As discussed in connection with a previous post (please click here), the Senate and the House of Representatives ("House") were each considering their own versions of bills to reform the patent system (S. 1145 and H.R. 1908, respectively), each bill sparking substantial debate among politicians, judges, special interest groups and businesses large and small, given the "sweeping" nature of their reforms.
On September 7, 2007, the House, by a 220-to-175 vote, endorsed an amended version of H.R. 1908 that would introduce several significant changes into the patent system. Endorsement of the House alone, however, does not mean that H.R. 1908 will become the law of the land this year. The Senate still has to act on S. 1145, and with lingering objections, including objections by the Bush administration and numerous professional organizations with substantial lobbying power, extensive negotiations may still have to occur before any changes are made to the current patent law landscape.
The following provides a discussion of some of the more interesting provisions of H.R. 1908, which survived heated debates in the House, as well as a discussion of comparable provisions in S. 1145, which is still under consideration in the Senate.
(1) Section 3. Right of the First Inventor to File. H.R. 1908 would convert the U.S. patent system from a "first-to-invent" to a "first-to-file" patent system, while still retaining the 1-year grace period for public disclosure by the inventor(s). The purpose for this change, in part, was to bring the U.S. patent system in-line with patent systems abroad. This conversion, however, does not take effect until after the President issues an executive order confirming that Japan and Europe have modified their "first-to-file" systems by adopting a 1-year grace period substantially similar to that in the U.S. The current version of S. 1145 does not currently contain this limitation.
(2) Section 5. Right of the Inventor to Obtain Damages. The highly debated "damages apportionment" provision of H.R. 1908 would give courts discretion to choose between three methods for determining a reasonable royalty for patent infringement. If the court determines that the reasonable royalty should be based on "a portion of the value of the infringing product or process" then the court would use the first method, which bases damages on the "economic value properly attributable to the patent’s specific contribution over the prior art." This method specifically excludes "the economic value properly attributable to the prior art."
If the court determines that "the patent’s specific contribution over the prior art is the predominant basis for market demand" then the court would use the second method, termed the Entire Market Value Rule, which bases damages on "the entire market value of the products or processes involved that satisfy that demand."
If the court determines that neither the first nor the second method is appropriate, then the court can consider "the terms of any nonexclusive marketplace licensing of the invention . . . as well as any other relevant factors under applicable law." This provision apparently relates, at least in part, to the Georgia Pacific factors, which courts generally use to construct a hypothetical negotiation in the determination of a reasonable royalty.
H.R. 1908, as endorsed, also includes a provision not found in the bill as introduced, which allows the court to consider, for an invention that simply combines prior art elements, whether the contribution over the prior art includes "the value of the additional function resulting from the combination, as well as the enhanced value, if any, of some or all of the prior art elements resulting from the combination."
The current version of S. 1145 takes a somewhat different approach. Specifically, damages are apportioned according to “the economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art” only if the Entire Market Value Rule and Established Royalty Analysis (e.g., established industry royalty rates for the patented technology) do not apply. The "combination invention" analysis similarly would not apply if the court uses either the Entire Market Value Rule or the Established Royalty Analysis.
(3) Section 5. Willful Infringement. H.R. 1908 still permits patentees to obtain up to treble damages for willful infringement, but only in connection with three specific scenarios where the infringer: (a) continued to infringe after (i) receiving written notice from the patentee sufficient to create "objectively reasonable apprehension of suit" (ii) that identified with particularity each claim, each allegedly infringing product/process, and the relationships between them, and (iii) "after a reasonable opportunity to investigate" the allegations; (b) intentionally copied the patented invention with knowledge that it was patented; or (c) engaged in the same or similar conduct that a court previously found to have infringed the patent, and which resulted in a separate finding of infringement of the same patent. The current version of S. 1145 does not differ significantly, if at all, from H.R. 1908 in this regard.
(4) Section 6. Post-Grant Procedures and Other Quality Enhancements. Pursuant to H.R. 1908, a person who is not the patent owner can file a petition to institute a proceeding with the U.S. Patent and Trademark Office ("PTO") to cancel any patent claim, provided that the petition is filed within 12 months of patent issuance, or if the patent owner consents in writing to the proceeding. The presumption of validity does not apply to this proceeding and the petitioning party need only show that a claim is invalid by a preponderance of the evidence. This provision, as endorsed by the House of Representatives, removed a hotly debated "second window" that would permit institution of a proceeding at any time, provided the petitioner could show "significant economic harm" or that it had received notice of infringement from the patent holder.
The current version of S. 1145 still contains a "second window" in that a petitioner can institute a proceeding if it (a) has substantial reason to believe that the challenged claim causes or is likely to cause the petitioner significant economic harm; and (b) the petitioner files a petition not later than 12 months after receiving notice of infringement from the patent owner. The presumption of validity would apply to proceedings instituted under this "second window."
(5) Section 11. Venue and Jurisdiction. With regard to venue, H.R. 1908 not only prohibits "manufactur[ing] venue by assignment, incorporation, joinder, or otherwise", but it further defines where a patent infringement or declaratory judgment action can be brought, including the following locations:
(a)Where the defendant has it principal place of business or is incorporated;
(b)Where the defendant committed a substantial portion of the infringing acts and has a regular and established physical facility that defendant controls and that constitutes a substantial portion of the defendant’s operations;
(c)Where the plaintiff resides, if the plaintiff is a qualified institution of higher education or qualified nonprofit organization;
(d)Where the plaintiff or a subsidiary has a place of business that is engaged in substantial research and development, manufacturing or management of such research and development or manufacturing;
(e)Where the plaintiff resides, if (i) the plaintiff is named as an inventor on the patent, (ii) has not assigned, granted, conveyed, or licensed the patent and (iii) is not under any obligation to do so; or
(f)If there is no other district in which the action may be brought under this section, where any defendant has substantial evidence and witnesses if there is no other district in which the action may be brought under this section.
The provisions of S. 1145 are similar, but S. 1145 further provides that the district court can transfer an action to any other district or division where (a) any of the parties has substantial evidence or witnesses; or (b) where venue would be otherwise appropriate under Section 1391, if such transfer would be appropriate under Section 1404.
(6) Section 11. Interlocutory Appeals. Despite letters from Chief Judge Michel of the Court of Appeal for the Federal Circuit, which expressed concern that permitting automatic interlocutory appeal of any order "determining claim construction" would unduly burden the court system, H.R. 1908 provides an opportunity to file an application to appeal the court’s claim construction within 10 days after entry of the claim construction order. Unlike the original version of the bill, however, the district court has discretion whether to approve the application and, if so, whether to stay proceedings in the district court. The current version of S. 1145 contains a similar provision.
(7) Section 12. Inequitable Conduct as a Defense to Infringement. Neither H.R. 1908 or S. 1145, as originally proposed, included provisions relating to inequitable conduct, however, H.R. 1908 as endorsed by the House included two provisions of interest. First, H.R. 1908 gives the PTO authority to require patent applicants, subject to certain exceptions for "Micro Entities", to submit a search report and other information and analysis relevant to patentability. Failure to do so could lead to abandonment of the application.
Second, H.R. 1908 provides an inequitable conduct defense to patent infringement for misrepresenting or failing to disclose "material information" to the patent examiner "with the intent to mislead or deceive." Information is material if: (a) a reasonable examiner would have used the information to make a prima facie finding, or maintain a finding, of unpatentability, and the information is not cumulative or (b) the information "refutes or is inconsistent with a position the applicant takes in opposing a rejection of the claim or in asserting an argument of patentability." Proof of intent requires "specific facts beyond materiality of the information misrepresented or not disclosed" and such facts may support "an intent to mislead or deceive if they show circumstances that indicate conscious or deliberate behavior on the part of the person to not disclose material information or to submit false material information in order to mislead or deceive the examiner."
Pursuant to H.R. 1908, if the court finds inequitable conduct, it can apply one of the following remedies: (a) denying equitable relief to the patent holder and limiting damages to a reasonable royalty; (b) holding the claims-in-suit, or the claim in which inequitable conduct occurred, unenforceable; (c) holding the patent unenforceable; or (d) holding the claims of a related patent unenforceable.
The current version of S. 1145 is similar, except that it provides, in part, that intent to deceive can be inferred, provided that the inference is not based solely on the gross negligence of the patent owner or its representative, or on the materiality of the information misrepresented or not disclosed.
(8) Section 13. Best Mode Requirement. Although neither H.R. 1908 nor S. 1145 contained a provision eliminating the best mode requirement, H.R. 1908 as endorsed provides that a patent cannot be held invalid for failing to comply with the best mode requirement. The current version of S. 1145 still does not contain a provision eliminating the best mode requirement.
(9) Section 14. Regulatory Authority. Although both H.R. 1908 and S. 1145 gave the PTO substantial authority to promulgate new regulations relating to the examination of patent applications, H.R. 1908, as endorsed by the House of Representatives, now states that this provision is simply a clarification regarding the scope of power previously granted to the PTO by paragraph (2) of 35 U.S.C. §2(b), and further establishes a process for Congress to review any new PTO regulations before they take effect.
Although the House has taken a significant step towards patent reform, there will likely be many more significant debates of these issues before any patent reform bill becomes law. Hopefully, the end result will strike the delicate balance between encouraging and rewarding innovation and protection against frivolous lawsuits. Stay tuned to this space for additional updates.