Patent Reform 2011

By Andrew Wasson

Congress moved closer towards the passage of a major overhaul to the Patent Act on March 1, 2010 with a bi-partisan manager’s amendment to S. 23 (now titled, the “America Invents Act” or in this memo, “the Act”). While failed attempts to effectuate patent reform stretch back to at least 2005, Senator Leahy introduced S. 23 on January 25, 2011. The Judiciary Committee ordered for the bill to be reported favorably with amendments on February 3, 2011. The manager’s amendment passed by a wide margin (97-2) but it appears that Senators may still present additional amendments. Even if the Senate passes the bill, however, the House of Representatives would also need to take up the issue.
The Act makes many complex changes to the Patent Act, however, the following are a few high-level and notable differences:
• Effective filing date: The Act provides for a first-to-file system in lieu of the current first-to-invent system by amending the definition of “effective filing date” to refer to the “actual filing date” of the application.
• Section 102: Abolishes § 102(a) as we know it, leaving in place a provision much like current § 102(b), but without a blanket one-year grace period. The new Act provides for certain exceptions: for example, the Act deems certain disclosures (such as disclosures made by an inventor) as not prior art if they were made during the one-year period prior to the effective filing date.
• Section 103: Section 103 no longer refers to “the time the invention was made” but rather to before the “effective filing date.”
• Interferences: The Act replaces interference practice with “derivation proceedings.” The Act permits a civil action by one patent owner against another patent owner with the same invention but an earlier effective filing date (as long as it is filed within one year of the issuance of the first patent). The Act also provides for a petition procedure before the Patent Office during pending a pending application.
• Damages: While the originally presented Act established the judge as a “gatekeeper” for the methodologies and factors used to determine damages, the manager’s amendment struck the section on damages from the proposed law. Remaining in the Act, however, is a provision stating that the failure to obtain advice of counsel may not be used to demonstrate willfulness.
• Opposition proceedings: The Act provides for inter partes review and post-grant review. Post-grant review allows a petitioner to request the cancellation of one or more claims under any of the defenses under § 282. Inter partes review allows a petitioner to request to cancel one or more claims under §§ 102 or 103.
• No best mode: The Act prohibits using a failure to disclose the best mode as a defense.
• Business method patents: The manager’s amendment also added a post-grant review program specifically allowing petitioners to challenge granted business method patents. The transitional program would start one year from the enactment date of the Act and would sunset four years following the issuance of relevant regulations.
• Preliminary injunctions: The manager’s amendment added a provision that would prevent a court from staying a proceeding in light of a post-grant review if the infringement suit was filed within three months of the patent grant.

Patently Challenging Road for Amazon

By all accounts, Amazon.com is an innovator. It pioneered online commerce in the 1990s and it was an early adopter of aggressive IP strategies, including the much maligned "one-click" patent, which was unsuccessfully enforced against Barnesandnoble.com in 2000 and is still suffering through reexamination at the request of a part time actor from New Zealand.

Recently, Amazon was back on the offensive, asserting several patents against The Discovery Channel's online store. But as the company continues to expand into neighboring areas, including the delivery of online content through its popular Kindle product, it is increasingly finding itself defending patent litigation.

Last month, Amazon was sued twice, once for patent infringement and again for copyright. The patent case was filed by Actus, LLC, a company claiming ownership of U.S. Patent No. 7,328,189 ("the '189 patent") entitled "Method and Apparatus for Conducting Electronic Commerce Transactions Using Electronic Tokens." In this case, Amazon is a co-defendant with its former patent-rival, Barnesandnoble.com. Other defendants include Apple, Ebay, US Bank, and American Express. The '189 patent allegedly covers "a mall service provider server that communicates with [a] first web server and the second web server to facilitate electronic commerce" all using "electronic tokens."

The copyright case was filed pro se, by an individual, Rene Carranza. Ms. Carranza alleges that Amazon infringed copyrighted sound recordings in a song entitled "Turnbando Muros." In this case, Amazon is co-defending with Universal Music Group and Walmart.

Overall, Amazon is defending 13 IP suits filed since January. Eleven out of 13 are for patent infringement. That surpasses the number of patent suits Amazon faced last year (7 cases total), and it is also larger than the number filed in 2006 and 2007 combined (6 in 2007 and 3 in 2006).

These numbers will tend to sharpen Amazon's voice in the current debate over patent reform. But this is really nothing new. Jeff Bezos, while directing a company that accumulated hundreds of software and business method patents in the late 1990s and since 2000, supported patent reform before it was popular.

It will be interesting to see how Amazon navigates the patently challenging road ahead. It will certainly continue to accumulate IP assets as it moves into other spaces. And it will no doubt continue to aggressively protect its core business, as evidenced by the dispute with the Discovery store. Its voice in the debate over patent reform should be informative because out of all of the reformers, it has the longest history in the movement. Moreover, it understands the need for strong patent laws that encourage innovation by providing incentives. At the same time, it is increasingly a target for infringement. Congress and the public will be well-served if they listen closely to what Amazon has to say about patent reform.

Here is a list of Amazon's IP suits filed since January.

May 26, 2009
Actus, LLC v. Amazon.com, Inc. et al, (TX Eastern) Judge Ward Patent

May 20, 2009
Rene Carranza v. Lideres Entertainment Group et al (CA Central) Judge Wu Copyrights

May 15, 2009
Amazon.com Inc v. Discovery Communications Inc (WA Western) Judge Lasnik Patent

May 12, 2009
API Technologies, LLC v. Facebook, Inc. et al (TX Eastern) Judge Ward
Patent

Tune Hunter Inc v. Samsung Telecommunications America LLC et al (TX Eastern) Judge Ward
Patent

April 6, 2009
Parallel Networks, LLC v. Amazon.com, Inc. et al (TX Eastern) Judge Davis Patent

March 25, 2009
TQP Development, LLC v. Barclays PLC et al (TX Eastern) Judge Ward
Patent

March 23, 2009
Video Professor, Inc. v. Amazon.com, Inc. (D. CO) Judge Blackburn

March 20, 2009
YIP (Winnie) v. HALLMARK GIFT LAND et al (D. NJ) Judge Hochberg
Patent

March 17, 2009
Discovery Communications Inc. v. Amazon.com Inc. (D. DE) Judge Robreno
Patent

The Tobin Family Education and Health Foundation et al v Amazon.Com, Inc.
(D. FL Middle) Unassigned Judge
Patent

February 19, 2009
Big Baboon Corporation v. Dell, Inc. (D. CA Central) Judge Wilson
Patent

Shifferaw v. EMSON USA et al (TX Eastern) Judge Ward
Patent

The count

Alcatel-Lucent v. Microsoft: A Reason to Delay Congressional Patent Reform?

The damages issue has been hotly debated among those supportive of congressional patent reform, including so-called "damages apportionment" and damages keyed to the "whole market value" of a device.

According to noted patent commentator, Hal Wegner, the case brought by Alcatel-Lucent against Microsoft embodies these damages "reform" issues and provides an opportunity for the Federal Circuit (and perhaps even the Supreme Court) to judicially consider these issues. Says Hal, "[b]ecause the matter will be pending for quite some time, this case will be perhaps more important as the EE/IT coalition’s poster child for arguments on Capitol Hill for damages reforms, making this perhaps the most important pending patent appeal."

Indeed, on March 3, 2009, Senator Spector wrote to Chairman Leahy of the Judiciary Committee asking for a postponement of patent reform hearings "until late May [2009] after the [ ] Federal Circuit has the opportunity to hear argument in Lucent Technologies, Inc. v. Gateway, Inc. The court may consider issues related to the damages debate; specifically the scope of the ‘entire market value’ rule when assessing damages."

Hal responded to Senator Spectors comments, explaining "[t]he prediction by Senator Spector is odd: The Federal Circuit has now posted its argument calendar through the end of May and does not list this case. Unless the case is taken out of turn, it is expected that the argument will be scheduled for the time frame June-August 2009."

For those unfamiliar with the history of this case, it has been called one of the most important legal battles of the modern era.

The early patent dispute involved audio coding patents. Alcatel-Lucent claimed that Microsoft's Windows Media Player infringed these patents by virtue of its MP3 capabilities. On February 22, 2007, a San Diego jury found for Alcatel-Lucent and against Microsoft. Alcatel-Lucent was awarded a record-breaking $1.52 billion in damages. On August 6, 2007, U.S. District Judge Rudi Brewster, granted Microsoft's motions for Judgment and for new trial, saying that the jury's decision was not supported by the evidence. The Judge's Order found that there was insufficient evidence both for Microsoft's liability and for the damages model used by Alcatel-Lucent. Alcatel-Lucent appealed and the Court of Appeals for the Federal Circuit heard oral arguments in July 2007. On September 25, 2008, upholding the dismissal of the case by Judge Brewster on two grounds, the CAFC that there was a joint developer and thus co-owner of one patent, which made Lucent lack standing to sue. The other patent was not infringed because Lucent failed to show that the accused algorithm was ever used.

A week after the first jury verdict, on March 2, Judge Brewster ruled in the second part of the case that Microsoft had not violated Alcatel-Lucent's patents relating to speech recognition and the case was therefore dismissed before going to trial. Alcatel-Lucent stated that it intends to appeal.

The trial in the third part of the San Diego case involved four patents. In April 2008, US jury awarded Alcatel-Lucent $367.4 million in damages after finding that Microsoft had violated two patents related to the user interface in its software. In June 2008, the trial judge upheld the jury's verdict and increased the damage award against Microsoft to $512 million to account for interest.

FTC to Hold Public Hearings on IP

The Federal Trade Commission will hold a series of public hearings beginning on December 5 "to explore the evolving market for intellectual property." The FTC conducted a series of 24 hearings in 2002-03, leading up to its October, 2003 Report, "To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy." The Notice for the new series of hearings states that there have been a number of changes in the patent system in the ensuing 5 years, specifically changes brought about by Supreme Court and Federal Circuit decisions and changes in business models and practices. The hearings will examine the impact of these changes on the patent system.

Public comments relating to topics identified in the Notice of Public Hearings are invited, with a submission deadline of February 5, 2009. The Notice, a copy of which is attached, poses nine questions on which comments are invited. Further details regarding the December 5 hearing in contained in the attached posting on the FTC website.

FTC%20Hearing%20Notice.pdf

Dozens of Letters Opposing Patent Reform Sent to Senators

A slew of brand-new letters opposing patent reform were sent to members of the U.S. Senate during the past week, and the Innovation Alliance has posted them in their resource center. Is anyone aware of other letters like these?

Here is what the group has posted so far:

Letter to Senators Lamar Alexander and Bob Corker from 14 Tennessee manufacturers opposing patent reform

Letter to Senator John Cornyn from 54 Texas employers and patent holders opposing patent reform

Letter to Senators Arlen Specter and Robert P. Casey from 29 Pennsylvania manufacturers opposing patent reform

Letter to Senators Mitch McConnell and Jim Bunning from 51 Kentucky companies and universities opposing patent reform

Letter to Senators Harry Reid and John Ensign from 19 Nevada companies opposed to patent reform

Letter to Senator Kay Bailey Hutchison from 54 Texas employers and patent holders opposing patent reform

Letter to Senators John McCain and Jon Kyl from 28 Arizona employers opposing patent reform

Letter to Senator Wayne Allard from 33 Colorado companies opposing patent reform

Letter to Senators Saxby Chambliss and Johnny Isakson from 10 Georgia employers opposing patent reform

Professor Karl Manheim of Loyola Law School Speaks to Seattle Patent Lawyers About Patent Reform Legislation

Professor Karl M. Manheim from the Loyola University Law School (LA) spoke to Seattle area patent lawyers today about pending patent reform legislation pending in both houses of Congress. Professor Manheim's talk was given at the monthly meeting of the Washington State Patent Lawyer's Association (WSPLA). Professor Manheim is the Loyola director of the Program for Law & Technology at the California Institute of Technology and Loyola Law School. The talk was very informative, covering all areas of both bills, HR 1908 and S 1145. Topics discussed included the hotly debated "first-to-file" provisions of the proposed legislation, which Professor Manheim was quick to describe as the "first inventor to file," placing emphasis on the legislation's continued requirement for filings in the name of the inventor. What was interesting to me is the fact that the original version of HR 1908 included a provision where companies could file in their own name under a representation that the inventor was under an obligation to assign. This provision was removed from HR 1908 after obvious protests from independent inventors, but according to Professor Manheim, it remains in the the Senate bill, S 1145. In fact, there appear to be many significant differences between the Senate and House versions of this legislation. Professor Manheim directed us to a chart prepared by attorneys from Foley Hoag LLP attempting to set forth, on a provision by provision basis, the differences between Senate and House patent reform legislation pending in both houses of Congress. Professor Manheim's comment on this chart was that it seemed "generally accurate," at least insofar as the legislation existed in September 2007. So far, there is no complete version of the Senate bill available and because the Senate did not establish a subcommittee on IP, discussions are being conducted within the broader Senate Judiciary Committee. Here is a link to the complete ("engrossed") version of the HR 1908 as of September 2007.

Senators Discuss Need for Urgent "Modernization" of Patent Law

Recent discussions on the Senate floor had Senators Orin Hatch (R-UT) and Patrick Leahy (D-VT) calling for urgent "modernization" of the current patent act. The following is taken from the Congressional Record, available online for anyone wanting to track the Patent Reform Act of 2007.

Sen. Patrick Leahy [D-VT]: Mr. President, I would like to take a moment, along with the distinguished Senator from Utah, a longstanding member of the Judiciary Committee and a consistent partner of mine on intellectual property issues, to discuss S. 1145, the Patent Reform Act of 2007.

Sen. Orrin Hatch [R-UT]: I would be happy to discuss this important issue with my good friend from Vermont.

Sen. Patrick Leahy [D-VT]: First, I want to express my appreciation for my colleague's efforts in working to ensure that our patent laws are modernized. We first cosponsored patent reform last Congress. We again jointly introduced comprehensive patent reform this Congress in the form of S. 1145 in April of this year. Both bills had their foundations in numerous hearings with the testimony of dozens of witnesses and in innumerable meetings with the myriad of interested participants in the patent system. The message we heard repeatedly was of the urgent need to modernize our patent laws. The leaders of the House Judiciary Committee also heeded that call to legislate, and working with them, we introduced identical, bipartisan bills. H.R. 1908 was introduced the very same day that we introduced the Senate bill.

In July, after several extensive and substantive markup sessions, the Senate Judiciary Committee reported S. 1145 favorably and on a clear and strong bipartisan vote. In the course of our committee deliberations, a great many changes were made to improve and perfect the bill. These improvements included changes on the key issues of enhancing patent quality, clarifying rules on infringement and compensation of inventors, and improving the ability of the Patent and Trademark Office to do its job well.

Sen. Orrin Hatch [R-UT]: I am proud to be a leading cosponsor of patent reform. The inventiveness of our citizens is the core strength of our economy. Our Founding Fathers recognized the critically important role of patents by mandating in article 1, section 8, of the Constitution that Congress was to enact a patent law. The Congress has periodically seen fit to update the law to ensure it meets the changing needs of both science and our economy. But the current law has not seen a major revision since 1952. Much has changed since then. The courts have struggled valiantly to interpret the law in ways that make sense in light of change. but that piecemeal process has left many areas unclear and some areas of the law out of balance. So action by the Congress is needed, and needed urgently.

Sen. Patrick Leahy [D-VT]: I agree with my distinguished colleague that now is the time to enact patent reform, and we are in good company in that belief. Our leadership has committed to taking up S. 1145 as early in the new year as possible, and we commend that commitment. I fully recognize that when the bill was reported by the Judiciary Committee, a number of members expressed a strong view that the bill should be further perfected before it comes to a vote on the floor of the Senate. I made a commitment to the members of the Judiciary Committee at the markup that I would work closely with

each of them, and other Members of the Senate, to make further improvements in the bill. I reaffirm that commitment.

Sen. Orrin Hatch [R-UT]: Thank you. I was among the members of the committee who expressed the view that while I believed we were reporting a very sound bill, further improvements should be considered. I very much appreciate your willingness to work with me and other Senators and very much appreciate your commitment.

Sen. Patrick Leahy [D-VT]: As you and I have discussed, successful enactment of patent reform requires the input of all Senators. Over the past months, since the committee reported the bill, I have had numerous meetings with both members and affected interests. I know you have too. My staff has had literally hundreds of meetings and discussions about this legislation. In the course of those meetings, it has become clear to me that several issues are on the minds of most people: ensuring compensation for infringement is fair and adequate; clarifying rules on venue; and improving the ability of parties to challenge the validity of granted patents through administrative processes.

Sen. Orrin Hatch [R-UT]: I agree with my colleague, further improvements should be considered to key provisions of the bill, including damages, postgrant review, inequitable conduct defense, and venue.

Let me just say a few words about the need to make further reforms to the inequitable conduct defense. I commend Senator Leahy for working to develop an effective solution to the problem of the inequitable conduct defense during committee deliberation in July. No doubt he has done a good job in initiating this process. We certainly share many perspectives on how to reform this area of the law, but I believe more must be done to change the use of this defense as an unfair litigation tactic.

I know some have opposed any meaningful changes in this area because of how it would affect the generic pharmaceutical industry. As a coauthor of the Drug Price Competition and Patent Restoration Act, informally known as the Hatch-Waxman Act, I certainly understand the generic drug industry, but S. 1145 is an innovator's bill. Unless we promote and protect a structure that fosters a strong and vibrant environment for innovators, there will be fewer and fewer drugs for the generics to manufacture--and all, including patients, will suffer.

Much like Senator Leahy, my staff and I have met with many interested stakeholders and individuals about these provisions, and they have stated that further refinements to these four key provisions would garner even greater support of S. 1145. I firmly believe that compromise on each of these provisions is achievable, and I know that my good friend from Vermont would agree.

Sen. Patrick Leahy [D-VT]: Over the course of early January, I invite you and our colleagues to work with me to find viable solutions. It is my intention to seek and hear the views of any and all parties and to include all interested staff and Senators. This will continue to be an open and deliberative process, with the goal of favorable Senate action as early as the floor schedule permits. I am committed to a strong and effective balanced bill. I know there are some out there who would rather see us do nothing and leave the systems now in place or merely codify current jurisprudence. I believe that following this course would be shirking our responsibility to ensuring the economic strength of our country that is built on inventiveness.

Sen. Orrin Hatch [R-UT]: I agree with your intentions and applaud your plan. I stand ready to work with you and each of our colleagues. I also agree that this should not become an excuse for further delay or for doing nothing. Unfortunately, some would like to play political football with this bill to pursue other agenda items. Make no mistake: this bill is far too important and should not fall prey to such partisan tactics from either side. The Senate has a tremendous opportunity and responsibility to further strengthen our Nation's competitiveness through meaningful patent reform.

Will Seattle Become a Favored Forum for Patent Litigation?

Ignoring patent reform politics for a moment, Seattle patent litigators should all support at least one aspect of the hotly contested Patent Reform Act of 2007--the venue provisions. Why, you ask? Because Seattle litigators representing local technology companies (or, Portland for some well known Microsoft litigators) will be able to defend cases closer to home, and the increase in patent litigation here will certainly benefit all Seattle patent litigators working on both sides of the "v."

Under the current rules, companies like Microsoft, Amazon, and Nintendo are regularly sued in placed like Beaumont, Texarkana, Marshall, and Lufkin, Texas. There is often one suit with multiple defendants. Just to put things into perspective, this post from Patent Troll Tracker explains that the number of defendants sued in the Eastern District of Texas in November 2007 was 244. That surpasses by far the number sued in Los Angeles, San Francisco/Silicon Valley, New York City, Chicago, Delaware, and New Jersey combined. In November 2007 the combined total for all those large cities was just 162.

The number for Seattle ... Are you ready ...? Are you sitting down ...? It's seven. Yes, just seven defendants sued for patent infringement in Seattle in November 2007. In fact, Seattle is not even on pace to break 50 patent cases total (not so sure on the total defendant count, but it is not likely to be more than 100. FYI, I'll be reporting on District patent litigation statistics in the first part of January 2008, comparing them to 2006, and Nationally for 2007).

This doesn't mean that companies and lawyers here aren't engaging in a lot of patent litigation--they are. Last month Amazon, Microsoft, Real Networks, and Nintendo were all targeted by patent infringement lawsuits, but it is just not happening here. Congress hopes to change all that.

If the proposed patent venue rules pass, the Western District of Washington will become a favored forum for patent infringement plaintiffs because many of their targets live here.

On July 17, 2007, House Report 1908 set forth some pretty radical changes to the current liberal venue provisions, aimed at keeping defendants from being sued in places like Marshall, Texas.

Under the current proposed bill, venue for a patent action is appropriate in only the following judicial districts: (1) the district where the defendant has its principal place of business or where it is incorporated; (2) for foreign corporations with a U.S. subsidiary, the district where the defendant’s primary U.S. subsidiary has its principal place of business or where it is incorporated; (3) The district where the defendant has committed a substantial portion of the acts of infringement and has a regular and established physical facility that the defendant controls and that constitutes a substantial portion of the defendant’s operations; (4) the district where the primary plaintiff resides, if the primary plaintiff in the action is an institution of higher education (as defined by 20 U.S.C. § 1001(a)); (5) the district where the plaintiff resides, if one of the following is true: (i) the plaintiff or a subsidiary of the plaintiff has an established physical facility in the district dedicated to research, development, or manufacturing that is operated by full-time employees of the plaintiff or such subsidiary; (ii) or the sole plaintiff in the action is an individual inventor who is a natural person and who qualifies, at the time the action is filed, as a micro entity under 35 U.S.C. § 124.

Even if venue in a particular district or division is appropriate in a patent case, a court may transfer the case to another district or division if the following is true: (i) it is a district or division where the defendant has substantial evidence or witnesses; and (ii) it is a district or division where venue would be appropriate under 28 U.S.C. § 1391, if transfer would be appropriate under 28 U.S.C. § 1404.

Finally, a party to a patent suit may not by “assignment, incorporation, or otherwise” manufacture venue in a “specific district court.”

On July 19, 2007, the Senate Judiciary Committee reported out S1145, which also limits a patentee’s choice of venue, although with a number of variations to HR1908. The Senate Bill (1) further limits venue for a case in the district where the primary plaintiff resides; (2) provides for transfer to districts in cases of hardship for a defendant with respect to substantial evidence of the plaintiff; and (3) interjects consideration of hardship to a plaintiff in determining whether transfer of a patent case is valid.