Sweeping patent reform legislation cleared a key United States Senate committee Thursday and is now headed for a vote on the Senate floor after compromises were reached on key sticking points in the bill.

The measure (S 515) is the latest attempt by Senate Judiciary Committee Chairman Patrick Leahy (Democrat, Vermont) and other lawmakers to push through changes to the US patent system, and it appears to have wide support across industry sectors.

Nevertheless, the amended version of the bill, which Leahy called a “very delicate compromise,” faces continuing strong opposition from some lawmakers and leaves several controversial issues still unresolved.

A copy of the latest legislation is available here [pdf].

Other amendments to the legislation are available here.

Inequitable Conduct

Criticism surfaced early at Thursday’s committee meeting. Senator Orrin Hatch (Republican, Utah) said he opposes the current version because it does not reward innovation and could undermine the effectiveness of the US and other patent systems. Hatch said he’s “tired” of non-innovators using inequitable conduct in dealings with the US Patent and Trademark Office (USPTO) to “walk away as infringers.”

Under current law, a patent applicant who fails to disclose necessary information to or misleads the USPTO is denied a patent, said American Intellectual Property Law Association Executive Director Q. Todd Dickinson. Some, like Hatch, would prefer a more proportionate approach, Dickinson told Intellectual Property Watch, but the compromise measure does not address the issue.

Inequitable conduct is “going to be new battleground” because it affects the costs of litigation and patent prosecution, said Foley & Lardner patent attorney Stephen Maebius. “Expect a push to get it in.”

Damages

Senator Kyl found fault with the so-called “gatekeeping” provision of the amendment that allows courts to consider whether a party’s damages request is not supported by evidence. That could force judges to consider all relevant factors before a trial even begins and drag out infringement litigation, he said.

The problem has been that judges and juries sometimes lack sufficient information about how to calculate royalty damages, said Dickinson. Judges are reluctant to invade the jury’s territory by telling them which facts to consider and how, he said. The new language will help ensure that only cases involving substantial evidence of harm get to the jury, he said.

The text of the damages provision differs from the bill’s last version, Maebius said. Prior language would have restricted a court’s ability to use all relevant factors to set infringement damages; the new provision makes judges gamekeepers who decide which of those factors will apply, he said.

The compromise seems to have resolved the inability of lawmakers at least to reach political agreement to move forward, Dickinson said. The damages issue “will remain a hotspot,” although the agreement “appears to have significantly won over some key opponents,” said Maebius.

“Best Mode”

The compromise retains the requirement that a patent specification contain the best mode of carrying out the invention as part of the patent application, but bars best mode from being used as a way to invalidate a patent, the committee said.

The requirement is fairly controversial because, as enforced, it is a trap for patentees, Dickinson said. The United States is the only country with such a provision, he said. Generic drug companies favour it because it helps them in lawsuits filed by large pharmaceutical companies, he said.

Removing best mode as an invalidation tactic partly fixes the problem, Dickinson said. Moreover, it represents a step toward global harmonisation of patent rules, he said. The bill also moves the US to a “first-to-file” system, allowing it to seek to move international standardisation issues forward, he said.

“This is tremendously important for other countries” because a first-to-file system could put the US on a par with the rest of the world as far as how patents are granted, said Maebius. It may also affect the extent to which overseas patent owners and filers can assert and defend their US patents against infringers in the US, as well as the extent to which US patents will pose a barrier in the future to products imported into the US by overseas companies, he added.

“Meeting of Minds”

Despite these and other issues, the panel voted 15-4 to send the act forward. Most bills with conflicting constituencies wind up with a compromise, said Sen. Dianne Feinstein (D-California), another of S 515′s co-authors. This one gives the parties 90 percent of that they want and it can tweaked on the Senate floor, she said. “We have a substantial meeting of minds” across the patent sector, she said.

The compromise garnered praise from many opposing players, Dickinson said. AIPLA was somewhat disappointed that an amendment by Sen. Tom Coburn (R-Oklahoma) seeking to allow the USPTO to retain all fees it collects annually for a five-year, rather than one-year, period did not pass, he said. The amendment could see action on the Senate floor, however. The vote was a “great advance,” he said.

The Business Software Alliance urged lawmakers “to resist efforts to weaken the bill,” and to pay “special attention” to several improvements, including ensuring the first-to-file regime is fair to companies which made use of technologies before they became the subject of a patent and that methods for challenging defective patents are effective.

The Coalition for Patent Fairness, which represents a mix of technology companies and industry groups, praised the panel’s “important step forward,” but urged legislators, among other things, to ensure the USPTO has the power to gauge the validity of patents issued for technology and business methods – areas where improper patents are believed to have been most flagrant. The compromise also won applause from the Coalition for 21st Century Patent Reform, which represents manufacturers and high-tech businesses.

The Biotechnology Industry Organisation, which has faced off against the high-tech sector on some issues, expressed appreciation for the “careful compromises” on several key issues, including damages and post-grant review. “While no compromise is ever perfect,” the panel’s action “breaks the logjam on the major issues that have held up patent reform” for several Congresses, it said.

The Innovation Alliance, another industry group, offered “mixed reviews” for S 515, saying its post-grant review provisions will create multiple routes for contesting a patent’s validity without any meaningful protections to prevent abusive or serial attacks. That means US patent holders will “spend precious time and resources” protecting their inventions against domestic and foreign challengers with little hope of success, it said, an especially difficult situation for small inventors facing bigger and better-financed companies.