Draft Report on Senate Patent Reform Bill: Applicant Quality Submissions & Micro-Entities

    By Kevin E. Noonan --

As we reported last week, a draft of the Senate Judiciary Committee's report on the Patent Reform Act of 2007 (S. 1145) has been circulated on the internet.  The 106-page draft report contains sections on the background and purpose of the bill, the legislative history of the bill, a section-by-section summary of the bill, a placeholder for a cost estimate, a regulatory impact evaluation, and a list of the changes to Titles 15, 28, and 35 that would result if the Senate bill were passed into law.  The circulation of the draft report suggests that Senator Patrick Leahy, Chairman of the Senate Judiciary Committee, intends to keep his mid-December patent reform bill pledge to seek "favorable Senate action as early as the floor schedule permits" (see "Patent Reform Discussed on Senate Floor").  In view of the length of the draft report, Patent Docs has been providing a discussion of selected sections of the bill since the draft report began to circulate.  Today, we address section 11 of the bill.

Section 11 of S. 1145 amends Title 35 to add the following new section:

§ 123. Additional information; micro-entity exception

(a) IN GENERAL.--The Director shall, by regulation, require that an applicant for a patent under this title submit to the Director--

(1) a search report and analysis relevant to patentability; and
(2) any other information relevant to patentability that the Director, in his
discretion, determines necessary.

(b) FAILURE TO COMPLY.--If an applicant fails to submit the search report, analysis, or information required under subsection (a) in the manner and within the time period prescribed by the Director, such application shall be regarded as abandoned.
(c) EXCEPTION.--Any application for a patent submitted by a micro-entity shall not be subject to the requirements of this section.
(d) MICRO-ENTITY DEFINED.--

(1) IN GENERAL.--For purposes of this section, the term "micro-entity" means an applicant who makes a certification under either paragraph (2) or (3).
(2) UNASSIGNED APPLICATION.--For an unassigned application, each applicant shall certify that the applicant--

(A) qualifies as a small entity, as defined in regulations issued by the Director;
(B) has not been named on 5 or more previously filed patent applications;
(C) has not assigned, granted, or conveyed, and is not under an obligation by contract or law to assign, grant, or convey, a license or any other ownership interest in the particular application; and
(D) does not have a gross income, as defined in section 61(a) of the Internal Revenue Code (26 U.S.C. 61(a)), exceeding 2.5 times the average gross income, as reported by the Department of Labor, in the calendar year immediately preceding the calendar year in which the examination fee is being paid.

(3) ASSIGNED APPLICATION.--For an assigned application, each applicant shall certify that the applicant--

(A) qualifies as a small entity, as defined in regulations issued by the Director, and meets the requirements of paragraph (2)(D);
(B) has not been named on 5 or more previously filed patent applications; and
(C) has assigned, granted, conveyed, or is under an obligation by contract or law to assign, grant, or convey, a license or other ownership interest in the particular application to an entity that has 5 or fewer employees and that such entity has a gross income, as defined in section 61(a) of the Internal Revenue Code (26 U.S.C. 61(a)), that does not exceed 2.5 times the average gross income, as reported by the Department of Labor, in the calendar year immediately preceding the calendar year in which the examination fee is being paid.

(4) INCOME LEVEL ADJUSTMENT.--The gross income levels established under paragraphs (2) and (3) shall be adjusted by the Director on October 1, 2009, and every year thereafter, to reflect any fluctuations occurring during the previous 12 months in the Consumer Price Index, as determined by the Secretary of Labor.

According to the draft report, this new section is almost completely the result of testimony by Jon Dudas (at left), Director of the U.S. Patent and Trademark Office.  Anyone familiar with Patent Office efforts over the past few years to cast the various proposed "new rules" as being directed to improving patent quality will recognize the "through the looking-glass" nature of the proposals.  The draft report accurately states that the number of patent applications filed each year has been rising, and that 440,000 applications were filed in Fiscal Year 2006.  The draft report also states, based on Mr. Dudas's testimony, that 25% of these applications cite no prior art, and another 25% cite twenty or more references.  Each circumstance is viewed as problematic, since the absence of a requirement to provide any explanation of the relevance of submitted prior art references means that even cited references are of limited use in helping patent examiners do their duties, in view of the limited amount of time they are given to perform examinations.  The draft report also accepts the PTO's contention that it is the applicant who is "often in the best position to know the invention and the relevant art that may apply."  This statement, part of the PTO's recent mantra, of course flies in the face of the long-standing representations by the Office that patent examiners have special expertise in their art units, and thus would be expected to know the prior art as well or better than most applicants, especially after the examiner performs a search (not required of applicants under current law).  (Indeed, the PTO's position would appear to provide evidence to any applicant who receives an Office Action having rejections that depend on an examiner's purported expertise in his or her art unit.)

The draft report states "[t]he USPTO strongly advocated for inclusion of 'applicant quality submissions' [AQS] provision in the bill, stating it was one of its highest priorities in order to improve the patent examination process and the quality of issued patents."  The PTO's fingerprints can be discerned in the draft report's statements that:

[a]lthough patent examiners have excellent electronic search tools, and are well trained in the art of searching, added assistance from applicants citing relevant prior art and explaining how it applies to their applications will improve the quality of issued patents.  In addition, requiring applicants to do their own initial research and disclosure will improve the quality of the application.

Once again, the fig leaf of quality used to mask the transfer of the burden of patent examination from the Office to the applicant.

The proposed new Section purports to exempt certain applicants from the burden of compliance with the new search and analysis requirements.  However, unlike the current "small entity status," the "microentity" exemption has significant limitations.  The exemption includes, on its face, independent inventors, small business concerns, and non-profit organizations (collectively referred to as "small business entities").  However, belonging to these classes of applicants is not enough:  the proposed new statute is intended to benefit "a group of inventors who are even smaller, in order to be sure that the USPTO can tailor its requirements, and its assistance, to the people with very little capital, and just a few inventions, as they are starting out."  To this end, certain members of the "small entity" class are denied admittance to this "even smaller group - the micro-entity - which comprises only true, independent inventors."  To achieve (but certainly not justify) these ends, the exemption is lost, most significantly, for any small entity named on five or more patent applications.  This provision would eliminate from the exemption almost all universities, for example, and an undefined number of prolific inventors of humble means -- just the kind of inventors the current small entity exemption helps defray the cost of patent application filings.

As discussed on Patent Docs before, submitting an AQS is foolhardy at best so long as the current standards for alleging and proving inequitable conduct are in force.  (And the proposed changes do little to improve the situation.)  We have seen how the PTO intends to exercise any power granted to it under these provisions, with regard to its accelerated examination provisions and the new Information Disclosure Statement rules.  The issue, of course, is the liability that will predictably attach by filing an AQS (alternatively termed an examination support document (ESD)).  It would be nothing but folly for an applicant to comply with this rule except in cases where there is objectively no prior art to be cited.  Although such instances may exist (for example, where an International Search Report provides only "A" references), they can be expected to be both unlikely and rare.  The potential for a later determination that a patent is unenforceable for inequitable conduct in any other circumstance places applicants between the Scylla and Charybdis of the provisions of new Sections 123 and  298.

Should S. 1145 contain provisions requiring evidence of recklessness (as in the willfulness standard recently announced by the Federal Circuit in In re Seagate) or actual intent to deceive (something like mens rea) to prove inequitable conduct, an applicant could comply with the proposed provisions and perhaps help the PTO achieve its goal of having applicants shoulder at least a part of the burden of identifying relevant prior art.  Of course, these provisions are not part of any pending proposal.  In addition, the PTO has issued a series of not so subtle threats that the Office of Enrollment and Discipline intends to monitor practitioner activity with regard to IDS submissions, including requiring that every reference submitted by a practitioner be personally reviewed by that practitioner (see "New Rules, New Threats: More on the Office of Enrollment and Discipline").  The Senate's failure to address the changes to the inequitable conduct standard needed to enable applicants to comply with proposed new Section 123 puts applicants and their representatives in an impossible position, further suggesting that the intent of the backers of these changes is not to reform or improve U.S. patent law but to hamper it.  This will make it easier for them to use the exercise of their economic power to maintain their market dominance.  This is not only shortsighted but a national disaster in a world where global forces put the U.S. economy in the most precarious position it has been in since the early 1980's.  For those with sufficient memories, that was before the existence of a robust patent system offered real protection for nascent American industries like biotechnology, and helped rescue this country from a fate of rust-bucket decline.  We may not be so lucky this time.

For additional information on the draft report, please see:

• "Post-Grant Procedures," Section 5, January 22, 2008
• "Inequitable Conduct Provisions," Section 12, January 21, 2008
• "First Inventor to File Provisions," Section 2, January 17, 2008
• "Assignee Filings, Mandatory Publication, and Third Party Submissions," Sections 3 and 7, January 16, 2008
• "Late Patent Filings," Section 13 January 15, 2008
• "Draft Report on Senate Patent Reform Bill Circulated," Sections 9 and 15, January 14, 2008

For additional information regarding this topic, please see:

• "U.S. Senate Mailbox Filling with Letters against Passage of Patent 'Reform' Bill: An Update," January 23, 2008
• "U.S. Senate Mailbox Filling with Letters against Passage of Patent 'Reform' Bill," January 18, 2008
• "Patent Reform Discussed on Senate Floor," December 21, 2007
• "Enjoined New Rules and Patent Reform Finally Appearing on Biotech Industry's Radar," December 20, 2007
• "Chinese IP Judge Discusses Implications of U.S. Patent Reform Bill and Two Congressmen Heed Warning," December 17, 2007
• "IPO President Seeks Deletion of Patent Reform Provision," December 12, 2007
• "Senate May Act on Patent 'Reform' Bill in the New Year," December 2, 2007
• "The Wall Street Journal Gets It Half Right," November 5, 2007
• "BIO CEO Provides Briefing on Follow-On Biologics and Patent Reform," September 18, 2007
• "Patent 'Reform' Bill Passes House of Representatives," September 9, 2007
• "Reversal in Microsoft Case Weakens Patent Reform Argument," August 7, 2007
• "San Francisco Chronicle Opines on Patent Reform," August 6, 2007
• "Patent Reform Bill to Be Delayed?" June 12, 2007
• "Senate Judiciary Committee Holds Hearing on Patent Reform," June 10, 2007
• "Could Creating a U.S. 'Utility Model' Patent Fulfill the 'Need' for Patent Law Reform?" May 21, 2007

Comments

[EG]

Kevin,

Section 123, along with the applicant quality submission (AQS) document, is the most draconian and awful part of this legisiation, at least as far as patent prosecution goes. It completely changes the burden of examination, and wrongly so. That the current Director of the USPTO is the architect speaks volumes as to why Section 123 is ill-advised, poorly thought through, and just plan bad. Congress should instead be listening, for example, to NIPRA's "on target" and just critcism of this monster, not the current Director of the USPTO who continues to show he knows absolutely nothing about patent prosecuton or how to manage the USPTO operation in general.

[anon]

Lets invade Germany, grab the EPO, bring it here, and dump the PTO there. Perhaps no-one will notice.

[Kevin E. Noonan]

Dear Anon:

How ironic would it be if the only thing that "saves" U.S. patent practice is the culmination of current efforts to share patent examining responsibilities between the USPTO and offices like the EPO. We may not have to invade; analogous to the practice of using the EPO as the International Searching Authority in PCT practice (rather than the USPTO), we may get to the point where the only reasonable patent examination is done abroad. Which would be tragic.

Thanks for the comment.

[EG]

Anon,

What a brilliant thought, I almost fell over laughing when I read your comment!

[Old Coot]

Crazy thought here, but seeing where things might be heading a crazy thought might be in order: the OED is composed of PTO lifers who have no real world experience in working opposite the PTO. For the PTO to remove my license amounts to a criminal sanction, since it would deprive me of my livelihood. Ergo, constitutionally (you know it's a crazy idea when the constitution gets invoked) I need to be tried by a jury of my peers - i.e., other patent practitioners, not PTO lifers. so maybe when we all write our senators and tell them to dump these misguided search provisions, we should also tell them to add an amendment that would move OED tribunals from the hands of PTO personnel to the hands of other practitioners (just like lawyers are disciplined by other lawyers).

Of course, if another practitioner had time to sit on such a tribunal, I'd wonder about his competence...