On the Patent Reform Act of 2009

By Alex Poltorak, March 8, 2009

Last Tuesday, March 3, 2009, Senators Patrick Leahy (D-Vermont) and Orrin Hatch (R-Utah), and Representatives John Conyers (D-Michigan) and Lamar Smith (R-Texas) have introduced to the Senate (S. 515) and the House (H.R. 1260) almost identical bills aimed at reforming our patent system. These bills, collectively referred to as the Patent Reform Act of 2009, as expected, are very similar to S. 1145 and H.R. 1908 of the Patent Reform Act of 2007 that failed in the last Congress.

Proposed changes to patent law in the Senate Bill include:

• First to File: Changes from First-to-Invent to a First-to-File system that establishes priority date of invention based on the filing date of the patent application rather than on the date of conception. This provision will put small and independent inventors at a disadvantage vis-à-vis larger corporations (See my article First-to-File vs. First-to-Invent).

• Damages: Changes calculation of reasonable royalties to apportion damages between prior art and the novel contribution of the invention. Courts are ordered to examine the invention’s “specific contribution over the prior art” to determine damages. Firstly, this provision is specifically targeted to small and independent inventors and non-practicing entities (sometimes pejoratively referred to as “Patent Trolls”). Large companies are more interested in getting permanent injunction to keep their competitors at bay. And even if they ask for damages, they ask for lost profits. It is the small and independent inventors, who usually cannot get either of these remedies and have to settle for reasonable royalties, will be hit hardest by this provision. Secondly, this change aims to bring from the backdoor the European concept of the “point of novelty,” which is foreign to our patent system. It is this point of novelty over and above prior art (patented and unpatented) that will have to be apportion its due measure of damages. What happened to the right to exclude guaranteed by the Constitution? Based on the Bill’s provision that a reasonable royalty may be calculated as the price of licensing a “similar noninfringing substitute in the relative market,” expect to get zero by way of royalties as the noninfringing substitute may be already in the public domain and warrant no royalties.

• The provision also limits the circumstances when a judge can award treble damages. These rare circumstances will be limited to cases in which infringer recklessly continued to infringe after receiving very specific written notice sufficient to trigger declaratory judgment and without relying on reasonable advice of counsel. Translation: by-by treble damages!

• Reexamination Proceedings: Patent reexaminations may be requested based on published prior art, or evidence of prior public use or sale in the US (under the present law, only printed publications are admissible). Inter Partes reexaminations will resemble court cases and will be heard by administrative patent judges.

• Additional Post Grant Review: Within 12 months of issuance, a third party can file a cancellation petition based on any ground of invalidity (rather than simply prior art). The post grant reviews would also be conducted by the administrative patent judges. What it means is that an infringer can forever tie a patent in endless reexamination proceedings, which will become so expensive that no independent inventor could afford them. Since, infringement is not an issue and no damages are ever awarded at the end of reexamination proceedings, don’t count of a law firm to represent you on a contingency basis – there is nothing for them in this defense.

• Pre-Issuance Submissions: Third parties can submit prior art during examination of the patent as well as a statement regarding the relevance of the art. The art should be submitted the latter of (1) six months after publication or (2) before the first office action on the merits.

• Patent Litigation Venue: “A party shall not manufacture venue by assignment, incorporation, or otherwise to invoke the venue of a specific district court.” Venue is only proper were (a) defendant is incorporated; (b) defendant has its principle place of business; (c) where the defendant is permanently located and has committed substantial acts of infringement; or (d) where the plaintiff resides if the plaintiff is a nonprofit or individual inventor. The court should transfer venue to avoid evidentiary burdens when transfer can be accomplished without causing undue hardship to the plaintiff.” Why the patent venue law should be different from any civil litigation? Because it is inconvenient for infringers! Guess who wrote the bill?

• PTO Powers: The PTO has power to set its fees, including reducing fees.

In the coming posts we will analyze various provisions of the Patent Reform Act of 2009 in greater detail. Stay tuned.