Good News, Bad News on Patent Reform

By Gene Quinn
March 18, 2009

Senator Orrin Hatch

Senator Orrin Hatch

According to Reuters, Senator Orrin Hatch (R-UT) says that the House and Senate are close to agreeing on language for a patent reform bill that would virtually ensure its passage. According to Hatch, patent reform will happen this year, saying that he would be shocked if patent reform was not enacted in 2009. Hatch says “[th]is is the closest we’ve come to really doing this job.” So what is the good news? Hatch also says that the Senate is going to agree to language that would make it much more difficult for courts to find inequitable conduct. According to Reuters, the language would mean that inequitable conduct could be found only if there were real fraud during the patent acquisition process, rather than allowing a defendant to point to an error made in a “complicated process.” What this actually means time will only tell, but if this means that patent reform would adopt the Patent Office view of inequitable conduct and enact Rule 56 that would be an enormous step in the right direction. This is what I have been suggesting for months, it would force certain Federal Circuit judges to abandon their myopic view of inequitable conduct and it would open the door to make Patent Office reform possible. By limiting inequitable conduct to real fraud it would be possible for patent attorneys and agents to have real conversations with patent examiners and lead to a more open and less adversarial process, perhaps even allowing for the cooperative approach to patent examination I recently discussed when I suggested a change in Patent Office philosophy.

So what is the bad news? According to Reuters the patent reform legislation would still include provisions that would limit the damages available for successful patent owners who demonstrate a defendant had infringed. As long as apportionment of damages remains in the patent reform legislation its passage is far from certain, regardless of what Senator Hatch believes. A patent system that makes it easier for infringers to choose stealing patent rights rather than licensing or innovating around patents is simply a bad idea that will never be adopted. Limitation of patent damages only benefits those Silicon Valley companies that so desperately want to infringe, and do irreparable damage to the patent portfolios of pharmaceutical, biotech, green-tech and manufacturing companies, not to mention small businesses and start-up research and development companies. Why would Congress enact a provision that would destroy so many jobs and so many industries all to benefit one segment of an industry that wants to infringe and not have to pay? It is particularly alarming that damages provisions still remain in the patent reform legislation when there is simply no need for such provisions. If Silicon Valley wants help in dealing with the so-called patent troll problem you do not need to limit damages, you just need to fix the problem. The Federal Circuit has already done away with the forum shopping that lead so many patent trolls to run to the Eastern District of Texas in search of huge potential windfall profits from juries who love any patent owners, even those who are trolls. But we do not need to gut the patent system and needlessly risk massive loss of research and development funds and US jobs. What we need to do is make it so that only legitimate patents can be asserted in legitimate forums. In order to do that what Congress needs to do is insert provisions in the patent reform legislation that require patent owners to go back to the Patent Office to get patent claims thoroughly reviewed prior to being allowed to file infringement actions.

If you have an employment discrimination claim you need to get a right to sue letter from the EEOC before you can file a claim in federal court, and we need to adopt that, or something similar, in the patent context. This proposal has enormous potential. We know that most patents, in fact 98% of patents, are not commercially relevant. So why should we engage in patent prosecution on all patents as if they are commercially relevant? The answer is that it makes no sense. We could plow through the backlog if patent prosecution were streamlined and best efforts were made to ensure that within reasonable limits patents are new and nonobvious. But we ought not to thoroughly examine each and every patent prior to issuance. We also should not be rejecting 58% of applications. The Patent Office needs to become the Patent Granting Authority again, issue patents based on a reasonable, but quick review. This will allow the backlog to be addressed and resources put into thorough examination of those patents that are about to be litigated. Patent litigation is an expensive proposition, and lawsuits are brought only when real money is at stake. Prior to patent owners being allowed to file a patent infringement lawsuit the patent should be subject to real, thorough and complete review by the Patent Office. This is hardly any different than what would occur during litigation. The patent and all the claims will be picked apart, but by a judge who is hardly an expert in patent law. Why not have the Patent Office play that vital role of working up the patent claims, reviewing the prior art, and deciding whether the patent claims are valid? This is what the Patent Office specializes in, and the inquiry used to determine whether a patent should issue is the same inquiry used to determine whether a patent claim should have issued or whether the claim is invalid. The Patent Office should be doing that, and the decision of the Patent Office should be immediately reviewable by the Federal Circuit. If the Patent Office finds the claim valid, and the Federal Circuit agrees, then and only then should the case go to the District Court for determination of infringement and damages. We might even be able to allow the Patent Office to engage in claim construction, which would be reviewable by the Federal Circuit. So District Courts would be free to do what they do best, which is determining liability and awarding damages. The process would be streamlined, the Patent Office would be alleviated of the unreasonable burden to thoroughly examine all applications and the endless stream of appeals, reversals, appeals and reversals would end. Finality could actually happen in patent litigation, which could only be a good thing for industry and innovation.

This proposal is so perfect because it solves all of the problems facing the patent industry. It would also mean that the Patent Office is open again for business, and can grant patents rather than reject, reject and reject. Assets would be created, thereby increasing wealth. After all, the issuance of a patent is akin to instantly creating wealth. It is the only way that the federal government can create wealth without printing money and without the risk of inflation. Patents need to issue to independent inventors, start-ups and small businesses so that they can attract investors and raise capital necessary to expand. It is the creation of small businesses and the expansion of existing small businesses that will lead to jobs and jobs are what will get us out of this recession. It is a no-brainer!

If you have a dog in this fight, or a horse in this race, or are interested in innovation at all you need to contact your Representatives and Senators. Tell them that inequitable conduct reform is necessary, patent apportionment will hurt the US economy, and a thoughtful innovation policy that will turn the Patent Office into a Patent Granting Authority will lead to the creation of wealth and the creation of jobs. We all have an interest in the government getting this right, so call, write and e-mail your government officials. This is far too important for those who really don’t understand the patent system to make a mistake that could only prolong this recession.


About the Author

Eugene R. Quinn, Jr.
President & Founder of IPWatchdog, Inc.
US Patent Attorney (Reg. No. 44,294)B.S. in Electrical Engineering, Rutgers University
J.D., Franklin Pierce Law Center
L.L.M. in Intellectual Property, Franklin Pierce Law CenterSend me an e-mail

View Gene Quinn's profile on LinkedIn

Gene is a US Patent Attorney, Law Professor and the founder of IPWatchdog.com. He teaches patent bar review courses and is a member of the Board of Directors of the United Inventors Association. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, CNN Money and various other newspapers and magazines worldwide

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 8 Comments comments.

  1. EG March 19, 2009 8:48 am

    Gene,

    Even with provisions making inequitable conduct more difficult to allege and prove (which probably don’t go far enough for reasons I’ll present shortly), S. 515/H.R. 1260 are still very bad news, so much so, that I would be happy if they completely sank with no survivors. I think Hatch is engaging in wishful thinking that these bills will slide through without significant opposition, already coming IPO, BIO, organized labor, green tech, manufacturers, and biotech/pharma. The “jobs issue” these bills create isn’t going to go away and is what the opposition is very saavy in making known.

    So here’s my for removing inequitable conduct as the “plague” it is because it is alleged all too often with no facts to support:

    1. The “materiality” prong can be proven only if it is shown that one or more patent claims (or the entire patent itself if we’re talking an issue like improper inventorship) would not have issued “but for” the deliberate omission or misrepresentation of the alleged “mateial” information.

    2. The “intent to deceive” prong requires proof of specific intent or “wanton or reckless disregard” as to the omitted/misrepresented information. So-called “gross negligence” shouldn’t be the standard.

    3. Completely dump the “sliding scale test.” This conflates the “materiality” and “intent to deceive” prongs in a way that’s not helpful.

    4. Each of the “materiality” and “intent to deceive” prongs must be proven “beyond a reasonable doubt.” That will leave inequitable conduct to address only the truly “egregious” instances.

    5. Inequitable conduct must be alleged with the particularity required for fraud under FRCP 9.

    6. 35 USC 285 and FRCP 11 should be liberally applied to “frivolous” allegations of inequitable conduct.

    That’s my 2 cents to get this “plague” put in its appropriate place, and to get back to judging patents on the merits.

  2. moe March 19, 2009 12:18 pm

    “what Congress needs to do is insert provisions in the patent reform legislation that require patent owners to go back to the Patent Office to get patent claims thoroughly reviewed prior to being allowed to file infringement actions”

    tell that to firms who have already had to wait 10 years or more to get their patent from a PTO who is more concerned with issuing potentially controversial patents than following the law

  3. Gene Quinn March 19, 2009 6:28 pm

    Moe-

    I agree with where you are heading. It is completely unacceptable to have patent applications pending. I am talking prospectively. The reason to set up a system like this is so that patents can be granted quickly by a Patent Granting Authority. Do a quick, good faith review and then grant. Then if you want to sue you come back for a more in depth review. This would allow applications to remain pending for very short periods of time (12 to 18 months) and then issue. Obviously a subsequent review would be unacceptable if the pendency would remain at current levels.

    -Gene

  4. Gene Quinn March 19, 2009 9:16 pm

    EG-

    If only inequitable conduct law were as you suggest. It seems like since it is a fraud based theory that basic fraud law and rules should apply. It would also be great if the Federal Circuit also applied Rule 56 instead of its own view of what the examiner might want to have known.

    -Gene

  5. EG March 20, 2009 7:34 am

    Gene,

    If it only were (sigh). But what I propose is too “logical” (so sayeth a patent attorney “Spock”) for Congress to grasp. You should also see what Senator Kyl is proposing in his alternative to S.515 (called S.610). The best that can be said for the Kyl bill is that it at least addresses this “plague,” but does so in a manner that is at least as draconian compared to the current state of the law and gives it to the body least able to deal with it (USPTO). The Kyl bill is still not “true” patent law reform by a long shot. Let it too sink with no survivors.

  6. Chuck Byers March 21, 2009 4:00 pm

    Hi there,

    I am extremely frustrated with the current state of affairs at the USPTO and I enjoyed Gene’s article (understood it as well). Gene presents some very workable solutions that I would hope would become standard operating procedure at the Patent Office and in judicial involvement. However, the discussion points have slipped into attorney jargon that I am unable to follow. EG, you are hoping the reform legislation sinks, and your tenor is obviously one of frustration, but I don’t see where you have issues with what Gene proposes, or have I missed something?
    Therefore, can we get some lobbying done in the form of letter or email guidance to the legislators? Is there a consensus for what reforms they could and should implement? I am willing to concede a limit to damage judgments in return for changing the adversarial nature of the examination process and a streamlining of legal recourse against infringers. Drop the penalties component of the damage awards and limit awards to litigation costs and forfeiture of all sales income relating to the infringement.

  7. Gene Quinn March 21, 2009 5:15 pm

    Chuck-

    I think EG agrees with me, and is only hoping the legislation sinks because it will not address the issues that need addressing and will likely make patents worth much less.

    I would not be willing to so quickly give up on damages. Your proposal about damages being limited to litigation costs and then forfeiture of all sales income is good, but the proposed patent reform legislation would not require forfeiture of all sales income. This is why so many are against the proposal and only those in the high-tech computer industry are for it. Essentially, damages would be limited to only a fraction of the sales income. So the infringer would reap the benefit of the infringed technology while not having to pay very much in terms of damages.

    -Gene

  8. paul principato March 25, 2009 3:12 pm

    It came as no surprise that Senate Minority Whip Jon Kyl (R-AZ) has recently introduced HIS latest Patent Reform Act (S610) a copycat of his last version to the bill he proposed last September (S3600) in the wake of the failure of the other patent reform bill then pending in the Senate..
    It again includes a “Check 21” exception (sec. 13,): “With respect to the use by a financial institution of a check collection system that constitutes an infringement under subsection (a) or (b) of section 271, the provisions of sections 281, 283, 284, and 285 shall not apply against the financial institution with respect to such a check collection system.”
    Although a small Technology Company named Data Treasury and its patents were NOT specifically mentioned, the intent of the exception is aimed directly at Data Treasury and its on going litigation against the banking industry for infringing upon its “Check Collection” remote image capture technology.

    If passed, the exception would shift the financial responsibility for infringement to the American Taxpayer. Billions of dollars in taxes would be passed on to us in the name of (honesty and justice). The U.S. Commerce Department has recently objected to this type of legislative provision. Such a law would pave the way for Congress to start interfering in legal cases on behalf of the highest bidder. The Commerce Department — the parent agency of the Patent and Trademark Office — also pointed out that “limiting patent holders’ rights and remedies in this instance could reduce innovation in the technology area.” In other words, revoking someone’s property rights affects not only the disenfranchised property holder but also the next round of inventors. In this instance, moreover, Congress would be sending the bill for the bailout to us — the taxpayers. All this makes for quite a lobbying coup. The banking industry makes off with a few extra billion dollars, robs a small business of its intellectual property and again sticks taxpayers with the tab. Legislation should not be used to grant retroactive legal immunity to large corporations that willfully ignored the property rights of a small, innovative company. And no elected official who has pledged to maintain the integrity of our legal system should be a party to such a travesty. The windfall is not 2-6 billion of savings to the banks, but at 40 billion checks per year for the major institutions at $1 to $2 per check the savings is $40 to $80 billion dollars. The vast majority of banks who offer RDC have stated they have seen growth in deposits due to RDC. Deposits represent the lifeblood of any financial institution and have pervasive impacts throughout the organization. Recent research conducted by RemoteDepositCapture.com has revealed that for every dollar a financial institution has in deposits, they make over $2 in loans and investments. Of course Data Treasury is suing for 5 cents per check and settling for even less. The industry used to claim that it cost close to $2. per check so what justifies the banks STEALING this for FREE , except why pay if you are not forced to. The proposed legislation places the US government in the position of accountability. Since the US government both issued and affirmed the validity of the DT patents, it seems to place the government in the curious position of stipulating patent validity without having any control over the question of whether infringement is or is not occurring and with the bank’s interest’s non-aligned with the government’s interests. The enactment of such an exception would result in litigation against the federal government for DT to seek compensation for the taking of its private property. The federal government would have to pay $1 billion+ to Data Treasury over 10 years as compensation for taking its property under the exception, according to estimates (albeit, a conservative estimate) by the Congressional Budget Office. Senator Kyle by championing this exception should be made (with a clear answer devoid of spin) to explain why exactly, banks should be immune to patent law that applies to everybody else and why the public should fund any patent royalties when infringing returns billions in operational savings to the banks !! Source: 2008 FDIC Data, RemoteDepositCapture.com
    The funny part about this campaign is that everybody will take a sudden, but belated, interest in this fiasco if and when the bill comes due and has to be paid by the American taxpayer. But he does not mind does he? After all, I’m sure he wanta to show as much love to Bank of America, Citibank, etc. as Citibank and its group shows to him!!. All this on the heels of the recent Wall Street bailout. I guess business as usual is still the main diet of some elected officials!! DISGRACEFUL!!!