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U.S. Senate Passes Historic Patent Reform Bill

On March 8, 2010 something happened that seemed nearly impossible less than one year ago with overwhelming bipartisan support, the United States Senate passed a sweeping patent reform bill, the “America Invents Act” (Senate Bill S.23). Chances for approval in the House of Representatives seem high, and if passed by the House and signed into law by President Obama this would be the most important patent law legislation in decades.

For more than a decade, patent reform legislation has been the topic of great controversy, resulting in very strange political and business alliances. A great deal of the focus was on litigation reform, as industries with different economic interests sought to either make it easier to challenge patents in court or make it harder to mount such challenges. Pharmaceutical industry leaders and certain patent bar organizations, such as the Association of Intellectual Property Lawyers, attempted to eliminate the defense of inequitable conduct and/or make it much more difficult to plead and prove, while other industry groups (electronics, internet, generic pharmaceutical manufacturers) fought to preserve the inequitable conduct defense and make it easier to prove. Similar battle lines were drawn on whether to eliminate the “best mode” requirement (unique to U.S. patent law) and whether to limit damage remedies available in cases involving a finding that only one of hundreds of components of a product infringes a patent (so-called “apportionment”). The traditional view that a “blocking patent” entitled the patent owner to damages based on the “entire market rule” was under attack, as was the presumption of patent validity and the presumption that a victorious patentee was almost always entitled to an injunction against an infringer. Proposed litigation reform was supported by some industry groups and vigorously opposed by others, and legal experts were deeply divided on these issues. The deep divisions on these controversial questions caused patent reform legislation to stall for more than a decade.

Thus, it was nothing less than remarkable that the Senate overwhelmingly approved the American Invents Act. The secret to success this time was that the Senate Reform bill does not address these “litigation reform” controversies at least directly. Instead, this bill concentrates on reforms as to which there has been a growing consensus across industry groups and political parties. The bill includes the following provisions, among others:

  1. The bill transforms the U.S. patent system from a “first-to-invent” system to a “first-to-file” system for determining disputes among multiple parties who claim to be the “inventors” of an invention embodied in a patent. Many members of the patent bar opposed this provision particularly those whose livelihoods depended on engaging in “interference proceedings”. Most other countries use a “first-to-file” system, and the bill would transition the U.S. to a “first-to-file” system. (Section 2)
  2. The bill eliminates fee diversion from the United States Patent and Trademark Office (“PTO”) to the U.S. treasury. Now the PTO will be able to use all of the fees which it collects to improve the services which it provides and expedite review of patents. This is a major development which will significantly increase funds available to the PTO for hiring of patent examiners and improvement of other services. Many Judges and leaders of the patent bar had long urged Congress to eliminate fee diversion therefore this is considered a really big deal. (Section 20)
  3. The bill establishes a new post-issuance, patent-opposition system that allows members of the public (individuals and corporations) to actively challenge decisions of the PTO to issue specific patents. The bill requires that these proceedings be conducted in a shorter time-frame than current patent reexamination proceedings. Some predict that these opposition proceedings will replace a significant percentage of cases that are currently being litigated in Federal District Courts. (Section 5)
  4. The bill establishes procedures for third parties to submit for consideration of the patent examiner and inclusion in the record of a patent application relevant printed publications, patents or published patent applications. (Section7)
  5. The bill would amend 35 U.S.C. Section292 to restrict the availability of false-marking damages to the federal government and those persons who have suffered competitive injury as a result of false patent marking the competitive injury requirement would likely substantially reduce the recent proliferation of false patent marking cases. (Section 2)
  6. The bill would establish three or more PTO satellite offices (Section 21) and it would allow the PTO to set its own fees (Section 9).
  7. The bill would prioritize review of certain patents deemed critical to U.S. economic development.

Although the bill does not address the controversial “litigation reform” issues that have dominated the debate in Congress over the past decade, many believe a series of recent decisions of the Supreme Court and Federal Circuit have made it less imperative for Congress to address litigation reform issues. Thus, the Federal Circuit has made it increasingly difficult to prove and plead inequitable conduct, and the Supreme Court has (a) made it easier to challenge business method patents as lacking utility (Bilski), (b) made it easier to challenge patents on grounds of obviousness (KSR), and (c) held that patentees who prove infringement are not automatically entitled to injunctions and, instead, that Courts much apply the standard equitable test for determining whether an injunction should issue, including whether there is irreparable harm and public interest factors (among others)(E-Bay).

The Obama Administration strongly supports the legislation, calling it a fair, balanced and necessary effort to improve patent quality, enable greater work sharing between the [PTO] and other countries, improve services to patent applicants and the public at the [PTO] and offer productive alternatives to costly and complex litigation/ It seems highly likely that the House will approve this legislation in the near future, although as the saying goes the ballgame is not over until fat lady sings.

Although this legislation has enormous support, in the final analysis it does not resolve many of the most controversial issues concerning patent litigation. Moreover, it remains to be seen whether the new PTO opposition proceedings will reduce the number of cases that are litigated in Federal District Courts. But there is no doubt that this legislation successfully responds to many legitimate, long-standing concerns expressed among industry groups and patent law experts.

If you would like to know more about this posting please contact Maurice N. Ross of Barton Barton & Plotkin LLP for additional information.