After several attempts by Congress to pass broad patent reform legislation over the last decade, the 112th Congress appears poised to enact such a reform bill this fall.
Senate Majority Leader Harry Reid (D-NV) will bring H.R. 1249, the Leahy-Smith America Invents Act, to the Senate floor for consideration later this month. H.R. 1249 passed the House of Representatives on June 23, 2011, by a vote of 304-117. Debate on H.R. 1249 was complicated by disagreement on the fee diversion provisions of the original legislation, and represents a compromise between the bill’s leading proponents and congressional appropriators.
The Senate must now vote on and agree to the House-passed legislation without amendments or changes, or it will likely be sent back to the House for another vote. House Judiciary Committee Chairman Lamar Smith (R-TX) has expressed his hope that the Senate will pass the legislation as-is, and has noted that his compromise bill may not have sufficient support in the House should changes be made by the Senate. Several Senators have expressed concerns about H.R. 1249’s fee diversion language as well as about procedural tools the Majority Leader will likely use to block amendments when the bill is considered in the Senate.
President Obama has made passage of patent reform legislation part of his broader job creation message, creating increased political pressure for Senate action.
Below is a summary of the most important changes proposed in the bill, which has emerged as the frontrunner among existing patent reform bills. SNR Denton will continue to provide updates regarding the status of the bill after its consideration in the Senate this month.
"First to Invent" Gives Way to "First To File", Prior Art And Small Inventors
The existing American patent system recognizes superior rights of the "first to invent’ based in most circumstances on the date an inventor first conceives of his or her invention. This system is often said to provide greater protection to smaller and less sophisticated inventors. Other countries utilize a different method: the "first to file’ an application will have superior rights to an invention, even where another conceived of it first but was slow to file an application. Key and hotly debated provisions of the Bill propose adoption of a "first to file’ model in the United States. Proponents argue that this change will bring the United States in line with the patent systems of other industrialized nations, lower administrative costs for an already overworked and understaffed US Patent and Trademark Office (USPTO), and reduce litigation expenditures.
The "first to file’ model proposed in the Bill, however, is not without its detractors. Opponents of the legislation are wary of such a fundamental change, citing the global preeminence of United States technological development under the existing system as one reason for retaining a "first to invent’ system despite potentially higher administrative and litigation costs.
A related concern surrounding the Bill’s provisions is the expansion of the scope of prior disclosures or uses which are available to support a challenge to a patent or patent application. Currently, certain of these disclosures or uses are only available to be cited against an applicant or patent holder if they occur more than one year before the date of application. Under the current version of the Bill, this one year "grace period" is narrowed so that many disclosures or uses made by persons other than an applicant inventor prior to an application’s effective filing date would be available to be cited against that application.
The Bill would further change current law by barring patent rights where an invention is in public use, on sale or “otherwise available to the public" anywhere in the world prior to the effective filing date. The one year grace period is, however, retained for direct or indirect disclosures made by the inventor or disclosures made after the inventor (or someone who obtained the subject matter from the inventor) publicly discloses the invention.
The Bill would similarly use the effective filing date rather than the date of invention to determine whether a claimed invention is obvious (and thus not entitled to patent protection).
Some have objected to the new language summarized above because certain provisions have yet to be interpreted by the courts. Phrases such as “otherwise available to the public" worry patent holders who are uncertain of their meaning. Further, provisions which exclude disclosures or uses from being citable against an application are of uncertain meaning. Some speculate that, because the Bill only excludes “disclosure[s]" originating with an inventor or made after an inventor’s disclosure, secret non-disclosing uses of an inventor such as those made during a startup period may be made available to be cited against the inventor’s application. Previous attempts at clarifying the Bill’s language to protect an inventor or assignee which makes secret uses less than one year before applying for a patent have failed, despite indications by the Bill’s proponents that those attempts reflect legislative intent.
Despite the broader transition to a "first to file’ system, the Bill allows for a first inventor (but later-filer) to bring an action in civil court or before the USPTO, within one year of certain specified events, claiming rights to a patent where the first filer “derived" the invention from the first inventor - thus providing some limited relief to those who do not have the resources or are otherwise unable to make a prompt filing.
The Bill further provides several protections designed specifically to benefit small inventors. It allows creation of an ombudsman program to provide support and services relating to patent filings to small business concerns and requires the Small Business Administration to report on the effects of switching to a "first to file’ system with particular emphasis on small businesses. It further extends the 50 percent small entity discount to include application and search fees associated with fast track applications. Additionally, the proposed legislation defines the requirements for “micro entities" to qualify for an even greater discount of 75 percent. Qualified applicants must, among other things, meet an earning threshold or be a university participating in the National Science Foundation’s Experimental Program to Stimulate Competitive Research program.
Requirements for funding agreements (those that govern government-funded experimental, development or research work) with non-profit organizations are also altered by decreasing payments to the federal government on excess invention-related royalties and income, and increasing by the same amount expenditures benefiting small businesses.
“Prior User" Rights And Defense To Infringement Claims
Prior User Rights
One major change proposed in the Bill is in the arena of ’prior user’ rights. Other countries more liberally allow non-patentees the right to continue using a patented invention where those non-patentees reduced the invention to practice and/or began use of the invention before the date the patentee filed a patent application according to a variety of rules. Both chambers have thoroughly considered the role of "prior user’ rights in the United States patent system, and have presented a variety of approaches to addressing the issue.
In its current version, the Bill expands prior user rights from use in connection with business method patents to all “processes" and machines, manufactures and compositions of matter used in manufacturing or commercial processes. The defense would be available where commercial use in the United States of the subject matter of a patent began at least one year before its effective filing date.
An important and controversial exception found in the Bill limits the "prior user’ defense from being used where the implicated patented subject matter was developed under a government funding agreement or by a nonprofit institution of higher education.
Defenses - Willful Infringement
An additional provision would further strengthen an accused infringer’s legal position by prohibiting the failure to seek advice of counsel from being used as evidence to prove willful infringement or intent to induce infringement. This is regarded by some as necessary to remedy unduly harsh treble damage awards resulting from presumptions which may arise when an accused infringer fails to seek legal advice regarding known patents.
Defenses - Best Mode
The Bill would also amend Section 282, which deals with certain defenses based on patent invalidity, in favor of patentees by limiting the defenses available to an alleged infringer. Currently, the validity or enforceability of a patent may be challenged based on an allegation that the patent fails to disclose the best mode for practicing the invention. Under the Bill, though the patentee still has the duty to disclose the best mode, issued claims will not be held invalid or unenforceable because of a failure to do so.
Challenges to and Utilization of Issued Patents and Patent Applications
The Bill expands the rights of third parties to challenge patents or patent applications. For example, third parties would be allowed to submit a wider range of publications or statements for consideration by the USPTO during or after the examination process, to include statements made by the patent owner in federal court or before the USPTO regarding claim scope. Third parties would also be able to submit explanations regarding the relevance of their submissions for inclusion in the official file.
Post Grant Review
The Bill adds a new time-sensitive post-grant window of 9 months during which a third party may challenge the validity of a patent’s claim(s) based on nearly any legal grounds available for a defense of invalidity to an infringement suit. A post-grant review may only be authorized by the Director where information in the petition, if unrebutted, would demonstrate that it is more likely than not that at least one of the challenged claims is unpatentable or if the petition raises a novel or unsettled legal question important to other patents or applications. The Director’s decision regarding whether to grant such a petition is final and may not be appealed.
Further, a post-grant review may not be requested or maintained if a petitioner or a real party in interest has filed a related civil action. A petitioner may not later challenge the same claim before the USPTO on grounds which were or could have been raised in the post-grant proceeding if a final decision was issued in the proceeding. Similarly, a petitioner may not later assert, either in a civil action under 35 USC 1338 or an International Trade Commission Proceeding, that a claim is invalid on grounds which were raised in a post-grant proceeding if a final decision was issued in the proceeding. The Bill further proposes an automatic stay of civil litigation challenging claim validity instituted after filing of a post-grant review petition. Under the Bill, the stay would remain in place until one of a delineated set of events occurs.
Inter Partes Review
The Bill also allows a third party, after the 9 month post-grant window referenced above lapses, to challenge a patent using revised inter partes review proceedings upon more limited grounds - only novelty and nonobviousness may be challenged under the procedure. The current version of the Bill requires a petitioner to show “a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition." While some are uncertain of how this new standard will be applied by the USPTO and courts, Director Kappos and some private sector spokespersons have expressed the opinion that the standard is a heightened one which would, if enacted, likely reduce the number of granted inter partes petitions. The Director’s decision regarding whether to grant such a petition is final and may not be appealed.
An inter partes review may not be requested or maintained if a petitioner or a real party in interest has filed a related civil action; nor may one be requested where a petitioner or a real party in interest was served with a complaint alleging related infringement more than 12 months before the petition for review was filed. The Bill also proposes an automatic stay of civil litigation challenging claim validity instituted after filing of a petition for inter partes review. Under the Bill, the stay would remain in place until one of a delineated set of events occurs.
Further, a petitioner may not later challenge the same claim before the USPTO on grounds which were or could have been raised in the inter partes proceeding if a final decision was issued in the proceeding. Similarly, a petitioner may not later assert, either in a civil action under 35 USC 1338 or an International Trade Commission Proceeding, that a claim is invalid on grounds which were raised or reasonably could have been raised in an inter partes proceeding if a final decision was issued in the proceeding. If the proceeding is terminated by joint agreement of the parties prior to a decision on its merits, any associated written settlement filed with the USPTO may, upon request by a party, be treated as confidential information and access may be restricted to federal agencies by request, or to other persons upon a showing of good cause.
Joinder of Defendants, Prioritized Examination, Application by Assignees, Lowering Exposure to Inequitable Conduct Allegations, Marking
The Bill proposes to restrict a patent holder’s ability to join multiple defendants in infringement actions. Simply accusing a number of defendants of infringing the same patent is no longer enough to join them in the same suit. A plaintiff must instead put forth sufficient allegations that the proposed defendants were involved in the same transactions or occurrences which gave rise to the lawsuit. Some believe these provisions will be harmful because they promise to profoundly increase the number of patent infringement cases and may clog an already overworked court system. Proponents believe it will have a very different effect and will reduce harassing litigation by patent holders.
Also under the Bill, the Director is authorized to accept requests for prioritized examination for applications which are important to the national economy or competitiveness without recovering the extra costs of providing such prioritization.
Another proposed amendment would allow a person or company to which an inventor has assigned rights in an invention (or to which an inventor is obligated to make such an assignment) to apply for a patent on the invention using a substitute statement for the inventor’s declaration.
The Bill would also allow a patent holder to, of its own accord, initiate a “supplemental examination" of an issued patent on the basis of new information considered to be relevant to patentability. A patent holder may do so to avoid claims of inequitable conduct by infringers, which could result in unenforceability of the patent. If, in the course of a supplemental examination, the Director determines that a substantial new question of patentability has been raised by at least one item of information in the request, a reexamination must be carried out under existing reexamination procedures (See 35 USC 301 et al.). The Bill would also require the USPTO to confidentially report fraudulent behavior in connection with supplemental examination proceedings to the Attorney General.
Of further benefit to patentees, the Bill would bar certain uninterested parties from claiming another has used false patent markings by, for example, claiming an article is patented when it is not. Those who have suffered competitive injury as a result of such false marking, such as competitors which were falsely led to believe an article was patented when it was not, would retain the right to sue based on such claims. Also under the Bill, false marking liability would no longer extend to marking something “patented" after expiration of the referenced patent.
Finally, the Bill allows a patent holder to give notice of its patent rights to the public by directing the public’s attention to a freely-accessible Internet address displaying patented articles in association with patent numbers. Current practice requires notice to be given by marking an article or its packaging with a patent number. The Bill further requires a report from the Director to Congress within 3 years of enactment showing an analysis of whether this “virtual marking" is effective.
Addressing Business Method Patents
The Bill creates a pilot program for post-grant review proceedings available exclusively to challenge the validity of business method patents. The program is aimed at least partly at addressing concerns relating to non-practicing entities’ (NPE’s) enforcement of low quality patents. The Bill further requires the Comptroller General to conduct a study generally relating to litigation instituted by NPE’s, the adjudicated merit of those lawsuits and their impact on the economy.
The pilot program review proceedings would largely follow post-grant review guidelines, with the exceptions noted in the Bill - the most notable of which are that the petition need not be filed within 12 months of patent grant and that a petitioner must have been charged with infringement before petitioning.
Persons accused of infringement of a business method patent may request a pilot program review by citing certain limited types of prior art, and may also request a stay of any pending litigation pending the outcome of the proceeding. The decision on whether to grant the stay would be based on a number of statutory factors including whether granting the stay would provide the moving party with a “clear tactical advantage."
The pilot program is set to expire 8 years from its creation. Petitioners under the pilot program may not later challenge, in a civil action under 35 USC 1338 or a proceeding before the International Trade Commission, claims on the same grounds as those raised in a post-grant review which resulted in issuance of a final decision.
Funding for the USPTO
The USPTO has in recent years been susceptible to having some of its fee-generated revenue diverted by Congress to non-patent areas. The Bill establishes a fund for use by the USPTO into which its fees would be deposited and which would, according to proponents, help put an end to fee diversion. Controversial provisions which were added recently to the Bill would divert funds collected in addition to the amount appropriated to the USPTO for a given year to a separate fund which would also only be accessible for use for USPTO-related expenditures.
Further, application and maintenance fees which were previously set by Congress would, under the Bill, be set by the Director - a measure aimed at helping the Director modernize USPTO operations while hopefully reducing the serious backlog of applications. Notwithstanding this discretion, the Bill further increases pre-defined fees set forth in Section 41, imposes a new 15% surcharge on nearly all fees, and sets fees for filing prioritized applications.
The Bill also requires the Director to submit annual reports to Congress regarding its operating plan, expenses and staff levels, plans and progress relating to modernization, and the results of independently-conducted annual audits of financial statements. The Director must also present a business-type budget to the President annually.
State and Federal Courts Provisions
- Denies state courts jurisdiction over legal actions relating to patents, plant variety protection, or copyrights.
- Grants the Federal Circuit exclusive jurisdiction over appeals from federal and related district courts in cases arising under or in which a party has asserted a compulsory counterclaim under any Act of Congress relating to patents or plant variety protection.
- Allows for removal to a United States district court of civil actions in which a party has asserted a claim for relief under any Act of Congress relating to patents, plant variety protection or copyrights. The district court would then be required to remand certain unrelated claims.
- Replaces the Board of Patent Appeals and Interferences with the Patent Trial and Appeal Board and sets forth its required composition and duties. Also allows applicants to appeal certain decisions of the Patent Trial and Appeal Board to the Federal Circuit.