It is a new Patent Game

Bill NaifehIntellectual Property - General, IP Management, Patents

On September 16, 2011 President Obama signed into law  the Leahy-Smith Patent Reform Act, thereby ending the most favorable patent system in the world for legitimate small businesses.

The law is lengthy (169 pages) and complex.  Furthermore, the provisions of the new law have a variety of effective dates.  Some of the provisions are effective immediately.  Some of the provisions, such as increased patent office fees will be instituted on September 26, 2011.  Yet other provisions are not be implemented until 2012 and 2013.

In my opinion, this law is an example of a broken democratic system.  The backbone of economic growth in this country has been small business, yet under this law, small businesses are the losers.

The law is a compromise hammered out of by essentially three political lobbies: (1) large technology companies who would rather not have a patent system in the U.S. (because they have the resources to win in the marketplace without patents); (2) U.S. pharmaceutical companies who are very dependent on a strong patent system, and (3) large multinational companies who want a harmonization of patent laws across the world.

Although there are some good provisions in the new law, in general, the result is a law which will make patents more expensive, harder to enforce, and much more like the system in Europe (where patents are also much more expensive and harder to enforce).

Senator Leahy said that the law will create 200,000 jobs.  In my opinion, he over estimated the number of jobs by at least 200,000 (or he was talking about the creation of 200,000 jobs in China).

I am still working through the implications of the 169 pages of changes.  However, the reported changes are:

I.          Third-Party Challenges to Patent Rights:

A.        The bill includes three expanded ways that a third party can use the Patent Office to challenge a patent: Pre-Issuance Third-Party Submissions; Third-Party Requested Post-Grant Review; and Inter Partes Post Grant Review.

1.         Pre-Issuance Third-Party Submissions:

a.         Under the new law, third parties would be allowed to submit any printed publication along with a description of the relevance to the USPTO to be considered during the examination of a pending patent application.

2.         Third-Party Requested Post Grant Review:

a.         A post grant review proceeding would be created (similar to the current reexamination proceeding) that could be initiated by any party.

b.         The review would allow a third party to present essentially any legal challenge to the validity of at least one claim.

c.         A major limitation on the post grant review is the request for review must be filed within nine-months of issuance.  This is similar to Europe.

B.        Inter Partes Review Proceedings:

1.         Once the nine-month window for post grant review is expired, a party may then file for “inter parties review.” This new system would replace the current inter-parties reexamination and would be limited to consideration of novelty & obviousness issues based on prior art patents and printed publications. (It appears that the current third-party ex-parte reexamination would remain a viable option as well).

II.         Damages:

A.        Patent defendants have argued that courts often treat damages issues as afterthoughts with little procedural control. The proposed amendment would add specific procedures and checks on how a judge manages the damages portion of a case.

B.        The new law requires that a court “identify methodologies and factors that are relevant to the determination of damages” and that “only those methodologies and factors” be considered when determining the damage award.

C.        Prior to the introduction of damages evidence, the court is required to consider either party’s contentions that the others damage case lacks a legally sufficient evidentiary base.

D.        The new law requires a judge to bifurcate the damages portion of a trial if requested “absent good cause to reject the request, such as the absence of issues of significant damages or infringement and validity.”

E.        The new law appears to bar a judge from amending the discovery schedule or any “other matters” based upon the trial sequencing.

F.         Damages:

1.         The new law would codify the Federal Circuit’s holding with the words “Infringement is not willful unless the claimant proves by clear and convincing evidence that the accused infringer’s conduct with respect to the patent was objectively reckless. [i.e., that] the infringer was acting despite an objectively high likelihood that his actions constituted infringement of a valid patent, and this objectively-defined risk was either known or so obvious that it should have been known to the accused infringer.”

2.         The new law also provides:

a.         accusations of willful infringement must be pled with particularity (following FRCP 9(b));

b.         proof of knowledge of patent is insufficient to establish willful infringement;

c.         a pre-lawsuit notice of infringement cannot itself establish willfulness unless the notification is fact specific in explaining the infringement;

d.         the failure to obtain the advice of counsel (or to present that advice to the jury) “may not be used” to prove willful infringement or inducement of infringement; and

e.         damages subject to trebling are only those accrued after the infringement became willful;

f.          in a “close case” there will be no willful infringement (here, the new law requires a judge to “explain its decision” and to make a decision prior to the issue being tried by the jury).

III.        First-Inventor-to-File

A.        The new law moves the US to a first-to-file system. Each patent application would be given an “effective filing date,” and the patentability will be judged on whether any prior art was available prior to the filing date.

1.         The U.S. one-year grace period would remain in effect, but only for the inventor’s own disclosures (and disclosures derived from the inventor).

2.         Obviousness will also be judged as of the effective filing date. (Inventors will no longer be able to swear behind prior art nor will they be able to establish priority in an interference proceeding.)

3.         A new creation in the bill is a “derivation proceeding” that would operate only in times where an original inventor alleges that a patent applicant derived the invention from the original inventor’s work.

IV.       False Marking:

A.        A large number of false patent marking cases have been filed plaintiff attorneys in the past few year looking to make a quick buck.  The bill would eliminate those lawsuits except for ones filed by the US government or filed by a competitor who can prove competitive injury.  This is provision is good for any legitimate business.

V.        Oath/Declaration: The bill would make it easier for a corporation to file a substitute inventor’s oath when the inventor is non-cooperative.  This is also a good provision for legitimate businesses.

VI.       Best Mode:

A.        The best mode requirement appears to be gutted.  An inventor will still be required to “set forth” the best mode for accomplishing the invention, the new law amends the existing statute to exclude failure of disclose a best mode from being used as a basis for invalidating an issued patent.  In other words, the best mode requirement is still law, but it is unenforceable.  This is another move towards the European System (which does not have a best mode requirement).

VII.      Fee Setting Authority:

A.        The PTO would be given authority to adjust its fees, so fees will increase.