Department of Commerce Sends Senators Second Letter on Patent Reform Bill

    By Donald Zuhn --

In February, we reported on a letter sent by Nathaniel Wienecke, the Assistant Secretary for Legislative and Intergovernmental Affairs of the U.S. Department of Commerce, to Senator Patrick Leahy (D-VT), Chairman of the Senate Judiciary Committee, expressing the Bush Administration’s views on the Senate patent reform bill (S. 1145).  In that letter, Mr. Wienecke noted that the Administration opposed provisions of the Senate bill concerning damages and Patent Office funding, but had no quarrel with those portions of the bill that require Applicant Quality Submissions (AQSs), provide the Patent Office with fee setting authority, and replace inter partes reexamination with post-grant review.

Earlier today, the Commerce Department sent a second letter to Senator Leahy, again expressing the Bush Administration's views regarding the Senate patent reform bill.  The Commerce Department also sent the letter to Senator Arlen Specter (R-PA), the Ranking Member of the Judiciary Committee.  The letters were signed by Secretary of Commerce Carlos Gutierrez (at left).

In the new letter, the Administration reaffirms, inter alia, its dissatisfaction with the bill's damages and Patent Office funding provisions and its support for provisions that would require AQSs, provide the Patent Office with fee setting authority, and replace inter partes reexamination with post-grant review.  However, what truly "distinguishes" the Administration's second letter from its earlier correspondence is the discussion of Applicant Quality Submissions.

Where the Administration began its first letter by discussing the provision that it found most troublesome (i.e., Section 4 on damages), going so far as to declare that the Administration would "continue to oppose S. 1145 - in its entirety - unless Section 4 is significantly revised," the Administration begins its second letter by discussing the bill's "key elements."  And the provision that apparently heads the Administration's list of key elements?  Applicant Quality Submissions.

Unfortunately, after reading the Administration's new letter, one fears that those responsible for drafting the letter focused on the section's title at the expense of the new requirements this section would create.  (Interestingly, in an e-mail sent out earlier today on the Administration's letter, Professor Harold Wegner (at right) noted that "[i]f ever there were a reason for the next president – whichever the party – to pick a patent-savvy Director, the [Administration's] letter could be 'Exhibit A.'")

Before addressing the letter's discussion of Applicant Quality Submissions, it might be best to begin with the relevant text of the Senate bill:

SEC. 11. APPLICANT QUALITY SUBMISSIONS.

Chapter 11 of title 35, United States Code, is amended by adding at the end the following new section:

Sec. 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.

So what does the Administration have to say about Section 11?  Well, with respect to the Judiciary Committee's goal of "improving patent quality and the patent application process," the Administration "emphasize[s] the importance of section 11 of the bill," noting that it "strongly supports the AQS provision . . . in its current form and believes that enactment [of the provision] will prove to be the strongest step toward improved patent quality."  And how will the AQS provision accomplish this?  According to the Administration: "[b]y reducing the number of poor quality and imprecise applications."

It's probably not surprising, in view of the recently voided continuation and claims rules, to learn that the Administration believes there is a serious problem with patent quality, that this problem has been created by applicants' submission of "poor quality and imprecise applications," and even worse, that the problem will be remedied by forcing applicants to submit AQSs.  However, when the Administration contends that "[w]hether an application is approved as a patent is a function of the merits and quality of the application" (emphasis added), and argues that "the USPTO is now applying more than 55 percent of its examination resources to examining applications that do not warrant a patent," it is clear that the Administration blames patent applicants and practitioners for the Patent Office's current woes.  This message is hammered home when the Administration explains that the "sharp decline in the percentage of patents allowed" has resulted, in part, from "comprehensive internal quality improvements" (presumably made by the Patent Office with respect to the manner in which it handles the "patent application process").

The Administration concludes its discussion on AQSs by stating that:

In order for additional quality and efficiency gains to accrue, the system must focus on the quality of applications.  Stated simply, our innovation system can no longer afford the time and the cost of heavily subsidizing poor quality patent applications, which crowd out our most important innovations.  Applicant quality standards are essential to improving and expediting the process by which new and innovative ideas become reality.

However, since Section 11 doesn't directly address the "quality of applications," eliminating "poor quality patent applications," or "[a]pplicant quality standards" (if there is indeed a problem), it's almost as if the Administration stopped reading Section 11 two words into its title.

On the "bright" side, the Administration also "recognizes and supports statutory changes to the doctrine of inequitable conduct," arguing that "[t]he inequitable conduct standard should more clearly target actual fraud affecting the examination process."  Unfortunately, the Administration links the AQS provision with inequitable conduct reforms, stating that it "strongly opposes any statutory changes to the doctrine of inequitable conduct in the absence of a strong provision requiring Applicant Quality Submissions."  The Administration concludes its discussion of the AQS and inequitable conduct provisions by asserting that:

Diminishing the penalties for misrepresenting facts before the United States Patent and Trademark Office (USPTO) without also increasing the robustness of the process for eliciting quality information from applicants may lead to poorer quality applications, in tum increasing the difficulty of conducting accurate examinations.  Inequitable conduct reform alone, without Applicant Quality Submissions, would merely invite fraud on the patent system.

With letters like this one making their way to members of the Senate, it is not surprising that the Intellectual Property Owners Association (IPO) continues to encourage its members to contact their U.S. Senators and voice their opposition to section 11 of S. 1145.  The IPO contends that:

Mandatory AQSs would add unjustifiable expense to the filing of many patent applications, embroil applicants in disputes over what constitutes an adequate search or analysis of the prior art, and discriminate in favor of certain applicants who would be exempt from the AQS requirement.

The IPO has also stated that it opposes the AQS provision with or without inequitable conduct reform.

On Friday, we will post copies of letters that were sent to Illinois Senators Richard Durbin and Barack Obama by a number of attorneys at McDonnell Boehnen Hulbert & Berghoff LLP (including all of the Patent Docs authors).  We strongly encourage our readers to use these letters as templates and send their own letters to members of the Senate.

Comments

[NIPRA anonymous]

"(2) any other information relevant to patentability that the Director, in his discretion, determines necessary."

Is there no limit as to what the Director could require (e.g. an analysis of all prior art products, including reverse-engineering as to claimed features and limitations to prove patentability), and what cost could be placed on patent applicants (e.g. $5,000,000 per application).

Promote the progress? Who writes this stuff?

[an actual patent searcher]

Something that baffles me is why someone holds themselves out to represent patent searchers, as the NIPRA commenter above does, would be opposed to the AQS Provision? I don't have a failing business in need of propping (far from it), but I'm sure not opposed to a rule change that would make my line of work even more essential than it already is. Since my "colleague" above is always claiming to represent my industry in various blogs, I just wish I knew why he disliked growth.

Oh well, back to my EAST terminal. I'll let the big dogs fight this one out on the Hill and keep working in the trenches.

[Kevin E. Noonan]

Dear APS:

I don't think the issue is the search, it is the characterization. The AQS doesn't just require a data dump (which would be foolish and just exacerbate the problem; after all, the IDS rules are written to discourage filing more than 20 references). What the Office wants is for the applicant's lawyer to tell the Examiner what the references say (since then they don't have to take the time to read them) and where they should look for claim elements, etc. It puts the lawyer in a position (1) that's an Examiner's assistant and (2) is contra to the client's best interests. That's because properly-crafted claims extend just to the edge of the art, a place where the differences may be a bit grey and reasonable people can differ. The proposed AQS would have the lawyer claim cautiously instead of boldly, and in the difference there could easily be an avenue for a third party to reap the benefits of the invention without literally infringing. In view of the parlous state of the doctrine of equivalents, and the likely prosecution history estoppel effect of attorney statements in the AQS, the lawyer will not be able to zealously represent her client.

And, of course, this doesn't even touch on the question of inequitable conduct.

It's just a bad idea. But take heart, because between the Supreme Court's fact-based, totality of the circumstances approach to obviousness and the estoppel effect of amendments, doing a prefiling search is getting to be more and more necessary.

Thanks for the comment.