Patent Overhaul

Patent protection has always been vital to the U.S. economy. And as the U.S. shifts away from a manufacturing economy and toward a service economy, the protection of inventions and innovations is becoming even more important.

But it's been more than 50 years since the U.S. patent system has been really overhauled, points out James H. Morris, a stakeholder at Boston-based intellectual-law firm Wolf, Greenfield & Sacks. Although there have been a number of amendments over the years, he says,"most people look back to the 1952 Patent Act as the last major synthesis and overhaul of patent law."

That may all change soon. Congress has begun taking up the issue of patent reform. The House has already introduced legislation (H.R. 2795) that includes several significant changes. Some of these changes have generated considerable criticism and have led the bill's author, Rep. Lamar S. Smith (R-Texas), to propose a draft substitute bill that will be taken up by the Subcommittee on Courts, the Internet & Intellectual Property at a hearing scheduled for Sept. 15.

"The legislation is trying to do a sort of one-shot, fix-it-all type of approach," says Charles F. Hauff Jr., partner at Snell & Wilmer. "There are several aspects of the bill, with each topic bringing different interests and issues to bear," making such an approach hard to deal with, he notes.

One issue in the original legislation that has led to some divisiveness among industries is the provision that would eliminate a patent holder's right to stop unlicensed groups from practicing his or her inventions, known as injunctive relief. Under current law, if someone is found to be infringing a valid and enforceable patent, the courts can issue an injunction to stop that individual from practicing that invention. The proposed provision would eliminate the injunction and instead put in place a system whereby the infringer would be forced to pay a compulsory licensing fee to continue practicing the invention.

The proposal as laid out in Smith's original legislation was favored by software and information technology companies, which don't want their products held off the market because of potential patent infringement cases. Pharmaceutical and biotechnology companies, on the other hand, strongly oppose this change because these companies rely on the exclusivity rights that a patent affords as they work to develop and market new drugs.

"We are carefully reviewing the legislation with an eye toward making sure that patent protection, which is so essential to the development of new medicines for patients, is not compromised," says Ken Johnson, senior vice president of Pharmaceutical Research & Manufacturers of America. "We oppose the proposed changes to injunctive standards for valid and infringed patents because they could compromise patent protection."

In addition to pharmaceutical and biotech companies, universities also oppose this proposal. "As a practical matter, universities do not manufacture; they simply license and sometimes sell their patented product or spin off companies," explains Michael Kirk, executive director of the American Intellectual Property Law Association (AIPLA), an Arlington, Va.-based national bar association. "It would have hit them particularly hard not to have the normal injunctive rights that they now have under current law," he notes.

"Most companies are already in a mode of protecting their inventions not only in the U.S., but abroad. These companies are therefore already operating in a first- to-file system."

FOR THESE GROUPS, according to Kirk, removing the injunctive relief is in essence "destroying the whole meaning of exclusivity of the patent grant." He notes that this measure is absent from the draft substitute bill, and if the latter measure is adopted, that omission would make it more likely to gain broad support.

The other contentious issue deals with the details of the establishment of an opposition process to question the validity of a patent after it has been issued in a nonlitigation context, where a lesser degree of evidence would be required as compared with a court proceeding. The legislation sets up an initial challenge window for nine months following the patent issue date--something that is consistent with European and other patent systems--and a second window that allows for challenging the patent in a nonlitigation setting at any time during the lifetime of the patent. It's this second window, or second bite, that has garnered protests.

The general idea behind this opposition process is to "limit mistakes made by the U.S. Patent &Trademark Office (PTO) and to allow the public to come in within nine months to a year after the patent grant to correct such mistakes," Kirk explains. But with the second window, which allows an infringer to challenge the validity of a patent for a six-month period after he or she has received notification of the infringement, patent holders can never fully rely on their patents.

Having this second window was "more in tune with allowing for mistakes to be corrected later in the life of the patent, which really transforms the post-grant process into more of what one might call a revocation procedure,"Kirk notes. "This would be a vehicle to attack a patent throughout its life with an easy and low standard of burden of proof,"he says.

Kirk also questions how such a system would be assimilated into the PTO's current activities."The office is struggling with reexamination, and the impact of a post-grant opposition system would be more a complex proceeding," Kirk says, adding his concerns about whether PTO has the staff and resources to take on such a complex system.

In the end, Smith heard these concerns and decided to include only the first, nine-month, opposition window in his draft substitute legislation. Although some groups still have problems with the first window, the proposed removal of the second window provision has eased the major concerns.

But not all of the legislation's provisions have been met with widespread criticism. For example, the original bill and the draft substitute bill propose to shift the U.S. patent system from a first-to-invent system to a first-inventor-to-file system--something that is closely in line with other patent systems around the world. The switch, perhaps one of the most fundamental changes in the U.S. system, has been met with little resistance.

"Most companies are already in a mode of protecting their inventions not only in the U.S., but abroad," Hauff points out. "These companies are therefore already operating in a first-to-file system," he says.

As for universities, Morris acknowledges that a first-inventor-to-file system could have a chilling effect. At issue is whether researchers, who have become increasingly aware of the need to patent potential commercially viable inventions, will become more isolated as they try to protect their patent rights. "I wonder how changes like this will affect people's perception about whether they should talk or submit articles for publication," Morris notes.

According to Hauff, this shift may not be that disruptive because, like many companies, universities are also filing patents in the U.S. and abroad. "People are already sensitive to the idea that they really should patent their work before they publish it or speak about it," he says.

One issue that both Hauff and Morris agree is a sticking point is how the current one-year grace period will fit into the first-inventor-to-file system. The grace period gives researchers a yearlong window from the time they first publicly disclose their invention to file a patent application on it. "I think to the extent that there were some concerns around the grace period, they have been worked out to everyone's satisfaction," Kirk says. Through AIPLA, Kirk has been working with the academic community to reach an accord on this issue.

Most experts agree that with the removal of the two most controversial issues--the second window of the opposition process and the elimination of injunctive relief--the legislation has a chance of passing, but how quickly that will happen is unclear.

"It will take time," Kirk says. "We need to find the right balance that everyone agrees will improve the system, make obtaining a patent simpler and less expensive, and make enforcing the patents less costly and more straightforward," he notes, adding that "if we can find that balance, and it doesn't have any poison pills in it, then it is entirely achievable" to get the legislation passed.

Morris agrees that legislation in some form is likely to pass, and he is already working with his clients to prepare for the changes. "I am advising my clients that in light of the bill that's presently pending and with my expectation that some form of patent reform has a good chance of passing, it's not too early to start looking at your patent portfolio/intellectual property strategy," Morris says. This may mean that his clients need to change their filing strategies--including how, when, and where they file. "Those decisions may cause some level of heartburn for people," he notes.