Patent Reform Legislation 2009 – Back Again

Copyright 2009.  All rights reserved. 

Introduction

For the fourth time in the last six years, Patent Reform is back again. On March 3, 2009, Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) and Senator Orrin Hatch (R-Utah) introduced the new bill in the Senate, and House Judiciary Committee Chairman John Conyers (D-Mich.) and ranking minority member Lamar Smith (R-Texas) co-sponsored the identical version in the House. The Senate Judiciary Committee will hold a hearing on patent reform on March 10, 2009.

The latest effort at patent reform includes most of the portions of recent reform efforts, including:

• Reducing a reasonable royalty to prior art subtraction,
• Establishing a post-grant review process within twelve months of a patent issuing;
• Replacing our first-to-invent system with a first-to-file system;
• Limiting venue options; and,
• Permitting interlocutory appeal of claims construction order.

Unlike previous versions, this draft does not address inequitable conduct, although, Senator Leahy intends to continue working on that issue with Senator Hatch.

Patent Reform 2009 Provisions

Damages - Reasonable Royalty

The current patent reform bill has identical language to last year's bill proposing to amend how damages are calculated than last year's bill. While not new, it still would fundamentally change the current system. Under the proposed bill, the presiding district court judge, not the jury, would decide whether the patent holder should receive damages based on (1) the entire market value of the invention, (2) an established royalty based on marketplace licensing, or, presumptively, (3) a reasonably royalty limited to the value of the invention over the prior art, referred to as "prior art subtraction." This overhauls the current, multi-factored approach that has been in practice for decades, in which the jury considers a multitude of Georgia-Pacific factors to determine what would have resulted from a hypothetical negotiation on the eve of infringement between a willing licensee and a willing licensor. This will also mark the first time that prior art plays any role in a damages analysis.

Damages - Willful Infringement

The current effort at patent reform also seeks to change and limit willful infringement. Even though the Federal Circuit raised the standard of willful infringement in In re Seagate to an "objective recklessness" standard, the new proposal would further heighten that standard by only allowing a willful infringement award if the infringer (1) received written notice from the patent holder specifically identifying infringement by claim and product, and after a "reasonable opportunity to investigate," the infringer continues to infringe, (2) the infringer intentionally copied the patented invention with knowledge of the patent, or, (3) continues to infringe after an infringement finding by a court. In addition, a patent holder may not even plead willful infringement until a court has determined that the patent is not invalid, enforceable, and infringed. The court, not the jury, moreover, will decide willful infringement under this proposal.

First-to-File System

Like other efforts, this bill proposes to change the United States patent system from first-to-invent to first-to-file. In other words, there will be a race to the patent office. This would put the United States in line with the international community. Under a first-to-file system, an inventor will not be able to swear behind prior art by claiming an earlier invention date. The priority date will be the filing date. The advantage to the first-to-file system is to provide certainty and transparency to a patent's priority date. At the same time, however, this will likely result in the availability of more prior art.  

Post-Grant Review

The current bill seeks to add a new procedure of post-grant review called a cancellation proceeding, which would allow any third-party the ability to challenge any claim in an issued patent within twelve months of issuance. The third-party may remain anonymous and can submit patents, printed publications, or sworn-statements of others relating to prior use. The PTO must decide whether to accept the cancellation petition within sixty-days and, if accepted, the Patent Trial and Appeal Board must make a final decision on the merits within one year, absent good cause. The patent holder will have a chance to respond in writing. The PTO may provide for discovery during the cancellation proceeding. During the cancellation proceeding, there is no presumption of validity and the party seeking cancellation must only prove invalidity by a preponderance of evidence. The final decision of the Patent Trial and Appeal Board in a cancellation proceeding may be appealed to the Federal Circuit. Once the cancellation proceeding is final, the cancellation petitioner may not later challenge the validity of any claim that was challenged in the cancellation proceeding and determined to be patentable.     

Venue

The new bill seeks to curtail venue options for a plaintiff. While earlier efforts at reform focused only on patent holders, this amendment applies to both patent holders filing a complaint for patent infringement and an alleged infringer filing a declaratory judgment action. In general, the plaintiff is limited to the venue where the defendant has its principal place of business, the place the defendant is incorporated, or the location where the defendant has committed substantial acts of infringement and has a physical location. This differs substantially from the current approach under 35 U.S.C. § 1400, in which a patent holder may sue an alleged infringer in any venue where the alleged infringer is subject to personal jurisdiction.  

Interlocutory Appeal

This patent reform effort also proposes interlocutory appeal to the Federal Circuit of claims construction orders. While not a mandatory right, courts would have discretion to approve an application for appeal and the discretion to stay the proceeding pending the appeal, if a party files an appeal with the district court within ten days of the claims construction order.

Conclusion

For over 200 years our carefully crafted intellectual property laws have been the driving force for innovation and progress in the United States. Given this history, and the constitutional underpinnings, any changes to patent policy and the Nation's patent laws must be undertaken with great care and with consideration of their long-term impact.