[Congressional Record Volume 152, Number 106 (Thursday, August 3, 2006)]
[Senate]
[Pages S8829-S8832]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HATCH (for himself and Mr. Leahy):
  S. 3818. A bill to amend title 35, United States Code, to provide for 
patent reform; to the Committee on the Judiciary.
  Mr. HATCH. Mr. President, I rise today to introduce with Senator 
Leahy the Patent Reform Act of 2006.
  This bill addresses many of the issues and problems that my 
colleague, Senator Leahy, and I have identified through a series of 
hearings and discussions with stakeholders. We also had the benefit of 
knowing the priorities identified by Chairman Lamar Smith and Ranking 
Democratic Member Berman, who have introduced an analogous bill in the 
House.
  I would like to thank the Senator Leahy for all of his hard work and 
assistance in developing this bill and for his willingness to reach a 
compromise on those issues where our policy views conflicted.
  This bill is not perfect, and is not the bill that either I or my 
esteemed cosponsor would have introduced independently, but I believe 
that it fairly reflects a compromise between my priorities and the 
priorities of Senator Leahy.
  We have also attempted to achieve some balance between the priorities 
identified by the various industries and stakeholders that we consulted 
while formulating our policy views in this area.
  I am sure that further refinements will be made to this bill during 
the legislative process, so I would encourage those who are either 
pleased or displeased by any of the aspects of the bill to continue 
working with us to resolve any outstanding issues.
  This bill addresses many of the problems with the substantive, 
procedural, and administrative aspects of the patent system, which 
governs how entities here in the United States apply for, receive, and 
eventually make use of patents covering everything from computer chips 
to pharmaceuticals to medical devices to--I am told--at least one 
variety of crustless peanut butter and jelly sandwich.
  As the Founding Fathers made clear in Article 1, section 8 of the 
Constitution, Congress is charged with ``promot[ing] the Progress of 
Science

[[Page S8830]]

and useful Arts, by securing for limited Times to Authors and Inventors 
the exclusive Right to their respective Writings and Discoveries.''
  There is a growing consensus among those who use the patent system 
that significant reform is needed.
  While there appears to be a high degree of consensus on some issues 
relating to patent reform--such as the advisability of creating a new 
post-grant review process, there are significant disagreements about 
other changes to the patent system and about how best to streamline 
patent litigation.
  By all accounts, patent litigation has become a significant problem 
in some industries. There are a number of factors in patent law that 
drive up the cost and uncertainty of litigation in ways that are 
unjustified. However, some of the principal problems and costs 
associated with patent litigation are not uniform across industrial 
sectors. This has led to substantial and sometimes vociferous 
disagreements about the nature of the underlying problems and, thus, 
what the appropriate solutions might be. We have done our best to 
resolve these disagreements based on our judgment about what is likely 
to preserve a balance between patent holders and alleged infringers in 
these actions.
  There is also substantial consensus regarding a number of basic, 
structural changes to the patent system. The most significant of these 
involves moving from our current first-to-invent system to something 
approximating a first-to-file rule in determining which of two 
conflicting inventors has the right to obtain a patent.
  While there is general agreement regarding some of the changes 
necessary to move toward a first-to-file system, there are some 
disagreements that remain unresolved by the current language of this 
bill. Although we have done our best to preserve many of the principles 
defining what constitutes ``prior art'' under current law, patent 
experts continue to disagree over whether we have achieved this goal.
  Additionally, shortly before introduction, a concern emerged that we 
had not adequately preserved the changes enacted by the Cooperative 
Research and Technology Enhancement Act--CREATE Act, P.L. 108-453--
involving some types of double patenting. Since Senator Leahy and I 
were original cosponsors of that law, I can assure you that we will be 
receptive to concerns in this regard and try to fix them.
  With that preface, I would like to discuss several of the more 
significant changes made to the current patent system by this bill.
  Sections 1 and 2 of the bill contain the short title, table of 
contents, and other similar provisions. Sections 3 and 4 contain 
amendments to implement the first-to-file rule and other changes to the 
manner in which patent applications are filed with the Patent and 
Trademark Office and the process governing the examination of 
applications. Much of this language is similar to language in previous 
bills. However, as I have mentioned, several significant issues remain 
unresolved, and we will continue to work with stakeholders and other 
members to ensure an appropriate resolution.
  Section 5 changes the remedies available to plaintiffs in patent 
infringement suits, as well as the available defenses to patent 
infringement. The two most substantial changes involve limitations on 
the availability of enhanced damages upon a showing of ``willful'' 
infringement by a plaintiff and a parallel limitation on the 
availability of unenforceability under the doctrine of ``inequitable 
conduct.'' Willfulness and inequitable conduct were two of the three 
major subjective elements that were identified in a major report on the 
current patent system by the National Research Council of the National 
Academy of Sciences. The report, entitled ``A Patent System for the 
21st Century,'' recommended limiting both willfulness and the 
inequitable conduct defense to streamline patent litigation. We were 
unable to reach agreement on repealing the ``best mode'' requirement, 
which was the third subjective element identified both in the report 
and by various stakeholders, but I am hopeful that we will continue to 
work toward a mutually-acceptable compromise on that issue.
  Section 5 also contains a provision expanding ``prior user rights.'' 
These prior user rights are, in reality, a defense to infringement 
liability for those making or preparing to make commercial use of an 
invention prior to a patent being issued. Prior to a patent's issuance, 
such a user often has no way of knowing that he is--or will be--
infringing a patent. In some cases, the user has independently invented 
the subject matter in question, in which case it would be inequitable 
to subject him or her to infringement liability. Currently, the prior 
user defense is available only with respect to method patents. The bill 
expands the prior user defense to all categories of patents and makes 
related changes to this defense.
  Additionally, Section 5 contains two of the more controversial 
provisions in the bill. The first is a rough codification of an 
``apportionment'' rule for calculation of damages. There is an 
existing, uncodified rule for such apportionment that exists in case 
law. However, codifying the rule will increase its clarity and mandate 
its application in all appropriate cases.
  The second controversial provision in this section is a mandatory fee 
shifting provision. The language of this provision requires courts to 
award attorneys' fees to a prevailing party in cases where the non-
prevailing party's legal position was not substantially justified. This 
language is similar to the test used in the Equal Access to Justice 
Act. This provision is intended to discourage litigation in those cases 
where a plaintiff's or defendant's case is so weak as to be objectively 
unreasonable.
  Finally, this section also contains a repeal of Section 271(f) of 
Title 35. Under current law, either a foreign or domestic patent holder 
may be able to obtain damages based on foreign uses of domestically-
manufactured components of an infringing article. In essence, current 
law provides for the extraterritorial application of domestic law in a 
manner that benefits foreign manufacturers and patentees in some 
situations.
  Section 6 contains procedures for instituting a new type of post-
grant review preceding that will allow the validity of a patent to be 
challenged in an administrative proceeding conducted by the Patent and 
Trademark Office rather than in court litigation.
  Under current law, there are narrow reexamination procedures by which 
the PTO may reconsider a patent's validity at the request of an 
interested party. However, current reexamination proceedings are very 
limited and do not allow for a full consideration of a patent's 
validity. As a result, even when reexamination is available, potential 
litigants generally wait to challenge a patent's validity until an 
infringement suit has been brought despite the higher costs and 
prolonged uncertainty of doing so.
  I believe that by adopting a more robust post-grant review proceeding 
we are providing a more efficient means of challenging a patent's 
validity in an administrative proceeding. This is necessary to address 
systemic problems in our patent system, making post-grant review an 
essential component of any meaningful reform legislation. While there 
appears to be substantial agreement regarding the need for a more 
meaningful post-issuance review, there are strong disagreements over 
its specific attributes and scope.
  During hearings conducted in the Subcommittee on Intellectual 
Property and during meetings with stakeholders, we encountered widely 
disparate proposals and suggestions regarding post-grant review from 
stakeholders, academics, and lawmakers. At one end of the spectrum are 
proposals that would create a low-cost, streamlined proceeding by 
simply expanding the current inter partes reexamination. At the other 
end of the spectrum are those that would like to see the creation of 
specialized patent courts that would partially supplant Federal court 
litigation. With this bill, we have introduced a proposal that falls 
somewhere in between these two extremes.
  This bill institutes a robust post-grant opposition system. The new 
procedures for post-grant cancellation proceedings create a new system 
for challenging the validity of problematic or suspect patents, which 
will allow those who are concerned about infringing such a patent to 
test its validity in an administrative proceeding instead of waiting to 
assert invalidity as a defense in an infringement action. The

[[Page S8831]]

new procedures are tiered in such a way as to encourage challenges to 
occur within the first year after a patent's issuance. After the one-
year ``first window,'' challenges may still be brought by those who are 
able to demonstrate a substantial economic stake in the outcome of the 
proceeding. To deter piecemeal litigation, if a party institutes a 
proceeding after the first year, any challenge to patentability 
available to that party with respect to the patent must be either 
raised or waived. Thus, a challenger who participates in a proceeding 
outside the first year is estopped from raising any grounds relating to 
patentability that were or could have been raised in the previous 
challenge.
  In addition to the new post-grant review proceedings, language in 
section 9 of this bill makes substantial improvements to the existing 
inter partes reexamination proceeding that are based on recommendations 
from the PTO and stakeholders. The most significant change to the 
reexamination proceedings is the modification of the estoppel effect of 
such proceedings. Currently, participants in an inter partes 
reexamination are barred from subsequently raising any grounds they 
``raised or could have raised.'' Thus, parties who wish to challenge a 
patent more than a year after its issuance will have the option of 
bringing a narrow challenge that will not subject them to full estoppel 
as an alternative to bringing a full post-grant opposition proceeding 
or reserving their arguments for court. This approach provides a range 
of alternatives to legitimate challengers, while still providing 
balanced protections against harassing or abusive litigation for the 
patentee.
  Section 8 would amend the current statutory provision that determines 
the appropriate venue for patent litigation. The intent of the venue 
language is to serve as a starting point for discussions as to what 
restrictions--if any--are appropriate on the venue in which patent 
cases may be brought. Section 8 also contains a provision allowing for 
interlocutory appeals of decisions involving the claim construction of 
a patent. Again, this language is intended to generate discussion about 
the current interplay between the Federal district and appellate 
courts. As both academics and the patent bar have noted, the resolution 
of the legal questions involving claim construction appear to be taking 
up a greater and greater portion of the docket of the Federal circuit 
court of appeals.
  Given the high percentage of reversals on claims construction issues, 
some experts believe that an interlocutory appeal of Markman decisions 
might allow parties to resolve disputes as to claim construction more 
decisively prior to proceeding to a full trial. Alternatively, other 
experts believe that a return to the treatment of claims construction 
as a mixed question of law and fact might induce more deferential 
review by the appellate court. Still others have suggested that 
increased expertise among the district court judges trying patent cases 
might result in a lower reversal rate. In that regard, I should note 
that Congressman Issa has a bill authorizing a pilot project that 
appears to be a promising approach to increasing the expertise of 
Federal judges who handle patent cases, and I am considering 
introducing a similar bill here in the Senate. While I am not wedded to 
any particular approach or combination of approaches, I believe this is 
an issue that should receive serious attention and consideration by 
Congress.
  Section 9 of the bill includes additional statutory changes that 
either implement or complement provisions found elsewhere in the bill. 
It also includes expanded authority for the PTO to conduct substantive 
rulemaking, as well as the changes to the inter partes reexamination 
procedures that I mentioned previously.
  Section 10 includes a generic effective date provision. Obviously, I 
will need to modify the effective dates of the various provisions in 
the bill once we have been able to assess the difficulty of 
implementing various provisions in this bill.
  In closing, I would like to thank my cosponsor, the senior Senator 
from Vermont, for all the work he has put into this bill and to 
compliment his intellectual property counsel, Susan Davies, for her 
efforts as well. I am committed to moving this legislation forward and 
hope that my colleagues will join me in my efforts to refine and enact 
this important bill.
  Mr. LEAHY. Mr. President, the Senate is about to adjourn for its 
August recess--4 weeks when we get to reconnect with our constituents, 
catch up on the concerns of our home States, and study our legislative 
plans with a depth and attention that we cannot devote during the 
hectic days we are in session. Some of us may even spend a little time 
with our families and friends. As I have done in years past, I will be 
in Vermont. The choice between spending August in Washington, DC, or 
Middlesex, VT, has always been an easy one for me.
  When the Senate is in session, our obligations are many and varied, 
as important as they are diverse. We hold hearings, and then we pursue 
followup questions. We try to engage in oversight, though that has not 
been a particularly fruitful exercise with this current administration. 
We investigate issues, and then we endeavor to craft solutions. We vote 
and we caucus and we deliberate.
  It is not always a process that yields results, but today I can 
report it has. I am pleased to join with the chairman of the 
Intellectual Property Subcommittee today in introducing a bipartisan 
bill on patent reform. The bill is the result of almost 2 years of hard 
work on hard issues. We held several hearings, had innumerable meetings 
with a universe of interested participants in the patent system, and 
received input from a number of voices in debate about patent reform. 
We delved deeply into the myriad problems plaguing our patent system, 
especially those that hinder the issuance of high-quality patents.
  In introducing this bill together, we take a productive step toward 
updating the most outdated aspects of the patent code and attempt to 
bolster the Patent and Trademark Office in its administrative review of 
patents throughout the process. We are striving to place incentives on 
the parties with the most information to assist the PTO by sharing that 
information. We place our patent system in line with much of the rest 
of the world, by moving from a ``first-to-invent'' system to a ``first-
to-file.''
  Congress needs to address the urgent needs for revision and renewal 
in our patent system, and we must harness the impressive intellectual 
power and varied experiences of all the players in the patent community 
as we finalize our new laws. I believe that, while introducing this 
bill today is not the end of the process--and indeed, in many respects, 
it is truly the beginning--it is a significant accomplishment that we 
have come together to set down a comprehensive approach to overhauling 
our patent system. If the United States is to preserve its position at 
the forefront of innovation, as the global leader in intellectual 
property and technology, then we need to move forward, and this bill is 
our first step. We must improve and enhance the quality of our patent 
system and the patents it produces.
  This legislation is not an option but a necessity. Senator Hatch and 
I have made genuine progress on this complex issue. We agreed on many 
salutary changes, but it can be no surprise that we differed on some 
aspects of the effort as well. Recognizing the critical importance of 
compromise, of offering a bill to the interested public to study and 
improve, and of taking a clear first step down the path to genuine 
reform, we both made concessions. This is not the bill I would have 
introduced if I were the sole author, and I expect Senator Hatch would 
say the same. I appreciate the concessions that Senator Hatch made. I 
have tried to be both reasonable and accommodating in honoring my 
commitment to him--a commitment that he requested specifically--to 
introduce a bill before the August recess.
  In particular, I am concerned about how some of the changes proposed 
would affect the generic pharmaceutical industry, especially the 
provision that would limit the ``inequitable conduct'' defense to only 
those cases in which a patentee's willful deception of the PTO results 
in an invalid patent claim. While I think we should expect the highest 
caliber of behavior by those who are seeking patents--which are, after 
all, often highly profitable government monopolies--surely we can at

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least insist on an absence of affirmative deceit. I hope and expect 
that we can continue the discussion on this issue as the year 
progresses.
  I also want to ensure the delicate balance we have struck in the 
post-grant review process and make certain that the procedure is both 
efficient and effective at thwarting some strategic behavior in patent 
litigation and at promoting a healthier body of existing patents. Fee-
shifting, even in a limited set of cases, likewise raises concerns that 
should have a more public airing.
  I respect the necessity for considering and balancing a number of 
different concerns as we draft comprehensive and complicated 
legislation. I will never sacrifice the quality of the laws we produce 
to expediency, but I recognize the utility of such compromises when, as 
with this bill, introduction is a first step in a larger and longer 
discussion.
  I am extremely pleased that Senator Hatch and I have come together to 
tackle these important and urgent issues. Many hours of hard work were 
spent by both of our offices to develop legislative language so that we 
can, today, jointly introduce a bill to move the debate forward. The 
bill is a remarkable achievement and a substantial step toward real 
reform. I look forward to continuing to work with Senator Hatch, other 
members of the Senate Judiciary Committee, and the affected parties on 
these matters.
                                 ______