House Passes Legislation to Reform Patent System

Recently, the House of Representatives passed by a vote of 220 - 175, The Patent Reform Act of 2007 (H.R. 1908), to modernize the patent system. I was a cosponsor of the bill.

It has been 55 years since the law was last significantly updated. Today our patent system is overburdened with applications on trivial inventions and many now view patent litigation as a way to prevent competition or reap windfall profits.

Many improvements were made to the Patent Reform Act since it was introduced on April 18th, led by Chairman Howard Berman and Ranking Member Lamar Smith.

The biggest outstanding concern that I am aware of is the apportionment of damages and I will continue to work on that issue as the bill goes into conference. If there are any other significant concerns still floating out there I would like to hear about them.

The bill has been placed on the Senate calendar for further action. The Administration is promoting its strong support of patent modernization but has issued a Statement of Administration Policy (SAP) regarding their outstanding concerns about a few sections in the legislation, including the apportionment of damages. It is likely this legislation will continue to see changes as the legislative process continues.

The best way to pass along your feedback is through my Tacoma office at 253.896.3775. If you’d like, you may send inquiries about technology issues to: Linda.Danforth@mail.house.gov and for general business concerns or to invite me to visit your business or attend an events it’s best to contact: Roel.vanderLugt@mail.house.gov. I look forward to hearing from you.

Sincerely,

Adam Smith
Member of Congress


Highlights of H.R. 1908:

First-Inventor-to-File: The effective date of the change from a first-to-invent system to the international standard first-to-file system is conditioned upon a Presidential finding that other major patent authorities (principally Europe and Japan) adopt a 1-year grace period similar to that provided in the bill. This benefits academic researchers, small inventors and others who may want to file foreign applications.

Publication of Applications: As introduced, the bill would strike the exemption from publication for applicants who file only domestically. An expected amendment will delay publication for such applicants until the later of 18 months after filing or 3 months after a second office action. This will give an applicant sufficient opportunity to withdraw should she wish.

Assigned Applications: The amendment to §118 is deleted. As a result, an assignment of rights must be in writing and patents will issue in the name of the inventor.

Damages: The original bill seemed to require apportionment in all cases. As amended, it is only 1 of several methods a court can use in awarding damages, including the use of the current approach (15 Georgia-Pacific factors). Moreover, apportionment no longer applies to damages based on lost profits. Another change allows plaintiff to recover the enhanced value of previously known elements where their combination in the invention adds value or functionality to the prior art.

Prior User Rights: The expansion of prior user rights (defense of earlier inventor) beyond business method patents has been entirely removed from the bill.

Post-Grant Review: The “2nd window” for challenging a patent through post-grant review has been eliminated. A cancellation petition must be filed within 1 year of patent issue. Although an inter-partes reexamination can still be instituted at any time, the grounds for doing so remain limited to documentary prior art. In both cases, review will be conducted by specially qualified Administrative Patent Judges rather than examiners. The pendency of post-grant review will not affect the ability to bring an infringement action. An expected amendment will extend the estoppel provision to prevent a losing challenger from relitigating patent invalidity in International Trade Commission cases.

Tax Planning Patents: Among the most controversial business method patents are those claiming novel methods for reducing or deferring a taxpayer’s tax liability. Many have expressed concern that putting an official imprimitur on tax avoidance strategies, and granting a private monopoly to practice such strategies, undermines tax policy. Compliance with U.S. laws ought not be within the control of private individuals. Accordingly, tax planning methods will no longer be patentable after the effective date of the bill.

Venue and Interlocutory Appeals: Venue based on plaintiff’s residence (a unique feature of this bill) is preserved for most categories of patentee (including universities, individual inventors and manufacturers). There are now seven distinct ways for plaintiff to establish proper venue. Interlocutory appeal of claim construction rulings (“Markman” orders) is now discretionary with the district court rather than of-right, as is any stay pending a permitted appeal. The special venue transfer provision in the original bill is eliminated.

Best Mode: The “best mode” requirement of §112 (“The specification shall … set forth the best mode contemplated by the inventor of carrying out his invention”) is frequently used as a defense in patent infringement cases to invalidate a patent. Because it is a subjective factor going to state of mind (what did the inventor “contemplate”) it adds considerable uncertainty to patent validity. The bill now removes “best mode” as a defense in infringement cases.

Regulatory Authority: It is important that the Patent and Trademark Office have sufficient regulatory authority to assure quality and timely patents. But to maintain close Congressional oversight, an amendment will be offered to impose a “report and wait” requirement on PTO. Promulgated rules will not take effect before 60 legislative days, to allow for a Joint Resolution of Disapproval.

Inequitable Conduct: The bill now codifies the judicially-made doctrine of inequitable conduct and incorporates PTO Rule 56 to specify an applicant’s duty of candor. Intent to deceive the Office must be proven separate from the materiality of withheld or misleading information. Where inequitable conduct is found, a judge may impose sanctions ranging from denial of equitable relief and lost profits to holding the patent or related patents unenforceable.

Studies: The amended bill has several study provisions to assure that the reforms included in H.R. 1908 will have their intended effects. These include studies and reports on the new first-inventor-to-file system, on reexamination proceedings, on special masters, on the new damages provisions, and on examiner workplace conditions.