Patent Baristas

David Boundy, Vice President & Assistant General Counsel Intellectual Property at Cantor Fitzgerald LP , sent a note of importance to the patent community regarding a notice and comment period, which opened last week and closes on March 16, 2008  (See: Office of Management and Budget, Executive Office of the President, Request for Comment, 74 Fed. Reg. 8819) .

Regulatory Oversight and Executive Order 12,866

Executive Order 12,866 is one of a handful of laws administered by the White House Office of Management and Budget (OMB).  The Executive Order requires agencies to analyze costs, benefits, and effects (both economic and non-economic) and to do cost-benefit balancing.

Before regulating, an agency must:

• identify a “specific market failure,” “compelling public need,” or “other specific problem”
• examine whether the problem arises out of existing regulations or other law
• consider all alternatives (including not regulating, and, presumably, internal reforms) to make sure that the problem is best addressed by regulation, and that the regulation proposed is the best and most cost-effective solution to the problem
• study the problem and the regulation to ensure that they are cost-benefit positive, using the best reasonably obtainable information
• “tailor its regulations and guidance documents to impose the least burden on society… consistent with obtaining the regulatory objectives.”

For the Continuations and Claims rules, the PTO based its cost analysis solely on interviews with PTO staff, and (at least based on the record produced in Tafas v. Dudas) never asked a single practicing patent attorney to estimate compliance costs or economic effects of impaired patent rights.

Guidance Documents

Executive Order 12866 was amended in January 2007 to cover “guidance documents,” those informal agency documents issued within the supervisory authority of agencies to their employees, and as nonbinding general guidelines for the public.  “Guidance documents” include agency manuals, agency personnel training materials, public notices interpreting agency rules or statutes, statements of policy that do not rise to hard-edged rules, and the like.

Modifications to “economically significant guidance documents” (the MPEP is such a document) require notice and comment.  The agency must list all guidance documents (examiner memoranda, examiner training materials, and the like) on a web page, and clearly identify which are still in effect and which are not.

Request for Comment

The current Executive Order is tailored around agencies that issue substantive regulations, for example environmental and workplace safety agencies.  The Federal Register notice specifically requests comments on these topics:

• The relationship between [the regulatory oversight office within OMB] and the agencies;
• Disclosure and transparency;
• Encouraging public participation in agency regulatory processes;
• The role of cost-benefit analysis;
• The role of distributional considerations, fairness, and concern for the interests of future generations;
• Methods of ensuring that regulatory review does not produce undue delay;
• The role of the behavioral sciences in formulating regulatory policy; and
• The best tools for achieving public goals through the regulatory process.

Thus, the patent community has an important chance to have an effect on the process of rule making, and on White House oversight of the PTO.  Comments that might be helpful to OMB would include which regulatory oversight and rule making concerns are specifically applicable to the PTO.

Special consideration might be warranted for how should Executive Order 12866 can be strengthened so that agencies can’t cheat?  For example, the economic effect of a regulation is classified by the agency in order to signal to OMB how much scrutiny it should give the rule during regulatory review.  But this gives agencies great temptation to fail to evaluate economic effect (so the effect can be estimated at zero), or to under-report.

Other areas include:  How should OMB ensure that agencies fairly and accurately assess and report economic effects to OMB?  What key terms should be defined to prevent cheating?  Are there particularly egregious examples of cheating that OMB should use as case studies to design anti-cheating mechanisms?

The PTO classified the IDS, Markush, and Appeal rules as “not significant,” that is, having essentially zero economic effect.  The PTO classified both the Continuations and the Claims rules into the middle category, “other significant,” by the device of splitting them apart and reporting to OMB only the costs of each as if implemented separately.

Comments Go To the White House Office of Management and Budget

Note that these comments go to the White House Office of Management and Budget, not to the PTO.  The Federal Register notice asks that comments be emailed to oira_submission@omb.eop.gov.  In addition, comment letters concerning the PTO should be cc’ed to the OMB Desk Office having oversight responsibility for the PTO, at Nicholas_A._Fraser@omb.eop.gov (note the period after the A).