House Judiciary Chairman Releases Manager's Amendment to H.R. 1249

By Kevin E. Noonan --

If politics is the art of the possible, House Judiciary Committee Chairman Lamar Smith (R-TX) (at right) is doing whatever he can to make passage of H.R. 1249 (the "America Invents Act," aka the House patent reform bill) into law.  That includes release today of a Manager's Amendment, which makes significant changes to portions of the bill that have raised opposition by many groups.

The first significant changes are in Section 2 of the bill, which effects the change from "first to invent" to "first inventor to file" in 35 U.S.C. § 102.  Objections from many (including notably Hal Wegner of Foley & Lardner, who has commented extensively on this provision) include that the bill as introduced effectively destroyed the one-year "grace period" for an inventor's own activity, by limiting permitted conduct to printed publications and excluding public use and on-sale as permitted inventor activities.  The Manager's Amendment addresses these concerns by making the following changes:

Sec. 102.  Conditions for patentability; novelty

(a)  Novelty; Prior Art- A person shall be entitled to a patent unless--

(1)  the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention; or

(2)  the claimed invention was described in a patent issued under section 151, or in an application for patent published or deemed published under section 122(b), in which the patent or application, as the case may be, names another inventor and was effectively filed before the effective filing date of the claimed invention.

(b)  Exceptions-

(1)  DISCLOSURES MADE 1 YEAR OR LESS BEFORE THE EFFECTIVE FILING DATE OF THE CLAIMED INVENTION- A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if--

(A)  the disclosure to the public was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or

(B)  the subject matter disclosed had, before such disclosure, been publicly disclosed disclosed to the public by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor.

Presumably, changing the language to exclude "public use" and "on sale" from the statute and retain "or otherwise disclosed to the public" excludes such activities from the definition of disclosure.  The criteria for making the determination of what constitutes a "public disclosure" is set forth in subsection (o):

(o)  IMPLEMENTATION BY THE PATENT AND TRADEMARK OFFICE – In any guidelines for the examination of patents addressing whether a disclosure to the public has been made under section 102 of title 35, United States Code, as amended by this section, the Office shall use the public accessibility criteria employed by courts in addressing whether a disclosure constitutes a printed publication under section 102 of title 35, United States Code, as in effect on the day before the date of enactment of this Act.  Such public accessibility criteria shall be used regardless of the manner in which the disclosure resulted in the subject matter disclosed being known or used.

The changes to Section 2 also evince a sentiment that "non-practicing entities" (which include universities, sole inventors, and in some instances pre-market start-ups) have a negative impact on innovation, as evidenced by the last sentence of subsection (p):

(p)  STUDY OF PATENT LITIGATION. -

(1)  GAO STUDY – The Comptroller General of the United States shall conduct a study of the consequences of litigation by non-practicing entities, or by patent assertion entities, related to patent claims made under title 35, United States Code, and regulations authorized by that title.

(2)  CONTENTS OF THE STUDY. – The study conducted under this subsection shall include the following:

(A)  The annual volume of litigation described in paragraph (1) over the 20-year period ending on the date of the enactment of this Act.

(B)  The volume of cases comprising such litigation that are found to be without merit after judicial review.

(C)  The impact of such litigation on the time required to resolve patent claims.

(D)  The estimated costs, including the estimated cost of defense, associated with such litigation for patent holders, patent licensors, patent licensees, and inventors, and for users of alternate or competing innovations.

(E)  The economic impact of such litigation on the economy of the United States, including the impact on inventors, job creation, employment, employees, and consumers.

(F)  The benefit to consumers, if any, supplied by non-practicing entities or patent assertion entities that prosecute such litigation.

(3)  REPORT TO CONGRESS. – The Comptroller General shall, not later than the date that is 1 year after the date of enactment of this Act,  submit to the Committee of the Judiciary of the House of Representatives and the Committee on the Judiciary of the Senate a report on the results of the study required under this subsection, including recommendations for any changes to laws and regulations that will minimize the negative impact of abusive patent litigation on the patent process.

Section 4, which expanded prior user rights to include any technology (as opposed to the limited right to business method patents) was also changed by the Manager's Amendment:

35 U.S.C. 273 Defense to infringement based on earlier inventor.

(a)  DEFINITIONS.- For purposes of this section-

(1)  the terms "commercially used" and "commercial use" mean use of the subject matter of a patent inside or outside the United States, so long as such use is in connection with an internal commercial use or an actual arm's-length sale or other arm's-length commercial transfer of a useful end result, whether or not the subject matter at issue is accessible to or otherwise known to the public, except that the subject matter for which commercial marketing or use is subject to a premarketing regulatory review period during which the safety or efficacy of the subject matter is established, including any period specified in section 156(g), shall be deemed "commercially used" and in "commercial use" during such regulatory review period; and

(2)  in the case of activities performed by a nonprofit research laboratory, or nonprofit entity such as a university, research center, or hospital, a use for which the public is the intended beneficiary shall be considered to be a use described in paragraph (1), except that the use-

(A)  may be asserted as a defense under this section only for continued use by and in the laboratory or nonprofit entity; and

(B)  may not be asserted as a defense with respect to any subsequent commercialization or use outside such laboratory or nonprofit entity;

(3)  the term "method" means a method of doing or conducting business; and

(4)  the "effective filing date" of a patent is the earlier of the actual filing date of the application for the patent or the filing date of any earlier United States, foreign, or international application to which the subject matter at issue is entitled under section 119, 120, or 365 of this title.

(b)  DEFENSE TO INFRINGEMENT.-

(1)  IN GENERAL.- It shall be a defense to an action for infringement under section 271 of this title with respect to any subject matter that would otherwise infringe one or more claims for a method in the patent being asserted against a person, if such person had, acting in good faith, actually reduced the subject matter to practice at least 1 year before the effective filing date of such patent, and commercially used the subject matter before the effective filing date of such patent and commercially used the subject matter at least 1 year before the effective filing date of the claimed invention that is the subject matter of the patent.

(2)  EXHAUSTION OF RIGHT.- The sale or other disposition of a useful end product produced by a patented process method, by a person entitled to assert a defense under this section with respect to that useful end result shall exhaust the patent owner's rights under the patent to the extent such rights would have been exhausted had such sale or other disposition been made by the patent owner.

(3)  LIMITATIONS AND QUALIFICATIONS OF DEFENSE.- The defense to infringement under this section is subject to the following:

(A)  PATENT.- A person may not assert the defense under this section unless the invention for which the defense is asserted is for a method.

(A)  DERIVATION AND PRIOR USER DISCLOSURE TO THE PUBLIC.- A person may not assert the defense under this section if –

(i)  the subject matter on which the defense is based was derived from the patentee or persons in privity with the patentee, or

(ii)  the claimed invention that is the subject of the defense was disclosed to the public in a manner that qualified for the exception from the prior art under section 102(b)(2) before the date relied upon under paragraph (1) of this subsection for establishing entitlement to the defense.

(B)  DERIVATION. - A person may not assert the defense under this section if the subject matter on which the defense is based was derived from the patentee or persons in privity with the patentee.

(C) (B)  NOT A GENERAL LICENSE.- The defense asserted by a person under this section is not a general license under all claims of the patent at issue, but extends only to the specific subject matter claimed in the patent with respect to which the person can assert a defense under this chapter, except that the defense shall also extend to variations in the quantity or volume of use of the claimed subject matter, and to improvements in the claimed subject matter that do not infringe additional specifically claimed subject matter of the patent.

Otherwise, § 273 remains as in the bill as introduced.  These amendments do not remedy the biggest criticism of the bill, that it abolishes the incentive to patent in favor of keeping innovation as a trade secret, particularly for large corporations who are given a virtual "get out of jail free" card against claims by innovative companies (such as Apple and Microsoft in the last generation).

Other provisions of the bill changed by the Manager's Amendment involve inter partes reexamination.  The amended provisions change the standard for granting a request (now termed a "petition") for inter partes reexamination, from raising a "substantial new question of patentability" under current law to "a reasonable likelihood that the petitioner will prevail with regard to at least one claim" (§ 314(a)), which is also the standard in Senate bill S. 23.  However, in the House version, the Director is empowered to grant the re-examination petition without considering the patentee's objections to the petition (§ 314(a)).  In view of the overwhelming percentage of re-examination requests granted by the Office under current practice (~90%), raising the standard for granting the petitions may benefit patentees to a greater extent than considering their petitions opposing inter partes reexamination would be.  The Manager's Amendment also extends from 9 months to one year the time from when the patentee files a complaint to when an inter partes re-examination can be filed by a defendant in the litigation.  And the Manager's Amendment also includes a provision that a patentee "shall have at least one opportunity to file written comments within a time period established by the Director" (§ 316(f)).  Finally, this version of the bill eliminates the provisions (found in S. 23) permitting courts to stay infringement proceedings in certain instances during re-examination proceedings (§ 320).   (Similar provisions are deleted from the post-grant review portion of the bill ((§ 330).)

The Manager's Amendment adds provisions to § 292 (false marking) of the Patent Act absolving patentees from liability for false marking that occurs towards the end of a patent's term:

Section 15.  Marking

* * *

(b)  FALSE MARKING

* * *

(3)  EXPIRED PATENTS. – Section 292 of title 35, United States Code, is amended by adding at the end the following

(c)  Whoever engages in an activity under subsection (a) for which liability would otherwise be imposed shall not be liable for such activity –

(1)  that is engaged in during the 3-year period beginning on the date on which the patent at issue expires; and

(2)  that is engaged in after the end of that 3-year period if the work "expired" is placed before the word "patent," "patented," the abbreviation "pat," or the patent number, either on the article or through a posting on the Internet, as provided in section 287(a).

In the "transitional" program for reviewing business method patents, the sunset provisions are extended from 4 years to 10 years, and the venue provisions of that section of the bill are removed; both changes benefit business method patent challengers.

Finally, the Manager's Amendment adds a section on the joinder of parties in patent infringement litigation:

Section 19.  Clarification of Jurisdiction

* * *

(e)  PROCEDURAL MATTERS IN PATENT CASES. –

(1)  JOINDER OF PARTIES AND STAY OF ACTIONS. –Chapter 29 of title 35, United States Code, is amended by adding at the end the following new section:

§ 273 Joinder of parties and stay of actions.

(a)  JOINDER OF PARTIES.-

(1)  JOINER OF ACCUSED INFRINGERS. – In any civil action arising under any Act of Congress relating to patents, other than an action in which an infringement under section 271(e)(2) has been pled, parties that are accused infringers may be joined in one action as defendants or counterclaim defendants only if-

(A)  any right to relief is asserted against the parties jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences relating to the making, using, importing into the United States, offering for sale, or selling of the same accused product or process; and

(B)  questions of fact common to all defendants or counterclaim defendants arise in the action.

(2)  ALLEGATIONS INSUFFICIENT FOR JOINDER. – For purposes of this subsection, accused infringers may not be joined in one action as defendants or counterclaim defendants based solely on allegations that they each have infringed the patent or patents in suit.

(b)  STAY OF ACTIONS AGAINST NONMANUFACTURING PARTIES. –

(1)  JOINDER AND INTERVENTION OF MANUFACTURER OR USER OF INFRINGING PRODUCT OR PROCESS. – In any civil action arising under any Act of Congress relating to patents, the court shall grant a motion brought by any party to join as a party defendant or counterclaim defendant, or a motion to intervene as a party defendant or counterclaim defendant -

(A)  the manufacturer of a product alleged to infringe the patent or patents in dispute; or

(B)  the user of a manufacturing process, or manufacturer of a system or components that implement a process, that is alleged to infringe the patent or patents in dispute.

(2)  STAY OF CERTAIN ACTIONS. – The court shall grant a stay of a civil action arising under any Act of Congress relating to patents that is brought against a distributor, reseller, customer, or user of an alleged infringing product or process, upon a motion showing that the same patent or patents that are being asserted in the action are also the subject of a declaratory judgment or infringement action that -

(A)  was instituted by or against the manufacturer or supplier of the allegedly infringing product, or system or components that implement a process alleged to infringe the patent or patents in dispute; and

(B)  was filed no later than 60 days after the service of the complaint in the action to be stayed.

(3)  STAY OF ACTION AGAINST INDIVIDUAL PARTIES. – In any civil action arising under any Act of Congress relating to patents, if the manufacturer of a product or components alleged to infringe the patent or patents in dispute, or the user of a manufacturing process, or a manufacturer of a system or components that implement a process alleged to infringe the patent or patents in dispute, is a party to the action, the court shall grant a motion to stay the action as to the other parties accused of infringing the patent or patents in dispute solely by offering for sale or reselling products o processes alleged to infringe the patent or patents in dispute.

Section (a) of this portion of the bill benefits defendants in instances such as the Data Treasury case, where a patentee enforces a patent across an industry.  Such suits would, under the proposed amendment, need to be filed one defendant at a time, clearly benefiting industries where patented technology is adopted widely with little regard to patent rights.  Section (b) limits a patentee's rights to sue sellers of an infringing product in favor of suing manufacturers; these provisions could encourage further transfer of manufacturing abroad, since such manufacturers could be expected to be more difficult to sue (while their U.S. distributors are shielded from infringement liability).

Rep. Smith is reported to have scheduled H.R. 1249 for markup and consideration by the House Judiciary Committee on Thursday.

Comments

[fred]

on (p) (2) (A) I think you mean "annual," not "animal."

[EG]

Kevin,

The fact that Congress can't even write the "grace period" language in a logical and sensible manner is just another reason why I shudder at this oxymoronic "America Invents Acts." Our clients aren't going to be happy with how fouled up and misguided this legislation is.

[6]

"Presumably, changing the language to exclude "public use" and "on sale" from the statute and retain "or otherwise disclosed to the public" excludes such activities from the definition of disclosure."

I was going to say the opposite. Why would they take out offers for sale and public use from being prior art?

[Kevin E. Noonan]

6: Besides the fact that traditionally an inventor has had a one-year grace period that permitted public use and sale, the reasoning was that an inventor should be able to test the invention in the marketplace before spending the money to patent - with the idea that if the inventor did test it in the marketplace and didn't patent the invention would fall into the public domain. Not sure there is a good reason not to keep those exceptions.

[6]

"6: Besides the fact that traditionally an inventor has had a one-year grace period that permitted public use and sale, the reasoning was that an inventor should be able to test the invention in the marketplace before spending the money to patent - with the idea that if the inventor did test it in the marketplace and didn't patent the invention would fall into the public domain. Not sure there is a good reason not to keep those exceptions."

Well I can see taking out the applicant's own offers for sale or public use, but this seems to take everyone's offers for sale or public use out of the prior art pool. For instance, MS offering word for sale should, if it is prior to i4i filing for a patent, block i4i from filing for their patent (that apparently covers word).

Right?

We don't want to take all offers for sale or public uses out of the prior art pool, just the ones by applicant right? Is there some other section that would cover that or something that I'm forgetting?

[Dan Feigelson]

With regard to offers for sale, there's a certain logic in saying I can't get a patent on something if I've offered it for sale, even if what I disclose in making that offer doesn't constitute an enabling disclosure. That's a sort of equitable estoppel, a variation on Metallizing Engineering - I make the offer to gain a commericial advantage, so I should be considered as having disclosed the invention even if I didn't (if my offer was made more than a year before I filed my patent application).

But I've never understood why a third party's offer for sale of something that may or may not be what I invented, when there's no proof that that third party's offer constitutes an enabling disclosure, should bar me from obtaining a patent - the equitable component isn't at work there.

You'd think that if they're going to tinker with 102, they'd fix this mistake in the case law, but as EG points out, expecting Congress to get things right seems to be too much. (As if proof were needed, over at PatentlyO, Ted Schimelman pointed ut that Senator Hatch - who in the past has had an interest in patent legislation - thinks the Senate version of the bill maintains the grace period.)