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PATENT REFORM 2009: AN ANALYSIS OF H.R. 1260 AND S. 515 INTRODUCED MARCH 3, 2009
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- I. Litigation Reform and Damages
Keiko Takagi, Ryan Corbett, Chandran Iyer
- A. The Proposed Legislation
The proposed House and Senate Bills regarding changes to 35 U.S.C. § 284 (Damages) are nearly identical in language and proposes a standard for calculating a “reasonable royalty”. The three standards proposed for calculating a reasonable royalty are (1) entire market value; (2) established royalty based on marketplace licensing; and (3) valuation calculation. Under the entire market value standard, the claimed invention’s specific contribution over the prior art is looked at to determine damages. Under the established royalty standard, the focus is
- n whether the claimed invention has been the subject of a nonexclusive license for the use by
the infringer or whether the claimed invention has sufficiently similar noninfringing substitutes in the relevant market that have been the subject of nonexclusive licenses to determine damages. Under the valuation calculation, the reasonable royalty is applied only to the portion of the economic value of the infringing product/process properly attributable to the claimed invention’s specific contribution over the prior art. Presently, the patent statute only provides that "the court shall award the claimant damages 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. Although the statute does not specify how a reasonable royalty should be calculated, judicial interpretation has provided guidance to litigants seeking royalties as damages. Currently, reasonable royalties may be based upon an established royalty, or if an established royalty does not exist, a reasonable royalty may be determined based upon a hypothetical negotiation between a willing licensor and willing licensee. An established royalty may be a strong indicator of the amount of a reasonable royalty, and may be the best measure of what parties would have agreed to on the eve of infringement. Absent an established royalty for the infringing conduct, a reasonable royalty may be determined after infringement based upon a hypothetical negotiation. The Georgia-Pacific case listed 15 factors relevant to a determination of a reasonable royalty based upon a hypothetical negotiation following a finding of patent infringement in that case. Most courts follow some, many or all of the Georgia-Pacific factors in calculating reasonable royalty damages for patent infringement.
- B. Previous Reform Proposals
The reasonable royalty portion of the damages provision currently proposed in the House and Senate are identical to the corresponding portion of the latest version of S. 1145 of 2007. S. 1145 was introduced on April 18, 2007. Several amendments were made to the damages provision in committee. The 2007 House bill, H.R. 1908, was also introduced on April 18, 2007. The damages provisions were amended by the time the bill was placed on the Senate calendar on September 11,
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- 2007. The latest version of the 2007 bill is not identical to the version introduced in the House in
- 2009. For example, in the latest 2007 version, a third nonexclusive marketplace license method
was not to be used to assess damages unless the first two methods were deemed not to be appropriate (i.e., the third method was part of an “other factors” to consider provision). The first
- f H.R. 1908’s methods, which required a showing that “a reasonable royalty should be based on
a portion of the value of the infringing product or process,” required the court to conduct an analysis to ensure royalties are applied to a patent’s specific contribution over the prior art. The second of H.R. 1908’s methods involved entire market value, very much like the 2009 method. Several committee members expressed concerns about the phrase “specific contribution
- ver the prior art.” Senators Specter, Kyl, Grassly, Coburn, and Brownback are of the view that
this language is vague, and note that even proponents of the language differ over its meaning. In addition, this language affects the entire market value portion of the provision because in order to use this royalty calculation, the demand for the infringing product must be driven by the “specific contribution over the prior art.” The Senators also note that using this standard would effectively result in re-litigation of claim construction and validity issues during the damages portion of a bifurcated trial, in which these issues would have already been resolved in the liability phase of the trial. This would result in basically overlaying a new validity standard on top of an already existing standard set by 35 U.S.C. §§ 102 and 103. These are just some of the concerns raised with respect to the 2007 Senate version of the present bill that will undoubtedly need to be resolved if the reasonable royalty provision of S. 515 is to survive. The damages provisions in the new bills are among the most controversial of the
- proposals. It appears that the provisions are more favorable to the “high-tech” industry and less
favorable to the “biotech” (in particular, pharma) industry. This correlates with which players are expected to push for or oppose the new damages provisions in their current form, and how the bills may be amended. We are investigating what each side is arguing and why so that we may better understand the likely future trajectory of the bills.
Kim Choate and Tyler Johnson
The proposed new venue provisions seek to amend 28 U.S.C. §1400 by prohibiting the “manufacture” of venue by assignment, incorporation, or otherwise. Patent infringement or Declaratory judgment actions are limited to jurisdictions: (1) where the defendant incorporated, was formed, or has its principal place of business; (2) where a foreign corporation defendant’s primary United States subsidiary was incorporated, formed, or has its principal place of business; (3) where the defendant has committed substantial acts of infringement and has a regular and established physical facility that the defendant controls and that constitutes a substantial portion of the operations of the defendant; or
SLIDE 4 4 (4) where the primary plaintiff resides, if the primary plaintiff is:
- a. a college or university;
- b. a non-profit organization (as defined in the proposed section); or
- c. an individual inventor who is a natural person and who qualifies as a micro-
entity (as defined in 35 U.S.C 123). Defendants may request transfer of an action to another district or division where (1) any
- f the parties has substantial evidence or witnesses that otherwise would present considerable
evidentiary burdens to the defendant if such transfer were not granted; (2) such transfer would not cause undue hardship to the plaintiff; and (3) venue would be otherwise appropriate under section 1391.
Under 28 U.S.C. § 1400(b), venue is proper: (1) where the defendant resides or (2) where the defendant has committed acts of infringement and has a regular and established place of
- business. Section 1400(b) exclusively governs venue in patent infringement suits. In 1990, the
Federal Circuit interpreted Congress’ expansion of the general venue statute set forth in 28 U.S.C. § 1391(c) (“For the purposes of venue under this chapter, a corporation that is a defendant shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced”) to also apply to the patent venue statute. See VE Holding Corp.
- v. Johnson Gas Appliance Co., 917 F.2d 1575 (Fed. Cir. 1990).
In most instances, conditions (1) or (2) above are easily met. As a consequence, plaintiffs are permitted to engage in “forum shopping” tailored to meet the needs of their clients and the subject lawsuit. Under the new provisions, parties will not be permitted to “manufacture” venue. A company will not be able to establish venue in a state merely by forming or incorporating in a state for venue purposes alone. Section 1400 is amended such that venue will exist where the defendant has its principal place of business, or where it is incorporated or formed. Venue may also be established where the infringement occurs, only if the defendant also has a regular and established, substantial physical facility in that district. For foreign entities with US subsidiaries, actions can only be brought where the primary subsidiary is located or where its principal place
- f business in the US is incorporated or formed. The proposed section provides for limited
requests for transfer of venue, where the court deems it appropriate. The new provision also has an exception to small inventors, non-profit organizations and universities, which would permit these parties to file their patent infringement or declaratory judgment actions in the district in which they reside.
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- C. History of Patent Venue Provisions
- 1. H.R. 2795 and S. 3818
The initial version of the Patent Reform Act of 2005 (H.R. 2795), as introduced by Rep. Lamar Smith of Texas, did not contain any venue provisions. This bill was introduced early in the session on June 8, 2005, and “officially” made no progress. However, a “matching bookend” bill (S. 3818) was introduced at the end of the 109th Congress by Senators Orrin Hatch of Utah and Patrick Leahy of Vermont, on August 3, 2006. This bill did contain venue provisions which were broader than the current provisions in certain
- respects. The bill would have permitted venue “(1) in the judicial district where either party
resides; or (2) in the judicial district where the defendant has committed acts of infringement and has a regular and established place of business.” S. 3818, Sec. 8(a). Further, S. 3818 defined a corporation’s residence to be “its principal place of business
- r…the State in which the corporation is incorporated.” This language came from case law
interpreting 28 U.S.C. § 1391(c), which states that “a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.” Finally, S. 3818 included a provision on Interlocutory Appeals, which would give exclusive jurisdiction to the Federal Circuit for immediate appeals of claim construction determinations made by district courts. The application for appeal must be made within 10 days and district court proceedings would be stayed pending the outcome of the appeal. S. 3818, Sec. 8(b) Since S. 3818 was introduced with only a few weeks left in the session, there was not possibility of passage. The bill did not make any headway, although it served as a counterpoint to the H.R. 2795. The venue provisions included in S. 3818 were also included in nearly identical form in the Patent Reform Act of 2007 (H.R. 1908, S. 1145).
H.R. 1908 and S. 1145 were introduced on April 18, 2007, by Howard Berman of California and Patrick Leahy of Vermont. Both bills contained identical venue provisions, using the language previously set forth in S. 3818. However, after the bill was discussed in Committee, both versions were changed significantly. The first two provisions of S. 1145, as amended in Committee, address requirements related to the defendant location or actions. These provisions are similar to the second requirement of the original bill, but they further clarify and limit the tests. Venue for a corporation remains “the location or place in which the defendant is incorporated”, but the amended version also included the location or place where the defendant was “formed”, potentially broadening the test. No definition is included for determining where a corporation is “formed”, so it will likely fall on the courts to construct an appropriate test.
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6 Furthermore, the second provision limited “regular and established place of business” to “regular and established physical facility that the defendant controls and that constitutes a substantial portion of the operations of the defendant.” (emphasis added). This language would seem to limit “place of business” beyond the original broad definition. The second two venue provisions of S. 1145, as amended in Committee, relate to the plaintiff’s residence. Instead of providing for venue where either party resides, as the original bill provided, the amended version of S. 1145 limited proper venue to the plaintiff’s residence in specific cases. The first case was for institutions of higher learning and nonprofit organizations that work for these institutions. The second case was for a plaintiff who qualifies as a “micro- entity” as defined by a later provision of the bill. This appears to be the first time that a “micro- entity” is introduced into patent law, and it is narrowly defined as presented above. In order to counteract the new limitations on venue, the amended version of S. 1145 also included a provision for transferring a case between venues. Transfer would be up to the court’s discretion, but may be granted if any party “has substantial evidence or witnesses that otherwise would present considerable evidentiary burdens to the defendant if such transfer were not granted”. However, transfer may not “cause undue hardship to the plaintiff” and it must be appropriate under the provisions of 28 U.S.C. § 1391. The version of H.R. 1908 which passed the House on September 7, 2007, includes numerous changes with respect to previous versions of the bill. The first two provisions relating to defendants are virtually identical to the provisions discussed above with respect to the amended version of S. 1145, but the provision related to foreign defendants is separated into a third provision. This provision cross-references 28 U.S.C. § 1391(d), which states that “An alien may be sued in any district.” The first provision in H.R. 1908 relating to plaintiff’s residence is identical to the “institution of higher education” language in amended S. 1145. However, H.R. 1908 also adds a new provision relating to plaintiff’s place of business and seems to broaden the language in amended S. 1145 relating to micro-entities. H.R. 1908 requires that the plaintiff’s principal place of business must be “engaged in substantial -- (A) research and development, (B) manufacturing activities, or (C) management of research and development manufacturing activities, relating to the patent or patents in dispute”. Instead of defining a “micro-entity”, H.R. 1908 provides for venue “where the plaintiff resides if the plaintiff is named as inventor” and has not conveyed or agreed to convey in any form “rights in the patent or in enforcement of the patent”. This addresses the same goal as the “micro-entity” provision, however it appears to be much broader in scope. Finally, H.R. 1908 provides for venue “where any of the defendants has substantial evidence and witnesses if there is no other district in which the action may be brought under this section.” This serves as a counterpoint to the transfer provision of amended S. 1145, since H.R. 1908 does not include a provision directly addressing transfer.
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The Patent Reform Act of 2008 (S. 3600) was introduced into the Senate by Senator Kyl
- n September 25, 2008, but it was not considered in Committee. The venue provisions in this
bill are very broad, and provide for venue in many cases. Some provisions were carried over from previous language in one form or another, such as provisions relating to the defendant’s principal place of business, infringement in a district where the defendant has a “regular and established physical facility”, institutions of higher education, and foreign defendants. However, S. 3600 also provides for venue “where the defendant has agreed or consented to be sued”, “where the invention claimed in a patent in suit was conceived or actually reduced to practice”, or “where significant research and development of an invention claimed in a patent in suit occurred at a regular and established physical facility”. Further, S. 3600 provides for venue where any party “has a regular and established physical facility that such party controls and
- perates”, subject to one of three requirements. The physical facility must either engage in
significant research and development related to a patent in suit, manufacture a product claimed in a patent in suit, or implement a process claimed in a patent in suit.
- 4. H.R. 1260, S. 515 and S. 610
The Patent Reform Act of 2009 was introduced on March 2, 2009, and contains identical venue provisions in H.R. 1260, sponsored by Rep. Conyers, and S. 515, sponsored by Senator
- Leahy. These provisions are presented above in their entirety and incorporate various provisions
introduced in earlier bills. S. 515 passed the Senate Judiciary Committee on April 2, 2009.
- S. 610 was introduced on March 17, 2009, by Senator Kyl. This bill contains identical
venue provisions to those included in S. 3600, which is discussed above. Although S. 610 has been referred to the Senate Judiciary Committee, it is unclear whether it will be considered, since
- S. 515 has already been passed.
- D. Support and Opposition
The following states had groups in opposition of the venue provision: California, Colorado, Kentucky, New Mexico, Oregon, South Dakota, Texas, Wisconsin, and Wyoming. Some of the companies who signed onto the group state letters include Advanced Environmental Solutions, Inc., Akami Physics, Inc., Dynamic Corporation, Human Resources, LLC, Ortiz & Lopez, Peacock Myers, PC, New Mexico Optics Industry Association, Invitrogen Corp., Qualcomm, Inc., GlaxoSmithKline, PepsiCo, Abbott, Allergan, AstraZeneca, Corning, Ethicon, INCELL, Merck and Texas Instruments. In their letters in opposition, the groups classified the venue provision as “too restrictive”, “distort the current system in favor of defendants.” Several groups argued that the new provision would require their residents “to travel to distant venues to defend their patents from infringement.” Some groups suggested that the provision should at least be amended to “permit patent owners to sue in districts in which the claimant has its principal place of business or has engaged in substantial research, development or manufacturing activities.”
SLIDE 8 8 The Coalition for Patent Fairness supports the bill and is of the opinion that the practice
- f “forum shopping” should be put to an end. They argue that the new bill would help ensure
patent lawsuits would be resolved in courts that have a reasonable connection to the underlying
- claim. A large majority of the companies that support the Coalition for Patent Fairness are in the
software/technology industries. Some of the companies that support the proposed change in the venue statue include: Adobe, Agilent, Apple, Aruba Wireless Networks, Chevron Corporation, Dell, eBay, Hewlett-Packard., Intel, McAfee, Inc., Micron Technology, Microsoft, Palm, Inc., Research in Motion, Seagate Technology, TimeWarner, and Visa USA. We note that the Coalition for 21st Century Patent Reform, in some instances opposed where the Coalition for Patent Fairness is in support, does not come out one way or another as to the proposed changes to the venue provision.
Based on the above facts, we have reached the following conclusions on the likelihood of the bill passing, as is, as well as how the new law will affect various industries, and international entities.
- 1. High Likelihood of Passing
There is some controversy that remains, mainly between the biotech industry and the software/technology industry. Nonetheless, the House and Senate are now in alignment with one another, and although the language of the bills have changed somewhat throughout the legislative history, it seems to have remained restrictive rather than expansive. Therefore, it is
- ur opinion that it is likely that this provision will pass, as is, or if there are changes made, the
provision will still be heavily restrictive on plaintiff’s future options for jurisdictional shopping sprees.
From a review of the industries that have commented on the venue rules, it appears that the biotech companies and universities are of the opinion that this provision will adversely affect them, while the software/technology giants are all in favor of restricting the venue options. It is likely this is because the software/technology industry has more money to fight patent infringement allegations, and perhaps because these “giants” are often on the side of infringing the small inventor’s patent. On the other hand, there were companies that we would consider part of this technology “giant” industry that did not support the venue provision (i.e. Texas Instruments and Qualcomm). Therefore, it probably is yet to be seen what industries this will ultimately affect. One thing is for certain, the days of forum shopping, for all industries, will likely be a thing of the past very shortly. We note that universities and the independent inventors seem to be protected against being adversely affected, where the current provision carves out an exception for these smaller entities.
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- 3. International Entities Affected
The provision will likely be more favorable to foreign entities. As mentioned above, the current proposed language provides that for foreign entities with US subsidiaries, action can only be brought where the primary subsidiary is located or where its principal place of business in the US is incorporated or formed. As for foreign entities that do not have a US connection, the plaintiff would establish venue where the infringement occurs only if the defendant also has a regular and established, substantial physical facility in that district. This may prove more difficult for the plaintiff to accomplish if the entity is foreign and does not have any “regular and established, substantial physical facility in that district” and where the foreign entity does not have a US subsidiary.
- 4. How it may affect Sughrue’s clients
For our smaller companies, it will likely be more difficult to obtain the most advantageous outcome because we will not be able to hand-pick the best jurisdiction for the case. On the other hand, for our larger companies, it may be easier to fight infringement actions brought by patent trolls, where jurisdictional “forum shopping” will be a practice of the past. If this provision passes, all of our clients should be prepared to fight battles over proper venue in summary determination at the outset of the cases. Until the rules are settled by further Federal Circuit and district court precedent, it will be in the best interest of our clients to vigorously fight jurisdiction issues, no matter what side of the lawsuit the client is on, so as to
- btain the best possible venue for our clients.
III. Interlocutory Appeals of Markman Rulings Keiko K. Takagi, Nyeemah A. Grazier
- A. The Proposed Legislation
The House and the Senate have proposed two separate, but nearly identical, bills to amend Title 35 of the United States Code. Section 10(b) of H.R. 1260 and Section 8(b) of S. 515 seek to amend Section (c) of 28 U.S.C. § 1292 by adding a third subsection of (c), i.e., (3), stating that an appeal from an interlocutory order or decree determining construction of claims in a civil action for patent infringement under section 271 of title 35. Application for an appeal under paragraph (3) shall be made to the court within 10 days after entry
- f the order or decree. The district court shall have discretion
whether to approve the application and, if so, whether to stay proceedings in the district court during pendency of the appeal. In short, if the proposed bill is enacted, an application for appeal shall be made within 10 days from an interlocutory order or decree determination construction of claims to appeal, and
SLIDE 10 10 the district court shall have discretion to approve the application and to stay the proceedings during the pendency of the appeal.
Section (c) of 28 U.S.C. § 1292, entitled Interlocutory Decisions, currently states: (c) The United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction— (1) of an appeal from an interlocutory order or decree described in subsection (a) or (b) of this section in any case over which the court would have jurisdiction of an appeal under section 1295 of this title; and (2) of an appeal from a judgment in a civil action for patent infringement which would otherwise be appealable to the United States Court of Appeals for the Federal Circuit and is final except for an accounting. Under this provision, appeal of a claim construction ruling is made after a final decision
- f a district court of the United States if the jurisdiction of the court was based, in whole or in
part, on judicial procedures under 28 U.S.C. §1338. Thus, the nearly identical in language in the proposed House and Senate bills pertains to interlocutory decisions, and proposes to give jurisdiction to the Federal Circuit Court of Appeals over interlocutory appeals of claim construction after a Markman hearing.
- C. Previous Reform Proposals
The proposals are not unique to the current patent reform package. S.3818 (The Patent Reform Act of 2006) was introduced on August 3, 2006, and sought to provide the U.S. Court of Appeals for the Federal Circuit exclusive jurisdiction over an appeal from an interlocutory order
- r decree determining construction of claims in a civil action for patent infringement under
specified patent infringement provisions. Similarly, S.1145 (Patent Reform Act of 2007) was introduced on April 18, 2007 also sought to provide the U.S. Court of Appeals for the Federal Circuit exclusive jurisdiction over an appeal from an interlocutory order or decree determining construction of claims in a civil action for patent infringement under specified patent infringement provisions. These previously proposed amendments are comparable to the current proposal and demonstrate a strong motivation to amend Section 1292. If enacted, the amendment to 28 U.S.C. §1292(c) would allow district court litigants to appeal interlocutory Markman rulings to the Federal Circuit Court of Appeals. It appears that large technology companies are proponents of this provision because such provision may reduce the cost of litigation and may reduce the time of litigation. Proponents see the finality of claim construction rulings as necessary predicates to determinations of infringement as well as a means to avoid the inefficiency of a full trial in the merits based on incorrect claim interpretation.
SLIDE 11 11 Additionally, proponents believe that discovery and motion practice will be significantly decreased.
Kim Choate, Peter Bradford, Navid Fanaeian
The House and Senate versions are virtually identical, and seek to codify the rule of In re Seagate, 497 F.3d 1360 (Fed. Cir. 2007), by requiring proof of objective recklessness by an infringer as a predicate to a determination of willful infringement. “Objective recklessness” is proven by clear and convincing evidence that -- after receiving written notice from the patentee alleging acts of infringement sufficient to give the infringer an objectively reasonable apprehension of suit -- the infringer intentionally copied the patented invention with knowledge that it was patented. In addition, if a court already determined infringement to have occurred, an infringer who engages in conduct that is “not colorably different” from the adjudged infringing conduct is defined to have acted willfully. Good faith defenses to a finding of willfulness are based on the reasonable reliance on advice of counsel, evidence that the infringer sought to modify its conduct to avoid infringement once it had discovered the patent, or any other evidence a court may find sufficient to establish such good faith belief. From a procedural standpoint, the decision of the infringer not to present evidence of advice of counsel is irrelevant to a determination of willful infringement. In addition, bifurcation is required, because willfulness may neither be pled nor determined until a court determines that the patent in suit is not invalid, is enforceable, and has been infringed by the infringer. The Senate version adds that the determination of an infringer’s willfulness shall be made without a jury
Willful infringement is not currently defined in the patent statute. Remedies are prescribed in Section 284, which generally provides for the award of damages adequate to compensate for the infringement (together with interest and costs as fixed by the court), and include provision for a court to increase the damages up to three times the amount found or assessed. The Federal Circuit in Seagate held that “proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness.” Seagate, 497 F.3d at
- 1371. In order to establish willful infringement, “a patentee must show by clear and convincing
evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.” The Court stated that the accused infringer’s state of mind is not relevant to this objective inquiry. “If this threshold objective standard is satisfied, the patentee must also demonstrate that this objectively-defined risk (determined by the record developed in
SLIDE 12 12 the infringement proceeding) was either known or so obvious that it should have been known to the accused infringer.” Seagate, 497 F.3d at 1371.
- C. Comparison of Current Law to Proposed Law
The current proposed willful infringement sections in the Patent Reform 2009 proposes codifying the current judicial law of Seagate into §284.
- D. Support and Opposition
Perhaps it is because the language of the willful infringement section has not changed much throughout the history of this section, i.e. the original version to 2009’s version are most similar (see attached chart comparing the history of the language). It appears that there are groups expressing specific support of the proposed willful infringement section, but does not appear that groups are specifically opposing the willful infringement section per se. A summary of the general supporters and opposers follows.
- 1. History – Support
- AIPLA – commentators in a recent meeting called Seagate’s “objective recklessness”
standard “gloriously ambiguous,” but also said that the courts were well on their way to filling in the gaps
- The Software & Information Industry Association (SIIA)
- Coalition for Patent Fairness – strongly supports the change
- Google and Microsoft
- IPO
- 2. History – Generally Against Patent Reform
- Tessera Inc. – Recent cases have started addressing concerns; putting an additional layer
- f patent reform could have ramifications on the economy (no particular opposition on
willfulness)
- USPTO advisory board – Congress should wait up to 3 years before addressing patent
reform again (no particular opposition on willfulness)
- Coalition for 21st Century Patent Reform – the fast pace of change in patent law makes
the courts more suitable for change (no particular opposition on willfulness)
- Biotech (no particular opposition to willfulness)
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Based on the above facts, we have reached the following conclusions on the likelihood of the bill passing, as is, as well as how the new law will affect various industries, and international entities.
- 1. High Likelihood of Passing
- There is not much difference between the two Senate and House bills
- Little was changed in the willfulness section from previous 2007 bill
- Does not appear as controversial as other patent reform sections
- High likelihood of passing – unclear whether the one difference between the two bills
(whether or not judge or jury should decide issue of willful infringement) will pass or not
- pass. Likely to be a bargaining chip between opposers/supporters in possibly getting
changes in other portions of the damages section
The biotechnology and software fields appear to be the two main industries that will most likely be affected by the proposed willful infringement provisions. With the biotech industry being adversely affected and the software/technology industry being positively affected.
- 3. International Entities Affected
We do not believe that the international companies will be any more adversely or positively affected by the provision. Rather, this provision appears to possibly have affects on
- industries. In other words, for instance, we do not anticipate that a domestic software company
would be affected any differently from a foreign software company.
- 4. How it may affect Sughrue’s clients
It appears that for litigious Sughrue clients, the new provision may be helpful to shelter
- ur clients from large damage awards. On the flip side, it may be more difficult for us to pursue
large willfulness damages for patent owners.
- V. Post-Grant Reexamination Proceedings
Azy Kokabi, Quadeer Ahmed
The bills provide for expanded post grant review proceedings, including new bases for reexamination proceedings and newly-added cancellation proceedings.
SLIDE 14 14 Proposed Section 321 in the House and Senate versions allows a third party to request a post-grant review proceeding to invalidate a patent based on prior art, public use, and/or failure to comply with the written description and enablement requirements of 35 U.S.C. 112, first
- paragraph. A third party may not seek invalidation under for noncompliance with the best mode
requirement, nor may post grant review be sought by a petitioner who previously sought review
- n the same patent. Petitions may be filed up to 12 months from the issue or reissue date of a
patent or if the patent owner consents in writing to the proceeding. Petitions must include: (1) the fee established by the Director; (2) the identification of the cancellation petitioner; (3) the basis for cancellation for each claim, including evidence supporting such basis ; and (4) copies of the petition, including evidence to the patent owner or designated representative of the patent owner. Review will be initiated is at the discretion of the Director of the Patent Office based on whether the petition and the submitted evidence establish that a “substantial question of patentability” of at least one claim in the patent. (Ex parte and Inter partes reexamination proceedings are currently initiated based upon the same standard.). The decision to initiate any post-grant review proceeding will be made in 60 days of the filing of the petition, and is not
- reviewable. If post-grant review is instituted, the patent owner is given the right to file a
response to the cancellation petition with any additional factual evidence and/or expert opinions (section 327) and may also file a motion to amend the patent claims by canceling any challenged claim, substituting the claim without enlarging the scope of the claims or introducing new matter,
- r amending the patent drawings or specification. (See section 329).
The proposed legislation provides the Director discretion to prescribe the procedure for conducting the post-grant review procedure, including establishing procedures to supplement information after petition for cancellation is filed (section 326(a)(2)), and setting forth procedure for discovery, which is limited to evidence directly related to factual assertions advanced by either party (section 326(a)(3)). Post-grant review proceedings are to be conducted with dispatch, and must be completed within a year under section 326(b). Extensions of up to six months are possible. Other regulations prescribed in the new legislation requires that the Director provide notice of the filing of the petition for post-grant review by publishing in the Federal Register and
- n the USPTO website (section 326(b)(3)), prescribe sanctions for abuse of discretion (section
326(b)(4)), provide for protective orders governing the exchange and submission of confidential information (section 326(b)(5)), and ensure that any information submitted by the patent owner in support of an amendment is made available in the prosecution history of the patent (section 326(b)(6)). The Board is required to issue a final decision addressing patentability of the challenged claims (section 330), as well as any newly claims added under section 329. If the final decision is issued, a certificate noting canceled/newly added claims is issued (after the requisite appeal period expires or after the appeal proceedings are terminated). New claims added during post
SLIDE 15 15 grant review proceedings have the same effect as reissue claims under 35 U.S.C.§ 252 (i.e., no infringement if the alleged infringement was before the certificate issue date). The petitioner and patent owner may jointly request termination of such proceedings based on settlement (unless Board’s final decision already issued). Further, if an agreement between the petitioner and the patentee is made, section 332(b) requires that such an agreement be in written form, and the agreement must be submitted to Board so proceedings can be terminated (the agreement can be kept separate from the public records of the proceedings upon request). With respect to the relationship to other proceedings (section 333), the Director determines whether to stay, transfer, consolidate, or terminate any co-pending reexamination proceeding, reissue proceeding, interference proceeding, derivation proceeding, or post-grant review proceeding with the subject post-grant review proceeding (section 333(a)). The Director may also stay a post-grant review proceeding if there is a (1) pending civil action for infringement of subject patent, or (2) pending proceeding before the ITC, and if the pending civil action/ITC proceeding addresses patentability questions that are the same as those raised in the petition for the post-grant review proceedings (section 333(b)). Further, commencement of the post-grant review proceedings does not block patentee from filing patent infringement lawsuit, and initiation of the post-grant review proceedings also cannot be cited as evidence relating to validity of the patent, or any claims thereof in any court/ITC (section 333 (c)). Under proposed section 334 relating to the effect of decisions rendered in civil action or ITC proceedings on post-grant review, (1) if a party does not successfully meet burden of proving invalidity of a patent in a civil action case or at ITC, the party cannot file a petition for post-grant review of a claim of the same patent on the basis of any grounds which the party raised or could have raised. If the court/ITC decides the party did not meet its burden in (1) while a post-grant review proceedings on same grounds is active, the PGRP may not be
- maintained. In addition, if the Board’s final decision under§ 330 is favorable to the patentee
with respect to a claim, the petitioner cannot, based on any ground that the petitioner raised during the PGRP:
- pursue reexamination of the claim,
- pursue derivation proceedings with respect to the claim,
- pursue PGRP with respect to the claim,
- assert invalidity of the claim in a civil action, or
- assert invalidity of the claim at ITC.
Finally, the final decision for a post-grant review proceeding can be appealed to the Court
- f Appeals of the Federal Circuit under provisions of 35 U.S.C. § 141-144. Any party to the
post-grant review proceeding has the right to be a party in such an appeal.
SLIDE 16 16
- B. Differences between 2009 Act and previous (2005 and 2007) Acts
In section 334 of 2009 Act, post-grant review proceedings petition cannot be filed after decision from civil action or ITC if grounds were previously raised or could have been raised, whereas the 2007 Act was amended to – grounds, which that party raised or had actual knowledge of. Also, the 2007 Act did not preclude petitioner, if a decision favoring the patentee was issued with respect to a claim, asserting invalidity of such a claim at ITC. The present 2009 Act precludes the petitioner from asserting invalidity of the claim at ITC also. The 2007 Act also does not include section 332 Settlement provisions of 2009 Act.
The software, electronics, and financial industries generally support these provisions due to the cost-effectiveness of the post-grant review process, and academia also appears to strongly favor post-grant opposition1. Without such provisions, these industries claim that they incur excessive costs due to infringement cases filed by non-manufacturing patentees. Generic drug- makers also support the post-grant review rules because it provides them a more economically viable option to challenge drug patents of questionable validity2.
- VI. Preissuance Citation of Prior Art
Dion Ferguson, William Childs, Amanda Skrabut
Under the proposed law (S. 515, Sec. 7 and H.R. 1260, Sec. 9), a third party would be guaranteed at least a six month window after a patent application is published to submit an unlimited number of patents or publications directly to the USPTO with a concise statement of relevance for inclusion in the file of the patent application and examination.
If passed, these sections will allow any third party to submit one or more patents or publications for consideration and inclusion during the examination of a patent application, with a concise description of the relevance of the submitted document to the patent application, before the later of six months of publication or the first Office Action on the merits.
1 Coalition for Patent Fairness (http://www.patentfairness.org), and Senate Judiciary Committee Hearings (Witness Testimonies of March 10,
2009) – Mr. Steven R. Appleton, Chairman and CEO, Micron Technology, Inc. and Mark A. Lemley, William H. Neukom Professor of Law, Stanford Law School.
2 http://economictimes.indiatimes.com/articleshow/msid-2225676,prtpage-1.cms, citing comments from the Indian Pharmaceutical Alliance on
the Patent Reform Act of 2007.
SLIDE 17 17 To make a submission, a third party must set forth in writing a concise description of relevance of each submitted document, pay a fee set by the Director of the USPTO, a statement
- f compliance, and optionally, identify of a “real party-in-interest” (House version only).
For example, imagine someone finds out about a patent application with claims that seem
- verly broad, i.e. the claims seem to be invalidated by a prior patent or publication. The sections
- f the Patent Reform Act give that person the ability to submit a copy of a document to the
USPTO with an explanation of why the claims are invalid over the submitted document. The USPTO will accept these documents for at least six months after publication of the patent application, but as late at the first Office Action on the merits (which can be years after publication). This aspect of these sections is critical because the patent applications are kept confidential until publication. Then, an Examiner at the USPTO may then consider the submitted document along with the concise statement of relevance, and use both to decide if the patent application should be rejected. Regardless of the Examiner’s decision, the document and explanation will be included in the prosecution history of the patent application.
- C. History and Differences
The House and Senate versions of both sections of the Patent Reform Act of 2009 are identical to each other, except the current House version requires the identification of a real “party-in-interest.” Both sections are also identical to House and Senate sections proposed in the Patent Reform Acts of 2008 (S), 2007 (HR & S), 2006 (HR & S), and 2005 (HR). The requirement to identify a “real party-in-interest” was added to the House version, which passed the House, in 2007.
- D. Comparison To U.S. Practice
If passed, these sections will change U.S. prosecution practice considerably. Under current U.S. practice, the public may only submit references for consideration during the examination of a patent application in a few limited ways. Under 37 C.F.R. § 1.99, a member of the public may submit a maximum of ten patents or publications within two months of the publication of a patent application. This submission requires a written submission including the patent application number, a copy of the documents submitted, fee of $180, English translation (if applicable), and certification that the citation has been formally served on the applicant for the patent application. No statement of relevance is allowed. Under 37 C.F.R. § 1.291, a protest may be filed if it adequately identifies the patent application by number and is filed before publication of the patent application. This submission also requires a copy of the submitted document, English translation (if applicable), and a concise explanation of relevance of the document to patent ability. The “Peer To Patent” program is a pilot program forged from a collaboration between the USPTO and New York Law School’s Community Patent Review Project (“CPRP”). In exchange for expedited review, patent applicants may volunteer to have their patent application
SLIDE 18 18 examined as part of the Peer-to-Patent program. Only patent applications with subject matter based on specific USPTO classifications, which is generally limited to computer architecture, software and information security, business methods and e-commerce. If a patent application is volunteered and qualifies, then a single person or organization may submit up to 25 documents with explanation of relevance to CPRP up to 18 weeks after publication of the patent application (4.5 months). CPRP will then submit up to ten references to the USPTO for examination. Another option is the so called “Poor Man’s Opposition.” This is where a member of the public sends a copy of patent or publication to the attorney or patent agent that is prosecuting a patent application of interest with a detailed explanation of the documents’ relevance to patent
- application. The idea is to force the attorney to send submit the document to the USPTO in an
IDS, because under 37 C.F.R. § 1.56 the attorney is required to disclose all documents that are material to patentability of a pending patent application. Although there is no time limit or restriction on the submission of a concise explanation, the attorney decides what to submit. In summary, under current law, a third party may not submit a document with a statement
- f relevance directly to the USPTO after a patent application is published, which of course is the
way a third party would become aware of a patent application. A third party may not even submit a patent or publication directly to the USPTO after two months have passed following publication of the patent application. To submit a reference more than two months after a patent application is published, a third party must go through the Patent-to-Peer program (if available)
- r use the “Poor Man’s Opposition,” and hope that their reference and/or statement of relevance
is submitted to the USPTO. Under the proposed law, a third party would be guaranteed at least a six month window after a patent application is published to submit an unlimited number of patents or publications directly to the USPTO with a concise statement of relevance for inclusion in the file of the patent application and examination. VII. First-To-File Provisions Will Simmons, Sunny Lee, Ellen Smith, Joseph Hsiao
On March 3, 2009, both houses introduced companion patent reform bills, HR 1260 and S515, that include the First-Inventor-to-File provision (aka First-to-File). While the world patent community grants patents to applicants who are first to file, the current USPTO system grants patents to applicants who are first to invent. Thus, adopting a first-inventor-to-file system would facilitate the long range goal of international patent harmonization. Moreover, this system would simplify patent procurement within the US patent office and increase clarity and certainty during prosecution of a patent application.
SLIDE 19 19
Under the proposed first-inventor-to-file system, an inventor who effectively first files an application for a claimed invention will be granted a patent, with few exceptions. 35 U.S.C. § 102(b). The proposed amended § 102 further provides for a near absolute novelty requirement for patentability - no patent may be obtained if the claimed invention was patented, published, in public use, on sale, or available to the public more than 1 year before its filing date regardless of who disclosed the claimed invention. However, if such public disclosure is made by or through an inventor or another who obtained the claimed invention directly or indirectly from the inventor, and a patent application is effectively filed less than one year from the initial public disclosure (“one year grace period”), the inventor can obtain a patent. The proposed amended § 102 removes the “in this country” requirement from the public knowledge or use provision. Since the effective filing date will be the critical date for determining who will get a patent under the proposed system, the current interference practice would be abolished for determining which one of two inventors was actually the first to invent. Instead, a derivation proceeding is proposed to determine the right of an applicant to a patent. In parallel, the Board
- f Patent Appeals and Interference is proposed to be replaced with a newly named Patent Trial
and Appeal Board (PTAB) for the derivation proceedings.
- C. Comparison of House and Senate Versions
While the Senate bill and the House bill are almost identical, they differ in the effective date of the “one-year grace period.” Considering the fact that the global patent community, which practices a first-to-file system, does not afford the one-year grace period after public use, sale or publication allowed under current U.S. law (some countries recognize a very limited scope of a six-month grace period), the House bill would postpone the first-inventor-to-file system until the other major patent offices abroad have adopted the grace period.
Most industry sectors support the first-inventor-to-file principle, citing its objectivity and world harmonization. According to a study published by the Washington Legal Foundation on Critical Legal Issues (No. 129, April 15, 2005), the first-inventor-to-file system is in the best interest of U.S. inventors, both large and small because it simplifies the complex issues of deciding whether a patent applicant is the first inventor. Furthermore, from an international perspective, the proposed first-inventor-to-file system eliminates the prior art distinction of whether a sale or use occurred in the US, Canada or Europe. The proposed system moves the US patent system into harmony with the global patent community, which is thought by some to be essential for today’s international markets.
The proposed provision is expected to pass into law since there is little opposition (although in years past, other provisions in the bills have delayed passage). Nevertheless, inventors, companies and their patent counsel should be aware of the impact this provision will
SLIDE 20 20 have on patent procurement. Most notably, obtaining the earliest possible filing date will be
- critical. Inventors and their patent counsel will need to work closely to ensure undue delays are
- avoided. For inventors who are not ready to file a patent application for financial or other
reasons, publication on the Internet or the filing of a provisional application will “hold” their spot for up to one year. This will prevent anyone else from getting a patent, while giving the inventor a year to file the patent application in the USPTO.
- VIII. Federal Circuit Residency Requirements
Lenny Jiang
- A. The Proposed Legislation
Each of the Senate and House versions include provisions which amend the current law under 28 U.S.C. §44(c), which pertains to the residency requirements of Federal Circuit judges. The residency requirement was added to 28 U.S.C. § 44(c) by amendment in 1982, and has been effective since October 1, 1982. The proposed provisions in Sec. 12 of the House bill and in Sec. 10 of the Senate bill both repeal the second sentence of 28 U.S.C. § 44(c), by striking the entire requirement that “each circuit judge of the Federal judicial circuit appointed after the effective date of the Federal Courts Improvement Act of 1982, and the chief judge of the Federal judicial circuit, whenever appointed, shall reside within fifty miles of the District of Columbia.” The Senate bill takes the further step of providing appropriate facilities and administrative support services for a judge of the Federal Circuit who does not reside within 50 miles of the District of Columbia. Such facilities would be provided in the district and division in which that judge resides, and if not available there, then in the district and division closest to the residence of that judge. However, these provisions do not authorize the construction of new facilities. These proposed provisions, if enacted, would completely change the existing law so as to thus allow Federal Circuit judges to reside more than 50 miles from Washington D.C. while serving on the bench.
Currently, active Federal Circuit Judges are required to reside within 50 miles of the District of Columbia.
- C. Previous Reform Proposals
Previously, a proposed change to the residency requirement for Federal Circuit judges was first introduced in 2007 by Senators Patrick Leahy (D-VT) and Orrin Hatch (R-UT), when the Patent Reform Act of 2007 included a provision in the Senate bill (S. 1145) repealing the residency requirement. Using language identical to that found in the newly introduced Senate
SLIDE 21 21 bill, S.1145 also repeals the second sentence of 28 U.S.C. § 44(c), but does not further provide for any facilities for the Federal Circuit judges. The proposed provision to remove the residency requirement for Federal Circuit judges is expected to pass into law, since this is not an overly controversial issue and little opposition exists for such a change to occur. There are no known industry segments or organizations who
- ppose to this change, most likely because there would be minimal, if any, direct effect to the
- public. The potential candidate pool for Federal Circuit judges would be greatly expanded with
this change. The removal of the residency requirement may also lead to having a district court judge sit on the Federal Circuit, a situation which currently is effectively discouraged because many judges who may be prime candidates for a seat on the Federal Circuit bench would have to relocate to Washington D.C., and they may not wish to do so. However, one notable voice opposing this change actually comes from a Federal Circuit judge, Judge Alan D. Lourie, who in his A View from the Court address to the Virginia State Bar IP Section on September 27, 2008, opined that such a change “would be contrary to the best interest of the court and its functioning, and hence the law.” With the residency requirement in force, the benefits have included the headquartering of all members in one building, a practice that typically leads to easier execution of collaborative tasks, as well as providing a more collegial environment.
