The Patent Reform Act of 2005

[A few updates below.]

Congressman Lamar Smith of (R-Texas) has just introduced the Patent Reform Act of 2005.  It is the most significant change to the U.S. patent laws since the 1952 Patent Act, and it will have a major impact on how patents are examined, issued, and enforced.  Because patent law is a very much inside-baseball game, however, I fear that a lot of the nuances in the debate will be lost on the general public.  My goal on this blog is to de-mystify the debate as much as possible, and to give our readership my best view on what patent reform means in a practical sense.

Here are the broad outlines of the proposed reform: 

Grant patent rights based on a "first-to-file" rule, rather than the current "first-to-invent" rule.

• What it means:  The U.S. is, at present, the only (?*) nation in the world to award patents to the first person to "invent" a patent's claimed invention, rather than the first person to file a patent application. 
• Why there's a move to change:  The U.S.'s first to invent rule is enormously complex, generates substantial litigation and complexity, and is out of step with the rest of the world.  Determining who is the first to invent a particular matter is extraordinarily difficult, and the applicable rules are Byzantine even by the standards of patent law. A first-to-file rule -- based on what application gets to the Patent Office first -- is simpler, cleaner, and much more efficient.  Moreover, a first-to-file rule will be accompanied by a change in the definition of "prior art," in order to protect an inventor who is beaten to the Patent Office.  [UPDATE:  On reflection, that last sentence is a misleading oversimplification.  A change to the "first to file" rule will indeed require a change in the definition of "prior art," but the safe harbor that I describe also requires a change in the concept of "intervening rights" (whether or not expressed in such term).]
• Who are the winners?  The system, the Courts, the Patent Office -- a first-to-file is much cheaper, easier, and simpler.  The fast (read:  the folks who have the money to patent early and often). Multinationals:  No more bizarre US-only rules.
• Who are the losers?  The little guy, who doesn't have the resources to file a lot of patent applications. 
• What's likely to surprise you?  The debate is going to be contentious, and it probably won't break down along party lines:  Pro-business Democrats and Republicans (full disclosure:  this includes me) will be on one side of the aisle; Democrats and Republicans who favor the little guy will be on the other.  The last time this change was debated (in 1999), it caused Phyllis Schafly to lose her few remaining senses.  (How else to describe a screed that begins "All the bad deals made by the late Secretary of Commerce Ron Brown, unfortunately, did not die with him in his tragic plane crash"?).  Oh, and the first-to-file rule might be unConstitutional.

What else?  Read on below the fold.

Changes to the patent applicant's "duty of candor" to the Patent Office, and an all-but-elimination of the inequitable conduct defense.

• What it means:  A patent applicant owes a "duty of candor" to the Patent Office -- that is, she cannot (inter alia) lie to the Patent Office regarding her invention or knowingly conceal prior art.  If a patent applicant violates her duty of candor, it's called "inequitable conduct" and can render a patent "unenforceable".  Under the current system, inequitable conduct is an affirmative defense in patent litigation; i.e., a defendant charged with infringement will defend against the charge by asserting applicant's inequitable conduct. (For those lawyers who must know, the consensus view is that inequitable conduct must be plead to Rule 9(b)'s standards, because it's essentially a charge of fraud on the Patent Office.)  The new patent act proposes to largely eliminate the inequitable conduct defense, re-create the Patent Office's fraud squad, and have virtually all charges of inequitable conduct be investigated internally rather than through the court system.
• Why there's a move to change:  The defense of inequitable conduct gets raised all the time in all kinds of inappropriate circumstances because, well, lawyers are like that.  We're "give an inch, take a mile" kinda folks.  And lawyers who prosecute patents aren't very happy to be accused of fraud by overzealous litigators. 
• Who are the winners?  Patentees and patent lawyers.  Courts, who won't have to hear all these inequitable conduct defenses.  (More inside baseball:  Because inequitable conduct is a creature of equity, it's decided by the judge, not a jury -- which means, each time it's plead, it's another thing for our harried judiciary to decide).
• Who are the losers?  Defendants accused of patent infringement.  Possibly the public purse, depending on how the fraud squad is set up and funded (it's possible that the fraud squad can be funded by the savings that result from changing over to the "first-to-file" rule). 
• What's likely to surprise you?  This one's pretty likely to pass:  Patentees like it and patent lawyers like it. 

Damages may be limited to the inventive contribution of a patent rather than calculated based on the selling price of an entire product.

• What it means:  In certain circumstances, a patentee can get damages based on a product that incorporates a patented article or feature, even though the patented article or feature is only a small part of the product.  This possibility has led to some disproportionate damage awards on some (ahem) fairly crappy patents.
• Why there's a move to change:  Big damages on a small improvement or feature doesn't sit well with manufacturers, who feel (sometimes rightly) that they have been Shanghaied by "patent trolls."   
• Who are the winners?  Defendants.
• Who are the losers?  Patentees and the few "plaintiffs" patent litigation boutiques, which operate on commission (you know who you are). 
• What's likely to surprise you?  Think of this as tort reform for techies. 

Limitations on damages for willfulness/Automatic stay of injunctions for appeals/Etc. [UPDATE:  Early reports suggests that the fight over injunctions is going to be significant.]

• What it means: All of these changes are designed to shift some power from patentees to accused infringers; they all grow out of a general sense that that the balance of power has drifted too far to the patent holder in the last few years. 
• Why there's a move to change:  See above.   
• Who are the winners?  Defendants.
• Who are the losers?  Patent holders. 

Limits on scope of continuation applications (to be made by PTO).

• What it means:  A continuation patent application is an application that is directed to the same invention that is disclosed in an earlier application, and thus is accorded the earlier application's filing date for the purposes of determining its patentability over prior art.  (Variations are "continuation in part" applications, which add new matter to the earlier application's disclosure, and "divisional" applications.)
• Why there's a move to change:  I'm not certain, but I suspect that it comes down to a single name:  Lemelson.  (I may post more after I have a chance to reflect on it.)

Introduction of a post-grant opposition procedure and submission of prior art by third parties.

• What it means:  These changes are all designed to make it more difficult to get a patent by allowing competitors, third parties, etc., to tell the Patent Office that the claimed invention is not patentable.  Consider it a backlash to the software-patent-daze, when folks seemed to be getting patents on old art.

von

*Indeed, I think that the U.S. has been alone in its allegiance to the "first-to-invent" rule since the Philippines changed to a "first-to-file" system in the mid-1980s.

Comments

[hilzoy]

von -- thanks. Would this act in any way change what (I think are) the odd rules on what can be patented -- the ones that allowed Amazon to patent One-Click? And would it change the rules on whether e.g. genes, living organisms, and other biologicals can be patented?

[Jon H]

Who is in Smith's district who will most benefit by these changes? (Assuming that concern didn't up and write the darn thing.)

[CaseyL]

I don't think so, hilzoy, though I'll defer to von if he says otherwise (I'm a patent paralegal, so I deal more with procedural than substantive patent issues). However, the changes don't seem to directly address the scope of subject matter of what may be patented.

How they might impact patentability is when it comes to "prior art." Even if the bar is now first-to-file rather than first-to-invent, if the first-to-invent publishes rather than patents the invention, and does so before someone else can file a patent application, their invention becomes prior art, and therefore no one else can get a patent on an invention that's too much like theirs.

Deciding to publish something if you're not sure you can patent it is a tactic often used to prevent anyone else from patenting that particular innovation, if your company wants to use that technology but (for various reasons) doesn't want to patent it. Note that a patent application can be written around the prior art, though what's left might not be worth the trouble.

I wonder how the new rules will affect patent predators: people who get patents on a particular technology for the sole purpose of litigating anticipated future infringers. In other words, they have no intention of manufacturing or selling the product, and no interest in licensing it. They figure a litigation, if successful, will be a bigger payoff than selling or licensing the invention.

So, on the one hand, if the USPO ends the "treble damages" penalty for infringement, esp. on something that only infringes a feature rather than the whole invention, that eliminates the big payoff.

On the other hand, the switch to first-to-file is bound to result in more piracy, the kind that MS has been so successful at: entering into development agreements just long enough to get their hands on the technology, then dissolving the agreement and patenting the technology before the erstwhile partner has a chance to.

I would like to see, not an end to continuation practice, but some limits on it. Continuation practice is a revenue enhancing thing for law firms, who like to write very narrow patents so that they can write endless continuations. It's more economical for the client to write a patent application as broadly as possible, even if the USPTO "restricts" the initial application, which means you have to divide it up into multiple applications.

The new USPTO rules, esp. those regarding third-party communications and oppositions, are also meant to bring US patent prosecution more into line with European practice. The Japanese Patent Office is also becoming concerned with there being too much granting of too many weak patents.

[DaveL]

Thanks, von.

[von]

Hilzoy --

CaseyL's summary is pretty darn good, but I'd add the following:

1. In earlier drafts, there were some proposals to change the rules to make it easier to invalidate patents. It looks like those proposals are dead.

2. The proposed (more) robust opposition* and submission procedure, however, will enable competitors to submit additional art to the Patent Office. Theoretically, this could lead to narrower patents. (I have some strong doubts about how it will work in practice and given the strategic considerations of litigation, FWIW.)

3. On Casey's comments re: continuation practice: prior to the 18 month publication rule (which came in around 2000-2001, IIRC), continuation practice was extremely useful to patent holders, in that it allowed the possibility for submarine patents (defined: http://www.google.com/search?sourceid=navclient&ie=UTF-8&rls=RNWE,RNWE:2005-19,RNWE:en&q=define%3Asubmarine+patent). Since the 18 mo. publication rule, it's been much less useful.

Note that the above applies only to straight "continuation" applications. "Continuation in part" and "divisional" applications (which, technically, are forms of "continuation applications") continue to be very, very important, and are not subject to Casey's criticism.

That's all I have time for at the moment. Hope it helps.

von

*It's currently possible to file a "protest" with the PTO, but, for a whole host of reasons, it's seldom worth the trouble.

[Anarch]

Thanks for the post, von.

[otmar]

FYI, there is a fight going on in Europe over the issue of software patents.

The industry is lobbying the individual governments and the Council in support for making software patentable and the free software people and the SMEs lobby work hard on the EU parliament to keep software patents illegal.

Very messy to watch. Including the quite undemocratic setup of the EU (which the constitution should have fixed).

See swpat.ffii.org for more.

[Kyle Hasselbacher]

Thanks a lot for this, von.

[CaseyL]

That's an interesting quote about "submarine" patents, von. I was out of the patent field 1998-ish to 2000 (took a career detour to project management for a while, just long enough to get thoroughly homesick for IP) so missed the fuss over the changeover to pre-grant publication. By the time I was back doing patents again, people had pretty much adjusted to it.

Where I work now, we're more interested in getting the patents as soon as we can, and as much patent term as we can, than we are in stringing out continuations for 10-odd years. Funny how IP strategies can change so radically.

[D. C. Sessions]

Lemelson? You can probably add Rambus as well. Their creative use of continuations let them take advantage of filing dates several years prior to the context of the claimed invention.

The best part was that they also ended up with a presumed date of invention much earlier than the record would otherwise have supported, so intervening work by others was rendered irrelevant.