On September 7, 2007, the United States House of Representatives passed the Patent Reform Act of 2007. The Senate Judiciary Committee is currently considering the Senate's version of the Act. Patent reform has been in the works for several years, with a similar piece of legislation, the Patent Reform Act of 2005, failing to pass the House of Representatives two years ago. However, it is believed that the current Act has a good chance of becoming law. This article explores the major changes to the U.S. patent system that will occur should that happen.
First to File and Derivation Proceedings
The most widely publicized change proposed by the Act is the move from the U.S.’s current first-to-invent system to a first-to-file system of determining who is entitled to a patent. The first-to-file system is used in much of the rest of the world, and many foreign companies have eagerly awaited the U.S.’s move to a similar system for the sake of simplicity and consistency. Under the Patent Reform Act of 2007, if two inventors file applications for the same invention, the first to file an application receives the patent. The first-to-file system simplifies determining who is entitled to a patent. However, critics of the first-to-file system point out that it is likely to prompt a “race to file” mentality, which may give an advantage to large companies over individual inventors.
The Act also adopts a new proceeding as a result of the first-to-file system: the derivation proceeding. The purpose of the derivation proceeding is to stop someone from obtaining a patent for something they did not invent by discovering another's invention and filing a patent application before the inventor files. Should that happen, the inventor may request initiation of a derivation proceeding to show that the person who filed first actually derived the claimed invention from the inventor and filed the application without authorization. The Patent Trial and Appeal Board then determines who has the right to the patent.
It must be noted that even if the Patent Reform Act of 2007 becomes law, the first-to-file system will not immediately be implemented, and may not be implemented for some time, due to a provision requiring Europe and Japan to adopt a particular aspect of the U.S.’s system before the U.S.’s adoption of a first-to-file system becomes effective. The Act states that the section implementing the first-to-file system will not become effective until 90 days after the President issues an Executive order finding that the major patenting authorities, namely Europe and Japan, agree to allow inventors a one-year window in which to file their patent applications after their first public disclosure of their invention. Under the current systems of Europe and Japan, a patent application must be filed prior to any public disclosure, and if an inventor makes any public disclosure prior to filing an application, the disclosure may be used against the inventor as a basis to deny the application. Thus, the Act seeks to bring uniformity among countries, not only regarding first-to-file, but also regarding whether an inventor may make a public disclosure of his or her invention before filing a patent application.
Another major change proposed by the Act is the limiting of damages that a patent holder may obtain for infringement of their patent. Under the current law, a patent holder is entitled to “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.” The law further allows the court to increase the damages up to three times the amount found by the jury or assessed by the court. However, the law does not define what constitutes a “reasonable royalty.” This has allowed wide leeway in the amounts awarded for infringement.
The Patent Reform Act of 2007 adds a definition of a “reasonable royalty,” and thus limits the amount of damages that may be awarded for infringement. Under the Act's definition, the court must determine which one of three methods should be used to calculate a reasonable royalty, and the jury must utilize that method and consider no extraneous factors. The first method defines a reasonable royalty as a portion of the value of the infringing product or process, where the royalty is based only on the value properly attributable to the patent's specific contribution over what previously existed. An oft-cited example is an infringing windshield wiper on a car: the reasonable royalty must be based on the value attributable to the windshield wiper, not the value of the entire car.
The second method applies when the patent's contribution to the product or process is the predominate basis for the market demand for the product or process, in which case damages may be based upon the entire market value of the product or process. The third method applies when neither the first nor the second method is applicable. In that instance, the court and the jury may consider other factors, including the terms of a nonexclusive marketplace licensing of the invention, if appropriate.
The Act further alters the existing law by narrowing the court's ability to increase the damages up to three times to only those instances where the infringement was willful. An infringement is considered willful if the infringer continued the alleged acts of infringement after receiving written notice alleging acts of infringement and identifying with particularity each claim of the patent, each allegedly infringing product or process, and the relationship of such claims to such products or processes. An infringement is also considered willful if the infringer intentionally copied the invention or if the infringer continued to infringe the same patent after a court founding that such conduct was infringement.
A third major change proposed by the Act is the elimination of an applicant's ability to opt-out of the application publication. Currently, applications are published eighteen months after they are filed. However, an applicant may request that his or her application not be published, so long as the applicant is not filing in another country requiring publication. The Act eliminates this option, offering only the ability to delay publication until three months after a second office action.
A fourth major change proposed by the Act is the institution of post-grant review. The goal of providing for post-grant review is to reduce litigation on patent validity by providing an alternative to litigation. Under the Act, anyone may file a petition for cancellation of a patent or any claim of a patent on the grounds that it is invalid. The mechanism for such cancellation is a post-grant review, and it must be instituted within one year of the issuance of the patent in question, or later with the patent owner's consent. The party requesting the post-grant review must set forth the basis for cancellation and provide evidence in support, including patents, publications, and witness testimony.
Allowance of Search Report Requirement
A final major change proposed by the Act is allowing the Director of the United States Patent and Trademark Office to institute regulations requiring patent applicants to conduct a patentability search prior to filing an application and to submit the results of such search, as well as other information and analysis relevant to patentability. The Act provides an exception for micro entities. To qualify for the micro entity exception, all of the inventors named in an unassigned application must qualify as a small entity, none of the inventors may have been named on five or more previous patent applications, and none of the inventors may have an income exceeding 2.5 times the median household income, as reported by the Bureau of the Census. If the application has been assigned, the income requirement is replaced by a requirement that the assignee must have five or fewer employees and a gross taxable income not exceeding 2.5 times the median household income.
The Director may require all applicants not meeting the micro entity requirements to conduct and provide the results of a patentability search as a prerequisite for the examination of their application. In fact, the Director has already issued regulations requiring certain applicants to provide such information.
In summary, the Patent Reform Act of 2007 may bring a number of major changes to the current U.S. patent system. Whether the provisions discussed above survive the Senate and become law remains to be seen.