Bringing predictability to the patent world

March 2010

Ever since the 1790s, when then-Secretaryof State Thomas Jefferson drafted the nation's first patent law, the practice has been unpredictable.

Consider that Jefferson himself initially balked at issuing patents because he deemed them a type of monopoly, according to historian Silvio Bedini. Eventually, Jefferson warmed to the idea and took a leading role on the three-man review board that granted patents in the fledgling United States of America. Three patents were granted in 1790, the first to Samuel Hopkins for making potash (a crude form of potassium carbonate used to make soap and glass).

Fast forward to the new millennium. The novelty of potash has long since given way to complex and invention-driven industries. The U.S. Patent and Trade Office struggles to keep up with the number of applications. In this landscape, lawmakers and the courts in recent years have made overtures at reforming the system that Jefferson launched 220 years ago.

The U.S. Supreme Court, in fact, is weighing a potentially monumental case, In re Bilski , 545 F.3d 943 (Fed. Cir. 2008), as this magazine goes to press. In Congress, House Bill 1260 and companion Senate Bill 515 were introduced last year and are known collectively as the Patent Reform Act of 2009. Even locally, the quest for consistency has borne fruit, with new rules for cases adjudicated in the Northern District of Illinois becoming effective last October.

"If I had to pick a theme of what's going on out there, in my mind, the theme is to bring some predictability to people using the patent system," said Russell J. Genet, a patent attorney at Nixon Peabody, "whether it is parties trying to litigate patents or trying to obtain them from the patent office. Predictability is what we are trying to go towards."

To the outside observer, the topic of patent reform may be "a real conversation killer," joked Andrew W. Torrance, an associate professor of law at the University of Kansas School of Law who studies patent law.

But to Genet, Torrance and others, this is a great time to be in the business. Because all the attention on the patent system makes one thing clear: "Patents have become very much more important now than they have ever been," Genet said, "which is driving the increase in patent litigation, which is driving the increase in patent applications, all of which is good for patent lawyers."

Fueling the fire

Utility patents - one of three types of patents and the one most relevant in the context of these reforms - are given to "any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof," according to the patent office.

Hidden inside that ostensibly simple description lurks the spirit of patent litigation.

A defendant charged with infringement may try to prove that the invention existed before the plaintiff nabbed that patent. To do that, the defendant will try to discover "prior art," argot for anything in the public realm that challenges the patent owner's claim of originality. The invention, in other words, isn't new. And if that's true, how could the defendant be guilty of infringing?

Or a defendant may try to prove that the patent should not have been issued in the first place because a patent for this invention already exists deep in the annals of the patent office (which as of 2009 had issued 7,636,948 patents).

Both sides fight using an arsenal of words called "claim construction," meaning the technical description of the invention that is protected. Claims are expressed in a series of numbered phrases, such as, "A ballpoint pen having a writing tip at a top end of which a writing ball is rotatably supported, an ink storage tube inside of which ink is stored ." and on and on.

A ballpoint pen may seem simple. But the computer age and, in particular, the technological boom of consumer electronics in the 1990s, spawned unrest that led to calls for reform that continue today.

Bradford P. Lyerla, a patent litigator at Marshall, Gerstein & Borun, summed up the situation this way: The electronics/computer industry fretted about what it called a steady stream of "junk patents" issued by the patent office. The industry's concerns led, four years ago, to a major government study (albeit flawed, many agree) that concluded that the costs associated with junk patents outweighed the benefits associated with the patent system.

"This fueled this idea that we need patent reform," Lyerla said. "It was driven by Microsoft, Apple, people who were building products, inventing new things and getting sued every time they made something new. There was unrest. Dissatisfaction. What to do about it?"

The battleground for reform has competing interests like technology in one corner and pharmaceutical companies in the other. The movement has taken place in the nation's courtrooms and, more slowly, in the halls of Congress.

Regarding the Patent Reform Act of 2009, Matthew Paul Becker, a patent attorney at Banner & Witcoff, said: "I question whether it will see much traction this year. It seems this administration is seeking populist issues, like the economy and partisan issues. Patent reform is not a partisan issue."

"While Congress hasn't yet gotten its act together," Lyerla said, "nonetheless, the courts have started to listen. With no new legislation, there have been some important reforms, either from the Federal Circuit or the Supreme Court."

The courts speak

It's one thing if I steal your invention for making potash. Maybe I didn't know that you'd already invented it. It's another thing if I steal your invention, knowing full well that I'm stealing it. In the patent universe, there's a name for that bad behavior: willful infringement.

How do you prove that I willfully infringed on your potash invention? Fortunately or unfortunately, depending on which side you're on, there had been a rather tough set of obstacles that a defendant had to overcome to ward off a claim of willful infringement. In In re Seagate Technology LLC , 497 F.3d 1360 (Fed. Cir. 2007), the U.S. Court of Appeals for the Federal Circuit, which handles all patent appeals, made it harder for a plaintiff to prove willful infringement.

In Philips v. AWH , 363 F.3d 1207 (Fed. Cir. 2004), the court made what Lyerla called a "radical" ruling on how judges must decide claim construction. Lyerla describes a situation where, in its extreme, judges would thumb through dictionaries to come up with agreeable definitions for a claim. Philips allowed them to put the dictionaries away.

"When construing claims, if there is disagreement, ambiguity, and a judge has to decide, the judge is supposed to look at what the invention contributes to the art and then choose the claim meaning that most closely fits," Lyerla said. "It's a big change. It tightens it down. It makes it more rigorous."

And what if my invention is not a thing but a method? That leads to a whole new set of concerns that the Supreme Court is considering now; a decision in Bilski may have been announced by the time this article appears.

Bilskifocuses on two inventors who applied for and were denied a patent on their method of hedging risks in commodities trading. The inventors took their case to the Supreme Court. Observers say the high court could go back to an old requirement that predated the technological revolution. Under that requirement, patentable inventions must have some physical limitation. The problem arises with business methods - algorithms and mathematical propositions - the most famous example being Amazon's patent of its "one-click" shopping method.

"Everybody agrees that ideas and laws of nature are not patentable. What's hard to do is draw a line between those and things that should be patented, with clarity and consistency. One way of doing that, and it's admittedly arbitrary, is to require some physical limitation," Lyerla said.

Bilskicould have major implications, said Jonathan Masur, assistant professor of law at the University of Chicago Law School who researches interactions among the patent office, the Federal Circuit and the Supreme Court.

"Will the Supreme Court allow patents on abstract ideas that aren't connected to any machine? There are a broad swath of things that may not be patentable if the court draws a hard line against patenting ideas. Amazon's one-click patent might not be valid. Tax lawyers frequently patent strategies; those might not be patentable," Masur said. "The economic effects could be substantial. Tens of thousands of patents might be affected."

A few modest proposals

Last year, the patent office received 718,835 applications. On average, it takes 25.8 months before an applicant receives the first letter indicating that the application has begun its long road toward being seen by a patent examiner. It takes about 34.6 months from the time a patent application is first filed to the time the office issues a patent.

"There are a couple of overriding concerns, and one is the quality of the patents being issued, whether some that the Patent Office is issuing are for dubious inventions," said Becker, of Banner & Witcoff.

One way to improve the quality of patents would be improving how the patent office handles "prior art."

Each patent examiner has a limited time to examine each application, including searching for other patents. That leaves open a wide territory of literature about inventions that may not have patents, but by their existence prove that an invention isn't new.

Under the Patent Reform Act of 2009, third parties would be able to submit additional "prior art" to the patent office at various times in the process. A new proposal called "post-grant examination" would "allow the public and interested third parties to monitor what patents are issued and submit prior art that the patent office didn't consider that may cause the patent office to reconsider the patent," Becker said.

"That's the first real goal of patent reform, to have better quality patents, and quality is tied to, 'Did the patent office have for its consideration all the closest prior art that was out there?'" Becker said.

Opponents would have a year after a patent was issued to ask the patent office to review it, under the proposed post-grant examination procedure.

"I think the thought is that by allowing this short time period, one year, ultimately at the end of one year, you are left with perhaps a firmer conviction that the patent is of higher quality than it would otherwise be," said G. Peter Nichols, chair of U.S. patent prosecution at Brinks Hofer Gilson & Lione. "Say I'm a patent owner and no one steps forward to file this post-grant review, I could be left with the idea at the end of that I've got a pretty good patent."

Available in most other countries, this mechanism would represent a "radical change" in U.S. patent law, said Torrance, of the University of Kansas.

"Arguably, this would lead to better, higher-quality patents," Torrance said.

One of the more controversial elements of reform involves how damages are awarded to patent owners. At issue is whether to award the victim the full market value of the entire invention or whether the courts should be more circumspect and consider the value of the patented item itself.

Today, the courts rely on Georgia-Pacific Corp. v. United States Gypsum Co , 195 F.3d 1322 (Fed. Cir. 1999), which spelled out factors to be considered when weighing damages. The overriding factor is to award the patent owner either a "reasonable royalty" or the profits lost as a result of the infringement.

But that notion has become problematic. Two of the major industries that depend on patents for their success - technology and pharmaceuticals - are at odds.

On one side is the technology industry. With so many patented features in even one invention, that industry finds itself fighting off so-called patent trolls, who make a living by acquiring patents and then hunting down alleged infringers to reap the benefits of damage awards. Consider, for example, a hypothetical lawsuit against a software company alleging that a small feature in a product infringes on a feature of a competitor's patent.

"Damages would often be sought on the value of the whole software product versus the value of that one tiny feature," said Becker, of Banner & Witcoff.

Pharmaceutical companies, on the other hand, favor stronger damage guidelines. Patent trolls tend to stay away from the world of biochemicals and medicine because "there typically isn't an individual in a garage who can make or invent what the drug companies are manufacturing," Becker said.

"Pharmaceutical companies spend hundreds of millions of dollars investing in a new drug; the concern is whether they want to make investment in research and development if their patents aren't going to be as valuable," he said.

The House and Senate patent reform bills have nuanced differences in how they would address damages. Genet likes one provision that allows the Federal Circuit to act as a sort of gatekeeper in deciding what a jury could consider in awarding damages.

"The judge says, 'Here's the evidence; here's the theory of damages you should apply based on the evidence.' . That goes back to this idea of predictability," Genet said.

Another significant proposed change involves redrawing the route that a complaint takes once in the court system. At the core of that issue is the awkward back-and-forth that exists between district courts and the Federal Circuit.

Today, the first tug in that back-and-forth occurs at the district court level, where both sides argue the patent's claim construction.

"Both parties make a case that words in the claim mean very particular things," said Torrance, the University of Kansas professor. " 'I claim a red balloon.' That might be a claim, but in patent law, it's not clear what a 'red balloon' means. You could claim that a balloon means an automobile. So claim interpretation is a very technical, difficult process, and it's crucial for deciding who wins. The party that gets their interpretation by the judge is the party that typically wins."

Even so, that critical decision happens in the middle of a case; in other words, after that district-level decision, the case continues to its conclusion. Only then can the loser appeal. And if the Federal Circuit agrees with the loser that the lower court's definition of that red balloon was wrong, the case goes back to district court and "you're litigating infringement and invalidity again based on a new claim construction," Genet said.

Under patent reform, the parties could immediately appeal and get an answer on claim construction.

"If once the claim construction ruling comes out, you can appeal to the Federal Circuit and stop the rest of your discovery, then we can finally determine what the claims mean. Now we know how we want to argue infringement and invalidity issues going forward. It keeps you from going back and fighting about it again," Genet said.

The Northern District and beyond

The Northern District of Illinois historically ranks somewhere in the top 10 in terms of the number of patent cases filed in the United States, said Chief Judge James F. Holderman. The number varies from year to year but hovers around 140 complaint filings each year.

Several districts around the country have their own versions of local patent rules, and in the spring of 2008, the Intellectual Property Law Association of Chicago (IPLAC) suggested that the Northern District adopt rules that would "be the best for our district," Holderman said.

Lyerla, an IPLAC member who is among those who helped draft the rules, said the group first surveyed the local patent bar to see if members felt the need for such rules, and the response was overwhelmingly "yes."

He credited Judge Matthew F. Kennelly for then leading the effort as the "controlling draftsman" of the rules, which went into effect last October.

The rules, for instance, include default deadlines for certain pretrial procedures and disclosures that are unique to patent litigation. But while they're important here, they pale in significance to reform efforts nationwide, Lyerla said.

One proposal would strike at the very heart of the U.S. system, the only nation that grants patents on a "first-to-invent" basis. First-to- invent is handy for individuals or smaller companies, which can take their time before filing a patent application as long as, if challenged, they can prove that their invention pre-dates somebody else's.

But first-to-invent can present challenges for the same reason.

Around the globe, the standard depends simply on who filed the application first. Under the proposed reform measures, the United States would change to a "first-to-file" system.

"In some sense, the current system does allow for [inventors] to perhaps more fully develop their idea," said Nichols, of Brinks. "This would likely have the effect of forcing inventors and companies to move more quickly toward either deciding whether to move forward with the idea or simply not filing the patent application, knowing that, if I don't have the time or resources or if I take my sweet time, I will accept the risk that someone might jump in line before me."

Perhaps the only certain thing is that the country has come a long way from Samuel Hopkins and the very first patent, for potash.