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In October 2004, a bill was introduced in the House of Representatives to propose sweeping changes to the Patent Laws which would generally make it more difficult to obtain or exploit patents. H.R. 5299 — The Patent Quality Assistance Act of 2004 [FOOTNOTE 1] — is co-sponsored by recently re-elected Representatives Howard Berman, D-Calif., and Rick Boucher, D-Va., of the House Judiciary Subcommittee on Courts, the Internet and Intellectual Property. The stated purpose of the act is “to improve patent quality, deter abusive practices by unscrupulous patent holders, and provide meaningful, low-cost alternatives to litigation for challenging [ ] patent validity.” [FOOTNOTE 2] In a statement since introducing the bill, Rep. Berman’s office recently expressed his intention to reintroduce the bill in the current Congress. In the wake of congressional hearings and reports published by the FTC and the National Academy of Sciences, the PQAA would restrict injunctive relief for patent infringement and attempt to defang indiscriminate patent notice letters which often trigger potential willful infringement liability. [FOOTNOTE 3] The bill would also create a post-grant opposition procedure in the U.S. Patent and Trademark Office, expand third-party submissions during prosecution, and soften estoppel provisions applicable to inter partes re-examination practice. Finally, the PQAA would codify a presumption of obviousness for certain business method inventions. TRADITIONAL INJUNCTIVE RELIEF One of the most provocative changes is proposed to 35 U.S.C. �283, which provides for injunctions in patent cases. The right to exclude others from practicing a patented invention has traditionally been viewed as the heart of the grant itself — essential to encourage research investment and foster innovation. When infringement and validity are established, the courts presume irreparable harm, and the general rule is that a permanent injunction will issue “absent a sound reason for denying it.” [FOOTNOTE 4] This remedy can stop a business in its tracks and remove from the marketplace products which serve the public interest, albeit unlawfully. The threat of the remedy is often enough to force large settlements between accused infringers and patentees who themselves may not have commercialized the patented invention. Section 6 of the PQAA takes aim at so-called “patent trolls,” entities that acquire patents with no intention of commercializing the technology themselves, but for the sole purpose of licensing them to others who have. The PQAA would amend �283 to preclude issuance of any injunction absent a showing of irreparable harm. Moreover, it would abolish the presumption of irreparable harm in the context of both preliminary and permanent injunctions and expressly require the courts to consider “the extent to which the patentee makes use of the technology claimed by the patent” as part of an overall balancing of equities. The PQAA seeks to decrease the bargaining power wielded by patent trolls and ensure that injunctions which do issue serve the public interest. These changes might well have a significant impact on licensing negotiations. However, critics note that �283 already provides that injunctions are to be granted “in accordance with the principles of equity” and that the proposed language would place too much emphasis on commercialization and lead individual inventors to question the value of patent protection. This, of course, could undermine the very purpose of the patent laws, to encourage public disclosure of private innovation. PATENT NOTICE LETTERS The PQAA also addresses the effect of patent notice letters. Large companies routinely receive these missives referencing the author’s patents and the recipient’s products. While often carefully drafted to avoid creating declaratory judgment jurisdiction, the purpose of the patent notice letter is usually to raise the spectre of litigation and secure licensing revenue. Patent notice letters are inexpensive to write, but expensive to field since they generally trigger the duty of due care to avoid infringement and potentially subject the recipient to willful infringement liability. Recipients often feel compelled to seek an opinion from outside patent counsel or to take a license. Patent notice letter recipients got some relief in the recent Knorr-Bremse decision when the U.S. Court of Appeals for the Federal Circuit held that no adverse inference can be drawn in the willfulness context from the failure to obtain or disclose an exculpatory opinion of counsel. [FOOTNOTE 5] Section 5 of the PQAA would add to Knorr-Bremse by providing that such patent notices will not trigger willfulness liability “unless the notice would cause the recipient to have standing in a proceeding pursuant to a motion for declaratory judgment. … ” In doing so, the PQAA seeks to discourage indiscriminate issuance of such letters by patent holders unwilling to risk a declaratory judgment action and to provide cover for notice recipients who find it difficult and expensive to fully investigate every notice letter dropped over the transom. While certainly less drastic than the recent NAS proposal to do away with the willful infringement doctrine entirely, it is unclear what the effect of this provision would be. Would patent notice recipients feel confident enough in their assessment of the standing question to ignore such letters? Would patent opinion practice be supplanted or supplemented with standing opinions? And what effect, if any, would the new legislation have outside the notice letter context? Does the PQAA limit willful infringement to cases in which formal notice is given sufficient to create a case or controversy? If not, could one actually have a greater duty to investigate a patent listed on a known competitor’s product than a patent that same competitor expressly calls out in written correspondence? NEW POST-GRANT OPPOSITION The PQAA also proposes changes in the PTO. Currently a party seeking to challenge the validity of an issued U.S. patent can request re-examination in the PTO or file a declaratory judgment action in the district courts. Re-examination is, however, limited to validity challenges based on a prior patent or written publication. There is no opportunity for discovery, and a third party who loses an inter partes re-examination is thereafter estopped from contesting validity on any ground that was or could have been raised during re-examination. 35 U.S.C. �315(c). This is particularly significant since re-examination proceedings can identify and expose a party to suit for infringement. Litigation allows pursuit of the full range of invalidity theories, but is expensive and only available when the case or controversy requirement is met. Section 2 of the PQAA closely tracks a proposal made by the American Intellectual Property Law Association and would provide an alternative mechanism through which any interested party could — within nine months of its grant or within six months of receiving a notice of infringement — bring an opposition proceeding in the PTO. The opposer would bear the burden of proof by a preponderance of the evidence and would be permitted to contest validity for failure to satisfy any of the requirements for patentability set forth in 35 U.S.C. ��101, 102, 103, 112, and 251(4), with certain exceptions, as well as for double patenting. [FOOTNOTE 6] Under certain circumstances, the opposer would be able to keep its identity secret. The parties would submit factual and expert opinion evidence by way of affidavit and would have the right to cross-examine each other’s affiants. The patentee would have the right to amend its claims, and a panel of three administrative patent judges would be charged with making a final determination within one year that is appealable to the Federal Circuit. Estoppel would apply only to issues of fact or law actually and necessarily decided in the opposition. The PQAA would also amend 35 U.S.C. �315 to similarly limit estoppel in inter partes re-examination. Proponents of such measures believe that new post-grant opposition and retooled re-examination procedures would provide viable, cost-effective alternatives to litigation. But some doubt the wisdom of relaxing estoppel provisions and thus potentially subjecting patentees to serial validity challenges from the same party. Questions also surround the ability of the PTO to handle the potential increase in business. THIRD-PARTY PARTICIPATION The PQAA would also amend 35 U.S.C. �131 to broaden third-party submissions of prior art during the primarily ex parte prosecution process. The current practice limits third-party submissions to a listing and copy of up to 10 patents and/or publications. 37 C.F.R. �1.99. These restrictions have led some to doubt the utility of the current process and take their chances with potential post-grant litigation during which they will have a full opportunity to present their views, unencumbered by the strengthened presumption of validity which would attach to the references at issue if first made of record during prosecution. If enacted, �4 of the PQAA would broaden the types of information eligible for submission to include evidence of prior knowledge, use, or sale and actually require the submitting party to set forth the teaching and applicability of each reference through sworn declaration. Proponents believe this would help ensure the best prior art finds its way to the examiner and ultimately improve the quality of issued patents. Opponents cite the increased burden on the PTO and potential for abuse by third parties interested in delaying the issuance of patents to their competitors. METHODS PRESUMED OBVIOUS? Finally, the PQAA addresses patents on business methods, which many have complained are too often issued for the “mere computer implementation of previously known inventions.” [FOOTNOTE 7] Over the years since the Federal Circuit’s State Street Bank decision, [FOOTNOTE 8] Congress, the PTO and the patent community have taken a number of steps to address the issue, including the American Inventor’s Protection Act of 1999 and numerous PTO reform initiatives such as “second pair of eyes” review, etc. [FOOTNOTE 9] Section 8 of the PQAA would go further and amend 35 U.S.C. �103 to establish a presumption of obviousness for business method patents where the only significant difference between the combined teachings of the prior art and the claimed invention is that the claimed invention is appropriate for use with a computer technology. The proposal itself is not new but was part of legislation considered in 2001. [FOOTNOTE 10] Opponents of the measure reason that the goal itself — preventing patents on mere computer implementation of known subject matter — can be achieved through the proper application of 35 U.S.C. ��101, 102, 103 and 112, and without the need for disparate statutory treatment of business method patent applications which may conflict with U.S. treaty obligations under TRIPS. [FOOTNOTE 11] CONCLUSION The patent community has yet to formally weigh in on the PQAA. Many including the ABA, AIPLA, PTO, FTC and NAS have previously signalled support for some form of post-grant opposition. However, the testimony of AIPLA’s representatives at hearings in 2001 and 2003 concerning similar reform initiatives suggests skepticism toward the balance of the PQAA.[FOOTNOTE 12] One final concern of most, if not all, of these groups is whether the PTO is being adequately funded to address patent quality issues. And while Congress recently passed an omnibus spending bill which increases PTO funding and fees, it has again failed to stop diversion of PTO revenues to other government agencies. John D. Carlin ([email protected]) is a partner at Fitzpatrick, Cella, Harper & Scinto, primarily focusing on patent litigation matters. Elizabeth F. Holowacz ([email protected]) is an associate at the firm and her practice focuses on prosecution and opinion work. ::::FOOTNOTES:::: FN1 Full text available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_cong_bills&docid=f:h5299ih.txt.pdf (last visited Dec. 7, 2004). FN2 150 Cong. Rec. E1935-03 (daily ed. October 11, 2004) (speech of Rep. Berman). FN3 Federal Trade Comm’n, “To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy” (2003). National Research Council, “A Patent System for the 21st Century” (2004). FN4 Richardson v. Suzuki Motor Co., Ltd., 868 F.2d 1226 (Fed. Cir. 1989), cert. denied, 493 U.S. 853 (1989); Smith Int’l, Inc. v. Hughes Tool Corp., 718 F.2d 1573 (Fed. Cir. 1983), cert. denied, 464 U.S. 996 (1983). FN5 Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004). FN6 The new legislation would not permit an opposition based on failure to satisfy the best mode requirement or the provisions of 35 U.S.C. ��102(c), 102(f) or 102(g). Such theories often require extensive discovery which, if permitted, would largely defeat the ultimate purpose of providing a low cost alternative to litigation. FN7 150 Cong. Rec. E1935-03 at E1936. FN8 State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), cert. denied, 525 U.S. 1093 (1999). FN9 For a more detailed history, see, M.P. Sandonato, et al., “Current Developments in Business Method Patent Law”, E-Commerce Law, vol. 1, no. 9 (2001). FN10 Full text available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_cong_bills&docid=f:h1332ih.txt.pdf (last visited Dec. 7, 2004). FN11 M.P. Sandonato, p. 4. FN12 Business Method Patents: Hearing Before the Subcomm. on Courts, the Internet, and Intellectual Property of the House Comm. on the Judiciary, 107th Cong., 1st Sess. 34-50 (2001) (statement of Michael K. Kirk, Ex. Dir., AIPLA). Patent Quality Improvement: Hearing Before the Subcomm. on Courts, the Internet, and Intellectual Property of the House Comm. on the Judiciary, 108th Cong., 1st Sess. 5-15 (2003) (statement of Charles E. Van Horn, on behalf of AIPLA).

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