On Friday, September 16, 2011, President Obama signed into law “The America Invents Act” (“AIA”) which passed the Senate on September 8, 2011, by a vote of 89-9. The AIA passed the House of Representatives on June 23rd by a vote of 304-117. The measure, which is the product of a seven-years-long legislative battle among patent policy stakeholders, changes how patents are obtained and enforced in the United States. Important reforms to patent law are incorporated into the AIA and, just as significantly, several controversial proposed changes were deleted from the AIA before final passage.
Starting with President Obama’s State of the Union Address in January, where he made innovation and job creation key elements of his speech and specifically embraced passage of patent reform as a means of addressing both issues, patent reform was well positioned to be enacted in 2011. Moreover, Congress was desperate for legislative accomplishments in an environment where partisan differences, a weak economy, and government fiscal concerns dominated. Longstanding pro-reform coalitions and associations continued to expend considerable resources on the bill. Passage was deemed virtually assured when the Chairmen of the Judiciary Committees – Sen. Patrick Leahy (D-VT) and Rep. Lamar Smith (R-TX) – essentially agreed this summer on a common piece of legislation. But, as explained below, nothing’s ever as simple as it seems in Washington.
The stated goals for the AIA are to: improve the patent application process; improve the quality of patents issued by the US Patent & Trademark Office (“PTO”) with several quality-enhancement measures; and provide greater certainty in litigation. The debate over comprehensive patent reform dated back to a 2003 Federal Trade Commission report and a 2004 National Academy of Science report, both of which made several recommendations for modernizing the patent system and the PTO. Traditionally, changes to the patent code have been relatively modest and were driven almost exclusively by established and esteemed patent-focused associations that represent a diverse patent constituency, like IPO, AIPLA and the ABA IP Section. But, in 2005, a powerful subsection of larger companies from the information technology industry (“IT”) saw an opportunity to advance their more specialized interests and convinced Congress to include measures in proposed patent reform legislation that would have rewritten the laws that determine how patents are enforced. IT supported a number of reforms that would have, for example, changed how federal courts calculate damages in patent infringement cases, established open-ended administrative systems to challenge the validity of patents, given the PTO substantive rule-making authority, and imposed defendant-friendly venue rules. These companies formed a coalition to advance their patent agenda called The Coalition for Patent Fairness (“CPF”).
In response, certain innovators formed competing organizations – The Innovation Alliance (“IA”) and The Coalition for 21st Century Patent Reform (“21C”) chief among them- to engage and educate policymakers on the consequences of making the US more infringer-friendly and helped steer the discussion away from litigation-related reforms toward needed operational and financial reforms at the PTO. With the exception of the House passage of a reform bill in 2007, Congressional consideration of patent reform was largely an intra-Judiciary Committee debate between those aligned with this subsection of large IT companies and those aligned with innovators. Significant changes in patent law were left to the courts (for instance, the Supreme Court cases of eBay Inc v. MercExchange, KSR v. Teleflex and Bilski v Kappos). Meanwhile, working with IPO, AIPLA and other like-minded interests, the IA and 21C were successful in convincing the Senate to remove or scale back many of the reforms sought by IT – to the point where many IT companies opposed the Senate Judiciary Committee-reported version of the AIA.
The Senate Moves First, S. 23
For the first six year of debate over comprehensive patent reform, the Senate had never passed a patent reform bill. 2011 would be different. The Senate took up and passed a version of the AIA, S. 23 on March 8, 2011 The bill made several significant changes to current patent law including:
- Converting the United States’ patent system from a first-to-invent to a first-inventor-to-file application system.
- Limiting who can bring false markings claims to the Department of Justice or a person who has suffered a competitive injury as a result of a violation of the false markings provision.
- Streamlining the requirement that the inventor submit an oath as part of a patent application, particularly in situations in which an inventor is unable or unwilling to submit the oath, but is under an obligation to do so.
- Creating a new “first window” post-grant opposition proceeding, available for nine months after the grant of a patent, to challenge a claim in an issued patent on any basis.
- Converting the inter partes review (IPR) process from an examination model to an oppositional model conducted by Administrative Patent Judges.
- Creating a mechanism for third parties to submit timely information during the patent examination process that is relevant to the examination of the application, including a concise statement of the relevance of the submission.
- Amending the patent law-specific venue provision in title 28, primarily to prevent plaintiffs from manufacturing venue by allowing any action to be transferred to a venue that the court determines to be clearly more convenient for either party or witnesses.
- Providing the PTO Director authority to set or adjust its fees, provided that such fee amounts in the aggregate are set to recover the estimated cost to the Office for the activities performed.
- Providing a patent owner with the opportunity to request a supplemental examination of a patent.
- Repealing the District of Columbia area residency requirement for Federal Circuit judges.
- Creating a new definition outlining the qualifications for “micro-entity” status. Parties meeting the definition will receive a 75% reduction in fees.
- Restricting the patentability of tax strategies by deeming tax strategies to be within the prior art, and therefore not novel or non-obvious.
- Removing the failure to disclose the “best mode” as a basis for canceling or holding either invalid or unenforceable a patent claim in a civil action.
- Clarifying that state courts do not have jurisdiction over claims arising under the patent laws, even if those claims are pled in a counterclaim.
Innovators worked to educate the Senate on several troubling aspect of S.23, which resulted in the bill’s sponsors offering and passing a comprehensive Manager’s Amendment. The amendment passed by an attention getting vote of 97-2 . The amendment made several significant, pro-innovator changes to the bill including:
- Striking all remaining damages language (i.e., gatekeeper and recodification of Section 284).
- Striking the bill’s venue language (i.e., codification of TS Tech case).
- Adding Sen. Coburn’s very popular amendment to guarantee an end of diversion of PTO.
- Amending the bill’s third-party challenges system to, among other things, eliminate the 6 months deadline for filing a first window post-grant opposition after infringement litigation commences (but preserving a 6 month deadline for IPR), allowing the PTO Director to use the old IPR system at his discretion during the first 4 years, and specifying that implementation of the new post-grant review system will take place one year from enactment (as opposed to 18 months).
- Requiring a reduction in fees for prioritized examination by 50 percent for qualified small entities.
The adoption of these changes was a substantive victory for innovators and had the effect of accelerating the Senate’s consideration of the bill by clearing the issues that might have stalled the bill. Other, less substantive or non-germane amendments were either tabled or quickly adopted by unanimous consent. The skillful handling of the bill on the floor also had the effect of isolating – and forcing the hand of- those who sought to offer amendments that the bill’s sponsors strongly opposed. Among the more contentious amendments was Sen. Feinstein’s (D-CA) amendment to strike from the bill language moving the US to a first-inventor-to-file system . Despite the institutional support of Majority Leader Harry Reid (D-NV) and the passive support of CPF and independent inventors, Feinstein’s amendment was tabled by a vote of 87 to 13. Importantly, the lopsided vote against the Feinstein’s amendment had the effect of emboldening the bill’s sponsors and warding off others seeking to materially change the bill. CPF’s ability to produce Senate votes to support its position on remaining issues was called into question, and momentum was clearly behind the bill sponsors. Soon after the vote, Reid filed cloture on the bill. The remaining IT driven amendments were opposed by innovators. These included a number of amendments to scale back procedural safeguards in the bill’s IPR provisions. All of the amendments failed to pass. S.23 passed the Senate by a vote of 95-5.
House of Representatives, HR.1249
Initially, the Senate sponsors of S. 23 encouraged the House to simply accept and pass the Senate bill without amendment. The passage of S.23 was viewed by those who had previously opposed IT’s patent reform agenda as the substantive high-water mark for any comprehensive bill. It was widely believed that any House-passed measure would be much more IT friendly. Many long-time opponents of the Senate bill, such as BIO, PhRMA and the 21C therefore chose to support it. Still, given the longstanding preference to make patents easier to obtain and enforce, IA and certain other stakeholders still did not “support” the measure. Opposition remained among small inventors and conservative groups like the National Small Business Association, the IEEE, Eagle Forum, and certain others who opposed the first-inventor-to-file provisions.
Smith was not prepared to accept the Senate bill, however, and House Judiciary Committee staff, under the active direction of Smith, drafted a separate bill which built upon the Senate bill’s major provisions but made changes to the bill strongly supported by the financial services industry and the CPF. Their version of the AIA was introduced as H.R. 1249 on March 30, 2011. H.R. 1249 as drafted by staff departed from S.23 in several major respects:
- It adopted the structure of the S.23 PGR/IPR amendment, but (i) retained the existing “substantial new question of patentability” threshold for IPR, (ii) extended the post-litigation deadline for filing an IPR to 9 months, and (iii) extended the first window for PGR to 12 months post-issuance.
- Encouraged district courts and the ITC to grant stays in cases filed by licensing companies/non-practicing entities (NPEs) if a post-grant procedure has been filed against the NPE’s patent.
- Reverted back to more restrictive language on venue for business method patents.
- Expanded prior user rights to all types of patents, with a university carve-out.
- Included anti-fee diversion language and fee-setting authority, but still set the basic fees for filing.
Smith decision to not include apportionment of damages in H.R. 1249 was a major development. Prior to this time, House insistence on apportionment of damages and the Senate’s opposition thereto had been the key impediment to consensus. Smith quickly scheduled the bill to mark-up April 14th. During mark-up, numerous pro-innovator changes were adopted, including the raising of the threshold for initiating an IPR and the removal of the anti-licensing stay provision. The Committee disposed of 20 amendments at mark-up. The Committee adopted several amendments, including: a amendment sponsored by IP Subcommittee Ranking Democrat Watt to extend the sunset for the bill’s fee-setting authority from 4 to 6 years; an amendment offered by IP Subcommittee Chairman Goodlatte (R-VA), striking the bill’s new NPE stay language and clarifying the responsibilities of the PTO to consider the views of patent owners prior to making a determination on whether to initiate an IPR ; and a Goodlatte amendment slightly broadening the university exception for prior user rights. Amendments that failed or were withdrawn included: an amendment by Congresswoman Lofgren (D-CA) to tie the timeline for an alleged infringer’s initiation of an IPR to Markman hearings (14-17); an amendment by Congresswoman Chu (D-CA to lower the IPR threshold ; an amendment by Congressmen Sensenbrenner (R-WI and Conyers (D-MI) to strike first-inventor-to-file; and a Sensenbrenner-Quigley (D-IL) amendment to strike prior user rights. The resulting bill moved considerably closer to the Senate-passed bill S.23) and it was favorably reported the bill by a vote of 32-3. (Reps. Sensenbrenner, Conyers, and King (R-IA) voted “No.”).
The reported bill won the support of many active stakeholders including: Senate bill critics CPF/ITI; the 21st Century coalition; and AIPLA . The IA continued to withhold support. BIO expressed concerns over the changes made to supplemental examination and opposed bringing the bill to the floor unless those provisions were fixed. Remaining opponents to the bill included a collection of universities, independent inventors, movement conservatives, and holders of business method patents (BMPs), with each opponent having their own, specific concerns about the bill
House Floor Action
It appeared to most that the bill was well on its way to swift floor passage. Yet, disagreements among Republican leaders over allowing the PTO to have guaranteed access to all of its own user fees (the so-called Coburn fee-diversion amendment) put H.R. 1249’s fate in doubt. A broad, informal coalition of PTO stakeholders had succeeded in getting the Senate to pass the Coburn fee-diversion amendment and had been able to keep it in the House bill. Nearly $1 billion in patent fees has been diverted from the PTO since 1992, and innovators questioned the ability of the PTO to carry out any new responsibilities – much less make progress on the existing 700,000 patent backlog – if diversion were allowed to continue. Stakeholders unanimously supported the Coburn provision, as did the Administration and most members of Congress. Unfortunately, House Appropriations Chairman Harold Rogers (R-KY) and Budget Chairman Paul Ryan (R-WI) viewed things differently. Rogers and Ryan vehemently opposed the Coburn amendment and threatened to kill the bill on the floor by raising a procedural point of order. Smith was forced to agree to a compromise that removed the Coburn language. The Chairmen entered into an agreement to allow annual funding for the PTO to continue to be provided through the annual appropriations process, but a PTO Fee Reserve Fund would be created in the Treasury into which all fee collections that exceed the amount appropriated for the agency each fiscal year would be deposited.
The IA, IPO, ABA, and the PTO employees union, blasted the decision to drop the Coburn provision, arguing that although the House provision would no long allow Congress to use PTO user fees to fund unrelated government programs, the PTO user fees could still be held hostage by Congressional appropriators. But the Obama Administration agreed with Smith that a bad deal on funding was better than no bill at all, and the President backed the Smith-Rogers deal. With Administration and Leadership support in the House, the bill advanced. Final House passage occurred with a bipartisan vote of 304-117, following adoption of the Manager’s Amendment and several floor amendments – including the Medco Amendment, which adopts the holding of a recent district court decision, codifying existing law about how the PTO should calculate filing dates for the purpose of considering a patent term extension.
Rejected floor amendments included a proposal to strike the first-inventor-to-file provisions, postponement of a first-inventor-to-file system until other nations adopt the U.S. grace period, a proposal to strike the prior user rights provisions in H.R. 1249, and a proposal to strike the transitional program for review of covered business method patents. The proposal for severability of provisions found unconstitutional by the Supreme Court was withdrawn.
The Senate’s Final Move
While civics books teach that the differences in House-passed and Senate-passed bills will be resolved via a formal Conference Committee, the Senate and House have not formally conferenced on a Judiciary Committee bill since 2005. A formal conference for patent reform was always considered unlikely, and, indeed, no conference was ever seriously contemplated with the AIA. Instead of trying to make additional changes to the House-passed bill, Leahy – now with the support of Ranking Republican of the Senate Judiciary Committee Sen. Grassley (R-IA) – made a strategic decision to press for passage of the House-passed bill without amendment, thereby sending it directly to the President. Leahy and Grassley took the position that any change to the bill would likely result in the bill being killed in the House. Thus, those who supported overall patent reform but opposed specific House-passed measures were forced to not only convince Senators as to the merits of their particular position, but had to convince Senators to offer amendments and/or vote for such amendments even if it meant that doing so might “kill” the bill.
Still, Senators Sessions (R-AL), Cantwell (D-WA) and Coburn offered amendments to the House-passed bill, and the Senate had roll call votes on 3 amendments. (1) The Sessions amendment to strike section 37 regarding calculation of the 60-day period for applying for certain patent term extensions (the MedCo amendment). The amendment failed by a vote of 47-51. (2) The Cantwell amendment to strike section 18, the special procedure for challenging business method patents (narrow Section 18 by going back to the Senate language)This amendment failed by a vote of 13-85. (3) The Coburn amendment to reinstate the revolving fund language that would remove the PTO from the Congressional appropriations process and end fee diversion. Instead of allowing a vote on the amendment, the patent bill’s sponsor, Senator Leahy, moved to table the amendment. This table movement succeeded by a vote of 50-48, so the underlying bill would remain unamended, and there would be no legislative history of the Senate actually voting the Coburn amendment down. Sen. Leahy promptly called for a vote on the final passage of the bill – without amendment. The Senate passed the bill by a vote of 89-9. Sens. Boxer (D-CA), Cantwell, Coburn, DeMint (R-SC), Johnson (R-WI), Lee (R-UT), McCain (R-AZA), McCaskill (D-MI), and Paul (R-KY) voted against the bill.