Authored by Tina E. Hulse M.D. and Esther H. Lim
The year 2009 in U.S. patent law was marked with great change across all branches of the government—the executive branch, the judicial branch, and the legislative branch.
In the executive branch, the new administration, with the historic election of President Obama, ushered in changes in personnel and policy at the United States Patent and Trademark Office (“USPTO”). Changes in personnel included many new appointments, the most notable being the appointment of David J. Kappos as the Director of the USPTO. Along with changes in personnel came changes in policy. Under the new Director’s leadership, the USPTO removed from its regulations highly controversial rules regarding claims and continuing prosecution.
Change also swept across the judicial branch at the U.S. Supreme Court and the Federal Circuit. On August 8, 2009, Sonia Sotomayor was sworn in as an Associate Justice at the Supreme Court, and Chief Judge Paul R. Michel announced his retirement as of May 31, 2010 from the Federal Circuit. Along with changes to the bench, the judiciary heard several key cases, including Bilski. The Supreme Court heard oral argument in November, setting the stage for a highly anticipated decision in 2010 addressing the most basic question of patent law—patentable subject matter.
Change also continued to percolate in the legislative branch, for the third consecutive congressional session, as Congress tried to effect the most dramatic change in U.S. patent law since 1952. In March 2009, members of Congress introduced a set of patent reform bills in both houses of Congress.
A. The Executive Branch
In 2009, the USPTO underwent important changes in both personnel and policy. David Kappos, then Vice President and Assistant General Counsel for Intellectual Property Law at IBM, was confirmed for Under Secretary of Commerce for Intellectual Property and Director of the USPTO. Kappos brings real-life experience to the position. During his sixteen years of managing IBM’s intellectual property portfolio, IBM has consistently been the leading recipient of U.S. patents, and at his confirmation hearing, Kappos pledged to take steps to improve efficiency and morale at the USPTO.
Catching more headlines than the personnel changes was the roller-coaster development surrounding the new rules. In August 2007, the USPTO published in the Federal Register changes to rules of patent practice pertaining to requests for continued examination, continuing applications, and examination of claims. Specifically, the rules set a limit of two continuing applications and one request for continued examination as a matter of right. In addition, the rules imposed a limit of five independent claims and twenty-five total claims without any additional effort on the part of the applicant.
The new rules, while intended to deal with a heavy backlog of patent applications at the USPTO, sent shockwaves through the patent community. The biotechnology and pharmaceutical industries in particular expressed strong concern over the proposed rules’ detrimental effect on innovation and industry. Taking an unusual turn, the published rules became the subject of litigation when an inventor named Triantafyllos Tafas sued the USPTO in the U.S. District Court for the Eastern District of Virginia, asserting that the agency overstepped its rulemaking authority. In October 2007, GlaxoSmithKline (“GSK”) also filed a complaint against the USPTO to challenge the rules. The district court consolidated the two cases and enjoined the USPTO from implementing the rules. The USPTO appealed to the Federal Circuit.
After hearing oral argument, the Federal Circuit issued a split-panel decision on March 20, 2009, holding that the rules restricting the number of continuing applications conflict with 35 U.S.C. § 120 and are thus invalid. Tafas v. Doll, 559 F.3d 1345 (Fed. Cir. 2009). On July 6, 2009, the Federal Circuit vacated the split-panel decision and took the case en banc. The court later granted the parties’ Joint Consent Motion, staying the en banc proceedings until sixty days after the confirmation of the new Director of the USPTO. On August 21, the court lifted the stay, ordering the parties to file their briefs. On October 8, 2009, the case reached a dramatic end when the USPTO announced that the new Director, David Kappos, signed a Final Rule rescinding the controversial regulations.
In addition to the rescission of the Final Rule, the USPTO has also unveiled a series of proposals to bring significant change to the examiner “count system.” The count system refers to the methodology for determining the time a patent examiner has to complete a patent examination and the amount of credit given for each stage of examination. The proposed changes constitute the most significant changes to the count system in more than thirty years. According to the USPTO, the proposed changes are designed to:
B. The Judicial Branch
Perhaps the biggest U.S. patent case of the year was Bilski v. Kappos where, for the first time in nearly three decades, the Supreme Court is revisiting the question of whether a method is patentable subject matter. Despite the government’s opposition to Bilski’s petition for writ of certiorari, the Supreme Court granted certiorari in Bilski on June 1, 2009, and certified two questions presented:
Whether the Federal Circuit erred by holding that a “process” must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing (“machine-or-transformation” test), to be eligible for patenting under 35 U.S.C. § 101, despite this Court’s precedent declining to limit the broad statutory grant of patent eligibility for “any” new and useful process beyond excluding patents for “laws of nature, physical phenomena, and abstract ideas.”
Whether the Federal Circuit’s “machine-or-transformation” test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect “method[s] of doing or conducting business.” 35 U.S.C. § 273.
Addressing the first issue, Bilski’s brief discussed Diamond v. Diehr, 450 U.S. 175 (1981) and Diamond v. Chakrabarty, 447 U.S. 303 (1980), where the Supreme Court interpreted § 101 to be extremely broad, only prohibiting the patenting of laws of nature, physical phenomena, and abstract ideas. According to Bilski, the Court has twice rejected the “machine-or-transformation” test and that the Supreme Court expressly did not hold that a process must be tied to a machine or transformation to be eligible for patenting. Bilski urged that the Federal Circuit erred by subjecting process claims to additional conditions for patent eligibility.
In response, the Solicitor General stressed that § 101, even though broad, imposes meaningful limits on the scope of patent protection. As a result, patent law protects technological and industrial processes, but not methods of organizing human activity, according to the government. The government argued that the Supreme Court has consistently used the “machine-or-transformation” test to identify patent-eligible processes. Of course, the Court had not decided the precise outer boundaries of the universe of patent-eligible processes, the government acknowledged. However, the Solicitor General stated that the “machine-or-transformation” test remains “the generally applicable standard.”
On November 9, 2009, the long-awaited oral argument at the Supreme Court took place. During the one-hour oral argument, Justices asked Bilski’s lawyer about hypothetical inventions and whether they should be patent eligible, such as patenting methods for tax avoidance, estate planning, how to resist a corporate takeover, how to select a jury, how to win friends and influence people, and speed dating. Equally peppered with questions was the Deputy Solicitor General arguing for the USPTO. For example, Justice Sotomayor asked: “[H]elp us with a test that does not go to the extreme that the Federal Circuit did.”
The patent bar awaits with bated breath for the Supreme Court’s decision in Bilski, expected in spring 2010. In the meantime, the Federal Circuit continued to apply the “machine-or-transformation” test in 2009, rejecting claims in two out of the three cases. In the third case, the Federal Circuit applied the “machine-or-transformation” test and found that claimed methods of treatment were patent eligible.
C. The Legislative Branch
Congress continued its efforts to bring about dramatic change in U.S. patent law. After the first two unsuccessful attempts in 2005 and 2007, members of Congress again introduced the 2009 Patent Reform Act in both houses (“2009 Act”).
The 2009 Act closely resembles the previously proposed legislation. The most significant provisions of the bill, as introduced, relate to the issues of first to file, damages, reexamination proceedings, cancellation proceedings, preissuance submissions, and venue.
Despite many similarities, the 2009 Act removed some of the controversial sections from the previous legislation. For example, applicants would no longer be required to conduct searches before filing an application. Additionally, the provision requiring patent applicants to act in “good faith” in order to enforce patents has been dropped from the current bill. Moreover, the bill as introduced does not include the provision granting the USPTO procedural or substantive rulemaking authority.
On March 10, 2009, the Senate Judiciary Committee heard testimony from witnesses on “Patent Reform in the 111th Congress: Legislation and Recent Court Decisions.” On April 2, 2009, the Committee voted 15-4 to bring the amended S. 515 before the full Senate. The amended bill includes several changes to the legislation. For example, the reasonable royalty proposal has been replaced by the “gatekeeper” provision, giving judges more authority to determine how to assess damages. Prior use and sale provisions have also been removed from the postgrant-review procedure. Further, the proposal for limiting venue has been replaced by a provision for transfer of patent cases on a showing that the transferee district is clearly more convenient.
The Committee reported the amended bill on May 12, 2009, but there has been no progress since then. In the House, the Judiciary Committee held a hearing on the House’s version of the bill on April 30, 2009. However, it has not yet marked up its bill or taken other action.
Various organizations have been active in participating in the patent reform discussion. One is the Coalition for Patent Fairness, whose members include the Business Software Alliance, Apple, Symantec, and Google. According to its website, http://www.patentfairness.org/, the Coalition supports the reform on issues such as damages calculation, assessment of willful infringement, postgrant review, and forum shopping. Another one is the Coalition for 21st Century Patent Reform, an organization composed of about fifty companies, such as 3M, Caterpillar, Eli Lilly, Motorola, Procter & Gamble, Pfizer, and Texas Instruments. According to its website, http://patentsmatter.com/, the damages provision should stay out of the bill because courts are addressing the issue. In particular, the Federal Circuit, in a recent decision overturning a jury award of over $357 million against Microsoft, has set out to clarify the law on patent damages. Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009). It is unclear whether the court’s explanation will affect the outcome of the debate over the damages provision in the patent reform bill.
Meanwhile, in his first major speech at the Intellectual Property Owners Annual Conference, USPTO Director Kappos declared: “The time is now to get patent reform done.” On October 5, 2009, Commerce Secretary Locke wrote a five-page letter to Senate Judiciary Committee Chairman Leahy, stating that the Administration is committed to work with Congress on patent reform. Secretary Locke also stated that “[w]e believe S. 515 incorporates the essential elements of patent reform; and, therefore, the Department of Commerce supports the bill with additional recommendations.”
Specifically, the Commerce Department endorses granting the USPTO the authority to adjust patent and trademark fees as well as substantive rulemaking authority to provide “flexibility in the administration of patent rules and procedures.” It also supports the shift from the first-to-invent to a first-to-file system. Regarding the procedures for postgrant review and inter partes reexamination, it advocates a phased-in procedure. On the damages issue, it generally supports reasonable royalty damages through a “‘gatekeeper’ approach reflected in recent court decisions as well as the purpose of the willful infringement and enhanced damages standard.”
Thus, 2009 was marked with several significant events in U.S. patent law and policy that foreshadow further changes to come in 2010 and beyond.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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