Resource Management

SPECIAL SECTION/RESOURCE MANAGEMENT: Patently Different

June 1, 2008
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While some of the changes included the Patent Reform Act of 2007 would be relatively minor, others could dramatically alter the legal landscape of patents.



The Patent Reform Act of 2007 (H.R. 1908; S. 1145) recently passed the House and is currently on the legislative calendar in the Senate. As with previous legislative attempts to reform the U.S. patent system, the Patent Reform Act of 2007 would institute changes in all aspects of the patent system. Some of the changes would be relatively minor, while others would dramatically alter the legal landscape of patents.

First to Invent vs. First to File

Currently in the U.S., when two or more inventors claim the right to essentially the same invention, the inventor who was “first to invent” is entitled to receive a patent. Thus, when a priority dispute arises between two very similar pending patent applications, it is incumbent upon the inventors to provide evidence as to who invented first. This is further complicated by a requirement that there be diligence in reducing the invention to practice in order to be able to claim the original date of conception as the earliest priority date.

By contrast, the Act would replace the current “first to invent” system with a “first to file” system similar to those found in most other countries. Implementation of a first to file system would thus simplify matters by eliminating the need to prove the date an invention was first reduced to practice by granting priority to the inventor who first filed the application with the Patent Office.

While a first to file system might appear to handicap the small or solo inventor who lacks the resources enjoyed by inventors backed by large corporations or universities, the current first to invent system is likewise not very kind to small inventors. Presently, if two patent applications claim essentially the same subject matter, a proceeding called an “interference” is initiated. With average costs well into six figures, the highly technical interference proceeding already hinders inventors who lack extensive financial resources.

The Act would offer limited recourse to inventors who claim they are entitled to receive a patent for an invention despite the fact they were not the first to file an application. A newly created “derivation proceeding” would determine which of two inventors was entitled to a patent regardless of which was first to file a patent application. However, a derivation proceeding would only be available when a purported inventor could show that the earlier applicant derived the invention from and filed the application based on the work of the inventor initiating the proceeding. The derivation proceeding would provide no relief for an inventor who simply was too slow to file an application.

Expanded Third-Party Opportunities

The previously confidential patent application process was opened somewhat to the public when the Patent Office began publishing most patent applications 18 months after filing. The Act would open up the application process further by greatly expanding the right of third parties to submit prior art to the Patent Office.

Currently, third parties have a very narrow window of opportunity to submit published materials for consideration by the Patent Office during the examination of someone else’s patent application. The Act would expand this window of opportunity to the earliest of: 1) issuance of a notice of allowance, or 2) the latter of six months after publication of the application or rejection of any claim by the patent examiner. In order to prevent third parties from burying patent examiners in paperwork and slowing the examination of patent applications to a crawl, each third party submission would have to be accompanied by a detailed explanation as to why the submission is relevant to patentability, along with a fee.

Micro-Entities

The most pro-inventor proposal in the Act is the creation of the “micro-entity” category. The existing “small entity” category cut many Patent Office fees in half for certain classes of inventors that were smaller and presumably had access to fewer resources than so-called large entities.

A micro-entity would be limited to an inventor who is named on fewer than five patents and/or applications and has a gross income of less than 2.5 times the national average gross income. The micro-entity designation is clearly targeted at aiding the proverbial “garage inventor,” although the Act does not detail just what reduction in fees (if any) those who receive the designation will receive.

Review Procedure

How patents are treated after they are issued would also be changed by the Act. Current reexamination procedures would be scrapped and replaced with a post-grant review procedure. The new review procedure could be initiated: 1) within 12 months of issuance of a patent, 2) within 12 months of an actual or constructive notice of infringement, or 3) with the consent of the patent holder. In the case of procedures initiated within 12 months of issuance of a patent, the patent will not enjoy any presumption of validity and the challenging party must only show by a preponderance of the evidence that the patent is invalid.

These changes are a departure from the current situation, where a patent is presumed valid after it issues and a challenging party must show by a higher “clear and convincing evidence” standard that a patent is invalid. Patents reviewed under proceedings initiated under the remaining two circumstances will still enjoy the presumption of validity and the clear and convincing standard.

Litigation Changes

As dramatic as the proposed changes to the application process might seem, the changes to patent litigation contained in the Act will cause even more of a stir. Specifically, the Act makes changes in the areas of damages calculations, venue selection, and application of the defense of inequitable conduct.

The proposed damages reforms would attempt to reign in what many in the business community see as excessive awards in patent infringement cases. The Act would codify how a “reasonable royalty” is calculated when assessing damages. The Act would also narrow when a finding of willful infringement can be established and its corresponding increase in damages by up to three times. A “good faith” defense against charges of willful infringement is also explicitly codified by the Act so as to protect a defendant that has “an informed good faith belief that the patent was invalid or unenforceable, or would not be infringed by the conduct later shown to constitute infringement of the patent.”

The Act also addresses the perceived problem of plaintiffs filing patent infringement cases in certain district courts that have gained a reputation for favoring patent holders or awarding unusually high damages for patent infringement. Such venue shopping would be curtailed by the Act by limiting venue to: 1) the district where the defendant is incorporated or has its principal place of business, 2) the district where the defendant has committed substantial infringing acts and has a substantial portion of its operations, and 3) the district where the plaintiff resides under certain, limited circumstances. Improper shifting of venue by assigning patents or incorporating in a more favorable district would be prohibited.

As the patent applicant has a duty of candor to the Patent Office during the application process, charges of inequitable conduct and fraud on the Patent Office have become common defenses in patent infringement cases. The Act would limit claims of inequitable conduct to instances where an action or omission would have been considered material to the issue of patentability by a reasonable examiner. Even in such cases where the court finds inequitable conduct occurred, the court would still retain discretion as to the severity of the penalty applied to the patent holder.

Finally, the Act would allow for the immediate appeal of a Markman order, which is the trial judge’s ruling on the meaning and scope of the patent claims being asserted in an infringement suit. The Markman order is currently not appealable until after the case is concluded.  Even if the meaning or construction of the claims is later overturned by an appellate court, all of the proceedings following the Markman order (e.g., infringement and damages) must be re-litigated since they were based on erroneous claim interpretations.

Supporters of the Act argue that claim construction is so critical to the outcome of patent infringement cases that immediate appeal of the Markman order allows the parties to avoid the costs of potentially pointless litigation. Critics point out that such a change would only add another layer of appeal to the process, as at least one party will still appeal the final judgment even after the revised Markman order is applied.

Uncertain Future

The Patent Reform Act of 2007 is the latest attempt by Congress to reform the U.S. patent system. Like previous attempts, which failed to pass both the House and the Senate, the Act would alter all aspects of the patent system from applications to litigation. On the prosecution side, the greatest change would be to shift the U.S. from a “first to invent” to a “first to file” system of determining priority for applications directed toward substantially similar inventions.

Complaints by many in the business community about exceptionally large damage awards for patent infringement have also been addressed by proposed changes to how damages are calculated. With a presidential election looming in the fall, it is unclear just how much attention this bill will receive over the summer. What is clear, though, is that if the Patent Reform Act of 2007 is passed and signed, it will dramatically alter the U.S. patent landscape.

For additional information regarding patent reform, contact Brannon & Associates, PC, 1 North Pennsylvania St., Suite 520, Indianapolis, IN 46204; (317) 630-2810; e-mail john@brannonpatents.com; or visit www.brannonpatents.com.

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