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Legal Affairs : May 1, 2010 ( )
Patent Law Reform in the Works Again
Third Time Could Be the Charm for Legislative Efforts that Benefit Investors and Job Growth
The most sweeping reform proposed for U.S. patent law in more than 55 years has made renewed progress through the legislative system. A Manager’s Amendment to the Bill for Patent Reform (S.515) was issued on March 4, 2010, from the Senate Judiciary Committee by Chairman Sen. Patrick Leahy (D-Vt.), former Chairman Sen. Orrin Hatch (R-Utah), and ranking member Sen. Jeff Sessions (R-Ala.).
This is the third consecutive Congress in which Sens. Leahy and Hatch have presented patent-reform legislation in their stated effort to streamline the patent system to benefit inventors and to facilitate economic growth and jobs.
The compromise Senate Judiciary bill retains most of the provisions of the Patent Reform Act of 2009, including the transition to a first-inventor-to-file system. Significant modifications would affect patent prosecution, such as defining limitations on the inventor’s own prior art, establishing a procedure for supplemental examination, implementing a new inter partes patent review system, and extending patent fees-setting authority. Other revisions affecting patent litigation include a pretrial damages review, definition of the terms for willful infringement, limits on false marking claims, and interlocutory appeals.
First-to-File System. The effective change from the current U.S. first-to-invent system to the more internationally recognized first-inventor-to-file system remains a key provision of the Patent Reform Act of 2010. Rather than moving to an absolute novelty system, however, the new proposal calls for a limited grace period for certain disclosures made one year or less before the effective filing date of the claimed invention. To qualify for the grace period, the disclosures must be determined to have come directly from, or be derived from, the inventor.
Post-Grant Review. The bill also provides a new system of post-grant reviews that may be requested by the patent holder. The proposal calls for a “supplemental examination” to permit the patent holder to provide additional potential material prior art regarding its patent to the U.S. Patent and Trademark Office (USPTO).
If the USPTO finds the new information to have no effect on patentability, that material cannot later serve as the basis for an inequitable conduct claim in litigation. The new bill requires that no litigation will proceed until the reexamination is complete.
Those who routinely defend against claims of patent infringement, such as generic drug companies, will likely object to this provision because it allows patent holders to cure inequitable conduct by disclosing previously withheld relevant prior art, and delays ultimate resolution by patent litigation.
Inter partes Examination. Pre-issuance submissions of prior art by third parties are allowed, as under the original bill. However, inter partes challenges to patents have been limited to requests made within only nine months of a patent’s issue or reissue, instead of the initially proposed 12 months.
The bill is intended to transition the law from the current re-examination model to a more European opposition model. The standard for instituting a proceeding requires a “reasonable likelihood” that a challenger will prevail in invalidating at least one claim of the patent. These provisions again favor the patent holder by providing estoppel against a challenger from later raising in court an argument that reasonably could have been raised during the inter partes review.
Best Mode Requirement. The best mode requirement remains a part of U.S. patent law in name; however, paradoxically, the failure to fulfill the best mode requirement would no longer be an invalidity defense nor could it serve as a basis for holding a patent unenforceable.
Patent Fee Authority. The USPTO would be given the authority to adjust its fees to the extent they are set to recover the estimated costs of running the office. Given that continued patent fee diversion by Congress has not been prohibited, this authorization could result in significant patent fee increases in attempts by the USPTO to keep up with productivity goals. The bill also establishes a newly defined “micro entity” entitled to a 75% reduction in fees, whereas traditional small entities will still qualify for a 50% fee reduction.
Several aspects of the Patent Reform Act of 2010 directly affect the rights of litigants, including a new district court pilot program, venue provisions requiring transfer to a clearly more convenient location, and elimination of Federal Circuit interlocutory appeals for claim construction determinations. Additional litigation aspects of the bill include the following:
Damages. A primary goal of the originally proposed patent reform legislation was to control excessive jury verdicts by the apportionment of damages to reflect an award for only the relevant part(s) of an infringed product, rather than the value of the entire product. Under expanded attempts to eliminate excessive infringement awards in the new proposed bill, a court would be required to act as a gatekeeper against improper damages theories by reviewing and considering only those methodologies and factors that are relevant.
Segmented Trials. The bill also provides a right to split the trial into segments of: (1) infringement and validity, (2) damages, and (3) willfulness.
The bill also provides a right for summary judgment on damages if one party’s contentions lack evidentiary basis. This system would tend to favor defendants who prefer not to expose the jury to the potential damages and the intentional nature of their malfeasance during deliberations about infringement and validity; however, the procedures are likely to extend the time and cost of litigation.
Willful Infringement. The proposed amendment codifies recent case law clarifying that enhanced damages for willful infringement require that the infringer has acted with at least objective recklessness by clear and convincing evidence. The statute would require willfulness to be pled with particular reference to facts, and would make clear that knowledge of a patent alone is not sufficient for a finding.
The new proposal also includes a provision for motions to prohibit increased willfulness damages in a “close case.” The issue of what constitutes a “close case” will undoubtedly be the subject of future litigation.
False Marking. The proposed reform to false marking would eliminate the right of just any person to bring a qui tam claim for false marking and would provide limitations for claims by individuals who have suffered a competitive injury. Since the U.S. Court of Appeals for the Federal Circuit held in December that the measure of damages for false marking was to be determined on a per individual article basis, a veritable cottage industry of plaintiffs has emerged in hopes of splitting lucrative awards with the government.
The currently proposed amendment aims to significantly reduce the number of these cases by limiting standing to those actually harmed by the listing of incorrect patent information on their competitors’ products. The current amendment would also be retroactive to eliminate standing in previously filed suits.
Given the contentious nature of many of these provisions, and in the wake of the mid-March passage of healthcare reform, it remains to be seen whether Congress can muster the courage to debate patent-reform legislation during this mid-term election year.
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