Summary of Patent Reform Act of 2007

April 18, 2007. Senators and Representatives introduced HR 1908 and S 1145, identical bills [PDF] titled the "Patent Reform Act of 2007", on April 18, 2007.

Section 3 of the bill would change the U.S. system of patent priority to the first to file system. Section 5 changes the rules for the award of damages. Section 6 provides a post grant review process at the U.S. Patent and Trademark Office (USPTO). Section 8 requires the USPTO to conduct a three year study. Section 9 permits third parties to submit pre-issuance prior art to the USPTO. Section 10 limits forum shopping opportunities by changing venue and jurisdiction procedure. Section 11 gives the USPTO broad rule making authority. Section 12 contains numerous technical corrections and amendments to the Patent Act.

The sponsors of the bill released a section by section summary. This article also offers a section by section summary below.

Section 1 of the bill (at pages 1-2) provides only the title and table of contents of the bill.

Section 2 (at page 2) provides only that this bill amends Title 35 of the U.S. Code.

First to File Priority

Section 3 (at pages 2-14) contains various provisions to implement a change of the U.S. system of patent priority to the first to file system.

Subsection 3(a) changes 35 U.S.C. § 102(a) to provide that "A patent for a claimed invention may not be obtained if (1) the claimed invention was patented, described in a printed publication, or in public use or on sale (A) more than one year before the effective filing date of the claimed invention; or (B) one year or less before the effective filing date of the claimed invention, other than through disclosures made by the inventor or a joint inventor or by others who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or (2) the claimed invention was described in a patent issued under section 151, or in an application for patent published or deemed published under section 122(b), in which the patent or application, as the case may be, names another inventor and was effectively filed before the effective filing date of the claimed invention."

However, subsection 3(b) provides several exceptions to this new rule. There is an exception for a "‘joint research agreement" to preserve the effect of the Cooperative Research and Technology Enhancement Act of 2004, or CREATE Act, which is also Public Law No. 108-453. (This bill repeals language enacted in the CREATE Act.)

The CREATE Act addressed the August 8, 1997 opinion of the U.S. Court of Appeals for the Federal Circuit in OddzOn Products, Inc. v. Just Toys, Inc., which ruled that derived prior art may serve as evidence of obviousness.

See also, story titled "Representatives Introduce Patent Bill to Encourage Collaborative Research" in TLJ Daily E-Mail Alert No. 680, June 13, 2003; and story titled "House Judiciary Committee Approves CREATE Act to Promote Collaborative Research" in TLJ Daily E-Mail Alert No. 821, January 22, 2004; story titled "House Passes CREATE Act" in TLJ Daily E-Mail Alert No. 854, March 11, 2004.

Subsection 3(b) also provides exceptions for claiming an invention if the subject matter previously disclosed was obtained directly or indirectly from the inventor or joint invention or if the subject matter was owned by the same person or subject to an obligation of assignment to the same person.

Subsection 3(c) amends 35 U.S.C. § 103 to provide that "A patent for a claimed invention may not be obtained though the claimed invention is not identically disclosed as set forth in section 102, if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains. Patentability shall not be negated by the manner in which the invention was made."

Subsection 3(d) repeals 35 U.S.C. § 104 regarding "Inventions made abroad".

Subsection 3(e) repeals 35 U.S.C. § 157 regarding "Statutory invention registration".

Subsection 3(f) contains a conforming amendment to 35 U.S.C. § 120 to preserve the effect of the CREATE Act, while subsection 3(g) contains seven other conforming amendments related to the transition to the first to file system.

Subsection 3(h) repeals 35 U.S.C. § 291 regarding interfering patents. Subsection 3(i) then amends 35 U.S.C. § 135(a) to determine the inventor with the right to file an application on a claimed invention

It provides that "An applicant may request initiation of a derivation proceeding to determine the right of the applicant to a patent by filing a request which sets forth with particularity the basis for finding that an earlier applicant derived the claimed invention from the applicant requesting the proceeding and, without authorization, filed an application claiming such invention. Any such request may only be made within 12 months after the date of first publication of an application containing a claim that is the same or is substantially the same as the claimed invention, must be made under oath, and must be supported by substantial evidence."

It continues that "Whenever the Director determines that patents or applications for patent naming different individuals as the inventor interfere with one another because of a dispute over the right to patent under section 101, the Director shall institute a derivation proceeding for the purpose of determining which applicant is entitled to a patent."

Moreover, the application must be filed "not later than 18 months after the effective filing date of the application or patent deemed to interfere with the subsequent application or patent."

The determination will be made by the Patent Trial and Appeal Board (which is created by Section 7).

Inventor's Oath; Who Can Submit an Application, and Receive a Patent

Section 4 (at pages 14-21) pertains to oaths and declarations.

Subsection 4(a) amends 35 U.S.C. § 115 regarding the inventor's oath or declaration.

An applicant may submit a substitute statement in lieu of the inventor's oath in certain circumstances, including if the inventor is unable or unwilling to make the oath. Failure to comply with the requirements of this section will not be a basis for invalidity or unenforceability of the patent if the failure is remedied by a supplemental and corrected statement.

Subsection 4(b) amends 35 U.S.C. § 118 regarding filing by other than the inventor. It expands the circumstances under which someone other than the inventor may make an application. It also allows the USPTO to issue a patent to someone other than the inventor.

It provides, in full, that "A person to whom the inventor has assigned or is under an obligation to assign the invention may make an application for patent. A person who otherwise shows sufficient proprietary interest in the matter may make an application for patent on behalf of and as agent for the inventor on proof of the pertinent facts and a showing that such action is appropriate to preserve the rights of the parties. If the Director grants a patent on an application filed under this section by a person other than the inventor, the patent shall be granted to the real party in interest and upon such notice to the inventor as the Director considers to be sufficient."

The Constitution provides only that the Congress may secure exclusive rights for "Inventors" in "their ... Discoveries".

Award of Damages to Patent Holder: Introduction

Section 5 (at pages 21-28) pertains to damages for patent infringement.

This bill does not address the remedy of injunctive relief, which was previously a legislative issue. On May 15, 2006, the Supreme Court issued its opinion [12 pages in PDF] in eBay v. MercExhange. The Supreme Court held that the traditional four factor framework that guides a court's decision whether to grant an injunction applies in patent cases. This ruling ended requests that the Congress legislatively achieve the same result. See, story titled "Supreme Court Rules on Availability of Injunctive Relief in Patent Cases" in TLJ Daily E-Mail Alert No. 1,371, May 16, 2006.

Section 5 amends 35 U.S.C. § 284, a brief three paragraph section providing for damages for infringement. It adds several new paragraphs, and amends existing language.

The sponsors' summary offers this explanation of the need for the changes. "As products have become more complex, often involving hundreds or even thousands of patented aspects, litigation has not reliably produced damages awards in infringement cases that correspond to the value of the infringed patent. This section, therefore, preserves the current rule that mandates that a damages award shall not be less than a “reasonable royalty” for the infringed patent, and further requires the court to conduct an analysis to ensure that, when a “reasonable royalty” is the award, it reflects only the economic value of the patent’s “specific contribution over the prior art”, i.e. the truly new “thing” that the patent reflects."

Award of Damages: Reasonable Royalty

The bill first adds a new paragraph that provides in full that "The court shall conduct an analysis to ensure that a reasonable royalty under paragraph (1) is applied only to that economic value properly attributable to the patent’s specific contribution over the prior art. In a reasonable royalty analysis, the court shall identify all factors relevant to the determination of a reasonable royalty under this subsection, and the court or the jury, as the case may be, shall consider only those factors in making the determination. The court shall exclude from the analysis the economic value properly attributable to the prior art, and other features or improvements, whether or not themselves patented, that contribute economic value to the infringing product or process."

The bill also adds that "Unless 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, damages may not be based upon the entire market value of that infringing product or process."

Moreover, it provides that "In determining damages, the court may also consider, or direct the jury to consider, the terms of any nonexclusive market place licensing of the invention, where appropriate, as well as any other relevant factors under applicable law.’’;

Award of Damages: Treble Damages and Willfulness

The bill also revises the existing language regarding the availability of treble damages. The new language provides that "A court that has determined that the infringer has willfully infringed a patent or patents may increase the damages up to three times the amount of damages found or assessed under subsection (a), except that increased damages under this paragraph shall not apply to provisional rights under section 154(d)."

But then, the bill provides that

"A court may find that an infringer has willfully infringed a patent only if the patent owner presents clear and convincing evidence that
   (A) after receiving written notice from the patentee
      (i) alleging acts of infringement in a manner sufficient to give the infringer an objectively reasonable apprehension of suit on such patent, and
      (ii) 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;
   (B) the infringer intentionally copied the patented invention with knowledge that it was patented; or
   (C) 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.

The bill also provides a good faith exception. It states that "A court may not find that an infringer has willfully infringed a patent under paragraph (2) for any period of time during which the infringer had an informed good faith belief that the patent was invalid or unenforceable, or would not be infringed by the conduct later shown to constitute infringement of the patent." The bill goes on to elaborate on the meaning of "good faith".

The bill also provides that the determination of willfulness is to be decided by the court, not the jury. Although, the bill creates this rule in part as a limitation of pleading of willfulness, perhaps in anticipation of 7th Amendment challenges to the shifting of a jury function to the court.

Prior User Defense to Infringement

And finally, Section 5 of the bill also provides a prior user defense to infringement.

The sponsors' summary states that "The defense to infringement for patents involving a ``method of doing or conducting business´´ based on the alleged infringer's having reduced the subject matter to practice one year prior to the filing date is amended to apply to all patents and require only that the subject matter be commercially used (or substantial preparations be made for commercial use) prior to the effective filing date of the claimed invention."

Post Grant Opposition Process

Section 6 (at pages 28-40) creates a post grant re-examination process at the USPTO.

The sponsors' summary offers this explanation of this section of the bill. "After a patent issues, a party seeking to challenge the validity and enforceability of the patent has two avenues under current law: by reexamination proceeding at the USPTO or by litigation in federal district court. The former is used sparingly and is considered not very effective; the latter, district court litigation, is unwieldy and expensive.  This section therefore creates a new, post-grant review that provides an effective and efficient system for considering challenges to the validity of patents. Addressing concerns that a post-grant review procedure could be abused by cancellation petitioners, this section requires the Director to prescribe rules for abuse of discovery or improper use of the proceeding. In addition, it bars successive petitions in either the first or second window, and prohibits a party from reasserting claims in court that it raised in post-grant review.

The sponsors' summary then provides a thorough section by section summary.

Patent Trial and Appeal Board

Section 7 (at pages 40-42) provides that the Board of Patent Appeals and Interferences is replaced with a new Patent Trial and Appeal Board. This section also sets forth the composition and duties of this new board.

Specifically, this new board shall "(1) on written appeal of an applicant, review adverse decisions of examiners upon application for patents; (2) on written appeal of a patent owner, review adverse decisions of examiners upon patents in reexamination proceedings under chapter 30; and (3) determine priority and patentability of invention in derivation proceedings under subsection 135(a); and (4) conduct post-grant opposition proceedings under chapter 32."

Section 8 (at pages 42-43) requires the USPTO to conduct a study, with recommendations for statutory changes, if any, within three years, "of the effectiveness and efficiency of the different forms of proceedings available under title 35, United States Code, for the reexamination of patents".

Publication After 18 Months

Section 9 (at pages 43-44) does two things. First, it repeals 35 U.S.C. § 122(b)(2)(B), That is, subsection (b)(1) provides that "each application for a patent shall be published ... promptly after the expiration of a period of 18 months from the earliest filing date for which a benefit is sought under this title ..."

But, subsection (b)(2)(B) provides an exception. "If an applicant makes a request upon filing, certifying that the invention disclosed in the application has not and will not be the subject of an application filed in another country, or under a multilateral international agreement, that requires publication of applications 18 months after filing, the application shall not be published as provided in paragraph (1)."

Pre-issuance Prior Art

Second, it adds a new subsection (e) to 35 U.S.C. § 122 to permit third parties to submit pre-issuance prior art to the USPTO.

It provides, in part, that

"Any person may submit for consideration and inclusion in the record of a patent application, any patent, published patent application or other publication of potential relevance to the examination of the application, if such submission is made in writing before the earlier of
   (A) the date a notice of allowance under section 151 is mailed in the application for patent; or
   (B) either (i) 6 months after the date on which the application for patent is published under section 122, or (ii) the date of the first rejection under section 132 of any claim by the examiner during the examination of the application for patent, whichever occurs later."

The submitter of such prior art must also submit "a concise description of the asserted relevance of each submitted document" and a fee.

Forum Shopping, Jurisdiction & Venue

Section 10 (at pages 44-46) addresses certain venue and jurisdiction issues in patent cases. It is directed at the problem of forum shopping for favorable judges and juries, and the trial of cases in districts that have no connection to the case.

This bill does not include the language of the "Intellectual Property Jurisdiction Clarification Act of 2005".

Section 11 (at page 46) gives the USPTO broad authority to promulgate rules that it "determines appropriate to carry out the provisions of this title".

Technical Corrections

Section 12 (at pages 46-49) contains numerous technical changes and corrections regarding joints inventors (35 U.S.C. § 116), filing of application in foreign country (35 U.S.C. § 184), reissue of defective patents (35 U.S.C. § 251), effect of reissue (35 U.S.C. § 253), correction of named inventor (35 U.S.C. § 256), and presumption of validity (35 U.S.C. § 282).

Effective Date

Section 13 (at pages 49-50) provides first that "the provisions of this Act shall take effect 12 months after the date of the enactment of this Act and shall apply to any patent issued on or after that effective date".

Section 13 also incorporates the legislative history and intent of the CREATE Act.

CREATE Act's Legislative History

It provides that while the bill repeals certain language enacted by the Cooperative Research and Technology Enhancement Act of 2004, or CREATE Act, Public Law No. 108–453, this bill "is done with the same intent to promote joint research activities that was expressed, including in the legislative history, through the enactment of the" CREATE Act. It also provides that the USPTO shall administer 35 U.S.C. § 102(b)(3), which is added by Section 3(b) of this bill, "in a manner consistent with the legislative history of the CREATE Act that was relevant to its administration by the" USPTO.