The initial plan for this article was to confine the scope to a discussion of a recent controversial proposed change to the Federal Rules by the U.S. Patent & Trademark Office (“USPTO”), specifically 89 FR 40439. The USPTO proposed the change on May 10, 2024.[i] The proposal was motivated by concerns regarding “patent thickets,” in particular those resulting from a company obtaining a large number of patents over a period of time that claim priority from a single patent application.[ii] However, when researching, I found that the policy issues underlying the proposed rule change are complex and require discussion.

Thus, before addressing the proposed rule change, this article will give a brief overview of the main policy issues behind the proposed rule change. Then, to orient readers who are unfamiliar with the details of patent law, it will discuss some procedures that would be impacted by the rule change and some patent law concepts, followed by a brief discussion of the positive and negative impacts of the rule change and the propriety of using federal rulemaking in this way. This article will conclude with suggestions for alternative solutions.

Policy Issues: Into the Thicket We Go!

The patent thicket has the greatest impact on, and is primarily caused by, large corporations.[iii]  Many large corporations invest heavily in acquiring and asserting patents in an attempt to protect market share. However, if a company is unable to sell a product due to patent infringement issues, such inability may result in millions of dollars wasted in research, development, and commercialization of a new product.

These two interests often collide—the very patents that are essential to protecting the market share of Company A, and thus its investment in innovation, comes at the expense of Company B, who loses its ability to launch new products it has developed.

You may be asking yourself, isn’t that the purpose of patents, to protect company A’s investment in their innovations? It is,[iv] but society benefits most when Company B has the ability to understand what Company A’s patents cover so that Company B can innovate in the “white space” not covered by Company A’s patents.

The problem is “patent holdup,”[v] which arises when Company A files a never-ending chain of patent applications (i.e., a patent “family”) each arising from an earlier filed “parent” application.[vi] If Company A’s parent application has a filing date that pre-dates Company B’s development work, all of the later-issuing patents, which have the benefit of the parent’s filing date, will be potentially enforceable against a product ultimately launched by Company B. During Company B’s work, the company may have kept an eye on patents being issued from the parent application, perhaps modifying the product under development to avoid infringement. However, if the USPTO continues to issue Company A patents claiming priority from the parent, each with a different scope of protection, that makes it near impossible for Company B to ever launch a product that it is confident will not infringe any of Company A’s patents.

Moreover, there is a continuing risk that Company B’s product will inadvertently infringe patents issued after its product has been released on a large scale, giving Company A an opportunity to “hold up” Company B for an exorbitant royalty.

Of course, if Company B is growing its own patent thicket, Company B can similarly make it challenging for Company A to launch new products.

In some cases, Company A and Company B can address the situation through cross-licensing.  However, cross-licensing and other agreements between large competitors can pose antitrust issues.[vii] Also, not all companies are willing to consider entering into such agreements; some would prefer to prevent their competitors from entering the market with competing products.

Other issues caused by the patent thicket are specific to the pharmaceutical industry. For example, the Hatch-Waxman Act delays generic market entry unless and until the generic manufacturer can show that every patent listed on the FDA’s Orange Book has either expired or been proven invalid or not infringed.[viii] This incentivizes pharmaceutical companies to file a myriad of continuing applications in an attempt to delay generic entry as long as possible.[ix] It appears that the USPTO’s proposed rulemaking may be largely driven by this and other pharmaceutical-related issues.[x]

Developing a Patent Family: Into the Weeds

An applicant may develop a family of patents by filing one or more “divisional applications” and/or “continuation applications” related to the parent application. Each such application may be subject to a rejection due to “obviousness type double patenting,” which is a legal doctrine that provides that an applicant cannot patent obvious variants of their issued patent claims.

Divisional applications. In some cases, an applicant will include multiple claim sets in the parent application, directed to different inventions or different aspects of an invention. In this case, the patent examiner may issue a Restriction Requirement, requiring the applicant to elect one of the inventions/aspects for further examination. The applicant then has the option, any time before the parent application issues a patent or is abandoned, to file a divisional application to pursue the non-elected claims. The claims of divisional applications are deemed to be patentably distinct from those of the parent, which provides a “safe harbor,” preventing the claims from being rejected on obviousness-type double patenting grounds.

Continuation applications. An applicant may also file one or more continuation applications as long as there is a pending family member (the parent or a related divisional or continuation application). In the case of a continuation application, the claims are generally new, i.e., they were not filed with the parent application.[xi] Because of this, there has been no determination by a patent examiner as to whether or not they are patentably distinct from claims of the parent and, therefore, they do not enjoy the “safe harbor” of divisional applications. Instead, the claims are vulnerable to an obviousness-type double patenting rejection.

Terminal Disclaimers. Applicants often file Terminal Disclaimers in continuation applications, allowing applicants to overcome an obviousness-type double patenting rejection without arguing that the continuation claims are patentably distinct and not an obvious variant of those of the earlier patent or patent application.

The Proposed Rule Change: Trimming the Thicket with a Flamethrower?

You may be asking yourself by now, what is the proposed rule change? Terminal Disclaimers are the subject of the proposed rule change. Under the current rules,[xii] a Terminal Disclaimer requires an acknowledgement by the applicant that (1) both patents (issuing from the parent and continuation applications) will expire when the earliest one does, and (2) the patents will only be enforceable as long as they are commonly owned.

Under the proposed rule change, in addition to the existing acknowledgements required in a Terminal Disclaimer, the applicant would have to acknowledge that the patent with the Terminal Disclaimer will not be enforceable if a patent to which it is tied (directly or indirectly[xiii]) has a claim invalidated as obvious or anticipated (i.e., not novel) by a federal court in a civil action or by the USPTO, and all appeal rights have been exhausted. Thus, under the proposed rule change, a Terminal Disclaimer will subject entire patent families to invalidation if only a single claim in one patent can be invalidated.

Many of the arguments in favor of the rule change are based on a belief that the change will mitigate the issues discussed previously as well as other issues primarily faced by large corporations.[xiv]

The arguments against the rule change are many and pertain, in large part, to its potential negative effects on small companies.

Small companies file continuation applications for strategic reasons distinct from creating a patent thicket. For example, a pending continuation application can afford a small company some protection against a meritless attack on a key patent (issued from the parent application) filed by a competitor with deeper pockets. Moreover, continuation applications allow the company to obtain a patent with claims of relatively narrow scope early on, in order to satisfy investors or stop knock-off infringement by online retailers, and then seek broader protection having greater long-term value in a continuation application. For many small companies, it is important to obtain the best possible protection for one or two key innovations and this is facilitated by strategic use of continuation applications.

The risk of patent unenforceability posed by filing a Terminal Disclaimer under the proposed rules will impact these uses of continuation applications in several ways. First, filing Terminal Disclaimers will be viewed as unacceptably risky. This will add to the cost of obtaining patent protection because, in order to avoid jeopardizing future patent enforceability, many applicants will choose to argue against obviousness type double patenting rejections rather than simply removing the rejection by filing a Terminal Disclaimer. The cost incurred in doing so will have a disproportionate impact on small companies who already find the cost of the patent system burdensome.  Second, when such arguments fail, and the applicant is required to file a Terminal Disclaimer, the applicant will be left with uncertainty as to the future enforceability of a patent issuing from the application.

Thus, the proposed rule change will potentially punish patent owners who have had no role in creating the problem. 

Some practitioners also argue that it is improper under 35 U.S.C. § 2(b)(2) to use federal rulemaking, rather than legislation, to attempt to address the patent thicket issues.[xv] Under § 2(b)(2), the USPTO only has the authority to “establish regulations, not inconsistent with law.”

The proposed rule change has been argued to be inconsistent with existing law, specifically 35 U.S.C. § 282(a), because the claims of a patent with a Terminal Disclaimer will no longer be presumed valid in the event of the invalidity of a single claim in an entirely different patent.  This violates § 282(a), which requires that “[e]ach claim of a patent . . . shall be presumed valid independently of the validity of other claims; dependent or multiple dependent claims shall be presumed valid even though dependent upon an invalid claim.”

For these and other reasons, many believe that the proposed rule change, and federal rulemaking generally, is not the proper vehicle for addressing patent thicket issues.

Alternative Solutions: Light at the End of the Thicket?

There are several options that could address the patent thicket issues without the negative impacts of the proposed rule change.

One option would be to address industry-specific issues, such as pharmaceutical ones, by industry-specific legislation. This appears to be underway. Specifically, on January 11, 2024, the Bill to Address Patent Thickets[xvi] was introduced into Congress. A slimmed down version of the bill, S. 150, which addresses pharmaceutical companies’ use of patent thickets, was passed unanimously by the Senate on July 11, 2024. As of the date of this publication, S. 150 has yet to pass the House. However, even if S. 150 passes, some modification to existing patent practice may still be in order to address the issues discussed here, in particular patent holdup. For example, patent applicants could be limited to filing only a certain number of continuation applications per parent application,[xvii] or to filing all continuation applications within a certain time period after the issue date of the parent application. Such restrictions would address patent holdup by providing predictability; competitors would know that, after a certain point, there would be no threat of new patents being added to a family.

Celia Leber is the founder and a shareholder of Leber IP Law (www.leberiplaw.com), a cloud-based Pacific Northwest patent firm specializing in patent preparation, prosecution, and opinions. Celia lives in the Salmon River Mountains with her husband and two dogs and enjoys exploring the local trails on foot, bike, or skis.   

[i] The comment period for the proposed rule change ended on July 10, 2024. As of the date of this publication no decision has been issued by the USPTO.

[ii] Patent thickets have been described as “a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology.” Carl Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard-Setting (Mar. 2001), available at https://ssrn.com/abstract=273550 or http://dx.doi.org/10.2139/ssrn.273550. I note this because the term “patent thicket” is also used, for example, in the Shapiro article, supra note 2, to refer to a dense network of patents owned by different entities in the same field of technology, requiring those seeking to commercialize technology to obtain licenses from multiple patentees.

[iii] Part of the difficulty of reaching a solution that will work well for most patent owners is the gulf that lies between the world of small business and the world of large corporations.

[iv] See, for example, https://constitution.congress.gov/browse/essay/artI-S8-C8-1/ALDE_00013060/.

[v] For an introduction to patent holdup see, for example, Thomas F. Cotter, Erik Hovenkamp, and Norman Siebrasse, Demystifying Patent Holdup, 76 Wash. & Lee L. Rev. 1501 (2019).

[vi] If you are getting lost never fear, I will provide some patent background shortly.

[vii] Shapiro, supra note 2, at 129.

[viii] 21 U.S.C. § 355(c)(3)(C), (j)(5)(B)(iii).

[ix] Mark A. Lemley & Lisa Larrimore Ouellette, Fixing Double Patenting, 74 Am. U.L. Rev. (unpublished manuscript; forthcoming 2025) (Fed. Cir. symposium issue), pp. 18–19.

[x] For a commentary suggesting that some of the pharmaceutical issues may be overstated, see https://ipwatchdog.com/2024/10/28/debunked-uspto-findings-end-false-pharma-patent-narratives/id=182568/.

[xi] In some situations, continuation claims might have been filed in the parent application but amended during examination or cancelled for reasons other than a restriction requirement.

[xii] 37 CFR 1.321(c).

[xiii] According to the proposed rule, “[t]he subject patent or any patent granted on the subject application is tied indirectly by two terminal disclaimers to another patent when: (1) a terminal disclaimer filed in the subject patent or application identifies an intermediate patent/application as the reference patent or application; and (2) a terminal disclaimer filed in the intermediate patent/application identifies the other patent, or the application that issued as the other patent, as the reference patent or application.” Federal Register, Safeguards Rule, 89 Fed. Reg. 35,142, 35,166 (May 30, 2024), available at https://www.federalregister.gov/d/2024-10166/p-24.

[xiv] For an in-depth discussion of these arguments, see Lemley & Ouellette, supra note 11.

[xv] See comments at https://www.regulations.gov/document/PTO-P-2024-0003-0001, for example at https://www.regulations.gov/comment/PTO-P-2024-0003-0172.

[xvi] S.3583, 118^th Cong. (2024).

[xvii] A rule limiting continuation applications was published by the USPTO in 2007 but was invalidated by the Federal Court in 2008 as exceeding the scope of the USPTO’s rulemaking authority.  See, e.g., https://www.jdsupra.com/legalnews/federal-court-voids-changes-to-patent-of-51958/.