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Thoughts on the Patent Reform Act of 2011

The Patent Reform Act of 2011 (“PRA”), if passed, will represent a complete overhaul of the U.S. patent system. The bill changes many procedural and substantive aspects of patent law.

1. The first major change is shifting the U.S. from a first-to-invent country towards a first-to-file country, except in certain circumstances where competing patent applications were co-inventors of an invention. This brings the U.S. more in line with the rest of the world, which generally follows a strict first-to-file rule. The first-to-file rule is easier to administer for patent offices and courts alike. This change does not include an absolute novelty requirement, which is also found in most foreign countries. Rather, the U.S. will retain the rule that a patent applicant must file an application within one year of the first public use or sale of an invention. I like the idea of moving towards a first-to-file system for its ease of administration, the elimination of potential abuses, and the encouragement to use the patent system.

2. The second change deals with damages. Following some jury verdicts in the $500 million range in patent cases over the past decade or so, some believe that more stringent caps on patent damages are warranted. The PRA would enact procedural hurdles for federal district court judges handling patent cases, such as making pretrial rulings on damages issues and bifurcating the damages portion of patent infringement trials. Essentially, these hurdles would require a federal judge to devote even more time, money, and effort to trying a patent infringement case. In my experience, most federal judges do not have the same familiarity with the patent laws they do with other types of substantive law, which makes it hard for them to comply with the current, less stringent procedural requirements. In my opinion, these new requirements will add to the number of cases reversed on appeal. From a court-clogging perspective, the damages amendments will probably exacerbate any perceived docket issues.

3. The third major change deals with how courts enhance damages against persons willfully, knowingly, or recklessly infringing a patent. The current rule provides that a court may award up to treble damages against an infringer depending on the facts shown. The amended rule would require proof by a standard of “clear and convincing evidence” that infringement was willful, and sets forth guidelines about what constitutes willful infringement. While this section is touted as reform, the guidelines really just codify existing case law, and I have no problem with this. The real change comes from the heightened burden of proof; as a practical matter, I can’t see the burden of proof affecting trials much. It will have the most impact in cases on appeal. I don’t believe a heightened burden should be in place for enhanced damages; these are punitive in nature and serve a deterrent effect against infringement.

4. The fourth change allows a corporation to more easily apply for a patent on behalf of an inventor. Current practice requires the corporation to notify the inventor and attempt to get him or her to participate before filing the application. If the inventor refuses, the corporation can file a petition seeking to involuntarily name the person as an inventor and must show the reasons why the corporation can apply for the patent. Essentially, current procedure focuses on protecting the inventor. The new approach would focus on protecting the corporation. While the corporate-centric approach would probably make it slightly easier to further the Obama administration’s focus on innovation, I believe the inventor-centric approach is the better one. The patent laws derive from the Constitution, which grants exclusive rights to inventors for their inventions. The Patent Office is already a tough place for a solo inventor or small business, and it doesn’t need to be made tougher for regular people.

5. The fifth change would see the PRA eliminate false marking litigation by private parties unless by a competitor who can prove a competitive injury. As the law stands now, anyone can bring suit on behalf of the government for penalties against a person or company who falsely marks a product as patented. The purpose of the law is to keep people from being able to improperly inflate the cost of their product because others will not enter the market for fear of being sued for patent infringement. Some organizations known as “trolls” have recently begun making a cottage industry out of false marking litigation. While the false marking litigation probably is a little excessive right now, I believe proof of competitive injury is too high of a bar for this type of litigation. Perhaps a middle ground would be appropriate, where only a competitor can bring suit but competitive injury is a rebuttable presumption. This would serve to limit the amount of false marking litigation while at the same time serving the intent of the original law.

6. The final major change broadens the amount of third-party participation in the patent process. Third parties can currently file limited proceedings, very similar to lawsuits, with the Patent Office opposing patent grants to others. The proposed legislation would allow third parties to submit publications they believe are relevant to the examination of pending applications and recently issued patents. The goal with this expansion is to ensure that higher quality patents issue from the Patent Office, which is a by-product of the examiner having all relevant information in front of him or her. I believe this is a good idea, since many court battles could be avoided by having third parties provide information and comment on the patentability of pending applications.

There are several other changes in the law, but these are the main points. Overall, I believe the Senate Judiciary Committee did a good job. I do wish the proposed amendments had been more inventor and small business centric, rather than major corporation centric. This is unsurprising, however, since most of the patent applications granted in this country go to larger corporations.

I encourage you to write your elected representatives in Washington and encourage them to think hard and offer constructive criticism on the PRA. I will be doing the same later today.