Patent Reform is on the Immediate Horizon – New Options for Challenging Patents Before the USPTO

On June 23, 2011, the U.S. House of Representatives passed the America Invents Act (H.R. 1249), which follows in the wake of the Senate version, S. 23, approved on March 8, 2011. Although differences between the two bills will have to be reconciled before the proposed legislation can be signed into law by the President, Congress is poised to enact major reforms to the patent laws. After many years of debate and compromise, patent reform seems to be just steps from the finish line.

We focus here on two provisions relating to challenging patents before the U.S. Patent and Trademark Office, as currently set forth in the House bill.  First, inter partes reexaminations will be replaced with inter partes review proceedings. Second, the legislation will create post-grant review proceedings for the first time. Together, these proceedings will expand the options available to competitors who wish to challenge patents before the USPTO.

Both inter partes review and post-grant review will be adjudicated by a three-judge panel of the Patent Trial and Appeal Board (PTAB). The PTAB will be formed from and supplant the current Board of Patent Appeals and Interferences. As with current interference proceedings, inter partes review and post-grant review will involve filing motions (e.g., to amend claims) and provide for limited discovery. Thus, there are likely to be many procedural parallels between interferences, inter partes review and post-grant review. Additionally, inter partes reviews and post-grant reviews must be concluded within one year, extendable to 18 months in unusual cases.

Inter Partes Review

Inter partes review includes some significant differences from the current inter partes reexaminations. Like inter partes reexamination, inter partes review will permit a third party to challenge one or more patent claims as anticipated or obvious on the basis of prior art patents or printed publications. Unlike reexamination, which can be ordered at any time during the period of enforceability of a patent, a petition for inter partes review can only be filed after the later of: (1) nine months after the grant of a patent or a reissue of a patent; or (2) the termination of post-grant review, if a post-grant review has been instituted for that patent. The standard for commencing an inter partes review will be higher than that for ordering reexamination. Reexamination is ordered if there is “a substantial new question of patentability affecting a claim of the patent.” In contrast, inter partes review will be commenced upon a determination that “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged.” Thus, competitors will find it more difficult to mount challenges to patents under this provision of the law.

The legislation addresses the interplay between inter partes review and district court litigation, and it places constraints on the extent to which the proceedings will overlap. Inter partes review may not be instituted if the petitioner has already filed a civil action challenging the patent’s validity. However, a counterclaim by a defendant in a civil action may challenge the patent’s validity without barring inter partes review. Following a final decision in an inter partes review, a petitioner will be estopped from subsequently disputing a claim’s validity in litigation or before the USPTO on grounds that the petitioner “raised or reasonably could have raised” during the inter partes review. Settlement of the inter partes review proceeding will eliminate any estoppel, thus giving parties greater incentive to settle than under the current scheme. Thus, in a settlement context, the estoppel provisions underinter partes review are somewhat less onerous than under inter partes reexamination.

Finally, the legislation also provides for reexaminations that are instituted as the result of supplemental examination of the patent. A patent owner may request supplemental examination of a patent to have the Office consider, reconsider, or correct information believed to be relevant to the patent. In contrast to current law regarding reexaminations, this information is not limited to prior art patents and publications, and it may include, for example, information relating to an on-sale bar or experimental data relevant to the enablement requirement. If information presented in the request raises a substantial new question of patentability, the Director will order reexamination. Supplemental examination immunizes a patent against a later holding of unenforceability based on the same information provided during supplemental examination.

Post-Grant Review

As a supplement to inter partes review proceedings, the new legislation also creates post-grant review as a mechanism for challenging patents. Although there are many similarities between the two procedures, significant differences are present, and they warrant a closer look. Unlike inter partes review, a third party may challenge an issued patent on any invalidity ground by filing a petition within nine months after issuance or re-issuance of the patent. The broad grounds available for seeking post-grant review parallel those available for finding invalidity in a civil action in district court. For example, post-grant review will permit challenges based on lack of written description or lack of enablement, thus expanding the bases for attacking patents in proceedings before the USPTO. The USPTO will authorize a post-grant review upon a showing that “it is more likely than not” that at least one challenged claim is unpatentable. This standard is more stringent than the “substantial new question of patentability” standard for initiating inter partes reexamination under the current law. Alternatively, post-grant review may be authorized if a petitioner raises a novel or unsettled legal question that is important to other patents or applications. As with inter partes review, post-grant review cannot be initiated if the petitioner has filed a civil action challenging the validity of the patent. Additionally, a final decision in a post-grant review proceeding will create an estoppel on any ground that the petitioner “raised or reasonably could have raised” during thatpost-grant review.

Conclusion

The new legislation will give competitors greater options for challenging patents. Although it remains to be seen how effectively the USPTO will be able to handle the proceedings, given the one-year time constraint for concluding such proceedings, the existence of each option should be borne in mind both by patent owners who may seek to enforce their patents and by competitors who wish to eliminate the patents of others. As compared to civil litigation, post-grant review and interpartes review may prove to be attractive tools for challenging patents, particularly in view of the faster resolution and lower costs than typical district court litigation, the “preponderance-of-theevidence” standard of proof, and the broadest reasonable claim construction that are applied at the USPTO. Potential patent challengers will wish to stay informed regarding the patent landscape, so that they can timely file for post-grant review if desired.

Patent Law Unchanged by Microsoft Supreme Court Decision

Despite all of the anticipation surrounding the outcome of the Microsoft v. i4i case, on June 9, 2011, the Supreme Court upheld the current state of patent law rather than change long-held precedent. Specifically, the Court held unanimously that when an accused infringer alleges that a patent is invalid, such an allegation needs to be proven by clear and convincing evidence.

This “clear and convincing evidence” standard has been defined as requiring “evidence indicating that the thing to be proved is highly probable or reasonably certain.” This standard provides a relatively high hurdle for accused infringers to overcome in order to invalidate a patent and, thus, provides a rather stable environment for patents.

The Court based this decision on section 282 of the Patent Act of 1952, which grants to patents a presumption of validity. The Court noted that “Congress specified the applicable standard of proof in 1952 when it codified the common-law presumption of patent validity.” Relying on previous Supreme Court precedent, the Court cited Justice Cardozo, who stated, “There is a presumption of validity, a presumption not to be overthrown except by clear and cogent evidence.”

In this case, Microsoft asserted an invalidity defense to an allegation of infringement which relied on evidence that had not been considered by the United States Patent and Trademark Office (USPTO) during examination. Microsoft alleged that i4i sold a version of the software covered by U.S. Patent No. 5,787,449 (“the ’449 patent”) more than a year before the patent was filed. Microsoft presented evidence that suggested the software at issue was previously marketed and sold to another company. The evidence included various documents describing the software such as manuals, a funding application, and letters to potential investors, etc. However, i4i maintained that the software that was sold did not include the contents of the patent at issue in this case. Unfortunately, the code at issue was destroyed and was not available for a comparison to the patent. The lower courts determined that the evidence presently did not clearly and convincingly show that the software sold was the same as the software described in the ’449 patent. While one might be able to infer that fact from the evidence in question, it did not meet the clear-and-convincing standard of proof. Therefore under the Court’s interpretation the patent remains valid.

Further, the Court determined that the standard of evidence should be consistent regardless of whether the evidence was previously considered by the USPTO. However, the Court also stated that juries may be instructed to give more weight to evidence not previously considered by the USPTO when considering the issue of patent validity. Thus, in cases, such as Microsoft, where some material was not before the USPTO during prosecution, the jury may be instructed to give these materials more weight during consideration. Unfortunately for Microsoft, no such request was made of the district court.

With respect to the policy arguments put forth, the Court found itself “in no position to judge these policy arguments.” The Court relied instead on the almost thirty-year history of interpretation and congressional action regarding section 282 of the Patent Act of 1952. During this time frame, the Court noted that the evidentiary standard has been left “untouched.”

The Court affirmed the current standard of proof for invalidity. Many patent holders are now breathing a sigh of relief.

Now the question is, will Congress take up the challenge set forth by the Court when it stated, “Any recalibration of the standard of proof remains in its hands.”

Apparently Pigs Can Fly: Senate Passes Historic Patent Reform Bill

Just when most believed it couldn’t be done, the United States Senate voted yesterday, in an overwhelming show of bipartisan support, to approve Senate Bill S. 23 (titled the “America Invents Act”). If passed by the House of Representatives, this would be the most comprehensive change to U.S. patent law since Congress passed the 1952 Patent Act over half-a-century ago. Although the idea of patent reform is certainly not uncommon and has been raised with some vigor in 2005, 2007, and 2009, the Senate’s passage of Senate Bill S. 23 marks a significant milestone in the seemingly endless quest for patent reform.

Although the America Invents Act languished for more than a week through a series of debates and suffered multiple amendments, the final version of the bill boasted bipartisan backing from all but five senators. In the words of Senate Judiciary Committee Chairman Patrick J. Leahy, D-Vt., the bill strikes the “proper balance for America—for our economy, for our inventors, for our consumers.” Only Senators Barbara Boxer, D-Calif.; Maria Cantwell, D-Wash.; Mike Crapo, R-Idaho; James Risch, R-Idaho; and John Ensign, R-Nev. voted against the legislation.

The White House strongly supports the legislation and has called it a:

“fair, balanced and necessary effort to improve patent quality, enable greater work sharing between the [United States Patent and Trademark Office (USPTO)] and other countries, improve service to patent applicants and the public at the USPTO and offer productive alternatives to costly and complex litigation.”

And Tuesday evening, President Barack Obama applauded the passage of S.23 saying that he is “pleased that, on a bipartisan basis, the Senate has passed the most significant patent reform in over half a century.” Indeed, the sweeping legislation addresses rising public and industry concerns regarding how the USPTO reviews, grants, and hears challenges on patents.  Specifically, S. 23 includes the following measures:

• Transition from a first-to-invent system to a first-to-file system for determining priority of multiple inventors to the same or similar inventions (Section 2);
• Prioritization of reviews for certain patents deemed critical to U.S. economic development (Section 23);
• Establishment of a transitional program to review granted business-method patents in light of the Supreme Court’s recent decision in Bilski v. Kappos (Section 18);
• Formation of a new “first-window” post-grant, patent-opposition system with a shorter timeframe but broader jurisdiction than the current reexamination procedure (Section 5);
• Establishment of procedures for third parties to submit for consideration and inclusion in the record of a patent application, any patent, published patent, or other printed publication of potential relevance to the examination of the application (Section 7);
• Creation of a small-business ombudsman at the USPTO (Section 22);
• Modification of current bans on tax patents to allow patents for certain types of tax-return filing software (Section 14);
• Amendments to 35 U.S.C. § 292 restricting the availability of false-marking damages to the federal government and those persons who have suffered a competitive injury as a result of false patent marking (Section 2);
• Requirement that the USPTO disclose the amount of time it takes to conduct inter partes and post-grant reviews (Section 5);
• Provision allowing the USPTO to set its own fees (Section 9);
• Elimination of fee diversion from the USPTO to the U.S. general treasury (Section 20);
• Set new fees for applicants that select not to use electronic filing methods (Section 9); and
• Establishment of three or more USPTO satellite offices (Section 21).

The senate bill gained support as it moved towards passage last week, especially after the Senate decided to strike litigation-related provisions pertaining to rules for determining damages, willfulness, and venue transfer in district court infringement proceedings. According to the American Intellectual Properly Law Association President David Hill, “Senate passage of S. 23 is very encouraging. . . . We are hopeful that patent reform will soon become a reality.”

Focus now shifts to the House of Representatives. Debate is expected to center on the transition to a first-inventor-to-file system of determining patent ownership and the formation of a new post-grant review procedure to challenge patent validity in the nine-month period after issuance.  Amendments to these provisions in the Senate were withdrawn early in the floor debate. In addition, S. 23 differs substantially from the patent-reform bill most recently passed by the House in September 2007. Unlike S. 23, House Bill H.R. 1908 (titled the “Patent Reform Act of 2007“) centered primarily on litigation reform.

The House Judiciary Committee Subcommittee on Intellectual Property, Competition, and the Internet has scheduled hearings for March 9 and 10, which presumably will concentrate on patent reform. Given the present high priority on legislation relating to the administration’s budget for fiscal years 2011-2012, however, it is unclear what, if any, priority the House will place on patent reform. Furthermore, it is uncertain whether the House currently intends to adopt the Senate bill in whole cloth or advance its own version of patent reform. Although the Subcommittee’s Chairman, Lamar S. Smith, R-Tex., confirmed on February 11 that he is developing a House version of the bill, Senator Leahy (S. 23’s primary sponsor) suggested during Senate floor debate that he worked with Smith to incorporate the House’s ideas into the Senate bill.

Although its too early to say whether patent reform will become a reality, one thing is certain: it’s been a long time since patent reform has come this far. We will be watching the House with baited breath and will keep you informed as to any further progress towards patent reform. If the House bill incorporates similar reform, air traffic controllers may indeed report sightings of airborne porcine.