AIPLA Reports

A Periodic Notification of AIPLA Activities and
Current Developments in Intellectual Property Law
Copyright © 2009 AIPLA

March 4 , 2009

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• Senate and House Members Present Bipartisan/Bicameral Patent Reform Proposals
• Supreme Court Will Decide if Copyright Registrations Are Needed for Settlements
• Administration and Appropriators Agree on PTO Retention of Fees

Legislation/Patent Reform
Senate and House Members Present Bipartisan/Bicameral Patent Reform Proposals

Leaders of the Senate and House Judiciary Committees on March 3, 2009 announced bipartisan and bicameral proposals to renew legislative efforts for patent reform in the 111th Congress.

Senators Patrick Leahy (D-Vt) and Orrin Hatch (R-Utah) joined with Reps. John Conyers (D-Mich) and Lamar Smith (R-Tex) to kick of this latest round with legislation that has many similarities to the bill (H.R. 1908) that passed the House and to the bill (S. 1145) that was approved by the Senate Judiciary Committee in the last Congress.  Below are the provisions common to both bills, although there are some differences in detail.

First inventor to file:  The House and Senate bills both provide for a transition of the U.S. patent system from “first to invent” to “first inventor to file.”  However, the House bill continues to make the effective date of the first-inventor-to-file provision depend on the President’s certification to Congress that at least Europe and Japan have adopted a U.S.-style grace period consistent with the provisions of this legislation.

Post-grant review: Both bills create an enhanced reexamination procedure that covers prior art not only from printed publications and prior patents, but also documentary evidence of violations of on-sale and public use violations, statements made in court, and statements made in the PTO (statements in the ITC are covered by the House bill but not the Senate bill).  Neither bill eliminates inter partes reexamination, but both would require review by administrative patent judges rather than examiners, and both would amend the estoppel provision by deleting the phrase “or could have raised” from 35 U.S.C. §315(c).  Finally, both include procedures for post-grant opposition, which would be available only within 12 months of issue and would cover any invalidity claim listed under paragraphs (2) or (3) of 35 U.S.C. §282(b).

Damages:  Both the House and Senate bills add language to Section 284 that requires a court, based on the facts of the case, to determine a reasonable royalty award according to prescribed methods (valuation, market place licensing, or entire market value), and to expressly identify factors considered in that determination.  The provisions are designed to require courts to more rigorously apportion damages to the patented innovation only.  The reasonable royalty “valuation” would attempt to determine a value attributable to the claimed invention’s specific contribution over the prior art.  The entire market value would apply only where the claimed invention’s specific contribution over the prior art “is the predominant basis” for market demand.

Willfulness: Both bills set out specific criteria for finding willful infringement, and both preclude such a finding where a defendant shows a good faith belief that the patent was invalid, unenforceable, or not infringed.   The legislation bars a patentee from pleading and a court from finding willfulness before a determination on validity, unenforceability, and infringement.  Willfulness would be determined without a jury, and the phrase “acting with objective recklessness” is added to capture the standard of In re Seagate Technology, LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc).  The decision not to present advice of counsel evidence on the issue would be deemed “not relevant” to the willfulness determination.

Venue:   Both bills attack forum shopping by amending 28 U.S.C. §1400 to adopt specific criteria in place of the Section 1391(c) venue standard, which relies simply on personal jurisdiction over the defendant.  Thus, venue would be proper only where (1) the defendant has a principle place of business or is incorporated (for a foreign corporation, the place of business or incorporation of its subsidiary), (2) where the defendant committed acts of infringement and has a physical facility for a substantial portion of its operations, or where the plaintiff resides under limited circumstances.  To justify filing in its own place of residence, the plaintiff would have to be (1) an institution of higher education, (2) a nonprofit patent licensing organization for a higher education institution, or (3) a “micro entity” as defined elsewhere in the bill.  Both bills would permit the action to be transferred upon the defendant’s request based on the availability of the evidence or witnesses.

Interlocutory appeal: Both the House and Senate bills would add a new Section 1292(c)(3) to Title 28, permitting interlocutory appeals of district court claim construction orders.  The appeal would have to be sought within 10 days of the order, and the district court would have the discretion to approve the appeal and stay the proceedings.

PTO regulatory authority:  Both bills authorize the PTO Director to set or adjust by rule any fee established or charged under Sections 41 and 376 of the Patent Act. 

Assignee filing: A provision to amend Section 118 to permit the assignee of an inventor to apply for a patent is included in the Senate bill, but not in the House bill.

Missing provisions: The following subjects that appeared in past patent reform legislation have been omitted from the present bills: (1) inequitable conduct; (2) universal 18-month publication; (3) AQS (applicant quality submission) requirement for applicants to conduct a search; (4) elimination of the best mode requirement (although the requirement is amended to cover the best mode contemplated either by the inventor “or joint inventor”); (5) PTO fee-retention in a revolving fund to guard against fee diversion; (6) amendments to the marking provision at Section 287(a); (6) provisions on tax planning patents, authority to accept late-filed documents, and check imaging patents.

To read the Senate patent reform bill, click here; to read press statements and section-by-section analysis of the Senate bill, click here; to read the House patent reform bill, click here.

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Supreme Court/Copyrights
Court To Decide If Copyright Registrations Are Needed for Settlements
Reed Elsevier, Inc. v. Muchnick, U.S., No. 08-103, 3/2/09

The Supreme Court on March 2, 2009 agreed to review a Second Circuit decision that a district court lacked jurisdiction under 17 U.S.C. 411(a) to approve a copyright infringement settlement because some of the works involved were not registered.

This case arises out of a class action for infringement brought by authors against publishers who published electronically works that were contracted only for print publication.  That disputed resulted in a Supreme Court ruling that the publishers’ revision privilege under 17 U.S.C. 201(c) did not cover the electronic publication.
 New York Times, Inc. v. Tasini, 533 U.S. 483 (2001).  A settlement was ultimately reached between the authors and publishers, but the settlement provided less for authors of unregistered works (comprising most of the claimants) than for authors of registered works.  The authors of the unregistered works protested the settlement, but the district court ultimately approved the agreement. 

The Second Circuit reversed, concluding that the district court lacked subject matter jurisdiction under Section 411(a) to certify the class and approve the settlement concerning claims arising out of unregistered copyrights.  Under Section 411(a), “no action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim has been made in accordance with this title.”  That this language is jurisdictional, according to the court, “is not up for debate.”  The court rejected the argument that a single claim on a registered work is sufficient to satisfy the Section 411(a) requirements, even if unregistered works are also involved.  Although not a class action, the decision in Well-Made Toy Mfg. Corp. v. Goffa Int’l Corp., 354 F.3d 112 (2d Circuit 2003), turned that argument away. 
The court also concluded that supplemental jurisdiction does not apply to the unregistered works under 28 U.S.C. §1367(a) because that statute does not apply when jurisdiction is “expressly provided otherwise by Federal statute.”

In a dissenting opinion, Judge Walker acknowledged that past Second Circuit opinions have referred to Section 411(a) as a jurisdictional statute.  However, he pointed out that the Supreme Court in Eberhart v. United States, 546 U.S. 12 (2005) (per curiam), urged that courts more carefully distinguish between true jurisdictional bars and “claim-processing rules” that may be waived, as in a settlement agreement.  Section 411(a) is not essential to the existence of copyright or even to a case or controversy under the Constitution, he noted.

To read the Second Circuit opinion on review, click here.

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Legislation/Appropriations
Administration and Appropriators Agree on PTO Retention of Fees

President Obama on Feburary 26, 2009 announced his Administration’s annual budget that includes language on the importance of allowing the Patent and Trademark Office to retain all of its collected user fees for operational expenditures. According to the current budget document, “[t]he Budget provides the U.S. Patent and Trademark Office full access to its fees to improve its efficiency and safeguard intellectual property.” 

At the same time, the House of Representatives on February 25, 2009, passed an omnibus appropriations bill (H.R. 1105) for agencies whose appropriations were not completed last October.  Those agencies, including the PTO, have been surviving on a continuing resolution (H.R. 2638) passed last September and set to expire March 6th. 

USPTO Appropriations

H.R. 1105 permits the PTO to spend $2.01 billion, which matches the agency’s fee collection estimate from last December with no diversion.  An explanatory statement accompanying the bill, however, reports the conclusions of a General Accountability Office report that patent pendency is up to 32 months and that the backlog continues to increase despite  a $500 million growth in the PTO budget since 2005.  The funding bill thus includes a transfer of $2 million to the Office of Inspector General for the purpose of conducting “continual audit engagements and oversight” at the agency

The explanatory statement also states that the PTO response to the application backlog is to issue rules that limit the ability of applicants to claim their inventions and modify their applications in continuations practice.  However, the sustained increase in applications “is largely a consequence of a globalized economy in which applicants are filing in more than one jurisdiction,” according to the statement.  The statement directs the PTO to take actions to reduce duplication of work already performed by another patent office without compromising examination quality and U.S. sovereignty.

The appropriations bill withholds $5 million pending a comprehensive reevaluation of the work productivity goals for patent examiners.  According to the explanatory statement, the current goals date from the 1970s and have not been updated to address “the ever more complex technologies that encompass today’s patent applications.”

Missing from this legislation are provisions from prior bills requiring that the agency maintain a minimum number of trademark and patent examiners.  Included are provisions that bar the use of funds for trademark registration of the phrase “Last Best Place,” and for issuing patent claims “directed to or encompassing a human organism.”

Copyright Office Appropriations

The legislation also provides appropriations for the legislative branch, which provides $51.6 million for expenditures, part of which is to be paid out of collected compulsory license fees.  In the explanatory statement on the appropriation, the Copyright Office is directed to study the desirability and means of “bringing sound recordings fixed before February 15, 1972, under federal jurisdiction.”

To read the legislative language and explanatory statements on PTO and Copyright Office appropriations under H.R. 1105, click here.

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