Patent Reform: Innovation Issues
Patent Reform: Innovation Issues
Updated January 17, 2007
John R. Thomas
Visiting Scholar
Resources, Science, and Industry Division
Wendy H. Schacht
Specialist in Science and Technology
Resources, Science, and Industry Division
Patent Reform: Innovation Issues
Summary
Congressional interest in patent policy and possible patent reform has expanded
as the importance of intellectual property to innovation has increased. Patent
ownership is perceived as an incentive to the technological advancement that leads
to economic growth. However, growing interest in patents has been accompanied by
persistent concerns about the fairness and effectiveness of the current system. Several
recent studies, including those by the National Academy of Sciences and the Federal
Trade Commission, have recommended patent reform to address perceived
deficiencies in the operation of the patent regime. Other experts maintain that major
alterations in existing law are unnecessary and that the patent process can adapt, and
is adapting, to technological progress.
Patent reform proposals considered during the 109th Congress would have
worked significant legal reforms to the patent system. Among the more notable of
these proposed changes was a shift to a first-inventor-to-file priority system;
substantive and procedural modifications to the patent law doctrines of willful
infringement and inequitable conduct; and adoption of post-issuance opposition
proceedings, prior user rights, and pre-issuance publication of all pending
applications. Several of these proposals have been the subject of discussion within
the patent community for many years, but others are more novel propositions.
Prior legislative reform efforts would have also addressed several issues of
concern, including the quality of issued patents, the expense and complexity of patent
litigation, harmonization of U.S. patent law with the laws of our leading trading
partners, potential abuses committed by patent speculators, and the special needs of
individual inventors, universities, and small firms with respect to the patent system.
In addition, although the existing patent statute in large measure applies the same
basic rules to different sorts of inventions, regardless of the technological field of that
invention, the patent system is widely believed to impact different industries in
varying ways.
The provisions of the proposed legislation would arguably have worked the
most sweeping reforms to the U.S. patent system since the nineteenth century.
However, many of these proposals, such as pre-issuance publication, prior user
rights, and oppositions, have already been implemented in U.S. law to a more limited
extent. These and other reforms, such as the first-inventor-to-file priority system and
elimination of the best mode requirement, also reflect the decades-old patent
practices of Europe, Japan, and our other leading trading partners.
Other knowledgeable observers are nonetheless concerned that certain of these
proposals would weaken the patent right, thereby diminishing needed incentives for
innovation. Some also believe that changes of this magnitude, occurring at the same
time, do not present the most prudent course for the patent system. Patent reform
therefore confronts Congress with difficult legal, practical, and policy issues, but also
with apparent possibilities for altering and possibly improving the legal regime that
has long been recognized as an engine of innovation within the U.S. economy.
Contents
In troduction ......................................................1
Patents and Innovation Policy........................................2
The Mechanics of the Patent System...............................2
Innovation Policy..............................................4
Current Issues and Concerns.........................................6
Patent Quality.................................................6
Litigation Costs...............................................8
International Harmonization.....................................8
Potential Abuses of Patent Speculators.............................9
The Role of Individuals, Universities and Small Entities..............10
Different Roles for Patents in Distinct Industries....................12
Proposed Legislative Initiatives......................................14
First Inventor to File..........................................15
Basic Concepts...........................................15
Policy Considerations.....................................16
Grace Period.................................................18
Domestic Issues..........................................18
International Issues.......................................19
Elimination of Sections 102(c), (d) and (f).........................21
Assignee Filing..............................................22
Elimination of the Best Mode Requirement........................24
Apportionment of Damages.....................................25
Willful Infringement..........................................26
Attorney Fee Shifting..........................................28
Unenforceability (Inequitable Conduct)............................28
Prior User Rights.............................................30
Extraterritorial Infringement....................................33
Post-Issuance Opposition Proceedings............................34
Publication of Pending Applications..............................37
Pre-Issuance Submissions......................................38
Interlocutory Claim Construction Appeals.........................39
Venue ......................................................40
Enhanced USPTO Rulemaking Authority..........................42
Concluding Observations...........................................42
This report was funded in part by a grant from the John D. and Catherine T.
MacArthur Foundation
Patent Reform: Innovation Issues
Introduction
Congressional interest in patent reform has increased as the patent system
becomes more significant to U.S. industry. There is broad agreement that more
patents are sought and enforced then ever before; that the attention paid to patents in
business transactions and corporate boardrooms has dramatically increased; and that
the commercial and social significance of patent grants, licenses, judgments, and1
settlements is at an all-time high. As the United States becomes even more of a
high-technology, knowledge-based economy, the importance of patents may grow
even further in the future.
Increasing interest in patents has been accompanied by persistent concerns about
the fairness and effectiveness of the current system. Several recent studies, including
those by the National Academy of Sciences and the Federal Trade Commission, have
recommended legal reform to address perceived deficiencies in the operation of the2
patent regime. Other experts maintain that major alterations in existing law are
unnecessary and that the patent process can adapt, and is adapting, to technological
progress.
Both houses of the 109th Congress considered bills that attempted to respond to
current concerns about the functioning of the patent process. With respect to the
House of Representatives, H.R. 2795 was originally introduced on April 4, 2005.
Titled the “Patent Reform Act of 2005,” H.R. 2795 was then subject to a Chairman’s
Substitute Amendment on July 26, 2005. This report will focus upon this latter
amendment. Efforts in the House of Representatives were complemented by a
distinct “Patent Reform Act of 2006,” S. 3818, that was introduced in the Senate on
August 3, 2006. Although neither of the bills resulted in enacted legislation, theyth
may contribute to further discussion of patent reform in the 110 Congress.
Both the House and the Senate bills proposed significant legal reforms to the
patent system. Among these reforms were a shift to a first-inventor-to-file priority
1 Statistics from the United States Patent and Trademark Office (USPTO) support this
account. In 1980, the USPTO received 104,329 utility patent applications; by 2003, this
number had grown to 342,441 applications. During the same time period, the number of
U.S. patents granted on an annual basis grew from 61,810 to 169,028. U.S. Patent and
Trademark Office, U.S. Patent Statistics, Calendar Years 1863-2003 [available at
[http://www.uspto.gov]].
2 National Research Council, National Academy of Sciences, A Patent System for the 21st
Century, [Washington, National Academies Press, 2004] and Federal Trade Commission,
To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy,
October 2003, available at [http://www.ftc.gov].
system; substantive and procedural modifications to the patent law doctrines of
willful infringement and inequitable conduct; and adoption of assignee filing, post-
issuance opposition proceedings, prior user rights, and pre-issuance publication of
all pending applications. Several of these proposals have been the subject of
discussion within the patent community for many years, but others present more
novel propositions.
This study provides an overview of current patent reform issues. It begins by
offering a summary of the structure of the current patent system and the role of
patents in innovation policy. The report then reviews some of the broader issues and
concerns, including patent quality, the high costs of patent litigation, international
harmonization, and speculation in patents, that have motivated these diverse
legislative reform proposals. The specific components of this legislation are then
identified and reviewed in greater detail.
Patents and Innovation Policy
The Mechanics of the Patent System
The patent system is grounded in Article I, Section 8, Clause 8 of the U.S.
Constitution, which states that “The Congress Shall Have Power... To promote the
Progress of Science and useful Arts, by securing for limited Times to Authors and
Inventors the exclusive Right to their respective Writings and Discoveries....” As
mandated by the Patent Act of 1952,3 U.S. patent rights do not arise automatically.
Inventors must prepare and submit applications to the U.S. Patent and Trademark
Office (USPTO) if they wish to obtain patent protection.4 USPTO officials known
as examiners then assess whether the application merits the award of a patent.5 The
patent acquisition process is commonly known as “prosecution.”6
In deciding whether to approve a patent application, a USPTO examiner will
consider whether the submitted application fully discloses and distinctly claims the
invention.7 In addition, the application must disclose the “best mode,” or preferred
way, that the applicant knows to practice the invention.8 The examiner will also
determine whether the invention itself fulfills certain substantive standards set by the
patent statute. To be patentable, an invention must be useful, novel and nonobvious.
The requirement of usefulness, or utility, is satisfied if the invention is operable and
3 P.L. 82-593, 66 Stat. 792 (codified at Title 35 United States Code).
4 35 U.S.C. § 111.
5 35 U.S.C. § 131.
6 John R. Thomas, “On Preparatory Texts and Proprietary Technologies: The Place of
Prosecution Histories in Patent Claim Interpretation,” 47 UCLA Law Review (1999), 183.
7 35 U.S.C. § 112.
8 Ibid.
provides a tangible benefit.9 To be judged novel, the invention must not be fully
anticipated by a prior patent, publication or other state-of-the-art knowledge that is
collectively termed the “prior art.”10 A nonobvious invention must not have been
readily within the ordinary skills of a competent artisan at the time the invention was
made. 11
If the USPTO allows the patent to issue, the patent proprietor obtains the right
to exclude others from making, using, selling, offering to sell or importing into the
United States the patented invention.12 Those who engage in these acts without the
permission of the patentee during the term of the patent can be held liable for
infringement. Adjudicated infringers may be enjoined from further infringing acts.13
The patent statute also provides for the award of damages “adequate to compensate
for the infringement, but in no event less than a reasonable royalty for the use made
of the invention by the infringer.”14
The maximum term of patent protection is ordinarily set at 20 years from the
date the application is filed.15 At the end of that period, others may employ that
invention without regard to the expired patent.
Patent rights are not self-enforcing. Patentees who wish to compel others to
observe their rights must commence enforcement proceedings, which most
commonly consist of litigation in the federal courts. Although issued patents enjoy
a presumption of validity, accused infringers may assert that a patent is invalid or
unenforceable on a number of grounds.16 The U.S. Court of Appeals for the Federal
Circuit (Federal Circuit) possesses national jurisdiction over most patent appeals
from the district courts.17 The U.S. Supreme Court enjoys discretionary authority to
review cases decided by the Federal Circuit.18
9 35 U.S.C. § 101.
10 35 U.S.C. § 102.
11 35 U.S.C. § 103.
12 35 U.S.C. § 271(a).
13 35 U.S.C. § 283.
14 35 U.S.C. § 284.
15 35 U.S.C. § 154(a)(2). Although patent term is based upon the filing date, the patentee
gains no enforceable legal rights until the USPTO allows the application to issue as a
granted patent. A number of Patent Act provisions may modify the basic 20-year term,
including examination delays at the USPTO and delays in obtaining marketing approval for
the patented invention from other federal agencies.
16 35 U.S.C. § 282.
17 28 U.S.C. § 1295(a)(1).
18 28 U.S.C. § 1254(1).
Innovation Policy
Patent ownership is perceived to be an incentive to innovation, the basis for the
technological advancement that contributes to economic growth. It is through the
commercialization and use of new products and processes that productivity gains are
made and the scope and quality of goods and services are expanded. Award of a
patent is intended to stimulate the investment necessary to develop an idea and bring
it to the marketplace embodied in a product or process. Patent title provides the
recipient with a limited-time monopoly over the use of his discovery in exchange for
the public dissemination of information contained in the patent application. This is
intended to permit the inventor to receive a return on the expenditure of resources
leading to the discovery but does not guarantee that the patent will generate
commercial benefits. The requirement for publication of the patent is expected to
stimulate additional innovation and other creative means to meet similar and
expanded demands in the marketplace.
Innovation produces new knowledge. One characteristic of this knowledge is
that it is a “public good,” a good that is not consumed when it is used. This “public
good” concept underlies the U.S. patent system. Absent a patent system, “free riders”
could easily duplicate and exploit the inventions of others. Further, because they
incurred no cost to develop and perfect the technology involved, copyists could
undersell the original inventor. The resulting inability of inventors to capitalize on
their inventions would lead to an environment where too few inventions are made.19
The patent system corrects this market failure problem by providing innovators with
an exclusive interest in their inventions, thereby allowing them to capture its
marketplace value.
The regime of patents purportedly serves other goals as well. The patent system
encourages the disclosure of products and processes, for each issued patent must
include a description sufficient to enable skilled artisans to practice the patented
invention.20 At the close of the patent’s 20-year term,21 others may practice the
claimed invention without regard to the expired patent. In this manner the patent
system ultimately contributes to the growth of the public domain.
Even during their term, issued patents may also encourage others to “invent
around” the patentee’s proprietary interest. A patentee may point the way to new
products, markets, economies of production and even entire industries. Others can
build upon the disclosure of a patent instrument to produce their own technologies
that fall outside the exclusive rights associated with the patent.22
The patent system has also been identified as a facilitator of markets. Absent
patent rights, an inventor may have scant tangible assets to sell or license. In
19 See Rebecca S. Eisenberg, “Patents and the Progress of Science: Exclusive Rights and
Experimental Use,” 56 University of Chicago Law Review 1017 (1989).
20 35 U.S.C. § 112.
21 35 U.S.C. § 154.
22 Eisenberg, supra, at 1017.
addition, an inventor might otherwise be unable to police the conduct of a contracting
party. Any technology or know-how that has been disclosed to a prospective licensee
might be appropriated without compensation to the inventor. The availability of
patent protection decreases the ability of contracting parties to engage in
opportunistic behavior. By lowering such transaction costs, the patent system may
make technology-based transactions more feasible.23
Through these mechanisms, the patent system can act in more socially desirable
ways than its chief legal alternative, trade secret protection. Trade secrecy guards
against the improper appropriation of valuable, commercially useful and secret
information. In contrast to patenting, trade secret protection does not result in the
disclosure of publicly valuable information. That is because an enterprise must take
reasonable measures to keep secret the information for which trade secret protection
is sought. Taking the steps necessary to maintain secrecy, such as implementing
physical security measures, also imposes costs that may ultimately be unproductive
for society.24
The patent system has long been subject to criticism, however. Some observers
have asserted that the patent system is unnecessary due to market forces that already
suffice to create an optimal level of innovation. The desire to obtain a lead time
advantage over competitors, as well as the recognition that technologically backward
firms lose out to their rivals, may well provide sufficient inducement to invent
without the need for further incentives.25 Other commentators believe that the patent
system encourages industry concentration and presents a barrier to entry in some
markets.26 Still other observers believe that the patent system too frequently attracts
speculators who prefer to acquire and enforce patents rather than engage in socially
productive activity.27
When analyzing the validity of these competing views, it is important to note
the lack of rigorous analytical methods available for studying the effect of the patent
law upon the U.S. economy as a whole. The relationship between innovation and
patent rights remains poorly understood. As a result, current economic and policy
tools do not allow us to calibrate the patent system precisely in order to produce an
optimal level of investment in innovation. Thus, each of the arguments for and
against the patent system remains open to challenge by those who are unpersuaded
by their internal logic.
23 Robert P. Merges, “Intellectual Property and the Costs of Commercial Exchange: A
Review Essay,” 93 Michigan Law Review (1995), 1570.
24 David D. Friedman et al., “Some Economics of Trade Secret Law,” 5 Journal of
Economic Perspectives (1991), 61.
25 See Frederic M. Sherer, Industrial Market Structure and Economic Performance (1970),
26 See John R. Thomas, “Collusion and Collective Action in the Patent System: A Proposal
for Patent Bounties,” University of Illinois Law Review (2001), 305.
27 Ibid.
Current Issues and Concerns
Legislation introduced in the 109th Congress proposed a number of changes to
diverse aspects of the patent system. Although these reforms were undoubtedly
motivated by a range of concerns, a discrete number of issues have been the subject
of persistent discussion in the patent community over a period of many years.
Among these issues are concern for the quality of issued patents, the expense and
complexity of patent litigation, harmonization of U.S. patent law with the laws of our
leading trading partners, potential abuses committed by patent speculators, and the
special needs of individual inventors, universities, and small firms with respect to the
patent system. In addition, although the patent statute in large measure applies the
same basic rules to different sorts of inventions, regardless of the technological field
of that invention, the patent system is widely believed to impact different industries28
in varying ways. As a result, different industries can be expected to espouse
dissimilar views of certain patent reform proposals. Before turning to a more specific
analysis of individual legislative proposals, this report reviews the proposed
legislation’s broader themes with regard to these issues and concerns.
Patent Quality
Government, industry, academia and the patent bar alike have long insisted that
the USPTO approve only those patent applications that describe and claim a
patentable advance.29 Because they meet all the requirements imposed by the patent
laws, quality patents may be dependably enforced in court and employed as a
technology transfer tool. Such patents are said to confirm private rights by making
their proprietary uses, and therefore their value, more predictable. Quality patents
also may clarify the extent that others may approach the protected invention without
infringing. These traits in turn should strengthen the incentives of private actors to
engage in value-maximizing activities such as innovation or commercial
t ransact i ons. 30
In contrast, poor patent quality is said to hold deleterious consequences. Large
numbers of inappropriately granted patents may negatively impact entrepreneurs. For
example, innovative firms may be approached by an individual with a low quality
patent that appears to cover the product they are marketing. The innovative firm may
recognize that the cost of challenging a patent even of dubious validity may be
considerable. Therefore, the firm may choose to make payments under licensing
28 See Dan L. Burk & Mark A. Lemley, “Is Patent Law Technology-Specific?,” 17 Berkeley
Technology Law Journal (2002), 1155.
29 CRS Report RL31281, Patent Quality and Public Policy: Issues for Innovative Firms in
Domestic Markets, by John R. Thomas.
30 See Joseph Farrell & Robert P. Merges, “Incentives to Challenge and Defend Patents:
Why Litigation Won’t Reliably Fix Patent Office Errors and Why Administrative Patent
Review Might Help,” 19 Berkeley Technology Law Journal (2004), 943.
arrangements, or perhaps decide not to market its product at all, rather than contest
the patent proprietor’s claims.31
Poor patent quality may also encourage opportunistic behavior. Perhaps
attracted by large damages awards and a potentially porous USPTO, rent-seeking
entrepreneurs may be attracted to form speculative patent acquisition and
enforcement ventures. Industry participants may also be forced to expend
considerable sums on patent acquisition and enforcement.32 The net results would
be reduced rates of innovation, decreased patent-based transactions, and higher prices
for goods and services.
Although low patent quality appears to affect both investors and competitors of
a patentee, patent proprietors themselves may also be negatively impacted. Patent
owners may make managerial decisions, such as whether to build production
facilities or sell a product, based upon their expectation of exclusive rights in a
particular invention. If their patent is declared invalid by the USPTO or a court, the
patentee will be stripped of exclusive rights without compensation. The issuance of
large numbers of invalid patents would increase the possibility that the investment-
backed expectations of patentees would be disappointed.33
The notion that high patent quality is socially desirable has been challenged,
however. Some commentators believe that market forces will efficiently assign
patent rights no matter what their quality. Others observe that few issued patents are
the subject of litigation and further estimate that only a minority of patents are
licensed or sold. Because many patented inventions are not used in a way that calls
their validity into question, some observers maintain, society may be better off
making a detailed review into the patentability of an invention only in those few
cases where that invention is of commercial significance.34
Previously introduced legislation bears upon the patent quality issue. Both the
House and Senate bills from the 109th Congress (H.R. 2795 and S. 3818) would have
allowed for increased public participation in USPTO decisionmaking through a pre-
issuance submission procedure. These bills would have also allowed for post-
issuance opposition proceedings, which would potentially allow interested parties to
“weed out” invalid patents before they are the subject of licensing or infringement
litigation.
31 See Bronwyn H. Hall & Dietmar Harhoff, “Post-Grant Reviews in the U.S. Patent System
— Design Choices and Expected Impact,” 19 Berkeley Technology Law Journal (2004),
32 See Robert P. Merges, “As Many As Six Impossible Patents Before Breakfast: Property
Rights for Business Concepts and Patent System Reform,” 14 Berkeley Technology Law
Journal (1999), 577.
33 See Craig Allen Nard, “Certainty, Fence Building and the Useful Arts,” 74 Indiana Law
Journal (1999), 759.
34 Mark A. Lemley, “Rational Ignorance at the Patent Office,” 95 Northwestern University
Law Review (2001), 1495.
Litigation Costs
Patent enforcement is often expensive. The complex legal and technological
issues, extensive discovery proceedings, expert witnesses, and specially qualified
attorneys associated with patent trials can lead to high costs.35 One study published
in 2000 concluded that the average cost of patent enforcement was $1.2 million.36
These expenses appear to be increasing, with one more recent commentator
describing an “industry rule of thumb” whereby “any patent infringement lawsuit will
easily cost $1.5 million in legal fees alone to defend.”37 Higher stakes litigation is
even more costly: for patent suits involving damages claims of more than $25
million, expenses reportedly increase to $4 million per side.38
For innovative firms that are not infrequently charged with patent infringement,
or that bring claims of patent infringement themselves, the annual expenses
associated with patent litigation can be very dear. The Microsoft Corporation
reportedly defends an average of 35 to 40 patent lawsuits annually at a cost of almost
$100 million.39 The Intel Corporation has recently been estimated to spend $20
million a year on patent litigation.40
The high costs of litigation may discourage patent proprietors from bringing
meritorious claims against infringers. They may also encourage firms to license
patents of dubious merit rather than contest them in court. Previously introduced
legislation endeavored to make patent litigation less costly and complex through
modification of the patent law doctrines of willful infringement and inequitable
conduct. It would also call for an administrative opposition proceeding that, in some
measure, could serve as a less expensive alternative to litigation.
International Harmonization
In our increasingly globalized, high-technology economy, patent protection in
a single jurisdiction is often ineffective to protect the interests of inventors. As a
result, U.S. inventors commonly seek patent protection abroad. Doing so can be a
costly, time-consuming, and difficult process. There is no global patent system.
35 Steven J. Elleman, “Problems in Patent Litigation: Mandatory Mediation May Provide
Settlement and Solutions,” 12 Ohio State Journal on Dispute Resolution (1997), 759.
36 Dee Gill, “Defending Your Rights: Protecting Intellectual Property is Expensive,” Wall
Street Journal (Sep. 25, 2000), 6.
37 Mark H. Webbink, “A New Paradigm for Intellectual Property Rights in Software,” 2005
Duke Law and Technology Review (May 1, 2005), 15.
38 See Sarah Lai Stirland, “Will Congress Stop High-Tech Trolls?,” National Journal (Feb.
39 “Microsoft Advocates for Patent Reform,” eWEEK (Mar. 10, 2005).
40 Stirland, supra, at 613.
Inventors who desire intellectual property protection in a particular country must
therefore take specific steps to procure a patent within that jurisdiction.41
Differences in national laws are among the difficulties faced by U.S. inventors
seeking patent rights overseas. Although the world’s patent laws have undergone
considerable harmonization in recent years, several notable distinctions between U.S.
patent law and those of our leading trading partners persist. Previously introduced
legislation would have addressed some of these differences by modifying U.S. patent
law in order to comply with international standards. Among these proposed reforms
are adoption of a first-inventor-to-file priority system, a post-issuance opposition
system, assignee filing, publication of all pending patent applications, and prior user
rights; elimination of the best mode requirement; and encouragement for the adoption
of a one-year grace period within the European Patent Convention and Japanese
Patent Act.
Potential Abuses of Patent Speculators
Some commentators believe that the patent system too frequently attracts
speculators who prefer to acquire and enforce patents rather than engage in research,
development, manufacturing, or other socially productive activity.42 Patent
speculators are sometimes termed “trolls,” after creatures from folklore that would
emerge from under a bridge in order to waylay travelers.43 The late Jerome C.
Lemelson, a prolific inventor who owned hundreds of patents and launched
numerous charges of patent infringement, has sometimes been mentioned in this
context. The total revenue of the Lemelson estate’s patent licensing program has
been reported as in excess of $1.5 billion.44 But as explained by journalist Michael
Ravnitsky, “critics charge that many Lemelson patents are so-called submarine
patents, overly broad applications that took so long to issue or were so general in
nature that their owners could unfairly claim broad infringement across entire
industry sectors.”45 Of such patent ventures, patent attorney James Pooley observes:
Of course there is nothing inherently wrong with charging someone rent to use
your property, including intellectual property like patents. But it’s useful to keep
in mind — especially when listening to prattle about losing American jobs to
foreign competition — that these patent mills produce no products. Their only46
output is paper, of a highly threatening sort.
41 CRS Report RL31132, Multinational Patent Acquisition and Enforcement: Public Policy
Challenges and Opportunities for Innovative Firms, by John R. Thomas.
42 See Elizabeth D. Ferrill, “Patent Investment Trusts: Let’s Build a Pit to Catch the Patent
Trolls,” 6 North Carolina Journal of Law and Technology (2005), 367.
43 See Lorraine Woellert, “A Patent War Is Breaking Out on the Hill,” BusinessWeek 45
(July 4, 2005).
44 Nicholas Varchaver, “The Patent King,” Fortune (May 14, 2001), 202.
45 Michael Ravnitsky, “More Lemelson Suits,” The National Law Journal (Dec. 17, 2001),
B9.
46 James Pooley, “Opinion: U.S. patent reform — a good invention,” Electronic Business (
(continued...)
Patent enforcement suits brought by patent speculators appear to present special
concerns for manufacturers and service providers. If one manufacturer or service
provider commences litigation against another, the defendant can often counter with
its own claims of patent infringement against the plaintiff. Because patent
speculators do not otherwise participate in the marketplace, however, they are
immune to such counterclaims. This asymmetry in litigation positions reportedly
reduces the bargaining power of manufacturers and service providers, potentially
exposing them to harassment.47
Observers hasten to note, however, that not every patent proprietor who does not
commercialize the patented invention should properly be considered an opportunistic
“troll.” A nonmanufacturing patentee may lack the expertise or resources to produce
a patented product, prefer to commit itself to further innovation, or otherwise have
legitimate reasons for its behavior.48 Universities and small biotechnology
companies often fit into this category. Further, whether classified as a “troll” or not,
each patent owner has presumptively fulfilled all of the relevant statutory
requirements. Among these obligations is a thorough disclosure of a novel,
nonobvious invention to the public.49
Previously introduced legislation would have impacted concerns over “trolling”
by amendment to the patent statute’s provision regarding attorney fee-shifting, as
well as limiting infringement damages in certain circumstances.
The Role of Individuals, Universities and Small Entities
Entrepreneurs and small, innovative firms play a role in the technological
advancement and economic growth of the United States.50 Several studies
commissioned by U.S. federal agencies have concluded that individuals and small
entities constitute a significant source of innovative products and services.51 Studies
46 (...continued)
Jan. 1, 2000), 72.
47 See Ronald J. Mann, “Do Patents Facilitate Financing in the Software Industry?,” 83
Texas Law Review (2005), 961.
48 See David G. Barker, “Troll or No Troll? Policing Patent Usage with An Open Post-Grant
Review,” 2005 Duke Law and Technology Review (Apr. 15, 2005), 11.
49 35 U.S.C. § 112.
50 National Science Board, Science and Engineering Indicators, 1993 (Dec. 8, 1993), 185.
See also CRS Report RL30216, Small, High Tech Companies and Their Role in the
Economy: Issues in the Reauthorization of the Small Business Innovation (SBIR) Program,
by Wendy H. Schacht.
51 For example, the National Academy of Engineering concluded that “small high-tech
companies play a critical and diverse role in creating new products and services, in
developing new industries, and in driving technological change and growth in the U.S.
economy.” National Academy of Engineering, Risk & Innovation: The Role and Importance
of Small High-Tech Companies in the U.S. Economy (Washington: National Academy Press,
1995), 37. This assessment was founded on the ability of small firms to develop markets
(continued...)
have also indicated that entrepreneurs and small, innovative firms rely more heavily
upon the patent system than larger enterprises. Larger companies are said to possess
alternative means for achieving a proprietary or property-like interest in a particular
technology. For example, trade secrecy, ready access to markets, trademark rights,
speed of development, and consumer goodwill may to some degree act as substitutes
to the patent system.52 However, individual inventors and small firms often do not
have these mechanisms at their disposal. As a result, the patent system may enjoy
heightened importance with respect to these enterprises.53
In recent years, universities have also become more full-fledged participants in
the patent system. This trend has been attributed to the Bayh-Dole Act,54 a federal
statute that allowed universities and other government contractors to retain patent
title to inventions developed with the benefit of federal funding.55 In recent years
there has reportedly “been a dramatic increase in academic institutions’ investments
in technology licensing activities.”56 This increase has been reflected in the growth
in the number of patents held by universities, the number of universities with
technology transfer offices, and the amount of patent-based licensing revenues that
these offices have raised.57
The U.S. patent system has long acknowledged the role, and particular needs,
of independent inventors, small firms, and universities. For example, the patent
statute calls for each of these entities to receive a 50% discount on many USPTO
fees.58 As the USPTO is currently entirely funded by the fees it charges its users,59
51 (...continued)
rapidly, generate new goods and services, and offer diverse products. The study also
concluded that small businesses were less risk adverse than larger, established corporations
and were often better positioned to exploit market opportunities quickly. A National
Science Foundation report found that entrepreneurs and small firms are six times as
effective as larger firms in utilizing research and development expenditures to generate new
products. National Science Board, Science and Engineering Indicators, 1993, (Dec. 8,
1993), 185. Anderson, Anne, “Small Businesses Make it Big in the SBIR Program,” New
Technology Week (June 6, 1998), p. 2.
52 Sally Wyatt & Gilles Y. Bertin, Multinationals and Industrial Property 139 (Harvester
53 J. Douglas Hawkins, “Importance and Access of International Patent Protection for the
Independent Inventor,” 3 University of Baltimore Intellectual Property Journal (1995), 145.
54 P.L. 96-517, 94 Stat. 2311 (codified at 35 U.S.C. §§ 200-212).
55 CRS Report RL32076, The Bayh-Dole Act: Selected Issues in Patent Policy and the
Commercialization of Technology, by Wendy H. Schacht.
56 Josh Lerner, “Patent Policy Innovations: A Clinical Examination,” 53 Vanderbilt Law
Review (2000), 1841.
57 See Arti K. Rai & Rebecca S. Eisenberg, “Bayh-Dole Reform and the Progress of
Biomedicine,” 66 Law and Contemporary Problems (Winter/Spring 2003), 289.
58 35 U.S.C. § 41(g).
59 CRS Report RS20906, U.S. Patent and Trademark Office Appropriations Process: A Brief
(continued...)
this provision effectively calls for larger institutions to subsidize the patent
expenditures of their smaller competitors.
Beyond potentially diminished financial resources vis-a-vis larger concerns,
however, observers have disagreed over whether independent inventors, small firms,
and universities have particular needs with respect to the patent system, and if so
whether those needs should be reflected in patent law doctrines. With respect to the
proposed system of “prior user rights,”60 for example, some observers state that such
rights would particularly benefit small entities, which may often lack a sophisticated
knowledge of the patent system.61 Others disagree, stating that smaller concerns rely
heavily on the exclusivity of the patent right, and that the adoption of prior user rights
would advantage large enterprises.62 Similar debates have occurred with respect to
other patent reform proposals, perhaps reflecting the fact that the community of
independent inventors, small firms, and universities is itself a diverse one.
Provisions of previously introduced legislation that appeared to be of particular
interest to independent inventors, universities, and small businesses include a shift
to a first-inventor-to-file priority system, prior user rights, pre-issuance publication
of all pending patent applications, and post-issuance oppositions.
Different Roles for Patents in Distinct Industries
To a large extent, the patent statute subjects all inventions to the same standards,
regardless of the field in which those inventions arose. Whether the invention is an
automobile engine, semiconductor, or a pharmaceutical, it is for the most part subject
to the same patentability requirements, scope of rights, and term of protection. Both
experience and economic research suggest that distinct industries encounter the
patent system in different ways, however.63 As a result, it can be expected that
59 (...continued)
Explanation, by Wendy H. Schacht.
60 Under a rule of “prior user rights,” when a conflict exists between an issued patent and
an earlier user of the patented technology, the validity of the patent is upheld but the prior
user is exempted from infringement. See Pierre Jean Hubert, “The Prior User Right of H.R.
400: A Careful Balancing of Competing Interests,” 14 Santa Clara Computer and High
Technology Law Journal (1998), 189. Prior user rights are discussed further in this report
below.
61 See Gary L. Griswold & F. Andrew Ubel, “Prior User Rights — A Necessary Part of a
First-to-File System,” 26 John Marshall Law Review (1993), p. 567.
62 See David H. Hollander, Jr., “The First Inventor Defense: A Limited Prior User Right
Finds Its Way Into U.S. Patent Law,” 30 American Intellectual Property Law Association
Quarterly Journal (2002), 37 (noting the perception that prior user rights favor large, well-
financed corporations).
63 In particular, economic research suggests that different industries attach widely varying
values to patents. For example, one study of the aircraft and semiconductor industries
suggested that lead time and the strength of the learning curve were superior to patents in
capturing the value of investments. In contrast, members of the drug and chemical
industries attached a higher value to patents. Differences in the perception of the patent
(continued...)
particular industries will react differently to the various patent reform proposals
currently before Congress.64
Although broad generalizations should be drawn with care, two industries
widely perceived as viewing the patent system in different ways are the
pharmaceutical and software sectors. Within the pharmaceutical industry, individual
patents are perceived as critical to a business model that provides life-saving and life-
enhancing medical innovations, but eventually allows members of the public access
to medicines at low cost. In particular, often only a handful, and sometimes only one
or two patents cover a particular drug product. Patents are also judged to be crucial
to the pharmaceutical sector because of the relative ease of replicating the finished
product. For example, while it is expensive, complicated, and time consuming to
duplicate an airplane, it is relatively simple to perform a chemical analysis of a pill
and reproduce it.65
In contrast to the pharmaceutical field, the nature of software development is
such that innovations are typically cumulative and new products often embody
numerous patentable inventions. This environment has led to what has been
described as a
poor match between patents and products in the [software] industry: it is difficult
to patent an entire product in the software industry because any particular
product is likely to include dozens if not hundreds of separate technological66
ideas.
This situation may be augmented by the multiplicity of patents often associated with
a finished computer product that utilizes the software. It is not uncommon for
thousands of different patents (relating to hardware and software) to be embodied in
one single computer. In addition, ownership of these patents may well be fractured
among hundreds or thousands of different individuals and firms.
In summary, then, the patent laws provide a “one size fits all” system, where all
inventions are subject to the same requirements of patentability and scope of
protection, regardless of the technical field in which they arose. Innovators in
different fields nonetheless have varying experiences with the patent system. These
63 (...continued)
system have been attributed to the extent to which patents introduced significant duplication
costs and times for competitors of the patentee. Richard C. Levin, Alvin K. Klevorick,
Richard R. Nelson, and Sidney G. Winter, “Appropriating the Returns for Industrial
Research and Development,” Brookings Papers on Economic Activity, 1987, in The
Economics of Technical Change, eds. Edwin Mansfield and Elizabeth Mansfield (Vermont,
Edward Elgar Publishing Co., 1993), p. 254.
64 For additional discussion on this issue see CRS Report RL33367, Patent Reform: Issues
in the Biomedical and Software Industries, by Wendy H. Schacht.
65 Federic M. Scherer, “The Economics of Human Gene Patents”, 77 Academic Medicine
(Dec. 2002), p. 1350.
66 Mann, supra, at 979.
discrepancies, among others, lead to the expectation that distinct industries may react
differently to the various patent reform proposals presently considered by Congress.
Proposed Legislative Initiatives
Legislation proposed before the 109th Congress included a diverse array of
patent reforms. The following chart outlines the major provisions of the two bills,
which this report then discusses in turn.
H.R. 2795S. 3818
First Inventor to File (§ 3)First Inventor to File (§ 3)
Grace Period (§§ 3 & 10)Grace Period (§ 3)
Eliminate § 102(c), (d) & (f) (§ 3)Eliminate § 102(c), (d) & (f) (§ 3)
Assignee Filing (§ 4)Assignee Filing (§ 4)
Repeal Best Mode Requirement (§ 4)
Apportionment of Damages (§ 6)Apportionment of Damages (§ 5)
Willful Infringement (§ 6)Willful Infringement (§ 5)
Attorney Fee Shifting (§ 5)
Unenforceability (Inequitable Unenforceability (Inequitable
Conduct) (§ 5) Conduct) (§ 5)
Prior User Rights (§ 7)Prior User Rights (§ 5)
Extraterritorial Infringement (§ 5)
Post-Issuance Oppositions (§ 7)Post-Issuance Oppositions (§ 6)
Publication of Applications (§ 7)Publication of Applications (§ 7)
Pre-Issuance Submissions (§ 8)Pre-Issuance Submissions (§ 7)
Interlocutory Claim Construction
Appeals (§ 8)
Venue (§ 9)Venue (§ 8)
USPTO Rulemaking Authority (§ 9)
First Inventor to File
Basic Concepts. In the 109th Congress, the House and Senate patent reform
bills would have altered the U.S. patent priority rule from the current “first-to-invent”
principle to the “first-inventor-to-file” principle.67 Within the patent law, the priority
rule addresses the circumstance where two or more persons independently develop
the identical or similar invention at approximately the same time. In such cases the
patent law must establish a rule as to which of these inventors obtains entitlement to
a patent.68
Under current U.S. law, when more than one patent application is filed claiming
the same invention, the patent will be awarded to the applicant who was the first
inventor in fact. This conclusion holds even if the first inventor was not the first69
person to file a patent application directed towards that invention. Within this
“first-to-invent” system,70 the timing of real-world events, such as the date a chemist
conceived of a new compound or a machinist constructed a new engine, is of
significance.
In every patent-issuing nation except the United States, priority of invention is
established by the earliest effective filing date of a patent application disclosing the
claiming invention.71 Stated differently, the inventor who first filed an application
at the patent office is presumptively entitled to the patent. Whether or not the first
applicant was actually the first individual to complete the invention in the field is
irrelevant. This priority system follows the “first-inventor-to file” principle.
A simple example illustrates the distinction between these priority rules.
Suppose that inventor A synthesizes a new chemical compound on August 1, 2005,
and files a patent application on November 1, 2005 claiming that compound.
Suppose further that inventor B independently invents the same compound on
September 1, 2005, and files a patent application on October 1, 2005. Inventor A
would be awarded the patent under the first-to-invent rule, while Inventor B would
obtain the patent under the first-inventor-to-file principle.
Under the current U.S. first-to-invent rule, priority disputes may be resolved via
“interference” proceedings conducted at the USPTO.72 An interference is a complex
administrative proceeding that may result in the award of priority to one of its
67 H.R. 2795, § 3.
68 See Roger E. Schechter & John R. Thomas, Principles of Patent Law § 1.2.5 (2d ed.
69 In addition, the party that was the first to invent must not have abandoned, suppressed or
concealed the invention. 35 U.S.C. § 102(g)(2).
70 See Charles E. Gholz, “First-to-File or First-to-Invent?”, 82 Journal of the Patent and
Trademark Office Society (2000), p. 891.
71 See Peter A. Jackman, “Adoption of a First-to-File System: A Proposal,” 26 University
of Baltimore Law Review (1997), 67.
72 35 U.S.C. § 135.
participants. These proceedings are not especially common. One estimate concludes
that less than one-quarter of one percent of patents are subject to an interference.73
This statistic may mislead, however, because the expense of interference cases may
result in their use only for the most commercially significant inventions.
By shifting to a first-inventor-to-file priority rule, the House and Senate bills
would have eliminated the need for interference proceedings. Instead, the applicant
with the earliest filing date, rather than the first individual to have created the
invention, would have been eligible for the patent. Notably, the proposed bills would
not have rendered a patent applicant’s actual date of invention completely irrelevant.
As this report discusses immediately below, the invention date would have remained
pertinent with respect to the so-called grace period. In this respect, these legislative
proposals departed from first-inventor-to-file practices in other patent-issuing
countries.
Policy Considerations. The relative merits of the first-to-invent and first-
inventor-to-file priority principles have been the subject of a lengthy debate within
the patent community. Supporters of the current first-to-invent principle in part
assert that the first-inventor-to-file system would create inequities by sponsoring a
“race to the Patent Office.” They are also concerned that the first-to-file system
would encourage premature and sketchy technological disclosures in hastily-filed
patent applications.74
Supporters of the first-inventor-to-file principle in part assert that it provides a
definite, readily determined and fixed date of priority of invention, which would lead
to greater legal certainty within innovative industries. They also contend that the
first-inventor-to-file principle would decrease the complexity, length and expense
associated with current USPTO interference proceedings. Rather than being caught
up in lengthy interference proceedings in an attempt to prove dates of inventive
activity that occurred many years previously, they assert, inventors could continue to
go about the process of innovation. Supporters also observe that informed U.S. firms
already organize their affairs on a first-inventor-to-file basis in order to avoid75
forfeiture of patent rights abroad.
The effect of a shift to the first-inventor-to-file rule upon individual inventors,
small firms, and universities has been debated. Some observers state that such
entities often possess fewer resources and wherewithal than their larger competitors,
and thus are less able to prepare and file patent applications quickly. Others disagree,
stating that smaller concerns are more nimble than larger ones and thus better able
to submit applications promptly. They also point to the availability of provisional
73 See Clifford A. Ulrich, “The Patent Systems Harmonization Act of 1992: Conformity at
What Price?,” 16 New York Law School Journal of International and Comparative Law
(1996), p. 405.
74 See Coe A. Bloomberg, “In Defense of the First-to-Invent Rule,” 21 American Intellectual
Property Law Quarterly Journal (1993), p. 255.
75 See Bernarr A. Pravel, “Why the United States Should Adopt the First-to-File System for
Patents,” 22 St. Mary’s Law Journal (1991), p. 797.
applications,76 asserting that such applications allow small entities to secure priority
rights readily without a significant expenditure of resources. A quantitative study of
interference proceedings by Gerald Mossinghoff, a former Commissioner of the
USPTO, also suggested that the first-to-invent rule neither advantaged nor
disadvantaged small entities vis-a-vis larger enterprises.77
The role of the U.S. Constitution is sometimes debated within the context of the
patent priority principle. Article I, section 8, clause 8 of the Constitution provides
Congress with the authority to award “inventors” with exclusive rights. Some
observers suggest this language suggests, or possibly even mandates, the current first-
to-invent system. Others conclude that because the first-inventor-to-file only awards
patents to individuals who actually developed the invention themselves, rather than
derived it from another, this priority system is permissible under the Constitution.78
In weighing the validity of this position, it should be noted that under well-
established U.S. law, the first-inventor-in-fact does not always obtain entitlement to
a patent. If, for example, a first-inventor-in-fact maintained his invention as a trade
secret for many years before seeking patent protection, he may be judged to have
“abandoned, suppressed or concealed” the invention.79 In such a case a second-
inventor-in-fact may be awarded a patent on that invention. Courts have reasoned
that this statutory rule encourages individuals to disclose their inventions to the
public promptly, or give way to an inventor who in fact does so.80 As the first-
inventor-to-file rule acts in a similar fashion to this longstanding patent law principle,
conflict between this rule and the Constitution appears unlikely.
Notably, a first-inventor-to-file priority rule does not permit one individual to
copy another’s invention and then, by virtue of being the first to file a patent
application, be entitled to a patent. All patent applicants must have originated the
invention themselves, rather than derived it from another.81 In order to police this
requirement, both bills would have provided for “inventor’s rights contests” that
would allow the USPTO to determine which applicant is entitled to a patent on a
particular invention.82
76 35 U.S.C. § 111(b).
77 Gerald J. Mossinghoff, “The U.S. First-to-Invent System Has Provided No Advantage to
Small Entities,” 84 Journal of the Patent and Trademark Office Society (2002), p. 425.
78 See generally Charles R.B. Marcedo, “First-to-File: Is American Adoption of the
International Standard in Patent Law Worth the Price?,” 18 American Intellectual Property
Law Association Quarterly Journal (1990), p. 193.
79 35 U.S.C. § 102(g)(2).
80 See Del Mar Engineering Labs. v. United States, 524 F.2d 1178 (Ct. Cl. 1975).
81 35 U.S.C. § 101.
82 H.R. 2795, § 3(i); S. 3818, § 3(i).
Grace Period
Domestic Issues. Previous legislative proposals would have retained the
existing one-year “grace period” enjoyed by U.S. inventors. Current U.S. patent law
essentially provides inventors with a one-year period to decide whether patent
protection is desirable, and, if so, to prepare an application. Specified activities that
occur before the “critical date” — patent parlance for the day one year before the83
application was filed — will prevent a patent from issuing. If, for example, an
entrepreneur first discloses an invention by publishing an article in a scientific
journal, she knows that she has one year from the publication date in which to file a
patent application. Importantly, uses, sales, and other technical disclosures by third
parties will also start the one-year clock running. As a result, inventors have a
broader range of concerns than merely their own activities.84
Suppose, for example, that an electrical engineer files a patent application
claiming a new capacitor on February 1, 2007. While reviewing the application, a
USPTO examiner discovers a October 1, 2005, journal article disclosing the identical
capacitor. Because the article was published prior to the critical date of February 1,
If a relevant reference is first publicly disclosed during the one-year grace period
— that is to say, after the critical date but prior to the filing date — the legal
situation is more complex. Under current law, patent applicants may “antedate” such
a reference by demonstrating that they had actually invented the subject matter of
their application prior to the date of the reference. If the applicant can make such a
showing, then the reference cannot ordinarily be used to defeat the patentability of
the invention.
As an illustration of this procedure, suppose that an inventor files a patent
application directed to a polymer on February 1, 2007. Suppose that the USPTO
examiner discovers that a textbook published on January 1, 2007, describes the same85
polymer that is claimed in the application. Because the textbook was published
subsequent to the critical date of February 1, 2006, it does not absolutely bar the
application. In order to obtain a patent, however, the applicant must nonetheless
demonstrate that he invented the polymer prior to January 1, 2007, the date the
textbook was published. The applicant might submit copies of his laboratory
notebook, for example, or submit a sworn declaration in order to make this86
showing.
Both the House and Senate bills contemplated by the 109th Congress would have
retained current patent law rules with respect to the grace period. As a result, an
inventor would still have been allowed to “antedate” prior art by showing that she
83 35 U.S.C. § 102(b).
84 Schechter & Thomas, supra, at § 4.3.1.
85 In addition, the textbook must be attributable to someone other than the patent applicant.
See 35 U.S.C. § 102(a).
86 37 C.F.R. § 1.131.
invented the subject matter of the application prior to the date of the reference.87 This
approach would have had the advantage of maintaining longstanding U.S. rules
regarding the patent-defeating effect of references that first become publicly available
during the grace period. It might benefit university professors, small firms, and other
entities that may lack the wherewithal to file patent applications promptly.
On the other hand, these proposals would have meant that the U.S. shift from
a “first-to-invent” system to a “first-inventor-to-file” system would have been
incomplete. Because an applicant’s date of invention would have remained relevant,
patentability decisions would have been more complex and less certain than in the
first-inventor-to-file systems employed by all other patent-issuing states. Such an
approach would also not fully harmonize U.S. law with those of other nations.
International Issues. In contrast to the United States, many other patent-
granting states provide more limited grace periods, or no grace periods at all. In
Europe, any sales or publication of an invention anywhere in the world prior to the88
filing date defeats the patentability of an invention. The Japanese patent system
includes a six-month grace period tied only to the activities of the inventor.89 Under
the patent law of Japan, any disclosures of an invention made by a third party even
one day before the filing date will prevent the issuance of a patent.
In the109th Congress, the House bill would have included a provision that might
have encouraged adoption of a one-year grace period for inventor activities in Europe
and Japan.90 An understanding of this proposal requires some background
information on the international priority system established by an international
agreement known as the Paris Convention.91 The international priority system allows
an inventor to file a patent application in one Paris Convention signatory state, which
is usually the inventor’s home country. If the inventor subsequently files patent
applications in any other Paris Convention signatory state within the next 12 months,
overseas patent-granting authorities will treat the application as if it were filed on the
first filing date. Critically, information that enters the public domain between the
priority date and subsequent filing dates does not prejudice the later applications.
Paris Convention priority allows U.S. inventors to preserve their original USPTO
filing dates as they make arrangements to file patent applications overseas.92
Suppose, for example, that an inventor files a patent application at the USPTO
on October 1, 2006. The inventor then files a patent application claiming the same
invention in the Japanese Patent Office on September 1, 2007. As part of his
87 35 U.S.C. § 102(a).
88 European Patent Convention, Article 54(2).
89 Japanese Patent Act, Article 29(1).
90 The Senate bill did not include an analogous provision on this point.
91 Convention of Paris for the Protection of Industrial Property, 13 U.S.T. 25 (1962).
92 See G.H.C. Bodenhausen, Guide to the Paris Convention for the Protection of Industrial
Property (United International Bureau for the Protection of Intellectual Property, Geneva,
Switzerland 1968).
Japanese application, the inventor informs the Japanese Patent Office of the earlier
U.S. application. Because Japan has acceded to the Paris Convention, the Japanese
Patent Office will treat that inventor’s application as if it had been filed on October
1, 2006. As a result, information that entered the public domain after the U.S. filing
date would not prejudice the inventor’s Japanese application. A journal article
published on January 1, 2007, for example, would not limit the opportunity of the
inventor to obtain a Japanese patent.
The U.S. patent statute currently limits the usefulness of the Paris Convention
priority date for foreign inventors seeking U.S. patent rights. Section 119 of the
Patent Act states that:
no patent shall be granted on any application for patent for an invention which
had been patented or described in a printed publication in any country more than
one year before the date of the actual filing of the application in this country, or
which had been in public use or on sale in this country more than one year prior93
to such filing.
The effect of this language is that the one-year grace period is measured not from the
Paris Convention international priority date, but the actual U.S. filing date.
This limitation may discourage U.S. trading partners from adopting a grace
period analogous to that of U.S. law. Consider, for example, a Japanese inventor
who publishes an article in a scientific journal describing his new invention on
August 1, 2005. Consistent with Japanese patent law, he then files a patent
application at the Japanese Patent Office six months later, on February 1, 2006.
Then, in accordance with the Paris Convention, he files an application at the USPTO
on February 1, 2007.
Under these circumstances, the U.S. patent application should be denied, even
though the Japanese inventor appeared to comply with all legal formalities. Because
the U.S. patent statute compels the USPTO to assess the grace period as ending as
the actual U.S. filing date in 2007, rather than the Paris Convention priority date in
2006, the U.S. patent is barred from issuance. This state of affairs may give pause
to nations considering adopting a U.S.-style grace period. Foreign applicants who
rely upon grace periods within their own national systems may be put in a position
of forfeiture of their U.S. patent rights.
Apparently aware of this concern, the House bill would have altered the date the
grace period closes from the actual U.S. filing date to the Paris Convention priority
date — provided that Europe and Japan adopt laws analogous to that of proposed
U.S. law. In the language of the House bill:
Before the date, if ever, that the Director of the [USPTO] publishes a notice ...
declaring that both the European Patent Convention and the patent laws of Japan
afford inventors seeking patents a 1-year period prior to the effective filing date
of a claimed invention during which disclosures made by the inventor or by
others who obtained the subject matter disclosed directly or indirectly from the
93 35 U.S.C. § 119(a).
inventor do not constitute prior art, the term “effective filing date” as used in
section 102(a)(1)(A) of title 35, United States Code, shall be construed by
disregarding any right of priority except that provided under section 119(e) of94
title 35, United States Code.
Should the USPTO Director publish a notice in keeping with this provision, then
foreign inventors would be able to rely upon their domestic grace periods and
maintain their ability to obtain patents in the United States.
Elimination of Sections 102(c), (d) and (f)
Legislation before the 109th Congress would have eliminated three provisions
of the Patent Act, paragraphs (c), (d), and (f) of Section 102. Section 102(c) does not
allow an applicant to obtain a patent when he “has abandoned the invention.” This
statute does not refer to disposal of the invention itself, however, but instead to the
intentional surrender of an invention to the public. Older Supreme Court opinions
instruct that abandonment may occur where an inventor expressly dedicates it to the
public, through a deliberate relinquishment or conduct evidencing an intent not to
pursue patent protection.95 The circumstances must be such that others could96
reasonably rely upon the inventor’s renunciation. Perhaps because few individuals
expressly cede their patentable inventions to the public without seeking
compensation, there are few modern judicial opinions that consider 35 U.S.C. §
equitable estoppel may apparently be used to obtain the same result.
Like section 102(c), section 102(d) of the Patent Act is reportedly little-used.98
35 U.S.C. 102(d) bars a U.S. patent when (1) an inventor files a foreign patent
application more than twelve months before filing the U.S. application, and (2) a
foreign patent results from that application prior to the U.S. filing date. Suppose that
an inventor files an application at a foreign patent office on May 25, 2004. The
foreign application matures into a granted foreign patent on August 1, 2005. If the
inventor has not filed his patent application at the USPTO as of August 1, 2005, the
date of the foreign patent grant, any patent application that the inventor subsequently
filed in the United States would be defeated.
The policy basis for 35 U.S.C. § 102(d) is to encourage the prompt filing of
patent applications in the United States. As the Patent Office Commissioner
explained in 1870:
94 H.R. 2795, § 11(h).
95 See Beedle v. Bennett, 122 U.S. 71 (1887).
96 See Mendenhall v. Astec Indus., Inc., 13 USPQ2d 1913, 1937 (E.D. Tenn.1988), aff’d,
97 See generally A.C. Auckerman & Co. v. R.L. Chaides.Construction Co., 960 F.2d 1020
(Fed. Cir. 1992).
98 Schechter & Thomas, supra, at § 4.3.8.
The intention of [C]ongress obviously was to obtain for this country the free use
of the inventions of foreigners as soon as they became free abroad. This is
indicated by the use of the phrase, ‘first patented, or caused to be patented, in a
foreign country,’ for it was presumable that American citizens would obtain their
first patent here, while a foreigner would first patent his invention in his own
country. The statute was designed to prevent a foreigner from spending his time
and capital in the development of an invention in his own country, and then
coming to this country to enjoy a further monopoly, when the invention had
become free at home. The result of such a course would be that while the foreign
country was developing the invention and enjoying its benefits, its use could be
interdicted here; while, if the term of the monopoly could be further extended
here, the market could be controlled long after the foreign nation was prepared99
to flood this country with the unpatented products of the patented process.
Section 102(d) has been subject to critical commentary. Because inventors may
choose to file a patent application only in the United States, the policy goal of
assuring that the U.S. market will become patent-free contemporaneously with
foreign markets may not be well-served by this provision. In addition, 35 U.S.C. §
102(d) effectively acts against foreign, rather than U.S.-based inventors, as domestic
inventors ordinarily file at the USPTO first before seeking rights overseas. Some
commentators have suggested that 35 U.S.C. § 102(d) violates the spirit, if not the
letter, of U.S. international treaty obligations, which generally impose an obligation
of national treatment with respect to intellectual property matters.100
Finally, the House and Senate bills (H.R. 2795 and S. 3818) also would have
eliminated current 35 U.S.C. § 102(f), which states that a person may obtain a patent
unless “he did not himself invent the subject matter sought to be patented.” This
proposed amendment would not alter the requirement that only an actual inventor
may obtain a patent, which is also stated by 35 U.S.C. § 101.101
Assignee Filing
Under current U.S. law, a patent application must be filed by the inventor —102
that is to say, the natural person or persons who developed the invention. This rule
applies even where the invention was developed by individuals in their capacity as
employees. Even though rights to the invention have usually been contractually
assigned to an employer, for example, the actual inventor, rather than the employer,
99 Bate Refrigerating Co. v. Sulzberger, 157 U.S. 1, 27 (1895) (quoting Ex parte Mushet,
100 See Donald S. Chisum, “Foreign Activity: Its Effect on Patentability under United States
Law,” 11 International Review of Industrial Property & Copyright Law (1980), 26.
101 See Schechter & Thomas, supra, at § 4.4.4. This amendment may potentially alter the
holding in Oddzon Products Inc. v. Just Toys Inc., 122 F.3d 1396 (Fed. Cir. 1997), that
subject matter that qualifies as prior art only under 35 U.S.C. § 102(f) may be used for a
nonobviousness analysis under 35 U.S.C. § 103(a). Further discussion of this issue may be
found at CRS Report RL33063, Intellectual Property and Collaborative Research, by John
R. Thomas.
102 35 U.S.C. § 111.
must be the one that applies for the patent. Section 118 of the Patent Act allows a
few exceptions to this general rule. If an inventor cannot be located, or refuses to
perform his contractual obligation to assign an invention to his employer, then the
employer may file in place of the inventor.103
Legislation before the 109th Congress instead would have stipulated that a
“person to whom the inventor has assigned or is under an obligation to assign the
invention may make an application for patent.”104 Individuals who otherwise make
a showing of a “sufficient proprietary interest in the matter” may also apply for a
patent on behalf of the inventor upon a sufficient show of proof of the pertinent facts.
Under the proposed legislation, if the USPTO “Director grants a patent on an
application filed under this section by a person other than the inventor, the patent
shall be granted to the real party in interest and upon such notice to the inventor as
the Director considers to be sufficient.”
Legal reforms allowing assignee filing of patent applications have been
discussed for many years. A 1966 Report of the President’s Commission on the
Patent System recommended this change as a way to simplify formalities of
application filing and to avoid delays caused by the need to identify and obtain
signatures from each inventor.105 The 1992 Advisory Commission on Patent Law
Reform was also in favor of this change. The 1992 Commission observed that the
United States was “the only country which does not permit the assignee of an
invention to file a patent application in its own name.”106 In the opinion of the 1992
Commission, assignee filing would appropriately accompany a U.S. shift to a first-
inventor-to-file priority system, as the reduction of formalities would allow
innovative enterprises to file patent applications more promptly.
The 1992 Commission also reviewed potential undesirable aspects of assignee
filing. The Commission noted that patent applications filed by assignees may lack
the actual inventor’s personal guarantee that the application was properly prepared.
In addition, assignee filing might derogate the right of natural persons to their
inventions. In the opinion of the Commission, however, the advantages of assignee
filing outweighed the disadvantages.107
103 35 U.S.C. § 118.
104 H.R. 2795, § 4(c).
105 President’s Commission on the Patent System,”To Promote the Progress of ... Useful
Arts” in an Age of Exploding Technology (1966).
106 Advisory Commission on Patent Reform, A Report to the Secretary of Commerce (Aug.
107 Ibid.
Elimination of the Best Mode Requirement
In the 109th Congress, the House bill would have eliminated U.S. patent law’s
best mode requirement.108 Currently, inventors are required to “set forth the best
mode contemplated by the inventor of carrying out his invention.” 109 Failure to
disclose the best mode known to the inventor is a ground for invalidating an issued
patent. The courts have established a two-part standard for analyzing whether an
inventor disclosed her best mode in a particular patent. The first inquiry was whether
the inventor knew of a way of practicing the claimed invention that he considered
superior to any other. If so, then the patent instrument must identify, and disclose
sufficient information to enable persons of skill in the art to practice that best
mode. 110
Proponents of the best mode requirement have asserted that it allows the public
to receive the most advantageous implementation of the technology known to the
inventor. This disclosure becomes part of the patent literature and may be freely
reviewed by those who wish to design around the patented invention. Absent a best
mode requirement, some observers say, patent proprietors may be able to maintain
the preferred way of practicing their inventions as a trade secret. Members of the
public are also said to be better able to compete with the patentee on equal footing
after the patent expires.111
The best mode requirement has encountered severe criticism in recent years,
however.112 For example, a 1992 Presidential Commission recommended that
Congress eliminate the best mode requirement. The Commission reasoned that
patents also are statutorily required to disclose “the manner and process of making
and using [the invention], in such full, clear, concise, and exact terms as to enable
any person skilled in the art ... to make and use the same.”113 This “enablement”
requirement was believed to provide sufficient information to achieve the patent
law’s policy goals.114
The Commission further stated that the best mode requirement leads to increases
in the costs and complexity of patent litigation. As the Commission explained:
108 The Senate bill did not address the best mode requirement, and therefore would have
retained existing law.
109 35 U.S.C. § 112.
110 See, e.g., Chemcast Corp. v. Arco Industries Corp. 913 F.2d 923 (Fed. Cir. 1990).
111 See Jerry R. Selinger, “In Defense of the ‘Best Mode’: Preserving the Benefit of the
Bargain for the Public, 43 Catholic University Law Review (1994), 1071.
112 See, e.g., Steven B. Walmsley, “Best Mode: A Plea to Repair or Sacrifice This Broken
Requirement of United States Patent Law,” 9 Michigan Telecommunications and
Technology Law Review (2002), p. 125.
113 35 U.S.C. § 101.
114 1992 Advisory Commission Report, supra, at 102-03.
The disturbing rise in the number of best mode challenges over the past 20 years
may serve as an indicator that the best mode defense is being used primarily as
a procedural tactic. A party currently can assert failure to satisfy the best mode
requirement without any significant burden. This assertion also entitles the party
to seek discovery on the “subjective beliefs” of the inventors prior to the filing
date of the patent application. This broad authority provides ample opportunity
for discovery abuse. Given the fluidity by which the requirement is evaluated
(e.g., even accidental failure to disclose any superior element, setting, or step can
negate the validity of the patent), and the wide ranging opportunities for
discovery, it is almost certain that a best mode challenge will survive at least115
initial judicial scrutiny.
The Commission further reasoned that the best mode at the time of filing is unlikely116
to remain the best mode when the patent expires many years later. Because many
foreign patent laws include no analog to the best mode requirement, inventors based
overseas have also questioned the desirability of the best mode requirement in U.S.
law.
Apportionment of Damages
Legislation before the 109th Congress also would have addressed monetary
remedies in patent cases. Marketplace realities often render the determination of an
appropriate damages award a difficult affair in patent litigation. In some cases, the
product or process that is found to infringe may incorporate numerous additional
elements beyond the patented invention. For example, the asserted patent may relate
to a single component of an audio speaker, while the accused product consists of the
entire stereo system. In such circumstances, a court may apply “the entire market
value rule,” which “permits recovery of damages based upon the entire apparatus
containing several features, where the patent-related feature is the basis for consumer
demand.”117 On the other hand, if the court determines that the infringing sales were
due to many factors beyond the use of the patented invention, the court may apply
principles of “apportionment” to reach a just measure of damages for infringement.118
Some observers believe that courts have sometimes been overly generous in
assessing damages in patent cases. As one commentator asserted:
[I]nventors have learned to abuse the patent system and increase leverage against
manufacturers by pursuing “system claims” in the [USPTO]. These clever
claims insert the crux of the predator’s “innovation” into much larger contexts
than that to which the inventor is rightfully entitled. For example, the abuser
may actually have invented a hinge mechanism, but draws the patent claim to a
door including the hinge mechanism. In this example, the door is well known to,
and long in use by, the public but in subsequent litigation, the patent predator
115 Ibid. at 101.
116 Ibid. at 102-03.
117 State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1580 (Fed. Cir. 1989).
118 Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235 U.S. 641 (1915).
claims entitlement to, and the court awards, damages based on the entire value119
of the door rather than on the value of the innovative hinge.
Other observers disagree, believing that the courts have reasonably applied the entire
market value rule and apportionment principles.
In apparent response to concerns over patent damages, the Senate bill directed
courts to consider “the economic value that should be attributed to the novel and non-
obvious feature or features of the invention, as distinguished from the economic
value attributable to other features, improvements added by the infringer, and the
business risks the infringer undertook in commercialization....” The language of the
Senate bill was very similar to that of the earlier House bill with respect to the
apportionment of damages. Unlike the House bill, the Senate bill did not refer to
patents on a “combination.” The Senate bill also called for consideration of “the
terms of non-exclusive marketplace licensing of the invention.” Finally, the Senate
bill provided that courts should consider “other relevant factors in applicable law”
in determining damages.
Views differ on the appropriateness of this reform. Some believe that current
damages standards have resulted in the systemic overcompensation of patent owners.
Such overcompensation may place unreasonable royalty burdens upon producers of
high technology products, ultimately impeding the process of technological
innovation and dissemination that the patent system is meant to foster. Others are
concerned that this reform might overly restrict damages in patent cases. Limited
damage awards for patent infringement might prevent innovators from realizing the
value of their inventive contributions, a principal goal of the patent system.
Willful Infringement
The bills introduced in the 109th Congress would have reformed the law of
willful infringement. The patent statute currently provides that the court “may
increase the damages up to three times the amount found or assessed.”120 An award
of enhanced damages, as well as the amount by which the damages will be increased,
is committed to the discretion of the trial court.121 Although the statute does not
specify the circumstances in which enhanced damages are appropriate, the courts
most commonly award them when the infringer acted in blatant disregard of the
patentee’s rights. This circumstance is termed “willful infringement.”122
Courts will not ordinarily enhance damages due to willful infringement if the
adjudicated infringer did not know of the patent until charged with infringement in
court, or if the infringer acted with the reasonable belief that the patent was not
infringed or that it was invalid. Federal Circuit decisions emphasize the duty of
119 Westergard, supra, at 7.
120 Ibid.
121 See Read Corp. v. Portec, Inc., 970 F.2d 816, 826 (Fed. Cir. 1992).
122 See Beatrice Foods Co. v. New England Printing & Lithographing Co., 923 F.2d 1576,
someone with actual notice of a competitor’s patent to exercise due care in
determining if his acts will infringe that patent. A common way to fulfill this
obligation is to obtain competent legal advice before commencing, or continuing,
activity that may infringe another’s patent.123
Prior to 2004, the Federal Circuit held that when an accused infringer invoked
the attorney-client or work-product privilege, courts should be free to reach an
adverse inference that either (1) no opinion had been obtained or (2) an opinion had
been obtained and was contrary to the infringers’s desire to continue practicing the
patented invention.124 However, in its decision in Knorr-Bremse Systeme fuer
Nutzfahrzeuge GmbH v. Dana Corp.,125 the Federal Circuit expressly overturned this
principle. The Court of Appeals further stressed that the failure to obtain legal advice
did not occasion an adverse inference with respect to willful infringement either.
Following the Knorr-Bremse opinion, willful infringement determinations are based
upon “the totality of circumstances, but without the evidentiary contribution or
presumptive weight of an adverse inference that any opinion of counsel was or would
have been unfavorable.”126
Patent law’s willful infringement doctrine has proven controversial. Some
observers believe that this doctrine ensures that patent rights will be respected in the
marketplace. Critics of the policy believe that the possibility of trebled damages
discourages individuals from reviewing issued patents. Out of fear that their
inquisitiveness will result in multiple damages, innovators may simply avoid looking
at patents until they are sued for infringement. To the extent this observation is
correct, the law of willful infringement discourages the dissemination of technical
knowledge, thereby thwarting one of the principal goals of the patent system. Fear
of increased liability for willful infringement may also discourage firms from
challenging patents of dubious validity. Consequently some have argued that the
patent system should shift to a “no-fault” regime of strictly compensatory damages,
without regard to the state of mind of the adjudicated infringer.127
The House and Senate bills would have added several clarifications and changes
to the law of willful infringement. First, a finding of willful infringement would be
appropriate only where (1) the infringer received specific written notice from the
patentee and continued to infringe after a reasonable opportunity to investigate; (2)
the infringer intentionally copied from the patentee with knowledge of the patent; and
(3) the infringer continued to infringe after an adverse court ruling. Second, willful
infringement cannot be found where the infringer possessed an informed, good faith
belief that its conduct was not infringing. Finally, a court may not determine willful
123 See, e.g., Jon E. Wright, “Willful Patent Infringement and Enhanced Damages —
Evolution and Analysis,” 10 George Mason Law Review (2001), 97.
124 See, e.g., Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1572 (Fed. Cir.
125 383 F.3d 1337 (Fed. Cir. 2004).
126 Ibid. at 1341.
127 See generally Schechter & Thomas, supra, at § 9.2.5.
infringement before the date on which the court determines that the patent is not
invalid, enforceable, and infringed.128
Attorney Fee Shifting
In the 109th Congress, the Senate bill stipulated that a “court shall award, to a
prevailing party, fees and other expenses incurred by that party in connection with
that proceeding, unless the court finds that the position of the nonprevailing party or
parties was substantially justified or that special circumstances make an award
unjust.”129 Current patent law follows the so-called American rule, where each
litigant is responsible for its own attorney fees except in “exceptional cases.”130 This
provision would have required the losing patent litigant to compensate the winner for
its fees and other expenses in certain circumstances.
Unenforceability (Inequitable Conduct)
The administrative process of obtaining a patent from the USPTO has
traditionally been conducted as an ex parte procedure. Stated differently, patent
prosecution involves only the applicant and the USPTO. Members of the public, and
in particular the patent applicant’s marketplace competitors, do not participate in
patent acquisition procedures.131 As a result, the patent system relies to a great
extent upon applicant observance of a duty of candor and truthfulness towards the
USPTO.
An applicant’s obligation to proceed in good faith may be undermined, however,
by the great incentive applicants might possess not to disclose, or to misrepresent,
information that might deleteriously impact their prospective patent rights. The
patent law therefore penalizes those who stray from honest and forthright dealings
with the USPTO. Under the doctrine of “inequitable conduct,” if an applicant
intentionally misrepresents a material fact or fails to disclose material information,
then the resulting patent will be declared unenforceable.132 Two elements must exist
before a court will decide that the applicant has engaged in inequitable conduct.
First, the patentee must have misrepresented or failed to disclose material
128 H.R. 2795, § 6.
129 The House bill did not speak towards attorney fee shifting, and therefore would have
retained current law.
130 35 U.S.C. § 285.
131 35 U.S.C. § 122(a) (stating general rule that “applications for patents shall be kept in
confidence by the Patent and Trademark Office and no information concerning the same
given without authority of the applicant....”).
132 Glaverbel Societe Anonyme v. Northlake Mktg. & Supply Inc., 45 F.3d 1550 (Fed. Cir.
information to the USPTO in the prosecution of the patent.133 Second, such
nondisclosure or misrepresentation must have been intentional.134
During patent infringement litigation, an accused infringer has the option of
asserting that the plaintiff’s patent is unenforceable because it was procured through
inequitable conduct. Concerns have arisen that charges of inequitable conduct have
become routine in patent cases. As one commentator explains:
The strategic and technical advantages that the inequitable conduct defense
offers the accused infringer make it almost too attractive to ignore. In addition
to the potential effect on the outcome of the litigation, injecting the inequitable
conduct issue into patent litigation wreaks havoc in the patentee’s camp. The
inequitable conduct defense places the patentee on the defensive, subjects the
motives and conduct of the patentee’s personnel to intense scrutiny, and provides135
an avenue for discovery of attorney-client and work product documents....
As the Federal Circuit put it, “the habit of charging inequitable conduct in almost136
every major patent case has become an absolute plague.” Other observers believe
that because inequitable conduct requires an analysis of the knowledge and intentions
of the patent applicants, the doctrine may also be contributing disproportionately to
the time and expense of patent litigation.137
Due to these perceived burdens upon patent litigation, some commentators have138
proposed that the inequitable conduct defense be eliminated. Others believe that
inequitable conduct is necessary to ensure the proper functioning of the patent
system. As the Advisory Commission on Patent Law Reform explained in its 1992
report:
Some mechanism to ensure fair dealing between the patentee, public, and the
Federal Government has been part of the patent system for over 200 years. In its
modern form, the unenforceability defense provides a necessary incentive for
patent applicants to engage in fair and open dealing with the [USPTO] during the
ex parte prosecution of patent applications, by imposing the penalty of forfeiture
of patent rights for failure to so deal. The defense is also considered to be an
essential safeguard against truly fraudulent conduct before the [USPTO].
Finally, the defense provides a means for encouraging complete disclosure of
information relevant to a particular patent application.... Thus, from a policy
133 Heidelberger Druckmaschinen AG v. Hantscho Comm’l Prods., Inc., 21 F.3d 1068 (Fed.
Cir. 1993).
134 Jazz Photo Corp. v. U.S. Int’l Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001).
135 John F. Lynch, “An Argument for Eliminating the Defense of Patent Unenforceability
Based on Inequitable Conduct,” 16 American Intellectual Property Law Association
Quarterly Journal (1988), 7.
136 Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418 (Fed. Cir. 1988).
137 See, e.g., Scott D. Anderson, “Inequitable Conduct: Persistent Problems and
Recommended Resolutions,” 82 Marquette Law Review (1999), 845.
138 Lynch, supra, at 7.
perspective, the defense of unenforceability based upon inequitable conduct is139
desirable and should be retained.
Proposed legislation in the 109th Congress would have retained the concept of
an inequitable conduct defense, but introduced a number of substantive and
procedural changes to the doctrine. The Senate bill would have limited the
availability of inequitable conduct as an affirmative defense to patent infringement.
In particular, inequitable conduct may only have been found if the patentee, his agent,
or his privy failed to disclose material information, or submitted false information,
with an intent to deceive the USPTO. A finding of good faith on behalf of the
applicant, agent or privy would have negated a conclusion of inequitable conduct.
Finally, in a notable departure from current law, a court may not have reached a
finding of inequitable conduct if none of the claims of the patent have been held
invalid.
The House bill also proposed reforms to the inequitable conduct doctrine, but
its approach differed. The House bill would have provided statutory authorization
for the USPTO Director to issue regulations governing applicants’ duty of candor.
It would have also imbued the USPTO with authority to prosecute violations of the
inequitable conduct doctrine. In addition, the House bill would have limited the
circumstances under which the defense of inequitable conduct could be raised before
the courts. In broad outline, under the House bill, if a court determined that an issue
of possible misconduct existed, then the court was directed to refer the matter to the
USPTO. Within judicial infringement proceedings, issues of inequitable conduct
could only have arisen after the court granted a motion to amend the pleadings. Such
a motion would have had to describe the relevant facts in detail and could not have
been granted until the court has previously entered a judgment that at least one of the
asserted patent claims is invalid. Finally, a charge of inequitable conduct could not
have been sustained unless the USPTO “would not have issued the invalidated claim,
acting reasonably, in the absence of the misconduct,” or “based upon the prosecution
history as a whole objectively considered, would have done so based upon in whole
or in part on account of the misconduct.”
Prior User Rights
Legislation offered in the 109th Congress would have expanded the applicability
of a “first inventor defense” established by the American Inventors Protection Act of
1999. As currently found at 35 U.S.C. § 273, an earlier inventor of a “method of
doing or conducting business” that was later patented by another may claim a defense
to patent infringement in certain circumstances. Both the House and Senate bills
would have broadened this defense by allowing it to apply with respect to any
patented subject matter.
The impetus for this provision lies in the rather complex relationship between
the law of trade secrets and the patent system. Trade secrecy protects individuals
from misappropriation of valuable information that is useful in commerce. One
reason an inventor might maintain the invention as a trade secret rather than seek
139 1992 Advisory Commission, supra, at 114.
patent protection is that the subject matter of the invention may not be regarded as
patentable. Such inventions as customer lists or data compilations have traditionally
been regarded as amenable to trade secret protection but not to patenting.140
Inventors might also maintain trade secret protection due to ignorance of the patent
system or because they believe they can keep their invention as a secret longer than
the period of exclusivity granted through the patent system.141
The patent law does not favor trade secret holders, however. Well-established
patent law provides that an inventor who makes a secret, commercial use of an
invention for more than one year prior to filing a patent application at the USPTO
forfeits his own right to a patent.142 This policy is based principally upon the desire
to maintain the integrity of the statutorily prescribed patent term. The patent law
grants patents a term of twenty years, commencing from the date a patent application
is filed.143 If the trade secret holder could make commercial use of an invention for
many years before choosing to file a patent application, he could disrupt this regime
by delaying the expiration date of his patent.
On the other hand, settled patent law principles established that prior secret uses
would not defeat the patents of later inventors.144 If an earlier inventor made secret
commercial use of an invention, and another person independently invented the same
technology later and obtained patent protection, then the trade secret holder could
face liability for patent infringement. This policy is based upon the reasoning that
once issued, published patent instruments fully inform the public about the invention,
while trade secrets do not. As between a subsequent inventor who patented the
invention, and thus had disclosed the invention to the public, and an earlier trade
secret holder who had not, the law favored the patent holder.
An example may clarify this rather complex legal situation. Suppose that
Inventor A develops and makes commercial use of a new manufacturing process.
Inventor A chooses not to obtain patent protection, but rather maintains that process
as a trade secret. Many years later, Inventor B independently develops the same
manufacturing process and promptly files a patent application claiming that
invention. In such circumstances, Inventor A’s earlier, trade secret use does not
prevent Inventor B from procuring a patent. Furthermore, if the USPTO approves
the patent application, then Inventor A faces infringement liability should Inventor
B file suit against him.
The American Inventors Protection Act of 1999 somewhat modified this
principle. That statute in part provided an infringement defense for an earlier
inventor of a “method of doing or conducting business” that was later patented by
140 Restatement of Unfair Competition § 39.
141 David D. Friedman, “Some Economics of Trade Secret Law,” 5 Journal of Economic
Perspectives (1991), 61, 64.
142 35 U.S.C. § 102(b). See Metallizing Engineering Co. v. Kenyon Bearing & Auto Parts,
143 35 U.S.C. § 154.
144 W.L. Gore & Associates v. Garlock, Inc., 721 F.2d 1540 (Fed. Cir. 1983).
another. By limiting this defense to patented methods of doing business, Congress
responded to the 1998 Federal Circuit opinion in State Street Bank and Trust Co. v.
Signature Financial Group.145 That judicial opinion recognized that business
methods could be subject to patenting, potentially exposing individuals who had
maintained business methods as trade secrets to liability for patent infringement.
Again, an example may aid understanding of the first inventor defense. Suppose
that Inventor X develops and exploits commercially a new method of doing business.
Inventor X maintains his business method as a trade secret. Many years later,
Inventor Y independently develops the same business method and promptly files a
patent application claiming that invention. Even following the enactment of the
American Inventors Protection Act, Inventor X’s earlier, trade secret use would not
prevent Inventor Y from procuring a patent. However, should the USPTO approve
Inventor Y’s patent application, and should Inventor Y sue Inventor X for patent
infringement, then Inventor X may potentially claim the benefit of the first inventor
defense. If successful,146 Inventor X would enjoy a complete defense to infringement
of Inventor Y’s patent.
As originally enacted, the first inventor defense applied only to patents claiming
a “method of doing or conducting business.” Although the American Inventors
Protection Act did not define this term, the first inventor defense was arguably a
focused provision directed towards a specific group of potential patent infringers.
The legislation introduced before the 109th Congress would have expanded upon the
first inventor defense by allowing it to apply to all patented subject matter.147 By
removing current restrictions referring to methods of doing business, both the House
and Senate bills would effectively introduce “prior user rights” into U.S. law.
A feature of many foreign patent regimes, prior user rights are often seen as
assisting small entities, which may lack the sophistication or resources to pursue
patent protection. The provision of prior user rights would allow such entities to
commercialize their inventions when they used the subject matter of the invention
prior to the patent’s filing date, even when they themselves did not pursue patent
rights. For this reason, a more expansive prior user rights regime has also been tied
to adoption of the first-inventor-to-file priority system.148
145 149 F.3d 1368 (Fed. Cir. 1998).
146 As presently codified at 35 U.S.C. § 273, the first inventor defense is subject to a number
of additional qualifications. First, the defendant must have reduced the infringing subject
matter to practice at least one year before the effective filing date of the application.
Second, the defendant must have commercially used the infringing subject matter prior to
the effective filing date of the patent. Finally, any reduction to practice or use must have
been made in good faith, without derivation from the patentee or persons in privity with the
patentee.
147 Both bills would have also removed the requirement that the prior use be reduced to
practice at least one year before the effective filing date of such patent. Under the proposed
legislation, the defense would apply where reduction to practice occurred prior to the
patent’s filing date.
148 See Gary L. Griswold & F. Andrew Ubel, “Prior User Rights — A Necessary Part of a
(continued...)
Proponents of prior user rights also assert that the proposed legislation would
have supported investment in technological innovation. Under this view, firms
would not longer be required to engage in extensive defensive patenting, but rather
would be able to devote these resources to further innovation. In addition, some
commentators observe that many U.S. trading partners, including Germany and
Japan, currently allow prior user rights. As a result, U.S. firms that obtain patent
rights in certain foreign nations may face the possibility that a foreign firm may enjoy
prior user rights in that invention. Foreign firms with U.S. patents do not currently
face this possibility with respect to U.S. firms, however. Under this view, adoption
of prior user rights in the United States would “level the playing field” for U.S.
industry.149
Proposals to adopt prior user rights have attracted critics, however. Some
observers believe that this regime would benefit large corporations at the expense of
smaller ones. Others believe that individuals who are aware that they can rely upon
prior user rights will be less likely to disclose their inventions through the patent
system. Still others have stated that prior user rights reduce the value of patents and
therefore make innovation less desirable. The role of the U.S. Constitution is
sometimes debated within this context as well. Article I, section 8, clause 8 of the
Constitution provides Congress with the authority to award “inventors the exclusive
right to their ... discoveries.” Some commentators suggest this language suggests, or
possibly requires, a system of exclusive patent rights, rather than an interest that may
be mitigated by prior user rights.150
Extraterritorial Infringement
The Senate patent reform bill introduced in the 109th Congress would have
repealed § 271(f) of the Patent Act.151 That statute specifies that the export of
unassembled components of a patented invention may constitute an infringing act.
Congress enacted § 271(f) in response to the Supreme Court decision in Deepsouth
Packing Co. v. Laitram Corp.152 A brief review of the Deepsouth case will aid
understanding of this rather complex statute.
In Deepsouth, the Laitram Corporation held a patent on a shrimp peeler. More
particularly, Laitram’s patent claimed a combination of well-known mechanical parts
— including knives, an inclined trough, and jets for spraying water — that when
assembled into one apparatus could be used to peel shrimp. Aware of Laitram’s
patent, the Deepsouth Packing Co. manufactured all the components of a patented
148 (...continued)
First-to-File System,” 26 John Marshall Law Review (1993), 567.
149 Paul R. Morico, “Are Prior User Rights Consistent with Federal Patent Policy?: The U.S.
Considers Legislation to Adopt Prior User Rights,” 78 Journal of the Patent and Trademark
Office Society (1996), 572.
150 See Robert L. Rohrback, “Prior User Rights: Roses or Thorns?,” 2 University of
Baltimore Intellectual Property Review (1993), 1.
151 The House bill did not address § 271(f), and therefore would have retained existing law.
152 406 U.S. 518 (1972).
shrimp peeler, but did not combine them into a single apparatus. Rather, Deepsouth
shipped all of the parts in an unassembled state to clients outside the United States.
Deepsouth’s customers were able to assemble these parts to make the shrimp peeler
in less than one hour.
When Laitram sued Deepsouth for infringement, the Supreme Court held that
there was no infringement. The Court first recognized that U.S. patents only relate
to conduct that occurs within the United States. According to the Court, Deepsouth
had neither made nor sold the precise combination of elements as claimed in the U.S.
patent in this country. Congress ultimately reacted to Deepsouth by enacting 35
U.S.C. § 271(f), which provides in part:
Whoever without authority supplies or causes to be supplied in or from the
United States all or a substantial portion of the components of a patented
invention, where such components are uncombined in whole or in part, in such
manner as to actively induce the combination of such components outside of the
United States in a manner that would infringe the patent if such combination
occurred within the United States, shall be liable as an infringer.
In recent years, § 271(f) has proven to be a controversial provision. In Microsoft
Corp. v. AT&T Corp. and other opinions, the Federal Circuit has addressed
circumstances where an accused infringer sent a limited number of copies of
infringing software program overseas, to be later incorporated into software stored
on personal computers. The Federal Circuit has concluded that such software
constitutes a “component” within the meaning of § 271(f).153 The result of this
reasoning is that the infringer faces monetary liability not just for a small number of
infringements, but rather for each of the potentially thousands of copies of the
software made abroad. One commentator has opined that “[b]y any metric” the
reasoning of the Federal Circuit “involved an extraordinary extension of § 271(f) to154
capture foreign sales.” By proposing to eliminate § 271(f), the Senate bill would
have apparently responded to this concern.
Notably, subsequent to the introduction of the Senate bill, the U.S. Supreme
Court agreed to review the Federal Circuit opinion in Microsoft Corp. v. AT&T
Corp.155 The High Court’s ultimate disposition of that case, along with any
conclusions it might offer with respect to § 271(f), will most likely not be known
prior to mid-2007.
Post-Issuance Opposition Proceedings
Legislation considered during the 109th Congress would have introduced post-
issuance opposition proceedings into U.S. patent law. Oppositions, which are
common in foreign patent regimes, are patent revocation proceedings that are usually
administered by authorities from the national patent office. Oppositions often
153 See, e.g., Eolas Techs. Inc. v. Microsoft Corp., 399 F.3d 1325 (Fed. Cir. 2005).
154 Michael R. Dzwonczyk, “Looking at Federal Circuit Developments 2005: The Year in
Review,” 6 Journal of High Technology Law (2006), 113.
155 127 S.Ct. 467 (Oct. 27, 2006).
involve a wide range of potential invalidity arguments and are conducted through
adversarial hearings that resemble courtroom litigation.
Although the U.S. patent system does not currently include oppositions, the U.S.
patent system has incorporated a so-called reexamination proceeding since 1981.
Some commentators have viewed the reexamination as a more limited form of an
opposition. Under the reexamination statute, any individual, including the patentee,
a competitor, and even the USPTO Director, may cite a prior art patent or printed
publication to the USPTO. If the USPTO determines that this reference raises a
“substantial new question of patentability” with respect to an issued patent, then it
will essentially reopen prosecution of the issued patent.
Traditional reexamination proceedings are conducted in an accelerated fashion
on an ex parte basis. Following the American Inventors Protection Act of 1999, an
inter partes reexamination allows the requester to participate more fully in the
proceedings through the submission of arguments and the filing of appeals. Either
sort of reexamination may result in a certificate confirming the patentability of the
original claims, an amended patent with narrower claims or a declaration of patent
invalidity.
Congress intended reexamination proceedings to serve as an inexpensive
alternative to judicial determinations of patent validity.156 Reexamination also allows
further access to the legal and technical expertise of the USPTO after a patent has
issued.157 However, some commentators believe that reexamination proceedings
have been employed only sparingly and question their effectiveness.158
Some analysts have expressed concern that potential requesters are discouraged
from commencing inter partes reexamination proceedings due to a statutory
provision that limits their future options. In order to discourage abuse of these
proceedings, the inter partes reexamination statute provides that third-party
participants may not later assert that a patent is invalid “on any ground that [they]
raised or could have raised during the inter partes reexamination proceedings.”159
Some observers believe that this potential estoppel effect disinclines potential
requesters from use of this post-issuance proceeding. In apparent response to this
concern, the House bill would have deleted the phrase “or could have raised” from
the statute.160 As a result, inter partes reexamination requesters would be limited
only with respect to arguments that they actually made before the USPTO.
The House and Senate bills each would have created an additional post-issuance
proceeding. Although the bills were similar in broad measure, they differed in some
156 Mark D. Janis, “Inter Partes Reexamination,” 10 Fordham Intellectual Property, Media
& Entertainment Law Journal (2000), 481.
157 Craig Allen Nard, “Certainty, Fence Building and the Useful Arts,” 74 Indiana Law
Journal (1999), 759.
158 See Schechter & Thomas, supra, at § 7.5.4.
159 35 U.S.C. § 315(c).
160 H.R. 2795, § 9(d). The Senate bill did not include a similar amendment.
significant respects. Under this House bill, any person could have commenced an
opposition either within nine months after the issuance of the patent, or six months
after receiving notice from the patent holder alleging infringement. The opposition
may have related to a wide range of patentability issues, including double patenting,
statutory subject matter, novelty, nonobviousness, enablement, and definite claiming.
The commencement of the opposition would have been conditioned upon the USPTO
Director’s determination that the opponent has raised a substantial question of
patentability with respect to at least one claim in the patent.
The House bill further provided that opposition proceedings would have been
tried before a panel of three administrative patent judges. In the event that the
patentee filed an infringement suit within nine months of patent issuance, or six
months of notifying the alleged infringer, the opposition would have been stayed
upon the request of the patent owner. The patent owner would have been allowed to
amend its claims during an opposition, provided that those amendments did not
broaden the scope of the claims. The opposition must have concluded within one
year of its commencement, although one six-month extension was possible. The
results of opposition proceedings could have been appealed to the courts.
In contrast, the Senate bill would have established “post-grant review
proceedings.” Under the Senate bill, any person other than the patent proprietor
could have commenced the opposition. The opposition could have begun either
within 12 months of the date the patent was issued, or at any time the challenger is
able to establish a “substantial reason” that the “continued existence of the
challenged claim causes or is likely to cause the petitioner significant economic
harm.”
The Senate bill would have afforded the patent proprietor a single opportunity
to amend its patent during the opposition. The USPTO was required to reach a final
decision within 12 months of commencement of the proceeding. Should the patent
survive the post-issuance opposition proceeding, the individual who commenced the
proceeding, along with his privies, would have been barred from raising issues that
were raised, or could have been raised, before the USPTO. The Senate bill also
provided the USPTO Director with authority to establish regulations to govern post-
grant review proceedings.
Many observers have called for the United States to adopt an opposition system
in order to provide more timely, lower cost, and more efficient review of issued
patents.161 Such a system could potentially improve the quality of issued patents by
weeding out invalid claims. It might also encourage innovative firms to review
issued patents soon after they are granted, thereby increasing the opportunity for
technology spillovers.162 Concerns have arisen over oppositions because they too
may be costly, complex, and prone to abuse as a means for harassing patent
161 See National Research Council of the National Academies, A Patent System for the 21st
Century (2004), 96.
162 Ibid. at 103.
owners.163 A successful opposition proceeding would require a balancing of these
concerns.
Publication of Pending Applications
Until recent years, the U.S. patent system maintained pending patent
applications in secrecy. The first moment that the public would become aware of the
existence of a U.S. patent application was the day the USPTO formally allowed it to
issue as a granted patent. This regime advantaged patent applicants because it
allowed them to understand exactly what the scope of any allowed claims might be
prior to disclosing an invention. Thus, if the applicant was able to maintain the
invention that was subject to a patent application as a trade secret, then he could
choose between obtaining the allowed patent claims and trade secret status. In
addition, because the invention was not disclosed prior to the award of formal patent
rights, unscrupulous competitors were discouraged from copying the invention.
However, this secrecy regime has been perceived as imposing costs as well.
Others might well engage in duplicative research efforts during the pendency of
patent applications, unaware that an earlier inventor had already staked a claim to that
technology. This arrangement also allowed inventors to commence infringement
litigation on the very day a patent issued, without any degree of notice to other
members of the technological community.164
Industry in the United States possessed one mechanism for identifying pending
U.S. patent applications. Most foreign patent regimes publish all pending patent
applications approximately 18 months after they have been filed.165 As a result,
savvy firms in the United States could review pending applications filed before
foreign patent offices, and make an educated guess as to the existence of a
corresponding U.S. application. This effort was necessarily inexact, however,
particularly as some inventors either lacked the resources, or made the strategic
decision, not to obtain patent rights outside the United States.
In enacting the American Inventors Protection Act of 1999, Congress for the
first time introduced the concept of pre-grant publication into U.S. law. Since
November 29, 2000, U.S. patent applications have been published 18 months from
the date of filing, with some exceptions. The most significant of these exceptions
applies where the inventor represents that he will not seek patent protection abroad.
In particular, if an applicant certifies that the invention disclosed in the U.S.
application will not be the subject of a patent application in another country that
requires publication of applications 18 months after filing, then the USPTO will not
163 See Mark D. Janis, “Rethinking Reexamination: Toward a Viable Administrative
Revocation System for U.S. Patent Law,” 11 Harvard Journal of Law and Technology
(1997), 1.
164 Schechter & Thomas, supra, at § 7.2.6.
165 John C. Todaro, “Potential Upcoming Changes in U.S. Patent Laws: the Publication of
Patent Applications,” 36 IDEA: Journal of Law and Technology (1996), 309.
publish the application.166 As a result, inventors who do not wish to seek foreign
patent rights retain the possibility of avoiding pre-grant publication.
Legislation before the 109th Congress would have further modified the U.S. pre-
grant publication system by effectively calling for all pending applications to be
published approximately 18 months after they are filed. In particular, both the House
and Senate bills would have eliminated the possibility of opting out of pre-grant
publication by certifying that a patent will be sought only in the United States.167
Pre-Issuance Submissions
The patent reform legislation introduced in the 109th Congress would have
expanded the ability of members of the public to submit information to the USPTO
that is pertinent to pending applications. Under current law, interested individuals
may enter a protest against a patent application. The protest must specifically
identify the application and be served upon the applicant. The protest must also
include a copy and, if necessary, an English translation, of any patent, publication or
other information relied upon. The protester also must explain the relevance of each
item.168
Protest proceedings have traditionally played a small role in U.S. patent practice.
Until Congress enacted the American Inventors Protection Act of 1999, the USPTO
maintained applications in secrecy. Therefore, the circumstances in which members
of the public would learn of the precise contents of a pending patent application were
relatively limited. With the USPTO commencing publication of some pending patent
applications, protests would seem far more likely. Seemingly aware of this
possibility, the 1999 Act provided that the USPTO shall “ensure that no protest or
other form of pre-issuance opposition ... may be initiated after publication of the
application without the express written consent of the applicant.”169 Of course, the
effect of this provision is to eliminate the possibility of protest in exactly that class
of cases where the public is most likely to learn of the contents of a pending
application.
Through rulemaking, the USPTO has nonetheless established a limited
mechanism for members of the public to submit information they believe is pertinent
to a pending, published application. The submitted information must consist of
either a patent or printed publication, and it must be submitted within two months of
the date the USPTO published the pending application. Nondocumentary
information that may be relevant to the patentability determination, such as sales or
public use of the invention, will not be considered.170 In addition, because Congress
stipulated that no protest or pre-grant opposition may occur absent the consent of the
166 35 U.S.C. § 122(b).
167 H.R. 2795, § 9(a).
168 37 C.F.R. § 1.291.
169 35 U.S.C. § 122(c).
170 37 C.F.R. § 1.99.
patent holder, the USPTO has explained that it will not accept comments or
explanations concerning the submitted patents or printed publications. If such
comments are attached, USPTO staff will redact them before the submitted
documents are forwarded to the examiner.171
The proposed legislation would have augmented the possibility for pre-issuance
submissions. Under both the House and Senate bills, any person would have been
able to submit patent documents and other printed publications to the USPTO for
review. Such prior art must have been submitted within the later date of either (1)
the date the USPTO issues a notice of allowance to the patent applicant; or (2) either
six months after the date of pre-grant publication of the application, or the date of the
rejection of any claim by the USPTO examiner. Such a submission must have
included “a concise description of the asserted relevance of each submitted
document.”172
Most observers agree that ideally, the USPTO would have access to all pertinent
information when making patentability determinations. A more expansive pre-
issuance submission policy may allow members of the public to disclose relevant
patents and other documents that the USPTO’s own searchers may not have revealed,
thereby leading to more accurate USPTO decision making. On the other hand,
lengthy pre-issuance submissions may merely be repetitive of the USPTO’s own
search results, but still require extensive periods of examiner review that might
ultimately delay examination. The proposals set before the 109th Congress apparently
attempted to balance these concerns by expanding existing opportunities for post-
publication submissions, but limiting the timing and nature of those submissions so
as to prevent undue burdens upon the USPTO and patent applicants.
Interlocutory Claim Construction Appeals
In the 109th Congress, the Senate bill would have allowed a litigant to pursue an
interlocutory appeal of a patent claim construction order to the Court of Appeals for
the Federal Circuit.173 This provision appears to be motivated by the recognition that
the interpretation of a patent claims — a process that in large measure determines the
scope of the patent owner’s proprietary rights — is the most fundamental inquiry that
occurs during patent litigation.174 In addition, numerous observers have perceived the
Federal Circuit to have a high reversal rate of claim interpretations by the district
courts.175 Because claim construction is commonly the central focus of a patent trial,
the Federal Circuit’s reversal of that construction often requires the district court to
171 U.S. Dept. of Commerce, U.S. Patent & Trademark Off., Manual of Patent Examining
Procedure § 1134.01 (8th ed. May 2004).
172 H.R. 2795, § 10.
173 The House bill did not address interlocutory appeals of claim construction orders, and
therefore would have retained existing law.
174 See Joseph Scott Miller, “Enhancing Patent Disclosure for Faithful Claim Construction,”
175 See Kimberly A. Moore, “Are District Court Judges Equipped to Resolve Patent Cases?,”
retry the entire case. As patent litigation is a notoriously lengthy and costly exercise,
some observers believe that the current system is overly expensive and inefficient.176
Some commentators have opined that allowing an immediate appeal of patent
claim construction orders would allow the Federal Circuit review before the litigants
are put to the full expense of a trial in federal district court.177 Ordinarily, litigants
may appeal only “final decisions” from the district courts.178 Although federal law
currently allows for a review of an intermediate matter at trial179 — a so-called
interlocutory appeal — the Federal Circuit has declined to accept such appeals for
routine claim interpretation cases.180 The Senate bill would have expressly
authorized such interlocutory appeals.
Venue
Legislation before the 109th Congress would have reformed the venue provision
that applies to patent infringement cases in federal court. The requirement of venue
complements the more fundamental requirement of jurisdiction in federal litigation.
In particular, venue addresses the question of which court, out of those that possess
personal and subject matter jurisdiction, may most conveniently hear the specific
lawsuit in question.181
Congress has enacted a specialized venue statute that applies only to patent
cases. 28 U.S.C. § 1400(b) provides that in patent litigation, venue is proper either:
(1) in the judicial district where the defendant resides, or (2) where the defendant has
committed acts of infringement and has a regular and established place of business.
An important question under this provision is where a corporation is deemed to
“reside.” Prior to 1988, a corporation was viewed as residing in its state of
incorporation.182 Commentators have explained that during this period, the patent
venue statute was fairly restrictive, tending to move infringement litigation into the
defendant’s seat of operations.183
Congressional amendments subsequently liberalized venue concepts in patent
litigation. In 1988, Congress adopted a new definition of “reside” as it applies to
176 See Gwendolyn Dawson, “Matchmaking in the Realm of Patents: A Call for the Marriage
of Patent Theory and Claim Construction Procedure,” 79 Texas Law Review (2001), 1257.
177 See Kyle J. Fiet, “Restoring the Promise of Markman: Interlocutory Patent Appeals
Reevaluated Post-Phillips v. AWH Corp.,” 84 North Carolina Law Review 1291 (2006).
178 28 U.S.C. § 1291 (2006).
179 28 U.S.C. § 1292 (2006).
180 See Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1479 (Fed. Cir .1998) (en banc)
(Newman, J., additional views).
181 See Wachovia Bank v. Schmidt, 126 S. Ct. 941 (2006).
182 See Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957).
183 See Schechter & Thomas, supra, at § 10.1.3.
venue for corporate defendants.184 Under the new definition, a corporation is
presumed to reside in any judicial district to which it could be subject to personal
jurisdiction at the time the litigation commences. Congress codified this change
in a separate provision found at 28 U.S.C. § 1391. Although there is no evidence
that Congress contemplated that these reforms would hold consequences for the
specialized patent venue statute, the Federal Circuit nonetheless held that this
amendment should also be read into § 1400(b).185
The result of the 1988 amendments has been significant for corporate
defendants, which constitute the majority of defendants in patent litigation. Although
§ 1400(b) still governs venue in patent cases, few, if any plaintiffs rely upon the
restrictive second prong of that section. Instead they base venue upon the
“residence” requirement of the first prong — which now is entirely conterminous
with personal jurisdiction, and which for larger corporations is likely to include every
federal district in the country. For corporate defendants, then, the venue statute has
essentially become superfluous, for the same standards governing personal
jurisdiction also dictate whether a court may provide an appropriate venue or not.
Some observers allege that the liberal venue statute promotes forum shopping,
allowing patent proprietors to bring suit in courts that they believe favor patent
owners over accused infringers. One such “magnet jurisdiction” is said to be the
rural Eastern District of Texas, and in particular the Marshall, Texas federal court.
According to one account, many observers “wonder how an East Texas town of
25,000 — even if it was named after Supreme Court Justice John Marshall — came
to harbor an oversized share of intellectual property disputes.”186 In addition,
reportedly “many of the local lawyers who once specialized in personal injury cases
are turning their attention to intellectual property law.”187 Others believe that the
existence of a single appellate court for patent cases, the Federal Circuit, minimizes
forum shopping concerns, and that certain district courts attract patent cases due to
their expertise and timeliness, rather than an inherent favoritism for patent holders.
In any event, both the House and Senate bills would have amended § 1400(b)
by stipulating that, notwithstanding § 1391, for purposes of venue in patent cases “a
corporation shall be deemed to reside in the judicial district in which the corporation
has its principal place of business or in the State in which the corporation is
incorporated.” This provision would essentially restore venue to a more restrictive
concept than under current practice, similar to circumstances that existed prior to the
184 Judicial Improvements and Access to Justice Act, P.L. 100-702, tit. X, § 1013(a), 102
Stat. 4642, 4669 (1988).
185 VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).
186 Allen Pusey, “Marshall Law: Patent Lawyers Flood to East Texas Court for Its Expertise
and ‘Rocket Docket’,” Dallas Morning News (Mar. 26, 2006), 1D.
187 Ibid.
Enhanced USPTO Rulemaking Authority
Under current law, the ability of USPTO to issue regulations governing
substantive patent law matters is extremely limited. The most significant grant of
rulemaking authority appears to be found in 35 U.S.C. § 2(b)(2)(A), which allows the
USPTO to establish regulations that “shall govern the conduct of proceedings in the
Office....” As explained by the Federal Circuit, “Congress has not vested the
[USPTO Director] with any general substantive rulemaking power....”188
In the 109th Congress, the Senate bill would have expanded USPTO rulemaking
authority.189 The USPTO Director would be permitted to “promulgate such rules,
regulations, and orders as the Director determines appropriate to carry out the
provisions of this title or any other law applicable to the [USPTO] or that the
Director determines necessary to govern the operation and organization of the
Office.”
Concluding Observations
Legislation that was introduced in the 109th Congress arguably would have
worked the most sweeping reforms to the U.S. patent system since the nineteenth
century. However, many of these proposals, such as pre-issuance publication, prior
user rights, and oppositions, have already been implemented in U.S. law to a more
limited extent. These and other proposed modifications, such as the first-inventor-to-
file priority system and elimination of the best mode requirement, also reflect the
decades-old patent practices of Europe, Japan, and our other leading trading partners.
As well, many of these suggested changes enjoy the support of diverse institutions,
including the Federal Trade Commission, National Academies, economists, industry
representatives, attorneys, and legal academics.
Other knowledgeable observers are nonetheless concerned that certain of these
proposals would weaken the patent right, thereby diminishing needed incentives for
innovation. Some also believe that changes of this magnitude, occurring at the same
time, do not present the most prudent course for the patent system. Patent reform
therefore confronts Congress with difficult legal, practical, and policy issues, but also
with the apparent possibility for altering and potentially improving the legal regime
that has long been recognized as an engine of innovation within the U.S. economy.
188 Merck & Co. v. Kessler, 80 F.3d 1543, 1550 (Fed. Cir. 1996).
189 The House bill did not address USPTO rulemaking authority, and therefore would have
retained existing law.