Patent Reform

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Patent Reform Legislative Changes on the Horizon

• Presented during the NVCA Webcast
• June 15, 2005

W. Karl Renner Principal Fish Richardson
P.C. Washington, DC Renner_at_fr.com 202-783-5070
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PATENT LAW IS EVOLVING

• Patent law is always in flux.
• The next two years promise to bring major
  legislative changes to patent system.

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QUALITY A CRISIS IN THE PTO

• Backlog of over 400,000 applications
• Growing application pendency
• 2 years average - most technologies
• Project 4 years average by 2008
• Already 4 years cutting-edge electronics and
  biotech inventions
• Diversion of Over 650 Million of PTO User Fees
  to Unrelated Programs
• H.R. 1561
• Figueroa v. United States (today)
• Widespread concern about patent quality

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COST A CRISIS IN THE COURTS

• Widespread concern over abusive patent practices
• Growing backlash against patent trolls
• No effort to commercialize invention
• Waits in the shadows until someone else invests
  substantial resources in a product
• Demands significant licensing fee under threat of
  permanent injunction
• Skyrocketing costs of patent litigation
• Perversion of a system intended to promote useful
  disclosure

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HARMONIZATION AN INTERNATIONAL PROBLEM

• The U.S. is the only country that recognizes
  rights in the first to invent, rather than the
  first to file
• Most of the world allows for opposition of patent
  grants on facially invalid patents, without
  significant risk to the challenger not the U.S.

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SO WHAT?

• Many of your member companies are technology
  companies, who either take advantage of patents
  or who may be subject to the patent holdings of
  others.
• The time to effect desired change or to stop
  undesired change is now, not after the bill has
  passed.

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RESPONSE TO THE CRISIS PATENT REFORM

• PTOs The 21st Century Strategic Plan (Updated
  February 2003)
• Today the USPTO is under siege.
• FTC Report (October 2003)
• NAS Report (April 2004)
• AIPLA, IPO, BIO Recommendations
• Berman Bill (introduced October 2004)
• PTO Report on Inter-Partes Reexamination
  (November 2004)
• BSA Proposed Legislation
• House Judiciary Committee Bill (committee print
  issued April 14, 2005)
• Patent Reform Bill (formally introduced by
  Congressman Smith on June 8, 2005)

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RESPONSE TO THE CRISIS PATENT REFORM, Contd

• FTC Report (October 2003) To promote
  Innovation The Proper Balance of Competition and
  Patent Law and Policy
• 10 recommendations focusing on questionable
  patents
• NAS Report (April 2004) A Patent System for
  the 21st Century
• 7 recommendations focusing on the high costs of
  patent litigation

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RESPONSE TO THE CRISIS PATENT REFORM, Contd

• Berman Bill H.R. 5299
• The Patent Quality Assistance Act of 2004
  (introduced October 8, 2004)
• Rep. Bermans remarks Consistent with the goals
  and recommendations of the FTC and NAS reports,
  the PQA Act contains a number of provisions
  designed to improve patent quality, deter abusive
  practices by unscrupulous patent holders, and
  provide meaningful, low-cost alternatives to
  litigation for challenging the patent validity

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RESPONSE TO THE CRISIS PATENT REFORM, Contd

• House Judiciary Committee Bill (June 8, 2005)
• Patent Act of 2005
• This bill will be debated in 109th Congress

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Where we are today

• Senate draft of Patent Reform Bill, by
  Congressman Smith, was introduced last week on
  June 8, 2005
• Those involved in process expecting nothing will
  pass this year
• Biggest stumbling block is debate over injunctive
  relief, but the bill included significant
  compromise on this point

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10 Legislative Hot Topics

• 1. Post-Grant Opposition
• 2. Willfulness Test
• 3. Broadening Continuations
• 4. Injunction Standard
• 5. First to File
• 6. Obviousness Standard
• 7. Presumption of Validity
• Best Mode Inequitable Conduct
• Third Party Participation in Prosecution
• 10. Damages Limitations

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Todays panel will discuss 5 of the 10 topics
mentioned earlier

• Removal of Best Mode Requirement
• First to File
• Prohibition on Broadening Continuations
• Limitations on Injunctive Relief
• Opposition (Pre-Grant and Post-Grant)

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1. Best Mode Inequitable Conduct

• NAS Report Modify or remove the subjective
  elements of litigation
• Eliminate (a) best mode requirement and (b)
  inequitable conduct
• BIO supports reduces cost and increases
  predictability of litigation
• House Judiciary Committee Print
• Eliminates best mode (Sec. 4, p. 15)
• Drastically changes inequitable conduct!
• PTO to investigate
• To assert in court, must win on invalidity first
• Must prove by clear and convincing evidence that
  patent owner committed inequitable conduct and
  that but for that conduct the patent would not
  have issued
• Patent Reform Bill (adopts Committee Print)(Sec.
  5, p. 16-37)

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Effect/Take-Aways

• Disclosure must still be enabling
• But patent laws wont force you to disclose best
  trade secrets
• Disclosure not as useful to the public
• Greater scope and more valuable trade secrets
• Should simplify litigation, reduce costs by
  eliminating state of mind inquiry
• Less opportunity to make a good jury story

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2. First to File

• NAS Report advocates harmonization reforms,
  including first to file.
• Would brings U.S. in line with rest of the world
  in adopting first to file, rather than first to
  invent
• First to invent system creates uncertainty,
  complexity, expense and delay
• Supported by AIPLA, IPO, BIO, ABA, NMA, Federal
  Circuit Bar Association and small inventors
• House Judiciary Committee Bill
• Agrees (specifies 12 mo. grace period for
  inventors own publication).
• Patent Reform Bill (Sec. 3)(pp. 2-13)
• 102(a)(2) creates first to file rule
• Exception for prior art developed using joint
  research
• Evaluate novelty and non-obviousness as of the
  effective filing date, rather than the date of
  invention

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Effect/Take-Aways

• Must file early!!!
• Fully descriptive and complete disclosure
• Could cause issues if prohibition on broadening
  continuations resurfaces, as claims cant be
  broadened beyond the broadest claim in the
  earliest application

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3. Broadening Continuations

• FTC Report Enact Legislation to Create
  Intervening or Prior User Rights to Protect
  Parties from Infringement Allegations That Rely
  on Certain Patent Claims First Introduced in a
  Continuing or Other Similar Application
• Addresses opportunistic broadening of claims to
  ensnare competitors products
• AIPLA opposes (as written) IPO agrees
• BIO opposes. Believes existing mechanisms
  adequately address illegitimate continuing
  applications and it would interfere with pursuing
  full claim coverage to which entitled
• BSA supports. Claims in continuation applications
  cannot be broader than those in parent/those
  published
• Not addressed by NAS or Berman Bill
• House Judiciary Committee Bill disallows claims
  broader than the broadest claim first published,
  issued or made in an application within 12 months
• Patent Reform Bill (Sec. 8, p. 40-41)
• Removes this issue, but is it gone?

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Effect/Take-Aways

• Creates greater certainty and less risk for
  existing products
• Cant rely on disclosure alone to more broadly
  claim later
• Practitioners and well advised clients will
  likely circumvent objectives of changes, but
  small clients may suffer consequences

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4. Injunction Standard

• BSA No injunction for party that wont be
  irreparably harmed
• Berman Bill Limit Injunctions Where Patentee
  Does Not Practice the Invention
• Eliminates presumption of irreparable harm and
  automatic entitlement to an injunction
• Requires finding of irreparable harm that cannot
  be remedied by payment of money damages
• The Court shall consider the extent to which
  the patentee makes use of the technology claimed
  by the patent
• Bermans remarks courts should weigh all the
  equities, including the unclean hands of the
  patent trolls.
• Bio and Pharma strongly oppose!
• House Judiciary Committee Print same as Berman
  (failure to practice invention expressly recited
  as a factor)
• Patent Reform Bill Injunction provision changed
  from Committee Print (Sec. 7, p. 40)
• Language no longer expressly requires
  consideration of the extent to which the patentee
  practices the invention.
• Rather, the Bill requires an injunction to be
  stayed pending appeal, unless a stay would
  irreparably harm the patentee.

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4. Injunction Standard, cont.

• Federal Circuits Response Mercexchange v. eBay
  (March 16, 2005)
• Injunctions are not reserved for patentees who
  intend to practice their patents, as opposed to
  those who choose to license. The statutory right
  to exclude is equally available to both groups,
  and the right to an adequate remedy to enforce
  that right should be equally available to both as
  well. If the injunction gives the patentee
  additional leverage in licensing, that is a
  natural consequence of the right to exclude and
  not an inappropriate reward to a party that does
  not intend to compete in the marketplace with
  potential infringers.

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Effect/Take-Aways

• More likely to pass on constitutional grounds
• Bill still reflects renewed emphasis on staying
  injunctions, and using injunctions only when
  damages will not suffice as a remedy
• Like the Committee Print, this will leave
  Patentee with less leverage for settlement as
  Defendant will have less incentive to settle with
  reduced injunction threat

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5. Post-Grant Opposition

• FTC Report Enact Legislation to Create a New
  Administrative Procedure to Allow Review of and
  Opposition to Patents
• meaningful challenges to patent validity short
  of litigation
• Included in Berman Bill
• Third parties can challenge patent validity in
  PTO 9 mos after grant or 6 mos after threat of
  infringement
• No estoppel on arguments not presented or newly
  discovered evidence
• Final determination 1 year after filing
• Included in House Judiciary Committee Bill
• Same as Berman, except can only challenge within
  9 mos after grant or reissue
• Included in Patent Reform Bill (Sec. 9, pp.
  41-57, see p.44)
• A return to Berman provisions
• Also, one bite of the apple opposition or
  reexamination on any particular issue

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Effect/Take-Aways

• Consider searching for prior art during
  prosecution and directing examiner to the best
  art
• May decrease the number of litigations filed each
  year
• Less expensive and more efficient than litigation
  
• Reduces the burden on the courts will courts
  have more time for more adequate resolutions of
  other cases?
• In a post-grant opposition, throw in art that is
  a strong technical read, but lacks jury appeal
• In a post-grant opposition, keep out art of prior
  public use with strong jury appeal

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• Questions? Discussion..