By Donald Zuhn --
On February 25th, Senate Judiciary Committee Chairman Patrick Leahy (D-VT) announced that the Committee had reached a "tentative agreement in principle" regarding patent reform legislation (see "Chairman Leahy Announces 'Tentative Agreement in Principle' on Patent Reform Bill"). Chairman Leahy noted that the Committee would release details regarding the bill "in the coming days" and after consultation with House legislators. Last week, the Chairman fulfilled that pledge by unveiling a Manager's Amendment to the Committee's bill (S. 515).
In a press release posted on Chairman Leahy's website, the Senator noted that "[w]ith this agreement, we are closer than ever to advancing patent reform legislation through the Senate." The Manager's Amendment was the product of nearly eleven months of negotiation by Chairman Leahy and Senators Orrin Hatch (R-UT), Jeff Sessions (R-AL), Chuck Schumer (D-NY), Jon Kyl (R-AZ), and Ted Kaufman (D-DE).
While acknowledging that the agreement "may not be everything that everyone wants," Chairman Leahy said the bill still "makes important reforms to the outdated patent system." He hoped that Senate leaders would "soon schedule floor time for this important legislation." Senator Sessions urged the Senate "to consider and act on this legislation." Observing that "[t]his bill doesn't include all the changes I originally sought," Senator Hatch stated that Congress still needed to "come together to reform our patent system."
According to the press release, the Manager's Amendment includes changes to first-window post-grant review, inter partes review, willfulness, interlocutory appeals, Patent and Trademark Office funding, and supplemental examinations, while retaining the following previously negotiated provisions:
(1) the transition to a first-inventor-to-file system; (2) important changes to improve patent quality, including by allowing third parties to comment on pending patent applications; (3) a new, first-window post-grant review proceeding to weed out patents that should not have issued; (4) the gatekeeper compromise on damages; (5) the compromise on venue; (6) fee-setting authority for the PTO to address its back-log problem; (7) amendments to best mode; (8) the new district court pilot program; and (9) increased incentives for government laboratories to commercialize inventions.
With respect to the changes to the bill since it was reported out of Committee last April (see "Senate 'Patent Reform' Bill (S. 515) Voted out of Judiciary Committee"), the release lists the following amendments:
• First-window post-grant review: Shortens the window from 12 months to 9 months, and raises the threshold for instituting a proceeding to a showing that it is "more likely than not" that at least one claim is unpatentable.
• Inter partes review: (1) Slightly raises the threshold for instituting an IPR to a "reasonable likelihood" that the challenger would prevail in invalidating a claim of the patent; (2) creates additional safeguards to prevent a challenger from using the administrative process to harass patent owners; and (3) inserts "reasonably could have raised" estoppel, preventing a challenger from raising in court an argument that reasonably could have been raised during an inter partes review that the challenger instituted.
• Willfulness: Codifies the recent case law on willfulness, which requires willfulness to be demonstrated by clear and convincing evidence that the infringer acted with objective recklessness, and adds additional substantive and procedural safeguards for alleged infringers, including (1) requiring willfulness to be pled with particularity; (2) preventing mere knowledge of the patent to support a finding of willfulness; (3) requiring specificity in pre-suit notifications; (4) upon motion, prohibiting increasing damages where there is a determination that a "close case" on infringement, validity or enforceability exists; (5) permitting a party to request the damages and willfulness phases be sequenced to occur after the infringement stage; and (6) failing to obtain advice of counsel may not be used to show willfulness or inducement.
• Interlocutory appeals: Removes the provision that would have required the Federal Circuit to accept interlocutory appeals of claim construction determinations.
• PTO Funding: Requires that the PTO to reduce fees by 50% for small entities and by 75% for the new classification of "micro-entities" created by the bill.
• Supplemental Examinations: Permits a patent holder to provide additional, potentially material prior art regarding the patent to the PTO. If the PTO considers the information and determines it has no effect on patentability, that additional information cannot serve as the basis for an inequitable conduct claim later in court. The information must be presented to the PTO and any reexamination must be completed prior to litigation.
In a statement issued by the Biotechnology Industry Organization (BIO), BIO President and CEO Jim Greenwood said "[t]he new manager's amendment contains many positive changes to the underlying patent reform legislation reported out of the Senate Judiciary Committee last April, which BIO supported." Mr. Greenwood added that "the latest amendment makes several important and well-crafted improvements to the overall bill," and "represents a significant step forward towards meaningful patent reform that will help sustain America's global leadership in innovation and spur the creation of high-wage, high-value jobs in our nation's innovation economy."
The American Intellectual Property Law Association (AIPLA) released a statement on Friday in which the group supported the Senate bill, calling it "a carefully crafted compromise." The AIPLA also stated that "[t]he bill is a significant step forward in improving U.S. patent law," adding that "[m]any of its provisions, including the adoption of a first-inventor-to-file system and the expansion of post-grant review options, will aid in strengthening the system as a whole." The AIPLA was particularly pleased with the Committee's decision to "maintain the constructive judicial gatekeeper function for determining royalty damages, incorporate more definite standards for finding willful infringement, and aid in determining appropriate venue in patent litigation." AIPLA Executive Director Q. Todd Dickinson said the bill "maintains a balanced, carefully crafted compromise recognizing the divergent interests of the U.S. patent community."
The Innovation Alliance, a coalition of small and medium-sized technology companies, issued a press release providing the text of a letter the group sent to Chairman Leahy and Senator Sessions, the Committee's Ranking Member. In the letter, the coalition stated that "[t]he legislation as originally proposed included elements that would benefit only a portion of the U.S. patent community and harm much of the rest, and it did not include other elements that would benefit the system as a whole." The group also contended that "a series of decisions from the U.S. Supreme Court and the Court of Appeals for the Federal Circuit has addressed virtually all of the substantive issues that originally prompted calls for patent legislation, including remedies, venue, and patentability standards." However, the group concluded that "[t]he manager's amendment to S. 515 as reported by the Judiciary Committee (GRA10134) . . . addresses much of what we believe to be the most problematic provisions." According to the group's letter, the Manager's Amendment incorporates several important changes to the post-grant review provisions, including:
• Precluding validity challenges in court on any grounds that were raised or that reasonably could have been raised during a prior inter partes review before the U.S. Patent and Trademark Office;
• Subjecting both inter partes review and post-grant review challenges to a heightened threshold showing;
• Clearly laying the burden of proof that a patent is invalid on the challenger in any inter partes review or post-grant review, correctly adopting the presumption that a patent granted by the USPTO is valid; and
• Imposing a deadline on inter partes review and post-grant review proceedings, mandating that they be completed within a one-year deadline, subject to an extension of no more than six months.
The coalition contends that "[t]hese changes should help to minimize the potential for repeated and abusive challenges to the validity of patents before both the USPTO and U.S. courts as a means to stifle competition from competitors and smaller innovative entities that are so crucial to the future of our nation's economy." As a result of the above changes, and the Senate Judiciary Committee's decision to retain the gatekeeper damages provision, the Innovation Alliance noted that it would "not oppose the passage in this Congress of the manager's amendment announced [March 4] (GRA10134)."