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Will the Patent Reform Act of 2011 change the way we do business?? Perhaps less than we think.
The Patent Reform Act of 2011 has been passed by both houses of Congress at the time of this writing, and is now in committee for reconciliation.? The sticker at this point is in USPTO funding - one version allows the USPTO to keep its user fees (which in the past have been a profit center for the Government) and the other version requires the USPTO to beg for more money.? The President has said he will sign the act, so it appears these provisions may come to pass.? However, the impasse over the debt ceiling has stalled the bill, and it might not pass for some time - or may be derailed.? Thus, I have not commented on this bill before.
What is Patent Reform?? Why does our System Need Reforming?
When I was a Law Student, I paid my way through Law School writing Infringement and Validity Studies on Lemelson Patents.? Many accuse Jerome "Jerry" Lemelson of Patent Abuse, and while it does not appear he has done anything illegal, he is sort of the poster-boy (or whipping -boy) for what are sometimes derisively termed "Patent Trolls".
In the old days, Patents extended 17 years from the date of issue - and since you could legally string Patent Applications together as Continuations, Continuations-In-Part, Divisionals, and the like, some of Lemelson's Patents issued in the 1980's and beyond with effective filing dates from the Eisenhower era.? This meant that trying to invalidate such Patents with "Prior Art" was difficult.
And some folks would refer to these Patents as "submarine" Patents - surfacing after many years, with claims designed to torpedo a new technology.? But again, this is some people's interpretation of events - one man's submarine Patent is another man's carefully drafted and valid Patent covering technologies that they invented.?? It is a matter of perspective, not law.
And some folks argue that Lemelson (or his Attorney) went after people for infringement claims that were not very strong - or in fact, baseless.? And by offering to settle for relatively small amounts of money, not many of these cases went to trial, and Lemelson made a lot of money as a result.? And some folks think that was wrong.
For example, I worked on one case, involving six separate Patents.? We studied these and came to the conclusion that four were either invalid or not infringed, one was likely invalid or not infringed, but that one was, well, sort of a toss-up.? With a jury trial, it could go either way. ? The claims were broad and the disclosure (in my opinion) vague, and the products that were being accused of infringement were not even conceived of at the time of filing.? We didn't think the case had merit, but on the other hand, you can't guarantee these sorts of things - such is the nature of the legal system.
But since, back then, claim interpretation was a very open-ended proposition (and often performed by technically unsophisticated juries) there was a real risk that a client could lose at trial.? We charged the client $50,000 for this opinion, which was a lot of money back then.? The opponent offered to settle for the equivalent of $100,000 a year.? The client chose to settle.
Some folks argue that these cases amount to little more than shakedown attempts - Patent Blackmail - using the nuisance value of a lawsuit to extract or extort money from legitimate, non-infringing companies.? However, as I noted before, Lemelson and others did not appear to be violating the law - they brought colorable claims of infringement based on what they felt were valid Patents.
What was annoying to some businesses was that these claims were not being raised against manufacturers, but often against users.?? For example, I talked with one fellow who claimed to have invented a DTMF type telephone-tree, for automated telephone response systems.? He hired a contingency fee litigation company to sue on his behalf.? But rather than sue AT&T or some other telcom provider who makes and sells this type of telephone equipment, they went after Coca-Cola, and other large Corporations who actually use the equipment.
Again, nothing illegal here - use of an infringing product can be infringement.? But the legal strategy is something that some folks found odious - namely that a company with no interest in the fight finds itself in the middle of an expensive legal battle.? And such companies are more likely to settle for nominal sums than fight a major Patent battle.? So from a Patent Owner perspective, it is more lucrative to go after the customers than to go after the manufacturer.
Of course, such a strategy doesn't work if you are a competitor of the manufacturer - those customers are potentially your customers, and you risk losing them forever if you sue them.? But most so-called "Patent Trolls" were not manufacturers or sellers of products, but rather merely Patent holders, Attorneys, or companies formed whose only assets were Patents.
If you own only Patents, you have no risk of being counter-sued, so it does provide an advantage that corporations and manufacturers don't have.
Like I said, none of this was illegal and I am not accusing Lemelson or any others of doing anything illegal or immoral.?? Moral judgements are your own call.
And whether this was a "major drag on industry" is also debatable.?? According to some sources, Lemelson made maybe $450 million from his Patents (his is dead now, but the Patents live on, of course).? This may seem like a lot of money, but it is a pretty small chunk of our overall economy - an infinitesimal one.? And of course, Lemelson did spend decades prosecuting these Patents, often with no promise or hope of payoff.
But nevertheless, many people were up in arms about the rash of "Patent Trolls" out there.? And since they were doing nothing illegal, they decided to change the laws.? And they have.?? And over the last two decades, our Patent system has changed, gradually.? Some of these changes have been positive, some negative.? I doubt they will put a coffin nail in the "Patent Troll" concept at all, however.?? And in many respects, that make things harder for both solo inventors as well as large Corporate Clients.
What Changes Were Made Prior to the Reform Act of 2011?
Sine the mid-1990's a lot of changes to the Patent System have occurred.? And these changes have taken a number of forms:
1.? Changes in Patent Procedures at the USPTO - examination guidelines for Software and Internet-based Patents as well as Method-Of-Doing Business Patents have made obtaining these Patents more difficult.? The procedures for applying obviousness-type rejections have changed as well, and such rejections are made more often.? The overall allowance rate has dropped in recent years, as Examiners are emboldened to maintain rejections that in the past, would not have been made.
2.? Changes in Patent Rules - A number of rule changes have been made that, collectively, make it a little harder to prosecute cases, and also have tried to speed up the process of Examination.?? Some of these Rule changes can be a trap for the unwary.? For example, extensions of time in submitting Reply Briefs (on Appeal) or Formal Drawings (after a notice of allowance) are no longer permitted.? If you miss these deadlines, your case is abandoned.? Moreover, new rules for the formatting of Amendments and Appeal Briefs have caused some difficulties for practitioners, if they fail to follow these rules to the letter.? New Rules now limit the number of Continuations or Continuations-In-Part that an applicant can file.? If you find yourself going around and around with the Examiner, you should stop and appeal, as you cannot file more than two Continuations now, without showing good cause for doing so.
3.? Changes in Case Law (Court Decisions) -? Several landmark cases have come down from the Federal Circuit and even the Supreme Court, altering the ways we interpret Patents as well as litigate them.
Patent Claims are no longer interpreted by a Jury, but rather by a Judge (Markman v. Westview Instruments, Inc.)? This change takes a lot of uncertainty out of the process, as a Judge (arguably) may be less swayed by emotional arguments (the evil Corporation versus the poor solo inventor).? Since Markman, a hearing may be held, before a judge, to decide the scope and meaning of the Patent Claims.? Often, the outcome of such a hearing decides the case - if the claims are interpreted more narrowly, the Plaintiff may simply fold their case, as they have little chance of winning.? If the claims are interpreted broadly, the Defendant may be more willing to settle.
Much ink has been spilled on the Teleflex and Bilski cases.? While the former is supposed to revise the standards for obviousness, I personally do not see any difference in how art is applied at the Patent Office in the wake of this case.? The application of Prior Art in a case is usually fact-based, and oftentimes the references do not teach what is alleged.? Moreover, the claims usually can be amended to overcome a reference, without unduly limiting the scope.? Rarely is the standard of obviousness - as a legal argument - made.? And the "new" standard, such as it is, is just as nebulous as the old Graham v. John Deere standard.
Bilski may have made getting business method Patents more difficult, but it also provided a roadmap to amending around the rejections made by the Patent Office.? So long as you can characterize your business method in terms of hardware or concrete steps, you might still be able to Patent it.
But each case steers the Patent Law in the same direction - toward more narrow interpretation and more difficult prosecution.? Only the State Street Bank case, which opened the flood gates of the Business Method Patent, has expanded the scope of Patent Protection in recent years.? And the door opened by State Street was slammed shut, to some extent, by Bilski.
4.? Changes in the Law - (Congressional Action) - changes to the law (35 U.S.C.) have been enacted over the years to limit the terms of Patents and prevent cases from being strung together.? In the mid-1990's we switched over to 20-year term, which counted Patent terms from the date of filing, not the date of issue.? The idea behind this was to kill off these long application chains, where a case could have a filing date in the 1950's and issue in the next Century.? There were some problems with this new Law, however:
A.? Older cases were "Grandfathered" in, so ironically, some Lemelson cases are no doubt still pending in the system.? While 20-year term may prevent new submarine Patents from being filed, it will not depth charge the old ones still lurking beneath the surface.B.? 20-year term can harm manufacturers and corporations as well, as it may take years for Patents to be Examined and issued, and moreover, technology may not come to full fruition until many years of development and marketing.?? With 20-year term, an applicant may find they have only five years of useful Patent Life.
C. Patent Term Extension attempts to correct some of the problems - but not all - by extending Patent terms by an amount equal to the "delays" caused by the Patent Office.? However, this creates new levels of complexity in determining Patent terms, and could arguably create new grounds of malpractice.
D.? Applicants have to choose between an early filing date (from an earlier-filed application) and a longer Patent term.? If you have an improvement to your invention that has been out for a few years, you may be able to claim priority from an earlier-filed case - which makes your new Patent easier to get allowed as it anticipates more Prior Art.?? But the flip side is that the Patent term is shorter - leaving you less of an enforcement period to use.
As we shall see, the new Patent Reform Act of 2011 amplifies some of these issues, but perhaps not by much.
There have been other changes in the law as well, but none so directed at the "Submarine Patent" as the 20-year term.
So What is in this New Patent Act?
The law has yet to pass, at the time of this writing, although it appears to be on the way to the President's desk, and he appears ready to sign it into law.? The new law has a number of provisions:
1.? The First-to-File System
The major provision that will affect applicants is the switch to the first-to-file system.? This may sound like a major change in the law, but it really will not affect the lives of most Inventors.?? It is, however, another good reason why you should file as early as possible, instead of waiting around.
We will still have the "one year bar date" on the books, so you can file within one year of the date of first public use, sale, offer for sale, or publication.? However, if an Interference is declared between two applications, the person with the earlier filing date will win.? Interference practice, will, as a result, fade away.
This is not a significant change, in my opinion.? Fewer than 1% of all Patent Applications end up in Interference, and of those, perhaps 90% end up being awarded to the person with the earlier filing date.? Usually, the first to invent files first, as the process of developing an invention follows a certain pattern - and most inventors think about Patenting at about the same time in the process.? So an obscure procedure is eliminated from the books - an obscure procedure that the first to file won most of the time, anyway.
But nevertheless, it illustrates why it is important to file as early as possible.
2.? Expanded 3rd Party Participation
Before the passage of this act, a 3rd party could submit art to the USPTO for consideration in a Protest letter or the like.?? But whether the information was acted upon, one would never know - and the applicant could argue against such art, and no one would be available to make counter-arguments.? The new law expands 3rd party participation somewhat - but not by much, in my book.
In addition, a new, post-issuance procedure has been created, similar to Re-Examination, that allows a 3rd party to challenge the validity of a Patent within 9 months of the issue date.? I am not sure why this process is any better than our existing 3rd Party Re-Examination procedures, other than it appears that you can request this as a right, not as a request.
Re-Examination is always problematic for a challenger - if you request a Re-Exam, and the Patent Office issues the Patent anyway, the Patent is now arguably stronger in Court, as it has been "twice examined" by the Office - an argument that tends to sway juries.
So, 3rd parties have a more powerful weapon here, but it can be used to shoot themselves in the foot, if they are not careful.
3.? Provisions that favor Patent Holders
Not all the provisions in this bill are detrimental to Patent Holders.? Part of the law alters the "false marking" Statute and dismisses a number of pending cases (opportunistically filed).? Another part of the bill further streamlines the procedures for when an inventor refuses to sign an oath or declaration (the current procedures are not all that difficult, frankly, to comply with!).? Yet another eliminates the "Best Mode" requirement as a means of invalidating a Patent.
So, while the law may make it harder to get a Patent, it does strengthen some enforcement and filing rights.
4. Litigation Damages
I have said all along that our Patent system problems are Litigation problems, not Prosecution problems.? So long as litigation is expensive and damages are potentially enormous, every Patent out there has a nuisance suit value.
The new law limits damages by forcing the court to identify how they came up with their damage awards.? No longer can Judges or Juries just pull numbers out of thin air - there has to be a calculation involved.? Similarly, enhanced (treble) damages will require some showing of reckless disregard of infringement issues, not merely a knowledge that others' Patents exist.
5.? Patent Office Finances
The USPTO has been a profit center for the U.S. Government, and traditionally, 1/3 of your filing fees have gone to pay for Big Bird on Sesame Street, or for the latest Government-funded art exhibit.? Many inventors feel that this was an abuse of the system, as user fees should go to pay for the services that the user enjoys - not general governmental operations.
But in the past, the USPTO monies went into the general fund and then the USPTO had to beg to get its money back.? Under the new law, these monies might be kept by the Patent Office, or may be earmarked for the office, which will have to "request" to get them back.? This is the one sticking point that has held up the law at the present time, and what sort of compromise that is reached will be anyone's guess.
If the USPTO can keep its funds, it can hire more Examiners and speed up the process of Examination and provide better Examination as well.?? If it cannot keep its funds, it will have a whole host of new procedures to implement and no money to do it with - arguably slowing down the process and creating more delay and waste.
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Overall, the changes in this new law are not that dramatic.? First-to-file may sound like a dramatic change, until you realize that a typical Patent Practitioner can spend an entire career without ever seeing an Interference Proceeding.? The ramifications of First-to-Invent never made much of a dent in 99% of Patents issued, or I suspect, many litigated.
The 3rd Party re-exam provisions are merely extensions and variations of existing processes, not groundbreaking new ideas.? And as for litigation damages and the like, these may make Patent cases less lucrative - or not.? Some damages claims, such as "lost profits" do not seem to be barred by this new process, and those damages can easily exceed the profit margin of the accused infringer.
So are Patents Worth Less, or Worthless?
This is the question for many Applicants.? I think, moving forward, the Patent Bonanza started by Polaroid v. Kodak is going to be attenuated somewhat.
Patents for breakthrough processes and important inventions will still continue to be worth a lot of money.? However, filing Patents speculatively - on the premise that others may buy the Patent down the road - will likely be harder to do, and the resulting Patents may not be worth as much.
Note that filing speculative Patents has always been a difficult way to make money from an invention - and it is not a process I have ever promoted or suggested to clients - even though some clients of mine have made some money in this manner.? Most do not.
Note that also, these provisions may raise the cost of obtaining a Patent, and combined with the previous efforts at "Reform" will make getting broad and ambiguous claims very difficult.
Will these new provisions in the law kill off the "Patent Trolls" and "Submarine Patents?" - hardly.? Just as litigation reform efforts have been passed in many States, you still see the smiling faces of Personal Injury Attorneys on billboards all over the highways.
Simply stated, the high cost of litigation will continue to make the nuisance value of any issued Patent very high.? As a result, anyone with an issued Patent can still "shake down" corporations for nominal settlement amounts, if they have an Attorney who knows how to play that game.
Source: http://robertplattbell.blogspot.com/2011/06/patent-reform-act-of-2011.html
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