Congressmen Introduce Sweeping Patent Reform Bill

Article by Jason A. Bernstein, Scott W. Creasman, John W. Harbin, Hilary Harp, Todd E. Jones, Ryan T. Pumpian, Charles L. Warner, James Remenick and Olivia Luk

On June 8, 2005, several U.S. Congressmen introduced a patent reform bill (H.R. 2795) in theHouse of Representatives. The bill proposes sweeping and controversial changes to the existing U.S. Patent Act. In fact, the bill’s chief sponsor, Rep. Lamar Smith (R-Texas), calls the proposed bill "the most comprehensive change to U.S. patent law since Congress passed the 1952 Patent Act." The key changes proposed in the legislation are:

1. Awarding the first inventor to file a patent application priority in obtaining patent rights in the invention, as opposed to the current law that gives those rights to the first inventor to invent, whether or not he or she is the first to file an application. This proposed change would bring the U.S. more in line with the law of the rest of the world and is intended to provide certainty to the issue of patent priority. At the same time, such a change will result in at least some patent applications being filed prematurely and without sufficient detail in the rush to win the "race to the Patent Office."
2. Providing for a post-grant opposition procedure for challenging issued patents in the Patent and Trademark Office ("PTO"). Currently, patents are valid and enforceable when issued. Although re-issue and reexamination procedures are available, the validity and scope of patent claims are litigated between a patent holder and an alleged infringer. Under this new provision, no standing will be required, and thus any member of the public could request that the PTO reconsider the scope and validity of a patent. Such an opposition would have to be filed within a first window of nine months of the patent’s issuance, or a second window of six months from the date an alleged infringer receives a notice of infringement from the patent owner. The goal of this proposal is to provide a second review of issued patents that is less expensive and more rapid than litigation, although it would place another layer of responsibility on the PTO.
3. Giving the PTO sole authority to investigate and make determinations regarding the "duty of candor and good faith," a requirement that mandates the disclosure of material information by patent applicants during prosecution. The PTO would be required to establish a special office with authority to investigate violations of the "duty of candor and good faith," with penalties of up to $1 million for each act of misconduct, or up to $5 million for "particularly egregious conduct." Courts considering patent validity or infringement issues could refer questions of misconduct to the PTO for investigation and possible sanctions. In addition, under the new provision, a court could hold a patent unenforceable only if it decided that the patent would not have issued in the absence of the applicant’s fraud on the PTO. This change would place yet another new burden on the PTO’s patent examiners (a burden which they have, to date, seemed less than enthusiastic about shouldering), but would result in far fewer inequitableconduct challenges to patents (one of the key designs of the provision).
4. Generally directing courts to consider the relative equities when deciding whether to grant injunctive relief against an infringer, and adding new language explicitly directing courts to stay an injunction pending an appeal if the infringer shows that the stay will not result in irreparable harm to the patent owner. This provision is different than the original language in the House committee print, which required a patentee to prove irreparable harm to obtain an injunction against an alleged infringer. Under existing law, courts are permitted to presume the existence of such irreparable harm. The new provision in H.R. 2795, although watered down from the original version, is still one of the most controversial of the proposed changes. It removes from the patent owners’ arsenal the "hammer" they have been able to wield in pursuing infringers.
5. Eliminating the requirement that the "best mode" for carrying out an invention be included by the patentee in the patent specification. This would remove one of the defenses alleged infringers now have in challenging an issued patent, but is believed to be a necessary change if the United States shifts to a first-to-file system as noted above.
6. Making it clear in the statute that there is no inference of willful infringement when the alleged infringer did not obtain an opinion of counsel.

These and other proposed changes have already made this legislation the subject of heated debate. Whether and in what form the bill will ultimately pass is open to conjecture. Although sponsors have stated that the bill is the result of many consultations among legislators, scholars and industry representatives, the bill has been championed in large part by the software industry, which has complained that many new software innovations have been routinely delayed or even derailed by costly patent-infringement lawsuits. Of special concern have been suits instituted by "trolls," a name depicting patent owners who assemble patent portfolios and then lie in wait for a potentially competing business to infringe. At a critical time for the competitor, the troll emerges, demanding substantial licensing fees from the company in exchange for allowing them to avoid the risk of even higher payments and/or a permanent injunction in the future.

In the final analysis, H.R. 2795 contains a variety of new provisions that will affect both patent owners (such as the first-to-file rule, the limitations on inequitable-conduct claims in litigation, and the elimination of the "best mode" requirement), and alleged infringers (such as the new directives on the issuance of injunctive relief, the post-grant opposition procedure, and the codification of the lack of a willful-infringement inference when there is no opinion of counsel). We encourage business owners to examine their own patent portfolios and issues to assess whether any of these proposed changes will have an impact, be it favorable or adverse, on your businesses. Please consult any of Powell Goldstein’s IP attorneys if you need assistance in making such an assessment or in interpreting any aspects of this new, and controversial, bill.  

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