Senate Judiciary Committee Unanimously Approves Patent Reform Act of 2011

Bloomberg BNA’s Patent Trademark & Copyright Journal® is the IP industry’s premier news service, offering customizable, objective, timely, and reliable news coverage and commentary from leading...

The Senate Judiciary Committee approved by a 15-0 vote Feb. 3 a new patent reform bill, S. 23, after agreeing to Chairman Patrick J. Leahy's (D-Vt.) manager's amendment and an amendment that effectively abandons the committee's attempt to codify jurisprudence on willful patent infringement.

The bill's key elements--defining a gatekeeper role for federal court judges in evidence supporting patent infringement damages and adding a post-grant patent opposition procedure at the Patent and Trademark Office--remain intact from the compromise agreement in the committee announced last March (79 PTCJ 537, 3/12/10; 79 PTCJ 560, 3/12/10).

The bill is not yet scheduled for a vote on the full Senate floor. However, patent reform has proceeded much faster in the Senate in the 112th Congress than it did two years ago. S. 23 was introduced almost two months earlier, and the judiciary committee did not conduct a hearing on the matter this time around.

The U.S. House of Representatives is likely to take up the issue before the full Senate does, in any case. A Feb. 11 hearing in the House Judiciary Committee's subcommittee handling the issue is scheduled.

Two Amendments Made Before Vote.

Leahy and others introduced S. 23 in the 112th Congress Jan. 25 (81 PTCJ 369, 1/28/11), marking the fourth attempt at a comprehensive patent reform bill in the last six years. The Senate has yet to bring a bill to the floor for a full vote.

In the Feb. 3 committee session, Leahy noted the group's “eight hearings and more than six years of consideration” of patent reform, and asked the members to “report this bipartisan legislation today.”

Sen. Jon L. Kyl (R-Ariz.) spoke of his previous opposition to the committee's bills, changing his mind in 2010 after Leahy agreed to meet with PTO leaders to hear how provisions of the bill would impact the agency's operations. The result was a compromise manager's amendment to S. 515, the bill that spurred last year's patent reform debate. Kyl said the compromise was significant in its modification to the post-grant review provisions in two ways--allowing the PTO to operate inter partes reexamination as an adjudicated proceeding, and creating higher thresholds for granting post-grant review in the first place.

The current bill “is a reasonable compromise,” Kyl said, “and includes the core reforms--transition to a first-inventor-to-file system and creation of a new [post-grant] review.”

S. 23 as introduced largely mirrored last year's manager's amendment. However, two amendments were approved in the committee before a vote was taken.

Sens. Dianne G. Feinstein (D-Calif.) and Kyl sponsored an amendment as to the willfulness provision of the bill's section on damages. S. 23 as introduced purportedly attempted to codify the holding of the U.S. Court of Appeals for the Federal Circuit in In re Seagate Technology LLC, 497 F.3d 1360, 83 USPQ2d 1865 (Fed. Cir. 2007) (en banc) (74 PTCJ 491, 8/24/07), but the attempt was criticized by some in the patent community who would rather leave it to the courts to refine, as needed, willfulness standards. The amendment added, though, the clarification that treble damages should not apply to royalties determined based on provisional rights under Section 154(d) of the Patent Act, 35 U.S.C. §154(d).

Leahy described his manager's amendment as technical, but two modifications are noteworthy:

• A section titled the “Intellectual Property Jurisdiction Clarification Act of 2011” would reverse the U.S. Supreme Court's holding in Holmes Group Inc. v. Vornado Air Circulation Systems, 535 U.S. 826, 62 USPQ2d 1801 (2002) (64 PTCJ 124, 6/7/02), by forcing transfer of litigation with any patent claim to federal courts: “No State court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents, plant variety protection, or copyrights.” This act would also require the Federal Circuit to transfer a case to another circuit when “no claim for relief arising under any Act of Congress relating to patents or plant variety protection is the subject of the appeal by any party.”

• The amendment eliminates the so-called “Baldwin rule” in 28 U.S.C. §44(c), which states: “While in active service, each circuit judge of the Federal judicial circuit appointed after the effective date of the Federal Courts Improvement Act of 1982, and the chief judge of the Federal judicial circuit, whenever appointed, shall reside within fifty miles of the District of Columbia.” S. 23 as introduced attempted a solution for where and how non-local judges would set up offices in other jurisdictions; the amendment is silent on that issue.

Provisions Passed in S. 23.

After incorporating the amendments, a vote was taken. Sens. John Cornyn III (R-Texas) and Thomas A. Coburn (R-Okla.) abstained; Sens. Richard M. Blumenthal (D-Conn.) and Michael S. Lee (R-Utah) are new members and did not participate in the patent reform discussion or vote; the remaining 15 members approved the bill.

In addition to the provisions noted above, S. 23 modifies patent law in several ways. First, the provisions that affect the operations of the PTO directly are as follows:

• First-inventor-to-file. The bill attempts to 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. Modifications compared to last year's bill include changes to the “derivation” proceedings for challenging inventorship on the basis of first-inventor-to-file status and a slight postponement to the implementation of the provision until studies of its impact are completed.

• Tax strategy patents. The bill provides an effective ban on patents for tax avoidance strategies, giving the PTO a means of automatically rejecting applications for such patents. Committee Ranking Member Charles E. Grassley (R-Iowa) confined his remarks in the committee meeting, in fact, to a plea that this provision--which was not in last year's bill--remain in S. 23 as it proceeds to the Senate floor.

• Pre-issuance submission of prior art. The provision allows 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.

• Post-grant opposition. The new post-grant review, or PGR, procedure allows any party to challenge a patent within nine months of patent issuance, with much of the details of the provision concerned with coordinating that “first-window” option with ex parte and inter partes reexamination procedures.

• Supplemental examination. The bill does not directly address inequitable conduct jurisprudence. Instead, it proposes a new procedure called “supplemental examination,” allowing 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.

• Micro-entity. This provision creates a new class of patent applicant, in addition to the small and large entities currently provided for under patent law. A micro-entity is defined as an inventor that has submitted less than five patent applications, has not assigned his patent rights, and has an income below a certain level.

• PTO fee-setting authority. The amendment 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.”

Other provisions are directed to litigation of patent infringement lawsuits:

• Damages. The procedure for determining damages requires the parties, the judge, and the jury to consider “only those methodologies and factors relevant” to making reasonable royalty calculations. The process has become known as invoking and formalizing the “gatekeeper” function of the trial judge.

• Bifurcation at trial. A “sequencing” provision requires that, absent good cause, a district court should grant any party's request to bifurcate a trial “so that the trier of fact decides questions of the patent's infringement and validity before the issues of damages and willful infringement are tried to the court or the jury.”

• Patent marking. The bill effectively eliminates qui tam complaints of false patent marking under 35 U.S.C. §292(a).

• Best mode. The bill states that “failure to disclose the best mode shall not be a basis on which any claim of a patent may be canceled or held invalid or otherwise unenforceable,” thereby eliminating the alleged infringer's ability to argue that the patent owner did not identify the best mode for enablement in the patent specification.

• Venue transfer. The provision is said to comport with the “convenience of the parties and witnesses” standard articulated by the Federal Circuit in In re TS Tech USA Corp., 551 F.3d 1315, 89 USPQ2d 1567 (Fed. Cir. 2008) (77 PTCJ 243, 1/9/09), to allow transfer out of venues chosen by the plaintiff because of a patent-friendly reputation, such as the U.S. District Court for the Eastern District of Texas.

PTO Fee Collection Diversion Ban Withheld.

Two other amendments were discussed though not formally voted. Coburn described an amendment that would end the diversion of fees collected by the PTO but not given back to the PTO by congressional appropriators for use in administering the patent and trademark system. Currently, the appropriators can take any excess PTO funds and use them for other governmental purposes.

The amendment was withheld not for lack of support in the community, but because Leahy believed it is outside the jurisdiction of the committee. Multiple members of the committee spoke in its favor and expressed their commitment to support the amendment when--as Coburn promised--it is introduced as an amendment before a vote on the full Senate floor.

Only two committee members expressed misgivings--Feinstein and Sen. Richard J. Durbin (D-Ill.). Both are members of the Senate Appropriations Committee. Durbin's concern was on oversight of the PTO's budget, since, theoretically at least, the combination of fee-setting authority and non-diversion of funds would allow the PTO to collect and spend money at its own discretion.

Coburn assured Durbin and Feinstein that oversight of how the PTO spends money would remain with the appropriators, and he further suggested that the Judiciary Committee should exercise oversight over the fees to prevent the PTO from generating repeated surpluses.

One possibility not discussed in the committee is the potential that the amendment would be defeated on the Senate floor, leaving the PTO with fee-setting authority only. That possibility was, in fact, a one-day legislative effort in the House last May before its sponsors--after significant criticism from the patent community--reintroduced the “Patent and Trademark Office Fee Modernization Act of 2010” with the diversion ban included (80 PTCJ 79, 5/21/10).

Business Method Curtailing Amendment Withheld.

Sen. Charles E. Schumer (D-N.Y.) discussed an amendment he cosponsored with Kyl, but ultimately withheld, that would instigate a tougher review at the PTO of patents issued on business methods.

The amendment defined a business method patent as follows: “a patent that is a member of the group of patents for inventions that are a method or corresponding apparatus for performing data processing operations utilized in the practice, administration, or management of an enterprise or financial product, except that the term shall not include patents for inventions in a technological field.” The provision would further require that the PTO director define “a technological field.”

The amendment would create two procedures for PTO implementation for post-grant reconsideration of already issued business method patents.

First, a “special ex parte reexamination” proceeding would allow a Section 101--patent eligibility--challenge to a business method patent “on the ground of a conflict with the holding of Bilski v. Kappos,” 129 S.Ct. 2735, 95 USPQ2d 1001 (2010) (80 PTCJ 285, 7/2/10). Second, a “provisional post-grant review proceeding” would modify the PGR proposal to allow an anticipation or obviousness challenge, under Section 102 or 103, respectively, after a civil action is filed and at any time--that is, removing the nine-month limit.

Once either challenge is made, a court would be required to stay any associated civil action on the patent, effectively providing a way for alleged infringers to avoid injunctions until the PTO comes to a decision on one or the other of the new proceedings.

Support for the amendment was tepid in the meeting, with Leahy saying he was concerned that “the amendment may be too broad.” However, Feinstein appeared to take the exact opposite view, suggesting that business method patents “stultify the whole system.” She commended Schumer and Kyl for allowing for “greater review and scrutiny” of business method patents, but added, “I wonder if we should be there at all,” apparently questioning whether the committee should not go further in barring such patents altogether.

By Tony Dutra


S. 23 as proposed at http://pub.bna.com/ptcj/2011PatentReformSenateJan25.pdf

Leahy amendment at http://pub.bna.com/ptcj/S23LeahyAmdtFeb3.pdf

Feinstein-Kyl amendment at http://pub.bna.com/ptcj/S23FeinsteinAmdtFeb3.pdf