Patent Reform Bill (S. 23) Debated and Amended on Senate Floor

By Kevin E. Noonan --

On Tuesday, for the second day in a row, Senator Patrick Leahy (D-VT) (at right) stood on the floor of the Senate and argued for his colleagues to pass S. 23, now named the "Invent America Act."  In Tuesday's action (which can be seen here:  Senate Session, Part I and Senate Session, Part 2), Senator Leahy introduced a Manager's Amendment (the reported provisions of which are summarized below).  In addition, Senator Mark Kirk (R-IL), joined by Senator Mark Pryor (D-AR), introduced an amendment (S.AMDT.123) to provide a fast lane for small businesses within the USPTO, while Senator DeMint (R-SC) introduced an amendment not germane to patent law.  Senator Leahy, while yielding to permit these amendments to be entered, insisted in each instance that the Manager's Amendment be the amendment under consideration by the Senate at all times.

The Manager's amendment is expected to have the following effects:

• Change the title of S. 23 to the "America Invents Act"

• Change the date of the repeal of statutory invention registrations, which are used only in first-to-invent, to conform to the date of the change to first-inventor-to-file.

• Strike all damages language remaining in the bill -- including the gatekeeper, sequencing, and recodification of current law as subsection (a) which was the "grand compromise" brokered in the last Congress by Senator Dianne Feinstein (D-CA), then-Senator Arlen Spector (R, then D-PA), and Senator Leahy.  The bill now makes no changes to 35 U.S.C. § 284; this turn of events is ironic, in view of the importance of changes to this section in motivating support and providing the genesis for patent reform.

• Regarding the post-grant review provisions, replace the subsection imposing a six-month deadline on filing after litigation is commenced with a provision requiring a court to consider a preliminary injunction without taking the existence of either a petition or post-grant review proceeding into account if the patent owner sues within 3 months of the issuance of patent.

• Limit the post-grant review provisions to only "first-inventor-to-file" patents -- i.e., "first-to-invent" patents will not be subject to post-grant review.  The rationale for this change is that first-to-invent patents raise discovery-intensive invention-date and secret-prior-art issues that would be difficult to address in an administrative proceeding.  This also facilitates PTO institution of the post-grant review regime.  In light of this change, the time for implementing post-grant review is moved back to one year after enactment, so that it becomes effective at the same time other provisions of the new law are implemented, which is what the PTO is said to prefer.

• Give the Director discretion to continue to use old inter partes reexam during the first four years after the new law is implemented.  The Director believes his reforms in the Office have greatly improved the existing inter partes procedure, and it may actually work more efficiently.  The existing inter partes procedure can also be used for post-grant review proceedings that are instituted only on the basis of patents and printed publications.

• Strike the codification of the In re TS Tech USA Corp. case regarding transfer-of-venue rule.  TS Tech already applies as a matter of case law in the Fifth Circuit.  (The Federal Circuit applies regional circuit law to procedural matters, and reads Fifth Circuit law as applying the transfer of venue rule.)  Complaints about venue generally focus on the Eastern District of Texas, so there is little need to apply TS Tech nationally or by Act of Congress.

• Add a new provision requiring the Director to charge reduced fees to small entities for use of accelerated examination.

• Add language making clear that the repeal of the Baldwin rule (which rule requires Federal Circuit judges to live within 50 miles of Washington, D.C.) shall not be construed to require the Administrative Office of the Courts to provide judges with office space or staff outside of D.C.

• Broaden the definition of "microentity," a status that entitles applicants to reduced fees (purportedly with PTO approval).

• In the tax patents section, add language:  (1) clarifying that the legislation does not bar patenting of tax software that is novel as software -- i.e., where the innovation is in the software, although this may not survive to final passage; and (2) establishing that making tax strategies unpatentable shall not be construed to imply that other business methods are patentable or valid.  This is intended to avoid the implication from Bilski v. Kappos (2010), where the Supreme Court interpreted Congress's 1999 enactment of a prior-user right that only applied against business-method patents as implying that business methods qualify as patentable subject matter under § 101, which was enacted in 1793.

• Add language to the part of the bill regarding the Surpreme Court's decision in Holmes Group v. Vornado Air Ciculation System allowing removal of patent cases from state to federal court to clarify that derivative jurisdiction is not required in such cases.  (Derivative jurisdiction is the doctrine that, even if a federal district court would have had original jurisdiction over an action, on removal, the district court can only have jurisdiction if the state court from which the action is removed properly had jurisdiction.)

• Include the Schumer-Kyl business-methods amendment, modified to accommodate industry concerns and PTO needs.  The Schumer amendment provides for a proceeding that is a relatively cheap alternative to civil litigation for challenging these patents, which will reduce the burden on the courts of dealing with invalid business-method patents.  The proceeding has been limited since mark up so that:  (1) only defendants or accused infringers may invoke the proceeding; (2) prior art is limited to existing § 102(a), which must be publicly available, or prior art of existing § 102(b) scope that falls outside the existing § 102(b) grace period (i.e., effectively, existing § 102(b) prior art but limited to existing § 102(a)'s publicly-available prior-art scope); (3) the proceeding may not be used to challenge a patent while it is eligible for a post-grant review challenge (i.e., a "first-inventor-to-file" patent during the first 9 months after its issue); (4) the proceeding is available only for four years; (5) district courts can decide whether to stay litigation based on the four-factor Broadcast Innovation v. Charter Communications test, and the Federal Circuit can review the decision to stay on interlocutory appeal to ensure consistent application of established precedent; (5) the definition of business-method patent, which tracks the language of Class 705, is limited to data processing relating to just a financial product or service (rather than also to an enterprise.

• Give the PTO greater flexibility in paying and compensating the travel of APJs.  A large number of APJs will need to be recruited, trained, and retained to adjudicate post-grant review and derivation actions.  This change's enhancements will be paid for out of existing funds.

• Include the Coburn amendment ending fee diversion.  Currently, PTO fees go into a Treasury account and are only available to the Office as provided in appropriations.  In the last two decades, about $800 million in PTO user fees has been diverted from PTO to other federal spending.  The Coburn amendment creates a revolving fund, giving PTO direct access to its fees without the need for enactment of an appropriations act.

In addition, in a separate amendment, the Office is authorized to set its own fees:

(1) IN GENERAL.--The Director shall have authority to set or adjust by rule any fee established, authorized, or charged under title 35, United States Code, and the Trademark Act of 1946 (15 U.S.C. 1051 et seq.), notwithstanding the fee amounts established, authorized, or charged thereunder, for all services performed by or materials furnished by, the Office, provided that patent and trademark fee amounts are in the aggregate set to recover the estimated cost to the Office for processing, activities, services, and materials relating to patents and trademarks, respectively, including proportionate shares of the administrative costs of the Office.

The amendment passed on a vote of 97-2.  Senators Jon Kyl (R-AZ) and Amy Klobucher (D-MN) spoke in favor of the bill and the Manager's Amendment, with neither exhibiting any particular understanding of the issues.  Debate continued today, with Senator Feinstein (D-CA) introducing an amendment to strip the bill of the first-inventor-to-file provisions (Patent Docs will have more on this debate in a subsequent post).  (When the Senate gets through with this bill, there may not be much left.)

In view of the amendments, the principal changes constituting "patent reform" will be the change to first-inventor-to-file and post-grant review, both of which have raised concerns from sole inventors and small businesses as having a disproportionately negative effect (see "More Reaction to Senate Patent Reform Legislation").  These complaints suggest that, as has happened before, interests who believe this bill will harm their capacity to innovate should make their views known to their Senators.

Comments

[Bob Cook-Deegan]

Have you bought the movie rights?

[Kevin E. Noonan]

Dear Bob:

Yes. I'm thinking of calling it "Watching Paint Dry - The Movie" or maybe just "Quorum Call." Sausage-making at its finest.

Thanks for the comment.

[Skeptical]

The amendments make this appear to be quite the circus.

Heaven help us if this mess passes.

[Stop the Papal Indulgences and Purge the Temple]

There are only two reasons why a company will be sued for false marking on the basis of expired patents: (1) either they intentionally falsely marked their product for purposes of deceiving the public or (2) a registered patent attorney whose responsibility it was to advise his client of the approach of the patent’s expiration and the need to proactively plan for the cessation of product marking on the expiration date committed malpractice by failing to so act.

We need a qui tam statute that allows any person to sue such malpracticing patent attorneys and split the recovery with their clients when those clients are just too blind to see who is responsible for their legal woes.

[Kevin E. Noonan]

Dear Stop:

So long as 1) a letter in the attorney's file informing the client of the expiry is a complete defense and 2) clients are willing to pay for this service, no problem. But we should be very careful about ascribing liability under circumstances where it doesn't apply - patent counsel don't control changing manufacturing dies, etc.

[6]

"This is intended to avoid the implication from Bilski v. Kappos (2010), where the Supreme Court interpreted Congress's 1999 enactment of a prior-user right that only applied against business-method patents as implying that business methods qualify as patentable subject matter under § 101, which was enacted in 1793."

God that is hilarious.

"The amendment passed on a vote of 97-2. Senators Jon Kyl (R-AZ) and Amy Klobucher (D-MN) spoke in favor of the bill and the Manager's Amendment, with neither exhibiting any particular understanding of the issues."

Lulz.

I told you man. Our lawlmakers are not much more than ill-informed popular people. The two people that voted against it are probably just as ill-informed and have no clue why they were votiing against it.

I wonder which senators voted against?

"(When the Senate gets through with this bill, there may not be much left.)"

Seriously. I was kind of looking forward to FItF but just the funding stuff would be nice as well.

[Stan E. Delo]

Kevin-

Thanks for laying things out so clearly about how they are legislating on the fly and what they have decided so far, as Leahy and et al seem to be just making this up as they go along, with apparently little regard for how it all fits together. The proponents were whining pretty loudly this morning about how the Feinstein amendment to remove the FTF portion of the S. 23 bill would make it nearly useless and amounted to a *poison pill* for the S. 23 legislation. I could have told them that it was worse than useless several days ago! Unfortunately the Feinstein amendment failed, much to my regret. Even if this hacked up mess gets passed in the Senate, they will probably find it very difficult to get the newly Republican House to agree on much of anything when it comes conference time. Just say No to *Patent Reform*, as this is the worst possible time to get legislation like this Wrong.

Regards,
Stan~

[Skeptical]

"This is intended to avoid the implication from Bilski v. Kappos (2010), where the Supreme Court interpreted Congress's 1999 enactment of a prior-user right that only applied against business-method patents as implying that business methods qualify as patentable subject matter under § 101, which was enacted in 1793."

This is horrible language to pass into law.

Not that it ATTEMPTS to outlaw business method patents, because it does not - but precisely BECAUSE it does not outlaw business method patents, but rather merely insinuates that THIS SECTION does not create an ADDITIONAL inference of congressional support for business method patents. This bill does nothing to the basis on which the Supreme Court ruled, and by doing nothing to THAT basis, also creates a countervailing inference that business method patents ARE patentable subject matter.

The U.S. Supreme Court has HELD that congress intended that business method patents ARE patentable subject matter. The writer of this amendment either does not understand that, or, well, does not understand that. By ONLY insinuating that THIS particular passage does not create an indication as to patentability THAT ALREADY NOW EXISTS, the bill only creates confusion and abdicates the legislative function of clear law making.

[staff]

Small entities have been given far too little voice on this bill when one considers that they rely far more heavily on the patent system than large firms who can control their markets by their size alone. Yet small entities create the lion's share of new jobs. According to recent studies by the Kauffman Foundation and economists at the U.S. Census Bureau, “startups aren’t everything when it comes to job growth. They’re the only thing.” Congress is rushing headlong into disaster. This bill is a wholesale slaughter of US jobs.

“Patent reform”

Just because they call it “reform” doesn’t mean it is. Patent reform is a fraud on America.

Please see http://truereform.piausa.org/ for a different/opposing view on patent reform.
http://docs.piausa.org/2011PatentReform/

[6]

"This bill does nothing to the basis on which the Supreme Court ruled, and by doing nothing to THAT basis, also creates a countervailing inference that business method patents ARE patentable subject matter."

For the moment. Have patience my friend. This is the government we're talking about.

[J Michael S]

"First Inventor to File"? What about the entire section that allows for "Filing by Other Than Inventor"?

Sure looks like a huge loophole to allow Corporations to file for patents... with or without the inventor's knowledge or permission (even if the inventor is dead).

This bill is a mess... typical of the poorly thought out laws created by legislators that do not understand the business or the issues.

If the backlog of 750,000 patents is the issue slowing innovation and creating new jobs then provide the resources to start issueing those patents. Moving the ability to get patents from the Inventor to Corporations does nothing to solve that problem.