THE PATENT REFORM ACT OF 2005

A bill currently pending in the United States House of Representatives may bring about the most significant changes to substantive patent law in the United States in the past several decades.  Indeed, the Intellectual Property Subcommittee of the House Judicial Committee is now considering HR 2795, commonly referred to as "The Patent Reform Act of 2005" ("The Proposed Act") which, if enacted, would represent the first major overhaul of the United States patent system in more than fifty years.  The Proposed Act, sponsored by Representative Lamar Smith of Texas, is aimed at resolving a multitude of growing concerns that the United States patent system is in dire need of reform.  Among the fundamental changes proposed by The Proposed Act are the following:

• changing the United States patent system from a first-to-invent system to a first-to-file system
• eliminating the best mode requirement
• allowing third parties to submit prior art to the United States Patent and Trademark Office ("PTO")  prior to the issuance of a patent
• allowing third parties to file in the PTO an opposition seeking to invalidate one or more claims of an issued patent
• allowing the PTO to regulate continuation applications to combat "submarine" patents
• limiting a patentee's ability to engage in "forum shopping"
• overhauling inequitable conduct litigation
• limiting a patentee's right to injunctive relief
• limiting a patentee's right to recover exemplary damages for willful infringement
• codifying the "entire market value" rule.

As you can see from the above-listed items, the scope of The Proposed Act is expansive, addressing issues from inventorship to patent prosecution to infringement litigation.  Moreover, if enacted, The Proposed Act will fundamentally change several long-standing, foundational principles of United States patent law and drastically change many critical aspects of patent practice, including strategies for obtaining patent protection and exploiting patent rights.

The First-to-File System – Is the Race to the PTO On?
The United States is one of the few countries in the world that currently gives priority for a patent to the first person to invent the claimed invention.  By contrast, most other countries give priority for a patent to the first person to file a patent application directed to the claimed invention, regardless of who invented the invention first.  The Proposed Act would change the United States patent system as it relates to priority for a patent to conform with most foreign patent systems.  Such a change would result in a greater urgency to file a patent application as soon after the invention is made as possible.  Inventors in the United States would enter the same type of "race to the patent office" that inventors in most foreign countries have been competing in for years. 

The change from a first-to-invent system to a first-to-file system would also have other practical effects on the United States patent system.  For example, the conversion to a first-to-file system would effectively put an end to interference practice¹ in the United States.  In addition, the change to a first-to file system would result in changes to the definition of "prior art."  According to the Proposed Act, "prior art" would include patents, printed publications and other information publicly known either (1) more than one year before the filing date of the patent application, or (2) less than one year before the application but prior to the date of invention by the applicant.  The Proposed Act defines the term "publicly known" as meaning that persons of ordinary skill in the technical field to which the invention relates can gain access and comprehend the subject matter without resort to undue efforts.

While The Proposed Act is still in the preliminary stages of the legislative process, the scope and significance of the changes to U.S. patent law proposed by the bill are worth noting now and continued monitoring.  

No More Best Mode Requirement?
Under current United States patent law, a valid patent must disclose a written description of what the inventor considers to be the best way of carrying out the invention.  A patent that does not disclose the inventor's subjective best mode of carrying out the invention is invalid.  Most foreign countries do not have such a best mode requirement.  The Proposed Act would eliminate the subjective best mode requirement for at least two reasons.  First, such a change would bring the United States patent system in conformity with the majority of foreign countries that do not have a best mode requirement.  Second, such a change would improve the predictability of the validity of a patent by eliminating a subjective  requirement.  Opponents of the proposed elimination of the best mode requirement caution that it may result in less informative patent disclosures and a less informed public.

Third-Party Submissions of Prior Art
According to many, the PTO issues too many invalid patents because it lacks the resources to find the most relevant prior art.   The Proposed Act seeks to address this perception by giving third parties the right to submit prior art to the PTO before a patent is granted.  According to the proposal, any person would have the right to submit to the PTO a patent or a publication with a concise description of its asserted relevance, provided that the submission is made prior to the earlier of (1) the notice of allowance or (2) the latter of the first rejection or six months after publication.

Given the significant costs resulting from patent infringement litigation, oftentimes regardless of the validity of the patent at issue, it may be worth considering a strategy for monitoring patent applications filed by competitors.  Such a monitoring strategy would allow your company to identify overly broad patent applications that would improperly cover what has been known in the prior art² for years, including your own company's products and/or activities.  After such an overly broad patent application is identified, prior art could be submitted to the PTO in order to assist the Examiner of the application in making a rejection. 

Third-Party Opposition of Issued Patent
Under current United State patent law, PTO review of an issued patent is limited to the following procedures: reissues, interferences, and reexaminations. The Proposed Act would give third parties another option for obtaining PTO review of an issued patent.  According to the proposal, the new procedure would allow a third party to file in the PTO an opposition seeking to invalidate one or more claims of an issued patent.  The opposition must be filed in the PTO within nine months of the issuance of the patent, and the PTO would be required to complete the opposition proceedings within twelve months. The proceedings would permit limited discovery, and the decision of the PTO would be appealable to federal court. The cost of such an opposition would be significantly less than the cost of formal litigation, and the standard of proof for the opposing party at an opposition filed in the PTO would be less than the standard of proof for the challenging party in a lawsuit filed in a Federal Court.  However, it may be difficult for an opposing party at an opposition filed in the PTO to convince the PTO that its own examiner improperly allowed a patent claim to issue.

PTO to Regulate Continuation Applications
Many have argued that excessive use of continuation applications for the purpose of extending the effective term of protection for an invention is an abuse of the United States patent system.  More particularly, the so-called "submarine" patent, a patent that is preceded by a long line of continuation applications and is allowed to issue only after the relevant industry has developed around the patented technology, has come under attack.  While there have been some recent changes to United States patent law that are intended to reduce the risk of "submarine" patent practice, The Proposed Act provides another weapon that may be used to sink the "submarine" patent.  According to the proposal, the director of the PTO would be authorized to regulate continuation applications.

Making it Harder to Forum Shop
Under current United States law, the parties to a patent dispute typically may choose from a wide variety of venues in which to litigate the dispute.  As a result, the parties often select a forum that they believe will be most favorable to their position.  This practice has come to be known as "forum shopping."  The Proposed Act would limit the parties' ability to forum shop in patent disputes.  More particularly, it would require a court to transfer the venue of an infringement lawsuit if it has been brought in a district in which (a) the patentee does not reside or have a principal place of business, (b) the accused infringer does not have a principal place of business, and (c) the accused infringer is not incorporated, provided that the parties do not have substantial evidence or witnesses in that district.  Such a change to the patent laws of the United States would strike a significant blow to the current practice of forum shopping.

Overhauling Inequitable Conduct Litigation
According to United States patent laws, all individuals associated with the prosecution of a patent have a duty to disclose to the PTO material information  and a duty not to misrepresent material information to the PTO. The duty to disclose is known as the duty of candor, and the failure to discharge the duty of candor is known as inequitable conduct.  Under current United States litigation practice, an accused infringer frequently asserts that the patent at issue is unenforceable based upon some form of inequitable conduct on the part of the patentee and/or his representatives.  The Proposed Act would change this practice by providing that only the PTO can investigate or make a determination with respect to the duty of candor. 

In litigation, an accused infringer would be permitted to plead unenforceability only after a patent claim is determined to be invalid.  If the court then decides that an issue of possible misconduct exists, then it must refer the matter to the PTO for investigation.  Even if the PTO determines that misconduct occurred, the patent may still be enforceable such as when the misconduct is attributable to only the patentee's attorney.

Infringement v. Injunction
Under current United States practice, courts routinely permanently enjoin all infringing activity after a finding of infringement of a valid patent.  The initial version of The Proposed Act included a provision that made it easier for an accused infringer to obtain a stay of a permanent injunction pending appeal of an infringement judgment.  At present, the provision relating to the stay of permanent injunctions has been removed from the bill.  However, recently the Supreme Court of the United States agreed to hear a case in which the issue of whether a permanent injunction should result from a finding of infringement of a valid patent will be decided.  Consequently, depending upon the upcoming decision of the Supreme Court, another amendment to The Proposed Act may be forthcoming. 

Making it Harder to Prove Willful Infringement
Under current United States practice, a patent holder routinely alleges that the accused infringer willfully infringed and therefore is liable for punitive damages and attorneys' fees.  Critics contend that the potential windfall of willful infringement results in an excess of willfulness allegations which unnecessarily add to the already significant cost of patent infringement litigation.  In order to reduce allegations of willfulness, The Proposed Act would raise the standard of proof required for a finding of willfulness to clear and convincing evidence.  The Proposed Act would also limit the circumstances in which willful infringement could be established to the following:  (1) where the patentee provides the accused infringer with written notice; (2) where the accused infringer intentionally copied the patented invention with knowledge that it was patented; and (3) where the accused infringer engaged in conduct that is not colorably different from conduct previously found to have been infringing.  The proposal further provides statutory defenses to willful infringement such as reasonable reliance on advice of counsel.  The Proposed Act would also prevent the patent holder from asserting willful infringement until the patent is first determined to be valid, enforceable and infringed.  

Codifying the "Entire Market Value" Rule
The Proposed Act would codify the common law "entire market value" rule.  The "entire market value" rule applies to patents covering a feature of a larger article where the patented feature is not necessarily the entire basis for the demand for the article.  According to the proposal, 35 U.S.C. § 284 would be amended to require the court to consider the portion of the realizable profit that should be credited to the patented feature as distinguished from other features of the larger article.

While The Proposed Act is still in the preliminary stages of the legislative process, the scope and significance of the changes to U.S. patent law proposed by the bill are worth noting now and continued monitoring.  If you have any questions or concerns regarding The Patent Reform Act of 2005, please contact one of our Intellectual Property Group attorneys.  

David J. Hill
423.757.0277
dhill@cbslawfirm.com 

Richard W. Bethea
423.757.0255r
bethea@cbslawfirm.com 

John G. Jackson
423.757.0246
jjackson@cbslawfirm.com

Alicia Brown Oliver
423.757.0206
aoliver@cbslawfirm.com   

Paul S. Weidlich
423.757.0232
pweidlich@cbslawfirm.com

David W. Lynch
423.757.0264
dlynch@cbslawfirm.com

Christina L. Mack
423.757.0212
cmack@cbslawfirm.com