[Federal Register Volume 77, Number 157 (Tuesday, August 14, 2012)]
[Rules and Regulations]
[Pages 48734-48753]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-17904]



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Vol. 77

Tuesday,

No. 157

August 14, 2012

Part IV





Department of Commerce





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Patent and Trademark Office





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37 CFR Part 42





Transitional Program for Covered Business Method Patents--Definitions 
of Covered Business Method Patent and Technological Invention; Final 
Rule

  Federal Register / Vol. 77 , No. 157 / Tuesday, August 14, 2012 / 
Rules and Regulations  

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DEPARTMENT OF COMMERCE

Patent and Trademark Office

37 CFR Part 42

[Docket No. PTO-P-2011-0087]
RIN 0651-AC75


Transitional Program for Covered Business Method Patents--
Definitions of Covered Business Method Patent and Technological 
Invention

AGENCY: United States Patent and Trademark Office, Commerce.

ACTION: Final rule.

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SUMMARY: The United States Patent and Trademark Office (Office or 
USPTO) is revising the rules of practice to implement the provision of 
the Leahy-Smith America Invents Act (``AIA'') that requires the Office 
to issue regulations for determining whether a patent is for a 
technological invention in a transitional post-grant review proceeding 
for covered business method patents. The provision of the AIA will take 
effect on September 16, 2012, one year after the date of enactment. The 
AIA provides that this provision and any regulations issued under the 
provision will be repealed on September 16, 2020, with respect to any 
new petitions under the transitional program.

DATES: Effective Date: The changes in this final rule take effect on 
September 16, 2012.
    Applicability Date: The changes in this final rule apply to any 
covered business method patent issued before, on, or after September 
16, 2012.

FOR FURTHER INFORMATION CONTACT: Sally C. Medley, Administrative Patent 
Judge; Michael P. Tierney, Lead Administrative Patent Judge; Robert A. 
Clarke, Administrative Patent Judge; and Joni Y. Chang, Administrative 
Patent Judge; Board of Patent Appeals and Interferences, by telephone 
at (571) 272-9797.

SUPPLEMENTARY INFORMATION:
    Executive Summary: Purpose: On September 16, 2011, the AIA was 
enacted into law (Pub. L. 112-29, 125 Stat. 284 (2011)). The purpose of 
the AIA and this final rule 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 definitions of the terms ``covered 
business method patent'' and ``technological invention'' that the Board 
will use in conducting transitional covered business method patent 
review proceedings. The USPTO is engaged in a transparent process to 
create a timely, cost-effective alternative to litigation. Moreover, 
this rulemaking process is designed to ensure the integrity of the 
trial procedures. See 35 U.S.C. 326(b).
    Summary of Major Provisions: This final rule sets forth the 
definitions of the terms ``covered business method patent'' and 
``technological invention'' that the Office will use in conducting 
transitional covered business method patent review proceedings.
    Costs and Benefits: This rulemaking is not economically 
significant, but is significant, under Executive Order 12866 (Sept. 30, 
1993), as amended by Executive Order 13258 (Feb. 26, 2002) and 
Executive Order 13422 (Jan. 18, 2007).
    Background: To implement sections 6 and 18 of the AIA, the Office 
published the following notices of proposed rulemaking: (1) Rules of 
Practice for Trials before the Patent Trial and Appeal Board and 
Judicial Review of Patent Trial and Appeal Board Decisions, 77 FR 6879 
(Feb. 9, 2012), to provide a consolidated set of rules relating to 
Board trial practice for inter partes review, post-grant review, 
derivation proceedings, and the transitional program for covered 
business method patents, and judicial review of Board decisions by 
adding new parts 42 and 90 including a new subpart A to title 37 of the 
Code of Federal Regulations (RIN 0651-AC70); (2) Changes to Implement 
Inter Partes Review Proceedings, 77 FR 7041 (Feb. 10, 2012), to provide 
rules specific to inter partes review by adding a new subpart B to 37 
CFR part 42 (RIN 0651-AC71); (3) Changes to Implement Post-Grant Review 
Proceedings, 77 FR 7060 (Feb. 10, 2012), to provide rules specific to 
post-grant review by adding a new subpart C to 37 CFR part 42 (RIN 
0651-AC72); (4) Changes to Implement Transitional Program for Covered 
Business Method Patents, 77 FR 7080 (Feb. 10, 2012), to provide rules 
specific to the transitional program for covered business method 
patents by adding a new subpart D to 37 CFR part 42 (RIN 0651-AC73); 
(5) Transitional Program for Covered Business Method Patents--
Definition of Technological Invention, 77 FR 7095 (Feb. 10, 2012), to 
add a new rule that sets forth the definition of technological 
invention for determining whether a patent is for a technological 
invention for purposes of the transitional program for covered business 
method patents (RIN 0651-AC75); and (6) Changes to Implement Derivation 
Proceedings, 77 FR 7028 (Feb. 10, 2012), to provide rules specific to 
derivation proceedings by adding a new subpart E to 37 CFR part 42 (RIN 
0651-AC74).
    Additionally, the Office published a Patent Trial Practice Guide 
for the proposed rules in the Federal Register to provide the public an 
opportunity to comment. Practice Guide for Proposed Trial Rules, 77 FR 
6868 (Feb. 9, 2012) (Request for Comments) (hereafter ``Practice 
Guide'' or ``Office Patent Trial Practice Guide''). The Office 
envisions publishing a revised Patent Trial Practice Guide for the 
final rules. The Office also hosted a series of public educational 
roadshows, across the country, regarding the proposed rules for the 
implementation of the AIA.
    In response to the notices of proposed rulemaking and the Practice 
Guide notice, the Office received 251 submissions offering written 
comments from intellectual property organizations, businesses, law 
firms, patent practitioners, and others, including a United Stated 
senator who was a principal author of section 18 of the AIA. The 
comments provided support for, opposition to, and diverse 
recommendations on the proposed rules. The Office appreciates the 
thoughtful comments, and has considered and analyzed the comments 
thoroughly. The Office's responses to the comments are provided in the 
124 separate responses based on the topics raised in the 251 comments 
in the Response to Comments section infra.
    Section 18 of the AIA provides that the Director may institute a 
transitional proceeding only for a patent that is a covered business 
method patent. In particular, section 18(d)(1) of the AIA specifies 
that a covered business method patent is a patent that claims a method 
or corresponding apparatus for performing data processing or other 
operations used in the practice, administration, or management of a 
financial product or service, except that the term does not include 
patents for technological inventions. Section 18(d)(2) of the AIA 
provides that the Director will issue regulations for determining 
whether a patent is for a technological invention. Consistent with 
these statutory provisions, this rulemaking provides regulations for 
determining whether a patent is for a technological invention. The AIA 
provides that the transitional program for the review of covered 
business method patents will take effect on September 16, 2012, one 
year after the date of enactment, and applies to any covered business 
method patent issued before, on, or after September 16, 2012. Section 
18 of the AIA and the

[[Page 48735]]

regulations issued under this provision will be repealed on September 
16, 2020. Section 18 of the AIA and the regulations issued will 
continue to apply after September 16, 2020, to any petition for a 
transitional proceeding that is filed before September 16, 2020.
    Pursuant to section 18(d) of the AIA, the Office is prescribing 
regulations to set forth the definitions of the terms ``covered 
business method patent'' and ``technological invention'' in its 
regulation. In February 2012, the Office published two notices 
proposing changes to 37 CFR chapter I to implement sections 18(d)(1) 
and (d)(2) of the AIA. See Changes to Implement Transitional Program 
for Covered Business Method Patents, 77 FR 7080 (Feb. 10, 2012) and 
Transitional Program for Covered Business Method Patents--Definition of 
Technological Invention, 77 FR 7095 (Feb. 10, 2012).
    This final rule revises the rules of practice to implement section 
18(d)(1) of the AIA that provides the definition of the term ``covered 
business method patent'' and section 18(d)(2) of the AIA that provides 
that the Director will issue regulations for determining whether a 
patent is for a technological invention. This final rule sets forth the 
definitions in new subpart D of 37 CFR 42, specifically in Sec.  
42.301.
    This rulemaking is one of a series of rules that the Office is 
promulgating directed to the new trials that were created by the AIA. 
The Office, in a separate rulemaking, revises the rules of practice to 
provide a consolidated set of rules relating to Board trial practice, 
adding part 42, including subpart A (RIN 0651-AC70). More specifically, 
subpart A of part 42 sets forth the policies, practices, and 
definitions common to all trial proceedings before the Board. In 
another separate rulemaking, the Office revises the rules of practice 
to implement the provisions of the AIA for the transitional program for 
covered business method patents (RIN 0651-AC71). In particular, that 
separate final rule adds a new subpart D to 37 CFR part 42 to provide 
rules specific to transitional post-grant review of covered business 
method patents. Further, that separate final rule adds a new subpart B 
to 37 CFR part 42 to provide rules specific to inter partes review, and 
a new subpart C to 37 CFR part 42 to provide rules specific to post-
grant review. The notices are available on the USPTO Internet Web site 
at www.uspto.gov.

Discussion of Specific Rules

    Title 37 of the Code of Federal Regulations, Chapter I, Part 42, 
Subpart D, Section 42.301, entitled ``Definitions'' is added as 
follows:
    Section 42.301: Section 42.301 provides definitions specific to 
covered business method patent reviews.
    Section 42.301(a) adopts the definition for covered business method 
patents provided in section 18(d)(1) of the AIA. Specifically, the 
definition provides that a covered business method patent means a 
patent that claims a method or corresponding apparatus for performing 
data processing or other operations used in the practice, 
administration, or management of a financial product or service, except 
that the term does not include patents for technological inventions.
    Section 42.301(b) sets forth the definition for technological 
invention for covered business method patent review proceedings. The 
definition of technological invention provides that in determining 
whether a patent is for a technological invention solely for purposes 
of the Transitional Program for Covered Business Methods, the following 
will be considered on a case-by-case basis: Whether the claimed subject 
matter as a whole recites a technological feature that is novel and 
unobvious over the prior art, and solves a technical problem using a 
technical solution. The Office recognizes that, in prescribing a 
regulation to define technological invention, the Office must consider 
the efficient administration of the proceedings by the Office, and its 
ability to complete them timely, consistent with 35 U.S.C. 326(b).
    The definition is consistent with the legislative history of the 
AIA. See, e.g., 157 Cong. Rec. S1364 (daily ed. Mar. 8, 2011) 
(statement of Sen. Schumer) (``The `patents for technological 
inventions' exception only excludes those patents whose novelty turns 
on a technological innovation over the prior art and are concerned with 
a technical problem which is solved with a technical solution and which 
requires the claims to state the technical features which the inventor 
desires to protect.''); 157 Cong. Rec. H4497 (daily ed. June 23, 2011) 
(statement of Rep. Smith) (``Patents for technological inventions are 
those patents whose novelty turns on a technological innovation over 
the prior art and are concerned with a technical problem which is 
solved with a technical solution.''); 157 Cong. Rec. S5428 (daily ed. 
Sept. 8, 2011) (statement of Sen. Coburn) (``Patents for technological 
inventions are those patents whose novelty turns on a technological 
innovation over the prior art and are concerned with a technical 
problem which is solved with a technical solution.'').

Response to Comments

    The Office received about 47 written submissions of comments (from 
intellectual property organizations, businesses, law firms, patent 
practitioners, and others) in response to the proposed definitions. The 
Office appreciates the thoughtful comments, and has considered and 
analyzed the comments thoroughly. The Office's responses to the 
comments that are germane to the definitions adopted in this final rule 
are provided below:

Section 42.301(a)

    Comment 1: Several comments suggested that the Office interpret 
``financial product or service'' broadly.
    Response: The definition set forth in Sec.  42.301(a) for covered 
business method patent adopts the definition for covered business 
method patent provided in section 18(d)(1) of the AIA. In administering 
the program, the Office will consider the legislative intent and 
history behind the public law definition and the transitional program 
itself. For example, the legislative history explains that the 
definition of covered business method patent was drafted to encompass 
patents ``claiming activities that are financial in nature, incidental 
to a financial activity or complementary to a financial activity.'' 157 
Cong. Rec. S5432 (daily ed. Sept. 8, 2011) (statement of Sen. Schumer). 
This remark tends to support the notion that ``financial product or 
service'' should be interpreted broadly.
    Comment 2: One comment noted that there is no proposed definition 
of the term ``financial product or service'' and suggested amending the 
proposed rule for covered business method patent to include two factors 
to consider on a case-by-case basis: (1) Whether the claimed subject 
matter is directed to an agreement between two parties stipulating the 
movement of money or other consideration now or in the future; and (2) 
whether the claimed subject matter is particular to the characteristics 
of financial institutions. Still other comments supported the Office's 
definition of a covered business method patent as is.
    Response: The definition suggested by the comment for ``financial 
product or service'' is not adopted. That suggestion would appear to 
limit the scope of the definition of covered business method patents 
provided in section 18(d)(1) of the AIA, particularly the second prong 
of the proposed definition. In addition, the Office has considered the 
comment seeking to change the definition of a covered business method 
patent against the comments in support of the

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definition set forth in the proposed Sec.  42.301(a) and in section 
18(d)(1) of the AIA. Upon consideration of the diverging comments, and 
the definition provided in the public law, the Office adopts proposed 
Sec.  42.301(a), in this final rule, without any alterations.
    Comment 3: One comment suggested that the Office should clarify 
that the term ``financial product or service'' should be limited to the 
products or services of the financial services industry. Still another 
comment stated that the term ``financial product or service'' is not 
limited to the products of the financial services industry.
    Response: The suggestion to clarify that the term ``financial 
product or service'' is limited to the products or services of the 
financial services industry is not adopted. Such a narrow construction 
of the term would limit the scope of the definition of covered business 
method patents beyond the intent of section 18(d)(1) of the AIA. For 
example, the legislative history reveals that ``[t]he plain meaning of 
`financial product or service' demonstrates that section 18 is not 
limited to the financial services industry.'' 157 Cong. Rec. S5432 
(daily ed. Sept. 8, 2011) (statement of Sen. Schumer). This remark 
tends to support the notion that ``financial product or service'' is 
not limited to the products or services of the financial services 
industry.
    Comment 4: One comment suggested that the Office revise proposed 
Sec.  42.301(a) to clarify that the determination of a ``covered 
business method patent'' would not be satisfied by merely reciting an 
operating environment related to data processing or management of a 
financial product or service, but that eligibility should be determined 
by what the patent claims.
    Response: This suggestion is not adopted. The definition set forth 
in Sec.  42.301(a) adopts the definition for a covered business method 
patent provided in section 18(d)(1) of the AIA. Specifically, the 
statutory language states that a covered business method patent is ``a 
patent that claims a method or corresponding apparatus for performing 
data processing * * *, except that the term does not include patents 
for technological inventions.'' (Emphasis added.) Consistent with the 
AIA, the definition set forth in Sec.  42.301(a), as adopted in this 
final rule, is based on what the patent claims.
    Comment 5: One comment suggested that the proposed definition is 
based on Class 705 of the United States Classification System and that 
the definition should be amended to include a specific reference to 
Class 705, including systems.
    Response: The definition set forth in Sec.  42.301(a) adopts the 
definition for covered business method patents provided in section 
18(d)(1) of the AIA. The definition set forth in Sec.  42.301(a) will 
not be altered to make reference to Class 705 of the United 
Classification System since doing so would be contrary to the 
definition set out in the public law. The legislative history reveals 
that

[o]riginally, class 705 was used as the template for the definition 
of business method patents in section 18. However, after the bill 
passed the Senate, it became clear that some offending business 
method patents are issued in other sections. So the House bill 
changes the definition only slightly so that it does not directly 
track the class 705 language.

157 Cong. Rec. S5410 (daily ed. Sept. 8, 2011) (statement of Sen. 
Schumer). This remark tends to support the notion that the definition 
of a covered business method patent should not be changed to refer to 
Class 705 of the United States Classification System. In addition, the 
Office received comments in support of the definition set forth in the 
proposed rule. Upon considering the AIA and legislative history, as 
well as those supporting comments in favor of the definition against 
the comment to change the definition, the Office has decided to adopt 
proposed Sec.  42.301(a) in this final rule, without altering the 
proposed definition.

Section 42.301(b)

    Comment 6: One comment asked whether it is the novel and unobvious 
technological feature that provides the technical solution to a 
technical problem or that the novel and unobvious technological feature 
does not necessarily need to be the technical solution to the technical 
problem.
    Response: The definition in Sec.  42.301(b) includes considering 
whether the claimed subject matter as a whole recites a technological 
feature that is novel and unobvious over the prior art and solves a 
technical problem using a technical solution. The reference ``and 
solves a technical problem using a technical solution'' is with respect 
to ``the claimed subject matter as a whole.''
    Comment 7: One comment suggested that the definition is not 
actually a definition as it only states two factors to be considered, 
and that the Office did not have to use legislative history for the 
rule because Congress instructed the Office to use its own expertise. 
Still another comment suggested that the Office should not have based 
the definition on the legislative history.
    Response: Section 18(d)(2) of the AIA provides that ``[t]o assist 
in implementing the transitional proceeding authorized by this 
subsection, the Director shall issue regulations for determining 
whether a patent is for a technological invention.'' Consistent with 
the AIA, the definition for technological invention, as adopted in this 
final rule, sets forth what is to be considered in determining whether 
a patent is for a technological invention. The Office disagrees that it 
should not have looked to the legislative history in formulating the 
definition. The Office, in determining the best approach for defining 
the term ``technological invention,'' concluded that the relied upon 
portion of the legislative history represented the best policy choice.
    Comment 8: Several comments sought clarification on whether a 
single claim can make the patent a covered business method patent or 
whether it is the subject matter as a whole that is considered.
    Response: The definition set forth in Sec.  42.301(b) for a covered 
business method patent adopts the definition for covered business 
method patents provided in section 18(d)(1) of the AIA. Specifically, 
the language states that a covered business method patent is ``a patent 
that claims a method or corresponding apparatus for performing data 
processing * * *, except that the term does not include patents for 
technological inventions.'' (Emphasis added.) Consistent with the AIA, 
the definition, as adopted, therefore is based on what the patent 
claims. Determination of whether a patent is a covered business method 
patent will be made based on the claims. Similarly, determination of 
whether a patent is to a technological invention will be determined 
based on the claims of the patent. A patent having one or more claims 
directed to a covered business method is a covered business method 
patent for purposes of the review, even if the patent includes 
additional claims.
    Comment 9: Several comments suggested that the definition should 
not be based on novelty or nonobviousness; some proposed a definition 
that eliminates ``novel and unobvious.'' Other comments fully supported 
the proposed definition set forth in the proposed rule.
    Response: Under Sec.  42.301(b), in determining whether a patent is 
for a technological invention solely for purposes of the Transitional 
Program for Covered Business Methods, the Office will consider whether 
the claimed subject matter as a whole recites a technological feature 
that is novel and unobvious over the prior art. Therefore, the 
definition in Sec.  42.301(b) is consistent with the AIA and the

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legislative history. Moreover, several comments supported the 
definition set forth in proposed Sec.  42.301(b). Upon considering the 
AIA and the legislative history as well as the supporting comments in 
favor of the definition balanced against the comments to change the 
definition, the Office adopts the definition in proposed Sec.  
42.301(b), in this final rule, without alterations. Therefore, the 
Office did not adopt a definition that is not based on novelty or 
nonobviousness.
    Comment 10: Several comments proposed using the standards of patent 
subject matter eligibility under 35 U.S.C. 101 to define whether a 
patent is for a technological invention. Still other comments opposed 
using a 35 U.S.C. 101 standard. Moreover, several comments fully 
supported the definition in proposed Sec.  42.301(b).
    Response: The definition in proposed Sec.  42.301(b) is consistent 
with the AIA and the legislative history as discussed above. The 
suggestions to change the definition using the standards of patent 
subject matter eligibility under 35 U.S.C. 101 will not be adopted. 
Several comments supported the definition set forth in proposed Sec.  
42.301(b) while other comments opposed changing the definition based on 
the standards of patent subject matter eligibility under 35 U.S.C. 101. 
Upon considering the AIA and the legislative history as well as the 
comments in favor of the definition balanced against the comments to 
change the definition, the Office decided to adopt proposed Sec.  
42.301(b), in this final rule.
    Comment 11: Several comments suggested applying the definition to 
limit reviews under the program while others suggested applying the 
definition not to limit reviews under the program.
    Response: The Office will consider whether a patent is for a 
technological invention on a case-by-case basis and will take into 
consideration the facts of a particular case. Therefore, the Office did 
not adopt the suggestions to apply a definition to limit, or not to 
limit, reviews without considering the factors as applied to all of the 
reviews.
    Comment 12: Several comments stated that the definition in proposed 
Sec.  42.301(b) is confusing, circular, and ambiguous. Other comments 
fully supported the definition set forth in the proposed rule.
    Response: The definition adopted in Sec.  42.301(b) is based upon 
the legislative history of the AIA. The Office believes that the 
definition provides appropriate guidance to the public, taken in light 
of the legislative history, as well as the Supreme Court case law on 
patent eligible subject matter and the Office's existing guidelines. 
See, e.g., Interim Guidance for Determining Subject Matter Eligibility 
for Process Claims in View of Bilski v. Kappos, 75 FR 43922 (Jul. 27, 
2010). The Office will consider whether a patent is for a technological 
invention on a case-by-case basis and will take into consideration the 
facts of a particular case. As applied to a particular case, only one 
result will occur. Moreover, additional guidance will be provided to 
the public as decisions are rendered applying the definition as they 
become available. Many comments fully supported the definition. Upon 
considering the AIA and the legislative history as well as the 
supporting comments in favor of the definition balanced against the 
comments to change the definition, the Office decided to adopt proposed 
Sec.  42.301(b) in this final rule, and not to alter the definition as 
requested.
    Comment 13: Several comments proposed various different definitions 
for technological invention. Other comments fully supported the 
definition set forth in the proposed rule.
    Response: The Office appreciates and has considered the suggested 
definitions. Although the definitions have been considered, the Office 
is not adopting the definitions suggested in the comments. 
Specifically, the Office believes that the definition in Sec.  
42.301(b) is consistent with the legislative history of the AIA and 
more narrowly tailors the reviews that are instituted in view of that 
history. Moreover, several comments supported the definition set forth 
in the proposed rule. Upon considering the comments in favor of the 
definition balanced against those comments to change the definition, 
the Office has decided to adopt proposed Sec.  42.301(b), in this final 
rule, and not alter the definition as requested.
    Comment 14: One comment supported the definition set forth in 
proposed Sec.  42.301(b), but encouraged the Office to include in the 
preamble of the final rule notice a reference to remarks made by 
Senator Durbin from the legislative history. One other comment 
suggested that the remarks of Senators Schumer and Coburn and 
Representative Smith should not be given controlling weight and in any 
event their remarks should be balanced against the remarks of others, 
including Senator Durbin. Both comments refer to the remarks made by 
Senator Durbin on September 8, 2011. 157 Cong. Rec. S5433 (daily ed. 
Sept. 8, 2011).
    Response: The Office appreciates the comments. However, the 
specific remarks of Senator Durbin to which the Office is directed will 
not be included in the preamble as suggested. In the testimony to which 
the Office is directed, Senator Durbin provided broad examples of the 
kinds of patents that would not be subject to a transitional covered 
business method patent review. Although the comments are instructive, 
the comments identify very specific examples that are not necessarily 
suited for the preamble but are better addressed when reviewing the 
merits of a case.
    Comment 15: Several comments suggested that the case-by-case 
approach is not specific enough and could create uncertainty. Other 
comments fully supported the definition set forth in proposed Sec.  
42.301(b).
    Response: The definition in proposed Sec.  42.301(b) was drafted to 
ensure flexibility in administering the transitional covered business 
method review program. In determining whether a patent is for a 
technological invention, the particular facts of a case will be 
considered. Additionally, more information on how the rule applies to 
specific factual situations will be available as decisions are issued. 
Therefore, the Office adopts proposed Sec.  42.301(b) in this final 
rule without any alteration.

Office Patent Trial Practice Guide

    Comment 16: Several comments suggested that the Office provide 
additional examples for what is a covered business method patent and 
what is a technological invention.
    Response: The Office agrees that more examples would be helpful to 
the public. The Office anticipates publishing written decisions as soon 
as practical, after which more examples likely will be provided in the 
Office Patent Trial Practice Guide. The Office will make cases publicly 
available to provide more guidance in the future.
    Comment 17: One comment stated that the provided examples in the 
Practice Guide for Proposed Trial Rules are inconsistent because a 
hedging machine and credit card reader are computers using known 
technologies.
    Response: The Office disagrees that the examples of covered 
business method patents that are subject to a covered business method 
patent review are inconsistent with the examples of patents that claim 
a technological invention. The Practice Guide for Proposed Trial Rules 
provides examples of covered business method patents that are subject 
to a covered business method patent review. One example is a patent 
that claims a method for hedging risk in the field of commodities 
trading. Another example is a patent that claims a method for verifying

[[Page 48738]]

validity of a credit card transaction. Still other examples are given 
of a patent that claims a technological invention that would not be 
subject to a covered business method patent review. One example is a 
patent that claims a novel and nonobvious hedging machine for hedging 
risk in the field of commodities trading. Another example is a patent 
that claims a novel and nonobvious credit card reader for verifying the 
validity of a credit card transaction. The comment assumes that in all 
examples the machine or card reader is a computer using known 
technologies. However, no such qualifications were provided in the 
examples.

Rulemaking Considerations

    The rulemaking considerations for the series of final rules 
implementing the administrative patent trials as required by the AIA 
have been considered together and are based upon the same assumptions, 
except where differences between the regulations and proceedings that 
they implement require additional or different information. Notably, 
this final rule is directed to the covered business method patent 
provision, and therefore, does not depend on or discuss the responses 
or information related to inter partes reviews, post-grant reviews 
other than covered business method patent reviews, and derivations. 
This final rule also provides the alternatives considered for the 
technological invention for the purposes of the covered business method 
patent review, provided in section B(6) below.

A. Administrative Procedure Act (APA)

    This final rule revises the rules of practice concerning the 
procedure for requesting a covered business method patent review. The 
changes being adopted in this notice do not change the substantive 
criteria of patentability. These changes involve rules of agency 
practice, including related standards. See, e.g., 35 U.S.C. 316(a)(5), 
as amended. These rules are procedural and/or interpretive rules. See 
Bachow Commc'ns Inc. v. FCC, 237 F.3d 683, 690 (D.C. 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 requirements 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); JEM Broad. Co. 
v. F.C.C., 22 F.3d 320, 328 (D.C. Cir. 1994) (The rules are not 
legislative because they do not ``foreclose effective opportunity to 
make one's case on the merits''). Moreover, section 18(d)(2) of the AIA 
requires the Director to prescribe regulations for determining whether 
a patent is for a technological invention.
    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)); U.S. v. Gould, 568 F.3d 459, 476 (4th Cir. 2009) (``The APA 
also requires publication of any substantive rule at least 30 days 
before its effective date, 5 U.S.C. Sec.  553(d), except where the rule 
is interpretive * * * .''). The Office, however, published these 
proposed changes for comment as it sought the benefit of the public's 
views on the Office's proposed implementation of these provisions of 
the AIA. See Changes to Implement Transitional Program for Covered 
Business Method Patents, 77 FR 7080 (Feb. 10, 2012) (notice of proposed 
rulemaking) and Transitional Program for Covered Business Method 
Patents--Definition of Technological Invention, 77 FR 7095 (Feb. 10, 
2012) (notice of proposed rulemaking).
    The Office received one written submission of comments from the 
public regarding the Administrative Procedure Act (APA). Each component 
of that comment directed to the APA is addressed below.
    Comment 18: One comment suggested that almost all of the proposed 
regulations were legislative and not interpretive rules. That leads the 
USPTO to omit required steps in the rulemaking process.
    Response: At the outset, it should be noted that the Office did not 
omit any steps in the rulemaking process. Even though not legally 
required, the Office published notices of proposed rulemaking in the 
Federal Register, solicited public comment, and fully considered and 
responded to comments received. Although the Office sought the benefit 
of public comment, these rules are procedural and/or interpretive. 
Stevens v. Tamai, 366 F3d. 1325, 1333-34 (Fed. Cir. 2004) (upholding 
the Office's rules governing the procedure in patent interferences). 
The final written decisions on patentability which conclude the reviews 
will not be impacted by the regulations, adopted in this final rule, as 
the decisions will be based on statutory patentability requirements, 
e.g., 35 U.S.C. 101 and 102.
    Comment 19: One comment suggested that, even if the rules are 
merely procedural, reliance on Cooper Techs. v. Dudas was not 
appropriate and therefore notice and comment was required.
    Response: These rules are consistent with the AIA requirements to 
prescribe regulations to set forth standards and procedures. The rules 
are procedural and/or interpretative. Stevens v. Tamai, 366 F3d. 1325, 
1333-34 (Fed. Cir. 2004) (upholding the Office's rules governing the 
procedure in patent interferences). The Office nevertheless published 
notices of proposed rulemaking in the Federal Register, solicited 
public comment, and fully considered and responded to comments 
received. In both the notice of proposed rulemaking and this final 
rule, the Office cites Cooper Techs. Co v. Dudas, 536 F.3d 1330, 1336, 
37 (Fed. Cir. 2008), for the proposition that 5 U.S.C. 553, and thus 35 
U.S.C. 2(b)(2)(B), does not require notice and comment rulemaking for 
``interpretive rules, general statement of policy, or rules of agency 
organization, procedure or practice.'' The Office's reliance on Cooper 
Technologies is appropriate and remains an accurate statement of 
administrative law. In any event, the Office sought the benefit of 
public comment on the proposed rules and has fully considered and 
responded to the comments received.

B. Final Regulatory Flexibility Act Analysis

    The Office estimates that 50 petitions for covered business method 
patent review will be filed each year in fiscal years 2013-2015. Fiscal 
year 2013 will be the first fiscal year in which the review proceeding 
will be available for an entire fiscal year.
    The estimated number of 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 Class 705 Data Processing: Financial, Business 
Practice, Management, or Cost/Price Determination (Jan. 2012), 
available at

[[Page 48739]]

http://www.uspto.gov/web/patents/classification/uspc705/sched705.pdf.
    The following is the class definition and description for Class 
705:

    This is the generic class for apparatus and corresponding 
methods for performing data processing operations, in which there is 
a significant change in the data or for performing calculation 
operations wherein the apparatus or method is uniquely designed for 
or utilized in the practice, administration, or management of an 
enterprise, or in the processing of financial data.
    This class also provides for apparatus and corresponding methods 
for performing data processing or calculating operations in which a 
charge for goods or services is determined.
    This class additionally provides for subject matter described in 
the two paragraphs above in combination with cryptographic apparatus 
or method.
    Subclasses 705/300-348 were established prior to complete 
reclassification of all project documents. Documents that have not 
yet been reclassified have been placed in 705/1.1. Until 
reclassification is finished a complete search of 705/300-348 should 
include a search of 705/1.1. Once the project documents in 705/1.1 
have been reclassified they will be moved to the appropriate 
subclasses and this note will be removed.

Scope of the Class

    1. The arrangements in this class are generally used for 
problems relating to administration of an organization, commodities 
or financial transactions.
    2. Mere designation of an arrangement as a ``business machine'' 
or a document as a ``business form'' or ``business chart'' without 
any particular business function will not cause classification in 
this class or its subclasses.
    3. For classification herein, there must be significant claim 
recitation of the data processing system or calculating computer and 
only nominal claim recitation of any external art environment. 
Significantly claimed apparatus external to this class, claimed in 
combination with apparatus under the class definition, which perform 
data processing or calculation operations are classified in the 
class appropriate to the external device unless specifically 
excluded therefrom.
    4. Nominally claimed apparatus external to this class in 
combination with apparatus under the class definition is classified 
in this class unless provided for in the appropriate external class.
    5. In view of the nature of the subject matter included herein, 
consideration of the classification schedule for the diverse art or 
environment is necessary for proper search.

    See Classification Definitions (Jan. 2012), 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 50 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.
    The Office has updated its review of the entity status of patents 
for which inter partes reexamination was requested from October 1, 
2000, to May 18, 2012. This data only includes filings granted a filing 
date, and does not include filings of improper requests. 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 32.09% 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 covered business method patent review, it is estimated that 
16 petitions for covered business method patent review would be filed 
to seek review of patents owned by a small entity annually in fiscal 
years 2013-2015.

                  Table 1--Inter Partes Reexamination Requests Filed With Parent Entity Type *
----------------------------------------------------------------------------------------------------------------
                                                                               Number filed
                                                            Inter partes       where parent      Percentage of
                      Fiscal year                          reexamination     patent is small   small entity type
                                                           requests filed      entity type          of total
----------------------------------------------------------------------------------------------------------------
2012...................................................                226                 85              37.61
2011...................................................                369                135              36.59
2010...................................................                255                 89               34.9
2009...................................................                237                 61              25.74
2008...................................................                155                 51               32.9
2007...................................................                127                 32               25.2
2006...................................................                 61                 16              26.23
2005...................................................                 59                 20               33.9
2004...................................................                 26                  5              19.23
2003...................................................                 21                 12              57.14
2002...................................................                  4                  1              25.00
2001...................................................                  1                  0               0.00
                                                                      1315                422              32.09
----------------------------------------------------------------------------------------------------------------
* Small entity status determined by reviewing preexamination small entity indicator for the parent patent.

    The 16 petitions estimated to be filed annually involve only a 
minute fraction of the total of approximately 375,000 patents in force 
that are owned by small entities.
    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 
small entity 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 approximately 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

[[Page 48740]]

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 estimate 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, any adjustment would be 
incomplete would be administratively burdensome to estimate. Thus, it 
is estimated that the number of small entity patents in force in fiscal 
years 2013-2015 will be approximately 375,000.
    Based on the estimated number of patents in force, the number of 
small entity-owned patents impacted by covered business method patent 
review annually in fiscal years 2013-2015 (16 patents) would be less 
than 0.005% (16/375,000) of all patents in force that are owned by 
small entities.
1. Description of the Reasons That Action by the Office Is Being 
Considered
    The Office is revising the rules of practice to implement the 
transitional program for covered business method patent review 
provisions of the AIA, which take effect September 16, 2012. Public Law 
112-29, Sec.  6(f), 125 Stat. 284, 311 (2011). The AIA requires the 
Office to issue regulations for determining whether a patent is for a 
technological invention in a transitional post-grant review proceeding 
for covered business method patents.
2. Statement of the Objectives of, and Legal Basis for, the Final Rule
    The final rule is part of a series of rules that implement covered 
business method patent review as authorized by the AIA. Specifically 
the final rule provides a definition for determining whether a patent 
is for a technological invention for use in a transitional post-grant 
review proceeding for covered business method patents. The AIA requires 
that the Director prescribe rules for the 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 six 
months if good cause is shown. See 35 U.S.C. 326(a)(11). The AIA also 
requires that the Director, in prescribing rules for 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 the instituted 
proceedings timely. See 35 U.S.C. 326(b). Consistent with the time 
periods provided in 35 U.S.C. 326(a)(11), those final rules are 
designed to result in a final determination by the Patent Trial and 
Appeal Board within one year of the notice of initiation of the review, 
except where good cause is shown to exist. This one-year review will 
enhance the economy and improve the integrity of the patent system and 
the efficient administration of the Office.
3. Statement of Significant Issues Raised by the Public Comments in 
Response to the IRFA and the Office's Response to Such Issues
    The Office published IRFA analyses to consider the economic impact 
of the proposed rules on small entities, including an IRFA analysis for 
covered business methods. See Transitional Program for Covered Business 
Method Patents-Definition of Technological Invention, 77 FR 7095, 7097-
7105 (Feb. 10, 2012).
    The Office received one written submission of comments from the 
public concerning the Regulatory Flexibility Act, which was relevant to 
all three final rulemakings concerning contested cases. Each component 
of that comment directed to the Regulatory Flexibility Act is addressed 
below.
    Comment 20: One comment argued that non-office costs and burden 
should include the burden on small entity patent owners, petitioners, 
and licensees, as well as settlement burdens, disruption of businesses, 
or effects on investment, business formation or employment. The comment 
further argued that prophylactic application steps (e.g., filing of 
reissue applications) were not considered and that the offsets for 
inter partes reexamination's elimination were not appropriate.
    Response: As explained in the notice of proposed rulemaking, the 
Office notes that inter partes reexamination is the appropriate 
baseline for estimating economic impacts because the use or outcome of 
the prior reexamination process and the new trial are largely the same. 
See OMB Circular A4, (e)(3). The Office estimated that the same number 
of patents would be subject to inter partes review as would have been 
subject to inter partes reexamination. The comment did not argue that 
this estimate was unreasonable or provide an alternative estimate. 
Considering the similarities in the grounds of review and the number of 
patents subject to the proceedings, it is anticipated that the existing 
inter partes reexamination process, if not eliminated for new filings, 
would have had similar impact on the economy as the new review 
proceedings and therefore the impacts noted in the comment would simply 
replace existing analogous impacts and effects in inter partes 
reexamination. The comment argues that no offset for the replaced 
process should be considered although OMB guidance provides otherwise. 
See OMB Circular A4. Additionally, although the comment argues that the 
new proceedings may result in patent owners taking additional 
prophylactic measures that would have their own burdens for small 
businesses, any patent owner motivated by the regulations adopted in 
this final rule to take prophylactic application steps would similarly 
have been motivated to take those steps under the former inter partes 
reexamination regime. Thus, the burdens on small entity patent owners, 
petitioners, and licensees, as well as settlement burdens, disruption 
of businesses, or effects on investment, business formation or 
employment that are caused by the final rules would have been similarly 
caused by the former inter partes reexamination proceedings as the same 
effects and impacts are caused by the two types of proceedings.
    Additionally, the Office's estimates of the burden on small 
entities are likely overstated. As noted in the notice of proposed 
rulemaking, it is anticipated that the current significant overlap 
between district court litigation and inter partes reexamination may be 
reduced by improvement in the coordination between the two processes. 
See Rules of Practice for Trials before the Patent Trial and Appeal 
Board and Judicial Review of Patent Trial and Appeal Board Decisions, 
77 FR at 6903. Similarly, it is anticipated that the public burden will 
be reduced because the longer duration of the inter partes 
reexamination process will be reduced owing to the anticipated shorter 
duration of the new procedure. Id.
    Comment 21: A comment indicated that the underlying data for the 
98.7 hours of judge time for an inter partes review proceeding was not 
provided.
    Response: Based on the Office's experience involving similar

[[Page 48741]]

proceedings, the Office estimates that, on average, an inter partes 
review proceeding will require 35 hours of judge time to make a 
decision on institution, 20 hours of judge time to prepare for and 
conduct hearings, 60 hours of judge time to prepare and issue a final 
decision, and 15 hours of judge time to prepare and issue miscellaneous 
interlocutory decisions. It is also estimated that 2.5% of proceedings 
will settle before a decision of whether to institute is made and 
another 2.5% of proceedings will terminate by patent owners filing a 
default judgment motion after institution. The Office estimates that 
10% of proceedings will not be instituted and another 20% of 
proceedings will settle after institution. In settled cases it is 
estimated that 50% of the anticipated motions would not be filed. It 
should be appreciated that cases that terminate prior to the need to 
render a decision on institution, that do request an oral hearing or do 
not require a final decision because of an earlier termination, result 
in an average judge time per proceeding which is less than the time 
needed to perform all possible steps in a proceeding.
4. Description and Estimate of the Number of Affected Small Entities
    A. Size Standard and Description of Entities Affected. The Small 
Business Administration's (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 the 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's small business size standards set forth in 13 CFR 
121.201, the size standard for USPTO is not industry-specific. 
Specifically, the Office's definition of 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, 1313 Off. Gaz. 
Pat. Office at 63 (Dec. 12, 2006).
    B. Overview of Estimates of Number of Entities Affected. The rules 
will apply to any small entity that either files a petition for covered 
business method patent review or owns a patent subject to such review. 
As discussed above (which is incorporated here), it is anticipated that 
50 petitions for covered business method patent review will be filed 
annually in fiscal years 2013-2015. The Office has reviewed the 
percentage of patents owned by small entities for which inter partes 
reexamination was requested from October 1, 2000, to May 18, 2012. 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 32.09% 
of patents for which an inter partes reexamination was requested. Based 
on an estimation 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 covered 
business method patent review annually, and it is also estimated that 
no more than that number of small entities will file a petition for 
review.
    The USPTO estimates that 2.5% of patent owners will file a request 
for adverse judgment (e.g., a default 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 two patent owners will annually file a request for adverse 
judgment or fail to participate after institution in covered business 
method proceedings. Based on the percentage of small entity-owned 
patents that were the subject of inter partes reexamination (32.09%) 
from October 1, 2000, to May 18, 2012, it is estimated that one small 
entity will annually file such request or fail to participate in 
covered business method patent review.
    Under the final 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 desirability of avoiding 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 annually 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 covered business method 
patent petition annually. Based on the percentage of small entity-owned 
patents that were the subject of inter partes reexamination (32.09%), 
it is estimated that 14 small entities will annually file a preliminary 
response to a covered business method patent review petition filed in 
fiscal years 2013-2015.
    Under the final 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 newly authorized in 35 U.S.C. 323; (2) the enhanced 
thresholds for instituting reviews set forth in 35 U.S.C. 324(a),

[[Page 48742]]

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 approximately 10% of the petitions for review (5 
divided by 49) would be dismissed annually.
    Thus, the Office estimates that no more than five entities (two 
small entities) would be subject to a denial of the petition to 
initiate covered business method patent review annually. This estimate 
is based upon either the patent failing to meet the definition for 
technological invention or because the petitioner failed to meet the 
likelihood of success standard. Of the remaining 90% of petitions that 
proceed to trial, all entities (large or small) could be subject to the 
definition for technological invention since jurisdictional issues may 
be raised at any time.
    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 two requests for reconsideration (5 
decisions not to institute multiplied by 33.333%) will be filed 
annually. Based on the percentage of small entity-owned patents that 
were the subject of inter partes reexamination (32.09%), it is 
estimated that annually one small entity will file a request for a 
reconsideration of a decision dismissing the petition for post-grant or 
covered business method patent review filed in fiscal years 2013-2015. 
Further, the Office estimates that it will issue 34 final written 
decisions for post-grant reviews, including cover business method 
patent reviews annually. Applying the same 33.333% rate, the Office 
estimates 11 requests for reconsiderations (34 multiplied by 33.333%) 
will be filed annually based on the final written decisions. Therefore, 
the Office estimates a total of 13 (2 + 11) requests for 
reconsiderations annually.
    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. This series of final rules adopts changes to 
permit parties to agree to certain changes from the default process 
between themselves without filing a motion with the Board. Based on the 
changes in these final rules, the estimate of the number of motions has 
been revised downwardly so that it is now anticipated that post-grant 
reviews and covered business method patent reviews will have an average 
of 8 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. The Office envisions that most motions will be decided in a 
conference call or shortly thereafter.
    After a trial has been instituted but prior to a final written 
decision, parties to a covered business method patent review may 
request an oral hearing. It is anticipated that 45 requests for oral 
hearings will be filed annually 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 final rule. Based on the percentage of small 
entity-owned patents that were the subject of inter partes 
reexamination (32.09%), it is estimated that annually 14 small entity 
patent owners or petitioners will file a request for oral hearing in 
the covered business method patent reviews instituted in fiscal years 
2013-2015.
    Parties to a covered business method patent 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 (such as arbitration for derivation proceedings) 
will be infrequently used. The Office estimates that two requests to 
treat a settlement as business confidential and ten requests for 
adverse judgment, default adverse judgment, or settlement notices will 
be filed annually. The Office also estimates that two requests to make 
a settlement available will be filed annually. Based on the percentage 
of small entity-owned patents that were the subject of inter partes 
reexamination (32.09%), it is estimated that one small entity will 
annually file a request to treat a settlement as business confidential 
and three small entities will annually file a request for adverse 
judgment, default adverse judgment notices, or settlement notices in 
the reviews instituted in fiscal years 2013-2015.
    Parties to a covered business method patent review may seek 
judicial review of the final decision of the Board. Historically, 33% 
of decisions by examiners in inter partes reexamination proceedings 
have been appealed to the Board. Given the increased coordination with 
district court litigation, the Office has adjusted its estimate of the 
appeal rate to be 120% of the historic rate (40% of decisions); seven 
additional notices of appeal will be filed annually based on the 
decisions issued in the new covered business method patent review 
proceedings during fiscal years 2013-2015. Furthermore, based on the 
percentage of small entity-owned patents that were the subject of inter 
partes reexamination (32.09%), it is estimated that two small entities 
would seek judicial review of final decisions of the Board annually in 
the covered business method patent reviews instituted in fiscal years 
2013-2015.
5. Description of the Reporting, Recordkeeping, and Other Compliance 
Requirements of the Final 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
    The rules will apply to any small entity that petitions for a 
covered business method patent review or owns a patent subject to such 
review. The reviews would be limited to business method patents that 
are not patents for technological inventions. Under the final rules, a 
person who is not the owner of a patent may file a petition to 
institute a review of that patent if the person is currently a party to 
litigation based on the patent or charge with infringement, 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 final rule 
provides the procedural requirements setting forth which patents are 
eligible for review. Additional requirements are provided in

[[Page 48743]]

contemporaneous trial specific rulemaking. The procedures for petitions 
to institute a covered business method patent review include those set 
forth in Sec. Sec.  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 and to represent a party in an inter partes reexamination 
before the Board. The level of skill typically is 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 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 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. The Office believes, based on its 
experience, that $46,000 is an appropriate estimate. Based on the 
Office's consideration of the work required to prepare and file such a 
request, the Office estimates that the cost of preparing a petition for 
covered business method patent review would be $61,333.
    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 fees for filing a petition for covered business 
method patent review would be: $35,800 to request review of 20 or fewer 
claims and $800 for each claim in excess of 20 for which review is 
sought.
    In setting fees, the estimated information technology (IT) cost to 
establish the process and maintain the filing and storage system 
through FY 2017 is to be recovered by charging each petition an IT fee 
that has a base component of $1,705 for requests to review 20 or fewer 
claims. The IT component fee would increase $75 per claim in excess of 
20. 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 covered business method patent review with 20 or 
fewer challenged claims, it is anticipated that about 130 hours of time 
for review by the judges will be required. An additional amount of time 
estimated to be slightly less than three hours of judge time would be 
required for each claim in excess of 20.
    The rules 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 set forth in Sec. Sec.  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 91.6 hours of professional time and cost 
$34,000. The AIPLA Report of the Economic Survey 2011 reported that the 
average cost for inter partes reexamination including of the request 
was $46,000, the first patent owner response and third party comments 
was $75,000 (see page I-175) and the mean hourly billing rate for 
professional time for attorneys in private firms was $371 (see page 8). 
Thus, the cost of the first patent owner reply and the third-party 
statement is $29,000, the balance of $75,000 minus $46,000. 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.
    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, at a cost of $371 per hour, for a total estimated 
cost of $29,680. 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 include those set forth 
in Sec. Sec.  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 include those set forth in 
Sec. Sec.  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 include those set forth in Sec. Sec.  
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 covered business method patent review will have a 
total of 8 motions, oppositions, and replies after institution. The 
Office envisions that most motions will be decided in a conference call 
or shortly thereafter.
    After a trial has been instituted but prior to a final written 
decision, parties to a covered business method patent review may 
request an oral hearing. The procedure for filing requests for oral 
argument is set forth in Sec.  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 18.3 
hours of professional time ($6,800 divided by $371), or $800 more than 
the reported third quartile cost for an ex parte oral hearing.
    Parties to a covered business method patent review may file 
requests to treat a settlement as business confidential, or file 
requests for adverse judgment. A written request to make a settlement 
agreement available may also be filed.

[[Page 48744]]

The procedures to file requests that a settlement be treated as 
business confidential are set forth in Sec.  42.74(c). The procedures 
to file requests for adverse judgment are set forth in Sec.  42.73(b). 
The procedures to file requests to make a settlement agreement 
available are set forth in Sec.  42.74(c)(2). It is anticipated that 
requests to treat a settlement as business confidential will require 
two hours of professional time for a cost of $742. It is anticipated 
that requests for adverse judgment will require one hour of 
professional time a cost of $371. It is anticipated that requests to 
make a settlement agreement available will require one hour of 
professional time a cost of $371. The requests to make a settlement 
agreement available will also require payment of a fee of $400 
specified in Sec.  42.15(d). The fee is the same as that currently set 
forth in Sec.  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 set 
forth in Sec. Sec.  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 $37.10.
6. Description of Any Significant Alternatives to the Final Rules Which 
Accomplish the Stated Objectives of Applicable Statutes and Which 
Minimize Any Significant Economic Impact of the Rules on Small Entities
    This Office considered significant alternatives such as: (1) The 
establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance and reporting requirements under the rule for such small 
entities; (3) the use of performance rather than design standards; and 
(4) an exemption from coverage of the rule, or any part thereof, for 
such small entities. See 5 U.S.C. 603; see also 35 U.S.C. 41(h) (fee 
reduction for small business concerns not applicable to fees set under 
35 U.S.C. 41(d)(2)).
A. Definition of Technological Invention
    The definition set forth in this final rule is consistent with the 
AIA and the legislative history, and assists in implementing the 
transitional program for covered business method patents as required by 
section 18(d)(2) of the AIA. See, e.g., 157 Cong. Rec. S1364 (daily ed. 
Mar. 8, 2011) (statement of Sen. Schumer) (``The `patents for 
technological inventions' exception only excludes those patents whose 
novelty turns on a technological innovation over the prior art and are 
concerned with a technical problem which is solved with a technical 
solution and which requires the claims to state the technical features 
which the inventor desires to protect.'').
    With respect to the rules to define patents that are eligible for 
covered business method patent review of the AIA, the Office considered 
requiring less than, or exempting small entities from, Sec.  42.304 
(which defines the specific content requirement for a petition seeking 
a review under the transitional program for covered business method 
patents). The Office considered proposing that a technological 
invention be defined as any claimed invention in any patent having an 
original classification in any class other than Class 705 of the United 
States Patent Classification System. Adoption of the alternative 
definition, as applied to certain patents, would have been either 
overly narrow or overly broad. For example, there are patents that are 
originally classified in Class 705 which solve technical problems with 
technical solutions and which are patentable over the prior art based 
on a technological innovation. Similarly there are patents that are 
originally classified in classes other than Class 705 which fail to 
solve a technical problem with a technical solution and fail to be 
patentable over the prior art based on a technological innovation. For 
those reasons, the other considered definition was not adopted in view 
of the legislative history.
    A covered business method patent review is a unique process 
subject, by statute, to strict periods for completion. Thus, the 
establishment of longer timetables would not be feasible and likely 
would result in increased costs.
B. Other Aspects of Proceedings
    Size of petitions and motions: The Office considered whether to 
apply a page limit in covered business method proceedings in which a 
patent's inclusion in or exclusion from the definition is determined, 
and what a more 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, available 
at 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 
(Sec.  41.121(a)(3)) and oppositions (Sec.  41.122), and a 25-page 
limit for other motions (Sec.  41.121(a)(2)) and oppositions to other 
motions. In typical proceedings, replies are subject to a 15-page limit 
if directed to priority, five-page limit for miscellaneous issues, and 
ten-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 nine 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, available at 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 contested case 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. Section 42.24 thus provides 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 the trials 
timely. The page limits set forth in this final rule is consistent with 
these considerations.

[[Page 48745]]

    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 further 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, and reducing costs for the parties and for 
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 final rules, a covered business method patent 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 (based on 
certain references), 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 80-page limit is considered sufficient in all but exceptional 
cases.
    The rule provides 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 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.
    Section 42.24(b) provides 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 rule 
would continue the current practice.
    Section 42.24(c) provides page limits for replies. Current 
contested cases practice provides a 15-page limit for priority motion 
replies, a five-page limit for miscellaneous (procedural) motion 
replies, and a ten page limit for all other motions. The rule is 
consistent with current contested case practice for procedural motions. 
The rule provides 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 not only to 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 AIA requires that the Director, in prescribing rules for 
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,

[[Page 48746]]

and the ability of the Office to complete the instituted proceedings 
timely. 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), adopting procedures 
with reasonable page limits is consistent with the objectives set forth 
in the AIA. 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 35 U.S.C. 311(b) and 312(c), 
effective September 15, 2012, the AIA requires the Director to 
establish more than one fee for reviews based on the total cost of 
performing the reviews, and does not provide explicitly 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, under the fee setting authority in 35 U.S.C. 321(a), it is 
reasonable that the Director 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 manage 
a patent case efficiently). 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 petition is refused 
due to improper fee payment. Any subsequent petition could 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, this option would have a negative impact on small 
entities. Moreover, contested cases 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 records were often a collection of disparate issues and 
evidence. This led to lengthy and unwarranted delays in deciding 
contested cases as well as increased costs for parties and the Office. 
Accordingly, this alternative is inconsistent with objectives of the 
AIA that the Director, in prescribing rules for the 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 the instituted 
proceedings timely.
    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 ten pages for a single ``fact'' that merely 
cut and pasted a portion of a declarant's cross-examination. 
Accordingly, this alternative is inconsistent with objectives of the 
AIA that the Director, in prescribing rules for the 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 the instituted 
proceedings timely.
    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 reviews timely, 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 AIA that the 
Director, in prescribing rules for 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 the instituted proceedings 
timely.
    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. However, 35 U.S.C. 41(d)(2) provides that the Office 
shall set the fee to recover the cost of providing the services. 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 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 would have been inconsistent with 
objectives of the AIA that the Director, in prescribing rules for the 
covered business method patent reviews, consider the effect of the 
rules on the economy, the integrity of the patent system, the efficient

[[Page 48747]]

administration of the Office, and the ability of the Office to complete 
the instituted proceedings timely.
    Additional discovery increases trial costs and increases the 
expenditures of time by the parties and the Board. To promote effective 
discovery, the rule requires 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. Parties may, 
however, agree to additional discovery amongst themselves.
    The Board will set forth 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. The Board may impose 
conditions in recognizing counsel pro hac vice, including a requirement 
that counsel acknowledge that counsel is bound by the Office's Code of 
Professional Responsibility. Proceedings before the Office can be 
technically complex. 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 Code of 
Professional Responsibility, 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 final rule allows for this practice in the new proceedings 
authorized by the AIA.
    The rules 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 rule delegates to the Board the authority to conduct counsel 
disqualification proceedings while the Board has jurisdiction over a 
proceeding. The rule also delegates 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 and subsequently 
a patent review is 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 AIA that the Director, in 
prescribing rules for the 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 the instituted proceedings timely.
    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 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 AIA that the Director, in prescribing rules for the 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 
the instituted proceedings timely.
    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, under the adopted option, it is expected that the entity size 
and sophistication will be considered in determining whether 
alternative filing methods would be authorized.
7. Identification, to the Extent Practicable, of All Relevant Federal 
Rules Which May Duplicate, Overlap, or Conflict With the Final Rules
    The following rules also provide processes involving patent 
applications and patents:
    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

[[Page 48748]]

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 section 6(c)(3)(C) of the AIA.
    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 in which the definitions adopted in this final rule 
apply, the USPTO estimates the annual aggregate burden of the rules on 
the public to be $22,417,241.20 in fiscal years 2013-2015, which 
represents the sum of the estimated total annual (hour) respondent cost 
burden ($20,340,891.20) plus the estimated total annual non-hour 
respondent cost burden ($2,076,350) provided in Part O, Section II, of 
this notice, infra.
    The USPTO expects several benefits to flow from the AIA and these 
rules. It is anticipated that the 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, available at 
http://www.uspto.gov/patents/Reexamination_operational_statistic_through_FY2011Q4.pdf.
    Likewise, it is anticipated that the rules will minimize 
duplication of efforts. In particular, the AIA provides more 
coordination between district court infringement litigation and covered 
business method patent review to reduce duplication of efforts and 
costs.
    The AIPLA Report of the Economic Survey 2011 reports that where the 
damages at risk are less than $1,000,000 the total cost of patent 
litigation was, on average, $916,000, where the damages at risk are 
between $1,000,000 and $25,000,000 the total cost was, on average, 
$2,769,000, and where the damages at risk exceed $25,000,000 the total 
cost was, on average, $6,018,000. The Office believes, based on its 
experience, that these estimates are reasonable. There may be a 
significant reduction in overall burden if, as intended, the AIA and 
the 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, available at 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 
($22,417,241.20) was not offset by a reduction in burden based on 
improved coordination between district court patent litigation and the 
new inter partes review proceedings.
    The Office received one written comment from the public regarding 
Executive Order 12866. Each component of that comment directed to 
Executive Order 12866 is addressed below.
    Comment 22: One comment suggested that the proposed rules would 
have been classified more appropriately as significant under section 
3(f)(4) of Executive Order 12866 because the proposed rules raise novel 
legal or policy issues arising out of legal mandates.
    Response: As stated in the notice of proposed rulemaking and in 
this final rule, the Office of Management and Budget designated the 
proposed rules as significant under Executive Order 12866, but not 
economically significant. The comment does not present what aspect(s) 
of the rule is believed to present novel legal or policy issues.
    Comment 23: One comment suggested that the costs, including any 
prophylactic application steps resulting from the new proceedings, were 
not calculated appropriately when the Office offset the new burdens 
with those removed by elimination of the ability to file new inter 
partes reexamination under Executive Order 12866 and that when 
appropriately calculated, the cost would exceed the $100 million 
threshold for declaring the proposed rules significant under section 
3(f)(1).
    Response: As stated in the notice of proposed rulemaking and in 
this final rule, the Office of Management and Budget designated the 
proposed rules as significant under Executive Order 12866, but not 
economically significant. The baseline costs that the Office used to 
determine the increased burden of the proposed rules properly included 
the burden on the public to comply with inter partes reexamination 
because those burdens existed before the statutory change, and that 
process was eliminated and replaced by the process adopted by the AIA 
as implemented this final rule. See OMB Circular A4, section (e)(3). 
See also response to Comment 20.
    Comment 24: One comment argued that the $80,000,000 burden estimate 
is so close to $100,000,000 threshold, that, particularly in view of 
the difficulties in estimating burden, the Office should assume that it 
is likely that the proposed rules would have a $100,000,000 impact. One 
comment suggested that the Office should have conducted a Regulatory 
Impact Analysis.
    Response: As stated in the notice of proposed rulemaking and in 
this final rule, the Office of Management and Budget designated the 
proposed rules as significant under Executive Order 12866, but not 
economically significant. The comment did not indicate what aspect of 
the estimate was likely to be wrong. Furthermore, $80,000,000 is twenty 
percent below the $100,000,000 threshold. Moreover, the Office's 
estimate did not take into account the reduction in burden due to 
decreased litigation. Thus, the Office's estimate is likely an 
overstatement of the estimated basis.

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

[[Page 48749]]

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 affect 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 set forth in this final rule 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 et seq.

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 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 final rule was submitted to OMB under OMB control number 0651-
0069 when the notice of proposed rulemaking was published. The Office 
published the title, description, and respondent description of the 
information collection, with an estimate of the annual reporting 
burdens, 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,'' 77 FR 6879 (Feb. 9, 2012) (notice of proposed 
rulemaking) (RIN 0651-AC70) and the Notice ``Changes to Implement 
Transitional Program for Covered Business Method Patents,'' 77 FR 7080 
(Feb. 10, 2012) (notice of proposed rulemaking) (RIN 0651-AC73).
    The Office received one comment and made minor revisions to the 
requirements in the rule, as well as the burden estimates, as outlined 
below. Accordingly, the Office has resubmitted the proposed revision to 
the information collection requirements under 0651-0069. The proposed 
revision to the information collection requirements under 0651-0069 is 
available at OMB's Information Collection Web site (www.reginfo.gov/public/do/PRAMain).
    This rulemaking will add the following to a collection of 
information:
    (1) Petitions to institute a covered business method patent review 
(Sec. Sec.  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);
    (2) Motions (Sec. Sec.  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);
    (3) Oppositions (Sec. Sec.  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); and

[[Page 48750]]

    (4) Replies provided for in 35 U.S.C. 321-329 (Sec. Sec.  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 rules also permit filing requests for oral argument (Sec.  
42.70) provided for in 35 U.S.C. 326(a)(10), requests for rehearing 
(Sec.  42.71(c)), requests for adverse judgment (Sec.  42.73(b)), and 
requests that a settlement be treated as business confidential (Sec.  
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 AIA 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 covered business method patent review, the 
USPTO considered the estimated cost of preparing a request for inter 
partes reexamination ($46,000), the mean billing rate ($371 per 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 for 
instituting a review are provided for in a covered business method 
patent review compared with inter partes reexamination, 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.
    Considering the percentage of motions on patentability issues 
provides an appropriate estimate of transitional proceedings for 
covered business methods because grounds raised in those proceedings 
would be directed to the same issues. Accordingly, the USPTO reviewed 
recent contested cases before the trial section of the Board to 
estimate 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, 
such as a transitional proceeding for a covered business method patent 
will have a somewhat less than proportional decrease in costs since the 
overlapping costs will be spread over fewer motions as compared with a 
derivation proceeding.
    It is estimated that the cost of a 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 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 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 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 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. This final rule implements 
the changes to Office practice necessitated by sections 6(d) and 18 of 
the AIA.
    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.

II. Data

    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: 0651-0069.
    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 486 responses per year.
    Estimated Time per Response: The USPTO estimates that it will take 
the public from 0.1 to 165.3 hours to gather the necessary information, 
prepare the documents, and submit the information to the USPTO.
    Estimated Total Annual Respondent Burden Hours: 54,827.2 hours per 
year.
    The table below summarizes the burden hours under the rules 
proposed in the notices of proposed rulemaking and the burden hours 
under this final rule.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Proposed        Proposed        Proposed     Final estimated       Final
                                                        estimated time     estimated       estimated        time for        estimated    Final estimated
                         Item                            for response       annual       annual burden      response         annual       annual burden
                                                           (hours)         responses         hours          (hours)         responses         hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
Petition for covered business method patent review...            180.4              50        9,020               165.3              50          8,265
Reply to initial covered business method patent                  100                45        4,500                91.6              45          4,122
 review..............................................

[[Page 48751]]

 
Request for Reconsideration..........................             80                14        1,120                80                13          1,040
Motions, replies and oppositions after institution in            130               342       44,460               130               312         40,560
 covered business method patent review...............
Request for oral hearing.............................             20                45          900                18.3              45            823.5
Request to treat a settlement as business                          2                 2            4                 2                 2              4
 confidential........................................
Request for adverse judgment, default adverse                      1                10           10                 1                10             10
 judgment or settlement..............................
Request to make a settlement agreement available.....              1                 2            2                 1                 2              2
Notice of judicial review of a Board decision (e.g.,               0.1               5            0.5               0.1               7              0.7
 notice of appeal under 35 U.S.C. 142)...............
                                                      --------------------------------------------------------------------------------------------------
    Totals...........................................  ...............             515       60,016.50  ...............             486         54,827.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Estimated Total Annual (hour) Respondent Cost Burden: 
$20,340,891.20 per year. The USPTO expects that the information in this 
collection will be prepared by attorneys. Using the professional rate 
of $371 per hour for attorneys in private firms, the USPTO estimates 
that the respondent cost burden for this collection will be 
approximately $20,340,891.20 per year (54,827.2 per year multiplied by 
$371 per hour).
    Estimated Total Annual Non-hour Respondent Cost Burden: $2,076,350 
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 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 $2,076,350 per year.
    Therefore, the total estimated cost annual burden in fiscal years 
2013-2015 is estimated to be $23,864,141.20 (the sum of the estimated 
total annual (hour) respondent cost burden ($21,787,791.20) plus the 
estimated total annual non-hour respondent cost burden ($2,076,350)).
    The table below summarizes the (non-hour) respondent cost burden 
under the rules proposed in the notices of proposed rulemaking and the 
(non-hour) respondent cost burden under this final rule.
    The fees, including the fee structure, referenced in this 
rulemaking may be revisited and may be proposed to be set or adjusted 
in a notice of proposed rulemaking under section 10 of the AIA.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Proposed                                          Final
                                                             estimated     Proposed fee      Proposed        estimated       Final fee         Final
                          Items                               annual          amount         estimated        annual          amount         estimated
                                                             responses                      annual fees      responses                      annual fees
--------------------------------------------------------------------------------------------------------------------------------------------------------
Petition for covered business method patent review......              50         $47,100      $2,355,000              50       * $41,400      $2,070,000
Reply to covered business method patent review petition.              45               0               0              45               0               0
Request for Reconsideration.............................              14               0               0              13               0               0
Motions, replies and oppositions after initiation in                 342               0               0             303               0               0
 covered business method patent review..................
Motions in post-grant review or covered business method              n/a             n/a             n/a               3             370           1,110
 patent review with excess claims by small entity patent
 owners.................................................
Motions in post-grant review or covered business method              n/a             n/a             n/a               6             740           4,440
 patent review with excess claims by other than small
 entity patent owners...................................
Request for oral hearing................................              45               0               0              45               0               0
Request to treat a settlement as business confidential..               2               0               0               2               0               0
Request for adverse judgment, default adverse judgment                10               0               0              10               0               0
 or settlement..........................................
Request to make a settlement agreement available........               2             400             800               2             400             800
Notice of judicial review of a Board decision (e.g.,                   5               0               0               7               0               0
 notice of appeal under 35 U.S.C. 142)..................
                                                         -----------------------------------------------------------------------------------------------

[[Page 48752]]

 
    Totals..............................................             515  ..............       2,355,800             486  ..............       2,076,350
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Average.

    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 requirement of 
the Paperwork Reduction Act unless that collection of information 
displays a currently valid OMB control number.
    The Office received one written submission of comments regarding 
the Paperwork Reduction Act. Each component of that comment directed 
the Paperwork Reduction Act is addressed below.
    Comment 25: A comment suggested that inter partes reexamination is 
a very poor proxy for these proceedings because there have been very 
few completed proceedings relative to all filing of inter partes 
reexaminations from 2001 to 2011 and the comment claims that the 
completed proceeding were only the least complex of proceedings which 
the comment alleges results in a sampling bias.
    Response: While only 305 inter partes reexamination proceedings 
have resulted in a certificate, the comment is not correct that only 
the least complex of proceedings have been completed. The number of 
filings of inter partes reexamination has increased considerably in the 
last three full years. See Rules of Practice for Trials before the 
Patent Trial and Appeal Board and Judicial Review of Patent Trial and 
Appeal Board Decisions, 77 FR at 6893. For example, in the last three 
years 824 or 64% of the 1,278 requests filed from 2001 to 2011 were 
filed. Considering that the average time from filing to certificate for 
the 305 certificates was 36.2 months and the median pendency was 32.9 
months, it would have been more appropriate for the comment to consider 
the 305 certificates that have issued compared with the filings from 
2001 to 2008. During that time period there were 467 requests filed, 14 
requests were subsequently denied a filing date, 53 requests were 
denied on the merits, 246 had concluded with a certificate by September 
30, 2011, and 154 were still pending on September 30, 2011. Of the 154 
that were still pending, only one was before the examiner after a non-
final rejection, only three had an action closing prosecution as the 
last action, and only three had a right of appeal notice as the last 
action. Most of the 154 proceedings were subject to appeal proceedings 
or were in the publication process. Accordingly, inter partes 
reexamination is an appropriate proxy.
    Comment 26: One comment suggested that for matters not concurrently 
in litigation, the Office's two hour estimate for the public burden of 
settlement under the Paperwork Reduction Act was unreasonably low by a 
factor of 30-100 and must include the costs to arrive at the settlement 
in addition to the cost of submitting the agreement to the Office. The 
comment asserts that this burden is fully cognizable under the 
Paperwork Reduction Act.
    Response: By statute, any petitioner seeking review of a covered 
business method must also be in litigation regarding the patent or have 
been charged with infringement. The comment only argued that for 
parties not in litigation, the cost of settlement was too low. 
Therefore, this comment is not pertinent to this rulemaking and is not 
adopted.
    Comment 27: A comment requested that the Office set forth the basis 
for the number of petitions for review.
    Response: As discussed above in item B, the Office considered the 
actual number of inter partes reexamination requests filed during FY 
2001-2011 and the anticipated number of requests in FY 2012, the number 
of such requests of patents classified in Class 705, the number of 
interferences, and the differences between reexamination and the new 
review. The Office estimated the number of reviews based on the 
historical data on the number of filings in the most analogous 
proceedings. See Transitional Program for Covered Business Method 
Patents--Definition of Technological Invention, 77 FR at 7097.
    Comment 28: One comment suggested that a projection for at least 
three years of growth in future filings is necessary because the PRA 
clearance is for three years. The comment also seeks disclosure of 
USPTO's estimation models.
    Response: The suggestion has been adopted. The Office estimates no 
growth for petitions seeking review under the transitional program for 
covered business method patents during the three year period. 
Calculations for these numbers are provided in the supporting statement 
for this collection. In 2013, the number of eligible patents will 
include patents for which currently in litigation. In subsequent years, 
the number of eligible patents is expected to be reduced, because some 
proceedings will have been settled, while others will have been stayed 
pending a review. At the same time, as experience in the procedure 
becomes more widespread, the public would more likely seek a review. 
Because these two factors offset each other, the Office is anticipated 
zero growth for petitions for the covered business method patent 
review.
    Comment 29: A comment noted that the distribution of claims for the 
review was not disclosed during the comment period. The comment asserts 
that failure to disclose underlying data in the Notice of Proposed 
Rulemaking violates the Paperwork Reduction Act (and other 
requirements).
    Response: The distribution of claims for which review will be 
requested was estimated based on the number of claims for which inter 
partes reexamination was requested in the first 60 requests filed 
during the second quarter of FY 2011 as that data was the most timely 
when the proposed rule notices were drafted. That data was publically 
available when the notice of proposed rulemaking was published and 
remains available today. See http://portal.uspto.gov/external/portal/pair. A summary of that publicly available data is provided as follows: 
40 of the 60 proceedings requested review of 20 or fewer claims; eight 
of the 60 requested review of between 21 and 30 claims; three of the 60 
requested review of between 31 and 40 claims; six of the 60 requested 
review of between 41 and 50 claims; one of the 60 requested review of 
between 51 and 60 claims; one of the 60 requested review of between 61 
and 70 claims; and one of the 60 requested review of between 91 and 100 
claims. A second group of 20 proceedings filed after September 15, 
2011, were reviewed to determine if the change to the statutory 
threshold resulted in a clear change in the number of claims for which 
review was requested. A summary of that data is provided as follows: 13 
of 20 requested review of 20 or fewer claims; three of 20 requested 
review of between 21 and 30

[[Page 48753]]

claims; three of 20 requested review of between 31 and 40 claims; and 
one of 20 requested review of 53 claims.
    Comment 30: One comment suggested that the estimate of the number 
of post-grant review proceedings should be doubled based on the 
analysis of the University of Houston of patent cases from 2005-2009. 
According to the comment, this analysis shows that for every 15 
decisions involving printed prior art grounds, there were 13 decisions 
involving public use, ``on sale,'' or 35 U.S.C. 112.
    Response: The suggestion is not adopted. While the Office agrees 
that many decisions involved public use, ``on sale,'' or 35 U.S.C. 112, 
the comment and the analysis by the University of Houston did not 
consider which decisions did not include a prior art grounds, but did 
include a public use, ``on sale,'' or 35 U.S.C. 112 ground. Only the 
subset of decisions including the newly available grounds could be used 
appropriately in estimating an increased rate of post-grant review 
filings relative to inter partes review. The comment also did not 
address how the limited filing window relative to the filing of 
district court litigation for post-grant review would be addressed 
appropriately if the University of Houston study served as a basis for 
the estimates.
    Comment 31: One comment suggested that the hourly rate for 
practitioners should be raised from $340 (the medium hourly rate from 
the AIPLA economical survey referenced in the notice of proposed 
rulemaking) to $500. The comment asserts that using the median hourly 
rate from the AIPLA Economic Survey of $340 is analytically wrong and 
that, at a minimum, the higher mean rate of $371 from that survey 
should be used.
    Response: The suggestion is adopted in part. The Office has adopted 
a mean hourly rate of $371 from the AIPLA Economic Survey, rather than 
the median hourly rate of $340 from that survey. The suggestion of a 
$500 hourly rate cannot be adopted because the comment did not provide 
any data to support the validity of hourly rate suggested and the 
Office believes, based on its experience, that $371 is a better 
estimate of the average hourly rate.
    Comment 32: One comment suggested that reliance on the AIPLA 
economic survey was inappropriate as the survey is flawed. The comment 
asserts that the survey is unreliable for estimating paperwork burden 
under the Information Quality Act.
    Response: In providing estimates of burden hours, the USPTO 
sometimes referenced the AIPLA economic survey report, as a benchmark 
for the estimates. While the costs reported in the survey were 
considered, the Office, in estimating the cost of the collection, also 
considered the work required to prepare and file the submissions.
    Under the USPTO's Information Quality Guidelines (ICG), the AIPLA 
economic survey report is not a ``dissemination'' of information. The 
Guidelines state that ``dissemination'' means an ``agency initiated or 
sponsored distribution of information to the public.'' USPTO's ICG, 
Section IV, A, 1. Subsection (a) further defines ``agency initiated 
distribution of information to the public'' to mean ``information that 
the agency distributes or releases which reflects, represents, or forms 
any part of the support of the policies of the agency.'' Id. at Section 
IV, A, 1, a. The USPTO did not distribute or release the AIPLA economic 
survey report.
    Likewise, the AIPLA economic survey report does not qualify as an 
``agency sponsored distribution of information'' under Subsection (b) 
of the Guidelines, which ``refers to situations where the agency has 
directed a third party to distribute or release information, or where 
the agency has the authority to review and approve the information 
before release.'' Id. at Section IV, A, 1, b. The USPTO did not 
commission the report, had no input into the structure of the report 
and does not rely exclusively upon the results of the report to arrive 
at estimates. No correction of the documents is required because the 
Office utilized the AIPLA economic survey report in formulating some 
burden estimations. No correction is required under the Information 
Quality Act.
    Comment 33: One comment suggested that the regulations imposed a 
substantial paperwork burden without a valid OMB Control Number.
    Response: The suggestion is not adopted. OMB Control number 0651-
0069 has been requested appropriately and is pending.
    Comment 34: One comment suggested that the USPTO's estimates 
systematically ignore burdens and costs associated with the attorney's 
client company.
    Response: See response to Comment 20.

List of Subjects

37 CFR Part 42

    Administrative practice and procedure, Inventions and patents, 
Lawyers.

Amendments to the Regulatory Text

    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 amends 37 CFR part 42, as added elsewhere 
in this issue of the Federal Register, as follows:

PART 42--TRIAL PRACTICE BEFORE THE PATENT TRIAL AND APPEAL BOARD

0
1. The authority citation for 37 CFR part 42 continues to read as 
follows:

    Authority:  35 U.S.C. 2(b)(2), 6, 21, 23, 41, 135, 311, 312, 
316, 321-326 and AIA, Pub. L. 112-29, Sec. Sec.  6(c), 6(f), and 18, 
125 Stat. 284, 304, 311, and 329 (2011).


0
2. Add Sec.  42.301 to subpart D to read as follows:


Sec.  42.301  Definitions.

    In addition to the definitions in Sec.  42.2, the following 
definitions apply to proceedings under this subpart D:
    (a) Covered business method patent means a patent that claims a 
method or corresponding apparatus for performing data processing or 
other operations used in the practice, administration, or management of 
a financial product or service, except that the term does not include 
patents for technological inventions.
    (b) Technological invention. In determining whether a patent is for 
a technological invention solely for purposes of the Transitional 
Program for Covered Business Methods (section 42.301(a)), the following 
will be considered on a case-by-case basis: whether the claimed subject 
matter as a whole recites a technological feature that is novel and 
unobvious over the prior art; and solves a technical problem using a 
technical solution.

    Dated: July 16, 2012.
David J. Kappos,
Under Secretary of Commerce for Intellectual Property and Director of 
the United States Patent and Trademark Office.
[FR Doc. 2012-17904 Filed 8-13-12; 8:45 am]
BILLING CODE 3510-16-P