The recent passage of patent reform bills by the House and Senate has raised expectations for enactment a new law this year, but there’s lingering controversy about whether the patent office can keep all its fees and about provisions allowing for new patent challenges.

On June 23, the U.S. House of Representatives passed The Leahy-Smith America Invents Act, H.R. 1249, by a 304-117 vote. The vote follows the U.S. Senate’s March 95-5 vote for S.23, but differences between them mean the bills must be reconciled before becoming law.

Both bills would change the U.S. patent system from a first-to-invent system into a first-to-file system.

But the House bill, unlike the Senate’s, doesn’t ban fee diversion, the oft-criticized practice of diverting U.S. Patent and Trademark Office revenue that exceeds the agency’s budget to other government programs. The House bill calls for fees to be deposited into an account called the U.S. Patent and Trademark Office Public Enterprise Fund, but industry insiders say its unclear how the PTO could access those funds.

The American Intellectual Property Law Association ended up supporting both the House and Senate bills, while expressing strong reservations about the House fee funding compromise, said AIPLA executive director Q. Todd Dickinson. “The problem is how does the PTO access those funds reasonably and in a timely manner?,” Dickinson said.

“I don’t think anyone in stakeholder community is happy about it,” he said. “While we appreciate the comments on the House floor by the appropriations leadership and the house leadership about the intention to keep all the funds in the office, we’d like to see more it be more definitive in terms of the access.”

PTO director David Kappos’ statement following House passage also expressed concerns about the funding issue. Kappos said that the agency is “encouraged by the statements of so many members of Congress calling for the USPTO to have full access to all of its fee collections….Full funding of the USPTO is necessary for the USPTO to successfully implement this legislation and to more effectively perform its core mission.”

Both bills seeks to rein in what are known as false patent marking suits — whistleblower suits that accuse companies of falsely labeling their products as covered by patents. Both propose to allow only the U.S. government to file suits to recover the statutory penalty. Competitors injured by another party’s false marking could sue for damages equal to the competitive injury.

Provisions designed to rein in patent infringement damages from litigation were stripped from both final bills.

The bills also include controversial, although not identical, provisions to challenge patents. Each of the bills includes new post-grant review processes allowing challenges to issued patents for a set period of time. They would also change the inter partes re-examination process, which can be triggered by anyone who is not the patent owner, including an alleged infringer. Both bills allow for inter partes review either after the PTO grants a patent or after the post-grant review.

Steven Moore, an intellectual property litigation partner in the Stamford, Conn., office of Kelley Drye & Warren, said that any final bill that’s close to the versions passed by the Senate and House would probably make patents worth a lot less.

Moore said each of the bills would create too many avenues for third parties to disrupt and delay a filer’s patenting process. “If I really don’t want your patent around, I will put you into a post-grant challenge or an opposition,” Moore said. “If you can get out of your opposition, I’m going to throw an inter partes re-examination against you.”

The end result is more opportunities to game the system, Moore said. “I don’t see how an independent inventor could afford this process,” Moore said.

“This bill that passed the House is basically a mess,” said Dale Carlson, who chairs the patent prosecution practice group at Wiggin and Dana in New Haven, Conn. “It creates a confusingly large number of administrative procedures [to challenge patents] that are going to co-exist for a period of time and that are going to confuse the users of the system and patent lawyers,” said Carlson, who recently wrote an opinion piece critical of the legislation.

Carlson also said adding more procedures will put pressure on the PTO, which is already grappling with a large application backlog. The PTO had a backlog of 703,175 applications as of the end of May 2011, according to PTO statistics. “[Now] we have a much more complex set of laws coming into effect,” Carlson said. “It’s going to make it more difficult for the patent office to operate.”

Dickinson said the AIPLA supports the additional patent review procedures in the bills. “The thing that saves them from being overly burdensome is that they’re time limited,” Dickinson said. “[But] getting and keeping the funds is critical to ensure the office can maintain that schedule.”

Other intellectual property groups also had a more favorable initial reaction to the bill.

The Intellectual Property Owners Association “believes the legislation contains several very important provisions for improving the patent system,” said IPO’s executive director, Herbert Wamsley. “These include the sections on first-inventor-to-file, post-grant and inter partes review proceedings, and curbing frivolous false patent marking suits.”

The Biotechnology Industry Organization issued a statement indicating that it would work with House and Senate leaders to get a final bill passed and enacted this year. “Small biotechnology companies rely heavily on their patents to attract investment to fund the lengthy and expensive research and development process necessary to bring breakthrough medical therapies and other products to patients and consumers,” stated BIO’s president and chief executive officer, Jim Greenwood. “Strong intellectual property protection is critical for these companies.

Sheri Qualters can be contacted at squalters@alm.com.