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March 26, 2009Client Alert

Patent Reform Act of 2009

Recently, patent reform legislation has been introduced into the House of Representatives and the Senate. The proposed legislation in both houses of Congress is referred to as the Patent Reform Act of 2009 (“Patent Reform Act”). The Patent Reform Act is the latest attempt at major patent law reform, and is similar to unsuccessful patent reform legislation introduced into Congress in 2007.

The legislation proposed in both Houses seeks to move patent law forward to conform U.S. patent law to ever-changing technology and to promote innovation and economic development. As proposed, the Patent Reform Act would alter U.S. patent law in significant ways. Some of these changes to U.S. patent law are summarized below.

First-To-File
The proposed legislation seeks to modify the U.S. patent system from a first-to-invent system to a first-to-file system in which credit for an invention is based on the filing date of the patent application. A first-to-file system would not give priority of invention based on the date of invention. Rather, the priority date for an invention would be established on the date that a patent application is filed, and any independent third party publication prior to the filing date would be considered prior art. The first-to-file system favors expedited patent application filings, and could prejudice those who delay in filing a patent application.

Damages
The Patent Reform Act also seeks to address damages related to a patented invention. The damages provision in the Patent Reform Act provides that damages would be determined by analyzing the invention’s “specific contribution over the prior art.” Related to this damages provision is an attempt by Congress to determine a reasonable royalty based on the cost of licensing a “similar non-infringing substitute in the relative market.” Obviously, this provision will likely have a significant adverse impact on the value of issued patents, and some commentators believe this provision could decrease damages to zero in some instances (e.g., if the non-infringing substitute is in the public domain).

Post-Grant Review Procedures
The Patent Reform Act modifies some aspects of existing reexamination proceedings, and provides an additional post-patent grant review mechanism – a petition for cancellation – that may be initiated by a third party. Each of these proceedings is summarized below.

Reexamination
The Patent Reform Act would continue to allow inter partes and ex parte reexamination of issued patents based on published prior art, and would further expand the basis on which reexaminations may be requested to include: 1) published prior art already considered by the U.S. Patent and Trademark Office; and 2) evidence of prior public use or sale in the U.S. Expansion of reexamination proceedings as provided in the Patent Reform Act would likely make the current patent review process easier by providing additional bases for requesting reexamination of an issued patent. The proposed modifications to the reexamination process also would place the proceedings before administrative patent judges, and would limit inter partes reexamination requests after a district court judgment.

Petition for Cancellation
A third party may initiate a petition for cancellation proceeding of one or more claims of an issued patent anytime prior to twelve (12) months after issuance of the patent, or at anytime if the patent owner consents to a petition for cancellation proceeding. The petition for cancellation would allow any person other than the patent owner to initiate a post-grant review proceeding to cancel as unpatentable one or more claims of a patent on any ground of invalidity.

A petition for cancellation proceeding differs from a reexamination proceeding at least in part based on the timeframe for requesting the proceeding. The petition for cancellation proceeding also equates to a more streamlined invalidity trial for one or more claims of an issued patent in that the petition may be supported with affidavits, declarations, factual evidence, and/or expert opinions. Similar to current patent law, the requesting party has the burden of proof to show that a patent claim is invalid. Unlike current patent law, which requires proof of invalidity by clear and convincing evidence, the requesting party in a petition for cancellation proceeding can show that the patent claim is invalid by a preponderance of the evidence.

Although commencement of an infringement action is not precluded by the Patent Reform Act when a petition for cancellation proceeding has been requested, the Patent Reform Act would only allow the third-party requestor one attempt to cancel a patent claim via a petition for cancellation. The Patent Reform Act further restricts subsequent requests by the third party requestor for reexamination or derivation proceedings. In addition, the presumption of validity normally afforded a patent under 35 U.S.C. § 282 is not applicable in a post-grant review proceeding based on a petition for cancellation. By providing post-grant review based on any ground of invalidity, the proposed petition for cancellation proceeding expands upon existing reexamination patent law, which allows patent review based only on prior art documents.

Pre-Issuance Submissions By a Third Party
The Patent Reform Act also includes provisions for third-party submissions during examination of a patent application. Under the Patent Reform Act, a third party would be able to submit prior art and a statement of relevance for a pending application as long as the submission is made before the earlier of A) issuance of a notice of allowance for the pending application; or B) either six months after publication of the application, or before the first office action on the merits, whichever occurs later. This proposed pre-grant third party review mechanism is similar to the existing protest mechanism currently provided in U.S. patent law, but expands the timeframe within which submissions by third parties may be made.

Miscellaneous Provisions
Other provisions in the Patent Reform Act worth mentioning include more stringent patent litigation venue rules that would focus litigation to the venue in which a defendant has a significant presence, or to the venue in which a non-profit or individual inventor plaintiff resides. In addition, the Patent Reform Act would revise the current patent application appeal process by renaming the Board of Patent Appeals and Interferences (“BPAI”) to the Patent Trial and Appeal Board (“PTAB”) and replacing interference proceedings with derivation proceedings. Derivation proceedings, as well as reexamination proceedings and cancellation petition proceedings, would be heard by patent administrative judges.

The bills introduced into each house in Congress are largely similar in calling for substantial patent law reform, and are primarily based on the patent reform legislation that was originally introduced in 2007 and that failed to be passed by Congress in 2008. While substantial debate in Congress has yet to begin, significant opposition to the Patent Reform Act has already formed. If you are unsure how the Patent Reform Act will affect your business, your patent attorney can advise you of the impact that the legislation may have.

For more information, please contact Kevin P. Moran at 262.956.6510, or at kpmoran@michaelbest.com; or Aaron K. Nodolf at 262.956.6536, or at aknodolf@michaelbest.com.

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