[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
AMERICA INVENTS ACT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
INTELLECTUAL PROPERTY,
COMPETITION, AND THE INTERNET
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
ON
H.R. 1249
__________
MARCH 30, 2011
__________
Serial No. 112-35
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
U.S. GOVERNMENT PRINTING OFFICE
65-487 WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, [email protected].
COMMITTEE ON THE JUDICIARY
LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TOM REED, New York LINDA T. SANCHEZ, California
TIM GRIFFIN, Arkansas DEBBIE WASSERMAN SCHULTZ, Florida
TOM MARINO, Pennsylvania
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
Sean McLaughlin, Majority Chief of Staff and General Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
------
Subcommittee on Intellectual Property, Competition, and the Internet
BOB GOODLATTE, Virginia, Chairman
BEN QUAYLE, Arizona, Vice-Chairman
F. JAMES SENSENBRENNER, Jr., MELVIN L. WATT, North Carolina
Wisconsin JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
STEVE CHABOT, Ohio JUDY CHU, California
DARRELL E. ISSA, California TED DEUTCH, Florida
MIKE PENCE, Indiana LINDA T. SANCHEZ, California
JIM JORDAN, Ohio DEBBIE WASSERMAN SCHULTZ, Florida
TED POE, Texas JERROLD NADLER, New York
JASON CHAFFETZ, Utah ZOE LOFGREN, California
TOM REED, New York SHEILA JACKSON LEE, Texas
TIM GRIFFIN, Arkansas MAXINE WATERS, California
TOM MARINO, Pennsylvania
SANDY ADAMS, Florida
Blaine Merritt, Chief Counsel
Stephanie Moore, Minority Counsel
C O N T E N T S
----------
MARCH 30, 2011
Page
TEXT OF THE BILL
H.R. 1249, the ``America Invents Act''........................... 3
OPENING STATEMENTS
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Subcommittee on
Intellectual Property, Competition, and the Internet........... 1
The Honorable Melvin L. Watt, a Representative in Congress from
the State of North Carolina, and Ranking Member, Subcommittee
on Intellectual Property, Competition, and the Internet........ 39
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Chairman, Committee on the Judiciary....... 42
WITNESSES
The Honorable David J. Kappos, Under Secretary of Commerce for
Intellectual Property and Director, the United States Patent
and Trademark Office
Oral Testimony................................................. 44
Prepared Statement............................................. 46
The Honorable Steve Bartlett, President and Chief Executive
Officer, The Financial Services Roundtable
Oral Testimony................................................. 56
Prepared Statement............................................. 59
Steven W. Miller, Vice President and General Counsel for
Intellectual Property, Procter & Gamble Company
Oral Testimony................................................. 65
Prepared Statement............................................. 67
Mark Chandler, Senior Vice President, General Counsel, and
Secretary, Cisco Systems, Inc.
Oral Testimony................................................. 79
Prepared Statement............................................. 82
John C. Vaughn, Executive Vice President, Association of American
Universities
Oral Testimony................................................. 92
Prepared Statement............................................. 94
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Material submitted by the Honorable Melvin L. Watt, a
Representative in Congress from the State of North Carolina,
and Ranking Member, Subcommittee on Intellectual Property,
Competition, and the Internet.................................. 107
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, Ranking
Member, Committee on the Judiciary, and Member, Subcommittee on
Intellectual Property, Competition, and the Internet........... 125
Response to Post-Hearing Questions from the Honorable David J.
Kappos, Under Secretary of Commerce for Intellectual Property,
Director of the United States Patent and Trademark Office...... 127
Prepared Statement of the Generic Pharmaceutical Association
(GPhA)......................................................... 132
AMERICA INVENTS ACT
----------
WEDNESDAY, MARCH 30, 2011
House of Representatives,
Subcommittee on Intellectual Property,
Competition, and the Internet,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 1:32 p.m., in
room 2141, Rayburn House Office Building, the Honorable Bob
Goodlatte (Chairman of the Subcommittee) presiding.
Present: Representatives Goodlatte, Smith, Coble,
Sensenbrenner, Chabot, Chaffetz, Reed, Griffin, Marino, Adams,
Quayle, Watt, Conyers, Berman, Chu, Deutch, Sanchez, Lofgren,
and Waters.
Staff Present: (Majority) Blaine Merritt, Subcommittee
Chief Counsel; Vishal Amin, Counsel; Olivia Lee, Clerk; and
Stephanie Moore, Minority Subcommittee Chief Counsel.
Mr. Goodlatte. Folks, we are going to just make an
announcement. We will begin the hearing after this series of
votes. We want to spend a little bit of time on our opening
statements. So it is probably not enough time to get it in
before the votes.
Also, at 2:30 p.m., there is a briefing by some of our
country's leaders regarding the situation in Libya, and so that
all Members can participate, we are going to recess the hearing
at 2:30 p.m. And then we will come back later on.
So this is going to be a herky-jerky afternoon, it sounds
like. But we will get this hearing done, and we will welcome
the testimony of all our witnesses.
So the Committee will stand in recess.
[Recess.]
Mr. Goodlatte. Take two. The Subcommittee will come to
order, and I recognize myself for an opening statement.
For the better part of the past decade, this Committee has
been working to update our patent laws to ensure that the
incentives our Framers envisioned when they wrote article 1,
section 8 of our Constitution remain meaningful and effective.
The U.S. patent system must work efficiently if America is to
remain the world leader in innovation.
It is only right that as more and more inventions with
increasing complexity emerge, we examine our Nation's patent
laws to ensure that they still work efficiently and that they
still encourage and not discourage innovation.
The core principles that have guided our efforts have been
to ensure that quality patents are issued by the PTO in the
first place and to ensure that our patent enforcement laws and
procedures do not create incentives for opportunists with
invalid claims to exploit, while maintaining strong laws that
allow legitimate patent owners to enforce their patents
effectively. H.R. 1249 addresses these principles.
With regard to ensuring the issuance of quality patents,
this legislation allows third parties to submit evidence of
prior art prior to the examination process, which will help
ensure examiners have the full record before them when making
decisions. In addition, after the PTO issues a patent, this
legislation creates a new post grant opposition system in which
third parties can raise objections to a patent immediately
after its issuance, which will both help screen out bad patents
while bolstering valid ones.
The bill also increases patent quality by eliminating fee
diversion, which will allow the PTO to keep all the fees it
collects from inventors. This fee diversion provision is
crucial to allowing PTO to accomplish the mission we are asking
it to do with this bill and will allow the PTO to allocate
resources with certainty.
H.R. 1249 also includes provisions to ensure that patent
litigation benefits those with valid claims, but not those
opportunists who seek to abuse the litigation process. Many
innovative companies, including those in the technology and
other sectors, have been forced to defend against patent
infringement lawsuits of questionable legitimacy.
When such a defendant company truly believes that the
patent being asserted is invalid, it is important for it to
have an avenue to request the PTO to take another look at the
patent in order to better inform the district court of the
patent's validity. This legislation retains an inter partes re-
exam process, which allows innovators to challenge the validity
of a patent when they are sued for patent infringement.
The Senate bill placed many restrictions on the use of the
re-exam procedure, and the House bill relaxes some of those
restrictions in order to maintain the usefulness of the inter
partes re-exam process.
H.R. 1249 is the culmination of years of work in both the
House and the Senate from Democrats and Republicans, and it is
important to note that the House and the Senate, over four
Congresses, we have held dozens of hearings, met with numerous
stakeholders from every industry sector, as well as small and
large businesses and individual inventors, watched judicial
decisions in the courts, and produced several pieces of
legislation.
By giving the necessary tools to the Patent Office to issue
strong patents and procedures that will help ensure certainty
for patentable inventions, we are paving the way for
independent inventors as well as small, medium, and large-sized
enterprises to raise capital and grow. I believe this
legislation will spur innovation, economic growth, and jobs.
However, I also believe some work still needs to be done on
this bill. Specifically, I agree that the PTO needs to have
more certainty with respect to its fee-setting authority. I
want to ensure, however, that Congress maintains strong
oversight over the PTO as it uses that authority.
I also have concerns about the supplemental exam provisions
in the bill and believe further work may need to be done on the
inter partes re-exam procedure to make sure we are striking the
right balance there.
I look forward to hearing from our experts today, many of
whom have been working on this effort for a long, long time.
It is now my pleasure to recognize the Ranking Member of
the Committee, the gentleman from North Carolina, Mr. Watt.
[The text of the bill, H.R. 1249, follows:]
HR 1249 IH ___________________________________________________
I
112th CONGRESS
1st Session
H. R. 1249
To amend title 35, United States Code, to provide for patent reform.
__________
IN THE HOUSE OF REPRESENTATIVES
March 30, 2011
Mr. Smith of Texas (for himself, Mr. Goodlatte, and Mr. Issa)
introduced the following bill; which was referred to the Committee
on the Judiciary, and in addition to the Committee on the Budget,
for a period to be subsequently determined by the Speaker, in each
case for consideration of such provisions as fall within the
jurisdiction of the committee concerned
__________
A BILL
To amend title 35, United States Code, to provide for patent reform.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``America Invents
Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. First inventor to file.
Sec. 3. Inventor's oath or declaration.
Sec. 4. Defense to infringement based on earlier inventor.
Sec. 5. Post-grant review proceedings.
Sec. 6. Patent Trial and Appeal Board.
Sec. 7. Preissuance submissions by third parties.
Sec. 8. Venue.
Sec. 9. Fee setting authority.
Sec. 10. Fees for patent services.
Sec. 11. Supplemental examination.
Sec. 12. Funding agreements.
Sec. 13. Tax strategies deemed within the prior art.
Sec. 14. Best mode requirement.
Sec. 15. Marking.
Sec. 16. Advice of counsel.
Sec. 17. Ownership; assignment.
Sec. 18. Transitional program for covered business method patents.
Sec. 19. Clarification of jurisdiction.
Sec. 20. Technical amendments.
Sec. 21. Travel expenses and payment of administrative judges.
Sec. 22. Patent and Trademark Office funding.
Sec. 23. Satellite offices.
Sec. 24. Patent Ombudsman Program for small business concerns.
Sec. 25. Priority examination for technologies important to
American competitiveness.
Sec. 26. Designation of Detroit satellite office.
Sec. 27. Effective date.
Sec. 28. Budgetary effects.
SEC. 2. FIRST INVENTOR TO FILE.
(a) Definitions.--Section 100 of title 35, United States Code, is
amended by adding at the end the following:
``(f) The term `inventor' means the individual or, if a joint
invention, the individuals collectively who invented or discovered the
subject matter of the invention.
``(g) The terms `joint inventor' and `coinventor' mean any 1 of the
individuals who invented or discovered the subject matter of a joint
invention.
``(h) The term `joint research agreement' means a written contract,
grant, or cooperative agreement entered into by 2 or more persons or
entities for the performance of experimental, developmental, or
research work in the field of the claimed invention.
``(i)(1) The term `effective filing date' for a claimed invention
in a patent or application for patent means--
``(A) if subparagraph (B) does not apply, the actual filing
date of the patent or the application for the patent containing
a claim to the invention; or
``(B) the filing date of the earliest application for which
the patent or application is entitled, as to such invention, to
a right of priority under section 119, 365(a), or 365(b) or to
the benefit of an earlier filing date under section 120, 121,
or 365(c).
``(2) The effective filing date for a claimed invention in an
application for reissue or reissued patent shall be determined by
deeming the claim to the invention to have been contained in the patent
for which reissue was sought.
``(j) The term `claimed invention' means the subject matter defined
by a claim in a patent or an application for a patent.''.
(b) Conditions for Patentability.--
(1) In general.--Section 102 of title 35, United States
Code, is amended to read as follows:
``Sec. 102. Conditions for patentability; novelty
``(a) Novelty; Prior Art.--A person shall be entitled to a patent
unless--
``(1) the claimed invention was patented, described in a
printed publication, or in public use, on sale, or otherwise
available to the public before the effective filing date of the
claimed invention; or
``(2) the claimed invention was described in a patent
issued under section 151, or in an application for patent
published or deemed published under section 122(b), in which
the patent or application, as the case may be, names another
inventor and was effectively filed before the effective filing
date of the claimed invention.
``(b) Exceptions.--
``(1) Disclosures made 1 year or less before the effective
filing date of the claimed invention.--A disclosure made 1 year
or less before the effective filing date of a claimed invention
shall not be prior art to the claimed invention under
subsection (a)(1) if--
``(A) the disclosure was made by the inventor or
joint inventor or by another who obtained the subject
matter disclosed directly or indirectly from the
inventor or a joint inventor; or
``(B) the subject matter disclosed had, before such
disclosure, been publicly disclosed by the inventor or
a joint inventor or another who obtained the subject
matter disclosed directly or indirectly from the
inventor or a joint inventor.
``(2) Disclosures appearing in applications and patents.--A
disclosure shall not be prior art to a claimed invention under
subsection (a)(2) if--
``(A) the subject matter disclosed was obtained
directly or indirectly from the inventor or a joint
inventor;
``(B) the subject matter disclosed had, before such
subject matter was effectively filed under subsection
(a)(2), been publicly disclosed by the inventor or a
joint inventor or another who obtained the subject
matter disclosed directly or indirectly from the
inventor or a joint inventor; or
``(C) the subject matter disclosed and the claimed
invention, not later than the effective filing date of
the claimed invention, were owned by the same person or
subject to an obligation of assignment to the same
person.
``(c) Common Ownership Under Joint Research Agreements.--Subject
matter disclosed and a claimed invention shall be deemed to have been
owned by the same person or subject to an obligation of assignment to
the same person in applying the provisions of subsection (b)(2)(C) if--
``(1) the subject matter disclosed was developed and the
claimed invention was made by, or on behalf of, 1 or more
parties to a joint research agreement that was in effect on or
before the effective filing date of the claimed invention;
``(2) the claimed invention was made as a result of
activities undertaken within the scope of the joint research
agreement; and
``(3) the application for patent for the claimed invention
discloses or is amended to disclose the names of the parties to
the joint research agreement.
``(d) Patents and Published Applications Effective as Prior Art.--
For purposes of determining whether a patent or application for patent
is prior art to a claimed invention under subsection (a)(2), such
patent or application shall be considered to have been effectively
filed, with respect to any subject matter described in the patent or
application--
``(1) if paragraph (2) does not apply, as of the actual
filing date of the patent or the application for patent; or
``(2) if the patent or application for patent is entitled
to claim a right of priority under section 119, 365(a), or
365(b), or to claim the benefit of an earlier filing date under
section 120, 121, or 365(c), based upon 1 or more prior filed
applications for patent, as of the filing date of the earliest
such application that describes the subject matter.''.
(2) Continuity of intent under the create act.--The
enactment of section 102(c) of title 35, United States Code,
under paragraph (1) of this subsection is done with the same
intent to promote joint research activities that was expressed,
including in the legislative history, through the enactment of
the Cooperative Research and Technology Enhancement Act of 2004
(Public Law 108-453; the ``CREATE Act''), the amendments of
which are stricken by subsection (c) of this section. The
United States Patent and Trademark Office shall administer
section 102(c) of title 35, United States Code, in a manner
consistent with the legislative history of the CREATE Act that
was relevant to its administration by the United States Patent
and Trademark Office.
(3) Conforming amendment.--The item relating to section 102
in the table of sections for chapter 10 of title 35, United
States Code, is amended to read as follows:
``102. Conditions for patentability; novelty.''.
(c) Conditions for Patentability; Nonobvious Subject Matter.--
Section 103 of title 35, United States Code, is amended to read as
follows:
``Sec. 103. Conditions for patentability; nonobvious subject matter
``A patent for a claimed invention may not be obtained,
notwithstanding that the claimed invention is not identically disclosed
as set forth in section 102, if the differences between the claimed
invention and the prior art are such that the claimed invention as a
whole would have been obvious before the effective filing date of the
claimed invention to a person having ordinary skill in the art to which
the claimed invention pertains. Patentability shall not be negated by
the manner in which the invention was made.''.
(d) Repeal of Requirements for Inventions Made Abroad.--Section 104
of title 35, United States Code, and the item relating to that section
in the table of sections for chapter 10 of title 35, United States
Code, are repealed.
(e) Repeal of Statutory Invention Registration.--
(1) In general.--Section 157 of title 35, United States
Code, and the item relating to that section in the table of
sections for chapter 14 of title 35, United States Code, are
repealed.
(2) Removal of cross references.--Section 111(b)(8) of
title 35, United States Code, is amended by striking ``sections
115, 131, 135, and 157'' and inserting ``sections 131 and
135''.
(3) Effective date.--The amendments made by this subsection
shall take effect upon the expiration of the 18-month period
beginning on the date of the enactment of this Act, and shall
apply to any request for a statutory invention registration
filed on or after that effective date.
(f) Earlier Filing Date for Inventor and Joint Inventor.--Section
120 of title 35, United States Code, is amended by striking ``which is
filed by an inventor or inventors named'' and inserting ``which names
an inventor or joint inventor''.
(g) Conforming Amendments.--
(1) Right of priority.--Section 172 of title 35, United
States Code, is amended by striking ``and the time specified in
section 102(d)''.
(2) Limitation on remedies.--Section 287(c)(4) of title 35,
United States Code, is amended by striking ``the earliest
effective filing date of which is prior to'' and inserting
``which has an effective filing date before''.
(3) International application designating the united
states: effect.--Section 363 of title 35, United States Code,
is amended by striking ``except as otherwise provided in
section 102(e) of this title''.
(4) Publication of international application: effect.--
Section 374 of title 35, United States Code, is amended by
striking ``sections 102(e) and 154(d)'' and inserting ``section
154(d)''.
(5) Patent issued on international application: effect.--
The second sentence of section 375(a) of title 35, United
States Code, is amended by striking ``Subject to section 102(e)
of this title, such'' and inserting ``Such''.
(6) Limit on right of priority.--Section 119(a) of title
35, United States Code, is amended by striking ``; but no
patent shall be granted'' and all that follows through ``one
year prior to such filing''.
(7) Inventions made with federal assistance.--Section
202(c) of title 35, United States Code, is amended--
(A) in paragraph (2)--
(i) by striking ``publication, on sale, or
public use,'' and all that follows through
``obtained in the United States'' and inserting
``the 1-year period referred to in section
102(b) would end before the end of that 2-year
period''; and
(ii) by striking ``prior to the end of the
statutory'' and inserting ``before the end of
that 1-year''; and
(B) in paragraph (3), by striking ``any statutory
bar date that may occur under this title due to
publication, on sale, or public use'' and inserting
``the expiration of the 1-year period referred to in
section 102(b)''.
(h) Derived Patents.--
(1) In general.--Section 291 of title 35, United States
Code, is amended to read as follows:
``Sec. 291. Derived Patents
``(a) In General.--The owner of a patent may have relief by civil
action against the owner of another patent that claims the same
invention and has an earlier effective filing date if the invention
claimed in such other patent was derived from the inventor of the
invention claimed in the patent owned by the person seeking relief
under this section.
``(b) Filing Limitation.--An action under this section may be filed
only before the end of the 1-year period beginning on the date of the
issuance of the first patent containing a claim to the allegedly
derived invention and naming an individual alleged to have derived such
invention as the inventor or joint inventor.''.
(2) Conforming amendment.--The item relating to section 291
in the table of sections for chapter 29 of title 35, United
States Code, is amended to read as follows:
``291. Derived patents.''.
(i) Derivation Proceedings.--Section 135 of title 35, United States
Code, is amended to read as follows:
``Sec. 135. Derivation proceedings
``(a) Institution of Proceeding.--An applicant for patent may file
a petition to institute a derivation proceeding in the Office. The
petition shall set forth with particularity the basis for finding that
an inventor named in an earlier application derived the claimed
invention from an inventor named in the petitioner's application and,
without authorization, the earlier application claiming such invention
was filed. Any such petition may be filed only within the 1-year period
beginning the date of the first publication of a claim to an invention
that is the same or substantially the same as the earlier application's
claim to the invention, shall be made under oath, and shall be
supported by substantial evidence. Whenever the Director determines
that a petition filed under this subsection demonstrates that the
standards for instituting a derivation proceeding are met, the Director
may institute a derivation proceeding. The determination by the
Director whether to institute a derivation proceeding shall be final
and nonappealable.
``(b) Determination by Patent Trial and Appeal Board.--In a
derivation proceeding instituted under subsection (a), the Patent Trial
and Appeal Board shall determine whether an inventor named in the
earlier application derived the claimed invention from an inventor
named in the petitioner's application and, without authorization, the
earlier application claiming such invention was filed. The Director
shall prescribe regulations setting forth standards for the conduct of
derivation proceedings.
``(c) Deferral of Decision.--The Patent Trial and Appeal Board may
defer action on a petition for a derivation proceeding until the
expiration of the 3-month period beginning on the date on which the
Director issues a patent that includes the claimed invention that is
the subject of the petition. The Patent Trial and Appeal Board also may
defer action on a petition for a derivation proceeding, or stay the
proceeding after it has been instituted, until the termination of a
proceeding under chapter 30, 31, or 32 involving the patent of the
earlier applicant.
``(d) Effect of Final Decision.--The final decision of the Patent
Trial and Appeal Board, if adverse to claims in an application for
patent, shall constitute the final refusal by the Office on those
claims. The final decision of the Patent Trial and Appeal Board, if
adverse to claims in a patent, shall, if no appeal or other review of
the decision has been or can be taken or had, constitute cancellation
of those claims, and notice of such cancellation shall be endorsed on
copies of the patent distributed after such cancellation.
``(e) Settlement.--Parties to a proceeding instituted under
subsection (a) may terminate the proceeding by filing a written
statement reflecting the agreement of the parties as to the correct
inventors of the claimed invention in dispute. Unless the Patent Trial
and Appeal Board finds the agreement to be inconsistent with the
evidence of record, if any, it shall take action consistent with the
agreement. Any written settlement or understanding of the parties shall
be filed with the Director. At the request of a party to the
proceeding, the agreement or understanding shall be treated as business
confidential information, shall be kept separate from the file of the
involved patents or applications, and shall be made available only to
Government agencies on written request, or to any person on a showing
of good cause.
``(f) Arbitration.--Parties to a proceeding instituted under
subsection (a) may, within such time as may be specified by the
Director by regulation, determine such contest or any aspect thereof by
arbitration. Such arbitration shall be governed by the provisions of
title 9, to the extent such title is not inconsistent with this
section. The parties shall give notice of any arbitration award to the
Director, and such award shall, as between the parties to the
arbitration, be dispositive of the issues to which it relates. The
arbitration award shall be unenforceable until such notice is given.
Nothing in this subsection shall preclude the Director from determining
the patentability of the claimed inventions involved in the
proceeding.''.
(j) Elimination of References to Interferences.--(1) Sections 134,
145, 146, 154, 305, and 314 of title 35, United States Code, are each
amended by striking ``Board of Patent Appeals and Interferences'' each
place it appears and inserting ``Patent Trial and Appeal Board''.
(2)(A) Sections 146 and 157(a) of title 35, United States Code, are
each amended--
(i) by striking ``an interference'' each place it
appears and inserting ``a derivation proceeding''; and
(ii) by striking ``interference'' each additional
place it appears and inserting ``derivation
proceeding''.
(B) The subparagraph heading for section 154(b)(1)(C) of
title 35, United States Code, is amended to read as follows:
``(C) Guarantee of adjustments for delays
due to derivation proceedings, secrecy orders,
and appeals.--''.
(3) The section heading for section 134 of title 35, United States
Code, is amended to read as follows:
``Sec. 134. Appeal to the Patent Trial and Appeal Board''.
(4) The section heading for section 146 of title 35, United States
Code, is amended to read as follows:
``Sec. 146. Civil action in case of derivation proceeding''.
(5) The items relating to sections 134 and 135 in the table of
sections for chapter 12 of title 35, United States Code, are amended to
read as follows:
``134. Appeal to the Patent Trial and Appeal Board.
``135. Derivation proceedings.''.
(6) The item relating to section 146 in the table of sections for
chapter 13 of title 35, United States Code, is amended to read as
follows:
``146. Civil action in case of derivation proceeding.''.
(k) Statute of Limitations.--
(1) In general.--Section 32 of title 35, United States
Code, is amended by inserting between the third and fourth
sentences the following: ``A proceeding under this section
shall be commenced not later than the earlier of either the
date that is 10 years after the date on which the misconduct
forming the basis for the proceeding occurred, or 1 year after
the date on which the misconduct forming the basis for the
proceeding is made known to an officer or employee of the
Office as prescribed in the regulations established under
section 2(b)(2)(D).''.
(2) Report to congress.--The Director shall provide on a
biennial basis to the Judiciary Committees of the Senate and
House of Representatives a report providing a short description
of incidents made known to an officer or employee of the Office
as prescribed in the regulations established under section
2(b)(2)(D) of title 35, United States Code, that reflect
substantial evidence of misconduct before the Office but for
which the Office was barred from commencing a proceeding under
section 32 of title 35, United States Code, by the time
limitation established by the fourth sentence of that section.
(3) Effective date.--The amendment made by paragraph (1)
shall apply in any case in which the time period for
instituting a proceeding under section 32 of title 35, United
State Code, had not lapsed before the date of the enactment of
this Act.
(l) Small Business Study.--
(1) Definitions.--In this subsection--
(A) the term ``Chief Counsel'' means the Chief
Counsel for Advocacy of the Small Business
Administration;
(B) the term ``General Counsel'' means the General
Counsel of the United States Patent and Trademark
Office; and
(C) the term ``small business concern'' has the
meaning given that term under section 3 of the Small
Business Act (15 U.S.C. 632).
(2) Study.--
(A) In general.--The Chief Counsel, in consultation
with the General Counsel, shall conduct a study of the
effects of eliminating the use of dates of invention in
determining whether an applicant is entitled to a
patent under title 35, United States Code.
(B) Areas of study.--The study conducted under
subparagraph (A) shall include examination of the
effects of eliminating the use of invention dates,
including examining--
(i) how the change would affect the ability
of small business concerns to obtain patents
and their costs of obtaining patents;
(ii) whether the change would create,
mitigate, or exacerbate any disadvantages for
applicants for patents that are small business
concerns relative to applicants for patents
that are not small business concerns, and
whether the change would create any advantages
for applicants for patents that are small
business concerns relative to applicants for
patents that are not small business concerns;
(iii) the cost savings and other potential
benefits to small business concerns of the
change; and
(iv) the feasibility and costs and benefits
to small business concerns of alternative means
of determining whether an applicant is entitled
to a patent under title 35, United States Code.
(3) Report.--Not later than the date that is 1 year after
the date of the enactment of this Act, the Chief Counsel shall
submit to the Committee on Small Business and Entrepreneurship
and the Committee on the Judiciary of the Senate and the
Committee on Small Business and the Committee on the Judiciary
of the House of Representatives a report regarding the results
of the study under paragraph (2).
(m) Report on Prior User Rights.--
(1) In general.--Not later than the end of the 4-month
period beginning on the date of the enactment of this Act, the
Director shall report, to the Committee on the Judiciary of the
Senate and the Committee on the Judiciary of the House of
Representatives, the findings and recommendations of the
Director on the operation of prior user rights in selected
countries in the industrialized world. The report shall include
the following:
(A) A comparison between patent laws of the United
States and the laws of other industrialized countries,
including members of the European Union and Japan,
Canada, and Australia.
(B) An analysis of the effect of prior user rights
on innovation rates in the selected countries.
(C) An analysis of the correlation, if any, between
prior user rights and start-up enterprises and the
ability to attract venture capital to start new
companies.
(D) An analysis of the effect of prior user rights,
if any, on small businesses, universities, and
individual inventors.
(E) An analysis of legal and constitutional issues,
if any, that arise from placing trade secret law in
patent law.
(F) An analysis of whether the change to a first-
to-file patent system creates a particular need for
prior user rights.
(2) Consultation with other agencies.--In preparing the
report required under paragraph (1), the Director shall consult
with the United States Trade Representative, the Secretary of
State, and the Attorney General.
(n) Effective Date.--
(1) In general.--Except as otherwise provided in this
section, the amendments made by this section shall take effect
upon the expiration of the 18-month period beginning on the
date of the enactment of this Act, and shall apply to any
application for patent, and to any patent issuing thereon, that
contains or contained at any time--
(A) a claim to a claimed invention that has an
effective filing date as defined in section 100(i) of
title 35, United States Code, that is on or after the
effective date described in this paragraph; or
(B) a specific reference under section 120, 121, or
365(c) of title 35, United States Code, to any patent
or application that contains or contained at any time
such a claim.
(2) Interfering patents.--The provisions of sections
102(g), 135, and 291 of title 35, United States Code, as in
effect on the day before the date of the enactment of this Act,
shall apply to each claim of an application for patent, and any
patent issued thereon, for which the amendments made by this
section also apply, if such application or patent contains or
contained at any time--
(A) a claim to an invention having an effective
filing date as defined in section 100(i) of title 35,
United States Code, that occurs before the effective
date set forth in paragraph (1) of this subsection; or
(B) a specific reference under section 120, 121, or
365(c) of title 35, United States Code, to any patent
or application that contains or contained at any time
such a claim.
SEC. 3. INVENTOR'S OATH OR DECLARATION.
(a) Inventor's Oath or Declaration.--
(1) In general.--Section 115 of title 35, United States
Code, is amended to read as follows:
``Sec. 115. Inventor's oath or declaration
``(a) Naming the Inventor; Inventor's Oath or Declaration.--An
application for patent that is filed under section 111(a) or commences
the national stage under section 371 shall include, or be amended to
include, the name of the inventor for any invention claimed in the
application. Except as otherwise provided in this section, each
individual who is the inventor or a joint inventor of a claimed
invention in an application for patent shall execute an oath or
declaration in connection with the application.
``(b) Required Statements.--An oath or declaration under subsection
(a) shall contain statements that--
``(1) the application was made or was authorized to be made
by the affiant or declarant; and
``(2) such individual believes himself or herself to be the
original inventor or an original joint inventor of a claimed
invention in the application.
``(c) Additional Requirements.--The Director may specify additional
information relating to the inventor and the invention that is required
to be included in an oath or declaration under subsection (a).
``(d) Substitute Statement.--
``(1) In general.--In lieu of executing an oath or
declaration under subsection (a), the applicant for patent may
provide a substitute statement under the circumstances
described in paragraph (2) and such additional circumstances
that the Director may specify by regulation.
``(2) Permitted circumstances.--A substitute statement
under paragraph (1) is permitted with respect to any individual
who--
``(A) is unable to file the oath or declaration
under subsection (a) because the individual--
``(i) is deceased;
``(ii) is under legal incapacity; or
``(iii) cannot be found or reached after
diligent effort; or
``(B) is under an obligation to assign the
invention but has refused to make the oath or
declaration required under subsection (a).
``(3) Contents.--A substitute statement under this
subsection shall--
``(A) identify the individual with respect to whom
the statement applies;
``(B) set forth the circumstances representing the
permitted basis for the filing of the substitute
statement in lieu of the oath or declaration under
subsection (a); and
``(C) contain any additional information, including
any showing, required by the Director.
``(e) Making Required Statements in Assignment of Record.--An
individual who is under an obligation of assignment of an application
for patent may include the required statements under subsections (b)
and (c) in the assignment executed by the individual, in lieu of filing
such statements separately.
``(f) Time for Filing.--A notice of allowance under section 151 may
be provided to an applicant for patent only if the applicant for patent
has filed each required oath or declaration under subsection (a) or has
filed a substitute statement under subsection (d) or recorded an
assignment meeting the requirements of subsection (e).
``(g) Earlier-Filed Application Containing Required Statements or
Substitute Statement.--
``(1) Exception.--The requirements under this section shall
not apply to an individual with respect to an application for
patent in which the individual is named as the inventor or a
joint inventor and who claims the benefit under section 120,
121, or 365(c) of the filing of an earlier-filed application,
if--
``(A) an oath or declaration meeting the
requirements of subsection (a) was executed by the
individual and was filed in connection with the
earlier-filed application;
``(B) a substitute statement meeting the
requirements of subsection (d) was filed in the earlier
filed application with respect to the individual; or
``(C) an assignment meeting the requirements of
subsection (e) was executed with respect to the
earlier-filed application by the individual and was
recorded in connection with the earlier-filed
application.
``(2) Copies of oaths, declarations, statements, or
assignments.--Notwithstanding paragraph (1), the Director may
require that a copy of the executed oath or declaration, the
substitute statement, or the assignment filed in the earlier-
filed application be included in the later-filed application.
``(h) Supplemental and Corrected Statements; Filing Additional
Statements.--
``(1) In general.--Any person making a statement required
under this section may withdraw, replace, or otherwise correct
the statement at any time. If a change is made in the naming of
the inventor requiring the filing of 1 or more additional
statements under this section, the Director shall establish
regulations under which such additional statements may be
filed.
``(2) Supplemental statements not required.--If an
individual has executed an oath or declaration meeting the
requirements of subsection (a) or an assignment meeting the
requirements of subsection (e) with respect to an application
for patent, the Director may not thereafter require that
individual to make any additional oath, declaration, or other
statement equivalent to those required by this section in
connection with the application for patent or any patent
issuing thereon.
``(3) Savings clause.--A patent shall not be invalid or
unenforceable based upon the failure to comply with a
requirement under this section if the failure is remedied as
provided under paragraph (1).
``(i) Acknowledgment of Penalties.--Any declaration or statement
filed pursuant to this section shall contain an acknowledgment that any
willful false statement made in such declaration or statement is
punishable under section 1001 of title 18 by fine or imprisonment of
not more than 5 years, or both.''.
(2) Relationship to divisional applications.--Section 121
of title 35, United States Code, is amended by striking ``If a
divisional application'' and all that follows through
``inventor.''.
(3) Requirements for nonprovisional applications.--Section
111(a) of title 35, United States Code, is amended--
(A) in paragraph (2)(C), by striking ``by the
applicant'' and inserting ``or declaration'';
(B) in the heading for paragraph (3), by inserting
``or declaration'' after ``and oath''; and
(C) by inserting ``or declaration'' after ``and
oath'' each place it appears.
(4) Conforming amendment.--The item relating to section 115
in the table of sections for chapter 11 of title 35, United
States Code, is amended to read as follows:
``115. Inventor's oath or declaration.''.
(b) Filing by Other Than Inventor.--
(1) In general.--Section 118 of title 35, United States
Code, is amended to read as follows:
``Sec. 118. Filing by other than inventor
``A person to whom the inventor has assigned or is under an
obligation to assign the invention may make an application for patent.
A person who otherwise shows sufficient proprietary interest in the
matter may make an application for patent on behalf of and as agent for
the inventor on proof of the pertinent facts and a showing that such
action is appropriate to preserve the rights of the parties. If the
Director grants a patent on an application filed under this section by
a person other than the inventor, the patent shall be granted to the
real party in interest and upon such notice to the inventor as the
Director considers to be sufficient.''.
(2) Conforming amendment.--Section 251 of title 35, United
States Code, is amended in the third undesignated paragraph by
inserting ``or the application for the original patent was
filed by the assignee of the entire interest'' after ``claims
of the original patent''.
(c) Specification.--Section 112 of title 35, United States Code, is
amended--
(1) in the first undesignated paragraph--
(A) by striking ``The specification'' and inserting
``(a) In General.--The specification''; and
(B) by striking ``of carrying out his invention''
and inserting ``or joint inventor of carrying out the
invention'';
(2) in the second undesignated paragraph--
(A) by striking ``The specification'' and inserting
``(b) Conclusion.--The specification''; and
(B) by striking ``applicant regards as his
invention'' and inserting ``inventor or a joint
inventor regards as the invention'';
(3) in the third undesignated paragraph, by striking ``A
claim'' and inserting ``(c) Form.--A claim'';
(4) in the fourth undesignated paragraph, by striking
``Subject to the following paragraph,'' and inserting ``(d)
Reference in Dependent Forms.--Subject to subsection (e),'';
(5) in the fifth undesignated paragraph, by striking ``A
claim'' and inserting ``(e) Reference in Multiple Dependent
Form.--A claim''; and
(6) in the last undesignated paragraph, by striking ``An
element'' and inserting ``(f) Element in Claim for a
Combination.--An element''.
(d) Conforming Amendments.--
(1) Sections 111(b)(1)(A) is amended by striking ``the
first paragraph of section 112 of this title'' and inserting
``section 112(a)''.
(2) Section 111(b)(2) is amended by striking ``the second
through fifth paragraphs of section 112,'' and inserting
``subsections (b) through (e) of section 112,''.
(e) Effective Date.--The amendments made by this section shall take
effect upon the expiration of the 1-year period beginning on the date
of the enactment of this Act and shall apply to any patent application
that is filed on or after that effective date.
SEC. 4. DEFENSE TO INFRINGEMENT BASED ON EARLIER INVENTOR.
Section 273 of title 35, United States Code, is amended as follows:
(1) Subsection (a) is amended--
(A) in paragraph (1), by striking ``use of a method
in'' and inserting ``use of the subject matter of a
patent in or outside'' ;
(B) by striking paragraph (3); and
(C) by redesignating paragraph (4) as paragraph
(3).
(2) Subsection (b) is amended--
(A) in paragraph (1), by striking ``for a method'';
(B) in paragraph (2), by striking ``patented
method'' and inserting ``patented process'';
(C) in paragraph (3)--
(i) by striking subparagraph (A);
(ii) by redesignating subparagraphs (B) and
(C) as subparagraph (A) and (C), respectively;
and
(iii) by adding at the end the following:
``(D) Funding.--
``(i) Defense not available in certain
cases.--A person may not assert the defense
under this section if the subject matter of the
patent on which the defense is based was
developed pursuant to a funding agreement under
chapter 18 of this title or by a nonprofit
institution of higher education, or a
technology transfer organization affiliated
with such an institution, that did not receive
funding from a private business enterprise in
support of that development.
``(ii) Definitions.--In this subparagraph--
``(I) the term `institution of
higher education' has the meaning given
that term in section 101(a) of the
Higher Education Act of 1965 (20 U.S.C.
1001(a)); and
``(II) the term `technology
transfer organization' means an
organization the primary purpose of
which is to facilitate the
commercialization of technologies
developed by one or more institutions
of higher education.''; and
(D) by amending paragraph (6) to read as follows:
``(6) Personal defense.--
``(A) In general.--The defense under this section
may be asserted only by the person who performed or
caused the performance of the acts necessary to
establish the defense, as well as any other entity that
controls, is controlled by, or is under common control
with such person, and, except for any transfer to the
patent owner, the right to assert the defense shall not
be licensed or assigned or transferred to another
person except as an ancillary and subordinate part of a
good faith assignment or transfer for other reasons of
the entire enterprise or line of business to which the
defense relates.
``(B) Exception.--Notwithstanding subparagraph (A),
any person may, on the person's own behalf, assert a
defense based on the exhaustion of rights provided
under paragraph (2), including any necessary elements
thereof.''.
SEC. 5. POST-GRANT REVIEW PROCEEDINGS.
(a) Inter Partes Review.--Chapter 31 of title 35, United States
Code, is amended to read as follows:
``CHAPTER 31--INTER PARTES REVIEW
``Sec.
``311. Inter partes review.
``312. Petitions.
``313. Preliminary response to petition.
``314. Institution of inter partes review.
``315. Relation to other proceedings or actions.
``316. Conduct of inter partes review.
``317. Settlement.
``318. Decision of the Board.
``319. Appeal.
``320. Request for stay of certain proceedings.
``Sec. 311. Inter partes review
``(a) In General.--Subject to the provisions of this chapter, a
person who is not the owner of a patent may file with the Office a
petition to institute an inter partes review of the patent. The
Director shall establish, by regulation, fees to be paid by the person
requesting the review, in such amounts as the Director determines to be
reasonable, considering the aggregate costs of the review.
``(b) Scope.--A petitioner in an inter partes review may request to
cancel as unpatentable 1 or more claims of a patent only on a ground
that could be raised under section 102 or 103 and only on the basis of
prior art consisting of patents or printed publications.
``(c) Filing Deadline.--A petition for inter partes review shall be
filed after the later of either--
``(1) the date that is 12 months after the grant of a
patent or issuance of a reissue of a patent; or
``(2) if a post-grant review is instituted under chapter
32, the date of the termination of such post-grant review.
``Sec. 312. Petitions
``(a) Requirements of Petition.--A petition filed under section 311
may be considered only if--
``(1) the petition is accompanied by payment of the fee
established by the Director under section 311;
``(2) the petition identifies all real parties in interest;
``(3) the petition identifies, in writing and with
particularity, each claim challenged, the grounds on which the
challenge to each claim is based, and the evidence that
supports the grounds for the challenge to each claim,
including--
``(A) copies of patents and printed publications
that the petitioner relies upon in support of the
petition; and
``(B) affidavits or declarations of supporting
evidence and opinions, if the petitioner relies on
expert opinions;
``(4) the petition provides such other information as the
Director may require by regulation; and
``(5) the petitioner provides copies of any of the
documents required under paragraphs (2), (3), and (4) to the
patent owner or, if applicable, the designated representative
of the patent owner.
``(b) Public Availability.--As soon as practicable after the
receipt of a petition under section 311, the Director shall make the
petition available to the public.
``Sec. 313. Preliminary response to petition
``(a) Preliminary Response.--If an inter partes review petition is
filed under section 311, the patent owner shall have the right to file
a preliminary response within a time period set by the Director.
``(b) Content of Response.--A preliminary response to a petition
for inter partes review shall set forth reasons why no inter partes
review should be instituted based upon the failure of the petition to
meet any requirement of this chapter.
``Sec. 314. Institution of inter partes review
``(a) Threshold.--The Director may not authorize an inter partes
review to commence unless the Director determines that the information
presented in the petition filed under section 311 and any response
filed under section 313 shows that a substantial new question of
patentability exists.
``(b) Timing.--The Director shall determine whether to institute an
inter partes review under this chapter pursuant to a petition filed
under section 311 within 3 months after--
``(1) receiving a preliminary response to the petition
under section 313; or
``(2) if no such preliminary response is filed, the last
date on which such response may be filed.
``(c) Notice.--The Director shall notify the petitioner and patent
owner, in writing, of the Director's determination under subsection
(a), and shall make such notice available to the public as soon as is
practicable. Such notice shall include the date on which the review
shall commence.
``(d) No Appeal.--The determination by the Director whether to
institute an inter partes review under this section shall be final and
nonappealable.
``Sec. 315. Relation to other proceedings or actions
``(a) Infringer's Civil Action.--
``(1) Inter partes review barred by civil action.--An inter
partes review may not be instituted if, before the date on
which the petition for such a review is filed, the petitioner,
real party in interest, or privy of the petitioner filed a
civil action challenging the validity of a claim of the patent.
``(2) Stay of civil action.--If the petitioner, real party
in interest, or privy of the petitioner files a civil action
challenging the validity of a claim of the patent on or after
the date on which the petitioner files a petition for inter
partes review of the patent, that civil action shall be
automatically stayed until either--
``(A) the patent owner requests to lift the stay;
``(B) the patent owner files a civil action or
counterclaim alleging that the petitioner, real party
in interest, or privy of the petitioner has infringed
the patent; or
``(C) the petitioner, real party in interest, or
privy of the petitioner requests to dismiss the civil
action.
``(3) Treatment of counterclaim.--A counterclaim
challenging the validity of a claim of a patent does not
constitute a civil action challenging the validity of a claim
of a patent for purposes of this subsection.
``(b) Patent Owner's Action.--An inter partes review may not be
instituted if the petition requesting the proceeding is filed more than
9 months after the date on which the petitioner, real party in
interest, or privy of the petitioner is served with a complaint
alleging infringement of the patent. The time limitation set forth in
the preceding sentence shall not apply to a request for joinder under
subsection (c).
``(c) Joinder.--If the Director institutes an inter partes review,
the Director, in his or her discretion, may join as a party to that
inter partes review any person who properly files a petition under
section 311 that the Director, after receiving a preliminary response
under section 313 or the expiration of the time for filing such a
response, determines warrants the institution of an inter partes review
under section 314.
``(d) Multiple Proceedings.--Notwithstanding sections 135(a), 251,
and 252, and chapter 30, during the pendency of an inter partes review,
if another proceeding or matter involving the patent is before the
Office, the Director may determine the manner in which the inter partes
review or other proceeding or matter may proceed, including providing
for stay, transfer, consolidation, or termination of any such matter or
proceeding.
``(e) Estoppel.--
``(1) Proceedings before the office.--The petitioner in an
inter partes review under this chapter, or the real party in
interest or privy of the petitioner, may not request or
maintain a proceeding before the Office with respect to a claim
on any ground that the petitioner raised or reasonably could
have raised during an inter partes review of the claim that
resulted in a final written decision under section 318(a).
``(2) Civil actions and other proceedings.--The petitioner
in an inter partes review under this chapter, or the real party
in interest or privy of the petitioner, may not assert either
in a civil action arising in whole or in part under section
1338 of title 28 or in a proceeding before the International
Trade Commission under section 337 of the Tariff Act of 1930
that a claim in a patent is invalid on any ground that the
petitioner raised or reasonably could have raised during an
inter partes review of the claim that resulted in a final
written decision under section 318(a).
``Sec. 316. Conduct of inter partes review
``(a) Regulations.--The Director shall prescribe regulations--
``(1) providing that the file of any proceeding under this
chapter shall be made available to the public, except that any
petition or document filed with the intent that it be sealed
shall, if accompanied by a motion to seal, be treated as sealed
pending the outcome of the ruling on the motion;
``(2) setting forth the standards for the showing of
sufficient grounds to institute a review under section 314(a);
``(3) establishing procedures for the submission of
supplemental information after the petition is filed;
``(4) in accordance with section 2(b)(2), establishing and
governing inter partes review under this chapter and the
relationship of such review to other proceedings under this
title;
``(5) setting a time period for requesting joinder under
section 315(c);
``(6) setting forth standards and procedures for discovery
of relevant evidence, including that such discovery shall be
limited to--
``(A) the deposition of witnesses submitting
affidavits or declarations; and
``(B) what is otherwise necessary in the interest
of justice;
``(7) prescribing sanctions for abuse of discovery, abuse
of process, or any other improper use of the proceeding, such
as to harass or to cause unnecessary delay or an unnecessary
increase in the cost of the proceeding;
``(8) providing for protective orders governing the
exchange and submission of confidential information;
``(9) providing for the filing by the patent owner of a
response to the petition under section 313 after an inter
partes review has been instituted, and requiring that the
patent owner file with such response, through affidavits or
declarations, any additional factual evidence and expert
opinions on which the patent owner relies in support of the
response;
``(10) setting forth standards and procedures for allowing
the patent owner to move to amend the patent under subsection
(d) to cancel a challenged claim or propose a reasonable number
of substitute claims, and ensuring that any information
submitted by the patent owner in support of any amendment
entered under subsection (d) is made available to the public as
part of the prosecution history of the patent;
``(11) providing either party with the right to an oral
hearing as part of the proceeding; and
``(12) requiring that the final determination in an inter
partes review be issued not later than 1 year after the date on
which the Director notices the institution of a review under
this chapter, except that the Director may, for good cause
shown, extend the 1-year period by not more than 6 months, and
may adjust the time periods in this paragraph in the case of
joinder under section 315(c).
``(b) Considerations.--In prescribing regulations under this
section, the Director shall consider the effect of any such regulation
on the economy, the integrity of the patent system, the efficient
administration of the Office, and the ability of the Office to timely
complete proceedings instituted under this chapter.
``(c) Patent Trial and Appeal Board.--The Patent Trial and Appeal
Board shall, in accordance with section 6, conduct each proceeding
authorized by the Director.
``(d) Amendment of the Patent.--
``(1) In general.--During an inter partes review instituted
under this chapter, the patent owner may file 1 motion to amend
the patent in 1 or more of the following ways:
``(A) Cancel any challenged patent claim.
``(B) For each challenged claim, propose a
reasonable number of substitute claims.
``(2) Additional motions.--Additional motions to amend may
be permitted upon the joint request of the petitioner and the
patent owner to materially advance the settlement of a
proceeding under section 317, or as permitted by regulations
prescribed by the Director.
``(3) Scope of claims.--An amendment under this subsection
may not enlarge the scope of the claims of the patent or
introduce new matter.
``(e) Evidentiary Standards.--In an inter partes review instituted
under this chapter, the petitioner shall have the burden of proving a
proposition of unpatentability by a preponderance of the evidence.
``Sec. 317. Settlement
``(a) In General.--An inter partes review instituted under this
chapter shall be terminated with respect to any petitioner upon the
joint request of the petitioner and the patent owner, unless the Office
has decided the merits of the proceeding before the request for
termination is filed. If the inter partes review is terminated with
respect to a petitioner under this section, no estoppel under section
315(e) shall apply to that petitioner. If no petitioner remains in the
inter partes review, the Office may terminate the review or proceed to
a final written decision under section 318(a).
``(b) Agreements in Writing.--Any agreement or understanding
between the patent owner and a petitioner, including any collateral
agreements referred to in such agreement or understanding, made in
connection with, or in contemplation of, the termination of an inter
partes review under this section shall be in writing and a true copy of
such agreement or understanding shall be filed in the Office before the
termination of the inter partes review as between the parties. If any
party filing such agreement or understanding so requests, the copy
shall be kept separate from the file of the inter partes review, and
shall be made available only to Federal Government agencies upon
written request, or to any other person on a showing of good cause.
``Sec. 318. Decision of the Board
``(a) Final Written Decision.--If an inter partes review is
instituted and not dismissed under this chapter, the Patent Trial and
Appeal Board shall issue a final written decision with respect to the
patentability of any patent claim challenged by the petitioner and any
new claim added under section 316(d).
``(b) Certificate.--If the Patent Trial and Appeal Board issues a
final written decision under subsection (a) and the time for appeal has
expired or any appeal has terminated, the Director shall issue and
publish a certificate canceling any claim of the patent finally
determined to be unpatentable, confirming any claim of the patent
determined to be patentable, and incorporating in the patent by
operation of the certificate any new or amended claim determined to be
patentable.
``(c) Data on Length of Review.--The Office shall make available to
the public data describing the length of time between the institution
of, and the issuance of a final written decision under subsection (a)
for, each inter partes review.
``Sec. 319. Appeal
``A party dissatisfied with the final written decision of the
Patent Trial and Appeal Board under section 318(a) may appeal the
decision pursuant to sections 141 through 144. Any party to the inter
partes review shall have the right to be a party to the appeal.
``Sec. 320. Request for stay of certain proceedings
``If a party seeks a stay of a civil action alleging infringement
of a patent under section 281, or a proceeding before the International
Trade Commission under section 337 of the Tariff Act of 1930, relating
to an inter partes review under this chapter, the court shall decide
whether to enter a stay based on--
``(1) whether a stay, or the denial thereof, will simplify
the issues in question and streamline the trial;
``(2) whether discovery is complete and whether a trial
date has been set;
``(3) whether a stay, or the denial thereof, would unduly
prejudice the nonmoving party or present a clear tactical
advantage for the moving party; and
``(4) whether a stay, or the denial thereof, will reduce
the burden of litigation on the parties and on the court.''.
(b) Conforming Amendment.--The table of chapters for part III of
title 35, United States Code, is amended by striking the item relating
to chapter 31 and inserting the following:
``31. Inter Partes Review.................................. 311.''
(c) Regulations and Effective Date.--
(1) Regulations.--The Director shall, not later than the
date that is 1 year after the date of the enactment of this
Act, issue regulations to carry out chapter 31 of title 35,
United States Code, as amended by subsection (a) of this
section.
(2) Applicability.--
(A) In general.--The amendments made by subsection
(a) shall take effect upon the expiration of the 1-year
period beginning on the date of the enactment of this
Act and shall apply to any patent issued before, on, or
after that effective date.
(B) Graduated implementation.--The Director may
impose a limit on the number of inter partes reviews
that may be instituted under chapter 31 of title 35,
United States Code, during each of the first 4 1-year
periods in which the amendments made by subsection (a)
are in effect, if such number in each year equals or
exceeds the number of such inter partes reexaminations
that are ordered in the last fiscal year ending before
the effective date of the amendments made by subsection
(a).
(d) Post-Grant Review.--Part III of title 35, United States Code,
is amended by adding at the end the following:
``CHAPTER 32--POST-GRANT REVIEW
``Sec.
``321. Post-grant review.
``322. Petitions.
``323. Preliminary response to petition.
``324. Institution of post-grant review.
``325. Relation to other proceedings or actions.
``326. Conduct of post-grant review.
``327. Settlement.
``328. Decision of the Board.
``329. Appeal.
``330. Request for stay of certain proceedings.
``Sec. 321. Post-grant review
``(a) In General.--Subject to the provisions of this chapter, a
person who is not the patent owner may file with the Office a petition
to institute a post-grant review of a patent. The Director shall
establish, by regulation, fees to be paid by the person requesting the
review, in such amounts as the Director determines to be reasonable,
considering the aggregate costs of the post-grant review.
``(b) Scope.--A petitioner in a post-grant review may request to
cancel as unpatentable 1 or more claims of a patent on any ground that
could be raised under paragraph (2) or (3) of section 282(b) (relating
to invalidity of the patent or any claim).
``(c) Filing Deadline.--A petition for a post-grant review may only
be filed not later than the date that is 12 months after the date of
the grant of the patent or of the issuance of a reissue patent (as the
case may be).
``Sec. 322. Petitions
``(a) Requirements of Petition.--A petition filed under section 321
may be considered only if--
``(1) the petition is accompanied by payment of the fee
established by the Director under section 321;
``(2) the petition identifies all real parties in interest;
``(3) the petition identifies, in writing and with
particularity, each claim challenged, the grounds on which the
challenge to each claim is based, and the evidence that
supports the grounds for the challenge to each claim,
including--
``(A) copies of patents and printed publications
that the petitioner relies upon in support of the
petition; and
``(B) affidavits or declarations of supporting
evidence and opinions, if the petitioner relies on
other factual evidence or on expert opinions;
``(4) the petition provides such other information as the
Director may require by regulation; and
``(5) the petitioner provides copies of any of the
documents required under paragraphs (2), (3), and (4) to the
patent owner or, if applicable, the designated representative
of the patent owner.
``(b) Public Availability.--As soon as practicable after the
receipt of a petition under section 321, the Director shall make the
petition available to the public.
``Sec. 323. Preliminary response to petition
``(a) Preliminary Response.--If a post-grant review petition is
filed under section 321, the patent owner shall have the right to file
a preliminary response to the petition within 2 months after the date
on which the petition is filed.
``(b) Content of Response.--A preliminary response to a petition
for post-grant review shall set forth reasons why no post-grant review
should be instituted based upon the failure of the petition to meet any
requirement of this chapter.
``Sec. 324. Institution of post-grant review
``(a) Threshold.--The Director may not authorize a post-grant
review to commence unless the Director determines that the information
presented in the petition filed under section 321, if such information
is not rebutted, would demonstrate that it is more likely than not that
at least 1 of the claims challenged in the petition is unpatentable.
``(b) Additional Grounds.--The determination required under
subsection (a) may also be satisfied by a showing that the petition
raises a novel or unsettled legal question that is important to other
patents or patent applications.
``(c) Timing.--The Director shall determine whether to institute a
post-grant review under this chapter pursuant to a petition filed under
section 321 within 3 months after--
``(1) receiving a preliminary response to the petition
under section 323; or
``(2) if no such preliminary response is filed, the last
date on which such response may be filed.
``(d) Notice.--The Director shall notify the petitioner and patent
owner, in writing, of the Director's determination under subsection (a)
or (b), and shall make such notice available to the public as soon as
is practicable. The Director shall make each notice of the institution
of a post-grant review available to the public. Such notice shall
include the date on which the review shall commence.
``(e) No Appeal.--The determination by the Director whether to
institute a post-grant review under this section shall be final and
nonappealable.
``Sec. 325. Relation to other proceedings or actions
``(a) Infringer's Civil Action.--
``(1) Post-grant review barred by civil action.--A post-
grant review may not be instituted under this chapter if,
before the date on which the petition for such a review is
filed, the petitioner, real party in interest, or privy of the
petitioner filed a civil action challenging the validity of a
claim of the patent.
``(2) Stay of civil action.--If the petitioner, real party
in interest, or privy of the petitioner files a civil action
challenging the validity of a claim of the patent on or after
the date on which the petitioner files a petition for post-
grant review of the patent, that civil action shall be
automatically stayed until either--
``(A) the patent owner requests to lift the stay;
``(B) the patent owner files a civil action or
counterclaim alleging that the petitioner, real party
in interest, or privy of the petitioner has infringed
the patent; or
``(C) the petitioner, real party in interest, or
privy of the petitioner requests to dismiss his civil
action.
``(3) Treatment of counterclaim.--A counterclaim
challenging the validity of a claim of a patent does not
constitute a civil action challenging the validity of a claim
of a patent for purposes of this subsection.
``(b) Preliminary Injunctions.--If a civil action alleging
infringement of a patent is filed within 3 months after the date on
which the patent is granted, the court may not stay its consideration
of the patent owner's motion for a preliminary injunction against
infringement of the patent on the basis that a petition for post-grant
review has been filed under this chapter or that such a post-grant
review has been instituted under this chapter.
``(c) Joinder.--If more than 1 petition for a post-grant review
under this chapter is properly filed against the same patent and the
Director determines that more than 1 of these petitions warrants the
institution of a post-grant review under section 324, the Director may
consolidate such reviews into a single post-grant review.
``(d) Multiple Proceedings.--Notwithstanding sections 135(a), 251,
and 252, and chapter 30, during the pendency of any post-grant review
under this chapter, if another proceeding or matter involving the
patent is before the Office, the Director may determine the manner in
which the post-grant review or other proceeding or matter may proceed,
including providing for the stay, transfer, consolidation, or
termination of any such matter or proceeding. In determining whether to
institute or order a proceeding under this chapter, chapter 30, or
chapter 31, the Director may take into account whether, and reject the
petition or request because, the same or substantially the same prior
art or arguments previously were presented to the Office.
``(e) Estoppel.--
``(1) Proceedings before the office.--The petitioner in a
post-grant review under this chapter, or the real party in
interest or privy of the petitioner, may not request or
maintain a proceeding before the Office with respect to a claim
on any ground that the petitioner raised or reasonably could
have raised during a post-grant review of the claim that
resulted in a final written decision under section 328(a).
``(2) Civil actions and other proceedings.--The petitioner
in a post-grant review under this chapter, or the real party in
interest or privy of the petitioner, may not assert either in a
civil action arising in whole or in part under section 1338 of
title 28 or in a proceeding before the International Trade
Commission under section 337 of the Tariff Act of 1930 that a
claim in a patent is invalid on any ground that the petitioner
raised during a post-grant review of the claim that resulted in
a final written decision under section 328(a).
``(f) Reissue Patents.--A post-grant review may not be instituted
under this chapter if the petition requests cancellation of a claim in
a reissue patent that is identical to or narrower than a claim in the
original patent from which the reissue patent was issued, and the time
limitations in section 321(c) would bar filing a petition for a post-
grant review for such original patent.
``Sec. 326. Conduct of post-grant review
``(a) Regulations.--The Director shall prescribe regulations--
``(1) providing that the file of any proceeding under this
chapter shall be made available to the public, except that any
petition or document filed with the intent that it be sealed
shall, if accompanied by a motion to seal, be treated as sealed
pending the outcome of the ruling on the motion;
``(2) setting forth the standards for the showing of
sufficient grounds to institute a review under subsections (a)
and (b) of section 324;
``(3) establishing procedures for the submission of
supplemental information after the petition is filed;
``(4) in accordance with section 2(b)(2), establishing and
governing a post-grant review under this chapter and the
relationship of such review to other proceedings under this
title;
``(5) setting forth standards and procedures for discovery
of relevant evidence, including that such discovery shall be
limited to evidence directly related to factual assertions
advanced by either party in the proceeding;
``(6) prescribing sanctions for abuse of discovery, abuse
of process, or any other improper use of the proceeding, such
as to harass or to cause unnecessary delay or an unnecessary
increase in the cost of the proceeding;
``(7) providing for protective orders governing the
exchange and submission of confidential information;
``(8) allowing the patent owner to file a response to the
petition after a post-grant review has been instituted, and
requiring that the patent owner file with such response,
through affidavits or declarations, any additional factual
evidence and expert opinions on which the patent owner relies
in support of the response;
``(9) setting forth standards and procedures for allowing
the patent owner to move to amend the patent under subsection
(d) to cancel a challenged claim or propose a reasonable number
of substitute claims, and ensuring that any information
submitted by the patent owner in support of any amendment
entered under subsection (d) is made available to the public as
part of the prosecution history of the patent;
``(10) providing either party with the right to an oral
hearing as part of the proceeding; and
``(11) requiring that the final determination in any post-
grant review be issued not later than 1 year after the date on
which the Director notices the institution of a proceeding
under this chapter, except that the Director may, for good
cause shown, extend the 1-year period by not more than 6
months, and may adjust the time periods in this paragraph in
the case of joinder under section 325(c).
``(b) Considerations.--In prescribing regulations under this
section, the Director shall consider the effect of any such regulation
on the economy, the integrity of the patent system, the efficient
administration of the Office, and the ability of the Office to timely
complete proceedings instituted under this chapter.
``(c) Patent Trial and Appeal Board.--The Patent Trial and Appeal
Board shall, in accordance with section 6, conduct each proceeding
authorized by the Director.
``(d) Amendment of the Patent.--
``(1) In general.--During a post-grant review instituted
under this chapter, the patent owner may file 1 motion to amend
the patent in 1 or more of the following ways:
``(A) Cancel any challenged patent claim.
``(B) For each challenged claim, propose a
reasonable number of substitute claims.
``(2) Additional motions.--Additional motions to amend may
be permitted upon the joint request of the petitioner and the
patent owner to materially advance the settlement of a
proceeding under section 327, or upon the request of the patent
owner for good cause shown.
``(3) Scope of claims.--An amendment under this subsection
may not enlarge the scope of the claims of the patent or
introduce new matter.
``(e) Evidentiary Standards.--In a post-grant review instituted
under this chapter, the petitioner shall have the burden of proving a
proposition of unpatentability by a preponderance of the evidence.
``Sec. 327. Settlement
``(a) In General.--A post-grant review instituted under this
chapter shall be terminated with respect to any petitioner upon the
joint request of the petitioner and the patent owner, unless the Office
has decided the merits of the proceeding before the request for
termination is filed. If the post-grant review is terminated with
respect to a petitioner under this section, no estoppel under section
325(e) shall apply to that petitioner. If no petitioner remains in the
post-grant review, the Office may terminate the post-grant review or
proceed to a final written decision under section 328(a).
``(b) Agreements in Writing.--Any agreement or understanding
between the patent owner and a petitioner, including any collateral
agreements referred to in such agreement or understanding, made in
connection with, or in contemplation of, the termination of a post-
grant review under this section shall be in writing, and a true copy of
such agreement or understanding shall be filed in the Office before the
termination of the post-grant review as between the parties. If any
party filing such agreement or understanding so requests, the copy
shall be kept separate from the file of the post-grant review, and
shall be made available only to Federal Government agencies upon
written request, or to any other person on a showing of good cause.
``Sec. 328. Decision of the Board
``(a) Final Written Decision.--If a post-grant review is instituted
and not dismissed under this chapter, the Patent Trial and Appeal Board
shall issue a final written decision with respect to the patentability
of any patent claim challenged by the petitioner and any new claim
added under section 326(d).
``(b) Certificate.--If the Patent Trial and Appeal Board issues a
final written decision under subsection (a) and the time for appeal has
expired or any appeal has terminated, the Director shall issue and
publish a certificate canceling any claim of the patent finally
determined to be unpatentable, confirming any claim of the patent
determined to be patentable, and incorporating in the patent by
operation of the certificate any new or amended claim determined to be
patentable.
``(c) Data on Length of Review.--The Office shall make available to
the public data describing the length of time between the institution
of, and the issuance of a final written decision under subsection (a)
for, each post-grant review.
``Sec. 329. Appeal
``A party dissatisfied with the final written decision of the
Patent Trial and Appeal Board under section 328(a) may appeal the
decision pursuant to sections 141 through 144. Any party to the post-
grant review shall have the right to be a party to the appeal.
``Sec. 330. Request for stay of certain proceedings
``If a party seeks a stay of a civil action alleging infringement
of a patent under section 281, or a proceeding before the International
Trade Commission under section 337 of the Tariff Act of 1930, relating
to a post-grant review under this chapter, the court shall decide
whether to enter a stay based on--
``(1) whether a stay, or the denial thereof, will simplify
the issues in question and streamline the trial;
``(2) whether discovery is complete and whether a trial
date has been set;
``(3) whether a stay, or the denial thereof, would unduly
prejudice the nonmoving party or present a clear tactical
advantage for the moving party; and
``(4) whether a stay, or the denial thereof, will reduce
the burden of litigation on the parties and on the court.''.
(e) Conforming Amendment.--The table of chapters for part III of
title 35, United States Code, is amended by adding at the end the
following:
``32. Post-Grant Review.................................... 321.''
(f) Regulations and Effective Date.--
(1) Regulations.--The Director shall, not later than the
date that is 1 year after the date of the enactment of this
Act, issue regulations to carry out chapter 32 of title 35,
United States Code, as added by subsection (d) of this section.
(2) Applicability.--
(A) In general.--The amendments made by subsection
(d) shall take effect upon the expiration of the 1-year
period beginning on the date of the enactment of this
Act and, except as provided in section 18 and in
paragraph (3), shall apply to any patent that is
described in section 2(n)(1).
(B) Limitation.--The Director may impose a limit on
the number of post-grant reviews that may be instituted
under chapter 32 of title 35, United States Code,
during each of the 4 years following the effective date
set forth in subparagraph (A).
(3) Pending interferences.--
(A) Procedures in general.--The Director shall
determine, and include in the regulations issued under
paragraph (1), the procedures under which an
interference commenced before the effective date set
forth in paragraph (2) is to proceed, including whether
such interference--
(i) is to be dismissed without prejudice to
the filing of a petition for a post-grant
review under chapter 32 of title 35, United
States Code; or
(ii) is to proceed as if this Act had not
been enacted.
(B) Proceedings by patent trial and appeal board.--
For purposes of an interference that is commenced
before the effective date set forth in paragraph (2),
the Director may deem the Patent Trial and Appeal Board
to be the Board of Patent Appeals and Interferences,
and may allow the Patent Trial and Appeal Board to
conduct any further proceedings in that interference.
(C) Appeals.--The authorization to appeal or have
remedy from derivation proceedings in sections 141(d)
and 146 of title 35, United States Code, and the
jurisdiction to entertain appeals from derivation
proceedings in section 1295(a)(4)(A) of title 28,
United States Code, shall be deemed to extend to any
final decision in an interference that is commenced
before the effective date set forth in paragraph (2) of
this subsection and that is not dismissed pursuant to
this paragraph.
(g) Citation of Prior Art and Written Statements.--
(1) In general.--Section 301 of title 35, United States
Code, is amended to read as follows:
``Sec. 301. Citation of prior art and written statements
``(a) In General.--Any person at any time may cite to the Office in
writing--
``(1) prior art consisting of patents or printed
publications which that person believes to have a bearing on
the patentability of any claim of a particular patent; or
``(2) statements of the patent owner filed in a proceeding
before a Federal court or the Office in which the patent owner
took a position on the scope of any claim of a particular
patent.
``(b) Official File.--If the person citing prior art or written
statements pursuant to subsection (a) explains in writing the
pertinence and manner of applying the prior art or written statements
to at least 1 claim of the patent, the citation of the prior art or
written statements and the explanation thereof shall become a part of
the official file of the patent.
``(c) Additional Information.--A party that submits a written
statement pursuant to subsection (a)(2) shall include any other
documents, pleadings, or evidence from the proceeding in which the
statement was filed that addresses the written statement.
``(d) Limitations.--A written statement submitted pursuant to
subsection (a)(2), and additional information submitted pursuant to
subsection (c), shall not be considered by the Office for any purpose
other than to determine the proper meaning of a patent claim in a
proceeding that is ordered or instituted pursuant to section 304, 314,
or 324. If any such written statement or additional information is
subject to an applicable protective order, it shall be redacted to
exclude information that is subject to that order.
``(e) Confidentiality.--Upon the written request of the person
citing prior art or written statements pursuant to subsection (a), that
person's identity shall be excluded from the patent file and kept
confidential.''.
(2) Conforming amendment.--The item relating to section 301
in the table of sections for chapter 30 of title 35, United
States Code, is amended to read as follows:
``301. Citation of prior art and written statements.''.
(3) Effective date.--The amendments made by this subsection
shall take effect upon the expiration of the 1-year period
beginning on the date of the enactment of this Act and shall
apply to any patent issued before, on, or after that effective
date.
(h) Reexamination.--
(1) Determination by director.--
(A) In general.--Section 303(a) of title 35, United
States Code, is amended by striking ``section 301 of
this title'' and inserting ``section 301 or 302''.
(B) Effective date.--The amendment made by this
paragraph shall take effect upon the expiration of the
1-year period beginning on the date of the enactment of
this Act and shall apply to any patent issued before,
on, or after that effective date.
(2) Appeal.--
(A) In general.--Section 306 of title 35, United
States Code, is amended by striking ``145'' and
inserting ``144''.
(B) Effective date.--The amendment made by this
paragraph shall take effect on the date of the
enactment of this Act and shall apply to any appeal of
a reexamination that is pending before the Board of
Patent Appeals and Interferences or the Patent Trial
and Appeal Board on or after the date of the enactment
of this Act.
SEC. 6. PATENT TRIAL AND APPEAL BOARD.
(a) Composition and Duties.--
(1) In general.--Section 6 of title 35, United States Code,
is amended to read as follows:
``Sec. 6. Patent Trial and Appeal Board
``(a) In General.--There shall be in the Office a Patent Trial and
Appeal Board. The Director, the Deputy Director, the Commissioner for
Patents, the Commissioner for Trademarks, and the administrative patent
judges shall constitute the Patent Trial and Appeal Board. The
administrative patent judges shall be persons of competent legal
knowledge and scientific ability who are appointed by the Secretary, in
consultation with the Director. Any reference in any Federal law,
Executive order, rule, regulation, or delegation of authority, or any
document of or pertaining to the Board of Patent Appeals and
Interferences is deemed to refer to the Patent Trial and Appeal Board.
``(b) Duties.--The Patent Trial and Appeal Board shall--
``(1) on written appeal of an applicant, review adverse
decisions of examiners upon applications for patents pursuant
to section 134(a);
``(2) review appeals of reexaminations pursuant to section
134(b);
``(3) conduct derivation proceedings pursuant to section
135; and
``(4) conduct inter partes reviews and post-grant reviews
pursuant to chapters 31 and 32.
``(c) 3-Member Panels.--Each appeal, derivation proceeding, post-
grant review, and inter partes review shall be heard by at least 3
members of the Patent Trial and Appeal Board, who shall be designated
by the Director. Only the Patent Trial and Appeal Board may grant
rehearings.
``(d) Treatment of Prior Appointments.--The Secretary of Commerce
may, in the Secretary's discretion, deem the appointment of an
administrative patent judge who, before the date of the enactment of
this subsection, held office pursuant to an appointment by the Director
to take effect on the date on which the Director initially appointed
the administrative patent judge. It shall be a defense to a challenge
to the appointment of an administrative patent judge on the basis of
the judge's having been originally appointed by the Director that the
administrative patent judge so appointed was acting as a de facto
officer.''.
(2) Conforming amendment.--The item relating to section 6
in the table of sections for chapter 1 of title 35, United
States Code, is amended to read as follows:
``6. Patent Trial and Appeal Board.''.
(b) Administrative Appeals.--Section 134 of title 35, United States
Code, is amended--
(1) in subsection (b), by striking ``any reexamination
proceeding'' and inserting ``a reexamination''; and
(2) by striking subsection (c).
(c) Circuit Appeals.--
(1) In general.--Section 141 of title 35, United States
Code, is amended to read as follows:
``Sec. 141. Appeal to the Court of Appeals for the Federal Circuit
``(a) Examinations.--An applicant who is dissatisfied with the
final decision in an appeal to the Patent Trial and Appeal Board under
section 134(a) may appeal the Board's decision to the United States
Court of Appeals for the Federal Circuit. By filing such an appeal, the
applicant waives his or her right to proceed under section 145.
``(b) Reexaminations.--A patent owner who is dissatisfied with the
final decision in an appeal of a reexamination to the Patent Trial and
Appeal Board under section 134(b) may appeal the Board's decision only
to the United States Court of Appeals for the Federal Circuit.
``(c) Post-Grant and Inter Partes Reviews.--A party to a post-grant
or inter partes review who is dissatisfied with the final written
decision of the Patent Trial and Appeal Board under section 318(a) or
328(a) may appeal the Board's decision only to the United States Court
of Appeals for the Federal Circuit.
``(d) Derivation Proceedings.--A party to a derivation proceeding
who is dissatisfied with the final decision of the Patent Trial and
Appeal Board in the proceeding may appeal the decision to the United
States Court of Appeals for the Federal Circuit, but such appeal shall
be dismissed if any adverse party to such derivation proceeding, within
20 days after the appellant has filed notice of appeal in accordance
with section 142, files notice with the Director that the party elects
to have all further proceedings conducted as provided in section 146.
If the appellant does not, within 30 days after the filing of such
notice by the adverse party, file a civil action under section 146, the
Board's decision shall govern the further proceedings in the case.''.
(2) Jurisdiction.--Section 1295(a)(4)(A) of title 28,
United States Code, is amended to read as follows:
``(A) the Patent Trial and Appeal Board of the
United States Patent and Trademark Office with respect
to a patent application, derivation proceeding,
reexamination, post-grant review, or inter partes
review at the instance of a party who exercised that
party's right to participate in the applicable
proceeding before or appeal to the Board, except that
an applicant or a party to a derivation proceeding may
also have remedy by civil action pursuant to section
145 or 146 of title 35; an appeal under this
subparagraph of a decision of the Board with respect to
an application or derivation proceeding shall waive the
right of such applicant or party to proceed under
section 145 or 146 of title 35;''.
(3) Proceedings on appeal.--Section 143 of title 35, United
States Code, is amended--
(A) by striking the third sentence and inserting
the following: ``In an ex parte case, the Director
shall submit to the court in writing the grounds for
the decision of the Patent and Trademark Office,
addressing all of the issues raised in the appeal. The
Director shall have the right to intervene in an appeal
from a decision entered by the Patent Trial and Appeal
Board in a derivation proceeding under section 135 or
in an inter partes or post-grant review under chapter
31 or 32.''; and
(B) by striking the last sentence.
(d) Effective Date.--The amendments made by this section shall take
effect upon the expiration of the 1-year period beginning on the date
of the enactment of this Act and shall apply to proceedings commenced
on or after that effective date, except that--
(1) the extension of jurisdiction to the United States
Court of Appeals for the Federal Circuit to entertain appeals
of decisions of the Patent Trial and Appeal Board in
reexaminations under the amendment made by subsection (c)(2)
shall be deemed to take effect on the date of enactment of this
Act and shall extend to any decision of the Board of Patent
Appeals and Interferences with respect to a reexamination that
is entered before, on, or after the date of the enactment of
this Act;
(2) the provisions of sections 6, 134, and 141 of title 35,
United States Code, as in effect on the day before the date of
the enactment of this Act shall continue to apply to inter
partes reexaminations that are requested under section 311 of
such title before the effective date of the amendments made by
this section;
(3) the Patent Trial and Appeal Board may be deemed to be
the Board of Patent Appeals and Interferences for purposes of
appeals of inter partes reexaminations that are requested under
section 311 of title 35, United States Code, before the
effective date of the amendments made by this section; and
(4) the Director's right under the fourth sentence of
section 143 of title 35, United States Code, as amended by
subsection (c)(3) of this section, to intervene in an appeal
from a decision entered by the Patent Trial and Appeal Board
shall be deemed to extend to inter partes reexaminations that
are requested under section 311 of such title before the
effective date of the amendments made by this section.
SEC. 7. PREISSUANCE SUBMISSIONS BY THIRD PARTIES.
(a) In General.--Section 122 of title 35, United States Code, is
amended by adding at the end the following:
``(e) Preissuance Submissions by Third Parties.--
``(1) In general.--Any third party may submit for
consideration and inclusion in the record of a patent
application, any patent, published patent application, or other
printed publication of potential relevance to the examination
of the application, if such submission is made in writing
before the earlier of--
``(A) the date a notice of allowance under section
151 is given or mailed in the application for patent;
or
``(B) the later of--
``(i) 6 months after the date on which the
application for patent is first published under
section 122 by the Office, or
``(ii) the date of the first rejection
under section 132 of any claim by the examiner
during the examination of the application for
patent.
``(2) Other requirements.--Any submission under paragraph
(1) shall--
``(A) set forth a concise description of the
asserted relevance of each submitted document;
``(B) be accompanied by such fee as the Director
may prescribe; and
``(C) include a statement by the person making such
submission affirming that the submission was made in
compliance with this section.''.
(b) Effective Date.--The amendments made by this section shall take
effect upon the expiration of the 1-year period beginning on the date
of the enactment of this Act and shall apply to any patent application
filed before, on, or after that effective date.
SEC. 8. VENUE.
(a) Technical Amendments Relating to Venue.--Sections 32, 145, 146,
154(b)(4)(A), and 293 of title 35, United States Code, and section
21(b)(4) of the Trademark Act of 1946 (15 U.S.C. 1071(b)(4)), are each
amended by striking ``United States District Court for the District of
Columbia'' each place that term appears and inserting ``United States
District Court for the Eastern District of Virginia''.
(b) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act and shall apply to any
civil action commenced on or after that date.
SEC. 9. FEE SETTING AUTHORITY.
(a) Fee Setting.--
(1) In general.--The Director may set or adjust by rule any
fee established, authorized, or charged under title 35, United
States Code, or the Trademark Act of 1946 (15 U.S.C. 1051 et
seq.), for any services performed by or materials furnished by,
the Office, subject to paragraph (2).
(2) Fees to recover costs.--Fees may be set or adjusted
under paragraph (1) only to recover the aggregate estimated
costs to the Office for processing, activities, services, and
materials relating to patents (in the case of patent fees) and
trademarks (in the case of trademark fees), including
administrative costs of the Office with respect to such patent
or trademark fees (as the case may be).
(b) Small and Micro Entities.--The fees set or adjusted under
subsection (a) for filing, searching, examining, issuing, appealing,
and maintaining patent applications and patents shall be reduced by 50
percent with respect to the application of such fees to any small
entity that qualifies for reduced fees under section 41(h)(1) of title
35, United States Code, and shall be reduced by 75 percent with respect
to the application of such fees to any micro entity as defined in
section 123 of that title (as added by subsection (f) of this section).
(c) Reduction of Fees in Certain Fiscal Years.--In each fiscal
year, the Director--
(1) shall consult with the Patent Public Advisory Committee
and the Trademark Public Advisory Committee on the advisability
of reducing any fees described in subsection (a); and
(2) after the consultation required under paragraph (1),
may reduce such fees.
(d) Role of the Public Advisory Committee.--The Director shall--
(1) not less than 45 days before publishing any proposed
fee under subsection (a) in the Federal Register, submit the
proposed fee to the Patent Public Advisory Committee or the
Trademark Public Advisory Committee, or both, as appropriate;
(2)(A) provide the relevant advisory committee described in
paragraph (1) a 30-day period following the submission of any
proposed fee, in which to deliberate, consider, and comment on
such proposal;
(B) require that, during that 30-day period, the relevant
advisory committee hold a public hearing relating to such
proposal; and
(C) assist the relevant advisory committee in carrying out
that public hearing, including by offering the use of the
resources of the Office to notify and promote the hearing to
the public and interested stakeholders;
(3) require the relevant advisory committee to make
available to the public a written report setting forth in
detail the comments, advice, and recommendations of the
committee regarding the proposed fee; and
(4) consider and analyze any comments, advice, or
recommendations received from the relevant advisory committee
before setting or adjusting (as the case may be) the fee.
(e) Publication in the Federal Register.--
(1) Publication and rationale.--The Director shall--
(A) publish any proposed fee change under this
section in the Federal Register;
(B) include, in such publication, the specific
rationale and purpose for the proposal, including the
possible expectations or benefits resulting from the
proposed change; and
(C) notify, through the Chair and Ranking Member of
the Committees on the Judiciary of the Senate and the
House of Representatives, the Congress of the proposed
change not later than the date on which the proposed
change is published under subparagraph (A).
(2) Public comment period.--The Director shall, in the
publication under paragraph (1), provide the public a period of
not less than 45 days in which to submit comments on the
proposed change in fees.
(3) Publication of final rule.--The final rule setting or
adjusting a fee under this section shall be published in the
Federal Register and in the Official Gazette of the Patent and
Trademark Office.
(4) Congressional comment period.--A fee set or adjusted
under subsection (a) may not become effective--
(A) before the end of the 45-day period beginning
on the day after the date on which the Director
publishes the final rule adjusting or setting the fee
under paragraph (3); or
(B) if a law is enacted disapproving such fee.
(5) Rule of construction.--Rules prescribed under this
section shall not diminish--
(A) the rights of an applicant for a patent under
title 35, United States Code, or for a trademark under
the Trademark Act of 1946; or
(B) any rights under a ratified treaty.
(f) Retention of Authority.--The Director retains the authority
under subsection (a) to set or adjust fees only during such period as
the Patent and Trademark Office remains an agency within the Department
of Commerce.
(g) Micro Entity Defined.--
(1) In general.--Chapter 11 of title 35, United States
Code, is amended by adding at the end the following new
section:
``Sec. 123. Micro entity defined.
``(a) In General.--For purposes of this title, the term `micro
entity' means an applicant who makes a certification that the
applicant--
``(1) qualifies as a small entity, as defined in
regulations issued by the Director;
``(2) has not been named as an inventor on more than 4
previously filed patent applications, other than applications
filed in another country, provisional applications under
section 111(b), or international applications filed under the
treaty defined in section 351(a) for which the basic national
fee under section 41(a) was not paid;
``(3) did not, in the calendar year preceding the calendar
year in which the examination fee for the application is being
paid, have a gross income, as defined in section 61(a) of the
Internal Revenue Code of 1986, exceeding 3 times the median
household income for that preceding calendar year, as reported
by the Bureau of the Census; and
``(4) has not assigned, granted, or conveyed, and is not
under an obligation by contract or law to assign, grant, or
convey, a license or other ownership interest in the
application concerned to an entity that, in the calendar year
preceding the calendar year in which the examination fee for
the application is being paid, had a gross income, as defined
in section 61(a) of the Internal Revenue Code of 1986,
exceeding 3 times the median household income for that
preceding calendar year, as most recently reported by the
Bureau of the Census.
``(b) Applications Resulting From Prior Employment.--An applicant
is not considered to be named on a previously filed application for
purposes of subsection (a)(2) if the applicant has assigned, or is
under an obligation by contract or law to assign, all ownership rights
in the application as the result of the applicant's previous
employment.
``(c) Foreign Currency Exchange Rate.--If an applicant's or
entity's gross income in the preceding year is not in United States
dollars, the average currency exchange rate, as reported by the
Internal Revenue Service, during the preceding year shall be used to
determine whether the applicant's or entity's gross income exceeds the
threshold specified in paragraphs (3) or (4) of subsection (a).
``(d) Public Institutions of Higher Education.--
``(1) In general.--For purposes of this section, a micro
entity shall include an applicant who certifies that--
``(A) the applicant's employer, from which the
applicant obtains the majority of the applicant's
income, is an institution of higher education, as
defined in section 101 of the Higher Education Act of
1965 (20 U.S.C. 1001), that is a public institution; or
``(B) the applicant has assigned, granted,
conveyed, or is under an obligation by contract or law
to assign, grant, or convey, a license or other
ownership interest in the particular application to
such State public institution.
``(2) Director's authority.--The Director may, in the
Director's discretion, impose income limits, annual filing
limits, or other limits on who may qualify as a micro entity
pursuant to this subsection if the Director determines that
such additional limits are reasonably necessary to avoid an
undue impact on other patent applicants or owners or are
otherwise reasonably necessary and appropriate. At least 3
months before any limits proposed to be imposed pursuant to
this paragraph shall take effect, the Director shall inform the
Committee on the Judiciary of the House of Representatives and
the Committee on the Judiciary of the Senate of any such
proposed limits.''.
(2) Conforming amendment.--Chapter 11 of title 35, United
States Code, is amended by adding at the end the following new
item:
``123. Micro entity defined.''.
(h) Electronic Filing Incentive.--
(1) In general.--Notwithstanding any other provision of
this section, a fee of $400 shall be established for each
application for an original patent, except for a design, plant,
or provisional application, that is not filed by electronic
means as prescribed by the Director. The fee established by
this subsection shall be reduced by 50 percent for small
entities that qualify for reduced fees under section 41(h)(1)
of title 35, United States Code. All fees paid under this
subsection shall be deposited in the Treasury as an offsetting
receipt that shall not be available for obligation or
expenditure.
(2) Effective date.--This subsection shall take effect upon
the expiration of the 60-day period beginning on the date of
the enactment of this Act.
(i) Effective Date.--This section and the amendments made by this
section shall take effect on the date of the enactment of this Act.
SEC. 10. FEES FOR PATENT SERVICES.
(a) General Patent Services.--Subsections (a) and (b) of section 41
of title 35, United States Code, are amended to read as follows:
``(a) General Fees.--The Director shall charge the following fees:
``(1) Filing and basic national fees.--
``(A) On filing each application for an original
patent, except for design, plant, or provisional
applications, $330.
``(B) On filing each application for an original
design patent, $220.
``(C) On filing each application for an original
plant patent, $220.
``(D) On filing each provisional application for an
original patent, $220.
``(E) On filing each application for the reissue of
a patent, $330.
``(F) The basic national fee for each international
application filed under the treaty defined in section
351(a) entering the national stage under section 371,
$330.
``(G) In addition, excluding any sequence listing
or computer program listing filed in an electronic
medium as prescribed by the Director, for any
application the specification and drawings of which
exceed 100 sheets of paper (or equivalent as prescribed
by the Director if filed in an electronic medium), $270
for each additional 50 sheets of paper (or equivalent
as prescribed by the Director if filed in an electronic
medium) or fraction thereof.
``(2) Excess claims fees.--
``(A) In general.--In addition to the fee specified
in paragraph (1)--
``(i) on filing or on presentation at any
other time, $220 for each claim in independent
form in excess of 3;
``(ii) on filing or on presentation at any
other time, $52 for each claim (whether
dependent or independent) in excess of 20; and
``(iii) for each application containing a
multiple dependent claim, $390.
``(B) Multiple dependent claims.--For the purpose
of computing fees under subparagraph (A), a multiple
dependent claim referred to in section 112 or any claim
depending therefrom shall be considered as separate
dependent claims in accordance with the number of
claims to which reference is made.
``(C) Refunds; errors in payment.--The Director may
by regulation provide for a refund of any part of the
fee specified in subparagraph (A) for any claim that is
canceled before an examination on the merits, as
prescribed by the Director, has been made of the
application under section 131. Errors in payment of the
additional fees under this paragraph may be rectified
in accordance with regulations prescribed by the
Director.
``(3) Examination fees.--
``(A) In general.--
``(i) For examination of each application
for an original patent, except for design,
plant, provisional, or international
applications, $220.
``(ii) For examination of each application
for an original design patent, $140.
``(iii) For examination of each application
for an original plant patent, $170.
``(iv) For examination of the national
stage of each international application, $220.
``(v) For examination of each application
for the reissue of a patent, $650.
``(B) Applicability of other fee provisions.--The
provisions of paragraphs (3) and (4) of section 111(a)
relating to the payment of the fee for filing the
application shall apply to the payment of the fee
specified in subparagraph (A) with respect to an
application filed under section 111(a). The provisions
of section 371(d) relating to the payment of the
national fee shall apply to the payment of the fee
specified in subparagraph (A) with respect to an
international application.
``(4) Issue fees.--
``(A) For issuing each original patent, except for
design or plant patents, $1,510.
``(B) For issuing each original design patent,
$860.
``(C) For issuing each original plant patent,
$1,190.
``(D) For issuing each reissue patent, $1,510.
``(5) Disclaimer fee.--On filing each disclaimer, $140.
``(6) Appeal fees.--
``(A) On filing an appeal from the examiner to the
Patent Trial and Appeal Board, $540.
``(B) In addition, on filing a brief in support of
the appeal, $540, and on requesting an oral hearing in
the appeal before the Patent Trial and Appeal Board,
$1,080.
``(7) Revival fees.--On filing each petition for the
revival of an unintentionally abandoned application for a
patent, for the unintentionally delayed payment of the fee for
issuing each patent, or for an unintentionally delayed response
by the patent owner in any reexamination proceeding, $1,620,
unless the petition is filed under section 133 or 151, in which
case the fee shall be $540.
``(8) Extension fees.--For petitions for 1-month extensions
of time to take actions required by the Director in an
application--
``(A) on filing a first petition, $130;
``(B) on filing a second petition, $360; and
``(C) on filing a third or subsequent petition,
$620.
``(b) Maintenance Fees.--
``(1) In general.--The Director shall charge the following
fees for maintaining in force all patents based on applications
filed on or after December 12, 1980:
``(A) Three years and 6 months after grant, $980.
``(B) Seven years and 6 months after grant, $2,480.
``(C) Eleven years and 6 months after grant,
$4,110.
``(2) Grace period; surcharge.--Unless payment of the
applicable maintenance fee under paragraph (1) is received in
the Office on or before the date the fee is due or within a
grace period of 6 months thereafter, the patent shall expire as
of the end of such grace period. The Director may require the
payment of a surcharge as a condition of accepting within such
6-month grace period the payment of an applicable maintenance
fee.
``(3) No maintenance fee for design or plant patent.--No
fee may be established for maintaining a design or plant patent
in force.''.
(b) Delays in Payment.--Subsection (c) of section 41 of title 35,
United States Code, is amended--
(1) by striking ``(c)(1) The Director'' and inserting:
``(c) Delays in Payment of Maintenance Fees.--
``(1) Acceptance.--The Director''; and
(2) by striking ``(2) A patent'' and inserting ``(2) Effect
on rights of others.--A patent''.
(c) Patent Search Fees.--Subsection (d) of section 41 of title 35,
United States Code, is amended to read as follows:
``(d) Patent Search and Other Fees.--
``(1) Patent search fees.--
``(A) In general.--The Director shall charge the
fees specified under subparagraph (B) for the search of
each application for a patent, except for provisional
applications. The Director shall adjust the fees
charged under this paragraph to ensure that the fees
recover an amount not to exceed the estimated average
cost to the Office of searching applications for patent
either by acquiring a search report from a qualified
search authority, or by causing a search by Office
personnel to be made, of each application for patent.
``(B) Specific fees.--The fees referred to in
subparagraph (A) are--
``(i) $540 for each application for an
original patent, except for design, plant,
provisional, or international applications;
``(ii) $100 for each application for an
original design patent;
``(iii) $330 for each application for an
original plant patent;
``(iv) $540 for the national stage of each
international application; and
``(v) $540 for each application for the
reissue of a patent.
``(C) Applicability of other provisions.--The
provisions of paragraphs (3) and (4) of section 111(a)
relating to the payment of the fee for filing the
application shall apply to the payment of the fee
specified in this paragraph with respect to an
application filed under section 111(a). The provisions
of section 371(d) relating to the payment of the
national fee shall apply to the payment of the fee
specified in this paragraph with respect to an
international application.
``(D) Refunds.--The Director may by regulation
provide for a refund of any part of the fee specified
in this paragraph for any applicant who files a written
declaration of express abandonment as prescribed by the
Director before an examination has been made of the
application under section 131.
``(E) Applications subject to secrecy order.--A
search of an application that is the subject of a
secrecy order under section 181 or otherwise involves
classified information may be conducted only by Office
personnel.
``(F) Conflicts of interest.--A qualified search
authority that is a commercial entity may not conduct a
search of a patent application if the entity has any
direct or indirect financial interest in any patent or
in any pending or imminent application for patent filed
or to be filed in the Office.
``(2) Other fees.--
``(A) In general.--The Director shall establish
fees for all other processing, services, or materials
relating to patents not specified in this section to
recover the estimated average cost to the Office of
such processing, services, or materials, except that
the Director shall charge the following fees for the
following services:
``(i) For recording a document affecting
title, $40 per property.
``(ii) For each photocopy, $.25 per page.
``(iii) For each black and white copy of a
patent, $3.
``(B) Copies for libraries.--The yearly fee for
providing a library specified in section 12 with
uncertified printed copies of the specifications and
drawings for all patents in that year shall be $50.''.
(d) Fees for Small Entities.--Subsection (h) of section 41 of title
35, United States Code, is amended to read as follows:
``(h) Fees for Small Entities.--
``(1) Reductions in fees.--Subject to paragraph (3), fees
charged under subsections (a), (b), and (d)(1) shall be reduced
by 50 percent with respect to their application to any small
business concern as defined under section 3 of the Small
Business Act, and to any independent inventor or nonprofit
organization as defined in regulations issued by the Director.
``(2) Surcharges and other fees.--With respect to its
application to any entity described in paragraph (1), any
surcharge or fee charged under subsection (c) or (d) shall not
be higher than the surcharge or fee required of any other
entity under the same or substantially similar circumstances.
``(3) Reduction for electronic filing.--The fee charged
under subsection (a)(1)(A) shall be reduced by 75 percent with
respect to its application to any entity to which paragraph (1)
applies, if the application is filed by electronic means as
prescribed by the Director.''.
(e) Technical Amendments.--Section 41 of title 35, United States
Code, is amended--
(1) in subsection (e), in the first sentence, by striking
``The Director'' and inserting ``Waiver of Fees; Copies
Regarding Notice.--The Director'';
(2) in subsection (f), by striking ``The fees'' and
inserting ``Adjustment of Fees.--The fees'';
(3) by repealing subsection (g); and
(4) in subsection (i)--
(A) by striking ``(i)(1) The Director'' and
inserting the following:
``(i) Electronic Patent and Trademark Data.--
``(1) Maintenance of collections.--The Director'';
(B) by striking ``(2) The Director'' and inserting
the following:
``(2) Availability of automated search systems.--The
Director'';
(C) by striking ``(3) The Director'' and inserting
the following:
``(3) Access fees.--The Director''; and
(D) by striking ``(4) The Director'' and inserting
the following:
``(4) Annual report to congress.--The Director''.
(f) Adjustment of Trademark Fees.--Section 802(a) of division B of
the Consolidated Appropriations Act, 2005 (Public Law 108-447) is
amended--
(1) in the first sentence, by striking ``During fiscal
years 2005, 2006 and 2007,'', and inserting ``Until such time
as the Director sets or adjusts the fees otherwise,''; and
(2) in the second sentence, by striking ``During fiscal
years 2005, 2006, and 2007, the'' and inserting ``The''.
(g) Effective Date, Applicability, and Transition Provisions.--
Section 803(a) of division B of the Consolidated Appropriations Act,
2005 (Public Law 108-447) Division B of Public Law 108-447 is amended
by striking ``and shall apply only with respect to the remaining
portion of fiscal year 2005 and fiscal year 2006''.
(h) Electronic Filing Incentive.--
(1) In general.--Notwithstanding any other provision of
this section, a fee of $400 shall be established for each
application for an original patent, except for a design, plant,
or provisional application, that is not filed by electronic
means as prescribed by the Director. The fee established by
this subsection shall be reduced by 50 percent for small
entities that qualify for reduced fees under section 41(h)(1)
of title 35, United States Code. All fees paid under this
subsection shall be deposited in the Treasury as an offsetting
receipt that shall not be available for obligation or
expenditure.
(2) Effective date.--This subsection shall take effect upon
the expiration of the 60-day period beginning on the date of
the enactment of this Act.
(i) Reduction in Fees for Small Entity Patents.--The Director shall
reduce fees for providing prioritized examination of utility and plant
patent applications by 50 percent for small entities that qualify for
reduced fees under section 41(h)(1) of title 35, United States Code, so
long as the fees of the prioritized examination program are set to
recover the estimated cost of the program.
(j) Effective Date.--Except as provided in subsection (h), this
section and the amendments made by this section shall take effect on
the date of the enactment of this Act.
SEC. 11. SUPPLEMENTAL EXAMINATION.
(a) In General.--Chapter 25 of title 35, United States Code, is
amended by adding at the end the following:
``Sec. 257. Supplemental examinations to consider, reconsider, or
correct information
``(a) Request for Supplemental Examination.--A patent owner may
request supplemental examination of a patent in the Office to consider,
reconsider, or correct information believed to be relevant to the
patent, in accordance with such requirements as the Director may
establish. Within 3 months after the date a request for supplemental
examination meeting the requirements of this section is received, the
Director shall conduct the supplemental examination and shall conclude
such examination by issuing a certificate indicating whether the
information presented in the request raises a substantial new question
of patentability.
``(b) Reexamination Ordered.--If the certificate issued under
subsection (a) indicates that a substantial new question of
patentability is raised by 1 or more items of information in the
request, the Director shall order reexamination of the patent. The
reexamination shall be conducted according to procedures established by
chapter 30, except that the patent owner shall not have the right to
file a statement pursuant to section 304. During the reexamination, the
Director shall address each substantial new question of patentability
identified during the supplemental examination, notwithstanding the
limitations in chapter 30 relating to patents and printed publication
or any other provision of such chapter.
``(c) Effect.--
``(1) In general.--A patent shall not be held unenforceable
on the basis of conduct relating to information that had not
been considered, was inadequately considered, or was incorrect
in a prior examination of the patent if the information was
considered, reconsidered, or corrected during a supplemental
examination of the patent. The making of a request under
subsection (a), or the absence thereof, shall not be relevant
to enforceability of the patent under section 282.
``(2) Exceptions.--
``(A) Prior allegations.--Paragraph (1) shall not
apply to an allegation pled with particularity, or set
forth with particularity in a notice received by the
patent owner under section 505(j)(2)(B)(iv)(II) of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C.
355(j)(2)(B)(iv)(II)), before the date of a
supplemental examination request under subsection (a)
to consider, reconsider, or correct information forming
the basis for the allegation.
``(B) Patent enforcement actions.--In an action
brought under section 337(a) of the Tariff Act of 1930
(19 U.S.C. 1337(a)), or section 281 of this title,
paragraph (1) shall not apply to any defense raised in
the action that is based upon information that was
considered, reconsidered, or corrected pursuant to a
supplemental examination request under subsection (a),
unless the supplemental examination, and any
reexamination ordered pursuant to the request, are
concluded before the date on which the action is
brought.
``(d) Fees and Regulations.--
``(1) Fees.--The Director shall, by regulation, establish
fees for the submission of a request for supplemental
examination of a patent, and to consider each item of
information submitted in the request. If reexamination is
ordered under subsection (b), fees established and applicable
to ex parte reexamination proceedings under chapter 30 shall be
paid, in addition to fees applicable to supplemental
examination.
``(2) Regulations.--The Director shall issue regulations
governing the form, content, and other requirements of requests
for supplemental examination, and establishing procedures for
reviewing information submitted in such requests.
``(e) Rule of Construction.--Nothing in this section shall be
construed--
``(1) to preclude the imposition of sanctions based upon
criminal or antitrust laws (including section 1001(a) of title
18, the first section of the Clayton Act, and section 5 of the
Federal Trade Commission Act to the extent that section relates
to unfair methods of competition);
``(2) to limit the authority of the Director to investigate
issues of possible misconduct and impose sanctions for
misconduct in connection with matters or proceedings before the
Office; or
``(3) to limit the authority of the Director to issue
regulations under chapter 3 relating to sanctions for
misconduct by representatives practicing before the Office.''.
(b) Conforming Amendment.--The table of sections for chapter 25 of
title 35, United States Code, is amended by adding at the end the
following new item:
``257. Supplemental examinations to consider, reconsider, or
correct information.''.
(c) Effective Date.--The amendments made by this section shall take
effect upon the expiration of the 1-year period beginning on the date
of the enactment of this Act and shall apply to any patent issued
before, on, or after that effective date.
SEC. 12. FUNDING AGREEMENTS.
(a) In General.--Section 202(c)(7)(E)(i) of title 35, United States
Code, is amended--
(1) by striking ``75 percent'' and inserting ``15
percent''; and
(2) by striking ``25 percent'' and inserting ``85
percent''.
(b) Effective Date.--The amendments made by this section shall take
effect on the date of enactment of this Act and shall apply to any
patent issued before, on, or after that date.
SEC. 13. TAX STRATEGIES DEEMED WITHIN THE PRIOR ART.
(a) In General.--For purposes of evaluating an invention under
section 102 or 103 of title 35, United States Code, any strategy for
reducing, avoiding, or deferring tax liability, whether known or
unknown at the time of the invention or application for patent, shall
be deemed insufficient to differentiate a claimed invention from the
prior art.
(b) Definition.--For purposes of this section, the term ``tax
liability'' refers to any liability for a tax under any Federal, State,
or local law, or the law of any foreign jurisdiction, including any
statute, rule, regulation, or ordinance that levies, imposes, or
assesses such tax liability.
(c) Exclusions.--This section does not apply to that part of an
invention that--
(1) is a method, apparatus, technology, computer program
product, or system, that is used solely for preparing a tax or
information return or other tax filing, including one that
records, transmits, transfers, or organizes data related to
such filing; or
(2) is a method, apparatus, technology, computer program
product, or system used solely for financial management, to the
extent that it is severable from any tax strategy or does not
limit the use of any tax strategy by any taxpayer or tax
advisor.
(d) Rule of Construction.--Nothing in this section shall be
construed to imply that other business methods are patentable or that
other business-method patents are valid.
(e) Effective Date; Applicability.--This section shall take effect
on the date of enactment of this Act and shall apply to any patent
application pending, and any patent issued, on or after that date.
SEC. 14. BEST MODE REQUIREMENT.
(a) In General.--Section 282 of title 35, United State Code, is
amended in its second undesignated paragraph by striking paragraph (3)
and inserting the following:
``(3) Invalidity of the patent or any claim in suit for
failure to comply with--
``(A) any requirement of section 112, except that
the failure to disclose the best mode shall not be a
basis on which any claim of a patent may be canceled or
held invalid or otherwise unenforceable; or
``(B) any requirement of section 251.''.
(b) Conforming Amendment.--Sections 119(e)(1) and 120 of title 35,
United States Code, are each amended by striking ``the first paragraph
of section 112 of this title'' and inserting ``section 112(a) (other
than the requirement to disclose the best mode)''.
(c) Effective Date.--The amendments made by this section shall take
effect upon the date of the enactment of this Act and shall apply to
proceedings commenced on or after that date.
SEC. 15. MARKING.
(a) Virtual Marking.--
(1) In general.--Section 287(a) of title 35, United States
Code, is amended by striking ``or when,'' and inserting ``or by
fixing thereon the word `patent' or the abbreviation `pat.'
together with an address of a posting on the Internet,
accessible to the public without charge for accessing the
address, that associates the patented article with the number
of the patent, or when,''.
(2) Effective date.--The amendment made by this subsection
shall apply to any case that is pending on, or commenced on or
after, the date of the enactment of this Act.
(b) False Marking.--
(1) Civil penalty.--Section 292(a) of title 35, United
States, Code, is amended by adding at the end the following:
``Only the United States may sue for the penalty authorized by
this subsection.''.
(2) Civil action for damages.--Subsection (b) of section
292 of title 35, United States Code, is amended to read as
follows:
``(b) A person who has suffered a competitive injury as a result of
a violation of this section may file a civil action in a district court
of the United States for recovery of damages adequate to compensate for
the injury.''.
(3) Effective date.--The amendments made by this subsection
shall apply to any case that is pending on, or commenced on or
after, the date of the enactment of this Act.
SEC. 16. ADVICE OF COUNSEL.
(a) In General.--Chapter 29 of title 35, United States Code, is
amended by adding at the end the following:
``Sec. 298. Advice of counsel
``The failure of an infringer to obtain the advice of counsel with
respect to any allegedly infringed patent, or the failure of the
infringer to present such advice to the court or jury, may not be used
to prove that the accused infringer willfully infringed the patent or
that the infringer intended to induce infringement of the patent.''.
(b) Conforming Amendment.--The table of sections for chapter 29 of
title 35, United States Code, is amended by adding at the end the
following:
``298. Advice of counsel.''.
SEC. 17. OWNERSHIP; ASSIGNMENT.
The fourth undesignated paragraph of section 261 of title 35,
United States Code, is amended by inserting before the period the
following: ``and identifies all real parties in interest and those
entities that control, directly or indirectly, such real parties in
interest''.
SEC. 18. TRANSITIONAL PROGRAM FOR COVERED BUSINESS METHOD PATENTS.
(a) References.--Except as otherwise expressly provided, wherever
in this section language is expressed in terms of a section or chapter,
the reference shall be considered to be made to that section or chapter
in title 35, United States Code.
(b) Transitional Program.--
(1) Establishment.--Not later than the date that is 1 year
after the date of the enactment of this Act, the Director shall
issue regulations establishing and implementing a transitional
post-grant review proceeding for review of the validity of
covered business method patents. The transitional proceeding
implemented pursuant to this subsection shall be regarded as,
and shall employ the standards and procedures of, a post-grant
review under chapter 32, subject to the following:
(A) Section 321(c) and subsections (b), (e)(2), and
(f) of section 325 shall not apply to a transitional
proceeding.
(B) A person may not file a petition for a
transitional proceeding with respect to a covered
business method patent unless the person or the
person's real party in interest has been sued for
infringement of the patent or has been charged with
infringement under that patent.
(C) A petitioner in a transitional proceeding who
challenges the validity of 1 or more claims in a
covered business method patent on a ground raised under
section 102 or 103, as in effect on the day before the
date of the enactment of this Act, may support such
ground only on the basis of--
(i) prior art that is described by section
102(a) (as in effect on the day before the date
of the enactment of this Act); or
(ii) prior art that--
(I) discloses the invention more
than 1 year before the date of the
application for patent in the United
States; and
(II) would be described by section
102(a) (as in effect on the day before
the date of the enactment of this Act)
if the disclosure had been made by
another before the invention thereof by
the applicant for patent.
(D) The petitioner in a transitional proceeding, or
the petitioner's real party in interest, may not
assert, either in a civil action arising in whole or in
part under section 1338 of title 28, United States
Code, or in a proceeding before the International Trade
Commission, that a claim in a patent is invalid on any
ground that the petitioner raised during a transitional
proceeding that resulted in a final written decision.
(E) The Director may institute a transitional
proceeding only for a patent that is a covered business
method patent.
(2) Effective date.--The regulations issued under paragraph
(1) shall take effect upon the expiration of the 1-year period
beginning on the date of the enactment of this Act and shall
apply to any covered business method patent issued before, on,
or after such effective date, except that the regulations shall
not apply to a patent described in the first sentence of
section 5(f)(2) of this Act during the period that a petition
for post-grant review of that patent would satisfy the
requirements of section 321(c).
(3) Sunset.--
(A) In general.--This subsection, and the
regulations issued under this subsection, are repealed
effective upon the expiration of the 4-year period
beginning on the date that the regulations issued under
to paragraph (1) take effect.
(B) Applicability.--Notwithstanding subparagraph
(A), this subsection and the regulations issued under
this subsection shall continue to apply, after the date
of the repeal under subparagraph (A), to any petition
for a transitional proceeding that is filed before the
date of such repeal.
(c) Request for Stay.--
(1) In general.--If a party seeks a stay of a civil action
alleging infringement of a patent under section 281 relating to
a transitional proceeding for that patent, the court shall
decide whether to enter a stay based on--
(A) whether a stay, or the denial thereof, will
simplify the issues in question and streamline the
trial;
(B) whether discovery is complete and whether a
trial date has been set;
(C) whether a stay, or the denial thereof, would
unduly prejudice the nonmoving party or present a clear
tactical advantage for the moving party; and
(D) whether a stay, or the denial thereof, will
reduce the burden of litigation on the parties and on
the court.
(2) Review.--A party may take an immediate interlocutory
appeal from a district court's decision under paragraph (1).
The United States Court of Appeals for the Federal Circuit
shall review de novo the district court's decision to ensure
consistent application of established precedent.
(d) Venue of Infringement Actions.--Notwithstanding section 1400(b)
of title 28, United States Code, an action for infringement under
section 281 of title 35, United States Code, of a covered business
method patent may be brought only in a judicial district--
(1) where the defendant has its principal place of business
or is incorporated;
(2) where the defendant has committed acts of infringement
and has a regular and established place of business;
(3) where the defendant has agreed or consented to be sued;
or
(4) for foreign defendants that do not meet the
requirements of paragraphs (1) or (2), in accordance with
section 1391(d) of title 28, United States Code.
(e) Attorney's Fees and Costs.--In an action for infringement under
section 281 of title 35, United States Code, of a covered business
method patent, the prevailing party shall be entitled to reasonable
attorney's fees and costs.
(f) ATM Exemption for Venue Purposes.--In an action for
infringement under section 281 of title 35, United States Code, of a
covered business method patent, an automated teller machine shall not
be deemed to be a physical facility for purposes of section 1400(b)(2)
of title 28, United States Code.
(g) Definition.--
(1) In general.--For purposes of this section, the term
``covered business method patent'' means a patent that claims a
method or corresponding apparatus for performing data
processing or other operations used in the practice,
administration, or management of a financial product or
service, except that the term does not include patents for
technological inventions.
(2) Regulations.--To assist in implementing the
transitional proceeding authorized by this subsection, the
Director shall issue regulations for determining whether a
patent is for a technological invention.
(h) Rule of Construction.--Nothing in this section shall be
construed as amending or interpreting categories of patent-eligible
subject matter set forth under section 101.
SEC. 19. CLARIFICATION OF JURISDICTION.
(a) State Court Jurisdiction.--Section 1338(a) of title 28, United
States Code, is amended by striking the second sentence and inserting
the following: ``No State court shall have jurisdiction over any claim
for relief arising under any Act of Congress relating to patents, plant
variety protection, or copyrights.''.
(b) Court of Appeals for the Federal Circuit.--Section 1295(a)(1)
of title 28, United States Code, is amended to read as follows:
``(1) of an appeal from a final decision of a district
court of the United States, the District Court of Guam, the
District Court of the Virgin Islands, or the District Court of
the Northern Mariana Islands, in any civil action arising
under, or in any civil action in which a party has asserted a
compulsory counterclaim arising under, any Act of Congress
relating to patents or plant variety protection;''.
(c) Removal.--
(1) In general.--Chapter 89 of title 28, United States
Code, is amended by adding at the end the following new
section:
``Sec. 1454. Patent, plant variety protection, and copyright cases
``(a) In General.--A civil action in which any party asserts a
claim for relief arising under any Act of Congress relating to patents,
plant variety protection, or copyrights may be removed to the district
court of the United States for the district and division embracing the
place where the action is pending.
``(b) Special Rules.--The removal of an action under this section
shall be made in accordance with section 1446 of this chapter, except
that if the removal is based solely on this section--
``(1) the action may be removed by any party; and
``(2) the time limitations contained in section 1446(b) may
be extended at any time for cause shown.
``(c) Clarification of Jurisdiction in Certain Cases.--The court to
which a civil action is removed under this section is not precluded
from hearing and determining any claim in the civil action because the
State court from which the civil action is removed did not have
jurisdiction over that claim.
``(d) Remand.--If a civil action is removed solely under this
section, the district court--
``(1) shall remand all claims that are neither a basis for
removal under subsection (a) nor within the original or
supplemental jurisdiction of the district court under any Act
of Congress; and
``(2) may, under the circumstances specified in section
1367(c), remand any claims within the supplemental jurisdiction
of the district court under section 1367.''.
(2) Conforming amendment.--The table of sections for
chapter 89 of title 28, United States Code, is amended by
adding at the end the following new item:
``1454. Patent, plant variety protection, and copyright cases.''.
(d) Transfer by Court of Appeals for the Federal Circuit.--
(1) In general.--Chapter 99 of title 28, United States
Code, is amended by adding at the end the following new
section:
``Sec. 1632. Transfer by the Court of Appeals for the Federal Circuit
``When a case is appealed to the Court of Appeals for the Federal
Circuit under section 1295(a)(1), and no claim for relief arising under
any Act of Congress relating to patents or plant variety protection is
the subject of the appeal by any party, the Court of Appeals for the
Federal Circuit shall transfer the appeal to the court of appeals for
the regional circuit embracing the district from which the appeal has
been taken.''.
(2) Conforming amendment.--The table of sections for
chapter 99 of title 28, United States Code, is amended by
adding at the end the following new item:
``1632. Transfer by the Court of Appeals for the Federal
Circuit.''.
(e) Effective Date.--The amendments made by this section shall
apply to any civil action commenced on or after the date of the
enactment of this Act.
SEC. 20. TECHNICAL AMENDMENTS.
(a) Joint Inventions.--Section 116 of title 35, United States Code,
is amended--
(1) in the first undesignated paragraph, by
striking ``When'' and inserting ``(a) Joint
Inventions.--When'';
(2) in the second undesignated paragraph, by
striking ``If a joint inventor'' and inserting ``(b)
Omitted Inventor.--If a joint inventor''; and
(3) in the third undesignated paragraph--
(A) by striking ``Whenever'' and inserting
``(c) Correction of Errors in Application.--
Whenever''; and
(B) by striking ``and such error arose
without any deceptive intent on his part,''.
(b) Filing of Application in Foreign Country.--Section 184 of title
35, United States Code, is amended--
(1) in the first undesignated paragraph--
(A) by striking ``Except when'' and inserting ``(a)
Filing in Foreign Country.--Except when''; and
(B) by striking ``and without deceptive intent'';
(2) in the second undesignated paragraph, by striking ``The
term'' and inserting ``(b) Application.--The term''; and
(3) in the third undesignated paragraph, by striking ``The
scope'' and inserting ``(c) Subsequent Modifications,
Amendments, and Supplements.--The scope''.
(c) Filing Without a License.--Section 185 of title 35, United
States Code, is amended by striking ``and without deceptive intent''.
(d) Reissue of Defective Patents.--Section 251 of title 35, United
States Code, is amended--
(1) in the first undesignated paragraph--
(A) by striking ``Whenever'' and inserting ``(a) In
General.--Whenever''; and
(B) by striking ``without any deceptive
intention'';
(2) in the second undesignated paragraph, by striking ``The
Director'' and inserting ``(b) Multiple Reissued Patents.--The
Director'';
(3) in the third undesignated paragraph, by striking ``The
provisions'' and inserting ``(c) Applicability of This Title.--
The provisions''; and
(4) in the last undesignated paragraph, by striking ``No
reissued patent'' and inserting ``(d) Reissue Patent Enlarging
Scope of Claims.--No reissued patent''.
(e) Effect of Reissue.--Section 253 of title 35, United States
Code, is amended--
(1) in the first undesignated paragraph, by striking
``Whenever, without any deceptive intention,'' and inserting
``(a) In General.--Whenever''; and
(2) in the second undesignated paragraph, by striking ``In
like manner'' and inserting ``(b) Additional Disclaimer or
Dedication.--In the manner set forth in subsection (a),''.
(f) Correction of Named Inventor.--Section 256 of title 35, United
States Code, is amended--
(1) in the first undesignated paragraph--
(A) by striking ``Whenever'' and inserting ``(a)
Correction.--Whenever''; and
(B) by striking ``and such error arose without any
deceptive intention on his part''; and
(2) in the second undesignated paragraph, by striking ``The
error'' and inserting ``(b) Patent Valid if Error Corrected.--
The error''.
(g) Ownership; Assignment.--The fourth undesignated paragraph of
section 261 of title 35, United States Code, is amended by inserting
before the period the following: ``and identifies all real parties in
interest''.
(h) Presumption of Validity.--Section 282 of title 35, United
States Code, is amended--
(1) in the first undesignated paragraph--
(A) by striking ``A patent'' and inserting ``(a) In
General.--A patent''; and
(B) by striking the third sentence;
(2) in the second undesignated paragraph, by striking ``The
following'' and inserting ``(b) Defenses.--The following''; and
(3) in the third undesignated paragraph--
(A) by striking ``In actions involving the validity
or infringement of a patent'' and inserting ``(c)
Notice of Actions; Actions During Extension of Patent
Term.--In an action involving the validity or
infringement of patent, the party asserting
infringement shall identify, in the pleadings or
otherwise in writing to the adverse party, all of its
real parties in interest, and''; and
(B) by striking ``Claims Court'' and inserting
``Court of Federal Claims''.
(i) Action for Infringement.--Section 288 of title 35, United
States Code, is amended by striking ``, without deceptive intention,''.
(j) Reviser's Notes.--
(1) Section 3(e)(2) of title 35, United States Code, is
amended by striking ``this Act,'' and inserting ``that Act,''.
(2) Section 202 of title 35, United States Code, is
amended--
(A) in subsection (b)(3), by striking ``the section
203(b)'' and inserting ``section 203(b)''; and
(B) in subsection (c)(7)--
(i) in subparagraph (D), by striking
``except where it proves'' and all that follows
through ``small business firms; and'' and
inserting: ``except where it is determined to
be infeasible following a reasonable inquiry, a
preference in the licensing of subject
inventions shall be given to small business
firms; and''; and
(ii) in subparagraph (E)(i), by striking
``as described above in this clause (D);'' and
inserting ``described above in this clause;''.
(3) Section 209(d)(1) of title 35, United States Code, is
amended by striking ``nontransferrable'' and inserting
``nontransferable''.
(4) Section 287(c)(2)(G) of title 35, United States Code,
is amended by striking ``any state'' and inserting ``any
State''.
(5) Section 371(b) of title 35, United States Code, is
amended by striking ``of the treaty'' and inserting ``of the
treaty.''.
(k) Unnecessary References.--
(1) In general.--Title 35, United States Code, is amended
by striking ``of this title'' each place that term appears.
(2) Exception.--The amendment made by paragraph (1) shall
not apply to the use of such term in the following sections of
title 35, United States Code:
(A) Section 1(c).
(B) Section 100.
(C) Section 101.
(D) Subsections (a) and (b) of section 105.
(E) The first instance of the use of such term in
section 111(b)(8).
(F) Section 157(a), in the matter preceding
paragraph (1).
(G) Section 161.
(H) Section 164.
(I) Section 171.
(J) Section 251(c), as so designated by this
section.
(K) Section 261.
(L) Subsections (a), (g), and (h) of section 271.
(M) Section 287(b)(1).
(N) Section 289.
(O) The first instance of the use of such term in
section 375(a).
(l) Effective Date.--The amendments made by this section shall take
effect upon the expiration of the 1-year period beginning on the date
of the enactment of this Act and shall apply to proceedings commenced
on or after that effective date.
SEC. 21. TRAVEL EXPENSES AND PAYMENT OF ADMINISTRATIVE JUDGES.
(a) Authority To Cover Certain Travel Related Expenses.--Section
2(b)(11) of title 35, United States Code, is amended by inserting ``,
and the Office is authorized to expend funds to cover the subsistence
expenses and travel-related expenses, including per diem, lodging
costs, and transportation costs, of non-federal employees attending
such programs'' after ``world''.
(b) Payment of Administrative Judges.--Section 3(b) of title 35,
United States Code, is amended by adding at the end the following:
``(6) Administrative patent judges and administrative
trademark judges.--The Director has the authority to fix the
rate of basic pay for the administrative patent judges
appointed pursuant to section 6 of this title and the
administrative trademark judges appointed pursuant to section
17 of the Trademark Act of 1946 (15 U.S.C. 1067) at not greater
than the rate of basic pay payable for Level III of the
Executive Schedule. The payment of a rate of basic pay under
this paragraph shall not be subject to the pay limitation of
section 5306(e) or 5373 of title 5.''.
SEC. 22. PATENT AND TRADEMARK OFFICE FUNDING.
(a) Definition.--In this section, the term ``Fund'' means the
United States Patent and Trademark Office Public Enterprise Fund
established under subsection (c).
(b) Funding.--
(1) In general.--Section 42 of title 35, United States
Code, is amended--
(A) in subsection (b), by striking ``Patent and
Trademark Office Appropriation Account'' and inserting
``United States Patent and Trademark Office Public
Enterprise Fund''; and
(B) in subsection (c), in the first sentence--
(i) by striking ``To the extent'' and all
that follows through ``fees'' and inserting
``Fees''; and
(ii) by striking ``shall be collected by
and shall be available to the Director'' and
inserting ``shall be collected by the Director
and shall be available until expended''.
(2) Effective date.--The amendments made by paragraph (1)
shall take effect on the later of--
(A) October 1, 2011; or
(B) the first day of the first fiscal year that
begins after the date of the enactment of this Act.
(c) USPTO Revolving Fund.--
(1) Establishment.--There is established in the Treasury of
the United States a revolving fund to be known as the ``United
States Patent and Trademark Office Public Enterprise Fund''.
Amounts shall be deposited in the Fund as an offsetting receipt
and shall be available for use by the Director without fiscal
year limitation.
(2) Derivation of resources.--There shall be deposited into
the Fund, on and after the effective date set forth in
subsection (b)(2)--
(A) any fees collected under sections 41, 42, and
376 of title 35, United States Code, except that--
(i) notwithstanding any other provision of
law, if such fees are collected by, and payable
to, the Director, the Director shall transfer
such amounts to the Fund; and
(ii) no funds collected pursuant to section
9(h) of this Act or section 1(a)(2) of Public
Law 111-45 shall be deposited in the Fund; and
(B) any fees collected under section 31 of the
Trademark Act of 1946 (15 U.S.C. 1113).
(3) Expenses.--Amounts deposited into the Fund under
paragraph (2) shall be available, without fiscal year
limitation, to cover--
(A) all expenses to the extent consistent with the
limitation on the use of fees set forth in section
42(c) of title 35, United States Code, including all
administrative and operating expenses, determined in
the discretion of the Director to be ordinary and
reasonable, incurred by the Director for the continued
operation of all services, programs, activities, and
duties of the Office relating to patents and
trademarks, as such services, programs, activities, and
duties are described under--
(i) title 35, United States Code; and
(ii) the Trademark Act of 1946; and
(B) all expenses incurred pursuant to any
obligation, representation, or other commitment of the
Office.
(d) Annual Report.--Not later than 60 days after the end of each
fiscal year, the Director shall submit a report to Congress which
shall--
(1) summarize the operations of the Office for the
preceding fiscal year, including financial details and staff
levels broken down by each major activity of the Office;
(2) detail the operating plan of the Office, including
specific expense and staff needs for the upcoming fiscal year;
(3) describe the long-term modernization plans of the
Office;
(4) set forth details of any progress towards such
modernization plans made in the previous fiscal year; and
(5) include the results of the most recent audit carried
out under subsection (f).
(e) Annual Spending Plan.--
(1) In general.--Not later than 30 days after the beginning
of each fiscal year, the Director shall notify the Committees
on Appropriations of both Houses of Congress of the plan for
the obligation and expenditure of the total amount of the funds
for that fiscal year in accordance with section 605 of the
Science, State, Justice, Commerce, and Related Agencies
Appropriations Act, 2006 (Public Law 109-108; 119 Stat. 2334).
(2) Contents.--Each plan under paragraph (1) shall--
(A) summarize the operations of the Office for the
current fiscal year, including financial details and
staff levels with respect to major activities; and
(B) detail the operating plan of the Office,
including specific expense and staff needs, for the
current fiscal year.
(f) Audit.--The Director shall, on an annual basis, provide for an
independent audit of the financial statements of the Office. Such audit
shall be conducted in accordance with generally acceptable accounting
procedures.
(g) Budget.--The Fund shall prepare and submit each year to the
President a business-type budget in a manner, and before a date, as the
President prescribes by regulation for the budget program.
SEC. 23. SATELLITE OFFICES.
(a) Establishment.--Subject to available resources, the Director
shall, by not later than the date that is 3 years after the date of the
enactment of this Act establish 3 or more satellite offices in the
United States to carry out the responsibilities of the Patent and
Trademark Office.
(b) Purpose.--The purpose of the satellite offices established
under subsection (a) are to--
(1) increase outreach activities to better connect patent
filers and innovators with the Patent and Trademark Office;
(2) enhance patent examiner retention;
(3) improve recruitment of patent examiners; and
(4) decrease the number of patent applications waiting for
examination and improve the quality of patent examination.
(c) Required Considerations.--
(1) In general.--In selecting the location of each
satellite office to be established under subsection (a), the
Director--
(A) shall ensure geographic diversity among the
offices, including by ensuring that such offices are
established in different States and regions throughout
the Nation;
(B) may rely upon any previous evaluations by the
Patent and Trademark Office of potential locales for
satellite offices, including any evaluations prepared
as part of the Office's Nationwide Workforce Program
that resulted in the 2010 selection of Detroit,
Michigan, as the first ever satellite office of the
Office.
(2) Open selection process.--Nothing in paragraph (1) shall
constrain the Patent and Trademark Office to only consider its
evaluations in selecting the Detroit, Michigan, satellite
office.
(d) Report to Congress.--Not later than the end of the first 3
fiscal years that begin after the date of the enactment of this Act,
the Director shall submit a report to Congress on--
(1) the rationale of the Director in selecting the location
of any satellite office required under subsection (a);
(2) the progress of the Director in establishing all such
satellite offices; and
(3) whether the operation of existing satellite offices is
achieving the purposes required under subsection (b).
SEC. 24. PATENT OMBUDSMAN PROGRAM FOR SMALL BUSINESS CONCERNS.
Subject to available resources, the Director may establish in the
Office a Patent Ombudsman Program. The duties of the Program's staff
shall include providing support and services relating to patent filings
to small business concerns.
SEC. 25. PRIORITY EXAMINATION FOR TECHNOLOGIES IMPORTANT TO AMERICAN
COMPETITIVENESS.
Section 2(b)(2) of title 35, United States Code, is amended--
(1) in subparagraph (E), by striking ``and'' after the
semicolon;
(2) in subparagraph (F), by inserting ``and'' after the
semicolon; and
(3) by adding at the end the following:
``(G) may, subject to any conditions prescribed by
the Director and at the request of the patent
applicant, provide for prioritization of examination of
applications for products, processes, or technologies
that are important to the national economy or national
competitiveness without recovering the aggregate extra
cost of providing such prioritization, notwithstanding
section 41 or any other provision of law;''.
SEC. 26. DESIGNATION OF DETROIT SATELLITE OFFICE.
(a) Designation.--The satellite office of the United States Patent
and Trademark Office to be located in Detroit, Michigan, shall be known
and designated as the ``Elijah J. McCoy United States Patent and
Trademark Office''.
(b) References.--Any reference in a law, map, regulation, document,
paper, or other record of the United States to the satellite office of
the United States Patent and Trademark Office to be located in Detroit,
Michigan, referred to in subsection (a) shall be deemed to be a
reference to the ``Elijah J. McCoy United States Patent and Trademark
Office''.
SEC. 27. EFFECTIVE DATE.
Except as otherwise provided in this Act, the provisions of this
Act shall take effect 1 year after the date of the enactment of this
Act and shall apply to any patent issued on or after that effective
date.
SEC. 28. BUDGETARY EFFECTS.
The budgetary effects of this Act, for the purpose of complying
with the Statutory Pay-As-You-Go Act of 2010, shall be determined by
reference to the latest statement titled ``Budgetary Effects of PAYGO
Legislation'' for this Act, submitted for printing in the Congressional
Record by the Chairman of the House Budget Committee, provided that
such statement has been submitted prior to the vote on passage.
Mr. Watt. Thank you, Mr. Chairman.
And at the outset, I am going to ask the Chairman for a
little indulgence today to give a slightly longer statement
than I usually do.
As late as yesterday afternoon, I had hoped to start this
opening statement by proudly proclaiming that I was one of the
many cosponsors of a broadly bipartisan, widely supported
patent reform bill, which, while perhaps not perfected to the
point of deserving final passage, the legislative counterpart
to receiving an A rating on a first patent application review,
would surely lead us ultimately to the long-awaited patent
reform promised land.
I had hoped that making that broad-based bipartisan start
would put us well on the way to our inter partes dispute
resolution process with the Senate and ultimately to the
President of the United States granting our patent. I mean,
signing our legislation into law.
Unfortunately, we are not there yet. So I need to begin
this opening statement at a much more basic place, with
reminders of where this all starts and why it is so important.
I start with the Constitution. The Constitution gives
Congress the power to promote the progress of science and
useful arts by securing for limited times to authors and
inventors the exclusive right to their respective writings and
discoveries.
The objective of the Patent Act is to implement this
constitutional authority by encouraging, supporting, and
rewarding the ingenuity of our inventors by providing them
exclusionary rights to their creation for a period of 20 years.
In exchange, the inventor discloses to the public the details
of his or her invention, setting off a ripple effect of further
creativity and development.
This simple concept embedded in our Constitution--
congressional promotion of innovation--finds itself in yet
another term of Congress in search of a modern-day viable
patent reform bill. Today, Chairman Smith introduced the
America Invents Act to begin that process. I applaud him for
his efforts.
And while I am encouraged by discussions with Chairmen
Smith and Goodlatte and other Members of this Subcommittee, and
the full Committee, to borrow a phrase from one of our earlier
hearings, there is still work ahead of us to get comprehensive
reform ``across the finish line.''
During the past debates on comprehensive patent reform, I
don't need to tell most people in this room there have been
numerous declarations to the effect that ``the time is now for
true patent reform.'' And yet the finish line has proven
elusive, and reform efforts have dissipated or certainly failed
to cross the finish line.
But we now have a unique opportunity to accomplish that
goal and get across the finish line. Past debates have provided
a solid foundation for optimism. Chairman Smith, Chairman
Goodlatte, Mr. Conyers, Mr. Coble, Mr. Berman, and many other
Members of this Committee, past and present, have cosponsored
bills over the years aimed at transforming our patent system
into an efficient forum for America's inventors.
Their steadfast leadership has no doubt contributed to the
widespread recognition of the importance of the patent system
to our economy, job creation, and prominence in intellectual
property advancement in the world.
Today, we find all three branches of Government taking an
active interest and energetic role in modernizing the patent
system. Both the Supreme Court and the Federal Circuit have
taken on and resolved many of the litigation-related issues
that animated earlier calls for legislative relief.
President Obama has made patent reform, along with
education and intellectual property protection and enforcement
activities, the centerpieces of his innovation agenda. Director
Kappos has played a vital role in that agenda, convening
special sessions with key stakeholders to mediate some of the
competing concerns.
The Senate has passed a bill, and we have initiated the
process of establishing a robust statutory framework that will
stimulate innovation and growth, provide adequate safeguards
against abuses, and shore up the PTO to meet its crucial
responsibilities.
The question each participant in this process should now be
asking is, ``Will I allow all that hard work and momentum to
dissipate because I don't get exactly what I want on every
issue that impacts me?'' If your personal answer to that
question is yes, let me say unequivocally that I think you are
in the wrong place.
The bill introduced by Chairman Smith definitively provides
the resources the PTO earns and deserves by permanently ending
the practice of fee diversion and by guaranteeing to the PTO
access to all the user-generated fees it collects. This
provision has universal support, and I thank the Chairman for
accepting some language that we offered to ensure compliance
with new House CUTGO rules. This provision will go a long way
toward helping the PTO to stabilize and eventually eliminate
its 700,000 backlog of applications.
Other provisions in the America Invents Act and some that
have not been included I believe require further examination
and, at this juncture, have less than universal support. But
despite the appearance that may be projected by the failure to
have a broad bipartisan bill at this point, these divisions are
not partisan. I repeat, they are not partisan.
Rather, they consist of legitimate substantive differences
and approaches based on a variety of factors. For example,
conversion from a first-to-invent to a first-to-file system has
been portrayed by some as necessary to harmonize U.S. practice
with the international community. Others argue that true
harmonization and, indeed, balancing the interest of first
filers, who may not actually be first inventors, with real
first inventors, who may not be first filers, requires that
expansion of prior use rights comparable to that employed by
the rest of the patent-issuing countries, with some exceptions,
still needs to be implemented.
Still others have expressed the view that prior user rights
have no place in our country that has a public university
system unlike any other that engages in valuable public-private
collaborative research and development. Patent law currently
affords first inventors a 1-year grace period during which an
inventor can disclose, publish, or use his invention without
fear of forfeiting his right to a patent, provided he applies
before the expiration of the grace period.
The grace period is uncommon in the rest of the world and
yet has become an integral part of the PTO patenting process
and is coveted by most innovators. How the grace period will
operate in a first-to-file system, i.e., whether the duration
of the grace period should be adjusted upward or downward, is a
legitimate, substantive question.
Finally, what mechanisms are necessary to afford effective
and affordable post grant review procedures? Under current law,
there are two tracks available to challenge a patent after it
has been issued, each with its own limitations. Is a third
track similar to the post grant reviews in other countries a
necessary tool, or will it pile onto the already overburdened,
understaffed PTO or add further unwarranted delays to getting
final court determinations?
Again, I believe these are not frivolous questions. Many of
these issues have been central to the debate in past
Congresses, and yet we have already seen that a sea change in
the judicial approach to patent law dispense with the need for
the litigation-related reform proposals of old.
We should not allow this debate to become a missed
opportunity to effectuate genuine, long-lasting, effective
reform of what most consider an antiquated system by holding
onto our selfish, sometimes myopic views and refusing to
compromise.
Over the past few decades, our economy has shifted from a
manufacturing economy to one rooted in intellectual property
rights. It is extremely important that our patent system
continue to incentivize ideas and protect engines of growth.
Innovation will no doubt continue despite a sluggish patent
system, as evidenced by the ongoing backlog and intake of
applications.
But I believe we need to get this right. Unless we are
prepared to relinquish our positions at the forefront of
innovation, invention, and ingenuity, we must produce a bill
that at a minimum exceeds even the best components of patent
systems around the world.
I believe this Subcommittee, with an infusion of new blood
on both sides of the aisle and the invaluable experience of our
veterans, stands ready to negotiate a bipartisan product that
we can all be proud of, one that embodies core features that
will produce quality patents, efficient procedures, effective
reviews, affordable processes, and safeguards against abuse and
harassment.
In closing, Mr. Chairman, a little anecdote. In my
district, I engage in a project called Trading Places. Maybe
some of you are more familiar with the television show
Undercover Boss. Both operate on the premise that you can
acquire a deep appreciation of the other guy when you are
required to experience life in his perspective.
If there is one important lesson that has been reinforced
for me throughout my time in Congress is that progress requires
compromise, simple give and take on everyone's views. In the
practice of law, we always said that the definition of a good
compromise was one that made all parties unhappy.
So I would encourage all of the stakeholders involved to
optimize the results of this process by concentrating their
efforts on the genuine, universal changes essential to making
the patent process work for everybody. The alternative is, in
the words of Yogi Berra, ``deja vu all over again.''
I thank the Chairman for his indulgence and yield back.
Mr. Goodlatte. I thank the gentleman.
The Chair now recognizes the Chairman of the Judiciary
Committee and the sponsor of this legislation, the gentleman
from Texas, Mr. Smith.
Mr. Smith. Thank you, Mr. Chairman.
And also, Mr. Chairman, I appreciated your opening
statement and also appreciated Mr. Watt's opening remarks as
well. While lengthy, he raised a number of good points, and I
would only add to Mr. Watt's comment or his definition of
compromise is that maybe we can come up with a compromise plus.
Rather than making everybody equally unhappy, maybe we can make
everybody just a little bit happy and come up with a good
product in the end.
Mr. Chairman, the foresight of the Founders in creating an
intellectual property system in the Constitution demonstrates
their understanding of how patent rights ultimately benefit the
American people. Technological innovation derived from our
intellectual property is linked to three-quarters of America's
economic growth, and American IP industries now account for
over half of all U.S. exports. These industries also provide
millions of Americans with well-paying jobs.
Our patent laws, which provide a time-limited monopoly to
inventors in exchange for their creative talents, perpetuate
this prosperity. The last major patent reform was nearly 60
years ago. Since then, American inventors have helped to put a
man on the Moon, developed cell phones, and created the
Internet.
But we cannot protect the technologies of today with the
tools of the past. The current patent system is outdated and
bogged down by frivolous lawsuits and uncertainty regarding
patent ownership. Frivolous lawsuits that typically cost $5
million to defend prevent legitimate inventors and industrious
companies from creating amazing products and generating high-
paying jobs.
We must work with the Senate to enact a bill that enhances
patent quality, discourages frivolous litigation, harmonizes
international patent principles, and enforces core rights. The
major problem plaguing the patent system is the lack of
resources available to the PTO. The bill allows the director to
adjust the fee schedule with appropriate congressional
oversight and authorizes the agency to keep all the revenue it
raises.
This will enable PTO to become more efficient and
productive. Patent quality will improve on the front end, which
will reduce litigation on the back end.
And while we are pleased with the Senate's action, the
Senate bill doesn't make inter partes re-examination as user
friendly as it might be. Every industry affected by patents,
including finance, automotive, manufacturing, high tech, and
pharmaceuticals, will benefit from these reforms.
The purpose of today's hearing is to identify common ground
and establish priorities. For example, given the political
context in which we must legislate, I think we have been very
fair to high tech. Also, the bill doesn't address many
litigation reform issues because the courts are handing down
decisions on damages, venue, and other subjects.
And we lengthened the filing deadlines for post grant
opposition and inter partes re-exam, lowered the threshold
trigger for inter partes, and enhanced prior user rights in
response to tech request. Also, the bill includes a clear
exclusion for the university community to prior user rights and
a Bayh-Dole provision that allows universities to keep a
greater share of their patent licensing revenue. It is a good
deal for many in the university community.
However, it disappoints me that some stakeholders are only
concentrating on what they don't have. Ultimately, this patent
reform must strike a delicate balance. There is a reason why
patent reform bills have not been enacted over the last four
Congresses. It is impossible for any one group to get
everything that they want.
This bill represents a fair compromise and creates a better
patent system than exists today for inventors in our innovative
industries. All of us should maintain a broader perspective if
we want to enact a bipartisan, bicameral bill, and we must keep
our common goal in mind.
Better patents increase productivity and lead to economic
prosperity. A modernized patent system will rev the engine of
American competitiveness, put inventors and innovators in gear,
and drive economic growth and job creation.
Thank you, Mr. Chairman. Yield back.
Mr. Goodlatte. Thank you, Mr. Chairman.
We are improvising as we move along here. As we announced
earlier, the Committee is going to stand in recess for the
briefing on Libya by some of our country's leaders.
However, I have just learned that Mr. Kappos has to be
leaving the country shortly. So what I would like to do is I
will stay, and anyone is invited to stay as well, to hear his
testimony.
And then we will recess, and we will submit any questions
we have in writing to you. When we return, we will begin with
the second panel.
So, briefly, I will introduce the Honorable David J.
Kappos, the Under Secretary of Commerce for Intellectual
Property and Director of the United States Patent and Trademark
Office. In this role, he advises the President, the Secretary
of Commerce, and the Administration on intellectual property
matters.
Before joining the PTO, Mr. Kappos led the intellectual
property law department at IBM. He has served on the Board of
Directors of the American Intellectual Property Law
Association, the Intellectual Property Owners Association, and
the International Intellectual Property Society. He has held
various other leadership positions in intellectual property law
associations in Asia and the United States and has spoken on
intellectual property topics around the world.
Mr. Kappos received his Bachelor of Science degree in
electrical and computer engineering from the University of
California-Davis in 1983 and his law degree from the University
of California at Berkeley in 1990.
Welcome, Mr. Kappos.
Mr. Sensenbrenner. Mr. Chairman? If the Chairman will yield
for a bit? Is Mr. Kappos going to be able to answer questions
after his testimony, or is he just going to split?
Mr. Goodlatte. He is going to have to leave, and we are
going to submit questions to him in writing, which we will ask
him to answer promptly.
Mr. Sensenbrenner. Well, I hope he comes back because that
is not acceptable.
Mr. Goodlatte. I thank the gentleman.
Mr. Kappos, welcome.
TESTIMONY OF THE HONORABLE DAVID J. KAPPOS, UNDER SECRETARY OF
COMMERCE FOR INTELLECTUAL PROPERTY AND DIRECTOR, THE UNITED
STATES PATENT AND TRADEMARK OFFICE
Mr. Kappos. Well, thank you, Chairman Goodlatte, Ranking
Member Watt, and Chairman Smith, Members of the Subcommittee.
Thank you for this opportunity to discuss the Department of
Commerce's and the USPTO'S views on patent reform today.
Mr. Chairman, we commend you and your colleagues for
introducing H.R. 1249. Reforming our patent system will support
and encourage innovation that improves American
competitiveness, economic prosperity, and job growth. It is
past due.
We believe that enactment of the legislation now under
consideration will significantly improve our patent processes,
reduce litigation uncertainties and costs, and increase the
value of patent rights for American innovators.
There are several critical proposals under consideration.
We view the proposed transition to a first-inventor-to-file
system as an essential feature of any final bill. The
transition will simplify the process of acquiring rights while
maintaining a 1-year grace period that protects innovators. It
will reduce legal costs, improve fairness, objectivity, and
transparency, and support U.S. innovators doing business
abroad.
Some contend that the proposed transition will only benefit
large patent owners to the disadvantage of independent
inventors. This fear is unfounded and inconsistent with the
facts.
In the past 7 years of over three million patent
applications filed in the USPTO, only 25 patents were granted
to small entities that were the second inventor to file but
were able to prove they were first to invent. And of those 25,
only one patent was granted to an independent inventor.
Thus, in the last 7 years, only one independent inventor's
filing would have received a different outcome under the first-
inventor-to-file system. That is 1 in 3 million.
Further, the cost of proving who is a first to invent under
the current system is prohibitive. It costs an average of
$400,000 to $500,000 in legal fees to engage in interference
proceedings. Most independent inventors simply do not have the
resources for these proceedings.
Mr. Chairman, the facts demonstrate that the current system
actually favors those with deep pockets and works to the
disadvantage of small companies and independent inventors with
limited resources. The new first-to-file system will instead
benefit small entity filers by giving them a transparent,
objective, simple system with no hidden traps or costs.
With respect to funding, we are pleased that the proposed
legislation includes authority for the USPTO to establish and
adjust its fees. Fee-setting authority would be accompanied by
strong oversight and input from our advisory committees, by
stakeholders, and by Congress, in addition to the oversight we
receive from OMB and from the Department of Commerce.
Fee-setting authority, coupled with full availability of
fee collections through a revolving fund, will permit the USPTO
to achieve a stable funding model that supports long-term
improvements in operations.
Mr. Chairman, we also support establishment of a new post
grant review proceeding and the retooling of our existing post
grant re-examination procedure. These review proceedings will
minimize costs and increase certainty by offering efficient
alternatives to litigation as a means of reviewing questions of
patent validity. Several factors provided in this legislation
will ensure manageable implementation, including the delayed
effective dates, the authority to set fees and issue
administrative and procedural regulations, and the authority to
impose limits on the number of reviews during the first 4
years.
Also, we are confident that the provisions will prevent
delay and abusive challenges while enabling challenges based on
meritorious grounds.
Mr. Chairman, as a quality-focused measure, we support
provisions that increase the opportunity for third parties to
submit relevant prior art after publication and before
examination. We are pleased to see that the legislative process
has refocused to specifically address patent quality and patent
operations improvements that can be implemented by the USPTO.
In light of recent court decisions relating to damages
assessments, willfulness, and venue considerations, we support
removal of related provisions in patent reform legislation. The
House bill would also expand current prior user defense to all
areas of technology and includes an exemption when this defense
is raised in litigation against a university.
Expanding the prior user defense is pro-manufacturer, pro-
small business, and on balance, good policy. But I am aware of
university community concerns and would like to help address
them.
Mr. Chairman, again, we commend you for introducing H.R.
1249. We look forward to working with you toward enactment of
patent reform legislation that supports America's innovators
and spurs economic growth and job creation.
Thank you.
[The prepared statement of Mr. Kappos follows:]
__________
Mr. Goodlatte. Thank you, Mr. Kappos.
The Ranking Member and I have consulted. And in order to
accommodate the concerns of the Chairman emeritus, I am going
to ask him to take the Chair and ask the questions that he
would like to ask. And then ask him to recognize the
gentlewoman from California, Ms. Lofgren, who will ask some
questions.
I believe that will just about use up your time and keep
you on schedule, and the rest of us will submit our questions
in writing.
We may want to defer to the Chairman of the Committee as
well.
Mr. Sensenbrenner [presiding]. Well, I thank the Chair of
the Subcommittee for this minor modification of what is not
acceptable. This is a pretty important bill. And simply to have
Mr. Kappos here and answer questions from two or three Members
of the Subcommittee and not have another shot at you, you know,
I think gets this bill off to a very, very wrong foot.
And it is my hope that we do a little bit better job in
terms of scheduling things so that we can get the issues on the
table, which, in my opinion, is a necessary precondition in
order to get the support to pass this bill.
Now, Mr. Kappos, I have got a big concern about prior user
rights and the changes this bill proposes and which apparently
the Administration supports. During my tenure as Chairman of
both the Science and Judiciary Committees, I have learned
firsthand the importance of publication and disclosure in the
patent law.
And in 2007, I coauthored with Ms. Baldwin an amendment on
the House floor to remove the prior user rights expansion from
the patent reform bill then under consideration, and now it is
back on the table. I fear that expanding prior user rights will
harm inventors who share their knowledge and discovery and
reward those who choose to stay silent, keep innovation secret,
and don't contribute to the products of science.
Now the Obama administration has given an indication of
support for section 4 of the America COMPETES Act, which
significantly increases prior user rights, which goes directly
opposite to the amendment that Ms. Baldwin and I offered. And
that effectively puts trade secrecy in the patent law with a
powerful incentive--a royalty-free statutory license.
Section 4 also confers its benefits outside the United
States. So, for example, can the Chinese simply raise a prior
user rights defense against a patent infringement claim, and
how does that help America compete?
Mr. Kappos. Well, thank you very much, Representative
Sensenbrenner. Thank you for giving me an opportunity to
respond on prior user rights.
So, first of all, I want to point out there is no
Administration position on prior user rights yet, with the bill
just having been introduced.
Mr. Sensenbrenner. When will there be because this is not a
new issue to be debated?
Mr. Kappos. Well, now that the bill is introduced, we will
be putting together a position here as quickly as possible. I
would offer a few observations of my own, if that is okay? And
those include, number one, that we are very concerned about
university concerns and university issues. We are listening to
the universities and want to continue to work with them.
We want to have a prior user rights provision that meets
the needs of America's important university community. So we
stand very much with you on that point.
I believe there are, however, many incentives to file
patent applications in front of the USPTO. We will receive more
than 500,000 patent applications this year. And so, I do not
view a prior user provision as being in conflict with all of
the good reasons to file patent applications and with the
disclosure incentive of the patent system.
I also think that prior user rights have the advantage of
being very pro-American manufacturing. Currently, there is
actually an incentive for American businesses to locate their
factories overseas, whether it be China or any other country.
And the reason is because all of those other countries have
prior user rights.
And that means that if a patent is registered, if a patent
is enforced in that country, it cannot be used against your
manufacturing if your manufacturing facility qualifies for the
prior user rights in those countries. The U.S., not having a
prior user rights system, is at a comparative disadvantage with
those other countries, and the message that we are sending to
our manufacturers, especially small manufacturers, is that you
are in jeopardy.
Even if you set up a manufacturing plant in this country
and have it running for several years, you are in jeopardy of
being attacked with a patent that is potentially filed much
later than your manufacturing. And so, you can avoid that
dilemma by locating your factory overseas. I would like to see
that competitive advantage----
Mr. Sensenbrenner. Well, I strongly disagree with you. I
think that the prior user rights expansion is going to end up
giving China a ``get out of jail free'' card. And I have spent
a good part of the last 15 years yelling about Chinese piracy
of intellectual property rights, and I am afraid that we are
just legalizing that with the prior user rights expansion that
is contained in the draft bill, and this very well could be a
poison pill.
Now the other point that I want to make is I think that it
would be very wise to separate out the ban on fee diversion so
that can be passed independently of the base patent bill, which
I think is going to become very controversial. I think
everybody here agrees that getting rid of the fee diversion is
a step in the right direction.
And there might be those that want to use that as a way to
boost a bad bill to the goal line. I think that the thing to do
is to free the fee diversion and let it be passed and signed,
and then let the rest of the bill sink or swim.
My time is up. The gentlewoman from California, Ms.
Lofgren?
Ms. Lofgren. Thank you, Mr. Sensenbrenner.
And I agree that it would be terrific to have more time to
discuss this with the director. I would like to say that this
is the first time I have walked in on a patent hearing when we
had to have an overflow room. So that was exciting.
You know, I have a number of questions. First, on the re-
exam, inter partes re-exam. It is my understanding that from
1999 to the end of last year that the office issued decisions
in the total of 221 re-exams. And that of those cases, 90
percent resulted in invalidation of at least one claim of the
patent that was being challenged. Is that correct?
Mr. Kappos. Right offhand, that sounds like it is correct.
Ms. Lofgren. So that would seem to say that in the
overwhelming majority of these matters, the re-exams have some
merit?
Mr. Kappos. Yes.
Ms. Lofgren. And that allegations that the current system
is being abused might be off the mark. Would you say that is
correct?
Mr. Kappos. I would agree with that.
Ms. Lofgren. Some have said that the current standard for
initiation is too low. Now it seems to me that you should be
able to require at least a prima facie showing of invalidity to
move something forward. On the other hand, we don't want you,
as the director, to make the decision before everything has
been made. What is your thought on that issue?
Mr. Kappos. Right. Well, your statistics are, indeed,
consistent with what we are seeing continuing into this year.
We have processed now hundreds of inter partes re-examinations,
and what we are finding is that our rate of what is called
``false positives,'' or cases that get over the SNQ threshold,
is relatively low.
Now that is new factual information that we have over the
last few years that puts us in a position to be comfortable
with the SNQ standard, both because we have become successful
at implementing it, and because we have shown statistically
that we don't have a high level of these false positives.
We also are cognizant, though, of the higher standard that
has been proposed on the Senate side of a reasonable
likelihood, and that standard does have an advantage built into
it of enabling us to filter out more cases at the threshold and
compress our timescale.
Ms. Lofgren. Well, it might be easier on the office, but it
is going to be harder on the system, and we will see more
matters litigated at more expense to the American economy. It
might be better to give you the resources to deal with it,
wouldn't you say?
Mr. Kappos. Right. That is a fair point. My view is that,
on balance, it is more costly to our economy to have false
negatives.
Ms. Lofgren. Right.
Mr. Kappos. Those are cases where we should be taking a
substantive look at the patent, but we didn't because the
threshold was set too high.
Ms. Lofgren. Right. Well, and right now, I mean, there is
significant disincentive to bring an action because in the
litigation, anything that could have been raised can't be used.
And therefore, I am assuming, just you have got 90 percent
there is a problem, and yet this major disincentive to even
using the system. That if we were to make this more accessible
and give your office the resources to deal with it, that we
would divert a lot of matters that could be dealt with
successfully in this process. Wouldn't you say that is true?
Mr. Kappos. Well, that is right. If I can say that in my
own words also, that I believe there are significant advantages
for patentees who successfully go through the post grant
system--in this case, inter partes review--because of those
estoppel provisions. Those estoppel provisions mean that your
patent is largely unchallengeable again by the same party.
Ms. Lofgren. Right.
Mr. Kappos. And so, there is a tremendous disincentive
already built in against bringing frivolous inter parte----
Ms. Lofgren. I am going to interrupt because I am almost
out of time, and I want to ask you just one final question. The
engineers have talked to me about third-party submission of
prior art. A lot of them think that may be the most important
part of this bill. It is an open-sourcing patent information.
But it looks like there is evidence that patent examiners
already ignore a lot of information except what they find
through their own search. If we have third-party submission of
prior art that is vigorous and reenergized, how are you going
to get your examiners to actually accept that information, take
it seriously, and utilize it in a way that would optimize the
submissions?
Mr. Kappos. Right. Well, that is a question of training,
coaching, and incentives, and we are engaged in those very
processes because we want our examiners to use the best art, no
matter whether it is art they found or whether it is art that
came in from some other source.
We have found, however, in the pilot that we are currently
running on this third-party review system that the examiners
really enjoy using it and that they are using the prior art
that is coming in. So it may be that having this commentary and
additional help from third parties that they are getting
through the pilot gives examiners that kind of----
Ms. Lofgren. My time is off, and maybe you could send us
some more information on that pilot after the hearing? I would
be very interested.
And I thank you, Mr. Chairman.
Mr. Sensenbrenner. The gentleman from Texas, the Chairman
of the Committee, Mr. Smith is recognized for 5 minutes.
Mr. Smith. Thank you, Mr. Chairman.
Director Kappos, thank you for being here and also thank
you for your good work at the PTO. It is appreciated by
everybody who knows what you do.
I have two short questions. And if you could give me brief
responses, I am going to yield the balance of my time to the
gentleman from North Carolina, Mr. Watt. And then we will be
able to get you to the airport on time.
First question is this. How do independent inventors and
the smaller entities benefit specifically from this bill? The
independent inventors and the smaller entities, how do they
benefit specifically from this bill?
You talked in general terms. I just wondered if you could
go into more detail?
Mr. Kappos. Sure. Yes, I would be happy to mention that.
Well, first and foremost--well, first anyway, independent
inventors and small entities will benefit, micro entities will
benefit from a new 75 percent discount on the fees that they
pay. Secondly, independent inventors and small entities will
benefit from the USPTO then being able to extend, or the
legislation now extending, 50 percent discounts to new areas
that we are implementing like our Track I examination system,
which will provide 3-month turnaround to first office action
and 1 year to completion of a patent application, which is
something that the independent inventor and small entity
community has been asking us for repeatedly.
We applaud the introduction in this legislation of a 50
percent discount. This gives USPTO the ability to give those
kinds of discounts when we put in place new helpful measures
for that community in the future.
Mr. Smith. Okay. And second question is why should we give
the PTO authority to set the patent fees?
Mr. Kappos. Well, you know, the processes of innovation are
moving so fast, and the different ways that the innovation
community is using our services are changing so fast that we
need, at the USPTO, the ability to adjust our fees to keep up
with what is going on.
Our cost to implement the various services that we perform
change over time and sometimes change rather rapidly. The
amount of demand for services changes, which requires us to put
new infrastructure in place. All of that reflects itself in for
us the cost of doing business, the cost of providing services.
And if we had the ability to adjust our fees, we would be
able to meet the timeframes of the American innovation
community and----
Mr. Smith. The end result is better patents more quickly
approved, I suspect. Okay.
Thank you. I will yield the balance of my time to Mr. Watt.
Mr. Watt. I think I have agreed to submit my questions in
writing in the interest of Mr. Kappos's time. I understand, you
know, he was the first witness. We had to recess for votes, and
so he has got time problems. So I am content with that.
I will yield back, Mr. Chairman.
Mr. Sensenbrenner. The classified briefing is supposed to
end at 3:30 p.m., but usually they don't. So with that in mind,
the Chair is going to recess the Committee, subject to the call
of the Chair for the second panel.
Bon voyage and safe travels, Mr. Kappos. And without
objection, the Committee is recessed, subject to the call of
the Chair.
[Recess.]
Mr. Goodlatte [presiding]. Take three. We have a very
distinguished second panel of witnesses today, and each of the
witnesses' written statements will be entered into the record
in its entirety.
I ask that each witness summarize his testimony in 5
minutes or less. To help you stay within that time, there is a
timing light on your table. When the light switches from green
to yellow, you will have 1 minute to conclude your testimony.
When the light turns red, it signals that the witness's 5
minutes have expired.
Before I introduce our first witness, I would like all of
them to stand and be sworn.
[Witnesses sworn.]
Mr. Goodlatte. Thank you, and be seated.
Our first witness is the Honorable Steve Bartlett. He will
be testifying on behalf of the Financial Services Roundtable in
his capacity as president and CEO. The roundtable is comprised
of 100 integrated financial services companies in the United
States.
Mr. Bartlett has also served as a member of the Dallas City
Council, a Member of Congress, and the Mayor of Dallas. He
founded Meridian Products Corporation, a manufacturer of
injection-molded plastics in 1976, divesting his interest in
1999.
Mr. Bartlett is a graduate of the University of Texas at
Austin, later serving as adjunct professor at the LBJ School of
Public Affairs.
Our next witness is Steven Miller, Procter & Gamble's vice
president and general counsel for intellectual property. He has
worked in a variety of positions for P&G since joining the
company in 1984.
Mr. Miller has authored numerous P&G patents and patent
applications and has participated in interferences,
arbitrations, and litigation in the United States and abroad.
He is a member of many intellectual property organizations and
bar groups. Mr. Miller received his undergraduate and law
degrees from the Ohio State University.
Our next witness is Mark Chandler, senior vice president,
general counsel, and secretary for Cisco. He joined Cisco in
1996 after the company acquired StrataCom, where he served as
general counsel. Earlier in his career, Mr. Chandler was vice
president for corporate development and general counsel for
Maxtor Corporation. Mr. Chandler was educated at Harvard and
Stanford School of Law.
Our final witness is John Vaughn, executive vice president
of the Association of American Universities, whose membership
includes 60 U.S. and 2 Canadian universities with strong
programs of research and graduate and professional education.
Dr. Vaughn has responsibility for association activities in the
area of intellectual property, information technology, research
libraries, and scholarly communication.
Dr. Vaughn received his undergraduate degree from Eastern
Washington State College and his Doctorate in Experimental
Psychology from Minnesota. He was also awarded an NIH Post
Doctoral Traineeship and served as a post doctoral fellow at
Duke.
And I would now like to yield to the gentleman from Ohio,
Mr. Chabot, who would like to also say something about the
witness from Ohio.
Mr. Chabot. Thank you very much, Mr. Chairman.
I would like to expound upon the great words that the
Chairman already expressed relative to Mr. Miller. It is
definitely a great honor to introduce one of the witnesses,
Steve Miller.
He is here as vice president and general counsel of
intellectual property for the Procter & Gamble Company, P&G,
which is headquartered in Cincinnati, Ohio. And Procter &
Gamble has an outstanding record, both locally and globally.
Two small businessmen, William Procter and James Gamble,
founded this company in Cincinnati all the way back in 1837 to
sell candles and soap. Today, the company has grown to include
23 different brand names, with over $1 billion in annual sales
in each.
Procter & Gamble employs 35,000 people throughout the
United States, paying $4 billion in domestic wages annually.
Additionally, P&G provides a positive example of a responsible
charitable corporation, donating approximately $100 million to
charitable organizations every year.
Steve Miller has had a successful career as in-house
counsel with P&G for over 25 years. He is now vice president
and general counsel on intellectual property, where he oversees
approximately 150 patent and trademark attorneys worldwide and
advises P&G's senior management on IP issues.
Mr. Miller has also authored numerous P&G patents and
patent applications and has also been involved in a number of
license agreements, acquisitions, interferences, arbitrations,
and litigation both in the U.S. and abroad.
Mr. Miller is also the current president of the
Intellectual Property Owners Association Education Foundation,
on the Board of Directors and past president of the
Intellectual Property Association, and on the Board of
Directors for the National Inventors Hall of Fame.
I know we look forward to learning more as we hear from Mr.
Miller on patent reform this afternoon and the other witnesses
as well.
And I thank the Chairman greatly for yielding.
Mr. Goodlatte. I thank the gentleman.
Welcome to all of our witnesses, and we will begin with Mr.
Bartlett.
TESTIMONY OF THE HONORABLE STEVE BARTLETT, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, THE FINANCIAL SERVICES ROUNDTABLE
Mr. Bartlett. Thank you, Mr. Chairman.
Mr. Chairman, Ranking Member Watt, Mr. Coble, Mr. Chabot,
it's good to be here.
This is a very important piece of legislation. It's a
legislation that in some ways is long overdue. I commend the
Committee and the present draft, and we're here--I'm here to
support the present draft language of the House version in its
current form.
I'm here to speak on behalf of the Financial Services
Roundtable, as you noted, Mr. Chairman. But I should note up
front that the roundtable has worked closely with other
groups--the American Bankers Association, the Clearing House,
credit unions, the ICBA, the community bankers, NAFCU, SIFMA,
and others--to address this problem of nonpracticing entities
that we believe exploit flaws in the current patent system.
My testimony today is consistent with the views of these
other trades. These nonpracticing entities, Mr. Chairman, or
NPEs, as they're called, have built an industry based on filing
onerous lawsuits involving low-quality business method patents
with the expectation of securing large settlements. These are
widely described as meritless lawsuits and settlements--and the
settlements then help to distort the marketplace.
Fundamental to the operation of the financial services
sector is the interoperability of complex financial systems
that facilitate the movement of data relating to every type of
financial transaction. So it is this network of financial
technology infrastructure that is so fundamental that it has
been designated as a critical national infrastructure by the
Department of Defense.
So given the importance of the financial services sector to
the Nation's economy and infrastructure, it's important that
the patent system work for everyone, and currently, it does
not.
So, instead, the confluence of interoperability, forum
shopping, and a lack of quality prior art, particularly in the
area of business method patents, has conspired to leave
financial firms, from the smallest community banks or local
credit union or insurance agent to the largest global company,
mired in what we believe are meritless litigation over patents
of dubious quality. This litigation has a direct impact on
consumers, as capital that could otherwise be deployed for
business lending in our communities is tied up with court costs
and settlements.
Historically, Mr. Chairman, business methods had not been
patented in any significant quantity. This was profoundly
changed in 1998 by the State Street decision. So between 1997
and 1998, new applications for business method patents tripled
and have tripled again. So by the end of 2009, some 11,000 new
applications for patents on business methods were being filed
each and every year, with 40,000 pending in 2010.
According to a study by Harvard University, the
proliferation of business method patents has resulted in a
flood of patent litigation in the financial services industry,
occurring at a rate of 39 times greater than the patents as a
whole. Now, Mr. Chairman, other than NPEs, there's no
reasonable explanation for a 39 times greater rate of patent
litigation in the financial services industry.
These nonpracticing entities then are increasingly
exploiting the current system to hold hostage entire classes of
industry players in a single lawsuit, and thus,
interoperability comes into play. Neither 90--nearly 90 percent
of infringement cases against the top 20 banks, just as one
data point, name multiple financial services companies as
defendants, often including 20, 40, or even 60 institutions in
a single action.
Now business method patents are not bad, per se, but they
do lend themselves to abuse, given the current system. I could
cite a number of examples. You've probably heard multiple
examples.
One case, scores of banks and insurance companies were sued
in the Eastern District of Texas for infringing on a business
method patent related to marketing. The patents in this suit
covered the printing of marketing materials at the bottom of
the back of billing statements instead of on a separate
statement stuffer. Now it's difficult to see anything novel or
nonobvious in where you print the statement information that
would have merited a patent with a 20-year property right.
The cost to all the sectors of the financial services
industry and our customers continue to grow at an alarming
rate. So, therefore, we support the House draft establishing an
opposition proceeding at the PTO to review qualified business
method patents against a best prior art.
Under this draft legislation, the PTO would determine
whether a patent is qualified, would undertake a review for a
maximum of no more than 1 year, and then, critically, examine
the patent against the best available prior art, including the
evidence of prior use, sale, or offer for sale.
The House bill improves the language related to a stay also
of district court litigation by requiring the Federal Circuit
to review the decision of the lower court de novo. It's our
belief that this stay should be mandatory, but short of it
being mandatory, this de novo language is essential to ensure
that neither plaintiffs nor dependents--nor defendants bear the
cost of parallel proceedings.
Mr. Chairman, with this provision included, we support the
draft bill before the Committee. We would, as an industry,
strongly oppose any efforts to weaken it.
I thank you, Mr. Chairman.
[The prepared statement of Mr. Bartlett follows:]
__________
Mr. Goodlatte. I thank the gentleman.
Mr. Miller, welcome.
TESTIMONY OF STEVEN W. MILLER, VICE PRESIDENT AND GENERAL
COUNSEL FOR INTELLECTUAL PROPERTY, PROCTER & GAMBLE COMPANY
Mr. Miller. Thank you, Mr. Chairman and Members of the
Subcommittee. I thank you for the opportunity to---
Mr. Goodlatte. Mr. Miller, you may want to turn on your
microphone.
Mr. Miller. Sorry about that.
Thank you, Mr. Chairman. I thank you for opportunity to
testify on various aspects of patent law reform.
Although I am active in a number of professional
organizations, I'm appearing today in my capacity as vice
president and general counsel for intellectual property for the
Procter & Gamble Company and its affiliates.
I'm a registered patent attorney with 26 years of patent
law experience, including patent prosecution and litigation.
I've negotiated with individual inventors, universities,
startups, and companies of all sizes.
An essential reform for significantly simplifying the
patent laws is the first inventor to file principle that is
included in H.R. 1249. The adoption of the first inventor to
file principle would make patentability determinations more
transparent, based on objective criteria using publicly
available information. It will benefit all American inventors
and improve their global competitiveness.
H.R. 1249 would also make a number of other improvements in
our patent law and the operation of the patent system.
Curtailing the plague of false marking litigation, providing
adequate funding for the USPTO, limiting the consequences of
the subjective best mode requirement, expanding the
opportunities for the public to submit relevant information to
patent examiners, adding a robust time-limited opportunity to
promptly challenge patents after grant, and providing for
supplemental examination are among the many significant
improvements H.R. 1249 would bring to our patent system.
There are, however, some features of H.R. 1249 that move in
the opposite direction. P&G is concerned that the delicate
compromises reached by numerous stakeholders after years of
negotiations may be upset by a handful of the new provisions in
the bill.
In particular, the following provisions are of such
significance that they may cause stakeholders to withdraw the
support for the bill. First is retaining their threshold for
initiating reviews in second window proceedings.
Under this threshold, 95 percent of all requests are
granted, resulting in a waste of limited USPTO resources. A
higher threshold, a reasonable likelihood that the petitioner
would prevail with respect to at least one claim, is far
preferable.
Second is the addition of a new stay provision to both the
first window and second window post grant procedures. Not only
does listing such stay factors improperly constrain a court's
and the International Trade Commission's freedom to decide the
issue, it overly emphasizes the possibility that a stay should
be granted.
P&G believes a stay should be granted only where it is
clearly appropriate under existing case law as it evolves.
Moreover, the ITC proceedings are designed to be expeditious
and should not be stayed.
Third are three new provisions that have been added to the
transitional program related to financial business method
patents. The transitional program is very controversial and was
agreed among stakeholders only after extensive negotiations.
These new provisions unduly limit venue where an action may be
brought, mandate de novo interlocutory appeals, and impose a
loser pays regime involving such patents.
The injection of a controversial venue provision
reintroduces a debate settled by the Federal Circuit. By also
mandating de novo reviews of stayed decisions and introducing
the highly charged issue of loser pays, H.R. 1249 could very
well change what is at best reluctant acceptance of the
transitional program into outright opposition.
Fourth is the expansion of prior user rights to all
inventions. P&G is concerned that the opposition among various
stakeholders to expanding prior user rights could place in
jeopardy the passage of comprehensive patent reform.
Fifth is the change in time during which the new law issues
post grant review procedure could be initiated. This procedure
was conceived to allow patents to be promptly challenged after
grant on any of the grounds of validity. This procedure should
be as expeditious as possible.
Notwithstanding a growing consensus that 9 months is more
than adequate time, the bill would extend this period by an
additional 3 months to a total of 12 months, adding further
unnecessary delay and uncertainty.
Thank you for the opportunity to present P&G's views. I'd
be pleased to answer any questions.
[The prepared statement of Mr. Miller follows:]
__________
Mr. Goodlatte. Thank you, Mr. Miller.
Mr. Chandler, welcome.
TESTIMONY OF MARK CHANDLER, SENIOR VICE PRESIDENT, GENERAL
COUNSEL, AND SECRETARY, CISCO SYSTEMS, INC.
Mr. Chandler. Thank you, Chairman Goodlatte, Ranking Member
Watt, Members of the Subcommittee.
I'm Mark Chandler, senior vice president and general
counsel of Cisco Systems.
I'm here representing technology companies with hundreds of
thousands of employees in the United States and more than
75,000 U.S. patents and patent applications.
I'm here because I believe passionately that our patent
system must not go astray in ways that will weaken our
companies or weaken our country's technology leadership. I have
four specific suggestions to offer regarding the bill before
you. I've also provided a written statement. I'm grateful that
that's being included in the record.
My company is the world's largest manufacturer of
telecommunications equipment that powers the Internet, with
over $40 billion in annual sales and more than 70,000
employees. Three-quarters of our engineers, more than half of
all our employees are here in the United States.
The Coalition for Patent Fairness, for whom I speak today,
includes hundreds of members, such as Apple, Autodesk, Dell,
Google, Intel, Micron, Oracle, RIM, SAP, and Symantec. Our
companies invest tens of billions of dollars in research and
development, and we believe in the patent system.
We understand that the scope for action is limited, given
the passage of S. 23. We also understand that this process is
one of a combination of interests with diverse goals. We
appreciate the work that Senator Leahy did in the Senate in
driving toward patent legislation, though we were unable to
support S. 23 in its final form.
With the suggestions we make today, we hope to be
supporters, rather than opponents, of legislation and to see a
law enacted.
Our four suggestions are as follows. First, hold your
ground on the proposed prior user rights in conjunction with
the move to a first-to-file system. Every developed country on
Earth with a first-to-file system includes prior user rights.
Among U.S. industrial groups, support for prior user rights
is virtually uniform. The AIPLA has testified in favor of prior
user rights, and Gary Griswold, who's with us today, is chair
of the 21st Century Patent Coalition, which sees many issues
differently from the way we do, wrote an article entitled,
``Prior User Rights: A Necessary Part of a First-to-File
System.'' Here is why.
It's not practical to file a patent application on every
change we make to a product. Where we enhance our products in a
way which is unlikely to be copied by a competitor because the
change is specific to our designs, the traditional view is that
a patent makes no sense.
In the current first-to-invent system, no one else could
get a patent that would be valid for those changes either. The
patent would be invalid under 102(g). In a first-to-file system
without prior user rights, however, we can expect patent mills
and competitors here and abroad to file patent applications on
unpatented inventions which they find in our products in order
to hold us hostage, and there's nothing we could do about it.
This is just not fair.
The alternative for us is to rush to massively increase our
patent filings, not to exclude competitors from copying our
products, but to protect ourselves against those who would use
our own inventions against us in court. That would be a totally
unproductive distraction of ours and the PTO's resources.
Director Kappos, in his written testimony, while supporting
prior user rights, states there was no rush to increase filings
in Canada after the switch to a first-to-file system. Of
course, there wasn't. For over a century, Canada has had a
robust prior user rights system. Commend you to section 56 of
the Canadian Patent Act in that regard.
It would be a tragedy if, in a rush to harmonize with the
European and Chinese systems in the wake of the TRIPS accords,
we ignored key protections for manufacturers that virtually
every other country has.
We understand some groups oppose first-to-file in general.
Absent prior user rights, we would join them. We believe the
interests of universities are adequately met by exemptions for
Bayh-Dole and other patents, which you thoughtfully included in
the House legislation. So we strongly support what you've done
in the legislation in that respect.
Second, some changes are needed to the inter partes review
proposals to mitigate aspects of the Senate bill particularly
that are a step backward from current law. The extension of the
time period from 6 months to 9 months after service of
litigation for introducing an inter partes re-exam is laudable.
But a better approach would be to tie the deadline to the
Markman ruling so that the review could reflect the claims
interpretation that the district court made.
Also, if there isn't a mandatory stay, which we would
support, as does the Financial Services Roundtable, we think
that in the four factor test in the bill, the reference to
clear tactical advantage to the moving party as the basis for
denying a stay should be removed. The patent holder's interests
are sufficiently addressed by the requirement that there be no
undue burden.
And also, initiation of a declaratory judgment action on
matters unrelated to an inter partes re-exam should not make it
impossible to introduce an exam.
Our third suggestion is many stakeholders across the
spectrum--and I believe you referred to this, Mr. Chairman--
believe judicial action will obviate the need for the proposed
supplemental review system for cases where patent applicants
have been, shall we say, less than forthcoming with the Patent
Office. We agree.
Nonetheless, if there is to be such a system, we think
minor modifications would immeasurably improve it, and I'm
happy to elaborate on that.
Fourth and finally, this bill presents an appropriate
opportunity to coordinate better between the ITC and the
courts. The bill should require the ITC to follow the Supreme
Court's eBay holding in determining whether to grant an
exclusion order.
With these changes, the bill would meet our minimum needs.
It won't meet all our aspirations. It will reflect what's
possible, given stakeholders with different interests and a
patent system that desperately needs rejuvenation.
Thank you.
[The prepared statement of Mr. Chandler follows:]
__________
Mr. Goodlatte. Mr. Vaughn, welcome.
TESTIMONY OF JOHN C. VAUGHN, EXECUTIVE VICE PRESIDENT,
ASSOCIATION OF AMERICAN UNIVERSITIES
Mr. Vaughn. Chairman Goodlatte, Ranking Member Watt,
Members of the Subcommittee, thank you for this opportunity to
present the views of the university community on H.R. 1249.
Let me begin by saying how much the university community
appreciates the dedication that you and your Judiciary
colleagues have devoted to this extremely important issue.
After more than 6 years, the collective effort is making great
progress toward a balanced set of proposals that, indeed, will
strengthen our present patent system to create jobs at home and
strengthen our economic competitiveness abroad.
Universities use the patent system to license our
inventions to a wide range of private sector companies. In
order for this university technology transfer system to work,
we need a level of patent certainty that will allow our
licensees to develop these discoveries in confidence.
H.R. 1249 includes a number of key provisions that
strengthen patent certainty. Among these are adoption of a
first-inventor-to-file system, which will harmonize the U.S.
patent system with that of our major trading partners; a new
post grant opposition proceeding to challenge patents
immediately after their issuance, eliminating patents that
should not have been granted and strengthening those that
survive the challenge; providing increased resources to the PTO
through expanded fee-setting authority and provisions allowing
the office to retain those fees that it collects; allowing
third parties to submit prior art to the PTO concerning patents
under examination.
However, we have two major concerns with the draft bill.
First, we are very concerned about the broad expansion of prior
user rights. From its origins in the Constitution, the U.S.
patent system has effectively promoted the progress of science
and the useful arts by establishing a quid pro quo of granting
monopoly rights for an invention in return for disclosure to
the public of information about that invention.
Universities believe that expanding prior user rights is an
unwise expansion of immunity from the assertion of patent
rights. Such expansion would reduce patent certainty, and that
reduction in patent certainty would impair university
technology transfer.
We are also concerned about the impact of expanding prior
user rights on academic publishing. While the effective grace
period included in H.R. 1249 would encourage publication by
protecting inventors from others patenting their inventions,
expanding prior user rights would have exactly the opposite
effect.
Early publication would permit others to prepare a
competing trade secret product that could be immune from a
charge of infringement of a patented product or process
emerging from that published research.
We do acknowledge and appreciate the attempt to address
university concerns by providing a legislative carve-out for
university patents under which the prior use defense could not
be applied to university patents arising from Federal or
university funding. While such a carve-out could mitigate the
harmful impact on university licensing, clear problems would
remain.
Many companies to which universities license their patents
intermingle university patents with their own in developing new
products. The commercial prospects for those products would be
at risk with the expansion of prior user rights since it would
increase the vulnerability of nonexempt patents to a prior use
defense by a competitor.
This problem would be especially acute for the small, often
undercapitalized startup companies to which universities
frequently license their inventions.
The second area which we believe needs to be addressed is
the threshold by which an inter partes review can be initiated.
The Senate bill, S. 23, includes two provisions that reduce the
prospect of using the inter partes procedure to mount harassing
serial challenges--first, by expanding the estoppel provisions
to include issues that reasonably could have been raised and,
second, by raising the threshold for initiating an inter partes
review.
The House bill reduces the threshold to the lower current
law standard. We appreciate the retention in the House bill of
the broadened estoppel language, but urge the Judiciary
Committee to reinstate the higher threshold for initiating an
inter partes review.
Universities applaud the many strong provisions that are
contained in H.R. 1249. We hope that we can work with the House
Judiciary Committee and with relevant stakeholders to address
the two concerns raised here so that the recent progress
continues toward a successful completion of this
extraordinarily important endeavor to enact comprehensive
patent reform.
[The prepared statement of Mr. Vaughn follows:]
__________
Mr. Goodlatte. Thank you, Mr. Vaughn.
As everyone can observe, we have 4 minutes and 45 seconds,
now 36 seconds left in this vote. So the Committee will stand
in recess, and we will begin when we return with a brief
opening statement, well into the hearing, from the Ranking
Member of the full Committee and then immediately go into
questions for the witnesses. If you all can remain, we
appreciate your forbearance.
The Committee will stand in recess.
[Recess.]
Mr. Goodlatte [presiding]. The Committee will reconvene for
take four, and we hope this is the last stretch here.
We thank all of you for your patience all afternoon, and I
will recognize myself for questions.
When Ranking Member Conyers gets here, we will allow him to
give his opening statement a little late into the program. But
still welcome.
Let me start with a question for you, Mr. Chandler. How
would you address the concerns of those who argue that an
overexpansion of inter partes would be used to harass
independent inventors and small businesses?
Mr. Chandler. I'm sensitive to that concern. I think it's
extremely important in the inter partes process to strike a
balance between the need to ensure that there is a review
process by which patents that shouldn't have been granted are
looked at and, at the same time, not create undue cost or
burdens or delay for patent holders, whether independent
inventors or otherwise, who have the right to enforce their
patents against those who are infringing.
And striking that balance is not easy, as we've seen in the
process of putting this legislation together. I think there are
several principles that are useful to keep in mind.
First, in the case of litigation, we--there should be a
time period within which an inter partes review is initiated so
that one does not litigate for years, try to get to a
conclusion, and then, all of a sudden, find oneself in another
forum back at the Patent Office.
It's our view that while moving from 6 months to 9 months
in the legislation that's before you today was a move in the
right direction, it's conceptually better to tie it to the
Markman exam because then you have the claims construction as
part of the review.
At the same time----
Mr. Goodlatte. Is that in your testimony, when you said you
had ideas for improving the supplemental exam provision in the
bill, is that some other ideas you have there as well?
Mr. Chandler. Yes, on supplemental exam, I understand the
concerns you raise about the process as a whole, given judicial
action. But right now, it says that if supplemental--you can't
use the results of a supplemental exam in pending litigation.
We think that a supplemental exam procedure that also said you
can't use a supplemental exam to cure a problem if you've been
actively pursuing nonexclusive licensees in a way that would
allow the potential licensee to file a DJ against you, you
shouldn't be able to seek the supplemental exam in that case
either.
So that people don't go out and start licensing programs to
collect money on a patent where they know they weren't
forthcoming, and then only when they're faced with litigation
do they go in and cure the problem. But with that kind of
modification, I think we could move forward with that
supplemental exam.
Mr. Goodlatte. Mr. Vaughn, can you speak to the
universities' perspective on the prior user rights provision
that includes an absolute exemption for universities and
technology transfer organizations? And what changes would you
make?
Mr. Vaughn. Well, I--changes--there are some changes I
think that could be made that----
Voice. Push your microphone button.
Mr. Vaughn [continuing]. Would improve it. But I think our
broader concern is just the impact on the system overall,
independent of a university carve-out. The concern we have
about a carve-out is that it would not cover, say, privately
funded university patents, and frequently, funding for research
projects includes a mix of Federal, university, and private
funds.
We are also very concerned about the issue I mentioned of
the intermingling of patents that would be exempt in a carve-
out with patents in a product that wouldn't be exempt. And
particularly, the concern about the impact of expanded prior
user rights on the startups that often emerge out of university
research that wouldn't be touched by in their own IP with--with
a university carve-out.
So I mean, I think I want to be clear that----
Mr. Goodlatte. You are clear, and I need to get one more
question in here with my time.
Is the shift from first-to-invent to first inventor to file
constitutional? And I will ask any of you this question. Is it
true that our current filing system was created through the
1952 act and has not necessarily been the same since our
Nation's founding?
Anybody want to take a stab at that? Mr. Miller?
Mr. Miller. I'll be happy to, Mr. Chairman.
The Constitution says that the Congress shall grant to
inventors, and a first-inventor-to-file system also includes
that that person is an inventor. They are an inventor of the
technology, and so it would be within the Constitution.
In fact, all of the studies that we've had since 1965 on
haven't questioned the constitutionality of a first inventor to
file provision. So I don't think that there's a real issue here
at all because it's just a procedural mechanism as to determine
who gets the rights as an inventor.
Mr. Goodlatte. Thank you.
The gentleman from North Carolina, Mr. Watt, is recognized.
Mr. Watt. Thank you, Mr. Chairman.
Mr. Miller, I identified several issues that you and Mr.
Bartlett and Mr. Chandler were at odds about, and I probably
have forgotten some of them. But I do remember this whole stay
provision was one of them.
I just wanted to give you the opportunity to give us your
perspective on it, and then I would ask Mr. Chandler and Mr.
Bartlett to do the same and see if there is some way we can
reconcile what the three of you all are saying. I am in the
reconciliation business, as you have probably gathered by now.
Mr. Miller. Thank you, Mr. Watt.
You know, I think we're in the reconciliation business,
too, and we've done a lot to try to get there. My concerns are
by both lowering the standard for getting into an inter partes
re-exam and really putting these stay provisions that a court
has to look at, that we allow abuse by serial infringers to
come in and try to delay proceedings by taking the lower
threshold, finding a new question of patentability, and then
slowing down the litigation process as much as possible so that
we don't get a quick resolution that Mr. Chandler was
mentioning.
So that's my concern is that the combination of those two
are going to give an advantage to an infringer to the detriment
of patentees that need to quickly assert their patent rights.
Mr. Watt. And Mr. Chandler, and then I want to go back to
Mr. Miller to see whether there is--well, you tell me what you
have to say on this, and then I will listen to Mr. Bartlett.
But at the end of this, my ultimate question is, is there a way
to reconcile where the three of you are on this issue?
Mr. Chandler. Well, first of all, one of the key provisions
in the currently considered legislation is--and this goes along
with the funding for the Patent Office and the ability to keep
the fees that we users of the system pay--is a commitment that
re-exams will be completed within 12 months. And that's a very
important part of the Administration of the re-exam process
that is covered here. So we're not talking about a long delay.
We're talking about coordinating processes between different
bodies that have responsibility here.
Our view of the stay provision is four factors is the right
number of factors if you don't make it an automatic stay. The
provision bill is for a short-term stay to begin with, only
through the period of the re-exam anyway.
If we were going to have four factors, we'd keep four
factors. But on one of them, it says that there has to be a
finding there is no undue burden to the patent holder and no
clear tactical advantage to the movant. We simply want to say
no undue burden to the patent holder because we think that
standard of clear tactical advantage can be used by any judge
to deny a stay since, obviously, there is an advantage to
having a stay because you avoid getting a district court making
a finding that's inconsistent with what the Patent Office is
doing. That's why you're seeking the stay, and that's why
you've sought the re-exam.
So that's mine.
Mr. Watt. All right. We are going to come back and
reconcile this in a little bit.
Mr. Bartlett?
Mr. Bartlett. Mr. Watt, in the efforts----
Mr. Watt. I am so used to seeing you over in Financial
Services, I am feeling like you are out of place over here.
Mr. Bartlett. I've been all over. It's my hope at the
conclusion of the hearing that we will--we will see you as an
original cosponsor of the legislation, Mr. Watt, as you started
off at the beginning.
In an attempt to reconcile, first of all, it's my opinion,
it's my belief that what we're talking about, which is the
business method patent, is not applied to the topic of--the
other topic of the mandatory stay. So this is carved out
specifically for this.
The reason I think it is reconciled is that at least we had
believed and still believe that the right answer would be a
mandatory stay, an automatic stay, and we were not able to
convince the bill's sponsors of that. So, absent that, then a
stay that is a de novo stay would make it work.
Without a de novo stay, it would be a meaningless right.
Our attorneys have looked through the records, and without a de
novo stay, it would revert to an abuse of discretion standard,
and we can find no civil litigation which an abuse of
discretion standard has been applied to apply for a stay. So we
think that the--that the de novo stay is essential to make this
work. Otherwise, it just doesn't work.
Mr. Watt. Why did I think the whole financial services
community would be on the opposite side of business methods
stuff? I thought the financial institutions would be the ones
that would be developing business methods rather than the ones
that were being attacked by these business methods patents, and
I was just absolutely off base on that, I found out after I
started studying this issue.
Mr. Bartlett. Mr. Watt, this is a serious, serious issue
for the financial services industry. It's overwhelmingly----
Mr. Watt. I shouldn't have gone there. That is all right. I
ran out of time. I need to get this reconciled. That is another
issue. I will talk to you about that one off record.
Reconcile you all's positions for me. Is there some way to
reconcile?
Mr. Miller. I'm not sure. We're going to have to sit down,
and maybe you can help us with that, Mr. Watt.
Mr. Watt. All right.
Mr. Chandler. I think you might ask Mr. Kappos as well. I
spent a good part of February locked in a room with Under
Secretary Kappos, with the general counsel of the Commerce
Department, and with one of my counterparts who is the general
counsel of a large pharmaceutical company. And some of the
language that Under Secretary Kappos has circulated was a
reflection of those discussions, where we tried to be very,
very reasonable in coming up with an approach that would----
Mr. Watt. I take it that is not in the Chairman's bill?
That is not the language that is in the----
Mr. Chandler. It's not precisely, but we're happy to work
further on that.
Mr. Watt. Thank you, Mr. Chairman. I'm sorry----
Mr. Goodlatte. No problem. I thank the gentleman.
I now recognize the gentlewoman from Florida, Mrs. Adams,
who does not have a question. We now yield to the Chairman of
the full Committee, Mr. Smith.
Mr. Smith. Thank you, Mr. Chairman.
Mr. Chairman, first of all, I would like to thank all of
our witnesses because they directly or indirectly had an impact
and a positive impact on this bill. And we sat down, either
with you all individually or with the organizations you
represented, and appreciate your being willing to work with us.
Mr. Bartlett, let me direct my first question to you, which
is going to be an easy question. I appreciate a former
colleague being with us today as well.
You touched upon this in your opening statement. But
basically, I just would like for you to say specifically how
some provisions in this bill positively impact financial
institutions. And since I wasn't here for all of Mr. Watt's
questions, maybe he already asked you that. And if so, we can
fast forward to the next one.
But if you could be specific about how you find this bill
helpful, that would be good.
Mr. Bartlett. Thank you, Mr. Chairman.
Because the current law gums up the system particularly
because it's interoperable. It involves multiple institutions
all engaged in answering a telephone or check imaging or--so
it's all interoperable. So they all get sued, basically, and
the system just kind of stops without some kind of protection
for a post grant review.
So what this draft legislation does is it provides a post
grant review based on these new factors as a way of reviewing
prior art to determine if it should be a valid patent or not.
And without that, then, in essence, our companies end up just
settling because of the enormous cost of litigation and the
threat of losing because the odds are stacked against them.
They can't get a review as to whether it's a valid patent in
the first place.
So this legislation for our section of it allows a valid--a
review that's a valid review of whether it's a valid patent.
Mr. Smith. Okay. Thank you, Mr. Bartlett.
Mr. Miller, let me ask you a question. You are with Procter
& Gamble, and you represent a certain segment of companies in
America, in fact, a very large segment of companies in America.
How does the bill positively impact you all? And if you could
be specific, that would be helpful, too.
Mr. Miller. Sure. Absolutely, Mr. Chairman, thank you.
The bill positively affects us because we deal with a lot
of small inventors. We deal with universities. We have an open
innovation program that I'd referred to my written testimony.
And the first-inventor-to-file system is going to make our
system more transparent, able for us to make better decisions
on whether we're going to be willing to invest capital.
It also lets us get rid of the poorer patents, the poorer-
quality patents that come out of the Patent Office, through a
post grant review proceeding and even, if necessary, an inter
partes review proceeding. It fixes the false marking problem
that many of our companies have been subjected to, and it also
allows the Patent Office to get full funding.
The Patent Office needs full funding to do its job, but it
also needs these other tools. And so, I think those are the key
provisions of this bill that are going to help all of us
throughout the United States spur innovation and create more
jobs.
Mr. Smith. Okay. Thank you, Mr. Miller.
Mr. Vaughn, let me jump to you and say as a preliminary
statement that the goal in drafting this bill--during the
entire process of researching, talking, negotiating, and
developing--was not to get a bill that is going to make people
necessarily 100 percent happy. Because if you do that, you also
have a lot of people who are zero percent happy.
Now the goal to me was to try to get most people about 60
to 70 percent happy and have them emphasize the positive rather
than the 30 percent where they were unhappy.
We have done a lot in this legislation that I think is
beneficial to the university communities, and I understand that
they are not entirely happy. But they certainly should be
appreciative of the carve-out that they received, which might
be looked upon as benefitting them more than some others might
benefit.
But I would like to ask you a similar question, which is in
what ways do you see the university community benefited by this
bill? And even though you may not approve of it 100 percent, I
would like to suggest that at least it is about 70 percent
helpful to the communities.
And I did hear your opening statement. I understand the
three or four points that you would like for us to take a
further look at. But if you would, in this instance, tell me
the positive aspects of the bill?
Mr. Vaughn. I'd be happy to, Mr. Smith.
I think, first of all, that universities will benefit----
Mr. Goodlatte. Mr. Vaughn, you need to turn your microphone
on.
Mr. Vaughn [continuing]. Directly or indirectly from
provisions that strengthen the system overall. So even though
it is not directly to the universities, increasing resources to
the PTO is going to be enormously helpful to everybody.
In 2005 when the decision was made to incorporate first
inventor to file, we spent a lot of time working with this
Committee, working with other stakeholders to adjust the grace
period, which is so critical to university publishing, and that
has been fit perfectly to a first inventor to file. That will
be an enormous benefit for universities.
We think that the new post grant opposition procedure will
be very useful. We won't use it. Universities don't very often
get into court, litigate their own patents. But I think it's
going to be very helpful to our startups. Sometimes it will be
that their patents will be challenged, but if they're solid
patents, coming through that is going to give them a
strengthened patent going forward.
And we think that the--the third-party input of information
during a patent examination is going to be helpful. We've
actually been working with IBM on trying to find ways to
organize the graduate students, engineers, law students to
organize systematic input to the patent system for providing
better information. That's going to improve the quality of
patents, and that will help as well.
Mr. Smith. Thank you, Mr. Vaughn.
To me, the standard against which this bill is measured is
the status quo, not necessarily the ideal. And to the extent
that it is better than the status quo, then I would argue that
it deserves support. So I appreciate your comments.
Thank you, Mr. Chairman.
Mr. Goodlatte. I thank the Chairman, and I am now pleased
to recognize the gentlewoman from California, Ms. Lofgren.
Ms. Lofgren. Thank you, Mr. Chairman.
Mr. Goodlatte. Oh, I am sorry. If you would suspend, I have
forgotten I promised the Ranking Member that he could make a
unanimous consent request.
Mr. Watt. Mr. Chairman, I ask unanimous consent to submit
for the record a letter from our former colleague Steve
Largent, dated March 29, 2011. He is now the president and CEO
of the CTIA Wireless Association. A statement of Brian Fontes,
dated March 30, 2011, and a 3-page statement from Claudio
Ballard.
Mr. Goodlatte. Without objection, it will be made a part of
the record.
[The information referred to follows:]
__________
__________
Prepared Statement of Claudio Ballard, Inventor and Entrepreneur
__________
Mr. Goodlatte. And the gentlewoman is recognized.
Ms. Lofgren. Thank you, Mr. Chairman.
And I will be brief, as this is the end of a long day, but
not the end of a very long process that goes back. I think I
first started working on this in 1997, and I think all of us
here have been working on this for--well, except for the new
parties, but really this has been more than a decade's work.
And we have made tremendous progress.
As the Chairman knows, I am not yet a cosponsor of this
bill because I think there are a few areas where we could
improve it even further. And I say that certainly without
criticism of the Chairman of the Committee, who has worked
tirelessly with me and the others for over a decade to get to
where we are today.
I believe, listening to Mr. Chandler and the work that Mr.
Kappos has put into this, I would like to see what kind of
resolution was reached. Obviously, you don't bind anybody else.
You are just one general counsel and general counsel for some
company and the patent commissioner.
But I sense that the defects here could be resolved by the
stakeholders in a way that would work for everyone. And so, I
am really eager to work with Mr. Smith and Mr. Goodlatte to see
if we can't take that one step further.
I also think that--and nobody has really mentioned the
inequitable conduct provisions here, but I think we need a
little more work there, honestly. I certainly don't want to
give a broad grant of immunity to people, license to lie to the
Patent Office. And I think that we could tweak the provisions
here and make some improvements, and I think we would all be
satisfied if we did that.
On the first-to-file, I realize there are other challenges
that we will face in the House on the whole first-to-file
issue. Not every person in America thinks it is a good idea.
But if we are going to have first-to-file, clearly we have to
have adequate prior user rights, and I think someone mentioned
that the only country that doesn't have prior user rights with
first-to-file is Cyprus, hardly a role model for the United
States.
As you know, I come from Silicon Valley, and I got an email
this morning. And I won't read the whole thing, but it is from
the general counsel of Stanford University. And she says,
``Universities in general are very supportive of the bill,
appreciating the comprehensive reform with first-to-file. We
know that some universities are opposed to any expansion of
prior user rights, even with the carve-out for university
inventions derived from federally sponsored research. However,
Stanford is satisfied with the current language. The most
important thing is to get the reform bill passed with the
first-to-file and not have the bill die because of a dispute
with high-tech companies over prior user rights, which would
leave us with the status quo.''
So I think it is very significant that Stanford, with its
enormous patent portfolio, has been willing to step forward and
say let's do this, understanding that, as the Chairman has
said, nothing is necessarily perfect. But I am satisfied with
this statement from Stanford that we have struck the right
balance there.
I was a little bit concerned, Mr. Vaughn, about your
testimony about publishing, and I am having a hard time
understanding the point that you have made. I don't see how
prior user rights could create problems for academic
publishing.
Publication within the 1-year grace period for the filing
would be protected from any prior use during that period, and a
company could not get a prior use right for something that was
started in response to a publication in the grace period. And
if the publisher published outside of the 1-year grace period,
then the publication would become prior art that would prevent
the idea from being patented in the first place.
So I am seeking to understand your point. And because if it
were a chill on publication, obviously that would be of concern
to all of us. Can you explain?
Mr. Vaughn. Well, I think, Congresswoman, that, absent a
carve-out, there is concern that the timing could be such and
with the murky sort of records of trade secret processes that
you could publish something that would give somebody an idea,
and they could develop that based on work that they had already
started----
Ms. Lofgren. I see.
Mr. Vaughn [continuing]. And be able to show that they had
developed the product within the time period. Having a carve-
out would help that, although it wouldn't account for privately
funded.
Ms. Lofgren. I see that my time has expired, Mr. Chairman.
I think, if I would just ask--I don't want to get in a debate.
But I think the terms of the bill itself protect against the
concern that you have expressed and would urge a further review
of the language.
And I would yield back with my intention to work further
with the Chairman of the Committee. I think that we can get to
where we need to be, and I, for one, am willing to continue to
work on it.
Thank you very much.
Mr. Goodlatte. The Chair thanks the gentlewoman and thanks
her for her commitment to this legislation.
And I am now pleased to recognize the gentleman from
Pennsylvania, Mr. Marino, for 5 minutes.
Mr. Marino. Thank you, Chairman.
Congressman, knowing that I have 5 minutes, my colleague,
the Ranking Member, started to ask a question, and I am going
to ask my question and perhaps you can elaborate on it and
expand on it for a minute or two because I have another follow-
up.
I notice a small, but significant difference between the
House and the Senate bills that I would like for you to
discuss. Under section 18 of the House bill, the standard of
review for the interlocutory appeals is stronger, providing
that the Federal Circuit shall review de novo the district
court's decision to ensure consistent application of the
established precedent.
Can you describe the significance of this and why it is
important?
Mr. Bartlett. Well, the reason--first of all, the
fundamental reason it's important why the stay can be granted
is because, otherwise, you're in two venues at once, and it
gums up the whole works. So the post grant review becomes
meaningless or at least more costly.
There have been several iterations. The iteration that came
from the other body in the Committee, the Senate Judiciary
Committee, was a mandatory stay of litigation, which was what
we think ought to happen. That didn't survive the full body,
and the draft legislation in front of you has a satisfactory
solution, not as good as a mandatory stay, but it does have a
solution that is, as I said earlier, that is a de novo appeal.
So we think if it's a de novo appeal, then a stay will be
granted when it's warranted.
Without a de novo appeal, though, then it reverts to what's
called an abuse of discretion, where to get a stay, you have to
prove an abuse of discretion, and we find that to be--I find
that to be, in my terms, a meaningless standard. It just simply
cannot be achieved, and we haven't found it achieved anywhere
else.
So we think that mandatory would be better. But with four
factors and a de novo appeal, we think that works just fine.
Mr. Marino. And my last question, I understand and support
the goals of section 18 of the bill, which establishes a
transitional review proceeding at PTO where certain financial
service business methods, method patents can be examined. I
also understand that the point of the transitional review
program is to weed out spurious or invalid patents at an early
stage.
My concern is in regards to certain patents that have, one,
already been litigated to a jury verdict and found to be valid
and/or, two, if the Patent Office has already completed a full
re-examination of that particular patent and found it to be
valid. Can you explain to me why it would be either fair or
good policy to subject the transitional program in section 18
to a patent that has been found valid through ex parte re-
examination or a full jury trial?
Is there room for some sort of limits on how far back or
which patents this transitional program can reach so that we
aren't relitigating and reevaluating patents that have been
found again and again to be valid?
Mr. Bartlett. In layman's terms, because this--this post
grant review process would be the first--would be the first
review under these terms, and the other processes that occurred
didn't occur under these terms. So we think that this is a
program to be administered by the Patent Office, and the Patent
Office would do a post grant review based on prior art for 1
year, and we think it would help to clear out the system, as
well as establish these new valid reviews.
So we don't think in those cases where there's been a prior
review that it would obviate the need for this review.
Mr. Marino. Mr. Miller, could you add anything to that?
Mr. Miller. Well, I think it's just one more delay. If a
court's already adjudicated the issue, I don't know why we'd
want to go back to the Patent Office under this transitional
provision and subject that person to another round of review.
It seems like a waste of time and effort on both parties' side.
You know, this isn't a good use of resources of the PTO or of
the court.
Mr. Marino. Thank you, and I yield my time, Chairman.
Mr. Goodlatte. Thank the gentlemen, and the Chair yields to
the gentleman from Florida, Mr. Deutch for 5 minutes.
Mr. Deutch. Thank you. Thank you, Mr. Chairman.
I would like to just continue that line of questions. I
appreciate the hearing very much, Mr. Chairman, and there were
a number of questions I wanted to ask. But since this last
exchange reminds me of a specific situation with a Floridian, I
would like to actually walk through, and I always find it
helpful if there is some detail, some real-life experiences to
draw on instead of speaking only in the abstract.
So, if I may, Mr. Chairman, let me just share the story of
Claudio Ballard, who, in the mid 1990's, Claudio, who is a
Floridian, had an invaluable idea that would improve businesses
in the United States by replacing paper with electronic images.
The change would save business money by being more efficient,
promote faster processing.
He built a prototype of the computer system that would put
his idea into effect. He showed the prototype to investors,
began raising money to put the idea into effect, and filed
patent applications to protect his idea and the invention.
Once the patent applications were filed, numerous companies
began expressing interest in the invention. One industry that
showed particularly strong interest in the product was the
banking industry, which, Mr. Bartlett, is why I would like to
focus on this particular example.
Claudio met with the industry and demonstrated that his
invention could remove paper checks from the payment process
and replace them with electronic images, change that could
potentially save the industry billions of dollars. In an effort
to protect his invention, he signed contracts that he thought
would prevent his products that were still pending for patents
from being taken without his permission.
As time went on, he was unable to sell his invention to any
banks. He founded a company to raise capital, attempt to sell
his invention. However, he became aware that the reason he
couldn't sell the invention was because many banks had already
decided to use the invention themselves without paying his
company even one penny.
Now because Claudio had patents on his product, he filed
lawsuits in Federal court against the banks for infringing on
his patents. In response to the lawsuits, there was an effort
made by the banks to invalidate the patents. First, a request
that the Patent Office conduct a re-examination and strike the
patents. The courts delayed the litigation during the 2 years
that the Patent Office re-examined them, and ultimately, they
found the patents were validated.
Next, one bank decided to continue to pursue the
litigation, and last year, a jury verdict, after reviewing all
of the evidence in the case, rendered a decision that the
patents were valid. Jury also found the patents were being
willfully infringed by the banks. And so, after 8 years, when
the first lawsuit was filed, many of the banks have licensed
his patents. They are using the technology he invented, and
they are paying his company royalties for the use of the
product.
So now, drawing back to today's hearing, section 18 of the
legislation is a transitional program for business method
patents. And again, this is following up on the last line of
questioning. And while I fully support, Mr. Chairman, the
purpose of section 18 and the creation of a transitional
program to weed out invalid and poor-quality patents from the
old system, I have got real concerns that the scope of the
section could, in effect, invalidate patents that have been
found valid by a jury in our court system.
And so, Mr. Bartlett, just now having added some
specificity to this line of questions, if the purpose of the
section, section 18 is to target invalid patents, why is it--
and I wasn't clear in your response, your last response--why is
it that in cases in which a patent has already been re-examined
by the Patent Office and found to be valid, and that it has
been found valid by a jury, why should these patents be
included within the scope specifically of this section 18
review?
And aren't we invalidating Federal court decisions and
giving losing litigants--in the case of Claudio, the banking
industry--another try at invalidating patents that have already
been found valid by a jury and by the Patent Office?
Mr. Bartlett. Well, first, this section only applies to
business method patents and not to other patents, and it could
well be that that was not a business method patent. But
secondly----
Mr. Deutch. Let us assume that it is.
Mr. Bartlett. Then for the record, I might be able to offer
additional for the record on that. But, and the answer is
because without this, then there has not been a post grant
review based on best prior art. So perhaps a lot of other
things were taken into account by the court or by the Patent
Office, but there was never an authorization to examine it
against best prior art.
So we think that what is needed here to clear out the
system and to stop what is clearly to us the abuse is a review
against best prior art. And that has not been permitted in
prior cases.
Mr. Deutch. Mr. Chairman, if I could ask the other
witnesses, if there is in a situation like this where the
patent has been re-examined, a thorough examination by the
Patent Office, are they precluded from looking at prior? Is
there anything in that review that is problematic in a system
that has existed now and has provided for this sort of thorough
review? If someone else could speak to this?
Mr. Miller. I'll be happy to try, Congressman.
I think this is the whole balancing issue that we have to
really address with these provisions. We don't want to have
legitimate inventions given to infringers to have second,
third, and fourth bites at the apple. And unfortunately, this
transitional provision, even though it's limited to narrow
business method patents for financial institutions, in essence,
gives a second or third bite at the apple to folks that have
had to go through other processes.
And I think it's a good idea perhaps to look at building an
estoppel, just like we built an estoppel into the post grant
review and inter partes re-exam procedure.
Mr. Deutch. Mr. Chairman, I just would hope, as we move
forward, that we look at different ways to create some sort of
estoppel system for patents that have already been through re-
examination by the office, found to be valid, and found to be
valid by a court of law as well.
I yield back. Thank you, Mr. Chairman.
Mr. Goodlatte. Good point. Thank you, Mr. Deutch.
The gentleman from New York, Mr. Reed, is recognized for
his questions.
Mr. Reed. Thank you, Mr. Chairman.
Thank you, gentlemen, for your testimony today.
I just want to focus on one area in particular. I have
looked at some of the statistics and reports from the PTO, and
I have concerns. When we see that inter partes reviews are
successful 90 percent of the time either invalidating or
narrowing the patents, ex parte reviews are successful 77
percent of the time, you know, that begs the question to me why
are we adding an additional administrative proceeding when it
comes to post grant review?
But I think that has already come and gone, and that battle
seems to be behind us, and we are moving forward on it. So I
guess I raise the question about whenever we add a proceeding
that can be utilized by litigation tactics and things like
that, I am very sensitive to frivolous, exposing it to
frivolous claims.
I am familiar with one that was sent to our office. One
group called the ``patent assassins,'' I have shared that
information with Members of the Committee and others, where
they market, in my opinion, their business model is to attack
patents on a frivolous nature to essentially, my opinion, shake
people down and corporations down for financial purposes.
But could you, I guess, Mr. Miller, I will direct the
question to you. Could you just clarify or add your experience
or testimony as to abuses you have seen with the existing inter
partes system? It may be helpful to the----
Mr. Miller. Yes, we had one particular--thank you for the
question, Congressman Reed.
We had one particular case that we brought that was a
pretty egregious infringement on a packaging for our Folger's
coffee can, and we asked for a preliminary injunction. And the
response was by the alleged infringer to immediately run to the
Patent Office and ask for an inter partes re-exam and then ask
for a stay in the proceeding in the district court.
And so, the whole litigation tactic was let's open a second
front, where we can have a second bite at the apple against
this, get the original litigation stayed, try to avoid a
preliminary injunction, and then move forward.
Well, we took an appeal to that to the Federal Circuit. The
Federal Circuit reversed and said you have to decide the
preliminary injunction motion. You can't just stay the
proceedings, and that's one of my concerns with stays. And lo
and behold, the case settled after the court said that they
had--we had to have a preliminary injunction hearing because
the other party knew that they would probably be enjoined from
further using the invention.
So, you know, I think that there are litigation abuses and
litigation tactics that we have to control and have to be
sensitive as we develop the procedures in this bill.
Mr. Reed. Well, and that is where I look at the Senate
bill, and I see higher thresholds for the post grant review and
inter partes review language in those bills. I guess from your
experience, would you see those helping to reduce that higher
threshold, reducing those frivolous actions and abuses that you
may have described there?
Mr. Miller. I do. I do. I think that----
Mr. Reed. And why is that? Why would that work?
Mr. Miller. Well, I think that we see a lot of times
where--and I say any good patent attorney worth its salt can
find a new question of patentability by finding some reference
that wasn't cited at the Patent Office. We ought to hold folks
to the standard that there is a reasonable likelihood that one
claim is going to be invalid in the patent, and that ensures
that there is actually something amiss with the patent, that
there needs to be a correction that needs to be made.
And so, that we can go forward with the assurance of using
all the resources that the PTO is going to use within this
quick 1-year timeframe with all the estoppels to get this
through and make sure that that problem is fixed. If we go to
the lower standard, we may get to the point where we've gone
through this whole procedure, and there are no problems. And
that's wasting not only PTO resources, but both of the parties'
time.
And that's why I think the higher threshold is extremely
important in these.
Mr. Reed. I understand, Mr. Chandler, you may have a
different opinion on this issue. But do you see any risk to the
post grant review process being opened up, if we lower the
threshold or even went lower? I think in your testimony, you
wanted to go lower on the threshold. Do you see any risk of
that frivolous abuse that Mr. Miller is referring to?
Mr. Chandler. No, we--we're actually not in favor of
lowering the threshold. We're in favor of maintaining current
law, which is----
Mr. Reed. Okay.
Mr. Chandler [continuing]. The question of patentability.
Mr. Reed. Which is a lower threshold than what the Senate
bill has?
Mr. Chandler. It is. But under the current threshold, the--
there have been 1,115 inter partes re-exams since 1999, when
the procedure was implemented. In 89 percent of the cases, at
least one claim was invalidated. In 47 percent of the cases--
that's almost half of them--the patent itself was thrown out
completely.
So when you have 89 percent subject to change, and Mr.
Miller advised me during the recess that about a quarter of
those may have been more administrative fixes to patents, even
if a quarter of them were that, when you get that level of
result, it would seem that the threshold doesn't need to be
raised.
And I think Director Kappos spoke directly to the question
of whether it would be a use of resources, distraction of
resources to leave the threshold where it is, and he seemed
comfortable with that, given those percentages.
Mr. Reed. So, essentially, you are saying the existing
system works. Why go to the post grant review, if I am
understanding your testimony correctly?
Mr. Chandler. And this, actually, is very relevant to the
question Mr. Deutch posed a moment ago because the types of
information that are allowed in as part of the re-exam are
different under the post grant review, which is only available
in the first year after issuance.
Mr. Reed. Okay.
Mr. Chandler. Once you get past that, inter partes is a
very narrowly constrained type of information that can be
looked at related to other patents and published prior art. So
they are different.
I would suggest coordinating them so that if someone wanted
to start an inter partes review immediately after the patent
granted, if litigation, for instance, was brought at that
point, that the director could consolidate post grant and inter
partes requests so that you don't have duplicative proceedings
on the same patent. I think that would be a procedural
improvement to the structure of what's in the legislation
today.
Mr. Reed. Thank you.
I see my time has expired. I will yield back. Thank you,
Mr. Chairman.
Mr. Goodlatte. Thank you, Mr. Reed.
The gentlewoman from California, Ms. Chu, is recognized for
her questions.
Ms. Chu. Thank you.
Mr. Chandler, in his testimony, Mr. Miller characterized
the changes to the inter partes process in the Senate bill as
``safeguards.'' Do you agree with his characterization, and do
you think the changes actually make the inter partes process
more fair and less burdensome?
Mr. Chandler. Actually, I think that the Senate bill's
provisions on inter partes are a step backward compared to
current law. As Chairman Smith alluded to in his opening
statement, there is an issue that affects technology community,
particularly related to frivolous lawsuits. And that inter
partes review is a major step that is used in order to have the
Patent Office look at unmeritorious patents and invalidate them
where required with the very high statistics that I cited.
So I don't think it makes it more fair, and I think
certainly some of the changes that are reflected in the draft
legislation today fix some of that, don't go quite far enough,
and that's why I suggested a couple of other modifications that
could move us to the position of being enthusiastic supporters
of the bill.
I would say that the opportunity provided by the unusual
schedule this afternoon facilitated a number of sidebar
conversations during the recesses, and I think we're making
progress on some of these issues.
Ms. Chu. Mr. Chandler, under the House bill, defendants
would have only 9 months to file a request for inter partes re-
exam after getting sued. What is the deadline under current
law? Do you believe a deadline is necessary or actually
improves the inter partes process?
Mr. Chandler. There is no deadline under current law, but
I'm sensitive to the fact that patent holders ought to get some
certainty with respect to their patents and be able to proceed
with litigation. The commitment in the legislation having a 1-
year period for inter partes review is very important for
patent holders, and we're supportive of that requirement and
the funding that facilitates it.
I think a time limit is a good idea. I think it is better
calculated by the Markman examination, Markman determination by
the judge rather than by an arbitrary time period. We have some
litigation that involved tens of defendants, 61 patents, 1,975
different claims, this past litigation which you may be
familiar with. And in those cases, it is very, very hard prior
to Markman to figure out how to initiate an inter partes
review.
And that would, I think, cause the patent holder as well to
want to speed up the Markman so that there would be a clear
claim interpretation. But we do not object to the idea that
there should be a limiting event or time.
Ms. Chu. Mr. Miller?
Mr. Miller. I'd just like to comment on one thing Mr.
Chandler said. Waiting to a Markman hearing can be way too
late. Some courts don't even hold a Markman hearing until maybe
a week or so before the trial, and so you've already gone
through discovery. You've already gone through getting ready
for the trial, and then to file for an inter partes re-exam
that late in the game just isn't fair to some patentees.
And so, our district courts vary on the times when Markman
hearings are held. So I think it's a better policy to have a
date certain as to when these have to be filed.
Ms. Chu. Mr. Chandler, how do you respond to that?
Mr. Chandler. As someone who is most often a defendant in
these litigations, we do not find it advantageous to have the
Markman hearing wait to before trial for exactly the judicial
inefficiency aspects that Mr. Miller alluded to. And I think
that with a change such as I proposed, both plaintiff and
defendant would have an interest in pushing for a faster
Markman proceeding, and that would have an impact then on the
pace with which the district courts handle that.
Ms. Chu. Okay. And just switching topics, Mr. Vaughn, as
you know, some startup companies, small businesses and
independent inventors and universities are concerned that the
grace period in the House and Senate bills may force them to
publicly disclose their technology before they are ready to
enter the marketplace.
Do you agree with this concern? Do you have recommendations
for ways to improve the grace period to ensure that the patent
system works for all inventors?
Mr. Vaughn. Well, I've heard a lot of expressions about the
grace period that suggest to me that there may not be a full
understand of the changes that have been made. Because the
grace--the grace period that is in the current legislation is
fit to move to a first inventor to file, such that the
publications of an inventor provide a 12-month period for that
person to file a patent application, and that person's
publication is not prior art. But it would be prior art for
someone else trying to file a patent.
So I think you've kind of carved out a space to give
yourself time, if you're a startup company, to explore the
marketability of your patent, and the grace period protects
that time.
Ms. Chu. Okay. Thank you, and I yield back.
Mr. Goodlatte. Thank you, Ms. Chu.
I think that concludes our questions today, which also
brings the hearing to an end.
And want to thank you all for your very helpful testimony.
It has been very instructive. Who knows? We may have even made
some progress.
And Mr. Chandler, if we can't make everybody enthusiastic,
maybe we can at least make everybody feel better, and we will
take that as a victory as well.
So thank you again very much. I appreciate your testimony,
appreciate your being here.
Without objection, all Members will have 5 legislative days
to submit to the Chair additional written questions for the
witnesses, which we will forward and ask the witnesses to
respond to as promptly as they can so that their answers may be
made part of the record.
Without objection, all Members will have 5 legislative days
to submit any additional materials for inclusion in the record.
We stand adjourned.
[Whereupon, at 6:04 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record