Ballard Spahr LLP: Patent Reform Bill Clears House; Reconciliation with Senate Bill Expected

Ballard Spahr LLP: Patent Reform Bill Clears House; Reconciliation with Senate Bill Expected

By Laura Anne Kowal, Jennifer L. Miller and Estelle J. Tsevdos

Reconciliation between the patent reform legislation passed by the U.S. House on June 23, 2011, and the earlier bill approved by the Senate is expected, enabling the Leahy-Smith America Invents Act to move to the President for signing by year's end.

H.R. 1249 passed the House comfortably, 304-117. The Senate approved S. 23 by a solid 95-5 vote on March 8, 2011. Both bills would do the following:

  • Change patent law from a first-to-invent to a first-to-file system
  • Amend patent fee diversion to other uses
  • Deny state court jurisdiction over claims relating to patents, plant variety protection, and copyrights
  • Limit the right to file false marking claims to individuals who have "suffered a competitive injury"
  • Revise the procedure for challenging patents
  • Institute a new fee structure for "micro entities"
  • Provide for a small-business ombudsman

The most significant reform in both versions of the bill would change U.S. patent laws from a first-to-invent to a first-to-file system, consistent with most patent systems in the rest of the world. Both bills would also allow the U.S. Patent and Trademark Office to set its own fees. Both bills deny state court jurisdiction over claims relating to patents, plant variety protection, and copyrights.

One of the most significant and controversial differences between the bills is the treatment of fees collected by the PTO. Currently, fees the PTO collects in excess of its annual budget are returned to the general fund, a process known as diversion. Although Congress returns some funds to the PTO, hundreds of millions of dollars are diverted every year.

The Senate bill would allow the PTO to keep all of its collected fees. The House bill would create a "Patent and Trademark Fee Reserve Fund" to hold any excess fees. Congress would maintain oversight of the fund, releasing money to the PTO upon petition by the PTO. Critics argue that it is not clear how the PTO would access the funds and, therefore, funding of the PTO could be inadequate.

Each bill addresses "false marking" lawsuits. Currently, any individual is allowed to bring a claim alleging that an unpatented product is falsely marked as patented. The proposed reform would limit the right to file a false marking claim to individuals who have "suffered a competitive injury." This change would apply to cases that are already filed and all future cases. In addition, both bills would allow only the government to sue to recover civil penalties for false markings.

Revisions to the procedure for challenging patents appear in both bills. "Inter Partes re-examination," the process whereby a person may challenge the validity of a patent based on published prior art, becomes "Inter Partes review"(IPR) in both the House and Senate versions. The procedures for IPR may be instituted either after the PTO grants a patent or after a post-grant review.

Both bills require that in order for an IPR to be granted, the PTO Director must make a determination that there is a reasonable likelihood that the petitioner would prevail. However, certain differences in the IPR procedures outlined in the two bills must be reconciled. The bills also provide for post-grant review of a patent as long as a petition is filed within nine months of the grant of a patent or the issuance of a reissued patent. Petitions for post-grant review will be authorized only if the Director determines that it is more likely than not, if the information in the petition is not rebutted, that at least one of the claims challenged is non-patentable. Both IPR and post-grant review are barred if the petitioner has filed a civil action challenging the validity of the patent. In addition, both bills call for the Director to promulgate regulations regarding the post-grant review of business methods patents.

The legislation also would benefit universities and certain patent applicants under a new fee structure for "micro entities." Although small entities currently receive a 50 percent fee reduction, micro entities in both patent reform bills would receive an additional 50 percent reduction in filing fees (overall, a 75 percent fee reduction).

The House version defines a micro entity as a small entity that has not been named as an inventor on more than four previously filed patent applications, does not have an annual income more than three times the median U.S. household income, and has not conveyed or contractually promised to convey rights to an entity that makes more than three times the median U.S. household income. In the House version, a micro entity may include someone who certifies that his employer is an institution of higher learning. The Senate bill includes only employees of state institutions of higher learning to be considered micro entities and the applicant may not have been a named an inventor on five previously filed applications.

Much of the debate surrounding the patent reform bills has centered on whether they favor large or small businesses. In an attempt to address this issue, the House bill Manager's Amendment contained several provisions for small businesses, including a "sense of Congress" statement regarding the importance of protecting small businesses from predatory behavior involving innovation, a study on assisting small businesses in obtaining and enforcing foreign patents, a study of diversity of patent applicants, and additional requirements for the satellite office location process. Both bills provide for a small business ombudsmen.

The House and Senate must now resolve the differences between their versions in conference committee. If the bills are reconciled, final legislation would be ready for review by the President, who has indicated that he would sign the final bill into law.

Many industry leaders, including the American Intellectual Property Association, the Intellectual Property Owners Association, and Pennsylvania Bio, have supported the legislation, and Pennsylvania Bio has committed to working with Congress to reconcile the two bills. But some industry leaders have criticized the bills, asserting that the complex nature of the new procedures for challenging patents could not be financially born by individual inventors and academia and that the new procedures are duplicative and difficult to understand.

If you have questions or concerns about this legislation or how it might affect your patent portfolio, patent litigation, or other intellectual property practices, please contact Jennifer L. Miller, co-partner-in-charge of Ballard Spahr's Life Sciences/Technology Group, at 215.864.8619 or millerje@ballardspahr.com; Estelle J. Tsevdos at 215.864.8377 or tsevdose@ballardspahr.com; or Laura Anne Kowal at 215.864.8472 or kowall@ballardspahr.com.

 

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

 

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