On May 16, 2007, Congress took a significant step towards revamping the United States patent system when a House subcommittee approved the latest patent reform bill for further review by the full Judiciary committee.

In April 2007, Senators Patrick Leahy (D.-Vermont) and Orrin Hatch (R.-Utah), joined Representatives Howard Berman (D.-California) and Lamar Smith (R.-Texas) in introducing identical bills, H.R. 1908 and S. 1145, titled the “Patent Reform Act of 2007” (Act). The act would amend current law relating to patent procurement, enforcement and validity all intended (to address perceived inequities in patent infringement lawsuits as well as improving the quality of issued patents) as follows:

Converting to a First-to-File System. The Act would bring the United States in international conformity by converting from a first-to-invent system to a first-to-file regime. The critical date for prior art would become the “effective filing date” of a patent application.

Inventor’s Oath. The Act would allow the submission of a substitute statement in lieu of the inventor’s oath in circumstances in which the inventor is unable or unwilling to do so. Also, an assignee of an invention may file a patent application in its own name.

Third-Party Prior Art Submissions. The Act would expand the ability of third parties to submit pertinent information to the United States Patent and Trademark Office (USPTO) regarding pending patent applications. Submission of prior art materials would be permitted prior to the earlier of the mailing date of a notice of allowance or either six months after pre-grant publication or the date of the first rejection of any claim by the examiner, whichever occurs later.

Willful Infringement. Aiming to encourage engineers and others to review existing patents (without fear of later facing accusations of willful infringement), the legislation would limit willfulness to situations where there was a showing of “clear and convincing evidence” that either: the infringer had been put on specific notice of infringement by the patent owner; the infringer intentionally copied a patented technology; or a previous infringer repeats infringement. Willfulness would only be tried after there had been an adjudication of liability.

Post-Grant Review. One of the most controversial proposals in the Act is the enactment of a post-grant review proceeding, expanding the ability of third parties to challenge an issued patent. The Act would allow any person to oppose a patent within 12 months after it is granted. Additionally, a party may challenge a patent at any time by showing a “substantial reason” that the continuing existence of the patent causes or may cause that party “significant economic harm.” The USPTO would establish rules and standards for post-grant review, including protections against misuse.

No statutory presumption of validity (as enjoyed by a patent during litigation) would apply during post-grant review at the USPTO. Rather, a “preponderance of the evidence” standard would be applied to make it easier to invalidate poor-quality patents. A party losing a post-grant challenge would be precluded from asserting the invalidity of the patent claim in subsequent litigation “on any ground which the cancellation petitioner raised during the post-grant review proceeding.”

Damages Apportionment. The Act would significantly change the apportionment of patent damages. The court would be required to apply a reasonable royalty only to that economic value attributable to the patent’s specific contribution over the prior art. Damages would not be based upon the entire market value of a infringing product unless the claimant was able to establish that the patent’s specific contribution over the prior art was the predominant basis for market demand for the infringing product.

Prior User Rights. The prior user defense, currently available to accused infringers of patents involving a “method of doing or conducting business,” would be expanded to apply to all patents. To take advantage of the defense, an accused infringer must have commercially used (or made substantial preparations to commercially use) the subject matter prior to the patent’s effective filing date.

Venue and Jurisdiction. To discourage forum shopping, the Act would limit jurisdiction in patent cases to either the judicial district where either party has its principal place of business, the state in which either is incorporated or the district where the defendant has committed acts of infringement “and has a regular and established place of business.” Declaratory judgment actions brought by an alleged infringer are exempt from these restrictions (and remain subject to the jurisdictional pre-requisites of the Declaratory Judgment Act).

It is widely believed that the Patent Reform Act is likely to be signed into law during the present congressional session, although many changes may be made to some or all of the key provisions discussed above. While the bill received almost unanimous approval from the House subcommittee, several members raised various amendments that they would like to see instituted when the full committee meets. McDermott Will & Emery will continue to monitor the progress of the legislation and provide ongoing updates.