United States: Sweeping Changes to U.S. Patent Laws may be on the Horizon

In an apparent effort to improve patent quality and reduce the overall cost associated with procuring and enforcing patent rights, a committee of the U.S. House of Representatives is considering a draft patent bill which would impose sweeping changes to existing law. After more than 200 years of awarding patents to the first inventor, the U.S. patent laws may soon change to a first-to-file system. In addition, the committee proposed the creation of post-grant opposition procedure, a statutory duty of candor (which, in comparison with the existing case law and rules, heavily favors patentees), and revisions to the law governing the award of damage multipliers and the issuance of injunctions. Some highlights of the proposed changes include:

Currently, the United States is the only major country in the world to award a patent to the first to invent rather than the first to file a patent application. Section three of the draft bill would put an end to that; mandating the award of a patent to the first to file an application. As a consequence, the proposal would end interference proceedings before the Board of Patent Appeals & Interferences and set the stage for future multi-lateral patent law harmonization. As part of the overall statutory reconciliation with a first-to-file regime, the long standing and venerable best mode requirement of 35 U.S.C. § 112 would be eliminated.

A major component of the draft bill, aimed at reducing litigation costs, is the introduction of an extensive post-grant opposition proceeding. Crafted as an additional layer of review over the examination process, under the proposed opposition proceeding anyone has the right to request the U.S. Patent and Trademark Office (USPTO) to reconsider the issuance of the patent within nine months of its issue date. Unlike the existing reexamination proceeding (which is statutorily limited to consideration of patentability over printed publications), the opposer may raise any statutory basis for alleging invalidity. Once an opposition is instituted, the question of invalidity will be decided by a three-judge panel. The panel’s final determination must be issued within one year after the date on which the proceeding is instituted. Because the proposed would be inter partes, the opposer is barred from raising any issue of fact or law actually decided in the proceeding.

Section five of the proposed bill would impose a duty of candor on both a patent applicant and parties adverse to a patent or a patent application. Under the proposed codification of the previously existing duty of candor (in USPTO rules and court decisions), applicants for U.S. patents would be required to disclose any material information. Under one of the more significant aspects of the new proposed bill, the USPTO is given jurisdiction to investigate and resolve any alleged violations of the duty. If adopted, the rule will have profound ramifications in patent litigation proceedings and will likely embolden many patent applicants to stretch the "envelope" of permissible advocacy. Courts will not be able to consider allegations of unenforceability absent a finding of invalidity of a claim and absent a finding that, but for the fraud, the patent would not have been issued. Also, the proposed bill provides that if the court finds an issue of misconduct in cases involving validity or infringement of a patent, it "shall" refer the matter to the USPTO. Finally, the proposed bill requires the USPTO to establish a special office dedicated to investigating any violations of the duty of candor with the authority to impose fines of up to $5,000,000.

The proposed bill would make it more difficult for patentees to obtain injunctions. Under the proposal, a court "shall not grant an injunction … unless it finds that the patentee is likely to suffer irreparable harm that cannot be remedied by the payment of money damages." This change would eliminate the current presumption of irreparable harm patent owners rely on whenever infringement is found. Such a change will fundamentally alter settlement dynamics as accused infringers will no longer fear what had essentially been the automatic issuance of an injunction in favor of a prevailing patent owner—even one who does not make or sell product under the patent. In many patent "troll" cases, the issuance of an injunction will no longer loom large over settlement discussions.

Another proposed modification to the award of damages relates to the all too frequent award of treble damages for willful infringement. The proposal will codify the rule of Knorr-Bremse v. Dana Corp. as the absence of an opinion of counsel would not create an inference of willful infringement. (IP Update, September 2004). Similarly, increased damages cannot be awarded based "merely upon the knowledge of a patent or its contents by the defendant prior to suit." As a predicate to invoking an allegation of willfulness, the proposed legislation would require enough notice to the potential infringer to essentially give rise to a declaratory judgment jurisdiction.

Under one of the major proposed changes relating to prosecution of patent applications, one would be prohibited from presenting any claims broader than those in a predecessor application in a continuation application. A major "loophole" in this restriction, however, is that under the reissue statute, broader claims would still be available for two years after the first application matured into a patent.

A copy of the legislation proposal can be found at the following link: http://patentlaw.typepad.com/patent/DraftPatentStatuteDDC.pdf

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