Draft Report on Senate Patent Reform Bill: Interlocutory Decisions & Venue

    By Mark Chael --

As we reported two weeks ago, 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, in the final article in this series, we address section 8 of the bill.

Section 8 of the Senate patent reform bill amends section 1292 of title 28 to require that the U.S. Court of Appeals for the Federal Circuit accept all interlocutory appeals of claim construction orders certified by the district courts.  New § 1292(c)(3) reads as follows:

§ 1292.  Interlocutory decisions

(c) The United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction --

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(3) of an appeal from an interlocutory order or decree determining construction of claims in a civil action for patent infringement under section 271 of title 35.

Application for an appeal under paragraph (3) shall be made to the court within 10 days after entry of the order or decree.  The district court shall have discretion whether to approve the application and, if so, whether to stay proceedings in the district court during the pendency of such appeal.

Also, section 8 of the draft bill amends the patent venue provisions of § 1400(b) and adds new §§ 1400(c) and (d).  The amended sections of 35 U.S.C. § 1400 are as follows:

§ 1400.  Patents and copyrights, mask works, and designs

(b) Notwithstanding section 1391 of the title, in any civil action arising under and Act of Congress relating to patents, a party shall not manufacture venue by assignment, incorporation, or otherwise to invoke the venue of a specific district court.
(c) Notwithstanding section 1391 of this title, any civil action for patent infringement or any action for declaratory judgment may be brought only in a judicial district --

(1) where the defendant has its principal place of business or in the location or place in which the defendant is incorporated or formed, or, for foreign corporations with a United States subsidiary has its principal place of business or is incorporated or formed;
(2) where the defendant has committed substantial acts of infringement and has a regular and established physical facility that the defendant controls and that constitutes a substantial portion of the operations of the defendants;
(3) where the primary plaintiff resides, if the primary plaintiff in the action is --

(A) an institution of higher education as defined under section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a)); or
(B) a nonprofit organization that --

(i) qualifies for treatment under section 501(c)(3) of the Internal Revenue Code (26 U.S.C. 501(c)(3);
(ii) is exempt from taxation under section 501(a) of such Code; and
(iii) serves as the patent and licensing organization for an institution of higher education as defined under section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a)); or

(4) where the plaintiff resides, if the sole plaintiff in the action is an individual inventor who is a natural person and who qualifies at the time such action is filed as a micro-entity pursuant to section 123 of title 35.

(d) If a plaintiff brings a civil action for patent infringement or declaratory judgment relief under subsection (c), then the defendant may request the district court to transfer that action to another district or division where, in the court's determination --

(1) any of the parties has substantial evidence or witnesses that otherwise would present considerable evidentiary burdens to the defendant if such transfer were not granted;
(2) such transfer would not cause undue hardship to the plaintiff; and
(3) venue would be other wise appropriate under section 1391 of this title.

Finally, section 8 of S. 1145 makes some technical amendments concerning venue for actions against the USPTO.  As indicated in the Senate Judiciary Committee's draft report, the American Inventors Protection Act (AIPA) of 1999 determined that the venue of the USPTO is the district in which it resides (see 35 U.S.C. § 1(b)).  However, in enacting the AIPA, Congress failed to make this determination consistent throughout the entire patent statute, thereby allowing certain court challenges to particular USPTO actions to be brought in the District of Columbia, where the USPTO resided decades ago.  These technical amendments to USPTO venue statute would make it clear that all court actions against USPTO decisions, where applicable, shall be brought in the U.S. District Court for the Eastern District of Virginia.

In commenting on the venue amendments, the drafters alleged that in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990) and Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558 (Fed. Cir. 1994), the Federal Circuit had "virtually eliminated any meaningful distinction between the patent venue provision [28 U.S.C. § 1400] and general venue."  According to the draft report, "[t]he effect of these decisions is that venue for a patent infringement defendant is proper wherever an alleged infringing product can be found."  And, "since [many] products are sold nationally, a patent holder can often bring a patent infringement action in any . . . judicial district in the [U.S.]."  The drafters, and others, allege that this leads to forum shopping in patent cases.

Professor, now CAFC Judge, Kimberly Moore concluded in her seminal paper, Forum Shopping in Patent Cases: Does Geographic Choice Affect Innovation? 79 N.C. L. Rev. 889 (2001), that about half of all patent infringement cases are filed in only ten of the 94 judicial districts in the U.S.  This trend is only expected to continue and perhaps worsen (see, e.g., R.R. McKelvie, Forum Selection in Patent Litigation: A Traffic Report for 2006, 19 Intell. Prop. & Tech. L.J. 1 (2007)).  It is black-letter law that venue exists, in part, to protect defendants that have no more than minimal contacts in a forum of the plaintiff's choosing.  And, it is common sense that judicial economy is best served in a venue close to witnesses and evidence.  Finally, if only a few districts are asked to handle the majority of patent infringement actions, their dockets will be unnecessarily overcrowded.

The Senate patent reform bill also provides for interlocutory appeals of patent claim constructions after Markman hearings, provided that the appeal is taken within 10 days following entry of the Markman ruling.  The Judges of the Federal Circuit, in particular Judge Michel, have spoken out against the propriety of interlocutory appeals of this type.  However, the Senate Judiciary Committee alleged that "[n]umerous studies have shown that the Federal Circuit's reversal rate of district court claim construction decisions is unusually high" (citing P.M. Schoenhard, Reversing the Reversal Rate: Using Real Property Principles to Guide Federal Circuit Patent Jurisdiction, 17 Fordham Intel. Prop. Media & Ent. L.J. 299 (2007)).  Testimony before the Senate Committee on the Judiciary by the Chief Intellectual Property Counsel at Goldman Sachs, Mr. John A. Squires, further alleged that "the manner [in which] claim construction determinations are currently reviewed increases litigation costs, decreases certainty and predictability, and can prolong settlement discussions."

The amendments found in S. 1145 will provide district court judges with the discretion to certify a challenged Markman ruling for appeal to the Federal Circuit.  According to the Committee, it is the district court judges who are in the best position to decide when and if an appellate review of claim construction is appropriate.

Interestingly, as Patent Docs (and others) have reported, at least five Senators are opposed to the current draft patent reform legislation and have written a letter to Senator Leahy, the Committee Chairman, stating that additional information and hearings are necessary (see "Patent Reform Bill to Be Delayed?").  Although, S. 1145 is on the Senate's schedule this year (see Patent Docs report), swift passage is by no means certain.

For additional information on the draft report, please see:

• "Damages," January 28, 2008
• "Applicant Quality Submissions & Micro-Entities," Section 11, January 25, 2008
• "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