On October 5, 2009, Secretary of Commerce Gary Locke sent a letter to Sen. Patrick Leahy (D-Vt.) and Sen. Jeff Sessions (R-Ala.), the chairman and ranking member of the Senate Judiciary Committee, expressing the Obama Administration's views on S. 515, the Senate version of the patent reform legislation, as reported from the committee. The letter may revitalize efforts to pass legislation during this session of Congress. Congress has been focused on patent reform since 2005, yet each attempt to get a bill signed into law has been thwarted. Nearly identical bills were introduced in the House of Representatives (H.R. 1260) and the Senate (S. 515) early in this Congress.

On April 2, 2009, the Senate Judiciary Committee amended S. 515 and reached a broad compromise on the key controversial provisions: damages, post-grant opposition, and venue. The bill was approved by a 15-4 vote, signaling to Senate leadership that this bill had broad enough support to be considered on the Senate floor. Senator Orrin Hatch (R-Utah), a long-time proponent of patent reform legislation and original co-sponsor of S. 515, did not support the compromise.

It had been widely rumored that the House of Representatives would forgo consideration of the bill and simply adopt the compromise that had been reached in the Senate. However, four weeks after the Senate reached a compromise, the House of Representatives made it loud and clear that House Members would have their views considered. On April 30, 2009, the House Judiciary Committee held a hearing on its companion bill, H.R. 1260. In response to the Senate bill, Chairman John Conyers, Jr. (D-Mich.) stated, “this body is no more a rubber stamp for the Senate than the Senate is a rubber stamp for the House.” The Ranking Republican Member, Lamar Smith (R-Texas) added: “It's not going to be helpful if the Senate takes a ‘take it or leave it' attitude on the Senate bill.”

Neither bill has progressed further since the April 30, 2009, hearing. However, the Administration weighing in on the bill may breathe new life into the issue. Last Congress, the Administration played a pivotal role in opposing certain provisions. Nearly all of those concerns have been addressed in the Senate compromise, and the new Administration is expressing its support.

The Administration Leads With a Plea for More Funds and More Authority

The USPTO has experienced a dramatic drop in filing, issue fees, and maintenance fees resulting in a shortfall of more than $200 million in FY 2009. After expressing support for the general principles and need for patent reform legislation, the Administration listed its first issue: the need for a better funding structure.

The Administration expressed its support for the provision in S. 515 that allows the USPTO to adjust its own fees, subject to certain notice and reporting requirements to the Public Advisory Committee and Congress. In a press conference the next day, Director Kappos stated that he expected the Obama Administration to seek a 15-percent surcharge on all USPTO fees for 2010 and perhaps 2011. He also stated that the Administration was not seeking to press this through appropriations legislation.

The Administration also pressed Congress to grant the USPTO substantive rulemaking authority. This is an effort to address several court decisions limiting the USPTO's ability change its rules. Although earlier versions of patent reform legislation included this authority, the version reported out of the Senate Judiciary Committee did not include a broad grant of power to the USPTO. It is unclear whether Congress will allow what may be perceived as a transfer of power from the legislative to executive branch of government.

The Administration Supports the Senate Compromise on Key Issues

The Administration made clear it wanted to work with Congress to address some issues, but it broadly supported the Senate compromise version of S. 515.

Post-Grant Review. The Administration supports creation of a post-grant review procedure of the sort included in S. 515. The USPTO envisions a slow phase-in for availability of the procedure.

First-to-File. The Administration supports the philosophy of a transition from the current first-to-invent system to a system that awards patents to the first inventor to file. This change would come closer to harmonizing U.S. patent laws with the laws of the rest of the world. However, the letter noted the Administration would like to work with Congress to adjust implementing provisions regarding the scope and application of prior art and grace.

Search and Examination. The USPTO expressed its opposition to language in S. 515 that limits its ability to use and rely upon prior art searches and patent examination performed by other entities, including foreign patent offices. The Administration argues that, as written, S. 515 likely limits the USPTO's ability to negotiate work-sharing agreements that it believes will reduce its backlog.

Damages Reform. The letter expresses the Administration's support for reform of damages law, and believes that the gatekeeper approach embodied in S. 515, when combined with “developing judicial authority could balance the concerns of all members of the innovation community.” The Administration suggests, however, that S. 515 should be modified to provide a clearer, fairer standard for the award of enhanced damages. The definition and how to calculate continues to be the biggest issue relative to patent reform legislation going forward.

Conclusion

The Administration's support for the patent reform legislation increases the likelihood of action of the bill in late 2009 or early 2010. However, discussions are already underway among some offices in the House and the Senate regarding how to change the bill. Some are pressing for inequitable conduct reform; others want to adopt the original proposals on damages. Two camps have developed around the proposed post-grant opposition—those who want to expand it and those who want to contract it. Parties with any interest in the patent system should monitor these developments closely.