| Legislation that would dramatically overhaul U.S. | | | | Arguments against: Opponents say interlocutory |
| patent law appears to be on a fast track in | | | | appeals from Markman hearings would increase |
| Congress, with Senators Patrick Leahy (D-Vermont) | | | | litigation and court congestion and offer "another bite |
| and Orrin Hatch (R-Utah) leading the charge. | | | | at the apple" because the reversal rate for claim |
| But legal and business groups are finding themselves | | | | construction is fairly high. The net result, they say, will |
| at odds over the legislation, with some saying it | | | | be to significantly delay final judgments from the |
| would reduce patent litigation costs and improve | | | | lower court, significantly delay potential settlements, |
| patent quality while others say it would do just the | | | | and significantly increase litigations costs. |
| opposite. Everyone, it seems, can find parts of the | | | | Opponents argue that the Federal Circuit would not |
| measure to love and others to hate. | | | | be able to handle expeditiously the large numbers of |
| In April, identical bills were filed in the Senate and | | | | Markman appeals, meaning that resolution of the |
| House, each titled the Patent Reform Act of 2007. In | | | | underlying district court cases would be delayed for |
| the Senate, Leahy and Hatch introduced S. 1145, | | | | years. |
| while in the House Representatives Howard Berman | | | | If this provision is enacted, opponents say, it would |
| (D-California) and Lamar Smith (R-Texas) introduced | | | | result in an interlocutory appeal in virtually every |
| H.R. 1908. | | | | patent infringement case as soon as a Markman |
| On May 16th, a House subcommittee approved the | | | | order is issued. One study estimates this would |
| bill for further review by the full Judiciary Committee, | | | | double the number of appeals each year. |
| which held hearings on it in June. The committee | | | | Opponents include: The USPTO, Federal Circuit Chief |
| released a revised version of the bill June 21st. | | | | Judge Michel, the biotechnology industry, smaller |
| In an effort to help make sense of this legislation, we | | | | technology companies, and smaller patent-holding |
| offer this guide to its key provisions, together with | | | | companies. |
| summaries of the arguments being raised for and | | | | POST-GRANT REVIEW |
| against. | | | | What it would do: The bill would expand the ability of |
| CONVERT U.S. TO FIRST-TO-FILE | | | | third parties to challenge a patent after its issuance. |
| What it would do: In what would be a fundamental | | | | In particular, it would allow any person to oppose a |
| shift in U.S. patent law, the bill would bring the United | | | | patent within 12 months after it is granted. More |
| States into conformity with the rest of the world by | | | | controversially, it would allow a challenge at any time |
| converting it from a first-to-invent to a | | | | if the petitioner "establishes a substantial reason to |
| first-inventor-to-file system. | | | | believe that the continued existence of the |
| Arguments for: Proponents maintain this would | | | | challenged claim in the petition causes or is likely to |
| simplify the patent process, reduce legal costs, | | | | cause the petitioner significant economic harm." |
| improve fairness, and enhance the opportunity to | | | | A newly designated Patent Trial and Appeal Board |
| make progress toward a more harmonized | | | | would be responsible for conducting the post-grant |
| international patent system. A first-to-file system, | | | | reviews. The presumption of validity that applies to |
| they say, provides a fixed and easy-to-determine | | | | patents during litigation would not apply to these |
| date of priority of invention. This, in turn, would result | | | | post-grant review proceedings. Instead, a |
| in greater legal certainty within innovative industries. | | | | "preponderance of the evidence" standard would |
| Proponents also believe that this change would | | | | apply. |
| decrease the complexity, length, and expense | | | | Arguments for: Proponents say these post-grant |
| associated with current USPTO interference | | | | review procedures would be an improvement over |
| proceedings. Rather than tie up inventors in lengthy | | | | existing reexamination procedures because they |
| proceedings seeking to prove dates of inventive | | | | would allow consideration of evidence gleaned |
| activity that may have occurred many years earlier, | | | | through depositions and interrogatories as well as |
| inventors could continue to focus on inventing. | | | | from patents and other documents. Also, proceedings |
| Finally, because this change would bring the U.S. into | | | | would be overseen by an administrative law judge |
| harmony with the patent laws of other countries, it | | | | rather than a patent examiner. These changes would |
| would enable U.S. companies to organize and manage | | | | allow for more meaningful review and that, in turn, |
| their portfolios in a consistent manner. | | | | would lead to better patent quality overall. |
| Proponents include: Biotechnology industry. | | | | The so-called second window - the ability to challenge |
| Arguments against: Opponents argue that adoption | | | | at any time - is necessary, proponents say, to allow |
| of a first-to-file system could promote a rush to the | | | | for a meaningful and broadly available reevaluation of |
| USPTO with premature and hastily prepared | | | | suspect patent claims before a firm is forced into |
| disclosure information, resulting in a decline in quality. | | | | prolonged and expensive litigation. |
| Also, because many independent inventors and small | | | | Proponents include: Large technology companies and |
| entities lack sufficient resources and expertise, they | | | | the financial services industry. |
| would be unlikely to prevail in a "race to the patent | | | | Arguments against: While reexamination is an |
| office" against large, well-endowed entities. | | | | important component of the patent system, it must |
| Opponents include: The USPTO opposes immediate | | | | be structured in a manner that preserves the value |
| conversion to a first-to-file system, in part because | | | | and enforceability of the majority of patents, |
| this remains a bargaining point in its ongoing | | | | opponents say. This change would create an |
| harmonization discussions with foreign patent offices. | | | | essentially limitless opportunity to challenge a patent |
| Inventors also oppose this. | | | | at any time during its life. This would be a dramatic |
| APPORTIONMENT OF DAMAGES | | | | departure from the norm and cast a cloud of |
| What it would do: The bill would significantly change | | | | uncertainty over issued patents. If a patent can |
| the apportionment of damages in patent cases. | | | | easily be challenged at any time under a low standard |
| Under current law, a patentee is entitled to damages | | | | of proof, patents will have much less value and |
| adequate to compensate for infringement but in no | | | | investment predicated upon them will inevitably be |
| event less than a reasonable royalty. Section 5(a) of | | | | diminished. This, in turn, will likely result in less |
| the bill would require a court to ensure that a | | | | innovation. |
| reasonable royalty is applied only to the economic | | | | Additionally, the resulting surge in complex, post-grant |
| value attributed to the patented invention, as | | | | review proceedings would further strain an already |
| distinguished from the economic value attributable to | | | | overburdened and under-funded USPTO, thereby |
| other features added by the infringer. | | | | jeopardizing the agency's ability to improve pre-grant |
| The bill also provides that in order for the | | | | patent quality. |
| entire-market rule to apply, the patentee must | | | | Opponents include: The USPTO, the biotechnology |
| establish that the patent's specific improvement is | | | | industry, smaller technology companies, patent-holding |
| the predominant basis for market demand. | | | | companies, medical device manufacturers, university |
| Arguments for: Proponents say this measure is | | | | technology managers, the NanoBusiness Alliance and |
| necessary to limit excessive royalty awards and bring | | | | the Professional Inventors Alliance. |
| them back in line with historical patent law and | | | | PRIOR USER DEFENSE |
| economic reality. By requiring the court to determine | | | | What it would do: Section 5(b) of the bill expands the |
| as a preliminary matter the "economic value properly | | | | prior-use defense, which presently applies only to |
| attributable to the patent's specific contribution over | | | | business-methods patents, to cover all patents. |
| the prior art," the bill would ensure that only the | | | | Arguments for: Proponents argue that this expansion |
| infringer's gain attributable to the claimed invention's | | | | is reasonable in a competitive economy and strikes a |
| contribution over the prior art will be subject to a | | | | balance between trade secret and patent protection. |
| reasonable royalty. The portion of that gain due to | | | | They also say it goes hand-in-hand with U.S. adoption |
| the patent holder in the form of a reasonable royalty | | | | of a first-to-file rule. Prior-user rights benefit smaller |
| can then be determined by reference to other | | | | businesses, which often lack the resources or |
| relevant factors. | | | | know-how to pursue patent protection, proponents |
| Complex products, the proponents contend, often | | | | say. This measure would allow them to commercialize |
| rely on a number of features or processes, many of | | | | their inventions when they used the subject matter |
| which may be unpatented. Even where the patented | | | | of the invention prior to the patent's filing date, even |
| component is insignificant as compared to unpatented | | | | when they did not pursue patent rights. |
| features, patentees base their damage calculations on | | | | Some foreign countries presently allow prior-user |
| the value of an entire end product. This standard | | | | rights, including Germany and Japan. This measure |
| defies common sense, distorts incentives, and | | | | would help level the playing field for U.S. companies |
| encourages frivolous litigation. | | | | by putting them in the same competitive position as |
| Further, courts in recent years have applied the | | | | their overseas counterparts. |
| entire-market-value rule in entirely dissimilar situations, | | | | Proponents include: The financial services industry and |
| leaving the likely measure of damages applicable in | | | | the biotechnology industry. |
| any given case open to anyone's guess. | | | | Arguments against: Opponents contend that |
| Proponents include: Large technology companies and | | | | prior-user rights undermine the purpose of a patent |
| the financial services industry. | | | | system by creating a strong incentive to protect |
| Arguments against: Opponents argue that Congress | | | | innovations as trade secrets. Under a prior-use |
| should not attempt to codify or prioritize the factors | | | | defense regime, if inventors are able to protect their |
| that a court may apply when determining reasonable | | | | innovations as trade secrets, they are able to use |
| royalty rates. The so-called Georgia-Pacific factors | | | | them indefinitely, even if someone else obtains a |
| provide courts with adequate guidance to determine | | | | patent on the invention. |
| reasonable royalty rates. The amount of a reasonable | | | | Opponents also argue that this change would benefit |
| royalty should turn on the facts of each particular | | | | larger corporations at the expense of smaller ones. |
| case. | | | | They also contend that prior-user rights would reduce |
| Although intended to guard against allegedly inflated | | | | the value of patents and therefore make innovation |
| damage awards, this mandatory apportionment test | | | | less desirable. |
| would represent a dramatic departure from the | | | | Opponents include: The USPTO, the Professional |
| market-based principles that currently govern | | | | Inventors Alliance. |
| damages calculations, opponents say. Even worse, it | | | | VENUE |
| would result in unpredictable and artificially low | | | | What it would do: Section 10(a) of the bill limits the |
| damages awards for the majority of patents, no | | | | places where corporations may be sued in patent |
| matter how inherently valuable they might be. | | | | cases by amending 28 U.S.C. § 1400(b) to |
| Opponents further argue that this change would | | | | provide that a corporation "resides" only where it has |
| undermine existing licenses and encourage an increase | | | | its principal place of business or in the state in which |
| in litigation. Existing and potential licensees would see | | | | the corporation is incorporated. Current law presumes |
| little downside to "rolling the dice" in court before | | | | a corporation to reside wherever it is subject to |
| taking a license. Once in court, this measure would | | | | personal jurisdiction. This change would not apply to |
| lengthen the damages phase of trials, further adding | | | | declaratory judgment actions brought by alleged |
| to the staggering cost of patent litigation and delays | | | | infringers. |
| in the judicial system. | | | | Arguments for: Proponents argue that this change |
| Opponents include: The USPTO, Federal Circuit Court | | | | would discourage forum shopping. As the law now |
| of Appeals Chief Judge Paul Michel, the biotechnology | | | | stands, any company whose products are sold |
| industry, smaller technology companies, patent-holding | | | | nationwide is subject to patent litigation in any |
| companies, medical device manufacturers, university | | | | jurisdiction in the country. As a result, certain |
| technology managers, the NanoBusiness Alliance and | | | | jurisdictions have become magnets for patent cases |
| the Professional Inventors Alliance. | | | | because of the disproportionately high number of |
| WILLFUL INFRINGEMENT | | | | cases they decide in favor of patentees. |
| What it would do: Section 5(a) of the bill would limit a | | | | This forum shopping imposes a costly burden on |
| court's authority to award enhanced damages for | | | | businesses which must collect evidence and |
| willful infringement. It would statutorily limit increased | | | | witnesses and travel to remote jurisdictions to try |
| damages to instances of willful infringement, require a | | | | complex patent cases over a period of weeks or |
| showing that the infringer intentionally copied the | | | | months. |
| patented invention, require notice of infringement to | | | | Proponents include: Large technology companies, the |
| be sufficiently specific so as to reduce the use of | | | | financial services industry, and the biotechnology |
| form letters, establish a good faith belief defense, | | | | industry. |
| require that determinations of willfulness be made | | | | Arguments against: Opponents argue that this change |
| after a finding of infringement, and require that | | | | would be a substantial departure from established |
| determinations of willfulness be made by the judge, | | | | practice and may not result in the most appropriate |
| not the jury. | | | | and convenient venue for litigation. Certain district |
| Arguments for: Proponents say that willfulness claims | | | | courts attract patent cases not because of |
| are raised too frequently in patent litigation - almost | | | | favoritism, they say, but because of their expertise |
| as a matter of course, given their relative ease of | | | | and timeliness. They also argue that the impact of |
| proof and potential for windfall damages. For | | | | forum shopping is minimized by the existence of a |
| defendants, this raises the cost of litigation and their | | | | single appellate court for patent cases, the Federal |
| potential exposure. | | | | Circuit. |
| A codified standard with fair and meaningful notice | | | | Opponents include: Smaller patent-holding companies, |
| provisions would restore balance to the system, | | | | smaller technology companies. |
| proponents say, reserving the treble penalty to those | | | | USPTO REGULATORY AUTHORITY |
| who were truly intentional in their willfulness and | | | | What it would do: The bill would authorize the USPTO |
| ending unfair windfalls for mere knowledge of a | | | | to promulgate substantive - as opposed to |
| patent. | | | | procedural - rules and regulations for the first time in |
| Further, tightening the requirements for finding willful | | | | its history. |
| infringement would encourage innovative review of | | | | Arguments for: Proponents argue that giving the |
| existing patents, something the current standard | | | | USPTO substantive rulemaking authority would be |
| discourages for fear of helping to establish willfulness. | | | | beneficial to the patent system and would help |
| Proponents include: Large technology companies, the | | | | ensure an efficient and quality-based patent |
| financial services industry, and the biotechnology | | | | examination process. |
| industry. | | | | Proponents include: The USPTO. |
| Arguments against: Opponents argue that willfulness | | | | Arguments against: Opponents note that the U.S. |
| is already difficult to establish under existing law. The | | | | Constitution expressly gives Congress the power to |
| additional requirements, limitations, and conditions set | | | | protect intellectual property and that delegating that |
| forth in the bill would significantly reduce the ability of | | | | authority to an administrative agency would be an |
| a patentee to obtain treble damages when willful | | | | ill-considered abdication of that Constitutional |
| conduct actually occurs. The possibility of treble | | | | authority. Further, this grant of authority would |
| damages under current law is an important deterrent | | | | create instability in the patent system, because the |
| to patent infringement that should be retained as is. | | | | USPTO could make multiple changes to the law during |
| Opponents include: The USPTO, the Professional | | | | the life of a patent. The job of defining substantive |
| Inventors Alliance. | | | | patent law is better left to Congress and the courts. |
| INTERLOCUTORY APPEALS | | | | Opponents include: The biotechnology industry, |
| What it would do: Section 10(b) of the bill would | | | | smaller technology companies, patent-holding |
| permit an interlocutory appeal to the Federal Circuit | | | | companies, university technology managers, medical |
| Court of Appeals after a Markman hearing on claim | | | | device manufacturers, and the NanoBusiness Alliance. |
| construction, rather than waiting for a final judgment | | | | INVENTOR'S OATH |
| from the district court. | | | | What it would do: The bill would change the current |
| Arguments for: Proponents say these appeals would | | | | practice of requiring the inventor to sign an |
| reduce the length and cost of litigation. Claim | | | | application. It would allow the assignee of an invention |
| construction, they argue, is a fundamental predicate | | | | to file a patent application in its own name. It would |
| that goes to the heart of any patent infringement | | | | also allow substitutes for the inventor's oath where |
| case. Until a claim is construed, it is impossible to | | | | the inventor is unable or unwilling to sign. |
| establish whether infringement occurred and whether | | | | Arguments for: Proponents say this change would |
| the patent is invalid. This process also serves to | | | | reduce unnecessary formalities in the patent |
| narrow discovery and motion practice and related | | | | application and simplify and streamline the process. |
| expenses. | | | | They also say this change would go hand-in-hand |
| Proponents assert that an interlocutory appeal would | | | | with a U.S. shift to a first-to-file system. |
| help to mitigate the judicial inefficiency that occurs | | | | Proponents include: The USPTO. |
| when a full trial is conducted based on an incorrect | | | | Arguments against: Opponents say that patent |
| interpretation of the patent, only to be reversed on | | | | applications filed by assignees may lack the actual |
| appeal and sent back for a second trial. More than a | | | | inventor's personal guarantee that the application was |
| third of all Markman rulings are overturned on appeal, | | | | properly prepared. In addition, assignee filing might |
| meaning that many litigants end up paying the | | | | derogate the right of natural persons to their |
| attorney fees and expenses for two trials. | | | | inventions. |
| Proponents include: Large technology companies and | | | | Opponents include: The Professional Inventors |
| the financial services industry. | | | | Alliance. |