[Ecommerce] Law.com: Sweeping Changes to the U.S. Patent System? Don't Bet on It!

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Sweeping Changes to the U.S. Patent System? Don't Bet on It!

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Mark Scarsi
Special to Law.com
07-05-2005


When Rep. Lamar Smith, R-Texas, introduced the much-heralded Patent
Act of 2005 on June 9, the chairman of the House Subcommittee on
Courts, the Internet, and Intellectual Property boasted it made "the
most comprehensive change to U.S. patent law since Congress passed
the 1952 Patent Act." In reality, however, while earlier drafts of
the bill (H.R. 2795) contained a number of welcome changes with real
teeth, the bill as introduced is mostly a paper tiger. If the
subcommittee continues watering the bill down during mark-up, the
Patent Act of 2005 will likely go down in history as yet another
failed attempt to bring real reform to the U.S. patent law.

For years, commentators have pointed out the need for fundamental
changes to the U.S. patent system. Public perception is that the U.S.
Patent and Trademark Office issues too many patents that are clearly
invalid in that they cover subject matter that has been in use for
years. These facially invalid patents are particularly problematic
under current U.S. patent law, which gives patent owners powerful
injunctive rights and stacks the deck against a party seeking to
invalidate a patent. Even worse, the current system provides a
disincentive for companies to even look at issued patents of their
competitors, since knowledge of a patent can raise the specter of
willful patent infringement and enhanced damages.

It was against this backdrop that the 109th Congress took on the task
of reworking the U.S. patent law. Early committee drafts contained
decent solutions to address all three of these major issues.
Unfortunately, however, over several months of deliberations the IP
subcommittee has all but eliminated the advances in injunction reform
and validity challenges. Let's hope the subcommittee has the resolve
to hold firm on the proposed advances in willful infringement.

INJUNCTION REFORM

Under current U.S. patent law, the burden on the patentee to obtain
an injunction upon a finding of infringement is quite low. In fact,
traditional patent law holds that irreparable harm to the patentee is
presumed once a court finds infringement. This presumption has the
curious effect of allowing a patentee who does not even practice a
patent to completely shut down an industry that does. Early drafts of
H.R. 2795 proposed a complete reversal of this injunction anomaly.
Specifically, the early drafts provided that:
A court shall not grant an injunction under this section unless it
finds that the patentee is likely to suffer irreparable harm that
cannot be remedied by the payment of money damages. In making such a
finding, the court shall not presume the existence of irreparable
harm, but shall consider and weigh the evidence that establishes or
negates any equitable factor relevant to a determination of the
existence of irreparable harm, including the extent to which the
patentee makes use of the invention.
Unfortunately, H.R. 2795 as introduced contains none of this bold
language. Instead, the bill meekly seeks to remedy the injunction
issue by offering the obvious tautological notion that "In
determining equity, the court shall consider the fairness of the
remedy in light of all the facts and the relevant interests of the
parties associated with the invention."

CHALLENGING PATENT VALIDITY

Under the current patent system there are few good options for
challenging facially invalid patents. Once the USPTO issues a patent,
the patent carries a strong presumption of validity. A defendant who
wishes to overcome this presumption in court must meet the heightened
clear and convincing evidentiary standard. This standard is
especially hard to meet since many jurors, when confronted with the
official USPTO red ribbon and government gold seal, simply find it
hard to imagine that an agency of the U.S. government made a mistake.

The other current option for challenging validity, a USPTO re-
examination proceeding, is equally unattractive. In a re-examination
proceeding, a challenger is severely limited in the type of evidence
it can present and the amount of involvement it can have in the
proceeding. Re-examinations can take years to complete and, perhaps
most troubling, conventional wisdom suggests that the USPTO, having
issued the invalid patent in the first place, will simply repeat its
mistake.

The early drafts of H.R. 2795 provided an effective mechanism for
challenging invalid patents by way of an opposition system. Under the
proposal, anyone could file an opposition to an issued patent within
nine months of patent issuance. The challenge would be decided by a
panel of three Administrative Patent Judges (the "Panel"). The
challenger and the patent owner could: submit declarations to the
Panel, conduct depositions of declarants, submit pre-hearing briefs
and even cross-examine declarants live at a hearing before the Panel.
The burden on the challenger would be a mere preponderance of the
evidence, not the clear and convincing evidence standard applied in
court. Finally, the proposal mandated a quick resolution of
opposition proceedings. The Panel would have to issue a decision
within eighteen months of the date the opposition is filed.

Unfortunately, H.R. 2795 as introduced includes a poison pill that
will discourage most companies from making use of the new opposition
proceeding. Under proposed Section 325 (d):
If the owner of a patent files suit alleging infringement of the
patent before the 9-month =85 period for filing an opposition =85 , the
Director, if requested by the patent owner, shall stay the opposition
proceeding until judgment in the suit and all appeals thereof, have
become final.
This automatic stay provision essentially encourages patentees who
are facing tough validity challenges in an opposition to sue the
opposer and move the validity battle to district court. Reasonable
companies, who may have filed oppositions to troubling patents will
not do so if this makes them a more likely infringement target.

WILLFUL INFRINGEMENT

As every in-house IP counsel knows, the issue of willful patent
infringement presents a frustrating Catch-22. On the one hand,
diligent in-house counsel would like to review patents of competitors
to guard against infringement. On the other hand, once in-house
counsel gains knowledge of a specific patent that might be relevant,
he or she puts their entire company at risk of accusations of willful
patent infringement potentially leading to treble damages. In order
to cleanse the sin of knowledge, the in-house counsel must go through
a careful process of documenting why the company believes that it
does not infringe. In many cases this cleansing involves the hiring
of outside counsel to prepare voluminous and costly written opinions
of non-infringement and invalidity. All this can occur without even
the slightest accusation of infringement on the part of the patent
holder.

H.R. 2795 addresses some of these issues. Under the bill as proposed,
a court may not find that an infringer has willfully infringed a
patent until after the patent holder has provided written notice of
an infringement allegation, unless the patent holder can show that
the alleged infringer directly copied the patent. In either case, the
alleged infringer can avoid willful infringement liability by forming
"an informed good faith belief that the patent was invalid,
unenforceable or would not be infringed." An alleged infringer can
conclusively establish a good faith belief by "reasonable reliance on
advice of counsel."

Unfortunately, H.R. 2795 as introduced does not go as far as it could
to make life easier for in-house counsel. Under the earlier draft
version, courts were instructed that "increased damages may not be
awarded based merely upon the knowledge of a patent or its contents
by the defendant prior to suit." The bill as introduced no longer
includes this language, leaving conservative in-house counsel
wondering whether they should continue to adopt the "see no evil"
approach.

Although Congress initially intended the Patent Act of 2005 to make
sweeping reform to the U.S. patent system, recent deletions have
vitiated much of the bill's effectiveness. Even in its diminished
form, however, the bill does contain some necessary changes,
especially to the standards for judging willful infringement. One can
only hope that these remaining changes will survive mark-up.

Mark Scarsi is a partner in O'Melveny & Myers' Los Angeles office.
Prior to entering the legal profession, Scarsi worked for seven years
as a software engineer focusing on the development of computer
hardware/software solutions for strategic naval defense objectives.