Patent Damages and the Need for Reform

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This is a guest Post by Michael J. Mazzeo, Jonathan Hillel and Samantha Zyontz[1]

Our analysis of a new dataset challenges the assumptions on which the Patent Reform Act is based and questions the need for damages law reform. Damages provisions of the Patent Reform Act, the latest version of which was recently introduced for vote in the Senate, are premised on concerns that awards are “too often excessive”[2] and those large verdicts featured in media headlines “represent the tip of the iceberg” of excessive awards.[3] Last week at the inaugural Samsung-Stanford Patent Remedies Conference, we presented a very different picture of patent infringement damages.

In our prize-winning study, “Are Patent Infringement Awards Excessive?: The Data Behind The Patent Reform Debate”, we compile a dataset comprising infringement awards from over 300 cases decided in US federal courts between 1995 and 2008. We build on a proprietary dataset from PricewaterhouseCoopers, supplementing it with information about the litigants, lawsuits and economic value of the patents-at-issue. Using standard statistical techniques and regression analysis, we search for evidence of “excessive” awards. Certain of our key findings are summarized below:

1. The eight largest awards represent nearly half of the total amount of damages in our dataset. As shown below, the distribution of damages is highly skewed, and awards in the largest eight cases represent over 47% of cumulative damages.

Mazzeo1

2. Patent infringement damages are highly predictable. We perform an 80-variable log-linear regression analysis that explains nearly 75% of the variation in the observed awards. As shown below, the first-order results of our regression indicate that juries and large defendants are correlated with higher awards.

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Filing-Date-Focused-System – The Key is the Scope of the Grace Period

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[Update] A vote on S.23 is expected this evening, March 2, 2011. Before becoming law, the bill would need to also be approved by the House of Representatives.

I want to thank Professor McCrackin and her students for providing a useful analysis that compares the patent-race issues involved with the move to a first-to-file system.

I have long maintained that pressure to move to first-to-file has very little to do with these patent races. Interferences are extremely rare. And, as we all know, if it is difficult to prove prior dates of conception and reduction to practice, it is all-but-impossible to prove diligence at the level required by caselaw. Thus, in the words of Paul Morgan, analyzing the change in terms of the patent race is a "truly academic exercise."

For this reason, in my 2010 article on anticipation I decided to move the nomenclature away from first-to-invent and first-to-file systems and instead talk about whether the patent system is filing-date-focused or invention-date-focused and also to query the type of grace period allowed by the various systems.

What few are talking about with the proposed legislation is that it would increase the scope of prior art available to invalidate a patent – even when no competing patent application is filed.

In particular, the proposed legislation severely restricts the one-year grace period currently available to a patent applicant. Under the new legislation, a prior inventor could only antedate a pre-filing disclosure if that disclosure was (1) derived from the inventor or (2) made public after the inventor publicized her invention. Under the current rules, the one-year grace period operates without regard to the source of the putative prior art.

Even more, under current law, sales and offers-to-sell only constitute prior art if those sales occurred more than one year before the patent application filing date. 35 U.S.C. § 102(b). In those circumstances, no "swearing behind" is necessary against sales activities because they only qualify as prior art if they occurred outside of the grace period. It appears from the language of the bill, that no grace period would be allowed for pre-filing sales activities. Rather, the grace period language in the proposed bill only relates to "disclosures" and on sale activity is typically not seen as a disclosure.

From a practical standpoint, these elements involving the grace period are much more likely to impact patent applicants than any potential interference issue.

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Comparison of the Current U.S. First-to-Invent System with the First-Inventor-To-File System Proposed in the Patent Reform Act of 2011 (S.23)

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Guest Post By Prof. Ann McCrackin, Stephen Brodsky, and Amrita Chiluwal. Prof. McCrackin is Director of the Patent Prosecution Program at the Univ. of New Hampshire School of Law (formerly Franklin Pierce Law Center). Mr. Brodsky and Ms. Chiluwal are both 2011 JD Candidates at the Univ. of New Hampshire School of Law.

The Patent Reform Act of 2011 ("S.23") is now being considered by the full U.S. Senate. One of the provisions of S.23 would replace the current first-to-invent ("FTI") system with a first-inventor-to-file ("FITF") system. Some of the differences between these two systems are outlined below in order to help understand the changes in Sec. 2 of the S.23 Bill. For simplified illustrative purposes, Parties ("A" and "B") and their invention ("Widget") will be used below.

First-to-Invent

The current U.S. system is a first-to-invent ("FTI") system. Under the FTI system, the first party to invent is entitled a patent on that invention upon filing for a patent application (as long as all of the other patentability requirements are met). Even if the first party to invent is not the first to file, that party could still be entitled to the patent rights. In situations where there are multiple inventors of the same invention, the determination as to who is entitled to the patent rights is made during an interference proceeding. Interference proceedings are administrative proceedings held at the USPTO that legally determine the first inventor. However, there are time constraints on interference proceedings, e.g., typically a party cannot bring an interference proceeding on an invention after a patent has issued on that patent. Therefore, the first person to file would get the patent unless another person is able to prove prior invention in an interference proceeding.

The following examples involve two parties who claim the same invention in an FTI system:

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