Patent Reform Act of 2007April 19, 2007

As noted yesterday, four members of Congress (Leahy and Hatch in the Senate, Berman and Smith in the House) announced introduction of new patent reform legislation yesterday. Also as predicted yesterday, it is similar in many respects to patent reform legislation introduced in 2005 and 2006, but with a few new twists.

More details of the proposed changes after the jump.

The changes proposed by the bill can be separated into various categories:

Conversion of the U.S. patent system from "first to invent" to "first to file" (Section 3)

Instead of awarding priority of invention to the first inventor to invent, priority would instead be given to the first inventor to file a patent application. This would involve a few changes, such as replacing interference proceedings at the USPTO with a "derivation" proceeding, which is used to determine whether the first to file derived the invention from the second to file, and thus is not a true inventor. While this is designed to prevent non-inventors from "stealing" inventions from the true inventors, it does not appear that it will remove any administrative burden from the USPTO, as interference proceedings are already fairly rare, although the proponents of the legislation describe it as "faster and less expensive" than interference proceedings. This would also cause a renaming of the Board of Patent Appeals and Interferences to the Patent Trial and Appeal Board (as there would be no more interferences).

In addition to these administrative changes, the definition of prior art would also be modified. Currently, a public disclosure, use, sale or offer for sale of the invention more than one year before the filing date of a patent application bars an inventor from receiving a patent on the invention. Under the revised law, any pre-filing public disclosures of the invention not made by the inventor (or someone who obtained the information from the inventor) would bar the inventor from receiving a patent. This is yet another motivation for inventors to get patent applications on file with the USPTO as quickly as possible.

Proceeding without an inventor's consent (Section 4)

The bill also makes it easier to proceed with a patent application when an unwilling inventor. If an inventor is unwilling or unable to sign the required oath, the applicant (typically an employer or former employer) would be able to submit a statement in lieu of the oath. Also, the assignee of an invention or a person who shows "sufficient proprietary interest" in the patent, such as by showing that the inventor has a duty to assign the invention to that party, may file for the patent in its own name.

Damages and willful infringement (Section 5)

The first change to patent infringement litigation is that the calculation of damages would be drastically altered. Damages would be limited to the value of the improvements of the invention over the prior art. The current rule that a reasonable royalty is the minimum damages permitted is retained, but the new version provides that a reasonable royalty cannot be based on any contribution from the prior art. Also, an award of damages under the "entire market value rule" is only permitted when "the claimant shows that the patent’s specific contribution over the prior art is the predominant basis for market demand for an infringing product or process." This is essentially a codification of the existing entire market value rule, just adding the word "predominant." See, e.g., State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1580 (Fed. Cir. 1989) (holding that the entire market value rule "permits recovery of damages based on the value of the entire apparatus containing several features, where the patent related feature is the basis for customer demand.") It is not clear how this change will affect lost profit damages or damages for convoyed sales, if at all, as the primary purpose appears to be a limitation on damages in cases where the patent holder is not actually practicing the patent, and thus there is no basis for lost profits damages.

In addition to the limitations on reasonable royalty damages, the legislation also limits a finding of willful infringement to three discrete situations:

1. After receiving written notice from the patentee alleging acts of infringement in a manner sufficient to give the infringer an objectively reasonable apprehension of suit on such patent, [note: it appears that this was just kept from the previous versions of these reform bills, as it does not take into account the changes in the requirements for declaratory judgment jurisdiction after MedImmune] and identifying with particularity each claim of the patent, each product or process that the patent owner alleges infringes the patent, and the relationship of such product or process to such claim, the infringer, after a reasonable opportunity to investigate, thereafter performed one or more of the alleged acts of infringement;
2. The infringer intentionally copied the patented invention with knowledge that it was patented; or
3. After having been found by a court to have infringed that patent, the infringer engaged in conduct that was not colorably different from the conduct previously found to have infringed the patent, and which resulted in a separate finding of infringement of the same patent.

This will likely sharply limit the instances where willful infringement can be found, as few patentees will be willing to comply with the onerous notice requirements of #1, copying is notoriously hard to prove, and #3 only applies to repeat infringers of the same patent.

In addition to these changes, the current prior user defense for method patents will be extended to cover all types of patents, and only require commercial use or preparation for commercial use before the effective filing date of the claimed invention.

Venue and jurisdiction (Section 10)

The current venue statute would be modified to state that an infringement suit can only be brought in a jurisdiction where either party resides or where the defendant has committed acts of infringement and has a regular and established place of business. This would eliminate the "loophole" created through various decisions that essentially allows an infringement defendant to be sued in any jurisdiction where an act of infringement has taken place, and is designed to reduce forum-shopping.

In addition to this, this section would specifically grant the Federal Circuit jurisdiction to hear interlocutory appeals on claim construction. It is not clear based on the wording of the statute whether this jurisdiction is mandatory, or whether, like with most interlocutory appeals, accepting such an appeal is discretionary. If it remains discretionary, it seems logical that the Federal Circuit would continue its general policy of not accepting such interlocutory appeals.

Post-grant cancellation procedure (Section 6)

This section creates a new administrative procedure called a "cancellation." It provides that a petition for cancellation may be filed (1) within 12 months after the patent issues, (2) if there is substantial reason to believe that the continued existence o the challenged claim will cause the petitioner significant economic harm, (3) after receiving notice from the patentee alleging infringement, or (4) if the patent owner consents to the proceeding in writing. In the petition, the challenger must set forth the claims being challenged, as well as the basis for their invalidity. A final decision on the petition should be made within one year. Like a reexamination, there would be no