Draft Report on Senate Patent Reform Bill Circulated

    By Donald Zuhn --

As reported in today's issue of the IPO Daily News (an e-mail and online newsletter distributed by the Intellectual Property Owners Association), a draft of the Senate Judiciary Committee's report on the Patent Reform Act of 2007 (S. 1145) has begun to circulate 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 (at right), 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").

Noting that "Congress has not enacted comprehensive patent law reform in more than 50 years," the draft report asserts that "[U.S. patent law] needs to change, both to correct flaws in the system that have become unbearable, and to accommodate changes in the economy and the litigation practices in the patent realm."  The draft report states that changes proposed by "small inventors, academics, universities, government agencies, corporations, non-profit organizations, industry organizations, bar associations, and members of the general public . . . have focused Congressional attention on three major areas of concern:  (i) appropriate procedures for prosecuting, and standards for allowing, patents; (ii) rising rates and costs of patent litigation, along with uncertain damage awards, and (iii) troubling inconsistencies between the US patent system and the other major patent systems throughout the industrialized world."  While the draft report states its case for patent reform, the report also notes that "the bill as originally introduced has been significantly changed to reflect a more balanced, modest approach . . . in response to various concerns raised before the Committee."

The version of the bill set forth in the draft report comprises seventeen sections.  According to the draft report, these sections of the bill would do the following:

1.  title the Act the Patent Reform Act of 2007;
2.  change the system to a "first-inventor-to-file" system;
3.  make it simpler for patent applicants to file and prosecute their applications;
4.  codify and clarify the standard for calculating reasonable royalty damage awards, as well as awards for willful infringement;
5.  create a relatively efficient and inexpensive administrative system for resolution of patent validity issues before the USPTO;
6.  establish the Patent Trial and Appeal Board;
7.  provide for eventual publication of all applications and enhance the utility of third parties' submissions of relevant information regarding filed applications;
8.  improve venue in patent cases and provides for appeals of claim construction orders when warranted;
9.  give the USPTO the ability to set its fees;
10.  remove the residency restriction for judges on the United States Court of Appeals for the Federal Circuit;
11.  authorize USPTO to require patent searches with explanations when a patent application is filed;
12.  codify and improve the doctrine of inequitable conduct;
13.  give the Director of the USPTO discretion to accept late filings in certain instances;
14.  limit patent liability for institutions implementing the "Check 21" program;
15.  end USPTO "fee diversion";
16.  make necessary technical amendments; and
17.  set the effective date of the Act.

In view of the length of the draft report, Patent Docs will be providing a discussion of selected sections of the bill over the next few days.  Today, we will address sections 9 and 15 of the bill.

Observing that most patent and trademark fees -- such as filing, issuance, and maintenance fees -- are set by Congress, the draft report contends that "[h]istory has shown that such a scheme does not allow the USPTO to respond promptly to challenges facing it."  The draft report also notes that the Patent Office "has argued for years that it must have fee setting authority to administer properly the agency and its growing workload."

Section 9, entitled "Patent and Trademark Office regulatory authority," would allow the Patent Office to set or adjust all of its fees, provided that such changes would do no more than reasonably compensate the Office for the services it performs.  However, before instituting any fee increases or reductions, the Director would have to give notice to, and receive input from, the Patent Public Advisory Committee (or corresponding trademark committee for trademark related fee changes), under procedures set forth in the section.  Fee changes would also have to be published in the Federal Register for notice and comment, and include the "specific rationale and purpose" for the change.  Finally, the Director would be required under the provisions of the section to notify Congress of any fee changes, with Congress then having 45 days to consider and comment on the fee change.

The draft report notes that fees collected by the Patent Office are deposited in the U.S. Treasury, rather than being retained by the Office, and that the Office is instead funded by annual Congressional appropriations.  While the draft report argues that "Congress has fully funded the user fees to USPTO for the last several years," it acknowledges that Congress has not always done so, resulting in "fee diversion."  The Patent Office has contended that such fee diversion has yielded a growing backlog of unexamined applications and an increase in examination pendency.

In response to the criticisms of patent applicants, who informed the Committee that they would be willing to pay higher fees, but only on the condition that none of the fees collected by the Office be diverted, the Senate bill includes Section 15, entitled "Patent and Trademark Office funding."  This section of the bill would permit the Patent Office to retain the fees it collects without relying on annual Congressional appropriations.

The patent law reforms set forth in Sections 9 and 15 would help the Patent Office address its application backlog and pendency problems without having to resort to the draconian and significant changes that would result were the Office's new continuation and claims rules enacted.  Not surprisingly, both of these "reforms" were proposed by Patent Docs readers in comments to our "Post-GSK: Where Do We Go from Here?" series.  The difference between the Senate and House sections on Patent Office regulatory authority is also of interest.  Whereas the Senate would only provide the Office with fee setting authority, the House bill would provide the Office with much greater authority, even going so far as to authorize the currently, but preliminarily, enjoined continuation and claims rules (albeit while reserving Congress' right to disapprove of any rules changes within 60 days of publication).

Comments

[EG]

I've not read the draft report, but here are my comments which only address those provisions which relate primarily to the patent examination process:

2. change the system to a "first-inventor-to-file" system. Not a big deal to me.

3. make it simpler for patent applicants to file and prosecute their applications. Sounds nice in theory, but how will this work out in practice? The existing examination process would be fine without such legislation if PTO management had done their job; that's the problem, so this provision may do nothing unless we have enlightened PTO management in the future.

5. create a relatively efficient and inexpensive administrative system for resolution of patent validity issues before the USPTO. This sounds like the post-grant opposition procedure. I would be OK (but not enthusiastically so) to have post-grant oppositions limited like in Europe (9 to 12 months after grant date only) which procedures that keep the cost of these within reasonable bounds; I'm completely against unlimited periods for post-grant oppositions as being not only excessive, but shifting the balance completely in favor of the opposer to run into the ground patentees, especially those who don't have the war chest to fight them off.

6. establish the Patent Trial and Appeal Board. Don't know what this means, or why this Board is necessary.

7. provide for eventual publication of all applications and enhance the utility of third parties' submissions of relevant information regarding filed applications. I've slightly against this provision (but not adamantly so). Letting someone have the option to retain what's described as a trade secret if no patent is granted and no foreign rights are sought is fine with me, but not a "deal breaker."

9. give the USPTO the ability to set its fees. I'm not in favor of this at all. Given the current PTO managements track record on rule making, I'm not in favor of anything that gives the PTO unfettered rule making, including fee setting.

11. authorize USPTO to require patent searches with explanations when a patent application is filed. I'm thoroughly opposed to this provision which is ill-advised and misguided. You might as well not have examination if the applicants have to do this, as it creates admissions that will undermine patent validity and claim scope and will create yet additional inequitable conduct obligations. I view this as a "deal breaker" and if it remains, I would rather there be no legislation at all.

12. codify and improve the doctrine of inequitable conduct. Would be an improvement over the current status of the inequitable conduct (IE) doctrine which even the Federal Circuit agrees is a "plague" but which they do little to remove it as a "plague". I would happy if IE were removed as a basis for invalidity/unenforceability of patents, but if IE is retained I would suggest the following: (1) make the "intent to deceive" standard much higher to either a deliberate intent to deceive or at least "reckless disregard" (not "gross negligence"); (2) make the "materiality" standard "but for"; and (3) if IE is alleged but isn't proven, have the party that alleges it pay the patentee their attorneys fees for defending against it (only fair since if IE is proven, the patentee may have to pay the other sides attorneys fees). Having provisions (1) through (3) would do much to decrease unsupported and frivolous IE allegations and especially make litigators and their clients think very carefully before making what is, in my view, a very serious charge that shouldn't be made without the facts to clearly support it.

13. give the Director of the USPTO discretion to accept late filings in certain instances. Sounds like a good idea, if within reasonable bounds.

15. end USPTO "fee diversion". Amen to this, it should have happened years ago and frankly fee diversion shouldn't have been done in the first place. Fee diversion is a principle reason why the PTO examination process is such a mess now by depriving the PTO of funds needed run the operation, and especially to provide qualified examiners with more competitive salaries, etc.

[Donald Zuhn]

EG:

Thank you for your comments. We will be discussing a number of the other provisions of the Senate bill on the blog over the next few days.

Don

[NIPRA anonymous]

I wish they would get away from that "Micro-entity" (and income) language in new Section 123 - have the exception be for "small entities" if Congress is intent on turning over the search to the applicant. [But the micro-entity language is probably in there because MS and RIM et al. disdain and are afraid of the future small-entities that might attain "critical mass" in terms of innovation (and/or commercialization) to completely change a technology, while micro entities will by definition (5 people or less) likely *never* be able to reach critical mass for innovation and commercialization. Way to promote progress by burdening the small entities and start-ups from whom most industrial change comes! Oops, we just mean to protect MS and RIM, that's right.]

Better to do away with 123 entirely, because as it stands now, the patent-ignorant USPTO management would clearly want to use the applicant search to cut the Examiners' hours per BD, making the Examiners even less experts in the art (eventually, they'll just be highly-paid and glorified clerks in management's plan).

If we need a Section 123, the language protecting examination in the passed House version (which POPA lobbied for) should also be added: "Any search report required by the Director may not substitute in any way for a search by an examiner of the prior art during examination." Otherwise we'll be at a de facto registration system with none of the possible benefits thereof (and all of the expense of an examination system).

[EG]

Don:

Glad to put my 2 cents in for what it's worth.

NIPRA: We're in "lock step" on why 123 is extremely bad and should be a "deal breaker" for this legislation.

[Donald Zuhn]

EG:

Senator Leahy indicated in December that he would "seek and hear the views of any and all parties," so it's possible that some of the provisions discussed in the draft report will change before the bill goes to the Senate floor for a vote.

Don

[EG]

Don,

I sure hope you're right. The currently passed House bill is absolutely awful, and the draft of saw earlier of the Senate bill is equally nauseating.

[Donald Zuhn]

EG:

Maybe it's just me, but I think the House bill is far worse. For example, as I mentioned in yesterday's post, the House bill essentially approves of the PTO's efforts to pass the continuation and claims rules (unless anyone seriously thinks that Congress would have overturned the new rules within the bill's 60-day review period).

Don