Senate Approves S. 23 Patent Reform Bill; First-to-File Likely Focus of House Debate

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The U.S. Senate voted 95-5 March 8 to approve a patent reform bill, S. 23, with significant changes to operations and patent challenges at the Patent and Trademark Office but virtually no litigation reform--the original impetus for bills first introduced in 2005.

The last vestiges of modifications to infringement proceedings in district courts--rules on determining damages, willfulness, and venue transfer--were eliminated from S. 23 prior to the vote.

The two key areas in which debate is likely to move to the U.S. House of Representatives are the transition to a first-inventor-to-file (FITF) system of determining patent ownership and the flexibility in allowing challenges to patents just after issuance, in the form of a new post-grant review (PGR) procedure to challenge patent validity on any grounds in the nine-month period after issuance and limits on inter partes reexamination.

Amendments that would have killed FITF or expanded PGR and inter partes opportunities were either withdrawn or defeated early in the Senate floor debate (81 PTCJ 547, 3/4/11).

The House Judiciary Committee Subcommittee on Intellectual Property, Competition, and the Internet scheduled hearings March 9 and 10 that are likely to touch on patent reform issues, but there is no clear indication yet that the House attaches any emergency to patent reform, especially given the high priority of legislation covering the administration's budget for fiscal years 2011 and 2012.

Litigation Changes Minor.

Patent reform has generally been directed to modify the patent system in three ways: litigation, the procurement of patents, and challenges to patents in the PTO after issuance.

As to litigation, the willfulness provision was deleted by the Senate Judiciary Committee, and the damages and venue provisions were erased March 1 during Senate debate, in a 97-2 vote on a managers' amendment, No. 121, offered by the bill's primary sponsor, Sen. Patrick J. Leahy (D-Vt.), along with Sens. Charles Grassley (R-Iowa) and Jon Kyl (R-Ariz.).

The only litigation-related provisions remaining in the S. 23 version approved by the Senate are:

• Patent marking. The bill would effectively eliminate qui tam complaints of false patent marking under 35 U.S.C. §292(a). A bill in the House, H.R. 243, would go one step further by setting the penalty for false marking at $500 per decision, rather than for each falsely marked item (81 PTCJ 312, 1/14/11).

• Best mode. S. 23 would eliminate an alleged infringer's ability to argue that the patent owner did not identify the best mode for enablement in the patent specification. The PTO retains the ability to reject an application for lack of best mode disclosure, but such rejections are reported to be rare.

• Litigation Against PTO in Virginia. The bill would change the location of litigation against the PTO to the U.S. District Court for the Eastern District of Virginia, rather than the federal court in the District of Columbia, as is now statutorily required. Though some in the patent community have challenged this provision (81 PTCJ 501, 2/18/11), it has not been a topic of discussion in either chamber of Congress.

• Jurisdiction Clarification. The bill confirms that state courts do not possess jurisdiction to hear claims for relief under the patent, plant variety protection, and copyright laws.

One other change to the appellate process was not directed to litigants.

• End to the Baldwin Rule. The bill eliminates the so-called Baldwin rule, requiring U.S. Court of Appeals for the Federal Circuit judges to live within a 50-mile radius of the court. The managers' amendment made clear, however, that this did not mean that judges choosing to live farther away will be provided facilities or administrative support anywhere but at the court's Washington, D.C., site.

PTO Funding Changes Major.

Two provisions are fundamental to the changes related to the PTO--whether in terms of procuring a patent or challenging one that has issued. They address how the PTO, a self-funded government agency, pays for the resources it needs to provide its services.

• PTO Fee Setting Authority. The bill would allow the PTO to set patent and trademark application and maintenance fees without Congress's prior approval, “provided that patent and trademark fee amounts are in the aggregate set to recover the estimated cost to the Office for processing, activities, services, and materials relating to patents and trademarks, respectively, including proportionate shares of the administrative costs of the Office.”

• End to Fee Diversion. The fee diversion ban was approved in the managers' amendment, though Sen. Tom Coburn (R-Okla.) is largely responsible for its inclusion.

Currently, congressional appropriators control the funds collected by the PTO from patent applicants and owners, and have in the past diverted an estimated $800 million of those funds to other non-patent government purposes. The bill would establish a “USPTO Revolving Fund” to ensure that funds collected by the PTO remain under the agency's control until expended.

The House Judiciary Committee introduced a bill with only the fee setting and fee diversion ban provisions in 2010 (80 PTCJ 79, 5/21/10), but the 111th Congress ended without any action on that measure.

During the Senate debate, Sen. Orrin G. Hatch (R-Utah) called the inclusion of the ban on fee diversion “a historic moment,” indicating the difficulty in that body of getting agreement. But he followed that by stating the hope that the House would join the Senate in that historic moment, seemingly concerned that the votes are still not guaranteed in the other chamber.

It is certainly understandable that the House Appropriations Committee is reluctant to give up control over the funds, and the question remains whether the lack of opposition by their counterparts in the Senate portends a similar acquiescence in the House.

One more amendment was directed to PTO operations generally.

• Satellite Offices. An amendment, No. 117, proposed by Sen. Michael F. Bennet (D-Colo.), requires that the PTO set up three or more new satellite offices--including the Detroit office previously announced (81 PTCJ 248, 12/24/10)--subject to the availability of funds.

Provisions on Obtaining Patents.

S. 23 contains a considerable number of provisions changing the process of obtaining a patent.

• Transition to First-Inventor-to-File System. The bill would bring the U.S. patent system in line with the rest of the world by switching from a first-to-invent to a first-inventor-to-file system. Inventorship fights would be simplified and those filing the same patent application in multiple countries would, according to proponents, have fewer priority concerns.

However, the so-called “harmonization” with foreign jurisdictions is not precise. The proposed system retains a grace period such that an inventor who discloses an invention publicly in some manner has 12 months to file a patent application and claim first-inventor-to-file status.

An amendment introduced by Sen. Dianne Feinstein (D-Calif.) to kill the provision was defeated 87-13, but there is no doubt the issue will be revived in the House.

• Ban on Tax Strategy Patents. Under the provision, any strategy for reducing, avoiding, or deferring tax liability would be considered insufficient to differentiate a claimed invention from prior art, such that the inventions would not be eligible for patenting by reason of anticipation.

An amendment, No. 141, by the provision's sponsors, Grassley and Sen. Max Baucus (D-Mont.), clarified that the ban did not apply to “an invention that is a computer program product or system used solely for preparing a tax or information return or other tax filing.”

• Inventor's Oath and Assignee Filing. The bill eases the ability for employers and other assignees to file patent applications in lieu of the named inventors.

• Priority Examination for Technologies Important to American Competitiveness. An amendment, No. 124, by Sen. Robert Menendez (D-N.J.) allows the PTO to “provide for prioritization of examination of applications for products, processes, or technologies that are important to the national economy or national competitiveness without recovering the aggregate extra cost of providing such prioritization.”

Menendez modified the amendment before its approval by deleting examples of technologies he had in mind: “green technologies designed to foster renewable energy, clean energy, biofuels or bio-based products, agricultural sustainability, environmental quality, energy conservation, or energy efficiency.”

• Patent Ombudsman Program for Small Business Concerns. An amendment, No. 123, by Sens. Mark S. Kirk (R-Ill.) and Mark L. Pryor (D-Ark.) would require that the PTO create an “ombudsman program.” That amendment reads: “The duties of the Program's staff shall include providing support and services relating to patent filings to small business concerns.”

• Fast Track Discount for Small Businesses. The managers' amendment included a provision allowing the PTO to give a 50 percent reduction in application and search fees for small entities requesting “fast track” processing of patent applications. The “Track One” proposal is expected to be implemented soon (81 PTCJ 464, 2/11/11). The program expedites processing of an application, with a likely decision on the invention's patentability within one year from the application filing date, compared to the current average of just under three years. The fee for small entities after discount would be $2,400.

• Micro Entity Fee Reductions. The bill would give a 75 percent reduction to a new category of applicants--individuals and small businesses that file few applications and earn less than a certain threshold.

An amendment, No. 143, by Sen. Harry Reid (D-Nev.) provides that the definition includes universities that participate in the National Science Foundation's Office of Experimental Program to Stimulate Competitive Research (EPSCoR) program.

• Pre-Issuance Submissions of Prior Art. The provision would allow third parties to submit prior art for consideration and inclusion in the record of a patent application after it is published but before an examiner has made a decision on its patentability.

Provisions on Challenging Issued Patents.

While FITF and grace period provisions may be the most hotly contested as debate moves to the House, opposition to those terms are relatively new. Concerns about post-grant opposition procedures have, on the other hand, been debated for some time.

• 'First Window' Post-Grant Review. The new PGR procedure would allow post-grant opposition on any grounds in the first nine months after a patent issues.

• Special PGR for Business Method Patents. The managers' amendment also created a pilot program for a special proceeding at the PTO for business method PGR challenges. A defendant in a lawsuit claiming infringement of a business method patent could seek to stay litigation by commencing the PGR proceeding with the PTO, and if denied, could make an interlocutory appeal to the Federal Circuit.

The amendment defines a business method patent as directed to “a method or corresponding apparatus for performing data processing operations utilized in the practice, administration, or management of a financial product or service, except that the term shall not include patents for technological inventions.” The provision would further require that the PTO director “prescribe regulations for determining whether a patent is for a technological invention.”

• Changes to Reexamination Procedures. S. 23 would also make several changes to reexamination procedures as part of the three-procedure system of PTO post-grant challenges--PGR plus ex parte and inter partes reexamination. Most notably, the bill would heighten the threshold under which the PTO would accept a reexamination petition and enhance estoppel effects to reduce the likelihood of success of some defenses in subsequent litigation.

Sen. Mark Udall (D-Colo.) noted in the March 8 debate on S. 23 that the inter partes restrictions do not have universal support and asked the House to take up the issue.

• PGR, Inter Partes Reexam Tracking. Presumably to monitor whether changes to the above challenges meet the goal of providing a quick and inexpensive alternative to litigation, an amendment, No. 142, by Sen. Jesse “Jeff” Bingaman Jr. was approved. It would “require the PTO to disclose the length of time between the commencement of each inter partes and post-grant review and the conclusion of that review.”

• Supplemental Examination Process. The bill does not directly address inequitable conduct jurisprudence, as had prior bills. Instead, it proposes a new procedure called “supplemental examination”--essentially an ex parte reexamination initiated by the patent owner, but with a different purpose. The procedure allows the patent owner to make pre-litigation submissions to the PTO to potentially correct mistakes in disclosures during prosecution. Submissions of the patent owner taking advantage of that option could not then be used to support an inequitable conduct defense.

Still Work to Do With House.

The two hearings scheduled in the House that may consider patent reform issues are:

• “Driving American Innovation: Creating Jobs and Boosting our Economy,” on March 9; and

• “Review of Recent Judicial Decisions on Patent Law,” on March 10.

At the IP Subcommittee's Feb. 11 hearing on patent reform, the full committee's chairman, Lamar S. Smith (R-Texas), said that he is developing a House version of the legislation (81 PTCJ 484, 2/18/11).

However, Leahy's comments during the Senate debate suggested that he worked with Smith to incorporate the House Judiciary Committee's ideas into the managers' amendment. For example, a March 1 press release by the Senate Judiciary Committee said, with respect to the litigation-related deletions, “Striking these provisions will address recent concerns of the high tech community, and address concerns of certain Members of the House.”

Indeed, in a press release immediately after the Senate vote, Smith said that the House will introduce “similar legislation” this month, but seemed to support what the Senate had done on the two most controversial 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,” Smith said. “The post-grant review process helps to reduce frivolous lawsuits filed by holders of weak or overbroad patents.”

After also praising a third noncontroversial provision--pre-issuance, third party submission of prior art--Smith added, “These are just a few of the many provisions for which there is widespread support.”

By Tony Dutra

S. 23, after Judiciary Committee markup, at

Managers' amendment at

Floor remarks from Feb. 28 through Mar. 7 at

A March 4 Congressional Research Service report, with more detail on each provision, at