Congress Takes on Pesky "Patent" System

America is the undisputed world leader in innovation, entrepreneurship and risk-taking. One of the reasons for this is our relatively strong legal protection for the intellectual property of America’s innovators. Given that we have a relatively workable system in place, it was, of course, only a matter of time before Congress stepped in to screw with it.

Rising to meet his destiny as a legislator, Rep. Lamar Smith has filed a bill in the House seeking to drastically change our patent laws. He himself has boasted that it is the most drastic change to our laws in over 50 years. As it stands today, patents are already an asset reserved for the relatively well-backed. Nonetheless, they do often serve to level the playing field between the small innovator and the large corporation seeking to take over the innovator’s market and the risk-taker’s reward. Certain large corporations are, understandably, annoyed by the fact that they sometimes have to pay damages for using someone else's patented technology. With Rep. Smith on the case, it's only a matter of time before their annoyance is reduced. With the changes proposed by Rep. Smith, patents are likely to remain tools available to wealthy corporations but increasingly out of the reach of the small company and independent inventor.

Weak patent protection means that companies are freer to move around as they please, reaping where they did not sow. In certain cases, this gives those companies the freedom to let the smaller players take the risks and test out new technologies and marekts. If a gamble pays off for a smaller player, the big player can then move in after the technology has been tested and a market has developed. A weakening of the patent rights of smaller companies obviously lowers the incentive for entrepreneurs and small business owners to take risks.

There are a number of changes in the bill. I've selected a few to highlight. These are my characterizations of the effect of the changes based on my reading of the language and summaries I’ve reviewed.

1. Change from First Inventor to First Applicant to File:

Under the current patent law, the first person to invent an invention is considered the ‘inventor’ and therefore, the person rightly entitled to the patent, even if another applicant gets to the patent office more quickly than the first inventor.

Under the law as it would be revised by Smith’s bill, an independent inventor who gets beaten to the patent office by another applicant would lose out and would not be considered the rightful patentee. The later applicant will receive the patent instead of the first inventor.

This change would tend to reduce uncertainty in the system, which would be a good thing. This represents a shift in advantage from the small inventor to the large player, but is not, on balance, a completely unreasonable proposition.

2. Change to “Absolute” Novelty, No Grace Period:

Under current patent law, an invention is unpatentable if it was known to the public more than one year prior to the filing date of the patent application. This provides a one-year “grace period” to allow a small inventor time to get backing for his invention and funding for the expense of a patent application.

Under the law as revised by Smith’s bill, the invention will be unpatentable if it becomes known to the public at any time prior to the filing of the patent application through someone other than the inventor.

Again, this element is a shift which tends to penalize smaller players more than it affects larger players, but it also represents a move to harmonize the U.S. patent system more closely with the practices of most other countries. It's not a particularly radical proposal.

3. Reduction in Royalty/Lost Profits Damages for Infringement:

Under the current law, a product incorporating a patented feature can give rise to damages in the amount of royalties or lost profits on up to net sales of the product, if the court finds such damages justified.

Under the proposed law, damages can only be based on the value/price of the specific novel feature rather than the product as a whole, even where the infringing sales were a result of that feature.

In certain cases, this change could represent a substantial reduction in the potential damages available to a successful patent holder. This is a good thing for accused infringers, but it also represents a reduction in the value of patents in general.

4. Reduction in Court’s Power to Enhance Damages in Exceptional Situations:

Under the current patent law, a court of law may impose enhanced damages of up to three times actual damages if the court finds that the defendant’s infringing conduct was sufficiently egregious.

Under Smith’s bill, the ability of a court to enhance damages against a blatant infringer is severely limited.

5. Reduction in Availability of Injunctions Stopping Infringing Activity:

Under the current law, a patent holder is entitled to an injunction against future infringement if it can show that its patent is being infringed.

Under Smith’s bill, the power of a court to grant an injunction against infringement is constrained.

Questions have been raised as to whether constraints on injunctions are even constitutional, given that the U.S. Constitution expressly guarantees an inventor the right to exclude.

6. Constraint of “Continuation” Practice:

Under the current law, an inventor is allowed to file multiple applications on a single product, owing to the fact that what is generally called an “invention” generally includes a variety of separate “inventions” and combinations of novel features. The inventor can receive multiple patents, each covering certain aspects of his invention, so long as those aspects are novel and non-obvious. The idea is that each of the inventions is entitled to protection, even if the inventor chose to write them up and submit them in a single patent application. This is a little bit of an arcane area of patent law, but it is a very popular practice, employed by both small inventors and big corporations.

Smith’s bill includes provisions to end this procedure, in order to restrict an inventor to only one patent on each product.

In addressing this procedure, Rep. Smith has described continuation practice as "gamesmanship." That reminds me of a negotiation I had one time with another patent attorney. We were discussing the meaning of a claim term in a patent. After extended discussion, he attempted to dismiss my claim arguments as nothing more than "mere semantics." In other words, the question of whether or not a particular product actually infringes a particular patent claim can't be reduced to "mere semantics?" Are we supposed to inquire as to the "spirit of the claim?" Do patent claims have "penumbras and emanations?" I submit that they don't. Continuation practice is a very valuable part of modern patent prosecution, as evidenced by yhe fact that pproximately 30% of patent applications filed are continuations. If my client disclosed a combination in a patent application, he or she should be entitled to claim it, even if he or she didn't claim it originally. This has long been a fundamental aspect of our patent system, and it is important in order to allow the patent applicant to protect the full scope of his or her invention.

7. Multi-round Third-Party Opposition Procedure:

Under the current patent law, there are a number of procedures available to third parties who wish to oppose a patent application. There is a pre-publication submission procedure and a post-publication submission procedure for use while an application is before the patent office. There is an ex parte reexamination procedure and an inter partes reexamination procedure for use once a patent has been issued.

Smith’s bill adds two additional post-issuance opposition procedures. The first can be filed at any time within the nine months after a patent has been issued. The second can be filed at any time within the six months after an accused infringer receives notice of an accusation of infringement.

8. The impact of the above:

An inventor seeking to acquire a patent will spend three or more years and tens of thousands of dollars in acquiring the patent. In the event that the patentee succeeds in convincing the patent office of its entitlement to a patent, the patent holder will likely find itself back in the patent office for some period of years in an opposition proceeding, either right after issuance or later if it threatens a company with enforcement of the patent. The opposition proceeding will proceed as a type of litigation, with discovery and testimony, and a likely cost of hundreds of thousands of dollars to each side. During this time, any patent litigation will likely be stayed. Once a patent holder emerges from the opposition proceeding, it will then be able to commence litigation again. If the defendant then chooses to assert that the patentee engaged in some form of inequitable conduct in acquiring the patent, the defendant can move the litigation back into the patent office for a second proceeding, which may take another period of years. Once the patent holder emerges from the second proceeding, it can commence with its normal litigation, which will take several years and cost millions of dollars. If the patent holder wins its patent litigation against the infringer, it will find its ability to recover damages and/or an injunction impaired as compared to current law, even in those cases where the court finds that the infringer’s conduct was egregious.