Patent Law Blog (Patently-O)

Zuhn: A Model Patent Office for the Future

Dr. Zuhn has been covering patent happenings at the BIO Conference. His article discussing a panel on suggestions for fixing the USPTO is a great read. The theme presented by Sherry Knowles (from GSK) is one that many Patently-O readers understand - stakeholders cannot count on someone else to address problems at at the PTO.

John Duffy, who participated followed-up with a note about GSK's role in the case of Tafas v. Dudas.

GSK has been very well served by its attorneys, which includes an excellent team of lawyers from Kirkland & Ellis headed by John M. Desmarais. They've been successful in winning 99% of what GSK wanted. The rules still aren't in effect, and they are unlikely ever to go into effect without substantial revision. Moreover, as for the last 1% percent that GSK attorneys weren’t able to win, I don't think any attorneys could have won. The administrative law issues in the case were always very difficult for GSK’s position. I don’t think any set of attorneys could have produced a better result, and I don’t doub t that GSK’s lawyers recognize that Supreme Court review would have its risks.

Duffy also discussed the potential risks of a Supreme Court decision in Tafas v. Dudas.

Judge Prost did a masterful job on the administrative law issues in the Tafas case. If the case were appealed to the Supreme Court, I think the Court would largely affirm her opinion. The most difficult issue in the case has always been whether, giving the agency’s rules an appropriate amount of Chevron deference, a court should nonetheless hold Final Rule 78 inconsistent with the clear meaning of section 120 of the Patent Act. Judge Prost ruled against the agency on that issue, and her result seems to me to be one reasonable resolution of a difficult issue. But the issue is a close one, as even Judge Bryson’s concurrence suggests. If Tafas were to be heard by the Supreme Court, it is entirely possible that the Justices (a majority of whom either have taught ad law or have served on the ad law-heavy D.C. Circuit) might give the agency a bit more deference than the Federal Circuit panel did. Thus, if the case went to the Supreme Co urt, I think likely outcomes would be either a complete affirmance or a reversal limited to the one issue that GSK won at the Federal Circuit.

Other News:

• The White House has again recognized Peer-to-Patent as an example of "approachable government." http://www.whitehouse.gov/newmedia/. ("Improves the quality of issued patents").

Bits and Bytes: Patent Reform

• [UPDATED] Hal Wegner Reports the Following:
• • Phil Kiko of Foley Public Affairs reports that Secretary of Commerce Gary Locke has announced that he has chosen the next Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office. The chosen candidate, who is being vetted, was not named.
• Congress is Moving Forward with Patent Reform:
• • April 30, 2009 hearing of the House Judiciary Committee.
  • Here are some comments on the testimony:
  • • Jack Lasersohn (venture capitalist): Venture capital requires strong and certain patents. The damage reforms create potential problems because sometimes a relatively minor product innovation will dramatically change the market position. “A new coating on a solar cell , that increases it’s conversion efficiency just a little bit, can dramatically shift the market for entire multi-billion dollar solar energy plants. A better drug on a drug eluting stent can shift the entire stent market. In either case, the question is ‘who is entitled to the profits arising from the use of the invention, the inventor or the infringer’?”
    • Dean Kamen (Inventor & Businessman): patents should be strong and policy should be directed to support small innovative organizations.
    • David Simon (Intel): patents are meant to allow manufacturing companies to fight each other – not for non-manufacturing inventors or their assigns to slow-down manufacturers. [This is a very rough paraphrase of Simon’s 13 page rant against non-practising entities.]
    • Philip Johnson (J&J) on behalf of the 21st Century Patent Reformers wants money for the PTO, international harmonization (first-to-file), expanded post-grant review (12–month window), no change to the current damages system, only a codification of Seagate, no changes to venue law.
    • Jay Thomas (Georgetown) argues that patent infringement damages are too unpredictable and that additional rules of evidence and practice can help solve the problem.
    • Mark Chandler (Cisco) supports the reforms to halt the problem of non-practising entities who demand licenses.
    • Bernard Cassidy (Tessera): Please do not change the patent law in ways that hurt small companies. The courts have already done enough through eBay, KSR, Medimmune, Microsoft v. AT&T, Seagate, Bilski, and TS Tech.
    • [WRITTEN TESTIMONY.zip (3794 KB)]
• Absent from this testimony: Any representative from the Patent Office. At least three candidates are rumored to have been interviewed for the post of PTO Director – including former PTO Director Todd Dickinson and IP Hall of Fame member Mike Kirk. [See updated news above]

Gholz: Linking Post-Grant Review with Interference Procedure

Guest Post by Charles ("Chico") Gholz. Gholz is the head of the Interference Section at Oblon Spivak, a former chair of the Interference Committee of the AIPLA, and a frequent author on interference law and practice. I asked him to provide some thoughts on the proposed post-grant review proposals in the Patent Reform Act of 2009, telling him that I was especially interested in whether we should try to use the interference procedural structure for the new post-grant challenges.

It is my understanding that "the PTO" (actually, the PTO officials directly involved in administering interference matters—by which I mean Chief Administrative Patent Judge Fleming, Vice-Chief Administrative Patent Judge Moore, and Senior Administrative Patent Judge McKelvey) have expected the cancellation proceedings to be a species of the genus contested case and that, accordingly, they would be governed by Part 41, "Practice Before the Board of Patent Appeals and Interferences," Subpart D, "Contested Cases," of 37 CFR. To those of us in the interference bar, that makes perfect sense, since the cancellation proceedings will be very, very similar to the first phase (formerly known as the "preliminary motions phase") of patent interferences—except that only one party will be filing substantive motions.

However, proposed 35 USC 326 in both bills provides that "The Director shall prescribe regulations…" governing the post-grant review proceedings (what I'm referring to herein as "cancellation proceedings"). Apparently the drafters of the bills (who I suspect are not members of the patent bar, let alone members of the interference bar!) either were unaware of 37 CFR 41 Subpart D or felt that either additional or different rules would be required for the cancellation proceedings.

Whether the cancellation proceedings are to be governed by Subpart D or by a different set of rules is not an insignificant point. Proposed 35 USC 326(a)(3) in both bills would require the Director to prescribe regulations "setting forth procedures for discovery of relevant evidence, including that such discovery shall be limited to evidence directly related to factual assertions advanced by either party in the proceedings, and [that] the procedures for obtaining such evidence shall be consistent with the purpose and nature of the proceeding." However, while that language could be read as mandating real discovery (i.e., discovery similar to the discovery available in district courts), the bills then go on to mandate that, "In carrying out paragraph (3) [i.e., in providing the rules for discovery], the Director shall bear in mind that discovery must be in the interests of justice," which might be read a giving the PTO room to provide for only the extremely limited kind of discovery that is currently available in interferences. See Gholz, Patent Interferences – Big Ticket Litigation With No Effective Discovery, 4 Intellectual Property Today No. 9 at page 10 (1997).

Similarly, proposed 35 USC 326(b) in both bills would provide that "Regulations under subsection (a)(1) [including the regulations governing discovery]…shall provide for discovery upon order of the Director [actually, it would presumably be upon order of the APJ handling the proceedings]," indicating that, in contrast to district court procedure, the burden of showing entitlement to discovery would be on the party seeking discovery, rather than imposing on that party's adversary the burden of showing why discovery should not be obtained.

Proposed 35 USC 326(b) in both bills would also require the Director to issue regulations providing "for filing under seal exempt from publication requirements" and providing for "protective orders governing the exchange and submission of confidential information"—both of which would be sharp departures from current interference practice. See Gholz, Compelled Testimony, Testimony Abroad, and Protective Orders in Interference Proceedings Under the New Rules, 67 JPTOS 239 (1985). However, 35 USC 326(b) then goes on to say that the Director's regulations "shall ensure that any information submitted by the patent owner in support of any amendment entered under section 329 is made available to the public as part of the prosecution history of the patent." Since the "confidential information" is more likely to be submitted by the patent owner than by its adversary, I wonder how often a protective order will actually issue. Or is the point that the protective order will automatically expire upon conclusion of the cancellation proceeding?

Both the House version and the Senate version of proposed 35 USC 334 govern the effect on cancellation proceedings of decisions in other proceedings (only an infringement action in the Senate version, but either an infringement action or an ITC action in the House version). Surprisingly, both versions seem to assume that the decisions of the courts (or the courts and the ITC), on the one hand, and the decisions of the Board, on the other hand, are of identical issues—despite that fact that the party attacking a patent has a lower burden of proof before the Board and therefore might win before the Board even though it would lose before a court or the ITC on identical evidence.

In sum, I'd like to express my hope that the drafters of the two bills will consult with experts on interference law and practice, both in the PTO and in the private bar, before passing either version of the bill.

Patently-O Bits and Bytes

• Patent Reform: Senator Kyl Introduces the alternative Patent Reform Act of 2009; This bill is more patent-holder friendly than the Leahy bill. The Leahy bill may see some action in Committee on March 26, 2009.
• Patent Reform: Inequitable Conduct: Although a co-sponsor of the Leahy Act, Senator Hatch has suggested that the reforms should include reforms of inequitable conduct proceedings.
• ITC: The res judicata effect of ITC Section 337 Decisions: Nil.
• ITC Theory: John Marshall's IP Law Journal has a nice set of articles focused on ITC patent Litigation
• Personnel: Gov. Gary Locke is President Obama's nominee for Secretary of Commerce. Barring some unknown tax snafu or AIG relationship, is expected to be confirmed quickly. In his Senate testimony he mentioned the politically correct goal of reducing the PTO backlog along with creating a foundation for long-term economic growth; improving weather forecasting, and managing our fishing industry.
• Personnel: The PTO needs three new members of its Patent Public Advisory Committee (PPAC). Current members include Kevin Rivette (Rembrandts in the Attic), Louis Foreman (CEO / Inventor), Scott Kieff (Conservative Law Professor), Damon Matteo (PARC innovation & licensing chief), Doug Patton (inventor & industrial designer at PattonDesign); David Westergard (IP guy at Micron – Looking to water-down patent rights), Marc Adler (former Chief of IP at Rohm & Haas), Steve Pinkos (former Deputy to Jon Dudas), and Maureen Toohey (Solo practitioner; former GC of a Dean Kamen's DEKA company). I believe that Rivette, Patton, and Westergard will have reached the end of their terms this year and will be replaced.
• The Economic Downturn: Diane Bartz has taken over writing all about patent law for Reuters. In a recent interview with John Doll, she uncovers that the PTO is projecting a 2% drop in applications in 2009. Others expect a 10% decline. The problem for the PTO is that their funding is entirely fee driven, and the agency had budgeted for a 5% increase. Along with most law firms, according to Doll, the PTO has "stopped hiring at this time."

Rooklidge: Patent Reform Damages Provision Violates Seventh Amendment

The following post is by Bill Rooklidge. Rooklidge is a patent litigator and former head of the AIPLA. He clerked at the Federal Circuit in the early 1980's.

Richard Cauley’s March 14, 2009 guest post accurately characterized the damages reform provision of the Patent Reform Act of 2009 as “a judicial nightmare” because of its procedural complications, attendant delay and reversal potential. Two additional problems with that provision merit note: it perpetuates prior art subtraction and introduces into jury trial multiple potential violations of the Seventh Amendment.

Fact-finding and the Seventh Amendment. The Supreme Court coined the term “gatekeeper” in Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993), to describe the trial court’s obligation to “ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable.” In addition to rulings on Daubert motions, courts also fulfill their gatekeeper role by ruling on motions for summary judgment and judgment as a matter of law, motions in limine, evidentiary objections, and jury instructions. The bills’ damages section would enhance the courts’ gatekeeper role, but in doing so unconstitutionally invade the jury’s province as fact finder.

The bills would add to 35 U.S.C. §284 paragraph (c)(1), which would require the court to select from three methods for calculating a reasonable royalty “based on the facts of the case and after adducing any further evidence the court deems necessary.” A procedural rule requiring the court to weigh evidence to select from alternate theories would be void for depriving the patentee of its right to jury trial. See Fidelity & Deposit Co. of Maryland v. United States, 187 U.S. 315, 320 (1902). A genuine issue of material fact, that is, a dispute over facts that might affect the outcome, requires the issue to go to the jury. See generally Anderson v. Liberty Lobby, 477 U.S. 242 (1986). Similarly, the trial court’s exclusion of the entire market value rule under paragraph (c)(1)(A) for the patentee’s failure to make “a showing to the satisfaction of the court,” would violate the Seventh Amendment in a jury trial in which the patentee presents enough evidence to create a genuine issue of material fact. See Minks v. Polaris Indus., Inc., 546 F.3d 1364, 1372 (Fed. Cir. 2008) (vacating because trial “court necessarily engaged in an independent review of the evidence and substituted its conclusion for that of the jury on the factual issue of compensatory damages”).

The first section of the bills’ section (c)(1)(B) authorizes trial courts to exclude the patentee’s prior licenses for failure to make a “showing to the satisfaction of the court” of three facts regarding the claimant’s other licenses:

“the claimed invention has been the subject of a nonexclusive license for the use made by the invention by the infringer”;

the licenses have been extended “to a number of persons sufficient to indicate a generally marketplace recognition of the reasonableness of the licensing terms”; and

“the license was secured prior to the filing of the case before the court.”

The court also must determine whether the infringer’s use is “of substantially the same scope, volume, and benefit of the rights granted under such license. The second sentence of paragraph (c)(1)(B) requires a similar procedure for noninfringing substitutes for the infringing product or process. And paragraph (c)(1)(C) likewise requires the court to “conduct an analysis to ensure that a reasonable royalty is applied only the portion of the economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art.” A court making these findings would invade the province of the jury where the patentee presents substantial evidence on these issues.

Prior Art Subtraction. Section (c)(1)(A)’s requirement for application of the entire market value rule that the “claimed invention’s specific contribution over the prior art” be the “predominant basis for market demand” is just the latest form of “prior art subtraction.” Use of “specific contribution over the prior art” is an attempt to separate the “gist” or “heart” of the invention from the patent claims, and would introduce the extra step of subjectively redefining the scope of a patent. The Federal Circuit long ago rejected using the “gist” or “heart” of the invention to determine obviousness, see Para-Ordnance Mfg. v. SGS Importers Int’l, Inc., 73 F.3d 1085 (Fed. Cir. 1995), and recently rejected using the “point of novelty” in design patent law. Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665, 678 (Fed. Cir. 2008). Stripping the prior art elements out of the claimed invention that has been examined by the USPTO, construed by the federal district court, and relied upon to determine validity and infringement, in no way approximates the “heart” or “gist” of the invention, and that inherently subjective process would be unfair to the patent owner, and would eliminate application of the entire market value to inventions consisting entirely of prior art elements, arguably the vast majority.

Paragraph (c)(1)(C) would limit the reasonable royalty base to the “economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art,” replacing apportionment with prior art subtraction. This analysis is no substitute for the sophisticated and nuanced apportionment approach available under existing case law such as Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1133-37 (S.D.N.Y. 1970). Paragraph (c)(1)(C) would address the combination invention problem by stating that for combination inventions “the contribution over the prior art may include the value of the additional function resulting from the combination, as well as the enhanced value, if any, of some or all of the prior art elements as part of the combination, if the patentee demonstrates that value.” This analysis, which finds no precedent in existing case law and lacks any readily definable economic standards, does not even begin to address the problem that subtracting the prior art elements simply does not approximate what the inventor really invented.

Replacement of “contribution over the prior art” with the “essential features” language from the Supreme Court’s recent Quanta Computer, Inc. v. LG Electronics, Inc., 128 S. Ct. 2109 (2008), would just put another label on prior art subtraction. Regardless of label, the bills’ damages provision would drastically reduce patent owners’ ability to obtain reasonable royalty damages, which could not be less fair to those, like independent inventors, research institutions and universities, that have no ability to obtain lost profits damages.

Notes

• Forward Looking Patent Damages
• Patent Reform 2009: Damages
• Patent Reform Act of 2009
• Richard Cauley’s March 14, 2009 guest post
  
• Rooklidge: Reform of a Fast-Moving Target: The Development of Patent Law Since the 2004 National Academies Report: rooklidgereform.pdf

Patent Reform 2009: More on Damages

Guest Post by Richard Cauley. Cauley is the author of the recent Oxford Press book titled Winning the Patent Damages Case: A Litigator's Guide to Economic Models and Other Damage Strategies. I asked him to provide some thoughts on the damages proposals in the Patent Reform Act of 2009.

The damages provisions of the Patent Reform Act of 2009 are not new, nor, in an economic sense, are they particularly controversial. Although their introduction in this legislation may create a political firestorm among those who wish to artificially maximize the economic leverage of patentholders both in court and across the bargaining table, the solutions proposed in the latest attempt at patent reform merely reflect – and attempt to measure – the true economic worth of a patent and the reasonable return to which an inventor is entitled.

What these damages provisions (all of which were contained in the various versions of the failed Patent Reform Act of 2007) attempt to accomplish is to force the court to limit the patentholder’s recovery to the real economic worth of an invention – for example, to a company who might want to license that invention to use in another product or to a consumer who might purchase a product because of that very invention.

Thus, the section limiting the application of the entire market value rule to situations in which the actual invention – the advance over the prior art – forms the basis of consumer demand compensates the inventor only to the extent his invention produces something that people actually want to buy.

This section also ensures that patents on relatively minor components are not given a value in excess of their real economic worth. Where the patent does not cover something critically important to the consumer, the provision limits the patentholder’s recovery to the value of that component to the customer – and precludes a recovery based on the entire product, which may include many other patented components.

Likewise, the section requiring the court to determine whether there is already a “market price” for licensing the patent – in the form of pre-existing licenses for similar patent rights – simply measures how much a prospective licensee would be willing to pay on the open market for the right to use the patent. Of course, this is what the reasonable royalty remedy is supposed to measure.

The purpose of these provisions is obvious. First, they will limit the ability of patentholders, primarily patent trolls, to recover damages in patent litigation far in excess of the actual economic value of those patents. More importantly, however, they will reduce the threat of such inflated damages awards – a threat such plaintiffs use as leverage in licensing campaigns and settlement negotiations to secure recoveries far exceeding the worth these patents really have to the prospective licensees.

The problem with these proposed statutes, then is not their objective – to give patents the value they actually deserve – but the implementation. As written, these provisions are a judicial nightmare. They require the court to conduct a kind of “damages Markman” in which the court must decide, before giving the case to the jury, the economic value of the patent’s “specific contribution over the prior art,” the “basis” for the “market demand” for an infringing process, the “relevant market” for a claimed invention and whether that market has “similar noninfringing substitutes” for the claimed invention. Apparently, the court is also supposed to make the economic decision of which Georgia Pacific factors the jury is allowed to consider.   

The delay which will be caused in an ongoing trial will inevitably be substantial and the opportunities for reversible error in this process will be legion. Although the intent of the drafters of these provisions was certainly praiseworthy– to codify limits on jury’s overvaluing patents in awarding damages – the byzantine rules they set up to implement these objective shows that they certainly have never tried a patent case. Indeed, if the courts would simply follow the judicially- established guidelines already in place, this complex set of regulations would not be necessary.

Hopefully, calmer heads will prevail before these rules are actually imposed on the patent litigation bar and on the courts. There are better and more effective ways of reaching these objectives.

Indeed, it is not surprising that, in another section of the bill – limiting venue for patent cases to districts in which the defendant has a facility – there appears to be no appropriate venue for a patent case against an infringing foreign defendant with no facilities in the United States. Thus, a plaintiff might have jurisdiction over an infringer, but nowhere to sue the company – all dressed up and no place to go.

Links:

• Forward Looking Patent Damages
• Patent Reform 2009: Damages
• Patent Reform Act of 2009

Guest Post: Monsanto Company’s View on Patent Reform – Protect Innovation:

David Snively is Monsanto's General Counsel. He read Google's calls for patent reform and penned the following response. Monsanto's business model relies heavily on its ability to protect its innovations through intellectual property and contract in the US and Globally. Monsanto has also been the defendant in numerous patent battles.

Dr. Alan Greenpan's keynote speech on "Markets and the Judiciary" noted that "critical to economic growth is a rule of law, particularly protection of the rights of individuals and property". His remark that for IP law, the constancy of the protection afforded under the Constitution of the United States and our fully-functioning legal system is the basis for the U.S. economy's sustaining lead – even in difficult economic times with broken markets. Our patent system is the envy of the globe and while capable of thoughtful adjustment should not be hijacked by international pirates or corporations seeking to dilute legitimate protection that breeds investment and jobs. This is why Monsanto Company, as a global leader for innovation and technology in agriculture, is joined by trade unions and countless other groups who strive to assure Greenspan's voice is not lost in the din from hedge funds, offshore interests or others seeking short term gain by weakening our great patent system.

I respectfully disagree with the recent blog post by Google's Head of Patents and General Counsel, commenting on the perceived risks from damage awards in patent cases. Monsanto has faced billion dollar damage claims as a wrongly sued patent defendant and also knows the true benefits from avoiding the encouragement of willful infringement based on a smaller party's calculated gain in the face of limited risk of a meaningful award of damages if infringement is established. With full knowledge of all these issues and our substantial alignment with Google and the information technology industry over the legitimate need to curtail patent trolls and a myriad of other concerns - we encourage thoughtful reform. Last year Congress passed without public objection Public Law 110-403 the "Prioritizing Resources and Organization for Intellectual Property Act of 2008" which was designed to significantly enhance government law enforcement resources for combating certain kinds of intellectual property (IP) theft, e.g. criminal counterfeiting and infringement of computer software. The law helps protect investments in the research, development and marketing of certain kinds of innovative American products and services. The information technology industry was rightly bothered that its intellectual property rights were being trampled on by "pirates".

But, according to the financial sector and the information technology industry it seems that too many other people have too many patents that get in the way of too much "innovation" that is being marketed by an industry that doesn't own the rights to the "innovation". Some say that innovation can't stand still while somebody does a patent search to make sure that the "innovation" that is being marketed won't infringe any of those too many patents. So the complaint is "we are getting sued too much by these innovators who are stifling our innovation". Unlike the solution for rampant copyright infringement the perverse solution for rampant patent infringement is to propose "reforms" that would both reduce incentive to invest in research, development and marketing of innovative American products and services and provided impediments for improving patent quality. Dr. Greenspan's Georgetown keynote aptly recalled the copyright situation when he quoted Stephen Breyer from the Harvard Law Review decades prior to becoming a Justice "the case for copyright…rests not upon the proven need, but rather upon the uncertainty as to what would happen if protection were removed. One may suspect the risk of harm is small, but the world without copyright is nonetheless [in the words of Hamlet] 'undiscover'd country' which 'puzzles the will,/And makes us rather bear those ills we have/Than fly to others that we know not of.'

The problems posed by the patent reform bill are many:

• It would change the calculation of damages that an infringer (pirate) would pay as compensation for trampling on patent rights, encouraging only more callous disregard of patent rights and piracy.
• It would change the venue provisions in a way that would impose a substantial burden and inconvenience on patent owners by limiting access to the judicial system, encouraging only more callous disregard of patent rights and piracy.
• "Technical" changes would weaken protection and encourage piracy via removing the estoppels provisions and expanding the prior art basis for engaging in inter partes re-examination, in effect providing a system of post grant review that will serve only to harass patent owners by effectively taking patents out or service for the duration of unlimited re-examinations, encouraging only more callous disregard of patent rights and piracy.

Transparency is critical to society today yet the patent reform bill would not require publication of all patent applications at 18 months reducing the public knowledge of prior art making it harder to avoid investment in patent-free technology and reducing the likelihood that quality patents will issue.

Thoughtful patent reform is needed. There are things to support in the House version of the patent reform bill. For example, the House bill while strangely modifying the damages calculation would authorize a study to see if such a modification is needed. Such studies are available and do not support the anecdotes that say damage awards are out of control.

Patent Reform that discourages investment in research and development and the job growth and economic stimulus that is spawned by thousands of small companies as well as large companies that rely on a robust and strong patent system is bad for America. Monsanto invests over $2M every day in research and is committed publicly to helping double food yield in corn, soy and cotton by 2030 while using 1/3 fewer natural resources and improving the lives of farmers globally. Accomplishing this task of sustainable agriculture requires a patent system and rule of law that Dr. Greenspan says has always been found in the Constitution of the United States.

Patent Reform 2009: Damages

The most contentious portion of the Patent Reform Act of 2009 is the damages provision. The current damages statute gives little guidance to a court. Damages must be "adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer." 35 U.S.C. §284. The Court may "increase the damages up to three times the amount found or assessed." Id. The courts have given some flesh to the rough skeleton created by these statutes. One construct is the hypothetical negotiation – asking the counterfactual question of what licensing scheme would these dueling foes have agreed to if they had actually come to a licensing agreement. The Georgia Pacific factors guide the process of deternining a reasonable royalty. In some cases, courts allow a patentee to recover lost profits.

As it turns out, the damages actually awarded in patent cases are generally thought to be much higher than negotiated license agreements.  Part of the difference stems from the reality that patent damages are awarded only on patents that are known to be valid, infringed, and enforceable, and after the risk and expense of litigation have already been taken. In ordinary license negotiations, these risks lower the potential royalty rate and – in contrast – should increased the level of compensation in post-trial damages.  There is some evidence that juries simply tend toward large damage awards.

Stacking Problem: In some technology areas – such as electronics – this creates a potential problem known as royalty stacking. Most electronics products are covered by multiple patents – often dozens of patents. CDMA2000 communication standard, for instance, reportedly invringes at least 924 patents. [LINK] When each patentee is awarded a 5% royalty, it does not take long before the entire revenue is taken just to pay for intellectual property rights. If everyone has blocking rights then no business can get done, and we see the tragedy of the anti-commons. Of course, stacking is only a problem in theory. CDMA2000 is a standard actually used around the world. Producers are making (some) money. Multiple patents covering products have causes prices to be raised, but it is not clear than any market has been destroyed or even that the royalty payments outway the benefit of the innovation.

Uncertainty Problem: Jury verdicts are quite unpredictable, and because the royalty rules are so loose, damages appeals are rarely successful.

The new legislation appears to take on these problems in a way to (1) reduce the average damage award; (2) make damage awards more rational and predictable; and (3) make damages judgment more subject to appellate review.

The practical approach of the legislation is to create a “standard for calculating reasonable royalty” which require a determination of the “specific contribution over the prior art” to determine damages. Some courts already follow the rules set out in the proposed legislation. Thus, legislation advocates may refer to the damages reforms as simply a clarification that limits the actions of rogue courts.

The proposed text reads as follows:

35 USC 284(c)(1) IN GENERAL.-The court shall determine, based on the facts of the case and after adducing any further evidence the court deems necessary, which of the following methods shall be used by the court or the jury in calculating a reasonable royalty pursuant to subsection (a). The court shall also identify the factors that are relevant to the determination of a reasonable royalty, and the court or jury, as the case may be, shall consider only those factors in making such determination.

''(A) ENTIRE MARKET VALUE.-Upon a showing to the satisfaction of the court that the claimed invention's specific contribution over the prior art is the predominant basis for market demand for an infringing product or process, damages may be based upon the entire market value of that infringing product or process.

''(B) ESTABLISHED ROYALTY BASED ON MARKETPLACE LICENSING.-Upon a showing to the satisfaction of the court that the claimed invention has been the subject of a nonexclusive license for the use made of the invention by the infringer, to a number of persons sufficient to indicate a general marketplace recognition of the reasonableness of the licensing terms, if the license was secured prior to the filing of the case before the court, and the court determines that the infringer's use is of substantially the same scope, volume, and benefit of the rights granted under such license, damages may be determined on the basis of the terms of such license. Upon a showing to the satisfaction of the court that the claimed invention has sufficiently similar noninfringing substitutes in the relevant market, which have themselves been the subject of such nonexclusive licenses, and the court de termines that the infringer's use is of substan tially the same scope, volume, and benefit of the rights granted under such licenses, damages may be determined on the basis of the terms of such licenses. ''

(C) VALUATION CALCULATION.-Upon a determination by the court that the showings required under subparagraphs (A) and (B) have not been made, the court shall conduct an analysis to ensure that a reasonable royalty is applied only to the portion of the economic value of the infringing product or process properly at tributable to the claimed invention's specific contribution over the prior art. In the case of a combination invention whose elements are present individually in the prior art, the contribution over the prior art may include the value of the additional function resulting from the combination, as well as the enhanced value, if any, of some or all of the prior art elements as part of the combination, if the patentee demonstrates that value.

''(2) ADDITIONAL FACTORS.-Where the court determines it to be appropriate in determining a reasonable royalty under paragraph (1), the court may also consider, or direct the jury to consider, any other relevant factors under applicable law.

Notes:

• I’ll use this opportunity to plug a new book by Richard Cauley: Winning the Patent Damages Case (Oxford 2009). Great book, the only problem is the $185 price tag.
• The Bills have received numbers: H.R. 1260 is sponsored by Rep. Conyers (MI) and co-sponsored by Reps. Berman (CA), Goodlatte (VA), Jackson-Lee (TX), and Smith (TX). S. 515 is sponsored by Sen. Leahy and co-sponsored by Sens. Crapo (ID), Gillibrand (NY), Hatch (UT), Risch (ID), Schumer (NY), and Whitehouse (RI). Both Bills have been referred to their respective Judiciary Committee which are headed by the Bill sponsors.

Back Reading

• Dennis Crouch, Patent Reform Act of 2009, Patently-O (March 3, 2008).
• William Rooklidge, “Reform” of Patent Damages.
• Dennis Crouch, Patent Reform 2007: Apportionment of Damages, Patently-O (May 25, 2007).
• Amy Landers, 2007 Patent Reform: Proposed Amendments on Damages, Patently-O (April 29, 2007).

Patent Reform Act of 2009

Patent reform legislation has now been introduced in both the House and the Senate. The provisions call for major reforms and mirror much of the proposed legislation from 2008. If anything, this is not a consensus Bill. File Attachment: SenateBill.pdf (116 KB) File Attachment: HouseBill.pdf (180 KB)

Proposed changes in the Senate Bill include:

• First to File: Moving to a first-to-file system that credits invention based on the filing date of the patent application rather than on the date of actual invention.   The provision eliminates the one-year grace period for most cases. Thus, any independent third-party publication prior to filing is considered prior art regardless of the date of invention. Likewise, secret prior art (102(e)) cannot be 'sworn behind' based on prior invention. This provision obviously hurts folks who delay in filing patent applications.
• Damages: Must look to the invention's "specific contribution over the prior art" to determine damages. There is an interesting provision that a reasonable royalty may be calculated as the price of licensing a "similar noninfringing substitute in the relative market." In some cases, this could push damages to zero if the noninfringing substitute is in the public domain. The provision also codifies that treble damages are limited to instances where a judge finds that an adjudged infringer recklessly continued to infringe after receiving particularly specified written notice sufficient to create declaratory judgment jurisdiction and without relying on reasonable advice of counsel.
• Expanded Reexamination Proceedings: Reexaminations may be requested based on published prior art, or evidence of prior public use or sale in the US. Inter partes reexaminations would begin to look more like court cases and would be heard by administrative patent judges. The Bill would clarify that parties would be estopped from filing inter partes reexamination requests after a district court judgment.
• Additional Post Grant Review: Within 12 months of issuance, a third party can file a cancellation petition based on any ground of invalidity (rather than simply prior art). The post grant reviews would also be conducted by the administrative patent judges.
• Pre-Issuance Submissions: Third parties can submit prior art during examination of the patent as well as a statement regarding the relevance of the art. The art should be submitted the latter of (1) six months after publication or (2) before the first office action on the merits.
• Patent Litigation Venue: "A party shall not manufacture venue by assignment, incorporation, or otherwise to invoke the venue of a specific district court." Venue is only proper were (a) defendant is incorporated; (b) defendant has its principle place of business; (c) where the defendant is permanently located and has committed substantial acts of infringement; or (d) where the plaintiff resides if the plaintiff is a nonprofit or individual inventor. The court should transfer venue to avoid evidentiary burdens when transfer can be accomplished without causing undue hardship to the plaintiff."
• Interlocutory Appeals: The Federal Circuit will have jurisdiction over interlocutory appeals of claim construction when approved by the lower court.
• Administrative Patent Judges: The BPAI would become the Patent Trial and Appeal Board (PTAB). Interferences would be gone, however they would be replaced by derivation proceedings as well as reexamination and post-grant trials.
• PTO Powers: The PTO has power to set its fees, including reducing fees.
• Oath: Easing the rules to more easily allow rights-holders to file patent applications on behalf of the inventor.
• Federal Circuit Judges: Making legal it for a Federal Circuit judge to reside more than 50 miles from DC.

As you can see, this is very much the type of reform that companies like Google would like to see. Google is regularly faced with charges of patent infringement and rarely sues for infringement. Some of these changes will benefit the system as a whole, but it is clear that this is not "balanced" reform. The damages provision will almost certainly reduce patent awards. And, perhaps equally important, the damages provision provides adjudged infringers a real cause to appeal jury awards if they did not directly follow the expert testimony.

I believe that the expanded use of reexaminations and post grant review and prior art submissions will be beneficial, and I have faith that the administrative patent judges will be able to handle their newfound responsibilities. That said, these provisions provide challengers with new ways to attack patent rights.

The plaintiff bar in the Eastern District of Texas is quite good, and defendants are doing what they can to escape from their grasp. The venue provision moves in that direction and would thus weaken the value of patents.

The trick with the first to file system is to realize that it is not about some mythical race to invent between competitors. Rather, it is about keying the priority on the date of filing the application rather than the date of invention or even one year prior to filing. This provision weakens patent rights because more materials will be considered prior art. It is possible to switch to a first-to-file system without eliminating the grace period so dramatically – this legislation does not, however meet that standard.

The Bill is sponsored by both Senators Leahy (D-VT) and Hatch (R-UT). Representative Conyers (D-Mich) introduced parallel legislation in the House, the legislation is largely similar, but does contain some differences. (I have not reviewed the House version in detail). Some opposition has already formed. Reps Manzullo (R-IL) an Michaud (D-ME) issued a joint press release titled "New patent bill encourages IP theft, destroys American jobs." Their focus was on the damages provision.

There are some changes from the 2008 legislation.

• The Bill does not require that all applications be published at 18 months.
• Applicants would not be required to search prior art.
• The 2009 Bill allows public use or sale in the US to be reasons for challenging patents.
• CHECK 21 provisions are gone.
• Fee Diversion is allowed in the 2009 Bill. (Oddly, Leahy explained that PTO Examiners perfer a system of fee diversion)
• The 2009 Bill does not address inequitable conduct.

Links:

• Stephanie Condon writes "Controversial provisions remain in patent reform bill."
• Diane Bartz writes "Congress takes up patent redo, damages fight looms."
• David Ingrim writes "Lawmakers Pledge Bipartisan Effort on Patent Changes."
• Zusha Elinson writes "Silicon Valley Raises Voice on IP Reform."
• Brent Kendall writes for Dow Jones "The patent system has not been overhauled in more than 50 years." [huh?]

Google Patent Chief: Patent reform needed more than ever

A patent reform bill is expected to be introduced today in the Senate and House. Below is a (yet unauthorized reproduction and) editorial by Michelle Lee, Head of Patents and Patent Strategy at Google (Originally posted here)

After the last time I blogged about patent reform in late 2007, the House went on to approve the Patent Reform Act. The bill unfortunately got bogged down in the Senate the following year. Since then the problems of the current system — and the need for reform — have only grown.

Consider this: Of the 20 patent lawsuits filed against Google since late 2007, all but two have been filed by plaintiffs who don’t make or sell any real product or service — in other words, by non-practicing entities or “patent trolls.” Most of these cases seem to feature the same small set of contingent fee plaintiff's lawyers asserting patent claims against the same small set of companies. We've also noticed a more disturbing trend: in many of these cases, the patents being asserted against us are owned by — and in a surprising number of cases, are even “invented” by — patent lawyers themselves.

Unfortunately, the temptations and opportunities for abuse have gotten too high. Lawyers and plaintiffs have seen the potentially huge payoffs available in patent litigation. Before 1990, there had been just one patent damage award of over $100 million. Since 1990, there have been at least 15, with at least five topping $500 million.

That's why I'm excited that patent reform legislation is slated to be reintroduced today by Senators Patrick Leahy and Orrin Hatch and Representatives John Conyers and Lamar Smith. Once a driver of creativity, our patent system now poses a hurdle for innovation. All too often, Google and other companies face mounting legal costs to defend against questionable patent claims from speculators gaming the system to reap windfall profits. And those lawsuits make it more difficult and costly to introduce the next revolutionary product.

I wrote a bit last Congress about the reform provisions that Google cares the most about. The most pressing of those is ensuring fair damage awards. The current system too easily allows damages to be assessed based on the value of the whole product often containing many features — not just the value of the innovation of the allegedly infringed patent — which means the threat of potentially massive awards forces defendants to settle. Balance should be restored by requiring damages to be based on the value of the innovation's contribution to the product.

As members of the Coalition for Patent Fairness, we're optimistic that patent reform faces better odds in 2009 than it has before — not least because President Obama has pledged his support. Passage of patent reform is long overdue.

Congress Looks to Review Patent Examiner Goals

The current pending omnibus appropriations bill would provide $2.01 billion to the PTO so long as all of that money is obtained by the PTO through fees. [LINK]. As Greg Aharonian noted in his PATNEWS, none of the $800 billion bailout money is being directed toward improving the patent system.

The bill includes a statement that Congress will hold back $5 million until the PTO completes "a comprehensive review of the assumptions behind the patent examiner expectancy goals and adopt[s] a revised set of expectancy goals for patent examination."

Today, many examiners operate well over their expectancy goals — earning overtime bonus for extra work. If the time allowed is increased without increasing demands on the examiners, the result may simply be that Examiner #6 operates at 140% of his expected goal rather than 120%. I.e., more pay for the examiner without changing the examiner behavior at all. Now, I’m not opposed to increasing the examiner payscale, but if we are hoping to improve the system, any review of expectancy goals need to be coupled with a review of examination standards.

Patent Reform in the House of Representatives

Tech Law Reporter Andrew Noyes has indicated that 2009 will likely see a repeat of the same patent reform measures of 2008. [LINK]. I thought it would be important to look at a few faces that might ordinarily be behind the scenes in the legislation process.

Dr. Christal Sheppard will be the House staffer leading the charge on Patent Reform from within the House Judiciary Committee. Sheppard is a patent attorney and has been working on the Hill since 2003. Her official title is Chief Counsel for the Subcommittee on Courts and Competition Policy (there is no IP subcommittee). Sheppard holds a PhD with a focus on molecular biology from the University of Michigan and has remained active in the patent bar. Other patent attorneys in the House include Garg Sampak (committee on rules) and Jonathan Pawlow (assistant to Rep. Adam Smith (D-Wa)). Susan Davies - who was the staffer in charge of patent reform at the Senate under Senator Leahy has moved to the White House. Davies is a resume superstar -- a University of Chicago Law School graduate who clerked for both Justices Kennedy and Breyer. Aaron Cooper (formerly of the Covington firm) has apparently replaced Davies in the Senate.

The Judiciary Committee is headed by Representative Conyers of Michigan. Members include Berman (D-Cal), Boucher (D-Va), Smith (R-Tex), and Issa (R-Cal).

Patently-O Bits and Bytes

• Patent Reform I: In a recent article, DC insider Hal Wegner noted that there is "reason for optimism that patents will not be put on the back burner by the new President." Wegner pointed to the President's pro-reform start and to the President's Technology Agendy that calls for: (1) ensuring that American IP is protected abroad and (2) reforming the patent and copyright systems "while ensuring that intellectual property owners are fairly treated." The agenda speaks specifically to patent reform: "Reform the Patent System: Ensure that our patent laws protect legitimate rights while not stifling innovation and collaboration. Give the Patent and Trademark Office (PTO) the resources to improve patent quality and open up the patent process to citizen review to help foster an environment that encourages innovation. Reduce uncertainty and wasteful litigation that is currently a significant drag on innovation." [Read the Technology Agenda]
• Patent Reform II: Although Wegner noted "optimism," many patent industry insiders may be pessimistic that there is a high likelihood of patent reform. In particular, the technology agenda statements, coupled with Professors Sprigman and Rai as advisors, further coupled with the rumored appointment of John Thompson as Secretary of Commerce point toward legislative patent reforms being along the same lines as eBay (weakening injunctions), KSR (making it easier to find patents obvious); VW (weakening plaintiff's choice of forum); Bilski (limiting patentable subject matter); and Seagate (limiting damage awards).
• Patent Reform III: On the other hand, Professors Rai and Sunstein are both major administrative reformers. There is hope that their style of internal PTO reforms - made through rule changes and standard operating procedures – could dramatically change the PTO for the better.
• Role of the Secretary of Commerce: 35 USC 1(a) establishes the Patent Office (PTO) within the Department of Commerce. However, the statute is clear that the PTO has some power independent of the larger department: "The [PTO] is established as an agency of the United States, within the Department of Commerce. In carrying out its functions, the [PTO] shall be subject to the policy direction of the Secretary of Commerce, but otherwise shall retain responsibility for decisions regarding the management and administration of its operations and shall exercise independent control of its budget allocations and expenditures, personnel decisions and processes, procurements, and other administrative and management functions in accordance with this title and applicable provisions of law."

John McCain’s Prize System: $300 Million for Battery Power

For a long time, monetary prizes have been offered as an alternative to patent rights as a mechanism for driving innovation. In 1714, for instance, the British Parliament offered £20,000 for a solution to the "longitude problem" – to determine the current longitude of a ship at sea. John Harrison solved that problem by creating an accurate mechanical clock set to GMT. Longitude was calculated as the difference between the ship's local time (as measured by the sun) and GMT. [LINK]

Republican nominee John McCain recently proposed the American version: $300,000,000 "for the development of a battery package that has the size, capacity, cost and power to leap frog the commercially available plug-in hybrids or electric cars" – but that cost 30% less. The prize would be open to any company worldwide – so long as they planned to sell in the US. Although unclear, I suspect that the winner would also be able to protect its innovation through patents. In Harrison's case, he was required to "surrender the innovation for public use."

Unlike obtaining a patent, prize systems typically require that the technology be proven through actual monitored testing. That means the winner is more likely to bring the product to market. When thinking about this type of system, I like to compare prizes to patents and also to direct government funding (subsidy/grants). Table 1 below tells most of the story.

	Patent	Grants	Prize
Success Required for Payout	Yes	No	Yes
Government Chooses Technology	No	Yes	Yes
Government Outlay of Funds	No	Yes	Yes
Provides Seed Money for Venture	No	Yes	No
Payout is driven by Market	Yes	No	No
Table 1

 

Notes:

• Now Pending S.2210 is the "Medical Innovation Prize Act of 2007." The act would attempt to "de-couple" the reward for pharmaceutical product research from the market price of the product. Unlike more traditional prizes, this one would not pre-select the goal. [LINK] In the mid 1990's Economist Michael Kremer proposed that the government should buy-up important pharmaceutical patents and then dedicate them to the public.
• Attorney/Entrepreneur Michael Martin adds his thoughts: Why the Venetians didn't invent a Prize system for Inventions

Tax Patent Legislation: Excusing Infringement of Patented Tax Planning Methods

Rep. Rick Boucher's Bill to excuse infringement of patents covering tax planning methods now has 40 co-sponsors. However, its prospects for becoming law are still slim – only one of the co-sponsors is a member of the House IP Subcommittee which must approve the bill.

The proposal copies the language of the "medical practitioner's performance of a medical activity" exclusion found under 35 USC 287(c). (Known as the Ganske compromise).  Under the proposed bill, unauthorized use of a patented tax planning method by a taxpayer or tax practitioner would not be considered infringement.

"With respect to the use by a taxpayer or a tax practitioner of a tax planning method that constitutes an infringement under subsection (a) or (b) of section 271, the provisions of sections 281, 283, 284, and 285 shall not apply against the taxpayer, the tax practitioner, or any related professional organization with respect to such tax planning method."

A tax planning method is defined as any "plan, strategy, technique, or structure that is designed to reduce, minimize, or defer, or has, when implemented, the effect of reducing, minimizing or deferring, a taxpayer's tax liability." The proposal is careful to exclude "tax preparation software or other tools used solely to perform or model mathematical calculations or prepare tax or information returns."  This language is potentially too loose — as most tax software does much more than perform math and prepare the return.

H. R. 2365

Patently-O Bits and Bytes No. 9

• Bush Administration Opposes Aspects of Patent Reform: [LINK] (But will support an amended version)
• Additional Senate Comments on Patent Reform: [LINK (836 KB)]
• Senator Kyl: Congress should eliminate business method patents because they create monopoly costs without any new beneficial technology.
• Senators Spector & Brownback: The S.1145 “remains a work in progress;” the damage apportionment language would create uncertainity and litigation — especially determining an invention’s “specific contribution over the prior art.”
• Senators Feingold and Coburn — If the bill is passed without serious amendment “Patents will be devalued and many inventors will opt for trade secrecy instead, undermining the Framers' intent to promote disclosure and public benefit through a strong patent system.”
• General Remarks from a minority of Judiciary Committee members: “Primum non nocere is Latin phrase that means `First, do no harm.' … In our opinion, the intervention the bill proposes will create real and certain damage to our patent system and the ability of America's inventors and innovation industries to protect their intellectual property rights.”
• The link above includes the formal Judiciary Committee report on the proposed patent reform legislation now pending in the Senate.
• Spare Parts: Spare parts manufacturers continue to lobby congress to include a special provision in the reform bill that would eliminate the potential of protecting automobile spare parts with design patents.  Several car companies are currently attempting to limit the off-brand repair market. http://www.qualitypartscoalition.com/
• KSR Rejections: PTO provides examples of how to use KSR to reject Business Method claims. [LINK] [via PatentHawk]
• See the Forest: A new IP analytics site titled “See the Forest” is lets you create some interesting patent maps: http://see-the-forest.com.  The company behind the site is IPVision.

 

Patent Refom: Unsettling Rights

By Dennis Crouch

There have been numerous reports calling the US Patent System broken or at least in need of severe repair. From my view, the greatest problems with US patent law arise because of its common lack of clearly drawn property lines.  In academic lingo, we call this a failure of the public notice function.  

Examples of the fuzzy lines of patent law are well known to Patently-O readers and include the secret rights of unpublished patent applications; shifting rights that may be altered via extended prosecution, future continuing applications, and second look examination; and uncertain rights potentially crumbling under the vagaries of claim construction and obviousness jurisprudence.

These problems are exacerbated in certain technology areas – such as electronics – by massively overlapping claims and speculators asserting patents in a seemingly more aggressive fashion.  At the same time, there is a strong consensus that these issues do not arise in the same fashion in the pharmaceutical and bio-technological areas. Pharmaceutical patent law is often heralded as an incredible success — especially in the post Hatch-Waxman days of strong generic competition.

Now comes the Patent Reform Act of 2007. Unfortunately, the proposed patent reforms now being debated by the Senate do virtually noting to address these serious problems and instead potentially cause harm to the current regime.

CAFC Chief Judge Michel has publicly discussed patent reform and its potential impact on the judicial process. Apart from the Chief’s particular quarrels with damage apportionment and expanded interlocutory appeals, he makes a particular point about the destabilizing effect of major Congressional patent reforms.  In the decades following reforms, each amended word will be litigated and eventually construed. Unfortunately, during the wait for new statutory interpretations, patent holders and accused infringers will be left guessing.  Judge Michel’s ultimate point is that changes in the property regime should only be made when we have a genuine reason to believe that the changes will improve the system as a whole.  For the majority of the proposed patent reforms, that case simply has not yet been made.

 

Patently-O Bits and Bytes No. 6.

• Patent Reform in February: Hal Wegner notes "widespread predictions" that Senator Leahy now has enough votes to push the Patent Reform Act through the Senate.
• Patent Reform Writeup: Professor Jay Thomas (Georgetown) is also tasked as the IP guy for the Congressional Research Service (CRS). In that capacity, Thomas has taken to explaining some of the pros and cons of the Patent Reform Acts of 2007. (HR 1908; S 1145).  [CRS REPORT ON PATENT REFORM] According to Thomas: “The provisions of the proposed legislation would arguably work the most sweeping reforms to the U.S. patent system since the nineteenth century.”  Thomas does an excellent job of quickly discussing each proposed reform measure in language as neutral as he can muster.
• PCT Seminar: April 25–26 Pierce Law will host its 10th annual Comprehensive PCT Seminar in Concord, NH. Cost is under $400 ($100 for students). Two of the leading PCT Experts Carol Bidwell and David Reed will lead the seminar. [LINK]
• Position: Director of the Office of Technology Management and Industry Relations at the University of Missouri. (Join me in Columbia). “The University of Missouri, Columbia (MU) is seeking an innovative, energetic, and experienced individual to serve as Director of the Office of Technology Management and Industry Relations.” [LINK]

Patent Reform and the Ethos of the American Inventor

Although I understand the reality that most patent prosecution is handled on behalf of corporate assignees, I still hold a special place in my heart for the maverick American inventor.  Some might understand the slight pangs I felt when reading the inventorship section of the Senate report on patent reform.  The report suggests eliminating from the law “the antiquated notion that it is the inventor who files the application, not the company-assignee.” Perhaps it is time my thoughts of the American inventor to go the way of the Wild West and horse drawn carriages.

The Bill (S.1145) is intended to fix an understandable problem — that of inventors who fail to fulfill their contractual obligation to assign patent rights to the Corporate owner.  This is a serious problem as shown by the current issue of IPToday which includes a full-length article describing the complex set of hoops currently required to overcome these so called “problem inventors.” [LINK]

Beyond the sound-bites, the specific reform provisions are not so bad. The revised statute would allow an “obligated assignee” to file the patent application on its own behalf. An inventor’s oath is still required unless the “obligated inventor” is either unable or unwilling to sign. Under the provision, a patent cannot be challenged as invalid or unenforceable based on a corporations mistaken claim that the inventor had an obligation to assign.  The savings clause appears to also include protection against mistakes in correctly naming inventors in the application.

Patent Reform 2007: House of Representatives Passes H.1908

Legislative patent reform still has a long road to travel before reaching its conclusion. However, the passage of H.1908 by the House of Representatives represents a major leap forward along the path. The following are some highlights of the statute as passed. [H.1908.As.Passed].

First to file system: Obviousness and novelty would now be considered as of the “effective filing date.”  Novelty grace period would be eliminated except for the inventor’s own disclosures. Although unclear, the grace period appears to be completely eliminated for obviousness analysis. Interferences are gone.

Damages: Reasonable royalty calculations (the most common damage awards) would all require courts to conduct a thorough analysis to ensure that damages are equal to the “economic value [of the invention] properly attributable to the patent's specific contribution over the prior art.” The entire value of a product or process can only be the basis for royalty calculations if the innovation is the “predominant basis” for market demand of the product. (a showing that may be impossible in most cases). Overall this would reduce damage awards.

Search Reports: PTO would be granted discretion in ordering search reports for all applications except those by a new group called ‘micro-entities.’

Treble Damages: The statute explicitly calls-out ‘willfulness’ as the sole reason for enhanced damages then severely limits the facts where willfulness can be found. Overall this reduces the likelihood of awarding treble damages.

Post-Grant Review: In addition to reexamination, a post-grant review proceeding would be available if filed within 12–months of issuance or with the patentee’s permission.

Open Examination: Anyone may submit prior art for any patent or pending application along with an explanation of why the art is important.

Tax Methods: A patent would not be available for a newly invented tax planning method. Tax planning methods do “not include the use of tax preparation software or other tools used solely to perform or model mathematical calculations or prepare tax or information returns.”

Venue and Jurisdiction: Strong limitations on venue would likely eliminate E.D.Texas as a potential choice.

Interlocutory Appeal: A district court would be given discretion to certify interlocutory appeals of claim construction decisions.

Inequitable Conduct: Inequitable conduct must be pled with specificity following FRCP Rule 9b. Inequitable conduct rules would be made explicit in the statute. Overall, this weakens the defense of inequitable conduct.

PTO Regulatory Power: The statute would give the PTO power to make the continuation rule changes that it has already implemented.

Patent Trial and Appeal Board: Following John Duffy’s Suggestion, the statute would have the board appointed by the Secretary of Commerce rather than the PTO Director.

Study of Patent Damages: The PTO will study how damage awards have changed based on the changes in the law.

New Proposed Rules: Maiming Markush Claims

A new set of proposed rules were published in the Federal Register on August 10, 2007. The new anti-Markush rules would close down a potential loophole in the soon-to-be-finalized claim limitation rules. 

Highlights:

• An intra-claim restriction is proper unless all species share a feature that is substantial and essential for common unity.
• A claim may not incorporate part of the specification by reference unless absolutely necessary.
• Markush alternatives must be substitutable; may not encompass other alternatives; may not be a set of further alternatives; and must not make the claim difficult to construe.

Documents:

• File Attachment: Markush Rules.pdf (96 KB)

Other upcoming finalized rules:

• Rules limiting continuations are expected to be finally implemented within the next few weeks.
• Rules limiting the number of claims being examined are expected to be finally implemented within the next few weeks.
• Rules requiring more extensive IDS submissions are being reviewed by White House staff and are expected to be finally implemented in early 2008.

 

Patent Reform: Required Pre-Filing Search and Patentability Analysis

The PTO’s accelerated examination program (formerly petition to make special) requires that the applicant conduct a prior art search and provide an extensive discussion of how the submitted prior art relates to each claim. As mentioned in earlier Patently-O posts, I expected that the program somewhat of a prototype — if all goes well, the PTO may require a preliminary search and discussion of prior art findings for all cases.

The future is here: The recently amended Senate Bill includes orders for the PTO Director to require search reports and patentability analyses for all filed applications (except for those filed by “micro-entities”).  Failure to submit a report would result in abandonment.  A new 35 U.S.C. Section 123 would read as follows:

“The Director shall, by regulation, require that applicants submit a search report and other information and analysis relevant to patentability.  An application shall be regarded as abandoned if the applicant fails to submit the required search report, information, and analysis in the manner and within the time period prescribed by the Director.  Applicants from micro-entities, as defined in section 124 of this title, shall not be subject to the requirements of any regulations promulgated pursuant to this section.”

In the past, IPO President Marc Adler has suggested on his blog that patentees should conduct pre-filing searches. [LINK]. Of course. Mr. Adler’s comments suggest only a voluntary system.

Notes:

• Look for a salary increase for quality patent searchers.
• This amendment is found in the 2nd Manager’s Amendment.

Patent Reform 2007: Apportionment of Damages

Patent are business tools that can help ensure some monetary reward for innovative effort.  Although few patent are litigated through final decision, the threat of litigation casts an ever-present shadow on licensing negotiations and inter-corporate dealings.  Of course, any underlying threat is closely related to the size of potential damages and strength of a potential injunction.  In the past two-years, damages in particular have become more important as the Supreme Court's decision in EBay v. MercExchange lessens the likelihood of injunctive relief.

There has been little scholarly discussion of how ongoing money damages should be assessed when an injunction is denied.  I take the position that a denial of an injunction should not necessarily result in a compulsory license and that there are many times when continued infringement would be considered willful.

The Patent Reform Acts of 2007 (both House and Senate) propose changes to damage calculations that would require specific economic analysis to ensure that any reasonable royalty damage award captures "only [the] economic value properly attributable to the patent's specific contribution over the prior art."  These calculations would apparently apply to calculations of both past and future damages. CAFC Chief Judge Michel recently testified before Congress -- discussing some practical implementation of the damage modifications:

[T]he provision on apportioning damages would require courts to adjudicate the economic value of the entire prior art, the asserted patent claims, and also all other features of the accused product or process whether or not patented. This is a massive undertaking for which courts are ill-equipped. For one thing, generalist judges tack experience and expertise in making such extensive, complex economic valuations, as do lay jurors. For another, courts would be inundated with massive amounts of data, requiring extra weeks of trial in nearly every case. Resolving the meaning of this novel language could take years, as could the mandating of proper methods. The provision also invites an unseemly battle of "hired-gun" experts opining on the basis of indigestible quantities of economic data. Such an exercise might be successfully executed by an economic institution with massive resources and unlimited time, but hardly seems within the capability of already overburdened district courts. Appellate issue would also proliferate increasing complexity and delays on appeal, not to mention the risk of unsound decisions.

I am unaware of any convincing demonstration of the need for either provision, but even if the Committee ultimately concludes that they would represent an improvement over current patent policies embedded in Title 35 of the United States Code, their practicality seems to me very dubious. That is, the costs in delay and added attorneys fees for the parties and overburden for the courts would seem to outweigh any potential gains. Finally, even if the policy gains were viewed as significant, the courts as presently constituted simply cannot implement the provisions in a careful and timely manner, in my judgment.

Patent Reform 2007

Patent Reform is in the air. On May 9, 2007, th House IP Subcommittee held a closed-door session to discuss more details of the reform. Mark-up is expected on May 17, 2007.

Continuation and Claim Limitation Rules Submitted for Final Review: Final Publication in Early July

Hal Wegner has done the legwork to evidence the rumors.  On April 10, 2007, the USPTO Submitted two sets of final rules to the Office of Management & Budget for regulatory review:

• RIN: 0651-AB93: Changes to Practice for Continuing Applications, Requests for Continued Examination Practice, and Applications Containing Patentably Indistinct Claims
• RIN: 0651-AB94: Changes to Practice for the Examination of Claims in Patent Applications

Summer Implementation Likely: According to self-reports, Bush OMB has maintained a fairly strict adherence to a 90-day time-limit for review. Thus, barring unusual circumstances, publication of the rules can be expected in early July. Implementation would require a 30-day window following publication.

Get Involved: The Review Office has a policy "to meet with any party interested in discussing issues, whether they are from State or local governments, small business or other business or industry interests, or from the environmental, health or safety communities." In addition, third parties may submit written comments on any rule under review. [VIA FAX at (202) 395-3047 or 202-395-5806 or (202) 395-6566]. 

Earlier this month, Susan Dudley was named the new director of the Office of Information and Regulatory Affairs (OIRA) through a recess appointment. Her office is quite powerful because it "will have an opportunity to change or block all regulations proposed by government agencies."

IPO Supports Attorney Fee-Shifting, Opposes PTO Authority

The Intellectual Property Owner’s Association (IPO) has taken a new stand on patent reform through its passage of three specific resolutions in reaction to the pending Senate bill S.3818 that had been supported by Senators Hatch and Leahy. Resolutions:

(1) supporting a requirement that a court award attorney fees to the winning party in most patent cases; [fees “shall” be awarded unless the losing position was “substantially justified”or if the award would be unjust because of special circumstances].

(2) opposing any change to give substantive rule-making authority to the USPTO; and

(3) opposing any right for an interlocutory appeal from claim construction decisions in patent litigation. 

Encouraging Consumer Suits

Grocer Meijer has reportedly filed an antitrust suit against drug maker Eisai for monopolization of the U.S. market for its billion-dollar GERD treatment Aciphex.  (S.D.N.Y.). Meijer charges that the patent was obtained fraudulently and that it is either invalid or unenforceable.  Meijer runs pharmacies in its stores, and the patent threat keeps generics out and prices high.

Although there is some precedent for these consumer-led cases, they tend to be few and far-between.  In the wake of several innovator-generic reverse-payment settlements, there appears to be some political will to find another market lever that encourages challenges to potentially unenforceable patents.  One suggestion is to boost-up the antitrust damages that could be collected by companies in Meijer’s situation.  Another suggestion is to facilitate cooperation and cost-sharing between the potential plaintiffs (e.g., pharmacies).

Patent Reform

As we speak, the IPO is holding its annual meeting in Chicago.  From the meeting:

• PTO Director Jon Dudas announced that he has not yet decided whether to implement changes to limit continuation practice.
• The IPO has created some information on patent reform.  First, a one-page sheet outlining the various draft bills. Second, a five-page comparison chart. And third, a red-line version of S.3818 that was introduced by Senators Hatch and Leahy. Word on the street — nothing is expected to pass in 2006. . .

Patent Reform Bills: Do Not Forget the Details

ED: The following note was submitted for anonymous publication by a practicing patent attorney:

For all the public debate over controversial broad objectives in the various pending patent reform bills, there has been remarkably little published academic or other attention to whether or not the extensive new specific draft language in these bills will accomplish those objectives without drafting errors creating unintended ambiguities in judicial interpretations.  This note will particularly question, an example that seems to be in common to the pending bills, the draft language for the crucial definition of the “effective date” of an application or patent. 

The seriousness of current patent reform legislative efforts has been more than adequately demonstrated over the past two years.  There have been a number of Congressional hearings, other public debates and IPL association activities over the [evolving] versions of H.R. 2795 in 2005, the Berman/Boucher H.R. 5299 in 2004, major FTC and other studies and reports on patent reform, etc.  Now, on August 4, 2006 Senators Hatch and Leahy have introduced “their own” Bill, S. 3818, the “Patent Reform Act of 2006”( for which there will be a House equivalent).  Although there will be considerable further debate into the next term of Congress, passage of some form of major new patent legislation next year seems quite likely.   Many of these patent reform proposals are not that controversial.  In particular, clarifications of “willful infringement,” §103(c), inter partes reexaminations, assignee filing, restoration of the prior patent venue statute, an “opposition system” of some kind, elimination of most interferences (and other “secret prior art” business investment uncertainties) with some form of “first inventor to file” plus some form of associated changes in §102 and “prior user” defenses,  etc.  Thus, there are highly likely to be a number of major changes in the present patent statute even if the most controversial provisions end up removed or amended in the final legislation.   

This note is not about any controversial issues.  Rather, the intent here is simply to encourage better reviewing, by both the patent bar and academia, of specific drafting language issues that might present serious future ambiguities or unintended legal consequences, which seems to be getting insufficient attention.   Whatever version of any of these draft bills is enacted, it will generate a great deal of new statutory language for which there will be no legal precedents.  This new language will at best only be eventually interpreted in "cases of first impression" by individual panels of the Federal Circuit.   That should give readers pause to consider that some Federal Circuit interpretations of even relatively old patent law language have been quite controversial, and some have even been unanimously overruled by the Supreme Court.  This in turn should strongly suggest that very careful attention be paid to completely new and untested statutory language to insure that it is as completely unambiguous and as completely free of possible unintended interpretations as possible.   All members of the patent bar and their clients will be greatly affected by any of the pending “patent reform” bills. 

No doubt those authoring the specific legislative language consider that it does not have any possible ambiguities or misinterpretations, to them.  However, legal and Congressional history is full of such surprises.   The frequent necessity for subsequent “technical corrections” legislation is evidence enough.  For example, it took several years for passage of technical correction legislation to fix an unintended problem created by the 1999 AIPA legislation’s amendment of 35 USC §102(e).  Patent law is a specialized legal area of uniquely semantically clever lawyers, who unfortunately rarely apply themselves to legislation in advance.   Furthermore Congressional staff members, no matter how brilliant, are highly unlikely to have sufficient patent law practice background to be able to anticipate all of the possible interrelated consequences of major changes in patent statutory language. 

Thus, there should logically be a much broader participation by the patent bar in careful and critical reading of draft legislation and providing thoughtful comments on specific wording in time to fix it.  That is, not just depending on brief summaries of the intentions or alleged effects of this legislation by proponents or opponents.   Especially from lobbyists who have never practiced patent law, “planted” newspaper and magazine articles, and other very incomplete and unreliable sources.  More advance consideration is needed by those who can actually understand this legislation, the legal problems it is addressing, and the full ramifications of the specific legislative language.  In many cases this may be merely to suggest minor wording changes.  Even if the legislation itself is not changed, the legislative history might be improved in some cases.  This would also seem to be a far more meaningful activity for law school professors than non-pending legislative proposals which no one with any influence is supporting.  

To pick just one example in this draft legislation language, consider the critical S. 3818 definition of the term “effective filing date of a claimed invention,” which is identical or similar to that of  other patent reform Bills.   All competent patent attorneys are familiar with this date and its criticality.  It is even more crucial for the proposed “first to file” system.  Under long established current case law it means the filing date of a patent application having full 35 USC §112 support for what is being presently claimed (in its subsequent patent or in any other pending applications claiming priority date benefit therefrom).  It has not ever meant the filing date of an application containing a bare unsupported claim with no §112 enablement of any kind.  

So, let us consider the actual language of S. 3818 “SEC. 3” on p. 2.   It contains in subsections (h)(1) and (2) a new definition of the “effective filing date of a claimed invention.”  It states that the “effective filing date of a claimed invention” is:

“(1) the filing date of the patent or the application for patent containing the claim to the invention;  or 

 (2) if the patent or application for patent is entitled to a right of priority of any other application under  .. or an earlier filing date in the United States under .., the filing date of the earliest such application in which the claimed invention is disclosed in the manner provided by the first paragraph of section 112.” [Emphasis supplied]

First, note that SEC.3 (h) subsections (1) and (2) are defined in the alternative - “or”.  Note that the first alternative, (h)(1), has no §112 requirement at all.  It would literally provide an “effective filing date” for an application or patent merely “containing the claim” irrespective of whether or not it ever had any §112 enablement support as of its filing date, incongruously unlike the alternative (h)(2).  [As all patent attorneys know, a §112 enablement attempted to be added after the filing date is illegal “new matter.”]  Thus a literal reading of Sec. 3 (h)(1), especially as read in contrast to alternative (h)(2) (normal statutory interpretation) would give an “effective filing date” to a patent application filed with a bare claim to an invention even if there was no enablement example or description whatsoever for that claimed invention!   That is, granting a “first inventor to file” date for a bare concept suggestion with no teaching of any way to make or use it.   Yet, if that same application or patent had a foreign or U.S. priority claim it would not get that date benefit, because then (h)(2) would apply instead, appropriately requiring that “the claimed invention is disclosed in the manner provided by the first paragraph of section 112.”  Furthermore, would not applicants filing a continuation or divisional also lose this literally defined (h)(1) original effective filing date by thereby converting the application and its ultimate patent from (h)(1) to (h)(2)?

It someone can clearly explain why a normal judge would not read this proposed statute this way if it is enacted, this reader would gratefully appreciate the enlightenment.

Now, confusing this reader further, please note that on page 5 of this Bill you will find in a new §102(b)((3) another, different, and not cross-referenced definition [why?] of the same critical term for when a patent or application is “effectively filed,” but here only “under subsection (a)(2).” This effective filing date definition is only with respect to “subject matter described in the patent or application -”..”as of the filing date ..” [emphasis supplied]  

There is also a subparagraph Sec. 3 (h)(2)(i) on page 3 stating that:

 “(i) The term “claimed invention” means the subject matter defined by a claim in a patent or an application for a patent.”

Why is this Sec. 3 (h)(2)(i) definition presented only as a subparagraph of (h)(2), thus by normal statutory interpretation only defining the term “claimed invention” just in (h)(2)?  As noted above, the same term “claimed invention” also appears in (h) itself prior to both (h)(1) and (h)(2).  Was this deliberate for some reason?

Further as to the vital question of what would still be prior art, or not, this p. 3 et sec S. 3818 version of a whole new 35 USC §102 definition of prior art seems shorter and simpler than that of  prior bills.  That may be desirable, but it should also trigger patent attorney and client interest in what is being left out of the present statute and all its case law, and how situations will be handled if this Bill becomes law.  For example, the present and very important “on sale” bar defense would be eliminated in this and other pending legislation. However, the prior pending H.R. 2795 §102 had been revised to make it clear that software in one’s own sold products would remain prior art to later attempts of others to patent it.  That was widely considered vital to avoid judicial debates over whether or not that internal software would be considered “publicly known,” since that would be the only other §102 defense left for this now-common situation under this new §102 .   Yet S. 3818 seems to have left out that vital provision. 

Finally, just for a couple of other drafting examples, the S. 3818 amendment of §103 in (c)(1)(A) on page 6 restores an undisputed typographical error previously caught and corrected in the amended version of H.R. 2795.  Namely, “through” instead of “though” in: “A patent for the claimed invention may not be obtained through [sic] the claimed invention;..”   Also, what does the last line of S. 3818 Sec. 5 (b)(2) on p. 20 mean by “..such claim, the infringer.”?  

In conclusion, there are undoubtedly other potential unintended interpretations or drafting errors subject to unpredictable D.C. and Federal Circuit de novo interpretations in all this new language that ought to be under a lot more academic and other public discussion.   Especially those relating to 35 USC §102 and other extremely important statutory sections affecting all aspects of patent law practice.  The introductory remarks for S. 3818 by Senator Hatch have welcomed further useful input on this draft legislation.  Careful and timely review and correction of specific language ought to be provided by all those in a position to do so.

Cite as NOTE, “Patent Reform Bills: Do Not Forget the Details”, Patently-O, available at http://patentlyo.com/patent/2006/08/patent_reform_b.html.

Patent Reform: Issa's Litigation Pilot Gains Support (HR 5418)

Substantive patent reform legislation is dead for the year.  The one Bill that has some traction is Representative Darrell Issa's patent litigation pilot program.  The Bill (HR5418) would cost only $5m per year and would change the random case assignments in district courts so that judges who opt in would be more likely to hear patent cases. The money pays for a law clerk with technical expertise.

On July 26, 2006, the House IP subcommittee markup, members approved the Bill, although more amendments are expected to address concerns that the focus on particular "patent" judges could increase the opportunity for forum shopping.

Rep Issa is the named inventor on dozens of patents and has personally been involved in patent litigation in his hometown of San Diego.

There is no companion Bill in the Senate yet, although Senator Hatch is said to be "working on it."

One motivation for the legislation is to try to reduce the CAFC reversal rate. Can someone do a study to see if Judges that handle more patent cases are less like to be overturned at the CAFC? You probably have a year to complete the study, because, even with support of the subcommittee, passage this year is still a long-shot.

Documents:

• Matt Buchanan's Prior Discussion of the Bill
• One-Page Summary of the Bill
• Text of the Bill
• Patent Hawk's Discussion of the Bill

Patent Trolls: Fact or Fiction

Congress is holding hearings at 9:00 am (EST) June 15, 2006 to figure out whether legislative action should be taken to stop the evil marauding patent troll.  [Hearing Info] [Live Webcast] The speakers include Ed Reines (Weil Gotshal), Dean Kamen (Inventor), Paul Misener (Amazon.com), Chuck Fish (Time Warner).

Mr. Reines defines patent trolls by their activity -- a patent troll

• has no significant assets except patents;
• produces no products
• has attorneys as its most important employees; and
• acquires patents, but does not invent technology itself.

Reines is also clear that issues of "patent quality" are distinct from the patent troll issue and should be addressed separately.

In a loose proposal, Reines finds six problem areas of the law:

• Willfulness (it is too powerful and ruins attorney-client privilege);
• Submarine Patents (they are still around);
• Continuation Applications (Applicants shape pending applications to capture the current market);
• Damages (should be proportional to the value of the innovation in a larger product);
• Choice of Forum (forum shopping is rampant);
• Injunctions (eBay is wonderful, but might not be enough).

Documents:

• Download ReinesTestimony.doc
• Patently-O Defining Trolls

Unpublished Opinions Will Be Citable

In the past, I’ve been given some grief for covering unpublished opinions on the blog. The Federal Circuit has even threatened sanctions against any attorney who cites those opinions in a court filing. Now however, the Supreme Court has voted to require courts to allow citation of unpublished (nonprecedential) appellate opinions.

Chief Justice John Roberts has been quoted as strongly against these hidden opinions— “A lawyer ought to be able to tell a court what it has done.”

According to a Law.com article by Tony Mauro, 9th Circuit Judge Alex Kozenski has been firmly against allowing citation of unpublished opinions:

When the people making the sausage tell you it's not safe for human consumption, it seems strange indeed to have a committee in Washington tell people to go ahead and eat it anyway.

The rule will not be effective until January 1, 2007.

• Federal Circuit Warns Against Citations of Non-Precedential Opinions
• Citation of Unpublished Opinions 
• Citation of Unpublished Opinions
• CAFC's Opposition to the Change
• J. Craig Williams Lends His Voice
  

Federal Circuit Immigration Appeal: A Modest Proposal

One portion of the immigration legislation being debated would consolidate all immigration appeals to the Court of Appeals for the Federal Circuit (CAFC).

In a recent law.com article, appellate lawyer Howard Bashman provides some background on the issue and wonders why we should stop there:

There assuredly are other categories of appeals that the regional federal appellate courts view as dry, needlessly complex, burdensome or inconsequential.  Perhaps these cases, too, could be sent to the Federal Circuit, so that the regional federal appellate courts would be left to handle only the extraordinarily interesting cases that appellate judges anticipate receiving when they take their oath of office.

Mark Lemley of Stanford agrees that immigration proposal would be bad for the CAFC:

Patent lawyers ought to be concerned about this. Right now, patents are the focus of the court's jurisdiction, and the White House has increasingly been appointing patent lawyers to the Federal Circuit. If S.2454 passes, the court will become a political battleground, and there will be strong pressure in both parties to appoint ideologues with a particular view of immigration.

The IPO has also weighed-in on this matter, and provided this letter to Senator Bill Frist. 

According to a source, this section of the Bill has now been removed.

Links:

• Law.com article;
• IPO Letter to Senator Frist;
• April 4 Senate Committee Hearing on the Topic.

Patent Legislation: PDQ Act of 2006

• [PDQ Redline.doc (63 KB)] Redline showing how the proposed changes would integrate into the Statute. (Created by Aaron Homer, a law student in Texas)
• Patents Depend on Quality Act of 2006 [LINK] introduced April 5, 2006;
• News reports;
• Nipper on Patent Reform;
• Buchanan on Patent Reform.

Senate Proposal Would Limit 30-Month Automatic Stay of ANDA Approval

If a generic manufacturer wants to begin selling a pharmaceutical drug before the innovator company’s patent is expired, the generic can file an Abbreviated New Drug Application (ANDA) with the FDA along with a certification that asserts that either (i) the patents listed in the Orange Book are invalid or (ii) the listed patents do not cover the generic’s product.  This certification is known as a “paragraph IV certification.”

Once an ANDA is filed, the patent holder has a strong incentive to act quickly to charge the generic with infringement.  If charges are filed within 45 days, an automatic statutory stay is triggered that delays approval of the generic’s ANDA for thirty-months.

Senators Stabenow (D, MI) and Lott (R, MS) have recently submitted a bill (S.2300) to the Senate that would allow courts to shorten the thirty-month stay based on a “totality of the circumstances, including whether the plaintiff sought to extend the discovery schedule, delayed producing discovery, or otherwise acted in a dilatory manner, and the public interest.  According to the Bill, this is necessary to “prevent[] abuse of the thirty-month stay-of-effectiveness period.”  The Bill would actually require that approval take place at least by the end of thirty-month months, thus preventing any further delay.

The proposal also limits the extent that patent exclusivity can be extended in return for ensuring pediatric safety and effectiveness.

Patent Reform 2005 -- It is Over

The Patent Reform Act of 2005 will not be enacted this year.  There is still a possibility of a back-door push to include some provisions in an omnibus appropriations bill, but at this point it is unclear what those provisions would be and whether they would be successful.

The failure of reforms this year has several sources:

1. Lack of time: In the Senate, the committee handling intellectual property law is the same as the judiciary committee.  This term has been filled with long debates on judicial appointments that left little time for patent reform.
2. Patents are not yet hot: It is still difficult to get Washington excited about patent law.  Historically, reform measures have taken years to build up enough inertia to get through both the House and Senate.
3. Overreaching: The proposed reforms ended up being overreaching in a way that pitted major lobbying groups against one another.  This impasse eventually killed the possibility of moving forward with substantive changes this year.

One of the proposed measures would have eliminated the best mode requirement.  Dale Carlson of Wiggin & Dana has written a short article explaining his reasons for keeping best mode. [Article].

House Judiciary Committee Supports Anti-Fee-Diversion Bill

Diversion of excess USPTO fees has been a controversy for some time. (link, link, link).  Almost every year, a bill is introduced to prevent appropriators from using patent fees for other purposes by requiring the PTO to refund any fee revenue that exceeds the agency's appropriation.  This year’s bill, HR 2791, has now been approved by the Judiciary Committee with broad bipartisan support.

Comment: Despite theoretical support, this bill will almost certainly be quietly killed in the back room by appropriators trying to make-up for the increasing revenue gap of the Federal Government.

Hollywood Proposes That USPTO Regulate Technological Copyright Management

The recording industry is moving quickly toward technological ways to prevent digital copying and thus promote digital rights management (DRM).  One recognized vulnerability is the “analog hole” or more blandly, the analog reconversion issue. 

Analog Hole: When the information is converted to a perceptible analog form, there are no restrictions on the resulting analog signal, and the content can be captured back into digital form with no restrictions. (from Wikipedia).

Oddly, the Hollywood endorsed Analog Content Security Preservation Act Of 2005 would transform the Patent Office (USPTO) into a regulatory agency by giving the agency the job of enforcing a Copy Generation Management System for Analog (CGMS-A).

Read the proposed changes to 35 U.S.C. 101.

 

Amendment to 271(g)

35 U.S.C. 271(g) makes clear that importation of a product that is made by a patented process is infringement. However, the statute includes limitations that the “product” is no longer infringing if it is either “materially changed by subsequent processes” or is “a trivial and nonessential component of another product.”

Kinik v. ITC: In 2004, the Federal Circuit determined that the language of 271(g) does not apply to Section 337 * actions at the ITC. [Opinion]  In that decision, court noted that the statute explicitly limits itself “for the purposes of this title.”

Thus, when a defendant is accused of improper imports under Section 337, he cannot raise the defenses of material change by subsequent processes or trivial component.

Amendment: Now, there is a movement afoot to change this aspect of the law, striking words that limit those defenses to actions under the Patent Act so that they could be applied with equal force at the ITC.

* Section 337: The Tariff Act of 1930 allows administrative relief through the International Trade Commission (ITC) to determine whether there is unfair competition in the importation of products into the US. Section 337 of the act makes infringement of a US patent an unlawful practice in import trade.  ITC actions are extremely fast as compared to traditional patent infringement suits and are often the best way to stop an infringing importer.

 

Patent Reform Act of 2005

The Patent Reform Act of 2005 is changing as it moves through congress.  In the latest amendment, Representative Smith has eliminated some of the most controversial aspects of the bill, including the injunction provision and the provision that would limit the scope of claims in continuing applications.

The reform measures still include a move to first-to-file; changes to the duty of candor; limitations on infringement and willfulness damages; post grant opposition procedures; and a revised venue statue.

Links:

• Newly Amended Patent Reform Act of 2005;
• Redline version of the Amended Version (by K. Karel Lambert) *NOTE I have not reviewed this redlined version;
• Promote-the-Progress Patent Reform Library.

 

Patent Reform: Redlined Version of Patent Statute

Shashank Upadhye of Eon Labs & I have created a marked-up version of the Patent Act showing changes that would be implemented if the Act was enacted into law.  This document is very useful to help better understand what changes are being made and what sections are left unchanged.

• Download Redlined Patent Act of 2005.doc (NOTE: In this version, we do not include sections that were not changed.  Full version of the Patent Act to follow). [Last updated June 21, 2005]

Patent Reform: Congress Choosing Sides

The partisan nature of politics often falls apart on patent reform issues. For instance, IP subcommittee leaders Lamar Smith (R) and Howard Berman (D) both support patent reform efforts — although it is unclear if either support all the provisions in the proposed draft legislation.  Now, the New Democrat Coalition (NDC), a group 43 of “pro-growth” Democratic Representatives, has sent an open letter to Smith and Berman supporting the legislative initiative.  The NDC is specifically supporting some of the most controversial aspects of the legislation — including limits to injunctions and damages.

[W]e urge you to include the following among the many important patent reform items in your legislation:

1) Third Party Submission of Prior Art. . .

2) Injunctions: We believe injunctive relief is an important legal reform element of patent reform and we encourage the Committee to take aim at those who seek to abuse the patent system for profit.

3) Treble Damages: . . . this legal standard should be revised. While courts should be able to assess higher damage amounts when a defendant’s actions warrant, treble damages should be limited to those cases where intentional or egregious conduct warrants a punitive measure of damages.

4) Apportionment of Damages: . . . Today, complex products such as semiconductors or software programs include thousands of features, many of which are patented.  As these products have become more complex, the old methods for determining the value of infringement have become strained and have led to some unfair results.

From the side of special interests, I see three major coalitions forming:

1) Large high-tech companies, including Microsoft and Intel, with the goal of reducing the strength of patents. These companies have major patent portfolios, but fear small companies and individuals that may develop blocking patents.  This group is also garnering support from denouncers of software patents.

2) Other large patent holders, including Big Pharma, with the goal of strengthening and streamlining patents by changing to a first-to-file system and encouraging a post-grant opposition.

3) Start-ups and individual inventors, with the goal of keeping the status quo.

The question is: where does your company fit into the picture?

Links:

• Read Matt Buchanan’s take;
• File Attachment: PatentReformNDCLetter.pdf (274 KB) (provided by Buchanan);
• Lawyers Weekly USA article on patent reform (quoting both me and Buchanan).

Does the Constitution Provide for a Right to an Injunction in Patent Cases?

Summer is almost here — How would you fare on this final exam question:

The Progress Clause (Article I, Section 8, Clause 8) of the U.S. Constitution provides that:

"Congress shall have the power... To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."

Using this clause as a basis for analysis:  

1. Would it be Constitutional for Congress to eliminate the right to an injunction for patent infringement?
2. Would it be Constitutional for Congress to modify the right to an injunction so that one is only available if the patentee is “making use” of the invention?

Patent Practitioner Organization Supports Certain Patent Reform Measures, Rejects Others

The National Association of Patent Practitioners (NAPP) has provided its comments on the proposed patent reform legislation.  NAPP is primarily made-up of patent agents, and the organization’s viewpoint is seen as an important representation of the views of individual inventors.

In its introduction, NAPP takes-on the flippant usage of the term patent troll.

Some of the rhetoric by proponents of the Patent Act of 2005 has been highly troubling and obscures the debate. . . . A “patent troll” is apparently a derogatory term used by people or entities to refer to an inventor who has the audacity to assert a patent against them.  Such usage is an attempt to apply colored language, in a mindless way, to attack the entire U.S. patent system. . . . To the extent that the term is used to derogate inventors who do not develop corporate structures or manufacture products, NAPP believes that inventors who merely invent but do not manufacture products – which, after all, includes most university and government researchers – do not deserve epithets or less patent protection.  Finally, to the extent that the term is used to refer to people who try to enforce invalid patents, NAPP believes that there are sufficient existing disincentives against such practices.

With regards to the individual provisions, NAPP supports post-grant opposition proceedings and the proposed changes to the duty of candor procedures.  However the organization also has stated quarrels with the following provisions:

First-to-File: This is a controversial issue. “Congress should not be fooled into thinking that this proposal has become less controversial or more accepted over time.”  Practically, this change makes things difficult for a patent practitioner who operates with a backlog of cases.  NAPP expects that the provision would decrease patent disclosure quality because practitioners will rush to file the documents. This increases the opportunity for attorney-malpractice.

Limits on Broadening Claim Scope: This “is an ill-conceived, poorly worded, and unworkable proposal. . . . NAPP strongly opposes this provision.” 

Universal 18–Month Publication: NAPP is against universal publication. One problem is that it would prevent “applicants from adopting the strategy of trying to get a patent and relying on trade secret protection as a fall-back if satisfactory patent protection cannot be secured.”

Inter Partes Reexamination Estoppel: NAPP is against removal of the provision that prevents a patent challenger from first bringing (and losing) an inter partes reexamination request challenging validity, then challenging validity of the same patent again in a court proceeding. [UPDATED TO FIX CORRECTION]

Limiting Damages to Components: This would just result in claim drafting mischief.

. . .

Link:

• NAPP Comments
• NIPPER’s Coverage
• BUCHANAN’s Coverage

 

PATENT REFORM: Quick highlights from the Senate hearings.

The Senate Intellectual Property subcommittee held hearings on Monday, April 25, 2005 to discuss patent reform.  Some highlights:

• Jon Dudas, Director of the Patent Office believes in the goal of “educating the world on the importance of patents.”  I believe that a major part of this should be to restore the mystique of the American inventor/entrepreneur.
• On behalf of the AIPLA, Michael Kirk shot down BSA proposals to limit the availability of injunctive relief and the size of damage awards.  Kirk also mentioned that Congress should consider repealing 35 U.S.C. 271(f).
• David Simon from Intel promoted changes to the notion of when an injunction should be granted.  In his viewpoint, there should be “a return equitable principles to determine whether an injunction should be granted.”

PATENT REFORM: House and Senate to Hold Hearings this Week

House Subcommittee on the Courts, the Internet and Intellectual Property, chaired by Congressman Lamar Smith (R Tex) has released a patent legislation discussion draft that includes a number of proposed patent reform measures.  The House Subcommittee is scheduled to hold an oversight hearing on the discussion draft on Wednesday, April 20, 2005 at 4:30 PM. [Link].  The witness list includes J. Jeffrey Hawley of Eastman Kodak testifying on behalf of the Intellectual Property Owners Association (IPO); Richard J. Lutton of Apple, testifying on behalf of the Business Software Alliance; Jeffrey Kusham, testifying on behalf of Genentech; and William LaFuze of the ABA.  In a parallel action, the Senate’s newly formed Subcommittee on Intellectual Property is scheduled to hold a hearing on the patent system April 21. [Link]. [NOTE -- Strong indications are that the Senate will postpone the hearing to April 25].

Links:

• Patent Reform Proposal

PATENT REFORM: Injunctions Only When Money Is Not Enough

This post is part of our continuing series discussing a US House of Representatives working draft of patent legislation, by Marcus Thymian, Jennifer Swartz, and Dennis Crouch.

The current patent statute (35 USC §283) allows courts to grant injunctions to prevent violation of patent rights, but provides little guidance, specifying only that injunctions be "in accordance with the principles of equity."  The terms of the injunctions need only be "as the court deems reasonable."

The proposed statute would keep the current language intact, but would add another section spelling out the grounds for granting such injunctions.  Under the new language, "a court shall not grant an injunction unless it finds that the patentee is likely to suffer irreparable harm that cannot be remedied by the payment of money damages."  In making this finding, the court is not to presume the existence of irreparable harm, but is instead required to "consider and weigh evidence" relating to equitable factors.  One of these factors is "the extent to which the patentee makes use of the invention."

One result of the proposed new language is that, in a preliminary injunction determination, a reasonable likelihood of success on the merits would no longer lead to a presumption of irreparable harm.  The concept of "irreparable harm" has been extensively adjudicated; that body of case law would seem to remain largely relevant in making the determination called for by the proposed statute.

PATENT REFORM: Overturn Eolas v. Microsoft

This post is part of our continuing series discussing a US House of Representatives working draft of patent legislation, by Marcus Thymian, Jennifer Swartz, and Dennis Crouch.

In the recent case of Eolas v. Microsoft, the Court of Appeals for the Federal Circuit expanded the scope of Section 271(f) – a section that creates a cause of action for infringement due to foreign sales when a component of a patented invention is supplied from the U.S., knowing that the component will be combined in an infringing manner outside the U.S.  The court ruled that the statute (i) had no tangibility requirement and (ii) was not limited to apparatus claims.

The proposed legislation would make it clear that a component "is a tangible item that is itself combined physically with other components to create the combination that is alleged to infringe."

This change would essentially overrule Eolas v. Microsoft.

• File Attachment: Draft Patent Statute (182 KB)

PATENT REFORM: Proposed Changes Allow Assignee to File Patent Application

This post is part of our continuing series discussing a US House of Representatives working draft of patent legislation, by Marcus Thymian, Jennifer Swartz, and Dennis Crouch.

Under the current statute, an employer has quite a bit of trouble filing a patent application when the inventor refuses to sign a declaration or is otherwise unavailable.

In order to file the application without the inventor’s help, the statute (35 U.S.C § 118) requires a proof that such action is “necessary to preserve the rights of the parties or to prevent irreparable damage.”

The proposed changes make it easier for the company to file the application without the inventor’s assistance.  Specifically, the proposal allows an assignee (or a person owed an obligation to assign) to apply for a patent after showing that the action is “appropriate.”

• File Attachment: Draft Patent Statute (182 KB)

PATENT REFORM: House IP Subcommittee Prepares Sweeping Patent Law Changes

The attached legislative proposal was prepared by the House Subcommittee on Intellectual Property chaired by Congressman Lamar Smith (R Tex).  Although the proposal is merely a discussion draft at this point, it is expected that a parallel Bill will be introduced within the next few days.  The Senate’s newly formed Subcommittee on Intellectual Property is scheduled to hold a hearing on the patent system April [25th].  It is quite possible that this proposal will serve as an agenda for the Senate hearings.

The proposed legislation includes changes to:

• Creating a post-grant opposition procedures;
• Willfulness: Increased damages may not be awarded based merely on the knowledge of a patent or its contents;
• Taking away the clear right for an injunction for infringing activity;
• First-to-file (rather than first-to-invent) rights;
• Expanded definitions of prior art;
• Assignee may file for the application and be granted a patent (rather than the inventor);
• Elimination of the best mode requirement;
• Changes to the duty of candor and unenforceability;
• Damages: when invention is a portion of a larger product, royalties are only calculated for a portion of the product;
• Publication of all patent applications after 18 months;
• Prior user rights;
• Overruling Microsoft v. Eolas — component must be tangible;
• and more.

Over the past year, the AIPLA, IPO, Microsoft, and others have all been beating the patent reform drum — each with a separate agenda.  This proposal appears to be an amalgamation of all the proposals — with enough controversial points to get most everyone up in arms. 

Over the next few weeks, Marcus Thymian, Jennifer Swartz, and I will discuss the various sections of the proposal in a series of posts.

• File Attachment: Draft Patent Statute (182 KB)