Senate Introduces the Patent Reform Act of 2011 — Differences With House Remain

On January 25, 2011, Sens. Patrick Leahy (D-Vt.), Orrin Hatch (R-Utah), and Chuck Grassley (R-Iowa) introduced the latest bill on patent reform legislation—the Patent Reform Act of 2011. According to Sen. Leahy, the new legislation is based on prior legislation introduced during the 109th Congress, as well as compromises reached in March 2010 (the Managers’ Amendment to S. 515). A January 20, 2011 press release on Sen. Leahy’s Web site states, “[p]romoting economic growth continues to be a top priority for both Democrats and Republicans, and patent reform is part of that effort.” When introducing the bill, Sen. Leahy explained that the new legislation is intended to accomplish three primary goals: (1) transition to a first-to-file system; (2) improve patent quality; and (3) provide more certainty in litigation. The Act also includes provisions to limit standing and damages in false patent marking actions. However, Sen. Leahy did not directly address how he intends to resolve key differences with the House that carry over from last year’s stalled bill (S. 515), which contains many of the same provisions as the new bill. Meanwhile, the House has announced a new hearing that it will conduct on the link between patent reform and job creation, suggesting that it intends to obtain more input before considering legislative changes. Several of the key provisions of the recently introduced Senate bill are discussed in more detail below.

First-to-File System

Similar to previous patent reform bills, the Patent Reform Act of 2011 proposes to change the U.S. patent system from a first-to-invent to a first-to file system in an effort to harmonize the U.S. patent system with those of other countries. The new first-to-file system will award patents to the earliest-filed application for a claimed invention, as well as provide inventors with a one-year grace period to file an application after public disclosure of the claimed invention by the inventors. The grace period applies only to public disclosures made by the inventor, or by another who obtained the subject matter from the inventor. The current interference system in place for determining inventorship disputes will be replaced with a derivation procedure intended to determine whether the inventor named in an earlier-filed application derived the claimed subject matter from the inventor of a later-filed application.

Patent Damages

The new legislation also adds a procedure for determining damages awards in patent infringement cases. Under the proposed procedure, the district court acts in a “gate keeping” role to ensure that only methodologies and factors relevant to the damages determination, and which have a legally sufficient evidentiary basis, are considered. Unlike prior legislation, the Patent Reform Act of 2011 does not expressly limit the methodologies that may be used. The proposed legislation also allows any party to specifically request bifurcation, wherein issues relating to infringement and validity can be decided by the trier of fact before issues relating to damages and willful infringement; such bifurcation procedures are currently employed by some, but not all, district courts.

The proposed bill also includes provisions relating to willful infringement and enhanced damages. Similar to the prior versions, the proposed bill codifies the “objective recklessness” standard of In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007), for determining willful infringement. The legislation also imposes the heightened pleading requirements of Fed. R. Civ. P. 9(b) for pleading claims of willful infringement. In addition, the legislation includes other provisions that may serve to limit findings of willful infringement. First, a finding of willful infringement may not be made solely on the basis that the accused infringer had knowledge of the patent. Second, if the patentee intends to rely on a pre-suit warning letter as a basis for willful infringement, the pre-suit notification letter must identify, with particularity, the asserted patent and the accused product or process, and explain, with particularity, how the accused product or process infringes the patent claims. Third, the proposed legislation provides that the failure to obtain an opinion from counsel may not be used as evidence of willful or induced infringement. Finally, the proposed bill clarifies that damages may not be enhanced if the district court “determines that there is a close case as to infringement, validity, or enforceability.” Furthermore, if a “close case exists,” willful infringement is not to be tried by the jury.

False Marking

Similar to last year’s compromise legislation, the Patent Reform Act of 2011 also proposes to impose more restrictive requirements on who has standing to bring a claim for false marking under 35 U.S.C. § 292. Under the proposed legislation, only person(s) who have suffered a “competitive injury as a result of the violation” have standing to sue, and damages will be limited to those “adequate to compensate for the injury.” The United States, however, does not need to satisfy the standing requirement and retains the ability to bring a claim for false marking and recover the up to $500 fine per article without needing to demonstrate any competitive injury due to the violation.

Post-Grant Review Procedures

The Patent Reform Act of 2011 also includes a revised “inter partes review” procedure and a new “post-grant review” procedure. The inter partes review procedure includes proposed procedural changes that are intended to shorten the review time for most reviews to 12 months. Upon meeting the threshold requirement of establishing a “reasonable likelihood” of prevailing, any party may challenge the patentability of one or more of the issued claims on the basis of any patent or printed publication. A petition for inter partes review may be filed nine months after the grant or re-issuance of a patent, or following the conclusion of any post-grant review, whichever occurs later. The proposed legislation also includes procedural limitations intended to safeguard patentees from improper use of the inter partes review procedure. An accused infringer may not seek review (1) if it has already filed a lawsuit in district court challenging the patent, or (2) more than three months after the date the accused infringer must answer, or otherwise respond to, a complaint for patent infringement filed by the patentee. Finally, the petitioner is estopped from raising during a subsequent district court action or ITC proceeding, any ground of invalidity that was actually raised or could reasonably have been raised in the inter partes review.

In contrast, the new post-grant review procedure allows petitioners to challenge the validity of issued claims on any ground of patentability, including grounds under 35 U.S.C. § 112. The petitioner will then be estopped from raising in a subsequent district court or ITC action, any ground of invalidity that was actually raised during the post-grant review. Like the revised inter partes review procedure, the new post-grant review requires institution within nine months of the grant of an issued patent and includes the same two procedural safeguards with respect to concurrent district court or ITC actions.

Additional Provisions

Similar to the versions proposed in past years, the Patent Reform Act of 2011 also proposes changes directed to the following:

• Improvements to patent quality by allowing third parties to submit and explain prior art, and other pertinent information concerning claim construction, for consideration by the patent examiner
• Codification of the Federal Circuit standard adopted in In re TS Tech USA Corp., 551 F.3d 1315 (Fed. Cir. 2008), requiring transfer of venue “upon a showing that the transferee venue is clearly more convenient than the venue in which the civil action is pending”
• Removal of residency restrictions on Federal Circuit judges
• Elimination of failure to disclose best mode as an infringement defense
• Creation of a “supplemental examination” procedure to cure potential inequitable conduct
• Fee setting authority granted to the USPTO

Finally, the Patent Reform Act of 2011 also introduces a new provision precluding the issuance of any patent claims containing subject matter directed to tax strategies.

Conclusion

Overall, the Patent Reform Act of 2011 is largely similar to the proposed legislation announced last year. If passed, the bill will make significant changes to the U.S. patent system, but it remains to be seen whether this year’s version will meet with more success than those in prior years. While the Senate bill puts the Manager’s Amendment in play on the Senate side, the next step is up to the House, which may have its own ideas on patent reform.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or the following:

Stephen B. Maebius
Chair, IP Department
Washington, D.C.
202.672.5569
[email protected]

Jeanne M. Gills
Vice Chair, IP Department
Chicago, Illinois
312.832.4583
[email protected]

Harold C. Wegner
Partner
Washington, D.C.
202.672.5571
[email protected]

Liane M. Peterson
Senior Counsel
Washington, D.C.
202.945.6116
[email protected]