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Insight & Intelligence™ : Sep 6, 2011

Senate Set to Enact Patent Reform Along the Lines of House Bill

The debate surrounding the America Invents Act may finally be put to rest, but the Senate will have to relinquish some of its former stipulations.
  • Alex Philippidis

Years of discussion and wrangling by lawmakers, lawyers, biotechnology businesses, and others over reform of the patent system are expected to end today, when the Senate is scheduled to vote on a motion to end debate on the America Invents Act of 2011 and then vote on the bill itself.

The bill to be taken up by the Senate is word for word from HR 1249, the patent reform measure passed by the House of Representatives on June 23. Last year, the House used a similar maneuver when its then-Democratic leadership persuaded a bare majority to pass verbatim the Senate version of President Obama’s healthcare measure, over the strenuous objections of Republicans. In both cases, the maneuver avoids the additional time required by a conference committee to hammer out a compromise bill amenable to both chambers of Congress.

The Senate’s expected move on patent reform also has political overtones: it allows the Democratic-controlled Senate to pass America Invents, then send it to President Obama for his expected signature, while positioning the bill as one of several designed to jumpstart the economy and job creation this fall, as Obama steps up his re-election campaign.

“This bill will unleash American innovation and create good, well-paying jobs for American workers. It is commonsense legislation that goes to the heart of our shared agenda: reinvigorating the American economy and promoting job growth,” Sen. Pat Leahy (D-VT), chairman of the Senate Judiciary Committee and author of the Senate bill (S.23), said in a statement after the House passed its version of America Invents.

By adopting the House version of patent reform, however, the Senate retreats from several key provisions of Leahy’s bill.

Compromise over Funding

Among the most important about-faces by the Senate concerns how to fund the U.S. Patent & Trademark Office (USPTO). The patent bill passed by the Senate in March—as with the original House patent bill—ended the practice of diverting USPTO revenues to the nation’s general revenue coffers, and allowed the agency to keep the fee revenues it generates from filers.

USPTO and its supporters in the Senate contended that the funds were needed to hire more patent examiners and process applications faster, estimating that the agency lost some $1 billion in fees since 1992.

But in the House, leaders compromised between the Senate fee language and their desire to obtain a greater Congressional role in USPTO spending. The House version creates a sequestered account for USPTO revenue in excess of appropriated funds, for use exclusively by USPTO. To access that money from the Public Enterprise Fund, USPTO must submit requests to the House Appropriations Committee. However, the fund includes a sizeable bone for USPTO—a 15% fee surcharge requested by the agency, and the authority to set rates going forward.

“We need to compete more effectively with patent offices around the world that don’t have this problem,” Thomas T. Moga, co-chair of the Life Sciences and Biotechnology Practice at the law firm Shook, Hardy & Bacon, told GEN soon after the House passed America Invents. “We complain about not having enough skilled examiners, or the patent office not being able to keep good examiners because of not being able to compete with the private marketplace. If we can’t fix this, we are going to be unable to fix so many of our other problems.”

Postgrant Review Rules

The House patent bill set for adoption by the Senate retains the current law’s 12-month window for filing postgrant reviews following the issue or re-issue of a patent. The Senate would have shortened that window to nine months. Postgrant proceedings would be conducted by a new Patent Trial and Appeal Board, with the current Board of Patent Appeals and Interferences being abolished.

Also retained by the House is the current “substantial new question of patentability” threshold standard for initiating current inter partes exams and applying it to the new inter partes reviews. That’s a retreat for the Senate, whose bill barred the USPTO director from allowing an inter partes review unless he or she determined there’s a “reasonable likelihood that the petitioner would prevail with respect to at least [one] of the claims challenged in the petition.” The Senate would have also limited use of inter partes reviews to questions of anticipation and/or obviousness, as with current law, with only patents or printed publications permissible in challenging previously issued claims.

The House measure also creates a new inter partes review allowing third-party challenges to patents after they have been granted—but limits the basis of such review to prior art consisting of patents and printed publications. Inter partes review may only be sought after a postgrant review, or after the one-year time period expires for requesting third-party review.

New as well in the House bill is the creation of a supplemental examination procedure for holders of issued patents. The procedure protects patent holders who voluntarily and proactively present previously undisclosed information to USPTO from being challenged for inequitable conduct for nondisclosure.

Other features of the bill:

  • False marking: Under the House bill, only the U.S. or a person who has suffered a competitive injury can bring a “false marking” case—eliminating the qui tam provision allowing anyone to sue on behalf of the U.S.
  • Genetic tests: USPTO must study how to ensure the availability of confirming genetic diagnostic tests where gene patents and exclusive licensing for primary genetic diagnostic tests exist.
  • Human patents: The House bill bans the granting of patents on “a claim directed to or encompassing a human organism.”
  • Satellite offices: USPTO director David Kappos is authorized to establish three or more satellite offices within three years of the bill becoming law. Total cost is estimated at $18 million over the 2012–21 fiscal years.

$446M over Five Years

According to the Congressional Budget Office, the House bill is projected to cost $446 million between FY 2011–2016, but will ultimately cut $717 million from future budget deficits, mostly since USPTO fees will be reclassified from offsets to discretionary spending to offsetting receipts.

Both chambers agree that USPTO should change its criteria for awarding patents from “first to invent” to “first inventor to file.” Supporters say it will benefit smaller inventors by aligning the U.S. patent system with those of the nation’s major trading partners, and by sparing them the time and expense of lawsuits estimated to cost business owners $5 million to fight.

But as argued in this space when the Senate bill passed, first-to-file can hurt smaller inventors, who often lack the experienced patent lawyers and other consultants or staffers that a corporate giant can muster.

While changes to the Senate bill sparked some objections from individual representatives in both parties, the House eventually passed the patent bill by a somewhat bipartisan 304–117 majority, with 136 Democrats joining 168 Republicans in voting for the measure. It’s not the 95–5 margin of the original Senate measure, but it’s a fair approximation of how patent reform should fare this time around, unless opponents can succeed where they have failed twice this year already in torpedoing the bill.