Preissuance Submissions: A Description of the Relevance to Examination but Not an Explanation

by Dennis Crouch

The USPTO is struggling somewhat with how to implement preissuance submissions. 

Required Concise Description: The new provision created by the America Invents Act (AIA) opens the door for any third party to submit “any … printed publication potential relevance to the examination of the application” if submitted within the proper window following application publication.  35 U.S.C. 122(e)(1).  The preissuance submission must also include a “concise description of the asserted relevance of each submitted document.” 35 U.S.C. 122(e)(2)(A).

The senior managers at USPTO learned patent law in the days when patent prosecution was extremely ex parte. Before 2001, pending applications were not published and were instead kept in complete confidence within the USPTO.  File wrappers were only reviewed in paper copy form and patent law was not generally thought of as much of a public concern.  Those days are gone, but fragments of that history remain.

In 1999 the omnibus appropriations bill included American Inventors Protection Act of 1999.  The AIPA implemented a new program of publishing pending patent applications 18–months after filing.  Applicants still have the option of keeping their applications secret while pending. However, that option requires that the applicant forego non-US patent rights. As the chart shows below, the vast majority of applications are published prior to issuance.  Further, about half of the non-published applications are ones that issued within 18 months of filing.

PatentlyO150

The new publication system raised a concern that third parties would begin challenging patents before issuance. As part of the legislative compromise, the 1999 AIPA legislation also included a special provision that blocks preissuance protests and oppositions. The provision authorizes the USPTO Director to establish procedures to ensure that no pre-issuance opposition is initiated following publication.

Protest and Pre-Issuance Opposition.— The Director shall establish appropriate procedures to ensure that no protest or other form of pre-issuance opposition to the grant of a patent on an application may be initiated after publication of the application without the express written consent of the applicant.

35 U.S.C. 122(c). The USPTO recognizes that the new preissuance submission system is in tension with the rule against allowing pre-issuance oppositions. In its implementation regulations the USPTO attempts to provide some limitation on the submissions in order to avoid the conflict. In the explanation of the final rules, the USPTO writes:

The third party should present the concise description in a format that would best explain to the examiner the relevance of the accompanying document, such as in a narrative description or a claim chart. The statutory requirement for a concise description of relevance should not be interpreted as permitting a third party to participate in the prosecution of an application, as 35 U.S.C. 122(c) prohibits the initiation of a protest or other form of pre-issuance opposition for published applications without the consent of the applicant. Therefore, while a concise description of relevance may include claim charts (i.e., mapping various portions of a submitted document to different claim elements), the concise description of relevance is not an invitation to a third party to propose rejections of the claims or set forth arguments relating to an Office action in the application or to an applicant’s reply to an Office action in the application.

PreIssuance Final Rules (July 2012). In its discussion of the new rules, the USPTO also suggested that the concise description is “limited to a description of a document’s relevance” cannot include “arguments against patentability.”

Unlike the concise description of relevance required by 35 U.S.C. 122(e) for a preissuance submission, which is limited to a description of a document’s relevance, the concise explanation for a protest under 37 CFR 1.291 allows for arguments against patentability.

Clearly there is a limit here to the scope of the description that can be filed. However, the USPTO’s distinction between a description and explanation is not entirely clear. 

The USPTO’s approach here makes some sense but is somewhat misguided.  In my mind, the statutory mandated description of relevance seems to requires at least some indication the statutory hook.  This is especially true because the preissuance submissions are not limited to 102/103 related prior art submissions. Rather, the submissions merely need to be potentially relevant to examination.  The best interpretation of the statute is that the discription of relevance is a description of how the submitted document is relevant to the examination.  In my mind, this sets up a three way network and the required description should discuss how (1) the submitted document changes how we think about (2) the patent application based upon some (3) law or other element of patent examination.  In the context of a claim construction chart, the link to 102/103 will likely be implicitly understandable without discussing the statutory elements.  Explanations regarding claim construction, subject matter eligibility, indefiniteness, or other examination issues likely will not make sense unless at least those particular labels are provided in the explnation of how the document is relevant to the examination.

Fighting the Retroactive Elimination of False Marking Claims

The Public Patent Foundation (PubPat) has continued its push against "the negative effects that over-patenting, unmerited patenting and excessive patent rights can have on society." The organization, founded by patent attorney Dan Ravicher, typically focuses on what it sees as bad patents being over-exerted. In the false marking heyday, PubPat also filed false marking suits against Cumberland (Sweet'N Low), Iovate (Xenadrine), and McNeil (Tylenol). Unlike ordinary usual public-interest lawsuits, the false marking claims had the potential earning PubPat substantial monetary returns. Under the false marking statute, 35 U.S.C. § 292, PubPat was eligible to receive half of the eventual fine paid by any adjudged false markers.

However, when Congress passed the Leahy-Smith AIA it included a provision that denies standing for any false marking complainant who cannot prove a competitive injury.  The standing provision is retroactive and many of the false marking claims have already been dismissed. 

In a new filing, PubPat has argued that the retroactive denial of standing violates the organizations Fifth Amendment due process rights.

While the claim underlying the cause of action in qui tam cases originally belongs to the United States, qui tam statutes perform a partial assignment of that claim to the qui tam plaintiff and the resulting cause of action is therefore partially the property of the qui tam plaintiff. . . . Retroactive congressional action that deprives a private party of its property violates the Due Process Clause of the Fifth Amendment if it is not “supported by a legitimate legislative purpose.” United States v. Carlton, 512 U.S. 26, 30-31 (1994). Further, the retroactive effect of legislation must separately have a legitimate legislative purpose apart from the prospective substantive changes. Id. . . . The America Invents Act . . . is completely silent as to why the substantive changes are to be applied retroactively. . . . Without being overly cynical, the only honest explanation for the America Invents Act's retroactive elimination of qui tam false marking suits is that it was the result of lobbying efforts by corporations like McNeil who wished to deliberately eliminate the rights of private parties like PUBPAT to continue to pursue pending qui tam cases for false patent marking. This targeting of those who were deliberately induced to file false marking suits is an expressly improper purpose under Carlton and any potential “public good” argument that McNeil or the United States might proffer for the retroactivity would surely be pretextual, further indicating its impropriety. . . . PUBPAT agrees, for example, that “retroactive laws are not [categorically] prohibited by the Constitution.” . . . All PUBPAT suggests is that retroactive statutes can violate the Due Process Clause and that the America Invents Act's retroactive application of substantive changes to the false marking statute in a way that does nothing but deprive PUBPAT of its property interest in order to bestow a private benefit on McNeil is an example of precisely such a violation.

File Attachment: PubPatOpp.pdf (102 KB).

 

Patent Issues Arising from the US-Korea Free Trade Agreement

This week, US Congress ratified a negotiated free trade agreement with (South) Korea. The agreement includes a major section on intellectual property law.

Agreed to terms include the requirements that each nation:

  • Make patents available for any invention, whether a product or process, in all fields of technology, provided that the invention is new, involves an inventive step, and is capable of industrial application.
  • May only exclude inventions from patentability when it is necessary to protect public order or morality; or when the invention is a diagnostic, therapeutic, and surgical procedure for the treatment of humans or animals. However, the fact that a particular practice is against the law of a nation may not be used as a reason to deny patentability.
  • May only revoke a patent on grounds that would have justified a refusal to grant the patent.
  • Shall not allow third-party oppositions of pending patent applications (pre-grant).
  • Will offer at least a 12-month pre-filing grace period for disclosures authorized by or derived from the patent applicant.

The agreement must also be ratified by the Korean National Assembly. Read the US-Korean agreement here: /media/docs/2011/10/asset_upload_file273_12717.pdf. US Congress also passed similar agreements with the Latin American Nations of Panama and Columbia.

Design Registration? The agreements all additionally call for the parties to “make all reasonable efforts to ratify or accede to … the Hague Agreement Concerning the International Registration of Industrial Designs (1999) and the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (1989).” The United States is not currently a signatory to either of these agreements.

Further agreements in the air: The US passage of the Leahy-Smith America Invents Act has been taken as a signal that further harmonization efforts may also be successful. In particular, it appears that many nations would be willing to implement a new US-style grace period at least if they are limited activities subsequent to a non-commercializing public disclosure authorized by or derived from the patent applicant or inventor.

 

Sarnoff: Derivation and Prior Art Problems with the New Patent Act

In a new Patently-O Patent Law Journal essay, Professor Joshua Sarnoff (DePaul) highlights a set of important problems in the Leahy-Smith America Invents Act. The essay, titled Derivation and Prior Art Problems with the New Patent Act focuses primarily on the elimination of 35 U.S.C. § 102(f) and its implications regarding the patentability of material that was either wholly or partially derived from another source.

Professor Sarnoff writes: 

Legislation sometimes is enacted that obviously requires either immediate revision or creative administrative and judicial interpretation. The new Leahy-Smith America Invents Act's derivation and prior art provisions fall in that category. Whether or not the move from a first-to-invent to a first-inventor-to-file system is viewed as good policy and as authorized by the Constitution, the particular changes made to the prior art provisions may not prevent or invalidate patents on inventions derived from others, i.e., when the applicant has obtained knowledge of an invention from another, original inventor and then files for a patent on the same or a similar invention. In particular, obvious inventions made with unauthorized derived knowledge will now be patentable, given the elimination of prior art section § 102(f). Absent creative interpretations by the U.S. Patent and Trademark Office (PTO) and the courts, the new derivation proceedings will not prevent a first filer from obtaining a patent even if the first filer's invention is merely an obvious extension of information derived from another. Further, the new act adds a narrow and poorly understood category of prior art that may generate years of needless litigation to re-settle the currently well-understood boundaries of the public domain. I discuss these problems in detail below.

There is some hope that Congress and the Administration will take Professor Sarnoff's concerns to heart.

Read the article: Joshua D. Sarnoff, Derivation and Prior Art Problems with the New Patent Act, 2011 Patently-O Patent Law Review 12 at /media/docs/2012/10/sarnoff.2011.derivation.pdf.

Prior Patently-O Patent Law Journal Articles include:

Private Federal Civil Actions for Trade Secret Infringement

by Dennis Crouch

Senator Coons (D-Del.) today proposed a pair of trade secret focused amendments to the pending Currency Exchange Rate Oversight Reform Act of 2011.

Most trade secret litigation occurs at the state level. Although Title 18 of the US Code creates a cause of action for Trade Secret Theft, that provision gives standing only to the Attorney General and not to private parties. Senator Coons' amendment would open the door to a Private Civil Action for Trade Secret Theft that would be brought in Federal Court. In his press release, Senator Coons writes:

The … amendment, introduced with Senator Herb Kohl (D-Wis.), would protect U.S. businesses from the theft of trade secrets by allowing victimized companies to sue for trade-secret theft in federal court. The legislation would allow for a single, uniform, nationwide cause of action instead of the patchwork of state laws now in place, and would elevate trade-secret intellectual property on the same level as copyright, trademark and patent violations.

Federal Trade Secret Theft under Section 1832(a) requires a host of intentional acts involving stealing, copying, or receiving trade secret information that is related to a product produced in interstate or foreign commerce. The Coons amendment would allow a private civil action with the additional requirement that the plaintiff submit a sworn affidavit that either (1) there is a substantial need for nationwide service of process or (2) the case involves misappropriation of trade secrets from the US to another country.

The amendment also provides for immediate ex parte seizure orders and the award damages for the infringement.

Senator Coons also proposed a second amendment that would allow Homeland Security to share information and suspected counterfeit product samples with intellectual property rightholders. This would loosen the current rules that restrict information that Customs & Border Patrol can share with US rightholders.

Learn more:

  • David Almeling, Four Reasons to Enact a Federal Trade Secrets Act, 19 FORDHAM INTELL. PROP. MEDIA & ENT. L.J. 769 (2009) (describing the lack of uniformity in state implementation of the Uniform Trade Secrets Act).

Guest Post: Accelerated Examination and Prioritized Examination

By: Nicholas Witchey, Ph.D.; Robert D. Fish, Esq.; and the Fish & Associates team

Passage of the Leahy-Smith America Invents Act (AIA) includes many changes to U.S. patent law. This article focuses on one change that might be overlooked: Prioritized Examination ("PE") of patent applications. The PE program allows an applicant to pay an additional $4800 fee ($2800 for small entities) to place an application on a prioritized track where the patent office has a goal to provide final disposition of the application (i.e., final rejection or allowance) within a year on average. Interestingly, the AIA retains the Accelerated Examination ("AE") program established on August 26, 2006, as discussed in MPEP 708.02(a). While the PE program prioritizes an application for prosecution ahead of standard filings, the AE program prioritizes and accelerates the actual prosecution of the application. The prioritized examination and accelerated examination programs co-exist as of September 26, 2011.

We recently had a chance to discuss co-existence of the AE and PE programs with Robert W. Bahr, Acting Associate Commissioner for Patent Examination Policy, during a recent MarcusEvans? IP Law Summit in September, 2011. Mr. Bahr stated there are no current plans to make changes to the AE program to align it with the PE program, or vice versa. He sees both programs as viable examination routes for applicants, and that applicants are expected to make a business decision as to which program should be taken. Therefore, it is up to the applicant to work with their patent practitioners on how best to align patent filing tactics with clients' business objectives.

How do these programs compare and which makes the most sense to use? The AE program and PE program are far from identical and have many differences, which gives rise to possible benefits in aligning patent application filing tactics with a client's business strategy.

One of the major differences is that the PE process does not require a pre-examination search document ("PESD") and an accelerated examination support document ("AESD") whereas these documents are required for the AE program to illustrate how the claims of an AE application are allowable over known related art. Preparation of the PESD and AESD documentation requires significant searching and analysis on part of the practitioner. Following the PE program can save an applicant $10,000 or more over the AE program in searching and analysis costs, but that doesn't necessarily mean the total cost is less expensive over a lifetime of an application's prosecution. Within the AE program, the time spent in searching for related art and in improving/focusing the claims tends to yield stronger claim sets, which contributes to faster allowance possibly within months of being accepted into the AE program. Without such thoroughly analyzed claim sets, an applicant could spend $10,000 and many years going back and forth with the examiner to achieve allowance for an application filed within the PE program.

Other than PESD and AESD considerations, the basic requirements for putting an application on file are the same for AE and PE applications, (e.g., formal drawings, no missing part, correct margins, etc.) except that the AE process allows only 3 independent claims and 20 total claims, while the PE process allows 4 independent claims and 30 total claims subject to excess claim fees. In both cases failure to follow the filing rules will result in the petition being dismissed or denied.

There is also a significant difference in fees. The filing fees of an AE application for a large entity are $1380, which includes $130 in petition fees, $1250 in filing fees, plus any excess page size fees. Corresponding small entity filing fees are $660 plus any excess page size fees. In contrast, the filings fees of a PE application for a large entity are $6480, including $4800 in petition fees, $1250 in filing fees, a $130 processing fee, and a $300 publication fee, plus excess claim and page size fees. The corresponding total for a small entity is $3630, plus excess claims and page size fees. From purely a filing fee point of view, the AE program is less expensive. Micro entity discounts do not apply to a PE application petition fee.

Prosecution is also different. AE turnaround is one month on non-final office actions, and failure to meet that strict time requirement results in abandonment of the application. Within the PE program turnaround is the normal three months. The three month deadlines can be extended as usual, but doing so results in the application falling out of the PE program. Applications that have fallen out of the PE program are placed on an examiner's standard docket. Thus, the AE program returns faster results than the PE program, but also has more severe consequences when the response dates are missed.

There are also some inconsistencies in availability of AE and PE applications. For example, one can file a PE application for a plant, while the AE program can not be used for plant patent applications. At least initially, the PE program is also being limited to 10,000 applications per USPTO fiscal year. There doesn't seem to be a formal limit on the number of AE applications, but there have only been an average of about 800 AE applications filed per year so there is little concern with respect to the USPTO limiting AE submissions.

With the introduction of the AE program, the PE program, and other prosecution tracks, the USPTO appears to be developing a full spectrum of possible approaches for prioritizing patent applications rather than a one-size-fits-all approach. Clients can select a style of examination based on their business needs or available budgets. If a cost-effective immediate feedback is required, the PE program might be a proper path for clients wishing to get prosecution started early. If a strategic set of claims are required, the AE program would likely be the best approach for clients wishing to obtain issued claims quickly. We expect the PE program to likely fill their allocated 10,000 applications per fiscal year quickly. In fact, our office has already started filing application with PE petitions. When the allotted yearly slots are taken, the AE program will remain available.

Our office has substantial experience with the AE program, and, although we are strong advocates of the AE program, we believe that PE program also offers other benefits to clients. Clients now have a greater selection of filing options to meet their business goals or filing budgets. A detailed analysis that one would conduct for an AE application would still have merit when filing an application within the PE program. There may even be cases where an applicant might strategically decide to file an application, or a family of applications, in both programs to obtain an optimized result.

The AIA also allows for changes to other prioritized programs including petitions to make special or important technologies, and patent prosecution highways. These programs can also be leveraged to prioritized examination and offer benefits to clients as well. We encourage readers to explore all the programs currently offered or that will be offered over the next 18 months.

A Response to Professor Chiang

By Jason Rantanen

Professor Tun-Jen Chiang's post on best mode (below) argues that Congress must necessarily have intended that patent applicants would not disclose best mode, given that it was aware of the potential consequences of removing litigation enforcement.  Thus, Professor Chiang concludes, Congress not only abolished best mode, but then went about "lying" about it.  I have serious doubts about this conclusion.

Despite being styled as a reply to Professor Sheppard's description of Congressional thought about best mode, Professor Chiang misses the fundamental point of Professor Sheppard's post: that although Congress recognized that removing the litigation mechanism for enforcing best mode might result in reduced compliance, there remained alternative mechanisms – which Professor Sheppard discussed – for encouraging applicants to comply with the best mode requirement.

While I personally question the efficacy of the alternate mechanisms for enforcement – which rely primarily on criminal sanctions that, historically at least, have been rarely employed even to deal with more significant misconduct – it is clear that Congress has a higher view of these types of enforcement mechanisms than I do, especially given its treatment of inequitable conduct in the America Invents Act.  Thus, I find it difficult to accept Professor Chiang's dichotomy that either Congress must have been "dumb" or "lying," as well as his analogy to a child with matches.  This issue is far more complex than such an oversimplification allows, and it is entirely reasonable (and probably far more accurate) to recognize that Congress was attempting to balance a difficult issue: the costs of patent litigation versus the need or desire for disclosure of best mode, and elected to proceed by relying on alternative enforcement mechanisms that, while perhaps less often enforced, might potentially provide equal deterrence through more severe sanctions.  If one must use an analogy, it is more similar to giving a teenager a car, explaining that speeding might result in a criminal penalty, while nevertheless providing reassurance that you will not take away the car if he or she is caught speeding, than it is to a child with matches.

Guest Post on Best Mode by Tun-Jen Chiang

Was Congress dumb, or was it lying?–A reply to Professor Sheppard

Guest Post by Tun-Jen Chiang, Assistant Professor of Law, George Mason University School of Law

Imagine a parent who gives his child a box of matches, and tells the child not to play with the matches. The parent then assures the child that, if he does play with the matches, there will be no punishment whatsoever, and nobody will be watching him for the next hour.

Unsurprisingly, the child plays with the matches and burns the house down. When the insurance company denies the claim because of intentional arson, the parent screams: “but I told him not to play with the matches!” In this circumstance, the charitable inference is that the parent had a charmingly naïve view about the obedience of his child. The uncharitable inference is that the parent knew the child would play with the matches, and the admonition not to play with them was insincere “cover.”

What does this have to do with best mode? In her post, Professor Sheppard assures us that Congress knew precisely the consequences that would occur. Although she protests that her post was only descriptive and not a defense of the law, one cannot help but sense from her “vehement” disagreement with the critics an implication that those who think Congress didn’t know what it was doing are being unfair in some way (When someone says "You can say X is wrong. I agree X is wrong. But don't say X is dumb.", there is an implication that saying X is dumb is unfair). But the critics are not being unfair; they are being charitable.

With Professor Sheppard's assurance that Congress knew the consequences, the unavoidable conclusion is that Congress intends the probable consequence that patentees would not disclose the best mode. The reason for maintaining a best mode requirement on paper now seems to be to provide political cover to scream “but we told them to disclose the best mode!” whenever the critics talk about lax disclosure requirements. This is much worse than either abolishing best mode outright or keeping best mode with no enforcement on the misguided faith that patentees would still comply — it is Congress abolishing best mode and then lying about it.

Guest Post: Because Inquiring Minds Want to Know – Best Mode – Why is it One-Sided?

(Today PatentlyO is starting a series of periodic guest posts by Professor Christal Sheppard on the underlying rationales for some of the sections of the America Invents Act.  Prior to joining the University of Nebraska Lincoln College of Law this year, Dr. Sheppard was Chief Counsel on Patents and Trademarks and Courts and Competition policy for the United States House of Representatives Commmittee on the Judiciary. – JAR)

By A. Christal Shepard

Since inquiring minds want to know, I will attempt to give, in a series of posts, insights into the underlying rationales for a few sections of the America Invents Act that are causing particular confusion among my friends and new colleagues who were fortunate to not have been as intimately involved in the machinations of the America Invents Act as I have been over the last three Congresses.  

***

I start this conversation with a blanket statement – these are my recollections of the rationales and do not represent the views of any particular member of Congress.  More importantly, do not shoot the messenger.  This blog is only intended to provide contemporaneous context, not a comprehensive analysis, before the march of time distorts memories.  I will not attempt to defend; I will merely explain.

There has been a great deal of consternation and confusion about the changes to the Best Mode requirement, Section 15 of the America Invents Act.  This section is plain on its face, and yes, it is, and was intended to be, bifurcated. The Best Mode requirement remains a requirement, unchanged, for obtaining a patent under 35 U.S.C. § 112 Paragraph 1; however, under the new law, Best Mode can no longer be used as a defense in any action involving the validity or infringement of a patent.  More specifically, a failure of an inventor to disclose their Best Mode is no longer a basis for invalidating, canceling or making a claim unenforceable even if it is later determined that the inventor unquestionably knew of a Best Mode and intentionally did not disclose it to the United States Patent and Trademark Office (USPTO) during examination.  

The bifurcated reform is a compromise that addresses the legitimate litigation concerns with the subjective nature of Best Mode without undermining the requirement for full disclosure that is the quid pro quo for the grant of a monopoly.  If Best Mode was removed completely, Congress could be seen as removing yet another obstacle to trade secret protections overlapping with monopoly rights.  

The impetus for removal of Best Mode from Section 112 of Title 35 of the U.S.C. came from several recommendations to Congress to limit the subjective portions of patent litigations.  I point to one such recommendation that was highly influential, the National Academies’ A Patent System for the 21st Century

Among the factors that increase the cost and decrease the predictability of patent infringement litigation are issues unique to U.S. patent jurisprudence that depend on the assessment of a partys state of mind at the time of the alleged infringement or the time of patent application… Because the [Best Mode] defense depends on historical facts and because the inventors state of mind usually can be established only by circumstantial evidence, litigation over [Best Mode] especially pretrial discovery can be extensive and time-consuming.[1]

Although the National Academies’ report also states that eliminating Best Mode completely could be accomplished without “substantially affecting the underlying principles that these aspects of the enforcement system were meant to promote.”[2] Their, and others’, primary objection to Best Mode was that it was an unnecessary burden for litigation, similar to inequitable conduct, often pled but rarely found.

While Best Mode may be unnecessarily burdensome for litigation, Best Mode is not a superfluous requirement.  It is intended to implement the constitutional directive of "promoting the progress of science and the useful arts"[3] by preventing an inventor from obtaining patent protection, “the embarrassment of a monopoly,”[4] while simultaneously concealing a trade secret for the preferred embodiments.  “The purpose of this requirement is to restrain inventors from applying for a patent while at the same time concealing from the public preferred embodiments which the inventor has, in fact, conceived.”[5]  There is nothing else in the patentability requirements that mandates an inventor’s disclosure of their Best Mode. 

The fault with Best Mode in litigation is not a fault of principle; it is a fault of execution – the difficulty of understanding the contents of an inventor’s mind.

If one believes in the quid pro quo of full disclosure to the public in exchange for a limited monopoly, then the disclosure of an inventor’s Best Mode is essential.  If monopoly is the carrot in exchange for divulging what otherwise would remain hidden as trade secrets then trade secrets SHOULD be divulged in order to patent.  Changing the Best Mode requirement for obtaining a patent would be a significant deviation from U.S. policy and practice that was unnecessary to correct the perceived problem. 

The law should and still does require disclosure of Best Mode, but has eliminated Best Mode from litigation.  The reform addresses the concerns without undermining the requirement for disclosure. 

Many scholars have questioned the fact that, under the new law, the day after a patent issues, the inventor could state that, yes there was a Best Mode known at the time of application that was not disclosed and yet the intentional nondisclosure would have no effect on the claims.  The claims could not be invalidated, canceled or made unenforceable.  

There has been a lot of criticism that Congress did not contemplate this result.  Nothing could be further from the truth. This result was absolutely contemplated by the decision makers.

Essentially the question was, how does one stop inventors from lying to the patent office, that the inventor has no Best Mode, when the inventor in fact has a preferred embodiment?  The more accurate question to ask is, when there are no obvious ramifications, why would an inventor divulge a Best Mode when they can keep it as a trade secret?  

Congress did take this into account but did not address it in the legislation for a variety of reasons. I present a few of the considerations that were discussed.

  1. Give the USPTO authority to undertake  investigations when it is presented clear evidence from a court or third party that a Best Mode was intentionally not disclosed.  Here, the counterargument is that the USPTO is even less well situated than the courts for such a subjective determination.  Furthermore, it is not practical to move this determination from the courts to the USPTO. 
  2. Present evidence of intentional concealment of Best Mode to the Office of Enrollment and Discipline (OED) at the USPTO with the deterrent being the possible loss of the ability to prosecute patents, removal from the patent bar.  This is arguably already possible under 35 U.S.C. § 32, Suspension or exclusion from practice.  The obvious flaw is the same as in the first example; the USPTO is not well situated for subjective inquiries.  Additionally, it may result in punishing the patent practitioner for situations where the inventor intentionally concealed but the patent practitioner was unaware.
  3. Institute a mechanism, identical to that which ultimately ended up in Section 12 of the America Invents Act – the new Section 257(e), where evidence of material fraud on the USPTO shall be referred to the Attorney General for possible prosecution under 18 U.S.C. § 1001, a criminal statute penalizing anyone who knowingly and willfully “makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry” on any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States. Again, arguably this deterrent, which is up to a five year prison term, is already possible under 18 U.S.C. § 1001 without any change in the law.

Note that all of these resolutions are arguably already possible under existing law.

One suggestion, not put forth, for the answer to the riddle of “when there are no obvious ramifications, why would an inventor divulge a Best Mode when they can keep it as a trade secret?” is make the ramifications more obvious. The USPTO could add a check box to application forms, stating “I (we), the inventor(s) have no preferred Best Mode and are aware that failure to disclose a Best Mode can result in up to a five year jail term.” But that is a matter for the USPTO and not Congress.

Would a “check box” solve the problem?  No.  But it is an affirmative act, as opposed to an intentional omission.  This affirmative act may be useful in the exercise of 35 U.S.C. § 32 and 18 U.S.C. § 1001 should there be abuses and allows Congress to preserve the U.S.'s emphasis on full disclosure in exchange for the government grant of monopoly.

In the end, I do not disagree with the criticisms of the effect of the new law on Best Mode.  But I do vehemently disagree that the consequences were neither considered nor understood by Congress.

[1] Stephen A. Merrill et al., A Patent System for the 21st Century, no. 7, 121 (2004).

[2] See id. at 7.

[3] U.S. Const. art. I, § 8, cl. 8.

[4] Thomas Jefferson to Isaac McPherson, 13 Aug. 1813.

[5] Young Dental Mfg. Co., Inc. v. Q3 Special Products, Inc., 112 F.3d 1137, 1144 (Fed. Cir. 1997).

 A. Christal Sheppard is an Assistant Professor of Law at the University of Nebraska Lincoln College of Law and former Chief Counsel on Patents and Trademarks and Courts and Competition policy for the United States House of Representatives Committee on the Judiciary.  Look for her next PatentlyO posting on Supplemental Examination.

Who is Behind H.R. 5980?

H.R. 5980 is a Bill "To amend Federal law to encourage the repatriation of jobs to the United States, and for other purposes." The bill includes three major tweaks to US patent law.

  1. Ending the publication of pending applications [as discussed here].
  2. Dramatically narrowing 35 U.S.C. 102(e) so that it only applies to patents that were subject to an international patent application.
  3. Giving "priority to the examination" of applications "made by" any "institution of higher education" or any "patent holding company affiliated with such an institution.”

Other portions of the bill would create several commissions and task forces to try to figure out how to bring jobs back to the US.

The sponsor of the bill, Frank Wolf is a Republican from north-west Virginia. Co-Sponsors include Randy Forbes (Republican from south-east Virginia), Daniel Lipinski (Democrat from Chicago), Candice Miller (Republican from northern Michigan), Hal Rogers (Republican from eastern Kentucky), and Rob Wittman (Republican from eastern Virginia).

The patent amendments appear out of the blue and have no logical link to repatriation. 

Guest Post: Patent Abstracts Are Not The Answer To Repatriating Jobs

by Jeremy Kriegel of Marshall, Gerstein & Borun

In an effort to promote repatriation of jobs, H.R. 5980 was introduced on July 29, 2010. The Bill proposes replacing the 18-month publication of U.S. patent applications in their entirety with a requirement that the U.S. Patent & Trademark Office (USPTO) publish only the abstract of an application until it issues as a patent. This change would detrimentally impact the ability to monitor competitors’ pending applications (provided the full text of the applications were not otherwise still available via Public PAIR, an on-line resource provided by the USPTO that supplies free access to all patent documents exchanged between patent applicants and patent examiners upon publication of an application).

The proposed shift would potentially impact companies that have come to depend on access to published patent applications as a source of lawful competitive intelligence and freedom-to-practice planning.

With knowledge that only an application’s abstract will be made available to the public, it would likely just be a matter of time before applicants become more evasive in the drafting of patent abstracts. Even today, patent abstracts rarely provide meaningful detail as to the scope of the claims of a patent application, and are limited by USPTO regulations to 150 words or less. 37 CFR 1.72(b).

While a change to the statutory term of U.S. patents and a judicially-created “prosecution laches” defense eliminated most concerns over “submarine” patents (where an applicant would keep at least one of a chain of patent applications pending before springing an issued patent on an unsuspecting party or industry), limiting public access to only the abstract of a pending application would invite a return to such undersea tactics in patent prosecution.

To the extent publishing only the abstracts of patent applications has any potential to reduce the loss of American jobs, this protection is illusory in most situations. Many patent applications on products having significant commercial potential are filed not only in the United States, but also in foreign countries (and/or internationally under the Patent Cooperation Treaty). Most foreign countries already require publication of the entire patent application 18 months from the earliest priority filing date, so publishing only the abstract in the U.S. would merely invite interested third parties to search for foreign counterpart applications published in their entirety.

For applicants concerned about foreign competitors learning of the details of their inventions prior to issuance of their patents, U.S. patent law already provides an avenue even more secure than limiting publications of applications to abstracts as proposed in H.R. 5980. So long as an applicant agrees at the time of filing a U.S. application to forego foreign patent filings in countries that publish applications 18 months after filing, the application may include a request for non-publication. The USPTO will then maintain the entire application in secrecy until the application issues as a patent. The option of foregoing foreign filings in exchange for non-publication of a U.S. patent application was proposed to assuage concerns over the disparate impact pre-grant U.S. publication might have on small businesses. This was known as the Kaptur Amendment and was initially limited to “small entities” (i.e., entities with fewer than 500 employees, universities and independent inventors), but the small entity requirement was ultimately removed.

Alternatively, 35 U.S.C. Section 154(d) provides provisional rights to obtain a reasonable royalty for infringement occurring prior to the issuance of a patent, beginning as early as the date of publication of the application. Recovery of pre-issuance royalties requires the infringed claims ultimately issuing in a patent to be substantially identical to claims of the published application and requires actual notice to the infringer of the published patent application. If claims are substantially amended during prosecution, an applicant may, for a fee, electronically request republication of the application with the amended claims. H.R. 5980 would limit provisional rights to claims of published PCT applications that later mature into U.S. patents. Ironically, this disparity would favor foreign applicants of US patents (who typically file PCT applications prior to filing a US national phase application) over US inventors who opt not to file a PCT application. Foreign patentees in some situations would effectively have a longer term to collect patent damages than their US counterparts.

Another problem with the “Patent Protection” proposal of H.R. 5980 is that it runs contrary to commitments the United States made to Japan under the U.S.-Japan Letters of Agreement signed August 16, 1994 by then-Commerce Secretary Richard H. Brown and Japanese Ambassador Takakazu Kurizama. In exchange for U.S. commitments to publish applications 18 months after filing, expand the grounds for requesting patent reexamination, and permit increased third party participation in reexaminations, Japan agreed to eliminate dependent patent compulsory licenses, end third party pre-grant oppositions, and offer an accelerated examination procedure. It took five years for mandatory publication of applications to become law with passage of the American Inventors Protection Act of 1999.

Though mandatory publication of U.S. patent applications is barely a decade old, H.R. 5980’s bid to substitute abstracts for full publication of U.S. applications would return a cloak of secrecy to some U.S. patent applications. However, for patent applications also filed abroad, the reality is that corresponding applications filed in other countries would still be published in their entirety. Given the ubiquitous access to published foreign patent applications made possible by the Internet, publishing only patent abstracts in the U.S. would not provide a meaningful obstacle to foreign companies seeking to capitalize on U.S. ingenuity.

Jeremy R. Kriegel is a partner at Marshall, Gerstein & Borun LLP in Chicago. This article expresses the views of the author, and does not necessarily reflect the views of Marshall, Gerstein & Borun or its clients.

Zuhn: A Model Patent Office for the Future

Dr. Zuhn has been covering patent happenings at the BIO Conference. His article discussing a panel on suggestions for fixing the USPTO is a great read. The theme presented by Sherry Knowles (from GSK) is one that many Patently-O readers understand – stakeholders cannot count on someone else to address problems at at the PTO.

John Duffy, who participated followed-up with a note about GSK’s role in the case of Tafas v. Dudas.

GSK has been very well served by its attorneys, which includes an excellent team of lawyers from Kirkland & Ellis headed by John M. Desmarais. They’ve been successful in winning 99% of what GSK wanted. The rules still aren’t in effect, and they are unlikely ever to go into effect without substantial revision. Moreover, as for the last 1% percent that GSK attorneys weren’t able to win, I don’t think any attorneys could have won. The administrative law issues in the case were always very difficult for GSK’s position. I don’t think any set of attorneys could have produced a better result, and I don’t doub t that GSK’s lawyers recognize that Supreme Court review would have its risks.

Duffy also discussed the potential risks of a Supreme Court decision in Tafas v. Dudas.

Judge Prost did a masterful job on the administrative law issues in the Tafas case. If the case were appealed to the Supreme Court, I think the Court would largely affirm her opinion. The most difficult issue in the case has always been whether, giving the agency’s rules an appropriate amount of Chevron deference, a court should nonetheless hold Final Rule 78 inconsistent with the clear meaning of section 120 of the Patent Act. Judge Prost ruled against the agency on that issue, and her result seems to me to be one reasonable resolution of a difficult issue. But the issue is a close one, as even Judge Bryson’s concurrence suggests. If Tafas were to be heard by the Supreme Court, it is entirely possible that the Justices (a majority of whom either have taught ad law or have served on the ad law-heavy D.C. Circuit) might give the agency a bit more deference than the Federal Circuit panel did. Thus, if the case went to the Supreme Co urt, I think likely outcomes would be either a complete affirmance or a reversal limited to the one issue that GSK won at the Federal Circuit.

Other News:

  • The White House has again recognized Peer-to-Patent as an example of “approachable government.” http://www.whitehouse.gov/newmedia/. (“Improves the quality of issued patents”).

Bits and Bytes No. 106: Patent Reform

  • [UPDATED] Hal Wegner Reports the Following:
    • Phil Kiko of Foley Public Affairs reports that Secretary of Commerce Gary Locke has announced that he has chosen the next Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office. The chosen candidate, who is being vetted, was not named.
  • Congress is Moving Forward with Patent Reform:
    • April 30, 2009 hearing of the House Judiciary Committee.
    • Here are some comments on the testimony:
      • Jack Lasersohn (venture capitalist): Venture capital requires strong and certain patents. The damage reforms create potential problems because sometimes a relatively minor product innovation will dramatically change the market position. “A new coating on a solar cell , that increases it’s conversion efficiency just a little bit, can dramatically shift the market for entire multi-billion dollar solar energy plants. A better drug on a drug eluting stent can shift the entire stent market. In either case, the question is ‘who is entitled to the profits arising from the use of the invention, the inventor or the infringer’?”
      • Dean Kamen (Inventor & Businessman): patents should be strong and policy should be directed to support small innovative organizations.
      • David Simon (Intel): patents are meant to allow manufacturing companies to fight each other – not for non-manufacturing inventors or their assigns to slow-down manufacturers. [This is a very rough paraphrase of Simon’s 13 page rant against non-practising entities.]
      • Philip Johnson (J&J) on behalf of the 21st Century Patent Reformers wants money for the PTO, international harmonization (first-to-file), expanded post-grant review (12–month window), no change to the current damages system, only a codification of Seagate, no changes to venue law.
      • Jay Thomas (Georgetown) argues that patent infringement damages are too unpredictable and that additional rules of evidence and practice can help solve the problem.
      • Mark Chandler (Cisco) supports the reforms to halt the problem of non-practising entities who demand licenses.
      • Bernard Cassidy (Tessera): Please do not change the patent law in ways that hurt small companies. The courts have already done enough through eBay, KSR, Medimmune, Microsoft v. AT&T, Seagate, Bilski, and TS Tech.
      • [WRITTEN TESTIMONY.zip (3794 KB)]
  • Absent from this testimony: Any representative from the Patent Office. At least three candidates are rumored to have been interviewed for the post of PTO Director – including former PTO Director Todd Dickinson and IP Hall of Fame member Mike Kirk. [See updated news above]

Gholz: Linking Post-Grant Review with Interference Procedure

Guest Post by Charles ("Chico") Gholz. Gholz is the head of the Interference Section at Oblon Spivak, a former chair of the Interference Committee of the AIPLA, and a frequent author on interference law and practice. I asked him to provide some thoughts on the proposed post-grant review proposals in the Patent Reform Act of 2009, telling him that I was especially interested in whether we should try to use the interference procedural structure for the new post-grant challenges.

It is my understanding that "the PTO" (actually, the PTO officials directly involved in administering interference matters—by which I mean Chief Administrative Patent Judge Fleming, Vice-Chief Administrative Patent Judge Moore, and Senior Administrative Patent Judge McKelvey) have expected the cancellation proceedings to be a species of the genus contested case and that, accordingly, they would be governed by Part 41, "Practice Before the Board of Patent Appeals and Interferences," Subpart D, "Contested Cases," of 37 CFR. To those of us in the interference bar, that makes perfect sense, since the cancellation proceedings will be very, very similar to the first phase (formerly known as the "preliminary motions phase") of patent interferences—except that only one party will be filing substantive motions.

However, proposed 35 USC 326 in both bills provides that "The Director shall prescribe regulations…" governing the post-grant review proceedings (what I'm referring to herein as "cancellation proceedings"). Apparently the drafters of the bills (who I suspect are not members of the patent bar, let alone members of the interference bar!) either were unaware of 37 CFR 41 Subpart D or felt that either additional or different rules would be required for the cancellation proceedings.

Whether the cancellation proceedings are to be governed by Subpart D or by a different set of rules is not an insignificant point. Proposed 35 USC 326(a)(3) in both bills would require the Director to prescribe regulations "setting forth procedures for discovery of relevant evidence, including that such discovery shall be limited to evidence directly related to factual assertions advanced by either party in the proceedings, and [that] the procedures for obtaining such evidence shall be consistent with the purpose and nature of the proceeding." However, while that language could be read as mandating real discovery (i.e., discovery similar to the discovery available in district courts), the bills then go on to mandate that, "In carrying out paragraph (3) [i.e., in providing the rules for discovery], the Director shall bear in mind that discovery must be in the interests of justice," which might be read a giving the PTO room to provide for only the extremely limited kind of discovery that is currently available in interferences. See Gholz, Patent Interferences – Big Ticket Litigation With No Effective Discovery, 4 Intellectual Property Today No. 9 at page 10 (1997).

Similarly, proposed 35 USC 326(b) in both bills would provide that "Regulations under subsection (a)(1) [including the regulations governing discovery]…shall provide for discovery upon order of the Director [actually, it would presumably be upon order of the APJ handling the proceedings]," indicating that, in contrast to district court procedure, the burden of showing entitlement to discovery would be on the party seeking discovery, rather than imposing on that party's adversary the burden of showing why discovery should not be obtained.

Proposed 35 USC 326(b) in both bills would also require the Director to issue regulations providing "for filing under seal exempt from publication requirements" and providing for "protective orders governing the exchange and submission of confidential information"—both of which would be sharp departures from current interference practice. See Gholz, Compelled Testimony, Testimony Abroad, and Protective Orders in Interference Proceedings Under the New Rules, 67 JPTOS 239 (1985). However, 35 USC 326(b) then goes on to say that the Director's regulations "shall ensure that any information submitted by the patent owner in support of any amendment entered under section 329 is made available to the public as part of the prosecution history of the patent." Since the "confidential information" is more likely to be submitted by the patent owner than by its adversary, I wonder how often a protective order will actually issue. Or is the point that the protective order will automatically expire upon conclusion of the cancellation proceeding?

Both the House version and the Senate version of proposed 35 USC 334 govern the effect on cancellation proceedings of decisions in other proceedings (only an infringement action in the Senate version, but either an infringement action or an ITC action in the House version). Surprisingly, both versions seem to assume that the decisions of the courts (or the courts and the ITC), on the one hand, and the decisions of the Board, on the other hand, are of identical issues—despite that fact that the party attacking a patent has a lower burden of proof before the Board and therefore might win before the Board even though it would lose before a court or the ITC on identical evidence.

In sum, I'd like to express my hope that the drafters of the two bills will consult with experts on interference law and practice, both in the PTO and in the private bar, before passing either version of the bill.

Patently-O Bits and Bytes No. 97

  • Patent Reform: Senator Kyl Introduces the alternative Patent Reform Act of 2009; This bill is more patent-holder friendly than the Leahy bill. The Leahy bill may see some action in Committee on March 26, 2009.
  • Patent Reform: Inequitable Conduct: Although a co-sponsor of the Leahy Act, Senator Hatch has suggested that the reforms should include reforms of inequitable conduct proceedings.
  • ITC: The res judicata effect of ITC Section 337 Decisions: Nil.
  • ITC Theory: John Marshall’s IP Law Journal has a nice set of articles focused on ITC patent Litigation
  • Personnel: Gov. Gary Locke is President Obama’s nominee for Secretary of Commerce. Barring some unknown tax snafu or AIG relationship, is expected to be confirmed quickly. In his Senate testimony he mentioned the politically correct goal of reducing the PTO backlog along with creating a foundation for long-term economic growth; improving weather forecasting, and managing our fishing industry.
  • Personnel: The PTO needs three new members of its Patent Public Advisory Committee (PPAC). Current members include Kevin Rivette (Rembrandts in the Attic), Louis Foreman (CEO / Inventor), Scott Kieff (Conservative Law Professor), Damon Matteo (PARC innovation & licensing chief), Doug Patton (inventor & industrial designer at PattonDesign); David Westergard (IP guy at Micron – Looking to water-down patent rights), Marc Adler (former Chief of IP at Rohm & Haas), Steve Pinkos (former Deputy to Jon Dudas), and Maureen Toohey (Solo practitioner; former GC of a Dean Kamen’s DEKA company). I believe that Rivette, Patton, and Westergard will have reached the end of their terms this year and will be replaced.
  • The Economic Downturn: Diane Bartz has taken over writing all about patent law for Reuters. In a recent interview with John Doll, she uncovers that the PTO is projecting a 2% drop in applications in 2009. Others expect a 10% decline. The problem for the PTO is that their funding is entirely fee driven, and the agency had budgeted for a 5% increase. Along with most law firms, according to Doll, the PTO has “stopped hiring at this time.”

Patently-O Bits and Bytes No. 97

  • Patent Reform: Senator Kyl Introduces the alternative Patent Reform Act of 2009; This bill is more patent-holder friendly than the Leahy bill. The Leahy bill may see some action in Committee on March 26, 2009.
  • Patent Reform: Inequitable Conduct: Although a co-sponsor of the Leahy Act, Senator Hatch has suggested that the reforms should include reforms of inequitable conduct proceedings.
  • ITC: The res judicata effect of ITC Section 337 Decisions: Nil.
  • ITC Theory: John Marshall's IP Law Journal has a nice set of articles focused on ITC patent Litigation
  • Personnel: Gov. Gary Locke is President Obama's nominee for Secretary of Commerce. Barring some unknown tax snafu or AIG relationship, is expected to be confirmed quickly. In his Senate testimony he mentioned the politically correct goal of reducing the PTO backlog along with creating a foundation for long-term economic growth; improving weather forecasting, and managing our fishing industry.
  • Personnel: The PTO needs three new members of its Patent Public Advisory Committee (PPAC). Current members include Kevin Rivette (Rembrandts in the Attic), Louis Foreman (CEO / Inventor), Scott Kieff (Conservative Law Professor), Damon Matteo (PARC innovation & licensing chief), Doug Patton (inventor & industrial designer at PattonDesign); David Westergard (IP guy at Micron – Looking to water-down patent rights), Marc Adler (former Chief of IP at Rohm & Haas), Steve Pinkos (former Deputy to Jon Dudas), and Maureen Toohey (Solo practitioner; former GC of a Dean Kamen's DEKA company). I believe that Rivette, Patton, and Westergard will have reached the end of their terms this year and will be replaced.
  • The Economic Downturn: Diane Bartz has taken over writing all about patent law for Reuters. In a recent interview with John Doll, she uncovers that the PTO is projecting a 2% drop in applications in 2009. Others expect a 10% decline. The problem for the PTO is that their funding is entirely fee driven, and the agency had budgeted for a 5% increase. Along with most law firms, according to Doll, the PTO has "stopped hiring at this time."

Patently-O Bits and Bytes No. 97

  • Patent Reform: Senator Kyl Introduces the alternative Patent Reform Act of 2009; This bill is more patent-holder friendly than the Leahy bill. The Leahy bill may see some action in Committee on March 26, 2009.
  • Patent Reform: Inequitable Conduct: Although a co-sponsor of the Leahy Act, Senator Hatch has suggested that the reforms should include reforms of inequitable conduct proceedings.
  • ITC: The res judicata effect of ITC Section 337 Decisions: Nil.
  • ITC Theory: John Marshall's IP Law Journal has a nice set of articles focused on ITC patent Litigation
  • Personnel: Gov. Gary Locke is President Obama's nominee for Secretary of Commerce. Barring some unknown tax snafu or AIG relationship, is expected to be confirmed quickly. In his Senate testimony he mentioned the politically correct goal of reducing the PTO backlog along with creating a foundation for long-term economic growth; improving weather forecasting, and managing our fishing industry.
  • Personnel: The PTO needs three new members of its Patent Public Advisory Committee (PPAC). Current members include Kevin Rivette (Rembrandts in the Attic), Louis Foreman (CEO / Inventor), Scott Kieff (Conservative Law Professor), Damon Matteo (PARC innovation & licensing chief), Doug Patton (inventor & industrial designer at PattonDesign); David Westergard (IP guy at Micron – Looking to water-down patent rights), Marc Adler (former Chief of IP at Rohm & Haas), Steve Pinkos (former Deputy to Jon Dudas), and Maureen Toohey (Solo practitioner; former GC of a Dean Kamen's DEKA company). I believe that Rivette, Patton, and Westergard will have reached the end of their terms this year and will be replaced.
  • The Economic Downturn: Diane Bartz has taken over writing all about patent law for Reuters. In a recent interview with John Doll, she uncovers that the PTO is projecting a 2% drop in applications in 2009. Others expect a 10% decline. The problem for the PTO is that their funding is entirely fee driven, and the agency had budgeted for a 5% increase. Along with most law firms, according to Doll, the PTO has "stopped hiring at this time."

Rooklidge: Patent Reform Damages Provision Violates Seventh Amendment

The following post is by Bill Rooklidge. Rooklidge is a patent litigator and former head of the AIPLA. He clerked at the Federal Circuit in the early 1980’s.

Richard Cauley’s March 14, 2009 guest post accurately characterized the damages reform provision of the Patent Reform Act of 2009 as “a judicial nightmare” because of its procedural complications, attendant delay and reversal potential. Two additional problems with that provision merit note: it perpetuates prior art subtraction and introduces into jury trial multiple potential violations of the Seventh Amendment.

Fact-finding and the Seventh Amendment. The Supreme Court coined the term “gatekeeper” in Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993), to describe the trial court’s obligation to “ensure that any and all scientific testimony or evidence admitted is not only relevant, but reliable.” In addition to rulings on Daubert motions, courts also fulfill their gatekeeper role by ruling on motions for summary judgment and judgment as a matter of law, motions in limine, evidentiary objections, and jury instructions. The bills’ damages section would enhance the courts’ gatekeeper role, but in doing so unconstitutionally invade the jury’s province as fact finder.

The bills would add to 35 U.S.C. §284 paragraph (c)(1), which would require the court to select from three methods for calculating a reasonable royalty “based on the facts of the case and after adducing any further evidence the court deems necessary.” A procedural rule requiring the court to weigh evidence to select from alternate theories would be void for depriving the patentee of its right to jury trial. See Fidelity & Deposit Co. of Maryland v. United States, 187 U.S. 315, 320 (1902). A genuine issue of material fact, that is, a dispute over facts that might affect the outcome, requires the issue to go to the jury. See generally Anderson v. Liberty Lobby, 477 U.S. 242 (1986). Similarly, the trial court’s exclusion of the entire market value rule under paragraph (c)(1)(A) for the patentee’s failure to make “a showing to the satisfaction of the court,” would violate the Seventh Amendment in a jury trial in which the patentee presents enough evidence to create a genuine issue of material fact. See Minks v. Polaris Indus., Inc., 546 F.3d 1364, 1372 (Fed. Cir. 2008) (vacating because trial “court necessarily engaged in an independent review of the evidence and substituted its conclusion for that of the jury on the factual issue of compensatory damages”).

The first section of the bills’ section (c)(1)(B) authorizes trial courts to exclude the patentee’s prior licenses for failure to make a “showing to the satisfaction of the court” of three facts regarding the claimant’s other licenses:

“the claimed invention has been the subject of a nonexclusive license for the use made by the invention by the infringer”;

the licenses have been extended “to a number of persons sufficient to indicate a generally marketplace recognition of the reasonableness of the licensing terms”; and

“the license was secured prior to the filing of the case before the court.”

The court also must determine whether the infringer’s use is “of substantially the same scope, volume, and benefit of the rights granted under such license. The second sentence of paragraph (c)(1)(B) requires a similar procedure for noninfringing substitutes for the infringing product or process. And paragraph (c)(1)(C) likewise requires the court to “conduct an analysis to ensure that a reasonable royalty is applied only the portion of the economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art.” A court making these findings would invade the province of the jury where the patentee presents substantial evidence on these issues.

Prior Art Subtraction. Section (c)(1)(A)’s requirement for application of the entire market value rule that the “claimed invention’s specific contribution over the prior art” be the “predominant basis for market demand” is just the latest form of “prior art subtraction.” Use of “specific contribution over the prior art” is an attempt to separate the “gist” or “heart” of the invention from the patent claims, and would introduce the extra step of subjectively redefining the scope of a patent. The Federal Circuit long ago rejected using the “gist” or “heart” of the invention to determine obviousness, see Para-Ordnance Mfg. v. SGS Importers Int’l, Inc., 73 F.3d 1085 (Fed. Cir. 1995), and recently rejected using the “point of novelty” in design patent law. Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665, 678 (Fed. Cir. 2008). Stripping the prior art elements out of the claimed invention that has been examined by the USPTO, construed by the federal district court, and relied upon to determine validity and infringement, in no way approximates the “heart” or “gist” of the invention, and that inherently subjective process would be unfair to the patent owner, and would eliminate application of the entire market value to inventions consisting entirely of prior art elements, arguably the vast majority.

Paragraph (c)(1)(C) would limit the reasonable royalty base to the “economic value of the infringing product or process properly attributable to the claimed invention’s specific contribution over the prior art,” replacing apportionment with prior art subtraction. This analysis is no substitute for the sophisticated and nuanced apportionment approach available under existing case law such as Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1133-37 (S.D.N.Y. 1970). Paragraph (c)(1)(C) would address the combination invention problem by stating that for combination inventions “the contribution over the prior art may include the value of the additional function resulting from the combination, as well as the enhanced value, if any, of some or all of the prior art elements as part of the combination, if the patentee demonstrates that value.” This analysis, which finds no precedent in existing case law and lacks any readily definable economic standards, does not even begin to address the problem that subtracting the prior art elements simply does not approximate what the inventor really invented.

Replacement of “contribution over the prior art” with the “essential features” language from the Supreme Court’s recent Quanta Computer, Inc. v. LG Electronics, Inc., 128 S. Ct. 2109 (2008), would just put another label on prior art subtraction. Regardless of label, the bills’ damages provision would drastically reduce patent owners’ ability to obtain reasonable royalty damages, which could not be less fair to those, like independent inventors, research institutions and universities, that have no ability to obtain lost profits damages.

Notes

Patent Reform 2009: More on Damages

Guest Post by Richard Cauley. Cauley is the author of the recent Oxford Press book titled Winning the Patent Damages Case: A Litigator’s Guide to Economic Models and Other Damage Strategies. I asked him to provide some thoughts on the damages proposals in the Patent Reform Act of 2009. Cauley.jpg

The damages provisions of the Patent Reform Act of 2009 are not new, nor, in an economic sense, are they particularly controversial. Although their introduction in this legislation may create a political firestorm among those who wish to artificially maximize the economic leverage of patentholders both in court and across the bargaining table, the solutions proposed in the latest attempt at patent reform merely reflect – and attempt to measure – the true economic worth of a patent and the reasonable return to which an inventor is entitled.

What these damages provisions (all of which were contained in the various versions of the failed Patent Reform Act of 2007) attempt to accomplish is to force the court to limit the patentholder’s recovery to the real economic worth of an invention – for example, to a company who might want to license that invention to use in another product or to a consumer who might purchase a product because of that very invention.

Thus, the section limiting the application of the entire market value rule to situations in which the actual invention – the advance over the prior art – forms the basis of consumer demand compensates the inventor only to the extent his invention produces something that people actually want to buy.

This section also ensures that patents on relatively minor components are not given a value in excess of their real economic worth. Where the patent does not cover something critically important to the consumer, the provision limits the patentholder’s recovery to the value of that component to the customer – and precludes a recovery based on the entire product, which may include many other patented components.

Likewise, the section requiring the court to determine whether there is already a “market price” for licensing the patent – in the form of pre-existing licenses for similar patent rights – simply measures how much a prospective licensee would be willing to pay on the open market for the right to use the patent. Of course, this is what the reasonable royalty remedy is supposed to measure.

The purpose of these provisions is obvious. First, they will limit the ability of patentholders, primarily patent trolls, to recover damages in patent litigation far in excess of the actual economic value of those patents. More importantly, however, they will reduce the threat of such inflated damages awards – a threat such plaintiffs use as leverage in licensing campaigns and settlement negotiations to secure recoveries far exceeding the worth these patents really have to the prospective licensees.

The problem with these proposed statutes, then is not their objective – to give patents the value they actually deserve – but the implementation. As written, these provisions are a judicial nightmare. They require the court to conduct a kind of “damages Markman” in which the court must decide, before giving the case to the jury, the economic value of the patent’s “specific contribution over the prior art,” the “basis” for the “market demand” for an infringing process, the “relevant market” for a claimed invention and whether that market has “similar noninfringing substitutes” for the claimed invention. Apparently, the court is also supposed to make the economic decision of which Georgia Pacific factors the jury is allowed to consider.   

The delay which will be caused in an ongoing trial will inevitably be substantial and the opportunities for reversible error in this process will be legion. Although the intent of the drafters of these provisions was certainly praiseworthy– to codify limits on jury’s overvaluing patents in awarding damages – the byzantine rules they set up to implement these objective shows that they certainly have never tried a patent case. Indeed, if the courts would simply follow the judicially- established guidelines already in place, this complex set of regulations would not be necessary.

Hopefully, calmer heads will prevail before these rules are actually imposed on the patent litigation bar and on the courts. There are better and more effective ways of reaching these objectives.

Indeed, it is not surprising that, in another section of the bill – limiting venue for patent cases to districts in which the defendant has a facility – there appears to be no appropriate venue for a patent case against an infringing foreign defendant with no facilities in the United States. Thus, a plaintiff might have jurisdiction over an infringer, but nowhere to sue the company – all dressed up and no place to go.

Links:

Guest Post: Monsanto Company’s View on Patent Reform – Protect Innovation:

PatentLawPic699 David Snively is Monsanto's General Counsel. He read Google's calls for patent reform and penned the following response. Monsanto's business model relies heavily on its ability to protect its innovations through intellectual property and contract in the US and Globally. Monsanto has also been the defendant in numerous patent battles.

Dr. Alan Greenpan's keynote speech on "Markets and the Judiciary" noted that "critical to economic growth is a rule of law, particularly protection of the rights of individuals and property". His remark that for IP law, the constancy of the protection afforded under the Constitution of the United States and our fully-functioning legal system is the basis for the U.S. economy's sustaining lead – even in difficult economic times with broken markets. Our patent system is the envy of the globe and while capable of thoughtful adjustment should not be hijacked by international pirates or corporations seeking to dilute legitimate protection that breeds investment and jobs. This is why Monsanto Company, as a global leader for innovation and technology in agriculture, is joined by trade unions and countless other groups who strive to assure Greenspan's voice is not lost in the din from hedge funds, offshore interests or others seeking short term gain by weakening our great patent system.

I respectfully disagree with the recent blog post by Google's Head of Patents and General Counsel, commenting on the perceived risks from damage awards in patent cases. Monsanto has faced billion dollar damage claims as a wrongly sued patent defendant and also knows the true benefits from avoiding the encouragement of willful infringement based on a smaller party's calculated gain in the face of limited risk of a meaningful award of damages if infringement is established. With full knowledge of all these issues and our substantial alignment with Google and the information technology industry over the legitimate need to curtail patent trolls and a myriad of other concerns – we encourage thoughtful reform. Last year Congress passed without public objection Public Law 110-403 the "Prioritizing Resources and Organization for Intellectual Property Act of 2008" which was designed to significantly enhance government law enforcement resources for combating certain kinds of intellectual property (IP) theft, e.g. criminal counterfeiting and infringement of computer software. The law helps protect investments in the research, development and marketing of certain kinds of innovative American products and services. The information technology industry was rightly bothered that its intellectual property rights were being trampled on by "pirates".

But, according to the financial sector and the information technology industry it seems that too many other people have too many patents that get in the way of too much "innovation" that is being marketed by an industry that doesn't own the rights to the "innovation". Some say that innovation can't stand still while somebody does a patent search to make sure that the "innovation" that is being marketed won't infringe any of those too many patents. So the complaint is "we are getting sued too much by these innovators who are stifling our innovation". Unlike the solution for rampant copyright infringement the perverse solution for rampant patent infringement is to propose "reforms" that would both reduce incentive to invest in research, development and marketing of innovative American products and services and provided impediments for improving patent quality. Dr. Greenspan's Georgetown keynote aptly recalled the copyright situation when he quoted Stephen Breyer from the Harvard Law Review decades prior to becoming a Justice "the case for copyright…rests not upon the proven need, but rather upon the uncertainty as to what would happen if protection were removed. One may suspect the risk of harm is small, but the world without copyright is nonetheless [in the words of Hamlet] 'undiscover'd country' which 'puzzles the will,/And makes us rather bear those ills we have/Than fly to others that we know not of.'

The problems posed by the patent reform bill are many:

  • It would change the calculation of damages that an infringer (pirate) would pay as compensation for trampling on patent rights, encouraging only more callous disregard of patent rights and piracy.
  • It would change the venue provisions in a way that would impose a substantial burden and inconvenience on patent owners by limiting access to the judicial system, encouraging only more callous disregard of patent rights and piracy.
  • "Technical" changes would weaken protection and encourage piracy via removing the estoppels provisions and expanding the prior art basis for engaging in inter partes re-examination, in effect providing a system of post grant review that will serve only to harass patent owners by effectively taking patents out or service for the duration of unlimited re-examinations, encouraging only more callous disregard of patent rights and piracy.

Transparency is critical to society today yet the patent reform bill would not require publication of all patent applications at 18 months reducing the public knowledge of prior art making it harder to avoid investment in patent-free technology and reducing the likelihood that quality patents will issue.

Thoughtful patent reform is needed. There are things to support in the House version of the patent reform bill. For example, the House bill while strangely modifying the damages calculation would authorize a study to see if such a modification is needed. Such studies are available and do not support the anecdotes that say damage awards are out of control.

Patent Reform that discourages investment in research and development and the job growth and economic stimulus that is spawned by thousands of small companies as well as large companies that rely on a robust and strong patent system is bad for America. Monsanto invests over $2M every day in research and is committed publicly to helping double food yield in corn, soy and cotton by 2030 while using 1/3 fewer natural resources and improving the lives of farmers globally. Accomplishing this task of sustainable agriculture requires a patent system and rule of law that Dr. Greenspan says has always been found in the Constitution of the United States.