Key Changes In Patent Reform Act Of 2007

by David R. Bailey of Woodcock Washburn LLP

The latest proposed patent reform legislation – the Patent Reform Act of 2007 – is a pared down version of the 2005 proposal, but still contains provisions that are likely to spark heated debate before making it out of committee for any vote. Overall, the 2007 Act favors accused infringers at the expense of patent owners. Here is a brief overview of the major proposed changes:

The 2007 Act grants patent rights to the inventor who is first to file an application with the Patent Office. Thus, the Act does away with interference practice. The Act replaces interferences with "derivation proceedings," which are administrative actions to determine if a prior-filing party improperly derived the claimed invention from a later-filing party.

2. Redefining "Prior Art"

A change to a first-to-file patent system requires a consonant change to what is "prior art" under the patent laws. The 2007 Act redefines "prior art" as subject matter that was "patented, described in a printed publication, or in public use or on sale" prior to the effective filing date for the patent, unless such disclosure was made by the inventor (or others who obtained the subject matter from the inventor) within one year from the filing date for the application. Prior art would also include prior-filed applications (unless abandoned and not published) naming another inventor.

The Act retains the exception that a prior-filed application that did not publish or issue before the filing date of a later-filed application will not be prior art to the later-filed application if they both were owned at the time of filing the later-filed application by the same person or subject to an obligation to assign to the same person. This exception also includes the work conducted under a joint research agreement, carrying over similar provisions from the current statute.

The first-to-file aspect of the 2007 Act significantly alters the scope of prior art. Public uses and sales occurring abroad would become prior art. Critically, because of the first-to-file system, patentees would no longer be able to "swear behind" certain types of prior art by showing prior invention. On the other hand, certain types of art currently within §§ 102 (f) and (g) would no longer be prior art under the new law.

3. Establishing Post-Grant Opposition Proceedings

The 2007 Act establishes post-grant petitions for cancellation ("oppositions") to cancel issued claims. The 2007 Act provides that the challenger need only prove invalidity by a preponderance of the evidence standard, not the clear and convincing standard, and that the presumption of patent validity is not applied in the opposition.

An opposition request must be filed either (1) within one year after the patent issues; or (2) at any time if (a) the challenger has received a notice of alleged infringement by the patent owner or (b) the challenger believes that the existence of the patent "causes or is likely to cause [the challenger] significant economic harm." Thus, the Act includes a "second window" beyond the initial one year time period.

The 2007 Act does not specify on what grounds an opposition can proceed, but instead provides that the Director shall promulgate regulations for the initial request. Thus, it appears that any grounds for invalidity will support an opposition. The patentee is provided an opportunity to respond after the opposition has been instituted; the response can include both factual evidence and expert opinions. The patentee is provided only one opportunity as of right to amend the patent claims, but the claims cannot be enlarged in scope.

Discovery is permitted during an opposition, but "shall be limited to evidence directly related to factual assertions advanced by either party." The parties may also enter into a protective order to govern the exchange of information. Any information submitted by the patent owner in support of an amendment, however, must be made available to the public.

The Act does not specify what procedures shall govern the opposition hearing. Instead, the Act instructs the Director to promulgate regulations to govern such hearings. The Act mandates that oppositions proceed swiftly; requiring the Patent Office to make a final determination within one year, which time period can be extended by up to six months.

A challenger who opts for an opposition proceeding does risk being precluded from being able to challenge the validity of any surviving patent claims in any future proceedings such as infringement actions, reexaminations, or another post-grant review. The preclusion effect, however, extends only to the grounds raised during the opposition.

The Act amends § 284 by directing that courts "shall" ensure that a reasonable royalty damage award "is applied only to that economic value properly attributable to the patent’s specific contribution over the prior art." The Act also precludes the patentee from basing damages on the "entire market value" of the infringing product unless it can be shown that the patented contribution "is the predominant basis for market demand for [the] infringing product." These proposed revisions allegedly are designed to limit infringement damages to the value added by the invention.

Currently, a patent owner can initiate a patent infringement action wherever the defendant has committed acts of infringement or where the defendant resides. A defendant corporation "resides" everywhere it is subject to personal jurisdiction. This subjects many accused infringers to defending in "rocket docket" courts, such as E.D.Tex. and W.D.Wisc.

The 2007 Act addresses this issue by limiting venue for patent infringement actions to a forum where either party resides or where the defendant has committed acts of infringement and has a regular and established place of business. Importantly, however, the Act provides that for patent actions a corporation "resides" where it has a principal place of business or in its state of incorporation.

The 2007 Act codifies the grounds for what acts can constitute willfulness. Two procedural changes are proposed: (1) that a court determine willfulness instead of a jury, and (2) that the standard for finding willfulness be clear and convincing evidence.

The Act provides that willfulness may be found only on three grounds: (1) after receiving a written infringement notice identifying the accused acts and the asserted patent claims, the accused infringer, after a reasonable opportunity to investigate, thereafter conducted acts of infringement; (2) intentional copying with knowledge that the subject matter was patented; or (3) continued infringement after a judgment of infringement.

The Act sets forth express limitations for a finding of willfulness. No willful infringement can be found if the infringer had an informed good faith belief that the patent is invalid, unenforceable, or not infringed. An informed good faith belief may be established by "reasonable reliance on advice of counsel" or "evidence that the infringer [modified his] conduct to avoid infringement." In addition, the Act states that the decision not to present evidence of advice of counsel shall not factor into the willfulness determination.

Finally, and perhaps most importantly, a patentee may not plead willful infringement until after a determination that the patent in suit is valid, enforceable, and infringed. This, combined with the change to having a court make the willfulness determination, essentially takes the willfulness facts out of the liability trial.

7. Prior User Rights

The 2007 Act significantly changes the "prior user rights" defense to patent infringement under 35 U.S.C. § 273. Currently, § 273 provides that it is a defense to infringement of a method of doing or conducting business patent if the accused infringer had been using the method for over a year before the filing date for the patent. Under the Act, § 273 is expanded to include all types of patents, and the prior use need only be before the filing date. Under the Act, it is a defense to infringement if the accused infringer had "reduced the subject matter to practice and commercially used, or made substantial preparations for commercial use of, the subject matter before the effective filing date of the claimed invention."

8. Claim Construction Appeals

The 2007 Act proposes a major shift in appellate review for patent infringement actions. The Act provides for interlocutory appeals to the Federal Circuit from claim construction orders, with a stay pending appeal. Although many bemoan the Federal Circuit’s allegedly high reversal rate of patent claim construction, this proposal will not be well received by the Federal Circuit. The appellate court will undoubtedly disfavor such a change because of the feared increase in appellate review. But perhaps an earlier review on the critical issue of claim construction will decrease, rather than increase, the overall appellate workload because cases may settle after a final claim construction ruling.

The Act also includes less controversial proposals. Chief among these are changes to (1) permit an assignor to file a patent application on behalf of the inventor; (2) the procedures for filing oaths by applicants; (3) allow members of the public to submit prior art during examination of applications; and (4) provide for publication of applications even if not filed abroad.

The Act drops many controversial provisions found in prior proposed patent reform legislation. The Act does not require repeal of 35 U.S.C. § 271(f) – foreign infringement liability – perhaps in light of the Supreme Court review in the AT&T v. Microsoft case, or of the best mode requirement. The Act does not include a proposal to limit the pleading of the inequitable conduct defense. Finally, the Act does not propose changes to the standard for granting injunctions in view of the recent Supreme Court eBay ruling.

David Bailey focuses his practice on the litigation of intellectual property disputes. David applies his focused legal knowledge to many technologies, including computer software, petrochemical processing, chemical processing, medical devices, pharmaceuticals, powder metallurgy and drug delivery compositions.

Woodcock Washburn LLP, with offices in Atlanta, Philadelphia, and Seattle, has built a wealth of experience in patent, trademark and copyright law, litigation and trade secret protection for more than 60 years.  The Firm’s lawyers and scientific advisors service national and international clients, offering their expertise in biotechnology, chemistry, and chemical, electrical and mechanical engineering, and software.