On September 28, 2020, FCA issued a final rule to repeal regulatory provisions that impose amortization limits on PCA loans; and require associations that amortize loans over a period of time that is longer than the term to maturity to address loan amortization in their credit underwriting standards and internal controls.

In accordance with 12 U.S.C. 2252(c)(1), the effective date of the rule is no earlier than 30 days from the date of publication in the Federal Register during which either or both Houses of Congress are in session. Based on the records of the sessions of Congress, the effective date of the regulations is November 19, 2020.

I. Background

Uncertainty over public health and over the economic impacts of the COVID-19 pandemic has caused significant disruption in both the single-family and multifamily housing markets since March 2020. Due to the severe nature of the COVID-19 pandemic and associated economic uncertainty, FHFA is establishing benchmark levels for the Enterprise single-family and multifamily housing goals for calendar year 2021 only. FHFA expects to conduct a new round of notice and comment rulemaking in 2021 to establish benchmark levels for 2022 and beyond. FHFA expects that more data will become available on the economic impacts of the COVID-19 pandemic and that the additional data will allow FHFA to update the economic model that has been a significant factor in setting the single-family benchmark levels. As in past housing goals rulemakings, FHFA expects to publish a paper describing the economic model as part of the rulemaking process in 2021.

The Safety and Soundness Act requires FHFA to establish several annual housing goals for both single-family and multifamily mortgages purchased by Fannie Mae and Freddie Mac. 1 The annual housing goals are one measure of the extent to which the Enterprises are meeting their public purposes, which include “an affirmative obligation to facilitate the financing of affordable housing for low- and moderate-income families in a manner consistent with their overall public purposes, while maintaining a strong financial condition and a reasonable economic return.”  2

FHFA has established annual housing goals for Enterprise purchases of single-family and multifamily mortgages consistent with the requirements of the Safety and Soundness Act. The structure of the housing goals and the rules for determining how mortgage purchases are counted or not counted are set forth in the housing goals regulation. 3 The current benchmark levels for the housing goals were established by a final rule covering 2018-2020. 4 This final rule establishes benchmark levels for 2021 but does not make any other changes to the housing goals regulation.

Single-family goals. The single-family goals defined under the Safety and Soundness Act include separate categories for home purchase mortgages for low-income families, very low-income families, and families that reside in low-income areas. 5 FHFA has also established a subgoal within the low-income areas goal that is limited to families in low-income census tracts and moderate-income families in minority census tracts. Performance on the single-family home purchase goals is measured as the percentage of the total home purchase mortgages purchased by an Enterprise each year that qualify for each goal or subgoal. There is also a separate goal for refinancing mortgages for low-income families, and performance on the refinancing goal is determined in a similar way.

Under the Safety and Soundness Act, the single-family housing goals are limited to mortgages on owner-occupied housing with one to four units total. The single-family goals cover conventional, conforming mortgages, defined as mortgages that are not insured or guaranteed by the Federal Housing Administration or another government agency and with principal balances that do not exceed the conforming loan limits for Enterprise mortgages.

Two-part performance evaluation approach. The performance of the Enterprises on the single-family housing goals is evaluated using a two-part approach, comparing the goal-qualifying share of each Enterprise's mortgage purchases to two separate measures: A benchmark level and a market level. In order to meet a single-family housing goal, the percentage of mortgage purchases by an Enterprise that meet each goal must equal or exceed either the benchmark level or the market level for that year. The benchmark level is set prospectively by rulemaking based on various factors set forth in the Safety and Soundness Act. 6 The market level is determined retrospectively for each year, based on the actual goal-qualifying share of the overall market as measured by the Home Mortgage Disclosure Act (HMDA) data for that year. The overall market that FHFA uses for setting the prospective benchmark level and for determining the retrospective market level consists of all single-family owner-occupied conventional conforming mortgages that would be eligible for purchase by either Enterprise. It includes loans purchased by the Enterprises, as well as comparable loans held in a lender's portfolio. It also includes any loans that are part of a private label security (PLS), although very few such securities have been issued for conventional conforming mortgages since 2008.

While both the benchmark level and the retrospective market level are designed to measure the current year's mortgage originations, the performance of the Enterprises on the housing goals includes all Enterprise purchases in that year, regardless of the year in which the loan was originated. This includes providing for housing goals credit when the Enterprises acquire qualified seasoned loans. 7

Multifamily goals. The multifamily goals defined under the Safety and Soundness Act include categories for mortgages on multifamily properties (properties with five or more units) with rental units affordable to low-income families and mortgages on multifamily properties with rental units affordable to very low-income families. FHFA has also established a small multifamily low-income subgoal for properties with 5-50 units. The multifamily housing goals include all Enterprise multifamily mortgage purchases, regardless of the purpose of the loan. The multifamily goals evaluate the performance of the Enterprises based on numeric targets, not percentages, for the number of affordable units in properties backed by mortgages purchased by an Enterprise. FHFA has not established a retrospective market level measure for the multifamily goals, due in part to a lack of comprehensive data about the multifamily market. As a result, FHFA currently measures Enterprise multifamily goals performance against the benchmark levels only.

The Safety and Soundness Act requires that affordability for rental units under the multifamily goals be determined based on rents that “[do] not exceed 30 percent of the maximum income level of such income category, with appropriate adjustments for unit size as measured by the number of bedrooms.”  8 The housing goals regulation considers the net rent paid by the renter and, therefore, nets out any subsidy payments that the renter may receive, including housing assistance payments.

If, after publication of a final rule establishing the housing goals for 2021, FHFA determines that any of the single-family or multifamily housing goals should be adjusted in light of market conditions, to ensure the safety and soundness of the Enterprises, or for any other reason, FHFA will take any steps that are necessary and appropriate to adjust that goal consistent with the statute and regulation. FHFA recognizes that 2021 may be a year of disrupted economic activity. While FHFA is taking this uncertainty into consideration in setting the benchmark levels for 2021, FHFA may take other actions consistent with the Safety and Soundness Act and the Enterprise housing goals regulation based on new information or developments that occur after publication of this final rule.

For example, under the Safety and Soundness Act and the Enterprise housing goals regulation, FHFA may reduce the benchmark levels in response to an Enterprise petition for reduction for any of the single-family or multifamily housing goals in a particular year based on a determination by FHFA that: (1) Market and economic conditions or the financial condition of the Enterprise require a reduction; or (2) efforts to meet the goal or subgoal would result in the constraint of liquidity, over-investment in certain market segments, or other consequences contrary to the intent of the Safety and Soundness Act or the purposes of the Enterprises' charter acts. 9

The Safety and Soundness Act and the Enterprise housing goals regulation also take into account the possibility that achievement of a particular housing goal may not have been feasible for an Enterprise. If FHFA determines that a housing goal was not feasible for an Enterprise to achieve, then the statute and regulation provide for no further enforcement of that housing goal for that year. 10

If FHFA determines that an Enterprise failed to meet a housing goal and that achievement of the housing goal was feasible, then the statute and regulation provide FHFA with discretion in determining whether to require the Enterprise to submit a housing plan describing the specific actions the Enterprise will take to improve its performance.

On September 6, 2008, FHFA placed each Enterprise into conservatorship. Although the Enterprises remain in conservatorships at this time, they continue to have the mission of supporting a stable and liquid national market for residential mortgage financing. FHFA has continued to establish annual housing goals for the Enterprises and to assess their performance under the housing goals each year during the conservatorships.

FHFA published a proposed rule in the Federal Register on August 13, 2020 that proposed benchmark levels for each of the single-family and multifamily housing goals for 2021. 11 The comment period ended on October 13, 2020.

FHFA received 15 comment letters on the proposed rule, including four letters  12 from policy advocacy organizations, six letters from trade associations representing lenders, home builders, credit unions, and other housing market participants, three letters from individuals, one letter from Fannie Mae, and one letter from Freddie Mac. FHFA has reviewed and considered all of the comments. Specific provisions of the proposed rule, and the comments received on those provisions, are discussed in the relevant sections of this final rule. Some topics raised were applicable to both the single-family and multifamily goals and are discussed briefly below. Some comment letters raised issues that are beyond the limited scope of this rulemaking, which is focused solely on establishing new benchmark levels for 2021. FHFA recognizes that the issues raised in the comment letters are important, and FHFA has provided more information and explanation in this final rule whenever it is possible to do so. FHFA is committed to addressing these issues more thoroughly in the proposed rule that is planned for next year on establishing housing goals for 2022 and beyond, which may include proposed changes to the Enterprise housing goals that go beyond setting new benchmark levels.

Research and data. Three comment letters from policy advocacy organizations urged FHFA to conduct additional analysis on the goal-affected markets and to make more data available to the public, including data on Enterprise mortgage acquisitions and activities for low-income and minority borrowers, with real-time data throughout 2021. Through oversight of the regulated entities, FHFA collects and analyzes a significant amount of data on trends in the housing and mortgage markets, enabling FHFA to respond appropriately to market developments and disseminate information to improve the public's understanding of housing finance markets. FHFA's existing data collection, research, and analysis capabilities for the housing goals are supported by the new Division of Research and Statistics (DRS) within FHFA. DRS provides economic and market research, data development, and statistical analysis to support FHFA's oversight, supervision, rulemaking, and policy development. The division examines trends and risks in housing and housing finance markets, advances modeling capabilities, develops and maintains data, evaluates policy impacts, and engages with research communities outside of FHFA. FHFA reviews and monitors proprietary data from the Enterprises throughout the year, but much of this type of data cannot be shared publicly until the following year, in order to avoid influencing the market or giving a competitive advantage or disadvantage to an Enterprise. However, FHFA produces and releases numerous reports every year, detailing FHFA's activities as regulator and conservator of Fannie Mae and Freddie Mac. For example, the Annual Housing Report, released each October, includes data on loans made to low-income and minority borrowers in the previous year. 13 It is valuable to understand what types of information the public finds useful, and FHFA will continue to reflect on what data the agency can share publicly and when.

Forbearance. In the proposed rule, FHFA requested comments on whether there were any kinds of activities, including forbearance, that should receive housing goals credit. Numerous comment letters encouraged FHFA and the Enterprises to take actions to mitigate foreclosures and support affordable loan modifications for homeowners who have been impacted by the pandemic and recession. The letters requested additional guidance to servicers to help inform borrowers of forbearance options and ensure that borrowers can access relief. However, with only one exception, the letters clearly stated that FHFA should not consider these efforts when evaluating whether the Enterprises met the housing goals. FHFA will continue to work closely with the Enterprises to provide assistance to those adversely affected by the COVID-19 pandemic. FHFA is continually reviewing forbearance policies and will institute changes as appropriate. Updated policies and guidance can be found on the FHFA website. 14 When determining whether the Enterprises met the housing goals in 2020, FHFA will continue to evaluate the Enterprises quantitatively.

Finally, some comment letters raised issues beyond the scope of this housing goals rule, and those comments will not be addressed in this final rule. For example, some comment letters referenced the potential impact of the tight underwriting conditions during the pandemic as well as the potential impact of the Enterprise Regulatory Capital Framework re-proposed rule. FHFA announced its final rule on the Enterprise Regulatory Capital Framework on November 18, 2020. 15 Appropriately capitalizing each Enterprise is critical to ensuring that the secondary mortgage market supports access to affordable mortgage credit for low- and moderate-income borrowers and minority borrowers during periods of financial stress, when these borrowers are potentially most vulnerable to loss of access to affordable mortgage credit. FHFA is carefully monitoring the impact of pandemic-related market and underwriting changes on the availability of affordable homeownership for low-income households. FHFA will consider these impacts as it develops its proposed housing goals rule for 2022 and beyond.

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to supersede AD 2013-18-08, Amendment 39-17581 (78 FR 60660, October 2, 2013) (AD 2013-18-08). AD 2013-18-08 applied to certain The Boeing Company Model 737-200, -200C, -300, -400, and -500 series airplanes. The NPRM published in the Federal Register on August 17, 2020 (85 FR 49978). The NPRM was prompted by reports of additional cracking in certain horizontal and vertical chem-milled step locations outside of those identified in AD 2013-18-08. The NPRM proposed to continue to require repetitive inspections for cracking of the fuselage skin along certain chem-milled lines and applicable on-condition actions, and to expand the NDI area. The NPRM also proposed to continue to provide terminating action for repetitive inspections of certain modified or repaired areas. The NPRM also proposed to add airplanes to the applicability. The FAA is issuing this AD to address fatigue cracking of the skin panels, which could result in sudden fracture and failure of the skin panels of the fuselage, and consequent rapid decompression of the airplane.

The FAA gave the public the opportunity to participate in developing this AD. The following presents the comments received on the NPRM and the FAA's response to each comment. An individual had no objection to the NPRM.

Aviation Partners Boeing stated that accomplishing Supplemental Type Certificate (STC) ST01219SE does not affect compliance with the proposed actions.

The FAA agrees with the commenter. Paragraph (c) of the proposed AD has been redesignated as paragraph (c)(1) of this AD, and paragraph (c)(2) has been added to this AD to state that installation of STC ST01219SE does not affect the ability to accomplish the actions required by this AD. Therefore, for airplanes on which STC ST01219SE is installed, a “change in product” alternative method of compliance (AMOC) approval request is not necessary to comply with the requirement of 14 CFR 39.17.

Boeing asked that the FAA change the language under the section titled “Actions Since AD 2013-18-08 was Issued.” Boeing asked that the FAA refer to the “NDI inspection” instead of the “repetitive inspection.”

Boeing also asked that the FAA change the language under the section titled “Proposed AD Requirements.” Boeing asked that the FAA refer to the expanded area for the existing NDI inspection instead of referring to the expanded area for the existing inspection.

Boeing requested these changes because Boeing Alert Service Bulletin 737-53A1346, dated March 27, 2020, expands only the initial and repetitive NDI areas and not the detailed visual inspection area.

The FAA acknowledges that the expanded inspections are only to the NDI area. Those sections of the preamble do not reappear in the final rule; however, the FAA clarified that the NDI area is expanded in the Summary and Discussion sections.

The FAA reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting this AD with the changes described previously, and minor editorial changes. The FAA has determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM for addressing the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

The FAA also determined that these changes will not increase the economic burden on any operator or increase the scope of this AD.

The FAA reviewed Boeing Alert Service Bulletin 737-53A1346, dated March 27, 2020. This service information describes procedures for repetitive detailed and non-destructive tests (NDTs) (including external medium frequency eddy current (MFEC), external magneto optical imaging (MOI), external c-scan, external sliding probe, external high frequency eddy current (HFEC), external low frequency eddy current (LFEC), internal ultrasonic phased array (UTPA), or internal ultrasonic); inspections for cracking of the fuselage skin along all horizontal and vertical chem-milled locations with a history of cracking between stations (STAs) 259.5 and 1016; and applicable on-condition actions. On-condition actions include repair; LFEC inspections of certain repairs for cracking; detailed inspections of certain repairs for cracking and loose, missing, or damaged fasteners; replacement of loose, missing, or damaged fasteners; and preventative modifications. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

The FAA estimates that this AD affects 141 airplanes of U.S. registry. The FAA estimates the following costs to comply with this AD:

The FAA estimates the following costs to do any necessary corrective actions required based on the results of the inspections. The FAA has no way of determining the number of aircraft that might need these corrective actions:

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

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

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

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Will not affect intrastate aviation in Alaska, and

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

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

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to certain CFM International, S.A. LEAP-1A23, LEAP-1A24, LEAP-1A24E1, LEAP-1A26, LEAP-1A26CJ, LEAP-1A26E1, LEAP-1A29, LEAP-1A29CJ, LEAP-1A30, LEAP-1A32, LEAP-1A33, LEAP-1A33B2, LEAP-1A35A model turbofan engines. The NPRM published in the Federal Register on July 24, 2020 (85 FR 44798). The NPRM was prompted by an investigation by CFM that showed a subsurface anomaly in a part manufactured using the same material as the LEAP-1A HPT stage 2 disk. In the NPRM, the FAA proposed to require an UI of the HPT stage 2 disk and replacement of any HPT stage 2 disk that fails the UI with a part eligible for installation. The FAA is issuing this AD to address the unsafe condition on these products.

The FAA received comments from one commenter, the Air Line Pilots Association, International. The commenter supported the NPRM without change.

The FAA reviewed the relevant data, considered the comment received, and determined that air safety requires adopting the AD as proposed. Accordingly, the FAA is issuing this AD to address the unsafe condition on these products. Except for minor editorial changes, this AD is adopted as proposed in the NPRM.

Related Service Information Under 1 CFR part 51

The FAA reviewed CFM Service Bulletin LEAP-1A-72-00-0405-01A-930A-D, Issue 001, dated March 5, 2020. The Service Bulletin specifies procedures for performing an UI of the HPT stage 2 disk. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in ADDRESSES .

The FAA estimates that this AD affects 148 engines installed on airplanes of U.S. registry.

The FAA estimates the following costs to comply with this AD:

The FAA estimates the following costs to do any necessary replacements that would be required based on the results of the inspection. The agency has no way of determining the number of aircraft that might need these replacements.

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

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

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

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Will not affect intrastate aviation in Alaska, and

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

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

The EASA, which is the Technical Agent for the Member States of the European Union, has issued EASA AD 2020-0115, dated May 20, 2020 (EASA AD 2020-0115) (also referred to as the Mandatory Continuing Airworthiness Information, or the MCAI), to correct an unsafe condition for all Dassault Aviation Model MYSTERE-FALCON 900 airplanes.

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to supersede AD 2019-23-05, Amendment 39-19799 (84 FR 67169, December 9, 2019) (AD 2019-23-05). AD 2019-23-05 applied to all Dassault Aviation Model MYSTERE-FALCON 900 airplanes. The NPRM published in the Federal Register on August 19, 2020 (85 FR 50970). The NPRM was prompted by a determination that new or more restrictive airworthiness limitations are necessary. The NPRM proposed to continue to require revising the existing maintenance or inspection program, as applicable, to incorporate new or more restrictive airworthiness limitations. The NPRM also proposed to require revising the existing maintenance or inspection program, as applicable, to incorporate additional new or more restrictive airworthiness limitations, as specified in a EASA AD.

The FAA is issuing this AD to address reduced structural integrity of the airplane. See the MCAI for additional background information.

The FAA gave the public the opportunity to participate in developing this final rule. The FAA has considered the comments received.

Ian Reineck indicated support for the NPRM.

Ian Reineck requested that the cost estimate be revised to include structural upkeep per flight hours, rather than solely maintenance work hours. The commenter stated this is what determines the core functions inside aviation maintenance schedules. The commenter also stated this would be inclusive, regardless of operator, but still reflect the cost of an average operator's inspection through the quantity of accumulated flight time on the airplane. The commenter concluded that, if flight time is not presented in the inspection cost, it presents another problem: These aircraft may change ownership or operator-ship as they age.

The FAA infers that the commenter is requesting that the FAA include the costs in this AD for complying with the actions ( e.g., inspections) that are specified in the airworthiness limitations document referenced in EASA AD 2020-0115. The FAA disagrees because those actions are not directly required by this AD. Additionally, the FAA does not distribute the costs over time because the cost estimates have been standardized to include the larger whole cost of the requirement, not the more uniform cost per flight hour, which the FAA has determined is best to inform the broadest user base. The cost information provided in this AD describes only the direct costs of the specific actions required by this AD. This AD requires only revising the existing maintenance or inspection program, as applicable, to incorporate the “limitations, tasks and associated thresholds and intervals” specified in paragraph (3) of EASA AD 2020-0115, and provides a compliance time to phase in the initial actions. Section 91.403(c) of the Federal Aviation Regulations (14 CFR 91.403(c)) requires the actions once the maintenance or inspection program is changed. Therefore, we have not changed this final rule in this regard.

The FAA reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting this final rule as proposed, except for minor editorial changes. The FAA has determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM for addressing the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

EASA AD 2020-0115 describes new or more restrictive airworthiness limitations for airplane structures and safe life limits.

This AD also requires Chapter 5-40, Airworthiness Limitations, Revision 24, dated September 2018, of the Dassault Aviation Falcon 900 Maintenance Manual, which the Director of the Federal Register approved for incorporation by reference as of January 13, 2020 (84 FR 67169, December 9, 2019).

This material is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

The FAA estimates that this AD affects 105 airplanes of U.S. registry. The FAA estimates the following costs to comply with this AD.

The FAA estimates the total cost per operator for the retained actions from AD 2019-23-05 to be $7,650 (90 work-hours × $85 per work-hour).

The FAA has determined that revising the existing maintenance or inspection program takes an average of 90 work-hours per operator, although the agency recognizes that this number may vary from operator to operator. In the past, the agency has estimated that this action takes 1 work-hour per airplane. Since operators incorporate maintenance or inspection program changes for their affected fleet(s), the FAA has determined that a per-operator estimate is more accurate than a per-airplane estimate.

The FAA estimates the total cost per operator for the new actions to be $7,650 (90 work-hours × $85 per work-hour).

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

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

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

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Will not affect intrastate aviation in Alaska, and

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

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

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends the Class E airspace extending upward from 700 feet above the surface at Mineola Wisener Field, Mineola, TX, and Kenedy Regional Airport, Kenedy, TX, to support instrument flight rule operations at these airports.

The FAA published a notice of proposed rulemaking in the Federal Register (85 FR 67324; October 22, 2020) for Docket No. FAA-2020-0877 to amend the Class E airspace extending upward from 700 feet above the surface at Mineola Wisener Field, Mineola, TX, and Kenedy Regional Airport, Kenedy, TX. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received.

Class E airspace designations are published in paragraph 6005 of FAA Order 7400.11E, dated July 21, 2020, and effective September 15, 2020, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This document amends FAA Order 7400.11E, Airspace Designations and Reporting Points, dated July 21, 2020, and effective September 15, 2020. FAA Order 7400.11E is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11E lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

This amendment to Title 14 Code of Federal Regulations (14 CFR) part 71:

Amends the Class E airspace extending upward from 700 feet above the surface to within a 6-mile (decreased from a 6.3-mile) radius of Mineola Wisener Field, Mineola, TX;

And amends the Class E airspace extending upward from 700 feet above the surface at Kenedy Regional Airport, Kenedy, TX, by removing the Three Rivers VORTAC and the associated extensions from the airspace legal description; updates the name of the airport (previously Karnes County Airport) to coincide with the FAA's aeronautical database; and removes the city associated with the airport to comply with changes to FAA Order 7400.2M, Procedures for Handling Airspace Matters.

This action is the result of airspace reviews caused by the decommissioning of the Quitman and Three Rivers VORs, which provided navigation information for the instrument procedures these airports, as part of the VOR MON Program.

FAA Order 7400.11, Airspace Designations and Reporting Points, is published yearly and effective on September 15.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current, is non-controversial and unlikely to result in adverse or negative comments. It, therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that only affects air traffic procedures and air navigation, it is certified that this rule, when promulgated, does not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA has determined that this action qualifies for categorical exclusion under the National Environmental Policy Act in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures,” paragraph 5-6.5.a. This airspace action is not expected to cause any potentially significant environmental impacts, and no extraordinary circumstances exist that warrant preparation of an environmental assessment.

On November 10, 2014, the Department published a notice of proposed rulemaking (NPRM), Procedures for Completing Uniform Periodic Reports in Non-Small Business Cases Filed under Chapter 11 of Title 11. See 79 FR 66659. The comment period closed on January 9, 2015. In order to accommodate requests by certain commenters to meet with representatives of the EOUST to discuss the NPRM and to provide an opportunity for interested persons to express their views directly to EOUST officials, on February 17, 2016, the EOUST held a public hearing (Public Hearing) on the NPRM and reopened the comment period for an additional 85 days. See 80 FR 74739.

Interested persons were afforded the opportunity to participate in the rulemaking process through written comments to the NPRM during the two comment periods and through testimony at the Public Hearing. All public comments and the transcript of the Public Hearing are available at www.regulations.gov, and are discussed below. This Rule finalizes the NPRM, with changes discussed below, and implements the periodic reports to be used by debtors-in-possession or trustees in chapter 11 cases that do not qualify as “small business debtors” under the Bankruptcy Code.

The administration of chapter 11 bankruptcy cases is entrusted to the debtor-in-possession under 11 U.S.C. 1107(a) or, if circumstances warrant, a trustee appointed under 11 U.S.C. 1104. Debtors-in-possession and trustees must account for the receipt, administration, and disposition of all property; provide information concerning the estate and the estate's administration as parties in interest request; and file periodic reports and summaries of a debtor's business, including a statement of receipts and disbursements, and such other information as the United States Trustee or the United States Bankruptcy Court requires. 11 U.S.C. 1106(a)(1), 1107(a); Fed. R. Bankr. P. 2015 (a)(2), (a)(3). The monthly periodic report filed during the case prior to the confirmation of a plan of reorganization is generally known as the Monthly Operating Report (MOR). The quarterly periodic report filed subsequent to the confirmation of a plan of reorganization and before the case is closed is generally known as the Post-confirmation Report (PCR). There are currently more than 150 different local MOR and PCR forms in use around the country. This Rule would replace those local forms with a single MOR form (UST Form 11-MOR) and a single PCR form (UST Form 11-PCR) for use in all United States Trustee Program (USTP) jurisdictions. In doing so, the Rule strikes the best achievable practical balance between: (1) The reasonable needs of the public for information about the operational results of the Federal bankruptcy system; (2) economy, simplicity, and lack of undue burden on persons with a duty to file periodic reports; and (3) appropriate privacy concerns and safeguards.

Though debtors-in-possession and trustees may incur modest startup costs when adapting to the new forms, they will nonetheless benefit from the simplicity that the uniform forms offer and the elimination of a patchwork of localized requirements. Among other benefits, the Rule ensures that report filers need not change accounting systems when entering bankruptcy. And as noted below, the USTP will release the new uniform report forms in a dynamic PDF-fillable format to ease the completion burdens on report filers, which may be retrieved from the USTP's website at no cost.

External stakeholders will likewise benefit from the consistency that uniform MOR and PCR forms offer. The information collected by UST Form 11-MOR will be used by the court, creditors, the United States Trustee and other parties in interest to evaluate a chapter 11 debtor's progress through the bankruptcy system, including the likelihood of a plan of reorganization being confirmed and whether the case is being prosecuted in good faith. See 11 U.S.C. 1129(a). Much of the information is already collected in the various existing local forms, but not in a uniform or consistent way that facilitates the national compilation of data essential to transparency and accountability.

In specific cases, information collected by UST Form 11-MOR will assist the court and parties in interest in ascertaining the following: (1) Whether there is a substantial or continuing loss to or diminution of the bankruptcy estate; (2) whether there is a reasonable likelihood of rehabilitation; (3) whether there exists gross mismanagement of the bankruptcy estate; (4) whether the debtor may have violated a cash collateral order or other order of the bankruptcy court; (5) whether the debtor is timely paying postpetition taxes; (6) whether the debtor is engaging in the unauthorized disposition of assets through sales or otherwise; (7) whether the debtor is complying with its obligation to maintain appropriate insurance so as to avoid a risk to the estate or to the public; (8) whether the debtor is complying with its obligation to pay fees due under 28 U.S.C. 1930; and, (9) in the case of an individual debtor, if applicable, whether the debtor is complying with his or her obligation to pay domestic support obligations. This information contributes to the decision by the United States Trustee, or by a creditor or other party in interest, to file a motion to dismiss the bankruptcy case, to seek conversion of the case to a case under chapter 7, or to seek an order directing the appointment of a chapter 11 trustee. The information in the periodic reports is also relevant evidence that the court may consider in determining whether to grant such relief. See, e.g., 11 U.S.C. 1112(b)(4)(A), (B), (C), (D), (E), (I), (J), (K), and (P); and 1104(a). The court may also use this information when considering sua sponte action.

The information collected by UST Form 11-PCR will be used to evaluate whether a chapter 11 debtor is performing as anticipated under a confirmed plan. Specifically, information collected by UST Form 11-PCR will assist the court and parties in interest in ascertaining the following: (1) Whether a debtor is able to substantially consummate a confirmed plan; (2) whether the debtor is in material default under a confirmed plan; and (3) whether the debtor is paying fees required under 28 U.S.C. 1930. If the debtor fails to perform under the confirmed plan, the United States Trustee, creditors, or other parties in interest may bring an appropriate motion to dismiss the case, revoke a confirmed plan, or convert the case to a case under chapter 7. See 11 U.S.C. 1112(b)(4)(K), (M), and (N); 11 U.S.C. 1144.

The periodic reports include sufficient information to inform creditors and other interested parties of the debtor's financial affairs, but are simple enough to provide ready, meaningful access to the information. Moreover, the periodic reports accomplish the goals of uniformity and transparency regarding a debtor's financial condition and business activities.

The periodic reports are uniform and will be filed as “smart forms” with the United States Bankruptcy Court in which the chapter 11 case is pending via the court's Case Management/Electronic Case Filing System (CM/ECF). A “smart form” is a document that is data-embedded. When the document is saved into the industry standard Portable Document Format (PDF), stored data tags are then available for extraction and searching. In contrast, when a form is not data-embedded, the PDF is simply an image of the form, and the data is not uniformly available for searching or extraction. The data-embedded form builds upon the existing Adobe PDF/A standards (Versions 1.4-1.7). Once the periodic reports are finalized, the current data schema (DTD) will be found on www.justice.gov/ust. Once the periodic reports are finalized, debtors-in-possession, chapter 11 trustees, and members of the public may obtain blank “smart form” periodic reports from the USTP website at www.justice.gov/ust or from their respective vendors of case management software.

Once filed with a bankruptcy court, the periodic reports will be available to the general public at the office of the clerk of the United States Bankruptcy Court where the case is pending during the hours established by the bankruptcy clerk of court. Members of the public should contact the clerk's office of individual bankruptcy courts to obtain information about the policies and procedures for inspection of periodic reports filed in any particular case. Periodic reports filed in cases are also available through the internet by accessing the website for the Administrative Office of the United States Courts known as Public Access to Court Electronic Records (PACER) at www.pacer.psc.uscourts.gov. In order to access court records through PACER, users must register and obtain a user name and password. In addition, users must pay a fee for obtaining records through PACER.

Finally, the promulgation of the periodic reports accomplishes Congress's directive that the Department issue uniform forms for periodic reports for debtors-in-possession and chapter 11 trustees. The forms will also assist policy-makers, scholars, and the public in better understanding the bankruptcy system. Instead of many different versions of the periodic reports, debtors-in-possession and chapter 11 trustees will use the same two forms. The consistency and uniformity of the periodic report forms will also assist the public, creditors and other parties-in-interest in understanding the administration of chapter 11 bankruptcy cases, especially when such parties are located in a different region or jurisdiction from where the bankruptcy case is located. Scholars and members of the public may also be able to obtain aggregate data with the necessary software. Uniformity and consistency in the information collected may also facilitate national aggregation, which will assist Congress in its efforts to analyze bankruptcy trends and make policy decisions, without imposing significant additional burdens upon trustees and debtors-in-possession.

The EOUST received nine public submissions in response to the first public comment period on the NPRM and three public comments in response to the second public comment period on the NPRM. The EOUST heard testimony of five witnesses at the Public Hearing. The EOUST considered all of the comments and the testimony of the witnesses, and in response, the EOUST has modified the Rule. These modifications include clarifying, revising, or expanding various provisions, requiring the submission of three standard financial statements (non-individual debtors only), and making technical edits. In addition, the EOUST has modified the periodic reports and instructions. Some changes were made to conform the forms and instructions to the Rule modifications and other changes were made to clarify the forms and instructions. Summaries of the comments and the EOUST's responses are discussed below.

Comment: The commenters expressed divergent views regarding whether the Rule requires report filers to provide too little or too much information on UST Form 11-MOR. The tension, in this regard, was between collecting the minimum information required by the statute and collecting more comprehensive business information than the NPRM proposed.

For example, one commenter stated that the MOR should contain information similar to that required by the Securities and Exchange Commission (SEC) for publicly traded companies. The commenter further advocated that the supporting documentation listed in section 58.8(d)(1) through (10) of the NPRM should be mandatory in any case with assets exceeding $100 million. The NPRM identified:

(1) A statement of cash receipts and disbursements;

(2) A balance sheet;

(3) A profit and loss statement;

(4) An aged summary of accounts receivable;

(5) An aged summary schedule of postpetition liabilities;

(6) A statement of capital assets;

(7) A schedule of payments to professionals;

(8) A schedule of insider payments;

(9) Bank statements and reconciliations; and

(10) Descriptions of asset sale transactions.

The commenter further suggested that parties in interest should have the right to seek supplemental documentation from debtors with assets less than $100 million by petitioning the United States Trustee or the court. The EOUST also received a comment that debtors should be required to include projections, risk factors, potential conflicts of interest, and other material financial information, including management discussions and analysis, insider transactions, and material company events. Another commenter asserted that requiring very detailed financial reports would be less burdensome on the USTP, creditors, and governmental authorities than requiring more extensive supporting documents on an ad hoc basis, and that smaller business and individual debtors may seek to be excused from preparing certain supplemental documents.

By contrast, one commenter stated that the Rule asks too much and would be unduly burdensome, particularly on individual debtors. Another commenter noted that providing detailed supplemental documentation to any party in interest may be problematic if there are no confidentiality or non-disclosure agreements in place. The EOUST also received a comment asserting that the debtor should be required to meet with the United States Trustee at the start of the case to discuss the debtor's reporting requirements and capabilities, and agree on the supplemental documentation that may be required.

Response: The Rule strikes a reasonable balance between ensuring that the debtor provides sufficient information to enable the court, creditors, and other parties in interest to ascertain the debtor's financial condition and not overburdening the report filer. In addition, the use of a uniform form ensures that certain statistical information is accessible as required by the statute. The Rule and the periodic report forms achieve this balance, while remaining adaptable to the circumstances of both individual debtors and large corporate enterprises. The more extensive reporting requirements suggested by two of the commenters shift that balance by proposing to make far more information mandatory for a significant segment of chapter 11 debtors. Most debtors hold less than $100 million in assets and are not publicly traded companies subject to ongoing SEC reporting. And, as a witness noted at the Public Hearing, entities subject to SEC reporting only submit that detailed information on a quarterly and annual basis, rather than monthly. Requiring information akin to the public disclosures mandated by the SEC is impractical, expensive, and burdensome. The periodic reports are not a substitute for SEC filings, nor are SEC filings a substitute for periodic reports. If parties in interest seek this information, it is available from all publicly traded debtors in their SEC filings. Finally, the Rule does not abridge parties' rights to seek additional information through informal inquiry or in accordance with the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure.

The EOUST agrees, however, that certain financial statements should be mandatory for every non-individual debtor. Accordingly, the EOUST has modified the NPRM to require non-individual debtors to file:

(1) A Statement of Cash Receipts and Disbursements;

(2) A Balance Sheet; and

(3) A Statement of Operations (Profit or Loss Statement) with each Monthly Operating Report.

Virtually every debtor has or should maintain these three common financial statements. Under current USTP practice, various field offices often require these three financial statements as attachments to their local periodic report forms. The EOUST has created a new section 58.8(d)(3) providing for the submission of additional supporting documentation at the discretion of the United States Trustee, which supporting documentation was previously provided for in former section 58.8(d)(4)-(11). In cases requiring formal enforcement, the USTP must seek relief from the bankruptcy court. See 11 U.S.C. 1112(b)(4).

The EOUST also agrees with the commenters who suggested that the debtor and the United States Trustee should confer early in the case, whether at the Initial Debtor Interview (“IDI”) or some other initial meeting, to discuss the debtor's reporting capabilities and the supplemental documentation that the debtor will be required to file. Field offices typically schedule IDIs within the first few weeks after the petition date and before the first scheduled meeting of creditors under 11 U.S.C. 341 (the “Section 341 Meeting”). The EOUST modified the instructions for UST Form 11-MOR to clarify that this initial meeting should occur before both the first MOR due date and the Section 341 Meeting.

Comment: The EOUST received a comment asserting that data collected in the MORs and PCRs should be publicly available in a national searchable database. The commenter suggested that the phrase “may be data enabled to facilitate the national compilation of data” in the preamble to the Rule should be changed to “shall be data enabled to facilitate the national compilation of data.”

Response: The EOUST accepts the recommendation by clarifying how the periodic report forms will function as electronic documents. Section 58.8(j)(2) of the Rule clearly provides that the “Periodic Reports shall be filed via the United States Bankruptcy Courts' Case Management/Electronic Case Filing System (CM/ECF) as a `smart form,' meaning the reports are data-embedded.”

The EOUST has replaced the term “data-enabled” in the NPRM with “data-embedded.” The periodic report forms will be read only data-embedded forms, which are the type of forms used by the U.S. Courts.

The EOUST rejects the suggestion that the EOUST should create a publicly searchable database of information collected from the periodic reports. The statute does not require the creation of a publicly searchable database. Instead, the statute requires that the periodic reports “facilitate compilation of data and maximum possible access of the public, both by physical inspection at one or more central filing locations, and by electronic access through the internet or appropriate media.” 28 U.S.C. 589b(b). Accordingly, the public can obtain the filed periodic reports from any bankruptcy clerk's office and can also extract the embedded data through PACER with appropriate software.

Comment: One commenter asserted that retaining the periodic reports with original “wet” signatures for five years is burdensome and contrary to the Paperwork Reduction Act (PRA). Another commenter suggested that retaining periodic reports with either original signatures or an electronic copy of the signed periodic report should be sufficient.

Response: The EOUST concludes that retaining the periodic reports with original holographic signatures is not burdensome. The requirement does not create additional, duplicative, or unnecessary paperwork; it merely ensures that the original document is preserved for a period of time. The retention of original holographic signatures is important to the efforts of the EOUST, as well as the Department of Justice, to combat abusive bankruptcy practices through criminal prosecution and civil enforcement. Although defendants repudiate signatures in a small minority of cases, the availability of the original signature is key to overcoming such a defense, and, also, in the view of prosecutors, deters defendants from contesting the authenticity of signatures in the first instance. In addition to the authenticity of the signature itself, electronic signatures are more easily manipulated and appended to documents without the authorization or knowledge of the signatory. See also Letter from James M. Cole, Deputy Att'y Gen., U.S. Dep't of Justice, to the Hon. Jeffrey S. Sutton, Chair, Comm. on Rules of Practice and Procedure, Admin. Office of the U.S. Courts (Feb. 13, 2014) (on file with author), available at https://www.regulations.gov/document?D=USC-RULES-BK-2013-0001-0128.

In addition, preservation of the periodic reports with original signatures is not a collection of information from the public under the PRA. See 44 U.S.C. 3506(c)(1). Even if the PRA were implicated, the EOUST provided the requisite notice under the PRA that retention of documents with original signatures will be required. See 44 U.S.C. 3506(c)(2).

Comment: One commenter suggested that the periodic reports should be signed under penalty of perjury with the qualification that the report and any attachments thereto are true and correct to the best of the signer's “knowledge and belief.”

Response: The EOUST declines to add the qualification. The EOUST concluded that the “knowledge and belief” language may contradict or undermine the purpose of signing the periodic reports under the penalty of perjury, which is a stricter standard, to ensure that the information provided in the periodic reports is reliable and accurate. Moreover, the “knowledge and belief” language is not consistent with the official bankruptcy forms promulgated by the Judicial Conference of the United States. For example, Official Form 101 requires debtors to certify that they “have examined this petition, and [they] declare under penalty of perjury that the information provided is true and correct.” Thus, adding “knowledge and belief” language to the periodic reports would inappropriately create inconsistent standards for truthfulness.

Comment: The EOUST received a comment that the signature line of the UST Form 11-PCR should be changed to add the designation “Plan Trustee” or “Plan Administrator.”

Response: The EOUST agrees with this recommendation, in part. Rather than identify an exhaustive number of report filer titles, the EOUST modified the signature line to provide for any authorized signatory.

Comment: The EOUST received several comments regarding service of the periodic reports. Two commenters stated that the debtor should not be required to serve UST Form 11-MOR on each member of any Official Committee of Unsecured Creditors or on any governmental taxing authority because doing so would be unduly burdensome. One of these commenters also stated that confidentiality issues may arise if the Rule requires the debtor to serve supplemental documentation to “any party in interest” that has not agreed to confidentiality or non-disclosures. The same commenter also stated that UST Form 11-PCR should be served on any post-confirmation committee.

Response: The EOUST agrees that service upon individual members of the committee is unnecessary when the committee has engaged counsel and has modified the Rule accordingly. The EOUST disagrees with the suggestion that the MOR should not be served upon taxing authorities. Periodic reports must specify whether tax returns have been timely filed and whether tax payments have been timely made since the date of the order for relief. 28 U.S.C. 589b(e)(5). Service of the periodic reports on taxing authorities provides the relevant taxing authorities with a meaningful opportunity to review the representations made. The EOUST also modified section 58.8(b) of the Rule to permit taxing authorities to opt out of being served with the periodic reports. Finally, concerns about confidentiality as to supplemental information may be addressed on a case by case basis at the initial meeting between the United States Trustee and the debtor.

Comment: One commenter stated that the Rule should establish a uniform national due date for all periodic reports of the 25th of each month. Two commenters focused on the initial due date for the UST Form 11-MOR. One stated that the first report should be due in the second full month of the case and should cover the period from the filing date to the end of the first full month. A second commenter stated that the initial report should be filed by the earlier of (1) the 60th day after the order for relief or (2) the 30th day after the end of the first full calendar month after the order for relief. With respect to the UST Form 11-PCR, the EOUST received one comment that the Rule should clearly state that the Post Confirmation Report is filed quarterly only after the plan is confirmed. Another commenter noted that the phrase “confirmation of the plan” is unclear as to whether it is the date of entry of the confirmation order or the effective date of the plan. Finally, one commenter advocated that the Rule should permit the flexibility to make the filing deadline coincide with SEC reporting deadlines for those debtors that are public registrants.

Response: The EOUST agrees that a uniform due date for periodic reports should be established, where practicable, but declines to adopt any other due date suggestions. The EOUST modified the Rule to provide that both periodic reports are due on the 21st day of the month immediately following the reporting period, subject to any local bankruptcy rule that requires a different due date. The Rule balances the practical concerns of a report filer, other parties' need for information early in a case, and any local bankruptcy rules. A 60-day delay in filing the initial MOR would permit a debtor to operate with less transparency for the critical first two months of the case.

Additionally, the EOUST has maintained the same important balance in setting the initial MOR due date. The 20th of the month cut off addresses the concern regarding the burden of filing a partial month report by not requiring the filing of a MOR for a period that is fewer than ten days. The EOUST also declines to adjust the filing deadline for debtors who are public registrants so that it coincides with SEC reporting deadlines. The uniform deadline provides necessary predictability, while maintaining the flexibility to permit consistency with local bankruptcy rules. Because they require different reported information, quarterly SEC filing deadlines are not relevant to the monthly periodic reports. Finally, the EOUST has modified the Rule and instructions to clarify that Form 11-PCR is required to be filed following the effective date of a confirmed plan.

Comment: Two commenters stated that Generally Accepted Accounting Principles (GAAP) may not be the appropriate accounting method and will be unduly burdensome for those debtors who do not regularly use it. One of these commenters added that GAAP accounting would be particularly difficult for individual debtors because most individuals do not use this accounting method, nor do they keep books in the same manner businesses do. The other commenter added that reference in the Rule to “Statement of Position 90-7” should be changed to Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) 852, Reorganizations.

Response: The EOUST concludes that debtors who do not already follow GAAP will not be required to adopt GAAP to prepare the periodic reports. Accordingly, the EOUST has modified the Rule to permit debtors to complete the periodic reports using the accounting method the debtor used prepetition. The EOUST has also removed references to Statement of Position 90-7 and has replaced it with a reference to Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) 852, Reorganizations.

Comment: One commenter asserted that the debtor should be required to disclose its inventory costing method as well as any change to such method.

Response: The EOUST agrees that this information is beneficial. While the Rule required no modifications, the EOUST has modified the UST Form 11-MOR and the instructions to include costing methodology disclosure.

Comment: Five commenters stated that the debtor should be required to report fees as incurred rather than, or in addition to, those approved by the bankruptcy court. The commenters assert that reporting fees as incurred would allow for earlier monitoring of fees generally, would provide a more timely picture of the debtor's cash flow, and would provide notice of fees that are incurred but do not necessarily require court approval, such as fees paid to a secured creditor under loan agreements or financing orders or fees paid to ordinary course professionals.

Response: The statute specifically provides that the periodic reports “shall” include “all professional fees approved by the court in the case for the most recent period and cumulatively since the date of the order for relief . . .,” and the language in the Rule at section 58.8(b)(8) mirrors this provision. See 28 U.S.C. 589b(e)(6). The EOUST concludes that debtors should provide the information required by the statute, and if necessary, on a case by case basis and as requested by the United States Trustee, provide cash disbursement registers or ledgers as permitted by section 58.8(d)(3)(H) of the Rule. In addition, when interim fee procedures exist, the amount of fees “as incurred” is available from other sources such as periodic fee applications and monthly fee statements of estate professionals. The additional supporting documentation pertaining to cash disbursements and these other sources present a meaningful picture of the financial operations of the debtor's business.

Comment: Seven commenters stated that the MOR should provide separate line items for each professional with a more detailed description of the professional's role in the case to better understand case staffing and costs. One commenter advocated that the breakdown of professional fees should be by type (bankruptcy professional; nonbankruptcy professional; ordinary course professionals; secured lender; committee or other professionals). Others suggested that itemization by firm and type of service ( e.g., legal or accounting) would be sufficient, and one commenter suggested that the EOUST should provide a better definition of the term “nonbankruptcy matters” in order to avoid inconsistent application of that term. One commenter stated that requiring individual debtors to separate bankruptcy from non-bankruptcy fees would be burdensome. Two commenters added that there should be a specific line item for efficiency counsel because separate disclosure of efficiency counsel fees would allow a more thorough review of how each firm is used and would encourage the appropriate assignment of tasks. A third commenter, while not specifically referring to efficiency counsel, agreed with this rationale.

Response: The EOUST agrees that professional fees should be reported in more detail for the reasons given by the commenters. Three kinds of professional fees are paid in a bankruptcy case:

(1) Those allowed and approved by the court after a fee application (traditional bankruptcy fees);

(2) Those approved to be paid under an “ordinary course professional” order, and generally capped by a certain amount each month and in the aggregate, and requiring a fee application if the amount billed exceeds the cap (OCP fees); and

(3) Those paid to professionals based upon contractual rights, such as fees for secured creditors' counsel that are authorized to be paid under a financing, adequate protection, or cash collateral order (contractual fees).

The statute requires that fees incurred on behalf of the debtor be reported separately from “those that would have been incurred absent a bankruptcy case.” 28 U.S.C. 589b(e)(6). OCP fees will often be for non-bankruptcy work, such as fees incurred in a state court tort action, and are required to be reflected on the periodic reports. However, unlike traditional bankruptcy fees and OCP fees, contractual fees are not limited or reviewed by the court. It may also be difficult to breakout which contractual fees were incurred in connection with the bankruptcy case and which contractual fees would have been incurred regardless of whether a bankruptcy case was filed. Requiring a debtor to report a secured lender's fees on its periodic reports in similar detail to estate professionals' fees would impose undue burdens on the report filer, because it would require the report filer to find out this information from third parties who may not be forthcoming. Finally, the EOUST must also reject the suggestion not to require individual debtors to segregate bankruptcy from nonbankruptcy fees because the statute requires this segregation. See 28 U.S.C. 589b(e)(6).

The EOUST has modified the form and the instructions for both the MOR and PCR to add line items for lead counsel, efficiency counsel, co-counsel, local counsel, financial professionals, and other professionals. If warranted by the facts of the case, the United States Trustee may request that the debtor attach a supplemental schedule that identifies all fees and expenses for professionals employed in the bankruptcy case per renumbered section 58.8(d)(3)(D) of the Rule.

The EOUST also agrees that the definition of “nonbankruptcy matters” should be clarified. Accordingly, the EOUST has added a definition of “nonbankruptcy matters” in the periodic report instructions.

Comment: One commenter advocated that a separate form should be created for individual debtors because the commenter believed that the proposed forms were too complicated. Another commenter suggested that high wealth individual debtors with complex financial structures should use a more detailed MOR form than that proposed.

Response: The statute prescribes “uniform forms for—periodic reports by debtors in possession or trustees.” 28 U.S.C. 589b(a)(2). It does not specify separate forms for individual debtors, high wealth or otherwise. The EOUST has revised the forms and instructions, however, to clarify which sections apply to individual debtors. The EOUST has modified Part 8 of UST Form 11-MOR to better reflect the types of disbursements typically made by individual debtors. If further information is needed from high wealth individual debtors, the United States Trustee may exercise discretion and request it. And finally, parties seeking more detailed information from debtors may seek that information through informal inquiry or in accordance with the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure.

Comment: Two commenters focused on the burden that would be placed on individual chapter 11 debtors if they were required to provide income statements, statements of operations, or other supporting documents identified in section 58.8(d) of the NPRM because most individual debtors do not keep these kinds of records. Another commenter suggested that individual debtors should be required to provide this information unless they obtain a waiver from the United States Trustee.

Response: The NPRM imposed identical document production requirements on individual and non-individual debtors. The EOUST considered the competing comments regarding the scope of the supplemental documentation requirements placed on individual debtors and has modified section 58.8(d) and has added new section 58.8(d)(2) to provide that individuals need not provide supplemental documentation unless the United States Trustee requests it in the United States Trustee's discretion.

Comment: One commenter stated that the Rule should clarify whether reporting in jointly administered cases should be on a per entity, nonconsolidated basis or whether jointly administered debtors may be permitted to submit one single consolidating form.

Response: The EOUST agrees and has modified the Rule to clarify that periodic reports in jointly administered cases shall be filed on a per entity, nonconsolidated basis. Use of a single consolidating form in jointly administered cases would make data extraction difficult and would require the creation of a separate form and a separate data-extraction process for jointly administered cases, which would impose undue costs and burdens. Moreover, the EOUST has observed that some debtors that presently file consolidating forms in certain districts are not providing sufficient information on a per-debtor basis. Requiring each debtor in a jointly administered case to file a separate MOR addresses this problem. Accordingly, the EOUST has modified sections 58.8(b) and 58.8(f) to clarify that, in jointly administered cases, unless otherwise required by the United States Trustee in the United States Trustee's discretion, each jointly administered debtor is required to file a separate periodic report on a nonconsolidated basis. The EOUST also made conforming changes to the instructions for each form.

Comment: One commenter suggested that the Rule should require the debtor to report both full-time (or full-time equivalent) and part-time employees in order to reflect a fuller picture of whether jobs were saved or created during the bankruptcy case.

Response: The statute requires that the periodic reports include the “number of full-time employees as of the date of the order for relief and at the end of each reporting period since the case was filed.” 28 U.S.C. 589b(e)(6). The Rule conforms to the statute.

The EOUST considered the potential benefits offered by the additional categories of full-time equivalent and part-time employees. Though reporting the additional employee categories might provide a broader picture of the debtor's workforce, the EOUST concludes that the additional categories would be too subjective and variable, and therefore, would be unlikely to provide meaningful information regarding whether jobs were saved or created.

Comment: Two commenters suggested that the debtor should be required to itemize what tax and insurance payments have been made. One of those commenters further inquired whether risk management products (such as swaps or other derivatives) are considered “insurance” for the purposes of the MOR.

Response: The EOUST agrees that itemization of tax and insurance payments would be beneficial and has modified UST Form 11-MOR to include additional lines for reporting the different types of tax and insurance payments. The Rule does not require amendment because it very broadly requires the reporting of tax and insurance payments. Section 58.8(d)(3) further permits the United States Trustee to request additional documentation on a case by case basis, if necessary, to present a complete picture of the financial operations of the debtor. Finally, the EOUST has modified the form instructions to clarify that risk management products such as swaps and other derivatives are not considered insurance for the purposes of the MORs.

Comment: One commenter stated that the Rule should not limit disclosure of payments toward prepetition debt to those solely to secured lenders or lessors, but should include payments on unsecured debt as well. Another commenter noted that the Rule should include undersecured debt and debts in which the security interest is in dispute.

Response: The EOUST concludes that the wording in draft section 58.8(b)(10) could give rise to different and contradictory interpretations. Therefore, the EOUST has modified section 58.8(b)(10) to clarify that report filers should include all payments of prepetition debt (including unsecured debt).

Comment: Two commenters stated that the report filer should be required to explain the nature and type of insider transactions, rather than simply list the payments made.

Response: The EOUST agrees that additional information regarding unusual transactions, such as insider transactions, is often beneficial. The Rule does not require amendment because the United States Trustee has the discretion to request this documentation under former section 58.8(d)(11) (renumbered as section 58.8(d)(3)(E)). UST Form 11-MOR has been modified to add space for additional information concerning insider transactions.

Comment: One commenter stated that the Rule should require report filers to submit the following statements:

(1) Statement of changes in cash flow;

(2) Statement of changes in equity (deficit); and

(3) Intercompany account balances.

Response: While the EOUST agrees that these documents may be valuable on a case by case basis, the Rule does not require amendment because these items are already included in former section 58.8(d)(11) (renumbered as section 58.8(d)(3)(I)). The EOUST has modified the instructions for UST Form 11-MOR to include these items in the list of supplemental documentation the United States Trustee may request.

Comment: One commenter stated that the debtor's balance sheet should mirror the disclosures required by the SEC's Regulation S-X and that the Statement of Capital Assets should include the original cost, amortization to date, amortization method and life for each major component of capital assets.

Response: The EOUST disagrees. The MOR does not supplant required SEC filings. Parties in interest can obtain this information from public companies' securities filings. Moreover, requiring these disclosures from non-publicly traded companies and individuals may impose undue burdens.

Comment: One commenter stated that the report filer should be required to report accounts receivable both gross and net of any reserves. The commenter also stated that the debtor should be required to report the total of accounts receivable both prepetition and postpetition because prepetition accounts receivable may not be available.

Response: The EOUST recognizes that additional information concerning accounts receivable may be beneficial, but disagrees with the comment and concludes that accounts receivable should be reported consistent with the debtor's prepetition accounting practices. Though the Rule does not require amendment, the EOUST has modified the instructions to UST Form 11-MOR to permit the reporting of additional detail regarding accounts receivable.

Comment: One commenter asserted that the report filer should be required to report cash and property transfers separately. Another commenter stated that the report filer should be required to report noncash distributions of securities in the reorganized debtor and the value of noncash distributions.

Response: The EOUST agrees that separate reporting of the information requested by both commenters would be beneficial. The EOUST has modified the UST Form 11-PCR to include line items for transfers of securities and other noncash property, though the Rule does not require amendment. The statute also requires the debtor to report, “by class, the recoveries, expressed in aggregate dollar values.” 28 U.S.C. 589b(e)(7). Thus, the EOUST has added a line to the PCR instructions requiring those debtors making distributions of securities or other property to use the valuation method described in the disclosure statement, regardless of the value of the securities or other property on the distribution date. If the disclosure statement does not give a value for the securities or other property or does not describe the valuation method, the report filer should provide an explanation of how the securities or other property have been valued for the purposes of the PCR.

The final Rule differs from the NPRM in the following ways:

1. Section 58.8(a) has been modified to include an additional clarifying sentence providing that the Rule does not excuse, supersede, or otherwise modify any applicable nonbankruptcy reporting obligations.

2. Section 58.8(b) has been modified to permit taxing authorities to opt out of being served with periodic reports.

3. Section 58.8(b) and section 58.8(f) now provide that in jointly administered cases each debtor, trustee, reorganized debtor, or other authorized party charged with administering a confirmed plan is required to file a separate periodic report on a nonconsolidated basis, unless otherwise required by the United States Trustee in the United States Trustee's discretion.

4. Section 58.8(b)(10) has been modified to require the reporting of all payments of unsecured debt.

5. Section 58.8(d)(1) now requires non-individual debtors to file:

(a) A statement of cash receipts and disbursements;

(b) A balance sheet; and

(c) A statement of operations (profit and loss statement) with each MOR.

6. Section 58.8(d)(2) has been added to provide the United States Trustee with the discretion to require individual debtors to file the documentation identified in § 58.8(d)(1). Section 58.8(d)(3) provides the United States Trustee with the discretion to require any debtor or trustee to provide any other supporting documentation necessary to present a complete picture of the financial operations of the estate.

7. Former §§ 58.8(d)(4) through (11), that provide for the submission of additional supporting documentation at the discretion of the United States Trustee, have been moved into new section 58.8(d)(3).

8. Sections 58.8(e) and (g) now provide that MORs and PCRs are due by the 21st day of the relevant month, subject to any local bankruptcy rule that requires a different due date. Section 58.8(g) also clarifies that PCR forms are required to be filed following the effective date of a confirmed plan.

9. Section 58.8(h) clarifies that a debtor may use whatever accounting method the debtor used prepetition and does not require GAAP of all debtors. Section 58.8(h) also deletes the reference to “Statement of Position 90-7” and replaces it with “Accounting Standards Codification 852, Reorganizations, Financial Accounting Standards Board.”

10. The term “data-enabled” in § 58.8(j)(2) has been replaced with the term “data-embedded.”

This Rule has been drafted and reviewed in accordance with

(1) Executive Order 12866, “Regulatory Planning and Review” section 1(b), Principles of Regulation;

(2) Executive Order 13563 “Improving Regulation and Regulatory Review” section 1(b) General Principles of Regulation; and

(3) Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs” section 3(a), Annual Regulatory Cost Submissions to the Office of Management and Budget (OMB).

This Rule is not a “significant regulatory action” under Executive Order 12866, and, accordingly, this Rule has not been reviewed by OMB.

Executive Orders 12866 and 13563 direct all agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Executive Order 13771 emphasizes the need to identify incremental costs and requires approximation of the total costs or savings associated with the regulation over future fiscal years. The Department has assessed the costs and benefits and costs savings of this regulation and believes that the regulatory approach selected maximizes net benefits and, after minimal initial costs, will yield costs savings.

It is estimated that the cost to the government for developing these periodic reports is approximately $67,000. The estimated cost to develop a system to store information extracted from these reports and to analyze the data is approximately $144,000. The USTP anticipates using existing information technology resources to meet the costs associated with developing the periodic reports and a system to store the information extracted from the reports. The USTP expects the initial investment to be offset within the first four years of implementation. Beyond these amounts, there will be no additional cost to the government or to the public, and costs savings to the government are expected from updating these reports to an electronic format.

Because debtors-in-possession and trustees are already required to complete periodic reports, the Rule is not a new layer of regulation. See 11 U.S.C. 704, 1106, and 1107. Moreover, the Rule imposes no obligations on the general public because only debtors-in-possession and trustees for chapter 11 bankruptcy cases are responsible for filing periodic reports. By contrast, the information disclosed in the periodic reports is of vital importance to the bankruptcy process. The reported information assists the courts, creditors, and other stakeholders in assessing, among other things, the likelihood of rehabilitation, whether the bankruptcy estate has been mismanaged, and whether the estate maintains adequate insurance coverage to protect both creditors and the general public from harm.

Periodic report forms are currently used across the country, but the format and content of the forms vary by region, office, and district. The use of congressionally required uniform forms for periodic reports will assist policy-makers, scholars, and the public in better understanding the bankruptcy system. Instead of many different versions of periodic report forms, currently numbering over a hundred, debtors-in-possession and trustees will use the same data-embedded forms.

Requiring a uniform periodic report will aid external stakeholders by providing consistency across different jurisdictions and also helping to streamline the processing of reports by the USTP. Uniformity and consistency will also assist counsel, creditors, and other stakeholders with a national presence in their analysis of the disclosed information. Additional administrative requirements for external parties are expected to be minimal. On the basis of these considerations, the Rule for uniform periodic reports would provide net benefits to the USTP and the general public.

The total estimated cost to implement and maintain the proposed system is $211,000. This cost is expected to be offset over time by increased efficiency in the data entry process. The USTP has processed approximately 100,000 periodic reports on average over the past 10 fiscal years, with each periodic report requiring 1-2 minutes of data entry time on average. At an estimated salary of $56/hour plus benefit costs, average data entry processing costs for periodic reports total approximately $124,000. Continuing the current process would cost approximately $480,000 in 2016 dollars through 2026, while the anticipated savings from implementing the proposed process would exceed the upfront implementation cost by over $150,000 during that time span. These savings would be sustained over time, with an annualized cost savings of approximately $113,000 in perpetuity. Such savings are critical because they will allow the USTP to redeploy scarce resources to other important priorities.

In addition to the tangible cost savings expected to be generated, there would be a number of intangible benefits. The benefits considered include the benefits to the chapter 11 debtors-in-possession and chapter 11 trustees who are obligated to file periodic reports, as well as benefits to the courts, creditors, parties in interest, bankruptcy professionals who represent the various constituencies in the cases, the USTP, and external stakeholders including the public, policy-makers, and scholars.

The Rule benefits report filers by replacing outdated paper forms which vary by local jurisdiction with standardized, updated forms in an electronic format that promotes clarity and certainty. The Rule benefits the court, creditors, and other parties in interest in bankruptcy cases by simplifying the intake, organization, and understanding of these periodic reports.

The Rule benefits professionals who represent debtors-in-possession in bankruptcy cases in multiple districts by reducing the burden associated with identifying and complying with varying local requirements in filing periodic reports. In other words, uniformity and consistency will allow these professionals to operate more efficiently and with greater accuracy.

The Rule benefits the USTP by standardizing the collection of congressionally required data elements in an electronic format that facilitates automated analysis, therefore streamlining and reducing the time necessary to review and draw conclusions from the information provided on the forms.

Lastly, the Rule benefits the public by making the collection of information mandated by the Bankruptcy Code and Rules more transparent, thereby promoting greater understanding of the bankruptcy system and its stakeholders. Policy-makers and scholars in particular will benefit from the accessibility of electronic bankruptcy data, which can be more readily aggregated, analyzed, and shared in the updated, standardized format than in the current idiosyncratic local formats, which require manual collection and review.

In sum, the Department is confident the Rule provides multiple benefits to the public, while imposing minimal initial streamlining costs borne by the USTP that will yield substantial cost savings in future fiscal years.

In accordance with the Regulatory Flexibility Act (5 U.S.C. 605(b)), the Director has reviewed this Rule and by approving it certifies that it will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that chapter 11 small business debtors are not required to complete these periodic reports. Pursuant to Section 435 of the BAPCPA, the Judicial Conference of the United States has developed a periodic report, entitled Official Form 425C “Monthly Operating Report for Small Business Under Chapter 11,” for use by small business debtors as defined by the Bankruptcy Code. See 11 U.S.C. 101(51D), 308.

These periodic reports are associated with an open bankruptcy case. Therefore, the exemption under 5 CFR 1320.4(a)(2) applies.

This Rule does not require the preparation of an assessment statement in accordance with the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1531. This Rule does not include a federal mandate that may result, in the aggregate, in the annual expenditure by State, local, and tribal governments, or by the private sector, of more than the annual threshold established by the Act ($123 million in 2005, adjusted annually for inflation). Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

This Rule is not a major rule as defined by section 804 of the Small Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 801 et seq. This Rule will not result in an annual effect on the economy of $100 million or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, and innovation; or have significant adverse effects on the ability of United States-based companies to compete with foreign-based companies in domestic and export markets.

28 U.S.C. 589b authorizes the collection of the information in the periodic reports. As part of the debtor-in-possession's or trustee's reporting obligations, the United States Trustee will review the information contained in these reports. The United States Trustee will not share the information with any other entity unless authorized under the Privacy Act, 5 U.S.C. 552a et seq. EOUST has published a System of Records Notice that delineates the routine use exceptions authorizing disclosure of information. See 71 FR 59818, 59819 (Oct. 11, 2006), JUSTICE/UST-001, “Bankruptcy Case Records and Associated Files.” Providing this information is mandatory under 11 U.S.C. 704, 1106, and 1107.

For the reasons set forth in the preamble, 28 CFR part 58 is amended as set forth below.

I. Table of Abbreviations CFR Code of Federal Regulations COTP Captain of the Port DHS Department of Homeland Security FR Federal Register NPRM Notice of Proposed Rule Making § Section U.S.C. United States Code II. Background Information and Regulatory History

The Coast Guard is issuing this temporary rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a Notice of Proposed Rulemaking (NPRM) with respect to this rule because it is impracticable. The Coast Guard did not receive sufficient details to evaluate the drilling and blasting in Narragansett Bay until November 23, 2020. It is impracticable to publish an NPRM because we must establish this safety zone by December 30, 2020, but lack sufficient time to collect public comments and to address them before issuing the rule.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making it effective less than 30 days after publication in the Federal Register . For reasons stated in the preceding paragraph, delaying the effective date of this rule would be impracticable and contrary to the public interest because timely action is needed to respond to the potential safety hazards associated with the drill and blast project.

The Coast Guard is issuing this rule under authority in 46 U.S.C. 70034 (previously 33 U.S.C. 1231). The Captain of the Port (COTP) Sector Southeastern New England has determined that potential hazards exist with the loading of explosives, transit of explosives and storage of explosives on the barge M. J. VERROCHI during the drill and blast project. This rule is needed to protect personnel, vessels, and the marine environment in the navigable waters within the safety zone.

This rule establishes a safety zone from December 30, 2020 through January 31, 2021. The safety zone will cover all navigable waters within 1,700 feet of the barge M. J. VERROCHI used for dredging operations in Narragansett Bag near Quonset, RI. The duration of the zone is intended to protect personnel, vessels, and the marine environment in these navigable waters while the barge M. J. VERROCHI conducts dredging operations that include drilling and blasting. No vessel or person will be permitted to enter the safety zone without obtaining permission from the COTP or a designated representative. The Coast Guard will notify the public and local mariners of this safety zone through appropriate means, which may include, but are not limited to; publication in the Local Notice to Mariners and Broadcast Notice to Mariners via marine Channel 16 (VHF-FM) in advance of any enforcement.

We developed this rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders and we discuss First Amendment rights of protestors.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13771 directs agencies to control regulatory costs through a budgeting process. This rule has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, it has not been reviewed by the Office of Management and Budget (OMB), and pursuant to OMB guidance it is exempt from the requirements of Executive order 13771.

This regulatory action determination is based on the size, location, duration, and time-of-year of the safety zone. This safety zone will restrict vessel traffic from entering or transiting in Narragansett Bay within 1,700 foot radius around the barge M. J. VERROCHI. Moreover, the Coast Guard will issue Broadcast Notice to Mariners via VHF-FM marine channel 16 about the safety zone, and vessel traffic will be able to seek permission from COTP to safely transit through the zone.

The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule would not have a significant economic impact on a substantial number of small entities.

While some owners or operators of vessels intending to transit the safety zone may be small entities, for the reasons stated in section V.A above, this rule will not have a significant impact on any vessel owner or operator.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule would not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

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

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

We have analyzed this rule under Department of Homeland Security Directive 023-01, Rev. 1, associated implementing instructions, and Environmental Planning COMDTINST 5090.1 (series), which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves the establishment of a safety zone on the navigable waters of Narragansett Bay, RI that will prohibit entry within a 1,700 foot radius of the barge M. J. VERROCHI. It is categorically excluded from further review under paragraph L60(a) of Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 01. A Record of Environmental Consideration supporting this determination is available in the docket. For instructions on locating the docket, see the ADDRESSES section of this preamble.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places, or vessels.

We view public participation as essential to effective rulemaking, and will consider all comments and material received during the comment period. Your comment can help shape the outcome of this rulemaking. If you submit a comment, please include the docket number for this rulemaking, indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation.

We encourage you to submit comments through the Federal eRulemaking Portal at http://www.regulations.gov. If your material cannot be submitted using http://www.regulations.gov, contact the person in the FOR FURTHER INFORMATION CONTACT section of this document for alternate instructions.

We accept anonymous comments. All comments received will be posted without change to http://www.regulations.gov and will include any personal information you have provided. For more about privacy and the docket, visit http://www.regulations.gov/privacyNotice.

Documents mentioned in this TIR as being available in the docket, and all public comments, will be in our online docket at http://www.regulations.gov and can be viewed by following that website's instructions. Additionally, if you go to the online docket and sign up for email alerts, you will be notified when comments are posted or a final rule is published.

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

The USPTO is amending the rules of practice in patent cases at 37 CFR 1.27 to clarify and expand exceptions to the rule pertaining to government use licenses and their effect on small entity status for purposes of paying reduced patent fees, so as to support independent inventors, small business concerns, and nonprofit organizations in filing patent applications. The government use license exceptions in this rulemaking are the only exceptions to the general rule that every party holding rights to an invention must qualify as a small entity under 37 CFR 1.27 in order for small entity status to be claimed in a patent application.

The first exception—in section 1.27(a)(4)(i)—covers a government use license that a Federal employee-inventor is obligated to grant if he/she is allowed to retain title to the workplace invention pursuant to a rights determination under Executive Order (E.O.) 10096. The Office is amending the regulations to specify that this exception applies to the use license reserved to the Federal Government when a Federal employee, including an employee of a Federal laboratory, is allowed, under 15 U.S.C. 3710d(a), to retain title to the workplace invention. The Office is also expanding the exception to cover a government use license to a Federal agency arising from an inventor's retention of rights under 35 U.S.C. 202(d), when the inventor is the employee of a small business or nonprofit organization contractor performing research under a funding agreement with the Federal agency, and the government use license is equivalent to that specified in 35 U.S.C. 202(c)(4). Retention of rights by the inventor under 35 U.S.C. 202(d) becomes possible when the contractor performing research under a Federal funding agreement does not elect to retain title to the invention, and the Federal agency is not interested in pursuing the patent rights either. Provided the Federal agency receives no more than the government use license and there is no other interest in the invention held by a party not qualifying as a small entity, the inventor who otherwise qualifies for small entity status is not prohibited from claiming small entity status as a result of retaining rights under 35 U.S.C. 202(d), to his or her invention.

The second exception—in section 1.27(a)(4)(ii)—provides that a small business concern or nonprofit organization, which otherwise qualifies as a small entity for purposes of paying reduced patent fees under 37 CFR 1.27, is not disqualified as a small entity because of a license to a Federal agency pursuant to 35 U.S.C. 202(c)(4). Section 202(c)(4) reserves to the Federal agency a government use license in any invention made by a “contractor” ( e.g., small business concern or nonprofit organization) pursuant to activities under a “funding agreement,” as those terms are defined in 35 U.S.C. 201(b) and (c), when the contractor elects to retain title to a subject invention. It was brought to the USPTO's attention that much uncertainty existed as to whether the paragraph (a)(4)(ii) exception applies in cases in which there is a Federal employee co-inventor. In response, this rule amends 37 CFR 1.27(a)(4)(ii) to refer to 35 U.S.C. 202(e)(1), which permits the Federal agency, in the case of a Federal employee co-inventor, to “license or assign whatever rights it may acquire in the subject invention to the nonprofit organization, small business firm, or non-Federal inventor . . . ” Section 1.27(a)(4)(ii) is being clarified to explicitly state that when the Federal agency takes action under 35 U.S.C. 202(e)(1) to place all ownership rights with the contractor, leaving to the Federal agency only the government use license under 35 U.S.C. 202(c)(4), the exception under section 1.27(a)(4)(ii) still applies. This is appropriate, given that a small entity contractor joint owner of a patent has the right to “make, use, offer to sell, or sell the patented invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owners” pursuant to 35 U.S.C. 262. Furthermore, Federal agency action to assign rights under 35 U.S.C. 202(e)(1) leaves to the Federal agency only the government use license, which is what the Federal agency would have acquired had there been no Federal employee co-inventor.

Cooperative research and development agreements (CRADAs) are another important tool to promote collaboration between Federal agencies and non-Federal parties, including those qualified as small entities. In support of research consistent with the mission of the Federal “laboratory” as that term is defined in 15 U.S.C. 3710a(d)(2), under CRADAs, the Government, through its laboratories, provides personnel, facilities, equipment, intellectual property, or other resources, except for funds to non-Federal parties, and the non-Federal parties provide their own resources, which may include funds, for the collaborative activities. A CRADA may stipulate that the collaborating party assumes responsibility for the filing and prosecution of a patent application directed to a joint invention made under the CRADA and retains title to such invention, with the goal of achieving the practical application of technology advancements through commercialization. The Federal law providing for CRADAs (15 U.S.C. 3710a) reserves an obligatory government use license in exchange for ownership rights retained by the collaborating party much the same way as discussed above with respect to Federal funding agreements and Government employee inventions. It was reported that some small businesses and nonprofit organizations were hesitant to enter into CRADAs with the Federal Government because, prior to this rulemaking, they would have automatically lost their small entity status and would have to pay full patent fees (undiscounted patent fees) as a result of granting the government use license or the Government's interest in a joint invention. In response to these concerns, and in order to encourage small business and nonprofit organization collaborating parties to take the initiative for filing and prosecuting patent applications for their inventions at no expense to the Government, this rule expands the exceptions in 37 CFR 1.27(a)(4) by adding a new section, 1.27(a)(4)(iii), that covers government use licenses that arise in certain situations when an otherwise qualifying small entity retains ownership rights to its invention made under a CRADA. This expansion of the government use license exception, as it pertains to federally supported research, is consistent with the President's “Return on Investment Initiative,” as it applies to transferring technology to the private sector that originated from federally funded research or non-funded research performed at a Federal agency laboratory. See NIST Special Publication 1234 titled “Return on Investment Initiative for Unleashing American Innovation” (April 2019).

Background: The Patent and Trademark Law Amendments Act, Public Law 96-517, 94 Stat. 3015 (Dec. 12, 1980)—commonly referred to as the Bayh-Dole Act—added chapter 18 (sections 200 et seq. ) to 35 U.S.C. to “encourage maximum participation . . . in federally supported research and development efforts” (35 U.S.C. 200) by giving small businesses and nonprofit organizations the ability to elect to retain title to their inventions made under Federal funding agreements. For more than 35 years prior to this rulemaking, the USPTO has provided the exception—now at 37 CFR 1.27(a)(4)(ii)—for Bayh-Dole Act government use licenses under 35 U.S.C. 202(c)(4). Similar to the Bayh-Dole Act, the Stevenson-Wydler Technology Innovation Act of 1980, Public Law 96-480, 94 Stat. 2311 (Oct. 21, 1980), as amended by the Federal Technology Transfer Act of 1986, Public Law 99-502, 100 Stat. 1785 (Oct. 20, 1986) (FTTA), seeks to promote development and utilization of technologies made with Federal support. Unlike the Bayh-Dole Act, whereby support is in the form of Federal funding, the FTTA, among other things, authorized CRADAs as the basis for research collaboration between Federal agencies and private sector businesses and organizations, including small business concerns and nonprofit organizations. Unlike 35 U.S.C. 202(c)(4) government use licenses, the patent rules did not previously provide an exception for government use licenses reserved to the Government under CRADAs in exchange for the small business concern or nonprofit organization's retention of ownership rights to its invention made during research at the partnering Federal laboratory. In response to feedback from Federal agencies concerning the importance of the small entity discount to promote collaboration with small businesses and nonprofit organizations and technology transfer efforts of Federal agencies and laboratories, the USPTO is revising the patent rules to add a government use license exception that applies to small entities that make an invention under a CRADA with a Federal laboratory.

The statutory provisions for CRADAs, similar to those for Federal funding agreements under the Bayh-Dole Act, reserve to the Federal Government use licenses for inventions made under a CRADA. 35 U.S.C. 202(c)(4), which provides the Bayh-Dole Act version of the government use license, and the CRADA government use license found in 15 U.S.C. 3710a(b)(2) and 3710a(b)(3)(D), are practically identical in scope. As set forth in 35 U.S.C. 202(c)(4):

Under the Bayh-Dole Act provisions, the awardee of Federal funding is called a “contractor.” Under the CRADA provisions of the FTTA, the term used for a participating non-Federal party is “collaborating party.” In addition, the CRADA government use license refers to “the laboratory” or “the Government” as the recipient, rather than “the Federal agency.”

The patent rules continue to provide a government use license exception for licenses arising under 35 U.S.C. 202(c)(4). Being added are exceptions for government use licenses that may arise under a CRADA pursuant to 15 U.S.C. 3710a(b)(2) or 3710a(b)(3)(D). Section 3710a(b)(2) concerns the use license reserved to the Government for an invention made solely by employees of the collaborating party, and section 3710a(b)(3)(D) concerns the use license reserved to the Government when the laboratory waives ownership rights to a subject invention made by the collaborating party or an employee of the collaborating party. This rulemaking adds to 37 CFR 1.27 a new paragraph (a)(4)(iii) providing an additional exception for government use licenses under 15 U.S.C. 3710a(b)(2) and 3710a(b)(3)(D) for inventions made by small entities under a CRADA with a Federal laboratory.

Further, with respect to the exception for the government use license under 35 U.S.C. 202(c)(4) as it existed prior to this rulemaking, it was reported to the USPTO that small business firms and nonprofit organizations had become increasingly concerned that contributions of Federal employees in joint inventions could eliminate their entitlement to small entity status. In response, the section 1.27(a)(4)(ii) exception—the so-called “federal licensing safe harbor provision”—is amended to clarify in a new paragraph (B) that the exception applies when there is a Federal employee co-inventor, and action is taken under 35 U.S.C. 202(e)(1) by the Federal agency. Under section 202(e)(1), the funding Federal agency may license or assign whatever rights the Federal agency acquired in the subject invention, made by the contractor with a Federal employee co-inventor, to the contractor, in accordance with the provisions of 35 U.S.C. chapter 18, which include a government use license. The section 1.27(a)(4)(ii) exception is amended to explicitly apply, under new paragraph (B), to such situations. When an employee of the small entity contractor and an employee of the Federal agency are co-inventors, the small entity contractor, by virtue of an assignment from the contractor employee or the employee's current obligation to assign, would still have an undivided ownership interest in the joint invention. The undivided interest to the joint owner is provided at 35 U.S.C. 262. The requirement for an assignment or a currently existing obligation to assign is set forth in Board of Trustees of Leland Stanford Junior University v. Roche Molecular Systems, Inc., 563 U.S. 776 (2011), where the Court held: “[o]nly when an invention belongs to the contractor does the Bayh-Dole Act come into play.” Id. at 790. In addition, “ . . . unless there is an agreement to the contrary, an employer does not have rights in an invention `which is the original conception of the employee alone.' ” Id. at 786. Accordingly, when action is taken by the Federal agency under 35 U.S.C. 202(e)(1), the contractor could elect to retain full ownership rights. These ownership rights would be the same as those retained by a contractor under new paragraph (A) of section 1.27(a)(4)(ii), which applies when the subject invention was made solely by the small entity contractor employee(s). 35 U.S.C. 202(e) refers to this as “consolidating rights.”

Consistent with the foregoing, this rule change clarifies that a use license under 35 U.S.C. 202(c)(4) resulting from a funding agreement with a Federal agency does not preclude claiming small entity status in the case of a Federal employee co-inventor when the Federal agency employing such co-inventor took action pursuant to 35 U.S.C. 202(e)(1), to exclusively license or assign whatever rights currently held or that it may acquire in the subject invention to the small business concern or nonprofit organization, subject to the license under 35 U.S.C. 202(c)(4). This is set forth in new paragraph (B) of section 1.27(a)(4)(ii). Of course, claiming small entity status in such a case would also require that no other interest in the invention is held by a party not qualifying as a small entity. Thus, new paragraph (B) clarifies, but does not change, the applicability of section 1.27(a)(4)(ii) in cases in which consolidation of rights to a small entity contractor has occurred under 35 U.S.C. 202(e)(1). This clarification is important, given that prior to this rulemaking, there may have been uncertainty as to whether the section 1.27(a)(4)(ii) exception could ever apply in cases in which there is a Federal employee co-inventor. Accordingly, notwithstanding the effective date of this rulemaking, for any small business concern or nonprofit organization contractor to which new paragraph (B) of section 1.27(a)(4)(ii) applies, the three-month time period under 37 CFR 1.28(a) for requesting a refund based on later establishment of small entity status is not affected by this rulemaking. This accounts for the possibility that a small business concern or nonprofit organization contractor, to which paragraph (B) of section 1.27(a)(4)(ii) applies, might have paid full fees within three months prior to the effective date of this rulemaking based on a misunderstanding of the applicability of section 1.27(a)(4)(ii) as it existed prior to this rulemaking. In that event, the small business concern or nonprofit organization qualifying as a small entity, by virtue of paragraph (B) of section 1.27(a)(4)(ii), could take advantage of the provisions under 37 CFR 1.28(a) to obtain a refund based on later establishment of small entity status. A refund request under section 1.28(a) is really a request for a partial refund, since a section 1.28(a) refund is based on applying a discount subsequent to payment of the full fee.

Section 1.28(a) requires that the request for a refund of the excess amount, and an accompanying assertion of small entity status, be “filed within three months of the date of timely payment of the full fee.” Except for the three-month window of opportunity provided by 37 CFR 1.28(a), the failure to establish status as a small entity in any application or patent prior to paying, or at the time of paying, any fee (1) precludes payment of the fee in the small entity amount, and (2) precludes a refund, pursuant to 37 CFR 1.26, of any portions of fees paid prior to establishing status as a small entity. Accordingly, any request for a refund under section 1.28(a) based on the clarifying effect of new paragraph (B) of section 1.27(a)(4)(ii) would only be appropriate if filed within three months of payment of the full fee, notwithstanding the effective date of this final rule. Because section 1.27(a)(4)(iii) sets forth a new government use license exception not available prior to the effective date of this rulemaking, a refund under section 1.28(a) for later establishment of small entity status on the basis of the new section 1.27(a)(4)(iii) exception could be obtained only for full patent fees that were timely paid on or after the effective date of this rulemaking and requested within three months of payment of the full fee.

Regarding new section 1.27(a)(4)(iii), which applies to government use licenses arising under a CRADA where the small entity retains all ownership rights, paragraph (B) covers situations in which the Federal laboratory took action under 15 U.S.C. 3710a(b)(3)(D), to waive in whole any right of ownership the Government may have to the subject invention made by the small business concern or nonprofit organization. Paragraph (A) of section 1.27(a)(4)(iii) applies to government use licenses arising in situations in which the invention to which title is retained, was made solely by the employee of the small business concern or nonprofit organization. Thus, consolidation of rights to a small entity collaborating party, under the CRADA provision of 15 U.S.C. 3710a(b)(3)(D), is treated similarly to the way in which consolidation of rights to a contractor, under the Bayh-Dole Act provision of 35 U.S.C. 202(e)(1), is treated under 37 CFR 1.27(a)(4)(ii). All the exceptions under 37 CFR 1.27(a)(4)(i) through (iii) require that the Government or the Federal agency receive no more than the applicable government use license and that there is no other interest in the invention held by a party not qualifying as a small entity.

New section 1.27(a)(4)(iv) is added to specify that regardless of whether a government use license exception applies, no refund under 37 CFR 1.28(a) is available for any patent fee paid by the Government.

When the exception at 37 CFR 1.27(a)(4) was originally promulgated, the basis for the exception, as it related to the obligatory license to the Federal government under 35 U.S.C. 202(c)(4), was “to avoid frustrating the intent of Public Law 97-247 and Pub. L. 96-517 when taken together.” See Revision of Patent Practice, 49 FR 548, Jan. 4, 1984. (Pub. L. 97-247 was a 1982 appropriations act from which the small entity discount originated, and Public Law 96-517 is a reference to the Bayh-Dole Act of 1980.) No such basis exists for extending the government use license exceptions to the micro entity provisions. In addition, although the USPTO can provide for government use license exceptions for small entity status qualification, these exceptions cannot apply for purposes of qualifying as a micro entity on the gross income basis. The reason for this is that the statute authorizing micro entity patent fee discounts—35 U.S.C. 123(a)(4)—disqualifies an entity from micro entity status if it has assigned, granted, or conveyed a license or other ownership interest in the invention to an entity that exceeded the gross income limit (currently $206,109) in its previous calendar year's gross income. Because a “gross national income” is attributed to the United States each year, any government use license runs afoul of the 35 U.S.C. 123(a)(4) qualification requirement. Accordingly, a government use license may not disqualify an applicant from a small entity status, but does disqualify the applicant from micro entity status. This applies to micro entity status on the “institution of higher education basis” under section 1.29(d) as well as micro entity status on the “gross income basis” under section 1.29(a). A clarifying amendment to 37 CFR 1.29 is made in order to explicitly reflect this.

Discussion of Regulatory Changes: These rule changes amend 37 CFR 1.27(a)(4) to clarify and expand the exceptions to the general rule that every party holding rights to an invention must qualify as a small entity under 37 CFR 1.27 in order for small entity status to be properly claimed.

A new introductory clause is added to 37 CFR 1.27(a)(4) to limit eligibility for each government use license exception to patent applications filed and prosecuted at no expense to the Government, with the exception of any expense taken to deliver the application and fees to the USPTO on behalf of the applicant. A new paragraph (a)(4)(iv) is added to 37 CFR 1.27 to specify that regardless of whether a government use license exception applies, no refund under 37 CFR 1.28(a) is available for any patent fee paid by the Government. To overcome any reluctance of research partners to take responsibility for seeking patent protection of federally supported inventions, the new section 1.27(a)(4) introductory clause, combined with new paragraph (a)(4)(iv), should encourage small business concern and nonprofit organization contractors and collaborators to take the lead in seeking patent protection.

The regulations at 37 CFR 1.27(a)(4)(i) have long provided an exception for a government use license resulting from a rights determination under E.O. 10096, wherein title to the invention is retained by a Federal employee-inventor (“a person” as defined in 37 CFR 1.27(a)(1)). That exception is being amended to acknowledge the regulations contained in 37 CFR part 501, which implement E.O. 10096. This is done by making reference in the rule to 37 CFR 501.6, which substantially incorporates the E.O. 10096 criteria for the determination of rights in and to any invention made by a Government employee. This exception, as amended by this rulemaking, remains in section 1.27(a)(4)(i) under a new paragraph (A). A new paragraph (B) is added to section 1.27(a)(4)(i), referring to 15 U.S.C. 3710d(a), which provides for disposal of title to an invention from the Federal agency to the Federal employee-inventor, as well as the conditions under which the employee obtains or retains title to the invention, subject to a government use license. Accordingly, paragraphs 1.27(a)(4)(i)(A) and (B) both relate to the government use license exception in the context of Federal employee-inventors who retain title to their work inventions, subject to a government use license. Also added to section 1.27(a)(4)(i) is a new paragraph (C) for government use licenses to a Federal agency resulting from retention of rights by the inventor under 35 U.S.C. 202(d), when a small business concern or nonprofit organization contractor does not elect to retain title to an invention made by its employee under a Federal funding agreement. Provided the Federal agency receives no more than the government use license, and there is no other interest in the invention held by a party not qualifying as a small entity, the inventor who otherwise qualifies for small entity status is not prohibited from claiming small entity status as a result of retaining rights under 35 U.S.C. 202(d), to his or her invention. This exception is contingent upon the inventor meeting the conditions applicable under 37 CFR 401.9, to an employee/inventor of the small business firm or nonprofit organization contractor not electing to retain title. (37 CFR part 401 implements the provisions of the Bayh-Dole Act codified in 35 U.S.C. 200-212.) Compared to what was proposed in the February 5, 2020, notice of proposed rulemaking (NPRM) at 85 FR 6476, the language of new paragraph 1.27(a)(4)(i)(C) is changed for clarity. For example, a specific reference to the 35 U.S.C. 202(c)(4) government use license was added, as well as the term “employee/inventor,” which is the term 37 CFR 401.9 uses to refer to the contractor's employee. No new requirement is added to paragraph 1.27(a)(4)(i)(C) compared to the proposed requirements. Thus, section 1.27(a)(4)(i) continues to apply to small entity “persons,” as defined in 37 CFR 1.27(a)(1), and as amended by this rulemaking, sets forth three types of government use licenses that would not disqualify a patent applicant from claiming small entity status for purposes of paying reduced patent fees.

With respect to “small business concerns” and “nonprofit organizations,” as defined in 37 CFR 1.27(a)(2) and (3), there are generally two types of agreements into which they enter with the Federal Government that are pertinent to this rulemaking: (1) Federal funding agreements under the Bayh-Dole Act (as defined in 35 U.S.C. 201(b)), and (2) CRADAs, as provided for in 15 U.S.C. 3710a. Both of these agreements require a government use license to be granted to the Federal Government by the entity or person retaining title to an invention made under such agreement. The regulations at section 1.27(a)(4)(ii) continue to provide an exception for Bayh-Dole Act government use licenses under 35 U.S.C. 202(c)(4). To clarify that exception, new paragraphs (A) and (B) are added to section 1.27(a)(4)(ii). Paragraph 1.27(a)(4)(ii)(A) applies to the situation in which the invention under a Federal funding agreement was made solely by employees of the small business concern or nonprofit organization. Paragraph 1.27(a)(4)(ii)(B) addresses situations in which there is a Federal employee co-inventor.

Prior to this rulemaking, the patent rules did not provide any exception for use licenses reserved to the Government under a CRADA. The rule change provides an additional exception, in a new section 1.27(a)(4)(iii), for government use licenses for inventions made by small entities under a CRADA in situations under 15 U.S.C. 3710a(b)(2) and 3710a(b)(3)(D), wherein the small entity retains title to the invention.

Section 1.29 is amended to clarify that the government use license exceptions under 37 CFR 1.27(a)(4) do not apply for purposes of micro entity status qualification. The baseline small entity requirement under sections 1.29(a)(1) and (d)(1) cannot be met if qualification as a small entity under 37 CFR 1.27 depends on one of the government use license exceptions specified in 37 CFR 1.27(a)(4).

The USPTO published a notice proposing changes to the rules of practice in patent cases to clarify and expand exceptions to the rule pertaining to government use licenses and their effect on small entity status for purposes of paying reduced patent fees, so as to support independent inventors, small business concerns, and nonprofit organizations in filing patent applications. See Small Entity Government Use License Exception, 85 FR 6476 (February 5, 2020). In response, the Office received two comments, one from a nonprofit association and one from an attorney, both of which fully endorsed the purpose and the content of the proposed changes. The Office thanks these commenters for their feedback.

A. Administrative Procedure Act: The changes in this rulemaking involve rules of agency practice and procedure, and/or interpretive rules. See Perez v. Mortg. Bankers Ass'n, 135 S. Ct. 1199, 1204 (2015) (Interpretive rules “advise the public of the agency's construction of the statutes and rules which it administers.” (citation and internal quotation marks omitted)); 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.); 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 standard for reviewing claims.).

Accordingly, prior notice and opportunity for public comment for the changes in this rulemaking are not required pursuant to 5 U.S.C. 553(b) or (c), or any other law. See Perez, 135 S. Ct. at 1206 (Notice and comment procedures are required neither when an agency “issue[s] an initial interpretive rule” nor “when it amends or repeals that interpretive rule.”); 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), do not require notice and comment rulemaking for “interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice” (quoting 5 U.S.C. 553(b)(A))). However, the Office chose to seek public comment before implementing the rule to benefit from the public's input.

B. Regulatory Flexibility Act: Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), whenever an agency is required by 5 U.S.C. 553 (or any other law) to publish an NPRM, the agency must prepare and make available for public comment an Initial Regulatory Flexibility Analysis, unless the agency certifies under 5 U.S.C. 605(b) that the proposed rule, if implemented, will not have a significant economic impact on a substantial number of small entities. 5 U.S.C. 603, 605. The Senior Counsel for Regulatory and Legislative Affairs in the Office of General Law of the USPTO certified to the Chief Counsel for Advocacy of the Small Business Administration that the NPRM will not have a significant economic impact on a substantial number of small entities. See 5 U.S.C. 605(b). For the reasons set forth herein, the Senior Counsel for Regulatory and Legislative Affairs in the Office of General Law of the USPTO has certified to the Chief Counsel for Advocacy of the Small Business Administration that this final rule will not have a significant economic impact on a substantial number of small entities.

The USPTO is amending the rules of practice in patent cases to clarify and expand exceptions to the rule pertaining to government use licenses and their effect on small entity status for purposes of paying reduced patent fees, so as to support independent inventors, small business concerns, and nonprofit organizations in filing patent applications. To be entitled to pay small entity patent fees, all parties holding rights in the invention must qualify for small entity status. Prior to this rulemaking, there were two exceptions to this rule, both of which continue to apply, as clarified and expanded by this rulemaking. Both these exceptions relate to government use licenses granted under the law by independent inventors, small business concerns, or nonprofit organizations otherwise qualifying as a small entity, where such entities retain title to their inventions. The first exception applies when an inventor employed by the Federal Government has an obligation to grant the government use license in the workplace invention in which the inventor obtains title pursuant to a rights determination under E.O. 10096. This exception continues to apply and is amended to clarify that it applies to employees of Federal laboratories under 15 U.S.C. 3710d(a). The second exception applies when the government use license in the Government-funded invention is an obligation (pursuant to 35 U.S.C. 202(c)(4)) under a funding agreement with a Federal agency. This exception is expanded to cover the situations in which a small business concern or nonprofit organization qualifying as a small entity does not elect to retain title to an invention made by its employee under a Federal funding agreement, and the Federal agency allows the inventor to retain title to the federally funded invention. In that case, a government use license (equivalent to that specified in 35 U.S.C. 202(c)(4)) is an obligation arising from the employee's retention of rights under 35 U.S.C. 202(d). The second exception is also expanded to address situations in which there is a Federal employee co-inventor. Further, this rulemaking adds a third exception to cover a government use license arising from an obligation under a CRADA with a Federal agency pursuant to 15 U.S.C. 3710a(b). Regardless of whether any of the aforementioned exceptions apply, no refund is available for any patent fee paid by the Government. In addition, patent applications filed and prosecuted at Government expense will not be entitled to the small entity discount. Finally, the qualifications for the micro entity patent fee discount are clarified.

The rule changes are designed to encourage persons, small businesses, and nonprofit organizations to collaborate with the Federal Government by providing an opportunity to qualify for the small entity patent fees discount for inventions made during the course of federally funded or federally supported research. Thus, this rule allows more entities to qualify for the small entity fee discount; these entities may qualify for a 50% reduction in fees, resulting in a substantial cost savings to them. Although the cost savings may be substantial, this rule is not expected to impact a large number of small entities. We estimate the number of small entities impacted by this rule to be in the range of 750 to 1,000, based on the number of active CRADAs reported for FY 2015 and its projected growth.

These changes are procedural and are not expected to have a direct economic impact on small entities. For the reasons described above, this rule is not expected to have a significant economic impact on a substantial number of small entities.

C. Executive Order 12866 (Regulatory Planning and Review): This rulemaking has been determined to be not significant for purposes of Executive Order 12866 (Sept. 30, 1993).

D. Executive Order 13563 (Improving Regulation and Regulatory Review): The Office has complied with Executive Order 13563 (Jan. 18, 2011). Specifically, the Office has, to the extent feasible and applicable: (1) Made a reasoned determination that the benefits justify the costs of the rule; (2) tailored the rule to impose the least burden on society consistent with obtaining the regulatory objectives; (3) selected a regulatory approach that maximizes net benefits; (4) specified performance objectives; (5) identified and assessed available alternatives; (6) involved the public in an open exchange of information and perspectives among experts in relevant disciplines, affected stakeholders in the private sector, and the public as a whole, and provided online access to the rulemaking docket; (7) attempted to promote coordination, simplification, and harmonization across Government agencies and identified goals designed to promote innovation; (8) considered approaches that reduce burdens and maintain flexibility and freedom of choice for the public; and (9) ensured the objectivity of scientific and technological information and processes.

E. Executive Order 13771 (Reducing Regulation and Controlling Regulatory Costs): This rule is not an Executive Order 13771 regulatory action because this rule is not significant under Executive Order 12866 (Jan. 30, 2017).

F. 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).

G. 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).

H. 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).

I. 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).

J. 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).

K. 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).

L. Congressional Review Act: Under the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq. ), prior to issuing any final rule, the USPTO will submit a report containing the rule and other required information to the United States Senate, the United States House of Representatives, and the Comptroller General of the Government Accountability Office. The changes in this rulemaking are not expected to result in an annual effect on the economy of $100 million 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 rulemaking is not a “major rule” as defined in 5 U.S.C. 804(2).

M. Unfunded Mandates Reform Act of 1995: The changes set forth in this rulemaking 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 (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 (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.

N. National Environmental Policy Act of 1969: 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 et seq.

O. National Technology Transfer and Advancement Act of 1995: 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 that involve the use of technical standards.

P. Paperwork Reduction Act of 1995: The Paperwork Reduction Act of 1995 (44 U.S.C. 3501) requires that the Office consider the impact of paperwork and other information collection burdens imposed on the public. This rulemaking does not involve any new information collection requirements that are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

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

For the reasons stated in the preamble, 37 CFR part 1 is amended as follows:

Executive Summary

Purpose: This final rule amends the rules of practice for IPR, PGR, and CBM proceedings that implement provisions of the Leahy-Smith America Invents Act, Public Law 112-29, 125 Stat. 284 (2011) (AIA) providing for post-grant trials before the Office. 1

Pursuant to the AIA, during the course of an IPR, PGR, or CBM proceeding, a patent owner may file a motion to amend the patent by canceling any challenged patent claim or by proposing a reasonable number of substitute claims for each challenged claim. 35 U.S.C. 316(d)(1), 326(d)(1).

Previously, relying on a general rule that a movant bears the burden of proof with respect to motions before the Board (37 CFR 42.20(c)), the Office placed the burden of showing the patentability of proposed substitute claims on the patent owner moving to amend a patent in a trial proceeding. On October 4, 2017, the United States Court of Appeals for the Federal Circuit issued an en banc decision in Aqua Prods., Inc. v. Matal, 872 F.3d 1290 (Fed. Cir. 2017) (en banc) ( Aqua Products ), in which a majority of the judges concluded that the Office had not adopted a rule allocating the burden of persuasion with respect to the patentability of proposed substitute claims and that, in the absence of any rulemaking, the burden of proving the unpatentability of the proposed substitute claims could not be placed on the patent owner.

In light of Aqua Products, as well as public comments provided in response to a request for comments ( see 83 FR 54319), the Office issued a notice of proposed rulemaking, which proposed specific rules allocating the burdens of persuasion in relation to motions to amend ( see 84 FR 56401). The proposed rule, as modified herein, is now made final.

The final rule assigns the burden of persuasion to the patent owner to show, by a preponderance of the evidence, that a motion to amend complies with certain statutory and regulatory requirements for a motion to amend ( i.e., 35 U.S.C. 316(d) or 326(d); 37 CFR 42.121(a)(2), (a)(3), (b)(1), (b)(2), or 42.221(a)(2), (a)(3), (b)(1), (b)(2)). The final rule also assigns the burden of persuasion to the petitioner to show, by a preponderance of the evidence, that any proposed substitute claims are unpatentable. The final rule further specifies, however, irrespective of those burdens and the adversarial nature of the proceeding, that the Board may, in the interests of justice, exercise its discretion to grant or deny a motion to amend, but only for reasons supported by readily identifiable and persuasive evidence of record in the proceeding. In doing so, the Board may make of record only readily identifiable and persuasive evidence in a related proceeding before the Office or evidence that a district court can judicially notice. Where the Board exercises its discretion in such circumstances, the parties will have an opportunity to respond.

The Office anticipates that the Board will exercise its discretion in the context of motions to amend only in rare circumstances. Specifically, the “interests of justice” in the final rule means that the Board will apply the same standards articulated in Hunting Titan, Inc. v. DynaEnergetics Europe GmbH, IPR2018-00600 (PTAB July 6, 2020) (Paper 67) ( Hunting Titan ). Thus, the phrase “in the interests of justice” in the final rule refers to situations in which the adversarial process fails to provide the Board with potential arguments relevant to granting or denying a motion to amend. Id. at 12-13, 25-26.

Such situations may include, for example, those in which the petitioner has ceased to participate in the proceeding or chooses not to oppose the motion to amend, or those in which certain evidence regarding unpatentability has not been raised by either party but is so readily identifiable and persuasive that the Board should take it up in the interest of supporting the integrity of the patent system, notwithstanding the adversarial nature of the proceedings. Id. Similarly, such situations may also include those in which a patent owner does not expressly address or establish every statutory and regulatory requirement for a motion to amend in its briefing, but evidence of compliance with those requirements is so readily identifiable and persuasive that the Board should take it up in the interest of supporting the integrity of the patent system, notwithstanding the adversarial nature of the proceedings.

Thus, the final rule clarifies the rules of practice for amending claims in an IPR, PGR, or CBM and is consistent with Aqua Products and also with current Board practice as described in the precedential Board decisions in Hunting Titan and Lectrosonics, Inc. v. Zaxcom, Inc., IPR2018-01129 (PTAB Feb. 25, 2019) (Paper 15) ( Lectrosonics ). In response to comments seeking clarification, the final rule also provides additional details to the scope of “readily identifiable and persuasive evidence of record” to include only evidence that the Board may make of record, namely, evidence in a related proceeding before the Office ( i.e., in the prosecution history of the challenged patent or a related patent or application, or in the record of another proceeding before the Office challenging the same patent or a related patent), or evidence that a district court can judicially notice under Federal Rule of Evidence 201. The final rule further expressly states that in instances where the Board exercises its discretion in the interests of justice, the Board will provide the parties an opportunity to respond before rendering a final decision on the motion to amend. As such, the final rule does not reflect a change from current practice.

Costs and Benefits: This rulemaking is not economically significant under Executive Order 12866 (Sept. 30, 1993).

On September 16, 2011, the AIA was enacted into law (Pub. L. 112-29, 125 Stat. 284 (2011)), and within one year, the Office implemented rules to govern Office practice for AIA trials, including IPR, PGR, CBM, and derivation proceedings pursuant to 35 U.S.C. 135, 316, and 326 and AIA sec. 18(d)(2). 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 48612 (Aug. 14, 2012); Changes to Implement Inter Partes Review Proceedings, Post-Grant Review Proceedings, and Transitional Program for Covered Business Method Patents, 77 FR 48680 (Aug. 14, 2012); Transitional Program for Covered Business Method Patents—Definitions of Covered Business Method Patent and Technological Invention, 77 FR 48734 (Aug. 14, 2012). Additionally, the Office published a Trial Practice Guide to advise the public on the general framework of the regulations, including the structure and times for taking action in each of the new proceedings. See Office Patent Trial Practice Guide, 77 FR 48756 (Aug. 14, 2012); see also Office Patent Trial Practice Guide, August 2018 Update, 83 FR 39989 (Aug. 13, 2018); Office Patent Trial Practice Guide, July 2019 Update, 84 FR 33925 (July 16, 2019); Consolidated Trial Practice Guide, 84 FR 64280 (Nov. 21, 2019).

In prescribing these regulations, the Office considered “the effect of any such regulation on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to timely complete proceedings instituted” as required by statute. 35 U.S.C. 316(b), 326(b). The Office also considered the public comments carefully and responded to the comments in these final rules. Among the final rules, the Office promulgated § 42.20(c), which states that a “moving party has the burden of proof to establish that it is entitled to the requested relief.” 37 CFR 42.20(c).

Previously, the Board interpreted the burden of proof requirement of § 42.20(c) to apply to motions to amend filed pursuant to 35 U.S.C. 316 and 326, including the requirement to show that the proposed substitute claims were patentable over the prior art of record. MasterImage 3D, Inc. v. RealD Inc., IPR2015-00040 (PTAB July 15, 2015) (Paper 42) ( MasterImage ). Under MasterImage, which was subsequently made precedential, the patent owner in a proceeding, as the moving party in a motion to amend, bore the burden of showing that the proposed substitute claims were patentable. Id.

On October 4, 2017, the Federal Circuit issued its en banc decision in Aqua Products, addressing the burden of persuasion regarding the patentability of substitute claims presented in a motion to amend. The lead opinion of the decision explains that, in the absence of rulemaking, the USPTO may not place the burden of persuasion on the patent owner to show that proposed substitute claims are patentable.

A separate opinion joined-in-part by a majority of the en banc court observed that “it is well settled that regardless of which party bears the ultimate burden of persuasion, the movant bears a burden of production” and that “the Patent Office has adopted regulations that address what a patent owner must submit in moving to amend the patent.” Id. at 1340-41 (Reyna, J., concurring in part) (citing 37 CFR 42.20(a), 42.22(a), 42.121(a)(2)(i)). The opinion explains that these regulations require a patent owner to “assist[ ] the Board to perform its statutory obligation to `issue a final written decision with respect to the patentability of . . . any new claim added under section 316(d).' ” Id. at 1341 (omission in original) (quoting 35 U.S.C. 318(a)).

In view of the Federal Circuit's decision in Aqua Products, on November 21, 2017, the Office issued formal guidance through a memorandum from the Chief Administrative Patent Judge, explaining that, in light of the Aqua Products decision, the Board would no longer place the burden of persuasion on a patent owner with respect to the patentability of any proposed substitute claims presented in a motion to amend. See Guidance on Motions to Amend in view of Aqua Products, https://go.usa.gov/xQGAA (Guidance Memo). The Guidance Memo also notes that a motion to amend must continue to satisfy the requirements of 37 CFR 42.121 or 42.221 ( e.g., provide a reasonable number of substitute claims and written description support in relation to each substitute claim), as applicable, that all parties continue to have a duty of candor under 37 CFR 42.11, and that the page limits, type, and timing of briefs remain unchanged. Id.

On December 22, 2017, the Federal Circuit issued a related decision in Bosch Auto. Serv. Solutions, LLC v. Matal, 878 F.3d 1027 (Fed. Cir. 2017) ( Bosch ). In that decision, because the petitioner had settled with the patent owner who had proposed substitute claims, the Federal Circuit remanded the case to the Board to evaluate the patentability of the proposed substitute claims. Id. (“[W]here the challenger ceases to participate in the IPR and the Board proceeds to final judgment, it is the Board that must justify any finding of unpatentability by reference to the evidence of record in the IPR.”) (emphasis in original) (quoting Aqua Products, 872 F.3d at 1311 (O'Malley, J.)).

In view of the decisions by the Federal Circuit regarding motion to amend practice and procedure in AIA trials, the Board de-designated as precedential MasterImage, as well as de-designated as informative a prior decision of the Board in Idle Free Sys., Inc. v. Bergstrom, Inc., IPR2012-00027 (PTAB June 11, 2013) (Paper 26), decisions in which the Board panels stated that “[t]he burden is not on the petitioner to show unpatentability, but on the patent owner to show patentable distinction over the prior art of record and also prior art known to the patent owner.” Id. at 7; see also MasterImage, Paper 42 at 2 (quoting Idle Free ). Concurrently, the Board designated an order issued in Western Digital Corp. v. SPEX Techs., Inc., IPR2018-00082, -00084 (PTAB Apr. 25, 2018) (Paper 13) ( Western Digital ) as informative to provide an example of how panels can handle several aspects of the motion to amend practice under the Aqua Products and Bosch precedent. With respect to the burden of persuasion, the Western Digital order explained that under the current state of the law, “the burden of persuasion will ordinarily lie with the petitioner to show that any proposed substitute claims are unpatentable” and that the “Board itself may justify any finding of unpatentability by reference to evidence of record in the proceeding.” Id. at 4.

On March 7, 2018, the Board designated as precedential an order in Lectrosonics and de-designated Western Digital. The Lectrosonics order provides guidance regarding statutory and regulatory requirements for a motion to amend in light of Federal Circuit case law. For example, the Lectrosonics order notes that prior to considering the patentability of any substitute claims, the Board must first determine whether the patent owner has met the statutory and regulatory requirements set forth in 35 U.S.C. 316(d) and 37 CFR 42.121, such as the requirements that the motion proposes a reasonable number of substitute claims and that the amendments do not broaden the scope of the claims. Lectrosonics, Paper 15 at 4-5. The Lectrosonics order also sets out that “the burden of persuasion ordinarily will lie with the petitioner to show that any proposed substitute claims are unpatentable by a preponderance of the evidence.” Id. at 4.

On October 29, 2018, the Office published a Request for Comments on Motion To Amend Practice and Procedures in Trial Proceedings Under the America Invents Act Before the Patent Trial and Appeal Board in the Federal Register (Request for Comments), seeking public comment on various aspects of the Board's amendment practice. 83 FR 54319. Among the questions on which the Board sought public input were the following, directed to the allocation of the burden of persuasion:

In response to the October 2018 Request for Comments, the Office received 49 comments as of December 21, 2018 (the closing date for comments), from intellectual property organizations, trade organizations, other organizations, and individuals. See https://go.usa.gov/xyeFy (collected responses to Request for Comments). 3 4 Approximately 25 of the commenters provided specific responses to Questions 15 and 16 of the Request for Comments. In response to Question 15, the majority of commenters were in favor of the Office engaging in rulemaking to allocate the burden of persuasion as set forth in Western Digital (as discussed in more detail below). Only three commenters believed rulemaking was unnecessary (either because the Board could simply continue to apply its own precedent or because the statute already allocates the burden of persuasion). A minority of commenters stated that the Office should engage in rulemaking but that the burden of persuasion should be placed on the patent owner.

Additionally, in response to Question 15, some commenters suggested that even if the Office promulgates rules to place the burden of persuasion on the petitioner on the issue of patentability of the proposed substitute claims, the patent owner continues to bear the burden to show that the motion to amend complies with the statutory requirements of 35 U.S.C. 316(d) or 326(d) (for example, that the amendment may not enlarge the scope of the claims), as well as the regulatory requirements of 37 CFR 42.121 or 42.221 (for example, that the motion set forth the support for the amendment in the original disclosure of the patent).

In response to Question 16, the majority of responsive comments stated that the Board should be able to justify findings of unpatentability in any circumstance, for example, even when the petitioner remains in the proceeding. Two commenters responded that the Board should never be able to assume the burden of persuasion on unpatentability itself, and three commenters believed that the Board should be permitted to justify findings of unpatentability of proposed substitute claims itself only in certain circumstances, for example, when a petitioner ceases to participate in a proceeding.

In light of the generally positive support for rulemaking to allocate the burden of persuasion as set forth in the Western Digital order (and subsequently made precedential in Lectrosonics ), and in the interest of providing greater clarity, certainty, and predictability to parties participating in AIA trial proceedings before the Board, the Office issued a proposed rule allocating the burden of persuasion.

In the notice of proposed rulemaking issued on October 22, 2019, the Office sought comments on a specific proposed rule clarifying the burdens of persuasion in relation to motions to amend. See Rules of Practice To Allocate the Burden of Persuasion on Motions To Amend in Trial Proceedings Before the Patent Trial and Appeal Board, 84 FR 56401. The proposed rule allocated the burdens of persuasion regarding the patentability of proposed substitute claims as set forth in Lectrosonics and Western Digital. The proposed rule also stated that, irrespective of the burdens of persuasion, the Board may, in the interests of justice, exercise its discretion to grant or deny a motion to amend for any reason supported by the evidence of record. The Office invited the public to provide comments by December 23, 2019. As discussed in more detail below, the Office received a total of 18 comments in response. See https://go.usa.gov/xGXCN (collected responses to notice of proposed rulemaking).

On April 9, 2020, the Federal Circuit issued its opinion in Nike, Inc. v. Adidas AG, 955 F.3d 45 (Fed. Cir. 2020) ( Nike ). In that case, the Federal Circuit concluded that “the Board should not be constrained to arguments and theories raised by the petitioner in its petition or opposition to the motion to amend. . . . Otherwise, were a petitioner not to oppose a motion to amend, the Patent Office would be left with no ability to examine the new claims.” Id. at 51. As such, the Federal Circuit held that “the Board may sua sponte identify a patentability issue for a proposed substitute claim based on the prior art of record.” Id.

Also, on July 6, 2020, the Board's Precedential Opinion Panel (POP) issued a precedential decision in Hunting Titan. This decision addressed two questions: (1) Under what circumstances and at what time during an IPR may the Board raise a ground of unpatentability that a petitioner did not advance or insufficiently developed against substitute claims proposed in a motion to amend; and (2) whether the Board must provide the parties notice and an opportunity to respond to a ground of unpatentability it raises before making a final determination. Hunting Titan, Paper 67 at 3. In Hunting Titan, the POP determined that the Board may, in certain rare circumstances, raise a ground of unpatentability that a petitioner did not advance, or insufficiently developed, against substitute claims proposed in a motion to amend. Id. at 4. Those circumstances are typically limited to situations in which the adversarial process fails to provide the Board with potential patentability arguments with respect to the proposed substitute claims. Id. at 25. Such situations may include, for example, those in which the petitioner has ceased to participate in the proceeding or chooses not to oppose the motion to amend, or those in which certain evidence of unpatentability is not raised by the petitioner but is so readily identifiable and persuasive that the Board should take it up in the interest of supporting the integrity of the patent system, notwithstanding the adversarial nature of the proceedings. Id. at 12-13, 25-26.

The POP also determined that due process requires that a patent owner receive notice of how the prior art allegedly discloses the newly-added limitations of each proposed substitute claim, as well as any theory of unpatentability asserted against those claims, and the patent owner must have the opportunity to respond to those factual allegations and legal theories. Id. at 15. In addition, the POP cited two examples of adequate notice and opportunity to respond, namely, requesting supplemental briefing from the parties regarding the proposed ground for unpatentability or requesting that the parties be prepared to discuss the prior art in connection with the substitute claims at an oral hearing. Id. at 15-16 (citing Nike, 955 F.3d at 54).

The final rule adopts, with modifications, the proposed rule allocating the burden of persuasion on motions to amend. The final rule specifies that the burden of persuasion as to patentability of substitute claims proposed in a motion to amend is on the petitioner. In addition, the final rule specifies that the burden of persuasion is on the patent owner to show that the motion complies with the requirements of 35 U.S.C. 316(d) or 326(d) (requiring that a motion to amend propose a reasonable number of substitute claims, and that substitute claims do not enlarge scope of the original claims of the patent or introduce new matter), as well as 37 CFR 42.121(a)(2), (a)(3), (b)(1), and (b)(2), or 42.221(a)(2), (a)(3), (b)(1), and (b)(2) (indicating, for example, that a motion to amend must set forth written description support and support for the benefit of a filing date in relation to each substitute claim, and respond to grounds of unpatentability involved in the trial).

Notwithstanding the adversarial nature of the proceedings and irrespective of the burdens of persuasion discussed above, the Board may, in the interests of justice, exercise its discretion to grant or deny a motion to amend. But the Board will do so only in rare circumstances (as described below) and only for reasons supported by readily identifiable and persuasive evidence of record. Thus, in instances where a party has not met its burden in relation to a motion to amend or any substitute claims proposed therein, the Board may, in the interests of justice, reach a determination regarding patentability, or compliance with statutory and regulatory requirements, supported by readily identifiable and persuasive evidence made of record in the proceeding. In such instances where the Board exercises its discretion in the interests of justice, the Board will provide the parties with an opportunity to respond before rendering a final decision on the motion to amend.

In the vast majority of cases, the Board will consider only evidence a party introduces into the record of the proceeding. However, the Board may also consider readily identifiable and persuasive evidence already before the Office in a related proceeding ( i.e., in the prosecution history of the challenged patent or a related patent or application, or in the record of another proceeding before the Office challenging the same patent or a related patent). See MaxLinear, Inc. v. CF CRESPE LLC, 880 F.3d 1373 (Fed. Cir. 2018) (stating that the Board must consider prior art raised in a related IPR in determining the patentability of dependent claims); see also Emerson Elec. Co. v. SIPCO, LLC, 745 F. App'x 369, 373-374 (Fed. Cir. 2018) (non-precedential) (directing the Board to explain its application of prior art cited in a related IPR). Likewise, the Board may consider evidence that a district court can judicially notice under Federal Rule of Evidence 201. See 37 CFR 42.62 (making the Federal Rules of Evidence applicable to AIA trial proceedings and noting that “judicial notice” as used in the Federal Rules of Evidence shall be construed as “official notice”). This approach is consistent with the current practice of the Board, under which the Board may take official notice of facts in appropriate circumstances. See, e.g., RPX Corp. v. Iridescent Networks, Inc., IPR2018-00254 (PTAB Dec. 10, 2018) (Paper 20) (taking official notice of how the URL of the internet Archive provides the date the website was captured); Ericsson Inc. v. Intellectual Ventures I LLC, IPR2014-00527, (PTAB May 18, 2015) (Paper 41) (taking official notice that members in the scientific and technical communities who both publish and engage in research rely on the information published on the copyright line of IEEE publications).

As used in the final rule, the “interests of justice” in the final rule means that, irrespective of the burdens of persuasion on the parties, the Board may exercise its discretion in rare circumstances where the adversarial process fails to provide the Board with potential arguments relevant to granting or denying a motion to amend. Hunting Titan, Paper 67 at 12-13, 25-26.

Such circumstances may include those in which a patent owner does not expressly address or establish every statutory and regulatory requirement for a motion to amend in its briefing, but evidence of compliance with those requirements is so readily identifiable and persuasive that the Board should address that evidence in the interest of supporting the integrity of the patent system, notwithstanding the adversarial nature of the proceedings. Thus, for example, the Board may, in the interests of justice, exercise its discretion to determine that a motion to amend complies with the statutory and regulatory requirements of 35 U.S.C. 316(d) or 326(d) and 37 CFR 42.121(a)(2), (a)(3), (b)(1), and (b)(2), or 42.221(a)(2), (a)(3), (b)(1), and (b)(2), even if a patent owner does not expressly address every requirement in its briefing. The Board will do so only when there is readily identifiable and persuasive evidence that the motion complies with the statutory and regulatory requirements, when addressing that evidence would be in the interests of supporting the integrity of the patent system, and only when the petitioner has been afforded the opportunity to respond to that evidence.

Such circumstances also may include those in which a petitioner has ceased to participate in the proceeding altogether (for example, as a result of settlement); those in which the petitioner remains in the proceeding but does not oppose the motion to amend, in whole or in part (for example, does not oppose some proposed substitute claims); or those in which the petitioner previously made an argument (for example, in opposition to a motion to amend) but then later ceases to participate (for example, does not oppose a revised motion to amend). The interests of justice may also support the Board exercising its discretion in the rare circumstances in which the petitioner continues participating in the proceeding, but fails to raise certain evidence of unpatentability that is so readily identifiable and persuasive that the Board should take it up in the interest of supporting the integrity of the patent system, notwithstanding the adversarial nature of the proceedings. In most instances, in cases where the petitioner has participated fully and opposed the motion to amend, the Office expects that there will be no need for the Board to independently justify a determination of unpatentability.

In sum, the Office expects that the Board will exercise its discretion in the interests of justice to reach a determination of patentability or unpatentability only in rare circumstances and only when the parties have been afforded notice and the opportunity to respond.

37 CFR part 42 is amended as follows:

Section 42.121: § 42.121 is amended by adding a new paragraph (d) to state that a patent owner bears the burden of persuasion to show that a motion to amend complies with certain statutory and regulatory requirements, but that the petitioner bears the burden of persuasion to show that any proposed substitute claims are unpatentable. The new paragraph (d) also states that in cases in which a party does not meet its burden, the Board may, in the interests of justice, exercise its discretion to grant or deny a motion to amend only for reasons supported by readily identifiable and persuasive evidence of record. In doing so, the Board may make of record only readily identifiable and persuasive evidence in a related proceeding before the Office or evidence that a district court can judicially notice. Where the Board exercises its discretion under this paragraph, the parties will have an opportunity to respond.

Section 42.221: § 42.221 is amended by adding a new paragraph (d) to state that a patent owner bears the burden of persuasion to show that a motion to amend complies with certain statutory and regulatory requirements, but that the petitioner bears the burden of persuasion to show that any proposed substitute claims are unpatentable. The new paragraph (d) also states that in cases in which a party does not meet its burden, the Board may, in the interests of justice, exercise its discretion to grant or deny a motion to amend only for reasons supported by readily identifiable and persuasive evidence of record. In doing so, the Board may make of record only readily identifiable and persuasive evidence in a related proceeding before the Office or evidence that a district court can judicially notice. Where the Board exercises its discretion under this paragraph, the parties will have an opportunity to respond.

In response to comments seeking clarification, the final rule seeks to further clarify the circumstances in which the Board may exercise its discretion to grant or deny a motion to amend, irrespective of whether a party has met its burden on a particular issue and notwithstanding the adversarial nature of the proceeding. The final rule clarifies that the Board may exercise this discretion when it is in the interests of justice, and only for reasons supported by readily identifiable and persuasive evidence of record.

Additionally, in response to comments seeking clarification, the final rule provides additional details regarding the scope of evidence the Board may consider in deciding a motion to amend. The Board may make of record only readily identifiable and persuasive evidence in a related proceeding before the Office or evidence that a district court can judicially notice.

Lastly, the final rule clarifies that where the Board exercises its discretion in appropriate circumstances, the parties will have an opportunity to respond. (§§ 42.121(d) and 42.221(d)).

In response to the notice of proposed rulemaking pertaining to the burdens of persuasion in relation to motions to amend, the Office received a total of 18 written submissions of comments from intellectual property organizations, businesses, patent practitioners, and others. The comments provided support for, opposition to, and diverse recommendations on the proposed rule. The large majority of the comments were supportive of placing the burden of showing compliance with the statutory and regulatory requirements of a motion to amend on the patent owner, along the lines presented in the proposed rule. Comments on the question of whether the burden of showing unpatentability should be placed on the petitioner, as in the proposed rule, were mixed in their support and opposition. Similarly, the Office received mixed comments in support and opposition to the question of whether the Board, regardless of the respective burdens on the parties, could exercise its discretion to grant or deny a motion to amend. The Office appreciates the thoughtful comments and has considered and analyzed them thoroughly.

All the comments are posted on the PTAB website at https://go.usa.gov/xGXrx. The Office's responses address the comments that are directed to the proposed changes set forth in the notice of proposed rulemaking. Any comments directed to topics beyond the scope of the notice of proposed rulemaking will not be addressed at this time.

Comment 1: Of the comments addressing this aspect of the proposed rule, almost all supported allocating the burden of persuasion to the patent owner to show a motion to amend complies with statutory and regulatory requirements. Comments noted that the patent owner, as the party drafting the proposed substitute claims, is in the best position to explain how the proposed substitute claims comply with the statutory and regulatory requirements. For example, the comments pointed out that because the patent owner is the party amending a claim, the patent owner is in the best position to identify the subject matter disclosed in the challenged patent's specification that is being incorporated into the proposed substitute claim, thereby addressing the prohibition on new matter.

Response 1: The Office agrees with these comments. The statutory requirements of 35 U.S.C. 316(d) specify that the patent owner may file a motion to amend that “propose[s] a reasonable number of substitute claims” and, further, that amendments “may not enlarge the scope of the claims or introduce new matter.” Thus, the statute already places the burden on the patent owner to show that its motion to amend meets those requirements. The regulatory requirements set forth in section 42.121(a) or 42.221(a) of 37 CFR part 42 reflect those statutory requirements and further specify that a motion to amend must respond to a ground of unpatentability involved in the trial, include a claim listing clearly showing the amendments, and set forth support in the original patent disclosure for each claim added or amended, as well as support in an earlier-filed disclosure for each claim for which the patent owner seeks the benefit of the filing date of the earlier-filed disclosure. Because the patent owner is the party proposing amendments to the claims of its patent, it follows that the patent owner should be the party with the burden to show that the motion complies with these statutory and regulatory requirements. As commenters have noted, the patent owner necessarily incorporates subject matter from the challenged patent's specification into one or more proposed substitute claims and, thus, the patent owner is in the best position to identify where the specification supports such subject matter and how such subject matter does not enlarge the scope of the claims. Similarly, because the patent owner is the party proposing the substitute claims, the patent owner is in a better position to explain why the number of substitute claims is reasonable, especially when the patent owner proposes more than one substitute claim for each challenged claim. Likewise, it makes sense for the patent owner to explain why the amendment responds to a ground of unpatentability involved in the trial, given that the patent owner proposes the substitute claims to overcome one or more asserted unpatentability grounds as to the original claims of the challenged patent.

Comment 2: A few comments supporting the requirement that the patent owner bears the burden to show a motion to amend complies with statutory and regulatory requirements expressed the view that the burden should be an initial burden of production, but that the burden of persuasion should lie with the petitioner. One comment stated that placing a burden of persuasion on the patent owner unduly limits the patent owner's ability to amend the claims. Another comment stated that allocating a burden of persuasion to the patent owner in a motion to amend is inconsistent with the Federal Circuit's guidance in In re Magnum Oil Tools Int'l, Ltd., 829 F.3d 1364 (Fed. Cir. 2016) on shifting burdens in an AIA trial proceeding. The comment was further concerned that requiring the patent owner to maintain a burden of persuasion to show statutory and regulatory compliance may lead the Board to deny a motion to amend for procedural reasons unrelated to the substance of the proposed substitute claims.

Response 2: The Office appreciates these thoughtful comments. 35 U.S.C. 316(d) appears to specify a burden of persuasion on the patent owner, not merely a burden of production. For example, section 316(d) provides that the patent owner may “[f]or each challenged claim, propose a reasonable number of substitute claims” and that “[a]n amendment . . . may not enlarge the scope of the claims or introduce new matter.” 35 U.S.C. 316(d)(1)(B), (d)(3). The patent owner proposes an amendment; therefore, it would appear to be the patent owner's burden of persuasion to show that the amendment proposes a reasonable number of substitute claims, does not enlarge the scope of the claims, and does not introduce new matter. This is also consistent with the lead opinion of Aqua Products, which states that the “patent owner must satisfy the Board that the statutory criteria in § 316(d)(1)(a)-(b) and § 316(d)(3) are met and that any reasonable procedural obligations imposed by the Director are satisfied before the amendment is entered into the IPR.” 872 F.3d at 1306 (emphasis added). Because the statutory and regulatory requirements largely overlap, it also makes sense to place the burden of showing compliance with the regulatory requirements on the patent owner. It is unclear how placing this burden on the patent owner limits the patent owner's ability to amend claims.

Further, allocating this burden of persuasion to the patent owner is not inconsistent with Magnum Oil Tools because, in that case, the Federal Circuit addressed the burden of persuasion as to patentability, not the burden of persuasion as to statutory and regulatory requirements of a motion to amend. As noted above, the lead opinion in Aqua Products differentiated between meeting the requirements of a motion to amend and the burden of demonstrating the unpatentability of substitute claims. Id. Magnum Oil Tools addressed situations in which it was and was not appropriate to shift burdens of production. See 829 F.3d at 1375-76. The Federal Circuit explained that a shifting burden of production may be warranted in a situation in which a party asserts an affirmative defense for the first time ( e.g., an earlier priority date) after the party who carries the ultimate burden of persuasion challenges patentability. As further noted in Magnum Oil Tools, however, “a burden-shifting framework . . . would introduce unnecessary confusion” when a party bears the ultimate burden of persuasion on a particular issue. Id. at 1376. Here, because the statute already appears to place the ultimate burden of persuasion on the patent owner regarding the statutory and regulatory requirements, and the Board makes a determination after considering all evidence provided by both parties, a shifting burden of production is not appropriate. Id. (“Applying a burden-shifting framework here would introduce unnecessary confusion because the ultimate burden of persuasion of obviousness must remain on the patent challenger and `a fact finder must consider all evidence of obviousness and nonobviousness before reaching a determination.' ”) (citation omitted).

Finally, in March 2019, the Office issued a notice of a pilot program for motion to amend practice and procedures that allows a patent owner to request preliminary guidance from the Board on a motion to amend and to file a revised motion to amend (regardless of whether the patent owner requests preliminary guidance). See Notice Regarding a New Pilot Program Concerning Motion to Amend Practice and Procedures in Trial Proceedings Under the America Invents Act Before the Patent Trial and Appeal Board, 84 FR 9497 (Mar. 15, 2019) (pilot program). Under the pilot program, which applies to all AIA trial proceedings instituted on or after March 15, 2019, the patent owner is able to request preliminary non-binding guidance from the Board regarding the amendment's compliance with the statutory and regulatory requirements. See id. at 9497-98. The patent owner may address that preliminary guidance in responsive briefing or by providing new proposed substitute claims in a revised motion to amend. Id.; see also id. at 9499-9500 (setting forth options for preliminary guidance and a revised motion to amend in more detail). These aspects of the pilot program likewise support placing the burden of persuasion on the patent owner in relation to the statutory and regulatory requirements for a motion to amend.

Comment 3: A comment noted that previous Office guidance and Board decisions did not allocate the burden of persuasion to the patent owner and requested an explanation as to why the proposed rule allocates the burden of persuasion to the patent owner.

Response 3: As many commenters have requested and noted, clarifying the burdens in the amendment process is desired. Because 35 U.S.C. 316(d) appears to place the burden of persuasion on the patent owner to show statutory compliance, the Office takes this opportunity to bring clarity and predictability to the amendment process through rulemaking specifically assigning that burden.

Comment 4: The Office received a mix of comments supporting or opposing the provision of the proposed rule placing the burden of persuasion on the petitioner to show that the substitute claims proposed in a motion to amend are unpatentable, with a slight majority of comments opposing placing the burden on the petitioner. Among the comments supporting the proposed rule, one noted that placing the burden of persuasion on the petitioner is consistent with 35 U.S.C. 282(a), which governs burdens of proof in patent infringement actions in federal court and states that “[t]he burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.” Another comment stated that allocating the burden of persuasion to the petitioner is consistent with the Federal Circuit holding in Aqua Products. One comment, which neither agreed nor disagreed with the proposed rule, noted that the proposed rule is generally consistent with the allocation of burdens set forth in Lectrosonics and the Office's prior “Guidance on Motions to Amend in view of Aqua Products.”

Response 4: The Office appreciates and has carefully considered the comments both supporting and opposing placing the burden on the petitioner to show that the proposed substitute claims are unpatentable. Regardless of whether the comments supported the proposed rule or not, commenters overwhelmingly agreed that notice-and-comment rulemaking to allocate the burdens was appreciated and that doing so improves clarity and consistency in AIA trials. Previously, the Office requested comments relating to the assignment of burdens in the October 29, 2018, Request for Comments (83 FR 54319). Among other questions, the Office asked whether it should engage in rulemaking to allocate the burden of persuasion regarding the patentability of proposed substitute claims in a motion to amend as set forth in the order issued in Western Digital (superseded by Lectrosonics ), which allocates the burden of persuasion regarding the patentability of proposed substitute claims to the petitioner. Id. at 54325. Of the roughly 20 comments the Office received in 2018 in response to the Request for Comments, a clear majority of comments favored placing the burden to show that the proposed substitute claims are unpatentable on the petitioner, consistent with the rule the Office now adopts.

After carefully considering all relevant comments, the Office's efforts to provide predictability and clarity, the Federal Circuit's decision in Aqua Products, the Office's post- Aqua Products Guidance Memo, and the Board's experience administering AIA trials since the Aqua Products decision, the Office determines that the most balanced approach is to place the burden on the petitioner to show that the proposed substitute claims are unpatentable. Placing the burden of proving unpatentability on the challenger is consistent with other statutory approaches to patentability. As commenters have pointed out, under 35 U.S.C. 282, the “burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.” Although the decision in Aqua Products left unresolved the question of whether 35 U.S.C. 282 applies only to original claims or also proposed amended claims, placing the burden on the petitioner via this rule would resolve any ambiguity. Additionally, although patent examination differs from an AIA trial in many respects, it is worth noting that the Office, not the applicant, has the burden of showing unpatentability during examination. See In re Oetiker, 977 F.2d 1443, 1445 (Fed. Cir. 1992) (“[T]he examiner bears the initial burden . . . of presenting a prima facie case of unpatentability.”). Further, as multiple commenters have noted, placing the burden to show unpatentability on the petitioner maintains consistency with current Board practice described in the precedential Board decision Lectrosonics and the post- Aqua Products Guidance Memo. Changing the procedure the Board has been using since 2017 would be disruptive to procedures that the Board and parties have been following for several years. Moreover, the rule is consistent with the lead opinion in Aqua Products, which stated, “we believe that Congress intended that the petitioner bear the burden of persuasion as to all claims in an IPR, whether original or amended.” 872 F.3d at 1315 (O'Malley, J.). Aqua Products held that the Office had not adopted a rule placing the burden of persuasion with respect to the patentability of proposed substitute claims on any party. See id. at 1327. The Office responds to that holding and adopts this rule, placing the burden to show unpatentability of substitute claims on the petitioner.

Comment 5: Commenters opposing the proposed rule placing the burden on the petitioner to show that proposed substitute claims are unpatentable suggested that, instead, the patent owner should bear the burden of proving patentability. Comments stated that the patent owner, as the party drafting the substitute claims, is best positioned to explain how the proposed substitute claims are patentable over prior art and should provide a detailed explanation of how the substitute claims distinguish over the prior art of record and other prior art known to the patent owner. Comments also stated that placing the burden on the petitioner is inconsistent with the common practice that the moving party bears the burden of proof. Further, at least one comment stated that the Federal Circuit's Aqua Products decision does not prohibit the Office from placing the burden on the patent owner. That comment further noted that the Office has eliminated claim construction under the broadest reasonable interpretation, which is one of the safeguards Aqua Products identified as helping to prevent the Office from issuing untested claims.

Response 5: Currently, the Office believes that the fair approach is to place the burden on the petitioner to show that the proposed substitute claims are unpatentable, for the reasons discussed above. In presenting proposed substitute claims to the Board, the patent owner already has “a duty of candor and good faith” (37 CFR 42.11(a)), meaning that the patent owner must “disclose to the Board information of which the patent owner is aware that is material to the patentability of the substitute claims.” Lectrosonics, Paper 15 at 9-10.

In the Board's experience, requiring the patent owner to prove patentability of amended claims in AIA trials has led to confusion because it places duties on the patent owner that are inconsistent with those applied during examination. During examination, for example, although a patent applicant must comply with the duty of candor, there is no separate obligation to prove patentability over prior art “known” to the patent applicant, as the Board's prior approach to amended claims in AIA trials required. MasterImage, Paper 42 at 2-3 (citing Idle Free, Paper 26 at 7) (referring to “prior art of record and also prior art known to the patent owner” in relation to the patent owner's burden for motions to amend in AIA trials). Much like an examiner during patent examination, the petitioner typically conducts a prior art search before filing an AIA petition, and in most cases is well-positioned and incentivized to identify any patentability issues arising from the proposed amended claims.

Moreover, to the extent one opinion in Aqua Products identified the broadest reasonable interpretation standard as relevant to the review of proposed substitute claims, it did so in its analysis of “untested” claims. 872 F.3d at 1314-1315 (O'Malley, J.). Although the Board's claim construction standard has changed from the broadest reasonable interpretation to the standard used in district court proceedings, the statute and regulation governing amendments still require that the claim scope of any proposed amended claims be narrower and require written description support for the proposed amended claims. 35 U.S.C. 316(d)(3); 37 CFR 42.121(a)(2), (b). The same opinion in Aqua Products also identified the preponderance of evidence standard as relevant to the review of proposed substitute claims; that standard has not changed. 35 U.S.C. 316(e). In addition, any issued amended claims would be subject to intervening rights and various other review mechanisms that remain open to challenge the amended claims ( e.g., subsequent IPRs, ex parte reexamination, and district court litigation). Furthermore, as explained elsewhere in this rulemaking, the rule allows the Board to exercise its discretion to reach a determination regarding patentability in instances in which the interests of justice warrant such a determination, including those in which the petitioner has ceased to participate in the proceeding altogether or remains in the proceeding but does not oppose a motion to amend. Thus, the rule further limits the likelihood of issuing amended claims that are “untested.”

Comment 6: Of the comments addressing the proposed rule providing that the Board may, in the interests of justice, grant or deny a motion to amend for any reason supported by the evidence of record, a majority supported the proposed rule. For example, one comment stated that the Board should not procedurally deny a motion to amend for failing to comply with the statutory or regulatory requirements if the lack of compliance can be cured by reference to the evidence of record. Similarly, a comment stated that if a petitioner does not oppose the proposed substitute claims, the Board should have the discretion to deny the motion to amend for any reason supported by the evidence of record rather than automatically adding the proposed substitute claims to the challenged patent.

Response 6: The Office agrees with these comments. Under the proposed rule, as modified in the final rule, the Board will have the discretion to grant or deny a motion to amend only for reasons supported by readily identifiable and persuasive evidence of record, when it is in the interests of justice. The Office anticipates that the Board will exercise this discretion only in rare circumstances, such as discussed in Hunting Titan.

As noted by the commenters, this discretion allows the Board to address situations in which it would be unjust to deny a motion to amend for a procedural defect, such as those in which a patent owner does not expressly address or establish every statutory and regulatory requirement in its briefing. Where there is readily identifiable and persuasive evidence that the motion complies with the statutory and regulatory requirements, the Board may determine that it is in the interests of justice to nevertheless grant the motion to amend.

The Office also agrees with the comments that the Board should have discretion to address the patentability of substitute claims under certain rare circumstances in which substitute claims might otherwise issue without any consideration of patentability by the Office, regardless of what is in the record before the Board. In this vein, the final rule permits the Board to address circumstances in which, as explained in Hunting Titan, the adversarial process has failed to provide the Board with potential arguments of patentability with respect to the proposed substitute claims. Such circumstances could include, for example, those in which the petitioner ceases to participate in the proceeding altogether (for example, as a result of settlement) or remains in the proceeding but does not oppose the motion to amend, in whole or in part (for example, does not oppose some proposed substitute claims), or those in which the petitioner previously made an argument (for example, in opposition to a motion to amend) but then later ceases to participate (for example, does not oppose a revised motion to amend). In such circumstances, the absence of two actively participating opposing parties (at least in relation to a motion to amend) signals a situation in which the adversarial process may have failed to provide the Board with potential arguments of patentability or unpatentability. In such a situation, the Board will, in the interests of justice, typically independently evaluate the patentability of the proposed substitute claims and exercise its discretion to grant or deny only for reasons supported by readily identifiable and persuasive evidence of record.

As a general matter in the vast majority of cases, the Board will consider only evidence a party introduces into the record of the proceeding. However, the Board may consider readily identifiable and persuasive evidence already before the Office ( i.e., in the prosecution history of the challenged patent or a related patent or application, or in the record of another proceeding before the Office challenging the same patent or a related patent). Likewise, the Board may consider evidence that a district court can judicially notice under Federal Rule of Evidence 201. Thus, when referring to the interests of justice, the rule affords the Board the flexibility to address the rare circumstances in which certain evidence of unpatentability has not been raised by the petitioner but is so readily identifiable and persuasive that the Board should take it up in the interest of supporting the integrity of the patent system, notwithstanding the adversarial nature of the proceedings, as explained in Hunting Titan.

As noted above, the Office expects that the Board will exercise its discretion in the interests of justice to reach a determination of unpatentability only in rare circumstances, and only where the patent owner has been afforded the opportunity to respond. In most instances, in cases where the petitioner has participated fully and opposed the motion to amend, the Office expects that the petitioner will bear the burden of persuasion, and there will be no need for the Board to independently justify a determination of unpatentability.

Comment 7: One commenter expressed general support for the proposed rule's codification of the Board's discretion to grant or deny a motion to amend and the application of the interests of justice standard to govern the exercise of that discretion. The commenter observed that the preamble of the Notice of Proposed Rulemaking identified three exemplary circumstances that may satisfy the interests of justice standard: (1) The petitioner has ceased to participate in the proceeding; (2) the petitioner remains in the proceeding but does not oppose the motion to amend; and (3) the petitioner opposes the motion to amend and has failed to meet the burden of persuasion, but there is easily identified and persuasive evidence of unpatentability in the record. The commenter suggested, however, that the final rule should provide further guidance on the contours of the Board's discretion under the interests of justice standard, preferably in the rules themselves. The commenter also requested that the final rule clarify the rare circumstances in which the Board will exercise its discretion.

Response 7: The Office appreciates these comments and has modified the final rule to more clearly specify the circumstances in which the Board will exercise its discretion to grant or deny a motion to amend. The final rule thus clarifies that such discretion may be used when it is in the interests of justice and when there is readily identifiable and persuasive evidence of record. The final rule language thus follows the formulation set forth in Hunting Titan, which focuses on situations in which the adversarial process has failed to provide the Board with potential arguments of patentability with respect to the proposed substitute claims. Hunting Titan provides express examples of such situations, including when the petitioner has ceased to participate in the proceeding altogether or remains in the proceeding but does not oppose the motion to amend, or when certain evidence has not been raised by a party but is so readily identifiable and persuasive that the Board should take it up in the interest of supporting the integrity of the patent system, notwithstanding the adversarial nature of the proceedings. Hunting Titan, Paper 67 at 12-13, 25-26. The POP noted in Hunting Titan that these examples are not exhaustive, and that the Board will address any other fact-specific situations that satisfy the interests of justice standard as they arise. Id. at 12-13.

To the extent that the commenter requested that the final rule explicitly set forth all possible circumstances that may satisfy the interests of justice standard, the comment is not adopted. As modified, the final rule specifies that the Board may exercise its discretion only when its reasons are supported by readily identifiable and persuasive evidence of record. However, the Board may consider readily identifiable and persuasive evidence already before the Office ( i.e., in the prosecution history of the challenged patent or a related patent or application, or in the record of another proceeding before the Office challenging the same patent or a related patent). Likewise, the Board may consider evidence that a district court can judicially notice under Federal Rule of Evidence 201. In such instances where the Board exercises its discretion in the interests of justice, the Board will provide the parties with an opportunity to respond before rendering a final decision on the motion to amend.

Regulatory language is not the appropriate vehicle for specifying the exact factual situations that will satisfy the interests of justice standard. Rather, as discussed above, the precedential Hunting Titan decision sets forth general categories of situations in which the standard may be satisfied. The decision also provides a specific example of a situation in which the standard is not met, namely the facts of the Hunting Titan case itself. The Office expects that future decisions of the Board applying the final rule will continue to provide the public with guideposts as to factual circumstances in which the interests of justice standard is either satisfied or not satisfied, and the Office may designate these decisions as informative or precedential, as appropriate.

Comment 8: Some comments supported the proposed rule providing for Board discretion to grant or deny a motion to amend but advocated that the Board's discretion to deny a motion to amend should be limited. For example, some comments stated that the Board should be limited to addressing grounds of unpatentability raised by the petitioner in opposition to the motion to amend. Two commenters expressed the view that, even in situations in which the petitioner does not oppose the motion to amend, the Board should be limited to addressing grounds of unpatentability raised by the petitioner against the original claims. Additionally, one comment stated that the scope of the Board's discretion should be limited to the new claim limitations proposed by the motion to amend.

Response 8: Although the Office appreciates the commenters' interest in further articulating the scope of the Board's discretion, the Office has, through the issuance of the precedential Hunting Titan decision, clarified the situations in which the Board may exercise its discretion. Therefore, the Office does not adopt the changes to the rules proposed by the comments. The proposed rule, as modified in the final rule, limits the Board's discretion to situations in which the interests of justice support the Board exercising that discretion. As set forth in the commentary to the proposed rule, and as further explained in Hunting Titan, the Office anticipates that this standard will be met only in “rare circumstances” and provides for certain exemplary situations that may justify an exercise of the Board's discretion. For example, the Board may exercise its discretion to grant a motion to amend only when supported by readily identifiable and persuasive evidence of record that the motion complies with the statutory and regulatory requirements. Alternatively, where there is readily identifiable and persuasive evidence in support of its decision, the Board may exercise its discretion to deny a motion to amend in situations in which the adversarial process fails to provide the Board with potential arguments of patentability with respect to the proposed substitute claims, such as when the petitioner has ceased to participate in the proceeding altogether (for example, as a result of settlement) or remains in the proceeding but does not oppose the motion to amend.

Under the proposed rule, as modified in the final rule, the Board may evaluate each motion to amend on a case-by-case basis to determine whether the facts of the case support the interests of justice standard.

Further limitations on the Board's discretion, such as those proposed by the commenters, that set bright-line prohibitions on certain exercises of the Board's discretion, are not adopted. For example, in cases in which the petitioner is not participating or does not oppose the motion to amend, limiting the Board to addressing only the grounds of unpatentability raised by a petitioner against the original claims may unduly limit the Board's ability to assess the patentability of the amended claims in situations where there is readily identifiable and persuasive evidence of unpatentability. See Nike, 955 F.3d at 51 (“[T]he Board should not be constrained to arguments and theories raised by the petitioner in its petition or opposition to the motion to amend. . . . Otherwise, were a petitioner not to oppose a motion to amend, the Patent Office would be left with no ability to examine the new claims.”). Such a limit would increase the risk of the Office issuing amended claims that are unpatentable over the existing record in the proceeding. In addition, an amended claim may add a limitation not present in the original claims and not addressed by a ground of unpatentability in the petition, but the limitation (and reason to combine limitations, as relevant) may be disclosed elsewhere in the record before the Board. In such circumstances, the Board may determine that the interests of justice warrant denying the motion to amend on a ground of unpatentability not articulated in the original petition. The Board, however, will not make such a determination without first ensuring that the parties have been given notice and an opportunity to respond to any new factual allegation or legal theory.

Nor does the Office adopt a recommendation that the Board's exercise of discretion in the interests of justice to deny a motion to amend should be restricted to new limitations added by the proposed amendment. Generally, the Office anticipates that this will usually be the case because the limitations of the original claims will have been addressed by the grounds of unpatentability raised in the petition, and the Board is more likely to exercise its discretion when assessing newly added limitations to substitute claims. That said, evaluating the patentability of a claim requires consideration of the claim “as a whole.” 35 U.S.C. 103 (“the claimed invention as a whole would have been obvious”); 84 FR at 55 (2019 Revised Patent Subject Matter Eligibility Guidance) (“consider the claim as a whole when evaluating whether the judicial exception is meaningfully limited by integration into a practical application of the exception”). Restricting the Board's ability to exercise its discretion to evaluate the patentability of proposed substitute claims to only portions of the proposed claim is inconsistent with the holistic evaluation of the patentability of a claim.

Comment 9: A minority of commenters opposed the proposed rule providing that the Board may, in the interests of justice, grant or deny a motion to amend for any reason supported by the evidence of record. According to these commenters, the Board must independently assess the potential unpatentability of any proposed substitute claim and has no discretion to grant a motion to amend in the absence of its independent assessment of patentability. One commenter stated that the “interests of justice” standard of the proposed rule is too high and would unduly limit the Board's ability to address the patentability of proposed substitute claims. The commenter expressed the view that the Office should compel the Board to always independently confirm patentability before granting a motion to amend, regardless of what a petitioner argues and presents to the Board, rather than providing for Board discretion in the interests of justice.

Response 9: These comments are not adopted. Removing the Board's discretion to evaluate each proceeding on a case-by-case basis, and requiring the Board to independently examine the patentability of every proposed substitute claim regardless of whether or not (or how) the motion to amend is opposed by a petitioner, is not consistent with the nature of inter partes proceedings. AIA trials are, by their nature, adversarial. As stated in Hunting Titan, “relying on the adversarial process to frame the issues for the Board properly places the incentives on the parties to identify the pertinent evidence and make the best arguments for their desired outcome.” Hunting Titan, Paper 67 at 11. Thus, in most instances, the Board will “rely on the incentives the adversarial system creates, and expect that the petitioner will usually have an incentive to set forth the reasons why the proposed substitute claims are unpatentable. In most circumstances, then, the Board need not raise its own arguments of unpatentability.” Id. at 12. The Office believes, however, that taking into account rare instances that satisfy the interests of justice standard, as set forth above and in Hunting Titan, provides a safeguard against the Office issuing unpatentable claims when there is readily identifiable and persuasive evidence of unpatentability while also relying, in most instances, on the adversarial process to surface potential patentability challenges against a proposed substitute claim.

Comment 10: One commenter agreed with the proposed rule to the extent that the Board has discretion to deny a motion to amend when supported by the record, but disagreed that the Board should have discretion to grant a motion to amend. The commenter stated that discretion to deny a motion to amend is consistent with the Board's role to protect the public against overly broad patent claims, but that the Board should not be able to grant an unwarranted motion to amend.

Response 10: The Office agrees with the first part of the comment and believes that Board discretion to deny a motion to amend, regardless of the burdens on the parties, when in the interests of justice, is consistent with the goal of ensuring that claims issued by the Office have appropriate scope. The Office disagrees, however, that the Board should not have similar discretion to grant a motion to amend. Such discretion, when exercised in the interests of justice, protects against denial of a meritorious motion to amend that is supported by the evidence of record for purely procedural reasons, such as when a motion to amend sets forth the basis for concluding that a patent owner has carried its burden but, through inadvertence, fails to state that the motion meets a statutory or regulatory requirement.

Comment 11: The Office received several comments regarding the use of the term “evidence of record” in the proposed rule. Some commenters requested clarification of the rule and whether the Board would be permitted to introduce its own evidence into the record. Other commenters expressed the view that the Board should be permitted to supplement the record, if necessary, to support its determination whether to grant or deny the motion to amend. Other commenters stated that the evidence of record should be limited to evidence introduced by the parties.

Response 11: The Office appreciates and has carefully considered these thoughtful comments and has modified the rule to state that the Board has the discretion to, when in the interests of justice, grant or deny a motion to amend only for reasons supported by readily identifiable and persuasive evidence of record. The rule also has been modified to state that the Board may make of record only readily identifiable and persuasive evidence in a related proceeding before the Office or evidence that a district court can judicially notice.

In response to the comments seeking clarification as to the scope of the “evidence of record,” the final rule has been modified to provide additional details as to the scope of evidence upon which the Board may base its decision to grant or deny a motion to amend. The use of “evidence of record” in the rule as adopted signifies that the evidence on which the Board bases its determination on a motion to amend will be entered into the record of the proceeding. In the vast majority of cases, the parties will enter that evidence into the record of the proceeding. The final rule as modified, however, specifies that the Board may make of record only readily identifiable and persuasive evidence in a related proceeding before the Office ( i.e., in the prosecution history of the challenged patent or a related patent or application, or in the record of another proceeding before the Office challenging the same patent or a related patent). These rare situations, in which the Board may itself introduce evidence from the record of another proceeding before the Office, help ensure that the Office acts consistently and is cognizant of the complete record before the agency.

Likewise, in response to comments seeking clarification, the final rule as modified specifies that the Board may consider evidence that a district court can judicially notice under Federal Rule of Evidence 201. This provision is consistent with the Board's ability to, when appropriate ( e.g., when necessary to decide issues of claim construction), introduce and rely on well-known dictionaries or treatises, even when the parties have not raised such evidence, or to take official notice of facts as permitted by Federal Rule of Evidence 201. The Board's existing rules make the Federal Rules of Evidence applicable to AIA trial proceedings and explain that “judicial notice” as used in the Federal Rules of Evidence shall be construed in AIA trial proceedings as “official notice.” See 37 CFR 42.62. Thus, the final rule as modified reflects current Board practice and regulations, pursuant to which the Board may take official notice of facts in appropriate circumstances. See, e.g., RPX Corp. v. Iridescent Networks, Inc., IPR2018-00254 (PTAB Dec. 10, 2018) (Paper 20) (taking official notice of how the URL of the internet Archive provides the date the website was captured); Ericsson Inc. v. Intellectual Ventures I LLC, IPR2014-00527, (PTAB May 18, 2015) (Paper 41) (taking official notice that members in the scientific and technical communities who both publish and engage in research rely on the information published on the copyright line of IEEE publications).

Furthermore, as modified in the final rule, the Board will exercise its discretion only for reasons supported by evidence of record that is “readily identifiable and persuasive.” In the context of the final rules, “readily identifiable and persuasive” has the same meaning articulated in Hunting Titan and refers to evidence that is so clear from the record that failing to consider it, although it has not been raised by a party, would be inconsistent with the goal of supporting the integrity of the patent system. Hunting Titan, Paper 67 at 13.

Entry of the evidence into the record provides to the parties notice of all relevant evidence and the ability to respond to such evidence before the Board, and also permits appellate review of the Board's final decision should a dissatisfied party appeal. The rule's statement that the Board's decision shall be based on the “evidence of record” also signifies that the Board will consider the entirety of the record in the proceeding, including all papers and exhibits, when exercising its discretion to grant or deny a motion to amend. See Aqua Products, 872 F.3d at 1325 (“[A]n agency's refusal to consider evidence bearing on the issue before it is, by definition, arbitrary and capricious within the meaning of 5 U.S.C. 706, which governs review of agency adjudications. . . . That means that the agency must take account of all the evidence of record, including that which detracts from the conclusion the agency ultimately reaches.”) (O'Malley, J.) (internal citations omitted).

Comments that the “evidence of record” should be limited to evidence introduced by the parties and that the Board should not be permitted to introduce evidence itself are not adopted. Absent the rare circumstances described herein, the Board will not supplement the evidence of record with, for example, additional prior art references not introduced by a party. Further, the Board itself will not undertake its own search for prior art in light of a motion to amend. Prohibiting the Board from introducing its own evidence in any and all instances, however, may risk unduly restricting the Board's ability to fully evaluate the patentability of proposed substitute claims in light of readily identifiable and persuasive evidence known or available to the Office.

Comment 12: Although commenters generally appear to agree that the Board may, in the interests of justice, exercise its discretion to grant or deny a motion to amend for any reason supported by the evidence of record, several commenters suggested that the rules should expressly provide that the parties have notice and an opportunity to respond to the Board's exercise of such discretion before any such decision is made final to ensure compliance with due process, the interests of justice standard, and the Administrative Procedure Act (APA). One commenter stated that in addition to providing notice to the parties concerning the Board's proposed exercise of discretion, the Board should give written notice of its initial determination to both parties as well as provide an opportunity for each party to respond in writing. One commenter also suggested that the lack of any express provisions concerning the parties' opportunity to be heard concerning any new ground or evidence upon which the Board relies provides insufficient guidelines for any reviewing court to assess whether the Board's exercise of such discretion is an abuse of discretion.

Response 12: In the notice of proposed rulemaking concerning the allocation of the burden of persuasion on a motion to amend, the Office expressly acknowledged the requirement that any exercise of discretion to grant or deny a motion to amend would involve providing the parties with notice and an opportunity to be heard on those issues not previously addressed by the parties. For instance, if the Board, in the interests of justice, exercises its discretion to determine that a motion to amend complies with all statutory and regulatory requirements, it will do so only “where the petitioner has been afforded the opportunity to respond to that evidence.” 84 FR at 56404. Likewise, if the Board decides to exercise its discretion to deny a motion to amend, it will do so “only where the patent owner has been afforded the opportunity to respond to that evidence and related grounds of unpatentability.” Id. As the commenters have noted, and as the Federal Circuit recognized in Nike, such notice and opportunity to be heard by all involved parties is required by due process and expressly set forth in the APA. See Nike, 955 F.3d at 52 (“[T]he notice provisions of the APA and our case law require that the Board provide notice of its intent to rely on [newly raised references] and an opportunity for the parties to respond before issuing a final decision relying on [those references].”). This requirement was also recently reaffirmed in the Board's precedential Hunting Titan decision. Hunting Titan, Paper 67 at 14-15. Hunting Titan also cited two examples of adequate notice and opportunity to respond, namely, the Board requesting supplemental briefing from the parties regarding the proposed ground of unpatentability or requesting that the parties be prepared to discuss the prior art in connection with the substitute claims at an oral hearing. Id. at 15-16 (citing Nike, 955 F.3d at 55). In order to provide further clarity and in response to public comments seeking an express regulatory provision providing for an opportunity to be heard, the final rule as modified expressly provides that, where the Board exercises its discretion to grant or deny a motion to amend, the parties will have an opportunity to respond.

A. Regulatory Flexibility Act: For the reasons provided herein, the Senior Counsel for Regulatory and Legislative Affairs, Office of General Law, United States Patent and Trademark Office, has certified to the Chief Counsel for Advocacy of the Small Business Administration that changes set forth in this rulemaking would not have a significant economic impact on a substantial number of small entities. See 5 U.S.C. 605(b).

The changes in this rulemaking are intended to set forth expressly the respective burdens of persuasion on the parties regarding a motion to amend in an AIA proceeding. These changes are consistent with relevant precedential decisions of the Board and Federal Circuit, and as such, do not reflect a change from current practice. The changes do not create additional procedures or requirements or impose any additional compliance measures on any party, nor do these changes cause any party to incur additional cost. Therefore, any requirements resulting from these changes are of minimal or no additional burden to those practicing before the Board.

B. Executive Order 12866 (Regulatory Planning and Review): This rulemaking has been determined to be not significant for purposes of Executive Order 12866 (Sept. 30, 1993).

C. Executive Order 13563 (Improving Regulation and Regulatory Review): The Office has complied with Executive Order 13563 (Jan. 18, 2011). Specifically, the Office has, to the extent feasible and applicable: (1) Made a reasoned determination that the benefits justify the costs of the rules; (2) tailored the rules to impose the least burden on society consistent with obtaining the regulatory objectives; (3) selected a regulatory approach that maximizes net benefits; (4) specified performance objectives; (5) identified and assessed available alternatives; (6) involved the public in an open exchange of information and perspectives among experts in relevant disciplines, affected stakeholders in the private sector, and the public as a whole, and provided online access to the rulemaking docket; (7) attempted to promote coordination, simplification, and harmonization across government agencies and identified goals designed to promote innovation; (8) considered approaches that reduce burdens and maintain flexibility and freedom of choice for the public; and (9) ensured the objectivity of scientific and technological information and processes.

D. Executive Order 13771 (Reducing Regulation and Controlling Regulatory Costs): This rule is not an Executive Order 13771 (Jan. 30, 2017) regulatory action because it is not significant under Executive Order 12866.

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 13211 (Energy Effects): This rulemaking is not a significant energy action under Executive Order 13211 because it 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).

G. 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).

H. 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).

I. 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).

J. Congressional Review Act: Under the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq. ), prior to issuing any final rule, the United States Patent and Trademark Office will submit a report containing the rule and other required information to the United States Senate, the United States House of Representatives, and the Comptroller General of the Government Accountability Office. The changes in this rulemaking are not expected to result in an annual effect on the economy of $100 million 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 rulemaking is not a “major rule” as defined in 5 U.S.C. 804(2).

K. Unfunded Mandates Reform Act of 1995: The changes set forth in this rulemaking 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 (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 (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.

L. National Environmental Policy Act of 1969: 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 et seq.

M. National Technology Transfer and Advancement Act of 1995: 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 that involve the use of technical standards.

N. Paperwork Reduction Act of 1995: The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3549) requires that the Office consider the impact of paperwork and other information collection burdens imposed on the public. This rulemaking does not involve an information collection requirement that is subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3549). This rulemaking does not add any additional information requirements or fees for parties before the Board.

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

This final rule is organized as follows:

The State of Maine, as well as entities that discharge pollutants to waters of the United States under the State of Maine's jurisdiction, such as industrial facilities, stormwater and combined sewer overflow (CSO) management districts, or publicly owned treatment works (POTWs), may be interested in this final rule because it withdraws Federal water quality standards (WQS) promulgated by EPA to allow the State of Maine's WQS to become the applicable WQS for CWA purposes. Entities discharging in Maine's waters and citizens concerned with water quality in Maine, including members of the federally recognized Indian tribes, may be interested in this final rule. If you have questions regarding the applicability of this action to a particular entity, consult the person identified in the preceding FOR FURTHER INFORMATION CONTACT section.

Consistent with the CWA, EPA's WQS program assigns to states and authorized tribes the primary authority for adopting WQS. 1 After states adopt WQS, they must be submitted to EPA for review and action in accordance with the CWA. The Act authorizes EPA to promulgate Federal WQS following EPA's disapproval of state WQS or an Administrator's determination that new or revised WQS are “necessary to meet the requirements of the Act.”  2

On December 19, 2016, EPA promulgated Federal HHC for 96 toxic pollutants for waters in Indian lands in Maine based on the Agency's 2015 disapproval of corresponding State-established HHC and an Administrator's determination that new or revised WQS were necessary to meet the requirements of the Act. 81 FR 92466 (December 19, 2016). EPA also promulgated a phenol criterion to protect human health from consumption of water plus organisms for waters outside of Indian lands in Maine after disapproving the State's phenol criterion in 2015 because it contained a mathematical error.

EPA's 2015 disapproval of the State's HHC for waters in Indian lands was based on its decision that they were inadequate to protect the sustenance fishing designated uses that EPA interpreted and approved for waters in Indian lands in the same 2015 action. On May 27, 2020, after a thorough review of the applicable provisions of the CWA, implementing regulations and longstanding EPA guidance, EPA withdrew its 2015 interpretation and improper approvals of the alleged sustenance fishing designated uses and corresponding disapprovals of Maine's HHC that flowed from the flawed designated use determinations. 3 Also on that date, EPA approved Maine's general fishing designated use for waters in Indian lands without the interpretation that it means “sustenance fishing.”  4

On April 24, 2020, the Maine Department of Environmental Protection submitted new and revised WQS in accordance with CWA Section 303(c). The new and revised provisions included HHC. On June 23, 2020, EPA approved the State's new and revised HHC as consistent with the requirements of the CWA and applicable Federal regulations. 5 There are two sets of HHC in the State's newly approved criteria. One set protects the statewide general “fishing” designated use, and the other set protects the State's new “sustenance fishing” designated use subcategory that applies to specifically identified waters where sustenance fishing is or may be occurring. Between these two sets of HHC, all the waters covered by EPA's promulgated Federal HHC for toxic pollutants in 2016 are addressed. The new and revised HHC also address all the toxic pollutants for which EPA promulgated Federal HHC in 2016. All of EPA's prior decisions and action letters related to these Agency actions are available in docket ID EPA-HQ-OW-2015-0804 at https://www.regulations.gov.

As provided in 40 CFR 131.21(c), federally promulgated WQS that are more stringent than EPA-approved state WQS remain applicable for purposes of the CWA until EPA withdraws the Federal WQS. EPA's 2016 federally promulgated HHC are as stringent or more stringent than the State's newly approved HHC. Accordingly, EPA is amending the Federal regulations to withdraw those federally promulgated HHC for which the Agency has approved Maine's corresponding HHC.

EPA's withdrawal of federally promulgated HHC following approval of corresponding state HHC is consistent with the Federal and state roles contemplated by the CWA. Consistent with the cooperative federalism structure of the CWA, once EPA approves state WQS addressing the same pollutants for which EPA has promulgated Federal WQS, it is incumbent on EPA to withdraw the Federal WQS to enable EPA-approved state WQS to become the applicable WQS for CWA purposes. This final rule will allow Maine to implement its EPA-approved WQS. This final rule is consistent with EPA's withdrawal of other federally promulgated WQS following the Agency's approval of state-adopted WQS. 6

This final rule amends Federal regulations to withdraw all Federal HHC for waters in Indian lands and the phenol criterion for waters outside of Indian lands promulgated for Maine in December 2016 at 40 CFR 131.43. All other federally promulgated criteria at 40 CFR 131.43 remain in effect.

EPA did not make any changes in response to the comments received on the proposed rulemaking. EPA received eight unique comments on the proposed rulemaking. EPA also held two public, online hearings on the proposed rulemaking (September 30, 2020, and October 1, 2020). EPA received no comments during these hearings. Brief summaries of the comments and EPA's responses are provided in the next section. As noted previously, a full accounting of the comments and the Agency's responses can be found in the docket for this rulemaking.

EPA received several comments in support of the proposal to withdraw the Federal HHC. EPA appreciates the comments in support of this action. Several of these commenters also urged EPA to withdraw other federally promulgated WQS, specifically relating to mixing zones and aquatic life criteria for certain waters, which are not related to the HHC for toxic pollutants that are the subject of this rulemaking. EPA's proposal solicited comments only on withdrawing the Federal HHC for toxic pollutants and these comments are outside the scope of this proceeding.

EPA received two comments in opposition to EPA's proposal to withdraw the Federal HHC. Both comments object to the proposal based on the stringency, scope, and enforceability of the HHC that would remain in place after the withdrawal, i.e., the State of Maine's federally approved HHC. The protectiveness of the State's federally approved HHC, however, is outside the scope of this rulemaking. EPA's June 23, 2020, approval of the State's HHC was a separate, final agency action. EPA's rationale for this approval is provided in detail in the attachment to the approval letter. More information on EPA's action to approve Maine's HHC can be accessed at https://www.epa.gov/sites/production/files/2020-06/documents/hhc_approval_decision_final.pdf.

Given that EPA approved state HHC that correspond to the federally approved HHC, the Agency is thus withdrawing its Federal criteria so that the state criteria are the applicable WQS for CWA purposes. See 40 CFR 131.21(c).

Section 553(d)(3) of the Administrative Procedure Act (APA), 5 U.S.C. 553(d), provides that final rules shall not become effective until 30 days after publication in the Federal Register “except . . . as otherwise provided by the agency for good cause.” The purpose of this provision is to “give affected parties a reasonable time to adjust their behavior before the final rule takes effect.” Omnipoint Corp. v. Fed. Commc'n Comm'n, 78 F.3d 620, 630 (D.C. Cir. 1996); see also United States v. Gavrilovic, 551 F.2d 1099, 1104 (8th Cir. 1977) (quoting legislative history). Thus, in determining whether good cause exists to waive the 30-day delay, an agency should “balance the necessity for immediate implementation against principles of fundamental fairness which require that all affected persons be afforded a reasonable amount of time to prepare for the effective date of its ruling.” Gavrilovic, 551 F.2d at 1105. In this case, EPA has determined that there is good cause for waiving the 30-day delayed effective date because the final rule does not impose any new requirement on any affected entity, rather it withdraws Federal WQS applicable to waters in the State of Maine, thus allowing Maine's WQS to take effect for CWA purposes. Because by itself this final rule does not impose new requirements on affected entities, it is not necessary to provide affected entities time to adjust to this final rule. Having this withdrawal take effect upon publication in the Federal Register will help provide immediate clarity for the State of Maine as it proceeds with creating its latest list of impaired of waters under CWA Section 303(d), as well as in issuing NPDES permits, developing TMDLs, and issuing water quality certifications under CWA Section 401. For these reasons, the Agency finds that good cause exists under APA Section 553(d)(3) to make this rule withdrawing Federal WQS in Maine effective immediately upon publication.

Additional information about these statutes and Executive orders can be found at http://www2.epa.gov/laws-regulations/laws-and-executive-orders.

This action is not a significant regulatory action and was therefore not submitted to the Office of Management and Budget (OMB) for review.

This action is a deregulatory action under Executive Order 13771.

This action does not impose any new information-collection burden under the Paperwork Reduction Act because it is administratively withdrawing Federal requirements that are no longer needed in Maine. It does not include any information collection, reporting, or recordkeeping requirements. The OMB has previously approved the information collection requirements contained in the existing regulations 40 CFR part 131 and has assigned OMB control number 2040-0049.

The Agency certifies that this action will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act. This action will not impose any requirements on small entities.

This action does not contain Federal mandates under the provisions of Title II of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect small governments. As this action withdraws certain federally promulgated criteria, the action imposes no enforceable duty on any state, local, or tribal governments, or the private sector.

This action does not have federalism implications. It will not have substantial direct effects on the states, on the relationship between the National Government and the states, or on the distribution of power and responsibilities among the various levels of government. This rule imposes no regulatory requirements or costs on any state or local governments. Thus, Executive Order 13132 does not apply to this action.

This action has tribal implications. However, it will neither impose substantial direct compliance costs on federally recognized tribal governments, nor preempt tribal law. In the State of Maine, there are four federally recognized Indian tribes represented by five tribal governments. As a result of the unique jurisdictional provisions of the Maine Indian Claims Settlement Act, the State has jurisdiction for setting WQS for all waters in Indian lands in Maine. This rule will have no effect on that jurisdictional arrangement. This final rule affects federally recognized Indian tribes in Maine because it changes the WQS applicable to all waters in Indian lands.

EPA initiated consultation with federally recognized tribal officials under EPA's Policy on Consultation and Coordination with Indian tribes early in the process of developing this rule to allow meaningful and timely input into its development. A summary of that consultation is provided in “Summary of Tribal Consultations Regarding Water Quality Standards Decisions on Remand Applicable to Waters in Indian Lands within Maine,” which is available in the docket for this rulemaking.

EPA interprets Executive Order 13045 as applying only to those regulatory actions that concern environmental health or safety risks that the Agency has reason to believe may disproportionately affect children, per the definition of “covered regulatory action” in Section 2-202 of the Executive order. This action is not subject to Executive Order 13045 because it does not concern an environmental health risk or safety risk that may disproportionately affect children.

This action is not a “significant energy action” because it is not likely to have a significant adverse effect on the supply, distribution or use of energy.

This final rule does not involve technical standards.

The human health or environmental risk addressed by this action will not have disproportionately high and adverse human health or environmental effects on minority, low income or indigenous populations. EPA has previously determined that Maine's state-adopted and EPA-approved criteria are protective of human health.

This action is subject to the Congressional Review Act and EPA will submit a rule report to each House of the Congress and to the Comptroller General of the United States. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

For the reasons set forth in the preamble, EPA amends 40 CFR part 131 as follows:

I. General Information A. Does this action apply to me?

You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:

• Crop production (NAICS code 111).

• Animal production (NAICS code 112).

• Food manufacturing (NAICS code 311).

• Pesticide manufacturing (NAICS code 32532).

You may access a frequently updated electronic version of EPA's tolerance regulations at 40 CFR part 180 through the Government Publishing Office's e-CFR site at http://www.ecfr.gov/cgi-bin/text-idx?&c=ecfr&tpl=/ecfrbrowse/Title40/40tab_02.tpl.

Under FFDCA section 408(g), 21 U.S.C. 346a, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. You must file your objection or request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA-HQ-OPP-2019-0233 in the subject line on the first page of your submission. All objections and requests for a hearing must be in writing, and must be received by the Hearing Clerk on or before February 19, 2021. Addresses for mail and hand delivery of objections and hearing requests are provided in 40 CFR 178.25(b).

In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing (excluding any Confidential Business Information (CBI)) for inclusion in the public docket. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit the non-CBI copy of your objection or hearing request, identified by docket ID number EPA-HQ-OPP-2019-0233, by one of the following methods:

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the online instructions for submitting comments. Do not submit electronically any information you consider to be CBI or other information whose disclosure is restricted by statute.

• Mail: OPP Docket, Environmental Protection Agency Docket Center (EPA/DC), (28221T), 1200 Pennsylvania Ave. NW, Washington, DC 20460-0001.

• Hand Delivery: To make special arrangements for hand delivery or delivery of boxed information, please follow the instructions at http://www.epa.gov/dockets/contacts.html.

Additional instructions on commenting or visiting the docket, along with more information about dockets generally, is available at http://www.epa.gov/dockets.

In the Federal Register of September 30, 2020 (85 FR 61681) (FRL-10014-74), EPA issued a document pursuant to FFDCA section 408(d)(3), 21 U.S.C. 346a(d)(3), announcing the filing of pesticide petitions (an amended PP 9E8745 and PP 0E8848) by IR-4, IR-4 Project Headquarters, Rutgers, The State University of New Jersey, 500 College Road East, Suite 201W, Princeton, NJ 08540. This September 30, 2020 Notice supersedes the previous document the Agency published notifying the public of the filing of the IR-4 petition PP9E8745 in the Federal Register of August 30, 2019 (84 FR 45702) (FRL-9998-15).

The petitions requested that 40 CFR part 180 be amended by establishing tolerances for residues of 2,4-D in or on the raw agricultural commodities wheatgrass, intermediate, bran at 4 parts per million (ppm); wheatgrass, intermediate, grain at 2 ppm; wheatgrass, intermediate, straw at 50 ppm, and wheatgrass, intermediate, forage at 25 ppm (PP 9E8745) and sesame, seed at 0.05 ppm (PP 0E8848). That document referenced summaries of the petitions prepared by Nufarm and PBI Gordon, the registrants, which are available in the docket, http://www.regulations.gov. There was one comment received in response to the notice of filing and it was in support of the petition. Although the petitioner requested a tolerance for wheatgrass, intermediate, forage at 25 ppm, the available data indicate that a tolerance of 30 ppm is appropriate; therefore, EPA is establishing that tolerance at 30 ppm. The remaining tolerances are being established as requested.

Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) of FFDCA defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) of FFDCA requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue . . ..”

Consistent with FFDCA section 408(b)(2)(D), and the factors specified in FFDCA section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure for 2,4-D including exposure resulting from the tolerances established by this action. EPA's assessment of exposures and risks associated with 2,4-D follows.

EPA has evaluated the available toxicity data and considered its validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children.

The toxicity profile of 2,4-D shows that the principal toxic effects are changes in the kidney, thyroid, liver, adrenal, eye, and ovaries/testes in the rat following exposure to 2,4-D via the oral route at dose levels above the threshold of saturation of renal clearance; below that level, the kidneys rapidly excrete the chemical before it has any toxic effects on the body. No systemic toxicity was observed in rabbits following repeated exposure via the dermal route at dose levels up to the limit dose. Neurotoxicity was observed in the acute neurotoxicity study in rats at the high dose. In an extended 1-generation reproductive toxicity study in rats, reproductive toxicity, developmental neurotoxicity, and immunotoxicity were not observed, and the thyroid effects observed at dose levels up to/approaching renal saturation were considered treatment-related, although not adverse. Maternal and developmental toxicities were observed only at high dose levels exceeding the threshold of saturation of renal clearance. Regarding carcinogenicity, available data showed no statistically significant tumor response in rats and mice. Moreover, EPA's literature review found that, overall, there was little substantive evidence to suggest a clear associative or causal relationship between exposure to 2,4-D and cancer.

Specific information on the studies received and the nature of the adverse effects caused by 2,4-D as well as the no-observed-adverse-effect-level (NOAEL) and the lowest-observed-adverse-effect-level (LOAEL) from the toxicity studies can be found at http://www.regulations.gov in the document titled “2,4-D. Second Revision: Human Health Risk Assessment for Registration Review” (hereinafter “2,4-D Human Health Risk Assessment for Registration Review”) in docket ID number EPA-HQ-OPP-2019-0233.

Once a pesticide's toxicological profile is determined, EPA identifies toxicological points of departure (POD) and levels of concern to use in evaluating the risk posed by human exposure to the pesticide. For hazards that have a threshold below which there is no appreciable risk, the toxicological POD is used as the basis for derivation of reference values for risk assessment. PODs are developed based on a careful analysis of the doses in each toxicological study to determine the dose at which no adverse effects are observed (the NOAEL) and the lowest dose at which adverse effects of concern are identified (the LOAEL). Uncertainty/safety factors are used in conjunction with the POD to calculate a safe exposure level—generally referred to as a population-adjusted dose (PAD) or a reference dose (RfD)—and a safe margin of exposure (MOE). For non-threshold risks, the Agency assumes that any amount of exposure will lead to some degree of risk. Thus, the Agency estimates risk in terms of the probability of an occurrence of the adverse effect expected in a lifetime. For more information on the general principles EPA uses in risk characterization and a complete description of the risk assessment process, see http://www2.epa.gov/pesticide-science-and-assessing-pesticide-risks/assessing-human-health-risk-pesticide.

A summary of the toxicological endpoints for 2,4-D used for human risk assessment can be found in the 2,4-D Human Health Risk Assessment for Registration Review.

1. Dietary exposure from food and feed uses. In evaluating dietary exposure to 2,4-D, EPA considered exposure under the petitioned-for tolerances as well as all existing 2,4-D tolerances in 40 CFR 180.142. EPA assessed dietary exposures from 2,4-D in food as follows:

i. Acute exposure. Quantitative acute dietary exposure and risk assessments are performed for a food-use pesticide, if a toxicological study has indicated the possibility of an effect of concern occurring as a result of a 1-day or single exposure.

Such effects were identified for 2,4-D. In estimating acute dietary exposure, EPA used 2003-2008 food consumption information from the United States Department of Agriculture's (USDA's) National Health and Nutrition Examination Survey, What We Eat in America, (NHANES/WWEIA). As to residue levels in food, EPA assumed tolerance-level residues, except for transgenic soybeans and cotton (for which a value higher than the tolerance was used to account for the 2,4-DCP metabolite), and 100 percent crop treated (PCT) for all commodities, as well as empirical and default processing factors.

ii. Chronic exposure. In conducting the chronic dietary exposure assessment, EPA used the 2003-2008 food consumption data from the USDA's NHANES/WWEIA. As to residue levels in food, EPA assumed tolerance-level residues, except for transgenic soybeans and cotton (for which a value higher than the tolerance was used to account for the 2,4-DCP metabolite), and 100 percent crop treated (PCT) for all commodities, as well as empirical and default processing factors.

iii. Cancer. Based on the data summarized in the 2,4-D Human Health Risk Assessment for Registration Review in docket ID number EPA-HQ-OPP-2019-0233, EPA has concluded that 2,4-D is not expected to pose a cancer risk to humans. Therefore, a dietary exposure assessment for the purpose of assessing cancer risk is unnecessary.

iv. Anticipated residue and PCT information. EPA did not use anticipated residue or PCT information in the dietary assessment for 2,4-D. Tolerance-level residues (except for transgenic soybeans and cotton, for which a value higher than the tolerance was used to account for the 2,4-DCP metabolite) and 100 PCT were assumed for all food commodities.

2. Dietary exposure from drinking water. The Agency used screening-level water exposure models in the dietary exposure analysis and risk assessment for 2,4-D in drinking water. These simulation models take into account data on the physical, chemical, and fate/transport characteristics of 2,4-D. Further information regarding EPA drinking water models used in pesticide exposure assessment can be found at http://www2.epa.gov/pesticide-science-and-assessing-pesticide-risks/about-water-exposure-models-used-pesticide.

Based on the Surface Water Concentration Calculator (SWCC), Pesticide Root Zone Model Ground Water (PRZM GW) model, and monitoring data, the estimated drinking water concentrations (EDWCs) of 2,4-D for acute exposures are estimated to be 298 parts per billion (ppb) for surface water and 14.89 ppb for ground water, and for chronic exposures are estimated to be 34.5 ppb for surface water and 14.89 ppb for ground water.

Modeled estimates of drinking water concentrations were directly entered into the dietary exposure model. For the acute dietary risk assessment, the water concentration value of 298 ppb was used to assess the contribution to drinking water. For the chronic dietary risk assessment, the water concentration of value 34.5 ppb was used to assess the contribution to drinking water.

3. From non-dietary exposure. The term “residential exposure” is used in this document to refer to non-occupational, non-dietary exposure ( e.g., for lawn and garden pest control, indoor pest control, termiticides, and flea and tick control on pets).

2,4-D is currently registered for the following uses that could result in residential exposures: Ornamental turf, including lawns, parks, sports fields, and golf courses, as well as aquatic uses. EPA assessed residential exposure using the following assumptions: There is no potential hazard via the dermal route for 2,4-D; therefore, the handler assessment included only the inhalation route of exposure. There are registered 2,4-D products for use in residential sites ( e.g., lawns and turf) that have been considered in the short-term residential handler assessment for 2,4-D. As the aquatic use product labels include PPE requirements, and state that coordination and approval of local and state authorities and/or permits may be required prior to application, those applications are assumed to be made only by occupational applicators.

There is potential for short-term post-application exposure for individuals as a result of being in an environment that has been previously treated with 2,4-D. The quantitative exposure/risk assessment for residential post-application exposures is based on the following scenarios:

• Incidental ingestion ( i.e., hand-to-mouth, object-to-mouth, soil ingestion exposure) from contact with treated turf (children 1 to less than 2 years old only),

• Episodic granular ingestion on treated turf (children 1 to less than 2 years old only), and

• Incidental ingestion of water during recreational swimming (both adults and children 3 to less than 6 years old).

The residential exposure scenario used in the adult and children 3 to less than 6 years aggregate assessments reflects short-term incidental oral exposure from post-application exposure swimmer scenario.

The residential exposure scenario used in the children 1 to less than 2 years old aggregate assessment reflects short-term hand-to-mouth exposures from post-application turf scenario ( i.e., post-application exposure to turf applications).

These scenarios are considered worst-case and are protective of all other exposure scenarios.

Further information regarding EPA standard assumptions and generic inputs for residential exposures may be found at http://www2.epa.gov/pesticide-science-and-assessing-pesticide-risks/standard-operating-procedures-residential-pesticide.

4. Cumulative effects from substances with a common mechanism of toxicity. Section 408(b)(2)(D)(v) of FFDCA requires that, when considering whether to establish, modify, or revoke a tolerance, the Agency consider “available information” concerning the cumulative effects of a particular pesticide's residues and “other substances that have a common mechanism of toxicity.”

2,4-D is a member of the alkylphenoxy herbicide class of pesticides. This class also includes MCPA, 2,4-DB, and 2,4-DP. Unlike other pesticides for which EPA has followed a cumulative risk approach based on a common mechanism of toxicity, EPA has not made a common mechanism of toxicity finding as to 2,4-D and any other substances. For the purposes of this action, therefore, EPA has not assumed that 2,4-D has a common mechanism of toxicity with other substances.

For information regarding EPA's efforts to determine which chemicals have a common mechanism of toxicity and to evaluate the cumulative effects of such chemicals, see the policy statements released by EPA's Office of Pesticide Programs concerning common mechanism determinations and procedures for cumulating effects from substances found to have a common mechanism on EPA's website at http://www2.epa.gov/pesticide-science-and-assessing-pesticide-risks/cumulative-assessment-risk-pesticides.

1. In general. Section 408(b)(2)(C) of FFDCA provides that EPA shall apply an additional tenfold (10X) margin of safety for infants and children in the case of threshold effects to account for prenatal and postnatal toxicity and the completeness of the database on toxicity and exposure unless EPA determines based on reliable data that a different margin of safety will be safe for infants and children. This additional margin of safety is commonly referred to as the FQPA Safety Factor (SF). In applying this provision, EPA either retains the default value of 10X, or uses a different additional safety factor when reliable data available to EPA support the choice of a different factor.

2. Prenatal and postnatal sensitivity. 2,4-D has been evaluated for potential developmental effects in the rat and rabbit. There is no evidence of increased susceptibility following in utero exposure to 2,4-D in the rabbit developmental toxicity study or following in utero and/or pre-/post-natal exposure in the rat extended 1-generation reproduction toxicity study. Maternal toxicity in the rabbit included decreased body weight gain, clinical signs of toxicity (decreased motor activity, ataxia, loss of righting reflex, extremities cold to the touch) and developmental toxicity includes abortions.

The rat developmental toxicity study and the rat 2-generation reproductive study indicate increased susceptibility following in utero exposure to 2,4-D in the rat developmental toxicity study and/or pre-/post-natal exposure in the reproductive study. In the former, maternal toxicity included decreased body weight gains at the same dose level where developmental effects (occurrence of skeletal malformations) occurred; in the latter, maternal toxicity included decreased body weight gains at the same dose level where reduced viability of the F1 pups was observed. In both the rat developmental study and the rat 2-generation reproduction study, the toxicity was observed at dose levels that exceed renal saturation. Because the toxicity was observed at those levels, EPA expects that had an examination of the kidney been done on the maternal animals in these studies, kidney effects would have been revealed at doses lower than where the developmental effects had occurred; therefore, the study findings are not considered evidence of real susceptibility.

3. Conclusion. EPA has determined that reliable data show the safety of infants and children would be adequately protected if the FQPA SF were reduced to 1x. That decision is based on the following findings:

i. The toxicity database for 2,4-D is complete.

ii. Evidence of neurotoxicity was observed in the acute neurotoxicity study in rats, as evidenced by an increase in the incidence of in-coordination and slight gait abnormalities (forepaw flexing or knuckling) during the Functional Operational Battery assessment at the high dose in both sexes. In the subchronic neurotoxicity study, relative forelimb grip strength was significantly increased in rats of both sexes at the high-dose level, although there was no treatment-related change in absolute grip strength. Clinical signs of neurotoxicity (decreased motor activity, ataxia, loss of righting reflex, extremities cold to the touch) were observed in maternal rabbits in the developmental toxicity study. Developmental neurotoxicity was not observed in the developmental neurotoxicity cohort of the Extended One Generation Reproductive Toxicity study in rats. Neuropathological effects were not observed in any study.

iii. There is evidence of increased susceptibility following in utero exposure to 2,4-D in the rat developmental toxicity study and following in utero and/or pre-/post-natal exposure in the rat 2-generation reproduction study at dose levels that exceed renal saturation. There is no evidence of increased susceptibility following in utero exposure to 2,4-D in the rabbit developmental toxicity study or following in utero and/or pre-/post-natal exposure in the rat extended 1-generation reproduction toxicity study. Despite this conclusion, there is no residual uncertainty concerning the potential susceptibility of infants and children to effects of 2,4-D necessitating the retention of the 10X FQPA safety factor. There are no data gaps in the toxicology database, and the available reliable data provide clearly established NOAELs and LOAELs for the population of concern and the points of departure (POD) that are protective of susceptibility. Consequently, there is no need to retain the 10X FQPA safety factor to protect infants and children.

iv. There are no residual uncertainties identified in the exposure databases. The dietary exposure estimates are unrefined and reflect primarily tolerance-level residues in food and 100 PCT. EPA made conservative (protective) assumptions in the ground and surface water modeling used to assess exposure to 2,4-D in drinking water. EPA used similarly conservative assumptions to assess post-application exposure of children as well as incidental oral exposure of toddlers. These assessments will not underestimate the exposure and risks posed by 2,4-D.

EPA determines whether acute and chronic dietary pesticide exposures are safe by comparing aggregate exposure estimates to the acute PAD (aPAD) and chronic PAD (cPAD). For linear cancer risks, EPA calculates the lifetime probability of acquiring cancer given the estimated aggregate exposure. Short-, intermediate-, and chronic-term risks are evaluated by comparing the estimated aggregate food, water, and residential exposure to the appropriate PODs to ensure that an adequate MOE exists.

1. Acute risk. Using the exposure assumptions discussed in this unit for acute exposure, the acute dietary exposure from food and water to 2,4-D will occupy 23% of the aPAD for children 1-2 years old, the population group receiving the greatest exposure.

2. Chronic risk. Using the exposure assumptions described in this unit for chronic exposure, EPA has concluded that chronic exposure to 2,4-D from food and water will utilize 20% of the cPAD for children 1 to 2 years old, the population group receiving the greatest exposure. Based on the explanation in Unit III.C.3., regarding residential use patterns, chronic residential exposure to residues of 2,4-D is not expected.

3. Short-term risk. Short-term aggregate exposure takes into account short-term residential exposure plus chronic exposure to food and water (considered to be a background exposure level).

2,4-D is currently registered for uses that could result in short-term residential exposure, and the Agency has determined that it is appropriate to aggregate chronic exposure through food and water with short-term residential exposures to 2,4-D.

Using the exposure assumptions described in this unit for short-term exposures, EPA has concluded the combined short-term food, water, and residential exposures result in aggregate MOEs of 2000 for adults and 280 for children. Because EPA's level of concern for 2,4-D is a MOE of 100 or below, these MOEs are not of concern.

4. Intermediate-term risk. Intermediate-term aggregate exposure takes into account intermediate-term residential exposure plus chronic exposure to food and water (considered to be a background exposure level).

An intermediate-term adverse effect was identified; however, 2,4-D is not registered for any use patterns that would result in intermediate-term residential exposure. Intermediate-term risk is assessed based on intermediate-term residential exposure plus chronic dietary exposure. Because there is no intermediate-term residential exposure and chronic dietary exposure has already been assessed under the appropriately protective cPAD (which is at least as protective as the POD used to assess intermediate-term risk), no further assessment of intermediate-term risk is necessary, and EPA relies on the chronic dietary risk assessment for evaluating intermediate-term risk for 2,4-D.

5. Aggregate cancer risk for U.S. population. As discussed above, EPA has concluded that 2,4-D will not pose a cancer risk.

6. Determination of safety. Based on these risk assessments, EPA concludes that there is a reasonable certainty that no harm will result to the general population, or to infants and children from aggregate exposure to 2,4-D residues.

Adequate analytical methods are available for data collection and the enforcement of plant commodity tolerances. An adequate Gas Chromatography/Electron Capture Detector (GC/ECD) enforcement method for plants (designated as EN-CAS Method No. ENC-2/93) was submitted, which has been independently validated and radiovalidated. An enforcement method was submitted for determination of 2,4-D in livestock commodities, which has been adequately radiovalidated. The methods have been submitted to FDA for inclusion in PAM II. The 10/1997 edition of FDA PAM Volume I, Appendix I indicates that 2,4-D is partially recovered (50-80%) using Multiresidue Methods Section 402 E1 and 402 E2.

For multiresidue method analysis, 2,4-D is documented to be well-recovered through the QuEChERS (Quick, Easy, Cheap, Effective, Rugged, and Safe) streamlined extraction method.

The methods may be requested from: Chief, Analytical Chemistry Branch, Environmental Science Center, 701 Mapes Rd., Ft. Meade, MD 20755-5350; telephone number: (410) 305-2905; email address: residuemethods@epa.gov.

In making its tolerance decisions, EPA seeks to harmonize U.S. tolerances with international standards whenever possible, consistent with U.S. food safety standards and agricultural practices. EPA considers the international maximum residue limits (MRLs) established by the Codex Alimentarius Commission (Codex), as required by FFDCA section 408(b)(4).

The Codex has not established any MRLs for 2,4-D on intermediate wheatgrass raw agricultural commodities or sesame seed.

There was one comment received in response to the notice of filing and it was in support of the petition.

Therefore, tolerances are established for residues of 2,4-D, in or on sesame, seed at 0.05 ppm; wheatgrass, intermediate, bran at 4 ppm; wheatgrass, intermediate, forage at 30 ppm; wheatgrass, intermediate, grain at 2 ppm; and wheatgrass, intermediate, straw at 50 ppm.

This action establishes tolerances under FFDCA section 408(d) in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled “Regulatory Planning and Review” (58 FR 51735, October 4, 1993). Because this action has been exempted from review under Executive Order 12866, this action is not subject to Executive Order 13211, entitled “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001) or Executive Order 13045, entitled “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), nor is it considered a regulatory action under Executive Order 13771, entitled “Reducing Regulations and Controlling Regulatory Costs” (82 FR 9339, February 3, 2017). This action does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA) (44 U.S.C. 3501 et seq. ), nor does it require any special considerations under Executive Order 12898, entitled “Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations” (59 FR 7629, February 16, 1994).

Since tolerances and exemptions that are established on the basis of a petition under FFDCA section 408(d), such as the tolerances in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ), do not apply.

This action directly regulates growers, food processors, food handlers, and food retailers, not States or tribes, nor does this action alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4). As such, the Agency has determined that this action will not have a substantial direct effect on States or Tribal Governments, on the relationship between the National Government and the States or Tribal Governments, or on the distribution of power and responsibilities among the various levels of government or between the Federal Government and Indian Tribes. Thus, the Agency has determined that Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999) and Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000) do not apply to this action. In addition, this action does not impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act (UMRA) (2 U.S.C. 1501 et seq. ).

This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note).

Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq. ), EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Therefore, for the reasons stated in the preamble, EPA is amending 40 CFR chapter I as follows:

The Mid-Atlantic Fishery Management Council manages the golden tilefish fishery under the Tilefish Fishery Management Plan (FMP), which outlines the Council's process for establishing annual specifications. The FMP requires the Council to recommend acceptable biological catch (ABC), annual catch limit (ACL), annual catch target (ACT), total allowable landings (TAL), and other management measures, for up to 3 years at a time. The directed fishery is managed under an individual fishing quota (IFQ) program, with small amounts of non-IFQ catch allowed under an incidental permit. Detailed background information regarding the development of the 2021-2022 specifications for this fishery was provided in the specifications proposed rule (85 FR 72616; November 13, 2020). That information is not repeated here.

The table below shows the 2021 and projected 2022 specifications including the ABC, ACL, ACT, and TAL for the commercial Mid-Atlantic golden tilefish fishery. NMFS will publish a notice in the Federal Register before the 2022 fishing year notifying the public of the final specifications.

Under the FMP, 95 percent of the ACL is allocated for the IFQ fishery, and the remaining 5 percent is allocated for the incidental fishery. This results in the ACT for each. The TAL for each of these sectors of the fishery is derived by deducting anticipated discards of tilefish from the ACT.

This action makes no changes to possession limits in the golden tilefish fishery. The incidental trip limit remains 500 lb (226.8 kg) (live weight), or 50 percent of the weight of all fish being landed, whichever is less, and the recreational catch limit remains eight fish per angler per trip.

At its April 2020 meeting, the Council requested that NMFS take emergency action to allow a 5 percent carryover of unharvested IFQ quota from fishing year 2020 to 2021. The tilefish IFQ program does not normally allow any carryover of unharvested allocation from one fishing year into the next. Unforeseen changes in the market for seafood resulting from the COVID-19 pandemic, particularly the loss of restaurant sales due to local closure orders, have substantially reduced demand for golden tilefish. A review of golden tilefish IFQ landings from November 1, 2019, through June 30, 2020, shows that landings were approximately 18.5-percent below the same date in 2018 and 2019. Because of this unprecedented impact on the fishery, we are implementing this one-time carry over under our emergency rulemaking authority specified in section 305(c) of the Magnuson-Stevens Act.

Each IFQ quota shareholder will be able to carry over 2020 IFQ quota pounds that are not used to land tilefish before the end of the fishing year, up to a maximum amount of 5 percent of their initial 2020 IFQ quota pounds. Final IFQ accounting is normally completed in December or January, after all landings data has been submitted and undergone normal reviews for quality control and quality assurance. Following that accounting, IFQ quota shareholders that land less than 95 percent of their initial 2020 quota pounds will receive the full 5-percent carryover. Those that land between 95 and 100 percent of their initial 2020 quota pounds will receive the amount they were under. Revised 2020 allocation permits indicating the amount of any carryover will be issued to each IFQ quota shareholder. Any increase in the 2021 IFQ TAL reflects 2020 IFQ TAL that was not harvested. Thus, total landings for 2020 and 2021 will remain at or below the combined IFQ TAL for the 2 years.

NMFS's policy guidelines for the use of emergency rules (62 FR 44421; August 21, 1997) specify the following three criteria that define what an emergency situation is, and justification for final rulemaking: (1) The emergency results from recent, unforeseen events or recently discovered circumstances; (2) the emergency presents serious conservation or management problems in the fishery; and (3) the emergency can be addressed through emergency regulations for which the immediate benefits outweigh the value of advance notice, public comment, and deliberative consideration of the impacts on participants to the same extent as would be expected under the normal rulemaking process. NMFS's policy guidelines further provide that emergency action is justified for certain situations where emergency action would prevent significant direct economic loss, or to preserve a significant economic opportunity that otherwise might be foregone. NMFS has determined that allowing the carryover of unharvested tilefish IFQ quota pounds as described above meets the three criteria for emergency action for the reasons outlined below.

The emergency results from recent, unforeseen events or recently discovered circumstances. On March 13, 2020, a national emergency was declared in response to the global spread of a novel coronavirus (SARS-CoV-2), and the outbreaks of the disease caused by this virus, COVID-19. State governors across the Greater Atlantic region declared states of emergency and implemented health and travel restrictions in recognition of the growing impacts and risks of COVID-19. The tilefish industry began to experience impacts from the COVID-19 pandemic in March 2020. These impacts were unforeseen during the development of management measures for the 2020 fishing year that began on November 1, 2019.

The emergency presents serious conservation or management problems in the fishery. When state governors across the Greater Atlantic region declared states of emergency, it became exceedingly difficult for members of the tilefish industry to complete fishing trips and sell their catch to federally permitted tilefish dealers. Even after some tilefish dealer activity resumed, the ability of tilefish IFQ quota holders to harvest their quota remained very limited, and a number of fishermen were unable to harvest their full quota for the 2020 fishing year. This emergency action would help prevent additional economic losses to industry participants, shoreside businesses, and fishing communities, and help offset lost fishing opportunities during the 2020 fishing year.

Although the Council has the authority to develop a management action to authorize carryover, an emergency action can be developed and implemented by NMFS more swiftly than a Council action that is subject to requirements not applicable to the Secretary. If the normal Council process is used to implement carryover provisions, it would take substantially longer for those provisions to be implemented and could prevent vessels from harvesting carryover at an opportune time in the upcoming fishing year. It was not possible to implement these changes for the start of the 2021 fishing year through rulemaking following the normal Council process because of time required for the Council to develop a FMP amendment or framework adjustment. If implemented through emergency action, carryover allocation will be available to fishermen early in the tilefish fishing year, which allows maximum flexibility and ensures the intended benefits of this action are realized. Making carryover quota available for as much of the fishing year as possible is important to allow tilefish permit holders to plan to use additional quota when it is most beneficial to them. Section 305(c) of the Magnuson-Stevens Act specifies that emergency regulations may only remain in effect for 180 days from the date of publication and may be extended for one additional period of not more than 186 days.

The public comment period for the proposed rule ended on November 30, 2020. We received no relevant comments on the proposed rule.

There are no changes from the proposed rule.

NMFS is issuing this rule pursuant to sections and 304(b) and 305(c) of the Magnuson Stevens Act, which provide specific authority and procedure for implementing this action. Section 304(b) authorizes NMFS to implement regulations implementing a fishery management plan or plan amendment. Section 305(c) authorizes NMFS to implement regulations at the request of the Council to address an emergency in the fishery. The NMFS Assistant Administrator has determined that this rule is consistent with the Tilefish FMP, other provisions of the Magnuson-Stevens Act, and other applicable law, subject to further consideration after public comment.

The Assistant Administrator Fisheries, NOAA (AA) finds the need to implement these measures in a timely manner to implement the final harvest limits for the 2021 fishing year that started on November 1, 2020, and to implement emergency measures to allow the carryover of up to 5 percent of unharvested IFQ quota, constitutes good cause under authority contained in 5 U.S.C. 553(d)(3), to waive the 30-day delay in effective date and make the rule effective immediately upon publication in the Federal Register . The 2021 tilefish fishing year is already underway and delaying the effective date for this rule would undermine the intent of this rule. A full assessment of the potential impacts of the emergency measures in this action was not available until late October, delaying the publication of the proposed rule for this action.

The 30-day delay in implementation for this rule is also unnecessary because this rule contains no new measures ( e.g., requiring new nets or equipment) for which regulated entities need time to prepare or revise their current practices.

This final rule has been determined to be not significant for purposes of Executive Order 12866.

The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration during the proposed rule stage that this action would not have a significant economic impact on a substantial number of small entities. The factual basis for the certification was published in the proposed rule and is not repeated here. No comments were received regarding this certification. As a result, a regulatory flexibility analysis was not required and none was prepared.

This final rule contains no information collection requirements under the Paperwork Reduction Act of 1995.

The Mid-Atlantic Fishery Management Council and the Atlantic States Marine Fisheries Commission cooperatively manage the summer flounder, scup, and black sea bass fisheries. The Summer Flounder, Scup, and Black Sea Bass Fishery Management Plan (FMP) outlines the Council's process for establishing specifications. The FMP requires NMFS to set an acceptable biological catch (ABC), annual catch limit (ACL), annual catch targets (ACT), commercial quotas, recreational harvest limits (RHL), and other management measures, for 1 to 3 years at a time. Projected 2021 specifications for summer flounder (84 FR 54041; October 9, 2019) and scup and black sea bass (85 FR 29345; May 15, 2020) were previously announced. This action revises the 2021 ABC limits, as well as the recreational and commercial ACLs, ACTs, commercial quotas, and RHLs for all three species, consistent with the recommendations made by the Commission's Summer Flounder, Scup, and Black Sea Bass Board and the Council at their joint August 2020 meeting. These revisions are primarily based on recent changes to the Council's risk policy that we approved on December 15, 2020. The risk policy defines the acceptable risk of overfishing associated with an ABC. The revised risk policy allows for increased risk of overfishing under high stock biomass conditions compared to the previous risk policy. The change is greatest for stocks with biomass above the target level (B MSY ).

For summer flounder, applying the revised risk policy, keeping all other relevant factors the same as previously adopted, results in an increase in the 2021 ABC from 25.03 million lb (11,354 mt) to 27.11 million lb (12,297 mt). This represents an 8-percent increase in the ABC and an increase in the probability of overfishing from 34 to 39 percent. Given the high biomass (healthy stock status) of summer flounder, the revised risk policy allows for a slightly increased risk of overfishing, which balances fishery access with the prevention of overfishing. Section 5.1 of the Council's SIR provides information on how the revised ABC was calculated using the new risk policy. The resulting catch and landings limits are shown in Table 1.

We also recently approved (October 19, 2020) and implemented (December 14 2020, 85 FR 80661) Amendment 21 to the FMP. Amendment 21 implements a new state-by-state allocation formula for the commercial summer flounder fishery. The revised allocation formula was used to set the final 2021 summer flounder commercial state quotas. In addition to the revised allocation formula, the final state summer flounder quotas take into account any overages that occurred during the 2019 or current fishing year, through October 31, as described at 50 CFR 648.103(b)(2). The final 2021 state-by-state summer flounder quotas are provided in Table 2.

This action makes no changes to the current commercial management measures, including the minimum fish size (14 inches (36 cm), total length), gear requirements, and possession limits. No changes to 2021 recreational management measures (bag limits, size limits, and seasons) were considered as part of this action.

Application of the revised risk policy to the 2021 scup OFL, keeping all other relevant factors the same, results in the 2021 ABC increasing from 30.67 million lb (13,912 mt) to 34.81 million lb (15,790 mt). This represents a 13-percent increase in the ABC. Section 5.2 of the Council's SIR provides information on how the revised ABC was calculated using the new risk policy. The resulting catch and landings limits are shown in Table 3.

This action does not change the 2021 commercial management measures for scup, including the minimum fish size (9 inches (22.9 cm), total length), gear requirements, and quota period possession limits. Like summer flounder, changes to the recreational measures for 2021 were not considered in this action.

Application of the revised risk policy to the 2021 black sea bass OFL, keeping all other relevant factors the same, results in the 2021 ABC increasing from 15.07 million lb (6,836 mt) to 17.45 million lb (7,915 mt), representing a 16-percent increase. As specified in the FMP, 49 percent of the ABC that is expected to be landed is allocated to the commercial fishery and 51 percent is allocated to the recreational fishery. Expected discards in each sector are added to these amounts to derive commercial and recreational ACLs. The Council and Board recommended revisions to the method for calculating expected discards for black sea bass. The revised method is based on the assumption that sector-specific discards, as a percentage of sector-specific catch, will be the same as the 2016-2018 average ( i.e., commercial dead discards would account for 36 percent of commercial catch and recreational dead discards would account for 20 percent of recreational catch). This allows commercial discards to scale up with the increase in the quota, consistent with past trends in the fishery. The previously used method for calculating expected discards under-predicted actual discards in both sectors, contributing to commercial and recreational ACL overages in every year since 2015. The revised methodology reduces the likelihood of ACL overages. The resulting catch and landings limits are shown in Table 5. This action does not change the 2021 commercial management measures for black sea bass, including the commercial minimum fish size (11 inches (27.94 cm), total length) and gear requirements.

This action revises the projected state-by-state February black sea bass recreational fishery harvest. No changes to the management measures for the February fishery are being proposed. The harvest projections are being updated to incorporate the revised Marine Recreational Information Program data, but the overall estimation method would remain unchanged (Table 6). States that choose to participate in this optional opening must use these revised values when developing state waters management measures for the rest of the year. The purpose is to ensure their participation in this optional opening does not increase their annual recreational black sea bass harvest in such a way as to result in an overage of the coastwide RHL. Changes to management measures for the overall recreational black sea bass fishery were not considered in this action.

We received two comments on the proposed rule. One comment was not relevant to the proposed specifications and is not discussed further. The second comment was from the State of New York and the New York State Department of Environmental Conservation (hereinafter referenced as “New York”). New York's comment comprises a cover letter and ten attachments. The attachments were the comment letters and supporting documents that New York previously submitted in response to the proposed rule for the 2020-2021 Summer Flounder, Scup, Black Sea Bass, and Bluefish Specifications (84 FR 36046; July 26, 2019) and the proposed rule for Amendment 21 to the FMP (85 FR 48660; August 12, 2020). Similar to arguments made in ongoing and past litigation, New York contends that the revised allocations and resulting quotas are not in accordance with Magnuson-Stevens Act's National Standards 2, 4, 5, and 7. NMFS's responses to New York's previously submitted comments can be found in the final rules for those two actions (84 FR 54041; October 8, 2019, and 85 FR 80661; December 14, 2020) and are not repeated here.

In the proposed rule, we published initial 2021 summer flounder state quotas based on two scenarios. In the first scenario the distribution of state quota was based on the new allocation method we approved through Amendment 21 to the FMP. Although we approved Amendment 21 on October 19, 2020, when the specifications proposed rule was published, we did not know whether the final rule for Amendment 21, implementing the new allocation method, would be published and effective prior to the start of the 2021 fishing year. Due to the timing uncertainty, the proposed rule included a second scenario under which the commercial state summer flounder quota distribution would be based on the old allocation formula. In its comment letter, New York opposed “the state-by-state allocations proposed under either scenario.”

The final rule for Amendment 21 published on December 14, 2020. Therefore the current regulations governing the FMP require that quota allocations be distributed based on the percentages outlined in Table 2. Any adjustments to these quota allocations that are currently part of the FMP must be developed and considered through an amendment to the FMP and are outside the scope of this specifications action.

As described in the proposed rule, the summer flounder specifications in this final rule incorporate overage information to calculate the final state quotas.

Pursuant to section 304(b)(3) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has determined that this final rule is consistent with the Summer Flounder, Scup, and Black Sea Bass FMP, other provisions of the Magnuson-Stevens Act, and other applicable law.

The Assistant Administrator for Fisheries finds that the need to implement these measures in a timely manner constitutes good cause, under the authority contained in 5 U.S.C. 553(d)(3), to waive the 30-day delay in effective date of this action. This action implements 2021 specifications for the summer flounder, scup, and black sea bass fisheries. These specifications should be effective by the start of the fishing year on January 1, 2021, and must be published on or before December 31, 2020.

This rule is being issued at the earliest possible date. Preparation of the proposed rule was dependent on the Council's submission of the SIR. NMFS received the final version of the SIR on November 2, 2020. Preparation of the final rule is also dependent on the analysis of commercial summer flounder landings for the prior fishing year (2019) and the current fishing year through October 31, to determine whether any overages have occurred and adjustments are needed to the final state quotas. This process is codified in the summer flounder regulations, and, therefore, cannot be performed earlier. Annual publication of the summer flounder quotas prior to the start of the fishing year, by December 31, is required by Court Order in North Carolina Fisheries Association v. Daley.

The 30-day delay in implementation for this rule is also unnecessary because this rule contains no new measures ( e.g., requiring new nets or equipment) for which regulated entities need time to prepare or revise their current practices.

This final rule is exempt from review under Executive Order 12866.

The Chief Counsel for Regulation of the Department of Commerce certified to the

Chief Counsel for Advocacy of the Small Business Administration during the proposed rule stage that this action would not have a significant economic impact on a substantial number of small entities. The factual basis for the certification was published in the proposed rule and is not repeated here. No comments were received regarding this certification. As a result, a regulatory flexibility analysis was not required and none was prepared.

This final rule contains no information collection requirements under the Paperwork Reduction Act of 1995.