Patent Reform: Innovation Issues

Congressional research reportJan 17, 2007

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Order Code RL32996

Patent Reform: Innovation Issues

Updated January 17, 2007

John R. Thomas

Visiting Scholar

Resources, Science, and Industry Division

Wendy H. Schacht

Specialist in Science and Technology

Resources, Science, and Industry Division

Patent Reform: Innovation Issues

Summary

Congressional interest in patent policy and possible patent reform has expanded

as the importance of intellectual property to innovation has increased. Patent

ownership is perceived as an incentive to the technological advancement that leads

to economic growth. However, growing interest in patents has been accompanied by

persistent concerns about the fairness and effectiveness of the current system. Several

recent studies, including those by the National Academy of Sciences and the Federal

Trade Commission, have recommended patent reform to address perceived

deficiencies in the operation of the patent regime. Other experts maintain that major

alterations in existing law are unnecessary and that the patent process can adapt, and

is adapting, to technological progress.

Patent reform proposals considered during the 109th Congress would have

worked significant legal reforms to the patent system. Among the more notable of

these proposed changes was a shift to a first-inventor-to-file priority system;

substantive and procedural modifications to the patent law doctrines of willful

infringement and inequitable conduct; and adoption of post-issuance opposition

proceedings, prior user rights, and pre-issuance publication of all pending

applications. Several of these proposals have been the subject of discussion within

the patent community for many years, but others are more novel propositions.

Prior legislative reform efforts would have also addressed several issues of

concern, including the quality of issued patents, the expense and complexity of patent

litigation, harmonization of U.S. patent law with the laws of our leading trading

partners, potential abuses committed by patent speculators, and the special needs of

individual inventors, universities, and small firms with respect to the patent system.

In addition, although the existing patent statute in large measure applies the same

basic rules to different sorts of inventions, regardless of the technological field of that

invention, the patent system is widely believed to impact different industries in

varying ways.

The provisions of the proposed legislation would arguably have worked the

most sweeping reforms to the U.S. patent system since the nineteenth century.

However, many of these proposals, such as pre-issuance publication, prior user

rights, and oppositions, have already been implemented in U.S. law to a more limited

extent. These and other reforms, such as the first-inventor-to-file priority system and

elimination of the best mode requirement, also reflect the decades-old patent

practices of Europe, Japan, and our other leading trading partners.

Other knowledgeable observers are nonetheless concerned that certain of these

proposals would weaken the patent right, thereby diminishing needed incentives for

innovation. Some also believe that changes of this magnitude, occurring at the same

time, do not present the most prudent course for the patent system. Patent reform

therefore confronts Congress with difficult legal, practical, and policy issues, but also

with apparent possibilities for altering and possibly improving the legal regime that

has long been recognized as an engine of innovation within the U.S. economy.

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Patents and Innovation Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

The Mechanics of the Patent System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Innovation Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Current Issues and Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Patent Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Litigation Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

International Harmonization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Potential Abuses of Patent Speculators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

The Role of Individuals, Universities and Small Entities . . . . . . . . . . . . . . 10

Different Roles for Patents in Distinct Industries . . . . . . . . . . . . . . . . . . . . 12

Proposed Legislative Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

First Inventor to File . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Basic Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Policy Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Grace Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Domestic Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

International Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Elimination of Sections 102(c), (d) and (f) . . . . . . . . . . . . . . . . . . . . . . . . . 21

Assignee Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Elimination of the Best Mode Requirement . . . . . . . . . . . . . . . . . . . . . . . . 24

Apportionment of Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Willful Infringement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Attorney Fee Shifting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Unenforceability (Inequitable Conduct) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Prior User Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Extraterritorial Infringement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Post-Issuance Opposition Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Publication of Pending Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Pre-Issuance Submissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Interlocutory Claim Construction Appeals . . . . . . . . . . . . . . . . . . . . . . . . . 39

Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Enhanced USPTO Rulemaking Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Concluding Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

This report was funded in part by a grant from the John D. and Catherine T.

MacArthur Foundation

Patent Reform: Innovation Issues

Introduction

Congressional interest in patent reform has increased as the patent system

becomes more significant to U.S. industry. There is broad agreement that more

patents are sought and enforced then ever before; that the attention paid to patents in

business transactions and corporate boardrooms has dramatically increased; and that

the commercial and social significance of patent grants, licenses, judgments, and

settlements is at an all-time high.1 As the United States becomes even more of a

high-technology, knowledge-based economy, the importance of patents may grow

even further in the future.

Increasing interest in patents has been accompanied by persistent concerns about

the fairness and effectiveness of the current system. Several recent studies, including

those by the National Academy of Sciences and the Federal Trade Commission, have

recommended legal reform to address perceived deficiencies in the operation of the

patent regime.2 Other experts maintain that major alterations in existing law are

unnecessary and that the patent process can adapt, and is adapting, to technological

progress.

Both houses of the 109th Congress considered bills that attempted to respond to

current concerns about the functioning of the patent process. With respect to the

House of Representatives, H.R. 2795 was originally introduced on April 4, 2005.

Titled the “Patent Reform Act of 2005,” H.R. 2795 was then subject to a Chairman’s

Substitute Amendment on July 26, 2005. This report will focus upon this latter

amendment. Efforts in the House of Representatives were complemented by a

distinct “Patent Reform Act of 2006,” S. 3818, that was introduced in the Senate on

August 3, 2006. Although neither of the bills resulted in enacted legislation, they

may contribute to further discussion of patent reform in the 110th Congress.

Both the House and the Senate bills proposed significant legal reforms to the

patent system. Among these reforms were a shift to a first-inventor-to-file priority

Statistics from the United States Patent and Trademark Office (USPTO) support this

account. In 1980, the USPTO received 104,329 utility patent applications; by 2003, this

number had grown to 342,441 applications. During the same time period, the number of

U.S. patents granted on an annual basis grew from 61,810 to 169,028. U.S. Patent and

Trademark Office, U.S. Patent Statistics, Calendar Years 1863 - 2003 [available at

[http://www.uspto.gov]].

National Research Council, National Academy of Sciences, A Patent System for the 21st

Century, [Washington, National Academies Press, 2004] and Federal Trade Commission,

To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy,

October 2003, available at [http://www.ftc.gov].

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system; substantive and procedural modifications to the patent law doctrines of

willful infringement and inequitable conduct; and adoption of assignee filing, postissuance opposition proceedings, prior user rights, and pre-issuance publication of

all pending applications. Several of these proposals have been the subject of

discussion within the patent community for many years, but others present more

novel propositions.

This study provides an overview of current patent reform issues. It begins by

offering a summary of the structure of the current patent system and the role of

patents in innovation policy. The report then reviews some of the broader issues and

concerns, including patent quality, the high costs of patent litigation, international

harmonization, and speculation in patents, that have motivated these diverse

legislative reform proposals. The specific components of this legislation are then

identified and reviewed in greater detail.

Patents and Innovation Policy

The Mechanics of the Patent System

The patent system is grounded in Article I, Section 8, Clause 8 of the U.S.

Constitution, which states that “The Congress Shall Have Power . . . To promote the

Progress of Science and useful Arts, by securing for limited Times to Authors and

Inventors the exclusive Right to their respective Writings and Discoveries . . . .” As

mandated by the Patent Act of 1952,3 U.S. patent rights do not arise automatically.

Inventors must prepare and submit applications to the U.S. Patent and Trademark

Office (USPTO) if they wish to obtain patent protection.4 USPTO officials known

as examiners then assess whether the application merits the award of a patent.5 The

patent acquisition process is commonly known as “prosecution.”6

In deciding whether to approve a patent application, a USPTO examiner will

consider whether the submitted application fully discloses and distinctly claims the

invention.7 In addition, the application must disclose the “best mode,” or preferred

way, that the applicant knows to practice the invention.8 The examiner will also

determine whether the invention itself fulfills certain substantive standards set by the

patent statute. To be patentable, an invention must be useful, novel and nonobvious.

The requirement of usefulness, or utility, is satisfied if the invention is operable and

P.L. 82-593, 66 Stat. 792 (codified at Title 35 United States Code).

35 U.S.C. § 111.

35 U.S.C. § 131.

John R. Thomas, “On Preparatory Texts and Proprietary Technologies: The Place of

Prosecution Histories in Patent Claim Interpretation,” 47 UCLA Law Review (1999), 183.

35 U.S.C. § 112.

Ibid.

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provides a tangible benefit.9 To be judged novel, the invention must not be fully

anticipated by a prior patent, publication or other state-of-the-art knowledge that is

collectively termed the “prior art.”10 A nonobvious invention must not have been

readily within the ordinary skills of a competent artisan at the time the invention was

made.11

If the USPTO allows the patent to issue, the patent proprietor obtains the right

to exclude others from making, using, selling, offering to sell or importing into the

United States the patented invention.12 Those who engage in these acts without the

permission of the patentee during the term of the patent can be held liable for

infringement. Adjudicated infringers may be enjoined from further infringing acts.13

The patent statute also provides for the award of damages “adequate to compensate

for the infringement, but in no event less than a reasonable royalty for the use made

of the invention by the infringer.”14

The maximum term of patent protection is ordinarily set at 20 years from the

date the application is filed.15 At the end of that period, others may employ that

invention without regard to the expired patent.

Patent rights are not self-enforcing. Patentees who wish to compel others to

observe their rights must commence enforcement proceedings, which most

commonly consist of litigation in the federal courts. Although issued patents enjoy

a presumption of validity, accused infringers may assert that a patent is invalid or

unenforceable on a number of grounds.16 The U.S. Court of Appeals for the Federal

Circuit (Federal Circuit) possesses national jurisdiction over most patent appeals

from the district courts.17 The U.S. Supreme Court enjoys discretionary authority to

review cases decided by the Federal Circuit.18

35 U.S.C. § 101.

35 U.S.C. § 102.

35 U.S.C. § 103.

35 U.S.C. § 271(a).

35 U.S.C. § 283.

35 U.S.C. § 284.

35 U.S.C. § 154(a)(2). Although patent term is based upon the filing date, the patentee

gains no enforceable legal rights until the USPTO allows the application to issue as a

granted patent. A number of Patent Act provisions may modify the basic 20-year term,

including examination delays at the USPTO and delays in obtaining marketing approval for

the patented invention from other federal agencies.

35 U.S.C. § 282.

28 U.S.C. § 1295(a)(1).

28 U.S.C. § 1254(1).

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Innovation Policy

Patent ownership is perceived to be an incentive to innovation, the basis for the

technological advancement that contributes to economic growth. It is through the

commercialization and use of new products and processes that productivity gains are

made and the scope and quality of goods and services are expanded. Award of a

patent is intended to stimulate the investment necessary to develop an idea and bring

it to the marketplace embodied in a product or process. Patent title provides the

recipient with a limited-time monopoly over the use of his discovery in exchange for

the public dissemination of information contained in the patent application. This is

intended to permit the inventor to receive a return on the expenditure of resources

leading to the discovery but does not guarantee that the patent will generate

commercial benefits. The requirement for publication of the patent is expected to

stimulate additional innovation and other creative means to meet similar and

expanded demands in the marketplace.

Innovation produces new knowledge. One characteristic of this knowledge is

that it is a “public good,” a good that is not consumed when it is used. This “public

good” concept underlies the U.S. patent system. Absent a patent system, “free riders”

could easily duplicate and exploit the inventions of others. Further, because they

incurred no cost to develop and perfect the technology involved, copyists could

undersell the original inventor. The resulting inability of inventors to capitalize on

their inventions would lead to an environment where too few inventions are made.19

The patent system corrects this market failure problem by providing innovators with

an exclusive interest in their inventions, thereby allowing them to capture its

marketplace value.

The regime of patents purportedly serves other goals as well. The patent system

encourages the disclosure of products and processes, for each issued patent must

include a description sufficient to enable skilled artisans to practice the patented

invention.20 At the close of the patent’s twenty-year term,21 others may practice the

claimed invention without regard to the expired patent. In this manner the patent

system ultimately contributes to the growth of the public domain.

Even during their term, issued patents may also encourage others to “invent

around” the patentee’s proprietary interest. A patentee may point the way to new

products, markets, economies of production and even entire industries. Others can

build upon the disclosure of a patent instrument to produce their own technologies

that fall outside the exclusive rights associated with the patent.22

The patent system has also been identified as a facilitator of markets. Absent

patent rights, an inventor may have scant tangible assets to sell or license. In

See Rebecca S. Eisenberg, “Patents and the Progress of Science: Exclusive Rights and

Experimental Use,” 56 University of Chicago Law Review 1017 (1989).

35 U.S.C. § 112.

35 U.S.C. § 154.

Eisenberg, supra, at 1017.

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addition, an inventor might otherwise be unable to police the conduct of a contracting

party. Any technology or know-how that has been disclosed to a prospective licensee

might be appropriated without compensation to the inventor. The availability of

patent protection decreases the ability of contracting parties to engage in

opportunistic behavior. By lowering such transaction costs, the patent system may

make technology-based transactions more feasible.23

Through these mechanisms, the patent system can act in more socially desirable

ways than its chief legal alternative, trade secret protection. Trade secrecy guards

against the improper appropriation of valuable, commercially useful and secret

information. In contrast to patenting, trade secret protection does not result in the

disclosure of publicly valuable information. That is because an enterprise must take

reasonable measures to keep secret the information for which trade secret protection

is sought. Taking the steps necessary to maintain secrecy, such as implementing

physical security measures, also imposes costs that may ultimately be unproductive

for society.24

The patent system has long been subject to criticism, however. Some observers

have asserted that the patent system is unnecessary due to market forces that already

suffice to create an optimal level of innovation. The desire to obtain a lead time

advantage over competitors, as well as the recognition that technologically backward

firms lose out to their rivals, may well provide sufficient inducement to invent

without the need for further incentives.25 Other commentators believe that the patent

system encourages industry concentration and presents a barrier to entry in some

markets.26 Still other observers believe that the patent system too frequently attracts

speculators who prefer to acquire and enforce patents rather than engage in socially

productive activity.27

When analyzing the validity of these competing views, it is important to note

the lack of rigorous analytical methods available for studying the effect of the patent

law upon the U.S. economy as a whole. The relationship between innovation and

patent rights remains poorly understood. As a result, current economic and policy

tools do not allow us to calibrate the patent system precisely in order to produce an

optimal level of investment in innovation. Thus, each of the arguments for and

against the patent system remains open to challenge by those who are unpersuaded

by their internal logic.

Robert P. Merges, “Intellectual Property and the Costs of Commercial Exchange: A

Review Essay,” 93 Michigan Law Review (1995), 1570.

David D. Friedman et al., “Some Economics of Trade Secret Law,” 5 Journal of

Economic Perspectives (1991), 61.

See Frederic M. Sherer, Industrial Market Structure and Economic Performance (1970),

384-87.

See John R. Thomas, “Collusion and Collective Action in the Patent System: A Proposal

for Patent Bounties,” University of Illinois Law Review (2001), 305.

Ibid.

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Current Issues and Concerns

Legislation introduced in the 109th Congress proposed a number of changes to

diverse aspects of the patent system. Although these reforms were undoubtedly

motivated by a range of concerns, a discrete number of issues have been the subject

of persistent discussion in the patent community over a period of many years.

Among these issues are concern for the quality of issued patents, the expense and

complexity of patent litigation, harmonization of U.S. patent law with the laws of our

leading trading partners, potential abuses committed by patent speculators, and the

special needs of individual inventors, universities, and small firms with respect to the

patent system. In addition, although the patent statute in large measure applies the

same basic rules to different sorts of inventions, regardless of the technological field

of that invention, the patent system is widely believed to impact different industries

in varying ways.28 As a result, different industries can be expected to espouse

dissimilar views of certain patent reform proposals. Before turning to a more specific

analysis of individual legislative proposals, this report reviews the proposed

legislation’s broader themes with regard to these issues and concerns.

Patent Quality

Government, industry, academia and the patent bar alike have long insisted that

the USPTO approve only those patent applications that describe and claim a

patentable advance.29 Because they meet all the requirements imposed by the patent

laws, quality patents may be dependably enforced in court and employed as a

technology transfer tool. Such patents are said to confirm private rights by making

their proprietary uses, and therefore their value, more predictable. Quality patents

also may clarify the extent that others may approach the protected invention without

infringing. These traits in turn should strengthen the incentives of private actors to

engage in value-maximizing activities such as innovation or commercial

transactions.30

In contrast, poor patent quality is said to hold deleterious consequences. Large

numbers of inappropriately granted patents may negatively impact entrepreneurs. For

example, innovative firms may be approached by an individual with a low quality

patent that appears to cover the product they are marketing. The innovative firm may

recognize that the cost of challenging a patent even of dubious validity may be

considerable. Therefore, the firm may choose to make payments under licensing

See Dan L. Burk & Mark A. Lemley, “Is Patent Law Technology-Specific?,” 17 Berkeley

Technology Law Journal (2002), 1155.

CRS Report RL31281, Patent Quality and Public Policy: Issues for Innovative Firms in

Domestic Markets, by John R. Thomas.

See Joseph Farrell & Robert P. Merges, “Incentives to Challenge and Defend Patents:

Why Litigation Won’t Reliably Fix Patent Office Errors and Why Administrative Patent

Review Might Help,” 19 Berkeley Technology Law Journal (2004), 943.

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arrangements, or perhaps decide not to market its product at all, rather than contest

the patent proprietor’s claims.31

Poor patent quality may also encourage opportunistic behavior. Perhaps

attracted by large damages awards and a potentially porous USPTO, rent-seeking

entrepreneurs may be attracted to form speculative patent acquisition and

enforcement ventures. Industry participants may also be forced to expend

considerable sums on patent acquisition and enforcement.32 The net results would

be reduced rates of innovation, decreased patent-based transactions, and higher prices

for goods and services.

Although low patent quality appears to affect both investors and competitors of

a patentee, patent proprietors themselves may also be negatively impacted. Patent

owners may make managerial decisions, such as whether to build production

facilities or sell a product, based upon their expectation of exclusive rights in a

particular invention. If their patent is declared invalid by the USPTO or a court, the

patentee will be stripped of exclusive rights without compensation. The issuance of

large numbers of invalid patents would increase the possibility that the investmentbacked expectations of patentees would be disappointed.33

The notion that high patent quality is socially desirable has been challenged,

however. Some commentators believe that market forces will efficiently assign

patent rights no matter what their quality. Others observe that few issued patents are

the subject of litigation and further estimate that only a minority of patents are

licensed or sold. Because many patented inventions are not used in a way that calls

their validity into question, some observers maintain, society may be better off

making a detailed review into the patentability of an invention only in those few

cases where that invention is of commercial significance.34

Previously introduced legislation bears upon the patent quality issue. Both the

House and Senate bills from the 109th Congress (H.R. 2795 and S. 3818) would have

allowed for increased public participation in USPTO decisionmaking through a preissuance submission procedure. These bills would have also allowed for postissuance opposition proceedings, which would potentially allow interested parties to

“weed out” invalid patents before they are the subject of licensing or infringement

litigation.

See Bronwyn H. Hall & Dietmar Harhoff, “Post-Grant Reviews in the U.S. Patent System

— Design Choices and Expected Impact,” 19 Berkeley Technology Law Journal (2004),

989.

See Robert P. Merges, “As Many As Six Impossible Patents Before Breakfast: Property

Rights for Business Concepts and Patent System Reform,” 14 Berkeley Technology Law

Journal (1999), 577.

See Craig Allen Nard, “Certainty, Fence Building and the Useful Arts,” 74 Indiana Law

Journal (1999), 759.

Mark A. Lemley, “Rational Ignorance at the Patent Office,” 95 Northwestern University

Law Review (2001), 1495.

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Litigation Costs

Patent enforcement is often expensive. The complex legal and technological

issues, extensive discovery proceedings, expert witnesses, and specially qualified

attorneys associated with patent trials can lead to high costs.35 One study published

in 2000 concluded that the average cost of patent enforcement was $1.2 million.36

These expenses appear to be increasing, with one more recent commentator

describing an “industry rule of thumb” whereby “any patent infringement lawsuit will

easily cost $1.5 million in legal fees alone to defend.”37 Higher stakes litigation is

even more costly: For patent suits involving damages claims of more than $25

million, expenses reportedly increase to $4 million per side.38

For innovative firms that are not infrequently charged with patent infringement,

or that bring claims of patent infringement themselves, the annual expenses

associated with patent litigation can be very dear. The Microsoft Corporation

reportedly defends an average of 35 to 40 patent lawsuits annually at a cost of almost

$100 million.39 The Intel Corporation has recently been estimated to spend $20

million a year on patent litigation.40

The high costs of litigation may discourage patent proprietors from bringing

meritorious claims against infringers. They may also encourage firms to license

patents of dubious merit rather than contest them in court. Previously introduced

legislation endeavored to make patent litigation less costly and complex through

modification of the patent law doctrines of willful infringement and inequitable

conduct. It would also call for an administrative opposition proceeding that, in some

measure, could serve as a less expensive alternative to litigation.

International Harmonization

In our increasingly globalized, high-technology economy, patent protection in

a single jurisdiction is often ineffective to protect the interests of inventors. As a

result, U.S. inventors commonly seek patent protection abroad. Doing so can be a

costly, time-consuming, and difficult process. There is no global patent system.

Steven J. Elleman, “Problems in Patent Litigation: Mandatory Mediation May Provide

Settlement and Solutions,” 12 Ohio State Journal on Dispute Resolution (1997), 759.

Dee Gill, “Defending Your Rights: Protecting Intellectual Property is Expensive,” Wall

Street Journal (25 Sep. 2000), 6.

Mark H. Webbink, “A New Paradigm for Intellectual Property Rights in Software,” 2005

Duke Law and Technology Review (May 1, 2005), 15.

See Sarah Lai Stirland, “Will Congress Stop High-Tech Trolls?,” National Journal (Feb.

26, 2005), 612.

“Microsoft Advocates for Patent Reform,” eWEEK (March 10, 2005).

Stirland, supra, at 613.

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Inventors who desire intellectual property protection in a particular country must

therefore take specific steps to procure a patent within that jurisdiction.41

Differences in national laws are among the difficulties faced by U.S. inventors

seeking patent rights overseas. Although the world’s patent laws have undergone

considerable harmonization in recent years, several notable distinctions between U.S.

patent law and those of our leading trading partners persist. Previously introduced

legislation would have addressed some of these differences by modifying U.S. patent

law in order to comply with international standards. Among these proposed reforms

are adoption of a first-inventor-to-file priority system, a post-issuance opposition

system, assignee filing, publication of all pending patent applications, and prior user

rights; elimination of the best mode requirement; and encouragement for the adoption

of a one-year grace period within the European Patent Convention and Japanese

Patent Act.

Potential Abuses of Patent Speculators

Some commentators believe that the patent system too frequently attracts

speculators who prefer to acquire and enforce patents rather than engage in research,

development, manufacturing, or other socially productive activity.42 Patent

speculators are sometimes termed “trolls,” after creatures from folklore that would

emerge from under a bridge in order to waylay travelers.43 The late Jerome C.

Lemelson, a prolific inventor who owned hundreds of patents and launched

numerous charges of patent infringement, has sometimes been mentioned in this

context. The total revenue of the Lemelson estate’s patent licensing program has

been reported as in excess of $1.5 billion.44 But as explained by journalist Michael

Ravnitsky, “critics charge that many Lemelson patents are so-called submarine

patents, overly broad applications that took so long to issue or were so general in

nature that their owners could unfairly claim broad infringement across entire

industry sectors.”45 Of such patent ventures, patent attorney James Pooley observes:

Of course there is nothing inherently wrong with charging someone rent to use

your property, including intellectual property like patents. But it’s useful to keep

in mind — especially when listening to prattle about losing American jobs to

foreign competition — that these patent mills produce no products. Their only

output is paper, of a highly threatening sort.46

CRS Report RL31132, Multinational Patent Acquisition and Enforcement: Public Policy

Challenges and Opportunities for Innovative Firms, by John R. Thomas.

See Elizabeth D. Ferrill, “Patent Investment Trusts: Let’s Build a Pit to Catch the Patent

Trolls,” 6 North Carolina Journal of Law and Technology (2005), 367.

See Lorraine Woellert, “A Patent War Is Breaking Out on the Hill,” BusinessWeek 45

(July 4, 2005).

Nicholas Varchaver, “The Patent King,” Fortune (May 14, 2001), 202.

Michael Ravnitsky, “More Lemelson Suits,” The National Law Journal (Dec. 17, 2001),

B9.

James Pooley, “Opinion: U.S. patent reform-a good invention,” Electronic Business (1

(continued...)

CRS-10

Patent enforcement suits brought by patent speculators appear to present special

concerns for manufacturers and service providers. If one manufacturer or service

provider commences litigation against another, the defendant can often counter with

its own claims of patent infringement against the plaintiff. Because patent

speculators do not otherwise participate in the marketplace, however, they are

immune to such counterclaims. This asymmetry in litigation positions reportedly

reduces the bargaining power of manufacturers and service providers, potentially

exposing them to harassment.47

Observers hasten to note, however, that not every patent proprietor who does not

commercialize the patented invention should properly be considered an opportunistic

“troll.” A nonmanufacturing patentee may lack the expertise or resources to produce

a patented product, prefer to commit itself to further innovation, or otherwise have

legitimate reasons for its behavior.48 Universities and small biotechnology

companies often fit into this category. Further, whether classified as a “troll” or not,

each patent owner has presumptively fulfilled all of the relevant statutory

requirements. Among these obligations is a thorough disclosure of a novel,

nonobvious invention to the public.49

Previously introduced legislation would have impacted concerns over “trolling”

by amendment to the patent statute’s provision regarding attorney fee-shifting, as

well as limiting infringement damages in certain circumstances.

The Role of Individuals, Universities and Small Entities

Entrepreneurs and small, innovative firms play a role in the technological

advancement and economic growth of the United States.50 Several studies

commissioned by U.S. federal agencies have concluded that individuals and small

entities constitute a significant source of innovative products and services.51 Studies

(...continued)

Jan. 2000), 72.

See Ronald J. Mann, “Do Patents Facilitate Financing in the Software Industry?,” 83

Texas Law Review (2005), 961.

See David G. Barker, “Troll or No Troll? Policing Patent Usage with An Open Post-Grant

Review,” 2005 Duke Law and Technology Review (Apr. 15, 2005), 11.

35 U.S.C. § 112.

National Science Board, Science and Engineering Indicators, 1993 (Dec. 8, 1993), 185.

See also CRS Report RL30216, Small, High Tech Companies and Their Role in the

Economy: Issues in the Reauthorization of the Small Business Innovation (SBIR) Program,

by Wendy H. Schacht.

For example, the National Academy of Engineering concluded that “small high-tech

companies play a critical and diverse role in creating new products and services, in

developing new industries, and in driving technological change and growth in the U.S.

economy.” National Academy of Engineering, Risk & Innovation: The Role and Importance

of Small High-Tech Companies in the U.S. Economy (Washington: National Academy Press,

1995), 37. This assessment was founded on the ability of small firms to develop markets

(continued...)

CRS-11

have also indicated that entrepreneurs and small, innovative firms rely more heavily

upon the patent system than larger enterprises. Larger companies are said to possess

alternative means for achieving a proprietary or property-like interest in a particular

technology. For example, trade secrecy, ready access to markets, trademark rights,

speed of development, and consumer goodwill may to some degree act as substitutes

to the patent system.52 However, individual inventors and small firms often do not

have these mechanisms at their disposal. As a result, the patent system may enjoy

heightened importance with respect to these enterprises.53

In recent years, universities have also become more full-fledged participants in

the patent system. This trend has been attributed to the Bayh-Dole Act,54 a federal

statute that allowed universities and other government contractors to retain patent

title to inventions developed with the benefit of federal funding.55 In recent years

there has reportedly “been a dramatic increase in academic institutions’ investments

in technology licensing activities.”56 This increase has been reflected in the growth

in the number of patents held by universities, the number of universities with

technology transfer offices, and the amount of patent-based licensing revenues that

these offices have raised.57

The U.S. patent system has long acknowledged the role, and particular needs,

of independent inventors, small firms, and universities. For example, the patent

statute calls for each of these entities to receive a 50% discount on many USPTO

fees.58 As the USPTO is currently entirely funded by the fees it charges its users,59

(...continued)

rapidly, generate new goods and services, and offer diverse products. The study also

concluded that small businesses were less risk adverse than larger, established corporations

and were often better positioned to exploit market opportunities quickly. A National

Science Foundation report found that entrepreneurs and small firms are six times as

effective as larger firms in utilizing research and development expenditures to generate new

products. National Science Board, Science and Engineering Indicators, 1993, (Dec. 8,

1993), 185. Anderson, Anne, “Small Businesses Make it Big in the SBIR Program,” New

Technology Week (June 6, 1998), p. 2.

Sally Wyatt & Gilles Y. Bertin, Multinationals and Industrial Property 139 (Harvester

1988).

J. Douglas Hawkins, “Importance and Access of International Patent Protection for the

Independent Inventor,” 3 University of Baltimore Intellectual Property Journal (1995), 145.

P.L. 96-517, 94 Stat. 2311 (codified at 35 U.S.C. §§ 200-212).

CRS Report RL32076, The Bayh-Dole Act: Selected Issues in Patent Policy and the

Commercialization of Technology, by Wendy H. Schacht.

Josh Lerner, “Patent Policy Innovations: A Clinical Examination,” 53 Vanderbilt Law

Review (2000), 1841.

See Arti K. Rai & Rebecca S. Eisenberg, “Bayh-Dole Reform and the Progress of

Biomedicine,” 66 Law and Contemporary Problems (Winter/Spring 2003), 289.

35 U.S.C. § 41(g).

CRS Report RS20906, U.S. Patent and Trademark Office Appropriations Process: A Brief

(continued...)

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this provision effectively calls for larger institutions to subsidize the patent

expenditures of their smaller competitors.

Beyond potentially diminished financial resources vis-a-vis larger concerns,

however, observers have disagreed over whether independent inventors, small firms,

and universities have particular needs with respect to the patent system, and if so

whether those needs should be reflected in patent law doctrines. With respect to the

proposed system of “prior user rights,”60 for example, some observers state that such

rights would particularly benefit small entities, which may often lack a sophisticated

knowledge of the patent system.61 Others disagree, stating that smaller concerns rely

heavily on the exclusivity of the patent right, and that the adoption of prior user rights

would advantage large enterprises.62 Similar debates have occurred with respect to

other patent reform proposals, perhaps reflecting the fact that the community of

independent inventors, small firms, and universities is itself a diverse one.

Provisions of previously introduced legislation that appeared to be of particular

interest to independent inventors, universities, and small businesses include a shift

to a first-inventor-to-file priority system, prior user rights, pre-issuance publication

of all pending patent applications, and post-issuance oppositions.

Different Roles for Patents in Distinct Industries

To a large extent, the patent statute subjects all inventions to the same standards,

regardless of the field in which those inventions arose. Whether the invention is an

automobile engine, semiconductor, or a pharmaceutical, it is for the most part subject

to the same patentability requirements, scope of rights, and term of protection. Both

experience and economic research suggest that distinct industries encounter the

patent system in different ways, however.63 As a result, it can be expected that

(...continued)

Explanation, by Wendy H. Schacht.

Under a rule of “prior user rights,” when a conflict exists between an issued patent and

an earlier user of the patented technology, the validity of the patent is upheld but the prior

user is exempted from infringement. See Pierre Jean Hubert, “The Prior User Right of H.R.

400: A Careful Balancing of Competing Interests,” 14 Santa Clara Computer and High

Technology Law Journal (1998), 189. Prior user rights are discussed further in this report

below.

See Gary L. Griswold & F. Andrew Ubel, “Prior User Rights — A Necessary Part of a

First-to-File System,” 26 John Marshall Law Review (1993), p. 567.

See David H. Hollander, Jr., “The First Inventor Defense: A Limited Prior User Right

Finds Its Way Into U.S. Patent Law,” 30 American Intellectual Property Law Association

Quarterly Journal (2002), 37 (noting the perception that prior user rights favor large, wellfinanced corporations).

In particular, economic research suggests that different industries attach widely varying

values to patents. For example, one study of the aircraft and semiconductor industries

suggested that lead time and the strength of the learning curve were superior to patents in

capturing the value of investments. In contrast, members of the drug and chemical

industries attached a higher value to patents. Differences in the perception of the patent

(continued...)

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particular industries will react differently to the various patent reform proposals

currently before Congress.64

Although broad generalizations should be drawn with care, two industries

widely perceived as viewing the patent system in different ways are the

pharmaceutical and software sectors. Within the pharmaceutical industry, individual

patents are perceived as critical to a business model that provides life-saving and lifeenhancing medical innovations, but eventually allows members of the public access

to medicines at low cost. In particular, often only a handful, and sometimes only one

or two patents cover a particular drug product. Patents are also judged to be crucial

to the pharmaceutical sector because of the relative ease of replicating the finished

product. For example, while it is expensive, complicated, and time consuming to

duplicate an airplane, it is relatively simple to perform a chemical analysis of a pill

and reproduce it.65

In contrast to the pharmaceutical field, the nature of software development is

such that innovations are typically cumulative and new products often embody

numerous patentable inventions. This environment has led to what has been

described as a

poor match between patents and products in the [software] industry: it is difficult

to patent an entire product in the software industry because any particular

product is likely to include dozens if not hundreds of separate technological

ideas.66

This situation may be augmented by the multiplicity of patents often associated with

a finished computer product that utilizes the software. It is not uncommon for

thousands of different patents (relating to hardware and software) to be embodied in

one single computer. In addition, ownership of these patents may well be fractured

among hundreds or thousands of different individuals and firms.

In summary, then, the patent laws provide a “one size fits all” system, where all

inventions are subject to the same requirements of patentability and scope of

protection, regardless of the technical field in which they arose. Innovators in

different fields nonetheless have varying experiences with the patent system. These

(...continued)

system have been attributed to the extent to which patents introduced significant duplication

costs and times for competitors of the patentee. Richard C. Levin, Alvin K. Klevorick,

Richard R. Nelson, and Sidney G. Winter, “Appropriating the Returns for Industrial

Research and Development,” Brookings Papers on Economic Activity, 1987, in The

Economics of Technical Change, eds. Edwin Mansfield and Elizabeth Mansfield (Vermont,

Edward Elgar Publishing Co., 1993), p. 254.

For additional discussion on this issue see CRS Report RL33367, Patent Reform: Issues

in the Biomedical and Software Industries, by Wendy H. Schacht.

Federic M. Scherer, “The Economics of Human Gene Patents”, 77 Academic Medicine

(Dec. 2002), p. 1350.

Mann, supra, at 979.

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discrepancies, among others, lead to the expectation that distinct industries may react

differently to the various patent reform proposals presently considered by Congress.

Proposed Legislative Initiatives

Legislation proposed before the 109th Congress included a diverse array of

patent reforms. The following chart outlines the major provisions of the two bills,

which this report then discusses in turn.

H.R. 2795

First Inventor to File (§ 3)

S. 3818

First Inventor to File (§ 3)

Grace Period (§§ 3 & 10)

Grace Period (§ 3)

Eliminate § 102(c), (d) & (f) (§ 3)

Assignee Filing (§ 4)

Repeal Best Mode Requirement (§ 4)

Apportionment of Damages (§ 6)

Apportionment of Damages (§ 5)

Willful Infringement (§ 6)

Willful Infringement (§ 5)

Attorney Fee Shifting (§ 5)

Unenforceability (Inequitable

Conduct) (§ 5)

Unenforceability (Inequitable

Conduct) (§ 5)

Prior User Rights (§ 7)

Prior User Rights (§ 5)

Extraterritorial Infringement (§ 5)

Post-Issuance Oppositions (§ 7)

Post-Issuance Oppositions (§ 6)

Publication of Applications (§ 7)

Pre-Issuance Submissions (§ 8)

Pre-Issuance Submissions (§ 7)

Interlocutory Claim Construction

Appeals (§ 8)

Venue (§ 9)

Venue (§ 8)

USPTO Rulemaking Authority (§ 9)

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First Inventor to File

Basic Concepts. In the 109th Congress, the House and Senate patent reform

bills would have altered the U.S. patent priority rule from the current “first-to-invent”

principle to the “first-inventor-to-file” principle.67 Within the patent law, the priority

rule addresses the circumstance where two or more persons independently develop

the identical or similar invention at approximately the same time. In such cases the

patent law must establish a rule as to which of these inventors obtains entitlement to

a patent.68

Under current U.S. law, when more than one patent application is filed claiming

the same invention, the patent will be awarded to the applicant who was the first

inventor in fact. This conclusion holds even if the first inventor was not the first

person to file a patent application directed towards that invention.69 Within this

“first-to-invent” system,70 the timing of real-world events, such as the date a chemist

conceived of a new compound or a machinist constructed a new engine, is of

significance.

In every patent-issuing nation except the United States, priority of invention is

established by the earliest effective filing date of a patent application disclosing the

claiming invention.71 Stated differently, the inventor who first filed an application

at the patent office is presumptively entitled to the patent. Whether or not the first

applicant was actually the first individual to complete the invention in the field is

irrelevant. This priority system follows the “first-inventor-to file” principle.

A simple example illustrates the distinction between these priority rules.

Suppose that inventor A synthesizes a new chemical compound on August 1, 2005,

and files a patent application on November 1, 2005 claiming that compound.

Suppose further that inventor B independently invents the same compound on

September 1, 2005, and files a patent application on October 1, 2005. Inventor A

would be awarded the patent under the first-to-invent rule, while Inventor B would

obtain the patent under the first-inventor-to-file principle.

Under the current U.S. first-to-invent rule, priority disputes may be resolved via

“interference” proceedings conducted at the USPTO.72 An interference is a complex

administrative proceeding that may result in the award of priority to one of its

H.R. 2795, § 3.

See Roger E. Schechter & John R. Thomas, Principles of Patent Law § 1.2.5 (2d ed.

2004).

In addition, the party that was the first to invent must not have abandoned, suppressed or

concealed the invention. 35 U.S.C. § 102(g)(2).

See Charles E. Gholz, “First-to-File or First-to-Invent?”, 82 Journal of the Patent and

Trademark Office Society (2000), p. 891.

See Peter A. Jackman, “Adoption of a First-to-File System: A Proposal,” 26 University

of Baltimore Law Review (1997), 67.

35 U.S.C. § 135.

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participants. These proceedings are not especially common. One estimate concludes

that less than one-quarter of one percent of patents are subject to an interference.73

This statistic may mislead, however, because the expense of interference cases may

result in their use only for the most commercially significant inventions.

By shifting to a first-inventor-to-file priority rule, the House and Senate bills

would have eliminated the need for interference proceedings. Instead, the applicant

with the earliest filing date, rather than the first individual to have created the

invention, would have been eligible for the patent. Notably, the proposed bills would

not have rendered a patent applicant’s actual date of invention completely irrelevant.

As this report discusses immediately below, the invention date would have remained

pertinent with respect to the so-called grace period. In this respect, these legislative

proposals departed from first-inventor-to-file practices in other patent-issuing

countries.

Policy Considerations. The relative merits of the first-to-invent and firstinventor-to-file priority principles have been the subject of a lengthy debate within

the patent community. Supporters of the current first-to-invent principle in part

assert that the first-inventor-to-file system would create inequities by sponsoring a

“race to the Patent Office.” They are also concerned that the first-to-file system

would encourage premature and sketchy technological disclosures in hastily-filed

patent applications.74

Supporters of the first-inventor-to-file principle in part assert that it provides a

definite, readily determined and fixed date of priority of invention, which would lead

to greater legal certainty within innovative industries. They also contend that the

first-inventor-to-file principle would decrease the complexity, length and expense

associated with current USPTO interference proceedings. Rather than being caught

up in lengthy interference proceedings in an attempt to prove dates of inventive

activity that occurred many years previously, they assert, inventors could continue to

go about the process of innovation. Supporters also observe that informed U.S. firms

already organize their affairs on a first-inventor-to-file basis in order to avoid

forfeiture of patent rights abroad.75

The effect of a shift to the first-inventor-to-file rule upon individual inventors,

small firms, and universities has been debated. Some observers state that such

entities often possess fewer resources and wherewithal than their larger competitors,

and thus are less able to prepare and file patent applications quickly. Others disagree,

stating that smaller concerns are more nimble than larger ones and thus better able

to submit applications promptly. They also point to the availability of provisional

See Clifford A. Ulrich, “The Patent Systems Harmonization Act of 1992: Conformity at

What Price?,” 16 New York Law School Journal of International and Comparative Law

(1996), p. 405.

See Coe A. Bloomberg, “In Defense of the First-to-Invent Rule,” 21 American Intellectual

Property Law Quarterly Journal (1993), p. 255.

See Bernarr A. Pravel, “Why the United States Should Adopt the First-to-File System for

Patents,” 22 St. Mary’s Law Journal (1991), p. 797.

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applications,76 asserting that such applications allow small entities to secure priority

rights readily without a significant expenditure of resources. A quantitative study of

interference proceedings by Gerald Mossinghoff, a former Commissioner of the

USPTO, also suggested that the first-to-invent rule neither advantaged nor

disadvantaged small entities vis-a-vis larger enterprises.77

The role of the U.S. Constitution is sometimes debated within the context of the

patent priority principle. Article I, section 8, clause 8 of the Constitution provides

Congress with the authority to award “inventors” with exclusive rights. Some

observers suggest this language suggests, or possibly even mandates, the current firstto-invent system. Others conclude that because the first-inventor-to-file only awards

patents to individuals who actually developed the invention themselves, rather than

derived it from another, this priority system is permissible under the Constitution.78

In weighing the validity of this position, it should be noted that under wellestablished U.S. law, the first-inventor-in-fact does not always obtain entitlement to

a patent. If, for example, a first-inventor-in-fact maintained his invention as a trade

secret for many years before seeking patent protection, he may be judged to have

“abandoned, suppressed or concealed” the invention.79 In such a case a secondinventor-in-fact may be awarded a patent on that invention. Courts have reasoned

that this statutory rule encourages individuals to disclose their inventions to the

public promptly, or give way to an inventor who in fact does so.80 As the firstinventor-to-file rule acts in a similar fashion to this longstanding patent law principle,

conflict between this rule and the Constitution appears unlikely.

Notably, a first-inventor-to-file priority rule does not permit one individual to

copy another’s invention and then, by virtue of being the first to file a patent

application, be entitled to a patent. All patent applicants must have originated the

invention themselves, rather than derived it from another.81 In order to police this

requirement, both bills would have provided for “inventor’s rights contests” that

would allow the USPTO to determine which applicant is entitled to a patent on a

particular invention.82

35 U.S.C. § 111(b).

Gerald J. Mossinghoff, “The U.S. First-to-Invent System Has Provided No Advantage to

Small Entities,” 84 Journal of the Patent and Trademark Office Society (2002), p. 425.

See generally Charles R.B. Marcedo, “First-to-File: Is American Adoption of the

International Standard in Patent Law Worth the Price?,” 18 American Intellectual Property

Law Association Quarterly Journal (1990), p. 193.

35 U.S.C. § 102(g)(2).

See Del Mar Engineering Labs. v. United States, 524 F.2d 1178 (Ct. Cl. 1975).

35 U.S.C. § 101.

H.R. 2795, § 3(i); S. 3818, § 3(i).

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Grace Period

Domestic Issues. Previous legislative proposals would have retained the

existing one-year “grace period” enjoyed by U.S. inventors. Current U.S. patent law

essentially provides inventors with a one-year period to decide whether patent

protection is desirable, and, if so, to prepare an application. Specified activities that

occur before the “critical date” — patent parlance for the day one year before the

application was filed — will prevent a patent from issuing.83 If, for example, an

entrepreneur first discloses an invention by publishing an article in a scientific

journal, she knows that she has one year from the publication date in which to file a

patent application. Importantly, uses, sales, and other technical disclosures by third

parties will also start the one-year clock running. As a result, inventors have a

broader range of concerns than merely their own activities.84

Suppose, for example, that an electrical engineer files a patent application

claiming a new capacitor on February 1, 2007. While reviewing the application, a

USPTO examiner discovers a October 1, 2005, journal article disclosing the identical

capacitor. Because the article was published prior to the critical date of February 1,

2006, that publication will prevent or “bar” the issuance of a patent on that capacitor.

If a relevant reference is first publicly disclosed during the one-year grace period

— that is to say, after the critical date but prior to the filing date — the legal

situation is more complex. Under current law, patent applicants may “antedate” such

a reference by demonstrating that they had actually invented the subject matter of

their application prior to the date of the reference. If the applicant can make such a

showing, then the reference cannot ordinarily be used to defeat the patentability of

the invention.

As an illustration of this procedure, suppose that an inventor files a patent

application directed to a polymer on February 1, 2007. Suppose that the USPTO

examiner discovers that a textbook published on January 1, 2007, describes the same

polymer that is claimed in the application.85 Because the textbook was published

subsequent to the critical date of February 1, 2006, it does not absolutely bar the

application. In order to obtain a patent, however, the applicant must nonetheless

demonstrate that he invented the polymer prior to January 1, 2007, the date the

textbook was published. The applicant might submit copies of his laboratory

notebook, for example, or submit a sworn declaration in order to make this

showing.86

Both the House and Senate bills contemplated by the 109th Congress would have

retained current patent law rules with respect to the grace period. As a result, an

inventor would still have been allowed to “antedate” prior art by showing that she

35 U.S.C. § 102(b).

Schechter & Thomas, supra, at § 4.3.1.

In addition, the textbook must be attributable to someone other than the patent applicant.

See 35 U.S.C. § 102(a).

37 C.F.R. § 1.131.

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invented the subject matter of the application prior to the date of the reference.87 This

approach would have had the advantage of maintaining longstanding U.S. rules

regarding the patent-defeating effect of references that first become publicly available

during the grace period. It might benefit university professors, small firms, and other

entities that may lack the wherewithal to file patent applications promptly.

On the other hand, these proposals would have meant that the U.S. shift from

a “first-to-invent” system to a “first-inventor-to-file” system would have been

incomplete. Because an applicant’s date of invention would have remained relevant,

patentability decisions would have been more complex and less certain than in the

first-inventor-to-file systems employed by all other patent-issuing states. Such an

approach would also not fully harmonize U.S. law with those of other nations.

International Issues. In contrast to the United States, many other patentgranting states provide more limited grace periods, or no grace periods at all. In

Europe, any sales or publication of an invention anywhere in the world prior to the

filing date defeats the patentability of an invention.88 The Japanese patent system

includes a six-month grace period tied only to the activities of the inventor.89 Under

the patent law of Japan, any disclosures of an invention made by a third party even

one day before the filing date will prevent the issuance of a patent.

In the109th Congress, the House bill would have included a provision that might

have encouraged adoption of a one-year grace period for inventor activities in Europe

and Japan.90 An understanding of this proposal requires some background

information on the international priority system established by an international

agreement known as the Paris Convention.91 The international priority system allows

an inventor to file a patent application in one Paris Convention signatory state, which

is usually the inventor’s home country. If the inventor subsequently files patent

applications in any other Paris Convention signatory state within the next 12 months,

overseas patent-granting authorities will treat the application as if it were filed on the

first filing date. Critically, information that enters the public domain between the

priority date and subsequent filing dates does not prejudice the later applications.

Paris Convention priority allows U.S. inventors to preserve their original USPTO

filing dates as they make arrangements to file patent applications overseas.92

Suppose, for example, that an inventor files a patent application at the USPTO

on October 1, 2006. The inventor then files a patent application claiming the same

invention in the Japanese Patent Office on September 1, 2007. As part of his

35 U.S.C. § 102(a).

European Patent Convention, Article 54(2).

Japanese Patent Act, Article 29(1).

The Senate bill did not include an analogous provision on this point.

Convention of Paris for the Protection of Industrial Property, 13 U.S.T. 25 (1962).

See G.H.C. Bodenhausen, Guide to the Paris Convention for the Protection of Industrial

Property (United International Bureau for the Protection of Intellectual Property, Geneva,

Switzerland 1968).

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Japanese application, the inventor informs the Japanese Patent Office of the earlier

U.S. application. Because Japan has acceded to the Paris Convention, the Japanese

Patent Office will treat that inventor’s application as if it had been filed on October

1, 2006. As a result, information that entered the public domain after the U.S. filing

date would not prejudice the inventor’s Japanese application. A journal article

published on January 1, 2007, for example, would not limit the opportunity of the

inventor to obtain a Japanese patent.

The U.S. patent statute currently limits the usefulness of the Paris Convention

priority date for foreign inventors seeking U.S. patent rights. Section 119 of the

Patent Act states that:

no patent shall be granted on any application for patent for an invention which

had been patented or described in a printed publication in any country more than

one year before the date of the actual filing of the application in this country, or

which had been in public use or on sale in this country more than one year prior

to such filing.93

The effect of this language is that the one-year grace period is measured not from the

Paris Convention international priority date, but the actual U.S. filing date.

This limitation may discourage U.S. trading partners from adopting a grace

period analogous to that of U.S. law. Consider, for example, a Japanese inventor

who publishes an article in a scientific journal describing his new invention on

August 1, 2005. Consistent with Japanese patent law, he then files a patent

application at the Japanese Patent Office six months later, on February 1, 2006.

Then, in accordance with the Paris Convention, he files an application at the USPTO

on February 1, 2007.

Under these circumstances, the U.S. patent application should be denied, even

though the Japanese inventor appeared to comply with all legal formalities. Because

the U.S. patent statute compels the USPTO to assess the grace period as ending as

the actual U.S. filing date in 2007, rather than the Paris Convention priority date in

2006, the U.S. patent is barred from issuance. This state of affairs may give pause

to nations considering adopting a U.S.-style grace period. Foreign applicants who

rely upon grace periods within their own national systems may be put in a position

of forfeiture of their U.S. patent rights.

Apparently aware of this concern, the House bill would have altered the date the

grace period closes from the actual U.S. filing date to the Paris Convention priority

date — provided that Europe and Japan adopt laws analogous to that of proposed

U.S. law. In the language of the House bill:

Before the date, if ever, that the Director of the [USPTO] publishes a notice ...

declaring that both the European Patent Convention and the patent laws of Japan

afford inventors seeking patents a 1-year period prior to the effective filing date

of a claimed invention during which disclosures made by the inventor or by

others who obtained the subject matter disclosed directly or indirectly from the

35 U.S.C. § 119(a).

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inventor do not constitute prior art, the term “effective filing date” as used in

section 102(a)(1)(A) of title 35, United States Code, shall be construed by

disregarding any right of priority except that provided under section 119(e) of

title 35, United States Code.94

Should the USPTO Director publish a notice in keeping with this provision, then

foreign inventors would be able to rely upon their domestic grace periods and

maintain their ability to obtain patents in the United States.

Elimination of Sections 102(c), (d) and (f)

Legislation before the 109th Congress would have eliminated three provisions

of the Patent Act, paragraphs (c), (d), and (f) of Section 102. Section 102(c) does not

allow an applicant to obtain a patent when he “has abandoned the invention.” This

statute does not refer to disposal of the invention itself, however, but instead to the

intentional surrender of an invention to the public. Older Supreme Court opinions

instruct that abandonment may occur where an inventor expressly dedicates it to the

public, through a deliberate relinquishment or conduct evidencing an intent not to

pursue patent protection.95 The circumstances must be such that others could

reasonably rely upon the inventor’s renunciation.96 Perhaps because few individuals

expressly cede their patentable inventions to the public without seeking

compensation, there are few modern judicial opinions that consider 35 U.S.C. §

102(c) in any meaningful way. In addition, the generally applicable principle of

equitable estoppel may apparently be used to obtain the same result.97

Like section 102(c), section 102(d) of the Patent Act is reportedly little-used.98

35 U.S.C. 102(d) bars a U.S. patent when (1) an inventor files a foreign patent

application more than twelve months before filing the U.S. application, and (2) a

foreign patent results from that application prior to the U.S. filing date. Suppose that

an inventor files an application at a foreign patent office on May 25, 2004. The

foreign application matures into a granted foreign patent on August 1, 2005. If the

inventor has not filed his patent application at the USPTO as of August 1, 2005, the

date of the foreign patent grant, any patent application that the inventor subsequently

filed in the United States would be defeated.

The policy basis for 35 U.S.C. § 102(d) is to encourage the prompt filing of

patent applications in the United States. As the Patent Office Commissioner

explained in 1870:

H.R. 2795, § 11(h).

See Beedle v. Bennett, 122 U.S. 71 (1887).

See Mendenhall v. Astec Indus., Inc., 13 USPQ2d 1913, 1937 (E.D. Tenn.1988), aff’d,

887 F.2d 1094 (Fed. Cir. 1989).

See generally A.C. Auckerman & Co. v. R.L. Chaides.Construction Co., 960 F.2d 1020

(Fed. Cir. 1992).

Schechter & Thomas, supra, at § 4.3.8.

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The intention of [C]ongress obviously was to obtain for this country the free use

of the inventions of foreigners as soon as they became free abroad. This is

indicated by the use of the phrase, ‘first patented, or caused to be patented, in a

foreign country,’ for it was presumable that American citizens would obtain their

first patent here, while a foreigner would first patent his invention in his own

country. The statute was designed to prevent a foreigner from spending his time

and capital in the development of an invention in his own country, and then

coming to this country to enjoy a further monopoly, when the invention had

become free at home. The result of such a course would be that while the foreign

country was developing the invention and enjoying its benefits, its use could be

interdicted here; while, if the term of the monopoly could be further extended

here, the market could be controlled long after the foreign nation was prepared

to flood this country with the unpatented products of the patented process.99

Section 102(d) has been subject to critical commentary. Because inventors may

choose to file a patent application only in the United States, the policy goal of

assuring that the U.S. market will become patent-free contemporaneously with

foreign markets may not be well-served by this provision. In addition, 35 U.S.C. §

102(d) effectively acts against foreign, rather than U.S.-based inventors, as domestic

inventors ordinarily file at the USPTO first before seeking rights overseas. Some

commentators have suggested that 35 U.S.C. § 102(d) violates the spirit, if not the

letter, of U.S. international treaty obligations, which generally impose an obligation

of national treatment with respect to intellectual property matters.100

Finally, the House and Senate bills (H.R. 2795 and S. 3818) also would have

eliminated current 35 U.S.C. § 102(f), which states that a person may obtain a patent

unless “he did not himself invent the subject matter sought to be patented.” This

proposed amendment would not alter the requirement that only an actual inventor

may obtain a patent, which is also stated by 35 U.S.C. § 101.101

Assignee Filing

Under current U.S. law, a patent application must be filed by the inventor —

that is to say, the natural person or persons who developed the invention.102 This rule

applies even where the invention was developed by individuals in their capacity as

employees. Even though rights to the invention have usually been contractually

assigned to an employer, for example, the actual inventor, rather than the employer,

Bate Refrigerating Co. v. Sulzberger, 157 U.S. 1, 27 (1895) (quoting Ex parte Mushet,

1870 Comm’r Dec. 106, 108 (1870)).

100

See Donald S. Chisum, “Foreign Activity: Its Effect on Patentability under United States

Law,” 11 International Review of Industrial Property & Copyright Law (1980), 26.

101

See Schechter & Thomas, supra, at § 4.4.4. This amendment may potentially alter the

holding in Oddzon Products Inc. v. Just Toys Inc., 122 F.3d 1396 (Fed. Cir. 1997), that

subject matter that qualifies as prior art only under 35 U.S.C. § 102(f) may be used for a

nonobviousness analysis under 35 U.S.C. § 103(a). Further discussion of this issue may be

found at CRS Report RL33063, Intellectual Property and Collaborative Research, by John

R. Thomas.

102

35 U.S.C. § 111.

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must be the one that applies for the patent. Section 118 of the Patent Act allows a

few exceptions to this general rule. If an inventor cannot be located, or refuses to

perform his contractual obligation to assign an invention to his employer, then the

employer may file in place of the inventor.103

Legislation before the 109th Congress instead would have stipulated that a

“person to whom the inventor has assigned or is under an obligation to assign the

invention may make an application for patent.”104 Individuals who otherwise make

a showing of a “sufficient proprietary interest in the matter” may also apply for a

patent on behalf of the inventor upon a sufficient show of proof of the pertinent facts.

Under the proposed legislation, if the USPTO “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.”

Legal reforms allowing assignee filing of patent applications have been

discussed for many years. A 1966 Report of the President’s Commission on the

Patent System recommended this change as a way to simplify formalities of

application filing and to avoid delays caused by the need to identify and obtain

signatures from each inventor.105 The 1992 Advisory Commission on Patent Law

Reform was also in favor of this change. The 1992 Commission observed that the

United States was “the only country which does not permit the assignee of an

invention to file a patent application in its own name.”106 In the opinion of the 1992

Commission, assignee filing would appropriately accompany a U.S. shift to a firstinventor-to-file priority system, as the reduction of formalities would allow

innovative enterprises to file patent applications more promptly.

The 1992 Commission also reviewed potential undesirable aspects of assignee

filing. The Commission noted that patent applications filed by assignees may lack

the actual inventor’s personal guarantee that the application was properly prepared.

In addition, assignee filing might derogate the right of natural persons to their

inventions. In the opinion of the Commission, however, the advantages of assignee

filing outweighed the disadvantages.107

103

35 U.S.C. § 118.

104

H.R. 2795, § 4(c).

105

President’s Commission on the Patent System,”To Promote the Progress of . . . Useful

Arts” in an Age of Exploding Technology (1966).

106

Advisory Commission on Patent Reform, A Report to the Secretary of Commerce (Aug.

1992), 179.

107

Ibid.

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Elimination of the Best Mode Requirement

In the 109th Congress, the House bill would have eliminated U.S. patent law’s

best mode requirement.108 Currently, inventors are required to “set forth the best

mode contemplated by the inventor of carrying out his invention.” 109 Failure to

disclose the best mode known to the inventor is a ground for invalidating an issued

patent. The courts have established a two-part standard for analyzing whether an

inventor disclosed her best mode in a particular patent. The first inquiry was whether

the inventor knew of a way of practicing the claimed invention that he considered

superior to any other. If so, then the patent instrument must identify, and disclose

sufficient information to enable persons of skill in the art to practice that best

mode.110

Proponents of the best mode requirement have asserted that it allows the public

to receive the most advantageous implementation of the technology known to the

inventor. This disclosure becomes part of the patent literature and may be freely

reviewed by those who wish to design around the patented invention. Absent a best

mode requirement, some observers say, patent proprietors may be able to maintain

the preferred way of practicing their inventions as a trade secret. Members of the

public are also said to be better able to compete with the patentee on equal footing

after the patent expires.111

The best mode requirement has encountered severe criticism in recent years,

however.112 For example, a 1992 Presidential Commission recommended that

Congress eliminate the best mode requirement. The Commission reasoned that

patents also are statutorily required to disclose “the manner and process of making

and using [the invention], in such full, clear, concise, and exact terms as to enable

any person skilled in the art . . . to make and use the same.”113 This “enablement”

requirement was believed to provide sufficient information to achieve the patent

law’s policy goals.114

The Commission further stated that the best mode requirement leads to increases

in the costs and complexity of patent litigation. As the Commission explained:

108

The Senate bill did not address the best mode requirement, and therefore would have

retained existing law.

109

35 U.S.C. § 112.

110

See, e.g., Chemcast Corp. v. Arco Industries Corp. 913 F.2d 923 (Fed. Cir. 1990).

111

See Jerry R. Selinger, “In Defense of the ‘Best Mode’: Preserving the Benefit of the

Bargain for the Public, 43 Catholic University Law Review (1994), 1071.

112

See, e.g., Steven B. Walmsley, “Best Mode: A Plea to Repair or Sacrifice This Broken

Requirement of United States Patent Law,” 9 Michigan Telecommunications and

Technology Law Review (2002), p. 125.

113

35 U.S.C. § 101.

114

1992 Advisory Commission Report, supra, at 102-03.

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The disturbing rise in the number of best mode challenges over the past 20 years

may serve as an indicator that the best mode defense is being used primarily as

a procedural tactic. A party currently can assert failure to satisfy the best mode

requirement without any significant burden. This assertion also entitles the party

to seek discovery on the “subjective beliefs” of the inventors prior to the filing

date of the patent application. This broad authority provides ample opportunity

for discovery abuse. Given the fluidity by which the requirement is evaluated

(e.g., even accidental failure to disclose any superior element, setting, or step can

negate the validity of the patent), and the wide ranging opportunities for

discovery, it is almost certain that a best mode challenge will survive at least

initial judicial scrutiny.115

The Commission further reasoned that the best mode at the time of filing is unlikely

to remain the best mode when the patent expires many years later.116 Because many

foreign patent laws include no analog to the best mode requirement, inventors based

overseas have also questioned the desirability of the best mode requirement in U.S.

law.

Apportionment of Damages

Legislation before the 109th Congress also would have addressed monetary

remedies in patent cases. Marketplace realities often render the determination of an

appropriate damages award a difficult affair in patent litigation. In some cases, the

product or process that is found to infringe may incorporate numerous additional

elements beyond the patented invention. For example, the asserted patent may relate

to a single component of an audio speaker, while the accused product consists of the

entire stereo system. In such circumstances, a court may apply “the entire market

value rule,” which “permits recovery of damages based upon the entire apparatus

containing several features, where the patent-related feature is the basis for consumer

demand.”117 On the other hand, if the court determines that the infringing sales were

due to many factors beyond the use of the patented invention, the court may apply

principles of “apportionment” to reach a just measure of damages for infringement.118

Some observers believe that courts have sometimes been overly generous in

assessing damages in patent cases. As one commentator asserted:

[I]nventors have learned to abuse the patent system and increase leverage against

manufacturers by pursuing “system claims” in the [USPTO]. These clever

claims insert the crux of the predator’s “innovation” into much larger contexts

than that to which the inventor is rightfully entitled. For example, the abuser

may actually have invented a hinge mechanism, but draws the patent claim to a

door including the hinge mechanism. In this example, the door is well known to,

and long in use by, the public but in subsequent litigation, the patent predator

115

Ibid at 101.

116

Ibid. at 102-03.

117

State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1580 (Fed. Cir. 1989).

118

Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235 U.S. 641 (1915).

CRS-26

claims entitlement to, and the court awards, damages based on the entire value

of the door rather than on the value of the innovative hinge.119

Other observers disagree, believing that the courts have reasonably applied the entire

market value rule and apportionment principles.

In apparent response to concerns over patent damages, the Senate bill directed

courts to consider “the economic value that should be attributed to the novel and nonobvious feature or features of the invention, as distinguished from the economic

value attributable to other features, improvements added by the infringer, and the

business risks the infringer undertook in commercialization ....” The language of the

Senate bill was very similar to that of the earlier House bill with respect to the

apportionment of damages. Unlike the House bill, the Senate bill did not refer to

patents on a “combination.” The Senate bill also called for consideration of “the

terms of non-exclusive marketplace licensing of the invention.” Finally, the Senate

bill provided that courts should consider “other relevant factors in applicable law”

in determining damages.

Views differ on the appropriateness of this reform. Some believe that current

damages standards have resulted in the systemic overcompensation of patent owners.

Such overcompensation may place unreasonable royalty burdens upon producers of

high technology products, ultimately impeding the process of technological

innovation and dissemination that the patent system is meant to foster. Others are

concerned that this reform might overly restrict damages in patent cases. Limited

damage awards for patent infringement might prevent innovators from realizing the

value of their inventive contributions, a principal goal of the patent system.

Willful Infringement

The bills introduced in the 109th Congress would have reformed the law of

willful infringement. The patent statute currently provides that the court “may

increase the damages up to three times the amount found or assessed.”120 An award

of enhanced damages, as well as the amount by which the damages will be increased,

is committed to the discretion of the trial court.121 Although the statute does not

specify the circumstances in which enhanced damages are appropriate, the courts

most commonly award them when the infringer acted in blatant disregard of the

patentee’s rights. This circumstance is termed “willful infringement.”122

Courts will not ordinarily enhance damages due to willful infringement if the

adjudicated infringer did not know of the patent until charged with infringement in

court, or if the infringer acted with the reasonable belief that the patent was not

infringed or that it was invalid. Federal Circuit decisions emphasize the duty of

119

Westergard, supra, at 7.

120

Ibid.

121

See Read Corp. v. Portec, Inc., 970 F.2d 816, 826 (Fed. Cir. 1992).

122

See Beatrice Foods Co. v. New England Printing & Lithographing Co., 923 F.2d 1576,

1578 (Fed. Cir.1991).

CRS-27

someone with actual notice of a competitor’s patent to exercise due care in

determining if his acts will infringe that patent. A common way to fulfill this

obligation is to obtain competent legal advice before commencing, or continuing,

activity that may infringe another’s patent.123

Prior to 2004, the Federal Circuit held that when an accused infringer invoked

the attorney-client or work-product privilege, courts should be free to reach an

adverse inference that either (1) no opinion had been obtained or (2) an opinion had

been obtained and was contrary to the infringers’s desire to continue practicing the

patented invention.124 However, in its decision in Knorr-Bremse Systeme fuer

Nutzfahrzeuge GmbH v. Dana Corp.,125 the Federal Circuit expressly overturned this

principle. The Court of Appeals further stressed that the failure to obtain legal advice

did not occasion an adverse inference with respect to willful infringement either.

Following the Knorr-Bremse opinion, willful infringement determinations are based

upon “the totality of circumstances, but without the evidentiary contribution or

presumptive weight of an adverse inference that any opinion of counsel was or would

have been unfavorable.”126

Patent law’s willful infringement doctrine has proven controversial. Some

observers believe that this doctrine ensures that patent rights will be respected in the

marketplace. Critics of the policy believe that the possibility of trebled damages

discourages individuals from reviewing issued patents. Out of fear that their

inquisitiveness will result in multiple damages, innovators may simply avoid looking

at patents until they are sued for infringement. To the extent this observation is

correct, the law of willful infringement discourages the dissemination of technical

knowledge, thereby thwarting one of the principal goals of the patent system. Fear

of increased liability for willful infringement may also discourage firms from

challenging patents of dubious validity. Consequently some have argued that the

patent system should shift to a “no-fault” regime of strictly compensatory damages,

without regard to the state of mind of the adjudicated infringer.127

The House and Senate bills would have added several clarifications and changes

to the law of willful infringement. First, a finding of willful infringement would be

appropriate only where (1) the infringer received specific written notice from the

patentee and continued to infringe after a reasonable opportunity to investigate; (2)

the infringer intentionally copied from the patentee with knowledge of the patent; and

(3) the infringer continued to infringe after an adverse court ruling. Second, willful

infringement cannot be found where the infringer possessed an informed, good faith

belief that its conduct was not infringing. Finally, a court may not determine willful

123

See, e.g., Jon E. Wright, “Willful Patent Infringement and Enhanced Damages —

Evolution and Analysis,” 10 George Mason Law Review (2001), 97.

124

See, e.g., Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1572 (Fed. Cir.

1988).

125

383 F.3d 1337 (Fed. Cir. 2004).

126

Ibid. at 1341.

127

See generally Schechter & Thomas, supra, at § 9.2.5.

CRS-28

infringement before the date on which the court determines that the patent is not

invalid, enforceable, and infringed.128

Attorney Fee Shifting

In the 109th Congress, the Senate bill stipulated that a “court shall award, to a

prevailing party, fees and other expenses incurred by that party in connection with

that proceeding, unless the court finds that the position of the nonprevailing party or

parties was substantially justified or that special circumstances make an award

unjust.”129 Current patent law follows the so-called American rule, where each

litigant is responsible for its own attorney fees except in “exceptional cases.”130 This

provision would have required the losing patent litigant to compensate the winner for

its fees and other expenses in certain circumstances.

Unenforceability (Inequitable Conduct)

The administrative process of obtaining a patent from the USPTO has

traditionally been conducted as an ex parte procedure. Stated differently, patent

prosecution involves only the applicant and the USPTO. Members of the public, and

in particular the patent applicant’s marketplace competitors, do not participate in

patent acquisition procedures.131 As a result, the patent system relies to a great

extent upon applicant observance of a duty of candor and truthfulness towards the

USPTO.

An applicant’s obligation to proceed in good faith may be undermined, however,

by the great incentive applicants might possess not to disclose, or to misrepresent,

information that might deleteriously impact their prospective patent rights. The

patent law therefore penalizes those who stray from honest and forthright dealings

with the USPTO. Under the doctrine of “inequitable conduct,” if an applicant

intentionally misrepresents a material fact or fails to disclose material information,

then the resulting patent will be declared unenforceable.132 Two elements must exist

before a court will decide that the applicant has engaged in inequitable conduct.

First, the patentee must have misrepresented or failed to disclose material

128

H.R. 2795, § 6.

129

The House bill did not speak towards attorney fee shifting, and therefore would have

retained current law.

130

35 U.S.C. § 285.

131

35 U.S.C. § 122(a) (stating general rule that “applications for patents shall be kept in

confidence by the Patent and Trademark Office and no information concerning the same

given without authority of the applicant . . . .”).

132

Glaverbel Societe Anonyme v. Northlake Mktg. & Supply Inc., 45 F.3d 1550 (Fed. Cir.

1995).

CRS-29

information to the USPTO in the prosecution of the patent.133 Second, such

nondisclosure or misrepresentation must have been intentional.134

During patent infringement litigation, an accused infringer has the option of

asserting that the plaintiff’s patent is unenforceable because it was procured through

inequitable conduct. Concerns have arisen that charges of inequitable conduct have

become routine in patent cases. As one commentator explains:

The strategic and technical advantages that the inequitable conduct defense

offers the accused infringer make it almost too attractive to ignore. In addition

to the potential effect on the outcome of the litigation, injecting the inequitable

conduct issue into patent litigation wreaks havoc in the patentee’s camp. The

inequitable conduct defense places the patentee on the defensive, subjects the

motives and conduct of the patentee’s personnel to intense scrutiny, and provides

an avenue for discovery of attorney-client and work product documents . . . .135

As the Federal Circuit put it, “the habit of charging inequitable conduct in almost

every major patent case has become an absolute plague.”136 Other observers believe

that because inequitable conduct requires an analysis of the knowledge and intentions

of the patent applicants, the doctrine may also be contributing disproportionately to

the time and expense of patent litigation.137

Due to these perceived burdens upon patent litigation, some commentators have

proposed that the inequitable conduct defense be eliminated.138 Others believe that

inequitable conduct is necessary to ensure the proper functioning of the patent

system. As the Advisory Commission on Patent Law Reform explained in its 1992

report:

Some mechanism to ensure fair dealing between the patentee, public, and the

Federal Government has been part of the patent system for over 200 years. In its

modern form, the unenforceability defense provides a necessary incentive for

patent applicants to engage in fair and open dealing with the [USPTO] during the

ex parte prosecution of patent applications, by imposing the penalty of forfeiture

of patent rights for failure to so deal. The defense is also considered to be an

essential safeguard against truly fraudulent conduct before the [USPTO].

Finally, the defense provides a means for encouraging complete disclosure of

information relevant to a particular patent application. . . . . Thus, from a policy

133

Heidelberger Druckmaschinen AG v. Hantscho Comm’l Prods., Inc., 21 F.3d 1068 (Fed.

Cir. 1993).

134

Jazz Photo Corp. v. U.S. Int’l Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001).

135

John F. Lynch, “An Argument for Eliminating the Defense of Patent Unenforceability

Based on Inequitable Conduct,” 16 American Intellectual Property Law Association

Quarterly Journal (1988), 7.

136

Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418 (Fed. Cir. 1988).

137

See, e.g., Scott D. Anderson, “Inequitable Conduct: Persistent Problems and

Recommended Resolutions,” 82 Marquette Law Review (1999), 845.

138

Lynch, supra, at 7.

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perspective, the defense of unenforceability based upon inequitable conduct is

desirable and should be retained.139

Proposed legislation in the 109th Congress would have retained the concept of

an inequitable conduct defense, but introduced a number of substantive and

procedural changes to the doctrine. The Senate bill would have limited the

availability of inequitable conduct as an affirmative defense to patent infringement.

In particular, inequitable conduct may only have been found if the patentee, his agent,

or his privy failed to disclose material information, or submitted false information,

with an intent to deceive the USPTO. A finding of good faith on behalf of the

applicant, agent or privy would have negated a conclusion of inequitable conduct.

Finally, in a notable departure from current law, a court may not have reached a

finding of inequitable conduct if none of the claims of the patent have been held

invalid.

The House bill also proposed reforms to the inequitable conduct doctrine, but

its approach differed. The House bill would have provided statutory authorization

for the USPTO Director to issue regulations governing applicants’ duty of candor.

It would have also imbued the USPTO with authority to prosecute violations of the

inequitable conduct doctrine. In addition, the House bill would have limited the

circumstances under which the defense of inequitable conduct could be raised before

the courts. In broad outline, under the House bill, if a court determined that an issue

of possible misconduct existed, then the court was directed to refer the matter to the

USPTO. Within judicial infringement proceedings, issues of inequitable conduct

could only have arisen after the court granted a motion to amend the pleadings. Such

a motion would have had to describe the relevant facts in detail and could not have

been granted until the court has previously entered a judgment that at least one of the

asserted patent claims is invalid. Finally, a charge of inequitable conduct could not

have been sustained unless the USPTO “would not have issued the invalidated claim,

acting reasonably, in the absence of the misconduct,” or “based upon the prosecution

history as a whole objectively considered, would have done so based upon in whole

or in part on account of the misconduct.”

Prior User Rights

Legislation offered in the 109th Congress would have expanded the applicability

of a “first inventor defense” established by the American Inventors Protection Act of

1999. As currently found at 35 U.S.C. § 273, an earlier inventor of a “method of

doing or conducting business” that was later patented by another may claim a defense

to patent infringement in certain circumstances. Both the House and Senate bills

would have broadened this defense by allowing it to apply with respect to any

patented subject matter.

The impetus for this provision lies in the rather complex relationship between

the law of trade secrets and the patent system. Trade secrecy protects individuals

from misappropriation of valuable information that is useful in commerce. One

reason an inventor might maintain the invention as a trade secret rather than seek

139

1992 Advisory Commission, supra, at 114.

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patent protection is that the subject matter of the invention may not be regarded as

patentable. Such inventions as customer lists or data compilations have traditionally

been regarded as amenable to trade secret protection but not to patenting.140

Inventors might also maintain trade secret protection due to ignorance of the patent

system or because they believe they can keep their invention as a secret longer than

the period of exclusivity granted through the patent system.141

The patent law does not favor trade secret holders, however. Well-established

patent law provides that an inventor who makes a secret, commercial use of an

invention for more than one year prior to filing a patent application at the USPTO

forfeits his own right to a patent.142 This policy is based principally upon the desire

to maintain the integrity of the statutorily prescribed patent term. The patent law

grants patents a term of twenty years, commencing from the date a patent application

is filed.143 If the trade secret holder could make commercial use of an invention for

many years before choosing to file a patent application, he could disrupt this regime

by delaying the expiration date of his patent.

On the other hand, settled patent law principles established that prior secret uses

would not defeat the patents of later inventors.144 If an earlier inventor made secret

commercial use of an invention, and another person independently invented the same

technology later and obtained patent protection, then the trade secret holder could

face liability for patent infringement. This policy is based upon the reasoning that

once issued, published patent instruments fully inform the public about the invention,

while trade secrets do not. As between a subsequent inventor who patented the

invention, and thus had disclosed the invention to the public, and an earlier trade

secret holder who had not, the law favored the patent holder.

An example may clarify this rather complex legal situation. Suppose that

Inventor A develops and makes commercial use of a new manufacturing process.

Inventor A chooses not to obtain patent protection, but rather maintains that process

as a trade secret. Many years later, Inventor B independently develops the same

manufacturing process and promptly files a patent application claiming that

invention. In such circumstances, Inventor A’s earlier, trade secret use does not

prevent Inventor B from procuring a patent. Furthermore, if the USPTO approves

the patent application, then Inventor A faces infringement liability should Inventor

B file suit against him.

The American Inventors Protection Act of 1999 somewhat modified this

principle. That statute in part provided an infringement defense for an earlier

inventor of a “method of doing or conducting business” that was later patented by

140

Restatement of Unfair Competition § 39.

141

David D. Friedman, “Some Economics of Trade Secret Law,” 5 Journal of Economic

Perspectives (1991), 61, 64.

142

35 U.S.C. § 102(b). See Metallizing Engineering Co. v. Kenyon Bearing & Auto Parts,

153 F.2d 516 (2d Cir. 1946).

143

35 U.S.C. § 154.

144

W.L. Gore & Associates. v. Garlock, Inc., 721 F.2d 1540 (Fed. Cir. 1983).

CRS-32

another. By limiting this defense to patented methods of doing business, Congress

responded to the 1998 Federal Circuit opinion in State Street Bank and Trust Co. v.

Signature Financial Group.145 That judicial opinion recognized that business

methods could be subject to patenting, potentially exposing individuals who had

maintained business methods as trade secrets to liability for patent infringement.

Again, an example may aid understanding of the first inventor defense. Suppose

that Inventor X develops and exploits commercially a new method of doing business.

Inventor X maintains his business method as a trade secret. Many years later,

Inventor Y independently develops the same business method and promptly files a

patent application claiming that invention. Even following the enactment of the

American Inventors Protection Act, Inventor X’s earlier, trade secret use would not

prevent Inventor Y from procuring a patent. However, should the USPTO approve

Inventor Y’s patent application, and should Inventor Y sue Inventor X for patent

infringement, then Inventor X may potentially claim the benefit of the first inventor

defense. If successful,146 Inventor X would enjoy a complete defense to infringement

of Inventor Y’s patent.

As originally enacted, the first inventor defense applied only to patents claiming

a “method of doing or conducting business.” Although the American Inventors

Protection Act did not define this term, the first inventor defense was arguably a

focused provision directed towards a specific group of potential patent infringers.

The legislation introduced before the 109th Congress would have expanded upon the

first inventor defense by allowing it to apply to all patented subject matter.147 By

removing current restrictions referring to methods of doing business, both the House

and Senate bills would effectively introduce “prior user rights” into U.S. law.

A feature of many foreign patent regimes, prior user rights are often seen as

assisting small entities, which may lack the sophistication or resources to pursue

patent protection. The provision of prior user rights would allow such entities to

commercialize their inventions when they used the subject matter of the invention

prior to the patent’s filing date, even when they themselves did not pursue patent

rights. For this reason, a more expansive prior user rights regime has also been tied

to adoption of the first-inventor-to-file priority system.148

145

149 F.3d 1368 (Fed. Cir. 1998).

146

As presently codified at 35 U.S.C. § 273, the first inventor defense is subject to a number

of additional qualifications. First, the defendant must have reduced the infringing subject

matter to practice at least one year before the effective filing date of the application.

Second, the defendant must have commercially used the infringing subject matter prior to

the effective filing date of the patent. Finally, any reduction to practice or use must have

been made in good faith, without derivation from the patentee or persons in privity with the

patentee.

147

Both bills would have also removed the requirement that the prior use be reduced to

practice at least one year before the effective filing date of such patent. Under the proposed

legislation, the defense would apply where reduction to practice occurred prior to the

patent’s filing date.

148

See Gary L. Griswold & F. Andrew Ubel, “Prior User Rights — A Necessary Part of a

(continued...)

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Proponents of prior user rights also assert that the proposed legislation would

have supported investment in technological innovation. Under this view, firms

would not longer be required to engage in extensive defensive patenting, but rather

would be able to devote these resources to further innovation. In addition, some

commentators observe that many U.S. trading partners, including Germany and

Japan, currently allow prior user rights. As a result, U.S. firms that obtain patent

rights in certain foreign nations may face the possibility that a foreign firm may enjoy

prior user rights in that invention. Foreign firms with U.S. patents do not currently

face this possibility with respect to U.S. firms, however. Under this view, adoption

of prior user rights in the United States would “level the playing field” for U.S.

industry.149

Proposals to adopt prior user rights have attracted critics, however. Some

observers believe that this regime would benefit large corporations at the expense of

smaller ones. Others believe that individuals who are aware that they can rely upon

prior user rights will be less likely to disclose their inventions through the patent

system. Still others have stated that prior user rights reduce the value of patents and

therefore make innovation less desirable. The role of the U.S. Constitution is

sometimes debated within this context as well. Article I, section 8, clause 8 of the

Constitution provides Congress with the authority to award “inventors the exclusive

right to their . . . discoveries.” Some commentators suggest this language suggests,

or possibly requires, a system of exclusive patent rights, rather than an interest that

may be mitigated by prior user rights.150

Extraterritorial Infringement

The Senate patent reform bill introduced in the 109th Congress would have

repealed § 271(f) of the Patent Act.151 That statute specifies that the export of

unassembled components of a patented invention may constitute an infringing act.

Congress enacted § 271(f) in response to the Supreme Court decision in Deepsouth

Packing Co. v. Laitram Corp.152 A brief review of the Deepsouth case will aid

understanding of this rather complex statute.

In Deepsouth, the Laitram Corporation held a patent on a shrimp peeler. More

particularly, Laitram’s patent claimed a combination of well-known mechanical parts

— including knives, an inclined trough, and jets for spraying water — that when

assembled into one apparatus could be used to peel shrimp. Aware of Laitram’s

patent, the Deepsouth Packing Co. manufactured all the components of a patented

148

(...continued)

First-to-File System,” 26 John Marshall Law Review (1993), 567.

149

Paul R. Morico, “Are Prior User Rights Consistent with Federal Patent Policy?: The U.S.

Considers Legislation to Adopt Prior User Rights,” 78 Journal of the Patent and Trademark

Office Society (1996), 572.

150

See Robert L. Rohrback, “Prior User Rights: Roses or Thorns?,” 2 University of

Baltimore Intellectual Property Review (1993), 1.

151

The House bill did not address § 271(f), and therefore would have retained existing law.

152

406 U.S. 518 (1972).

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shrimp peeler, but did not combine them into a single apparatus. Rather, Deepsouth

shipped all of the parts in an unassembled state to clients outside the United States.

Deepsouth’s customers were able to assemble these parts to make the shrimp peeler

in less than one hour.

When Laitram sued Deepsouth for infringement, the Supreme Court held that

there was no infringement. The Court first recognized that U.S. patents only relate

to conduct that occurs within the United States. According to the Court, Deepsouth

had neither made nor sold the precise combination of elements as claimed in the U.S.

patent in this country. Congress ultimately reacted to Deepsouth by enacting 35

U.S.C. § 271(f), which provides in part:

Whoever without authority supplies or causes to be supplied in or from the

United States all or a substantial portion of the components of a patented

invention, where such components are uncombined in whole or in part, in such

manner as to actively induce the combination of such components outside of the

United States in a manner that would infringe the patent if such combination

occurred within the United States, shall be liable as an infringer.

In recent years, § 271(f) has proven to be a controversial provision. In Microsoft

Corp. v. AT&T Corp. and other opinions, the Federal Circuit has addressed

circumstances where an accused infringer sent a limited number of copies of

infringing software program overseas, to be later incorporated into software stored

on personal computers. The Federal Circuit has concluded that such software

constitutes a “component” within the meaning of § 271(f).153 The result of this

reasoning is that the infringer faces monetary liability not just for a small number of

infringements, but rather for each of the potentially thousands of copies of the

software made abroad. One commentator has opined that “[b]y any metric” the

reasoning of the Federal Circuit “involved an extraordinary extension of § 271(f) to

capture foreign sales.”154 By proposing to eliminate § 271(f), the Senate bill would

have apparently responded to this concern.

Notably, subsequent to the introduction of the Senate bill, the U.S. Supreme

Court agreed to review the Federal Circuit opinion in Microsoft Corp. v. AT&T

Corp.155 The High Court’s ultimate disposition of that case, along with any

conclusions it might offer with respect to § 271(f), will most likely not be known

prior to mid-2007.

Post-Issuance Opposition Proceedings

Legislation considered during the 109th Congress would have introduced postissuance opposition proceedings into U.S. patent law. Oppositions, which are

common in foreign patent regimes, are patent revocation proceedings that are usually

administered by authorities from the national patent office. Oppositions often

153

See, e.g., Eolas Techs. Inc. v. Microsoft Corp., 399 F.3d 1325 (Fed. Cir. 2005).

154

Michael R. Dzwonczyk, “Looking at Federal Circuit Developments 2005: The Year in

Review,” 6 Journal of High Technology Law (2006), 113.

155

127 S.Ct. 467 (Oct. 27, 2006).

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involve a wide range of potential invalidity arguments and are conducted through

adversarial hearings that resemble courtroom litigation.

Although the U.S. patent system does not currently include oppositions, the U.S.

patent system has incorporated a so-called reexamination proceeding since 1981.

Some commentators have viewed the reexamination as a more limited form of an

opposition. Under the reexamination statute, any individual, including the patentee,

a competitor, and even the USPTO Director, may cite a prior art patent or printed

publication to the USPTO. If the USPTO determines that this reference raises a

“substantial new question of patentability” with respect to an issued patent, then it

will essentially reopen prosecution of the issued patent.

Traditional reexamination proceedings are conducted in an accelerated fashion

on an ex parte basis. Following the American Inventors Protection Act of 1999, an

inter partes reexamination allows the requester to participate more fully in the

proceedings through the submission of arguments and the filing of appeals. Either

sort of reexamination may result in a certificate confirming the patentability of the

original claims, an amended patent with narrower claims or a declaration of patent

invalidity.

Congress intended reexamination proceedings to serve as an inexpensive

alternative to judicial determinations of patent validity.156 Reexamination also allows

further access to the legal and technical expertise of the USPTO after a patent has

issued.157 However, some commentators believe that reexamination proceedings

have been employed only sparingly and question their effectiveness.158

Some analysts have expressed concern that potential requesters are discouraged

from commencing inter partes reexamination proceedings due to a statutory

provision that limits their future options. In order to discourage abuse of these

proceedings, the inter partes reexamination statute provides that third-party

participants may not later assert that a patent is invalid “on any ground that [they]

raised or could have raised during the inter partes reexamination proceedings.”159

Some observers believe that this potential estoppel effect disinclines potential

requesters from use of this post-issuance proceeding. In apparent response to this

concern, the House bill would have deleted the phrase “or could have raised” from

the statute.160 As a result, inter partes reexamination requesters would be limited

only with respect to arguments that they actually made before the USPTO.

The House and Senate bills each would have created an additional post-issuance

proceeding. Although the bills were similar in broad measure, they differed in some

156

Mark D. Janis, “Inter Partes Reexamination,” 10 Fordham Intellectual Property, Media

& Entertainment Law Journal (2000), 481.

157

Craig Allen Nard, “Certainty, Fence Building and the Useful Arts,” 74 Indiana Law

Journal (1999), 759.

158

See Schechter & Thomas, supra, at § 7.5.4.

159

35 U.S.C. § 315(c).

160

H.R. 2795, § 9(d). The Senate bill did not include a similar amendment.

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significant respects. Under this House bill, any person could have commenced an

opposition either within nine months after the issuance of the patent, or six months

after receiving notice from the patent holder alleging infringement. The opposition

may have related to a wide range of patentability issues, including double patenting,

statutory subject matter, novelty, nonobviousness, enablement, and definite claiming.

The commencement of the opposition would have been conditioned upon the USPTO

Director’s determination that the opponent has raised a substantial question of

patentability with respect to at least one claim in the patent.

The House bill further provided that opposition proceedings would have been

tried before a panel of three administrative patent judges. In the event that the

patentee filed an infringement suit within nine months of patent issuance, or six

months of notifying the alleged infringer, the opposition would have been stayed

upon the request of the patent owner. The patent owner would have been allowed to

amend its claims during an opposition, provided that those amendments did not

broaden the scope of the claims. The opposition must have concluded within one

year of its commencement, although one six-month extension was possible. The

results of opposition proceedings could have been appealed to the courts.

In contrast, the Senate bill would have established “post-grant review

proceedings.” Under the Senate bill, any person other than the patent proprietor

could have commenced the opposition. The opposition could have begun either

within 12 months of the date the patent was issued, or at any time the challenger is

able to establish a “substantial reason” that the “continued existence of the

challenged claim causes or is likely to cause the petitioner significant economic

harm.”

The Senate bill would have afforded the patent proprietor a single opportunity

to amend its patent during the opposition. The USPTO was required to reach a final

decision within 12 months of commencement of the proceeding. Should the patent

survive the post-issuance opposition proceeding, the individual who commenced the

proceeding, along with his privies, would have been barred from raising issues that

were raised, or could have been raised, before the USPTO. The Senate bill also

provided the USPTO Director with authority to establish regulations to govern postgrant review proceedings.

Many observers have called for the United States to adopt an opposition system

in order to provide more timely, lower cost, and more efficient review of issued

patents.161 Such a system could potentially improve the quality of issued patents by

weeding out invalid claims. It might also encourage innovative firms to review

issued patents soon after they are granted, thereby increasing the opportunity for

technology spillovers.162 Concerns have arisen over oppositions because they too

may be costly, complex, and prone to abuse as a means for harassing patent

161

See National Research Council of the National Academies, A Patent System for the 21st

Century (2004), 96.

162

Ibid. at 103.

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owners.163 A successful opposition proceeding would require a balancing of these

concerns.

Publication of Pending Applications

Until recent years, the U.S. patent system maintained pending patent

applications in secrecy. The first moment that the public would become aware of the

existence of a U.S. patent application was the day the USPTO formally allowed it to

issue as a granted patent. This regime advantaged patent applicants because it

allowed them to understand exactly what the scope of any allowed claims might be

prior to disclosing an invention. Thus, if the applicant was able to maintain the

invention that was subject to a patent application as a trade secret, then he could

choose between obtaining the allowed patent claims and trade secret status. In

addition, because the invention was not disclosed prior to the award of formal patent

rights, unscrupulous competitors were discouraged from copying the invention.

However, this secrecy regime has been perceived as imposing costs as well.

Others might well engage in duplicative research efforts during the pendency of

patent applications, unaware that an earlier inventor had already staked a claim to that

technology. This arrangement also allowed inventors to commence infringement

litigation on the very day a patent issued, without any degree of notice to other

members of the technological community.164

Industry in the United States possessed one mechanism for identifying pending

U.S. patent applications. Most foreign patent regimes publish all pending patent

applications approximately 18 months after they have been filed.165 As a result,

savvy firms in the United States could review pending applications filed before

foreign patent offices, and make an educated guess as to the existence of a

corresponding U.S. application. This effort was necessarily inexact, however,

particularly as some inventors either lacked the resources, or made the strategic

decision, not to obtain patent rights outside the United States.

In enacting the American Inventors Protection Act of 1999, Congress for the

first time introduced the concept of pre-grant publication into U.S. law. Since

November 29, 2000, U.S. patent applications have been published 18 months from

the date of filing, with some exceptions. The most significant of these exceptions

applies where the inventor represents that he will not seek patent protection abroad.

In particular, if an applicant certifies that the invention disclosed in the U.S.

application will not be the subject of a patent application in another country that

requires publication of applications 18 months after filing, then the USPTO will not

163

See Mark D. Janis, “Rethinking Reexamination: Toward a Viable Administrative

Revocation System for U.S. Patent Law,” 11 Harvard Journal of Law and Technology

(1997), 1.

164

165

Schechter & Thomas, supra, at § 7.2.6.

John C. Todaro, “Potential Upcoming Changes in U.S. Patent Laws: the Publication of

Patent Applications,” 36 IDEA: Journal of Law and Technology (1996), 309.

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publish the application.166 As a result, inventors who do not wish to seek foreign

patent rights retain the possibility of avoiding pre-grant publication.

Legislation before the 109th Congress would have further modified the U.S. pregrant publication system by effectively calling for all pending applications to be

published approximately 18 months after they are filed. In particular, both the House

and Senate bills would have eliminated the possibility of opting out of pre-grant

publication by certifying that a patent will be sought only in the United States.167

Pre-Issuance Submissions

The patent reform legislation introduced in the 109th Congress would have

expanded the ability of members of the public to submit information to the USPTO

that is pertinent to pending applications. Under current law, interested individuals

may enter a protest against a patent application. The protest must specifically

identify the application and be served upon the applicant. The protest must also

include a copy and, if necessary, an English translation, of any patent, publication or

other information relied upon. The protester also must explain the relevance of each

item.168

Protest proceedings have traditionally played a small role in U.S. patent practice.

Until Congress enacted the American Inventors Protection Act of 1999, the USPTO

maintained applications in secrecy. Therefore, the circumstances in which members

of the public would learn of the precise contents of a pending patent application were

relatively limited. With the USPTO commencing publication of some pending patent

applications, protests would seem far more likely. Seemingly aware of this

possibility, the 1999 Act provided that the USPTO shall “ensure that no protest or

other form of pre-issuance opposition . . . may be initiated after publication of the

application without the express written consent of the applicant.”169 Of course, the

effect of this provision is to eliminate the possibility of protest in exactly that class

of cases where the public is most likely to learn of the contents of a pending

application.

Through rulemaking, the USPTO has nonetheless established a limited

mechanism for members of the public to submit information they believe is pertinent

to a pending, published application. The submitted information must consist of

either a patent or printed publication, and it must be submitted within two months of

the date the USPTO published the pending application. Nondocumentary

information that may be relevant to the patentability determination, such as sales or

public use of the invention, will not be considered.170 In addition, because Congress

stipulated that no protest or pre-grant opposition may occur absent the consent of the

166

35 U.S.C. § 122(b).

167

H.R. 2795, § 9(a).

168

37 C.F.R. § 1.291.

169

35 U.S.C. § 122(c).

170

37 C.F.R. § 1.99.

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patent holder, the USPTO has explained that it will not accept comments or

explanations concerning the submitted patents or printed publications. If such

comments are attached, USPTO staff will redact them before the submitted

documents are forwarded to the examiner.171

The proposed legislation would have augmented the possibility for pre-issuance

submissions. Under both the House and Senate bills, any person would have been

able to submit patent documents and other printed publications to the USPTO for

review. Such prior art must have been submitted within the later date of either (1)

the date the USPTO issues a notice of allowance to the patent applicant; or (2) either

six months after the date of pre-grant publication of the application, or the date of the

rejection of any claim by the USPTO examiner. Such a submission must have

included “a concise description of the asserted relevance of each submitted

document.”172

Most observers agree that ideally, the USPTO would have access to all pertinent

information when making patentability determinations. A more expansive preissuance submission policy may allow members of the public to disclose relevant

patents and other documents that the USPTO’s own searchers may not have revealed,

thereby leading to more accurate USPTO decision making. On the other hand,

lengthy pre-issuance submissions may merely be repetitive of the USPTO’s own

search results, but still require extensive periods of examiner review that might

ultimately delay examination. The proposals set before the 109th Congress apparently

attempted to balance these concerns by expanding existing opportunities for postpublication submissions, but limiting the timing and nature of those submissions so

as to prevent undue burdens upon the USPTO and patent applicants.

Interlocutory Claim Construction Appeals

In the 109th Congress, the Senate bill would have allowed a litigant to pursue an

interlocutory appeal of a patent claim construction order to the Court of Appeals for

the Federal Circuit.173 This provision appears to be motivated by the recognition that

the interpretation of a patent claims — a process that in large measure determines the

scope of the patent owner’s proprietary rights — is the most fundamental inquiry that

occurs during patent litigation.174 In addition, numerous observers have perceived the

Federal Circuit to have a high reversal rate of claim interpretations by the district

courts.175 Because claim construction is commonly the central focus of a patent trial,

the Federal Circuit’s reversal of that construction often requires the district court to

171

U.S. Dept. of Commerce, U.S. Patent & Trademark Off., Manual of Patent Examining

Procedure § 1134.01 (8th ed. May 2004).

172

H.R. 2795, § 10.

173

The House bill did not address interlocutory appeals of claim construction orders, and

therefore would have retained existing law.

174

See Joseph Scott Miller, “Enhancing Patent Disclosure for Faithful Claim Construction,”

9 Lewis & Clark Law Review (2005), 177.

175

See Kimberly A. Moore, “Are District Court Judges Equipped to Resolve Patent Cases?,”

12 Federal Circuit Bar Journal (2002), 1.

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retry the entire case. As patent litigation is a notoriously lengthy and costly exercise,

some observers believe that the current system is overly expensive and inefficient.176

Some commentators have opined that allowing an immediate appeal of patent

claim construction orders would allow the Federal Circuit review before the litigants

are put to the full expense of a trial in federal district court.177 Ordinarily, litigants

may appeal only “final decisions” from the district courts.178 Although federal law

currently allows for a review of an intermediate matter at trial179 — a so-called

interlocutory appeal — the Federal Circuit has declined to accept such appeals for

routine claim interpretation cases.180 The Senate bill would have expressly

authorized such interlocutory appeals.

Venue

Legislation before the 109th Congress would have reformed the venue provision

that applies to patent infringement cases in federal court. The requirement of venue

complements the more fundamental requirement of jurisdiction in federal litigation.

In particular, venue addresses the question of which court, out of those that possess

personal and subject matter jurisdiction, may most conveniently hear the specific

lawsuit in question.181

Congress has enacted a specialized venue statute that applies only to patent

cases. 28 U.S.C. § 1400(b) provides that in patent litigation, venue is proper either:

(1) in the judicial district where the defendant resides, or (2) where the defendant has

committed acts of infringement and has a regular and established place of business.

An important question under this provision is where a corporation is deemed to

“reside.” Prior to 1988, a corporation was viewed as residing in its state of

incorporation.182 Commentators have explained that during this period, the patent

venue statute was fairly restrictive, tending to move infringement litigation into the

defendant’s seat of operations.183

Congressional amendments subsequently liberalized venue concepts in patent

litigation. In 1988, Congress adopted a new definition of “reside” as it applies to

176

See Gwendolyn Dawson, “Matchmaking in the Realm of Patents: A Call for the Marriage

of Patent Theory and Claim Construction Procedure,” 79 Texas Law Review (2001), 1257.

177

See Kyle J. Fiet, “Restoring the Promise of Markman: Interlocutory Patent Appeals

Reevaluated Post-Phillips v. AWH Corp.,” 84 North Carolina Law Review 1291 (2006).

178

28 U.S.C. § 1291 (2006).

179

28 U.S.C. § 1292 (2006).

180

See Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1479 (Fed. Cir .1998) (en banc)

(Newman, J., additional views).

181

See Wachovia Bank v. Schmidt, 126 S. Ct. 941 (2006).

182

See Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957).

183

See Schechter & Thomas, supra, at § 10.1.3.

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venue for corporate defendants.184 Under the new definition, a corporation is

presumed to reside in any judicial district to which it could be subject to personal

jurisdiction at the time the litigation commences. Congress codified this change

in a separate provision found at 28 U.S.C. § 1391. Although there is no evidence

that Congress contemplated that these reforms would hold consequences for the

specialized patent venue statute, the Federal Circuit nonetheless held that this

amendment should also be read into § 1400(b).185

The result of the 1988 amendments has been significant for corporate

defendants, which constitute the majority of defendants in patent litigation. Although

§ 1400(b) still governs venue in patent cases, few, if any plaintiffs rely upon the

restrictive second prong of that section. Instead they base venue upon the

“residence” requirement of the first prong — which now is entirely conterminous

with personal jurisdiction, and which for larger corporations is likely to include every

federal district in the country. For corporate defendants, then, the venue statute has

essentially become superfluous, for the same standards governing personal

jurisdiction also dictate whether a court may provide an appropriate venue or not.

Some observers allege that the liberal venue statute promotes forum shopping,

allowing patent proprietors to bring suit in courts that they believe favor patent

owners over accused infringers. One such “magnet jurisdiction” is said to be the

rural Eastern District of Texas, and in particular the Marshall, Texas federal court.

According to one account, many observers “wonder how an East Texas town of

25,000 — even if it was named after Supreme Court Justice John Marshall — came

to harbor an oversized share of intellectual property disputes.”186 In addition,

reportedly “many of the local lawyers who once specialized in personal injury cases

are turning their attention to intellectual property law.”187 Others believe that the

existence of a single appellate court for patent cases, the Federal Circuit, minimizes

forum shopping concerns, and that certain district courts attract patent cases due to

their expertise and timeliness, rather than an inherent favoritism for patent holders.

In any event, both the House and Senate bills would have amended § 1400(b)

by stipulating that, notwithstanding § 1391, for purposes of venue in patent cases “a

corporation shall be deemed to reside in the judicial district in which the corporation

has its principal place of business or in the State in which the corporation is

incorporated.” This provision would essentially restore venue to a more restrictive

concept than under current practice, similar to circumstances that existed prior to the

1988 legislation.

184

Judicial Improvements and Access to Justice Act, P.L. 100-702, tit. X, § 1013(a), 102

Stat. 4642, 4669 (1988).

185

VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).

186

Allen Pusey, “Marshall Law: Patent Lawyers Flood to East Texas Court for Its Expertise

and ‘Rocket Docket’,” Dallas Morning News (Mar. 26, 2006), 1D.

187

Ibid.

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Enhanced USPTO Rulemaking Authority

Under current law, the ability of USPTO to issue regulations governing

substantive patent law matters is extremely limited. The most significant grant of

rulemaking authority appears to be found in 35 U.S.C. § 2(b)(2)(A), which allows the

USPTO to establish regulations that “shall govern the conduct of proceedings in the

Office ....” As explained by the Federal Circuit, “Congress has not vested the

[USPTO Director] with any general substantive rulemaking power ....”188

In the 109th Congress, the Senate bill would have expanded USPTO rulemaking

authority.189 The USPTO Director would be permitted to “promulgate such rules,

regulations, and orders as the Director determines appropriate to carry out the

provisions of this title or any other law applicable to the [USPTO] or that the

Director determines necessary to govern the operation and organization of the

Office.”

Concluding Observations

Legislation that was introduced in the 109th Congress arguably would have

worked the most sweeping reforms to the U.S. patent system since the nineteenth

century. However, many of these proposals, such as pre-issuance publication, prior

user rights, and oppositions, have already been implemented in U.S. law to a more

limited extent. These and other proposed modifications, such as the first-inventor-tofile priority system and elimination of the best mode requirement, also reflect the

decades-old patent practices of Europe, Japan, and our other leading trading partners.

As well, many of these suggested changes enjoy the support of diverse institutions,

including the Federal Trade Commission, National Academies, economists, industry

representatives, attorneys, and legal academics.

Other knowledgeable observers are nonetheless concerned that certain of these

proposals would weaken the patent right, thereby diminishing needed incentives for

innovation. Some also believe that changes of this magnitude, occurring at the same

time, do not present the most prudent course for the patent system. Patent reform

therefore confronts Congress with difficult legal, practical, and policy issues, but also

with the apparent possibility for altering and potentially improving the legal regime

that has long been recognized as an engine of innovation within the U.S. economy.

188

189

Merck & Co. v. Kessler, 80 F.3d 1543, 1550 (Fed. Cir. 1996).

The House bill did not address USPTO rulemaking authority, and therefore would have

retained existing law.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.