Lately, a great deal of attention has been focused on patent "reform", with a focus on Senator Patrick Leahy's Senate Bill 515 and its companion bill in the House H.R. 1260. However, another Senate bill has been proposed by Republican Senator Jon Kyl of Arizona, S. 610. Senator Kyl proposed an identical bill last September after the failure of the prior Leahy sponsored bill.
H.R. 1260 and S. 515 are virtually identical, but the Kyl sponsored bill is significantly different. How do these reform efforts differ, what are their similarities, and who is the driving force behind them?
Where H.R. 1260, S. 515 and S. 610 overlap is that all three recommend a change to the "first-to-file" system and in limiting filing venue and damages in infringement actions. The Congressional Budget Office ("CBO") report on S. 515 estimates that the bill "would reduce discretionary spending by $173 million over the 2010-2014 period". Will these costs simply evaporate once the proposed reform measures are implemented? Or is it that these costs will simply be transferred to the other side of the system, onto the patent applicant?
Many intellectual property experts and economists believe the purported benefits of this reform are overestimated and that it will, instead, damage the U.S. economy. Shifting the burden of cost to the patent applicant and changing to a first-to-file system could handicap the individual and academic inventors' ability to seek patent protection, while tipping the scales of justice toward those with money and power.
The first-to-file system is clearly not in the favor of the inventor. While the rest of the world currently uses this system, does that mean they have it right? Filing for a patent can be an expensive and arduous task that can interrupt the research process. What's more, academic inventors are often subject to university discretion on whether a patent application will be filed. The university may choose not to file and policies may further prevent the faculty inventor from filing on their own behalf, but this does not negate the legitimacy of their inventorship.
The matter of limitations on venue where an infringement action can be filed may seem to be a simple issue. Proponents of this measure cite the preponderance of patent cases filed in Texas which is known for allowing patent disputes to run their course instead of issuing summary judgment. This argument amounts to accusations of bias in Texas courts or a presumption of a certain type of verdict. However, many patent suits are simply filed in the area most convenient to the patentee. Corporations are more easily able to litigate or defend charges in any venue, but inventors do not typically have this luxury. Again, this is another component to the proposed legislation that could unfairly benefit big business.
Finally, the issue of calculating or limiting damages is a trickier issue than it may seem at a glance. Currently, the method to calculate "reasonable royalties" for infringement damages is based on a 15 factor test supplied to the jury. The legislation proposes three ways to calculate a "reasonable royalty", but it is the judge which would select the method to be used, "based on the facts of the case and after adducing any further evidence the court deems necessary".
The Seventh Amendment guarantees the right to a jury trial in this type of civil matter and, as a flow-down, there are specific matters left to the judge's discretion and others that are solely the realm of the jury. As written, the proposed legislation would insert the judge into areas of "fact finding" that are properly the duty of the jury. By requiring that the court weigh evidence to determine the damage calculation method the jury will use, the court would effectively abrogate seventh amendment rights of the patent infringement plaintiff.
H.R. 1260 and S. 515 both seek to codify the case law that emerged from In re Seagate. S. 610, however, does not seek to codify this ruling, but instead looks for tougher standards to prove willfulness in an infringement matter. Following is a brief explanation of the case and its importance to patent law.
The groundbreaking 2007 Federal circuit decision In re Seagate Technology is critical to all patent legislation. This decision placed a higher burden on the patent holder to establish willful infringement and reversed a long standing rule from Underwater Devices which held that defendants must exercise due care to avoid patent infringement. This landmark case was stricken by the Seagate ruling which found that a lack of exercise of due care was not in and of itself tantamount to willful infringement. Sound like a simple matter of semantics? It's much more than that. The willfulness of the infringement equates to a potential for treble damages.
In a second blow to plaintiffs in patent infringement suits, Seagate allows defendants to present advice of counsel communications in its defense without risking the loss of attorney-client privilege at large. The ruling does allow for a waiver of privilege on work product if "counsel engages in chicanery", but there is no standard of care or advice on applying this standard in the ruling.
Both H.R. 1260 and S. 515 include the controversial recommendation to allow interlocutory appeals on claim construction that S. 610 does not contain. Interlocutory appeals are filed prior to the ruling in a case, but are typically filed to the court of appeals (a higher court). For example, an interlocutory appeal in a patent case in the district court would properly be filed with the federal court of appeals. However, H.R. 1260 and S. 515 propose that the district court be permitted to approve its own interlocutory appeals; this would rob the higher court of its discretion to rule on the appeal.
The hierarchy in the U.S. court system dates back to the early years of our nation and was established to allow a successive system of hearing, judgment, appeal and final judgment. The change suggested by H.R. 1260 and S. 515 would short-circuit the safeguards, purpose and processes of the U.S. judicial system. The Federal Circuit court opposes this portion of the proposed patent "reform".
S. 610 is improved by the absence of the interlocutory provision, however, it is not all wine and roses either. The legislation includes "Applicant Quality Submissions" which would require prior art searches and submissions. This aspect of the bill is particularly troublesome for independent and academic inventors. They would be negatively impacted by this measure in massive cost and labor increases to perform the required prior art search and an increasingly complicated patent application process for complex technologies. As well, the submission of additional materials on claims and patentability may increase exposure to litigation.
Another controversial component of S. 610 is the introduction of a "second window" of post-grant review. In addition to a post-grant review that would come immediately after patent issuance, the second window would allow for a review at any time during the life of the patent to be requested by any party charged with infringing the patent.
S. 515 diverges from companion bill H.R. 1260 and its Senate counterpart S. 610 in its provision to repeal the Baldwin Rule. This 25-year old statute requires that judges of the Federal Circuit must live within 50 miles of the District of Columbia. The law was dubbed the Baldwin Rule because it was rumored to have been implemented to prevent the appointment of Texas Judge Phillip Baldwin to chief of the Federal circuit. The repeal of this flawed statute is long overdue and leaves one to question why the companion bills aren't seeking to reverse it as well.
Patent "reform" has received a lot of press over the last two years, but is actually not a nascent consideration. The first patent dispute was filed in 1790. The patent was awarded to the applicant who was determined to be the first inventor. As far back as 1967, a variety of patent "reform" bills have come before Congress, but have yet to reach an iteration that the nation's legislators are willing to unilaterally adopt.
Each of the proposed reforms would change the U.S. from an inventor-centric model to one that focuses on influence. Most critical among the aspects of the proposed bills is the change to a "first-to-file" system. This might make the system "easier", but how often is the easier option the right one?
To voice your opinion on the current patent "reform" legislation, contact your Senators and Representatives. Below are the sponsors, co-sponsors and supporters of each of the proposed reform measures.
H.R. 1260 Patent Reform Act of 2009
March 2, 2009 – Proposed and referred to House Committee on the Judiciary
April 29, 2009 – Discussed in committee hearings H.R. 1260 Patent Reform Act of 2009
||Rep. John Conyers (D-MI)
||Rep. Howard Berman (D-CA)
Robert Goodlatte (R-VA)
Sheila Jackson-Lee (D-TX)
Michael Simspon (R-ID)
Lamar Smith (R-TX)
S. 515 Patent Reform Act of 2009
March 3, 2009 – Introduced and referred to the Senate Judiciary Committee
May 12, 2009 – Report issued from Senate Judiciary, along with Minority and Supplemental views
||Sen. Patrick Leahy (D-VT)
||Sen. John Cornyn (R-TX)
||Sen. Michael Crapo (R-ID)
|Sen. Dianne Feinstein (D-CA)
||Sen. Kirsten Gillibrand (D-NY)
|Sen. Orrin Hatch (R-UT)
||Sen. Edward Kaufman (D-DE)
|Sen. Amy Klobuchar (D-MN)
||Sen. Mark Pryor (D-AR)
|Sen. James Risch (R-ID)
||Sen. Charles Schumer (D-NY)
|Sen. Arlen Specter (D-PA)
||Sen. Mark Udall (D-CO)
S. 610 Patent Reform Act of 2009
March 17, 2009 – Introduced and referred to the Senate Judiciary Committee
Sponsor: Sen. Jon Kyl (R-AZ)