Leahy, Hatch, Berman And Smith
Introduce Bicameral, Bipartisan Patent Reform Legislation

WASHINGTON (Wednesday, April 18) – Leading members of the Senate and House Judiciary Committees joined together Wednesday to introduce bipartisan, bicameral patent reform legislation.

Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.), and Senator Orrin Hatch (R-Utah), a senior member of the panel, joined with Rep. Howard Berman (D-Calif.), chairman of the House Judiciary Committee's Subcommittee on Courts, the Internet, and Intellectual Property and Rep. Lamar Smith (R-Texas), ranking member of the House Judiciary Committee, to introduce the Patent Reform Act of 2007.

The bill, which is similar to bipartisan legislation introduced last year, updates current patent laws to provide much needed reform for patent seekers and patent holders.

Among many important reforms, the bill would create a pure “first-to-file” system to bring needed clarity and certainty to the U.S. patent system.  The American system is the only one in the world that still grants patents to the first inventor rather than the first to file an application.  The bill also creates a more streamlined and effective way of challenging the validity and enforceability of patents.

“If we are to maintain our position at the forefront of the world’s economy and continue to lead the globe in innovation and production, then we must have an efficient and streamlined patent system to allow for high quality patents that limits counterproductive litigation,” said Leahy. “This bill is an important step towards achieving that goal.”

“The patent system is the bedrock of innovation, especially in today’s global economy,” said Hatch.  “America’s ingenuity continues to fund our economy, and we must protect new ideas and investments in innovation and creativity.  Patents encourage technological advancement by providing incentives to invent, invest in, and disclose new technology.  Now, more than ever, it is important to ensure efficiency and increased quality in the issuance of patents.” 

“The bottom line in this is there should be no question that the U.S. patent system produces high quality patents. Since questions have been raised about whether this is the case, the responsibility of Congress is to take a close look at the functioning of the patent system,” said Berman.  “High patent quality is essential to continued innovation.  Litigation abuses, especially ones committed by those which thrive on low quality patents, impede the promotion of the progress of science and the useful arts.  Thus, we must act quickly to maintain the integrity of the patent system.”

“Last year, we laid a strong foundation for this bill. Today, we build on that foundation. Few issues are as important to the economic strength of the United States as our ability to create and protect intellectual property. American IP industries account for over half of all U.S. exports, represent 40 percent of our economic growth and employ 18 million Americans. Strengthening intellectual property leads to economic growth, job creation and the type of creativity that has made America the envy of the world. The bill is a good first start,” said Smith.  “It's not the final word. Legislation and modifications will be made during the legislative process.”

The Patent Reform Act of 2007 is an update to patent reform legislation that was introduced last Congress.

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Statement Of Sen. Patrick Leahy
On Introduction Of The Patent Reform Act Of 2007
April 18, 2007

Our patent system is grounded in the Constitution.  Among the specifically enumerated powers of Congress in Article I, Section 8, stands the command to “promote the progress of science and the useful arts, by securing for limited times to authors and inventors the exclusive right to their respective discoveries.”  Those discoveries have, since the founding of our Nation, made us the envy of the world.  Our inventors, our research institutions, and the many companies that commercialize those discoveries have brought a wealth of new products and processes to our society; we have all been the beneficiaries of that creativity and hard work. 

Vermont has long played an important role in bringing such inventions to the public, combining `Yankee ingenuity' with lots of sweat equity.  In fact, the very first U.S. patent was granted to Samuel Hopkins, a farmer in Pittsford, Vermont, who discovered a process for making potash.  That ethic continues to the present day; just last year inventors in IBM’s Essex Junction plant received 360 patents – 10 percent of IBM’s total U.S. patents. 

Vermont is special, of course, but not unique in this regard.  American inventors are in every community, every company and school.  They are individuals tinkering on the weekends in their garages. They are teams of PhDs in our largest corporations.  They are scientists training students in laboratories at our colleges and universities.  Our patent laws should support and reward all American innovators -- independent inventors, small businesses, venture capitalists, academic researchers, and large corporations.  To do so, we must update our patent laws.  Crafted for an earlier time, when smokestacks rather than microchips were the emblems of industry, those laws have served well but need some refinements. 

Senator Hatch and I introduced an earlier version of this bill, S. 3818, last August.  At that time, I said we had taken the first step down a road to real, constructive patent reform, which could reduce the unnecessary burdens of litigation in the patent system and enhance the quality of patents granted by the Patent and Trademark Office.  Senator Hatch wisely noted that we would have to have continuing conversations about issues that remained unresolved.  We have spent the time since then hearing from all manner of interested parties, and indeed we have learned as much since we introduced S. 3818 as we had in the two years prior to its introduction. 

In this Congress, the partnership is not only bipartisan but bicameral.  We have reached not only across the aisle but across the Hill to work out a bill that joins the Senate and the House, Democrats and Republicans, so that today we are introducing a Leahy-Hatch bill in the Senate that mirrors a Berman-Smith bill in the House.  The message is both strong and clear:  We have a unified and resolute approach to improving the nation’s patent system.  We will all have time to focus on the bill’s many provisions in the weeks to come, but I would highlight three significant changes we have made since last summer, aided by the many stakeholders in this process. 

First, the Patent Reform Act of 2007 now includes a pure “first-to-file” system, which will inject needed clarity and certainty into the system.  The United States stands alone among nations that grant patents in giving priority for a patent to the first inventor, as opposed to the first to file a patent application for a claimed invention.  The result is a lack of international consistency, and a complex and costly system in the United States to determine inventors’ rights.  At the same time, our legislation provides important protections for inventors at universities, by permitting them to discuss publicly their work without losing priority for their inventions.

Second, poor patent quality has been identified as a key element of the law that needs attention.  After a patent is issued, a party seeking to challenge the validity and enforceability of the patent has two avenues under current law: by reexamination proceeding at the USPTO or by litigation in federal district court.  The former is used sparingly and some see it as ineffective; the latter, district court litigation, can be unwieldy and expensive.  S. 3818 had created a new, post-grant review to provide an effective and efficient system for considering challenges to the validity of patents.  The Patent Reform Act of 2007 has improved that system, and in particular, we have addressed concerns about misuse of the procedure.  Post-grant review will include protections to avoid the possibility of misuse of the post-grant process.  The Director is instructed to prescribe rules to prevent harassment or abuse, successive petitions are prohibited, and petitioners are stopped from raising the same arguments in court.

Third, we are keenly aware that a sound patent system needs fair and equitable remedies. As products have become more complex, often involving hundreds or even thousands of patented aspects, litigation has not reliably produced damages awards in infringement cases that correspond to the value of the infringed patent.  Our bill last summer was our first effort to ensure that damages awards accurately reflected the harm caused by infringement.  Subsequent conversations with many affected parties have led us to language that, we believe, better serves that purpose and avoids potential pitfalls.

The Patent Reform Act of 2007 is also significant for what is not included.  S. 3818 would have made three considerable changes to the patent laws that, upon further consideration and after listening to the affected parties, we have decided not to make in this year’s legislation.  First is the requirement that patent applicants not intentionally misrepresent a material fact or fail to disclose material information to the PTO.  Candor and truthfulness are the backbone of the patent application system, and are protected by the inequitable conduct doctrine.  S. 3818 would have weakened that doctrine, but it is preserved this year.  Second, we maintain the traditional rule on attorneys’ fees, instead of shifting fees and other expenses to the non-prevailing party as was proposed in S. 3818.  Finally, we do not inject Congress into the ongoing litigation over the extra-territorial provision, section 271(f).  S. 3818 would have repealed the provision in its entirety; the Patent Reform Act of 2007 does not, while the interpretation of the provision is currently pending before the Supreme Court.  If the Court does not resolve that issue, we will revisit it in the legislative process. 

If we are to maintain our position at the forefront of the world’s economy, if we are to continue to lead the globe in innovation and production, if we are to continue to enjoy the fruits of the most creative citizens, then we must have a patent system that produces high quality patents, that limits counterproductive litigation over those patents, and that makes the entire system more streamlined and efficient.  This bill is an important step towards that goal.  I look forward to immediate and intense debate that will inform both the Members of Congress and the public about these improvements, that will allow us to further refine our legislation, and that will lead us to consideration on the Senate floor.

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Leahy-Hatch / Berman-Smith
The Patent Reform Act Of 2007
Section-By-Section

Sec. 1.  Short Title; Table of Contents.  This Act may be cited as the Patent Reform Act of 2007.

Sec. 2. Reference to Title 35, United States Code.  All references to sections are to title 35, United States Code.

Sec. 3.  Right of the First Inventor to File. 

In general. -- The United States stands alone among Nations that grant patents in giving priority for a patent to the first inventor, as opposed to the first to file a patent application for a claimed invention.  The result is a lack of international consistency, and a complex and costly system in the United States to determine inventors’ rights.  The United States Patent Office (“USPTO”) currently uses an interference proceeding to determine which party was first to “invent” the claimed invention, where competing claims arise.  The determination is intensely fact-specific and costly to resolve.  By contrast, a first-to-file system injects needed clarity and certainty into the system. 

This section converts the United States’ patent system into a first-to-file system, giving priority to the earlier-filed application for a claimed invention.  Interference proceedings are replaced with a derivation proceeding to determine whether the applicant of an earlier-filed application was not the proper applicant for the claimed invention – such a proceeding will be faster and less expensive than were interference proceedings.  This section also encourages the sharing of information by providing a grace period for publicly disclosing the subject matter of the claimed invention, without losing priority.

Specifically, this section makes the following amendments to implement the first-to-file system:

Subsection (a). – § 100 is amended to include definitions for terms necessary for the conversion to first-to-file.

Subsections (b) & (c). – § 102 is replaced and § 103 is amended, as follows.  A patent may not issue for a claimed invention if the invention was patented, described in printed material, or in public use (1) more than a year before the filing date or (2) anytime prior to the filing date if not through disclosure by the inventor or joint inventor. 

A patent also may not be issued if the claimed invention was described in a patent or patent application by another inventor filed prior to the filing date of the claimed invention.  A grace period is provided for an inventor or joint inventor that discloses the subject matter of the claimed invention.

Further, an exception is made for claiming an invention if the subject matter previously disclosed was obtained directly or indirectly from the inventor or joint invention or if the subject matter was owned by the same person or subject to an obligation of assignment to the same person.

The CREATE Act is preserved by including an exception for subject matter of a claimed invention made by parties to a joint research agreement.

Subsections (d) & (e). – § 104 (requirements for inventions made abroad) and § 157 (statutory invention registration) are repealed, as part of the transition to first-to-file.  

Subsection (f). – Amends § 120 related to filing dates to conform with the CREATE Act.

Subsection (g). – Makes various conforming amendments for first-to-file transition.

Subsections (h), (i) & (j). – Repeals the interference proceeding authorized in § 291 and creates a new “derivation proceeding” in § 135(a), designed to determine the inventor with the right to file an application on a claimed invention.  An applicant requesting a derivation proceeding must set forth the basis for finding that an earlier applicant derived the claimed invention and without authorization filed an application claiming such invention.  The request must be filed within 12 months of the date of first publication of an application for a claim that is substantially the same as the claimed invention.  The party making the request (1) must have filed an application not later than 18 months after the effective filing date of the opposing application or patent and (2) must not have filed an application, within one year of the earliest effective filing date of the application, containing a claim that is substantially the same as the invention claimed in the earlier filing application.  The Patent Trial and Appeal Board (the “Board”) shall determine the right to patent and issue a final decision thereon.  Decisions of the Board, in general, may be appealed to the Federal Circuit. 

Sec. 4. Inventor’s Oath or Declaration. 

In general. -- The section streamlines the requirement that the inventor submit an oath as part of a patent application. 

An applicant may submit a substitute statement in lieu of the inventor’s oath in certain circumstances, including if the inventor is unable or unwilling to make the oath.  Failure to comply with the requirements of this section will not be a basis for invalidity or unenforceability of the patent if the failure is remedied by a supplemental and corrected statement.    

An assignee of an invention, or a person who otherwise shows sufficient proprietary interest, may file an application for the patent. 

Sec. 5.  Remedies for Infringement and Affirmative Defenses Thereto. 

Relationship of Damages to Improvements over the Prior Art.— As products have become more complex, often involving hundreds or even thousands of patented aspects, litigation has not reliably produced damages awards in infringement cases that correspond to the value of the infringed patent.  This section, therefore, preserves the current rule that mandates that a damages award shall not be less than a “reasonable royalty” for the infringed patent, and further requires the court to conduct an analysis to ensure that, when a “reasonable royalty” is the award, it reflects only the economic value of the patent’s “specific contribution over the prior art”, i.e. the truly new “thing” that the patent reflects.  The court also has to identify the factors that will be considered in determining a reasonable royalty, ensuring that the record is clear on what the judge or jury looked at in awarding damages.  The court must also consider any non-exclusive marketplace licensing of the invention, if there is such a history, in determining a reasonable royalty.  Finally, the court is instructed to consider any other relevant law, which is included to ensure that the significant body of judge-made law on the topic of damages awards in infringement cases is preserved.  

Willful infringement.—  A willful infringer of a patent is liable for treble damages.  The current definition of willful infringement, however, perversely discourages parties from reviewing issued patents to determine whether a patent exists.  This section provides that a court may only find willful infringement if the patent owner shows, by clear and convincing evidence, that (1) the infringer, after receiving written notice from the patentee, performed one of the acts of infringement, (2) the infringer intentionally copied the patented invention with knowledge that it was patented, or (3) after having been found by a court to have infringed a patent, the infringer engaged in conduct that again infringed on the same patent.  An allegation of willfulness is subject to a “good faith” defense.

Prior user rights.— The defense to infringement for patents involving a “method of doing or conducting business” based on the alleged infringer’s having reduced the subject matter to practice one year prior to the filing date is amended to apply to all patents and require only that the subject matter be commercially used (or substantial preparations be made for commercial use) prior to the effective filing date of the claimed invention. 

Sec. 6.  Post-Grant Procedures.

In general.— After a patent issues, a party seeking to challenge the validity and enforceability of the patent has two avenues under current law: by reexamination proceeding at the USPTO or by litigation in federal district court.  The former is used sparingly and is considered not very effective; the latter, district court litigation, is unwieldy and expensive.  This section therefore creates a new, post-grant review that provides an effective and efficient system for considering challenges to the validity of patents.  Addressing concerns that a post-grant review procedure could be abused by cancellation petitioners, this section requires the Director to prescribe rules for abuse of discovery or improper use of the proceeding.  In addition, it bars successive petitions in either the first or second window, and prohibits a party from reasserting claims in court that it raised in post-grant review. 

Reexamination procedures.— Amends the reexamination procedures of § 303(a) to provide that, within three months of a request for reexamination of a patent by the patent owner, or at any time on the Director’s own initiative, the Director may determine whether a substantial new question of patentability is raised by patents discovered by him or cited by any other person.

Post-grant review procedures.—

§ 321.– Permits a person who is not the patent owner to file a “petition for cancellation” before the Patent Trial and Appeal Board based on any ground that might be raised under section 282(a)(2) and (3).  The Director shall establish fees to be paid by the person requesting the proceeding. 

§ 322.– The petition for cancellation can only be filed (1) within 12 months of the patent’s issue or reissue (known as the “first window”), or (2) if there is substantial reason to believe that the continued existence of the challenged claim is likely to cause the petitioner significant economic harm, the petitioner has received notice from the patent holder alleging infringement by the petition, or the patent owner consents to the proceeding in writing (known as the “second window”).

§ 323.– Certain procedures are required, including setting forth the basis for the petition.

§ 324.– Successive petitions under either the first or second window are prohibited, unless the patent owner consents in writing.

§ 325. – The Director may not institute a post-grant review proceeding unless the Director determines that the information presented provides sufficient grounds to proceed. 

§ 326.– The Director shall establish rules and standards for post-grant review, which should result in a final decision within 12 months.  Rules for discovery may, and sanctions for abuse of process shall, be prescribed by the Director. 

§ 327.– The patent owner has a right to file a response to the cancellation petition and may include affidavits, declarations and any additional factual evidence and expert opinions on which the patent owner relies in support of the response. 

§ 328.– The presumption of patent validity does not apply in post-grant review; burden of proof is preponderance of the evidence.

§ 329.– Patent owner may file one motion to amend the patent, or cancel or propose a substitute to any challenged patent claim, in response to a challenge, provided that the amendment may not enlarge the claim or introduce new matter.

§ 330.– The Board shall issue a final decision if the challenge is not otherwise dismissed.

§ 331.– If a final decision of the Board that is not timely appealed, the Director shall publish a certificate canceling any claim determined unpatentable.

§ 332.– The Director may determine rules relating to other ongoing proceedings.

§ 333.– A party against whom final judgment has been entered under 28 U.S.C. § 1338 may not file for post-grant review based on propositions that party could have raised in federal court.

§ 334.– A petitioning party whose petition with respect to any original or new claim of the patent is denied may not, based on any ground which the petitioner raised, pursue reexamination of such claims, interference of such claims, post-grant review of such claims, or assert the invalidity of such claims in any civil action under 28 U.S.C. § 1338.

§ 335. – A party dissatisfied with the final determination of the Director in a post-grant review may appeal the determinations under sections 141 through 144.

Sec. 7. Definitions; Patent Trial and Appeal Board.

The Board of Patent Appeals and Interferences is replaced with the new Patent Trial and Appeal Board.  The Board is charged with reviewing adverse decisions of examiners upon applications and reexamination proceedings, determining priority and patentability, and presiding over the new post-grant review proceedings. 

Sec. 8. Study and Report on Reexamination Proceedings.

The Director shall, not later than 3 years after the date of enactment, conduct a study on the effectiveness of the different forms of review under title 35, and submit a report to the House and Senate Judiciary Committees on the results of the study, along with any suggested amendments. 

Sec. 9.  Submissions by Third Parties and Other Quality Enhancements. 

In general.— This section is designed to improve patent quality by creating a mechanism for third parties with knowledge of the subject matter of a claimed invention to submit relevant information about prior art to the USPTO.

Subsection (a). – § 122(b)(2), which provides confidentiality to patent applications for an applicant who is not filing in another country, is repealed. 

Subsection (b). – Creates a mechanism in § 122 for third parties to submit timely, pre-issuance information relevant to the examination of the application. 

Sec. 10.  Venue and Jurisdiction. 

In general.— This section addresses two litigation issues unique to the patent world.  Subsection (a) deals with venue.  A venue section specific to patent infringement cases exists in 28 U.S.C. § 1400(b).  A change in the general venue provision, 28 U.S.C. § 1391, was later read into the patent venue provision.  The result has been forum shopping, which this subsection addresses.  Subsection (b) makes patent reform litigation more efficient by providing the Federal Circuit jurisdiction over interlocutory orders in what have become known as Markman orders, in which the district court construes claims of a patent.  The contours of the claim are crucial to resolution of the patent litigation, and authorizing interlocutory appeals will add predictability at an earlier stage of litigation. 

Subsection (a). –  The jurisdiction and venue provision for patent cases is amended to specify that any action brought related to patents, other than an action for declaratory judgment or seeking review of a decision of the Board, must be brought in the district where either party resides or where the defendant has committed acts of infringement and has a regular place of business.  For purposes of this section, a corporation resides either where its principal place of business is located or where it is incorporated. 

Subsection (b). – The Federal Circuit is given jurisdiction over interlocutory orders regarding claim constructions. 

Sec. 11. Regulatory Authority.

The Director is granted rulemaking authority “to carry out the provisions of this title or any other law applicable” to the PTO or that is necessary to govern the operation and organization of the office. 

Sec. 12. Technical Amendments.

Sec. 13.  Effective Date.  Except as otherwise provided, this Act takes effect 12 months after the date of enactment and applies to any patent issued on or after that effective date.

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