Patent Reform: The Senate Makes Its Move

UPDATED: March 9, 2011 @ 2:35pm

By a vote of 95 to 5, the Senate last night passed comprehensive patent reform legislation. S.23, “The America Invents Act”. But the path forward for passage of the measure in the House of Representatives remains unclear.

The bill – which was introduced by the Senate Judiciary Committee’s Chairman, Sen. Patrick Leahy (D-VT), Sen. Orrin Hatch (R-Utah), and the Committee’s Ranking Republican, Sen. Charles E. Grassley (R-IA) – moved quickly through the Judiciary Committee, with a Committee vote of 15-0.  Catching some critics off-guard, S.23’s advocates were able to take advantage of the light Senate floor schedule that often exists early in a new Congress and to capture the attention of Majority Leader Harry Reid (D-NV).   Specifically, S.23’s bipartisan posture, fueled by an Administration eager to advance innovation and job creation policy initiatives, made the bill an attractive floor measure for Senate Leadership, who was otherwise consumed by a heated, partisan battle over federal government funding.

Background

The sponsors’ stated goals for S.23 are to: improve the patent application process; improve the quality of patents issued by the US Patent & Trademark Office (“PTO”) by introducing several quality-enhancement measures; and provide more certainty in litigation.   The debate over patent reform dates back to a 2004 National Academy of Science report that made several recommendations for modernizing the patent system and the PTO.  Traditionally, changes to the patent code were relatively modest and were driven by established and esteemed patent-focused associations like IPO and AIPLA.  But, in 2005, a powerful subsection of larger companies from the information technology industry (“IT”) saw an opportunity to advance their 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, and imposed defendant-friendly venue rules.  These companies formed a coalition to advance its patent agenda called The Coalition for Patent Fairness (“CPF”).

Innovators formed competing organizations – The Innovation Alliance (“IA”) and The Coalition for 21^st Century Patent Reform (“21C”) chief among them- to engage and educate policymakers on the consequences of making the US more infringer-friendly and steered the discussion away from litigation-related reforms toward needed operational and financial reforms at “PTO”.   With the exception of the House passage of a reform bill in 2007, Congressional consideration of patent reform was largely an intra-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 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 S.23.

S.23 In The Senate

S. 23 as reported out of the Senate Judiciary Committee, would have 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 intellectual property rights (IPR) 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 USPTO Director rulemaking 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 nonobvious.
• 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.

The full Senate began consideration of S.23 as reported out of Committee on February 28. What was expected to be several days of wrangling over various amendments was skillfully circumvented by Senators Leahy, Grassley and Kyl.  In the weeks prior to floor consideration of the bill, the sponsors’ staffs met with stakeholders and the Administration and did some educated head-counting. The sponsors developed a strong sense of what new amendments were, in their view, substantively warranted and/or were likely to pass if brought up for a vote. Those amendments were combined into one Managers’ Amendment which was offered on March 1 and passed later in the day by an attention getting vote of 97-2 (S. Amdt. 121). The Managers’ amendment made several significant 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 end diversion of PTO fees.
• 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 inter partes reexamination), allowing the USPTO Director to use the old inter partes reexamination 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.
• Adopting a narrower version of the Schumer-Kyl business method patent amendment.

The adoption of the Manager’s Amendment had the effect of accelerating the Senate’s consideration of the bill by clearing the issues that might have led to weeks of debate or stalled the bill.  Other, less substantive or non-germane amendments were either tabled or quickly adopted by unanimous consent.  The pedal-to-the-metal handling of the bill on the floor also had the effect of isolating – and forcing the hand of- those who sought to offer amendments the sponsors strongly opposed.

Among the more contentious amendments was Sen. Feinstein’s amendment to strike from the bill language moving the US to a first inventor to file system (Amdt.133).  Sen. Feinstein faced an uphill battle to prevail.  Winning a vote on an amendment that was viewed by the bipartisan sponsors of the bill and the Administration as a killer amendment on a very complex issue with only a few days’ notice to stakeholders was a long shot.  Heavy lobbying against the amendment from 21C and calls to Senators from the Administration helped move undecided Senators toward supporting the bill’s original first inventor to file provisions.  Despite the institutional support of Majority Leader Harry Reid and the political support of CPF and independent inventors, Sen. Feinstein’s amendment was tabled on March 3 by a vote of 87 to 13. Importantly, the lopsided vote against Sen. Feinstein’s amendment had the effect of emboldening the bill’s sponsors and warding off others seeking to materially weaken 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, Majority Leader Reid filed cloture on the bill.

The remaining CPF issues included any number of amendments to scale back procedural safeguards in the bill’s inter partes review (“IPR”) provisions. Senators James Risch (R-ID), Mark Udall (D-CO), and Barbara Boxer (D-CA) sought to either strike the IPR provisions altogether or increase the deadline for filing IPR challenges after litigation commences.  Innovators took the position that, without the added safeguards, the bill’s third party review system will become an infringer’s playground. While some in the Senate briefly entertained the possibility of agreeing to a limited increase deadline, discussions were brought to a halt with the objection of Sen. Roy Blunt (R-MO), who felt the bill’s third party review system as drafted already has the potential for abuse by infringers and was loathe to make additional changes.

Other contentious amendments that were filed but were never formally considered prior to final passage included:  Sen. Claire McCaskill’s (D-MO) proposal to make the false marking reforms in the bill prospective (Amdt. 139); Sen. Ben Cardin’s (D-Md) compulsory patent license for 911compliance (Amdt 125); and Sen. Rockefeller’s efforts to prohibit the marketing of authorized generics (Amdt 134, 150, 151). Contentious amendments filed but not brought to the floor in the senate have the potential to resurface in some form in the House.

Sen. Reid’s amendment (Amdt. 143) to include public institutions of higher education in the definition of a micro entity was adopted by voice vote directly before consideration of the bill.

House of Representatives

Despite Senate passage, the road ahead for S.23 remains unclear.  Although Senate sponsors of S. 23 have encouraged the House to simply accept the Senate bill, it seems that the House is keeping its options open.  House Judiciary Committee staff, under the active direction of Committee Chairman Lamar Smith (R-TX), continue to draft a separate bill.

Chairman Smith issued a statement following passage of S.23 announcing plans to introduce a House bill sometime this month.  Rep. Smith is working closely with Rep. Bob Goodlatte (R-VA), the Chairman of the Subcommittee on Intellectual Property, Competition and the Internet.  The two respected legislative tacticians and long-time leaders on tech policy are expected to meet with Committee colleagues to solicit their views on a draft bill in the coming days. The House legislation is expected to be more in-line with previous House bills than S.23. Innovators are concerned the bill will weaken the third party review system or not contain adequate procedural safeguards.  However, it is expected that the bill, when introduced, will depart from previous House bills by not including damages or venue reforms.

Stakeholders hoping for greater clarity around the House’s plans will be paying close attention this week to separate patent policy hearings Rep. Goodlatte is convening. At one of the hearings held earlier today, both Rep Goodlatte and Rep. Mel Watt (D-NC), the Subcommittee’s Ranking Democrat, stated that the House needs to consider its “own” patent bill.  Interestingly, the former Chairman of the Committee, Rep. John Conyers (D-MI), expressed reservations about moving to a FTF system as did two of the hearings’ witnesses.

Once a House bill is introduced, the Committee may move quickly to mark-up. Opponents of FTF are expected to continue their push to preserve the current first-to-invent system, while innovators will continue to press for procedural safeguards and legislation to put an end to PTO fee diversion.

The End Game

In the end, the full House and Senate will need to pass the same version of any patent reform bill before it can become law.  Assuming House Judiciary Committee Chairman Smith passes a bill of note through the House; the House and Senate bills will need to be reconciled.  While civics books teach that the differences in the bills will be resolved via a formal Conference Committee, the Senate and House have not conferenced on a Judiciary Committee bill since 2005.  A formal conference for patent reform is considered very unlikely.  Accordingly, either the House will ultimately decide to take up and pass the Senate-passed bill given the broad bipartisan support it has earned, or any deal reconciling separate House and Senate bills will likely have to pass through each of the respective chambers once again on its own or as a rider to a larger, must-pass piece of legislation.