Time for a change

The Patent Reform Bill 2010 is the latest incarnation of an initiative that has been in the pipeline for several years. In 2005, 2007 and 2008, senators tried to pass reform bills, but they petered out in the face of opposition or ran out of time in the congressional session. The April 2010 Managers’ Amendment is an amended version of the 2009 iteration, proposed by Republican and Democrat senators.

Given that US patent laws have not been significantly reformed in more than 50 years, most agree that some updating is necessary, if only to take account of the changes to the IP landscape that have taken place in the interim. There are also concerns over the seemingly limitless lawsuits surrounding patents and the sense that damage awards have spiralled out of control.

To this end, the proposed bill outlines significant changes. Some are relatively uncontroversial. The bill will change the current ‘first to invent’ system to a ‘first to file’ system, bringing the US in line with most of the rest of the world. This has several advantages, the most notable being that the majority of companies that want patent protection worldwide are already obliged to work on a first to file basis in other jurisdictions, so it makes sense to have a uniform approach—about half of US patents have foreign priority anyway.

Additionally, it is far easier to demonstrate that someone filed a patent for a technology first than it is to demonstrate that they invented it first. In reality, the new provision won’t make a difference to more than a handful of cases, but it provides important certainty to users of the patent system.

More contentiously, the bill also proposes changes to the calculation of damages in patent litigation. The 2010 bill has backed off earlier proposals, which would have seen damages calculated with reference to the specific contribution of a patent over the prior art. It proposes that a judge “identify the methodologies and factors that are relevant to the determination of damages, and the court or jury, shall consider only those methodologies and factors relevant to making such determination”.

This so-called ‘gatekeeper’ provision is designed to ensure that juries in particular only decide damages based on facts that are strictly relevant to the case, and should mean that extravagant and unjustified damages awards are a thing of the past.

While the new provision will be welcome, like the first to file change, it should have a relatively limited impact. In theory at least, juries are already only supposed to consider relevant information when deciding damages. The main change may be in providing more grounds for appeal, as parties challenge the definition of relevant information as well as any damages awarded.

More significant from a litigation standpoint are the proposed changes to how courts look at ‘wilful infringement’ and ‘inequitable conduct’. If the court finds wilful infringement, it is able to triple any damages award. But the new bill raises the threshold for demonstrating that someone has wilfully infringed a patent.

If the bill becomes law, those alleging wilful infringement will have to demonstrate that there was ‘objective recklessness’ in the infringer’s conduct. Mere knowledge of the patent will not be sufficient to find wilfulness, nor even will failure to consult counsel necessarily result in a finding.

On inequitable conduct, the new bill allows for a patent holder to request a supplemental examination, prior to any litigation, to examine any additional information relevant to the patent. If the US Patent and Trademarks Office (USPTO) issues a revised certificate, then the patent cannot be held unenforceable because of any additional information missing from the initial application.

However, the new provision does not remove the possibility of punishment for criminal or deceptive conduct, and a supplemental examination will not be possible after litigation has begun.

John Pegram, senior principal at Fish & Richardson in New York, says that the compromises on wilful infringement and inequitable conduct are helpful. “If someone does something really odious, the judge would still have the authority to deal with it,” he adds.

“What is interesting is the proposal to keep the wilful infringement issue away from a jury if the judge determines that there is a close case as to infringement, validity or enforceability. A complete bar of jury trials of wilfulness would raise the question of whether there should be other kinds of jury trials in the US, and lots of personal injury lawyers, for example, wouldn’t want it,” he says. “But the changes should stop people unnecessarily trying to drag issues of intent into cases.”

“If the bill be comes law, those alleging wilful infringement will have to demonstrate that there was objective recklessness in the infringer's conduct.”

Further simplifying the litigation process is the removal of the ‘best mode’ requirement from patent applications. This currently requires patent applicants to disclose the best mode of application of their technology. This creates unnecessary burdens on applicants and makes patents more difficult to defend in court. There is also a provision proposed to transfer a patent action to another court “upon a showing that the transferee venue is clearly more convenient than the venue in which the civil action is pending”. This should discourage the practice of bringing cases in so-called ‘friendly’ courts.

But while changes to patent litigation will have a positive effect on the standard of cases that reach court and the standard of decisions that the courts make, some say they won’t address the central problem with patents in the US—the effectiveness of the USPTO.

David Kappos, head of the USPTO, said in a speech in November last year that “the time is now to get patent reform done”. His organisation is widely respected, but resource constraints have resulted in a considerable backlog of patent applications, which has slowed down the whole procedure. Some also complain that the examination processes at the agency do not produce patents of sufficient quality, which in turn leads to more litigation and less certainty for patent owners and potential infringers alike.

The reform bill does set out ways to improve the lot of the USPTO. Potentially, the most important of these is the proposal to give it feesetting authority. For an agency that struggles with budgets that are generally acknowledged to be too small, this could make all the difference. But as Pegram says, just because the agency would have the power to increase its fees, doesn’t mean that it would necessarily have access to more money.

“The Appropriations Committee of the House of Representatives can divert fees from the patent office to other projects. To make an exemption in this case might be seen as an attack on the committee, which justifiably feels it plays an important role in providing checks and balances to government spending,” Pegram says.

The bill also aims to improve patent quality by introducing a new 'post-grant review' and a new 'inter partes review' before the renamed Patent Trial and Appeal Board. These procedures would replace the current inter partes re-examination by regular examiners.

Any issue of invalidity could be addressed in post-grant review, whereas inter partes review would be limited to a review of novelty and obviousness based on prior patents and printed publications. Both procedures should make the process more robust and, in theory, improve patent quality.

However, there will be different thresholds for beginning each of these new procedures, above the current ‘substantial new issue of patentability’ threshold for re-examination, and the period for requesting these reviews will be restricted—unlike inter partes re-examination. The only cases subject to review will be those where it prima facie appears that there is some likelihood that at least one patent claim will be invalidated.

It would be available only within nine months after the grant or reissue of a patent or—in the case of inter partes review—after nine months from issue or reissue or termination of post-grant review. These procedures normally will take 12 months; however, because of the current backlog of more than 12,000 ordinary appeals at the board, they will not take effect for one year and the USPTO will be permitted to limit the number of inter partes reviews in each of the next four years.

Despite all the positive signs, and the fact that the proposed reform is nowhere near as radical as some of its predecessors, there is no guarantee that patent reform will happen any time soon, though “the prospects are better than at any time in recent history”, according to Pegram.

A measure of the bill’s likelihood of success can be found in the reactions to it across the political and patent-user spectra. IBM, the largest patent filer in the US, supports the reform.

“The leadership of Senators Leahy, Sessions and others has forged a compromise bill that works for all members of the intellectual property community and represents real progress on patent reform,” says Robert Weber, senior vice president at IBM. “Modernising the patent system, as outlined in this bill, will protect inventors and promote innovation.”

Intellectual Ventures, a non-practising entity that aims to create a patent marketplace through invention and licensing, says: “We very much support federal legislation that improves patent quality, maintains an inventor’s right to protect his/her invention and encourages investment in invention. We think passing a bill will benefit the entire IP industry by bringing certainty to those, like IV, who are engaged in the business of invention.”

So if industry likes it, the patent office likes it and lawyers like it, perhaps the bill can succeed where others have failed. Arguably the biggest element in its favour lies in the wide political support the idea enjoys. The April 2010 proposal is bipartisan, endorsed by Democratic and Republican leaders of the Senate Judiciary Committee, including the Democrat Chairman Senator Patrick Leahy and Republican Orrin Hatch, who jointly introduced the 2009 version.

Hatch says: “Senator Leahy has worked tremendously hard to get this proposal where it is today and he should be commended for it. This bill doesn’t include all the changes I originally sought, but I believe we must come together to reform our patent system. It’s the right thing to do.”

Leahy agrees: “This compromise may not be everything that everyone wants, but it makes important reforms to the outdated patent system. Strengthening American patents will improve the quality of our inventions and innovations...Congress is committed to strengthening our economy, and the Patent Reform Act is an important component of that effort. I hope the leaders will soon schedule floor time for this important legislation.”

The message seems to be that if you can’t please everyone, you can at least reach a compromise that doesn’t upset anyone. And it’s worth remembering that the last time the US enacted major healthcare reform was in the 1960s. Modern patent law came into effect in 1952. Reform is long overdue.