The new bills – S515 and HR1260 – are the latest versions of the Patent Reform Act introduced in the last two Congresses. Last year’s Senate bill S1145 was removed from the Senate calendar in May. The House of Representatives passed parallel, but not identical, legislation (HR1908), but legislation has to be approved by both Houses and the president to be enacted.
Despite some changes, the latest bills maintain the most controversial provisions, such as new rules for damages calculations in patent infringement proceedings, limitations on the criteria for establishing venue in US courts and the creation of an interlocutory appeal system for claim construction decisions.
The damages provision is the biggest sticking point. The bills seek to calculate damages for patent infringement based upon “that economic value properly attributable to the patent's specific contribution over the prior art” and also to rule out basing damages on the “entire market value” of a product, unless the patent's “specific contribution over the prior art is the predominant basis for market demand for an infringing product or process”.
Software companies in particular have argued that the present method of calculating damages in infringement cases is unfair. They argue that the entire market value rule, which allows a jury to determine reasonable royalties based on the entire market value of a product, rather than just the infringing component(s), can result in disproportionate and exorbitant damages awards and should be more restrictive.
Others feel that narrowing the methods available for determining damages could be a disincentive for innovation. Gary Griswold of the Coalition for 21st Century Patent Reform, commenting on the most recent bills, said: “The damages methodology in this bill heavily favours infringers over inventors. At a time when we need to stimulate our innovation and aid US manufacturers, this bill sends an international signal that patented American technology can be copied with little or no consequence.”
However, companies such as Google and IBM disagree. David Kappos, IBM’s vice president and assistant general counsel, Intellectual Property Law, told Managing IP: “This legislation represents significant progress toward enactment of comprehensive, balanced patent reform, which will encourage investment in innovation and economic growth. By improving patent quality and decreasing wasteful patent litigation, the patent reform legislation will help remove roadblocks to development of new innovations and thus will spur economic growth.”
A case pending at the Federal Circuit between Lucent and Microsoft may help to clarify some of the issues around damages. In that case, Microsoft has appealed a jury's finding that it must pay Alcatel-Lucent more than $511 million in damages, after interest, for infringing two of Alcatel-Lucent's patents.
“If the Federal Circuit clarifies its precedent and says that, to apply the entire market value rule, the patented invention must be the principal reason consumers buy the product, that should go a long way toward reducing the problem,” said Bill Rooklidge of Howrey.
Rooklidge added that the provision aimed at ending so-called forum shopping by plaintiffs in the US, specifically in the plaintiff-friendly venue of the Eastern District of Texas, “should be dropped” in light of the recent decision in TS Tech. He said that, post-TS Tech, “the problem is largely resolved”, and that the provision as proposed would complicate matters by introducing the subjective standard of “motive” for locating a company’s business in a particular jurisdiction:
“If you bring motive into a definition of venue, you introduce a subjective element that’s going to jack up litigation costs in patent infringement proceedings in order to deal with an issue that’s a problem in only one district. It doesn’t justify unduly complicating the venue standard.”
Rooklidge said that the provision that would allow immediate appeal of claim construction decisions to the Federal Circuit – the interlocutory appeals provision – is “one of the most harmful provisions of this bill for everyone involved”. The new rule seeks to bring more consistency to claim construction decisions, but Rooklidge said that this should be achieved by educating district court judges and increasing the Federal Circuit’s deference to the district courts on claim construction.
Other changes include removal of the controversial Applicant Quality Submissions provision, which would have required applicants to submit mandatory search reports, removal of the requirement that all patent applications be published 18 months after they are filed, codification of the In re Seagate decision and removal of a provision that would have ended the practice of diverting user fees from the USPTO to other programmes.
One of the less controversial aspects of the bills would harmonise the US with the rest of the world by adopting a first-inventor-to-file, rather than a first-inventor-to-invent system. However, that provision is contingent upon the “major patenting authorities” – the JPO, EPO and the national European offices – implementing a one year grace period for publicly disclosing the subject matter of the claimed invention without losing priority.
The new Senate bill also adopts the House of Representatives’ approach to post-grant review, by “expanding inter partes reexamination, rather than introducing a new post-grant review for second window challenges”. Jon Dudas, former USPTO director and now partner of Foley & Lardner, said of that provision: “What’s interesting is that it allows for a variety of different ways for a patent to be opposed – it will lead to a certain amount of complexity [at the USPTO], but through debate and discussion, [Congress] will find the right answer.”
Another patent reform bill was introduced last year by Senator Jon Kyl of Arizona. That bill differed considerably from the Patent Reform Act of 2009, specifically on the damages provision.
“I expect that Senator Kyl will introduce his own bill again, and that the legislative process will be the better for it,” said Rooklidge. “Discussion of these different approaches should help clearly identify the problem that needs to be solved, an issue which has largely been ignored in favour of discussing the symptoms.”
