By Dugie Standeford for Intellectual Property Watch
The United States House of Representatives Friday approved sweeping changes to the US patent system, setting the stage for Senate action which could send the measure to the president for signature.

By a margin of 220-175, lawmakers passed “The Patent Reform Act of 2007,” HR 1908, with five amendments. Given strong opposition to some provisions from certain industry sectors and the Bush Administration, however, the measure’s future remains uncertain.

The vote followed a sometimes contentious debate marked by criticism not only of the underlying bill but of a rule limiting discussion to one hour.

The legislation is intended to harmonise US patent practice with that of other countries, encourage better quality patents and reform infringement litigation (IPW, Subscribers, 25 July 2007). While it introduces many changes to the system, only a few have proved particularly controversial. Despite approval of five amendments that seek to address concerns, lawmakers admitted the bill is still a work in progress.

“First-to-File” with a Catch

The measure more closely aligns the US with the “first-to-file” practice in use in most other countries. Because the United States is “alone is granting priority to the first inventor as opposed to the first inventor to file a patent,” the bill “will inject needed clarity and certainty into the system,” Congresswoman Sheila Jackson-Lee (D-Texas) said during the debate. The switch could have an enormous impact on small inventors and universities, she said, but there will be a grace period to reduce any negative impact.

An amendment offered earlier by Jackson-Lee and approved by the House requires the US Patent and Trademark Office (USPTO) to monitor the long-term effects of the change, she said.

But Representative Dana Rohrabacher (R-California) blasted the first-to-file provision, saying it “tries to harmonise to lower standards in the world rather than cause other countries to harmonise up to our standards.” An inventor who comes to the USPTO, applies for a patent and is given the right as the first to invent could now “be superseded in the international market by someone who happened to catch that invention on the Internet or elsewhere and file it in China first,” he said.

The White House said in a 6 September Statement of Administration Policy that it supports a first-to-file system but wants to clarify several “continuing concerns” about the scope and application of the transition, specifically with regard to provisions relating to prior art and grace period.

In its present form, HR 1908 would “completely kill first-to-file” and throw a “fatal monkey wrench into meaningful patent harmonisation,” Foley Lardner patent attorney Harold Wegner wrote in an Internet posting. The problem is that the transition is only effective when the European Patent Office (EPO) and other patenting authorities adopt a grace period, he said.

The legislation defines grace period as “the one-year period ending on the effective filing date of a claimed invention, during which disclosures of the subject matter by the inventor or a joint inventor, or by others who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor, do not qualify as prior art to the claimed invention.”

The EPO is powerless to make such a change without amending the European Patent Convention, Wegner wrote. That kind of amendment “simply will not happen,” he said.

Damage Apportionment

The bill attempts to define when royalties in infringement cases should be based on an entire product and when on the proportional contribution of a patented component. There is no current requirement that damage awards in patent litigation be limited to the value the patent added to the overall product, but the measure remedies that, Representative Bob Goodlatte (R-Virginia) noted.

HR 1908 preserves the right of patent owners to receive appropriate damages for infringement but sets a formula to ensure they are rewarded for the actual value of the invention, Jackson-Lee said. The original version of the bill “was susceptible to a reasonable interpretation that apportionment would be required in all cases,” but, as amended, apportionment is only one of several methods a court may consider in awarding damages, she said.

Compromise language removes a provision allowing apportionment for damages based on lost profits, and allows plaintiffs to recoup the enhanced value of previously known elements of an invention where their combination adds value or functionality to the prior art, Jackson-Lee said.

But the Bush Administration said lawmakers had not established a “convincing basis” to justify the change in damage assessments. The bill would “introduce new complications and risks, reducing incentives to innovate,” it said. Nor is it advisable, it said, to force courts rigidly to apply in all cases only one of several broadly accepted factors they now consider.

Post-Grant Review

Original language requiring any initial challenge to a patent’s quality to be filed with the USPTO within 12 months after its grant (the “first window”) won House approval. Earlier provisions established a “second window” of opportunity in which to challenge patents, a move fiercely contested by biotechnology and pharmaceutical companies.

The second window has now been replaced with an expanded re-examination process, said Washington, DC IP attorney Jonathan Band. The measure “significantly strengthens” the process, said House Judiciary Committee Chairman John Conyers (D-Michigan). “Our goal…is to ensure that before a patent is issued, parties who contest its validity will have a full and complete opportunity to do so within the confines of the Patent Office itself,” he said.

The White House, however, balked at the provision, saying that although it generally supports the first window challenge opportunity, it has “some concerns” about the proposed inter-partes reexamination adjustments (reexaminations of patent grants initiated by members of the public, third parties) and prefers a “narrowly drawn second window.”

Early Reaction

Due to the lateness of the vote Friday afternoon, there has been little reaction so far.

The Business Software Alliance applauded passage of the bill and urged the Senate and all sides to work together in the same spirit of compromise. The Coalition for Patent Fairness, whose members include Apple, Microsoft and other major high-tech firms, said the vote showed “undeniable momentum” which will continue in the Senate.

Efforts to further modify the bill now move to the Senate, whose leadership has said it wants to bring S 1145 to the floor in the next five weeks, Foley Lardner attorneys Stephen Maebius and Philip Kiko said in a summary of the legislation. That will be “challenging” because several of the amendments, dealing with the same issues that proved controversial in the House, failed by slim margins in the Senate Judiciary Committee, they said.

With Senate rules harder to navigate, the Senate leadership or Judiciary Committee chairman will have to have a “better process for all the stakeholders” for the legislation to pass, Maebius and Kiko wrote. If the bill passes the Senate, a conference committee of both Houses could be asked to iron out the differences, or a negotiated bill could be tacked on to a large “must pass” measure, they said.

Dugie Standeford may be reached at info@ip-watch.ch.