Background

Will the 110th Congress be one in which comprehensive patent law reform is finally enacted into law? Despite the esoteric nature of the subject matter, that is a question being asked along the corridors of Congress. The last major revisions in American patent law occurred in 1999. The stated goals of these reforms, which have been under consideration in both the House and Senate Judiciary Committees for the past six years, is to improve the quality of patents issued, deter abusive practices by patent holders, provide meaningful lower cost alternatives to litigation for challenging patent validity, and harmonize US patent law with the patent statutes of other major countries.

The Patent Law Reform Act of 2007 (HR 1908, S. 1145) is a bipartisan, bicameral piece of legislation introduced on April 18, 2007. Its principal sponsors include Senate Judiciary Chairman Patrick Leahy (D-VT) and Senator Orrin Hatch (R-UT), along with House Intellectual Property Subcommittee Chairman Howard Berman (D-CA) and Rep. Lamar Smith (R-TX). The legislation was introduced despite the failure of concerted efforts to bring all stakeholders together on key provisions of the legislation. The bill's sponsors declared a willingness to entertain additional modifications in the legislation in the course of the legislative process but made it clear it was their goal to get this process moving so as to enact patent law reform in the 110th Congress.

The key provisions of the legislation include:

First to File: The bill would convert the US patent system from a first-to-invent to a first-to-file system, thereby harmonizing the US system to that utilized by most other countries. Under current law, there is a one-year "grace period" to file a patent application after public disclosure of the invention, e.g. at a medical meeting or in a scientific journal. The bill would make this applicable only to disclosures by the inventor

Apportionment of Damages: The bill directs the courts to ensure that damage awards reflect the real value of the patented invention. This is designed to address situations where a patent covers one component part of a product and yet damages have been assessed on the value of the product as a whole.

Willful Infringement: The bill places limitations on a court's finding of willful infringement. This is designed to curb the practice of some patent holders who indiscriminately send infringement warnings or licensing letters to expose the recipient to potential liability (treble damages) for willful infringement.

Venue: The bill requires patent actions to be brought in the jurisdiction where either party resides or where the defendant has infringed a patent and has a place of business. This is designed to deter forum shopping. Prior Art: The bill establishes a system for third parties to submit relevant prior art to the Patent and Trademark Office. This is designed to improve the quality of the patent examination process.

Post-Grant Opposition: The bill would create a new mechanism and process for challenging the validity of a patent through an administrative procedure at the Patent and Trademark Office. Such challengers could file a "petition for cancellation" in two circumstances. The first, referred to as the "first window" would be within 12 months of the issuance of the patent. The second, referred to as the "second window" would be at any time if 1) the petitioner establishes that a patent causes or is likely to cause him "significant economic harm", 2) the challenger has received a notice of infringement, or 3) the patent holder consents. This is designed to improve the quality of patents and provide an alternative to costly litigation.

A handful of provisions that were part of legislation in prior years are absent from the bill this year. In the last Congress, a provision regarding the standard for granting injunctive relief was hotly contested. The bill sponsors indicated that their legislation no longer needed to address the issue in light of the Supreme Court's ruling on the issue in eBay Inc. v. Mercexchange LLC. The bill also does not include provisions clarifying the standards for evaluating an invention's obviousness. This issue was at the center of the recently decided Supreme Court case, KSR International v. Teleflex.

The Stakeholders

The principal stakeholders in the debate over Patent Law Reform include the pharmaceutical and biotechnology industries, computer chip and software manufacturers, industrial manufacturers, financial services companies, universities and small inventors. While most claim they support the goals of the legislation of better quality patents and less, costly litigation, many are highly critical of certain of the legislation's provisions.

The clearest split is between the pharmaceutical/biotechnology companies and the computer chip and software companies. The chip and software industries maintain that they have been plagued by the "troll" phenomenon. Under this scenario professional patent seekers obtain hundreds of patents on inventions that, unbeknownst to the chipmaker, could later become a small component part of its product. The chipmaker is sued or threatened with litigation in "unfriendly" jurisdictions to, in their view, extort unreasonable royalty payments or excessive damages. They cite the more than $600 million settlement a patent holding company, NTP Inc., won from Blackberry manufacturer, Research in Motion (RIM) in early 2006. As a result of cases like this, these industries strongly favor the damage apportionment, venue, and postgrant opposition provisions of the patent law reform legislation.

The pharmaceutical and biotechnology industries oppose the legislation in its current form. They particularly object to the damage apportionment and post-grant opposition provisions. In their view, the damage apportionment provisions would lead to smaller damage awards and reduce the deterrent effect of current law on potential infringers. They contend that the "second window" of the post-grant challenge provisions would create significant additional uncertainty in the patent system and discourage investment in the research process. Given a post-grant opposition window open for the life of the patent, they fear potential challengers will wait until a company has invested millions of dollars in a new drug and brought it successfully to market and then file a petition for cancellation. They further claim the designated burden of proof of "preponderance of the evidence" is totally inappropriate in such late stage challenges. The fear is this will lead generic companies to challenge drug patents in this administrative process with a lower burden of proof, rather than in the courts.

The uncompromising positions being taken by the various sides on these issue reflect fundamentally different business models. In the pharmaceutical and biotechnology industries, new drug products are covered by no more than a few patents that cover the chemical compound, its use or possibly its formulation. They spend $800 million or more to develop the new drug and it can take 8-10 years to gain FDA approval. Since drugs are fairly easy to copy, it is the patent that protects the company's huge investment and allow it to earn the return necessary to invest in the research for then next generation of drug therapies. It relies on the full life of the patent on its products for this return. In their view, making it easier to challenge patents and reducing potential liability for infringement will have a dampening effect on new research investments. Universities generally line up with the pharmaceutical and biotechnology industries. They also favor strong grace period provisions that allow patent protection even after the invention is publicly disclosed. In the software and computer chip industries, new inventions and processes emerge quickly and can often involve the combination of hundreds or even thousands of potentially patentable components into a final product. Technological change is rapid and existing patents are typically superseded by new inventions in a relatively short period of time. In their view, the threat of a costly patent suit and large damages on a minor component part of a product is reflective of the need to reform the system

Status

While the legislation's sponsors had hoped that the key players could show movement towards compromises on the more contentious provisions, this did not happen. As a result, Chairman Berman announced that he would take the legislation to subcommittee mark-up, make no additional changes, and oppose all amendments. This occurred on May 16th. In doing so, he signaled his impatience with the stakeholder community and its unwillingness to compromise. He also indicated that the legislation would be considered at Full Committee before the Fourth of July Recess which begins June 29th. Should this occur, it is anticipated that the bill would move to the House floor in July.

In the Senate, a hearing was held June 6th in the Senate Judiciary Committee. Most believe the Senate Committee will wait to see what comes out of the House before taking further action. If key groups continue to oppose the House bill, it may decide not to waste time working on legislation that could fairly easily be killed on the Senate floor where it would require 60 votes.

Recognizing the political reality in the Senate, work continues on the House side to reach greater consensus on the more contentious provisions. All reports are is that this is going to be extremely difficult to achieve, which could well make patent law reform beyond the reach of the 110th Congress.