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Over the last five years, there has been a growing chorus claiming that the U.S. patent system needs significant reform. Critics in academia, industry and some within the patent bar assert that the system has become inefficient and unpredictable so that it is harming, not encouraging, innovation. See, e.g., Adam B. Jaffe and Josh Lerner, Innovation and Its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What to Do About It (2004). The patent reform movement claims that illegitimate patents are regularly granted, the legal standard for getting a patent is too low and federal courts are unpredictable and inefficient in adjudicating patent disputes. Congress has responded with four different patent reform bills, the most recent being Senate Bill 3818, sponsored by senators Orrin Hatch, R-Utah, and Patrick Leahy, D-Vt. A number of controversial proposals have made developing consensus a challenge. Among the more contentious matters are whether we should have a “multiwindow” opposition system, e.g., H.R. 5096, S. 3818; whether to impose a “loser pays” rule, S. 3818; whether continuation applications should be abolished, original H.R. 2795, PTO Rule Proposal at 71 Fed. Reg. 48a; and whether the U.S. Patent and Trademark Office (PTO)’s allowance rate has become wildly high. On the latter point, the authors of Innovation and Its Discontents made an anecdotal conclusion that “in practice the [U.S. patent] system seems more akin to a registration system . . . a determined patentee can get almost any award he seeks.” Jaffe & Lerner, supra, at 142. In contrast, PTO Director Jon Dudas, in comments at the 2006 American Intellectual Property Law Association Midwinter Meeting, admonished patent critics for assertions not backed by empirical evidence: “feelings are not facts”-hard data show that the patent grant rate is at the lowest ever recorded. Neil E. Graham, “Perception Gaps Hindering Efforts to Improve Patent System, Dudas Says,” 71 Pat. Trademark & Copyright J. (BNA) 374 at n.13 (2006). The recent realignment of Congress is a timely reminder that the patent reform proposals that succeed will be those susceptible to consensus. One reform that has been proposed is interlocutory appeal of claim construction. Claim construction now takes place by trial court judges, not juries, in Markman hearings. Markman v. Westview Instruments Inc., 517 U.S. 370 (1996). Regarding the Markman process, nearly everybody would agree on three basic points. First, patent litigation in the federal courts has become unacceptably lengthy and unpredictable. Second, claim construction is normally the central issue in patent cases and is often outcome-determinative. Third, the high rate of appellate reversal on this case-determinative issue creates expense and uncertainty in patent suits. Two ways to address this issue have been proposed: eliminate the de novo standard of review and instead give substantial deference to trial court Markman orders, or provide for interlocutory review of Markman decisions. See Craig Nard, “Process Considerations in the Age of Markman and Mantras,” 2001 U. Ill. L. Rev. 355 (2001); “The Sedona Conference Report on the Markman Process” (June 2006 public-comment version) (Principal 23 recommends considering interlocutory appeals). The first proposal, changing the standard of review, may not adequately address the underlying concerns. In particular, it does not shorten the time to get a controlling decision from the U.S. Court of Appeals for the Federal Circuit. Additionally, most patent specialists-including the Federal Circuit, based on its reversal rates-believe that district courts are not yet able to provide consistently correct claim constructions. Thus, giving trial courts discretion to dispose of the claim-construction issue could well exacerbate, not solve, the problem; patent suits could become even more uncertain, and the public-notice function of the patent document could be undermined. The second proposal, implementing an interlocutory appeal process for district court claim constructions, deserves serious consideration. On balance, it could enhance the net efficiency of the federal courts in an area where most agree there is a systemic problem. Interlocutory appeals: pros Proponents of interlocutory appeals argue that this process would improve and streamline the patent litigation process for the following reasons: There is a high reversal rate of patent cases based on erroneous claim construction. Between 1996 and 2003, district court claim-construction orders were reversed by the Federal Circuit roughly 35% of the time. See Testimony of Kimberly A. Moore, professor of law, George Mason University School of Law before the House Subcommittee on Courts, the Internet, and Intellectual Property (Oct. 6, 2005). This high rate means that many cases are settling or going to trial on the issues of infringement or validity under flawed claim constructions. For cases proceeding to trial, the effort is largely wasted when later reversals of claim construction require retrial or other additional proceedings. For cases that settle, doing so under a flawed claim construction seems unjust as well as inefficient. Permitting a party to immediately appeal claim-construction orders would inject a level of credibility and certainty into the decision on whether to settle or proceed to trial. Early resolution of a claim-construction order is sensible and would improve procedural uniformity among district courts. Determining the proper scope of patent claims earlier in litigation is both sensible and efficient. District courts vary in how and when they conduct claim-construction hearings-some do so early in litigation, while others wait until the eve of trial. Permitting interlocutory appeals of claim construction would provide an incentive for district courts to schedule claim-construction hearings earlier so that any errors can be corrected before additional judicial time, effort and resources are expended. This, in turn, should reduce forum shopping by the patent holder and enhance certainty. The process would encourage earlier settlement. The early appellate determination on claim scope afforded by interlocutory appeals would beneficially alter the calculus on whether it makes sense to proceed to trial on the substantive issues. A likely consequence is that more cases will settle, and they will settle earlier. Once the Federal Circuit reviews a district court’s claim-construction order, litigants will have a far more accurate view of the merits of their respective positions early in the litigation. This will encourage earlier settlement (or dismissal) of cases, as litigants can better gauge their risks. It is unfair to make a party wait until the end of suit before an erroneous claim-construction ruling can be corrected. It is not equitable to require parties to endure a protracted lawsuit through trial, particularly if appellate review of a claim construction could help clarify whether proceeding through trial is even desirable or necessary. For an issue that is virtually outcome-determinative in most cases, the unavailability of interlocutory review is unfair and inconsistent with the original aspiration of Markman to provide more certainty earlier in the case. The process would facilitate summary judgments that dispose of cases on either noninfringement or invalidity grounds. Armed with a credible claim-construction order that has gone through the appellate process, district court judges may be more willing to use summary judgment to decide the ultimate issues of infringement or validity, thereby shortening the length and reducing the costs of patent cases. The process would serve a public notice function by clearly establishing a patent’s scope. The Federal Circuit’s determination will instill greater public confidence in the legitimacy and scope of the patent for others. Other parties will know the obstacles that would need to be overcome in order to successfully challenge the validity of the patent or to otherwise establish noninfringement or whether they should be seeking a license from the patent holder. The process would reduce nuisance-type patent suits. Enabling a party to appeal an erroneous claim-construction order will reduce the number of nuisance-type patent suits, as patent holders hesitate to bring suit knowing that the scope of the patent will be subject to immediate appellate review. It will also change the economics of patent litigation to make it harder for parties to extract serial nuisance fees. The defendant’s cost of defending a meritless suit through appeal after final judgment is often so high that it is cheaper to pay off a patent holder than fight the unjust charge. Interlocutory appeals: cons On the other hand, critics offer several arguments against the proposed reform: Interlocutory appeals would further slow an already slow process by adding another layer to the litigation process. Critics contend that the district court’s stay pending the interlocutory appeal would slow the litigation process and add to costs. It is true that in instances in which the case is fully litigated, the stay may incrementally increase the time period from filing to a verdict. However, proponents could counter that in most cases, the nine to 12 months for an interlocutory review will be substantially offset by a reduction in the average total duration of patent suits due to earlier termination from settlement or summary judgment after Federal Circuit review. There will be a greater burden on the Federal Circuit if interlocutory appeal is given as a matter of right. Permitting an interlocutory appeal as a matter of right will initially add to the Federal Circuit’s workload. However, proponents counter that the clarity and certainty offered by appellate review should result in settlement in cases that, under more uncertain claim-construction orders, would proceed to trial. In the aggregate, the increased burden on the Federal Circuit will be greatly outweighed by the efficiencies gained at the trial court level. The process will result in multiple appeals to the Federal Circuit: once after claim construction and again after a decision on infringement or validity. Critics object because of the possibility of multiple appeals and the risk of inconsistent results between the interlocutory decision and post-judgment decision. However, proponents counter that the need to get the matter resolved correctly, and early, on claim construction should not be trumped by these considerations. Interlocutory appeals will result in fewer appeals after final judgment. Even when they occur, the interlocutory decision will be law of the case so that post-judgment review will normally be limited to other issues. Inconsistency between the interlocutory decision and final decision will be the exception, not the rule. The process would potentially reduce the likelihood of settlement. Critics contend that holding claim-construction hearings and providing appellate review early in litigation undercuts the increased chance of settlement presented by the specter of lengthy and expensive fact discovery, expert discovery, summary judgment and trial. However, proponents argue that the reason for such settlements is the certainty of future costs coupled with the uncertainty of the merits of the case. Providing interlocutory appellate review, they contend, will reduce the uncertainty on the merits, and thus enable settlement decisions based on more accurate information, creating a more efficient regime. Of the current bills pending on the Hill, only the Hatch bill, S. 3818, includes a provision for interlocutory appeals of claim-construction orders. Section 8 of that bill would provide for interlocutory appeal as a matter of right, much like the existing 28 U.S.C. 1292(a) scenarios. The Hatch provision also provides for staying district court proceedings pending the appeal. As set forth in the Hatch bill, interlocutory appeal is not compulsory-the parties can always leave appellate review of claim construction until after final judgment along with other issues like validity and infringement. The Hatch interlocutory appeal would be “as-of-right,” meaning that no district court certification would be required as in � 1292(b) (unsettled question of law), nor would the Federal Circuit have to agree to accept the appeal as � 1292(b) requires. Although it is not in a pending bill, another proposal calls for a modified approach that is analogous to Fed. R. Civ. P. 23(f), which provides for interlocutory appeal of class certification decisions provided the appeals court accepts the appeal. Rather than giving the Federal Circuit discretion to accept interlocutory appeals of Markman rulings, a variation of the Rule 23(f) approach would give the district court the discretion to approve/deny requests for appeals. If approved by the district court, the appeal would automatically proceed to the Federal Circuit for decision. Additionally, the district court could be given discretion on whether to stay the case pending the interlocutory review. This approach would allow the district court to function as the “gatekeeper” to deny frivolous or purely tactical interlocutory appeals designed to delay suit. The trial court is in the best position to determine the most efficient way to manage a case, and this alternative approach would give it the tools to do so. The meaning of a patent’s claims are the cornerstone determination of any patent suit. Whether the issue is infringement or validity, the merits of the case will ultimately be judged based on the scope of the claims. A mechanism for interlocutory review of Markman claim-construction decisions is one possible way to provide earlier certainty on claim construction and thus improve the efficiency of patent litigation. Andrew Cadel is managing director and associate general counsel of JPMorgan Chase & Co. Stephen Schreiner is a partner, and Ozzie Farres is an associate, in the Washington office of Richmond, Va.’s Hunton & Williams. Their practices include all aspects of IP law, including litigation, prosecution and counseling.

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