United States: Summary and Analysis of the Patent Act of 2005

The Patent Act of 2005 (the "Act"), introduced in the House of Representatives as Bill H.R. 2795 on June 8, 2005, contains changes to the law that, if enacted, would represent the greatest change in U.S. patent law since passage of the Patent Act of 1952. Significant changes proposed in the Patent Act of 2005, as originally drafted, include the following:

1. Changing from a first-to-invent to a first-to-file system for evaluating the priority rights of patent applicants;
2. Overhauling the definition of "prior art" in coordination with the new first-to-file system;
3. Eliminating the "best-mode" requirement for disclosure in patent applications;
4. Authorizing limitations on priority claims in continuation applications;
5. Publishing nearly all utility applications at 18 months;
6. Enabling pre-grant submissions of prior art to the United States Patent and Trademark Office by third parties and creating a new post-grant opposition procedure for challenging issued patents;
7. Limiting inequitable-conduct inquiries and shifting enforcement of duty-of-candor issues to the United States Patent and Trademark Office;
8. Limiting willful-infringement liability; and
9. Reducing the availability of injunctive remedies to a patent holder against an alleged infringer in patent litigation.

The House Subcommittee markup hearing on the Act was originally targeted for June 30, 2005, though the hearing has now twice been postponed, most recently due, in part, to industry opposition to the proposed limitations on the availability of injunctive remedies (#9 in the list, above). The hearing is now expected to be held in early September 2005.

Most of the above-listed changes are spurred by an effort to further harmonize U.S. patent law with international standards and/or to reduce the uncertainty and potential risk faced by defendants in patent litigation. Most or all of these changes are also intended, at least in part, to simplify and improve the efficiency of patent prosecution and/or patent litigation. Each of these changes, as well as others, are discussed in greater detail below.

The first significant change proposed in the Act would amend 35 U.S.C. §102, recognizing all earlier-filed applications that are eventually issued or published as "prior art." This change represents a radical departure from the current priority system, which allows an inventor who files his patent application second to prove that he actually made his invention at an earlier date. Under the new system, referred to as a "first-to-file" system, the first entity to file a patent application would always win a priority contest over another, later applicant, even if the other applicant had actually made the invention at an earlier date. The shift to a first-to-file system, accordingly, would enhance the importance of obtaining an early filing date and, in many cases, would increase the defensive value of filing a provisional patent application as early as possible.

Two principal reasons for moving to a first-to-file system are to further harmonize U.S. patent practice with that of the rest of the international community and also to simplify the priority determination and reduce legal costs related to the resolution of priority issues. Specifically, the present system for contesting priority rights of competing inventive entities (i.e., the patent interference system) will be eliminated, with a more limited procedure for "inventor's rights contests" introduced. The first-to-file framework is expected to level the field for smaller entities who often cannot afford a full patent interference proceeding, which typically costs an applicant hundreds of thousands of dollars. The first-to-file framework also is intended to explicitly reconcile the legal framework for evaluating priority with the practical reality of the present first-to-invent framework, wherein only a small percentage of applicants who enter a patent interference without having the earliest effective filing date have been able to prevail in the interference by establishing an earlier date of invention.

In coordination with the introduction of the new first-to-file framework, section three of the Act further amends the scope of "prior art" that can be asserted against a patent application under 35 U.S.C. §§102 and 103 when assessing whether an invention is patentable. Generally, the amendments provide a simpler identification of the earlier work that qualifies as "prior art," and these definitions would provide a closer match to the international consensus.

In particular, the amendments eliminate the separate "on sale" and "public use" provisions [presently in §102(b)] and also removes the territorial limitations from §§102(a) and (b) from the definition of prior art. Instead, the amended provisions focus more generally on whether an invention was "publicly known" in the U.S. or abroad before the effective filing date for the applications. Nevertheless, the amended provisions retain the familiar one-year grace period for inventors' own disclosures, enabling inventors to file a U.S. utility patent application within one year of making a public disclosure of the invention without necessarily having sacrificed eligibility for a patent (in the United States).

Another major revision to U.S. patent law, provided in section 4 of the Act, is the elimination of the best-mode requirement from 35 U.S.C. §112. This amendment would also further harmonize U.S. patent law with the law in Europe and other jurisdictions, though the impact of this change would potentially be profound. In particular, though the best-mode requirement may sometimes only require marginal disclosure beyond what is otherwise mandated by the written description and enablement requirements of 35 U.S.C. §112, the best-mode requirement generally requires the disclosure of particularly favored parameters or features relating to the claimed invention, which an applicant may otherwise wish to maintain trade secrets.

With the elimination of the best-mode requirement, an applicant would enjoy greater latitude in terms of being able to patent the general features of an invention, while still maintaining the confidentiality of particular aspects of the invention. The applicant can accordingly rely upon trade-secret (rather than patent) law to protect those aspects so as to preserve some level of secrecy without jeopardizing the validity of the related patent. By reducing the extent to which desired secrecy must be sacrificed when seeking a patent, the elimination of the best-mode requirement may increase the rate of patent filings by U.S. entities.

Elimination of the best-mode requirement is also expected to streamline patent litigation in many cases. The American Intellectual Property Law Association (AIPLA) has noted that litigation over the best-mode issue "can be extensive and time-consuming" and that the inquiry is problematic because the defensive assertion that the best-mode was not disclosed by the patentee in the application "depends on historical facts and...usually can be established only by circumstantial evidence."¹

Section eight of the Act would authorize the Director of the United States Patent and Trademark Office (USPTO) to limit the circumstances under which an applicant may be entitled to the benefit of an earlier-filed application. This provision is intended to counter the activities of certain patent-seeking entities who file series of continuation applications in which they shift the focus of the patent claims to track the evolution of a technology in one or more developing industries over time and then assert an issued patent covering core, embedded technologies against those industries.

Of course, the filing of continuation applications to target different areas of inventive subject matter or to change the scope of claimed subject matter is a widely accepted practice in U.S. patent prosecution and is routinely engaged in by all types of patent applicants in the U.S.; consequently, the question of whether the Director can or should devise means for distinguishing between "desirable" and "undesirable" continuation practices is uncertain and potentially highly controversial. Further still, the shift to the 20-year-from-filing patent term in the U.S. in 1995 via the Uruguay Round Agreements Act already took a major step toward combating "submarine" patent practices by purported "patent trolls."

Section nine of the Act, by eliminating 35 U.S.C. §122(b)(2)(B), would strip U.S. applicants of the right to request non-publication of their utility patent applications. This amendment would ensure that all U.S. utility patent applications are published approximately 18 months from their effective filing date, except for those that are subject to a government secrecy order. This provision would both harmonize U.S. law with international norms and also reduce the risk and uncertainty faced by potential defendants in patent infringement suits based on previously unpublished "submarine" patents.

A framework for pre-grant submissions of prior art by third parties (i.e., parties other than the applicant) during the prosecution of a utility patent application is provided in section 10 of the Act. Accordingly, a party would have the option of assisting an examiner in the evaluation of a competitor's patent application before issuance by providing relevant prior art that the examiner may not have independently discovered.

Perhaps more significantly, the Act also introduces more powerful means for challenging a patent after issuance via the creation of a post-grant opposition system similar to the opposition system presently available in Europe. The proposed opposition system is structured to be quicker and less costly than litigation as a mechanism for contesting the validity of a patent.

The Federal Trade Commission (FTC) had recommended that such a system be adopted in the U.S. in their 2003 report of recommendations for promoting innovation via a proper balance of competition and patent law and policy. In support of its recommendation for U.S. patent oppositions, the FTC cited a concern with the issuance of invalid or overbroad patents that hinder innovation or competition. The FTC also cited an objective of concentrating the finite resources of the USPTO on commercially significant patents by allowing the marketplace of competitors decide which patents would be subject to an extra, enhanced examination. Accordingly, an important intent behind the proposed opposition system is to provide the public with an effective mechanism for promptly correcting "bad" patents issued by the USPTO, while also affording a "quiet title" to patent holders whose patents survive the initial opposition period without a substantial fear of later administrative challenges that are mounted for the purpose of harassing the patent holder.

The Act does not eliminate the existing reexamination procedures, though introduction of the proposed opposition system is premised upon a recognition that existing reexamination procedures often fail to afford challengers with an effective tool for challenging the validity of issued patents outside of litigation. Moreover, one may question whether the ex parte and the rarely used inter partes reexamination procedures (in their current form) would continue to exist or what changes would be made thereto if the opposition system is enacted.

As currently drafted, the Act provides two "windows" for a challenger to request an opposition; in addition to these two windows, the Act also allows for the filing of a request for an opposition if the patent holder consents to the opposition. The first window for filing an opposition would be within nine months from issuance of the patent; this shortened time frame is intended to promote early resolution of uncertainty regarding patent validity. If these provisions are enacted, a party may position itself to take advantage of this early window-if in a competitive industry-by electronically monitoring for patents issued to key competitors; Mintz Levin patent attorneys can assist is setting up such a monitoring program. The second window for filing an opposition is within six months after a party receives notice of alleged infringement. This second window is much more controversial than the first window, and it is opposed by the AIPLA. Whether or not this second window will be retained in the Act, if passed, is at this time uncertain.

The USPTO would institute an opposition upon a determination that a substantial question of patentability exists for at least one claim, and the invalidation of claims would require the challenger to prevail by a preponderance of the evidence. With important limitations, the challenger would be able to keep its identity secret. Additionally, the patent holder would be able to file non-broadening amendments to the claims when filing its response to the challenger's arguments for invalidation. Further still, the Act would provide for limited discovery in the opposition proceedings, beyond that which is generally afforded in Europe. The opposition would be conducted before a panel of three administrative patent judges at the USPTO, and an oral hearing before the panel could be requested by either party.

Moreover, the Act explicitly mandates that an opposition proceed on a "fast-track" timetable, stipulating that the panel is to issue a final determination within one year of the institution of the opposition, with the potential for a six-month extension grantable by the Director only upon a showing of good cause. After the panel issues its ruling, either party may appeal the panel's decision to the Federal Circuit Court of Appeals. Finally, the principal of estoppel will preclude the challenger from reasserting any grounds for invalidity that were asserted in the opposition either in a subsequent proceeding before the USPTO or in court.

The Act would add a new section to the U.S. Code addressing the duty of candor before the USPTO. This new section shifts responsibility to the USPTO for enforcing the duty of candor and good faith in the filing and prosecution of a patent application. If a defendant in patent litigation were to plead (as a defense) that the patent holder engaged in inequitable conduct when prosecuting the application, the court would refer the issue to the USPTO for investigation (i.e., the court would no longer make this determination). Furthermore, breaches of the duty of candor would be limited to "clear cases of common law fraud,"² and a claim in the patent would need to be found invalid before the breach could be asserted by the defendant in patent litigation as a basis for rendering the patent unenforceable.

These proposed changes would remove from patent litigation the evaluation of subjective elements (i.e., elements dependent upon proving a state of mind) relating to the duty of candor. The AIPLA supports change in the law, arguing that the inequitable conduct defense is overused in patent litigation, particularly given that the defense "is almost always raised in important cases, but is rarely successful."³

In addition to reigning in the inequitable conduct allegations to which a patent holder is likely to be subjected in litigation, the proposed transfer of responsibility to the USPTO for enforcing the duty is also driven by a desire to enable the USPTO to impose efficiency-enhancing regulations (such as a more demanding duty on the applicant to characterize the relevance of submitted prior art) and solicit more information from applicants without subjecting the applicant to an unreasonable risk of facing inequitable conduct charges (and the consequent risk of the patent being held unenforceable) based on the content of the information submitted by the applicant. With its expanded authority, the USPTO would likewise be able to impose this duty of candor and good faith on challengers (as well as on the patent holder) in an opposition proceeding.

Where infringement of a patent is found to be "willful," a court may increase the damages that are awarded to the plaintiff from the defendant up to three times the amount found or assessed. The imposition of enhanced damages based upon a determination of willful infringement under 35 U.S.C. §284 would be limited in section six of the Act to circumstances "in which an infringer is truly a bad actor."⁴

Advocates for these restrictions assert that the willfulness inquiry in litigation (a) produces a significant discovery burden, (b) introduces a substantial element of uncertainty as to litigation risks, (c) unduly complicates patent litigation, and (d) leads to inefficient and counterproductive practices by companies seeking to promote ignorance among its employees or agents as to the existence of competitors' patents so as to reduce the risk that infringement will be deemed knowing and willful.

A final important and highly controversial change relating to patent litigation is set forth in section seven of the Act, which amends 35 U.S.C. §283 to limit the right of a patent holder to obtain an injunction against an infringer. 35 U.S.C. §283 presently reads as follows:

"The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable."

The Act would add the following guidelines for issuing an injunction at the end of the above-quoted text in §283:

"In determining equity, the court shall consider the fairness of the remedy in light of all the facts and the relevant interests of the parties associated with the invention. Unless the injunction is entered pursuant to a non-appealable judgment of infringement, a court shall stay the injunction pending an appeal upon an affirmative showing that the stay would not result in irreparable harm to the owner of the patent and that the balance of hardships from the stay does not favor the owner of the patent."

This language, which would effectively curtail the "exclusive rights" afforded by a U.S. patent, is directed toward combating particular licensing and litigation tactics employed against large corporations, in particular.

This provision is opposed by the AIPLA and is likely to face strong opposition in Congress because, to a degree, it might effectively create a de facto compulsory licensing system if a patent holder is limited to monetary, but not injunctive, remedies for patent infringement. In particular, this curtailment on the availability of injunctive relief against infringers would be particularly harsh on independent inventors, universities and other entities that generally seek to license or sell their inventions. Further, a strong argument can be made that such a curtailment on the exclusive rights afforded by a U.S. patent would undermine efforts on behalf of the United States to persuade developing nations to enact stronger patent laws and to discourage the practice of "breaking" patents (particularly in the pharmaceutical industry), allowing the state or domestic competitors to produce infringing products or to otherwise carry out infringing practices with, at most, modest royalties paid to the patent holder.

The above-listed changes to U.S. patent laws in the Patent Act of 2005 is non-exhaustive, though we believe that most, if not all, of the most significant changes are covered by this discussion. We will watch the progress of this legislation and any changes thereto as it works its way through Congress.

Although patent-related legislation often languishes in Congress, there appears to be particularly strong interest in this legislation, as is evidenced by the high level of involvement and input not only on behalf of private industry but also from the government, itself. For example, in addition to the USPTO, the FTC was also deeply and actively involved in the debate that predicated the drafting of the Patent Act of 2005. Accordingly, it appears that the overall interest in reforming the U.S. patent system has infused this legislation with substantial momentum, notwithstanding the afore-mentioned controversy surrounding some of its provisions.

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