This article was first published in the October 4, 2006 edition of The Legal Intelligencer.

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Reforming the Patent System

 

Extended studies and reports by the Department of Justice, the Federal Trade Commission and the National Academy of Sciences a few years ago validated the constitutional assumption that patents incentivize progress, thus justifying the grant of exclusive rights to patentees. But they also pointed to a number of problems in the patent system and proposed a variety of fixes, none of which have been implemented to date. The U.S. Patent and Trademark Office (the PTO), Congress, the Supreme Court and the U.S. Court of Appeals for the Federal Circuit all seem to be addressing these problems independently. An overview of their independent approaches and the prospective results provides an interesting perspective.

 

Two of the most serious deficiencies in the patent examination system are the inability of the PTO to identify the best priority against which patentability is judged and the inadequacy of the PTO examining corps to keep up with the ever increasing number and complexity of new applications. Lynda Calderone, in her Legal Intelligencer IP Law Column of September 20, reviewed the PTO's proposed new Strategic Plan by which the PTO proposes to confront its problems. That plan reflects the PTO view that it cannot merely hire itself out of the problem by increasing the number of patent examiners but rather, it must also change significantly the rules of patent examination. This is reflected in a recently proposed package of rule changes, designed, among other things, to reduce the number of patent claims to be examined, to reduce the number of continuation applications filed, and to require more input from patent applicants about the prior art to which their inventions should be compared. Meanwhile, without benefit of any rule change or public announcement, the PTO has, in the opinion of many patent office practitioners, become much more restrictive in its views of the patentability requirements of 35 USC §103 and 35 USC §112, i.e., more clearly than ever, the claims must clearly define an invention which would have not have been obvious in view of the prior art and which are properly supported by the patent specification. With these unannounced but already implemented changes, the PTO seems to be taking its cue from selected decisions of both the Supreme Court and the Federal Circuit. With the proposed rule changes, the PTO seems to be responding to the outcry over its ever increasing backlog. But the combination of these changes will necessarily prolong the patent examination process, acerbating the backlog problem. Many practitioners, myself included, doubt that these changes will significantly enhance the predictability and efficiency of the system.

 

With respect to the PTO's view that continuation applications are a major contributor to its backlog problem, a more direct alternative would be to modify 35 USC §120 to eliminate continuation applications completely (but still permit divisional applications). Continuation and continuation-in-part applications accounted for over 10% of the U.S. applications filed in 2005. Eliminating these applications would be considered a drastic change by U.S. practitioners but few, if any, other countries in the world permit such applications. This is not among the currently pending legislative proposals (some of which are discussed below). Maybe it should be.

 

With certain of the proposed rule changes, the PTO attempts to facilitate the examination process by requiring applicants to more explicitly identify what they perceive to be the best prior art and to differentiate their inventions from the prior art. This ignores completely the high likelihood that if and when the resultant patent is litigated, the accused infringer will defend, at least in part, on the basis that the patent was tainted by inequitable conduct (often referred to as "fraud on the Patent Office"). The inequitable conduct complained of is, most often, that the patent applicant misled the examiner by something said in the examination process. Often the charge is made with respect to a statement of only marginal relevance to the examination process. As discussed below, this much criticized aspect of the patent litigation process may be cured, at least in part, by one currently pending legislative proposal, which would better insulate patent applicants from such charges. Absent such a legislative fix, patent applicants will continue their reluctance to provide the kind of explicit statements sought by the PTO. If the PTO got behind that proposed legislative fix in the litigation process, it would greatly help its own cause in facilitating the examination process.

 

As alluded to above, Congress, aided and abetted by a number of professional organizations and public and private interest groups, has also tried to grapple with problems in the patent system, some more real than others. The result is a myriad of proposed legislative fixes, all of which tend to get mixed, under the rubric of "Patent Reform," in the congressional sausage making machinery. If we are lucky (or unlucky, depending on your view of the outcome), we may see some of these patent "reforms" passed in the next congress.

 

In the most likely to succeed category are (1) conversion from a first to invent to a first to file system (the patent goes to the first to file a patent application rather than the first to invent) and (2) a post-patent-grant public opposition procedure. The FTC and National Academy Reports, most professional and industry organizations and most public and private commentators are in agreement on the desirability of these changes.

 

Since the rest of the world is already on a first to file system, U.S. applicants, substantially all of whom are interested in foreign patents as well, already operate in that regime. So this change should have little effect on patent application filing strategies. Conversion to a first to file system would, however, eliminate patent interferences, the inter partes procedure by which the PTO resolves questions as to who was the first to invent. Few will regret the demise of interferences, which are complicated, costly and rarely successful for the applicant who was not the first to file.

 

Institution of a post grant opposition procedure is somewhat more problematic. Two major industry groups, one centered in the software and electronics industry and the other in the pharmaceutical industry, are in substantial disagreement. Neither opposes in principle a procedure which gives members of the public an opportunity to oppose the issuance of a patent. They are in substantial disagreement as to whether this opportunity should be limited to a single period after publication of the impending issuance or open for a second window of opportunity, such as when the patent is asserted. It remains to be seen if a compromise can be fashioned or if Congress will forge on with its best judgment irrespective of these industry-specific interests.

 

But even these most likely to succeed "reforms" may be waylaid by the controversies over other proposed "reform" provisions of these package bills and of competing bills.

Of those other provisions and bills, which would justify a whole column by themselves, the most important are those which seek to improve the patent litigation process. Among these are proposals to limit patent litigation to specially trained judges and to jurisdictions having some connection with the litigants or the alleged infringing activity. Given the expected opposition of the general bar and judiciary to legislative meddling in the litigation process, the outlook for these proposals is not promising.

 

Somewhat more promising but equally likely to face opposition from the general bar and the judiciary, are proposals to defer trial of willfulness and inequitable conduct issues, until liability (or absence thereof) has been determined. In at least one of the forms proposed, inequitable conduct "reform" would limit the inequitable conduct defense to false or misleading statements or information which pertain specifically either to the reasons the patent was issued or to the grounds upon which the patent has been found invalid. This would greatly enhance constructive response to the PTO's proposals requiring patent applicants to be more forthcoming about the prior art.

But all of these PTO and legislative "reforms" will take time, and their ultimate form is uncertain. Their ultimate impact is even more uncertain. Of greater certainty and more immediate impact are the decisions coming from the Federal Circuit and, possibly most significantly, the Supreme Court.

 

Theoretically, courts don't make law, but it is hard to view recent and pending developments in the Supreme Court and the Federal Circuit without sensing that they too perceive a need for making adjustments in the patent system. One may infer that judges are concerned that patents are being asserted in ways not consistent with their underlying constitutional justification.

 

The KSR v. Teleflex case, which I wrote about in my Legal Intelligencer IP Column of August 2 is only the tip of the iceberg, albeit an important one. The decision in that case, like most other Supreme Court patent decisions in the last six years (Festo, Holmes Group, Merck KGaA, Unitherm and eBay), will likely tend to disfavor the general interest of patent proponents. A similar trend may be seen in a variety of Federal Circuit decisions over the last several years, which tend to limit patent scope or find patents invalid based on non-compliance with the definiteness and written description requirements of 35 USC §112.  

 

The implication of these cases is clear, patents must be asserted with care and with a view to their underlying justification. On the brighter side, future patents may be issued under PTO rules and legislation which better serves this underlying justification. Hopefully this will lead to a more balanced view in the Courts.

 

In summary, Congress, the PTO and the courts are all addressing the widespread view that the patent system is in need of some "reform" and in one form or another are developing their own fixes for the perceived problems. But there is much room for disagreement as to the extent and substance of the "reform" needed. As users of the patent system, patent attorneys and, more importantly, their clients should be tracking these developments and providing their input to the decision makers with a view to the balance between their individual perspectives and the overall objectives of the system.