Prospects for Patent Reform in 2008 and Beyond

February 2008

As the 2008 election year progresses, Presidential and Congressional candidates present their platforms, addressing major issues such as education, budget deficits, defense spending, and Social Security. Candidates rarely, if ever, talk about reforming intellectual property law, since it likely falls at the bottom of the list for most voters.

by Sanford E. Warren Jr. and Brandon Lee
Akin Gump Strauss Hauer & Feld LLP

However, as the 2008 campaign charges forward, the current Congress will consider making radical changes to U.S. patent law. These changes, if implemented, would have significant repercussions for both current patent holders and those seeking patent protection in the near future.

Over the past decade or two, a handful of Congressional bills have created substantial new rights in the areas of trademark protection¹ and copyright.² However, controversy has followed with respect to at least some of the changes introduced by the legislation.³

On the other hand, there have been relatively few changes to the patent laws over the past half century, making minor changes over the years to comply with international treaties. However, a bill currently pending before the Senate could result in substantial changes to U.S. patent law.⁴

Patent Reform Act of 2007

In recent years, Congress considered several different efforts to reform the patent system.⁵ Until now, none of the major reform bills had passed either the U.S. House or the Senate. However, in September of 2007, the House passed an amended version of the Patent Reform Act of 2007. This represents the first serious possibility of implementing substantive patent reform in many years. In January 2008, the Senate scheduled debate on its version of the bill with indications that the full Senate will likely consider this legislation for a full vote sometime in 2008.

The pending legislation includes a variety of provisions touching on numerous areas of patent law. The 2007 Act specifically precludes patents on tax planning methods⁶ and also allows third parties to submit relevant prior art.⁷ It would also authorize the Director of the Patent Office to require patent applicants to submit search reports, which could drive up the cost for filing patent applications.⁸ Furthermore, the Act would authorize studies on other possible changes including using special masters in patent litigation and reexamination proceedings.⁹ However, the most significant changes include the possibility of switching to a first-to-file system, overhauling the calculation of damages, and restricting the venue for patent suits.

One of the more radical changes would be the possibility of switching the United States to a "first-to-file" system. Currently, the United States implements a "first-to-invent" policy where a patent should issue to an inventor who first conceives of the patented invention, even if another inventor files an earlier patent application based on independent work. However, in many other countries, including the European Union and Japan, patent rights are given to the first party that files the application, as long as the patentable invention has never been publicly disclosed. However, this change in U.S. law is expressly dependent on both the European Union and Japan adopting 1-year "grace periods" for any public disclosure by the inventor. Therefore, the likelihood that this change will ever be implemented is uncertain.

The 2007 Act would also change how patent damages are calculated including limitations on the availability of treble damages for willful patent infringement.¹⁰ Of concern to many accused patent infringers is the current potential for significant damage awards based on the calculation of a "reasonable royalty." Proponents of changing the damage provisions argue that large patent awards are excessive compared to the actual value of the patent. They argue that awarding only the "economic value properly attributable to the patent's specific contribution over the prior art" is a more fair and realistic method of valuing a patent. However, opponents of these changes argue that calculating a "reasonable royalty" in view of the prior art is simply too difficult, introducing too many variables and placing an unreasonable burden on both judges and juries.¹¹

Another significant change that the 2007 Act would implement if passed, is restricting the availability of many venues for patent litigation. Currently, a surprising number of cases are filed in otherwise benign venues, such as the Eastern District of Texas and the Western District of Wisconsin. These venues are chosen by patent holders because they offer streamlined rules that specifically govern patent litigation and move cases to trial relatively quickly. However, many alleged infringers argue that the process is unfairly biased against infringers, forcing alleged infringers to try cases in venues that have only a tenuous relationship to the accused infringer's business.

In response, the 2007 Act would restrict the available venues for patent suits to only those locales where the accused infringer has a substantial presence. Proponents of this change argue this is only fair for infringers, while patent holders worry that moving patent cases away from "patent venues" will result in cases that move slowly and are tried before courts with less experience handling such disputes.

Conclusion

Even opponents of the particular legislation pending before the Senate agree with some of the changes proposed. However, because of the large number of different changes proposed, it does not appear that any particular group seems ecstatic with every aspect of the current legislation.¹² Therefore, it would not be surprising to see additional changes introduced as a result of various lobbying efforts. Only time will tell whether the Senate passes patent reform in any form this session, and whether such reform follows the House version or some other embodiment. Regardless, it is not likely that this will be the last time we see patent reform efforts in the near future. Indeed, it is likely that future changes are in store as the rapid development of new pioneering technology keeps driving companies to the patent office, and court, to protect their innovations.

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Brandon Lee is an associate with Akin, Gump, Strauss, Hauer & Feld LLP, where he specializes in the procurement and enforcement of intellectual property rights, and in particular patent and trademark rights. Mr. Lee received his B.S. in electrical engineering from the University of Oklahoma in 2002 and his J.D. degree from the University of Houston Law Center in 2005.

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¹Federal Trademark Dilution Act of 1996, 15 U.S.C. § 1125(c) (2006).

²Digital Millennium Copyright Act, 17 U.S.C. § 1201 et seq. (2006).

³See, e.g., Electronic Frontier Foundation, (challenging the "anti-circumvention" provisions of the DMCA).

⁴Patent Reform Act of 2007, H.R. 1908, 110th Cong. (2007) ("2007 Act").

⁵See, e.g., Patent Reform Act of 2005, H.R. 2795, 109th Cong. (2005).

⁶2007 Act, § 10.

⁷2007 Act, § 9.

⁸2007 Act, § 12(a).

⁹2007 Act, §§ 16, 8.

¹⁰2007 Act, § 5.

¹¹See www.patentlyo.com/patent/2007/05/patent_reform_2_1.html.

¹²See, e.g., Innovation Alliance at www.innovationalliance.net (lobbying for "targeted" patent reform) and The Coalition for 21st Century Patent Reform at www.patentsmatter.com/ (lobbying for broader patent efforts).

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