New Challenges In The Proposed Patent Reform Act Of 2011

Sunday, April 3, 2011 - 01:00

Editor: Please describe your practice.

Morris: My practice is a mixture of both patent prosecution and patent litigation. I started as a patent agent at Fish & Neave in 1991, graduated from law school in 1995 and made partner in 2001. Eventually, we merged with Ropes & Gray, which I left in August 2008 to join Kramer Levin.

Editor: Please describe the substantive changes to prior law contained within the new patent bill, known as the Patent Reform Act of 2011 (the Act).

Morris: In broad terms, U.S. patent procedures no longer will employ a "first- to-invent" system, but rather a "first-to-file" system that attempts to harmonize our system with the procedures employed by most of the world. Also, there are proposals for new provisions to create a more adversarial process for challenging patents while they are pending. For example, consistent with European patent procedures, we will have a nine-month period - post issuance - for oppositions and new challenge options during pendency; however, the latter precludes the use of issues raised during subsequent litigation on at least some of these challenges.

Editor: So there would never be lawsuits following?

Morris: These issues could still be raised in lawsuits, but a potential defendant will have to make a choice on timing. Under existing law, if you wanted to raise an objection to a patent, you could file a reexamination procedure with the U.S. Patent and Trademark Office (PTO) and, even if you lost, you could still take it to a jury and try to win the second time around. Under the proposed law, you get only one bite of the apple. You can either challenge an application with a piece of prior art during pendency, during the post-issuance procedures or in litigation. So if you get sued for patent infringement, under the proposed law, you no longer would be allowed to re-litigate based on a prior art reference you brought to the PTO.

Editor: Will you be advising your clients to delay objections during pendency to preserve the litigation option?

Morris: I would assess that on a case-by-case basis. For example, an individual patent examiner's willingness to be open to ideas can affect your decision. In some instances, it may be easier to convince a jury of several individuals versus one patent examiner. Conversely, patent examiners are more knowledgeable than are juries, and this might help your case; therefore, much depends on the kind of story you would be telling.

Editor: How will the law be implemented in terms of new patent application procedures and treatment of pre-existing filings that have not been fully processed?

Morris: Essentially, the law will become effective one year from the passage date. It will apply to all patents that are issued on or after the date of passage. Anything that is pending on the date of passage, whether it was newly filed after that date or whether it was already filed, likely would still fall into these new regulations.

Editor: What are the prospects for hearings in the House?

Morris: Though it embodies some changes to the Patent Reform Act of 2010, the new Act remains substantially the same. It is a large bill with many issues on which lawmakers must reach an agreement, so it still may not have the support required to pass. The biggest proponents of the Act are "big business" interests, which traditionally line up politically with the Republicans. Given Republican control of the House, the dominoes are stacked in favor of at least hearings in the House this year.

Editor: Will the first-to-file provision make American corporations more competitive in the global economy?

Morris: Parties have lined up on both sides, with general support from industry and opposition from both start-up companies and venture capitalists who invest in them. Smaller companies worry that the proposed changes will make it difficult to protect their innovations - the lifeblood of their organizations - and tempering investments into such companies could hurt the U.S. in the global economy. If it makes our larger companies more efficient, then the Act could help.

Under today's law, there is a process for determining who was the first to invent, called interference practice, and a first-to-file system will eliminate this practice entirely. Interference practice is essentially litigation. Thus, the Act could help us be more competitive by eliminating this potentially costly and distracting procedure.

Editor: Why are some large, high-tech companies opposed to the new law?

Morris: My understanding is that opposition to the bill depends on the industry. In general, Silicon Valley electronics companies seem to be opposed because, in a first-to-file system, companies race to the patent office to file their paperwork, and this could get in the way of development. Thus, they may not complete the engineering or development processes because they are worried about losing the race. In a first-to-invent system, companies are able to finish development and even get products out on the market for up to a year without losing their patent rights.

Moreover, the issues of interference practice are not as prevalent within the semiconductor industry as in the pharmaceutical industry. Tech companies would rather have their engineers focus on completing the engineering and design phases than working on patent applications. Current U.S. patent law gives them a window to do that. A first-to-file system would close that window.

In the pharmaceutical industry, competitors are often working on similar drugs to solve a common ailment. In the rush to be the first to file, these companies might have to file patent applications on drugs that aren't necessarily through development. Perhaps they will have to file three or four applications on variants, hoping they covered the one recipe that works the best and ends up in the commercial product. So under the Act, companies may have to spend more on filing fees, but they still could achieve savings by avoiding the interference practice.

Editor: Will there be an increase in pre-emptive filings, and what are the timing concerns vis-à-vis expiration dates?

Morris: The last major changes to the patent system occurred in 1995, when GATT was passed. Today's patent system term is 20 years from earliest filing date. If you review the GATT law, it provided that if you filed before June 7, 1995, you got the longer life of 20 years from earliest filing date or 17 years from the date of issue. This led to a vast number of pre-emptive filings.

Under the Act, however, the effective date of the patent is based on the issue date - not the filing date. So, pre-emptive filings should not have any strategic value.

Editor: Will corporate governance initiatives need to be changed in order to ensure administrative processes that secure protection of IP by the prosecuting party?

Morris: I don't see any major changes in corporate governance; in fact, the Act may even simplify some procedures. In well-run departments, people are trained to keep log books, recording everything they do during the invention process. Their entries are co-signed by others and the logbooks are preserved. When there is litigation or an interference occurs, this data is available as evidence of who was the first-to-invent. Eliminating the first-to-invent system could render such evidence meaningless. So the new law could simplify things.

On the other hand, I still might advise companies to retain logbook procedures and storage policies. From a litigation perspective, for example, you might want to preserve the option to explain to a jury that, even though technically you might have infringed, your paperwork proves that you didn't steal anything. Rather, you were on the same parallel track the whole time. Even if the jury found that you infringed, this evidence may sway the jury and keep the damages award down.

Editor: How will the bill's proposed changes affect strategies in related legal practice areas?

Morris: One big impact will be in the tax area. Under existing law, tax professionals worried about patent litigation and filed patent applications for tax preparation or filing strategies. Under the Act, it won't be legal to patent such things, which, in turn, may mean that pre-existing patents on tax strategies will no longer be valid.

With regard to M&A and private equity, the Act will have only marginal impact. Patents are still going to be patents, regardless of when they were filed, and the same due-diligence and investigations will be employed to determine their validity. The first-to-file process may offer some level of comfort since a patent application or a patent that's already on file can't be taken away through the interference practice - which happens today if someone else is found to be the first to invent.

Editor: Given that traditional challenges to patent filings were based on the first-to-invent system, how will the dispute landscape with outside challengers change if the bill is passed?

Morris: As I said earlier, there would be three new opportunities to challenge patents. First, you can file prior art with comments during normal prosecution to try to convince the PTO that an application should never issue. After issuance, there is a new nine-month opposition period to challenge the patent just like in Europe. Then, there is a proposed inter partes post-grant review process.

Today, if a patentee discovers an error in a patent, he can go back to the Patent Office for a reissue. Many resist this option because it opens the door to inequitable conduct charges.

There is a provision in the Act, however, that allows patent corrections without fear of inequitable conduct, which can be a real benefit, for example, in situations like this, where the laws change after the fact. Thus, the Act provides greater opportunity to update patents and avoid problems.

Editor: How will passage of the bill affect the cost of obtaining patents?

Morris: Many say that the costs will be dramatically reduced, especially with the biotech and pharmaceutical industries. By replacing the first-to-invent system, the Act will eliminate interference practice and simplify both internal administrative and external PTO procedures - all of which reduces costs. There is, however, potential for increased costs associated with greater opportunity for adverse parties to get involved during the pendency of an application.

Editor: What final comments do you have?

Morris: Just a brief summary. There is a greater chance than ever before that proposed patent reform will pass into law. Many people say that provisions of current law are prohibiting U.S. growth. China, for example, is filing more patent applications every year, and we need to fix our system so we can more easily protect ourselves.

Please email the interviewee at rmorris@kramerlevin.com with questions about this interview.