Patent Reform Vote in Senate Applauded, But House Debate Already Raises Issues

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The nation's capital was abuzz with patent reform talk throughout the week of the U.S. Senate's March 8 approval of a patent reform bill, S. 23. Optimism for a quick conclusion to the six years of congressional debate on the topic was short-lived, though, as two hearings in the U.S. House of Representatives exposed a continuing disagreement on some key issues.

In particular, the transition to a first-inventor-to-file (FITF) system of determining patent ownership and the opportunities for post-grant opposition in the Patent and Trademark Office remain debatable sticking points. Further, those are the challenges within the House Judiciary Committee only. Another battle with House appropriators seems likely if and when a bill makes its way to the full House floor.

An increasingly vocal and highly respected critic of the current patent reform efforts, former Federal Circuit Chief Judge Paul R. Michel, in fact, implored the House to “take its time and do it right,” because “the future of the country is at stake.”

Immediate Vote Reaction Generally Positive.

Within an hour after the 95-5 vote on S. 23, press releases lauding the Senate's action were issued by the American Intellectual Property Law Association, the Coalition for 21st Century Patent Reform, and the Biotechnology Industry Organization.

The administration was effusive, as messages of support were delivered immediately by President Obama and Commerce Secretary Gary F. Locke. “I look forward to working with the House of Representatives to pass patent reform legislation I can sign into law,” Obama said. PTO Director David J. Kappos actually preempted both, predicting the vote early on March 8 and adding, “We urge the House of Representatives to act on this legislation quickly.”

The approving associations joined the request for the House to move expeditiously, seemingly expecting few changes.

The Coalition for Patent Fairness, on the other hand, hinted at more conflict to come. The group, which represents major high technology companies primarily in Silicon Valley, thanked Senate leaders on patent reform “for their tireless efforts on working to secure patent fairness,” but added, “we continue to have concerns about the bill and could not support its passage at this time. As the bill moves into the House, we're looking forward to working with Members to address these concerns.”

The Innovation Alliance--whose high tech industry members are smaller than the CPF firms--expressed “concerns” as well, but was more specific. “In particular, we oppose the removal of the 'gatekeeper' compromise on damages achieved in the last Congress, as well as the creation of the new 'transitional post-grant review proceeding' for business method patents,” the group's Executive Director Brian Pomper said, the latter referring to a late amendment to S. 23.

House Interest Sparked Two Days Later.

Initially, the comments from both sides of the U.S. Capitol suggested that the House might move quickly. S. 23's primary sponsor, Sen. Patrick J. Leahy (D-Vt.), said, “Having coordinated with the leaders in the House through this process, I hope that the House will look favorably on our work and adopt this measure so that it can be sent to the President without delay.”

Also reacting immediately, Rep. Lamar S. Smith (R-Texas), chairman of the House Judiciary Committee with responsibility for crafting that chamber's bill, said, “The House will introduce similar legislation this month that will help turn the ideas of American innovators into companies and jobs.”

Smith also made his thoughts known about key issues. “Adopting a first-inventor-to-file standard creates certainty about patent ownership and makes it easier for American innovators to apply for patents around the world,” he said. “The post-grant review process helps to reduce frivolous lawsuits filed by holders of weak or overbroad patents. And allowing for the third party submission of prior art helps prevent bad patents from being granted in the first place. These are just a few of the many provisions for which there is widespread support.”

FITF Issues Raised in House Subcommittee Hearings.

However, the House Judiciary Committee Subcommittee on Intellectual Property, Competition, and the Internet had already scheduled hearings March 9 and 10, and questions arose in each whether there was in fact widespread support on the FITF and PGR provisions.

The first hearing was titled “Driving American Innovation: Creating Jobs and Boosting our Economy,” and included three witnesses responsible for research and development efforts--two in a university setting and one in a corporation, Rosetta Stone Inc. But while the lawmakers praised the witnesses' inventions and future plans, their comments and questions suggested that progress on patent reform in the House may not be so smooth.

For example, full committee Ranking Member John Conyers Jr. (D-Mich.) mentioned that the House could ratify the Senate bill, but added, “I am not so sure. Locked up in [S. 23] are some huge issues around first-to-file and other things I think have to be carefully examined.” In his questioning of the witnesses, Conyers further identified his concern that the needs of “universities, individuals, and 'garage type' inventors” were not adequately addressed by the pending patent reform legislation.

One witness--Scott Smith, chair of the Department of Mechanical Engineering and Engineering Science at the University of North Carolina at Charlotte--opined that FITF “seems likely to hurt individual inventors and small companies” in that those applicants “do not have the resources to engage in a race to the patent office for every potentially patentable idea.”

Smith recognized that the S. 23 proposal is not exactly a “first to file” system in that it allows an inventor to publish the invention and then have a 12-month grace period in which to file the application. The grace period is critical in university research, he said, where “its imperative to publish causes many inventors to publish their ideas before the full patentability and commercial value has been determined.”

The “Review of Recent Judicial Decisions on Patent Law” hearing was held March 10 and generated considerably more debate among the subcommittee members and the three witnesses: Dan L. Burk, professor of law at the University of California, Irvine; Andrew J. Pincus of Mayer Brown Washington, D.C., representing the Business Software Alliance; and Dennis D. Crouch, professor of law at the University of Missouri School of Law and “Patently-O” blogger.

The ostensible reason for the hearing was to determine whether the U.S. Court of Appeals for the Federal Circuit and the U.S. Supreme Court have adequately addressed the highest patent reform imperatives in 2005--injunctions, the standard for obviousness, the availability of declaratory judgment claims, willfulness, reasonably royalty calculations for damages, and venue transfers. The resounding answer from each of the three witnesses on each issue was “yes,” but each also offered commentary on FITF, usually in response to committee members' prodding.

Burk urged the House to take a cautious approach because adapting the FITF approach “would be enormously disruptive to nearly 200 years of settled patent law in this country.” It is unclear, he said, whether “the very considerable costs are worth the potential benefits.”

Pincus said that the BSA would support the change to FITF, but only if the House adds a provision for prior user rights. He argued that software companies often choose not to file applications for patents, not sot that they can keep their inventions as trade secrets, but because they believe the inventions are not patentable or that the commercial opportunities for the invention are short-lived or otherwise inadequate to justify patenting.

Coordinating, Loosening PGR, Inter Partes Reexam.

Crouch had little to say about FITF, but quite a lot to contribute to the discussion of post-grant opposition modifications in S. 23. Indeed, in general, the March 10 hearing raised the spectre that those concerns might be more controversial even than FITF.

S. 23 sets up a “first window” post-grant review allowing a challenge to a patent on any grounds within nine months after issuance, and it further modifies inter partes reexamination--renamed as inter partes review--setting a higher bar for the challenger to make the case for review and also raise the estoppel effects of such a challenge.

The changes in the bill create two problems. First, those favoring inter partes reexamination object to its diminishing role in patent challenges. Second, the proceedings add work for the PTO at a time when its Board of Patent Appeals and Interferences is already well behind in its backlog of cases.

The typical patent challengers--the BSA and Coalition for Patent Reform, especially--maintain their calls to keep post-grant opposition more flexible than S. 23 would allow. Pincus said, “Since many patent cases involving our members are surprises--where the defendants had never heard about the patent before the suit was filed--we urge the committee to avoid limitations that would eliminate the utility of this important tool in enabling the PTO to correct its mistakes.”

Crouch put the PTO's problem in the spotlight, noting that the Supreme Court's obviousness ruling in KSR International Co. v. Teleflex Inc., 550 U.S. 398, 82 USPQ2d 1385 (2007) (74 PTCJ 5, 5/4/07), contributed to the increase in reexamination filings. “Unfortunately, nothing in the proposed legislation does anything directly to alleviate this burden,” he said.

Crouch asked the committee to consider restoring a provision that was in earlier patent reform bill--granting increased substantive rulemaking authority to the PTO. He said, “the process of examining patents for obviousness … seem[s] to be one best left to the administrative agency.”

Michel Passionate About Post-Grant Opposition.

Michel--who had already appeared in one of two earlier House hearings (81 PTCJ 484, 2/18/11)--commented on the patent reform legislation both a March 8 breakfast meeting hosted by BroadbandCensus.com and titled “Patent Reform in the 112th Congress” and at the March 11 “patent day” portion of the annual conference of the Institute for Intellectual Property and Social Justice at Howard University, Washington, D.C.

Michel argued that, while S. 23 contains a number of beneficial provisions, ”it doesn't focus on the biggest problems--faster and stronger remedies to patent-related conflicts.” He particularly criticized the call for more flexibility in the post-grant proceedings, contending that the proponents of that idea basically want nothing more than the ability to tie up a patent challenge in the PTO indefinitely, or at least until the commercial value of the patent has run its course.

The former judge was most passionate at the IIPSJ conference, decrying the impact of a small number of companies--specifically the Silicon Valley members of the Coalition for Patent Fairness--on Congress's deliberations. “If only a dozen giant companies are heard,” he said, “that is certainly a social justice issue.”

Stakeholders' Views on FITF.

Michel was joined at the breakfast meeting by Pomper of the Innovation Alliance; Dana R. Colarulli, director of the PTO's Office of Governmental Affairs; and Hans Sauer, deputy general counsel at BIO.

As to the FITF issue, Sauer said that the changeover would really have little effect. First, he said, because members of the pharmaceutical and biotechnology industries almost always patent their innovations overseas--where first-to-file rules are already in effect--they are operating under a “de facto first-to-file system” today. Second, he added, those that want to keep inventions secret will continue to do so and risk others' decisions to patent, while those who choose to seek a patent are protected by the grace period if they simply describe their inventions on their websites and then proceed to write the patent application.

In an interview with BNA, Gary D. Fedorochko of Banner & Witcoff, Washington, D.C., disagreed. Just as Scott Smith had said in the first House hearing, that researchers may publish “before the full patentability … has been determined,” Fedorochko said that such website postings or other documents might not satisfy the written description requirements of 35 U.S.C. §112, most notably enablement. “You're publishing something less than a complete patent application,” he said. “To rely on that raises concerns. It gives a false sense of security with the date of invention, especially if the invention has not been reduced to practice” at the time of the publication.

Most stakeholders contacted by BNA were more likely to echo Dan Burk's concerns about disturbing the current first-to-invent system, “so rooted in our patent law,” as Albert L. Jacobs Jr. of Troutman Sanders, New York, said. “To put a premium on someone conceiving something and putting it on paper to get a date stamp doesn't strike me as fair,” he said.

Gerry Kraai of Lathrop & Gage, Overland Park, Kans., said unequivocally that FITF is “not an equitable system.” He added that anecdotal evidence from practitioners in Germany and Canada--countries which made the transition relatively recently--is that they are “disenchanted with” FITF.

Nonetheless, some stakeholders saw the change as almost inevitable. “I think the provision will remain intact and the bill ultimately will pass,” Brent K. Yamashita of DLA Piper, East Palo Alto, Calif., said, “because the first-to-file provision will streamline the operation of the patent office as well as patent litigation and will bring us in line with the practices of other industrialized nations, and these benefits will outweigh the concerns.”

Stakeholders' Views on PGR.

“Although the first-inventor-to-file system and the new post-grant review are steps towards harmonization with other international patent regimes, the new inter partes review process is a step in a different direction because it keeps open challenges to issued patents throughout the term of the patent even in light of the new nine-month post-grant review process,” attorneys at Bracewell & Giuliani, Houston--Constance Rhebergen, Jeffrey S. Whittle, Michael Samardzija, and Jonathon Hance--told BNA in a March 9 e-mail message.

Colarulli said the solution to the post-grant problems mentioned will ultimately depend on the PTO's rules and regulations implementing the S. 23 provisions. “The burden is on the office,” he said. He noted especially that the agency is building models for exactly how many administrative patent judges will be required, given the time frames required for the PTO to make a decision both as to PGR and the inter partes review.

When asked by an IP breakfast audience member, as to the new PGR procedure specifically, whether the PTO was up to the challenge, Colarulli said, “I think we are.”

However, as Michel noted at the IIPSJ conference, there is no enforcement mechanism in S. 23 should the PTO fail to meet the decision deadlines. BNA noted to other stakeholders that, assuming the patent community wants to ensure a quick turnaround, it may have to pay a significantly higher fee so that the agency can hire the number of APJs necessary. S. 23 will allow the PTO to set its own fees, and Kappos has said in the past that the fee for each task should reflect its cost.

Fedorochko expressed a view that has been rampant among stakeholders in the last year, though: trust that the PTO under Kappos would always seek the community's views before making any significant change, whether on fees or any other topic.

Fee Diversion Ban Praised Unanimously.

The problem for those willing to accept giving the PTO fee-setting authority is that, currently, there is no guarantee that additional fees would be used by the PTO. That is, even if the fees for PGR and inter partes review were raised high enough to hire enough APJs, congressional appropriators can still choose to use the additional revenues for uses other than on PTO operations.

The Senate accordingly added a ban on such “fee diversion” by amending S. 23 just before the vote. Every patent community stakeholder--whether at a conference or in a BNA interview--endorsed that provision wholeheartedly, imploring the House to follow suit.

However, as BNA recently reported, in reference to Kappos's budget presentation before the House Appropriations Committee's Subcommittee on Commerce, Justice, Science, and Related Agencies, the House's new budget cutters have not guaranteed that the PTO budget will match the user-fee revenues that it collects (81 PTCJ 596, 3/11/11).

Still, House Judiciary Committee members seem aware that deletion of the fee-diversion ban from the bill in the House could severely erode support for patent reform--an outcome Michel described as “a train wreck” for the patent system. Thus, a battle with House appropriators on that provision appears inevitable.

By Tony Dutra


S. 23 at http://pub.bna.com/ptcj/S23aspassedMar8.pdf

Michel is on this journal's advisory board.