Some (But Not All) Amendments Introduced in "Patent Reform" Bill

    By Kevin E. Noonan --

Senator Leahy (D-VT) (at right), chairman of the Senate Judiciary Committee, has circulated several amendments to be proposed to reflect the "compromise" he hopes to have reached with Senators Specter (R-PA) and Feinstein (D-CA) over S. 515, his "patent reform" bill.  While there are several minor amendments among them, three (on damages, willful infringement, and interlocutory appeals) are significant.

The proposed damage provision reads as follows:

''§ 284. Damages
(a) IN GENERAL.—
    (1) COMPENSATORY DAMAGES AUTHORIZED.—
Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. In determining damages, the court will direct the jury to consider any relevant factors or methodologies, under applicable law, based on the evidence presented.
    (2) USE OF EXPERTS PERMITTED.—The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.
'(b) PROCEDURE FOR DETERMINING DAMAGES.—
    (1) IN GENERAL.—The court shall identify the methodologies and factors that are relevant to the determination of damages, and the court or jury, shall consider only those methodologies and factors relevant to making such determination.
    (2) DISCLOSURE OF CLAIMS.—By no later than the entry of the final pretrial order, unless otherwise ordered by the court, the parties shall state, in writing and with particularity, the methodologies and factors the parties propose for instruction to the jury in determining damages under this section, specifying the relevant underlying legal and factual bases for their assertions.
    (3) SUFFICIENCY OF EVIDENCE.—Prior to the introduction of any evidence concerning the determination of damages, upon motion of either party or sua sponte, the court shall consider whether one or more of a party's damages contentions lacks a legally sufficient evidentiary basis. After providing a nonmovant the opportunity to be heard, and after any further proffer of evidence, briefing, or argument that the court may deem appropriate, the court shall identify on the record those methodologies and factors as to which there is a legally sufficient evidentiary basis, and the court or jury shall consider only those methodologies and factors in making the determination of damages under this section. The court shall only permit the introduction of evidence relating to the determination of damages that is relevant to the methodologies and factors that the court determines may be considered in making the damages determination.

Section (3) represents the statutory basis for Senator Feinstein's "gatekeeper" role for the judge.  However, it is much less than the apportionment standard wanted by the IT industry, and leaves almost all of the discretion to the district court judge (whose decisions should be difficult to overturn on appeal).

Other amendments attempt to codify the Federal Circuit's precedent in the Seagate case:

(e) WILLFUL INFRINGEMENT.—

 * * *

'(3) LIMITATIONS ON WILLFULNESS.—
    (A) IN GENERAL.—Notwithstanding paragraph (2), an infringer may not be found to have acted with objective recklessness where for any period of time during which the infringer had an informed good faith belief that the patent was invalid or unenforceable, or would not be infringed by the conduct later shown to constitute infringement of the patent, and—
        (i) there was reasonable reliance on advice of counsel;
        (ii) the infringer sought to modify its conduct to avoid infringement once it had discovered the patent; or
        (iii) there is sufficient evidence that the infringer had a good faith belief that the patent was invalid or unenforceable, or would not be infringed by conduct later shown to constitute infringement of the patent.

The proposed amendments contain these provisions for interlocutory appeals: 

(b) INTERLOCUTORY APPEALS.—Section 1292(c) of title 28, United States Code, is amended—
    (1) in paragraph (1), by striking ''and'' after the semicolon;
    (2) in paragraph (2), by striking the period and inserting ''; and''; and
    (3) by adding at the end the following:
        (3) of a final order or decree of a district court determining construction of a patent claim in a civil action for patent infringement under section 271 of title 35, if the district court finds that there is a sufficient evidentiary record and an immediate appeal from the order
        (A) may materially advance the ultimate termination of the litigation, or
        (B) will likely control the outcome of the case, unless such certification is clearly erroneous.

There are a variety of other proposals, including pilot programs for designating district court judges "volunteering" to hear patent cases as the "chief judge" of that court for those cases, and permitting judges who don't volunteer to decline to accept patent cases; initially, this pilot program would be limited to six district courts in at least three different judicial circuits, where the designations are based on statistics on which district courts have heard the most patent and plant variety protection cases in the most recent calendar year.  There are also provisions for "virtual" patent marking and for changing the relative royalty percentages between university patentees and the Federal government.  One of the strangest provisions regards the best mode requirement; instead of amending 35 U.S.C. 112, first paragraph, to remove this provision, the proposed amendments merely vitiate its meaning:

SEC. 15. BEST MODE REQUIREMENT.
Section 282(b), as so designated and amended by section 12(f), is further amended by striking paragraph (3) and inserting the following:
(3) Invalidity of the patent or any claim in suit for failure to comply with—
    (A) any requirement of section 112 of this title, except that the failure to disclose the best mode shall not be a basis on which any claim of a patent may be canceled or held invalid or otherwise unenforceable; or
    (B) any requirement of section 251 of this title.

So far, Senator Kyl has not formally introduced any of his expected amendments, including one that would prevent Data Treasury from pursuing patent infringement actions against several large banks (who no doubt are a part of the Senator's contributors list).  In an effort to deflect criticism of this provision raised against a similar provision in last year's ill-fated Senate "patent reform" bill (S. 1145), this amendment supposedly will contain a provision that renders it a nullity if a court determines that it constitutes a "taking" requiring the Federal government (read, the taxpayers) to compensate Data Treasury for the billions of dollars to which it would be entitled in damages (keeping in mind that the royalties Data Treasury collects from banks that have settled infringement litigation are on the order of 5¢ out of every $2 the banks charge for electronic check cashing).

These and other amendments are sure to be introduced in the days ahead.  The next Executive Committee meeting of the Senate Judiciary Committee is scheduled for tomorrow morning at 10 a.m.; a live webcast of the meeting can be viewed here.

Comments

[EG]

Kevin,

My comments on the proposed amendment:

Damages: Appears to be acceptable. At least the judge has the flexibility to determine which “methodologies and factors” go into the damage calculation equation.

Willful Infringement Defense: Appears to be acceptable; at least the criteria for the defense are now statutory, not based exclusively on what has been “ever changing” court-based criteria.

3rd Party Statements. I’m not fond of this provision, but the amendments get rid of very concerning language that would have allowed “other evidence” beyond “patents and publications” to be submitted. The USPTO, and especially the examining corps., doesn’t do well with “other evidence” that isn’t a “patent or publication.”

Interlocutory Appeals of Claim Construction. I’m still not fond of this provision for reasons expressed by Chief Judge Michel of the Federal Circuit. While the modified tries to restrict such interlocutory appeals to those “which may materially advance the ultimate termination of the litigation,” that could be potentially said of almost any claim construction decision. I also predict that the Federal Circuit will interpret this “materially advance” provision very restrictively, meaning they’ll likely repeatedly bounce such interlocutory appeals to discourage them, to the extent that the current situation won’t change (trust me, Michel is going to “ride herd” with the other Federal Circuit judges on this provision).

Failure to Disclose Best Mode. Again, this seems to make requiring the “best mode” or at least any incentive to disclose it superfluous. In fact, expect an increase in allegations of “unenforceability” (the statute by its language only explicitly precludes “invalidity” which is or could viewed as different from “unenforceability”) of patents for failure to disclose the “best mode” based on inequitable conduct.

Pilot Program for Certain District Courts. No comments.

That’s it from me on these proposed “modifications.”