By Kevin E. Noonan —

During this Congress, the biotech and pharma sectors appeared to be caught flat-footed in the face of a concerted effort by information technology companies and their affiliated pressure groups (like the Coalition for Patent Fairness) to "reform" patent law out of effective existence.  Not this time:  Senator Jon Kyl (R-AZ and Minority Whip; at right) today introduced a patent reform bill that differs dramatically in some ways (but is strikingly similar in others) from S. 1145 introduced last session by Senators Leahy (D-VT) and Hatch (R-UT).  The bill is the result of "months" of meetings with stakeholders excluded from meaningful participation in crafting S. 1145, according to Andrew Noyes, writing today for the New Jersey Congress Daily (see also "Senate Patent Reform Legislation — One Old Bill and One New Bill").

The bill has thirteen substantive sections (the remainder being technical amendments and other sections relating to the form of the legislation).  These sections include the following:

Sec. 2:  First inventor to file

Sec. 3:  Inventor’s oath

Sec. 4:  Damages

Sec. 5:  Post-grant review

Sec. 6:  Patent Trial and Appeal Board

Sec. 7:  Third party submissions

Sec. 8:  Venue

Sec. 9:  PTO regulatory authority

Sec. 10:  Applicant Quality Submissions

Sec. 11:  Inequitable conduct

Sec. 12:  PTO authority to accept late filings

Sec. 13:  Limitation on damages available in the DataTreasury case

Sec. 14:  PTO funding

These provisions will be the subject of more in-depth commentary in future posts.  For now, some of the similarities and differences will be discussed with a view towards identifying where the bill represents improvements over S. 1145, and a few areas where it does not.

Section 13, for example, is a provision very similar to the provision introduced into S. 1145 with some degree of haste and secrecy and a large absence of public review and commentary.  The brain-child of Senator Jeff Sessions (R-AL), it purports to shield from patent infringement liability banks using an electronic check clearing technology owned by a small Texas company, DataTreasury.  One of the major objections to the corresponding provision in S. 1145 is that, if passed, it would represent a "taking" of DataTreasury’s property, for which the U.S. government could be liable in the Court of Claims.  While paling in comparison to the magnitude of the proposed Wall Street bailout currently under consideration by Congress, the amount of the government’s liability to DataTreasury could be as high as $4 billion (accruing to the benefit of the banking industry).  Clearly cognizant of the political difficulties the provision created in S. 1145, Senator Kyl’s bill has a savings provision:  should passage of Section 13 of the bill be found to be a taking, these provisions will become "null and void."

The "first to file" provisions (Sections 2 and 3) retain the 1-year grace period for an inventor’s own disclosure, but except for derivation proceedings would adopt absolute novelty for any disclosure prior to filing.  The bill provides protection against derivation by a third party from the true inventor, including proceedings before the Office to adjudicate claims of derivation.  Current law regarding interferences and statutory invention registrations are repealed, as are the provisions of 35 U.S.C. § 104 differentiating actions in the U.S. from those occurring abroad.  The bill is devoid of any requirement for a certification that any other major Patent Office has adopted a 1-year grace period, unlike H.R. 1983 passed by the House of Representatives last fall.  Applications can be filed in the name of the true inventor by an "applicant" that includes an assignee or a party to whom the inventor owes an obligation to assign.

The post-grant review provisions (Section 5) eliminate inter partes reexaminations and provide for two "windows":  the first window expires within nine months of patent grant, and in this window a patent can be opposed on any condition for patentability.  The second window cannot occur before nine months after patent grant date or before termination of "first window" proceedings.  The bases for patent challenge in the second window are limited to novelty and obviousness based on printed publications, patents and patent applications.  Anonymous oppositions are barred, and the real party in interest opposing a patent during the first window would be precluded from petitioning for a second window review.  Moreover, the opposition petitioner must be a party with "a substantial adverse economic interest."  Ex parte reexamination provisions of current law are amended to be limited to actions by a patentee.  The petition for opposition and opposition proceedings are to be published by the Office, except on motion that any paper is filed under seal.  Finally, oppositions will retain some of the estoppel provisions of current inter partes reexamination.

The Board of Patent Appeals and Interferences is replaced under the bill with a Patent Trial and Appeal Board, which will be responsible for the appeals from adverse patentability determinations as the Board is now.  In addition, the PTAB is intended to make initial determinations as to derivation and preside over all post-grant review proceedings (Section 6).

There are two provisions regarding prior art.  The first (Section 7) expands the opportunity for third parties to submit relevant art.  Such submissions must be filed with an explanation of their materiality to the patentability of one or more pending claims, and must be filed by the earlier of:  (i) a notice of allowability, (ii) six months after publication of the application, or (iii) the date of the first Office Action containing a rejection.  The second provision, relating to the Applicant Quality Submissions (Section 10) so ardently pursued by the Office, does not make such submissions mandatory.  Instead, the bill provides incentives, including "prosecution flexibility, modifications to requirements for adjustment of a patent term pursuant to section 154(b) of this title, or modifications to fees imposed pursuant to section 9 of the Patent Reform Act of 2008."  In addition, upon certification by the Director that an applicant has complied with AQS requirements, any such portion of the prosecution history cannot be used to construe a patent claim, except with regard to prosecution history estoppel in determining infringement under the doctrine of equivalents.

The bill does provide the USPTO with expanded authority in three areas.  First, the Office is granted fee-setting authority, albeit subject to Congressional oversight (Section 9).  The Office is also provided the right by statute to keep all of its fees, as well as the right to a patent "enterprise fund" that will permit the Office to retain authority over funds not expended in any fiscal year (Section 14).  Patent Office expenditures are subject to an audit and report to Congress.  More substantively, the Office is given the right to accept certain late filings, including those relating to Patent Term Extension under 35 U.S.C. § 156 (Section 12).  In an effort to prevent the type of inadvertent failure to meet a deadline that occurred in The Medicine Company’s late patent term extension filing, or in the Aristocrat Technologies Australia case, the bill also converts deadlines set out in number of days (30 days, 60 days, 90 days and 180 days) to months (1, 2, 3 and 6 months, respectively).  The Director can deny a request to accept a late filing by mere inaction, and the decision is not subject to judicial review.

Changes to patent litigation include limitations on venue to districts where the defendant has its principal place of business, a physical presence or has committed acts of infringement, as well as other provisions such as consent of the parties (Section 8).  Changes in how patent damages are to be calculated include specifying by statute how a reasonable royalty is to be determined, including bars on "standardized" damages measurements or using "comparable" patents (Section 4).

The most controversial provision in the bill regards changes in how inequitable conduct is determined and the consequences of an inequitable conduct finding (Section 11).  First, the bill removes final determinations of inequitable conduct from the courts.  Instead, the court’s role is to determine, on a party’s motion, whether that party has shown by a preponderance of the evidence whether at least one claim in a patent has been procured by inequitable conduct.  The court then will order the patentee to submit the patent for "reissue" by the Patent Office.  If the patentee does not comply within 2 months, the court can hold the patent unenforceable.  The "reissue" proceeding is limited to questions of patentability in light of art not previously submitted to the Office during ex parte examination, and there is no requirement that a patentee make the affirmative assertion that the patent is defective.  In the reissue, one or more claims can be cancelled, and the patentee has the right to submit "a single substitute claim" of "equivalent or narrower scope."  The applicant is permitted no further amendment to the claims, although the claims can be further amended by the Office during prosecution.  Claim scope cannot be broadened, and no continuation applications are permitted.  Neither can a patentee withdraw the patent from reissue; the bill contemplates either that the Office will reissue the patent (whether amended or not depending on the outcome of the reissue proceedings), or that the patentee will be required to surrender the patent.

The bill also includes sanctions provisions for inequitable conduct, for both the patentee and counsel.  There are civil penalties in the bill, amounting to $150,000 for each act of misconduct and up to $10,000,000 for "exceptional" misconduct, including affirmative fraudulent acts.  This monetary liability is subject to joint and several liability, meaning that counsel with an indigent or bankrupt client could be responsible for satisfying the penalty.  Counsel is also subject to Patent Office discipline for violating ethical rules relating to practice before the Office.

Inequitable conduct is to be determined by the Office.  The Director must first determine whether there is probable cause to investigate allegations of inequitable conduct, and this determination cannot be appealed.  After a determination that probable cause exists, evidence is adduced by subpoena and oral deposition (by anyone designated by the Director).  This evidence is then used by the Office to decide whether any claim of a patent was obtained by inequitable conduct, a decision that can be appealed only to the Court of Appeals for the Federal Circuit.

The Kyl bill is very unlikely to be considered in the time remaining for this Congress, especially in view of the impending election and the end of the current administration.  It does, however, give timely notice to Senators Leahy and Hatch, who have declared their intention to re-introduce an equivalent to S. 1145 and move it through the Judiciary Committee, that there will be at least one competing bill and that the pharma and biotech industry, as well as small inventors, universities, not-for-profit institutions, and other stakeholders who do not share the IT industry’s positions on patents are paying attention.

Patent Docs will provide more in depth discussion of the bill in future posts.  Thanks to Hal Wegner for alerting us to the bill.