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Patent Reform in the 111th Congress:
Innovation Issues
Wendy H. Schacht
Specialist in Science and Technology Policy
John R. Thomas
March 24, 2009
Congressional Research Service
7-5700
www.crs.gov
R40481
CRS Report for Congress
P
repared for Members and Committees of Congress
c11173008
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Patent Reform in the 111th Congress: Innovation Issues
Summary
Congressional interest in patent policy and possible patent reform has expanded as the importance
of intellectual property to innovation has increased. Patent ownership is perceived as an incentive
to the technological advancement that leads to economic growth. However, growing interest in
patents has been accompanied by persistent concerns about the fairness and effectiveness of the
current system. Several recent studies, including those by the National Academy of Sciences and
the Federal Trade Commission, recommended patent reform to address perceived deficiencies in
the operation of the patent regime. Other experts maintain that major alterations in existing law
are unnecessary and that the patent process can adapt, and is adapting, to technological progress.
Pending patent reform proposals would work significant legal changes to the patent system.
Among the more notable of these proposed changes is a shift to a first-inventor-to-file priority
system; substantive and procedural modifications to the patent law doctrine of willful
infringement; and adoption of post-grant review proceedings, prior user rights, and pre-issuance
publication of all pending applications. Several of these proposals have been the subject of
discussion within the patent community for many years, but others are more novel propositions.
Current legislative reform efforts (H.R. 1260, S. 515, and S. 610) also would address several
issues of concern, including the quality of issued patents, the expense and complexity of patent
litigation, harmonization of U.S. patent law with the laws of our leading trading partners,
potential abuses committed by patent speculators, and the special needs of individual inventors,
universities, and small firms with respect to the patent system. In addition, although the existing
patent statute in large measure applies the same basic rules to different sorts of inventions,
regardless of the technological field of that invention, the patent system is widely believed to
impact different industries in varying ways.
The provisions of the proposed legislation would arguably work the most sweeping reforms to the
U.S. patent system since the nineteenth century. However, many of these proposals, such as pre-
issuance publication and prior user rights, have already been implemented in U.S. law to a more
limited extent. These and other reforms, such as the first-inventor-to-file priority system and post-
grant review proceedings, also reflect the decades-old patent practices of Europe, Japan, and our
other leading trading partners.
Other observers are nonetheless concerned that certain of these proposals would weaken the
patent right, thereby diminishing incentives for innovation. Some also believe that changes of this
magnitude, occurring at the same time, do not present the most prudent course for the patent
system. Patent reform therefore confronts Congress with difficult legal, practical, and policy
issues, but also with apparent possibilities for altering and possibly improving the legal regime
that has long been recognized as an engine of innovation within the U.S. economy.
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Patent Reform in the 111th Congress: Innovation Issues
Contents
Introduction ................................................................................................................................ 1
Patents and Innovation Policy ..................................................................................................... 2
The Mechanics of the Patent System ..................................................................................... 2
Innovation Policy.................................................................................................................. 3
Current Issues and Concerns ....................................................................................................... 5
Patent Quality ....................................................................................................................... 5
Litigation Costs..................................................................................................................... 6
International Harmonization.................................................................................................. 7
Potential Abuses by Patent Speculators.................................................................................. 8
The Role of Individuals, Universities and Small Entities ....................................................... 9
Differing Patent Values in Distinct Industries ...................................................................... 10
Proposed Legislative Initiatives................................................................................................. 12
First Inventor to File ........................................................................................................... 12
Grace Period ....................................................................................................................... 15
Prior Art Definition ............................................................................................................. 16
Inventor’s Oath and Assignee Filing.................................................................................... 18
Damages ............................................................................................................................. 19
Willful Infringement ........................................................................................................... 21
Prior User Rights ................................................................................................................ 22
Citation of Prior Art ............................................................................................................ 24
Post-Grant Review Proceedings .......................................................................................... 24
Pre-Issuance Submissions ................................................................................................... 26
Venue.................................................................................................................................. 28
Interlocutory Claim Construction Appeals ........................................................................... 29
USPTO Rulemaking Authority............................................................................................ 30
Residency of Federal Circuit Judges.................................................................................... 30
Applicant Quality Submissions ........................................................................................... 31
Inequitable Conduct ............................................................................................................ 31
Conversion of Deadlines ..................................................................................................... 33
Check Imaging Patents........................................................................................................ 33
USPTO Funding ................................................................................................................. 33
Required Studies ................................................................................................................. 34
Other Possible Reforms............................................................................................................. 34
Best Mode Requirement ...................................................................................................... 34
Late USPTO Filings............................................................................................................ 36
Marking .............................................................................................................................. 36
Publication of Pending Applications .................................................................................... 37
Tax Planning Method Patents .............................................................................................. 38
USPTO Rulemaking Authority............................................................................................ 39
Concluding Observations .......................................................................................................... 41
Contacts
Author Contact Information ...................................................................................................... 41
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Patent Reform in the 111th Congress: Innovation Issues
Acknowledgments .................................................................................................................... 41
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Patent Reform in the 111th Congress: Innovation Issues
Introduction
Congressional interest in patent reform has increased as the patent system becomes more
significant to U.S. industry.1 There is broad agreement that more patents are sought and enforced
then ever before; that the attention paid to patents in business transactions and corporate
boardrooms has dramatically increased; and that the commercial and social significance of patent
grants, licenses, judgments, and settlements is at an all-time high.2 As the United States becomes
even more of a high-technology, knowledge-based economy, the importance of patents may grow
even further in the future.
Increasing interest in patents has been accompanied by persistent concerns about the fairness and
effectiveness of the current system. The passage of the American Inventors Protection Act in the
106th Congress made several changes to the patent laws, including USPTO publication of certain
patent applications prior to grant and patent term restoration for delays caused by the USPTO
during grant proceedings.3 Several studies completed since the enactment of that legislation,
including those by the National Academy of Sciences and the Federal Trade Commission, have
recommended additional legal reforms to address perceived deficiencies in the operation of the
patent regime.4 Other experts maintain that major alterations in existing law are unnecessary and
that the patent process can adapt, and is adapting, to technological progress.
In the 111th Congress, three bills have been introduced that attempt to respond to current concerns
about the functioning of the patent process. H.R. 1260, S. 515, and S. 610 propose significant
legal reforms to the patent system. Among these reforms are a shift to a first-inventor-to-file
priority system; substantive and procedural modifications to the doctrine of willful infringement;
and adoption of assignee filing, post-grant review proceedings, and prior user rights. Several of
these proposals have been the subject of discussion within the patent community for many years,
but others present more novel propositions.
This study provides an overview of current patent reform issues. It begins by offering a summary
of the structure of the current patent system and the role of patents in innovation policy. The
report then reviews some of the broader issues and concerns, including patent quality, the high
costs of patent litigation, international harmonization, and speculation in patents, that have
motivated these diverse legislative reform proposals. The specific components of this legislation
are then identified and reviewed in greater detail.
1 This report is based substantially on two predecessors, CRS Report RL32996 and CRS Report RL33996, that
addressed patent reform issues in the 109th and 110th Congresses respectively.
2 Statistics from the United States Patent and Trademark Office (USPTO) support this account. In 1980, the USPTO
received 104,329 utility patent applications; by 2007, this number had grown to 456,154 applications. The number of
U.S.utility patents granted in 1980 was 61,819; in 2007 this number had increased to 157,283. U.S. Patent and
Trademark Office, U.S. Patent Statistics, Calendar Years 1963-2007, available at http://www.uspto.gov/web/offices/
ac/ido/oeip/taf/us_stat.pdf.
3 The American Inventors Protection Act of 1999, P.L. 106-113, was part of the Intellectual Property and
Communications Omnibus Reform Act of 1999, attached by reference to the Consolidated Appropriations Act for
Fiscal Year 2000. President Clinton signed this bill on November 29, 1999.
4 National Research Council, National Academy of Sciences, A Patent System for the 21st Century, [Washington,
National Academies Press, 2004] and Federal Trade Commission, To Promote Innovation: The Proper Balance of
Competition and Patent Law and Policy, October 2003, available at http://www.ftc.gov.
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Patents and Innovation Policy
The Mechanics of the Patent System
The patent system is grounded in Article I, Section 8, Clause 8 of the U.S. Constitution, which
states that “The Congress Shall Have Power ... To promote the Progress of Science and useful
Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their
respective Writings and Discoveries.... ” As mandated by the Patent Act of 1952,5 U.S. patent
rights do not arise automatically. Inventors must prepare and submit applications to the U.S.
Patent and Trademark Office (USPTO) if they wish to obtain patent protection.6 USPTO officials
known as examiners then assess whether the application merits the award of a patent.7 The patent
acquisition process is commonly known as “prosecution.”8
In deciding whether to approve a patent application, a USPTO examiner will consider whether
the submitted application fully discloses and distinctly claims the invention.9 In addition, the
application must disclose the “best mode,” or preferred way, that the applicant knows to practice
the invention.10 The examiner will also determine whether the invention itself fulfills certain
substantive standards set by the patent statute. To be patentable, an invention must consist of a
process, machine, manufacture, or composition of matter that is useful, novel and nonobvious.
The requirement of usefulness, or utility, is satisfied if the invention is operable and provides a
tangible benefit.11 To be judged novel, the invention must not be fully anticipated by a prior
patent, publication or other state-of-the-art knowledge that is collectively termed the “prior art.”12
A nonobvious invention must not have been readily within the ordinary skills of a competent
artisan at the time the invention was made.13
If the USPTO allows the patent to issue, the patent proprietor obtains the right to exclude others
from making, using, selling, offering to sell or importing into the United States the patented
invention.14 Those who engage in these acts without the permission of the patentee during the
term of the patent can be held liable for infringement. Adjudicated infringers may be enjoined
from further infringing acts.15 The patent statute also provides for the award of damages
“adequate to compensate for the infringement, but in no event less than a reasonable royalty for
the use made of the invention by the infringer.”16
5 P.L. 82-593, 66 Stat. 792 (codified at Title 35 United States Code).
6 35 U.S.C. § 111.
7 35 U.S.C. § 131.
8 John R. Thomas, “On Preparatory Texts and Proprietary Technologies: The Place of Prosecution Histories in Patent
Claim Interpretation,” 47 UCLA Law Review (1999), 183.
9 35 U.S.C. § 112.
10 Ibid.
11 35 U.S.C. § 101.
12 35 U.S.C. § 102.
13 35 U.S.C. § 103.
14 35 U.S.C. § 271(a).
15 35 U.S.C. § 283.
16 35 U.S.C. § 284.
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The maximum term of patent protection is ordinarily set at 20 years from the date the application
is filed.17 At the end of that period, others may employ that invention without regard to the
expired patent.
Patent rights are not self-enforcing. Patentees who wish to compel others to observe their rights
must commence enforcement proceedings, which most commonly consist of litigation in the
federal courts. Although issued patents enjoy a presumption of validity, accused infringers may
assert that a patent is invalid or unenforceable on a number of grounds.18 The U.S. Court of
Appeals for the Federal Circuit (Federal Circuit) possesses national jurisdiction over most patent
appeals from the district courts.19 The U.S. Supreme Court enjoys discretionary authority to
review cases decided by the Federal Circuit.20
Innovation Policy
Most experts agree that patent ownership is an incentive to innovation, the basis for the
technological advancement that contributes to economic growth. It is through the
commercialization and use of new products and processes that productivity gains are made and
the scope and quality of goods and services are expanded. Award of a patent is intended to
stimulate the investment necessary to develop an idea and bring it to the marketplace embodied in
a product or process. Patent title provides the recipient with a limited-time monopoly over the use
of his discovery in exchange for the public dissemination of information contained in the patent
application. This is intended to permit the inventor to receive a return on the expenditure of
resources leading to the discovery but does not guarantee that the patent will generate commercial
benefits. The requirement for publication of the patent is expected to stimulate additional
innovation and other creative means to meet similar and expanded demands in the marketplace.
Innovation produces new knowledge. One characteristic of this knowledge is that it is a “public
good,” a good that is not consumed when it is used. This “public good” concept underlies the
U.S. patent system. Absent a patent system, “free riders” could easily duplicate and exploit the
inventions of others. Further, because they incurred no cost to develop and perfect the technology
involved, copyists could undersell the original inventor. The resulting inability of inventors to
capitalize on their inventions would lead to an environment where too few inventions are made.21
The patent system corrects this market failure problem by providing innovators with an exclusive
interest in their inventions for a period of time, thereby allowing them to capture the innovation’s
marketplace value.
The regime of patents purportedly serves other goals as well. The patent system encourages the
disclosure of products and processes, for each issued patent must include a description sufficient
17 35 U.S.C. § 154(a)(2). Although patent term is based upon the filing date, the patentee gains no enforceable legal
rights until the USPTO allows the application to issue as a granted patent. A number of Patent Act provisions may
modify the basic 20-year term, including examination delays at the USPTO and delays in obtaining marketing approval
for the patented invention from other federal agencies.
18 35 U.S.C. § 282.
19 28 U.S.C. § 1295(a)(1).
20 28 U.S.C. § 1254(1).
21 See Rebecca S. Eisenberg, “Patents and the Progress of Science: Exclusive Rights and Experimental Use,” 56
University of Chicago Law Review 1017 (1989).
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to enable skilled artisans to practice the patented invention.22 At the close of the patent’s 20-year
term,23 others may practice the claimed invention without regard to the expired patent. In this
manner the patent system ultimately contributes to the growth of the public domain.
Even during their term, issued patents may also encourage others to “invent around” the
patentee’s proprietary interest. A patentee may point the way to new products, markets,
economies of production and even entire industries. Others can build upon the disclosure of a
patent instrument to produce their own technologies that fall outside the exclusive rights
associated with the patent.24
The patent system has also been identified by legal observers as a facilitator of markets. Absent
patent rights, an inventor may have scant tangible assets to sell or license. In addition, an inventor
might otherwise be unable to police the conduct of a contracting party. Any technology or know-
how that has been disclosed to a prospective licensee might be appropriated without
compensation to the inventor. The availability of patent protection decreases the ability of
contracting parties to engage in opportunistic behavior. By lowering such transaction costs, the
patent system may make technology-based transactions more feasible.25
Through these mechanisms, the patent system can provide more socially desirable results than its
chief legal alternative, trade secret protection. Trade secrecy guards against the improper
appropriation of valuable, commercially useful and secret information. In contrast to patenting,
trade secret protection does not result in the disclosure of publicly valuable information. That is
because an enterprise must take reasonable measures to keep secret the information for which
trade secret protection is sought. Taking the steps necessary to maintain secrecy, such as
implementing physical security measures, also imposes costs that may ultimately be unproductive
for society.26
The patent system has long been subject to criticism, however. Some observers have asserted that
the patent system is unnecessary due to market forces that already suffice to create an optimal
level of innovation. The desire to obtain a lead time advantage over competitors, as well as the
recognition that technologically backward firms lose out to their rivals, may well provide
sufficient inducement to invent without the need for further incentives.27 Other commentators
believe that the patent system encourages industry concentration and presents a barrier to entry in
some markets.28 Still other observers believe that the patent system too frequently attracts
speculators who prefer to acquire and enforce patents rather than engage in socially productive
activity.29
22 35 U.S.C. § 112.
23 35 U.S.C. § 154.
24 Eisenberg, supra, at 1017.
25 Robert P. Merges, “Intellectual Property and the Costs of Commercial Exchange: A Review Essay,” 93 Michigan
Law Review (1995), 1570.
26 David D. Friedman et al., “Some Economics of Trade Secret Law,” 5 Journal of Economic Perspectives (1991), 61.
27 See Jonathan M. Barnett, “Private Protection of Patentable Goods,” 25 Cardozo Law Review (2004), 1251.
28 See John R. Thomas, “Collusion and Collective Action in the Patent System: A Proposal for Patent Bounties,”
University of Illinois Law Review (2001), 305.
29 Ibid.
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When analyzing the validity of these competing views, it is important to note the lack of rigorous
analytical methods available for studying the effect of the patent law upon the U.S. economy as a
whole. The relationship between innovation and patent rights remains poorly understood. As a
result, current economic and policy tools do not allow us to calibrate the patent system precisely
in order to produce an optimal level of investment in innovation. Thus, each of the arguments for
and against the patent system remains open to challenge by those who are not persuaded by their
internal logic.
Current Issues and Concerns
Pending legislation—H.R. 1260, S. 515, and S. 610, each titled the Patent Reform Act of 2009—
proposes a number of changes to diverse aspects of the patent system. Although these reforms
were undoubtedly motivated by a range of concerns, a discrete number of issues have been the
subject of persistent discussion in the patent community over a period of many years. Among
these issues are concern for the quality of issued patents, the expense and complexity of patent
litigation, harmonization of U.S. patent law with the laws of our leading trading partners,
potential abuses committed by patent speculators, and the special needs of individual inventors,
universities, and small firms with respect to the patent system. In addition, although the patent
statute in large measure applies the same basic rules to different sorts of inventions, regardless of
the technological field of that invention, the patent system is widely believed to impact different
industries in varying ways.30 As a result, different industries can be expected to espouse dissimilar
views of certain patent reform proposals. Before turning to a more specific analysis of individual
legislative proposals, this report reviews the proposed legislation’s broader themes with regard to
these issues and concerns.
Patent Quality
Government, industry, academia and the patent bar alike have long insisted that the USPTO
approve only those patent applications that describe and claim a patentable advance.31 Because
they meet all the requirements imposed by the patent laws, quality patents may be dependably
enforced in court and employed as a technology transfer tool. Such patents are said to confirm
private rights by making their proprietary uses, and therefore their value, more predictable.
Quality patents also may clarify the extent that others may approach the protected invention
without infringing. These traits in turn should strengthen the incentives of private actors to
engage in value-maximizing activities such as innovation or commercial transactions.32
In contrast, poor patent quality is said to create deleterious consequences. Large numbers of
inappropriately granted patents may negatively impact entrepreneurs. For example, innovative
firms may be approached by an individual with a low quality patent that appears to cover the
product they are marketing. The innovative firm may recognize that the cost of challenging a
30 See Dan L. Burk & Mark A. Lemley, “Is Patent Law Technology-Specific?,” 17 Berkeley Technology Law Journal
(2002), 1155.
31 CRS Report RL31281, Patent Quality and Public Policy: Issues for Innovative Firms in Domestic Markets, by John
R. Thomas.
32 See Joseph Farrell & Robert P. Merges, “Incentives to Challenge and Defend Patents: Why Litigation Won’t
Reliably Fix Patent Office Errors and Why Administrative Patent Review Might Help,” 19 Berkeley Technology Law
Journal (2004), 943.
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patent even of dubious validity may be considerable. Therefore, the firm may choose to make
payments under licensing arrangements, or perhaps decide not to market its product at all, rather
than contest the patent proprietor’s claims.33
Poor patent quality may also encourage opportunistic behavior. Perhaps attracted by large
damages awards and a potentially porous USPTO, rent-seeking entrepreneurs may be attracted to
form speculative patent acquisition and enforcement ventures. Industry participants may also be
forced to expend considerable sums on patent acquisition and enforcement.34 The net results
would be reduced rates of innovation, decreased patent-based transactions, and higher prices for
goods and services.
Although low patent quality appears to affect both investors and competitors of a patentee, patent
proprietors themselves may also be negatively impacted. Patent owners may make managerial
decisions, such as whether to build production facilities or sell a product, based upon their
expectation of exclusive rights in a particular invention. If their patent is declared invalid by the
USPTO or a court, patentees will be stripped of exclusive rights without compensation. The
issuance of large numbers of invalid patents would increase the possibility that the investment-
backed expectations of patentees would be disappointed.35
The notion that high patent quality is socially desirable has been challenged, however. Some
commentators believe that market forces will efficiently assign patent rights no matter what their
quality. Others observe that few issued patents are the subject of litigation and further estimate
that only a minority of patents are licensed or sold. Because many patented inventions are not
used in a way that calls their validity into question, some observers maintain, society may be
better off making a detailed review into the patentability of an invention only in those few cases
where that invention is of commercial significance.36
Pending legislation bears upon the patent quality issue. H.R. 1260, S. 515, and S. 610 would each
allow for increased public participation in USPTO decisionmaking through a pre-issuance
submission procedure. These bills also allow for post-issuance review proceedings, which would
potentially allow interested parties to “weed out” invalid patents before they are the subject of
licensing or infringement litigation.
Litigation Costs
Patent enforcement is often expensive. The complex legal and technological issues, extensive
discovery proceedings, expert witnesses, and specially qualified attorneys associated with patent
trials can lead to high costs.37 One study published in 2000 concluded that the average cost of
patent enforcement was $1.2 million.38 These expenses appear to be increasing, with one more
33 See Bronwyn H. Hall & Dietmar Harhoff, “Post-Grant Reviews in the U.S. Patent System—Design Choices and
Expected Impact,” 19 Berkeley Technology Law Journal (2004), 989.
34 See Robert P. Merges, “As Many As Six Impossible Patents Before Breakfast: Property Rights for Business
Concepts and Patent System Reform,” 14 Berkeley Technology Law Journal (1999), 577.
35 See Craig Allen Nard, “Certainty, Fence Building and the Useful Arts,” 74 Indiana Law Journal (1999), 759.
36 Mark A. Lemley, “Rational Ignorance at the Patent Office,” 95 Northwestern University Law Review (2001), 1495.
37 Steven J. Elleman, “Problems in Patent Litigation: Mandatory Mediation May Provide Settlement and Solutions,” 12
Ohio State Journal on Dispute Resolution (1997), 759.
38 Dee Gill, “Defending Your Rights: Protecting Intellectual Property is Expensive,” Wall Street Journal (September
(continued...)
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recent commentator describing an “industry rule of thumb” whereby “any patent infringement
lawsuit will easily cost $1.5 million in legal fees alone to defend.”39 Higher stakes litigation is
even more costly according to a 2008 American Intellectual Property Law Association study: for
patent suits involving damages claims of more than $25 million, expenses reportedly increased in
2007 to $5 million.40
For innovative firms that are not infrequently charged with patent infringement, or that bring
claims of patent infringement themselves, the annual expenses associated with patent litigation
can be very dear. The Microsoft Corporation reportedly defends an average of 35 to 40 patent
lawsuits annually at a cost of almost $100 million.41 The Intel Corporation has recently been
estimated to spend $20 million a year on patent litigation.42
The high costs of litigation may discourage patent proprietors from bringing meritorious claims
against infringers. They may also encourage firms to license patents of dubious merit rather than
contest them in court. H.R. 1260 and S. 515 would endeavor to make patent litigation less costly
and complex through modification of the doctrine of willful infringement. These two bills would
allow for an interlocutory appeal of claim construction rulings by the district courts. In addition,
all three bills—H.R. 1260, S. 515, and S. 610—call for an administrative post-grant review
proceeding that could serve as a less expensive alternative to litigation.
International Harmonization
In the increasingly globalized, high-technology economy, patent protection in a single jurisdiction
is often ineffective to protect the interests of inventors. As a result, U.S. inventors commonly seek
patent protection abroad. Doing so can be a costly, time-consuming, and difficult process. There
is no global patent system. Inventors who desire intellectual property protection in a particular
country must therefore take specific steps to procure a patent within that jurisdiction.43
Differences in national laws are among the difficulties faced by U.S. inventors seeking patent
rights overseas. Although the world’s patent laws have undergone considerable harmonization in
recent years, several notable distinctions between U.S. patent law and those of our leading trading
partners persist. H.R. 1260, S. 515, and S. 610 would address some of these differences by
modifying U.S. patent law in order to comply with international standards. Among these proposed
reforms are adoption of a first-inventor-to-file priority system, a post-grant review system, and
assignee filing.
(...continued)
25, 2000), 6.
39 Mark H. Webbink, “A New Paradigm for Intellectual Property Rights in Software,” 2005 Duke Law and Technology
Review (May 1, 2005), 15.
40 See Bart Showalter, Cost of Patent Litigation, AIPLA Mid-Winter Conference, January 25, 2008, available at
http://www.aipla.org/Content/ContentGroups/Speaker_Papers/Mid-Winter1/20083/Showalter-slides.pdf.
41 “Microsoft Advocates for Patent Reform,” eWEEK (March 10, 2005).
42 Stirland, supra, at 613.
43 CRS Report RL31132, Multinational Patent Acquisition and Enforcement: Public Policy Challenges and
Opportunities for Innovative Firms, by John R. Thomas.
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Potential Abuses by Patent Speculators
Some commentators believe that the patent system too frequently attracts speculators who prefer
to acquire and enforce patents rather than engage in research, development, manufacturing, or
other socially productive activity.44 Patent speculators are sometimes termed “trolls,” after
creatures from folklore that would emerge from under a bridge in order to waylay travelers.45 The
late Jerome C. Lemelson, a prolific inventor who owned hundreds of patents and launched
numerous charges of patent infringement, has sometimes been mentioned in this context. The
total revenue of the Lemelson estate’s patent licensing program has been reported as in excess of
$1.5 billion.46 But as explained by journalist Michael Ravnitsky, “critics charge that many
Lemelson patents are so-called submarine patents, overly broad applications that took so long to
issue or were so general in nature that their owners could unfairly claim broad infringement
across entire industry sectors.”47 Of such patent ventures, patent attorney James Pooley observes:
Of course there is nothing inherently wrong with charging someone rent to use your
property, including intellectual property like patents. But it’s useful to keep in mind—
especially when listening to prattle about losing American jobs to foreign competition—that
these patent mills produce no products. Their only output is paper, of a highly threatening
sort.48
Patent enforcement suits brought by patent speculators appear to present special concerns for
manufacturers and service providers. If one manufacturer or service provider commences
litigation against another, the defendant can often assert its own claims of patent infringement
against the plaintiff. Because patent speculators do not otherwise participate in the marketplace,
however, the defendant is unable to counter with its own patent infringement charges. This
asymmetry in litigation positions reportedly reduces the bargaining power of manufacturers and
service providers, potentially exposing them to harassment.49
Observers hasten to note, however, that not every patent proprietor who does not commercialize
the patented invention should properly be considered an opportunistic “troll.” A
nonmanufacturing patentee may lack the expertise or resources to produce a patented product,
prefer to commit itself to further innovation, or otherwise have legitimate reasons for its
behavior.50 Universities and small biotechnology companies often fit into this category. Further,
whether classified as a “troll” or not, each patent owner has presumptively fulfilled all of the
relevant statutory requirements. Among these obligations is a thorough disclosure of a novel,
nonobvious invention to the public.51
44 See Elizabeth D. Ferrill, “Patent Investment Trusts: Let’s Build a Pit to Catch the Patent Trolls,” 6 North Carolina
Journal of Law and Technology (2005), 367.
45 See Lorraine Woellert, “A Patent War Is Breaking Out on the Hill,” BusinessWeek 45 (July 4, 2005).
46 Nicholas Varchaver, “The Patent King,” Fortune (May 14, 2001), 202.
47 Michael Ravnitsky, “More Lemelson Suits,” The National Law Journal (December 17, 2001), B9.
48 James Pooley, “Opinion: U.S. Patent Reform—A Good Invention,” Electronic Business (January 1, 2000), 72.
49 See Ronald J. Mann, “Do Patents Facilitate Financing in the Software Industry?,” 83 Texas Law Review (2005), 961.
50 See David G. Barker, “Troll or No Troll? Policing Patent Usage with An Open Post-Grant Review,” 2005 Duke Law
and Technology Review (April 15, 2005), 11.
51 35 U.S.C. § 112.
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The legislation introduced in the 111th Congress would impact concerns over “trolling” by the
introduction of post-grant review procedures and reform of patent damages law.
The Role of Individuals, Universities and Small Entities
Entrepreneurs and small, innovative firms play a role in the technological advancement and
economic growth of the United States.52 Several studies commissioned by U.S. federal agencies
have concluded that individuals and small entities constitute a significant source of innovative
products and services.53 Studies have also indicated that entrepreneurs and small, innovative firms
rely more heavily upon the patent system than larger enterprises. Larger companies are said to
possess alternative means for achieving a proprietary or property-like interest in a particular
technology. For example, trade secrecy, ready access to markets, trademark rights, speed of
development, and consumer goodwill may to some degree act as substitutes to the patent
system.54 However, individual inventors and small firms often do not have these mechanisms at
their disposal. As a result, the patent system may enjoy heightened importance with respect to
these enterprises.55
In recent years, universities have also become more full-fledged participants in the patent system.
This trend has been attributed to the Bayh-Dole Act,56 a federal statute that allowed universities
and other government contractors to retain patent title to inventions developed with the benefit of
federal funding.57 In recent years there has reportedly “been a dramatic increase in academic
institutions’ investments in technology licensing activities.”58 This increase has been reflected in
the growth in the number of patents held by universities, the number of universities with
technology transfer offices, and the amount of patent-based licensing revenues that these offices
have raised.59
The U.S. patent system has long acknowledged the role, and particular needs, of independent
inventors, small firms, and universities. For example, the patent statute calls for each of these
52 CHI Research Inc., Small Firms and Technology: Acquisitions, Inventor Movement, and Technology Transfer, report
for the Office of Advocacy, U.S. Small Business Administration, January 2004, 2-3, available at http://www.sba.gov/
advo/research/rs233tot.pdf. See also CRS Report RL30216, Small, High Tech Companies and Their Role in the
Economy: Issues in the Reauthorization of the Small Business Innovation Research (SBIR) Program, by Wendy H.
Schacht.
53 For example, the National Academy of Engineering concluded that “small high-tech companies play a critical and
diverse role in creating new products and services, in developing new industries, and in driving technological change
and growth in the U.S. economy.” National Academy of Engineering, Risk & Innovation: The Role and Importance of
Small High-Tech Companies in the U.S. Economy (Washington: National Academy Press, 1995), 37. This assessment
was founded on the ability of small firms to develop markets rapidly, generate new goods and services, and offer
diverse products. The study also concluded that small businesses were less risk adverse than larger, established
corporations and were often better positioned to exploit market opportunities quickly.
54 See Barnett, supra.
55 J. Douglas Hawkins, “Importance and Access of International Patent Protection for the Independent Inventor,” 3
University of Baltimore Intellectual Property Journal (1995), 145.
56 P.L. 96-517, 94 Stat. 2311 (codified at 35 U.S.C. §§ 200-212).
57 CRS Report RL32076, The Bayh-Dole Act: Selected Issues in Patent Policy and the Commercialization of
Technology, by Wendy H. Schacht.
58 Josh Lerner, “Patent Policy Innovations: A Clinical Examination,” 53 Vanderbilt Law Review (2000), 1841.
59 See Arti K. Rai & Rebecca S. Eisenberg, “Bayh-Dole Reform and the Progress of Biomedicine,” 66 Law and
Contemporary Problems (Winter/Spring 2003), 289.
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entities to receive a 50% discount on many USPTO fees.60 As the USPTO is currently entirely
funded by the fees it charges its users,61 this provision effectively calls for larger institutions to
subsidize the patent expenditures of their smaller competitors.
Beyond potentially diminished financial resources vis-a-vis larger concerns, however, observers
have disagreed over whether independent inventors, small firms, and universities have particular
needs with respect to the patent system, and if so whether those needs should be reflected in
patent law doctrines. For example, with respect to the proposed system of “prior user rights,”62
some observers state that such rights would particularly benefit small entities, which may often
lack a sophisticated knowledge of the patent system.63 Others disagree, stating that smaller
concerns rely heavily on the exclusivity of the patent right, and that the adoption of prior user
rights would advantage large enterprises.64 Similar debates have occurred with respect to other
patent reform proposals, perhaps reflecting the fact that the community of independent inventors,
small firms, and universities is itself a diverse one.
Pending legislation includes a number of provisions that appear to be of particular interest to
independent inventors, universities, and small businesses, including a shift to a first-inventor-to-
file priority system and post-grant review procedures.
Differing Patent Values in Distinct Industries
To a large extent, the patent statute subjects all inventions to the same standards, regardless of the
field in which those inventions arose. Whether the invention is an automobile engine,
semiconductor, or a pharmaceutical, it is for the most part subject to the same patentability
requirements, scope of rights, and term of protection. Both experience and economic research
suggest that distinct industries encounter the patent system in different ways, however. As a
result, it can be expected that particular industries will react differently to the various patent
reform proposals currently before Congress.65
Studies suggest that different industries attach widely varying values to patents. For example, one
analysis of the aircraft and semiconductor industries suggested that lead time and the strength of
the learning curve were superior to patents in capturing the value of investments.66 In contrast,
60 35 U.S.C. § 41(g).
61 CRS Report RS20906, U.S. Patent and Trademark Office Appropriations Process: A Brief Explanation, by Wendy
H. Schacht.
62 Under a rule of “prior user rights,” when a conflict exists between an issued patent and an earlier user of the patented
technology, the validity of the patent is upheld but the prior user is exempted from infringement. See Pierre Jean
Hubert, “The Prior User Right of H.R. 400: A Careful Balancing of Competing Interests,” 14 Santa Clara Computer
and High Technology Law Journal (1998), 189. Prior user rights are discussed further in this report below.
63 See Gary L. Griswold & F. Andrew Ubel, “Prior User Rights—A Necessary Part of a First-to-File System,” 26 John
Marshall Law Review (1993), 567.
64 See David H. Hollander, Jr., “The First Inventor Defense: A Limited Prior User Right Finds Its Way Into U.S. Patent
Law,” 30 American Intellectual Property Law Association Quarterly Journal (2002), 37 (noting the perception that
prior user rights favor large, well-financed corporations).
65 For additional discussion on this issue see CRS Report RL33367, Patent Reform: Issues in the Biomedical and
Software Industries, by Wendy H. Schacht.
66 Richard C. Levin, Alvin K. Klevorick, Richard R. Nelson, and Sidney G. Winter, “Appropriating the Returns for
Industrial Research and Development,” Brookings Papers on Economic Activity, 1987, in The Economics of Technical
Change, eds. Edwin Mansfield and Elizabeth Mansfield (Vermont, Edward Elgar Publishing Co., 1993), 254.
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members of the drug and chemical industries attach a higher value to patents where patents are
considered the most effective method to protect inventions, particularly when biotechnology is
included.67 Among the reasons for these divergent assessments are “the cost of research and
development (especially in relation to imitation costs), the technological risk associated with such
research, and the availability of effective non-patent means of protection.”68
Although broad generalizations should be drawn with care, two industries widely perceived as
utilizing the patent system in different ways are the pharmaceutical and software sectors. Within
the pharmaceutical industry, individual patents are perceived as critical to a business model that
provides life-saving and life-enhancing medical innovations, but eventually allows members of
the public access to medicines at low cost. In particular, often only a handful, and sometimes only
one or two patents cover a particular drug product, therefore “the relative value per patent is
much higher in the lifesciences.”69 Patents are also judged to be crucial to the pharmaceutical
sector because of the large R&D investments associated with bringing a drug to market, as well
as the relative ease of replicating the finished product. For example, while it is expensive,
complicated, and time consuming to duplicate an airplane, it is relatively simple to perform a
chemical analysis of a pill and reproduce it.70
In contrast to the pharmaceutical field, the nature of software development is such that
innovations are typically cumulative and new products often embody numerous patentable
inventions. This environment has led to what has been described as a
poor match between patents and products in the [software] industry: it is difficult to patent an
entire product in the software industry because any particular product is likely to include
dozens if not hundreds of separate technological ideas.71
This situation may be augmented by the multiplicity of patents often associated with a finished
computer product that utilizes the software. It is not uncommon for thousands of different patents
(relating to hardware and software) to be embodied in one single computer. In addition,
ownership of these patents may well be fractured among hundreds or thousands of different
individuals and firms.
In general, the patent laws provide a “one size fits all” system, where all inventions are subject to
the same requirements of patentability and scope of protection, regardless of the technical field in
which they arose. Innovators in different fields nonetheless have varying experiences with the
patent system. The differing valuation of patents among sectors leads to the expectation that
distinct industries may react differently to the various patent reform proposals presently being
considered by Congress, particularly the issue of the apportionment of damages.
67 Wesley M. Cohen, Richard R. Nelson, and John P. Walsh, Protecting Their Intellectual Assets: Appropriability
Conditions and Why U.S. Manufacturing Firms Patent (or Not), NBER Working Paper 7552, Cambridge, national
Bureau of Economic Research, February 2000, available at http://www.nber.org/papers/w7552.
68 See Peter S. Menell, “A Method for Reforming the Patent System,” 13 Michigan Telecommunications & Technology
Law Review (2007), 487.
69 California Healthcare Institute, Impact of Patent Law Changes on Biomedical Investment and Innovation, available
at http://www.chi.org/uploadedFiles/CHI%20Patent%20Law%20changes%20paper.pdf
70 Federic M. Scherer, “The Economics of Human Gene Patents,” 77 Academic Medicine (December 2002), 1350.
71 Mann, supra, at 979.
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Proposed Legislative Initiatives
Legislation has been introduced in both houses of Congress that proposes significant reforms to
the patent system. With respect to the House of Representatives, H.R. 1260, titled the Patent
Reform Act of 2009, was introduced on March 3, 2009. S. 515 and S. 610, each also titled the
Patent Reform Act of 2009, were introduced in the Senate on March 3, 2009, and March 17,
2009, respectively. For purposes of comparison, the following chart identifies the significant
proposals of these two bills.
H.R. 1260
S. 515
S. 610
First Inventor to File, § 3
First Inventor to File, § 2
First Inventor to File, § 2
Grace Period, § 3
Grace Period, § 2
Grace Period, § 2
Inventor’s Oath, § 4
Inventor’s Oath and Assignee Filing, § Inventor’s Oath and Assignee Filing, §
3
3
Damages, § 5(a)
Damages, § 4(a)
Damages, § 4
Willful Infringement, § 5(a)
Willful Infringement, § 4(a)
Prior User Rights, § 5(c)
Prior User Rights, § 4(c)
Post-Grant Procedures, § 6
Post-Grant Procedures, § 5
Post-Grant Procedures, § 5
Pre-Issuance Submissions, § 9
Pre-Issuance Submissions, § 7
Pre-Issuance Submissions, § 7
Venue, § 10(a)
Venue, § 8(a)
Venue, § 8
Interlocutory Claim Construction
Interlocutory Claim Construction
Appeals, § 10(b)
Appeals, § 8(b)
USPTO Regulatory Authority, § 11
USPTO Regulatory Authority, § 9
USPTO Regulatory Authority, § 9
Residency of Federal Circuit Judges,
Residency of Federal Circuit Judges,
§ 12
§ 10
Applicant Quality Submissions, § 10
Inequitable
Conduct,
§
11
Conversion
of
Deadlines,
§
12
Check Imaging Patents, § 13
USPTO
Funding,
§
14
First Inventor to File
S. 515 and S. 610 would each shift the U.S. patent priority rule from the current “first-to-invent”
principle to the “first-inventor-to-file” principle.72 H.R. 1260 would also shift to the “first-
inventor-to-file” principle,73 provided that “the President transmits to the Congress a finding that
72 S. 515, § 2; S. 610, § 2.
73 H.R. 1260, § 3.
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major patenting authorities have adopted a grace period having substantially the same effect” as
those within the bill.74 The term “major patenting authorities” is defined as “at least the patenting
authorities in Europe and Japan.”75
Within the patent law, the priority rule addresses the circumstance where two or more persons
independently develop the identical or similar invention at approximately the same time. In such
cases the patent law must establish a rule as to which of these inventors obtains entitlement to a
patent.76 Under current U.S. law, when more than one patent application is filed claiming the
same invention, the patent will be awarded to the applicant who was the first inventor in fact.
This conclusion holds even if the first inventor was not the first person to file a patent application
directed towards that invention.77 Within this “first-to-invent” system,78 the timing of real-world
events, such as the date a chemist conceived of a new compound or a machinist constructed a new
engine, is of significance.
In every patent-issuing nation except the United States, priority of invention is established by the
earliest effective filing date of a patent application disclosing the claiming invention.79 Stated
differently, the inventor who first filed an application at the patent office is presumptively entitled
to the patent. Whether or not the first applicant was actually the first individual to complete the
invention in the field is irrelevant. This priority system follows the “first-inventor-to file”
principle.
A simple example illustrates the distinction between these priority rules. Suppose that Inventor A
synthesizes a new chemical compound on August 1, 2008, and files a patent application on
November 1, 2008, claiming that compound. Suppose further that Inventor B independently
invents the same compound on September 1, 2008, and files a patent application on October 1,
2008. Inventor A would be awarded the patent under the first-to-invent rule, while Inventor B
would obtain the patent under the first-inventor-to-file principle.
Under the current U.S. first-to-invent rule, priority disputes may be resolved via “interference”
proceedings conducted at the USPTO.80 An interference is a complex administrative proceeding
that may result in the award of priority to one of its participants. These proceedings are not
especially common. One estimate concludes that less than one-quarter of one percent of patents
are subject to an interference.81 This statistic may mislead, however, because the expense of
74 Id. at § 3(k).
75 Id. The European Patent Convention, which for nearly 30 years has provided the framework for European patent law,
currently does not provide inventors with a generally applicable grace period during which they may publicly disclose
their inventions without prejudice to their patent rights. See European Patent Convention, Art. 54, October 5, 1973, 13
I.L.M. 268. Under Japanese law, the grace period is six months. See Japanese Patent Act, Law No. 121 of 1959, art. 67-
2-2. Under H.R. 1260, a U.S. shift to a first-inventor-to-file regime would require amendments to both of these laws, at
a minimum.
76 See Roger E. Schechter & John R. Thomas, Principles of Patent Law § 1.2.5 (2d ed. 2004).
77 In addition, the party that was the first to invent must not have abandoned, suppressed or concealed the invention. 35
U.S.C. § 102(g)(2).
78 See Charles E. Gholz, “First-to-File or First-to-Invent?,” 82 Journal of the Patent and Trademark Office Society
(2000), 891.
79 See Peter A. Jackman, “Adoption of a First-to-File System: A Proposal,” 26 University of Baltimore Law Review
(1997), 67.
80 35 U.S.C. § 135.
81 See Clifford A. Ulrich, “The Patent Systems Harmonization Act of 1992: Conformity at What Price?,” 16 New York
Law School Journal of International and Comparative Law (1996), 405.
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interference cases may result in their use only for the most commercially significant inventions. A
shift to a first-inventor-to-file priority rule would eliminate the need for interference proceedings.
Instead, the applicant with the earliest filing date, rather than the first individual to have created
the invention, would be eligible for the patent.
The relative merits of the first-to-invent and first-inventor-to-file priority principles have been the
subject of a lengthy debate within the patent community. Supporters of the current first-to-invent
principle in part assert that the first-inventor-to-file system would create inequities by sponsoring
a “race to the Patent Office.” They are also concerned that the first-to-file system would
encourage premature and sketchy technological disclosures in hastily-filed patent applications.82
Supporters of the first-inventor-to-file principle in part argue that it provides a definite, readily
determined and fixed date of priority of invention, which would lead to greater legal certainty
within innovative industries. They also contend that the first-inventor-to-file principle would
decrease the complexity, length, and expense associated with current USPTO interference
proceedings. Rather than being caught up in lengthy interference proceedings in an attempt to
prove dates of inventive activity that occurred many years previously, they assert, inventors could
continue to go about the process of innovation. Supporters also observe that informed U.S. firms
already organize their affairs on a first-inventor-to-file basis in order to avoid forfeiture of patent
rights abroad.83
The debate over a shift to the first-inventor-to-file rule upon individual inventors, small firms, and
universities is contentious. Some observers state that such entities often possess fewer resources
and wherewithal than their larger competitors, and thus are less able to prepare and file patent
applications quickly. Others disagree, stating that smaller concerns are more nimble than larger
ones and thus better able to submit applications promptly. They also point to the availability of
provisional applications,84 asserting that such applications allow small entities to secure priority
rights readily without a significant expenditure of resources. A quantitative study of interference
proceedings by Gerald Mossinghoff, a former Commissioner of the USPTO, also suggested that
the first-to-invent rule neither advantaged nor disadvantaged small entities vis-a-vis larger
enterprises.85
Whether the U.S. Constitution places restraints upon the selection of a patent priority principle
has also been debated. Article I, Section 8, clause 8 of the Constitution provides Congress with
the authority to award “inventors” with exclusive rights. Some observers suggest this language
suggests, or possibly even mandates, the current first-to-invent system. Others conclude that
because the first-inventor-to-file only awards patents to individuals who actually developed the
invention themselves, rather than derived it from another, this priority system is permissible under
the Constitution.86
82 See Brad Pedersen & Vadim Braginsky, “The Rush to First-to-File Patent System in the United States: Is a Globally
Standardized Patent Reward System Really Beneficial to Patent Quality and Administrative Efficiency?,” 7 Minnesota
Journal of Law, Science & Technology (2006), 757.
83 See Whitney E. Fraser Tiedemann, “First-to-File: Promoting the Goals of the United States Patent System as
Demonstrated Through the Biotechnology Industry,” 41 University of San Francisco Law Review (2007), 477.
84 35 U.S.C. § 111(b).
85 Gerald J. Mossinghoff, “The U.S. First-to-Invent System Has Provided No Advantage to Small Entities,” 84 Journal
of the Patent and Trademark Office Society (2002), 425.
86 See generally Karen E. Simon, “The Patent Reform Act’s First-to-File Standard: Needed Reform or Constitutional
Blunder?,” 6 John Marshall Review of Intellectual Property Law (Fall 2006), 129.
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In weighing the validity of this position, it should be noted that under well-established U.S. law,
the first-inventor-in-fact does not always obtain entitlement to a patent. If, for example, a first-
inventor-in-fact maintained his invention as a trade secret for many years before seeking patent
protection, he may be judged to have “abandoned, suppressed, or concealed” the invention.87 In
such a case a second-inventor-in-fact may be awarded a patent on that invention. Courts have
reasoned that this statutory rule encourages individuals to disclose their inventions to the public
promptly, or give way to an inventor who in fact does so.88 As the first-inventor-to-file rule acts in
a similar fashion to this longstanding patent law principle, conflict between this rule and the
Constitution appears unlikely.
Notably, a first-inventor-to-file priority rule does not permit one individual to copy another’s
invention and then, by virtue of being the first to file a patent application, be entitled to a patent.
All patent applicants must have originated the invention themselves, rather than derived it from
another.89 In order to police this requirement, both bills would provide for “inventor’s rights
contests” that would allow the USPTO to determine which applicant is entitled to a patent on a
particular invention.90
Grace Period
Current U.S. patent law essentially provides inventors with a one-year period to decide whether
patent protection is desirable, and, if so, to prepare an application. Specified activities that occur
before the “critical date”—patent parlance for the day one year before the application was filed—
will prevent a patent from issuing.91 If, for example, an entrepreneur first discloses an invention
by publishing an article in a scientific journal, she knows that she has one year from the
publication date in which to file a patent application. Importantly, uses, sales, and other technical
disclosures by third parties will also start the one-year clock running. As a result, inventors have a
broader range of concerns than merely their own activities.92
Suppose, for example, that an electrical engineer files a patent application claiming a new
capacitor on February 1, 2008. While reviewing the application, a USPTO examiner discovers an
October 1, 2006, journal article by any author disclosing the identical capacitor. Because the
article was published prior to the critical date of February 1, 2007, that publication will prevent or
“bar” the issuance of a patent on that capacitor.
If a relevant reference is first publicly disclosed during the one-year grace period—that is to say,
after the critical date but prior to the filing date—the legal situation is more complex. Under
current law, patent applicants may “antedate” such a reference by demonstrating that they had
actually invented the subject matter of their application prior to the date of the reference. If the
applicant can make such a showing, then the reference cannot ordinarily be used to defeat the
patentability of the invention.
87 35 U.S.C. § 102(g)(2).
88 See Del Mar Engineering Labs. v. United States, 524 F.2d 1178 (Ct. Cl. 1975).
89 35 U.S.C. § 101.
90 H.R. 1260, § 3(i); S. 515, § 2(i); S. 610, § 2(i).
91 35 U.S.C. § 102(b).
92 Schechter & Thomas, supra, at § 4.3.1.
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As an illustration of this procedure, suppose that an inventor files a patent application directed to
a polymer on February 1, 2008. Suppose further that the USPTO examiner discovers that a
textbook published on January 1, 2008, describes the same polymer that is claimed in the
application.93 Because the textbook was published subsequent to the critical date of February 1,
2007, it does not absolutely bar the application. In order to obtain a patent, however, the applicant
must nonetheless demonstrate that he invented the polymer prior to January 1, 2008, the date the
textbook was published. The applicant might submit copies of his laboratory notebook, for
example, or submit a sworn declaration in order to make this showing.94
S. 515 and S. 610 would change, and H.R. 1260 could potentially change, the current grace
period by causing it only to apply to patent applicants themselves. Under this proposal,
“disclosures made by the inventor or a joint inventor or by others who obtained the subject matter
disclosed directly or indirectly from the inventor or a joint inventor” would not be patent-
defeating, provided they were made “one year or less before the effective filing date of the
claimed invention.” In contrast, disclosures qualify as prior art, and are therefore potentially
patent-defeating, if they were made either by (1) the inventors and their associates more than one
year before the patent application’s filing date; or (2) anyone else prior to the filing date, provided
that such a disclosure occurred prior to the inventor’s own disclosure. These amendments would,
in essence, protect the patent positions of individuals who disclosed their inventions up to one
year before they filed a patent application. The grace period would no longer shield inventors
from earlier disclosures made by unrelated individuals, however.
Prior Art Definition
S. 515 and S. 610 would also eliminate three provisions of the Patent Act, paragraphs (c), (d), and
(f) of Section 102, that concern the “prior art”—that is to say, events that will prevent an inventor
from obtaining a patent.95 Once more, H.R. 1260 would make the same change, contingent upon
the President’s certification that “major patenting authorities” provide inventors with a grace
period having substantially the same effect as the one proposed in the legislation.96
Section 102(c) prohibits an applicant from obtaining a patent when he “has abandoned the
invention.” This statute does not refer to disposal of the invention itself, however, but instead to
the intentional surrender of an invention to the public. Older Supreme Court opinions instruct that
abandonment may occur where an inventor expressly dedicates it to the public, through a
deliberate relinquishment or conduct evidencing an intent not to pursue patent protection.97 The
circumstances must be such that others could reasonably rely upon the inventor’s renunciation.98
Perhaps because few individuals expressly cede their patentable inventions to the public without
seeking compensation, there are few modern judicial opinions that consider 35 U.S.C. § 102(c) in
93 In addition, the textbook must be attributable to someone other than the patent applicant. See 35 U.S.C. § 102(a).
94 37 C.F.R. § 1.131.
95 S. 515, § 2; S. 610, § 2.
96 H.R. 1260, § 3.
97 See Beedle v. Bennett, 122 U.S. 71 (1887).
98 See Mendenhall v. Astec Indus., Inc., 13 USPQ2d 1913, 1937 (E.D. Tenn. 1988), aff’d, 887 F.2d 1094 (Fed. Cir.
1989).
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any meaningful way. In addition, the generally applicable principle of equitable estoppel may
apparently be used to obtain the same result.99
Like Section 102(c), Section 102(d) of the Patent Act is reportedly little-used.100 35 U.S.C. 102(d)
bars award of a U.S. patent when (1) an inventor files a foreign patent application more than
twelve months before filing the U.S. application, and (2) a foreign patent results from that
application prior to the U.S. filing date. Suppose that an inventor files an application at a foreign
patent office on May 25, 2007. The foreign application matures into a granted foreign patent on
August 1, 2008. If the inventor has not filed his patent application at the USPTO as of August 1,
2008, the date of the foreign patent grant, any patent application that the inventor subsequently
filed in the United States would be defeated.
35 U.S.C. § 102(d) is intended to encourage the prompt filing of patent applications in the United
States. As the Patent Office Commissioner explained in 1870:
The intention of [C]ongress obviously was to obtain for this country the free use of the
inventions of foreigners as soon as they became free abroad. This is indicated by the use of
the phrase, ‘first patented, or caused to be patented, in a foreign country,’ for it was
presumable that American citizens would obtain their first patent here, while a foreigner
would first patent his invention in his own country. The statute was designed to prevent a
foreigner from spending his time and capital in the development of an invention in his own
country, and then coming to this country to enjoy a further monopoly, when the invention
had become free at home. The result of such a course would be that while the foreign country
was developing the invention and enjoying its benefits, its use could be interdicted here;
while, if the term of the monopoly could be further extended here, the market could be
controlled long after the foreign nation was prepared to flood this country with the
unpatented products of the patented process.101
Section 102(d) has been subject to critical commentary. Because inventors may choose to file a
patent application only in the United States, the policy goal of assuring that the U.S. market will
become patent-free contemporaneously with foreign markets may not be well-served by this
provision. In addition, 35 U.S.C. § 102(d) effectively acts against foreign, rather than U.S.-based
inventors, as domestic inventors ordinarily file at the USPTO first before seeking rights overseas.
Some commentators have suggested that 35 U.S.C. § 102(d) violates the spirit, if not the letter, of
U.S. international treaty obligations, which generally impose an obligation of national treatment
with respect to intellectual property matters.102
The third of these provisions, 35 U.S.C. § 102(f), states that a person may obtain a patent unless
“he did not himself invent the subject matter sought to be patented.” This proposed amendment
would not alter the requirement that only an actual inventor may obtain a patent, which is also
stated by 35 U.S.C. § 101.103
99 See generally A.C. Auckerman & Co. v. R.L. Chaides Construction Co., 960 F.2d 1020 (Fed. Cir. 1992).
100 Schechter & Thomas, supra, at § 4.3.8.
101 Bate Refrigerating Co. v. Sulzberger, 157 U.S. 1, 27 (1895) (quoting Ex parte Mushet, 1870 Comm’r December
106, 108 (1870)).
102 See Toshiko Takenaka, “The Best Patent Practice or Mere Compromise? A Review of the Current Draft of the
Substantive Patent Law Treaty and a Proposal for a ‘First-to-Invent’ Exception for Domestic Applicants,” 11 Texas
Intellectual Property Law Journal (2003), 259.
103 See Schechter & Thomas, supra, at § 4.4.4. This amendment may potentially alter the holding in Oddzon Products
(continued...)
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Inventor’s Oath and Assignee Filing
Under current U.S. law, a patent application must be filed by the inventor—that is, the natural
person or persons who developed the invention.104 This rule applies even where the invention was
developed by individuals in their capacity as employees. Even though rights to the invention have
usually been contractually assigned to an employer, for example, the actual inventor, rather than
the employer, must be the one that applies for the patent. In particular, Section 115 of the Patent
Act obliges each applicant must also submit an oath or declaration stating that he believes himself
to be the “original and first inventor” of the subject matter for which he seeks a patent. Section
118 of the Patent Act allows a few exceptions to this general rule. If an inventor cannot be
located, or refuses to perform his contractual obligation to assign an invention to his employer,
then the employer may file the patent application in place of the inventor.
S. 515 and S. 610 would modify these rules by incorporating the exceptions found in current
Section 118 into Section 115 of the Patent Act.105 This proposal appears to be primarily technical
in nature, although a few changes between the proposed statute and present law exist. First, S.
515 would require inventors to declare only that they are the “original inventor”—rather than the
“original and first inventor”—in keeping with the proposed shift to a first-inventor-to-file priority
system. Second, S. 515 would allow an “individual who is under an obligation of assignment for
patent [to] include the required statements ... in the assignment executed by the individual, in lieu
of filing such statements separately.” This provision comports with the allowance of the filing of
patent applications by employers and other assignees of patent rights.
S. 515 would further stipulate that a “person to whom the inventor has assigned or is under an
obligation to assign the invention may make an application for patent.”106 Individuals who
otherwise make a showing of a “sufficient proprietary interest in the matter” may also apply for a
patent on behalf of the inventor upon a sufficient show of proof of the pertinent facts. Under S.
515, if the USPTO “Director grants a patent on an application filed under this section by a person
other than the inventor, the patent shall be granted to the real party in interest and upon such
notice to the inventor as the Director considers to be sufficient.”
H.R. 1260 also introduces a number of changes to existing Section 115 of the Patent Act, but does
not amend Section 118. Like its counterpart in the Senate, H.R. 1260 would allow an “individual
who is under an obligation of assignment for patent [to] include the required statements ... in the
assignment executed by the individual, in lieu of filing such statements separately.”107
Legal reforms allowing assignee filing of patent applications have been discussed for many years.
Two well-known commissions encouraged this shift, albeit some years ago. A 1966 Report of the
President’s Commission on the Patent System recommended the allowance of assignee filing as a
way to simplify formalities of application filing and to avoid delays caused by the need to identify
(...continued)
Inc. v. Just Toys Inc., 122 F.3d 1396 (Fed. Cir. 1997), that subject matter that qualifies as prior art only under 35 U.S.C.
§ 102(f) may be used for a nonobviousness analysis under 35 U.S.C. § 103(a). Further discussion of this issue may be
found at CRS Report RL33063, Intellectual Property and Collaborative Research, by John R. Thomas.
104 35 U.S.C. § 111.
105 S. 515, § 3(a); S. 610, § 3(a).
106 S. 515, § 3(b); S. 610, § 3(b).
107 H.R. 1260, § 4(a).
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and obtain signatures from each inventor.108 The 1992 Advisory Commission on Patent Law
Reform was also in favor of this change. The 1992 Commission observed that the United States
was “the only country which does not permit the assignee of an invention to file a patent
application in its own name.”109 In the opinion of the 1992 Commission, assignee filing would
appropriately accompany a U.S. shift to a first-inventor-to-file priority system, as the reduction of
formalities would allow innovative enterprises to file patent applications more promptly.
The 1992 Commission also explained that adoption of assignee filing may have some negative
consequences. The Commission noted that patent applications filed by assignees may lack the
actual inventor’s personal guarantee that the application was properly prepared. In addition,
assignee filing might derogate the right of natural persons to their inventions. In the opinion of
the Commission, however, the advantages of assignee filing outweighed the disadvantages.110
Damages
H.R. 1260, S. 515, and S. 610 each address monetary remedies in patent cases. Marketplace
realities often render the determination of an appropriate damages award a difficult affair in
patent litigation. In some cases, the product or process that is found to infringe may incorporate
numerous additional elements beyond the patented invention. For example, the asserted patent
may relate to a single component of an audio speaker, while the accused product consists of the
entire stereo system. In such circumstances, a court may apply “the entire market value rule,”
which “permits recovery of damages based upon the entire apparatus containing several features,
where the patent-related feature is the basis for consumer demand.”111 On the other hand, if the
court determines that the infringing sales were due to many factors beyond the use of the patented
invention, the court may apply principles of “apportionment” to measure damages based upon the
value of the patented feature alone.112
Some observers believe that courts have sometimes been overly generous in assessing damages in
patent cases. As one commentator asserted:
[B]road application of the entire market value rule appears to broaden the practical scope of a
remedy for patent infringement beyond the legal scope of the patent and despite careful
attention to a precise and proper construction of claim terms. Further, although the entire
market value rule was conceived to ensure a proper level of damages for the infringement by
recognizing a patent’s value that went beyond sales of a single product, the courts’
abandonment of a meaningful “basis of consumer” demand test requires an infringer to pay
damages for an entire system, despite that the patent has been issued on only a narrow piece
that has little market impact on sales of unpatented components. Similarly, failing to provide
subsequent inventors with clear notice of their potential liability by uneven application of the
entire market value rule may chill innovation and interfere with the public notice
requirements on which the patent laws depend. Overcompensating initial inventors and over-
108 President’s Commission on the Patent System, “To Promote the Progress of ... Useful Arts” in an Age of Exploding
Technology (1966).
109 Advisory Commission on Patent Reform, A Report to the Secretary of Commerce (August 1992), 179.
110 Id.
111 State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1580 (Fed. Cir. 1989).
112 Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235 U.S. 641 (1915).
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deterring subsequent inventors interferes with the balance sought to be struck by proper
claim interpretation.113
Other commentators disagree, believing that current case law appropriately incorporates
apportionment principles. These commentators also believe that the proposed reforms would
diminish the value of the patent right to the detriment of the innovation environment of the United
States. One observer states:
Courts have had little difficulty applying the current law on apportionment and the entire
market value rule to reach just and reasonable findings on assessment of damages....
Patent infringement damages ... are the culmination of the courts’ long and careful efforts to
adhere to the statutory requirement to provide damages adequate to compensate for the
infringement of an inventor’s patent. Apportionment recognizes the reality that consumer
demand for an infringing product or process may in part spring from contributions from the
infringer, and to reward the inventor for those contributions is inappropriate. On the other
hand, the entire market value rule recognizes the reality that even complex assemblies may
owe their marketability to a patented feature—a feature that drives consumer demand for the
overall assembly. In those cases, it is entirely appropriate to reward the inventor according to
the worth of her invention. To do otherwise would only encourage those who trespass and
discourage inventors from making their intellectual efforts available to the public. The courts
can be and are flexible in assessing each case on its merits, and they can reliably determine
the correct royalty base and rate that will award “damages adequate to compensate for the
infringement.”114
In brief, both H.R. 1260 and S. 515 call for a court to select one of the following methods for
determining a “reasonable royalty” as the measure of damages: (1) the economic value that is
properly attributable to the patented invention’s specific contribution over the prior art, (2) the
entire market value rule, or (3) other factors, such as terms of the nonexclusive marketplace
licensing of the invention.115 Both bills also stipulate that courts may receive expert testimony as
an aid to the determination of the appropriate royalty.
In contrast, S. 610 does not expressly address apportionment and the entire market value rule. It
instead allows courts to “consider any factors that are relevant to the determination of a
reasonable royalty.”116 However, S. 610 stipulates that the amount of royalties paid for patents
other than the patent subject to litigation may only be considered in particular circumstances, and
further that the financial condition of the infringer is not relevant to the reasonable royalty
determination. S. 610 also requires damages experts who intend to present testimony to provide
data and other information from which they draw their conclusions, and also mandates that trial
judges determine whether such testimony is based upon legally sufficient evidence before
allowing it to be considered by a jury.
Views differ on the appropriateness of this reform. Some believe that current damages standards
have resulted in the systemic overcompensation of patent owners. Such overcompensation may
113 Amy L. Landers, “Let the Games Begin: Incentives to Innovation in the New Economy of Intellectual Property
Law,” 46 Santa Clara Law Review (2006), 364-65.
114 William C. Rooklidge, “Reform of the Patent Laws: Forging Legislation Addressing Disparate Interests,” 88
Journal of the Patent and Trademark Office Society (2006), 17-18, 20 (quoting 35 U.S.C. § 284).
115 H.R. 1260, § 5(a); S. 515, § 4(a).
116 S. 610, § 4(a).
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place unreasonable royalty burdens upon producers of high technology products, ultimately
impeding the process of technological innovation and dissemination that the patent system is
meant to foster. Others believe that current case law appropriately accounts for apportionment
concerns. These observers are concerned that this reform might overly restrict damages in patent
cases, thereby discouraging voluntary licensing and promoting infringement of patent rights.
Limited damage awards for patent infringement might prevent innovators from realizing the value
of their inventive contributions, a principal goal of the patent system.
Willful Infringement
H.R. 1260 and S. 515 propose to reform the law of willful infringement. The patent statute
currently provides that the court “may increase the damages up to three times the amount found
or assessed.”117 An award of enhanced damages, as well as the amount by which the damages will
be increased, is committed to the discretion of the trial court. Although the statute does not
specify the circumstances in which enhanced damages are appropriate, the Federal Circuit
recently explained that “a patentee must show by clear and convincing evidence that the infringer
acted despite an objectively high likelihood that its actions constituted infringement of a valid
patent.”118 This circumstance is termed “willful infringement.”119
Courts will not ordinarily enhance damages due to willful infringement if the adjudicated
infringer did not know of the patent until charged with infringement in court, or if the infringer
acted with the reasonable belief that the patent was not infringed or that it was invalid. Prior to
the 2007 decision in In re Seagate Technology, Federal Circuit decisions emphasized the duty of
someone with actual notice of a competitor’s patent to exercise due care in determining if his acts
will infringe that patent.120 In Seagate Technology, however, the Federal Circuit opted to
“abandon the affirmative duty of due care.”121 The court of appeals instead explained that “proof
of willful infringement permitting enhanced damages requires at least a showing of objective
recklessness.”122
Prior to 2004, the Federal Circuit held that when an accused infringer invoked the attorney-client
or work-product privilege, courts should be free to reach an adverse inference that either (1) no
opinion had been obtained or (2) an opinion had been obtained and was contrary to the
infringers’s desire to continue practicing the patented invention.123 However, in its decision in
Knorr-Bremse Systeme fuer Nutzfahrzeuge GmbH v. Dana Corp.,124 the Federal Circuit expressly
overturned this principle. The Court of Appeals further stressed that the failure to obtain legal
advice did not occasion an adverse inference with respect to willful infringement either.
Following the Knorr-Bremse opinion, willful infringement determinations are based upon “the
117 35 U.S.C. § 284.
118 In re Seagate Technology, 497 F.3d 1360 (Fed. Cir. 2007) (in banc).
119 See Beatrice Foods Co. v. New England Printing & Lithographing Co., 923 F.2d 1576, 1578 (Fed. Cir. 1991).
120 See, e.g., Jon E. Wright, “Willful Patent Infringement and Enhanced Damages—Evolution and Analysis,” 10
George Mason Law Review (2001), 97.
121 Seagate Technologies, supra.
122 Id.
123 See, e.g., Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1572 (Fed. Cir. 1988).
124 383 F.3d 1337 (Fed. Cir. 2004).
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totality of circumstances, but without the evidentiary contribution or presumptive weight of an
adverse inference that any opinion of counsel was or would have been unfavorable.”125
Patent law’s willful infringement doctrine has proven controversial. Some observers believe that
this doctrine ensures that patent rights will be respected in the marketplace. Critics of the policy
believe that the possibility of trebled damages discourages individuals from reviewing issued
patents. Out of fear that their inquisitiveness will result in multiple damages, innovators may
simply avoid looking at patents until they are sued for infringement. To the extent this
observation is correct, the law of willful infringement discourages the dissemination of technical
knowledge, thereby thwarting one of the principal goals of the patent system. Fear of increased
liability for willful infringement may also discourage firms from challenging patents of dubious
validity. Consequently some have argued that the patent system should shift to a “no-fault”
regime of strictly compensatory damages, without regard to the state of mind of the adjudicated
infringer.126
H.R. 1260 and S. 515 include identical language that would add several clarifications and
changes to the law of willful infringement. First, a finding of willful infringement would be
appropriate only where (1) the infringer received specific written notice from the patentee and
continued to infringe after a reasonable opportunity to investigate; (2) the infringer intentionally
copied from the patentee with knowledge of the patent; or (3) the infringer continued to infringe
after an adverse court ruling. Second, willful infringement cannot be found where the infringer
possessed an informed, good faith belief that its conduct was not infringing. Finally, a court may
not determine willful infringement before the date on which the court determines that the patent is
not invalid, enforceable, and infringed.127 No comparable language appears in S. 610.
Prior User Rights
The “first inventor defense” established by the American Inventors Protection Act of 1999 would
be broadened by H.R. 1260 and S. 515. As currently found at 35 U.S.C. § 273, an earlier inventor
of a “method of doing or conducting business” that was later patented by another may claim a
defense to patent infringement in certain circumstances. This legislation proposes to allow the
defense to apply as well to affiliates of the entity that qualifies for the defense.
The existing “first inventor defense” accounts for the complex relationship between the law of
trade secrets and the patent system. Trade secrecy protects individuals from misappropriation of
valuable information that is useful in commerce. One reason an inventor might maintain the
invention as a trade secret rather than seek patent protection is that the subject matter of the
invention may not be regarded as patentable. Such inventions as customer lists or data
compilations have traditionally been regarded as amenable to trade secret protection but not to
patenting.128 Inventors might also maintain trade secret protection due to ignorance of the patent
system or because they believe they can keep their invention as a secret longer than the period of
exclusivity granted through the patent system.129
125 Ibid at 1341.
126 See generally Schechter & Thomas, supra, at § 9.2.5.
127 H.R. 1260, § 5(c); S. 515, § 4(c).
128 Restatement of Unfair Competition § 39.
129 David D. Friedman, “Some Economics of Trade Secret Law,” 5 Journal of Economic Perspectives (1991), 61, 64.
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The patent law does not favor trade secret holders, however. Well-established patent law provides
that an inventor who makes a secret, commercial use of an invention for more than one year prior
to filing a patent application at the USPTO forfeits his own right to a patent.130 This policy is
based principally upon the desire to maintain the integrity of the statutorily prescribed patent
term. The patent law grants patents a term of twenty years, commencing from the date a patent
application is filed.131 If the trade secret holder could make commercial use of an invention for
many years before choosing to file a patent application, he could disrupt this regime by delaying
the expiration date of his patent.
On the other hand, settled patent law principles established that prior secret uses would not defeat
the patents of later inventors.132 If an earlier inventor made secret commercial use of an invention,
and another person independently invented the same technology later and obtained patent
protection, then the trade secret holder could face liability for patent infringement. This policy is
based upon the reasoning that once issued, published patent instruments fully inform the public
about the invention, while trade secrets do not. As between a subsequent inventor who patented
the invention, and thus had disclosed the invention to the public, and an earlier trade secret holder
who had not, the law favored the patent holder.
An example may clarify this rather complex legal situation. Suppose that Inventor A develops and
makes commercial use of a new manufacturing process. Inventor A chooses not to obtain patent
protection, yet maintains that process as a trade secret. Many years later, Inventor B
independently develops the same manufacturing process and promptly files a patent application
claiming that invention. In such circumstances, Inventor A’s earlier, trade secret use does not
prevent Inventor B from procuring a patent. Furthermore, if the USPTO approves the patent
application, then Inventor A faces infringement liability should Inventor B file suit against him.
The American Inventors Protection Act of 1999 modified this principle.133 That statute in part
provided an infringement defense for an earlier inventor of a “method of doing or conducting
business” that was later patented by another. By limiting this defense to patented methods of
doing business, Congress responded to the 1998 Federal Circuit opinion in State Street Bank and
Trust Co. v. Signature Financial Group.134 That judicial opinion recognized that business methods
could be subject to patenting, potentially exposing individuals who had maintained business
methods as trade secrets to liability for patent infringement.
Again, an example may aid understanding of the first inventor defense. Suppose that Inventor X
develops and exploits commercially a new method of doing business. Inventor X maintains his
business method as a trade secret. Many years later, Inventor Y independently develops the same
business method and promptly files a patent application claiming that invention. Even following
the enactment of the American Inventors Protection Act, Inventor X’s earlier, trade secret use
would not prevent Inventor Y from procuring a patent. However, should the USPTO approve
Inventor Y’s patent application, and should Inventor Y sue Inventor X for patent infringement,
130 35 U.S.C. § 102(b). See Metallizing Engineering Co. v. Kenyon Bearing & Auto Parts, 153 F.2d 516 (2d Cir. 1946).
131 35 U.S.C. § 154.
132 W.L. Gore & Associates v. Garlock, Inc., 721 F.2d 1540 (Fed. Cir. 1983).
133 The American Inventors Protection Act of 1999, P.L. 106-113, was part of the Intellectual Property and
Communications Omnibus Reform Act of 1999, attached by reference to the Consolidated Appropriations Act for
Fiscal Year 2000. President Clinton signed this bill on November 29, 1999.
134 149 F.3d 1368 (Fed. Cir. 1998).
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then Inventor X may potentially claim the benefit of the first inventor defense. If successful,135
Inventor X would enjoy a complete defense to infringement of Inventor Y’s patent.
H.R. 1260 and S. 515 would expand the first inventor defense as it was established in 1999. The
defense currently applies to “the person who performed the acts necessary to establish the
defense....”136 Both bills would also allow “any other entity that controls, is controlled by, or is
under common control” with that person to claim entitlement to the first inventor defense.137 S.
610 does not address the first inventor defense.
Citation of Prior Art
The ability of members of the public to cite to the USPTO information that may be pertinent to
the validity of a granted patent would be augmented by both H.R. 1260 and S. 515. Section 301
of the Patent Act currently allows any person at any time to cite “patents or printed publications”
that person believes “have a bearing on the patentability of any claim of a particular patent.”138
That person may also optionally include a written statement explaining his views. The USPTO
then places these “prior art citations” in the patent’s official file, where they are accessible to the
public. The name of the person who files a prior art citation may be kept confidential by request.
H.R. 1260 and S. 515 would expand the sorts of documents that may be cited under section 301.
Each would allow the citation of written statements that the patent owner has filed before a
federal court or the USPTO regarding the scope of the patent’s claims.139 The bills would also
allow citation of “evidence that the claimed invention was in public use or sale in the United
States more than 1 year prior to the date of the application for patent in the United States.”140 S.
610 does not address prior art citations with respect to issued patents.
Post-Grant Review Proceedings
Pending legislation in the 111th Congress would introduce post-grant review proceedings into
U.S. patent law. Post-grant review proceedings, which are common in foreign patent regimes, are
patent revocation procedures usually administered by authorities from the national patent office.
Typically known as “oppositions,” these procedures often involve a wide range of potential
invalidity arguments and are conducted through adversarial hearings that resemble courtroom
litigation.141
135 As presently codified at 35 U.S.C. § 273, the first inventor defense is subject to a number of additional
qualifications. First, the defendant must have reduced the infringing subject matter to practice at least one year before
the effective filing date of the application. Second, the defendant must have commercially used the infringing subject
matter prior to the effective filing date of the patent. Finally, any reduction to practice or use must have been made in
good faith, without derivation from the patentee or persons in privity with the patentee.
136 35 U.S.C. § 273(b)(6).
137 H.R. 1260, § 5(c); S. 515, § 4(c).
138 35 U.S.C. § 301.
139 S. 515, § 5(a). H.R. 1260 would also allow citation of such patent owner statements made before the U.S.
International Trade Commission in proceedings under section 337 of the Tariff Act of 1930. H.R. 1260, § 6(a).
140 S. 515, § 5(a). Under H.R. 1260, such evidence must be “documentary.” H.R. 1260, § 6(a).
141 See CRS Report R40378, The Design and Implementation of Patent Revocation Proceedings: Innovation Issues, by
John R. Thomas.
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Although the U.S. patent system does not currently include full-fledged post-grant review
proceedings in the manner of an opposition, the U.S. patent system has incorporated a so-called
reexamination proceeding since 1981. Under the reexamination statute, any individual, including
the patentee, a competitor, and even the USPTO Director, may cite a prior art patent or printed
publication to the USPTO. If the USPTO determines that this reference raises a “substantial new
question of patentability” with respect to an issued patent, then it will essentially reopen
prosecution of the issued patent.
Traditional reexamination proceedings are conducted in an accelerated fashion on an ex
parte basis. Following the American Inventors Protection Act of 1999,142 an inter partes
reexamination allows the requester to participate more fully in the proceedings through the
submission of arguments and the filing of appeals. Either sort of reexamination may result in a
certificate confirming the patentability of the original claims, an amended patent with narrower
claims or a declaration of patent invalidity.
Congress intended reexamination proceedings to serve as an inexpensive alternative to judicial
determinations of patent validity.143 Reexamination also allows further access to the legal and
technical expertise of the USPTO after a patent has issued.144 However, some commentators
believe that reexamination proceedings have been employed only sparingly and question their
effectiveness.145
H.R. 1260, S. 515, and S. 610 each propose an additional post-issuance proceeding termed a
“post-grant review proceeding.” H.R. 1260 and S. 515 provide that any person other than the
patent proprietor may commence this proceeding. The proceeding may begin either within 12
months of the date the patent was issued or at any time if the patent proprietor so consents. Under
both bills, the patent involved in the post-grant review proceeding does not enjoy a presumption
of validity. Rather, “the party advancing a proposition ... shall have the burden of proving that
proposition by a preponderance of the evidence.”146
Under S. 610, the post-grant review proceeding may be instituted by “a person who has a
substantial economic interest adverse to a patent.”147 S. 610 establishes a “first-period
proceeding,” brought within 9 months after the grant of the patent, or a “second-period
proceeding” brought thereafter. First-period proceedings may address a broader range of
patentability issues than second-period proceedings. In addition, the presumption of validity
accorded to a patent in a first-period proceeding must be overcome by a preponderance of the
evidence, while in a second-period proceeding the burden is the higher threshold of clear and
convincing evidence.
142 The American Inventors Protection Act of 1999, P.L. 106-113, was part of the Intellectual Property and
Communications Omnibus Reform Act of 1999, attached by reference to the Consolidated Appropriations Act for
Fiscal Year 2000. President Clinton signed this bill on November 29, 1999.
143 Mark D. Janis, “Inter Partes Reexamination,” 10 Fordham Intellectual Property, Media & Entertainment Law
Journal (2000), 481.
144 Craig Allen Nard, “Certainty, Fence Building and the Useful Arts,” 74 Indiana Law Journal (1999), 759.
145 See Schechter & Thomas, supra, at § 7.5.4.
146 S. 515, § 5(h)(1); H.R. 1260, § 6(b).
147 S. 610, § 5(c).
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Each of the three bills affords the patent proprietor a single opportunity to amend its patent during
the post-grant review proceeding, with further opportunities available with good cause shown.
The USPTO would be required to reach a final decision within one year of commencement of the
proceeding, with an extension possible of up to six months for good cause shown. Should the
patent survive the post-grant review proceeding, the individual who commenced the proceeding,
along with his privies, are barred in the future from raising issues that were previously aired
before the USPTO. The three bills also provide the USPTO Director with authority to establish
regulations to govern post-grant review proceedings.
All three bills also propose amendments to the existing reexamination procedures. Under H.R.
1260 and S. 515, one of these changes appears to respond to concerns that potential requesters are
discouraged from commencing inter partes reexamination proceedings due to a statutory
provision that limits their future options. In order to discourage abuse of these proceedings, the
inter partes reexamination statute provides that third-party participants may not later assert that a
patent is invalid “on any ground that [they] raised or could have raised during the inter partes
reexamination proceedings.”148 Some observers believe that this potential estoppel effect
disinclines potential requesters from use of this post-issuance proceeding. Possibly in reaction to
this perceived problem, H.R. 1260 and S. 515 would delete the phrase “or could have raised”
from the statute.149 As a result, inter partes reexamination requesters would be limited only with
respect to arguments that they actually made before the USPTO. In contrast, S. 610 would
eliminate inter partes reexamination proceedings entirely.150
Many observers have called for the United States to adopt a more effective post-grant
administrative revocation system in order to provide more timely, lower cost, and more efficient
review of issued patents.151 Such a system could potentially improve the quality of issued patents
by weeding out invalid claims. It might also encourage innovative firms to review issued patents
soon after they are granted, thereby increasing the opportunity for technology spillovers.152
However, concerns have arisen over oppositions because they too may be costly, complex, and
prone to abuse as a means for harassing patent owners.153 A successful post-grant review
proceeding will require a balancing of these issues.
Pre-Issuance Submissions
The ability of members of the public to submit information to the USPTO that is pertinent to
pending applications would be augmented by each of the three bills. Under current law, interested
individuals may enter a protest against a patent application. The protest must specifically identify
the application and be served upon the applicant. The protest must also include a copy and, if
necessary, an English translation, of any patent, publication, or other information relied upon. The
protester also must explain the relevance of each item.154
148 35 U.S.C. § 315(c).
149 H.R. 1260, § 6(f); S. 515, § 5(f).
150 S. 610, § 5(b).
151 See National Research Council of the National Academies, A Patent System for the 21st Century (2004), 96.
152 Ibid. at 103.
153 See Mark D. Janis, “Rethinking Reexamination: Toward a Viable Administrative Revocation System for U.S. Patent
Law,” 11 Harvard Journal of Law and Technology (1997), 1.
154 37 C.F.R. § 1.291.
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Protest proceedings have traditionally played a small role in U.S. patent practice. Until Congress
enacted the American Inventors Protection Act of 1999, the USPTO maintained applications in
secrecy. Therefore, the circumstances in which members of the public would learn of the precise
contents of a pending patent application were relatively limited. With the USPTO commencing
publication of some pending patent applications, protests would seem far more likely. Seemingly
aware of this possibility, the 1999 Act provided that the USPTO shall “ensure that no protest or
other form of pre-issuance opposition ... may be initiated after publication of the application
without the express written consent of the applicant.”155 Of course, the effect of this provision is
to eliminate the possibility of protest in exactly that class of cases where the public is most likely
to learn of the contents of a pending application.
Through rulemaking, the USPTO has nonetheless established a limited mechanism for members
of the public to submit information they believe is pertinent to a pending, published application.
The submitted information must consist of either a patent or printed publication, and it must be
submitted within two months of the date the USPTO published the pending application.
Nondocumentary information that may be relevant to the patentability determination, such as
sales or public use of the invention, will not be considered.156 In addition, because Congress
stipulated that no protest or pre-grant opposition may occur absent the consent of the patent
holder, the USPTO has explained that it will not accept comments or explanations concerning the
submitted patents or printed publications. If such comments are attached, USPTO staff will redact
them before the submitted documents are forwarded to the examiner.157
The proposed legislation would augment the possibility for pre-issuance submissions. Under all
three bills, any person may submit patent documents and other printed publications to the USPTO
for review. Such prior art must be submitted within the later date of either (1) the date the USPTO
issues a notice of allowance to the patent applicant; or (2) either six months after the date of pre-
grant publication of the application, or the date of the first rejection of any claim by the USPTO
examiner. Such a submission must include “a concise description of the asserted relevance of
each submitted document.”158
Most observers agree that ideally, the USPTO should have access to all pertinent information
when making patentability determinations. A more expansive pre-issuance submission policy may
allow members of the public to disclose relevant patents and other documents that the USPTO’s
own searchers may not have revealed, thereby leading to more accurate USPTO decision making.
On the other hand, lengthy pre-issuance submissions may merely be repetitive of the USPTO’s
own search results, but still require extensive periods of examiner review that might ultimately
delay examination. The pending proposals attempt to balance these concerns by expanding
existing opportunities for post-publication submissions, but limiting the timing and nature of
those submissions so as to prevent undue burdens upon the USPTO and patent applicants.
155 35 U.S.C. § 122(c).
156 37 C.F.R. § 1.99.
157 U.S. Dept. of Commerce, U.S. Patent & Trademark Off., Manual of Patent Examining Procedure § 1134.01 (8th ed.
July 2008).
158 H.R. 1260, § 9; S. 515, § 7; S. 610, § 7.
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Venue
Each of the three bills would reform the venue provision that applies to patent infringement cases
in federal court.159 The requirement of venue complements the more fundamental requirement of
jurisdiction in federal litigation. The venue statute provides for which court, out of those that
possess personal and subject matter jurisdiction, may most conveniently hear the specific lawsuit
in question.160
Congress has enacted a specialized venue statute that applies only to patent cases. 28 U.S.C. §
1400(b) provides that in patent litigation, venue is proper either: (1) in the judicial district where
the defendant resides, or (2) where the defendant has committed acts of infringement and has a
regular and established place of business. An important question under this provision is where a
corporation is deemed to “reside.” Prior to 1988, a corporation was viewed as residing in its state
of incorporation.161 Commentators have explained that during this period, the patent venue statute
was fairly restrictive, tending to move infringement litigation into the defendant’s seat of
operations.162
Congressional amendments subsequently liberalized venue concepts in patent litigation. In 1988,
Congress adopted a new definition of “reside” as it applies to venue for corporate defendants.163
Under the new definition, a corporation is presumed to reside in any judicial district to which it
could be subject to personal jurisdiction at the time the litigation commences. Congress codified
this change in a separate provision found at 28 U.S.C. § 1391. Although there is no evidence that
Congress contemplated that these reforms would hold consequences for the specialized patent
venue statute, the Federal Circuit nonetheless held that this amendment should also be read into §
1400(b).164
The result of the 1988 amendments has been significant for corporate defendants, which
constitute the majority of defendants in patent litigation. Although § 1400(b) still governs venue
in patent cases, few if any plaintiffs rely upon the restrictive second prong of that section. Instead
they base venue upon the “residence” requirement of the first prong—which now is entirely
conterminous with personal jurisdiction, and which for larger corporations is likely to include
every federal district in the country. For corporate defendants, then, the venue statute has
essentially become superfluous, for the same standards governing personal jurisdiction also
dictate whether a court may provide an appropriate venue or not.
Some observers allege that the liberal venue statute promotes forum shopping, allowing patent
proprietors to bring suit in courts that they believe favor patent owners over accused infringers.
One such “magnet jurisdiction” is said to be the rural Eastern District of Texas, and in particular
the Marshall, Texas federal court. According to one account, many observers “wonder how an
East Texas town of 25,000—even if it was named after Supreme Court Justice John Marshall—
159 In addition, both statutes would alter the venue of suits where the USPTO is a party from the District Court for the
District of Columbia to the District Court for the Eastern District of Virginia. H.R. 1260, § 10(c); S. 515, § 8(c).
160 See Wachovia Bank v. Schmidt, 546 U.S. 303 (2006).
161 See Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957).
162 See Schechter and Thomas, supra, at § 10.1.3.
163 Judicial Improvements and Access to Justice Act, P.L. 100-702, tit. X, § 1013(a), 102 Stat. 4642, 4669 (1988).
164 VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).
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came to harbor an oversized share of intellectual property disputes.”165 In addition, reportedly
“many of the local lawyers who once specialized in personal injury cases are turning their
attention to intellectual property law.”166 Others believe that the existence of a single appellate
court for patent cases, the Federal Circuit, minimizes forum shopping concerns, and that certain
district courts attract patent cases due to their expertise and timeliness, rather than an inherent
favoritism for patent holders.167
Each of the three bills generally call for venue to exist (1) where the defendant has its principal
place of business, (2) where the defendant has committed a substantial portion of its acts of
infringement and has an established physical facility, (3) if the plaintiff is an institution of higher
education, individual, or small business, the plaintiff’s residence, or (4) the place of the plaintiff’s
established physical facility devoted to research, development, or manufacturing.168 In addition,
H.R. 1260 and S. 515 stipulate that “a party shall not manufacture venue by assignment,
incorporation, or otherwise to invoke the venue of a specific district court.”
Interlocutory Claim Construction Appeals
Pending legislation would allow a litigant to pursue an interlocutory appeal169 of a patent claim
construction order to the Court of Appeals for the Federal Circuit. This provision appears to be
motivated by the recognition that the interpretation of a patent claims—a process that in large
measure determines the scope of the patent owner’s proprietary rights—is the most fundamental
inquiry that occurs during patent litigation.170 In addition, numerous observers have perceived the
Federal Circuit to have a high reversal rate of claim interpretations by the district courts.171
Because claim construction is commonly the central focus of a patent trial, the Federal Circuit’s
reversal of that construction often requires the district court to retry the entire case. As patent
litigation is a notoriously lengthy and costly exercise, some observers believe that the current
system is overly expensive and inefficient.172
Some commentators have opined that allowing an immediate appeal of patent claim construction
orders would allow Federal Circuit review before the litigants are put to the full expense of a trial
in federal district court.173 Ordinarily, litigants may appeal only “final decisions” from the district
165 Allen Pusey, “Marshall Law: Patent Lawyers Flood to East Texas Court for Its Expertise and ‘Rocket Docket’,”
Dallas Morning News (March 26, 2006), 1D.
166 Ibid.
167 See Xuan-Thao Nguyen, “Justice Scalia’s ‘Renegade Jurisdiction’: Lessons for Patent Law Reform,” 83 Tulane Law
Review (2008), 111.
168 H.R. 1260, § 10(a); S. 515, § 8(a); S. 610, § 8(a).
169 An “interlocutory appeal” is an appeal that occurs before the trial court’s final ruling on the entire case. See 28
U.S.C. § 1292(b) (2006). In this context, the interlocutory appeal concerning claim construction issues would occur
before the court decides additional issues, such as whether there has been an infringement and the amount of damages
to be awarded to the patent owner.
170 See Joseph Scott Miller, “Enhancing Patent Disclosure for Faithful Claim Construction,” 9 Lewis & Clark Law
Review (2005), 177.
171 See Kimberly A. Moore, “Are District Court Judges Equipped to Resolve Patent Cases?,” 12 Federal Circuit Bar
Journal (2002), 1.
172 See Gwendolyn Dawson, “Matchmaking in the Realm of Patents: A Call for the Marriage of Patent Theory and
Claim Construction Procedure,” 79 Texas Law Review (2001), 1257.
173 See Kyle J. Fiet, “Restoring the Promise of Markman: Interlocutory Patent Appeals Reevaluated Post-Phillips v.
AWH Corp.,” 84 North Carolina Law Review 1291 (2006).
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courts.174 Although federal law currently allows for a review of an intermediate matter at trial175—
a so-called interlocutory appeal—the Federal Circuit has declined to accept such appeals for
routine claim interpretation cases.176 Both H.R. 1260 and S. 515 would expressly authorize such
interlocutory appeals.177 S. 610 does not address this issue.
Not everyone agrees that routine allowance of interlocutory appeals of claim construction orders
would expedite patent litigation. In a letter of June 13, 2007, addressed to Senators Patrick Leahy
and Arlen Specter, Federal Circuit Chief Judge Paul Michel stated that should this provision be
enacted, “I would expect an interlocutory appeal in virtually every patent infringement case as
soon as a claim construction order issues.”178 In his view, this situation would lead to “extended
delays” that “would be intolerable from the standpoint of corporate litigants.”179
USPTO Rulemaking Authority
Under current law, the USPTO enjoys certain rulemaking authority. The USPTO may establish
regulations that “govern the conduct of proceedings” before it, for example, as well as regulations
that “govern the recognition and conduct” of patent attorneys.180 H.R. 1260, S. 515, and S. 610
each propose that the USPTO be granted the authority “to set or adjust by rule any fee established
or charged by the Office” under certain provisions of the patent and trademark laws.181 This
proposal appears to provide the USPTO with greater flexibility to adjust its fee schedule absent
congressional intervention.
Residency of Federal Circuit Judges
Under current law, each Federal Circuit jurist must “reside within fifty miles of the District of
Columbia” while in active service.182 Both H.R. 1260 and S. 515 propose to eliminate this
requirement.183 S. 610 does not address this issue.
Liberalization of the residency requirement would potentially broaden the pool of individuals
eligible for service on the Federal Circuit. This reform may also be appropriate for a court that
enjoys jurisdiction over patent appeals that arise across the United States.184 No other federal
174 28 U.S.C. § 1291.
175 28 U.S.C. § 1292.
176 See Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1479 (Fed. Cir .1998) (en banc) (Newman, J., additional
views).
177 H.R. 1260, § 10(b); S. 515, § 8(b).
178 Letter of Chief Judge Paul R. Michel to Senators Patrick Leahy and Arlen Specter (June 13, 2007), 2 (available at
http://www.patentlyo.com).
179 Ibid.
180 35 U.S.C. § 2(b)(2). It should be appreciated that “Congress has not vested the [USPTO] with any general
substantive rulemaking power.... ” Cybor Corp. v. FAS Techs, Inc., 138 F.3d 1448, 1479 (Fed. Cir. 1998) (en banc)
(Newman, J., additional views).
181H.R. 1260, § 11; S. 515, § 9; S. 610, § 9.
182 28 U.S.C. § 44(c).
183 H.R. 1260, § 12; S. 515, § 10.
184 28 U.S.C. § 1295(a)(1).
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appellate court is subject to a similar residency requirement.185 On the other hand, because the
Federal Circuit courthouse is located in Washington, DC, the current residency rule might
promote greater interaction among its jurists.
Applicant Quality Submissions
Under current law, inventors who file a patent application at the USPTO are required to disclose
earlier patents, journal articles, and other prior art references of which they are aware, and that
they believe are material to the determination of whether their invention should be patented or
not.186 However, patent applicants are not required affirmatively to conduct a literature search in
order to identify relevant prior art references.187 Although some inventors probably complete a
prior art search as a matter of due diligence prior to preparing and filing a patent application, this
effort is not obligatory. As part of the prosecution process, USPTO examiners conduct literature
searches in order to identify the prior art that most closely relates to the claimed invention.
S. 610 would allow the USPTO Director to “offer incentives to applicants who submit a search
report, a patentabilty analysis, or other information relevant to patentabilty.”188 Such incentives
may include modifications to fees or “prosecution flexibility.” S. 610 further stipulates that such
submissions may not be admitted in court as an aid to construction of the patent in certain
circumstances. Neither H.R. 1260 nor S. 515 addresses this issue.
Inequitable Conduct
The administrative process of obtaining a patent from the USPTO has traditionally been
conducted as an ex parte procedure. Stated differently, patent prosecution involves only the
applicant and the USPTO. Members of the public, and in particular the patent applicant’s
marketplace competitors, do not participate in patent acquisition procedures.189 As a result, the
patent system relies to a great extent upon applicant observance of a duty of candor and
truthfulness towards the USPTO.
An applicant’s obligation to proceed in good faith may be undermined, however, by the great
incentive applicants might possess not to disclose, or to misrepresent, information that might
deleteriously impact her prospective patent rights. The patent law therefore penalizes those who
stray from honest and forthright dealings with the USPTO. Under the doctrine of “inequitable
conduct,” if an applicant intentionally misrepresents a material fact or fails to disclose material
information, then the resulting patent will be declared unenforceable.190 Two elements must exist
before a court will decide that the applicant has engaged in inequitable conduct. First, the
patentee must have misrepresented or failed to disclose material information to the USPTO in the
185 Marcia Coyle, “Court’s Residency Rule May Fall: Federal Circuit Rule Limits Bench Talent,” 29 National Law
Journal no. 44 (July 9, 2007), 1.
186 37 C.F.R. § 1.56.
187 Schechter & Thomas, supra, at § 7.2.1.
188 S. 610, § 10.
189 35 U.S.C. § 122(a) (stating the general rule that “applications for patents shall be kept in confidence by the Patent
and Trademark Office and no information concerning the same given without authority of the applicant.... ”).
190 Glaverbel Societe Anonyme v. Northlake Mktg. & Supply Inc., 45 F.3d 1550 (Fed. Cir. 1995).
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prosecution of the patent.191 Second, such nondisclosure or misrepresentation must have been
intentional.192
During patent infringement litigation, an accused infringer has the option of asserting that the
plaintiff’s patent is unenforceable because it was procured through inequitable conduct. Some
observers have expressed concerns that charges of inequitable conduct have become routine in
patent cases. As one commentator explains:
The strategic and technical advantages that the inequitable conduct defense offers the
accused infringer make it almost too attractive to ignore. In addition to the potential effect on
the outcome of the litigation, injecting the inequitable conduct issue into patent litigation
wreaks havoc in the patentee’s camp. The inequitable conduct defense places the patentee on
the defensive, subjects the motives and conduct of the patentee’s personnel to intense
scrutiny, and provides an avenue for discovery of attorney-client and work product
documents....193
As the Federal Circuit put it, “the habit of charging inequitable conduct in almost every major
patent case has become an absolute plague.”194 Other observers believe that because inequitable
conduct requires an analysis of the knowledge and intentions of the patent applicants, the doctrine
may also be contributing disproportionately to the time and expense of patent litigation.195
Due to these perceived burdens upon patent litigation, some commentators have proposed that the
inequitable conduct defense be eliminated.196 Others believe that inequitable conduct is necessary
to ensure the proper functioning of the patent system. As the Advisory Commission on Patent
Law Reform explained in its 1992 report:
Some mechanism to ensure fair dealing between the patentee, public, and the Federal
Government has been part of the patent system for over 200 years. In its modern form, the
unenforceability defense provides a necessary incentive for patent applicants to engage in
fair and open dealing with the [USPTO] during the ex parte prosecution of patent
applications, by imposing the penalty of forfeiture of patent rights for failure to so deal. The
defense is also considered to be an essential safeguard against truly fraudulent conduct
before the [USPTO]. Finally, the defense provides a means for encouraging complete
disclosure of information relevant to a particular patent application.... Thus, from a policy
perspective, the defense of unenforceability based upon inequitable conduct is desirable and
should be retained.197
S. 610 proposes to remove determinations of inequitable conduct from the courts entirely, instead
obligating the USPTO Director to promulgate regulations for “receiving and reviewing
information indicating that parties to a matter or proceeding before the Office may have engaged
in misconduct in connection with such matter or proceeding.” Punishable behavior is defined as
191 Heidelberger Druckmaschinen AG v. Hantscho Comm’l Prods., Inc., 21 F.3d 1068 (Fed. Cir. 1993).
192 Jazz Photo Corp. v. U.S. Int’l Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001).
193 John F. Lynch, “An Argument for Eliminating the Defense of Patent Unenforceability Based on Inequitable
Conduct,” 16 American Intellectual Property Law Association Quarterly Journal (1988), 7.
194 Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418 (Fed. Cir. 1988).
195 See, e.g., Scott D. Anderson, “Inequitable Conduct: Persistent Problems and Recommended Resolutions,” 82
Marquette Law Review (1999), 845.
196 Lynch, supra, at 7.
197 1992 Advisory Commission, supra, at 114.
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“misconduct consisting of intentionally deceptive conduct of a material nature in connection with
a matter or proceeding before the Office.” The Director may levy civil penalties of up to
$150,000 for each act of misconduct, with exceptional misconduct allowing a penalty of up to
$10,000,000. The USPTO’s determination may be appealed to the Federal Circuit.
Neither H.R. 1260 nor S. 515 addresses this issue.
Conversion of Deadlines
Under current law, many deadlines for submissions to the USPTO or to the courts are expressed
in terms of a period of days. For example, certain patent owners eligible for an extension of
patent term must petition the USPTO within 60 days of the grant of the patent.198 S. 610 would
convert a number of these deadlines from their current, daily basis to a monthly basis.199 Under
this proposal, a 30-day deadline would become a one-month deadline, a 60-day deadline would
become a two-month deadline, and a 90-day deadline would become a three-month deadline, and
a 180-day deadline would become a six-month deadline. No comparable provision appears in
H.R. 1260 or S. 515.
Check Imaging Patents
S. 610 proposes to limit the remedies available for patent infringement with respect to a “financial
institution” that uses a “check collection system.”200 In particular, in such circumstances the
patentee is not eligible to receive damages, attorney fees, or an injunction. S. 610 further
stipulates that if this provision “is found to establish a taking of private property for public use
without just compensation, this [provision] shall be null and void.” No comparable provision
appears in H.R. 1260 or S. 515.
USPTO Funding
S. 610 would address the collection of fees by the USPTO, as well as the disposition of such fees.
USPTO funding largely derives from the fees it charges to patent and trademark applicants, as
well as other entities that interact with the agency.201 Until recently, Congress had not allocated all
of the fees that the USPTO collected towards the operation of that agency. Reportedly over $750
million in USPTO fees were directed towards other government operations.202
S. 610 would establish a “USPTO Revolving Fund” consisting of fees deposited with the USPTO.
The amount deposited in the fund would in turn be available for the USPTO to spend in support
of that agency’s operations. The USPTO would be responsible for notifying the House and Senate
198 35 U.S.C. § 156(d)(1).
199 S. 610, § 12.
200 S. 610, § 13.
201 See Figueroa v. United States, 466 F.3d 1023, 1027-28 (Fed. Cir. 2006).
202 See Intellectual Property Owners, “Adequate Funding for the USPTO and Ending Fee Diversion” (available at
http://www.ipo.org).
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Appropriation Committees of its funds and expenditures.203 Neither H.R. 1260 nor S. 515
addresses this issue.
Required Studies
H.R. 1260 and S. 515 require the USPTO to undertake and complete new studies with respect to
prior user rights.204 In addition, H.R. 1260 mandates that the USPTO complete studies over
varying time frames with respect to the following topics: (1) if consummated, the effect on a
switch to a first-inventor-to-file priority system,205 (2) damages,206 and (3) reexamination
proceedings.207 H.R. 1260 would further obligate the Administrative Office of the United States
Courts to complete a study regarding the use of special masters in U.S. courts,208 and also require
the Comptroller General to complete a study on workplace conditions at the USPTO.209 S. 610
does not require the completion of any studies.
Other Possible Reforms
Reforms pertaining to a number of additional patent law doctrines were discussed in previous
sessions of Congress, but were not incorporated within either S. 515 or H.R. 1260. This report
reviews a number of these topics in the event that consideration of these reforms is renewed in the
111th Congress. In so doing this report refers to two bills considered in the 110th Congress, S.
1145 and H.R. 1908, both known as the Patent Reform Act of 2007. S. 1145 was reported out of
the Senate Committee on the Judiciary on January 28, 2008, while H.R. 1908 passed the House of
Representatives on September 7, 2007.
Best Mode Requirement
Currently, inventors are required to “set forth the best mode contemplated by the inventor of
carrying out his invention.”210 Failure to disclose the best mode known to the inventor is a ground
for invalidating an issued patent. The courts have established a two-part standard for analyzing
whether an inventor disclosed her best mode in a particular patent. The first inquiry was whether
the inventor knew of a way of practicing the claimed invention that she considered superior to
any other. If so, then the patent instrument must identify, and disclose sufficient information to
enable persons of skill in the art to practice that best mode.211
Proponents of the best mode requirement have asserted that it allows the public to receive the
most advantageous implementation of the technology known to the inventor. This disclosure
203 S. 610, § 14.
204 S. 515, § 4(b); H.R. 1260, § 5(b).
205 H.R. 1260, § 3(l).
206 Id. at § 5(e).
207 Id. at § 8 and § 18.
208 Id. at § 16.
209 Id. at § 17.
210 35 U.S.C. § 112.
211 See, e.g., Chemcast Corp. v. Arco Industries Corp. 913 F.2d 923 (Fed. Cir. 1990).
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becomes part of the patent literature and may be freely reviewed by those who wish to design
around the patented invention. Absent a best mode requirement, some observers say, patent
proprietors may be able to maintain the preferred way of practicing their inventions as a trade
secret. Members of the public are also said to be better able to compete with the patentee on equal
footing after the patent expires.212
The best mode requirement has been the subject of ongoing discussion in recent years,
however.213 For example, a 1992 Presidential Commission recommended that Congress eliminate
the best mode requirement. The Commission reasoned that patents also are statutorily required to
disclose “the manner and process of making and using [the invention], in such full, clear, concise,
and exact terms as to enable any person skilled in the art ... to make and use the same.”214 This
“enablement” requirement was believed to provide sufficient information to achieve the patent
law’s policy goals.215
The Commission further stated that the best mode requirement leads to increases in the costs and
complexity of patent litigation. As the Commission explained:
The disturbing rise in the number of best mode challenges over the past 20 years may serve
as an indicator that the best mode defense is being used primarily as a procedural tactic. A
party currently can assert failure to satisfy the best mode requirement without any significant
burden. This assertion also entitles the party to seek discovery on the “subjective beliefs” of
the inventors prior to the filing date of the patent application. This broad authority provides
ample opportunity for discovery abuse. Given the fluidity by which the requirement is
evaluated (e.g., even accidental failure to disclose any superior element, setting, or step can
negate the validity of the patent), and the wide ranging opportunities for discovery, it is
almost certain that a best mode challenge will survive at least initial judicial scrutiny.216
The Commission further reasoned that the best mode at the time of filing is unlikely to remain the
best mode when the patent expires many years later.217 Because many foreign patent laws include
no analog to the best mode requirement, inventors based overseas have also questioned the
desirability of the best mode requirement in U.S. law.
Although legislation introduced in the 109th Congress proposed the elimination of the best mode
requirement,218 in the 110th Congress H.R. 1908 took a different approach. Under this proposal
the best mode requirement would continue to apply to all patents, but it would no longer form the
basis for a defense to a charge of patent infringement during enforcement litigation or post-grant
review proceedings.219 Compliance with the best mode requirement would remain subject to
review by USPTO examiners during the initial prosecution of a patent, although USPTO rejection
212 See Dale L. Carlson et al., “Patent Linchpin for the 21st Century? Best Mode Revisited,” 87 Journal of the Patent
and Trademark Office Society (2005), 89.
213 See, e.g., Steven B. Walmsley, “Best Mode: A Plea to Repair or Sacrifice This Broken Requirement of United States
Patent Law,” 9 Michigan Telecommunications and Technology Law Review (2002), 125.
214 35 U.S.C. § 101.
215 1992 Advisory Commission Report, supra, at 102-03.
216 Id. at 101.
217 Id. at 102-03.
218 H.R. 2795, § 4(d) (Chairman’s Draft Substitute of July 26, 2005).
219 H.R. 1908, § 13.
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of applications based upon failure to comply with the best mode requirement is reportedly a rare
circumstance.220 No analogous provision appeared in S. 1145.
Late USPTO Filings
In the 110th Congress, S. 1145 would have allowed the USPTO Director to accept filings in patent
and trademark matters made after the applicable statutory deadline, provided that the tardy
applicant “files a petition within 30 days after such deadline showing, to the satisfaction of the
Director, that the delay was unintentional.”221 Both the patent and trademark statutes require the
individual to complete certain filings by specified time limits in order to obtain intellectual
property rights, object to rights granted to others, or for other reasons.222 These statutes often, but
not always, provide for USPTO acceptance of late filings upon a special showing by the
applicant.223 S. 1145 appeared to provide a general statutory provision for late filings that would
supplement the current, more narrowly targeted provisions. No analogous provision appeared in
H.R. 1908.
Marking
The Patent Act encourages patent proprietors that manufacture their patented inventions to notify
the public of their patent rights. Section 287(a) provides that patent owners should place the word
“patent,” or the abbreviation “pat.,” along with the number of the patent, on patented goods. If the
nature of the article does not allow this notice to be placed directly upon it, then a label may be
placed on the article or its packaging. This practice is commonly termed “marking.”224
There is no absolute duty to mark. If a patent proprietor fails to mark in the specified manner,
however, then it may receive damages only for infringing acts that occur after the infringer
receives actual notice of infringement.225 Filing an infringement lawsuit is considered to provide
such actual notice. Less severely, a patent owner may issue a specific charge of infringement,
commonly by sending a cease and desist letter to the infringer. The marking statute is said “to
give patentees the proper incentive to mark their products and thus place the world on notice of
the existence of the patent.”226
The marking statute does not apply in some situations. Obviously, if the patent owner does not
sell products that embody the patented invention, then there is no obligation to mark. In addition,
“[t]he law is clear that the notice provisions of section 287 do not apply where the patent is
directed to a process or method.”227 Because these types of patent concern inchoate behavior,
220 Jerry R. Selinger, “In Defense of “Best Mode”: Preserving the Benefit of the Bargain for the Public, 43 Catholic
University Law Review (1994), 1099 (“Failure to comply with best mode ... is not something an examiner normally can
evaluate when reviewing the application.... ”).
221 S. 1145, § 13.
222 See, e.g., 35 U.S.C. § 133 (stating time limits for prosecuting a patent application).
223 See, e.g., 35 U.S.C. § 156(d)(1) (stating a 60-day filing period with no exceptions).
224 See Schechter & Thomas, supra, at § 9.2.3.
225 It should be further appreciated that under 35 U.S.C. § 286, “no recovery shall be had for any infringement
committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.”
226 Laitram Corp. v. Hewlett-Packard Co., 806 F. Supp. 1294, 1296 (E.D. La. 1992).
227 American Med. Sys., Inc. v. Medical Eng’g Corp., 6 F.3d 1523, 1538 (Fed. Cir. 1993).
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rather than a discrete physical product, the courts have reasoned that there is no tangible item on
which to place a patent marking.228
In the 110th Congress, S. 1145 would have somewhat modified patent damages law in situations
where the current marking statute does not apply. Under that proposal, where there is no
obligation to mark—either because the patent owner does not market the patented product, the
asserted patent is directed towards a process or method, or for some other reason—“no recovery
shall be had for any infringement committed more than 2 years prior to the filing of the
complaint” unless the patent owner had provided notice of infringement. If notice is provided, the
patent owner may recover damages for infringement for up to two years prior to such notice, as
well as for infringing acts committed after such notice.229
The amendments proposed by S. 1145 appeared to support the same policy goal as the marking
statute—in particular, notice of the existence of patent rights to interested parties—in
circumstances where the marking statute does not currently apply. No comparable provision
appeared in H.R. 1908.
Publication of Pending Applications
Until recent years, the U.S. patent system did not disclose pending patent applications. The first
moment that the public would become aware of the existence of a U.S. patent application was the
day the USPTO formally allowed it to issue as a granted patent. This regime advantaged patent
applicants because it allowed them to understand exactly what the scope of any allowed claims
might be prior to disclosing an invention. Thus, if the applicant was able to maintain the invention
that was subject to a patent application as a trade secret, then he could choose between obtaining
the allowed patent claims and trade secret status. In addition, because the invention was not
disclosed prior to the award of formal patent rights, unscrupulous competitors were discouraged
from copying the invention.
However, this secrecy regime has been perceived as imposing costs as well. Others might well
engage in duplicative research efforts during the pendency of patent applications, unaware that an
earlier inventor had already staked a claim to that technology. This arrangement also allowed
inventors to commence infringement litigation on the very day a patent issued, without any
degree of notice to other members of the technological community.230
Industry in the United States possessed one mechanism for identifying pending U.S. patent
applications. Most foreign patent regimes publish all pending patent applications approximately
18 months after they have been filed.231 As a result, savvy firms in the United States could review
pending applications filed before foreign patent offices, and make an educated guess as to the
existence of a corresponding U.S. application. This effort was necessarily inexact, however,
particularly as some inventors either lacked the resources, or made the strategic decision, not to
obtain patent rights outside the United States.
228 See State Contracting & Eng’g Corp. v. Condotte Am., Inc., 346 F.3d 1057, 1074 (Fed. Cir. 2003).
229 S. 1145, § 4(c).
230 Schechter & Thomas, supra, at § 7.2.6.
231 John C. Todaro, “Potential Upcoming Changes in U.S. Patent Laws: the Publication of Patent Applications,” 36
IDEA: Journal of Law and Technology (1996), 309.
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In enacting the American Inventors Protection Act of 1999,232 Congress for the first time
introduced the concept of pre-grant publication into U.S. law. Since November 29, 2000, U.S.
patent applications have been published 18 months from the date of filing, with some exceptions.
The most significant of these exceptions applies where the inventor represents that he will not
seek patent protection abroad. In particular, if an applicant certifies that the invention disclosed in
the U.S. application will not be the subject of a patent application in another country that requires
publication of applications 18 months after filing, then the USPTO will not publish the
application.233 As a result, inventors who do not wish to seek foreign patent rights retain the
possibility of avoiding pre-grant publication.
In the 110th Congress, H.R. 1908 and S. 1145 would have further modified the U.S. pre-grant
publication system, but would have done so in different ways. Under S. 1145, all pending
applications would have been published approximately 18 months after they were filed. Under
H.R. 1908, domestic-only applications would have been published “three months after a second
[USPTO] office action” or 18 months after filing, whichever is the later date.234 The House bill
would have apparently allowed the applicant some time to assess whether the USPTO would
grant a patent with claims of satisfactory scope prior to disclosing the invention publicly. As a
result, although both bills would have eliminated the possibility of opting out of pre-grant
publication by certifying that a patent will be sought only in the United States, the precise timing
of the publication of those applications potentially differed.235
Tax Planning Method Patents
In recent years, the USPTO has issued patents on financial, investment, and other
methods that individuals might use in order to minimize their tax obligations.236 The so-
called “SOGRAT” patent, U.S. Patent No. 6,567,790, has been identified as one such “tax
planning method” patent. The SOGRAT patent is titled “[e]stablishing and managing grantor
retained annuity trusts funded by nonqualified stock options.” The patent’s abstract explains that
it concerns:
An estate planning method for minimizing transfer tax liability with respect to the
transfer of the value of stock options from a holder of stock options to a family member
of the holder. The method comprises establishing a Grantor Retained Annuity Trust
(GRAT) funded with nonqualified stock options. The method maximizes the transfer of
wealth from the grantor of the GRAT to a family member by minimizing the amount of
estate and gift taxes paid. By placing the options outside the grantor’s estate, the method
takes advantage of the appreciation of the options in said GRAT.
232 The American Inventors Protection Act of 1999, P.L. 106-113, was part of the Intellectual Property and
Communications Omnibus Reform Act of 1999, attached by reference to the Consolidated Appropriations Act for
Fiscal Year 2000. President Clinton signed this bill on November 29, 1999.
233 35 U.S.C. § 122(b).
234 The term “office action” refers to a USPTO examiner’s official communication with a patent applicant. See 35
U.S.C. § 132.
235 S. 1145, § 7(a); H.R. 1908, § 9(a).
236 See CRS Report RL34221, Patents on Tax Strategies: Issues in Intellectual Property and Innovation, by John R.
Thomas.
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Tax planning method patents have been the subject of a spirited debate.237 Some observers believe
that such patents negatively impact social welfare. According to some experts, tax planning
method patents may limit the ability of taxpayers to utilize provisions of the tax code, interfering
with congressional intent and leading to distortions in tax obligations.238 Others assert that tax
planning method patents potentially complicate legal compliance by tax professionals and
taxpayers alike.239 Still others believe that the patent system should not provide incentives for
individuals to develop new ways to reduce their tax liability.240
Some commentators explain that patents concerning the broader category of “business methods”
have been obtained and enforced for many years.241 Legislation enacted in 1999 that accounted
expressly for patents claiming “a method of doing or conducting business” arguably approved of
such patents.242 In addition, some observers believe that tax planning method patents present a
positive development, potentially improving the public disclosure of tax shelters for the attention
of Congress and federal tax authorities.243 They also assert that many kinds of patents, on subject
matter ranging from automobile seat belts to airplane navigation systems, potentially involve
legal compliance.244
In the 110th Congress, H.R. 1908 proposed to introduce language into the Patent Act stipulating
that “[a] patent may not be obtained for a tax planning method.”245 No analogous provision
appeared in S. 1145.
USPTO Rulemaking Authority
The USPTO Director would have been permitted under H.R. 1908 to “promulgate regulations to
ensure the quality and timeliness of applications and their examination, including specifying
circumstances under which an application for patent may claim the benefit under sections 120,
121, and 365(c) of the filing date of a prior filed application for patent.”246 H.R. 1908 further
237 See, e.g., Jo-el J. Meyer, “Proliferation of Retirement Plan Patents Poses Problems for Practitioners,” Patent,
Trademark, & Copyright Journal (BNA June 8, 2007), 186; Wealth Transfer Group LLC v. Rowe, D. Conn., No.
3:06cv00024 (AWT), filed January 6, 2006.
238 See Letter from Jeffrey R. Hoops, Chair, American Institute of Certified Public Accountants Tax Executive
Committee, to Members of Congress (February 28, 2007) (available at http://tax.aicpa.org/Resources/Tax+Patents/
AICPA+Urges+Congress+to+Address+Tax+Strategy+Patents.htm).
239 See Letter from Kimberly S. Blanchard, Chair, New York State Bar Association Tax Section, to Members of
Congress (August 17, 2006) (available at http://www.nysba.org/Content/ContentGroups/Section_Information1/
Tax_Section_Reports/1115rpt.PDF).
240 See William A. Drennan, “The Patented Loophole: How Should Congress Respond to This Judicial Invention?,” 59
Florida Law Review (2007), 229.
241 See Andrew F. Palmieri & Corinne Marie Pouliquen, “A Primer on Business Method Patents: What You Need to
Know for Your Real Estate Practice,” 21 Probate and Property (May/June 2007), 26.
242 First Inventor Defense Act of 1999, P.L. 106-113, § 4302, 113 Stat. 1501 (codified at 35 U.S.C. § 273 (2006)).
243 Drennan, supra, at 328 (noting this argument).
244 Stephen T. Schreiner & George Y. Wang, “Discussions on Tax Patents Have Lost Focus,” IP Law 360 (available at
http://www.hunton.com).
245 H.R. 1908, § 10.
246 H.R. 1908, § 12(a).
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stipulated that this amendment “clarifies the scope of power granted to the [USPTO]” under
existing law.247
The language of the House bill appeared to be motivated at least in part by USPTO efforts to limit
the availability of so-called continuation applications via regulation. Continuation applications
essentially allow inventors to re-file previously rejected patent applications in order to pursue
further prosecution with a USPTO examiner.248 The filing of a patent application effectively
allows two formal communications, termed “Office Actions,” with a USPTO examiner.
Agreement often cannot be reached by this point, however, leaving the applicant with only the
alternatives of abandonment of patent protection or the filing of an appeal. By filing a
continuation application, an applicant essentially purchases additional time for dialogue between
the applicant and examiner.
The use of continuation applications is commonplace in U.S. patent practice. Applicants not
infrequently file one or more continuing applications based upon an earlier filed “patent”
application. Many patents have issued based upon chains of continuation applications involving a
parent, grandparent, and even more remote predecessors.
Continuation applications are said to allow applicants to more accurately claim a previously
disclosed invention without the necessity of an appeal.249 Some commentators believe they are
subject to abuse, however. Under this view, continuation practice introduces delay and
uncertainty into the patent acquisition process. In particular, applicants are said to use a chain of
continuation applications in order to gain advantages over competitors by waiting to see what
product the competitor will make, and then drafting patent claims that cover that product.
Continuation practice is also said to have led to long delays in the issuance of a patent in order to
surprise an established industry, a process known as “submarine patenting.”250
The USPTO recently promulgated rules that would limit the number of continuation applications
that an applicant could file as a matter of right. Beyond this limit, further continuation
applications could only be filed upon a particular showing of need.251 Criticisms of these rules
resulted in legal challenges before the U.S. District Court for the Eastern District of Virginia,
which enjoined the USPTO from implementing the new rules.252 This litigation is ongoing at the
time of the publication of this report.253
247 Ibid. at § 12(b).
248 35 U.S.C. § 120.
249 Schechter & Thomas, supra, at § 7.2.4.
250 Mark A. Lemley & Kimberly A. Moore, “Ending Abuse of Patent Continuations,” 84 Boston University Law
Review (2004), 63.
251 See Department of Commerce, USPTO, “Changes to Practice for Continuing Applications, Requests for Continued
Examination Practice, and Applications Containing Patentably Indistinct Claims,” 71 Federal Register 48 (January 3,
2006).
252 See Tafas v. Dudas, 541 F. Supp. 2d 805 (E.D. Va. 2008), aff’d in part, vacated in part, sub nom. Tafas v. Doll, ___
F.3d ___ (Fed. Cir. Mar. 20, 2009).
253 See CRS Report RL34422, U.S. Patent and Trademark Office Reforms: Regulatory Impacts Upon Innovation and
Competition, by John R. Thomas.
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Concluding Observations
Pending legislation introduced in the 111th Congress arguably would work the most sweeping
reforms to the U.S. patent system since the nineteenth century. However, many of these
proposals, such as pre-issuance publication, prior user rights, and oppositions, have already been
implemented in U.S. law to a more limited extent. These and other proposed modifications, such
as the first-inventor-to-file priority system and elimination of the best mode requirement, also
reflect the decades-old patent practices of Europe, Japan, and our other leading trading partners.
As well, many of these suggested changes enjoy the support of diverse institutions, including the
Federal Trade Commission, National Academies, economists, industry representatives, attorneys,
and legal academics.
Other knowledgeable observers are nonetheless concerned that certain of these proposals would
weaken the patent right, thereby diminishing needed incentives for innovation. Some also believe
that changes of this magnitude, occurring at the same time, do not present the most prudent
course for the patent system. Patent reform therefore confronts Congress with difficult legal,
practical, and policy issues, but also with the apparent possibility for altering and potentially
improving the legal regime that has long been recognized as an engine of innovation within the
U.S. economy.
Author Contact Information
Wendy H. Schacht
John R. Thomas
Specialist in Science and Technology Policy
wschacht@crs.loc.gov, 7-7066
Acknowledgments
This report was funded in part by a grant from the John D. and Catherine T. MacArthur
Foundation.
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