, the alternative of a paper based filing system would have been inconsistent with the efficient administration of the Office.

An electronic filing system (without any exceptions) that is rigidly applied would result in unnecessary cost and burdens, particularly where a party lacks the ability to file electronically. By contrast, if the proposed option is adopted, it is expected that the entity size and sophistication would be considered in determining whether alternative filing methods would be authorized.

6. Identification, to the Extent Practicable, of All Relevant Federal Rules Which May Duplicate, Overlap, or Conflict With the Proposed Rules:

37 CFR 1.99 provides for the submission of information after publication of a patent application during examination by third parties.

37 CFR 1.171-1.179 provide for applications to reissue a patent to correct errors, including where a claim in a patent is overly broad.

37 CFR 1.291 provides for the protest against the issuance of a patent during examination.

37 CFR 1.321 provides for the disclaimer of a claim by a patentee.

37 CFR 1.501 and 1.502 provide for ex parte reexamination of patents. Under these rules, a person may submit to the Office prior art consisting of patents or printed publications that are pertinent to the patentability of any claim of a patent, and request reexamination of any claim in the patent on the basis of the cited prior art patents or printed publications. Consistent with 35 U.S.C. 302-307, ex parte reexamination rules provide a different threshold for initiation, require the proceeding to be conducted by an examiner with a right of appeal to the Patent Trial and Appeal Board, and allow for limited participation by third parties.

37 CFR 1.902-1.997 provide for inter partes reexamination of patents. Similar to ex parte reexamination, inter partes reexamination provides a procedure in which a third party may request reexamination of any claim in a patent on the basis of the cited prior art patents and printed publication. The inter partes reexamination practice will be eliminated, except for requests filed before the effective date of September 16, 2012. See § 6(c)(3)(C) of the Leahy-Smith America Invents Act.

Other countries have their own patent laws, and an entity desiring a patent in a particular country must make an application for patent in that country, in accordance with the applicable law. Although the potential for overlap exists internationally, this cannot be avoided except by treaty (such as the Paris Convention for the Protection of Industrial Property, or the Patent Cooperation Treaty (PCT)). Nevertheless, the Office believes that there are no other duplicative or overlapping foreign rules.

C. Executive Order 12866 (Regulatory Planning and Review): This rulemaking has been determined to be significant for purposes of Executive Order 12866 (Sept. 30, 1993), as amended by Executive Order 13258 (Feb. 26, 2002) and Executive Order 13422 (Jan. 18, 2007).

Based on the petition and other filing requirements for initiating a derivation review proceeding, the USPTO estimates the burden of the proposed rules on the public to be $11,865,210 in fiscal year 2013, which represents the sum of the estimated total annual (hour) respondent cost burden ($11,844,410) plus the estimated total annual non-hour respondent cost burden ($20,800) provided in Part O, Section II, of this notice, infra.

D. Executive Order 13563 (Improving Regulation and Regulatory Review): The Office has complied with Executive Order 13563. Specifically, the Office has to the extent feasible and applicable: (1) Made a reasoned determination that the benefits justify the costs of the rule; (2) tailored the rule to impose the least burden on society consistent with obtaining the regulatory objectives; (3) selected a regulatory approach that maximizes net benefits; (4) specified performance objectives; (5) identified and assessed available alternatives; (6) involved the public in an open exchange of information and perspectives among experts in relevant disciplines, affected stakeholders in the private sector, and the public as a whole, and provided online access to the rulemaking docket; (7) attempted to promote coordination, simplification, and harmonization across government agencies and identified goals designed to promote innovation; (8) considered approaches that reduce burdens and maintain flexibility and freedom of choice for the public; and (9) ensured the objectivity of scientific and technological information and processes.

E. Executive Order 13132 (Federalism): This rulemaking does not contain policies with federalism implications sufficient to warrant preparation of a Federalism Assessment under Executive Order 13132 (Aug. 4, 1999).

F. Executive Order 13175 (Tribal Consultation): This rulemaking will not: (1) Have substantial direct effects on one or more Indian tribes; (2) impose substantial direct compliance costs on Indian tribal governments; or (3) preempt tribal law. Therefore, a tribal summary impact statement is not required under Executive Order 13175 (Nov. 6, 2000).

G. Executive Order 13211 (Energy Effects): This rulemaking is not a significant energy action under Executive Order 13211 because this rulemaking is not likely to have a significant adverse effect on the supply, distribution, or use of energy. Therefore, a Statement of Energy Effects is not required under Executive Order 13211 (May 18, 2001).

H. Executive Order 12988 (Civil Justice Reform): This rulemaking meets applicable standards to minimize litigation, eliminate ambiguity, and reduce burden as set forth in sections 3(a) and 3(b)(2) of Executive Order 12988 (Feb. 5, 1996).

I. Executive Order 13045 (Protection of Children): This rulemaking does not concern an environmental risk to health or safety that may disproportionately affect children under Executive Order 13045 (Apr. 21, 1997).

J. Executive Order 12630 (Taking of Private Property): This rulemaking will not effect a taking of private property or otherwise have taking implications under Executive Order 12630 (Mar. 15, 1988).

K. Congressional Review Act: Under the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801-808), prior to issuing any final rule, the United States Patent and Trademark Office will submit a report containing the final rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the Government Accountability Office. The changes in this notice are not expected to result in an annual effect on the economy of 100 million dollars or more, a major increase in costs or prices, or significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of United States-based enterprises to compete with foreign based enterprises in domestic and export markets. Therefore, this notice is not expected to result in a “major rule” as defined in 5 U.S.C. 804(2).

L. Unfunded Mandates Reform Act of 1995: The changes proposed in this notice do not involve a Federal intergovernmental mandate that will result in the expenditure by State, local, and tribal governments, in the aggregate, of 100 million dollars (as adjusted) or more in any one year, or a Federal private sector mandate that will result in the expenditure by the private sector of 100 million dollars (as adjusted) or more in any one year, and will not significantly or uniquely affect small governments. Therefore, no actions are necessary under the provisions of the Unfunded Mandates Reform Act of 1995. See 2 U.S.C. 1501-1571.

M. National Environmental Policy Act: This rulemaking will not have any effect on the quality of the environment and is thus categorically excluded from review under the National Environmental Policy Act of 1969. See 42 U.S.C. 4321-4370h.

N. National Technology Transfer and Advancement Act: The requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) are not applicable because this rulemaking does not contain provisions which involve the use of technical standards.

O. Paperwork Reduction Act: The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3549) requires that the USPTO consider the impact of paperwork and other information collection burdens imposed on the public. This proposed rulemaking involves information collection requirements which are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3549). The collection of information involved in this notice has been submitted to OMB under OMB control number 0651-00xx. In the Notice “Rules of Practice for Trials before the Patent Trial and Appeal Board and Judicial Review of Patent Trial and Appeal Board Decisions,” RIN 0651-AC70, the information collection for all of the new trials authorized by the Leahy-Smith America Invents Act were provided. This notice also provides the subset of burden created by the derivation provisions. The proposed collection will be available at the OMB's Information Collection Review Web site ( www.reginfo.gov/public/do/PRAMain ).

The USPTO is submitting the information collection to OMB for its review and approval because this notice of proposed rulemaking will add the following to a collection of information:

(1) Petitions to institute a derivation proceeding (§§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.22, 42.24(a)(4),42.63, 42.65, and 42.402 through 42.406);

(2) Motions (§§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.22, 42.24(a)(5), 42.51, 42.52, 42.53, 42.54, 42.63, 42.64, and 42.65);

(3) Oppositions (§§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.23, 42.24(b), 42.51, 42.52, 42.53, 42.54, 42.63, 42.64, and 42.65); and

(4) Replies (§§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.23, 42.24(c), 42.51, 42.52, 42.53, 42.54, 42.63, and 42.65).

The proposed rules also permit filing requests for oral argument (§ 42.70), requests for rehearing (§ 42.71(c)), requests for adverse judgment (§ 42.73(b)), requests that a settlement be treated as business confidential (§ 42.74(b) and 42.409), and arbitration agreements and awards (§ 42.410) to a collection of information.

I. Abstract: The USPTO is required by 35 U.S.C. 131 and 151 to examine applications and, when appropriate, issue applications as patents.

35 U.S.C. 135 in effect on March 16, 2013, will provide for petitions to institute a derivation proceeding at the USPTO for certain applications. The new rules for initiating and conducting these proceedings are proposed in this notice as a new subpart E of new part 42 of title 37 of the Code of Federal Regulations.

In estimating the number of hours necessary for preparing a petition to institute a derivation proceeding, the USPTO considered the estimated cost of preparing a request for inter partes reexamination ($46,000), the median billing rate ($340/hour), and the observation that the cost of inter partes reexamination has risen the fastest of all litigation costs since 2009 in the AIPLA Report of the Economic Survey 2011. It was estimated that a petition for an inter partes review and an inter partes reexamination request would cost the same to the preparing party ($46,000). The cost of preparing a petition for post-grant or covered business method patent review is estimated to be 33.333% higher than that cost of preparing an inter partes review petition because the petition for post-grant or covered business method patent review may seek to institute a proceeding on additional grounds such as subject matter eligibility. It is expected that petitions for derivation will have the same complexity and cost as a petition for post-grant review because derivation proceedings raise issues of communication, which have similar complexity to the public use and sale and written description issues that can be raised in a post-grant review. Thus, the Office estimates that the cost of preparing a petition for derivation will be $61,333.

In estimating the number of hours necessary for preparing motions after instituting and participating in the review, the USPTO considered the AIPLA Report of the Economic Survey 2011 which reported the average cost of a party to a two-party interference to the end of the preliminary motion phase ($322,000) and inclusive of all costs ($631,000). The preliminary motion phase is a good proxy for patentability reviews since that is the period of current contested cases before the trial section of the Board where most patentability motions are currently filed.

The USPTO also reviewed recent contested cases before the trial section of the Board to collect data on the average number of motions for any matter including priority, the subset of those motions directed to non-priority issues, the subset of those motions directed to non-priority patentability issues, and the subset of those motions directed to patentability issues based on a patent or printed publication on the basis of 35 U.S.C. 102 or 103. The review of current contested cases before the trial section of the Board indicated that approximately 15% of motions were directed to prior art grounds, 18% of motions were directed to other patentability grounds, 27% were directed to miscellaneous issues, and 40% were directed to priority issues. It was estimated that the cost per motion to a party in current contested cases before the trial section of the Board declines because of overlap in subject matter, expert overlap, and familiarity with the technical subject matter. Given the overlap of subject matter, a proceeding with fewer motions will have a somewhat less than proportional decrease in costs since the overlapping costs will be spread over fewer motions.

Derivations will be more like current contested cases before the trial section of the Board inasmuch as they may have a period which sets the stage for determining derivation and a derivation period. One half of derivations are anticipated to end in the preliminary motion period, while the other half are anticipated to proceed to decision on derivation. While it is recognized that fewer than half of all current contested cases before the trial section of the Board proceed to a priority decision, derivation contests are often more protracted than other current contested cases before the trial section of the Board. The costs associated with derivations through the preliminary motion period and through the derivation period should be comparable to the corresponding costs of current contested cases before the trial section of the Board.

The title, description, and respondent description of the information collection are shown below with an estimate of the annual reporting burdens. Included in this estimate is the time for reviewing instructions, gathering and maintaining the data needed, and completing and reviewing the collection of information. The principal impact of the proposed changes in this notice of proposed rulemaking is to implement the changes to Office practice necessitated by § 3(i) of the Leahy-Smith America Invents Act.

The public uses this information collection to request review and derivation proceedings and to ensure that the associated fees and documentation are submitted to the USPTO.

Needs and Uses: The information supplied to the USPTO by a petition to institute a derivation proceeding as well as the motions authorized following the institution is used by the USPTO to determine whether to initiate a derivation proceeding under 35 U.S.C. 135, as amended, and to prepare a final decision under 35 U.S.C. 135, as amended.

OMB Number: 0651-00xx.

Title: Patent Review and Derivation Proceedings.

Form Numbers: None.

Type of Review: New Collection.

Likely Respondents/Affected Public: Individuals or households, businesses or other for profit, not-for-profit institutions, farms, Federal Government, and state, local, or tribal governments.

Estimated Number of Respondents/Frequency of Collection: 100 respondents and 288 responses per year.

Estimated Time per Response: The USPTO estimates that it will take the public from 0.1 to 180.4 hours to gather the necessary information, prepare the documents, and submit the information to the USPTO.

Estimated Total Annual Respondent Burden Hours: 34,836.5 hours per year.

Estimated Total Annual (Hour) Respondent Cost Burden: $11,844,410 per year. The USPTO expects that the information in this collection will be prepared by attorneys. Using the professional rate of $340 per hour for attorneys in private firms, the USPTO estimates that the respondent cost burden for this collection will be approximately $11,844,410 per year (34,836.5 hours per year multiplied by $340 per hour).

Estimated Total Annual Non-hour Respondent Cost Burden: $20,800 per year. There are no capital start-up or maintenance costs associated with this information collection. However, this collection does have annual (non-hour) costs in the form of filing fees. There are filing fees associated with petitions for derivation proceedings and for requests to treat a settlement as business confidential. The total fees for this collection are calculated in the accompanying table. The USPTO estimates that the total fees associated with this collection will be approximately $20,800 per year.

Therefore, the total cost burden in fiscal year 2013 is estimated to be $11,865,210 (the sum of the estimated total annual (hour) respondent cost burden ($11,844,410) plus the estimated total annual non-hour respondent cost burden ($20,800)).

On September 16, 2011, the Leahy-Smith America Invents Act was enacted into law (Pub. L. 112-29, 125 Stat. 284 (2011)). The purpose of the Leahy-Smith America Invents Act and these proposed regulations is to establish a more efficient and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs. The preamble of this notice sets forth in detail the procedures by which the Board will conduct inter partes review proceedings. The USPTO is engaged in a transparent process to create a timely, cost-effective alternative to litigation. Moreover, the rulemaking process is designed to ensure the integrity of the trial procedures. See 35 U.S.C. 316(b), as amended. The proposed rules would provide a set of rules relating to Board trial practice for inter partes review.

Section 6 of the Leahy-Smith America Invents Act is entitled “POST-GRANT REVIEW PROCEEDINGS” (Pub. L. 112-29, 125 Stat. 284, 299-305 (2011)). Section 6(a) of the Leahy-Smith America Invents Act, entitled “INTER PARTES REVIEW,” amends chapter 31 of title 35, United States Code, also entitled “INTER PARTES REVIEW.” In particular, section 6(a) of the Leahy-Smith America Invents Act amends 35 U.S.C. 311-318 and adds 35 U.S.C. 319.

Section 6(a) of the Leahy-Smith America Invents Act amends 35 U.S.C. 311, entitled “Inter partes review.” 35 U.S.C. 311(a), as amended, will provide that, subject to the provisions of chapter 31 of title 35, United States Code, a person who is not the owner of a patent may file a petition with the Office to institute an inter partes review of the patent. 35 U.S.C. 311(a), as amended, will also provide that the Director will establish, by regulation, fees to be paid by the person requesting the review, in such amounts as the Director determines to be reasonable, considering the aggregate costs of the review. 35 U.S.C. 311(b), as amended, will provide that a petitioner in an inter partes review may request to cancel as unpatentable one or more claims of a patent only on a ground that could be raised under 35 U.S.C. 102 or 103 and only on the basis of prior art consisting of patents or printed publications. 35 U.S.C. 311(c), as amended, will provide that a petition for inter partes review may be filed after the later of either: (1) the date that is nine months after the grant of a patent or issuance of a reissue of a patent; or (2) if a post-grant review is instituted under chapter 32 of title 35, United States Code, the date of the termination of that post-grant review.

The grounds for seeking an inter partes review will be limited compared with post-grant review. The grounds for seeking inter partes review are limited to issues raised under 35 U.S.C. 102 or 103 and only on the basis of prior art consisting of patents or printed publications. In contrast, the grounds for seeking post-grant review include any ground that could be raised under 35 U.S.C. 282(b)(2) or (3). Such grounds for post-grant review include grounds that could be raised under 35 U.S.C. 102 or 103 including those based on prior art consisting of patents or printed publications. Other grounds available for post-grant review include 35 U.S.C. 101 and 112, with the exception of compliance with the best mode requirement.

Section 6(a) of the Leahy-Smith America Invents Act amends 35 U.S.C. 312, entitled “Petitions.” 35 U.S.C. 312(a), as amended, will provide that a petition filed under 35 U.S.C. 311, as amended, may be considered only if certain conditions are met. First, the petition must be accompanied by payment of the fee established by the Director under 35 U.S.C. 311, as amended. Second, the petition must identify all real parties in interest. Third, the petition must identify, in writing and with particularity, each claim challenged, the grounds on which the challenge to each claim is based, and the evidence that supports the grounds for the challenge to each claim, including: (A) Copies of patents and printed publications that the petitioner relies upon in support of the petition and (B) affidavits or declarations of supporting evidence and opinions, if the petitioner relies on expert opinions. Fourth, the petition must provide such other information as the Director may require by regulation. Fifth, the petitioner must provide copies of any of the documents required under paragraphs (2), (3), and (4) of 35 U.S.C. 312(a) to the patent owner or, if applicable, the designated representative of the patent owner. 35 U.S.C. 312(b), as amended, will provide that, as soon as practicable after the receipt of a petition under 35 U.S.C. 311, as amended, the Director will make the petition available to the public.

Section 6(a) of the Leahy-Smith America Invents Act amends 35 U.S.C. 313, entitled “Preliminary response to petition.” 35 U.S.C. 313, as amended, will provide that, if an inter partes review petition is filed under 35 U.S.C. 311, as amended, within a time period set by the Director, the patent owner has the right to file a preliminary response to the petition that sets forth reasons why no inter partes review should be instituted based upon the failure of the petition to meet any requirement of chapter 31 of title 35, United States Code.

Section 6(a) of the Leahy-Smith America Invents Act amends 35 U.S.C. 314, entitled “Institution of inter partes review.” 35 U.S.C. 314(a), as amended, will provide that the Director may not authorize an inter partes review to be instituted, unless the Director determines that the information presented in the petition filed under 35 U.S.C. 311 and any response filed under 35 U.S.C. 313 shows that there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition. 35 U.S.C. 314(b), as amended, will provide that the Director will determine whether to institute an inter partes review under chapter 31 of title 35, United States Code, pursuant to a petition filed under 35 U.S.C. 311, as amended, within three months after: (1) Receiving a preliminary response to the petition under 35 U.S.C. 313, as amended; or (2) if no such preliminary response is filed, the last date on which such response may be filed. 35 U.S.C. 314(c), as amended, will provide that the Director will notify the petitioner and patent owner, in writing, of the Director's determination under 35 U.S.C. 314(a), and will make the notice available to the public as soon as is practicable. 35 U.S.C. 314(c), as amended, will also provide that the notice will include the date on which the review will commence. 35 U.S.C. 314(d), as amended, will provide that the determination by the Director whether to institute an inter partes review under 35 U.S.C. 314 will be final and nonappealable.

Section 6(a) of the Leahy-Smith America Invents Act amends 35 U.S.C. 315, entitled “Relation to other proceedings or actions.” 35 U.S.C. 315(a)(1), as amended, will provide that an inter partes review may not be instituted if, before the date on which the petition for review is filed, the petitioner or real party in interest filed a civil action challenging the validity of a claim of the patent. 35 U.S.C. 315(a)(2), as amended, will provide for an automatic stay of a civil action brought by the petitioner or real party in interest challenging the validity of a claim of the patent and filed on or after the date on which the petition for inter partes review was filed, until certain specified conditions are met. 35 U.S.C. 315(a)(3), as amended, will provide that a counterclaim challenging the validity of a claim of a patent does not constitute a civil action challenging the validity of a claim of a patent for purposes of 35 U.S.C. 315(a), as amended.

35 U.S.C. 315(b), as amended, will provide that an inter partes review may not be instituted if the petition requesting the proceeding is filed more than one year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent. However, the time limitation set forth in 35 U.S.C. 315(b), as amended, will not apply to a request for joinder under 35 U.S.C. 315(c), as amended.

35 U.S.C. 315(c), as amended, will provide that if the Director institutes an inter partes review, the Director may, in the Director's discretion, join as a party to that inter partes review any person who properly files a petition under 35 U.S.C. 311 that the Director, after receiving a preliminary response under 35 U.S.C. 313 or the expiration of the time for filing such a response, determines warrants the institution of an inter partes review under 35 U.S.C. 314.

35 U.S.C. 315(d), as amended, will provide that, notwithstanding 35 U.S.C. 135(a), as amended, 251, and 252, and chapter 30 of title 35, United States Code, during the pendency of an inter partes review, if another proceeding or matter involving the patent is before the Office, the Director may determine the manner in which the inter partes review or other proceeding or matter may proceed, including providing for stay, transfer, consolidation, or termination of any such matter or proceeding.

35 U.S.C. 315(e)(1), as amended, will provide that the petitioner in an inter partes review of a claim in a patent under chapter 31 of title 35, United States Code, that results in a final written decision under 35 U.S.C. 318(a), or the real party in interest or privy of the petitioner, may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that inter partes review. 35 U.S.C. 315(e)(2), as amended, will provide for estoppel against an inter partes review petitioner, or the real party in interest or privy of the petitioner, in certain civil actions and certain other proceedings before the International Trade Commission if that inter partes review results in a final written decision under 35 U.S.C. 318(a).

Section 6(a) of the Leahy-Smith America Invents Act amends 35 U.S.C. 316, entitled “Conduct of inter partes review.” 35 U.S.C. 316(a), as amended, will provide that the Director will prescribe regulations: (1) Providing that the file of any proceeding under chapter 31 of title 35, United States Code, will be made available to the public, except that any petition or document filed with the intent that it be sealed will, if accompanied by a motion to seal, be treated as sealed pending the outcome of the ruling on the motion; (2) setting forth the standards for the showing of sufficient grounds to institute a review under 35 U.S.C. 314(a); (3) establishing procedures for the submission of supplemental information after the petition is filed; (4) establishing and governing inter partes review under chapter 31 of title 35, United States Code, and the relationship of such review to other proceedings under title 35, United States Code; (5) setting forth standards and procedures for discovery of relevant evidence, including that such discovery will be limited to: (A) The deposition of witnesses submitting affidavits or declarations, and (B) what is otherwise necessary in the interest of justice; (6) prescribing sanctions for abuse of discovery, abuse of process, or any other improper use of the proceeding, such as to harass or to cause unnecessary delay or an unnecessary increase in the cost of the proceeding; (7) providing for protective orders governing the exchange and submission of confidential information; (8) providing for the filing by the patent owner of a response to the petition under 35 U.S.C. 313, as amended, after an inter partes review has been instituted, and require that the patent owner file with such response, through affidavits or declarations, any additional factual evidence and expert opinions on which the patent owner relies in support of the response; (9) setting forth standards and procedures for allowing the patent owner to move to amend the patent under 35 U.S.C. 316(d), as amended, to cancel a challenged claim or propose a reasonable number of substitute claims, and ensure that any information submitted by the patent owner in support of any amendment entered under 35 U.S.C. 316(d), as amended, is made available to the public as part of the prosecution history of the patent; (10) providing either party with the right to an oral hearing as part of the proceeding; (11) requiring that the final determination in an inter partes review will be issued not later than one year after the date on which the Director notices the institution of a review under chapter 31 of title 35, United States Code, except that the Director may, for good cause shown, extend the one-year period by not more than six months, and may adjust the time periods in this paragraph in the case of joinder under 35 U.S.C. 315(c), as amended; (12) setting a time period for requesting joinder under 35 U.S.C. 315(c), as amended; and (13) providing the petitioner with at least one opportunity to file written comments within a time period established by the Director.

35 U.S.C. 316(b), as amended, will provide that in prescribing regulations under 35 U.S.C. 316, the Director will consider the effect of any such regulation on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely proceedings instituted under chapter 31 of title 35, United States Code.

35 U.S.C. 316(c), as amended, will provide that the Patent Trial and Appeal Board will, in accordance with 35 U.S.C. 6, conduct each inter partes review instituted under chapter 31 of title 35, United States Code.

35 U.S.C. 316(d)(1), as amended, will provide that during an inter partes review instituted under chapter 31 of title 35, United States Code, the patent owner may file one motion to amend the patent in one or more of the following ways: (A) Cancel any challenged patent claim; and (B) for each challenged claim, propose a reasonable number of substitute claims. 35 U.S.C. 316(d)(2), as amended, provides that additional motions to amend may be permitted upon the joint request of the petitioner and the patent owner to materially advance the settlement of a proceeding under 35 U.S.C. 317, as amended, or as permitted by regulations prescribed by the Director. 35 U.S.C. 316(d)(3), as amended, will provide that an amendment under 35 U.S.C. 316(d) may not enlarge the scope of the claims of the patent or introduce new matter.

35 U.S.C. 316(e), as amended, will provide that in an inter partes review instituted under chapter 31 of title 35, United States Code, the petitioner has the burden of proving a proposition of unpatentability by a preponderance of the evidence.

Section 6(a) of the Leahy-Smith America Invents Act amends 35 U.S.C. 317, entitled “Settlement.” 35 U.S.C. 317(a), as amended, will provide that an inter partes review instituted under chapter 31 of title 35, United States Code, will be terminated with respect to any petitioner upon the joint request of the petitioner and the patent owner, unless the Office has decided the merits of the proceeding before the request for termination is filed. 35 U.S.C. 317(a), as amended, will also provide that if the inter partes review is terminated with respect to a petitioner under 35 U.S.C. 317, no estoppel under 35 U.S.C. 315(e), as amended, will attach to the petitioner, or to the real party in interest or privy of the petitioner, on the basis of that petitioner's institution of that inter partes review. 35 U.S.C. 317(a), as amended, will further provide that if no petitioner remains in the inter partes review, the Office may terminate the review or proceed to a final written decision under 35 U.S.C. 318(a).

35 U.S.C. 317(b), as amended, will provide that any agreement or understanding between the patent owner and a petitioner, including any collateral agreements referred to in the agreement or understanding, made in connection with, or in contemplation of, the termination of an inter partes review under 35 U.S.C. 317 will be in writing and a true copy of such agreement or understanding will be filed in the Office before the termination of the inter partes review as between the parties. 35 U.S.C. 317(b), as amended, will also provide that at the request of a party to the proceeding, the agreement or understanding will be treated as business confidential information, will be kept separate from the file of the involved patents, and will be made available only to Federal Government agencies on written request, or to any person on a showing of good cause.

Section 6(a) of the Leahy-Smith America Invents Act amends 35 U.S.C. 318, entitled “Decision of the Board.” 35 U.S.C. 318(a), as amended, will provide that if an inter partes review is instituted and not dismissed under chapter 31 of title 35, United States Code, the Patent Trial and Appeal Board will issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner and any new claim added under 35 U.S.C. 316(d). 35 U.S.C. 318(b), as amended, will provide that if the Patent Trial and Appeal Board issues a final written decision under 35 U.S.C. 318(a) and the time for appeal has expired or any appeal has terminated, the Director will issue and publish a certificate canceling any claim of the patent finally determined to be unpatentable, confirming any claim of the patent determined to be patentable, and incorporating in the patent by operation of the certificate any new or amended claim determined to be patentable. 35 U.S.C. 318(c), as amended, will provide that any proposed amended or new claim determined to be patentable and incorporated into a patent following an inter partes review under chapter 31 of title 35, United States Code, will have the same effect as that specified in 35 U.S.C. 252 for reissued patents on the right of any person who made, purchased, or used within the United States, or imported into the United States, anything patented by such proposed amended or new claim, or who made substantial preparation therefor, before the issuance of a certificate under 35 U.S.C. 318(b). 35 U.S.C. 318(d), as amended, will provide that the Office will make available to the public data describing the length of time between the institution of, and the issuance of a final written decision under 35 U.S.C. 318(a), for each inter partes review.

Section 6(a) of the Leahy-Smith America Invents Act adds 35 U.S.C. 319, entitled “Appeal.” 35 U.S.C. 319 will provide that a party dissatisfied with the final written decision of the Patent Trial and Appeal Board under 35 U.S.C. 318(a), as amended, may appeal the decision pursuant to 35 U.S.C. 141-144. 35 U.S.C. 319 will also provide that any party to the inter partes review will have the right to be a party to the appeal.

Section 6(c) of the Leahy-Smith America Invents Act is entitled “REGULATIONS AND EFFECTIVE DATE.” Section 6(c)(1) of the Leahy-Smith America Invents Act provides that the Director will, not later than the date that is one year after the date of the enactment of the Leahy-Smith America Invents Act, issue regulations to carry out chapter 31 of title 35, United States Code, as amended by section 6(a) of the Leahy-Smith America Invents Act.

Section 6(c)(2)(A) of the Leahy-Smith America Invents Act provides that the amendments made by section 6(a) of the Leahy-Smith America Invents Act will take effect upon the expiration of the one-year period beginning on the date of the enactment of the Leahy-Smith America Invents Act, and will apply to any patent issued before, on, or after that effective date.

Section 6(c)(2)(B) of the Leahy-Smith America Invents Act provides that the Director may impose a limit on the number of inter partes reviews that may be instituted under chapter 31 of title 35, United States Code, during each of the first four one-year periods in which the amendments made by section 6(a) of the Leahy-Smith America Invents Act are in effect, if such number in each year equals or exceeds the number of inter partes reexaminations that are ordered under chapter 31 of title 35, United States Code, in the last fiscal year ending before the effective date of the amendments made by section 6(a) of the Leahy-Smith America Invents Act.

Section 6(c)(3) Leahy-Smith America Invents Act provides a transition provision for the granting, conduct, and termination of inter partes reexaminations on or after the effective date of the Leahy-Smith America Invents Act. The Office in a separate rulemaking revised the rules governing inter partes reexamination to implement the transition provision that changes the standard for granting a request for inter partes reexamination, and to reflect the termination of inter partes reexamination effective September 16, 2012. See Revision of Standard for Granting an Inter partes Reexamination Request, 76 FR 59055 (Sept. 23, 2011) (final rule).

This notice proposes new rules to implement the provisions of the Leahy-Smith America Invents Act for instituting and conducting inter partes review proceedings before the Patent Trial and Appeal Board (Board). As previously discussed, 35 U.S.C. 316(a)(4), as amended by the Leahy-Smith America Invents Act, provides that the Director will prescribe regulations establishing and governing inter partes review and the relationship of the review to other proceedings under title 35 of the United States Code. In particular, this notice proposes to add a new subpart B to 37 CFR part 42 to provide rules specific to inter partes review.

Additionally, the Office in a separate rulemaking is proposing to add part 42, (RIN 0651-AC70) including subpart A, that would include a consolidated set of rules relating to Board trial practice. More specifically, the proposed subpart A of part 42 would set forth the policies, practices, and definitions common to all trial proceedings before the Board. The proposed rules in the instant notice and discussion below may reference the proposed rules in subpart A of part 42. Furthermore, the Office in separate rulemakings is proposing to add a new subpart C to 37 CFR part 42 (RIN 0651-AC72) to provide rules specific to post-grant review, a new subpart D to 37 CFR part 42 (RIN 0651-AC73; RIN 0651-AC75) to provide rules specific to the transitional program for covered business method patents, and a new subpart E to 37 CFR part 42 (RIN 0651-AC74) to provide rules specific to derivation.

Title 37 of the Code of Federal Regulations, Chapter I, Part 42, Subpart B, entitled “ Inter partes Review” is proposed to be added as follows:

Section 42.100: Proposed § 42.100 would set forth policy considerations for inter partes review proceedings.

Proposed § 42.100(a) would provide that an inter partes review is a trial and subject to the rules set forth in subpart A of title 42, Code of Federal Regulations.

Proposed § 42.100(b) would provide that a claim in an unexpired patent shall be given its broadest reasonable construction in light of the specification in which it appears. This proposed rule would be consistent with longstanding established principles of claim construction before the Office. In re Am. Acad. of Sci. Tech Ctr., 367 F.3d 1359, 1364 (Fed. Cir. 2004); In re Yamamoto, 740 F.2d 1569, 1571 (Fed. Cir. 1984). As explained in Yamamoto, a party's ability to amend claims to avoid prior art distinguishes Office proceedings from district court proceedings and justifies the difficult standard for claim interpretation. Yamamoto, 740 F.2d at 1572.

Proposed § 42.100(c) would provide a one-year time frame for administering the proceeding after institution, with up to a six-month extension for good cause. This proposed rule is consistent with 35 U.S.C. 316(a)(11), as amended, which sets forth statutory time frames for inter partes review.

Section 42.101: Proposed § 42.101 would provide who may file a petition for inter partes review.

Proposed § 42.101(a) would provide that a party or real party in interest must file a petition prior to the filing of a civil action challenging the validity of a claim of the patent. The proposed rule would follow the statutory language of 35 U.S.C. 315(a), as amended, which will provide that inter partes reviews are barred by prior filing of such a civil action.

Proposed § 42.101(b) would provide that a petition may not be filed more than one year after the date on which the petitioner, the petitioner's real party in interest, or a privy of the petitioner was served with a complaint alleging infringement. The proposed rule would follow the statutory language of 35 U.S.C. 315(b), as amended, which will provide a one-year time limit after date of service of complaint.

Proposed § 42.101(c) would provide that a person may not file a petition where the petitioner, the petitioner's real party in interest, or a privy of the petitioner is estopped from challenging the claims. The proposed rule is consistent with 35 U.S.C. 315(e)(1), as amended, which will provide for estoppel arising from a final written decision in an inter partes review. The proposed rule is also consistent with 35 U.S.C. 325(e)(1), which will provide for estoppel arising from a final written decision in a post-grant review or a covered business method review.

Section 42.102: Proposed § 42.102 would provide a timeliness requirement for filing an inter partes review petition.

Proposed § 42.102(a) would provide that a petition for inter partes review must be filed consistent with the requirements set forth in 35 U.S.C. 311(c), as amended. Petitions requesting the institution of an inter partes review that are filed nine months after the grant of the patent or of the issuance of the reissue patent, but prior to the institution of a post-grant review would be considered timely filed. Additionally, petitions filed after termination of a post-grant review would be considered timely.

Proposed § 42.102(b) would provide that the Director may set a limit on the number of inter partes reviews that may be instituted during each of the first four one-year periods after inter partes review takes effect. This proposed rule is consistent with section 6(c)(2)(B) of the Leahy-Smith America Invents Act (Pub. L. 112-29, 125 Stat. 284, 304 (2011)), which provides for graduated implementation of inter partes reviews. The Office however, does not expect to limit the number of petitions at this time.

Section 42.103: Proposed § 42.103 would set forth the fee requirement for filing an inter partes review petition.

Proposed § 42.103(a) would provide that a fee under § 42.15(a) must accompany a petition for inter partes review.

Proposed § 42.103(b) would provide that no filing date will be accorded until full payment is received. This proposed rule is consistent with 35 U.S.C. 312(a)(1), as amended, which will provide that a petition may only be considered if the petition is accompanied by the payment of the fee established by the Director.

Section 42.104: Proposed § 42.104 would provide for the content of petitions to institute an inter partes review. The proposed rule is consistent with 35 U.S.C 312(a)(4), as amended, which allows the Director to prescribe regulations concerning the information provided with the petition.

Proposed § 42.104(a) would provide that a petition must demonstrate that the petitioner has standing. To establish standing, a petitioner, at a minimum, must certify that the patent is available for inter partes review and that the petitioner is not barred or estopped from requesting an inter partes review. This proposed requirement would attempt to ensure that a party has standing to file the inter partes review and would help prevent spuriously-instituted inter partes reviews. Facially-improper standing would be a basis for denying the petition without proceeding to the merits of the petition.

Proposed § 42.104(b) would require that the petition identify the precise relief requested for the claims challenged. Specifically, the proposed rule would require that the petition identify each claim being challenged, the specific grounds on which each claim is challenged, how the claims are to be construed, why the claims as construed are unpatentable under the identified grounds, and the exhibit numbers of the evidence relied upon with a citation to the portion of the evidence that is relied upon to support the challenge. This proposed rule is consistent with 35 U.S.C. 312(a)(3), as amended, which requires that the petition identify, in writing and with particularity, each claim challenged, the grounds on which the challenge to each claim is based, and the evidence supporting the challenge. It is also consistent with 35 U.S.C. 312(a)(4), as amended, which allows the Director to require additional information as part of the petition. The proposed rule would provide an efficient means for identifying the legal and factual basis for satisfying the threshold for instituting inter partes review and would provide the patent owner with a minimum level of notice as to the basis for the challenge to the claims.

Proposed § 42.104(c) would provide that a petitioner seeking to correct clerical or typographical mistakes in a petition could file a motion to correct the mistakes. The proposed rule would also provide that the grant of such a motion would not alter the filing date of the petition.

Section 42.105: Proposed § 42.105 would provide petition and exhibit service requirements in addition to the service requirements of § 42.6.

Proposed § 42.105(a) would require that the petitioner serve the patent owner at the correspondence address of record for the subject patent and permits service at any other address known to the petitioner as likely to effect service as well. Once a patent has issued, communications between the Office and the patent owner often suffer. Ray v. Lehman, 55 F.3d 606 (Fed. Cir. 1995) (patentee's failure to maintain correspondence address contributed to failure to pay maintenance fee and therefore expiration of the patent). While the proposed rule requires service at the correspondence address of record in the patent, the petitioner will already be in communication with the patent owner in many cases at a better service address than the correspondence address of record for the subject patent.

Proposed § 42.105(b) would address the situation where service to the official correspondence address of the patent does not result in actual service on the patent owner. When the petitioner becomes aware of a service problem, the petitioner would be required to promptly advise the Board of the problem. The petitioner might then be required to certify that it is not aware of any better address for service of the patent owner. The Board may authorize other forms of service, such as service by publication in the Official Gazette of the United States Patent and Trademark Office or Federal Register .

Section 42.106: Proposed § 42.106 would provide for the filing date requirements of an inter partes review petition.

Proposed § 42.106(a) would provide requirements for a complete petition. 35 U.S.C. 312(a), as amended, states that a petition may only be considered when the petition identifies all the real parties in interest, when a copy of the petition is provided to the patent owner or the owner's representative and the petition is accompanied by the fee established by the Director. Consistent with the statute, the proposed rule would require that a petition to institute an inter partes review will not be accorded a filing date until the petition: (1) Complies with § 42.104; (2) is served upon the patent owner at the correspondence address of record provided in § 42.105(a); and (3) is accompanied by the fee set forth in § 42.15(a).

Proposed § 42.106(b) would provide petitioners a one month time frame to correct defective petitions to institute an inter partes review. The proposed rule is consistent with the requirement of 35 U.S.C. 312(a), as amended, that the Board may not consider a petition that fails to meet the statutory requirements for a petition. In determining whether to grant a filing date, the Board would review the petitions for procedural compliance. Where a procedural defect is noted, e.g., failure to state the claims being challenged, the Board would notify the petitioner that the petition was incomplete and identify any non-compliance issues.

Section 42.107: Proposed § 42.107 would set forth the procedure in which the patent owner may file a preliminary response.

Proposed § 42.107(a) would provide that the patent owner may file a preliminary response to the petition. The rule is consistent with 35 U.S.C. 313, as amended, which provides for such a response.

Proposed § 42.107(b) would provide that the due date for the preliminary response to petition is no later than two months from the date of the notice that the request to institute an inter partes review has been granted a filing date. This proposed rule is consistent with 35 U.S.C. 313, as amended, which provides that the Director shall set a time period for filing the preliminary patent owner response.

Under 35 U.S.C. 314(b), as amended, the Board has three months from the filing of the preliminary patent owner response, or three months from the date such a response was due, to determine whether to institute the review. A patent owner seeking a shortened period for such a determination may wish to file a preliminary patent owner response well before the date the preliminary patent owner response is due, including filing a paper stating that no preliminary patent owner response will be filed. No adverse inferences will be drawn where a patent owner elects not to file a response or elects to waive the response.

Proposed § 42.107(c) would provide that the preliminary patent owner response would not be allowed to present new testimony evidence, for example, expert witness testimony on patentability. 35 U.S.C. 313, as amended, will provide that a preliminary patent owner response set forth reasons why no inter partes review should be instituted. In contrast, 35 U.S.C. 316(a)(8), as amended, provides for a patent owner response after institution and requires the presentation, through affidavits or declarations, of any additional factual evidence and expert opinions on which the patent owner relies in support of the response. The difference in statutory language demonstrates that 35 U.S.C. 313, as amended, does not require the presentation of evidence in the form of testimony in support of a preliminary patent owner response and the proposed rule reflects this distinction. In certain instances, however, a patent owner may be granted additional discovery before filing their preliminary response and submit any testimonial evidence obtained through the discovery. For example, additional discovery may be authorized where patent owner raises sufficient concerns regarding the petitioner's certification of standing.

Proposed § 42.107(d) would provide that the preliminary patent owner response would not be allowed to include any amendment. See proposed § 42.121 for filing a motion to amend the patent after an inter partes review has been instituted.

Proposed § 42.107(e) would provide that the patent owner may file a statutory disclaimer under 35 U.S.C. 253(a) in compliance with § 1.321(a), disclaiming one or more claims in the patent, and no inter partes review will be instituted based on disclaimed claims.

Section 42.108: Proposed § 42.108 would provide for the institution of an inter partes review.

35 U.S.C. 314(a), as amended, states that the Director may not authorize an inter partes review to be instituted, unless the Director determines that the information in the petition, and any preliminary patent owner response, shows that there is a reasonable likelihood of success that the petitioner would prevail with respect to at least one of the claims challenged in the petition. Proposed § 42.108 is consistent with this statutory requirement and identifies how the Board may authorize such a review to proceed.

Proposed § 42.108(a) would provide that the Board may authorize the review to proceed on all or some of the challenged claims and on all or some of the grounds of unpatentability asserted for each claim. Specifically, in instituting the review, the Board would authorize the review to proceed on the challenged claims for which the threshold requirements for the proceeding have been met. The Board will identify which of the grounds the review will proceed upon on a claim-by-claim basis. Any claim or issue not included in the authorization for review is not part of the review. The Office intends to publish a notice of the institution of an inter partes review in the Official Gazette.

Proposed § 42.108(b) would provide that the Board, prior to institution of a review, may deny some or all grounds for unpatentability on some or all of the challenged claims. This proposed rule is consistent with the efficient administration of the Office, which is a consideration in prescribing inter partes review regulations under 35 U.S.C. 316(b), as amended.

Proposed § 42.108(c) would provide that the institution is based on a reasonable likelihood standard and is consistent with the requirements of 35 U.S.C. 314(a), as amended. A reasonable likelihood standard is a somewhat flexible standard that allows the judge room for the exercise of judgment.

Section 42.120: Proposed § 42.120 would set forth the procedure in which the patent owner may file a patent owner response.

Proposed § 42.120(a) would provide for a patent owner response and is consistent with the requirements of 35 U.S.C. 316(a)(8), as amended.

Proposed § 42.120(b) would provide that if no time for filing a patent owner response to a petition is provided in a Board order, the default time for filing the response would be two months from the date the inter partes review was instituted. The Board's experience with patent owner responses is that two months provides a sufficient amount of time to respond in a typical case, especially as the patent owner would already have been provided two months to file a preliminary patent owner response prior to institution of the inter partes review. Additionally, the proposed time for response is consistent with the requirement that the trial be conducted such that a final decision is rendered within one year of the institution of the review. 35 U.S.C. 316(a)(11), as amended.

Section 42.121: Proposed § 42.121 would provide a procedure for a patent owner to file motions to amend the patent.

Proposed § 42.121(a) would make it clear that the first motion to amend need not be authorized by the Board. If the motion complies with the timing and procedural requirements, the motion would be entered. Additional motions to amend would require prior Board authorization. All motions to amend, even if entered, will not automatically result in entry of the proposed amendment into the patent.

The requirement to consult the Board reflects the Board's need to regulate the substitution of claims and the amendment of the patent to control unnecessary proliferation of issues and abuses. The proposed rule aids in the efficient administration of the Office and the timely completion of the review under 35 U.S.C. 316(b), as amended.

Proposed § 42.121(b) would provide that a motion to amend the claims must set forth: (1) The support in the original disclosure of the patent for each claim that is added or amended, and (2) the support in an earlier filed disclosure for each claim for which benefit of the filing date of the earlier filed disclosure is sought.

Proposed § 42.121(c) would provide that a motion to amend the claims will not be authorized where the amendment does not respond to the ground of unpatentability involved in the trial or seeks to enlarge the scope of the claims or introduce new matter. The proposed rule aids the efficient administration of the Office and the timely completion of the review under 35 U.S.C. 316(b), as amended, and also is consistent with 35 U.S.C. 316(d)(3), as amended, which prohibits enlarging the scope of the claims or introducing new matter.

Under the proposed rules, a patent owner may request filing more than one motion to amend its claims during the course of the proceeding. Additional motions to amend may be permitted upon a demonstration of good cause by the patent owner. In considering whether good cause is shown, the Board will take into account how the filing of such motions would impact the timely completion of the proceeding and the additional burden placed on the petitioner. Specifically, belated motions to amend may cause the integrity and efficiency of the review to suffer as the petitioner may be required to devote significant time and resources on claims that are of constantly changing scope. Further, due to time constraints, motions to amend late in the process may not provide a petitioner a full and fair opportunity to respond to the newly presented subject matter. Accordingly, the longer a patent owner waits to request authorization to file an additional motion to amend, the higher the likelihood the request will be denied. Similarly, motions to amend may be permitted upon a joint request of the petitioner and the patent owner to advance settlement where the motion does not jeopardize the ability of the Office to timely complete the proceeding.

Section 42.122: Proposed § 42.122 would prescribe a rule consistent with the requirements of 35 U.S.C. 315(d), as amended, regarding multiple proceedings involving the subject patent. When there is a question of a stay concerning a matter for which a statutory time period is running in one of the proceedings, it is expected that the Director would be consulted prior to issuance of a stay, given that the stay would impact the ability of the Office to meet the statutory deadline. For example, it is expected that the Board would consult the Director prior to the issuance of a stay in an ex parte reexamination proceeding where the three month statutory time period under 35 U.S.C. 303 is running.

Section 42.123: Proposed § 42.123 would provide for the filing of supplemental information. 35 U.S.C. 316(a)(3), as amended, provides that the Director will establish regulations establishing procedures for filing supplemental information after the petition is filed. 35 U.S.C. 314(a), as amended, provides that the institution of an inter partes review is based upon the information filed in the petition under 35 U.S.C. 311 and any response filed under 35 U.S.C. 313, as amended. As the institution of the inter partes review is not based upon supplemental information, the proposed rule would provide that motions identifying supplemental information be filed after the institution of the inter partes review.

A. Administrative Procedure Act (APA): This notice proposes rules of practice concerning the procedure for requesting an inter partes review, and the trial process after initiation of such a review. The changes being proposed in this notice do not change the substantive criteria of patentability. These proposed changes involve rules of agency practice and procedure and/or interpretive rules. See Bachow Commc'ns Inc. v. FCC, 237 F.3d 683, 690 (DC Cir. 2001) (rules governing an application process are procedural under the Administrative Procedure Act); Inova Alexandria Hosp. v. Shalala, 244 F.3d 342, 350 (4th Cir. 2001) (rules for handling appeals were procedural where they did not change the substantive standard for reviewing claims); Nat'l Org. of Veterans' Advocates v. Sec'y of Veterans Affairs, 260 F.3d 1365, 1375 (Fed. Cir. 2001) (rule that clarifies interpretation of a statute is interpretive).

Accordingly, prior notice and opportunity for public comment are not required pursuant to 5 U.S.C. 553(b) or (c) (or any other law), and thirty-day advance publication is not required pursuant to 5 U.SC. 553(d) (or any other law). See Cooper Techs. Co. v. Dudas, 536 F.3d 1330, 1336-37 (Fed. Cir. 2008) (stating that 5 U.S.C. 553, and thus 35 U.S.C. 2(b)(2)(B), does not require notice and comment rule making for “interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice”) (quoting 5 U.S.C. 553(b)(A)). The Office, however, is publishing these changes and the Initial Regulatory Flexibility Act analysis, below, for comment as it seeks the benefit of the public's views on the Office's proposed implementation of these provisions of the Leahy-Smith America Invents Act.

B. Regulatory Flexibility Act: The Office estimates that 460 petitions for inter partes review will be filed in fiscal year 2013. This will be the first fiscal year in which inter partes review proceedings will be available for an entire fiscal year. The estimate for inter partes review petitions is partially based on the number of inter partes reexamination requests under 37 CFR 1.915 that have been filed in fiscal years 2010 and 2011.

The Office received 281 requests for inter partes reexamination in fiscal year 2010. See Table 13B of the United States Patent and Trademark Office Performance and Accountability Report for Fiscal Year 2010, available at http://www.uspto.gov/about/stratplan/ar/2010/USPTOFY2010PAR.pdf.

The Office received 374 requests for inter partes reexamination in fiscal year 2011. See Table 14B of the United States Patent and Trademark Office Performance and Accountability Report for Fiscal Year 2011, available at http://www.uspto.gov/about/stratplan/ar/2011/USPTOFY2011PAR.pdf.

Additionally, the Office takes into consideration the recent growth rate in the number of requests for inter partes reexamination, the projected growth due to an expansion in the number of eligible patents under the inter partes review provisions of the Leahy-Smith America Invents Act ( see § 6(c)), and the more restrictive filing time period in 35 U.S.C. 315(b), as amended by the Leahy-Smith America Invents Act.

The Office has reviewed the entity status of patents for which inter partes reexamination was requested from October 1, 2000, to September 23, 2011. This data only includes filings granted a filing date in the particular year rather than fillings in which a request was received in the year. The first inter partes reexamination was filed on July 27, 2001. A summary of that review is provided in Table 1 below. As shown by Table 1, patents known to be owned by a small entity represented 32.79% of patents for which inter partes reexamination was requested. Based on an assumption that the same percentage of patents owned by small entities will be subject to inter partes review, it is estimated that 151 petitions for inter partes review would be filed to seek review of patents owned by a small entity in fiscal year 2013, the first full fiscal year that these proceedings will be available.

Based on the number of patents issued during fiscal years 1995 through 1999 that paid the small entity third stage maintenance fee, the number of patents issued during fiscal years 2000 through 2003 that paid the small entity second stage maintenance fee, the number of patents issued during fiscal years 2004 through 2007 that paid the first stage maintenance fee, and the number of patents issued during fiscal years 2008 through 2011 that paid a small entity issue fee, there are no less than 375,000 patents owned by small entities in force as of October 1, 2011.

Furthermore, the Office recognizes that there would be an offset to this number for patents that expire earlier than twenty years from their filing date due to a benefit claim to an earlier application or due to a filing of a terminal disclaimer. The Office likewise recognizes that there would be an offset in the opposite manner due to the accrual of patent term extension and adjustment. The Office, however, does not maintain data on the date of expiration by operation of a terminal disclaimer. Therefore, the Office has not adjusted the estimate of 375,000 patents owned by small entities in force as of October 1, 2011. While the Office maintains information regarding patent term extension and adjustment accrued by each patent, the Office does not collect data on the expiration date of patents that are subject to a terminal disclaimer. As such, the Office has not adjusted the estimated of 375,000 patents owned by small entities in force as of October 1, 2011, for accrual of patent term extension and adjustment, because in view of the incomplete terminal disclaimer data issue, would be incomplete and any estimate adjustment would be administratively burdensome. Thus, it is estimated that the number of small entity patents in force in fiscal year 2013 will be at least 375,000.

Based on the estimated number of patents in force, the number of small entity owned patents impacted by inter partes review in fiscal year 2013 (151 patents) would be less than 0.05% (151/375,000) of all patents in force that are owned by small entities. The USPTO nonetheless has undertaken an Initial Regulatory Flexibility Act Analysis of the proposed rule.

1. Description of the Reasons That Action by the Office Is Being Considered: On September 16, 2011, the Leahy-Smith America Invents Act was enacted into law (Pub. L. 112-29, 125 Stat. 284 (2011)). Section 6 of the Leahy-Smith America Invents Act amends chapter 31 of title 35, United States Code, to create a new inter partes review proceeding which will take effect on September 16, 2012, one year after the date of enactment, and eliminate inter partes reexamination (except for requests filed before the effective date of September 16, 2012). For the implementation, § 6(c) of the Leahy-Smith America Invents Act requires that the Director issue regulations to carry out chapter 31 as amended of title 35, United States Code, within one year after the date of enactment. Public Law 112-29, § 6(c), 125 Stat. 284, 304 (2011).

2. Succinct Statement of the Objectives of, and Legal Basis for, the Proposed Rules: The proposed rules seek to implement inter partes review as authorized by the Leahy-Smith America Invents Act. The Leahy-Smith America Invents Act requires that the Director prescribe rules for the inter partes review that result in a final determination not later than one year after the date on which the Director notices the institution of a proceeding. The one-year period may be extended for not more than six months if good cause is shown. See 35 U.S.C. 316(a)(11), as amended. The Leahy-Smith America Invents Act also requires that the Director, in prescribing rules for the inter partes review, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings. See 35 U.S.C. 316(b), as amended. Consistent with the time periods provided in 35 U.S.C. 316(a)(11), as amended, the proposed rules are designed to, except where good cause is shown to exist, result in a final determination by the Patent Trial and Appeal Board within one year of the notice of initiation of the review. This one-year review will enhance the effect on the economy, and improve the integrity of the patent system and the efficient administration of the Office.

3. Description and Estimate of the Number of Affected Small Entities: The Small Business Administration (SBA) small business size standards applicable to most analyses conducted to comply with the Regulatory Flexibility Act are set forth in 13 CFR 121.201. These regulations generally define small businesses as those with fewer than a specified maximum number of employees or less than a specified level of annual receipts for the entity's industrial sector or North American Industry Classification System (NAICS) code. As provided by the Regulatory Flexibility Act, and after consultation with the Small Business Administration, the Office has formally adopted an alternate size standard as the size standard for the purpose of conducting an analysis or making a certification under the Regulatory Flexibility Act for patent-related regulations. See Business Size Standard for Purposes of United States Patent and Trademark Office Regulatory Flexibility Analysis for Patent-Related Regulations, 71 FR 67109 (Nov. 20, 2006), 1313 Off. Gaz. Pat. Office 60 (Dec. 12, 2006). This alternate small business size standard is SBA's previously established size standard that identifies the criteria entities must meet to be entitled to pay reduced patent fees. See 13 CFR 121.802. If patent applicants identify themselves on a patent application as qualifying for reduced patent fees, the Office captures this data in the Patent Application Location and Monitoring (PALM) database system, which tracks information on each patent application submitted to the Office.

Unlike the SBA small business size standards set forth in 13 CFR 121.201, the size standard for USPTO is not industry-specific. The Office's definition of a small business concern for Regulatory Flexibility Act purposes is a business or other concern that: (1) Meets the SBA's definition of a “business concern or concern” set forth in 13 CFR 121.105; and (2) meets the size standards set forth in 13 CFR 121.802 for the purpose of paying reduced patent fees, namely an entity: (a) Whose number of employees, including affiliates, does not exceed 500 persons; and (b) which has not assigned, granted, conveyed, or licensed (and is under no obligation to do so) any rights in the invention to any person who made it and could not be classified as an independent inventor, or to any concern which would not qualify as a non-profit organization or a small business concern under this definition. See Business Size Standard for Purposes of United States Patent and Trademark Office Regulatory Flexibility Analysis for Patent-Related Regulations, 71 FR at 67112 (Nov 20, 2006), 1313 Off. Gaz. Pat. Office at 63 (Dec. 12, 2006).

As discussed above, it is anticipated that 460 petitions for inter partes review will be filed in fiscal year 2013. The Office has reviewed the percentage of patents for which inter partes reexamination was requested from October 1, 2000, to September 23, 2011. A summary of that review is provided in Table 1 above. As demonstrated by Table 1, patents known to be owned by a small entity represent 32.79% of patents for which inter partes reexamination was requested. Based on an assumption that the same percentage of patents owned by small entities will be subject to the new review proceedings, it is estimated that 151 patents owned by small entities would be affected by an inter partes review.

The USPTO estimates that 2.5% of patent owners will file a request for adverse judgment prior to a decision to institute and that another 2.5% will file a request for adverse judgment or fail to participate after initiation. Specifically, an estimated 21 patent owners will file a request for adverse judgment or fail to participate after institution in inter partes review. Based on the percentage of small entity owned patents that were the subject of inter partes reexamination (32.79%) from October 1, 2000 to September 23, 2011, it is estimated that 7 small entities will file such requests or fail to participate in inter partes review proceedings.

Under the proposed rules, prior to determining whether to institute a review, the patent owner may file an optional patent owner preliminary response to the petition. Given the new time period requirements to file a petition for review before the Board relative to patent enforcement proceedings and the desire to avoid the cost of a trial and delays to related infringement actions, it is anticipated that 90% of petitions, other than those for which a request for adverse judgment is filed, will result in the filing of a patent owner preliminary response. Where an inter partes review petition is filed close to the expiration of the one-year period set forth in 35 U.S.C. 315(b), as amended, a patent owner would likely be advantaged by filing a successful preliminary response. In view of these considerations, it is anticipated that 90% of patent owners will file a preliminary response. Specifically, the Office estimates that 406 patent owners will file a preliminary response to an inter partes review petition. Based on the percentage of small entity owned patents that were the subject of inter partes reexamination (32.79%), it is estimated that 133 small entities will file a preliminary response to an inter partes review petition in fiscal year 2013.

Under the proposed rules, the Office will determine whether to institute a trial within three months after the earlier of: (1) The submission of a patent owner preliminary response, (2) the waiver of filing a patent owner preliminary response, or (3) the expiration of the time period for filing a patent owner preliminary response. If the Office decides not to institute a trial, the petitioner may file a request for reconsideration of the Office's decision. In estimating the number of requests for reconsideration, the Office considered the percentage of inter partes reexaminations that were denied relative to those that were ordered (24 divided by 342, or 7%) in fiscal year 2011. See Reexaminations—FY 2011, http://www.uspto.gov/patents/Reexamination_operational_statistic_through_FY2011Q4.pdf . The Office also considered the impact of: (1) Patent owner preliminary responses under newly authorized in 35 U.S.C. 313, as amended, (2) the enhanced thresholds for instituting reviews set forth in 35 U.S.C. 314(a), as amended, which would tend to increase the likelihood of dismissing a petition for review, and (3) the more restrictive time period for filing a petition for review in 35 U.S.C. 315(b), as amended, which would tend to reduce the likelihood of dismissing a petition. Based on these considerations, it is estimated that 10% of the petitions for review (45 divided by 449) would be dismissed.

During fiscal year 2011, the Office issued twenty-one decisions following a request for reconsideration of a decision on appeal in inter partes reexamination. The average time from original decision to decision on reconsideration was 4.4 months. Thus, the decisions on reconsideration were based on original decisions issued from July 2010 until June 2011. During this time period, the Office mailed sixty-three decisions on appeals in inter partes reexamination. See BPAI Statistics—Receipts and Dispositions by Technology Center, http://www.uspto.gov/ip/boards/bpai/stats/receipts/index.jsp (monthly data). Based on the assumption that the same rate of reconsideration (21 divided by 63 or 33.333%) will occur, the Office estimates that 15 requests for reconsideration will be filed. Based on the percentage of small entity owned patents that were the subject of inter partes reexamination (32.79%), it is estimated that five small entities will file a request for a reconsideration of a decision dismissing the petition for inter partes review in fiscal year 2013.

The Office reviewed motions, oppositions, and replies in a number of contested trial proceedings before the trial section of the Board. The review included determining whether the motion, opposition, and reply were directed to patentability grounds and non-priority non-patentability grounds. Based on the review, it is anticipated that inter partes reviews will have an average of 6.92 motions, oppositions, and replies per trial after institution. Settlement is estimated to occur in 20% of instituted trials at various points of the trial. In the trials that are settled, it is estimated that only 50% of the noted motions, oppositions, and replies would be filed.

After an inter partes review trial has been instituted but prior to a final written decision, parties to a review may request an oral hearing. It is anticipated that 411 requests for oral hearings will be filed based on the number of requests for oral hearings in inter partes reexamination, the stated desirability for oral hearings during the legislative process, and the public input received prior to this notice of proposed rulemaking. Based on the percentage of small entity owned patents that were the subject of inter partes reexamination (32.79%), it is estimated that 135 small entities will file a request for oral hearing in the inter partes reviews instituted in fiscal year 2013.

Parties to an inter partes review may file requests to treat a settlement as business confidential and requests for adverse judgment. A written request to make a settlement agreement available may also be filed. Given the short time period set for conducting trials, it is anticipated that the alternative dispute resolution options will be infrequently used. The Office estimates that 16 requests to treat a settlement as business confidential and 91 requests for adverse judgment, default adverse judgment, or settlement notices will be filed. The Office also estimates that 16 requests to make a settlement available will be filed. Based on the percentage of small entity owned patents that were the subject of inter partes reexamination (32.79%), it is estimated that 5 small entities will file a request to treat a settlement as business confidential, and thirty small entities will file a request for adverse judgment, default adverse judgment notices, or settlement notices in the inter partes reviews instituted in fiscal year 2013.

Parties to an inter partes review may seek judicial review of the final decision of the Board. Historically, 33% of examiner's decisions in inter partes reexamination proceedings have been appealed to the Board. It is anticipated that 16% of final decisions of the Board would be appealed. The reduction in appeal rate is based on the higher threshold for institution, the focused process, and the experience of the Board in conducted contested cases. Therefore, it is estimated that 46 would seek judicial review of the final decisions of the Board in inter partes reviews instituted in fiscal year 2013. Furthermore, based on the percentage of small entity owned patents that were the subject of inter partes reexamination (32.79%), it is estimated that fifteen small entities would seek judicial review of final decisions of the Board in the inter partes reviews instituted in fiscal year 2013.

4. Description of the Reporting, Recordkeeping, and Other Compliance Requirements of the Proposed Rule, Including an Estimate of the Classes of Small Entities Which Will Be Subject to the Requirement and the Type of Professional Skills Necessary for Preparation of the Report or Record: Based on the filing trends of inter partes reexamination requests, it is anticipated that petitions for inter partes review will be filed across all technologies with approximately 50% being filed in electrical technologies, approximately 30% in mechanical technologies, and the remaining 20% in chemical technologies and design. Under the proposed rules, a person who is not the owner of a patent may file a petition to institute a review of the patent, with a few exceptions. Given this, it is anticipated that a petition for review is likely to be filed by an entity practicing in the same or similar field as the patent. Therefore, it is anticipated that 50% of the petitions for review will be filed in the electronic field, 30% in the mechanical field, and 20% in the chemical or design fields.

Preparation of the petition would require analyzing the patent claims, locating evidence supporting arguments of unpatentability, and preparing the petition seeking review of the patent. This notice provides the proposed procedural requirements that are common for the new trials. Additional requirements are provided in contemporaneous trial specific proposed rulemaking. The procedures for petitions to institute an inter partes review are proposed in §§ 42.5, 42.6, 42.8, 42.11, 42.13, 42.20, 42.21, 42.22, 42.24(a)(1), 42.63, 42.65, and 42.101 through 42.105.

The skills necessary to prepare a petition for review and to participate in a trial before the Patent Trial and Appeal Board would be similar to those needed to prepare a request for inter partes reexamination, to represent a party in an inter partes reexamination, and to represent a party in an interference proceeding before the Patent Trial and Appeal Board. This level of skill is typically possessed by a registered patent practitioner having devoted professional time to the particular practice area, typically under the supervision of a practitioner skilled in the particular practice area. Where authorized by the Board, a non-registered practitioner may be admitted pro hac vice, on a case-by-case basis based on the facts and circumstances of the trial and party, as well as the skill of the practitioner.

The cost of preparing a petition for inter partes review is anticipated to be the same as the cost for preparing a request for inter partes reexamination. The American Intellectual Property Law Association's AIPLA Report of the Economic Survey 2011 reported that the average cost of preparing a request for inter partes reexamination was $46,000. Based on the work required to prepare and file such a request, the Office considers the reported cost as a reasonable estimate. Accordingly, the Office estimates that the cost of preparing a petition for inter partes review would be $46,000 (including expert costs).

The filing of a petition for review would also require payment by the petitioner of the appropriate petition fee to recover the aggregate cost for providing the review. The appropriate petition fee would be determined by the number of claims for which review is sought and the type of review. The proposed fees for filing a petition for inter partes review are: $27,200 for requesting review of 20 or fewer claims, $34,000 to request review of 21 to 30 claims, $40,800 to request review of 31 to 40 claims, $54,400 to request review of 41 to 50 claims, $68,000 to request review of 51 to 60 claims, and an additional $27,200 to request review of additional groups of 10 claims.

In setting fees, the estimated information technology cost to establish the process and maintain the filing and storage system through 2017 is to be recovered by charging each petition $2,270. The remainder of the fee is to recover the cost for judges to determine whether to institute a review and conduct the review, together with a proportionate share of indirect costs, e.g., rent, utilities, additional support, and administrative costs. Based on the direct and indirect costs, the fully burdened cost per hour for judges to decide a petition and conduct a review is estimated to be $258.32.

For a petition for inter partes review with 20 or fewer challenged claims, it is anticipated that 97 hours of judge time would be required. For 21 to 30 challenged claims, an additional 24 hours is anticipated for a total of 121 hours of judge time. For 31 to 40 challenged claims, an additional 48 hours is anticipated for a total of 145 hours of judge time. For 41 to 50 challenged claims, an additional 97 hours is anticipated for a total of 194 hours of judge time. For 51 to 60 claims, an additional 145 hours is anticipated for a total of 242 hours of judge time. The increase in adjustment reflects the added complexity that typically occurs as more claims are in dispute.

The proposed rules would permit the patent owner to file a preliminary response to the petition setting forth the reasons why no review should be initiated. The procedures for a patent owner to file a preliminary response as an opposition are proposed in §§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.23, 42.24(b), 42.51, 42.52, 42.53, 42.54, 42.63, 42.64, 42.65, 42.107, 42.120, 42.207, and 42.220. The patent owner is not required to file a preliminary response. The Office estimates that the preparation and filing of a patent owner preliminary response would require 100 hours of professional time and cost $34,000 (including expert costs). The AIPLA Report of the Economic Survey 2011 reported that the average cost for inter partes reexamination including of the request ($46,000), the first patent owner response, and third party comments was $75,000 ( see I-175) and the median billing rate for professional time of $340 per hour for attorneys in private firms ( see 8). Thus, the cost of the first patent owner reply and the third party statement is $29,000. The Office finds these costs to be reasonable estimates. The patent owner reply and third party statement, however, occur after the examiner has made an initial threshold determination and made only the appropriate rejections. Accordingly, it is anticipated that filing a patent owner preliminary response to a petition for review would cost more than the initial reply in a reexamination, an estimated $34,000 (including expert costs).

The Office will determine whether to institute a trial within three months after the earlier of: (1) The submission of a patent owner preliminary response, (2) the waiver of filing a patent owner preliminary response, or (3) the expiration of the time period for filing a patent owner preliminary response. If the Office decides not to institute a trial, the petitioner may file a request for reconsideration of the Office's decision. It is anticipated that a request for reconsideration will require 80 hours of professional time to prepare and file, for a cost of $27,200. This estimate is based on the complexity of the issues and desire to avoid time bars imposed by 35 U.S.C. 315(b), as amended, and 35 U.S.C. 325(b).

Following institution of a trial, the parties may be authorized to file various motions, e.g., motions to amend and motions for additional discovery. Where a motion is authorized, an opposition may be authorized, and where an opposition is authorized, a reply may be authorized. The procedures for filing a motion are proposed in §§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.22, 42.24(a)(5), 42.51, 42.52, 42.53, 42.54, 42.63, 42.64, 42.65, 42.121, 42.221, 42.123, and 42.223. The procedures for filing an opposition are proposed in §§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.23, 42.24(b), 42.51, 42.52, 42.53, 42.54, 42.63, 42.64, 42.65, 42.107, 42.120, 42.207, and 42.220. The procedures for filing a reply are proposed in §§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.23, 42.24(c), 42.51, 42.52, 42.53, 42.54, 42.63, and 42.65. As discussed previously, the Office estimates that the average inter partes review will have 6.92 motions, oppositions, and replies after institution.

The AIPLA Report of the Economic Survey 2011 reported that the average cost in contested cases before the trial section of the Board prior to the priority phase was $322,000 per party. Because of the overlap of issues in patentability grounds, it is expected that the cost per motion will decline as more motions are filed in a proceeding. It is estimated that a motion, opposition, or reply in an inter partes review is estimated at $47,600 (including expert costs). Based on the work required to file and prepare such briefs, the Office considers the reported cost as a reasonable estimate.

After a trial has been instituted but prior to a final written decision, parties to a review may request an oral hearing. The procedure for filing requests for oral argument is proposed in § 42.70. The AIPLA Report of the Economic Survey 2011 reported that the third quartile cost of an ex parte appeal with an oral argument is $12,000, while the third quartile cost of an ex parte appeal without an oral argument is $6,000. In view of the reported costs, which the Office finds reasonable, and the increased complexity of an oral hearing with multiple parties, it is estimated that the cost per party for oral hearings would be $6,800 or $800 more than the reported third quartile cost for an ex parte oral hearing.

Parties to an inter partes review may file requests to treat a settlement as business confidential and requests for adverse judgment. A written request to make a settlement agreement available may also be filed. The procedures to file requests that a settlement be treated as business confidential are proposed in § 42.74(c). The procedures to file requests for adverse judgment are proposed in § 42.73(b). The procedures to file requests to make a settlement agreement available are proposed in § 42.74(c)(2). It is anticipated that requests to treat a settlement as business confidential will require two hours of professional time or $680. It is anticipated that requests for adverse judgment will require one hour of professional time or $340. It is anticipated that requests to make a settlement agreement available will require 1 hour of professional time or $340. The requests to make a settlement agreement available will also require payment of a fee of $400 specified in proposed § 42.15(d).

Parties to a review proceeding may seek judicial review of the judgment of the Board. The procedures to file notices of judicial review of a Board decision, including notices of appeal and notices of election provided for 35 U.S.C. 141, 142, 145, and 146, are proposed in §§ 90.1 through 90.3. The submission of a copy of a notice of appeal or a notice of election is anticipated to require six minutes of professional time at a cost of $34.

5. Description of Any Significant Alternatives to the Proposed Rules Which Accomplish the Stated Objectives of Applicable Statutes and Which Minimize Any Significant Economic Impact of the Rules on Small Entities:

Size of petitions and motions: The Office considered whether to apply a page limit and what an appropriate page limit would be. The Office does not currently have a page limit on inter partes reexamination requests. The inter partes reexamination requests from October 1, 2010, to June 30, 2011, averaged 246 pages. Based on the experience of processing inter partes reexamination requests, the Office finds that the very large size of the requests has created a burden on the Office that hinders the efficiency and timeliness of processing the requests, and creates a burden on patent owners. The quarterly reported average processing time from the filing of a request to the publication of a reexamination certificate ranged from 28.9 months to 41.7 months in fiscal year 2009, from 29.5 months to 37.6 months in fiscal year 2010, and from 31.9 to 38.0 months in fiscal year 2011. See Reexaminations—FY 2011, http://www.uspto.gov/patents/Reexamination_operational_statistic_through_FY2011Q4.pdf.

By contrast, the Office has a page limit on the motions filed in contested cases, except where parties are specifically authorized to exceed the limitation. The typical contested case proceeding is subject to a standing order that sets a 50 page limit for motions and oppositions on priority, a 15 page limit for miscellaneous motions (§ 41.121(a)(3)) and oppositions (§ 41.122), and a 25 page limit for other motions (§ 41.121(a)(2)) and oppositions to other motions. In typical proceedings, replies are subject to a 15 page limit if directed to priority, 5 page limit for miscellaneous issues, and 10 page limit for other motions. The average contested case was terminated in 10.1 months in fiscal year 2009, in 12 months in fiscal year 2010, and in 9 months in fiscal year 2011. The percentage of contested cases terminated within two years was 93.7% in fiscal year 2009, 88.0% in fiscal year 2010, and 94.0% in fiscal year 2011. See BPAI Statistics—Performance Measures, http://www.uspto.gov/ip/boards/bpai/stats/perform/index.jsp.

Comparing the average time period for terminating a contested case, 10.0 to 12.0 months, with the average time period, during fiscal years 2009 through 2011, for completing an inter partes reexamination, 28.9 to 41.7 months, indicates that the average interference takes from 24% (10.0/41.7) to 42% (12.0/28.9) of the time of the average inter partes reexamination. While several factors contribute to the reduction in time, limiting the size of the requests and motions is considered a significant factor. Proposed § 42.24 would provide page limits for petitions, motions, oppositions, and replies. 35 U.S.C. 316(b), as amended, provides considerations that are to be taken into account when prescribing regulations including the integrity of the patent system, the efficient administration of the Office, and the ability to complete timely the trials. The page limits proposed in these rules are consistent with these considerations.

Federal courts routinely use page limits in managing motions practice as “[e]ffective writing is concise writing.” Spaziano v. Singletary, 36 F.3d 1028, 1031 n.2 (11th Cir. 1994). Many district courts restrict the number of pages that may be filed in a motion including, for example, the District of Delaware, the District of New Jersey, the Eastern District of Texas, the Northern, Central, and Southern Districts of California, and the Eastern District of Virginia.

Federal courts have found that page limits ease the burden on both the parties and the courts, and patent cases are no exception. Eolas Techs., Inc. v. Adobe Sys., Inc., No. 6:09-CV-446, at 1 (E.D. Tex. Sept. 2, 2010) (“The Local Rules' page limits ease the burden of motion practice on both the Court and the parties.”); Blackboard, Inc. v. Desire2Learn, Inc., 521 F. Supp. 2d 575, 576 (E.D. Tex. 2007) (The parties “seem to share the misconception, popular in some circles, that motion practice exists to require federal judges to shovel through steaming mounds of pleonastic arguments in a Herculean effort to uncover a hidden gem of logic that will ineluctably compel a favorable ruling. Nothing could be farther from the truth.”); Broadwater v. Heidtman Steel Prods., Inc., 182 F. Supp. 2d 705, 710 (S.D. Ill. 2002) (“Counsel are strongly advised, in the future, to not ask this Court for leave to file any memoranda (supporting or opposing dispositive motions) longer than 15 pages. The Court has handled complicated patent cases and employment discrimination cases in which the parties were able to limit their briefs supporting and opposing summary judgment to 10 or 15 pages.” (Emphasis omitted)).

The Board's contested cases experience with page limits in motions practice is consistent with that of the federal courts. The Board's use of page limits has shown it to be beneficial without being unduly restrictive for the parties. Page limits have encouraged the parties to focus on dispositive issues, easing the burden of motions practice on the parties and on the Board.

The Board's contested cases experience with page limits is informed by its use of different approaches over the years. In the early 1990s, page limits were not routinely used for motions, and the practice suffered from lengthy and unacceptable delays. To reduce the burden on the parties and on the Board and thereby reduce the time to decision, the Board instituted page limits in the late 1990s for every motion. Page limit practice was found to be effective in reducing the burdens on the parties and improving decision times at the Board. In 2006, the Board revised the page limit practice and allowed unlimited findings of fact and generally limited the number of pages containing argument. Due to abuses of the system, the Board recently reverted back to page limits for the entire motion (both argument and findings of fact).

The Board's current page limits are consistent with the 25-page limits in the Northern, Central, and Southern Districts of California and the Middle District of Florida and exceed the limits in the District of Delaware (20), the Northern District of Illinois (15), the District of Massachusetts (20), the Eastern District of Michigan (20), the Southern District of Florida (20), and the Southern District of Illinois (20).

In a typical proceeding before the Board, a party may be authorized to file a single motion for unpatentability based on prior art, a single motion for unpatentability based upon failure to comply with 35 U.S.C. 112, lack of written description, and/or enablement, and potentially another motion for lack of compliance with 35 U.S.C. 101, although a 35 U.S.C. 101 motion may be required to be combined with the 35 U.S.C. 112 motion. Each of these motions is currently limited to 25 pages in length, unless good cause is shown that the page limits are unduly restrictive for a particular motion.

Under the proposed rules, an inter partes review petition would be based upon any grounds identified in 35 U.S.C. 311(b), as amended, i.e., only a ground that could be raised under 35 U.S.C. 102 or 103 and only on the basis of patents or printed publications. Generally, under current practice, a party is limited to filing a single prior art motion, limited to 25 pages in length. The proposed rule would provide up to 50 pages in length for a motion requesting inter partes review. Thus, as the proposed page limit doubles the default page limit currently set for a motion before the Board, a 50 page limit is considered sufficient in all but exceptional cases and is consistent with the considerations provided in 35 U.S.C. 316(b), as amended.

The proposed rule would provide that petitions to institute a trial must comply with the stated page limits but may be accompanied by a motion that seeks to waive the page limits. The petitioner must show in the motion how a waiver of the page limits is in the interests of justice. A copy of the desired non-page limited petition must accompany the motion. Generally, the Board would decide the motion prior to deciding whether to institute the trial.

Current Board practice provides a limit of 25 pages for other motions and 15 pages for miscellaneous motions. The Board's experience is that such page limits are sufficient for the parties filing them and do not unduly burden the opposing party or the Board. Petitions to institute a trial would generally replace the current practice of filing motions for unpatentability, as most motions for relief are expected to be similar to the current interference miscellaneous motion practice. Accordingly, the proposed 15 page limit is considered sufficient for most motions but may be adjusted where the limit is determined to be unduly restrictive for the relief requested.

Proposed § 42.24(b) would provide page limits for oppositions filed in response to motions. Current contested cases practice provides an equal number of pages for an opposition as its corresponding motion. This is generally consistent with motions practice in federal courts. The proposed rule would continue the current practice.

Proposed § 42.24(c) would provide page limits for replies. Current contested case practice provides a 15 page limit for priority motion replies, a 5 page limit for miscellaneous (procedural) motion replies, and a 10 page limit for all other motions. The proposed rule is consistent with current contested case practice for procedural motions. The proposed rule would provide a 15 page limit for reply to petitions requesting a trial, which the Office believes is sufficient based on current practice. Current contested case practice has shown that such page limits do not unduly restrict the parties and, in fact, have provided sufficient flexibility to parties to not only reply to the motion but also help to focus on the issues. Thus, it is anticipated that default page limits would minimize the economic impact on small entities by focusing on the issues in the trials.

The Leahy-Smith America Invents Act requires that the Director, in prescribing rules for the inter partes reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings. See 35 U.S.C. 316(b), as amended. In view of the actual results of the duration of proceedings in inter partes reexamination (without page limits) and contested cases (with page limits), proposing procedures with reasonable page limits would be consistent with the objectives set forth in the Leahy-Smith America Invents Act. Based on our experience on the time needed to complete a non-page limited proceeding, the option of non-page limited proceedings was not adopted.

Fee Setting: 35 U.S.C. 311(a), as amended, requires the Director to establish fees to be paid by the person requesting the review in such amounts as the Director determines to be reasonable, considering the aggregate costs of the review. In contrast to current 35 U.S.C. 311(b) and 312(c), the Leahy-Smith America Invents Act requires the Director to establish more than one fee for reviews based on the total cost of performing the reviews, and does not provide for refund of any part of the fee when the Director determine that the review should not be initiated.

35 U.S.C. 312(a)(1), as amended, further requires that the fee established by the Director under 35 U.S.C. 311(a), as amended, accompany the petition on filing. Accordingly, in interpreting the fee setting authority in 35 U.S.C. 311(a), as amended, it is reasonable that the Director should set a number of fees for filing a petition based on the anticipated aggregate cost of conducting the review depending on the complexity of the review, and require payment of the fee upon filing of the petition.

Based on experience with contested cases and inter partes reexamination proceedings, the following characteristics of requests were considered as potential factors for fee setting as each would likely impact the cost of providing the new services. The Office also considered the relative difficulty in administrating each option in selecting the characteristics for which different fees should be paid for requesting review.

I. Adopted Option. Number of claims for which review is requested. The number of claims often impacts the complexity of the request and increases the demands placed on the deciding officials. Cf. In re Katz Interactive Call Processing Patent Litig., 639 F.3d 1303, 1309 (Fed. Cir. 2011) (limiting number of asserted claims is appropriate to efficiently manage a case). Moreover, the number of claims for which review is requested can be easily determined and administered, which avoids delays in the Office and the impact on the economy or patent system that would occur if an otherwise meritorious request is refused due to improper fee payment. Any subsequent petition would be time barred in view 35 U.S.C. 315(b), as amended.

II. Alternative Option I. Number of grounds for which review is requested. The Office has experience with large numbers of cumulative grounds being presented in inter partes reexaminations which often add little value to the proceedings. Allowing for a large number of grounds to be presented on payment of an additional fee(s) is not favored. Determination of the number of grounds in a request may be contentious and difficult and may result in a large amount of high-level petition work. As such, the option would have a negative impact on small entities. Moreover, interferences instituted in the 1980s and early 1990s suffered from this problem as there was no page limit for motions and the parties had little incentive to focus the issues for decision. The resulting interference records were often a collection of disparate issues and evidence. This led to lengthy and unwarranted delays in deciding interference cases as well as increased costs for parties and the Office. Accordingly, this alternative is inconsistent with objectives of the Leahy-Smith America Invents Act that the Director, in prescribing rules for the inter partes reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to timely complete the instituted proceedings.

III. Alternative Option II. Pages of argument. The Office has experience with large requests in inter partes reexamination in which the merits of the proceedings could have been resolved in a shorter request. Allowing for unnecessarily large requests on payment of an additional fee(s) is not favored. Moreover, determination of what should be counted as “argument” as compared with “evidence” has often proven to be contentious and difficult as administered in the current inter partes reexamination appeal process.

In addition, the trial section of the Board recently experimented with motions having a fixed page limit for the argument section and an unlimited number of pages for the statement of facts. Unlimited pages for the statement of facts led to a dramatic increase in the number of alleged facts and pages associated with those facts. For example, one party used approximately 10 pages for a single “fact” that merely cut and pasted a portion of a declarant's cross-examination. Based upon the trial section's experience with unlimited pages of facts, the Board recently reverted back to a fixed page limit for the entire motion (argument and facts). Accordingly, this alternative is inconsistent with objectives of the Leahy-Smith America Invents Act that the Director, in prescribing rules for the inter partes patent reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings.

IV. Alternative Option III. The Office considered an alternative fee setting regime in which fees are charged at various steps in the review process, a first fee on filing of the petition, a second fee if instituted, a third fee on filing a motion in opposition to amended claims, etc. The alternative fee setting regime would hamper the ability of the Office to complete timely reviews, would result in dismissal of pending proceedings with patentability in doubt due to non-payment of required fees by third parties, and would be inconsistent with 35 U.S.C. 312, as amended, that requires the fee established by the Director be paid at the time of filing the petition. Accordingly, this alternative is inconsistent with objectives of the Leahy-Smith America Invents Act that the Director, in prescribing rules for inter partes reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings.

V. Alternative Option IV. The Office also considered setting reduced fees for small and micro entities and to provide refunds if a review is not instituted. The Office may set the fee to recover the cost of providing the services under 35 U.S.C. 41(d)(2)(a). Fees set under this authority are not reduced for small entities, see 35 U.S.C. 42(h)(1), as amended. Moreover, the Office does not have authority to refund fees that when paid were not paid by mistake or in excess of that owed. See 35 U.S.C. 42(d).

Discovery: The Office considered a procedure for discovery similar to the one available during district court litigation. Discovery of that scope has been criticized sharply, particularly when attorneys use discovery tools as tactical weapons, which hinders the “just, speedy, and inexpensive determination of every action and proceeding.” See Introduction to An E-Discovery Model Order, available at http://www.cafc.uscourts.gov/images/stories/announcements/Ediscovery_Model_Order.pdf. Accordingly, this alternative would have been inconsistent with objectives of the Leahy-Smith America Invents Act that the Director, in prescribing rules for the inter partes reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings.

Additional discovery increases trial costs and increases the expenditures of time by the parties and the Board. To promote effective discovery, the proposed rule would require a showing that additional requested discovery is in the interests of justice, placing an affirmative burden upon a party seeking the discovery to show how the proposed discovery would be productive. The Board's interference experience, however, is that such showings are often lacking and authorization for additional discovery is expected to be rare.

The proposed interest of justice standard for additional discovery is consistent with considerations identified in 35 U.S.C. 316(b), as amended, including the efficient administration of the Board and the Board's ability to complete timely trials. Further, the proposed interest of justice standard is consistent with 35 U.S.C. 316(a)(5), as amended, which states that discovery other than depositions of witnesses submitting affidavits and declarations be what is otherwise necessary in the interests of justice.

The Office has proposed a default scheduling order to provide limited discovery as a matter of right and also the ability to seek additional discovery on a case-by-case basis. In weighing the need for additional discovery, should a request be made, the economic impact on the opposing party would be considered which would tend to limit additional discovery where a party is a small entity.

Pro Hac Vice: The Office considered whether to allow counsel to appear pro hac vice. In certain cases, highly skilled, but non-registered, attorneys have appeared satisfactorily before the Board in contested cases. The Board may recognize counsel pro hac vice during a proceeding upon a showing of good cause. Proceedings before the Office can be technically complex. Consequently, the grant of a motion to appear pro hac vice is a discretionary action taking into account the specifics of the proceedings. Similarly, the revocation of pro hac vice is a discretionary action taking into account various factors, including incompetence, unwillingness to abide by the Office's Rules of Professional Conduct, prior findings of misconduct before the Office in other proceedings, and incivility.

The Board's past practice has required the filing of a motion by a registered patent practitioner seeking pro hac vice representation based upon a showing of: (1) How qualified the unregistered practitioner is to represent the party in the proceeding when measured against a registered practitioner, and (2) whether the party has a genuine need to have the particular unregistered practitioner represent it during the proceeding. This practice has proven effective in the limited number of contested cases where such requests have been granted. The proposed rule, if adopted, would allow for this practice in the new proceedings authorized by the Leahy-Smith America Invents Act.

The proposed rules would provide a limited delegation to the Board under 35 U.S.C. 2(b)(2) and 32 to regulate the conduct of counsel in Board proceedings. The proposed rule would delegate to the Board the authority to conduct counsel disqualification proceedings while the Board has jurisdiction over a proceeding. The rule would also delegate to the Chief Administrative Patent Judge the authority to make final a decision to disqualify counsel in a proceeding before the Board for the purposes of judicial review. This delegation would not derogate from the Director the prerogative to make such decisions, nor would it prevent the Chief Administrative Patent Judge from further delegating authority to an administrative patent judge.

The Office considered broadly permitting practitioners not registered to practice by the Office to represent parties in trial as well as categorically prohibiting such practice. A prohibition on the practice would be inconsistent with the Board's experience, and more importantly, might result in increased costs particularly where a small entity has selected its district court litigation team for representation before the Board and has a patent review filed after litigation efforts have commenced. Alternatively, broadly making the practice available would create burdens on the Office in administering the trials and in completing the trial within the established time frame, particularly if the selected practitioner does not have the requisite skill. In weighing the desirability of admitting a practitioner pro hac vice, the economic impact on the party in interest would be considered which would tend to increase the likelihood that a small entity could be represented by a non-registered practitioner. Accordingly, the alternatives to eliminate pro hac vice practice or to permit it more broadly would have been inconsistent with objectives of the Leahy-Smith America Invents Act that the Director, in prescribing rules for the inter partes reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings.

Threshold for Instituting a Review: The Office considered whether the threshold for instituting a review could be set as low as or lower than the threshold for ex parte reexamination. This alternative could not be adopted in view of the statutory requirements in 35 U.S.C. 314, as amended.

Default Electronic Filing: The Office considered a paper filing system and a mandatory electronic filing system (without any exceptions) as alternatives to the proposed requirement that all papers are to be electronically filed, unless otherwise authorized.

Based on the Office's experience, a paper-based filing system increases delay in processing papers, delay in public availability, and the chance that a paper may be misplaced or made available to an improper party if confidential. Accordingly, the alternative of a paper-based filing system would have been inconsistent with objectives of the Leahy-Smith America Invents Act that the Director, in prescribing rules for the inter partes reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings.

An electronic filing system (without any exceptions) that is rigidly applied would result in unnecessary cost and burdens, particularly where a party lacks the ability to file electronically. By contrast, if the proposed option is adopted, it is expected that the entity size and sophistication would be considered in determining whether alternative filing methods would be authorized.

6. Identification, to the Extent Practicable, of All Relevant Federal Rules Which May Duplicate, Overlap, or Conflict with the Proposed Rules:

37 CFR 1.99 provides for the submission of information after publication of a patent application during examination by third parties.

37 CFR 1.171-1.179 provide for applications to reissue a patent to correct errors, including where a claim in a patent is overly broad.

37 CFR 1.291 provides for the protest against the issuance of a patent during examination.

37 CFR 1.321 provides for the disclaimer of a claim by a patentee.

37 CFR 1.501 and 1.502 provide for ex parte reexamination of patents. Under these rules, a person may submit to the Office prior art consisting of patents or printed publications that are pertinent to the patentability of any claim of a patent, and request reexamination of any claim in the patent on the basis of the cited prior art patents or printed publications. Consistent with 35 U.S.C. 302-307, ex parte reexamination rules provide a different threshold for initiation, require the proceeding to be conducted by an examiner with a right of appeal to the Patent Trial and Appeal Board, and allow for limited participation by third parties.

37 CFR 1.902-1.997 provide for inter partes reexamination of patents. Similar to ex parte reexamination, inter partes reexamination provides a procedure in which a third party may request reexamination of any claim in a patent on the basis of the cited prior art patents and printed publication. The inter partes reexamination practice will be eliminated, except for requests filed before the effective date, September 16, 2012. See § 6(c)(3)(C) of the Leahy-Smith America Invents Act.

Other countries have their own patent laws, and an entity desiring a patent in a particular country must make an application for patent in that country, in accordance with the applicable law. Although the potential for overlap exists internationally, this cannot be avoided except by treaty (such as the Paris Convention for the Protection of Industrial Property, or the Patent Cooperation Treaty (PCT)). Nevertheless, the Office believes that there are no other duplicative or overlapping foreign rules.

C. Executive Order 12866 (Regulatory Planning and Review): This rulemaking has been determined to be significant for purposes of Executive Order 12866 (Sept. 30, 1993), as amended by Executive Order 13258 (Feb. 26, 2002) and Executive Order 13422 (Jan. 18, 2007).

The Office estimates that the aggregate burden of the proposed rules on the public for implementing the new review procedures is approximately $54.1 million for fiscal year 2013. The USPTO considered several factors in making this estimate.

Based on the petition and other filing requirements for initiating an inter partes review proceeding, the USPTO initially estimated the burden of the proposed rules to be $174,500,217 in fiscal year 2013, which represents the sum of the estimated total annual (hour) respondent cost burden ($158,025,744) plus the estimated total annual non-hour respondent cost burden ($16,474,473) provided in Part O, Section II, of this notice, infra. However, since the Leahy-Smith America Invents Act also eliminates inter partes reexamination practice (except for requests filed before the effective date of September 16, 2012), the burden of the proposed rules should be offset by the elimination of the proceeding and its associated burdens.

It is estimated that 460 new requests for inter partes reexamination would have been filed in FY 2012 if the Leahy-Smith America Invents Act had not been enacted. This estimate is based on the number of proceedings filed in fiscal years 2011 (374), 2010 (281), and 2009 (258). Elimination of 460 proceedings reduces the public's burden to pay filing fees by $4,048,000 (460 filings with $8,800 filing fee due) and the public's burden to prepare the requests by $21,160,000 (460 filings with $46,000 average cost to prepare). Based on the assumption that 93% of the requests would be ordered (consistent with the fiscal year 2011 grant rate), the burden to conduct the proceeding till close of prosecution will reduce the public's burden by $89,880,000 (428 proceedings that would be estimated to be granted reexamination multiplied by $210,000 which is average cost cited in the AIPLA Report of the Economic Survey 2011 per party cost until close of prosecution reduced by the $46,000 request preparation cost). Additionally, the burden on the public to appeal to the Board by $5,358,000 (based on an estimate that 141 proceedings would be appealed to the Board which is estimated based on the number of granted proceedings (428) and the historical rate of appeal to the Board ( 1/3 ) and an average public cost of $38,000). Thus, $120,446,000 in public burden will be eliminated by the elimination of new filings of inter partes reexamination (the sum of $4,048,000 (the filing fees), $21,160,000 (the cost of preparing requests), $89,880,000 (the prosecution costs), plus $5,358,000 (the burden to appeal to the Board)).

Therefore, the estimated aggregate burden of the proposed rules for implementing the new review proceedings would be $54,054,217 ($174,500,217 minus $120,446,000) in fiscal year 2013.

The USPTO expect several benefits to flow from the Leahy-Smith America Invents Act and these proposed rules. It is anticipated that the proposed rules will reduce the time for reviewing patents at the USPTO. Specifically, 35 U.S.C. 316(a), as amended, provides that the Director prescribe regulations requiring a final determination by the Board within one year of initiation, which may be extended for up to six months for good cause. In contrast, currently for inter partes reexamination, the average time from the filing to the publication of a certificate ranged from 28.9 to 41.7 months during fiscal years 2009-2011. See Reexamination—FY 2011, http://www.uspto.gov/patents/Reexamination_operational_statistic_through_FY2011Q4.pdf.

Likewise, it is anticipated that the proposed rules will minimize duplication of efforts. In particular, the Leahy-Smith America Invents Act provides more coordination between district court infringement litigation and inter partes review to reduce duplication of efforts and costs. For instance, 35 U.S.C. 315(b), as amended, will require that a petition for inter partes review be filed within one year of the date of service of a complaint alleging infringement of a patent. By requiring the filing of an inter partes review petition earlier than a request for inter partes reexamination, and by providing shorter timelines for inter partes review compared with reexamination, it is anticipated that the current high level of duplication between litigation and reexamination will be reduced.

The AIPLA Report of the Economic Survey 2011 reports that the total cost of patent litigation where the damages at risk are less than $1,000,000 average $916,000, where the damages at risk are between $1,000,000 and $25,000,000 average $2,769,000, and where the damages at risk exceed $25,000,000 average $6,018,000. There may be a significant reduction in overall burden if, as intended, the Leahy-Smith America Invents Act and the proposed rules reduce the overlap between review at the USPTO of issued patents and validity determination during patent infringement actions. Data from the United States district courts reveals that 2,830 patent cases were filed in 2006, 2,896 in 2007, 2,909 in 2008, 2,792 in 2009, and 3,301 in 2010. See U.S. Courts, Judicial Business of the United States Courts, www.uscourts.gov/uscourts/Statistics/JudicialBusiness/2010/appendices/C02ASep10.pdf (last visited Nov. 11, 2011) (hosting annual reports for 1997-2010). Thus, the Office estimates that a total of approximately 3,300 patent cases (the highest number of yearly filings between 2006 and 2010 rounded to the nearest 100) are likely to be filed annually. The aggregate burden estimate above ($54,054,144) was not offset by a reduction in burden based on improved coordination between district court patent litigation and the new inter partes review proceedings.

D. Executive Order 13563 (Improving Regulation and Regulatory Review): The Office has complied with Executive Order 13563. Specifically, the Office has, to the extent feasible and applicable: (1) Made a reasoned determination that the benefits justify the costs of the rule; (2) tailored the rule to impose the least burden on society consistent with obtaining the regulatory objectives; (3) selected a regulatory approach that maximizes net benefits; (4) specified performance objectives; (5) identified and assessed available alternatives; (6) involved the public in an open exchange of information and perspectives among experts in relevant disciplines, affected stakeholders in the private sector, and the public as a whole, and provided online access to the rule making docket; (7) attempted to promote coordination, simplification, and harmonization across government agencies and identified goals designed to promote innovation; (8) considered approaches that reduce burdens and maintain flexibility and freedom of choice for the public; and (9) ensured the objectivity of scientific and technological information and processes.

E. Executive Order 13132 (Federalism): This rulemaking does not contain policies with federalism implications sufficient to warrant preparation of a Federalism Assessment under Executive Order 13132 (Aug. 4, 1999).

F. Executive Order 13175 (Tribal Consultation): This rulemaking will not: (1) Have substantial direct effects on one or more Indian tribes; (2) impose substantial direct compliance costs on Indian tribal governments; or (3) preempt tribal law. Therefore, a tribal summary impact statement is not required under Executive Order 13175 (Nov. 6, 2000).

G. Executive Order 13211 (Energy Effects): This rulemaking is not a significant energy action under Executive Order 13211 because this rulemaking is not likely to have a significant adverse effect on the supply, distribution, or use of energy. Therefore, a Statement of Energy Effects is not required under Executive Order 13211 (May 18, 2001).

H. Executive Order 12988 (Civil Justice Reform): This rulemaking meets applicable standards to minimize litigation, eliminate ambiguity, and reduce burden as set forth in sections 3(a) and 3(b)(2) of Executive Order 12988 (Feb. 5, 1996). This rulemaking carries out a statute designed to lessen litigation. See H.R. Rep. No. 112-98, at 45-48.

I. Executive Order 13045 (Protection of Children): This rulemaking does not concern an environmental risk to health or safety that may disproportionately affect children under Executive Order 13045 (Apr. 21, 1997).

J. Executive Order 12630 (Taking of Private Property): This rulemaking will not effect a taking of private property or otherwise have taking implications under Executive Order 12630 (Mar. 15, 1988).

K. Congressional Review Act: Under the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801-808), prior to issuing any final rule, the United States Patent and Trademark Office will submit a report containing the final rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the Government Accountability Office. The changes in this notice are not expected to result in an annual effect on the economy of 100 million dollars or more, a major increase in costs or prices, or significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of United States-based enterprises to compete with foreign based enterprises in domestic and export markets. Therefore, this notice is not expected to result in a “major rule” as defined in 5 U.S.C. 804(2).

L. Unfunded Mandates Reform Act of 1995: The changes proposed in this notice do not involve a Federal intergovernmental mandate that will result in the expenditure by State, local, and tribal governments, in the aggregate, of 100 million dollars (as adjusted) or more in any one year, or a Federal private sector mandate that will result in the expenditure by the private sector of 100 million dollars (as adjusted) or more in any one year, and will not significantly or uniquely affect small governments. Therefore, no actions are necessary under the provisions of the Unfunded Mandates Reform Act of 1995. See 2 U.S.C. 1501-1571.

M. National Environmental Policy Act: This rulemaking will not have any effect on the quality of the environment and is thus categorically excluded from review under the National Environmental Policy Act of 1969. See 42 U.S.C. 4321-4370h.

N. National Technology Transfer and Advancement Act: The requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) are not applicable because this rulemaking does not contain provisions which involve the use of technical standards.

O. Paperwork Reduction Act: The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3549) requires that the USPTO consider the impact of paperwork and other information collection burdens imposed on the public. This proposed rulemaking involves information collection requirements which are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3549). The collection of information involved in this notice has been submitted to OMB under OMB control number 0651-00xx. In the Notice “Rules of Practice for Trials before the Patent Trial and Appeal Board and Judicial Review of Patent Trial and Appeal Board Decisions,” RIN 0651-AC70, the information collection for all of the new trials authorized by the Leahy-Smith America Invents Act were provided. This notice provides the subset of burden created by the inter partes review provisions. The proposed collection will be available at the OMB's Information Collection Review Web site at: www.reginfo.gov/public/do/PRAMain.

The USPTO is submitting the information collection to OMB for its review and approval because this notice of proposed rulemaking will add the following to a collection of information:

(1) Petitions to institute an inter partes review (§§ 42.5, 42.6, 42.8, 42.11, 42.13, 42.20, 42.21, 42.22, 42.24(a)(1), 42.63, 42.65, and 42.101 through 42.105);

(2) motions (§§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.22, 42.24(a)(5), 42.51 through 42.54, 42.63, 42.64, 42.65, and 42.121);

(3) oppositions (§§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.23, 42.24(b), 42.51, 42.52, 42.53, 42.54, 42.63, 42.64, 42.65, 42.107, and 42.120); and

(4) replies provided for in 35 U.S.C. 135 and 311-318, as amended, and new 35 U.S.C. 319 (§§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.23, 42.24(c), 42.51, 42.52, 42.53, 42.54, 42.63, and 42.65).

The proposed rules also permit filing requests for oral argument (§ 42.70) provided for in 35 U.S.C. 316(a)(10), as amended, requests for rehearing (§ 42.71(c)), requests for adverse judgment (§ 42.73(b)), requests that a settlement be treated as business confidential (§ 42.74(b)) provided for in 35 U.S.C. 317, as amended.

I. Abstract: The USPTO is required by 35 U.S.C. 131 and 151 to examine applications and, when appropriate, issue applications as patents.

Chapter 31 of title 35, United States Code, in effect on September 16, 2012, provides for inter partes review proceedings allowing third parties to petition the USPTO to review the patentability of an issued patent under 35 U.S.C. 102 and 103 based on patents and printed publications. If a trial is initiated by the USPTO based on the petition, as authorized by the USPTO, additional motions may be filed by the petitioner. A patent owner may file a response to the petition and if a trial is instituted, as authorized by the USPTO, may file additional motions.

In estimating the number of hours necessary for preparing a petition to institute an inter partes review, the USPTO considered the estimated cost of preparing a request for inter partes reexamination ($46,000), the median billing rate ($340/hour), and the observation that the cost of inter partes reexamination has risen the fastest of all litigation costs since 2009 in the AIPLA Report of the Economic Survey 2011. It was estimated that a petition for an inter partes review and an inter partes reexamination request would cost the same to the preparing party ($46,000).

In estimating the number of hours necessary for preparing motions after instituting and participating in the review, the USPTO considered the AIPLA Report of the Economic Survey 2011 which reported the average cost of a party to a two-party interference to the end of the preliminary motion phase ($322,000) and inclusive of all costs ($631,000). The Office considered that the preliminary motion phase is a good proxy for patentability reviews since that is the period of current contested cases before the trial section of the Board where most patentability motions are currently filed.

The USPTO also reviewed recent contested cases before the trial section of the Board to make estimates on the average number of motions for any matter including priority, the subset of those motions directed to non-priority issues, the subset of those motions directed to non-priority patentability issues, and the subset of those motions directed to patentability issues based on a patent or printed publication on the basis of 35 U.S.C. 102 or 103. The review of current contested cases before the trial section of the Board indicated that approximately 15% of motions were directed to prior art grounds, 18% of motions were directed to other patentability grounds, 27% were directed to miscellaneous issues, and 40% were directed to priority issues. It was estimated that the cost per motion to a party in current contested cases before the trial section of the Board declines because of overlap in subject matter, expert overlap, and familiarity with the technical subject matter. Given the overlap of subject matter, a proceeding with fewer motions will have a somewhat less than proportional decrease in costs since the overlapping costs will be spread over fewer motions.

It is estimated that the cost of an inter partes review would be 60% of the cost of current contested cases before the trial section of the Board to the end of the preliminary motion period. An inter partes review should have many fewer motions since only one party will have a patent that is the subject of the proceeding (compared with each party having at least a patent or an application in current contested cases before the trial section of the Board). Moreover, fewer issues can be raised since inter partes review will not have priority-related issues that must be addressed in current contested cases before the trial section of the Board. Consequently, a 60% weighting factor should capture the typical costs of an inter partes review.

The title, description, and respondent description of the information collection are shown below with an estimate of the annual reporting burdens for the inter partes review provisions. Included in this estimate is the time for reviewing instructions, gathering and maintaining the data needed, and completing and reviewing the collection of information. The principal impact of the proposed changes in this notice of proposed rulemaking is to implement the changes to Office practice necessitated by section 6(a) of the Leahy-Smith America Invents Act.

The public uses this information collection to request inter partes review and to ensure that the associated fees and documentation are submitted to the USPTO.

Needs and Uses: The information supplied to the USPTO by a petition to institute an inter partes review as well as the motions authorized following the institution is used by the USPTO to determine whether to initiate a review under 35 U.S.C. 314, as amended, and to prepare a final decision under 35 U.S.C. 318, as amended.

OMB Number: 0651-00xx.

Title: Patent Review and Derivation Proceedings.

Form Numbers: None.

Type of Review: New Collection.

Likely Respondents/Affected Public: Individuals or households, businesses, or other for-profit, not-for-profit institutions, farms, Federal Government, and state, local, or tribal governments.

Estimated Number of Respondents/Frequency of Collection: 920 respondents and 4,024 responses per year.

Estimated Time per Response: The USPTO estimates that it will take the public from 0.1 to 180.4 hours to gather the necessary information, prepare the documents, and submit the information to the USPTO.

Estimated Total Annual Respondent Burden Hours: 464,781.6 hours per year.

Estimated Total Annual (Hour) Respondent Cost Burden: $158,025,744 per year. The USPTO expects that the information in this collection will be prepared by attorneys. Using the professional rate of $340 per hour for attorneys in private firms, the USPTO estimates that the respondent cost burden for this collection will be approximately $158,025,744 per year (464,781.6 hours per year multiplied by $340 per hour).

Estimated Total Annual Non-hour Respondent Cost Burden: $16,474,473 per year. There are no capital start-up or maintenance costs associated with this information collection. However, this collection does have annual (non-hour) costs in the form of filing fees and postage costs where filing via mail is authorized. It is estimated that filing via mail will be authorized in one inter partes review petition filing and 3 subsequent papers. There are filing fees associated with petitions for inter partes review, post-grant review, and covered business method patent review and for requests to treat a settlement as business confidential. The total filing fees for this collection are calculated in the accompanying table. The USPTO estimates that filings authorized to be filed via mail will be mailed to the USPTO by Express Mail using the U.S. Postal Service's flat rate envelope, which can accommodate varying submission weights, estimated in this case to be 16 ounces for the petitions and two ounces for the other papers. The cost of the flat rate envelope is $18.30. The USPTO estimates that the total postage cost associated with this collection will be approximately $73 per year. The USPTO estimates that the total fees associated with this collection will be approximately $16,474,473 per year.

Therefore, the total cost burden in fiscal year 2013 is estimated to be $174,500,217 (the sum of the estimated total annual (hour) respondent cost burden ($158,025,744) plus the estimated total annual non-hour respondent cost burden ($16,474,473)).

The agency is soliciting comments to: (1) Evaluate whether the proposed information requirement is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (2) evaluate the accuracy of the agency's estimate of the burden; (3) enhance the quality, utility, and clarity of the information to be collected; and (4) minimize the burden of collecting the information on those who are to respond, including by using appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.

Interested persons are requested to send comments regarding this information collection by April 10, 2012, to: (1) The Office of Information and Regulatory Affairs, Office of Management and Budget, New Executive Office Building, Room 10202, 725 17th Street NW., Washington, DC 20503, Attention: Nicholas A. Fraser, the Desk Officer for the United States Patent and Trademark Office, and via email at nfraser@omb.eop.gov; and (2) The Board of Patent Appeals and Interferences by electronic mail message over the Internet addressed to inter_partes_review@uspto.gov, or by mail addressed to: Mail Stop Patent Board, Director of the United States Patent and Trademark Office, P.O. Box 1450, Alexandria, VA 22313-1450, marked to the attention of “Lead Judge Michael Tierney, Inter partes Review Proposed Rules.”

Notwithstanding any other provision of law, no person is required to respond to nor shall a person be subject to a penalty for failure to comply with a collection of information subject to the requirements of the Paperwork Reduction Act unless that collection of information displays a currently valid OMB control number.

For the reasons stated in the preamble, the Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office propose to amend 37 CFR part 42 as proposed to be added in the February 9, 2012, issue of the Federal Register as follows:

On September 16, 2011, the Leahy-Smith America Invents Act was enacted into law (Pub. L. 112-29, 125 Stat. 284 (2011)). The purpose of the Leahy-Smith America Invents Act and these proposed regulations is to establish a more efficient and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs. The preamble of this notice sets forth in detail the procedures by which the Board will conduct post-grant review proceedings. The USPTO is engaged in a transparent process to create a timely, cost-effective alternative to litigation. Moreover, the rulemaking process is designed to ensure the integrity of the trial procedures. See 35 U.S.C. 326(b). The proposed rules would provide a set of rules relating to Board trial practice for post-grant review.

More grounds for seeking post-grant review will be available as compared with inter partes review. The grounds for seeking post-grant review includes any ground that could be raised under 35 U.S.C. 282(b)(2) or (3). Such grounds for post-grant review include grounds that could be raised under 35 U.S.C. 102 or 103 including those based on prior art consisting of patents or printed publications. Other grounds available for post-grant review include 35 U.S.C. 101 and 112, with the exception of compliance with the best mode requirement. In contrast, the grounds for seeking inter partes review are limited to issues raised under 35 U.S.C. 102 or 103 and only on the basis of prior art consisting of patents or printed publications.

Section 6 of the Leahy-Smith America Invents Act is entitled “POST-GRANT REVIEW PROCEEDINGS.” Section 6(d) of the Leahy-Smith America Invents Act, entitled “POST-GRANT REVIEW,” adds chapter 32 of title 35, United States Code, also entitled “POST-GRANT REVIEW.” In particular, § 6(d) adds 35 U.S.C. 321-329. Public Law 112-29, 125 Stat. 284, 305-311 (2011).

Section 6(d) of the Leahy-Smith America Invents Act adds 35 U.S.C. 321, entitled “Post-grant review.” 35 U.S.C. 321(a) will provide that, subject to the provisions of chapter 32 of title 35, United States Code, a person who is not the owner of a patent may file a petition with the Office to institute a post-grant review of the patent. 35 U.S.C. 321(a) will also provide that the Director will establish, by regulation, fees to be paid by the person requesting the review, in such amounts as the Director determines to be reasonable, considering the aggregate costs of the post-grant review. 35 U.S.C. 321(b) will provide that a petitioner in a post-grant review may request to cancel as unpatentable one or more claims of a patent on any ground that could be raised under 35 U.S.C. 282(b)(2) or (3) (relating to invalidity of the patent or any claim). 35 U.S.C. 321(c) will provide that a petition for post-grant review may only be filed not later than the date that is nine months after the date of the grant of the patent or of the issuance of a reissue patent.

Section 6(d) of the Leahy-Smith America Invents Act adds 35 U.S.C. 322, entitled “Petitions.” 35 U.S.C. 322(a) will provide that a petition filed under 35 U.S.C. 321 may be considered only if: (1) The petition is accompanied by payment of the fee established by the Director under 35 U.S.C. 321; (2) the petition identifies all real parties in interest; (3) the petition identifies, in writing and with particularity, each claim challenged, the grounds on which the challenge to each claim is based, and the evidence that supports the grounds for the challenge to each claim, including (A) copies of patents and printed publications that the petitioner relies upon in support of the petition and (B) affidavits or declarations of supporting evidence and opinions, if the petitioner relies on other factual evidence or on expert opinions; (4) the petition provides such other information as the Director may require by regulation; and (5) the petitioner provides copies of any of the documents required under paragraphs (2), (3), and (4) of 35 U.S.C. 322(a) to the patent owner or, if applicable, the designated representative of the patent owner. 35 U.S.C. 322(b) will provide that, as soon as practicable after the receipt of a petition under 35 U.S.C. 321, the Director will make the petition available to the public.

Section 6(d) of the Leahy-Smith America Invents Act adds 35 U.S.C. 323, entitled “Preliminary response to petition.” 35 U.S.C. 323 will provide that, if a post-grant review petition is filed under 35 U.S.C. 321, the patent owner has the right to file a preliminary response to the petition, within a time period set by the Director, that sets forth reasons why no post-grant review should be instituted based upon the failure of the petition to meet any requirement of chapter 32 of title 35, United States Code.

Section 6(d) of the Leahy-Smith America Invents Act adds 35 U.S.C. 324, entitled “Institution of post-grant review.” 35 U.S.C. 324(a) will provide that the Director may not authorize a post-grant review to be instituted, unless the Director determines that the information presented in the petition filed under 35 U.S.C. 321, if such information is not rebutted, would demonstrate that it is more likely than not that at least one of the claims challenged in the petition is unpatentable. 35 U.S.C. 324(b) will provide that the determination required under 35 U.S.C. 324(a) may also be satisfied by a showing that the petition raises a novel or unsettled legal question that is important to other patents or patent applications. 35 U.S.C. 324(c) will provide that the Director will determine whether to institute a post-grant review under chapter 32 of title 35, United States Code, pursuant to a petition filed under 35 U.S.C. 321 within three months after: (1) Receiving a preliminary response to the petition under 35 U.S.C. 323; or (2) if no such preliminary response is filed, the last date on which such response may be filed. 35 U.S.C. 324(d) will provide that the Director will notify the petitioner and patent owner, in writing, of the Director's determination under 35 U.S.C. 324(a) or (b), and will make such notice available to the public as soon as is practicable. 35 U.S.C. 324(d) will also provide that such notice will include the date on which the review will commence. 35 U.S.C. 324(e) will provide that the determination by the Director whether to institute a post-grant review under 35 U.S.C. 324 will be final and nonappealable.

Section 6(d) of the Leahy-Smith America Invents Act adds 35 U.S.C. 325, entitled “Relation to other proceedings or actions.” 35 U.S.C. 325(a)(1) will provide that a post-grant review may not be instituted under chapter 32 of title 35, United States Code, if, before the date on which the petition for such a review is filed, the petitioner or real party in interest filed a civil action challenging the validity of a claim of the patent. 35 U.S.C. 325(a)(2) will provide for an automatic stay of a civil action brought by the petitioner or real party in interest challenging the validity of a claim of the patent and filed on or after the date on which the petition for post-grant review was filed, until certain specified conditions are met. 35 U.S.C. 325(a)(3) will provide that a counterclaim challenging the validity of a claim of a patent does not constitute a civil action challenging the validity of a claim of a patent for purposes of 35 U.S.C. 325(a).

35 U.S.C. 325(b) will provide that if a civil action alleging infringement of a patent is filed within three months after the date on which the patent is granted, the court may not stay its consideration of the patent owner's motion for a preliminary injunction against infringement of the patent on the basis that a petition for post-grant review has been filed or instituted under chapter 32 of title 35, United States Code.

35 U.S.C. 325(c) will provide that if more than one petition for a post-grant review under chapter 32 of title 35, United States Code, is properly filed against the same patent and the Director determines that more than one of these petitions warrants the institution of a post-grant review under 35 U.S.C. 324, the Director may consolidate such reviews into a single post-grant review.

35 U.S.C. 325(d) will provide that, notwithstanding 35 U.S.C. 135(a), 251, and 252, and chapter 30 of title 35, United States Code, during the pendency of any post-grant review under chapter 32 of title 35, United States Code, if another proceeding or matter involving the patent is before the Office, the Director may determine the manner in which the post-grant review or other proceeding or matter may proceed, including providing for the stay, transfer, consolidation, or termination of any such matter or proceeding. 35 U.S.C. 325(d) will also provide that, in determining whether to institute or order a proceeding under chapter 32 of title 35, United States Code, chapter 30 of title 35, United States Code, or chapter 31 of title 35, United States Code, the Director may take into account whether, and reject the petition because, the same or substantially the same prior art or arguments previously were presented to the Office.

35 U.S.C. 325(e)(1) will provide that the petitioner in a post-grant review of a claim in a patent under chapter 32 of title 35, United States Code, that results in a final written decision under 35 U.S.C. 328(a), or the real party in interest or privy of the petitioner, may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that post-grant review. 35 U.S.C. 325(e)(2) will provide for estoppel against a post-grant review petitioner, or the real party in interest or privy of the petitioner, in certain civil actions and certain other proceedings before the International Trade Commission if that post-grant review results in a final written decision under 35 U.S.C. 328(a).

35 U.S.C. 325(f) will provide that a post-grant review may not be instituted under chapter 32 of title 35, United States Code, if the petition requests cancellation of a claim in a reissue patent that is identical to or narrower than a claim in the original patent from which the reissue patent was issued, and the time limitations in 35 U.S.C. 321(c) would bar filing a petition for a post-grant review for such original patent.

Section 6(d) of the Leahy-Smith America Invents Act adds 35 U.S.C. 326, entitled “Conduct of post-grant review.” 35 U.S.C. 326(a) will provide that the Director will prescribe regulations: (1) Providing that the file of any proceeding under chapter 32 of title 35, United States Code, will be made available to the public, except that any petition or document filed with the intent that it be sealed will, if accompanied by a motion to seal, be treated as sealed pending the outcome of the ruling on the motion; (2) setting forth the standards for the showing of sufficient grounds to institute a review under 35 U.S.C. 324(a) and (b); (3) establishing procedures for the submission of supplemental information after the petition is filed; (4) establishing and governing a post-grant review under chapter 32 of title 35, United States Code, and the relationship of such review to other proceedings under title 35, United States Code; (5) setting forth standards and procedures for discovery of relevant evidence, including that such discovery will be limited to evidence directly related to factual assertions advanced by either party in the proceeding; (6) prescribing sanctions for abuse of discovery, abuse of process, or any other improper use of the proceeding, such as to harass or to cause unnecessary delay or an unnecessary increase in the cost of the proceeding; (7) providing for protective orders governing the exchange and submission of confidential information; (8) providing for the filing by the patent owner of a response to the petition under 35 U.S.C. 323 after a post-grant review has been instituted, and requiring that the patent owner file with such response, through affidavits or declarations, any additional factual evidence and expert opinions on which the patent owner relies to support the response; (9) setting forth standards and procedures for allowing the patent owner to move to amend the patent under 35 U.S.C. 326(d) to cancel a challenged claim or propose a reasonable number of substitute claims, and ensuring that any information submitted by the patent owner in support of any amendment entered under 35 U.S.C. 326(d) is made available to the public as part of the prosecution history of the patent; (10) providing either party with the right to an oral hearing as part of the proceeding; (11) requiring that the final determination in any post-grant review be issued not later than one year after the date on which the Director notices the institution of a proceeding under chapter 32 of title 35, United States Code, except that the Director may, for good cause shown, extend the one-year period by not more than six months, and may adjust the time periods in this paragraph in the case of joinder under 35 U.S.C. 325(c); and (12) providing the petitioner with at least one opportunity to file written comments within a time period established by the Director.

35 U.S.C. 326(b) will provide that in prescribing regulations under 35 U.S.C. 326, the Director will consider the effect of any such regulation on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely proceedings instituted under chapter 32 of title 35, United States Code.

35 U.S.C. 326(c) will provide that the Patent Trial and Appeal Board will, in accordance with 35 U.S.C. 6, conduct each post-grant review instituted under chapter 32 of title 35, United States Code.

35 U.S.C. 326(d)(1) will provide that during a post-grant review instituted under chapter 32 of title 35, United States Code, the patent owner may file a single motion to amend the patent in one or more of the following ways: (A) Cancel any challenged patent claim; and/or (B) for each challenged claim, propose a reasonable number of substitute claims. 35 U.S.C. 326(d)(2) provides that additional motions to amend may be permitted upon the joint request of the petitioner and the patent owner to materially advance the settlement of a proceeding under 35 U.S.C. 327, or upon the request of the patent owner for good cause shown. 35 U.S.C. 326(d)(3) will provide that an amendment under 35 U.S.C. 326(d) may not enlarge the scope of the claims of the patent or introduce new matter. 35 U.S.C. 326(e) will provide that in a post-grant review instituted under chapter 32 of title 35, United States Code, the petitioner will have the burden of proving a proposition of unpatentability by a preponderance of the evidence.

Section 6(d) of the Leahy-Smith America Invents Act adds 35 U.S.C. 327, entitled “Settlement.” 35 U.S.C. 327(a) will provide that a post-grant review instituted under chapter 32 of title 35, United States Code, will be terminated with respect to any petitioner upon the joint request of the petitioner and the patent owner, unless the Office has decided the merits of the proceeding before the request for termination is filed. 35 U.S.C. 327(a) will also provide that if the post-grant review is terminated with respect to a petitioner under 35 U.S.C. 327, no estoppel under 35 U.S.C. 325(e) will attach to the petitioner, or to the real party in interest or privy of the petitioner, on the basis of that petitioner's institution of that post-grant review. 35 U.S.C. 327(a) will further provide that if no petitioner remains in the post-grant review, the Office may terminate the post-grant review or proceed to a final written decision under 35 U.S.C. 328(a).

35 U.S.C. 327(b) will provide that any agreement or understanding between the patent owner and a petitioner, including any collateral agreements referred to in such agreement or understanding, made in connection with, or in contemplation of, the termination of a post-grant review under 35 U.S.C. 327 will be in writing, and a true copy of such agreement or understanding will be filed in the Office before the termination of the post-grant review as between the parties. 35 U.S.C. 327(b) will also provide that at the request of a party to the proceeding, the agreement or understanding will be treated as business confidential information, will be kept separate from the file of the involved patents, and will be made available only to Federal Government agencies on written request, or to any person on a showing of good cause.

Section 6(d) of the Leahy-Smith America Invents Act adds 35 U.S.C. 328, entitled “Decision of the Board.” 35 U.S.C. 328(a) will provide that if a post-grant review is instituted and not dismissed under chapter 32 of title 35, United States Code, the Patent Trial and Appeal Board will issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner and any new claim added under 35 U.S.C. 326(d).

35 U.S.C. 328(b) will provide that if the Patent Trial and Appeal Board issues a final written decision under 35 U.S.C. 328(a) and the time for appeal has expired or any appeal has terminated, the Director will issue and publish a certificate canceling any claim of the patent finally determined to be unpatentable, confirming any claim of the patent determined to be patentable, and incorporating in the patent by operation of the certificate any new or amended claim determined to be patentable.

35 U.S.C. 328(c) will provide that any proposed amended or new claim determined to be patentable and incorporated into a patent following a post-grant review under chapter 32 of title 35, United States Code, will have the same effect as that specified in 35 U.S.C. 252 for reissued patents on the right of any person who made, purchased, or used within the United States, or imported into the United States, anything patented by such proposed amended or new claim, or who made substantial preparation therefor, before the issuance of a certificate under 35 U.S.C. 328(b).

35 U.S.C. 328(d) will provide that the Office will make available to the public data describing the length of time between the institution of, and the issuance of, a final written decision under 35 U.S.C. 328(a) for each post-grant review.

Section 6(d) of the Leahy-Smith America Invents Act adds 35 U.S.C. 329, entitled “Appeal.” 35 U.S.C. 329 will provide that a party dissatisfied with the final written decision of the Patent Trial and Appeal Board under 35 U.S.C. 328(a) may appeal the decision pursuant to 35 U.S.C. 141-144. 35 U.S.C. 329 will also provide that any party to the post-grant review will have the right to be a party to the appeal.

Section 6(f) of the Leahy-Smith America Invents Act is entitled “REGULATIONS AND EFFECTIVE DATE.” Section 6(f)(1) of the Leahy-Smith America Invents Act provides that the Director will, not later than the date that is one year after the date of the enactment of the Leahy-Smith America Invents Act, issue regulations to carry out chapter 32 of title 35, United States Code, as added by § 6(d) of the Leahy-Smith America Invents Act.

Section 6(f)(2)(A) of the Leahy-Smith America Invents Act provides that the amendments made by § 6(d) of the Leahy-Smith America Invents Act will take effect upon the expiration of the one-year period beginning on the date of the enactment of the Leahy-Smith America Invents Act and, except as provided in § 18 of the America Invents Act and in § 6(f)(3) of the Leahy-Smith America Invents Act, will apply only to patents described in § 3(n)(1) of the Leahy-Smith America Invents Act. Section 3(n) of the Leahy-Smith America Invents Act is entitled “EFFECTIVE DATE.” Section 3(n)(1) of the Leahy-Smith America Invents Act provides:

For example, the post-grant review provisions will apply to patents issued from applications that have an effective filing date on or after March 16, 2013, eighteen months after the date of enactment.

Section 6(f)(2)(B) of the Leahy-Smith America Invents Act provides that the Director may impose a limit on the number of post-grant reviews that may be instituted under chapter 32 of title 35, United States Code, during each of the first four one-year periods in which the amendments made by § 6(d) of the Leahy-Smith America Invents Act are in effect.

Section 6(f)(3) of the Leahy-Smith America Invents Act is entitled “PENDING INTERFERENCES.” Section 6(f)(3)(A) of the Leahy-Smith America Invents Act provides that the Director will determine, and include in the regulations issued under § 6(f)(1) of the Leahy-Smith America Invents Act, the procedures under which an interference commenced before the effective date set forth in § 6(f)(2)(A) of the Leahy-Smith America Invents Act is to proceed, including whether such interference: (i) is to be dismissed without prejudice to the filing of a petition for a post-grant review under chapter 32 of title 35, United States Code; or (ii) is to proceed as if the Leahy-Smith America Invents Act had not been enacted.

Section 6(f)(3)(B) of the Leahy-Smith America Invents Act provides that, for purposes of an interference that is commenced before the effective date set forth in § 6(f)(2)(A) of the Leahy-Smith America Invents Act, the Director may deem the Patent Trial and Appeal Board to be the Board of Patent Appeals and Interferences, and may allow the Patent Trial and Appeal Board to conduct any further proceedings in that interference.

Section 6(f)(3)(C) of the Leahy-Smith America Invents Act provides that the authorization to appeal or have remedy from derivation proceedings in §§ 141(d) and 146 of title 35, United States Code, as amended, and the jurisdiction to entertain appeals from derivation proceedings in 28 U.S.C. 1295(a)(4)(A), as amended, will be deemed to extend to any final decision in an interference that is commenced before the effective date set forth in § 6(f)(2)(A) of the Leahy-Smith America Invents Act and that is not dismissed pursuant to this paragraph.

The proposed new rules would implement the provisions of the Leahy-Smith America Invents Act for instituting and conducting post-grant review proceedings before the Patent Trial and Appeal Board (Board). 35 U.S.C. 326(a)(4), as added by the Leahy-Smith America Invents Act, provides that the Director will prescribe regulations establishing and governing post-grant review and the relationship of the review to other proceedings under title 35 of the United States Code. Public Law 112-29, § 6(d), 125 Stat. 284, 308 (2011). In particular, this notice proposes to add a new subpart C to 37 CFR part 42 to provide rules specific to post-grant reviews.

Additionally, the Office in a separate rulemaking is proposing to add part 42, including subpart A, (RIN 0651-AC70) that will include a consolidated set of rules relating to Board trial practice. Specifically, the proposed subpart A of part 42 would set forth the policies, practices, and definitions common to all trial proceedings before the Board. The proposed rules in the instant notice and discussion below may reference the proposed rules in subpart A of part 42. Furthermore, the Office in separate rulemakings is proposing to add a new subpart B to 37 CFR part 42 (RIN 0651-AC71) to provide rules specific to inter partes reviews, a new subpart D to 37 CFR part 42 (RIN 0651-AC73; RIN 0651-AC75) to provide rules specific to the transitional program for covered business method patents, and a new subpart E to 37 CFR part 42 (RIN 0651-AC74) to provide rules specific to derivation proceedings.

Title 37 of the Code of Federal Regulations, Chapter I, Part 42, Subpart C, entitled “Post-Grant Review” is proposed to be added as follows:

Section 42.200: Proposed § 42.200 would set forth policy considerations for post-grant review proceedings.

Proposed § 42.200(a) would provide that a post-grant review is a trial and subject to the rules set forth in subpart A.

Proposed § 42.200(b) would provide that a claim in an unexpired patent shall be given its broadest reasonable construction in light of the specification in which it appears. This proposed rule would be consistent with longstanding established principles of claim construction before the Office. In re Am. Acad. of Sci. Tech Ctr., 367 F.3d 1359, 1364 (Fed. Cir. 2004); In re Yamamoto, 740 F.2d 1569, 1571 (Fed. Cir. 1984). As explained in Yamamoto, a party's ability to amend claims to avoid prior art distinguishes Office proceedings from district court proceedings and justifies the difficult standard for claim interpretation. Yamamoto, 740 F.2d at 1572.

Proposed § 42.200(c) would provide a one-year timeframe for administering the proceeding after institution, with up to a six-month extension for good cause. This proposed rule is consistent with 35 U.S.C. 326(a)(11), which sets forth statutory time frames for post-grant review.

Proposed § 42.200(d) would provide that interferences commenced within one year of enactment of the Leahy-Smith America Invents Act shall proceed under part 41 of 37 CFR except as the Chief Administrative Patent Judge may otherwise order in the interests of justice. The expectation is that dismissal will be rarely, if ever, ordered. Hence, any case where such an order arises would be exceptional and should be handled as its circumstances require. This proposed rule is consistent with § 6(f)(3) of the Leahy-Smith America Invents Act, which provides that the Director shall include in regulations the procedures under which an interference commenced before the effective date of the act is to proceed.

Section 42.201: Proposed § 42.201 would provide who may file a petition for post-grant review.

Proposed § 42.201(a) would provide that a person who is not the patent owner may file a petition to institute a post-grant review, unless the petitioner or real party in interest had already filed a civil action challenging the validity of a claim of the patent. The proposed rule would follow the statutory language of 35 U.S.C. 325(a)(1), which provides that post-grant reviews are barred by prior civil action.

Proposed § 42.201(b) would provide that a petition may not be filed where the petitioner, the petitioner's real party in interest, or a privy of the petitioner is estopped from challenging the claims on the grounds identified in the petition. The proposed rule is consistent with 35 U.S.C. 325(e)(1) and 315(e)(1), as amended, which provide for estoppel based upon a final written decision in a post-grant review, a covered business method review, or inter partes review.

Section 42.202: Proposed § 42.202 would set forth the timeliness requirement for filing a post-grant review petition.

Proposed § 42.202(a) would provide that a petition for a post-grant review of a patent must be filed no later than the date that is nine months after the date of the grant of a patent or of the issuance of a reissue patent. Proposed § 42.202(a) would also provide that a petition may not request a post-grant review for a claim in a reissue patent that is identical to or narrower than a claim in the original patent from which the reissue patent was issued unless the petition is filed not later than the date that is nine months after the date of the grant of the original patent. The proposed rule would be consistent with the requirements of 35 U.S.C. 321(c).

Proposed § 42.202(b) would provide that the Director may limit the number of post-grant reviews that may be instituted during each of the first four 1-year periods after post-grant review takes effect. This proposed rule is consistent with § 6(f)(2)(B) of the Leahy-Smith America Invents Act (Pub. L. 112-29, 125 Stat. 284, 311 (2011)), which provides for graduated implementation of post-grant reviews. The Office, however, does not expect to limit the number of petitions at this time.

Section 42.203: Proposed § 42.203 would provide that a fee must accompany a petition for post-grant review and that no filing date will be accorded until full payment is received. This proposed rule is consistent with 35 U.S.C. 322(a)(1), which provides that a petition may only be considered if the petition is accompanied by the payment of the fee established by the Director.

Section 42.204: Proposed § 42.204 would provide for the content of petitions to institute a post-grant review. The proposed rule is consistent with 35 U.S.C. 322(a)(4), which allows the Director to prescribe regulations concerning the information provided with the petition.

Proposed § 42.204(a) would provide that a petition must demonstrate that the petitioner has standing. To establish standing, a petitioner, at a minimum, must certify that the patent is available for post-grant review and that the petitioner is not barred or estopped from requesting a post-grant review. This proposed requirement attempts to ensure that a party has standing to file the post-grant review and would help prevent spuriously-instituted post-grant reviews. Facially, improper standing is a basis for denying the petition without proceeding to the merits of the petition.

Proposed § 42.204(b) would require that the petition identify the precise relief requested for the claims challenged. Specifically, the proposed rule would require that the petition identify each claim being challenged, the specific grounds on which each claim is challenged, how the claims are to be construed, how the claims as construed are unpatentable, why the claims as construed are unpatentable under the identified grounds, and the exhibit numbers of the evidence relied upon with a citation to the portion of the evidence that is relied upon to support the challenge. This proposed rule is consistent with 35 U.S.C. 322(a)(3), which requires that the petition identify, in writing and with particularity, each claim challenged, the grounds on which the challenge to each claim is based, and the evidence supporting the challenge. It is also consistent with 35 U.S.C. 322(a)(4), which allows the Director to require additional information as part of the petition. The proposed rule would provide an efficient means for identifying the legal and factual basis satisfying the threshold for instituting a proceeding and would provide the patent owner with a minimum level of notice as to the basis for the challenge to the claims.

Proposed § 42.204(c) would provide that a petitioner seeking to correct clerical or typographical mistakes in a petition could file a procedural motion to correct the mistakes. The proposed rule would also provide that the grant of such a motion would not alter the filing date of the petition.

Section 42.205: Proposed § 42.205 would provide petition and exhibit service requirements in addition to the service requirements of § 42.6.

Proposed § 42.205(a) would require the petitioner to serve the patent owner at the correspondence address of record for the patent, and permits service at any other address known to the petitioner as likely to effect service as well. Once a patent has issued, communications between the Office and the patent owner often suffer. Ray v. Lehman, 55 F.3d 606 (Fed. Cir. 1995) (patentee's failure to maintain correspondence address contributed to failure to pay maintenance fee and therefore expiration of the patent). While the proposed rule requires service at the correspondence address of record in the patent, the petitioner will already be in communication with the patent owner, in many cases, at a better service address than the official correspondence address.

Proposed § 42.205(b) would address the situation where service to a patent's correspondence address does not result in actual service on the patent owner. When the petitioner becomes aware of a service problem, it must promptly advise the Board of the problem. The petitioner may be required to certify that it is not aware of any better address for service of the patent owner. The Board may authorize other forms of service, such as service by publication in the Official Gazette of the United States Patent and Trademark Office.

Section 42.206: Proposed § 42.206 would provide for the filing date requirements of a post-grant review petition.

Proposed § 42.206(a) would set forth the requirements for a complete petition. 35 U.S.C. 322 states that a petition may only be considered when the petition identifies all the real parties in interest, when a copy of the petition is provided to the patent owner or the owner's representative, and that the petition be accompanied by the fee established by the Director. Consistent with the statute, the proposed rule would require that a complete petition be filed along with the fee and that it be served upon the patent owner.

Proposed § 42.206(b) would provide one month to correct defective requests to institute a post-grant review, unless the statutory deadline in which to file a petition for post-grant review has expired. The proposed rule is consistent with the requirement of 35 U.S.C. 322 that the Board may not consider a petition that fails to meet the statutory requirements for a petition. In determining whether to grant a filing date, the Board would review a petition for procedural compliance. Where a procedural defect is noted, e.g., failure to state the claims being challenged, the Board would notify the petitioner that the petition was incomplete and identify any non-compliance issues.

Section 42.207: Proposed § 42.207(a) would provide that the patent owner may file a preliminary response to the petition. The rule is consistent with 35 U.S.C. 323, which provides for such a response.

Proposed § 42.207(b) would provide that the due date for the preliminary response to petition is no later than two months from the date of the notice that the request to institute a post-grant review has been granted a filing date. This proposed rule is consistent with 35 U.S.C. 323, which provides that the Director shall set a time period for filing the preliminary patent owner response.

Within three months from the filing of the preliminary patent owner response, or three months from the date such a response was due, the Board would determine whether to institute the review. A patent owner seeking a shortened period for the determination may wish to file a preliminary response well before the date the response is due, including filing a paper stating that no preliminary response will be filed. No adverse inference will be drawn where a patent owner elects not to file a response or elects to waive the response.

Proposed § 42.207(c) would provide that the preliminary patent owner response would not be allowed to present new testimony evidence, for example, expert witness testimony on patentability. 35 U.S.C. 323 provides that a preliminary patent owner response set forth reasons why no post-grant review should be instituted. In contrast, 35 U.S.C. 326(a)(8) provides for a patent owner response after institution and requires the presentation, through affidavits or declarations, of any additional factual evidence and expert opinions on which the patent owner relies in support of the response. The difference in statutory language demonstrates that 35 U.S.C. 323 does not permit for the presentation of evidence as a matter of right in the form of testimony in support of a preliminary patent owner response, and the proposed rule reflects this distinction. In certain instances, however, a patent owner may be granted additional discovery before filing their preliminary response and submit any testimonial evidence obtained through the discovery. For example, additional discovery may be authorized where patent owner raises sufficient concerns regarding the petitioner's certification of standing.

Although 35 U.S.C. 324 does not require that a preliminary patent owner response be considered, the Board expects to consider such a response in all but exceptional cases.

Proposed § 42.207(d) would provide that the preliminary patent owner response would not be allowed to include any amendment. See proposed § 42.221 for filing a motion to amend the patent after a post-grant review has been instituted.

Proposed § 42.207(e) would provide that the patent owner may file a statutory disclaimer under 35 U.S.C. 253(a) in compliance with § 1.321(a), disclaiming one or more claims in the patent, and no post-grant review will be instituted based on disclaimed claims.

Section 42.208: Proposed § 42.208 would provide for the institution of a post-grant review.

35 U.S.C. 324(a), as amended, states that the Director may not authorize a post-grant review to be instituted, unless the Director determines that the information in the petition, if such information is not rebutted, demonstrate that it is more likely than not at least one of the claims challenged in the petition is unpatentable. Alternatively, the Director may institute a post-grant review by a showing that the petition raises a novel or unsettled legal question that is important to other patents or patent applications. Proposed § 42.208 is consistent with this statutory requirement and identifies how the Board may authorize such a review to proceed.

Proposed § 42.208(a) would provide that the Board may authorize the review to proceed on all or some of the challenged claims and on all or some of the grounds of unpatentability asserted for each claim. Specifically, in instituting the review, the Board would authorize the review to proceed on the challenged claims for which the threshold requirements for the proceeding have been met. The Board would identify which of the grounds the review will proceed upon on a claim-by-claim basis. Any claim or issue not included in the authorization for review would not be part of the post-grant review. The Office intends to publish a notice of the institution of a post-grant review in the Official Gazette.

Proposed § 42.208(b) would provide that the Board, prior to institution of a review, may deny some or all grounds for unpatentability on some or all of the challenged claims. This proposed rule is consistent with the efficient administration of the Office, which is a consideration in prescribing post-grant review regulations under 35 U.S.C. 326(b).

Proposed § 42.208(c) would provide that the institution may be based on a more likely than not standard and is consistent with the requirements of 35 U.S.C. 324(a).

Proposed § 42.208(d) would provide that a determination under § 42.208(c) may be satisfied by a showing that the petition raises a novel or unsettled legal question that is important to other patents or patent applications. This proposed rule is consistent with 35 U.S.C. 324(b). The expectation is that this ground for a post-grant review would be used sparingly.

Section 42.220: Proposed § 42.220 would set forth the procedure in which the patent owner may file a patent owner response.

Proposed § 42.220(a) would provide for a patent owner response and is consistent with the requirements of 35 U.S.C. 326(a)(8).

Proposed § 42.220(b) would provide that if no time for filing a patent owner response to a petition is provided in a Board order, the default time for filing the response would be two months from the date the post-grant review is instituted. The Board's experience with patent owner responses is that two months provides a sufficient amount of time to respond in a typical case, especially as the patent owner would already have been provided two months to file a preliminary patent owner response prior to institution. Additionally, the proposed time for response is consistent with the requirement that the trial be conducted such that the Board renders a final decision within one year of the institution of the review. 35 U.S.C. 326(a)(11).

Section 42.221: Proposed § 42.221 would provide a procedure for a patent owner to file motions to amend the patent.

Proposed § 42.221(a) would make it clear that the first motion to amend need not be authorized by the Board. If the motion complies with the timing and procedural requirements, the motion would be entered. Additional motions to amend would require prior Board authorization. All motions to amend, even if entered, will not automatically result in entry of the proposed amendment into the patent.

The requirement to consult the Board reflects the Board's need to regulate the substitution of claims and the amendment of the patent to control unnecessary proliferation of issues and abuses. The proposed rule aids in the efficient administration of the Office and the timely completion of the review. 35 U.S.C. 326(b).

Proposed § 42.221(b) would provide that a motion to amend the claims must set forth: (1) The support in the original disclosure of the patent for each claim that is added or amended, and (2) the support in an earlier filed disclosure for each claim for which benefit of the filing date of the earlier filed disclosure is sought.

Proposed § 42.221(c) would provide that a motion to amend the claims will not be authorized where the amendment does not respond to the ground of unpatentability involved in the trial or seeks to enlarge the scope of the claims or introduce new matter.

The proposed rule aids the efficient administration of the Office and the timely completion of the review, 35 U.S.C. 326(b), and is also consistent with 35 U.S.C. 326(d)(3), which prohibits enlarging the scope of claims or introducing new matter.

Under the proposed rules, a patent owner may request filing more than one motion to amend its claims during the course of the proceeding. Additional motions to amend may be permitted upon a demonstration of good cause by the patent owner. In considering whether good cause is shown, the Board will take into account how the filing of such motions would impact the timely completion of the proceeding and the additional burden placed on the petitioner. Specifically, belated motions to amend may cause the integrity and efficiency of the review to suffer as the petitioner may be required to devote significant time and resources on claims that are of constantly changing scope. Furthermore, due to time constraints, motions to amend late in the process may not provide a petitioner a full and fair opportunity to respond to the newly presented subject matter. Accordingly, the longer a patent owner waits to request authorization to file an additional motion to amend, the higher the likelihood the request will be denied. Similarly, motion to amend may be permitted upon a joint request of the petitioner and the patent owner to advance settlement where the motion does not jeopardize the ability of the Office to timely complete the proceeding.

Section 42.222: Proposed § 42.222 would prescribe a rule consistent with the requirements of 35 U.S.C. 325(d) regarding multiple proceedings involving the subject patent. When there is a question of a stay concerning a matter for which a statutory time period is running in one of the proceedings, where the stay would impact the ability of the Office to meet the statutory deadline, it is expected that the Director would be consulted prior to issuance of a stay, given that the stay would impact the ability of the Office to meet the statutory deadline for completing the post-grant review. For example, it is expected that the Board would consult the Director prior to the issuance of a stay in an ex parte reexamination proceeding where the three month statutory time period under 35 U.S.C. 303 is running.

Section 42.223: Proposed § 42.223 would provide for the filing of supplemental information. 35 U.S.C. 326(a)(3) provides that the Director shall establish regulations establishing procedures for filing supplemental information after the petition is filed. 35 U.S.C. 324(a) provides that the institution of a post-grant review is based upon the information filed in the petition under 35 U.S.C. 321 and any response filed under 35 U.S.C. 323. As the institution of the post-grant review is not based upon supplemental information, the proposed rule would provide that motions identifying supplemental information be filed after the institution of the post-grant review.

Section 42.224: Proposed § 42.224 would provide that additional discovery in a post-grant review is limited to evidence directly related to factual assertions advanced by a party to the proceeding and that the standard for additional discovery is good cause. The proposed rule is consistent with 35 U.S.C. 326(a)(5), which provides that the Director shall prescribe regulations setting forth the standards and procedures for discovery of relevant evidence that is directly related to factual assertions by either party.

While an interests-of-justice standard will be employed in granting additional discovery in inter partes reviews and derivation proceedings, new subpart C will provide that a good cause standard is employed in post-grant reviews, and by consequence, in covered business method patent reviews. Good cause and interests of justice are closely related standards, but on balance, the interests-of-justice standard is slightly higher than good cause. While a good cause standard requires a party to show a specific factual reason to justify the needed discovery, interests of justice would mean that the Board would look at all relevant factors. The interests-of-justice standard covers considerable more ground than the good cause standard, and in using such a standard the Board will attempt to consider whether the additional discovery is necessary in light of “the totality of the relevant circumstances.” U.S. v. Roberts, 978 F.2d 17, 22 (1st Cir. 1992).

A. Administrative Procedure Act (APA): This notice proposes rules of practice concerning the procedure for requesting a post-grant or covered business method patent review, and the trial process after initiation of such a review. The changes being proposed in this notice do not change the substantive criteria of patentability. These proposed changes involve rules of agency practice and procedure and/or interpretive rules. See Bachow Commc'ns Inc. v. FCC, 237 F.3d 683, 690 (DC Cir. 2001) (rules governing an application process are procedural under the Administrative Procedure Act); Inova Alexandria Hosp. v. Shalala, 244 F.3d 342, 350 (4th Cir. 2001) (rules for handling appeals were procedural where they did not change the substantive standard for reviewing claims); Nat'l Org. of Veterans' Advocates v. Sec'y of Veterans Affairs, 260 F.3d 1365, 1375 (Fed. Cir. 2001) (rule that clarifies interpretation of a statute is interpretive).

Accordingly, prior notice and opportunity for public comment are not required pursuant to 5 U.S.C. 553(b) or (c) (or any other law), and thirty-day advance publication is not required pursuant to 5 U.S.C. 553(d) (or any other law). See Cooper Techs. Co. v. Dudas, 536 F.3d 1330, 1336-37 (Fed. Cir. 2008) (stating that 5 U.S.C. 553, and thus 35 U.S.C. 2(b)(2)(B), does not require notice and comment rulemaking for “interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice”) (quoting 5 U.S.C. 553(b)(A)). The Office, however, is publishing these changes and the Initial Regulatory Flexibility Act analysis, below, for comment as it seeks the benefit of the public's views on the Office's proposed implementation of these provisions of the Leahy-Smith America Invents Act.

B. Regulatory Flexibility Act: The Office estimates that 50 petitions for post-grant and covered business method patent review will be filed in fiscal year 2013. This will be the first fiscal year in which the review proceeding will be available for an entire fiscal year.

In fiscal year 2013, it is expected that no post-grant review petitions will be received, other than those filed under the transitional program for covered business method patents. Thus, the estimated number of post-grant and covered business method patent review petitions is based on the number of inter partes reexamination requests filed in fiscal year 2011 for patents having an original classification in class 705 of the United States Patent Classification System. Class 705 is the classification for patents directed to data processing in the following areas: financial, business practice, management, or cost/price determination. See http://www.uspto.gov/web/patents/classification/uspc705/sched705.pdf.

The following is the class definition and description for Class 705:

See Classification Definitions (Feb. 2011) available at http://www.uspto.gov/web/patents/classification/uspc705/defs705.htm.

Accordingly, patents subject to covered business method patent review are anticipated to be typically classifiable in Class 705. It is anticipated that the number of patents in Class 705 that do not qualify as covered business method patents would approximate the number of patents classified in other classes that do qualify.

The Office received 20 requests for inter partes reexamination of patents classified in Class 705 in fiscal year 2011. The Office is estimating the number of petitions for covered business method patent review to be higher than 20 requests due to an expansion of the grounds for which review may be requested including subject matter eligibility grounds, the greater coordination with litigation, and the provision that patents will be eligible for the proceeding regardless of filing date of the application which resulted in the patent. It is not anticipated that any post-grant review petitions will be received in fiscal year 2013 as only patents issuing based on certain applications filed on or after March 16, 2013 are eligible for post-grant review, or certain applications involved in an interference proceeding commenced before September 12, 2012. Public Law 112-29, § 6(f), 125 Stat. 284, 311 (2011).

The Office has reviewed the entity status of patents for which inter partes reexamination was requested from October 1, 2000, to September 23, 2011. This data only includes filings granted a filing date in the particular year rather than filings in which a request was received in the year. The first inter partes reexamination was filed on July 27, 2001. A summary of that review is provided in Table 1 below. As shown by Table 1, patents known to be owned by a small entity represented 32.79% of patents for which inter partes reexamination was requested. Based on an assumption that the same percentage of patents owned by small entities will be subject to post-grant and covered business method patent review, it is estimated that 16 petitions for post-grant and covered business method patent review would be filed to seek review of patents owned by a small entity in fiscal year 2013, the first full fiscal year that these proceedings will be available.

Based on the number of patents issued during fiscal years 1995 through 1999 that paid the small entity third stage maintenance fee, the number of patents issued during fiscal years 2000 through 2003 that paid the small entity second stage maintenance fee, the number of patents issued during fiscal years 2004 through 2007 that paid the first stage maintenance fee, and the number of patents issued during fiscal years 2008 through 2011 that paid a small entity issue fee, there are no less than 375,000 patents owned by small entities in force as of October 1, 2011.

Furthermore, the Office recognizes that there would be an offset to this number for patents that expire earlier than 20 years from their filing date due to a benefit claim to an earlier application or due to a filing of a terminal disclaimer. The Office likewise recognizes that there would be an offset in the estimate in the opposite manner due to the accrual of patent term extension and adjustment. The Office, however, does not maintain data on the date of expiration by operation of a terminal disclaimer. Therefore, the Office has not adjusted the estimate of 375,000 patents owned by small entities in force as of October 1, 2011. While the Office maintains information regarding patent term extension and adjustment accrued by each patent, the Office does not collect data on the expiration date of patents that are subject to a terminal disclaimer. As such, the Office has not adjusted the estimated of 375,000 patents owned by small entities in force as of October 1, 2011, for accrual of patent term extension and adjustment, because in view of the incomplete terminal disclaimer data issue, would be incomplete and any estimate adjustment would be administratively burdensome. Thus, it is estimated that the number of small entity patents in force in fiscal year 2013 will be at least 375,000.

Based on the estimated number of patents in force, the number of small entity owned patents impacted by post-grant and covered business method patent review in fiscal year 2013 (16 patents) would be less than 0.005% (16/375,000) of all patents in force that are owned by small entities. The USPTO nonetheless has undertaken an Initial Regulatory Flexibility Act Analysis of the proposed rule.

1. Description of the Reasons That Action by the Office Is Being Considered: On September 16, 2011, the Leahy-Smith America Invents Act was enacted into law (Pub. L. 112-29, 125 Stat. 284 (2011)). Section 6 of the Leahy-Smith America Invents Act amends title 35, United States Code, by adding chapter 32 to create a new post-grant review proceeding. Section 18 of the Leahy-Smith America Invents Act provides for a transitional program for covered business method patents which will employ the standards and procedures of the post-grant review proceeding with a few exceptions. For the implementation, § 6(f) of the Leahy-Smith America Invents Act requires that the Director issue regulations to carry out chapter 32 of title 35, United States Code, within one year after the date of enactment. Public Law 112-29, § 6(f), 125 Stat. 284, 311 (2011).

2. Succinct Statement of the Objectives of, and Legal Basis for, the Proposed Rules: The proposed rules seek to implement post-grant and covered business method patent review as authorized by the Leahy-Smith America Invents Act. The Leahy-Smith America Invents Act requires that the Director prescribe rules for the post-grant and covered business method patent reviews that result in a final determination not later than one year after the date on which the Director notices the institution of a proceeding. The one-year period may be extended for not more than 6 months if good cause is shown. See 35 U.S.C. 326(a)(11). The Leahy-Smith America Invents Act also requires that the Director, in prescribing rules for post-grant and covered business method patent reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings. See 35 U.S.C. 326(b). Consistent with the time periods provided in 35 U.S.C. 326(a)(11), the proposed rules are designed to, except where good cause is shown to exist, result in a final determination by the Patent Trial and Appeal Board within one year of the notice of initiation of the review. This one-year review will enhance the effect on the economy, and improve the integrity of the patent system and the efficient administration of the Office.

3. Description and Estimate of the Number of Affected Small Entities: The Small Business Administration (SBA) small business size standards applicable to most analyses conducted to comply with the Regulatory Flexibility Act are set forth in 13 CFR 121.201. These regulations generally define small businesses as those with fewer than a specified maximum number of employees or less than a specified level of annual receipts for the entity's industrial sector or North American Industry Classification System (NAICS) code. As provided by the Regulatory Flexibility Act, and after consultation with the Small Business Administration, the Office formally adopted an alternate size standard as the size standard for the purpose of conducting an analysis or making a certification under the Regulatory Flexibility Act for patent-related regulations. See Business Size Standard for Purposes of United States Patent and Trademark Office Regulatory Flexibility Analysis for Patent-Related Regulations, 71 FR 67109 (Nov. 20, 2006), 1313 Off. Gaz. Pat. Office 60 (Dec. 12, 2006). This alternate small business size standard is SBA's previously established size standard that identifies the criteria entities must meet to be entitled to pay reduced patent fees. See 13 CFR 121.802. If patent applicants identify themselves on a patent application as qualifying for reduced patent fees, the Office captures this data in the Patent Application Location and Monitoring (PALM) database system, which tracks information on each patent application submitted to the Office.

Unlike the SBA small business size standards set forth in 13 CFR 121.201, the size standard for USPTO is not industry-specific. The Office's definition of a small business concern for Regulatory Flexibility Act purposes is a business or other concern that: (1) Meets the SBA's definition of a “business concern or concern” set forth in 13 CFR 121.105; and (2) meets the size standards set forth in 13 CFR 121.802 for the purpose of paying reduced patent fees, namely an entity: (a) Whose number of employees, including affiliates, does not exceed 500 persons; and (b) which has not assigned, granted, conveyed, or licensed (and is under no obligation to do so) any rights in the invention to any person who made it and could not be classified as an independent inventor, or to any concern which would not qualify as a non-profit organization or a small business concern under this definition. See Business Size Standard for Purposes of United States Patent and Trademark Office Regulatory Flexibility Analysis for Patent-Related Regulations, 71 FR at 67112 (Nov 20, 2006), 1313 Off. Gaz. Pat. Office at 63 (Dec. 12, 2006).

As discussed above, it is anticipated that 50 petitions for post-grant and covered business method patent review will be filed in fiscal year 2013. The Office has reviewed the percentage of patents for which inter partes reexamination was requested from October 1, 2000 to September 23, 2011. A summary of that review is provided in Table 1 above. As demonstrated by Table 1, patents known to be owned by a small entity represent 32.79% of patents for which inter partes reexamination was requested. Based on an assumption that the same percentage of patents owned by small entities will be subject to the new review proceedings, it is estimated that 16 patents owned by small entities would be affected by a post-grant or covered business method patent review.

The USPTO estimates that 2.5% of patent owners will file a request for adverse judgment prior to a decision to institute and that another 2.5% will file a request for adverse judgment or fail to participate after initiation. Specifically, an estimated 2 patent owners will file a request for adverse judgment or fail to participate after institution in post-grant and covered business method patent review proceedings combined. Based on the percentage of small entity owned patents that were the subject of inter partes reexamination (32.79%) from October 1, 2000 to September 23, 2011, it is estimated that 1 small entity will file such requests or fail to participate in post-grant and covered business method patent review combined.

Under the proposed rules, prior to determining whether to institute a review, the patent owner may file an optional patent owner preliminary response to the petition. Given the new time period requirements to file a petition for review before the Board relative to patent enforcement proceedings and the desire to avoid the cost of a trial and delays to related infringement actions, it is anticipated that 90% of petitions, other than those for which a request for adverse judgment is filed, will result in the filing of a patent owner preliminary response. Specifically, the Office estimates that 45 patent owners will file a preliminary response to a post-grant or covered business method petition. Based on the percentage of small entity owned patents that were the subject of inter partes reexamination (32.79%), it is estimated that 15 small entities will file a preliminary response to a post-grant or covered business method patent review petition filed in fiscal year 2013.

Under the proposed rules, the Office will determine whether to institute a trial within three months after the earlier of: (1) The submission of a patent owner preliminary response, (2) the waiver of filing a patent owner preliminary response, or (3) the expiration of the time period for filing a patent owner preliminary response. If the Office decides not to institute a trial, the petitioner may file a request for reconsideration of the Office's decision. In estimating the number of requests for reconsideration, the Office considered the percentage of inter partes reexaminations that were denied relative to those that were ordered (24 divided by 342, or 7%) in fiscal year 2011. See Reexamination—FY 2011, http://www.uspto.gov/patents/Reexamination_operational_statistic_through_FY2011Q4.pdf. The Office also considered the impact of: (1) Patent owner preliminary responses under newly authorized in 35 U.S.C. 323, (2) the enhanced thresholds for instituting reviews set forth in 35 U.S.C. 324(a), which would tend to increase the likelihood of dismissing a petition for review, and (3) the more restrictive time period for filing a petition for review in 35 U.S.C. 325(b), which would tend to reduce the likelihood of dismissing a petition. Based on these considerations, it is estimated that 10% of the petitions for review (5 divided by 49) would be dismissed.

During fiscal year 2011, the Office issued 21 decisions following a request for reconsideration of a decision on appeal in inter partes reexamination. The average time from original decision to decision on reconsideration was 4.4 months. Thus, the decisions on reconsideration were based on original decisions issued from July 2010 until June 2011. During this time period, the Office mailed 63 decisions on appeals in inter partes reexamination. See BPAI Statistics—Receipts and Dispositions by Technology Center, http://www.uspto.gov/ip/boards/bpai/stats/receipts/index.jsp (monthly data). Based on the assumption that the same rate of reconsideration (21 divided by 63 or 33.333%) will occur, the Office estimates that 2 requests for reconsideration will be filed. Based on the percentage of small entity owned patents that were the subject of inter partes reexamination (32.79%), it is estimated that 1 small entity will file a request for a reconsideration of a decision dismissing the petition for post-grant and covered business method patent review filed in fiscal year 2013.

The Office reviewed motions, oppositions, and replies in a number of contested trial proceedings before the trial section of the Board. The review included determining whether the motion, opposition, and reply were directed to patentability grounds and non-priority non-patentability grounds. Based on the review, it is anticipated that post-grant and covered business method patent reviews will have an average of 8.89 motions, oppositions, and replies per trial after institution. Settlement is estimated to occur in 20% of instituted trials at various points of the trial. In the trials that are settled, it is estimated that only 50% of the noted motions, oppositions, and replies would be filed.

After a trial has been instituted but prior to a final written decision, parties to a post-grant or covered business method patent review may request an oral hearing. It is anticipated that 45 requests for oral hearings will be filed based on the number of requests for oral hearings in inter partes reexamination, the stated desirability for oral hearings during the legislative process, and the public input received prior to this notice of proposed rulemaking. Based on the percentage of small entity owned patents that were the subject of inter partes reexamination (32.79%), it is estimated that 15 small entities will file a request for oral hearing in the post-grant or covered business method patent reviews instituted in fiscal year 2013.

Parties to a post-grant or covered business method patent review may file requests to treat a settlement as business confidential, and request for adverse judgment. A written request to make a settlement agreement available may also be filed. Given the short time period set for conducting trials, it is anticipated that the alternative dispute resolution options will be infrequently used. The Office estimates that 2 requests to treat a settlement as business confidential, and 10 requests for adverse judgment, default adverse judgment, or settlement notices will be filed. The Office also estimates that 2 requests to make a settlement available will be filed. Based on the percentage of small entity owned patents that were the subject of inter partes reexamination (32.79%), it is estimated that 1 small entity will file a request to treat a settlement as business confidential and 3 small entities will file a request for adverse judgment, default adverse judgment notices, or settlement notices in the reviews instituted in fiscal year 2013.

Parties to a post-grant or covered business method patent review may seek judicial review of the final decision of the Board. Historically, 33% of examiner's decisions in inter partes reexamination proceedings have been appealed to the Board. It is anticipated that 16% of final decision of the Board would be appealed. The reduction in appeal rate is based the higher threshold for institution, the focused process, and the experience of the Board in conducted contested cases. Therefore, it is estimated that 5 parties would seek judicial review of the final decisions of the Board in post-grant or covered business method patent reviews instituted in fiscal year 2013. Furthermore, based on the percentage of small entity owned patents that were the subject of inter partes reexamination (32.79%), it is estimated that 2 small entities would seek judicial review of final decisions of the Board in the post-grant or covered business method patent reviews instituted in fiscal year 2013.

4. Description of the Reporting, Recordkeeping, and Other Compliance Requirements of the Proposed Rule, Including an Estimate of the Classes of Small Entities Which Will Be Subject to the Requirement and the Type of Professional Skills Necessary for Preparation of the Report or Record: Based on the filing trends of inter partes reexamination requests, it is anticipated that petitions for post-grant review will be filed across all technologies with approximately 50% being filed in electrical technologies, approximately 30% in mechanical technologies, and the remaining 20% in chemical technologies and design. Under the proposed rules, a person who is not the owner of a patent may file a petition to institute a review of the patent, with a few exceptions. Given this, a petition for review is likely to be filed by an entity practicing in the same or similar field as the patent. Therefore, it is anticipated that 50% of the petitions for review will be filed in the electronic field, 30% in the mechanical field, and 20% in the chemical or design fields for post-grant review.

Covered business method patent reviews would be limited to business method patents that are not patents for technological inventions. Under the proposed rules, a person who is not the owner of a patent may file a petition to institute a review of the patent, with a few exceptions. Given this, it is anticipated that a petition for review is likely to be filed by an entity practicing in the business method field for covered business methods.

Preparation of the petition would require analyzing the patent claims, locating evidence supporting arguments of unpatentability, and preparing the petition seeking review of the patent. This notice provides the proposed procedural requirements that are common for the new trials. Additional requirements are provided in contemporaneous trial specific proposed rulemaking. The procedures for petitions to institute a post-grant review are proposed in §§ 42.5, 42.6, 42.8, 42.11, 42.13, 42.20, 42.21, 42.22, 42.24(a)(2)), 42.63, 42.65, and 42.201 through 42.205. The procedures for petitions to institute a covered business method patent review are proposed in §§ 42.5, 42.6, 42.8, 42.11, 42.13, 42.20, 42.21, 42.22, 42.24(a)(3), 42.63, 42.65, 42.203, 42.205, and 42.302 through 42.304.

The skills necessary to prepare a petition for review and to participate in a trial before the Patent Trial and Appeal Board would be similar to those needed to prepare a request for inter partes reexamination, to represent a party in an inter partes reexamination, and to represent a party in an interference proceeding before the Patent Trial and Appeal Board. The level of skill is typically possessed by a registered patent practitioner having devoted professional time to the particular practice area, typically under the supervision of a practitioner skilled in the particular practice area. Where authorized by the Board, a non-registered practitioner may be admitted pro hac vice, on a case-by-case basis based on the facts and circumstances of the trial and party, as well as the skill of the practitioner.

The cost of preparing a petition for post-grant or covered business method patent review is estimated to be 33.333% higher than the cost of preparing an inter partes review petition because the petition for post-grant or covered business method patent review may seek to institute a proceeding on additional grounds such as subject matter eligibility. The American Intellectual Property Law Association's AIPLA Report of the Economic Survey 2011 reported that the average cost of preparing a request for inter partes reexamination was $46,000. Based on the work required to prepare and file such a request, the Office considers the reported cost as a reasonable estimate. Therefore, the Office estimates that the cost of preparing a petition for post-grant or covered business method patent review would be $61,333 (including expert costs).

The filing of a petition for review would also require payment by the petitioner of the appropriate petition fee to recover the aggregate cost for providing the review. The appropriate petition fee would be determined by the number of claims for which review is sought and the type of review. The proposed fees for filing a petition for post-grant or covered business method patent review would be: $35,800 to request review of 20 or fewer claims, $44,750 to request review of 21 to 30 claims, $53,700 to request review of 31 to 40 claims, $71,600 to request review of 41 to 50 claims, $89,500 to request review of 51 to 60 claims, and an additional $35,800 to request review of additional groups of 10 claims.

In setting fees, the estimated information technology cost to establish the process and maintain the filing and storage system through 2017 is to be recovered by charging each petition $2,270. The remainder of the fee is to recover the cost for judges to determine whether to institute a review and conduct the review, together with a proportionate share of indirect costs, e.g., rent, utilities, additional support, and administrative costs. Based on the direct and indirect costs, the fully burdened cost per hour for judges to decide a petition and conduct a review is estimated to be $258.32.

For a petition for post-grant or covered business method patent review with 20 or fewer challenged claims, it is anticipated that 121 hours of judge time would be required. For 21 to 30 challenged claims, an additional 30 hours is anticipated for a total of 151 hours of judge time. For 31 to 40 challenged claims, an additional 60 hours is anticipated for a total of 181 hours of judge time. For 41 to 50 challenged claims, an additional 121 hours is anticipated for a total of 242 hours of judge time. For 51 to 60 challenged claims, an additional 181 hours is anticipated for a total of 302 hours of judge time. The increase in adjustment reflects the added complexity that typically occurs as more claims are in dispute.

The proposed rules would permit the patent owner to file a preliminary response to the petition setting forth the reasons why no review should be initiated. The procedures for a patent owner to file a preliminary response as an opposition are proposed in §§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.23, 42.24(b), 42.51, 42.52, 42.53, 42.54, 42.63, 42.64, 42.65, 42.107, 42.120, 42.207, and 42.220. The patent owner is not required to file a preliminary response. The Office estimates that the preparation and filing of a patent owner preliminary response would require 100 hours of professional time and cost $34,000 (including expert costs). The AIPLA Report of the Economic Survey 2011 reported that the average cost for inter partes reexamination including of the request ($46,000), the first patent owner response, and third-party comments was $75,000 ( see I-175) and the median billing rate for professional time of $340 per hour for attorneys in private firms ( see 8). Thus, the cost of the first patent owner reply and the third party statement is $29,000. The Office finds these costs to be reasonable estimates. The patent owner reply and third party statement, however, occur after the examiner has made an initial threshold determination and made only the appropriate rejections. Accordingly, it is anticipated that filing a patent owner preliminary response to a petition for review would cost more than the initial reply in a reexamination, or an estimated $34,000 (including expert costs).

The Office will determine whether to institute a trial within three months after the earlier of: (1) The submission of a patent owner preliminary response, (2) the waiver of filing a patent owner preliminary response, or (3) the expiration of the time period for filing a patent owner preliminary response. If the Office decides not to institute a trial, the petitioner may file a request for reconsideration of the Office's decision. It is anticipated that a request for reconsideration will require 80 hours of professional time to prepare and file, for a cost of $27,200. This estimate is based on the complexity of the issues and desire to avoid time bars imposed by 35 U.S.C. 325(b).

Following institution of a trial, the parties may be authorized to file various motions, e.g., motions to amend and motions for additional discovery. Where a motion is authorized, an opposition may be authorized, and where an opposition is authorized, a reply may be authorized. The procedures for filing a motion are proposed in §§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.22, 42.24(a)(5), 42.51, 42.52, 42.53, 42.54, 42.63, 42.64, 42.65, 42.221, and 42.223. The procedures for filing an opposition are proposed in §§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.23, 42.24(b), 42.51, 42.52, 42.53, 42.54, 42.63, 42.64, 42.65, 42.207, and 42.220. The procedures for filing a reply are proposed in §§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.23, 42.24(c), 42.51, 42.52, 42.53, 42.54, 42.63, and 42.65. As discussed previously, the Office estimates that the average post-grant or covered business method patent review will have 8.89 motions, oppositions, and replies after institution.

The AIPLA Report of the Economic Survey 2011 reported that the average cost in contested cases before the trial section of the Board prior to the priority phase was $322,000 per party. Because of the overlap of issues in patentability grounds, it is expected that the cost per motion will decline as more motions are filed in a proceeding. It is estimated that a motion, opposition, or reply in a derivation would cost $34,000, which is estimated by dividing the total public cost for all motions in current contested cases divided by the estimated number of motions in derivations under 35 U.S.C. 135, as amended. The cost of a motion, opposition, or reply in a post-grant or covered business method patent review is estimated at $44,200 (including expert costs), reflecting the reduction in overlap between motions relative to derivation. Based on the work required to file and prepare such briefs, the Office considers the reported cost as a reasonable estimate.

After a trial has been instituted but prior to a final written decision, parties to a post-grant or covered business method patent review may request an oral hearing. The procedure for filing requests for oral argument is proposed in § 42.70. The AIPLA Report of the Economic Survey 2011 reported that the third quartile cost of an ex parte appeal with an oral argument is $12,000, while the third quartile cost of an ex parte appeal without an oral argument is $6,000. In view of the reported costs, which the Office finds reasonable, and the increased complexity of an oral hearing with multiple parties, it is estimated that the cost per party for oral hearings would be $6,800 or $800 more than the reported third quartile cost for an ex parte oral hearing.

Parties to a post-grant or covered business method patent review may file requests to treat a settlement as business confidential, or file a request for adverse judgment. A written request to make a settlement agreement available may also be filed. The procedures to file requests that a settlement be treated as business confidential are proposed in § 42.74(c). The procedures to file requests for adverse judgment are proposed in § 42.73(b). The procedures to file requests to make a settlement agreement available are proposed in § 42.74(c)(2). It is anticipated that requests to treat a settlement as business confidential will require 2 hours of professional time or $680. It is anticipated that requests for adverse judgment will require 1 hour of professional time or $340. It is anticipated that requests to make a settlement agreement available will require 1 hour of professional time or $340. The requests to make a settlement agreement available will also require payment of a fee of $400 specified in proposed § 42.15(d).

Parties to a review proceeding may seek judicial review of the judgment of the Board. The procedures to file notices of judicial review of a Board decision, including notices of appeal and notices of election provided for in 35 U.S.C. 141, 142, 145, and 146, are proposed in §§ 90.1 through 90.3. The submission of a copy of a notice of appeal or a notice of election is anticipated to require 6 minutes of professional time at a cost of $34.

5. Description of Any Significant Alternatives to the Proposed Rules Which Accomplish the Stated Objectives of Applicable Statutes and Which Minimize Any Significant Economic Impact of the Rules on Small Entities:

Size of petitions and motions: The Office considered whether to apply a page limit and what an appropriate page limit would be. The Office does not currently have a page limit on inter partes reexamination requests. The inter partes reexamination requests from October 1, 2010 to June 30, 2011, averaged 246 pages. Based on the experience of processing inter partes reexamination requests, the Office finds that the very large size of the requests has created a burden on the Office that hinders the efficiency and timeliness of processing the requests, and creates a burden on patent owners. The quarterly reported average processing time from the filing of a request to the publication of a reexamination certificate ranged from 28.9 months to 41.7 months in fiscal year 2009, from 29.5 months to 37.6 months in fiscal year 2010, and from 31.9 to 38.0 months in fiscal year 2011. See Reexaminations—FY 2011, http://www.uspto.gov/patents/Reexamination_operational_statistic_through_FY2011Q4.pdf.

By contrast, the Office has a page limit on the motions filed in contested cases, except where parties are specifically authorized to exceed the limitation. The typical contested case proceeding is subject to a standing order that sets a 50 page limit for motions and oppositions on priority, a 15 page limit for miscellaneous motions (§ 41.121(a)(3)) and oppositions (§ 41.122), and a 25 page limit for other motions (§ 41.121(a)(2)) and oppositions to other motions. In typical proceedings, replies are subject to a 15 page limit if directed to priority, a 5 page limit for miscellaneous issues, and 10 pages for other motions. The average contested case was terminated in 10.1 months in fiscal year 2009, in 12 months in fiscal year 2010, and 9 months in fiscal year 2011. The percentage of contested cases terminated within 2 years was 93.7% in fiscal year 2009, 88.0% in fiscal year 2010, and 94.0% in fiscal year 2011. See BPAI Statistics—Performance Measures, http://www.uspto.gov/ip/boards/bpai/stats/perform/index.jsp.

Comparing the average time period for terminating a contested case, 10.0 to 12.0 months, with the average time period, during fiscal years 2009 through 2011, for completing an inter partes reexamination, 28.9 to 41.7 months, indicates that the average interference takes from 24% (10.0/41.7) to 42% (12.0/28.9) of the time of the average inter partes reexamination. While several factors contribute to the reduction in time, limiting the size of the requests and motions is considered a significant factor. Proposed § 42.24 would provide page limits for petitions, motions, oppositions, and replies. 35 U.S.C. 326(b) provides considerations that are to be taken into account when prescribing regulations including the integrity of the patent system, the efficient administration of the Office, and the ability to complete timely the trials. The page limits proposed in these rules are consistent with these considerations.

Federal courts routinely use page limits in managing motions practice as “[e]ffective writing is concise writing.” Spaziano v. Singletary, 36 F.3d 1028, 1031 n.2 (11th Cir. 1994). Many district courts restrict the number of pages that may be filed in a motion including, for example, the District of Delaware, the District of New Jersey, the Eastern District of Texas, the Northern, Central, and Southern Districts of California, and the Eastern District of Virginia.

Federal courts have found that page limits ease the burden on both the parties and the courts, and patent cases are no exception. Eolas Techs., Inc. v. Adobe Sys., Inc., No. 6:09-CV-446, at 1 (E.D. Tex. Sept. 2, 2010) (“The Local Rules' page limits ease the burden of motion practice on both the Court and the parties.”); Blackboard, Inc. v. Desire2Learn, Inc., 521 F. Supp. 2d 575, 576 (E.D. Tex. 2007) (The parties “seem to share the misconception, popular in some circles, that motion practice exists to require federal judges to shovel through steaming mounds of pleonastic arguments in Herculean effort to uncover a hidden gem of logic that will ineluctably compel a favorable ruling. Nothing could be farther from the truth.”); Broadwater v. Heidtman Steel Prods., Inc., 182 F. Supp. 2d 705, 710 (S.D. Ill. 2002) (“Counsel are strongly advised, in the future, to not ask this Court for leave to file any memoranda (supporting or opposing dispositive motions) longer than 15 pages. The Court has handled complicated patent cases and employment discrimination cases in which the parties were able to limit their briefs supporting and opposing summary judgment to 10 or 15 pages.” (Emphasis omitted)).

The Board's contested cases experience with page limits in motions practice is consistent with that of the federal courts. The Board's use of page limits has shown it to be beneficial without being unduly restrictive for the parties. Page limits have encouraged the parties to focus on dispositive issues, easing the burden of motions practice on the parties and on the Board.

The Board's contested cases experience with page limits is informed by its use of different approaches over the years. In the early 1990s, page limits were not routinely used for motions, and the practice suffered from lengthy and unacceptable delays. To reduce the burden on the parties and on the Board and thereby reduce the time to decision, the Board instituted page limits in the late 1990s for every motion. Page limit practice was found to be effective in reducing the burdens on the parties and improving decision times at the Board. In 2006, the Board revised the page limit practice and allowed unlimited findings of fact and generally limited the number of pages containing argument. Due to abuses of the system, the Board recently reverted back to page limits for the entire motion (both argument and findings of fact).

The Board's current page limits are consistent with the 25 page limits in the Northern, Central, and Southern Districts of California, and the Middle District of Florida and exceed the limits in the District of Delaware (20), the Northern District of Illinois (15), the District of Massachusetts (20), the Eastern District of Michigan (20), the Southern District of Florida (20), and the Southern District of Illinois (20).

In a typical proceeding before the Board, a party may be authorized to file a single motion for unpatentability based on prior art, a single motion for unpatentability based upon failure to comply with 35 U.S.C. 112, lack of written description, and/or enablement, and potentially another motion for lack of compliance with 35 U.S.C. 101, although a 35 U.S.C. 101 motion may be required to be combined with the 35 U.S.C. 112 motion. Each of these motions is currently limited to 25 pages in length, unless good cause is shown that the page limits are unduly restrictive for a particular motion.

A petition requesting the institution of a trial proceeding would be similar to motions currently filed with the Board. Specifically, petitions to institute a trial seek a final written decision that the challenged claims are unpatentable, where derivation is a form of unpatentability. Accordingly, a petition to institute a trial based on prior art would, under current practice, be limited to 25 pages, and by consequence, a petition raising unpatentability based on prior art and unpatentability under 35 U.S.C. 101 and/or 112 would be limited to 50 pages.

Under the proposed rules, a post-grant review petition would be based upon any grounds identified in 35 U.S.C. 321(b), e.g., failure to comply with 35 U.S.C. 101, 102, 103, and 112 (except best mode). Under current practice, a party would be limited to filing two or three motions, each limited to 25 pages, for a maximum of 75 pages. Where there is more than one motion for unpatentability based upon different statutory grounds, the Board's experience is that the motions contain similar discussions of technology and claim constructions. Such overlap is unnecessary where a single petition for unpatentability is filed. Thus, the proposed 70 page limit is considered sufficient in all but exceptional cases.

Covered business method patent review is similar in scope to that of post-grant review as there is substantial overlap in the statutory grounds permitted for review. Thus, the proposed page limit for proposed covered business method patent reviews is 70 pages, which is the same as that proposed for post-grant review.

The proposed rule would provide that petitions to institute a trial must comply with the stated page limits but may be accompanied by a motion that seeks to waive the page limits. The petitioner must show in the motion how a waiver of the page limits is in the interests of justice. A copy of the desired non-page limited petition must accompany the motion. Generally, the Board would decide the motion prior to deciding whether to institute the trial.

Current Board practice provides a limit of 25 pages for other motions and 15 pages for miscellaneous motions. The Board's experience is that such page limits are sufficient for the parties filing them and do not unduly burden the opposing party or the Board. Petitions to institute a trial would generally replace the current practice of filing motions for unpatentability, as most motions for relief are expected to be similar to the current interference miscellaneous motion practice. Accordingly, the proposed 15 page limit is considered sufficient for most motions but may be adjusted where the limit is determined to be unduly restrictive for the relief requested.

Proposed § 42.24(b) would provide page limits for oppositions filed in response to motions. Current contested cases practice provides an equal number of pages for an opposition as its corresponding motion. This is generally consistent with motions practice in federal courts. The proposed rule would continue the current practice.

Proposed § 42.24(c) would provide page limits for replies. Current contested cases practice provides a 15 page limit for priority motion replies, a 5 page limit for miscellaneous (procedural) motion replies, and a 10 page limit for all other motions. The proposed rule is consistent with current contested case practice for procedural motions. The proposed rule would provide a 15 page limit for reply to petitions requesting a trial, which the Office believes is sufficient based on current practice. Current contested cases practice has shown that such page limits do not unduly restrict the parties and, in fact, have provided sufficient flexibility to parties to not only reply to the motion but also help to focus on the issues. Thus, it is anticipated that default page limits would minimize the economic impact on small entities by focusing on the issues in the trials.

The Leahy-Smith America Invents Act requires that the Director, in prescribing rules for post-grant and covered business method patent reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings. See 35 U.S.C. 326(b). In view of the actual results of the duration of proceedings in inter partes reexamination (without page limits) and contested cases (with page limits), proposing procedures with reasonable page limits would be consistent with the objectives set forth in the Leahy-Smith America Invents Act. Based on our experience on the time needed to complete a non-page limited proceeding, the option of non-page limited proceedings was not adopted.

Fee Setting: 35 U.S.C. 321(a) requires the Director to establish fees to be paid by the person requesting the review in such amounts as the Director determines to be reasonable, considering the aggregate costs of the review. In contrast to current 35 U.S.C. 311(b) and 312(c), the Leahy-Smith America Invents Act requires the Director to establish more than one fee for reviews based on the total cost of performing the reviews, and does not provide for refund of any part of the fee when the Director determines that the review should not be initiated.

35 U.S.C. 322(a)(1) further requires that the fee established by the Director under 35 U.S.C. 321 accompany the petition on filing. Accordingly, in interpreting the fee setting authority in 35 U.S.C. 321(a), it is reasonable that the Director should set a number of fees for filing a petition based on the anticipated aggregate cost of conducting the review depending on the complexity of the review, and require payment of the fee upon filing of the petition.

Based on experience with contested cases and inter partes reexamination proceedings, the following characteristics of requests were considered as potential factors for fee setting as each would likely impact the cost of providing the new services. The Office also considered the relative difficulty in administrating each option in selecting the characteristics for which different fees should be paid for requesting review.

I. Adopted Option. Number of claims for which review is requested. The number of claims often impacts the complexity of the request and increases the demands placed on the deciding officials. Cf. In re Katz Interactive Call Processing Patent Litig., 639 F.3d 1303, 1309 (Fed. Cir. 2011) (limiting number of asserted claims is appropriate to efficiently manage a case). Moreover, the number of claims for which review is requested can be easily determined and administered, which avoids delays in the Office and the impact on the economy or patent system that would occur if an otherwise meritorious request is refused due to improper fee payment. Any subsequent petition would be time barred in view 35 U.S.C. 325.

II. Alternative Option I. Number of grounds for which review is requested. The Office has experience with large numbers of cumulative grounds being presented in inter partes reexaminations, which often add little value to the proceedings. Allowing for a large number of grounds to be presented on payment of an additional fee(s) is not favored. Determination of the number of grounds in a request may be contentious and difficult and may result in a large amount of high-level petition work. As such, the option would have a negative impact on small entities. Moreover, interferences instituted in the 1980s and early 1990s suffered from this problem as there was no page limit for motions and the parties had little incentive to focus the issues for decision. The resulting interference records were often a collection of disparate issues and evidence. This led to lengthy and unwarranted delays in deciding interference cases as well as increased costs for parties and the Office. Accordingly, this alternative is inconsistent with objectives of the Leahy-Smith America Invents Act that the Director, in prescribing rules for the post-grant and covered business method patent reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to timely complete the instituted proceedings.

III. Alternative Option II. Pages of argument. The Office has experience with large requests in inter partes reexamination in which the merits of the proceedings could have been resolved in a shorter request. Allowing for unnecessarily large requests on payment of an additional fee(s) is not favored. Moreover, determination of what should be counted as “argument” as compared with “evidence” has often proven to be contentious and difficult as administered in the current inter partes reexamination appeal process.

In addition, the trial section of the Board recently experimented with motions having a fixed page limit for the argument section and an unlimited number of pages for the statement of facts. Unlimited pages for the statement of facts led to a dramatic increase in the number of alleged facts and pages associated with those facts. For example, one party used approximately 10 pages for a single “fact” that merely cut and pasted a portion of a declarant's cross-examination. Based upon the trial section's experience with unlimited pages of facts, the Board recently reverted back to a fixed page limit for the entire motion (argument and facts). Accordingly, this alternative is inconsistent with objectives of the Leahy-Smith America Invents Act that the Director, in prescribing rules for the post-grant and covered business method patent reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings.

IV. Alternative Option III. The Office considered an alternative fee setting regime in which fees would be charged at various steps in the review process, a first fee on filing of the petition, a second fee if instituted, a third fee on filing a motion in opposition to amended claims, etc. The alternative fee setting regime would hamper the ability of the Office to complete timely reviews, would result in dismissal of pending proceedings with patentability in doubt due to non-payment of required fees by third parties, and would be inconsistent with 35 U.S.C. 322 that requires the fee established by the Director be paid at the time of filing the petition. Accordingly, this alternative is inconsistent with objectives of the Leahy-Smith America Invents Act that the Director, in prescribing rules for post-grant and covered business method patent reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings.

V. Alternative Option IV. The Office considered setting reduced fees for small and micro entities and to provide refunds if a review is not instituted. The Office may set the fee to recover the cost of providing the services under 35 U.S.C. 41(d)(2)(a). Fees set under this authority are not reduced for small entities, see 35 U.S.C. 42(h)(1), as amended. Moreover, the Office does not have authority to refund fees that were not paid by mistake or in excess of that owed. See 35 U.S.C. 42(d).

Discovery: The Office considered a procedure for discovery similar to the one available during district court litigation. Discovery of that scope has been criticized sharply, particularly when attorneys use discovery tools as tactical weapons, which hinder the “just, speedy, and inexpensive determination of every action and proceedings.” See Introduction to An E-Discovery Model Order available at http://www.cafc.uscourts.gov/images/stories/announcements/Ediscovery_Model_Order.pdf . Accordingly, this alternative would have been inconsistent with objectives of the Leahy-Smith America Invents Act that the Director, in prescribing rules for the post-grant and covered business method patent reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings.

Additional discovery increases trial costs and increases the expenditures of time by the parties and the Board. To promote effective discovery, the proposed rule would require a showing of good cause to authorize additional requested discovery. To show good cause, a party must make a particular and specific demonstration of fact. The moving party must also show that it was fully diligent in seeking discovery, and that there is no undue prejudice to the non-moving party.

The Office has proposed a default scheduling order to provide limited discovery as a matter of right and also the ability to seek additional discovery on a case-by-case basis. In weighing the need for additional discovery, should a request be made, the economic impact on the opposing party would be considered which would tend to limit additional discovery where a party is a small entity.

Pro Hac Vice: The Office considered whether to allow counsel to appear pro hac vice. In certain cases, highly skilled, but non-registered, attorneys have appeared satisfactorily before the Board in contested cases. The Board may recognize counsel pro hac vice during a proceeding upon a showing of good cause. Proceedings before the Office can be technically complex. Consequently, the grant of a motion to appear pro hac vice is a discretionary action taking into account the specifics of the proceedings. Similarly, the revocation of pro hac vice is a discretionary action taking into account various factors, including incompetence, unwillingness to abide by the Office's Rules of Professional Conduct, prior findings of misconduct before the Office in other proceedings, and incivility.

The Board's past practice has required the filing of a motion by a registered patent practitioner seeking pro hac vice representation based upon a showing of: (1) How qualified the unregistered practitioner is to represent the party in the proceeding when measured against a registered practitioner, and, (2) whether the party has a genuine need to have the particular unregistered practitioner represent it during the proceeding. This practice has proven effective in the limited number of contested cases where such requests have been granted. The proposed rule, if adopted, would allow for this practice in the new proceedings authorized by the Leahy-Smith America Invents Act.

The proposed rules would provide a limited delegation to the Board under 35 U.S.C. 2(b)(2) and 32 to regulate the conduct of counsel in Board proceedings. The proposed rule would delegate to the Board the authority to conduct counsel disqualification proceedings while the Board has jurisdiction over a proceeding. The rule would also delegate to the Chief Administrative Patent Judge the authority to make final a decision to disqualify counsel in a proceeding before the Board for the purposes of judicial review. This delegation would not derogate from the Director the prerogative to make such decisions, nor would it prevent the Chief Administrative Patent Judge from further delegating authority to an administrative patent judge.

The Office considered broadly permitting practitioners not registered to practice by the Office to represent parties in trial as well as categorically prohibiting such practice. A prohibition on the practice would be inconsistent with the Board's experience, and more importantly, might result in increased costs particularly where a small entity has selected its district court litigation team for representation before the Board and has a patent review filed after litigation efforts have commenced. Alternatively, broadly making the practice available would create burdens on the Office in administering the trials and in completing the trial within the established timeframe, particularly if the selected practitioner does not have the requisite skill. In weighing the desirability of admitting a practitioner pro hac vice, the economic impact on the party in interest would be considered which would tend to increase the likelihood that a small entity could be represented by a non-registered practitioner. Accordingly, the alternatives to eliminate pro hac vice practice or to permit it more broadly would have been inconsistent with objectives of the Leahy-Smith America Invents Act that the Director, in prescribing rules for the post-grant and covered business method patent reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings.

Threshold for Instituting a Review: The Office considered whether the threshold for instituting a review could be set as low as or lower than the threshold for ex parte reexamination. This alternative could not be adopted in view of the statutory requirements in 35 U.S.C. 324.

Default Electronic Filing: The Office considered a paper filing system and a mandatory electronic filing system (without any exceptions) as alternatives to the proposed requirement that all papers are to be electronically filed, unless otherwise authorized.

Based on the Office's experience, a paper based filing system increases delay in processing papers, delay in public availability, and the chance that a paper may be misplaced or made available to an improper party if confidential. Accordingly, the alternative of a paper based filing system would have been inconsistent with objectives of the Leahy-Smith America Invents Act that the Director, in prescribing rules for the post-grant and covered business method patent reviews, consider the effect of the rules on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to complete timely the instituted proceedings.

An electronic filing system (without any exceptions) that is rigidly applied would result in unnecessary cost and burdens, particularly where a party lacks the ability to file electronically. By contrast, if the proposed option is adopted, it is expected that the entity size and sophistication would be considered in determining whether alternative filing methods would be authorized.

6. Identification, to the Extent Practicable, of All Relevant Federal Rules Which May Duplicate, Overlap, or Conflict With the Proposed Rules:

37 CFR 1.99 provides for the submission of information after publication of a patent application during examination by third parties.

37 CFR 1.171-1.179 provide for applications to reissue a patent to correct errors, including where a claim in a patent is overly broad.

37 CFR 1.291 provides for the protest against the issuance of a patent during examination.

37 CFR 1.321 provides for the disclaimer of a claim by a patentee.

37 CFR 1.501 and 1.502 provide for ex parte reexamination of patents. Under these rules, a person may submit to the Office prior art consisting of patents or printed publications that are pertinent to the patentability of any claim of a patent, and request reexamination of any claim in the patent on the basis of the cited prior art patents or printed publications. Consistent with 35 U.S.C. 302-307, ex parte reexamination rules provide a different threshold for initiation, require the proceeding to be conducted by an examiner with a right of appeal to the Patent Trial and Appeal Board, and allow for limited participation by third parties.

37 CFR 1.902-1.997 provide for inter partes reexamination of patents. Similar to ex parte reexamination, inter partes reexamination provides a procedure in which a third party may request reexamination of any claim in a patent on the basis of the cited prior art patents and printed publication. The inter partes reexamination practice will be eliminated, except for requests filed before the effective date of September 16, 2012. See § 6(c)(3)(C) of the Leahy-Smith America Invents Act.

Other countries have their own patent laws, and an entity desiring a patent in a particular country must make an application for patent in that country, in accordance with the applicable law. Although the potential for overlap exists internationally, this cannot be avoided except by treaty (such as the Paris Convention for the Protection of Industrial Property, or the Patent Cooperation Treaty (PCT)). Nevertheless, the Office believes that there are no other duplicative or overlapping foreign rules.

C. Executive Order 12866 (Regulatory Planning and Review): This rulemaking has been determined to be significant for purposes of Executive Order 12866 (Sept. 30, 1993), as amended by Executive Order 13258 (Feb. 26, 2002) and Executive Order 13422 (Jan. 18, 2007).

Based on the petition and other filing requirements for initiating a review proceeding, the USPTO estimates the burden of the proposed rules on the public to be $22,761,410 in fiscal year 2013 which represents the sum of the estimated total annual (hour) respondent cost burden ($20,405,610) plus the estimated total annual non-hour respondent cost burden ($2,355,800) provided in Part O, Section II, of this notice, infra.

The USPTO expect several benefits to flow from the Leahy-Smith America Invents Act and these proposed rules. It is anticipated that the proposed rules will reduce the time for reviewing patents at the USPTO. Specifically, 35 U.S.C. 326(a) provides that the Director prescribe regulations requiring a final determination by the Board within one year of initiation, which may be extended for up to six months for good cause. In contrast, currently for inter partes reexamination, the average time from the filing to the publication of a certificate ranged from 28.9 to 41.7 months during fiscal years 2009-2011. See Reexaminations—FY 2011, http://www.uspto.gov/patents/Reexamination_operational_statistic_through_FY2011Q4.pdf.

Likewise, it is anticipated that the proposed rules will minimize duplication of efforts. In particular, the Leahy-Smith America Invents Act provides more coordination between district court infringement litigation and post-grant or covered business method patent reviews to reduce duplication of efforts and costs.

The AIPLA Report of the Economic Survey 2011 reports that the total cost of patent litigation where the damages at risk are less than $1,000,000 average $916,000, where the damages at risk are between $1,000,000 and $25,000,000 average $2,769,000, and where the damages at risk exceed $25,000,000 average $6,018,000. There may be a significant reduction in overall burden if, as intended, the Leahy-Smith America Invents Act and the proposed rules reduce the overlap between review at the USPTO of issued patents and validity determination during patent infringement actions. Data from the United States district courts reveals that 2,830 patent cases were filed in 2006, 2,896 in 2007, 2,909 in 2008, 2,792 in 2009, and 3,301 in 2010. See U.S. Courts, Judicial Business of the United States Courts, www.uscourts.gov/uscourts/Statistics/JudicialBusiness/2010/appendices/C02ASep10.pdf (last visited Nov. 11, 2011) (hosting annual reports for 1997 through 2010). Thus, the Office estimates that no more than 3,300 patent cases (the highest number of yearly filings between 2006 and 2010 rounded to the nearest 100) are likely to be filed annually. The aggregate burden estimate above ($22,761,410) was not offset by a reduction in burden based on improved coordination between district court patent litigation and the new inter partes review proceedings.

D. Executive Order 13563 (Improving Regulation and Regulatory Review): The Office has complied with Executive Order 13563. Specifically, the Office has, to the extent feasible and applicable: (1) Made a reasoned determination that the benefits justify the costs of the rule; (2) tailored the rule to impose the least burden on society consistent with obtaining the regulatory objectives; (3) selected a regulatory approach that maximizes net benefits; (4) specified performance objectives; (5) identified and assessed available alternatives; (6) involved the public in an open exchange of information and perspectives among experts in relevant disciplines, affected stakeholders in the private sector, and the public as a whole, and provided online access to the rulemaking docket; (7) attempted to promote coordination, simplification, and harmonization across government agencies and identified goals designed to promote innovation; (8) considered approaches that reduce burdens and maintain flexibility and freedom of choice for the public; and (9) ensured the objectivity of scientific and technological information and processes.

E. Executive Order 13132 (Federalism): This rulemaking does not contain policies with federalism implications sufficient to warrant preparation of a Federalism Assessment under Executive Order 13132 (Aug. 4, 1999).

F. Executive Order 13175 (Tribal Consultation): This rulemaking will not: (1) Have substantial direct effects on one or more Indian tribes; (2) impose substantial direct compliance costs on Indian tribal governments; or (3) preempt tribal law. Therefore, a tribal summary impact statement is not required under Executive Order 13175 (Nov. 6, 2000).

G. Executive Order 13211 (Energy Effects): This rulemaking is not a significant energy action under Executive Order 13211 because this rulemaking is not likely to have a significant adverse effect on the supply, distribution, or use of energy. Therefore, a Statement of Energy Effects is not required under Executive Order 13211 (May 18, 2001).

H. Executive Order 12988 (Civil Justice Reform): This rulemaking meets applicable standards to minimize litigation, eliminate ambiguity, and reduce burden as set forth in sections 3(a) and 3(b)(2) of Executive Order 12988 (Feb. 5, 1996). This rulemaking carries out a statute designed to lessen litigation. See H.R. Rep. No. 112-98, at 45-48.

I. Executive Order 13045 (Protection of Children): This rulemaking does not concern an environmental risk to health or safety that may disproportionately affect children under Executive Order 13045 (Apr. 21, 1997).

J. Executive Order 12630 (Taking of Private Property): This rulemaking will not effect a taking of private property or otherwise have taking implications under Executive Order 12630 (Mar. 15, 1988).

K. Congressional Review Act: Under the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801-808), prior to issuing any final rule, the United States Patent and Trademark Office will submit a report containing the final rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the Government Accountability Office. The changes in this notice are not expected to result in an annual effect on the economy of 100 million dollars or more, a major increase in costs or prices, or significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of United States-based enterprises to compete with foreign based enterprises in domestic and export markets. Therefore, this notice is not expected to result in a “major rule” as defined in 5 U.S.C. 804(2).

L. Unfunded Mandates Reform Act of 1995: The changes proposed in this notice do not involve a Federal intergovernmental mandate that will result in the expenditure by State, local, and tribal governments, in the aggregate, of 100 million dollars (as adjusted) or more in any one year, or a Federal private sector mandate that will result in the expenditure by the private sector of 100 million dollars (as adjusted) or more in any one year, and will not significantly or uniquely affect small governments. Therefore, no actions are necessary under the provisions of the Unfunded Mandates Reform Act of 1995. See 2 U.S.C. 1501-1571.

M. National Environmental Policy Act: This rulemaking will not have any effect on the quality of the environment and is thus categorically excluded from review under the National Environmental Policy Act of 1969. See 42 U.S.C. 4321-4370h.

N. National Technology Transfer and Advancement Act: The requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) are not applicable because this rulemaking does not contain provisions which involve the use of technical standards.

O. Paperwork Reduction Act: The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3549) requires that the USPTO consider the impact of paperwork and other information collection burdens imposed on the public. This proposed rulemaking involves information collection requirements which are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3549). The collection of information involved in this notice has been submitted to OMB under OMB control number 0651-00xx. In the Notice “Rules of Practice for Trials before the Patent Trial and Appeal Board and Judicial Review of Patent Trial and Appeal Board Decisions,” RIN 0651-AC70, the information collection for all of the new trials authorized by the Leahy-Smith America Invents Act were provided. In the Notice “Changes to Implement Post-Grant Review Proceedings,” RIN 0651-AC72, the information collection for post-grant review and covered business method patent review combined authorized by the Leahy-Smith America Invents Act were provided. This notice also provides the subset of burden created by the covered business method patent review provisions. The proposed collection will be available at the OMB's Information Collection Review Web site ( www.reginfo.gov/public/do/PRAMain ).

The USPTO is submitting the information collection to OMB for its review and approval because this notice of proposed rulemaking will add the following to a collection of information:

(1) Petitions to institute a post-grant review (§§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.22, 42.24(a)(2), 42.63, 42.65, and 42.201 through 42.205);

(2) petitions to institute a covered business method patent review (§§ 42.5, 42.6, 42.8, 42.11, 42.13, 42.20, 42.21, 42.22, 42.24(a)(3), 42.63, 42.65, 42.203, 42.205, and 42.302 through 42.304);

(3) motions (§§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.22, 42.24(a)(5), 42.51 through 42.54, 42.63, 42.64, 42.65, 42.221, 42.123, and 42.223);

(4) oppositions (§§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.23, 42.24(b), 42.51, 42.52, 42.53, 42.54, 42.63, 42.64, 42.65, 42.207, and 42.220);

(5) replies provided for in 35 U.S.C. 321-329 (§§ 42.6, 42.8, 42.11, 42.13, 42.21, 42.23, 42.24(c), 42.51, 42.52, 42.53, 42.54, 42.63, and 42.65).

The proposed rules also permit filing requests for oral argument (§ 42.70) provided for in 35 U.S.C. 326(a)(10), requests for rehearing (§ 42.71(c)), requests for adverse judgment (§ 42.73(b)), and requests that a settlement be treated as business confidential (§ 42.74(b)) provided for in 35 U.S.C. 327.

I. Abstract: The USPTO is required by 35 U.S.C. 131 and 151 to examine applications and, when appropriate, issue applications as patents.

Chapter 32 of title 35 U.S.C. in effect on September 16, 2012, provides for post-grant review proceedings allowing third parties to petition the USPTO to review the patentability of an issued patent under any ground authorized under 35 U.S.C. 282(b)(2). If a trial is initiated by the USPTO based on the petition, as authorized by the USPTO, additional motions may be filed by the petitioner. A patent owner may file a response to the petition and if a trial is instituted, as authorized by the USPTO, may file additional motions.

Section 18 of the Leahy-Smith America Invents Act provides for a transitional program for covered business method patents, which will employ the standards and procedures of the post-grant review proceeding with a few exceptions.

In estimating the number of hours necessary for preparing a petition to institute a post-grant or covered business method patent review, the USPTO considered the estimated cost of preparing a request for inter partes reexamination ($46,000), the median billing rate ($340/hour), and the observation that the cost of inter partes reexamination has risen the fastest of all litigation costs since 2009 in the AIPLA Report of the Economic Survey 2011. Since additional grounds are provided in post-grant or covered business method patent review, the Office estimates the cost of preparing a petition to institute a review will be 33.333% more than the estimated cost of preparing a request for inter partes reexamination, or $61,333.

In estimating the number of hours necessary for preparing motions after instituting and participating in the review, the USPTO considered the AIPLA Report of the Economic Survey 2011 which reported the average cost of a party to a two-party interference to the end of the preliminary motion phase ($322,000) and inclusive of all costs ($631,000). The Office considered that the preliminary motion phase is a good proxy for patentability reviews since that is the period of current contested cases before the trial section of the Board where most patentability motions are currently filed.

The USPTO also reviewed recent contested cases before the trial section of the Board to make estimates on the average number of motions for any matter including priority, the subset of those motions directed to non-priority issues, the subset of those motions directed to non-priority patentability issues, and the subset of those motions directed to patentability issues based on a patent or printed publication on the basis of 35 U.S.C. 102 or 103. The review of current contested cases before the trial section of the Board indicated that approximately 15% of motions were directed to prior art grounds, 18% of motions were directed to other patentability grounds, 27% were directed to miscellaneous issues, and 40% were directed to priority issues. It was estimated that the cost per motion to a party in current contested cases before the trial section of the Board declines because of overlap in subject matter, expert overlap, and familiarity with the technical subject matter. Given the overlap of subject matter, a proceeding with fewer motions will have a somewhat less than proportional decrease in costs since the overlapping costs will be spread over fewer motions.

It is estimated that the cost of an inter partes review would be 60% of the cost of current contested cases before the trial section of the Board to the end of the preliminary motion period. An inter partes review should have many fewer motions since only one party will have a patent that is the subject of the proceeding (compared with each party having at least a patent or an application in current contested cases before the trial section of the Board). Moreover, fewer issues can be raised since inter partes review will not have priority-related issues that must be addressed in current contested cases before the trial section of the Board. Consequently, a 60% weighting factor should capture the typical costs of an inter partes review.

It is estimated that the cost of a post-grant or covered business method patent review would be 75% of the cost of current contested cases before the trial section of the Board to the end of the preliminary motion period. A post-grant or covered business method patent review should have many fewer motions since only one party will have a patent that is the subject of the proceeding (compared with each party having at least a patent or an application in current contested cases before the trial section of the Board). Moreover, fewer issues can be raised since post-grant and covered business method patent reviews will not have the priority-related issues that must be addressed in current contested cases before the trial section of the Board before the priority phase. Again, a 75% weighting factor should capture the typical costs of a post-grant or covered business method patent review.

The title, description, and respondent description of the information collection are shown below with an estimate of the annual reporting burdens for the post-grant and covered business method patent review provisions. Included in this estimate is the time for reviewing instructions, gathering and maintaining the data needed, and completing and reviewing the collection of information. The principal impact of the proposed changes in this notice of proposed rulemaking is to implement the changes to Office practice necessitated by §§ 6(d) and 18 of the Leahy-Smith America Invents Act.

The public uses this information collection to request review and derivation proceedings and to ensure that the associated fees and documentation are submitted to the USPTO.

Needs and Uses: The information supplied to the USPTO by a petition to institute a review as well as the motions authorized following the institution is used by the USPTO to determine whether to initiate a review under 35 U.S.C. 324 and to prepare a final decision under 35 U.S.C. 328.

OMB Number: 0651-00xx.

Title: Patent Review and Derivation Proceedings.

Form Numbers: None.

Type of Review: New Collection.

Likely Respondents/Affected Public: Individuals or households, businesses or other for profit, not-for-profit institutions, farms, Federal Government, and state, local, or tribal governments.

Estimated Number of Respondents/Frequency of Collection: 100 respondents and 515 responses per year.

Estimated Time per Response: The USPTO estimates that it will take the public from 0.1 to 180.4 hours to gather the necessary information, prepare the documents, and submit the information to the USPTO.

Estimated Total Annual Respondent Burden Hours: 60,016.5 hours per year.

Estimated Total Annual (Hour) Respondent Cost Burden: $20,405,610 per year. The USPTO expects that the information in this collection will be prepared by attorneys. Using the professional rate of $340 per hour for attorneys in private firms, the USPTO estimates that the respondent cost burden for this collection will be approximately $20,405,610 per year (60,016.5 hours per year multiplied by $340 per hour).

Estimated Total Annual Non-hour Respondent Cost Burden: $2,355,800 per year. There are no capital start-up or maintenance costs associated with this information collection. However, this collection does have annual (non-hour) costs in the form of filing fees. There are filing fees associated with petitions for post-grant and covered business method patent review and for requests to treat a settlement as business confidential. The total fees for this collection are calculated in the accompanying table. The USPTO estimates that the total fees associated with this collection will be approximately $2,355,800 per year.

Therefore, the total estimated cost burden in fiscal year 2013 is estimated to be $22,761,410 (the sum of the estimated total annual (hour) respondent cost burden ($20,405,610) plus the estimated total annual non-hour respondent cost burden ($2,355,800)).