Report On the Patent Reform Act of 2009

By Fadi N. Kiblawi[1]

Introduction

Though various forms of patent reform legislation have been unsuccessfully introduced in Congress over the past five years, Democratic and Republican leaders have recently presented a new Patent Reform Act of 2009.  The Senate Bill (S.515) and the House bill (H.R.1260) respectively introduced by Senators Leahy (D-VT) and Hatch (R-UT) and Representatives Conyers (D-MI) and Smith (R-TX), include many of the same provisions as years past (2005 and 2007), including the controversial limitations on damages for infringement.[2]  However, some less divisive provisions are omitted in the 2009 version, including stipulations on inequitable conduct and requirements that all applications be published in 18 months and prior art searches be conducted by Applicants (i.e., Applicant Quality Submissions).  The following is an overview of the more serious changes proposed in the 2009 Act.

First Inventor to File

Section 3 of the House bill and Section 2 of the Senate bill propose a transition from a “first-to-invent” to a “first-to-file” system, whereby invention is as of the date of filing, and not the date of actual invention.  Accordingly, any third-party publication, issued patents, or published applications prior to the date of filing are valid prior art, irrespective of the actual date of invention.  Similarly, any published application or issued patent filed before the date of filing are also valid prior art, irrespective of the actual date of invention.

Damages for Infringement

As related to the 2007 bills, which differed in this respect, the House in 2009 conforms to the Senate’s proposal on damages.  That is, for determining damages, the House (section 5) and Senate (section 4) bills propose an identical standard that is far more limiting than current practice.  Specifically, the courts are to determine whether a claimed invention’s “specific contribution over the prior art is the predominant basis for market demand for an infringing product or process.”  If so, the damages may be maximally based on the entire market value of the infringing product or process.  Furthermore, if the claimed invention has been the subject of a reasonable nonexclusive license, prior to the filing of the case before the court, for the same use as the infringing product or process, damages may be determined based on the terms of the license.  Similarly, if the claimed invention has similar noninfringing substitutes that are subject of nonexclusive licenses for substantially the same use as the infringing product or process, damages may be determined based on the terms of such licenses.  However, if none of the above conditions are met, the court is then to determine a reasonable royalty “applied only to 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” (emphasis added).

Post-Grant Review

In regards to reexaminations, the 2009 Act expands the basis of such post-grant proceedings by allowing submissions of not just patents or printed publications, but also evidence of substantial public use or sale in the U.S. more than one year prior to the U.S. patent application date and written statements of the patent owner filed in a Federal Court or the Patent and Trademark Office.  The House bill additionally allows such written statements in proceedings before the International Trade Commission.  Moreover, inter partes reexamination proceedings would be heard by administrative patent judges, as opposed to Examiners.  35 U.S.C. 317(b) would be amended to prohibit such inter partes proceedings once a judgment of a district court has been entered in a civil action.

The 2009 Act would also establish a post-grant opposition procedure, whereby any person may file a petition for cancellation “as unpatentable any claim of a patent on any ground” within 12 months of issuance of the patent.  Of note, the cancellation petition is not limited to prior art submissions, but can be on any ground of invalidity.

Preissuance Submissions

Like the 2007 Act, section 9 of the House bill and section 7 of the Senate bill provide a prescription for third party submissions during prosecution.  Specifically, the third party may submit prior art before the earlier of:

  1. the date a notice of allowance is mailed, or
  2. the later of  either (i) 6 months after the publication date of the application or (ii) the date of the first rejection of any claim by the Examiner.

Any such submissions must include “a concise description of the asserted relevance of each submitted document.”

Venue and Jurisdiction

The new regulations would curtail forum shopping and are more deferential to defendants in litigation.  In particular, venue for civil actions and actions for declaratory judgment would be limited to where the defendant has its principal place of business or is incorporated, or to where the defendant has committed a substantial act of infringement.  In the latter case, the defendant must also control thereat an established physical facility that constitutes a substantial portion of the defendant’s operations.  In very limited circumstances when the primary plaintiff is an institution of higher education, a nonprofit organization, or a micro-entity (such as an individual inventor), venue is proper where the primary plaintiff resides.

Other Provisions

Both bills provide for interlocutory appeals of district court claim construction orders (i.e., Markman Hearing Orders) to the Federal Circuit if the appeals are filed within ten days of entry of the relevant order.  Moreover, the Director would have expanded authority “to set or adjust by rule any fee established or charged by the Office under sections 41 and 376… provided that such fee amounts are set to reasonably compensate the Office for the services performed.”  Section 6 of both bills establishes a new Patent Trial and Appeal Board, replacing the Board of Patent Appeals and Interferences.  Accordingly, interferences are written off, replaced by derivation proceedings conducted by the Patent Trial and Appeal Board (along with appeals, reexamination proceedings, and post-grand opposition proceedings).  Furthermore, the Act allows for statements filed in substitute of an oath or declaration by an Applicant when an inventor is “under an obligation to assign the invention but has refused to make the [required] oath or declaration.”

Conclusion

While the simultaneous introduction of the same version of the Patent Reform Act of 2009 would give the impression that Congress is ready to implement these long standing reforms, the Senate has recently indicated that the Senate version is not ready for a vote.  One of the main contentious points is how to apportion damages under the new law, and whether such is even appropriate.[3]  Until such issues are resolved, it seems unlikely that Patent Reform will be enacted in 2009, and even more unlikely that it will pass in its present form. 


[1] The opinions in this article do not represent the official positions of Stein McEwen, LLP.    

[2] For simplicity, The Senate Bill (S.515) and the House bill (H.R.1260) will collectively be referred to as the “2009 Act”.

[3] Brent Kendall, Senate Panel Tweaks Patent Bill, Delays Significant Changes, Dow Jones Newswires  (March 29, 2009) (available at http://online.wsj.com/article/BT-CO-20090326-710952.html).

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