Mark A. Lemley June 14, 2005 Senate testimony on patent reform entire microprocessor until Intel can retool its entire fab to avoid infringement. Small wonder, then, that patentees regularly settle with companies in the information technology industries for far more money than their inventions are actually worth. The companies are paying holdup money to avoid the threat of infringement. That's not a legitimate part of the value of a patent; it is a windfall to the patent owner that comes at the expense not of unscrupulous copyists but of legitimate companies doing their own R&D. The question is how to accommodate these competing concerns. H.R. 2795 takes a twopronged approach. First, it provides that courts have the power to stay injunctions pending appeal if they find that doing so won't irreparably harm the patent owner. This has long been the law, until the Federal Circuit's decision this year in MercExchange v. eBay suggested stays are inappropriate. The old rule permitting stays caused no mischief. Restoring the equitable power of courts to stay injunctions is a good idea. It will give companies time to retool their factories to avoid infringement. At the same time, the irreparable harm limitation ensures that patent owners that actually need injunctive relief, like pharmaceutical companies litigating against generics, will be entitled to get it. The second change H.R. 2795 would make is to require a court to consider the fairness of injunctive relief to all parties in deciding whether to issue an injnction at all. This is a fairly minimal change to the statute, which already provides that courts should only issue injunctions "consistent with principles of equity" and "on such terms as they deem reasonable." 35 U.S.C. § 284. In short, permitting courts to consider equitable principles in deciding whether to grant injunctions was what Congress intended in writing the 1952 Patent Act; it's just that the Federal Circuit has strayed from the statutory language. The "fairness" provision merely highlights for the courts the duty they already have in the existing statute. There are reasonable concerns, however, that a general "fairness" exemption could be misused to deny patent owners injunctive relief when they should in fact be entitled to it. While it is possible that this will happen in U.S. courts, the greater risk is that developing countries will seize on this language to try to deny any rights to pharmaceutical patent owners. Because of this concern, I think it preferable to try to tackle the troll problem more directly while protecting the general right to injunctive relief. Thus, rather than grant general powers to consider fairness, I would specify a limited set of cases in which courts could - not must, but could - deny injunctive relief. A logical way to proceed would be to take the language H.R. 2795 introduces to deal with a similar problem in the context of damages, modifying it slightly to further insure that the normal right to injunctive relief is protected both in cases where the patentee is in the market and where the infringer acts willfully. Thus, I propose that section 283 should be modified by adding the following language in place of the first sentence of H.R. 2795: "In determining the right to injunctive relief of a patent owner who does not participate in the market for a patented invention against an infringer who did not act copy the invention from the patentee or otherwise act willfully, the court shall consider, where relevant and among other factors, the portion of the defendant's product that constitutes the inventive contribution as distinguished from other features of the product or improvements added by the infringer." Mark A. Lemley June 14, 2005 Senate testimony on patent reform Section 8: Continuation Applications Summary: Abuse of continuation practice remains a significant problem in the patent system. H.R. 2795 as currently written does not adequately address that problem. While there are some legitimate reasons to use patent continuation practice, there are also a number of problematic reasons to do so. I have detailed those problems elsewhere; see Mark A. Lemley & Kimberly A. Moore, Ending Abuse of Patent Continuations, 84 B.U. L. Rev. 63 (2004). H.R. 2795 as currently drafted gives the Director authority to limit continuations, but does not compel him to act. Because this is such an important issue, I would prefer to see Congress act to limit abuse of patent continuations, either by restricting the total number of continuations that can be filed, or by preventing patentees from broadening their patent claims during a continuation application. At a bare minimum, however, even if Congress does not act more directly to forbid abuse of continuations, Congress should ensure that the Director acts by changing "The Director may" to "The Director shall". It should also draft the statutory provision in such a way that the PTO actually limits the abuse of continuation applications, rather than merely permitting such use so long as the applicant pays a fee. Mark A. Lemley June 14, 2005 Senate testimony on patent reform Section 9: Publication, Prior User Rights, and Post-Grant Opposition Summary: Requiring publication of all patent applications, expanding prior user rights, and creating a post-grant opposition system are all important changes that will improve the patent system. The provisions of H.R. 2795 need no revision. Section 9 of H.R. 2795 contains three important reforms that are critical to making a firstinventor-to-file system work. If the first inventor to file system is to work, it is absolutely essential that the patent system require prompt publication of all U.S. patent applications. The definition of who is first to file in section 102(a)(2) of H.R. 2795 treats as filings only issued patents and patents published under section 122(b). Because section 122(b) currently permits some patent applications to avoid publication, it would eliminate those applications both as prior art and for priority purposes. A small inventor who filed such an application would not have their filing date count for priority purposes if it were unpublished. Section 9 of H.R. 2795 solves this problem. Second, the move to first inventor to file makes it important that the bill be amended to provide prior user rights for those who engage in non-public use before the patentee files his application. The bill eliminates the existing categories of non-public prior art. Doing so risks permitting more, not fewer, patents to issue to people who were not truly the first inventor. Granting prior user rights to those who were already using the invention is a reasonable counterweight, because it gives the owners of such secret prior art at least the right to continue using technology they invented. The modifications to section 273 solve this problem by expanding a limited right that has been in the law for six years without creating any problems. Finally, post-grant oppositions are a valuable addition to the patent system that will help identify and weed out bad patents without the cost and uncertainty of litigation. The post-grant opposition bill is well-written and will significantly improve the patent system. H.R. 2795 adds new section 323, which permits a post-grant opposition to be filed either within 9 months after a patent issues or within 6 months after the opposer is notified of infringement, whichever comes later. The addition of the second, 6-month window has been controversial in some circumstances, but it is critical to the success of the post-grant opposition procedure. Because of the long timelines associated with many patents, and the fact that patent trolls often wait for years after patents issue before asserting them, limiting opposers to a 9month window after the patent issued would render post-grant opposition ineffective for the majority of patents. An example is pharmaceutical patents. Because of the long FDA approval process, potential generic manufacturers will likely have no idea at the time a patent issues whether the drug it covers will survive clinical trials and be approved for sale. By the time they know which patents are actually important, it would be too late to oppose them. This problem may extend to other industries as well. Submarine patentees and other trolls often sit on patent rights for many years before asserting them against manufacturers. In order to take advantage of the bill's opposition procedure, those manufacturers would have to guess which of the millions of patents in force might become important a decade from now. Since only 1% of patents are ever litigated, forcing them to make such a guess would make the system worthless to most of the people who would use it. Mark A. Lemley June 14, 2005 Senate testimony on patent reform H.R. 2795 solves this problem appropriately, by including a second window for defendants who were not on notice of the patent when it issued. This gives a short period in which to oppose patents once they are brought to a company's attention, without permitting undue delay. Mark A. Lemley June 14, 2005 Senate testimony on patent reform Other Matters Finally, there are a few other matters not included in H.R. 2795 that deserve Congressional attention. Experimental Use Defense: Traditionally, courts have not held defendants liable for using a patented invention in the course of experimentation to try to design a new product that does not infringe the patent. That changed in 2002, when the Federal Circuit essentially eliminated that defense. Major bar groups such as AIPLA have endorsed the creation of a limited experimental use defense, and I agree that doing so would be a good idea. In doing so, however, Congress should take care not to eliminate the incentives for investing in research tools. While experimenting on a commercial product in order to improve on it or design around it is legitimate activity that deserves to be exempt from patent infringement, the use of a patented research tool for its intended purpose in research should not be exempt from patent infringement. Fee Diversion. Every year, Congress diverts user fees paid by patent applicants away from funding the PTO to the general federal revenue. Title III of the COMPETE Act, S. 1020 (Sen. Coleman) would end that diversion. I support ending fee diversion. In an environment where there are numerous reports of bad patents issuing, we should make sure the PTO has the resources to do its job. I want to emphasize, however, that merely giving the PTO more money is not a substitute for real reform of the patent litigation process. No reasonable amount of money spent at the PTO will end the problem of patent trolls so long as they have incentives to game the system. Federal Circuit Jurisdiction: The Supreme Court's interpretation of the patent jurisdiction statute, 28 U.S.C. § 1338(a), in the Vornado v. Holmes case has eliminated the uniformity that came with the Federal Circuit hearing all patent appeals. After Vornado, regional circuit courts and even state courts are now hearing some patent cases. The Federal Circuit Bar Association has proposed statutory changes to section 1338(a) that would restore to the Federal Circuit exclusive jurisdiction over patent cases, and that proposal was the subject of a hearing in the House in March 2005. I support the Federal Circuit proposal. о |