Patent Baristas

Here comes the Patent Reform Act of 2010 in the form of an Amendment in the Nature of a Substitute to S. 515 (“Amendment to S. 515”).  I know, you’ve heard all this before with the Patent Reform Act of 2009, the Patent Reform Act of 2008, the Patent Reform Act of 2007, the Patent Reform Act of 2006, and so on.  It’s like Apple’s Get-a-Mac ad that talks about all the promises of previous versions of Windows®.

The Amendment to S. 515 seems to meet the goal of establishing a simpler, objectively-based, transparent patent system that can eliminate patents that should not have issued and speed the processing of patents that should be issued.

The new patent law would includes a number of improvements to the patent laws such as provisions to update and improve the patent marking statute. S. 515 now includes:

First-Inventor-to-File

Adoption of a first-inventor-to-file system by the United States will promote the growth of American jobs. By eliminating the arcane and subjective rules associated with the current first-to-invent system, the Amendment to S. 515 will make it easier and less costly to obtain patent protection in the United States which will stimulate investment in new technologies. Today, when two inventors seek a patent on the same invention, the patent is awarded to the inventor who can prove that he or she was the first to make the invention and had not “abandoned, suppressed, or concealed” the invention. Other concepts such as “conception,” “reduction to practice” and “reasonable diligence” can also come into play. These concepts are not only expensive to prove, they make the results of such contests unpredictable. These contests are especially harmful for independent inventors. Studies show that independent inventors lose rights to patents under the existing first-to-invent system of priority that they would have won in a first-inventor-to-file system of priority.

Moreover, while all inventors will continue to benefit from a one-year grace period in which to file a U.S. patent application after publicly disclosing their inventions, the incentive of the first-inventor-to-file system to file applications promptly will redound to their benefit in obtaining patents in our major trading partners. Inventors who delay filing their U.S. applications (on the tenuous assumption that they will be able to obtain a U.S. patent by proving that they were first to make the invention) run the risk of being second-to-file in the rest of the world where patents are awarded to the first inventor to file. Facilitating patent protection outside the United States for American technology will stimulate the export of American products produced by American workers.

Enhanced Patent Quality

The Amendment to S. 515 will strengthen patents granted in the United States by allowing the public to participate in the patent granting process and by strengthening the administrative procedures in the USPTO for reviewing patents after grant.

Pre-grant submission of prior art

The bill will expand the opportunity for the public to submit information to patent examiners working on individual patent applications, together with concise descriptions of its relevance. This will help ensure that all relevant information will be considered during the examination process, allowing the USPTO to conduct a quality examination before a patent is granted, reducing the need to rely on post-grant clean-up procedures. The public and patent applicants alike will benefit from the grant of more reliable patents that are based on more thorough and complete examination that this procedure will offer.

Administrative post-grant review of patents

The Amendment to S. 515 will provide a robust, new post-grant review that must be requested within 9 months after patent grant and, if initiated, be completed within one year. In the new post-grant review procedure, patents could be challenged on all issues of patentability.

After the initial 9-month period from patent grant, all patents (including those granted prior to 1999) would be subject to inter partes reexamination, but only for patentability issues based upon prior patents and printed publications, taking into account certain written admissions of the patentee. As with post-grant review, inter partes proceedings will also be required to be completed within one year.

Ex parte reexamination will continue to be available as an inexpensive procedure to both patent owners and third partes to review patents on the basis of patents and printed publications, also taking into account certain written admissions of the patentee.

While both the initial post-grant review and the revised inter partes reexamination proceedings will contribute to ensuring that only valid patents will survive, both procedures also contain safeguards to prevent harassment of patent owners. For example, third parties will be required to present a stronger case to initiate a post-grant review or an inter partes reexamination proceeding than they are currently required to under the existing inter partes reexamination threshold of “substantial new question of patentability.

To initiate a post-grant review, the Director must determine that the information presented, if not rebutted, demonstrates that it is more likely than not that at least one claim is unpatentable. The new threshold for initiating an inter partes reexamination will be a “reasonable likelihood” that, in light of the information submitted by a third party and the response from the patentee, the third party “will prevail with respect to a claim” of the patent. These higher thresholds will serve to minimize the initiation of unwarranted proceedings.

Both procedures will be handled by a panel of Administrative Law Judges. Currently, inter partes reexaminations are handled by patent examiners who do not have the experience and expertise of APJs in promptly and efficiently conducting contested cases.

In addition, the estoppel effects of final decisions in post-grant review proceedings and in inter partes reexamination proceedings will protect patentees against successive, harassing attacks by the same challenger. The challenger in a post-grant review proceeding is estopped from requesting or maintaining a subsequent inter partes reexamination proceeding with respect to a claim on any ground that the challenger “raised or reasonably could have raised” during the post-grant review. In later civil actions or ITC proceedings, the challenger is estopped from asserting the invalidity of a claim on any ground that was “raised” during the post-grant review.

The challenger in an inter partes reexamination proceeding is estopped from requesting or maintaining a subsequent inter partes reexamination proceeding, or from asserting invalidity in a later civil action or ITC proceeding, with respect to a claim on any ground that the challenger “raised or reasonably could have raised” during the earlier inter partes review.

Importantly, patent owners who promptly file suit after patent grant will be assured that the court will not automatically stay its consideration of the patent owner’s motion for a preliminary injunction on the basis that a petition requesting a post-grant review has been filed or that such a proceeding has been instituted.

Litigation Reforms

The Amendment to S. 515 would address a number of litigation reforms, some initially recommended by the NAS, and others, some quite controversial, urged by various special interests. With the further development of the law by the Federal Circuit and the accommodation of these developments by the Senate Judiciary Committee, the bill offers a number of desirable litigation reforms.

Best Mode

The Amendment to S. 515 addresses the recommendation of the NAS to modify or remove the subjective elements of patent infringement litigation that depend on the assessment of a party’s state of mind and increase the cost and decrease the predictability of such litigation. Current patent law requires that a patent application “set forth the best mode contemplated by the inventor of carrying out his invention” and failure to comply can result in a patent being held invalid. Under the bill, “failure to disclose the best mode shall not be a basis on which any claim of a patent may be canceled or held invalid or otherwise unenforceable.”

Since the patent law already requires a “written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make and use” the invention, the added requirement for disclosing the “best mode” serves only as a costly weapon for defendants to use in attacking patents, requiring time-consuming, expensive, and ultimately subjective pretrial discovery. The public is fully informed of the patented technology by the requirement for a complete written description and enabling details to permit the complete scope of the claimed invention to be used. The added requirement to also disclose the “best mode” is both unnecessary and provides no benefits to the public.

Inequitable Conduct

Another of the subjective elements of patent infringement litigation that unnecessarily increases the costs for both obtaining patents and litigating them is the doctrine of “inequitable conduct” – whether an inventor or patent attorney intentionally misled the USPTO in prosecuting the original patent. Because the sanction for inequitable conduct is unenforceability, “[T]he habit of charging inequitable conduct in almost every major patent case has become an absolute plague.” (Burlington Industries, v. Dayco Corp., 849 F.2d 1418 at 1422 (Fed. Cir. 1988)

While the Amendment to S. 515 does not go as far as modifying or removing the doctrine as recommended by the NAS, it does provide a remedial avenue for patent owners to bring to the attention of the Office information which might affect the scope of their patents. The bill allows patent owners to request, prior to the institution of litigation, “supplemental examination” to consider any information believed to be relevant to the patent. Any patent surviving such reexamination will not be held unenforceable on the basis that such information had not been considered or was incorrect in the initial examination process.

Importantly, supplemental reexamination would not allow a patent owner to avoid sanctions based upon violations of criminal or antitrust laws nor would it allow those responsible for any misconduct in proceedings before the Office to avoid disciplinary sanctions.

Damages

The Amendment to S. 515 maintains the compromise reached in the Senate Judiciary Committee that fully responds to the allegations of inconsistency and unfairness in awards of reasonable royalty patent damages. It rejects the proposals calculated to reduce inventors’ recoveries by narrowing claimed inventions through the use of definitional devices Ð such as by limiting the claimed invention for damages purposes to “its inventive contribution,” its “patentable features,” or “the patent’s specific contribution over the prior art.”

Instead, the bill sets forth a “gatekeeper” approach which ensures that courts or juries consider only those damages contentions that are cognizable at law and supported by substantial evidence. The provision reinforces the message from the Federal Circuit Court of Appeals in a series of recent cases (Lucent Technologies, Inc. v. Gateway, Inc., 525 F.3d 1200 (Fed. Cir. 2008) and Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009); see also Cornell University v. Hewlett- Packard Company, 609 F. Supp. 2d 279 (N.D.N.Y. 2009). This approach ensures that patentees will receive appropriate compensatory damages for the unauthorized use of their patented inventions, while at the same time fully responding to the allegations of runaway jury awards.

Willful Infringement

The third subjective element in patent litigation addressed by the NAS is “willful infringement” under which a court may increase damages up to three times if the court or jury determines that the accused infringer willfully infringed a patent. During the period when the NAS reviewed this doctrine, there was no effective threshold test for alleging willful infringement, therefore the required level of pre-filing investigation by the plaintiff was relatively modest and willfulness was asserted in most cases.

NAS found that the doctrine of enhancing damages against defendants, who knew of patents that they were later found to infringe and who were found to not have complied with the Federal Circuit’s judicially created doctrine to exercise “duty of care” to avoid such patents, resulted in unforeseen and wasteful consequences. The fact that a defense to a claim of willful infringement was good-faith reliance on an opinion by counsel that the patent was invalid or not infringed resulted in a cottage industry of lawyers providing such opinions at cost reaching $100,000 or more. Worse, NAS found that in some business sectors, exposure to claims of willful infringement led to a practice of deliberately avoiding learning about issued patents, thereby undermining the Framers’ desire that patents promote the sciences and useful arts. NAS recommended the doctrine of willful infringement be eliminated.

During the Congressional consideration of how to respond to the NAS recommendation, however, the issue was overtaken by the Federal Circuit’s en banc decision in In re Seagate Tech., LLC, 497 F.3d 1360 (2007). In Seagate, the Court found the “duty of care” rule which it created in 1983 was inconsistent with the Supreme Court’s view that, to be willful, some level of “objective recklessness” must be involved.

The Amendment to S. 515 adopts Seagate’s “objective recklessness” standard. While not as far-reaching as the NAS’s recommendation to eliminate willfulness entirely, the Seagate standard has been widely viewed as an important step toward curtailing unfounded charges of willful infringement.

Venue

In response to a growing number of patent infringement cases filed by patentees in perceived pro-plaintiff venues with little or no connection to the parties in the case or the locations of their operations, witnesses or documents, proposals were made to essentially restrict patent suits to the jurisdiction where the infringer had its principal operation. This draconian rule would have denied manufacturing patentees the opportunity of bringing suit against infringers in the district where the patentee was located and had its witnesses and evidence.

However, in 2009, the Fifth Circuit issued a writ of mandamus in a personal injury case directing the transfer of a case because the trial court, in denying a motion to transfer venue, “gave undue weight to plaintiffs’ choice of venue, ignored [] precedents, misapplied the law, and misapprehended the relevant facts” In re Volkswagen of America, Inc., 545 F.3d 304 (5th Cir. 2008). The Federal Circuit followed suit in a patent case, In re TS Tech USA Corp., 551 F.3d 1315 (Fed. Cir. 2008) granting a writ of mandamus and holding that same court clearly abused its discretion in denying a motion to transfer venue.

The Amendment to S. 515 incorporates the Volkswagen/TS Tech Corp approach and provides a very measured and salutary approach to reigning-in undesirable forum shopping. It requires the court to transfer a patent infringement action “upon a showing that the transferee venue is clearly more convenient than the venue in which the civil action is pending.”

Pilot Program for District Courts

The Amendment to S. 515 would create a 10-year pilot program in certain district courts to hone judicial expertise in patent protection cases. The bill would provide for the professional development of district judges and the hiring of law clerks with expertise in such cases. The pilot should lead to a reduction in the reversal rate of claim construction determinations in patent cases and improve the efficiency of courts in their handling of such cases.

Patent Fee Setting Authority and Ending Diversion

One of the most critical problems facing the USPTO is the lack of resources to address its quality, pendency, and IT issues. With the recent economic downturn, the USPTO is experiencing a significant reduction in fee income and has no ability to adjust fees to offset this loss, resulting in its inability to fill the positions of examiners leaving the Office. The problem was recently exacerbated when, prior to passing the USPTO’s FY 2010 appropriation, Congress removed a provision that would have allowed the USPTO to retain and use up to $100 million in fee revenues above the level appropriated. The removal of this proviso guarantees that, as the economy recovers and greater fee revenues are received, all fee revenue in excess of the amount set by Congress will be deposited in the general Treasury and used for purposes other than those for which they were paid – the prompt and complete examination of patent applications and issuance of patents.

In its present form, the Amendment to S. 515 would address only half of this problem. It would authorize the Office to adjust its fees to recover the costs of examining and granting patents and registering trademarks, but it would not guarantee that all of the fee revenue collected would be used for these purposes.

An amendment is likely to be offered to allow the Office to retain all of the fees paid for the filing, examination, grant, and maintenance of patents and to use them for these purposes. Adoption of this amendment is critical to the success of the efforts of the Office to promptly issue quality patents and should be strongly supported.