On April 2, 2009, the Senate Judiciary Committee passed the 2009 Patent Reform Bill , clearing the way for a full Senate vote. The bill includes a post-grant review procedure and an interlocutory appeal provision for claim interpretation issues, both of which are favorably viewed by many corporate patent holders.
However, the bill also has been criticized as being weak in several ways. Amendments introduced to garner the support of Senators Diane Feinstein (D-California) and Arlen Specter (D-Pennsylvania) substantially changed the bill from the text originally introduced in early March. The amendments infuriated long-time patent reform advocate Senator Orrin Hatch (R-Utah) , who originally co-sponsored the bill. Before voting against the amended bill, Hatch complained that, “My primary purpose for doing this bill was to improve patent quality and limit unnecessary and counterproductive litigation costs. I do not believe the bill, in its current form, accomplishes these goals.”
In judging the accuracy of Senator Hatch’s statement, it’s worthwhile to take a look at the bill after the amendments. The provisions of the bill include:
- First-to-file: This provision awards a patent to the inventor who files a patent application first, instead of to the inventor who invented first. As a result, the prior art effect of certain references (i.e., under Title 35, Section 102(a) and 102(e)) could no longer be avoided based on prior invention, and any independent third-party reference published prior to filing a patent application would be considered prior art even if the inventor had conceived of the invention before the reference was published.
When patent applications for the same, but independently developed, inventions are examined, the U.S. Patent Office currently awards patents to the earliest inventor. This is determined if necessary through an interference procedure, which is intensely fact-specific and can be costly. Proponents argue that a first-to-file system would inject needed clarity and certainty into the system by eliminating the 30 or so interferences that are declared each year. But not all disputes are so easily resolved. The bill replaces interference proceedings with the far more limited “derivation proceedings” to determine whether the applicant of an earlier-filed application was not the proper applicant for the claimed invention. An applicant requesting a derivation proceeding would be required to set forth a basis for finding that an earlier patent applicant derived the claimed invention and without authorization filed an application claiming the invention.
- Inventor's Declaration: This provision streamlines the requirement that the inventor submit an oath as part of a patent application by permitting an applicant to submit a substitute statement in lieu of the inventor's oath or declaration in certain circumstances.
- Damages: This provision makes the district judge the gatekeeper who instructs the jury regarding the appropriate methodologies and factors for calculating damages.
- Willfulness: This provision codifies the Federal Circuit's In re Seagate standard of proving willfulness. A patentee must demonstrate with clear and convincing evidence that the infringer acted in a manner that was objectively reckless, which is also subject to a good faith defense.
- Post-Grant Review: This provision provides that, within 12 months from a patent’s issue date, third parties may file a cancellation petition based on any ground of invalidity except best mode.
- Preissue Submissions by Third Parties: This provision permits third parties to submit preissuance information relevant to the examination of the application, including a concise statement of the relevance of the submission.
- Venue: This provision provides for transferring cases upon a showing that a different district is clearly more convenient.
- Interlocutory Appeals: This provision provides that the Federal Circuit must accept all interlocutory appeals of claim construction orders when certified by the district court. The district court has discretion whether to certify such appeals and whether to stay the district court proceedings during such appeal.
- Best mode: This provision provides that a patent or claim cannot be invalidated or held unenforceable for failure to disclose best mode.
Before agreeing to the bill, Senators Specter and Feinstein demanded that the bill be amended to modify the more controversial proposals, namely, damages, venue, and the best mode provision discussed above. In introducing these changes, however, the bill removed some of the sweeping changes called for by many advocates, who felt that the pending bill was left lacking in many respects. For example, the major compromising amendments included:
- Damages: Provisions were removed that would have based damages on a “reasonable royalty” that considers the economic value of the patent's “specific contribution over the prior art.”
- Third Party Submissions: Provisions were removed that would have permitted third-party submission of prior use and sale evidence rather than only patents and publications.
- Venue: Provisions were removed that would have permitted infringement actions to be brought only in a judicial district (1) where the defendant has its principal place of business or is incorporated; (2) where the defendant has committed substantial acts of infringement and has a regular and established physical facility that the defendant controls; (3) where the primary plaintiff resides, if the primary plaintiff in the action is an institution of higher education or a nonprofit patent and licensing organization; (4) where the plaintiff resides, if the sole plaintiff in the action is an individual inventor who qualifies as a "micro-entity." A defendant would have been able to request the case be transferred where (1) any of the parties has substantial evidence or witnesses that otherwise would present considerable evidentiary burdens to the defendant if such transfer were not granted, (2) transfer would not cause undue hardship to the plaintiff, and (3) venue would be otherwise appropriate under 28 U.S.C. § 1391.
So does the amended bill accomplish all that it was originally intended to accomplish? According to Senator Hatch, the answer is no. Without the damages provision that would have based damages on the degree of improvement provided by the patent rather than revenue of the covered product, the Act does little to protect big corporations from high potential damages when, for example, a non-practicing entity sues for patent infringement. Senator Hatch also wanted the bill to more particularly address inequitable conduct. Inequitable conduct was one of three “state of the mind” provisions in patent law identified in a 2004 National Academy of Sciences report (“NAS report”), upon which many of the original patent reform calls were based. Particularly, the NAS report identified willful infringement, best mode, and inequitable conduct allegations as all being dependent upon the state of mind of either the patent holder or the infringer, and therefore, very costly to litigate. It recommended that all three be either modified or removed. While the amended bill codifies the standard for finding willful infringement and removes the best mode requirement as a basis of patent invalidity, it does nothing to cure the inequitable conduct problem. Further, without the venue provision, some reform advocates complain that the proposed Act continues to allow a higher level of forum shopping.
While perhaps being weak in its ability to dampen patent litigation, the bill in its current form should provide some patent prosecution benefits and reduce the cost of some litigations. For example, the first-to-file provision should add some clarity to contested priority of certain inventions, and the post-grant review provision should provide a streamlined procedure that, like a reexamination procedure, helps prune out erroneously granted claims or even entire patents. Additionally, third party submissions with statements should enable the Patent Office to more effectively perform its job of examining and issuing patents of a scope that is more likely to withstand invalidity challenges. In addition, by codifying the standard for willful infringement and removing the issue of best mode as a basis of patent invalidity, some cases will have reduced discovery and trial costs.
While the pending bill creates some advancements in patent law procedure, even the sponsoring Senators agree that it is still a compromise. Senator Feinstein said that the Patent Reform Act of 2009 gives all parties “90% of what they want, not 50%.” But others disagree with Senator Feinstein’s optimistic assessment. In a House of Representatives’ committee meeting, co-sponsors of the U.S. House of Representatives’ version of the Bill expressed dismay at removal of the damages measure. Representative John Conyers Jr. (D-Michigan), chairman of the House Judiciary Committee, noted that the damages provision threatened the whole endeavor and was not confident that the Senate committee’s compromise was the right one. Referring to the Senate Bill, he cautioned that the House is not a “rubber stamp for the Senate.” Others, like Senator Jon Kyl (R-Arizona) are concerned that mistakes and omissions made now will take years to remedy because Congress won’t likely revisit patent reform anytime soon after passage of the bill, despite the substantial problems still facing the U.S. Patent Office and the patent system.
But the patent reform legislation is welcomed by many corporate and industry groups, even if only as a first step. Acknowledging that “this legislation may not address all the wishes of all the parties involved, including those of Microsoft,” Microsoft’s Corporate Vice President and Deputy General Counsel Horacio Gutierrez indicated that the proposed reform would still be a welcome advancement. Similarly, acknowledging imperfections in the bill, Biotechnology Industry Organization President James C. Greenwood indicated that the bill “breaks the logjam on the major issues that have held up patent reform for the past several Congresses.” The bill has some good points, like the post-grant review procedure and the claim interpretation interlocutory appeal provision, but is still lacking in others. In view of these remarks, it appears that government, as well as corporate and industry groups, are settling for a “we’ll take what we can get” approach to reform. The Senate Bill will next proceed to the full Senate, where its rush through Committee proceedings may result in a higher than typical number of proposed Amendments, which could still modify numerous details before the enactment of any patent reform.