May 13, 2007

On April 18, 2007, members of the House and Senate introduced the Patent Reform Act of 2007, which would make major changes to the way that patents are procured, profited from, and challenged in the United States. The new law would apply to any patent issued on or after the new law’s effective date, which would be 12 months after enactment. In a press release, Rep. Howard Berman (D.Cal.) stated his "firm intention" to pass a bill this year and expressed his belief that Sen. Patrick Leahy (D.Vt.) intended to do the same. Indeed, Sen. Leahy stressed that members of both houses of Congress, having introduced bills with identical language, are serious about patent reform. While the bills have yet to make their way through committee, where sponsors expect modifications to be made, drafts of the bills provide important clues as to where Congress is headed with the biggest changes to U.S. patent law in more than 50 years.

First to File
The Reform Act would give the right to patent an invention to the party who is first to file a patent application. This represents a big shift from current law, which gives the right to patent to the party who is first to invent. Disclosures made by inventors or those who obtain the subject matter from the inventors will not bar procurement of a patent if the disclosures are made no more than one year before filing. Such disclosures during the year before filing will also prevent public disclosures from others from being considered prior art.

Elimination of Current Interference Practice
Since prior inventorship would no longer be dispositive in determining the right to patent between competing inventors, interference proceedings would be eliminated. Instead, a so-called “derivation” proceeding would allow a later applicant to challenge an earlier applicant who derived the claimed invention from the later applicant but filed without the later applicant’s authorization. The derivation proceeding would also be used to resolve disputes in which patents or patent applications from other inventors raise right-to-patent issues under section 101 of 35 U.S.C., which will continue to confer on inventors the right to obtain a patent.

Prior User Rights
Those who in good faith have reduced to practice and made substantial preparations for commercial use two of a patent’s subject matter before the patent’s filing date will not be deemed infringers. The new law would thus extend prior user rights to all types of inventions, whereas current law permits prior user rights only in the case of business method patents.

Assignee Permitted to File
Currently, each inventor must sign documentation to file a patent application. The Reform Act would allow assignees of an invention to submit a patent application on behalf of the inventors. This removes the burden of dealing with uncooperative or absent inventors when filing for a patent.

Reduced Damages
A prevailing patentee in an infringement case currently is entitled to a “reasonable royalty” at minimum. The new law would require that determination of a reasonable royalty take into account only the infringed patent’s specific contribution over the prior art. Furthermore, damages may be based on the entire market value of an infringing product or process only if the patentee shows that the patent’s specific contribution over the prior art is the predominant basis for market demand for the infringing product or process. These provisions could drastically reduce damages awarded to a patentee who proves patent infringement.

Higher Threshold for Willful Infringement
The new law would make it more difficult to win triple damages due to willful infringement. The amount of proof necessary to prevail would need to satisfy the standard of “clear and convincing evidence.” To show willful infringement, a patentee would need to prove that an infringer continued to infringe after receiving written notice from the patentee alleging infringement of particular claims by particular products or processes or after having been adjudicated to be an infringer. Alternatively, a patentee would need to show that the infringer intentionally copied the invention with knowledge that it had already been patented. Defendants may defeat an allegation of willful infringement by proving an “informed good faith belief” of invalidity, unenforceability, or noninfringement of a patent. Such “informed good faith belief” includes reasonable reliance on advice of counsel. A defendant’s decision not to present evidence of such advice is “not relevant to a determination of willful infringement,” thus preserving attorney–client privilege. Only after a finding of infringement could a patentee plead willfulness, which would then be determined by the judge, not the jury.

Removal of Estoppel in Inter Partes Re-examination
Inter partes re-examination currently allows a third party to participate in a re-examination proceeding before the United States Patent and Trademark Office. This proceeding is rarely used partly because current law prevents the thirdparty challenger from raising a ground of invalidity in a later court proceeding if the challenger could have raised the ground during re-examination. The new law would remove this estoppel provision, possibly encouraging the use of inter partes re-examination for invalidating patent claims.

Post-Grant Opposition
The new law would create an entirely new proceeding for challenging the validity of a patent after it has been issued. This method would provide challengers of a patent a presumably cheaper alternative to expensive, full-blown litigation. Opponents would be able to file a “petition for cancellation” for any reason within 12 months of a patent’s issue, after receipt of notice of infringement from the patentee, or anytime the petitioner believes that the continued existence of the patent causes or is likely to cause the petitioner significant economic harm. The opposition proceeding would be conducted under rules of discovery prescribed by the director of the USPTO, who would also prescribe sanctions for abuses of discovery or process. Notably, the presumption of validity that is normally accorded a patent does not apply, and the burden of proof on the challenger is a preponderance of the evidence rather than the higher standard of clear and convincing evidence applied in court. Challengers who lose in a post-grant review may not, in any later proceeding, raise grounds of invalidity that were raised during the opposition proceeding.

Publication of an Application
A decision not to file an application in a foreign country would no longer be a basis for requesting that the application not be published. Public access to USPTO proceedings would thus increase, and public interest in early disclosure of inventions would be further promoted.

Third-Party Submissions of Relevant Art
Any person would be able to submit a relevant publication for inclusion in the record of a pending case.  Submissions must be made before the earlier of (1) a notice of allowance or (2) the later of the first rejection or six months after publication.

Expanded Venue
In addition to the judicial district where the defendant resides or where the defendant infringes and has a regular and established place of business, proper venue for suing a defendant would further include the district where the plaintiff resides. This provision could potentially increase exposure of an alleged infringer to litigation.

Appeal from Interlocutory Order Determining Claim Construction
The Court of Appeals for the Federal Circuit would have jurisdiction to hear appeals from a district court’s claim construction before the lower court’s final judgment. Given the tendency of the Federal Circuit to overturn findings of the district court with respect to claim construction, this expanded jurisdiction could provide definitive claim construction earlier in the course of litigation and hence promote settlement and avoid drawn-out court battles.

Momentum has been building in Congress to enact the abovementioned provisions to reform a patent system that some critics view as outmoded, inefficient and perversely adverse to innovation. Congress seems intent on passing a bill that it believes will reduce costly litigation, ensure that patents are granted only in cases of true innovation and restore balance between private and public interests. In view of the impending rule changes that are expected to be enacted by the USPTO this summer, the rapid evolution of American patent law means that companies will soon need to reconsider their strategies in managing their patent portfolio in order to derive the maximum advantage afforded by the forthcoming legal landscape, as well as to minimize costly distractions that could hinder the conduct of their business.

If you would like further information regarding the issues raised in this Morgan Lewis LawFlash, please contact any of the following Morgan Lewis attorneys:

Philadelphia
Louis W. Beardell, Jr.                215.963.5067              [email protected]
San Francisco
Robin M. Silva                          415.442.1379              [email protected]
Washington, D.C.
Robert Smyth                           202.739.5139              [email protected]

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