The patent reform bill is now under consideration by the United States Senate after the House of Representative passed its version of the bill in early September.  Multiple AUTM members contacted their Congressional members, and we think that helped make several improvements to H.R. 1908.  It is now time to turn our attention to the Senate bill, S. 1145 which has already passed the Senate Judiciary Committee and is significantly different than H.R. 1908.

A number of changes were made by the Senate Judiciary Committee because of the concerns expressed by the university community and others.  The university community does not oppose improving the patent system.  In fact, S. 1145 as amended by the Judiciary Committee, has a number of changes that the university community supports, such as:

• The first inventor to file provision that provides for a effective one year grace period and strong inventor oath which benefits universities because they operate in a system that supports publication and the sharing of discoveries.  The Senate could also consider supporting an international grace period as in HR 1908. 
• Removal of the prior user rights expansion in favor of a study of the issues.  Universities support limited prior user rights because the fundamental trade off that the patent system provides is exclusive rights for a limited time in exchange for disclosure of the invention.  University patents could be put at risk by expanding prior user rights.
• The venue reform provisions that exempt both universities and technology transfer foundations that provide patenting and licensing services to universities.

While these changes can be viewed as positive, S.1145 also contains multiple provisions that raise concerns for many U.S. universities, primarily because they undercut the ability of universities to transfer technologies to U.S industry by making patents harder to protect, reducing damages that a patent holder can recover from an infringer and providing new opportunities for infringers to challenge an issued patent.  The current Senate version contains disincentives for companies to license technologies from universities.  Combined with recent Supreme Court cases and pending USPTO rule changes, it will be more difficult and costly to obtain, maintain, defend and enforce a patent.  The bill may also make it more difficult for university start up companies to attract venture funding. 
Of specific concern:

• An open-ended post-grant administrative review of patent validity;
• Apportionment of damages in patent infringement suits;
• Mandatory search reports and analysis which will add tremendous expense and burden for university technology transfer offices;
• Absence of meaningful inequitable conduct reform; and
• Venue reform that forces university licensees and non-profit research institutes to file suit in the infringer’s home district court.

The current speculation is that the Senate will take up S. 1145 for a floor vote in early February.  When the Senate Judiciary Committee approved S. 1145 to go to the full Senate in July, the Committee Chairman, Senator Leahy, acknowledged that the bill still needed work, especially in the provisions concerning apportionment of damages and post-grant review.  We anticipate that Senators Leahy and Hatch will introduce a manager’s amendment that will try to address some of the concerns that have been raised by numerous entities including universities.  We do not know, however, what will be in the amendment or how much time will be available to analyze the provisions for their impact upon university technology transfer.  Some worry that there will be a very small window for commentary and input, so your timely attention is very important.

Therefore, it is imperative that universities voice any concerns that they have as soon as possible.  AUTM recommends that AUTM members educate their federal relations officers and university management on the impact of the patent reform bills on their technology transfer operations, and together express any institutional concerns to your respective Senators. 

Listed below are some specific issues of concern in the Senate bill:

CREATE A BALANCED POST-GRANT OPPOSITION PROCEDURE

S. 1145 contains a new USPTO process called Post Grant Review, in which a party could challenge a patent within 12 months after the patent is issued (“first window.”)  A full second window makes the patents subject to challenge throughout the life of the patent which raises the uncertainty of patent validity.  The net effect of this proposed change would be to subject validly issued patents to lengthy, continuous, and costly challenge, particularly by accused infringers.  This would create extreme uncertainty to patents, technology licensing transactions and the technology licensing marketplace.  The challenge requires an implicit or explicit notice of infringement and a showing of substantial economic harm and can be filed up to 12 months after receipt of the notice of infringement.  Some suggested improvements would be to include presumption of validity for all issued patents, a higher “clear and convincing evidence” standard (instead of a lower “preponderance of evidence” standard) and a stronger estoppel provision to prevent serial challenges, to delete the subjective “implicit” notice being a trigger for a post grant review, and to narrow or eliminate the “second window” all together.

REQUIRE USPTO TO CONDUCT INDEPENDENT ANALYSIS

The mandated search report and analysis relevant to patentability under Section 11 of S. 1145 will be costly and burdensome to universities, non-profit research institutes and their small business licensees who have limited resources.  The search report and analysis must be done for all patent applications or the application will be considered abandoned.  AUTM believes that search reports are the responsibility of the reviewing agency and transferring that cost to applicants is excessively burdensome. 

LEAVE DETERMINATION OF MONETARY DAMAGES TO THE COURTS

S. 1145 attempts to codify and alter the complex circumstances surrounding the apportionment of monetary damages determined by federal judges upon a finding of patent infringement.  Under current case law, judges have discretion about how to proceed taking into consideration the myriad factors for the case-specific circumstances.  S.1145 would mandate one-size-fits all criteria, which some believe favors some industries and their use of patented technologies over others.  Universities believe that patent law should protect all patent holders regardless of industry affiliation and that congressional intervention into the independence of the judicial branch of government, without a manifest showing of need in the hearing record, would be unwise and unnecessary.

CLARIFY INEQUITABLE CONDUCT

As a method to invalidate a validly granted patent, current law provides avenues for accused infringers to virtually automatically accuse technology creators of engaging in misconduct when filing a patent application.  The subjective and complicated nature of a patent examination requires judgment to determine what information is relevant and what is not in the course of an examination.  Currently, the law provides for criticism and accusations of virtually any application of subjective judgment.  This is not only unreasonable and unfair, it also incentivizes prosecuting attorneys to over-disclose information and therefore drives up the cost of an examination process.

Congress should statutorily clarify the law in clear and unambiguous terms.  Legislation should define “materiality of patentability” and “intent to deceive” in accordance with current USPTO regulations.  The importance of such clarity is magnified by the new proposed mandatory search report and analysis submissions as proposed in Section 12 of H.R. 1908 and Section 11 of U.S. Senate Bill 1145 as well as recent USPTO rule changes.  The lack of sufficient inequitable conduct reform, coupled with the mandated search report and analysis would be damaging to technology transfer.

VENUE REFORM

The bill contains a provision that would force patent holders to bring a patent infringement suit in the corporate location of the infringer.  Currently, S. 1145 contains an exception for primary plaintiffs who are universities or non-profit organizations that serve as the patent and licensing organization for a university.  The Senate bill does NOT contain an exception for non-profit research institutes or university licensees.  These multiple standards will create inequity in the system and will provide unacceptable circumstances where a university licensee is not as able to protect and defend against infringement of licensed technology than the universities itself.  One major concern is that over time this will result in a shift of the enforcement burden from licensees back to universities.