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Major changes in the patent law (Title 35 of the U.S. Code) seem to require a gestation period extending over at least two congresses. A new and unannounced patent office policy may help end the current gestation period. But two other major stumbling blocks remain. Even before the major studies of the patent system by the National Academy of Science and the Federal Trade Commission in 2003 and 2004, most observers of the patent system saw the need for some major changes in U.S. patent law. The U.S. Patent and Trademark Office (PTO) has been overwhelmed by the sheer number of new patent applications filed (the backlog is now 1 million and growing) and by the similar growth in published information. Patent infringement litigation, always complex, has become more so, with charges of inequitable conduct (aka, fraud on the patent office) becoming ever more common and ever more complicated. In October 2006, just before the end of the last Congress, Sen. Patrick Leahy, D-Vt., and Rep. Henry Waxman, D-Calif., introduced the last of a series of bills that successively evolved toward the Leahy-Waxman patent law reform package. That package, likely to be re-introduced in the current Congress in much the same form, reflected a surprising consensus view of congressional staff (apparently reflecting in turn the views of the more relevant member of Congress) and industry and other interest groups, on many significant points, including the conversion from a first-to-invent to a first-to-file system. This apparently is no longer the contentious issue it once was, even though some private inventor groups and university interests continue to object. The reality is that even modestly sophisticated inventors know that for international protection, they are already operating in a first-to-file system. The need for a patent opposition system, by which the validity of issued patents could be challenged in the PTO, is also generally agreed upon and was included in the Leahy-Waxman bill. (One detail in how that system would be implemented remains highly controversial, however; that detail is described below.) Unfortunately, while the major interest groups agree on many of the proposed patent law changes, some of which are critical, these groups are reluctant to allow passage of a bill embodying only these agreed upon changes. If that were to happen, Congress would not likely be willing to revisit patent law reform for some time. This would leave several important and controversial issues unresolved. Passage of any bill therefore depends on either the industry and interest groups arriving at a consensus, agreeable to Congress, on the remaining controversial issues, or Congress choosing from the available options, notwithstanding any industry objection to the option chosen. A major step toward passage of the “patent reform package” may have been taken if, as informal sources indicate, the PTO is now urging Congress to excise inequitable conduct from the main body of the patent infringement litigation process- as industry and professional groups have advocated for some time. The PTO’s interest in this part of the legislation is driven by its enormous backlog of pending patent applications. Those who have studied the patent system and the PTO itself are convinced that more active participation by patent applicants in the patent examination process will help to solve the backlog problem and improve the quality of patents being issued. But requiring patent applicants to be more forthcoming in providing prior art to the patent office and helping the patent office understand which prior art is more pertinent and why and how it relates to the invention, as the patent office has tried to do by proposed rule changes, will never work as long as the same patent applicant may be criticized and later accused of fraud almost regardless of what it says and does in the examination process. No other country in the world includes this damned-if-you-do,damned-if-you-don’t conundrum. In the Leahy-Waxman bill, inequitable conduct, along with willfulness � two aspects of patent infringement litigation that inevitably acerbate the complexity of patent litigation � are neatly excised from the initial litigation when validity and infringement are the major issues. Instead, that proposed legislation prohibits even pleading of inequitable conduct until after validity and infringement have been found. In the past, the judiciary and many litigators have strenuously opposed such provisions on the premise that Congress should not interfere with the discretion of courts as to how cases are tried. Many judges object to what may be regarded as a legislatively dictated piecemeal litigation process. Whether those objections continue to deter Congress from enacting the inequitable conduct provision remains to be seen, but the influence of the PTO on this point may be decisive. Thus, its newly adopted position may be significant. Two other major issues on which competing interests have been unable to reconcile their differences are the following: patent infringement damages (whether they should be limited as the information technology or IT industry, including software and electronics companies, would like); and the so-called “second window” option in the proposed patent opposition system (which the IT industry feels is necessary and the pharmaceutical industry considers an unreasonable burden). Both of these issues revolve around the relationship of patents to products in those respective industries. The Leahy-Waxman bill included a provision limiting patent-infringement damages for infringement of any patent by requiring a finding of the relative contribution of the invention covered by that patent to the value of the final product. This follows the view of the IT industry, in which the product life cycle tends to be relatively short, the improvements that are patented are incremental, and the ultimate product typically embodies a m�lange of such improvements in their methods of manufacture, their materials of construction, their circuitry, their software, etc. The protection of each of these incremental improvements is important, in the view of the IT-industry, but the contribution of value of each incremental improvement is limited and unpredictable when individual patents issue. Thus, according to the IT-industry view, patent damage awards should take into consideration this incremental contribution to value rather than the total value of the final product. For the same reasons, the IT-industry view is that its manufacturers should have access to the patent opposition procedure throughout the life of a patent. In this view, the manufacturer is not likely to be able to identify from the myriad of patents issuing in the relevant field, any particular patent that may later be found relevant. It is for this reason that, in contrast to opposition system proposals limiting the time for oppositions to a limited period following patent issuance, the IT view is that a second window of opportunity to file an opposition is required. This “second window” would permit an opposition filing whenever a patent is first identified to be relevant. Drafters of the Leahy-Waxman bill apparently agreed with this view, and a “second window” of opportunity was provided in the opposition system that would have been instituted under that bill. The pharmaceutical industry has strenuously opposed these provisions for damages based on incremental contribution to value and a second window for filing an opposition to an issued patent. Its reasoning is that pharmaceutical products involve extraordinarily long and expensive research and development efforts. The culmination of these efforts, if successful, leads to a product with a life cycle that often exceeds that of the few patents covering the product. According to this view, allowing a prospective infringer to wait until the product is mature to challenge one or more of those few patents (by virtue of the “second window” in the patent opposition procedure) and then, if the opposition fails, escaping a large damage award (by virtue of the proposed damage limitation provision) disincentivizes the R&D efforts necessary to develop new drugs. This may be seen as a societal cost that must be balanced against the value otherwise attributable to the damage limitation and opposition “second window” features of the Leahy-Waxman patent reform package. Assuming the patent-reform package introduced in the new Congress mirrors that of the Leahy-Waxman bill, we may expect a lively debate on these issues. But there is some feeling that the gestation period is over, and this may be the Congress that enacts the most significant changes in U.S. patent law since 1952. Among the changes that seem likely, in addition to “first to file” rather than “first to invent,” the institution of a post-grant opposition system, and the required deferral of inequitable conduct and willfulness to post trial, we will see “prior art” become anything that is “publicly known” (that should generate some interesting litigation), and the elimination of interferences except in cases of alleged derivation. Less certain are provisions in the Leahy-Waxman bill that would have expanded prior user rights to include patents other than process patents and that would have limited venue for patent infringement to districts where one of the parties resides or where an act of infringement has occurred and the defendant is doing business there. Obviously, much remains to be decided. It would be most unfortunate if Congress fails to enact patent reform that it has been discussing now for over four years, because to a great extent, many of the changes are widely accepted as beneficial and necessary to the patent system. This seems now to be generally recognized, so this may be the year of real patent reform. If so, the next few years will be interesting. PAUL F. PRESTIA cofounded and presently manages the intellectual property law firm of RatnerPrestia. While his 40-plus years of experience includes a variety of intellectual property litigation, his current practice is focused largely on IP counseling for risk management, due diligence, strategic IP protection and IP value realization. He is a past president of the Philadelphia Intellectual Property Law Association, a founder and first president of the Benjamin Franklin American Inn of Court, and a Fellow and former Director of the American Intellectual Property Association.

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