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Patent Reform in the 112th Congress:
Innovation Issues
Wendy H. Schacht
Specialist in Science and Technology Policy
John R. Thomas
Visiting Scholar
March 9, 2011
Congressional Research Service
7-5700
www.crs.gov
R41638
CRS Report for Congress
P
repared for Members and Committees of Congress
c11173008
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Patent Reform in the 112th Congress: Innovation Issues
Summary
Congressional interest in patent reform has increased as the patent system becomes more
significant to U.S. industry. Patent ownership is perceived as an incentive to the technological
advancement that leads to economic growth. Yet, this augmented attention to patents has been
accompanied by persistent concerns about the fairness and effectiveness of the current system.
Several studies, including those by the National Academy of Sciences and the Federal Trade
Commission, recommended reform of the patent system 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.
The patent reform proposal introduced in the 112th Congress, S. 23, originally titled the Patent
Reform Act of 2011, amended to the America Invents Act, would make significant changes to the
patent system. As originally introduced, S. 23 would have adopted a first-inventor-to-file priority
system, made substantive and procedural modifications to the doctrine of willful infringement,
introduced procedural and evidentiary reforms to patent damage calculations, allowed for
assignee filing, altered venue principles in patent cases, established USPTO fee-setting authority,
and provided for post-grant review proceedings.
Following several amendments and as passed by the Senate on March 8, 2011, S. 23 no longer
addresses damages for patent infringement or willful infringement, and its provisions regarding
venue in patent infringement cases were removed. Other amendments to S. 23 introduced several
additional reforms, including a transitional post-grant review proceeding for the review of the
validity of certain business method patents, the possibility of USPTO satellite offices, priority
examination for technologies important to American competitiveness, and the establishment of a
USPTO Public Enterprise Fund. Several of these proposals have been the subject of discussion
within the patent community for many years, but others present more novel propositions.
While the provisions of the proposed legislation would arguably institute the most sweeping
reforms to the U.S. patent system since the nineteenth century, 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.
Some observers are nonetheless concerned that certain of these provisions would weaken patent
rights, thereby diminishing incentives for innovation. Other experts 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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Contents
Introduction ................................................................................................................................ 1
Patents and Innovation Policy ..................................................................................................... 2
The Mechanics of the Patent System ..................................................................................... 2
Innovation Policy.................................................................................................................. 3
Proposed Legislative Initiatives................................................................................................... 5
First Inventor to File ............................................................................................................. 5
Grace Period ......................................................................................................................... 7
Marking ................................................................................................................................ 8
Inventor’s Oath and Assignee Filing.................................................................................... 10
Damages ............................................................................................................................. 11
Willful Infringement ........................................................................................................... 13
Inter Partes and Post-Grant Reviews................................................................................... 14
Transitional Program for Covered Business-Method Patents................................................ 16
Citation of Prior Art ............................................................................................................ 16
Preissuance Submissions..................................................................................................... 17
Venue ................................................................................................................................. 18
USPTO Fee-Setting Authority............................................................................................. 19
Supplemental Examination.................................................................................................. 20
Residency of Federal Circuit Judges.................................................................................... 22
Tax Strategy Patents............................................................................................................ 22
Best Mode .......................................................................................................................... 24
Clarification of Jurisdiction................................................................................................. 25
USPTO Satellite Offices ..................................................................................................... 25
Other USPTO Programs...................................................................................................... 26
Current Issues and Concerns ..................................................................................................... 26
Patent Quality ..................................................................................................................... 26
Litigation Costs................................................................................................................... 27
International Harmonization................................................................................................ 28
Potential Abuses by Patent Speculators ............................................................................... 29
The Role of Individuals, Universities, and Small Entities .................................................... 30
Differing Patent Values in Distinct Industries ...................................................................... 31
Concluding Observations .......................................................................................................... 33
Contacts
Author Contact Information ...................................................................................................... 33
Acknowledgments .................................................................................................................... 33
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Patent Reform in the 112th Congress: Innovation Issues
Introduction
Congressional interest in patent reform is evidenced by sustained legislative activity over the last
four congresses.1 There is broad agreement that more patents are sought and enforced than 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.
Expanded attention to patents has been accompanied by persistent concerns about the fairness and
effectiveness of the current system. The American Inventors Protection Act, passed in the 106th
Congress, mandated several changes to the patent laws, including U.S. Patent and Trademark
Office (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.
Legislation introduced in the 112th Congress attempts to respond to current concerns about the
functioning of the patent process. S. 23, originally titled the Patent Reform Act of 2011, now the
America Invents Act, was introduced on January 25, 2011. S. 23 was reported, amended, from the
Senate Committee on the Judiciary on February 3, 2011. Consideration of the bill on the Senate
floor commenced on February 28, 2011; S. 23 passed the Senate, as amended, on March 8, 2011.
S. 23 proposes significant legal reforms to the patent system. As originally introduced, S. 23
would have adopted a first-inventor-to-file priority system, made substantive and procedural
modifications to the doctrine of willful infringement, introduced procedural and evidentiary
reforms to patent damage calculations, allowed for assignee filing, altered venue principles in
patent cases, established USPTO fee-setting authority,
1 This report is based substantially on three predecessor reports on patent reform issues in the 111th, 110th, and 109th
Congresses: CRS Report R40481, Patent Reform in the 111th Congress: Innovation Issues, by Wendy H. Schacht and
John R. Thomas; CRS Report RL33996, Patent Reform in the 110th Congress: Innovation Issues, by John R. Thomas
and Wendy H. Schacht; and CRS Report RL32996, Patent Reform: Innovation Issues, by John R. Thomas and Wendy
H. Schacht.
2 Statistics from the United States Patent and Trademark Office (USPTO) support this account. In 1980, 104,329 utility
patent applications were received at the U.S. Patent and Trademark Office (USPTO); by 2009, this number had more
than quadrupled to 456,106 applications. During the same time period, the number of U.S. utility patents granted grew
from 61,819 to 167,349. U.S. Patent and Trademark Office, U.S. Patent Statistics, Calendar Years 1963-2009,
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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and provided for post-grant review proceedings. Following several amendments, the Senate-
passed version of S. 23 no longer addresses damages for patent infringement or willful
infringement, and its provisions regarding venue in patent infringement cases were removed.
Other amendments to S. 23 introduced several additional reforms, including a transitional post-
grant review proceeding for the review of the validity of certain business method patents, the
possibility of USPTO satellite offices, priority examination for technologies important to
American competitiveness, and the establishment of a USPTO Public Enterprise Fund. Several of
these proposals have been the subject of discussion within the patent community for many years,
but others present more novel propositions.
Two additional bills in the 112th Congress are directed to a single topic that is addressed within
the more comprehensive provisions of S. 23. The Patent Lawsuit Reform Act of 2011, H.R. 243,
would also limit the currently available cause of action for false patent marking. As well, S. 139
(not yet titled) would place restrictions upon the availability of patents on tax strategies and is
comparable to section 14 of S. 23. Appropriate sections of this report review H.R. 243 and S. 139.
In the event additional bills are introduced, this report will be updated to address them.
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
specific components of this legislation are then identified and reviewed in greater detail. The
report closes with a review of some of the broader issues and concerns, including patent quality,
the high costs of patent litigation, international harmonization, and speculation in patents, which
have motivated these diverse legislative reform proposals.
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
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.
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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
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
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.
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).
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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
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
21 See Rebecca S. Eisenberg, “Patents and the Progress of Science: Exclusive Rights and Experimental Use,” 56
University of Chicago Law Review 1017 (1989).
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.
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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. From this perspective, the desire to obtain a lead time advantage over
competitors, as well as the recognition that technologically backward firms lose out to their rivals,
can 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
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.
Proposed Legislative Initiatives
S. 23 has been subject to several amendments, including a title change from the Patent Reform
Act of 2011 to the America Invents Act. This section discusses provisions of S. 23 as originally
introduced, as reported from the Senate Committee on the Judiciary, and as passed by the Senate.
First Inventor to File
In a significant change to the patent process, S. 23 would shift the U.S. patent priority rule from
the current “first-to-invent” principle to the “first-inventor-to-file” principle. 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.30 Under
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.
30 See Roger E. Schechter & John R. Thomas, Principles of Patent Law § 1.2.5 (2d ed. 2004).
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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.31 Within this “first-to-invent” system,32 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.33 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, 2010, and files a patent application on
November 1, 2010, claiming that compound. Suppose further that Inventor B independently
invents the same compound on September 1, 2010, and files a patent application on October 1,
2010. 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.34 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.35 This statistic may mislead, however, because the expense of
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.36
31 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).
32 See Charles E. Gholz, “First-to-File or First-to-Invent?,” 82 Journal of the Patent and Trademark Office Society
(2000), 891.
33 See Peter A. Jackman, “Adoption of a First-to-File System: A Proposal,” 26 University of Baltimore Law Review
(1997), 67.
34 35 U.S.C. § 135.
35 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.
36 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.
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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.37
The debate over a shift to the first-inventor-to-file rule and its impact on 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,38 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-à-vis larger enterprises.39
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.40 In order to police this requirement, S. 23 would provide for “derivation proceedings”
that would allow the USPTO to determine which applicant is entitled to a patent on a particular
invention.
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.41 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.42
37 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.
38 35 U.S.C. § 111(b).
39 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.
40 35 U.S.C. § 101.
41 35 U.S.C. § 102(b).
42 Schechter & Thomas, supra, at § 4.3.1.
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Suppose, for example, that an electrical engineer files a patent application claiming a new
capacitor on February 1, 2010. While reviewing the application, a USPTO examiner discovers an
October 1, 2008, journal article by any author disclosing the identical capacitor. Because the
article was published prior to the critical date of February 1, 2009, 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.
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.43 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.44
S. 23 would modify the current grace period by causing it only to apply to patent applicants
themselves. Under this proposal, a disclosure “made by the inventor or joint inventor or by
another who obtained the subject matter disclosed directly or indirectly from the inventor or a
joint inventor” would not be patent-defeating, provided it was made “1 year or less before the
effective filing date of a 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.
Marking
The Patent Act encourages patent proprietors that manufacture their patented inventions to notify
the public of their patent rights.45 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.”46
43 In addition, the textbook must be attributable to someone other than the patent applicant. See 35 U.S.C. § 102(a).
44 37 C.F.R. § 1.131.
45 For further discussion of current patent marking issues and proposed legislation, see CRS Report R41418, False
Patent Marking: Litigation and Legislation, by Brian T. Yeh.
46 See Schechter & Thomas, supra, at § 9.2.3.
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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.47 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.”48
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.”49 Because these types of patent concern inchoate behavior,
rather than a discrete physical product, the courts have reasoned that there is no tangible item on
which to place a patent marking.50
The Patent Act also addresses the issue of “false marking.” Section 292 prohibits marking a
product with the number of another’s patent, the name of another patent owner, or a patent or
application number where no such patent or application exists. Prohibited marks also include the
number of expired patents and patents that do not cover the marked product, provided such marks
were affixed for the “purpose of deceiving the public.”
The Patent Act mandates a maximum fine of $500 for “every such” offense. According to the
statute, “any person may sue for the penalty, in which event one-half shall go to the person suing
and the other to the use of the United States.”51 In its decision in The Forest Group, Inc. v. Bon
Tool Co.,52 the Federal Circuit construed that provision to require imposition of that fine with
respect to each item that was falsely marked. In so doing the Court of Appeals specifically
rejected an interpretation that would assess the fine on the basis of the offender’s single decision
to mark an entire line of products. A false patent marking on one million identical products would
therefore generate a maximum fine of not $500, but rather $500 million. Although the Federal
Circuit acknowledged that “interpreting the fine of § 292 to apply on a per article basis would
encourage ‘a new cottage industry’ of false marking litigation by plaintiffs who have not suffered
any direct harm,” the court explained “that in the case of inexpensive mass-produced articles, a
court has the discretion to determine that a fraction of a penny per article is a proper penalty.”53
S. 23 proposes to alter the Patent Act’s false marking provision by stipulating that the statute may
only be privately enforced by a “person who has suffered a competitive injury as a result of the
violation....” Damages in such cases would also be limited to those “adequate to compensate for
the injury.” This amendment would change current law, which allows any private person to bring
a civil action for false marking, whether or not they have been negatively affected. These
provisions do not apply to the U.S. government. Under the provisions of S. 23, the U.S.
47 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.”
48 Laitram Corp. v. Hewlett-Packard Co., 806 F. Supp. 1294, 1296 (E.D. La. 1992).
49 American Med. Sys., Inc. v. Medical Eng’g Corp., 6 F.3d 1523, 1538 (Fed. Cir. 1993).
50 See State Contracting & Eng’g Corp. v. Condotte Am., Inc., 346 F.3d 1057, 1074 (Fed. Cir. 2003).
51 35 U.S.C. § 292(b). This sort of proceeding is termed a qui tam action.
52 590 F.3d 1295 (Fed. Cir. 2009).
53 Ibid. at 1303-04.
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government would continue to bring false marking suits without regard to competitive injury, and
also would retain the ability to recover a maximum fine of $500 per falsely marked article.
In addition, S. 23 would allow for “virtual marking.” Under this proposal, the marking standard
would be fulfilled if the product or its packaging included the word “patent” or the abbreviation
“pat.,” together with an Internet address that provided the number of the patent associated with
the patented article.
A stand-alone bill, H.R. 243, also addresses false marking. Titled the Patent Lawsuit Reform Act
of 2011, this legislation would also limit entitlement to bring suit to those who have suffered
direct economic harm as a result of the false marking.54 In addition, H.R. 243 would limit the
damages available for false marking violations to a single fine, in the aggregate, of not more than
$500.55
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.56 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. 23 would modify these rules by incorporating the exceptions found in current Section 118 into
Section 115 of the Patent Act. This proposal appears to be primarily technical in nature, although
a few differences between the proposed statute and present law exist. First, S. 23 requires
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. 23 allows 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. 23 further stipulates that a “person to whom the inventor has assigned or is under an obligation
to assign the invention may make an application for patent.” 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. 23, 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.”
54 H.R. 243, § 2(a)(2).
55 Id. at § 2(a)(1)(C).
56 35 U.S.C. § 111.
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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
and obtain signatures from each inventor.57 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.”58 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.59
Damages
The initial version of S. 23 included provisions addressing monetary remedies for patent
infringement. These provisions were subsequently removed from the bill and were not included in
the version passed by the Senate.
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.”60 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.61
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’
57 President’s Commission on the Patent System, “To Promote the Progress of ... Useful Arts” in an Age of Exploding
Technology (1966).
58 Advisory Commission on Patent Reform, A Report to the Secretary of Commerce (August 1992), 179.
59 Id.
60 State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1580 (Fed. Cir. 1989).
61 Dowagiac Mfg. Co. v. Minn. Moline Plow Co., 235 U.S. 641 (1915).
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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-
deterring subsequent inventors interferes with the balance sought to be struck by proper
claim interpretation.62
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.”63
In order to address concerns over damages in patent cases, S. 23 originally required courts to
“identify the methodologies and factors that are relevant to the determination of damages” and to
consider only that subject matter when assessing damages. Litigants were afforded an opportunity
to request that the court consider whether a party’s damage contentions lack “a legally sufficient
evidentiary basis.” In the earlier version, S. 23 also provided that “sequencing,” or separate trials
of substantive and remedial issues, shall be permitted “absent good cause to reject such a
request.” Subsequently, the damages section was removed by amendment to the bill by a vote on
the Senate floor, and was not included in the version passed by the Senate.
Views differ on the appropriateness of legislative damages reform. Some believe that current
damages standards have resulted in the systemic overcompensation of patent owners. Such
overcompensation may 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
62 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.
63 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).
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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
As originally introduced, S. 23 proposed to reform the law of willful infringement as discussed
below. However, in the version of S. 23 reported from the Senate Committee on the Judiciary,
this section was deleted by amendment and is absent from the Senate-passed bill.
The patent statute currently provides that a court “may increase the damages up to three times the
amount found or assessed.”64 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.”65 This circumstance is termed “willful infringement.”66
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.67 In Seagate Technology, however, the Federal Circuit opted to “abandon
the affirmative duty of due care.”68 The court of appeals instead explained that “proof of willful
infringement permitting enhanced damages requires at least a showing of objective
recklessness.”69
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 infringer’s
desire to continue practicing the patented invention.70 However, in its decision in Knorr-Bremse
Systeme fuer Nutzfahrzeuge GmbH v. Dana Corp.,71 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 totality of
64 35 U.S.C. § 284.
65 In re Seagate Technology, 497 F.3d 1360 (Fed. Cir. 2007) (in banc).
66 See Beatrice Foods Co. v. New England Printing & Lithographing Co., 923 F.2d 1576, 1578 (Fed. Cir. 1991).
67 See, e.g., Jon E. Wright, “Willful Patent Infringement and Enhanced Damages—Evolution and Analysis,” 10 George
Mason Law Review (2001), 97.
68 Seagate Technologies, supra.
69 Id.
70 See, e.g., Fromson v. Western Litho Plate & Supply Co., 853 F.2d 1568, 1572 (Fed. Cir. 1988).
71 383 F.3d 1337 (Fed. Cir. 2004).
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circumstances, but without the evidentiary contribution or presumptive weight of an adverse
inference that any opinion of counsel was or would have been unfavorable.”72
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.73
The original version of S. 23 would have added several clarifications and changes to the law of
willful infringement. The bill stipulated that infringement was not willful unless “the claimant
proves by clear and convincing evidence that the accused infringer’s conduct with respect to the
patent was objectively reckless.” Knowledge of the patent, by itself, would not have constituted
willful infringement. Further, damages were not to be increased if there is a close case as to
infringement, validity, or enforceability. These provisions were removed in the amended version
of S. 23 reported from the Senate Committee on the Judiciary, and are not included in the bill
passed by the Senate.
Inter Partes and Post-Grant Reviews
S. 23 mandates changes to the options available for post-grant USPTO review proceedings by (1)
replacing the existing inter partes reexamination system with inter partes review proceedings;
and (2) introducing a new proceeding titled “post-grant review.” Both inter partes and post-grant
reviews are patent revocation proceedings administered by the USPTO. They would operate
similarly to the existing reexamination system, which has been part of U.S. law since 1981. The
USPTO currently administers two types of reexamination proceedings, termed ex parte and inter
partes.
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 1999,74 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
72 Ibid at 1341.
73 See generally Schechter & Thomas, supra, at § 9.2.5.
74 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.
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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.75 Reexamination also allows further access to the legal and
technical expertise of the USPTO after a patent has issued.76 However, some commentators
believe that reexamination proceedings have been employed only sparingly and question their
effectiveness.77
S. 23 would establish a new proceeding termed a “post-grant review.” Unlike current
reexamination proceedings, petitioners may challenge validity based upon on any ground of
patentability in a post-grant review. A post-grant review must be filed within nine months of
patent issuance, and must be completed within one year of its commencement, with an extension
of six months possible for good cause shown. As well, the individual who commenced the
proceeding, along with his privies, are barred in the future from raising issues that were “raised or
reasonably could have been raised” during the post-grant review.
S. 23 also replaces existing inter partes reexamination proceedings with a similar system termed
“inter partes review.” A notable difference between the existing and proposed proceedings is that
the USPTO would be required to complete the proceeding within one year of its commencement,
with an extension of six months possible for good cause shown. In broad outline, the bill would
allow a person who is not the patent owner to file a petition requesting inter partes review nine
months after a patent issues or reissues, or the conclusion of any post-grant review, whichever
occurs later. The petitioner bears the burden of proving a proposition of unpatentability by a
preponderance of the evidence.
In contrast to the proposed post-grant review, the basis for requesting an inter partes review is
restricted to patents or printed publications. As a result, patent challenges under inter partes
review are limited to the patentability issues of novelty and nonobviousness.78 Post-grant reviews
would allow a patent challenger to raise additional patentability issues, such as unpatentable
subject matter or lack of enablement, that are not based upon a patent or printed publication.
Under the time frames established by S. 23, the effective result is that a patent may be challenged
on any basis of any patentability issue within nine months from the date it issued (via post-grant
review), and thereafter on the grounds of novelty and nonobviousness (via inter partes review).
Under S. 23, an accused infringer may not seek inter partes review if he has already filed a
lawsuit challenging the patent or more than six months have passed since the date the accused
infringer was served with a complaint alleging infringement of that patent. S. 23 affords the
patent proprietor a single opportunity to amend its patent during the proceeding, with further
opportunities available with good cause shown. Should the patent survive the inter partes review
75 Mark D. Janis, “Inter Partes Reexamination,” 10 Fordham Intellectual Property, Media & Entertainment Law
Journal (2000), 481.
76 Craig Allen Nard, “Certainty, Fence Building and the Useful Arts,” 74 Indiana Law Journal (1999), 759.
77 See Schechter & Thomas, supra, at § 7.5.4.
78 Notably, the proposed restriction of inter partes review to patents and printed publications limits the grounds on
which a patent challenger may request such a review. Once a patent is subject to inter partes review, the USPTO may
potentially consider other pertinent patentability issues, such as claim definiteness.
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proceeding, the individual who commenced the proceeding, along with his privies, are barred in
the future from raising issues that were “raised or reasonably could have been raised.”
Many observers have called for the United States to adopt a more effective post-grant
administrative revocation system in order to provide timelier, lower cost, and more efficient
review of issued patents.79 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.80
However, concerns have arisen over oppositions because they too may be costly, complex, and
prone to abuse as a means for harassing patent owners.81 A successful post-grant review
proceeding will require a balancing of these issues.
Transitional Program for Covered Business-Method Patents
As amended, S. 23 creates a transitional post-grant review proceeding for the review of the
validity of certain business method patents. This transitional proceeding would be limited to
patents that claim “a method or corresponding apparatus for performing data processing
operations utilized in the practice, administration, or management of a financial product or
service, except that the term shall not include patents for technological inventions.” Only
individuals who have been either sued for infringement or charged with infringement of a
business method patent may petition the USPTO to commence such a proceeding. The
transitional program would apply to all business method patents issued before, on, or after the
date of enactment of the legislation. S. 23 stipulates that a party may seek a stay of litigation
related to the transitional proceeding, and that the district court’s decision may be subject to an
immediate interlocutory appeal to the Federal Circuit. This transitional program is subject to a
sunset provision that would repeal the program after four years.
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 under the provisions of S. 23. 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.”82
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.
S. 23 expands the sorts of documents that may be cited under section 301. The bill 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. Under the bill, citations could consist of “prior
art consisting of patents or printed publications [believed] to have a bearing on the patentability
of any claim of a particular patent.”
79 See National Research Council of the National Academies, A Patent System for the 21st Century (2004), 96.
80 Ibid. at 103.
81 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.
82 35 U.S.C. § 301.
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Preissuance Submissions
The ability of members of the public to submit information to the USPTO that is pertinent to
pending applications would be increased under S. 23. 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.83
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.”84 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.85 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.86
The possibility for preissuance submissions would be expanded by S. 23. Under the bill, 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.”
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
83 37 C.F.R. § 1.291.
84 35 U.S.C. § 122(c).
85 37 C.F.R. § 1.99.
86 U.S. Dept. of Commerce, U.S. Patent & Trademark Off., Manual of Patent Examining Procedure § 1134.01 (8th ed.
July 2008).
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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 proposals attempted 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.
Venue
As originally introduced, S. 23 would have altered the venue provisions that apply to patent
infringement trials and to appeals from the USPTO. Amendments to S. 23 following debate on
the Senate floor struck those provisions concerning patent infringement litigation. Modifications
to venue for USPTO appeals have been retained, however, in the version passed by the Senate.
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.87
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.88 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.89
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.90
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).91
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
87 See Wachovia Bank v. Schmidt, 546 U.S. 303 (2006).
88 See Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222 (1957).
89 See Schechter and Thomas, supra, at § 10.1.3.
90 Judicial Improvements and Access to Justice Act, P.L. 100-702, tit. X, § 1013(a), 102 Stat. 4642, 4669 (1988).
91 VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990).
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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, TX, 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—came
to harbor an oversized share of intellectual property disputes.”92 In addition, reportedly “many of
the local lawyers who once specialized in personal injury cases are turning their attention to
intellectual property law.”93 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.94
As originally introduced, S. 23 succinctly provided that “[f]or the convenience of parties and
witnesses, in the interest of justice, a district court shall transfer any civil action arising under any
Act of Congress relating to patents upon a showing that the transferee venue is clearly more
convenient than the venue in which the civil action is pending.” This provision was removed from
the bill by amendment. S. 23 retains a provision that 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.
USPTO Fee-Setting Authority
The USPTO enjoys certain rulemaking authority provided by law. 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.95 However, the fees charged by the
USTPO currently are determined by Congress. S. 23 proposes that the USPTO be granted the
additional authority “to set or adjust by rule any fee established or charged by the Office” under
certain provisions of the patent and trademark laws. This proposal appears to provide the USPTO
with greater flexibility to adjust its fee schedule absent congressional intervention. S. 23 would
require that “patent and trademark fee amounts are in the aggregate set to recover the estimated
cost to the Office for processing, activities, services and materials relating to patents and
trademarks, respectively, including proportionate shares of the administrative costs of the Office.”
The amended version of S. 23, as passed by the Senate, establishes within the Treasury of the
United States a “United States Patent and Trademark Office Public Enterprise Fund.” Most fees
collected by the USPTO would be placed into this Fund. The USPTO would then be allowed to
access this Fund to cover its administrative and operating expenses without fiscal year limitation.
92 Allen Pusey, “Marshall Law: Patent Lawyers Flood to East Texas Court for Its Expertise and ‘Rocket Docket’,”
Dallas Morning News (March 26, 2006), 1D.
93 Ibid.
94 See Xuan-Thao Nguyen, “Justice Scalia’s ‘Renegade Jurisdiction’: Lessons for Patent Law Reform,” 83 Tulane Law
Review (2008), 111.
95 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).
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Not later than 60 days after the end of each fiscal year, the USPTO would be required to submit a
report to Congress that summarizes previous operations and provides a detailed plan for the
upcoming fiscal year.
Under current law, patent applicants that qualify as “small entities”96 are entitled to a 50%
discount of many USPTO fees. S. 23 establishes a new “micro entity” category of applicants. A
micro entity must make a certification that it qualifies as a small entity, has not been named on
five previously filed patent applications, does not have a gross income exceeding three times the
average gross income, and has not conveyed an interest in the application to another entity with
an income exceeding that threshold. The Senate-passed bill also includes any employee of a
“State public institution of higher education” within the definition of a micro entity (without
having to make the preceding certifications). Micro entities would be entitled to a 75% discount
of many USPTO fees. The USPTO Director is given authority to limit those who qualify as a
micro entity if such limitations “are reasonably necessary to avoid an undue impact on other
patent applicants or owners and are otherwise reasonably necessary and appropriate.” The
USPTO must inform Congress at least three months in advance of imposing such limitations.
Supplemental Examination
A new post-issuance administrative proceeding termed “supplemental examination” is created by
S. 23. This proceeding appears to be based upon a need to address concerns over the legal
doctrine of inequitable conduct, a topic that bears some explanation. 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.97 As a result, the patent system relies to a great extent upon the
applicant’s 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 their 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.98 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
prosecution of the patent.99 Second, such nondisclosure or misrepresentation must have been
intentional.100
96 “Small entities” consist of “with respect to their application to any small business concern as defined under section 3
of the Small Business Act, and to any independent inventor or nonprofit organization as defined in regulations issued
by the Director.” 35 U.S.C. § 41(h).
97 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.... ”).
98 Glaverbel Societe Anonyme v. Northlake Mktg. & Supply Inc., 45 F.3d 1550 (Fed. Cir. 1995).
99 Heidelberger Druckmaschinen AG v. Hantscho Comm’l Prods., Inc., 21 F.3d 1068 (Fed. Cir. 1993).
100 Jazz Photo Corp. v. U.S. Int’l Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001).
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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....101
The Federal Circuit has stated that “the habit of charging inequitable conduct in almost every
major patent case has become an absolute plague.”102 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.103
Due to these perceived burdens upon patent litigation, some experts have proposed that the
inequitable conduct defense be eliminated.104 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.105
S. 23 would permit patent owners to request a “supplemental examination” in order to “consider,
reconsider, or correct information believed to be relevant to the patent.” If the USPTO Director
believes that this information raises a substantial new question of patentability, then a
reexamination will be ordered. S. 23 provides that a “patent shall not be held unenforceable ... on
the basis of conduct relating to information that had not been considered, was inadequately
considered, or was incorrect in a prior examination of the patent if the information was
considered, reconsidered, or corrected during a supplemental examination of the patent.” The
101 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.
102 Burlington Indus., Inc. v. Dayco Corp., 849 F.2d 1418 (Fed. Cir. 1988).
103 See, e.g., Scott D. Anderson, “Inequitable Conduct: Persistent Problems and Recommended Resolutions,” 82
Marquette Law Review (1999), 845.
104 Lynch, supra, at 7.
105 1992 Advisory Commission, supra, at 114.
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supplemental examination request and resulting reexamination must be concluded prior to the
start of litigation for the patent to obtain this benefit.
The proposed supplemental examination serves a similar goal as the existing reissue procedure—
correction of an issued patent that may be inoperative or invalid.106 A significant distinction
between supplemental examination and reissue is that the latter proceeding only applies to patents
that are defective due to an “error without any deceptive intention.” As a result, patent proprietors
must identify an error, such as the existence of a highly relevant journal article that qualifies as
prior art, in order to reissue a patent. In addition, reissue may not be used to rehabilitate a patent
that was procured through inequitable conduct.107 In contrast, supplemental examination is not
limited to situations where an error occurred. The proposed proceeding would also allow a patent
that had been acquired through inequitable conduct to be rendered enforceable under the
stipulated conditions.
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.108 S. 23 would eliminate this requirement.
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.109 No other federal
appellate court is subject to a similar residency requirement.110 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.
Tax Strategy 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.111 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
106 See 35 U.S.C. §§ 251-252.
107 Aventis Pharma S.A. v. Amphastar Pharmaceuticals, Inc., 525 F.3d 1334, 1341 n.6 (Fed. Cir. 2008).
108 28 U.S.C. § 44(c).
109 28 U.S.C. § 1295(a)(1).
110 Marcia Coyle, “Court’s Residency Rule May Fall: Federal Circuit Rule Limits Bench Talent,” 29 National Law
Journal no. 44 (July 9, 2007), 1.
111 See CRS Report RL34221, Patents on Tax Strategies: Issues in Intellectual Property and Innovation, by John R.
Thomas.
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placing the options outside the grantor’s estate, the method takes advantage of the
appreciation of the options in said GRAT.
Tax planning method patents have been the subject of a spirited debate.112 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.113 Others assert
that tax planning method patents potentially complicate legal compliance by tax professionals and
taxpayers alike.114 Still others believe that the patent system should not provide incentives for
individuals to develop new ways to reduce their tax liability.115
On the other hand, some commentators explain that patents concerning the broader category of
“business methods” have been obtained and enforced for many years.116 Legislation enacted in
1999 that accounted expressly for patents claiming “a method of doing or conducting business”
arguably approved of such patents.117 Some observers believe that tax planning method patents
present a positive development offering taxpayers access to a variety of legal tax minimizing
strategies. In addition, these patents may potentially improve the public disclosure of tax shelters
for the attention of Congress and federal tax authorities.118 Other experts assert that many kinds of
patents, on subject matter ranging from automobile seat belts to airplane navigation systems,
potentially involve legal compliance.119
Under S. 23, for purpose of evaluating whether an invention meets the requirements of novelty
and nonobviousness, “any strategy for reducing, avoiding, or deferring tax liability, whether
known or unknown at the time of the invention or application for patent, shall be deemed
insufficient to differentiate a claimed invention from the prior art.” Under this rule, unless a tax
strategy patent claimed an additional component that met the novelty and nonobviouness
requirements—such as new computer hardware—then the invention could not be patented. S. 23
stipulates that this provision does not apply to that part of an invention “used solely for preparing
a tax or information return or other tax filing....” A stand-alone bill, S. 139, would act similarly to
section 14 of S. 23.
112 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.
113 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).
114 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).
115 See William A. Drennan, “The Patented Loophole: How Should Congress Respond to This Judicial Invention?,” 59
Florida Law Review (2007), 229.
116 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.
117 First Inventor Defense Act of 1999, P.L. 106-113, § 4302, 113 Stat. 1501 (codified at 35 U.S.C. § 273 (2006)).
118 Drennan, supra, at 328 (noting this argument).
119 Stephen T. Schreiner & George Y. Wang, “Discussions on Tax Patents Have Lost Focus,” IP Law 360 (available at
http://www.hunton.com).
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Best Mode
Currently, inventors are required to “set forth the best mode contemplated by the inventor of
carrying out his invention.”120 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.121
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
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.122
The best mode requirement has been the subject of ongoing discussion in recent years,
however.123 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.”124 This
“enablement” requirement was believed to provide sufficient information to achieve the patent
law’s policy goals.125
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.126
120 35 U.S.C. § 112.
121 See, e.g., Chemcast Corp. v. Arco Industries Corp. 913 F.2d 923 (Fed. Cir. 1990).
122 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.
123 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.
124 35 U.S.C. § 101.
125 1992 Advisory Commission Report, supra, at 102-03.
126 Id. at 101.
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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.127 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.
S. 23 would continue to apply the best mode requirement to all patents. However, violation of the
best mode requirement would no longer form the basis for a defense to a charge of patent
infringement during enforcement litigation or post-grant review proceedings. Compliance with
the best mode requirement would remain subject to review by USPTO examiners during the
initial prosecution of a patent, although USPTO rejection of applications based upon failure to
comply with the best mode requirement is reportedly a rare circumstance.128
Clarification of Jurisdiction
S. 23 includes provisions governing which courts may hear patent cases. The bill, as passed by
the Senate, confirms that state courts do not possess jurisdiction to hear claims for relief under the
patent, plant variety protection, and copyright laws. S. 23 further provides that the Federal Circuit
possesses jurisdiction over appeals relating to patent and plant variety protection cases.129 In
addition, cases are allowed to be removed from courts that do not possess jurisdiction and
transferred to those that do.130
USPTO Satellite Offices
Under current law, the USPTO is required to maintain its principal office in the metropolitan
Washington, DC, area. Current law further allows the USPTO to “establish satellite offices in
such other places in the United States as it considers necessary and appropriate in the conduct of
its business.”131 The USPTO recently announced it would open its first satellite office in Detroit,
Michigan.132
Amendments to S. 23 included in the Senate-passed version of the bill would mandate the
USPTO to establish three or more satellite offices in the United States subject to available
resources. S. 23 explains that the satellite offices are intended to increase inventor outreach
activities, enhance patent examiner retention, improve recruitment of patent examiners, decrease
the number of unexamined patent applications, and improve the quality of patent examination.
The USPTO is required to ensure the geographic diversity of its satellite offices. S. 23 would also
designate the Detroit, Michigan satellite office as the “Elijah J. McCoy United States Patent and
Trademark Office.”
127 Id. at 102-03.
128 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.... ”).
129 Id. at § 17(c).
130 Id. at § 17(d), (e).
131 35 U.S.C. §1(b).
132 U.S. Patent and Trademark Office, Press Release, USPTO to Open First Ever Satellite Office in Detroit (Dec. 16,
2010), available at http://www.uspto.gov/news/pr/2010/10_65.jsp.
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Other USPTO Programs
As amended, S. 23 would provide for three additional reforms relating to the USPTO. First, S. 23
would create a patent ombudsman program for small business concerns. Second, the legislation
would allow the USPTO to prioritize examination of patent applications relating to technologies
that are “important to the national economy or national competitiveness.” Finally, S. 23 would
require the USPTO to disclose the length of time between the commencement of each inter partes
and post-grant review and the conclusion of that review.
Current Issues and Concerns
A number of changes to diverse aspects of the patent system are proposed in S. 23. 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.133 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.134 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.135
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
133 See Dan L. Burk & Mark A. Lemley, “Is Patent Law Technology-Specific?,” 17 Berkeley Technology Law Journal
(2002), 1155. See also CRS Report RL33367, Patent Reform: Issues in the Biomedical and Software Industries, by
Wendy H. Schacht.
134 CRS Report RL31281, Patent Quality and Public Policy: Issues for Innovative Firms in Domestic Markets, by John
R. Thomas.
135 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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product they are marketing. The innovative firm may recognize that the cost of challenging a
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.136
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.137 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.138
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.139
S. 23 addresses the patent quality issue in part by allowing for increased public participation in
USPTO decision-making through a pre-issuance submission procedure. This bill also permits
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.140 One study published in 2000 concluded that the average cost of
patent enforcement was $1.2 million.141 These expenses appear to be increasing, with one more
136 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.
137 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.
138 See Craig Allen Nard, “Certainty, Fence Building and the Useful Arts,” 74 Indiana Law Journal (1999), 759.
139 Mark A. Lemley, “Rational Ignorance at the Patent Office,” 95 Northwestern University Law Review (2001), 1495.
140 Steven J. Elleman, “Problems in Patent Litigation: Mandatory Mediation May Provide Settlement and Solutions,”
12 Ohio State Journal on Dispute Resolution (1997), 759.
141 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.”142 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.143
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.144 The Intel Corporation has recently been
estimated to spend $20 million a year on patent litigation.145
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. S. 23 endeavors to make patent litigation less costly and complex through
adoption of an administrative post-issuance review proceeding that could serve as a less
expensive alternative to litigation, the introduction of supplemental examination, and
modification of the best mode requirement.
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.146
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. S. 23 addresses 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 more robust post-issuance review system, and assignee filing.
(...continued)
25, 2000), 6.
142 Mark H. Webbink, “A New Paradigm for Intellectual Property Rights in Software,” 2005 Duke Law and Technology
Review (May 1, 2005), 15.
143 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.
144 “Microsoft Advocates for Patent Reform,” eWEEK (March 10, 2005).
145 Stirland, supra, at 613.
146 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.147 Patent speculators are sometimes termed “trolls,” after
creatures from folklore that would emerge from under a bridge in order to waylay travelers.148
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.149 But as explained by journalist Michael Ravnitzky, “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.”150 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.151
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.152
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.153 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.154
147 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.
148 See Lorraine Woellert, “A Patent War Is Breaking Out on the Hill,” BusinessWeek 45 (July 4, 2005).
149 Nicholas Varchaver, “The Patent King,” Fortune (May 14, 2001), 202.
150 Michael Ravnitzky, “More Lemelson Suits,” The National Law Journal (December 17, 2001), B9.
151 James Pooley, “Opinion: U.S. Patent Reform—A Good Invention,” Electronic Business (January 1, 2000), 72.
152 See Ronald J. Mann, “Do Patents Facilitate Financing in the Software Industry?,” 83 Texas Law Review (2005), 961.
153 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.
154 35 U.S.C. § 112.
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Concerns over “trolling” are addressed in S. 23 by the introduction of post-issuance review
procedures.
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.155 Several studies commissioned by U.S. federal agencies
have concluded that individuals and small entities constitute a significant source of innovative
products and services.156 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.157 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.158
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,159 a federal statute that allowed universities
and other government contractors to retain patent title to inventions developed with the benefit of
federal funding.160 In recent years there has reportedly “been a dramatic increase in academic
institutions’ investments in technology licensing activities.”161 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.162
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
155 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.
156 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.
157 See Barnett, supra.
158 J. Douglas Hawkins, “Importance and Access of International Patent Protection for the Independent Inventor,” 3
University of Baltimore Intellectual Property Journal (1995), 145.
159 P.L. 96-517, 94 Stat. 2311 (codified at 35 U.S.C. §§ 200-212).
160 CRS Report RL32076, The Bayh-Dole Act: Selected Issues in Patent Policy and the Commercialization
of Technology, by Wendy H. Schacht.
161 Josh Lerner, “Patent Policy Innovations: A Clinical Examination,” 53 Vanderbilt Law Review (2000), 1841.
162 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.163 As the USPTO is currently entirely
funded by the fees it charges its users,164 this provision effectively calls for larger institutions to
subsidize the patent expenditures of their smaller competitors.
Beyond potentially diminished financial resources vis-à-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,”165
some observers state that such rights would particularly benefit small entities, which may often
lack a sophisticated knowledge of the patent system.166 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.167 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.
A number of provisions in S. 23 appear to be of particular interest to independent inventors,
universities, and small businesses, including a shift to a first-inventor-to-file priority system, post-
grant review procedures, and reduced fees for “micro entities.”
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.168
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.169 In contrast,
163 35 U.S.C. § 41(g).
164 CRS Report RS20906, U.S. Patent and Trademark Office Appropriations Process: A Brief Explanation, by Wendy
H. Schacht.
165 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.
166 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.
167 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).
168 For additional discussion on this issue see CRS Report RL33367, Patent Reform: Issues in the Biomedical and
Software Industries, by Wendy H. Schacht.
169 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.170 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.”171
Although broad generalizations should be drawn with care, two industries widely perceived as
using 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 life sciences.”172 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.173
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.174
This situation may be augmented by the multiplicity of patents often associated with a finished
computer product that uses 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 assessment of damages.
170 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.
171 See Peter S. Menell, “A Method for Reforming the Patent System,” 13 Michigan Telecommunications &
Technology Law Review (2007), 487.
172 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.
173 Federic M. Scherer, “The Economics of Human Gene Patents,” 77 Academic Medicine (December 2002), 1350.
174 Mann, supra, at 979.
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Concluding Observations
As introduced in the 112th Congress, S. 23 arguably would work the most sweeping reforms to the
U.S. patent system since the nineteenth century. However, many of the provisions in the bill, such
as preissuance submissions and post-issuance proceedings, 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 assignee filing, also reflect the decades-old patent practices of
Europe, Japan, and our other leading trading partners. As well, many of the 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 experts 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
Visiting Scholar
wschacht@crs.loc.gov, 7-7066
jrthomas@crs.loc.gov, 7-0975
Acknowledgments
This report was funded in part by a grant from the John D. and Catherine T. MacArthur Foundation.
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