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July 20, 2007

Is the House getting it right on patent reform?

Buchalter Nemer attorney Richard Ormond surveys the House version of the Patent Reform Act of 2007, in an article published today in ComputerWorld, reprinted here with permission.

The House of Representatives has approved the form of a bill that would significantly reform U.S. patent law, particularly with regard to litigation. If the new law were to be enacted, it would award a patent to the first person to file for a patent, which is the more common method internationally.

The U.S. currently uses a first-to-invent system, whereas most other countries use a first-to-file system. Invention in the U.S. is generally defined to comprise two steps: conception of the invention and reduction to practice of the invention. When an inventor conceives of an invention and diligently reduces it to practice (by filing a patent application, by practicing the invention and so on), the inventor’s date of invention will be the date of conception. Thus, provided an inventor is diligent in reducing an application to practice, he will be the first inventor and the inventor entitled to a patent, even if another files a patent application (reduces the invention to practice) before the inventor.

However, the first applicant to file has the prima facie right to the grant of a patent. Should a second patent application be filed for the same invention, the second applicant can institute interference proceedings to determine who was the first inventor (as discussed in the preceding paragraph) and thereby who is entitled to the grant of a patent.

This can be an expensive and time-consuming process. Because of the difficulty in determining who actually "invented" first and because of its noncompliance with most international trade treaties, Congress’ proposal to switch to a first-to-file system would eliminate most of these disputes and bring the U.S. in line with most of the rest of the world on this issue.

Patent litigation reform

The last 10 years has seen an explosion of patent infringement lawsuits and has given rise to a new business model — the "patent troll" — where companies are now being formed for the sole purpose of acquiring patent rights and suing potential infringers.

Many victims of these patent trolls prefer to settle these lawsuits right away, before spending hundreds of thousands, if not millions, of dollars in legal fees defending their use of the technology at issue.

Many argue that this business model is really just a form of judicial extortion, forcing companies to settle before spending large amounts on litigation.

Of course, there are two sides to this story, and there are many legitimate claims of infringement where a patentee seeks (and deserves) remuneration for another party’s wrongful use of his patent. These rights must still be protected.

One of the problems the judicial system faces is that judges and juries are not always properly trained to adjudicate the complexities of patents. By way of example, it is unfair to expect a juror who is trained as a historian, say, to opine as to whether a certain chemical composition is a duplicate (or derivative) of a different chemical composition in a pharmaceutical patent dispute. As such, reform of how patent disputes are litigated is necessary and inevitable. However, the House proposals appear to be lacking in this regard.

Additionally, the legislation approved by the House committee attempts to improve patent quality by setting up a process to re-evaluate patents immediately after they are granted. Although this appears redundant to the application process, some supporters argue that a postgrant review assists in eliminating bad patents. (Which begs the question, why did the U.S. Patent and Trademark Office grant the patent in the first place?) The House believes that this "extra review" will somehow reduce the number of patent infringement lawsuits.

It appears, however, that it is really adding a costly bureaucratic layer to the patent application process that will hurt inventors by delaying the "final" issuance of a patent and by adding to the application costs. The House proposal, as drafted, does nothing to curb the filing of lawsuits after the "extra review."

Many technology industry groups are claiming that products such as the iPhone have so many components that a company like Apple may become an easy target for patent infringement suits based on inadvertent or minor violations. But isn’t the system set up so that the owner of the patent has an exclusive right to the invention? If there is an inadvertent or minor violation, shouldn’t the owner of the patent be properly compensated for the infringer’s use of the owner’s exclusive rights? We should not forget that the basic premise of a patent is to grant exclusive rights to a patentee for a fixed period of time in exchange for a disclosure of an invention.

The patentee, of course, should benefit from his innovation.

Many proposed amendments to the bill attempt to assuage some of these concerns, but powerful lobbyists on both sides of the aisle can’t come to a consensus. Pharmaceutical companies (and, oddly, patent troll companies) are aligned on one end, demanding stronger enforcement rights, with technology companies (that use multiple inventions in one product) lined up on the other end attempting to liberalize the use of potentially patented technology. Both incongruent goals form very powerful interest groups. Lost here, of course, is the individual inventor or innovative small company that will suffer the result of a heavily lobbied bill.

In patent litigation, there are two simple issues that need to be determined: Was there infringement? And if so, to what is the patentee entitled as compensation for that infringement? If Congress focuses on these two fundamental questions, true reform is possible. The House’s proposed change to the way in which damages are calculated will mean that a court should consider only the value that a patent brought to an invention rather than the entire market value of the invention.

One alternative to the convoluted House bill is that decisions regarding infringement be made by a panel of experts (much like the opposition process before the Trademark Trial and Appeal Board) that have training and education in the field of the patent being disputed (mechanical, chemical, etc.), with right to appeal directly to the appellate courts rather than a new trial in the district courts. If the panel determines that a patent is being infringed, then the aggrieved party can seek a determination of damages in the district court and limit the judge’s and jury’s determination to one of damages (and, if applicable, willfulness), i.e., how much the patentee is owed, no more, no less.

It is encouraging that Congress is once again taking a stab at reforming patent laws. Hopefully, however, Congress will not forget the basic premises of patent law and create a bill that is favorable to large interest groups, harming the longevity and viability of our patent system.

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Richard P. Ormond is senior counsel in Buchalter Nemer’s Los Angeles office. He has expertise in intellectual property litigation (including patent, copyright, trademark, trade secret and trade dress issues), e-discovery, remedies and receivers, and business litigation. Representative of his clients are technology companies, national financial institutions, international apparel companies, state and federal receivers, and many entrepreneurs.

Posted by Patent Hawk at July 20, 2007 7:24 PM | The Patent System

Comments

I written about - including in the Wall Street Journal - the implications of patent reform for medical technology, in particular, with respect to the growing area of convergent medical technologies. Basically, the new bill will be more in favor of such combinatorial innovation and for a more detailed review of this, please see the article:

"Patent Reform Act of 2007: Innovation, Implications and the American Inventor" which can be found at:

http://blog.aesisgroup.com/2007/07/19/patent-reform-act-of-2007-innovation-implications-and-the-american-inventor.aspx

Though an industry expert, I am not a patent lawyer and certainly your thoughts on these medical technology implications would be welcome.

Posted by: Ogan Gurel at July 22, 2007 10:14 AM