[House Report 107-121]
[From the U.S. Government Publishing Office]




107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    107-121

======================================================================



 
              APPEALS IN PATENT REEXAMINATION PROCEEDINGS

                                _______
                                

 June 28, 2001.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1886]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 1886) to amend title 35, United States Code, to 
provide for appeals by third parties in certain patent 
reexamination proceedings, having considered the same, reports 
favorably thereon without amendment and recommends that the 
bill do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     1
Background and Need for the Legislation..........................     2
Hearings.........................................................     3
Committee Consideration..........................................     3
Vote of the Committee............................................     4
Committee Oversight Findings.....................................     4
Performance Goals and Objectives.................................     4
New Budget Authority and Tax Expenditures........................     4
Congressional Budget Office Cost Estimate........................     4
Constitutional Authority Statement...............................     5
Section-by-Section Analysis and Discussion.......................     5
Changes in Existing Law Made by the Bill, as Reported............     6
Markup Transcript................................................     8

                          Purpose and Summary

    The bill, H.R.1886, repeals a prohibition which bars 
judicial review of certain patent inter partes reexamination 
decisions. The legislation would merely permit the third-party 
requester in an inter partes reexamination to appeal the 
decision by the U.S. Patent and Trademark Office (PTO) to the 
U.S. Court of Appeals for the Federal Circuit (hereinafter 
``Federal Circuit'').

                Background and Need for the Legislation

    Currently, other parties (for example, the patent owner) 
are permitted to appeal an inter partes reexamination decision. 
Because this type of appeal is prohibited by current law, it is 
believed that the patent system is unable to fully serve the 
needs of inventors and the public. Further, the asymmetry 
controlling which parties may appeal the agency's inter partes 
reexamination decisions to the Federal courts is considered one 
of the major defects of the patent system and results in a 
major disincentive to invoke reexamination as a way of curing 
allegedly defective patents.
    It is widely believed that the courts are an important 
safeguard against any potential abuse by an agency or 
administrative bureaucracies. Congress created the Federal 
Circuit in 1982 with a specific goal. It was intended to be a 
specialized appellate judicial forum that brings both legal and 
technical expertise to bear on appeals of certain issues of 
national importance, including patent issues. The overwhelming 
consensus is that in the past 20 years the Federal Circuit has 
proven to be a marked success. It contributes to the fairness 
of the system in two ways. First, it ensures predictability and 
certainty regarding legal issues within the subject matter of 
its jurisdiction, and it is a check on the agencies within its 
jurisdiction.
    The U.S. Patent and Trademark Office (PTO) is the agency 
that examines applications for a patent, reviews the applicable 
evidence (e.g., ``prior art''), and makes decisions to award 
the patent grant. Since the PTO is the Federal agency with the 
expertise and ``first look'' at a patent's validity and scope, 
Congress decided that the PTO was the proper agency with the 
necessary expertise to take a ``second look'' at a patent's 
validity in certain cases when new information became 
available. In 1980, Congress created an ex parte reexamination 
system for this purpose.\1\
---------------------------------------------------------------------------
    \1\ 35 U.S.C. Sec. Sec. 301, et seq.
---------------------------------------------------------------------------
    The 1980 reexamination statute was enacted with the intent 
of achieving three principal benefits. It is noted that the 
reexamination of patents by the PTO would: (i) settle validity 
disputes more quickly and less expensively than litigation; 
(ii) allow courts to refer patent validity questions to an 
agency with expertise in both the patent law and technology; 
and (iii) reinforce investor confidence in the certainty of 
patent rights by affording an opportunity to review patents of 
doubtful validity.\2\ More than 20 years after the original 
enactment of the reexamination statute, the Committee on the 
Judiciary still endorses these goals and encourages third 
parties to pursue reexamination as an efficient way of settling 
patent disputes.
---------------------------------------------------------------------------
    \2\ 126 Cong. Rec. 29, 895 (1980) (statement of Rep. Kastenmeier). 
See also H.R. Rep. No. 96-1307 (1980), reprinted in 1980 U.S.C.C.A.N. 
6400; see Patlex Corp. v. Mossinghoff, 758 F.2d 594, 601; 225 U.S.P.Q. 
(BNA) 243, 248 (Fed. Cir. 1985).
---------------------------------------------------------------------------
    According to the data produced by the PTO, the number of 
requests for reexamination during the past decade has remained 
relatively constant, even as the total number of patent filings 
has increased dramatically:


    This ``1980-reexamination system'' was considered useful 
and efficient, but limited in several ways, including its scope 
and the participation of third parties. In 1999, as part of the 
American Inventors Protection Act,\3\ Congress created an 
optional and expanded reexamination system which was 
specifically designed to be used by third parties, known as 
inter partes reexamination.
---------------------------------------------------------------------------
    \3\ Intellectual Property and Communications Omnibus Reform Act of 
1999, Sec. Sec. 4601 et seq., Pub. L. No. 106-113 (Nov. 11, 1999).
---------------------------------------------------------------------------
    With inter partes reexamination, it is believed that a 
better balance can be achieved toward the goal of improving 
patent quality and validity. This type of reexamination is 
praised because it is intended to be a cheaper and more 
efficient procedure to review poor-quality or otherwise 
defective patents than through the Federal courts. The 
participation by third parties is considered vital because in 
many circumstances they have the most relevant prior art 
available and incentive to seek to invalidate an allegedly 
defective patent.

                                Hearings

    The Committee's Subcommittee on Courts, the Internet, and 
Intellectual Property did not hold a legislative hearing on the 
bill, H.R. 1886. However, the Subcommittee held two related 
oversight hearings: (1) on ``Business Method Patents'' on April 
4, 2001, and; (2) on ``Patents: Improving Quality and Curing 
Defects'' on May 10, 2001. Testimony during the hearing was 
received from seven witnesses, representing seven 
organizations, with additional material submitted by three 
individuals and organizations.

                        Committee Consideration

    On May 22, 2001, the Subcommittee on Courts, the Internet, 
and Intellectual Property met in open session and ordered 
favorably reported the bill H.R. 1886, by a voice vote, a 
quorum being present. On June 20, 2001, the Committee met in 
open session and ordered favorably reported the bill H.R. 1886 
without amendment by voice vote, a quorum being present.

                         Vote of the Committee

    There were no recorded votes on the bill.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

                    Performance Goals and Objectives

    H.R. 1886 does not authorize funding. Therefore, clause 
3(c) of rule XIII of the Rules of the House is inapplicable.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of House Rule XIII is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 1886, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 27, 2001.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1886, a bill to 
amend title 35, United States Code, to provide for appeals by 
third parties in certain patent reexamination proceedings.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Ken Johnson 
(for federal costs), who can be reached at 226-2860, Scott 
Masters (for the state and local impact), who can be reached at 
225-3220, and Paige Piper/Bach (for the private-sector impact), 
who can be reached at 226-2940.
            Sincerely,
                                  Dan L. Crippen, Director.

Enclosure

cc:
        Honorable John Conyers Jr.
        Ranking Member
H.R. 1886--A bill to amend title 35, United States Code, to provide for 
        appeals by third parties in certain patent reexamination 
        proceedings.
    H.R. 1886 would allow third parties--meaning persons other 
than the patent owner--to appeal patent reexamination decisions 
to the U.S. Court of Appeals for the Federal Circuit. CBO 
estimates that implementing the bill would cost the Patent and 
Trademark Office (PTO) about $3 million a year, assuming the 
appropriation of the necessary amounts. Enacting H.R. 1886 
would not affect direct spending or receipts; therefore, pay-
as-you-go procedures would not apply.
    H.R. 1886 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    Under current law, third parties can file a request with 
PTO to reexamine a patent's validity and can appeal the 
agency's ruling to a special board. Unlike the patent owner, 
however, a third party is not allowed to appeal the special 
board's ruling to the U.S. Court of Appeals for the Federal 
Circuit. Because H.R. 1886 would give third parties this extra 
level of appeal, implementing the bill would require PTO to 
hire additional attorneys to represent the agency in appeals 
proceedings. Based on information from PTO, CBO also expects 
that enacting H.R. 1886 would cause the total number of patent 
reexamination filings to increase. As a result, PTO would need 
to hire additional patent examiners to review the new requests. 
CBO estimates that the added staff would cost the agency about 
$3 million a year, subject to the availability of appropriated 
funds.
    The CBO staff contacts for this estimate are Ken Johnson 
(for federal costs), who can be reached at 226-2860, Scott 
Masters (for the state and local impact), who can be reached at 
225-3220, and Paige Piper/Bach (for the private-sector impact), 
who can be reached at 226-2940. The estimate was approved by 
Peter H. Fontaine, Deputy Assistant Director for Budget 
Analysis.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in article 1, section 8, clause 8 of the 
Constitution.

               Section-by-Section Analysis and Discussion

Sec 1. Appeals in Inter Partes Reexamination Proceedings.
    Subsection (a) amends section 315(b) of Title 35, United 
States Code, to permit third-parties to appeal to the Board of 
Patent Appeals and Interferences and the U.S. Court of Appeals 
for the Federal Circuit pursuant to sections 141 and 144 of 
title 35, United States Code.
    Subsection (b) strikes the last sentence of section 134(c) 
of title 35, United States Code, which prohibits the third-
party requesters from appealing the decision of the Board of 
Patent Appeals and Interferences.
    Subsection (c) amends section 141 of title 35, United 
States Code, to specify that third-party requesters have the 
right to appeal the final decision of the Board of Patent 
Appeals and Interferences concerning a reexamination under 
section 134 of title 35, United States Code, proceeding to the 
U.S. Court of Appeals for the Federal Circuit.
Sec. 2. Effective Date.
    Section 2 provides that the right for third parties to 
appeal these decisions is prospective and that the right 
applies to reexamination proceedings commenced on or after the 
date of enactment.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

TITLE 35, UNITED STATES CODE

           *       *       *       *       *       *       *


PART II--PATENTABILITY OF INVENTIONS AND GRANT OF PATENTS

           *       *       *       *       *       *       *


CHAPTER 12--EXAMINATION OF APPLICATION

           *       *       *       *       *       *       *


Sec. 134. Appeal to the Board of Patent Appeals and Interferences

    (a) * * *

           *       *       *       *       *       *       *

    (c) Third-Party.--A third-party requester in an inter 
partes proceeding may appeal to the Board of Patent Appeals and 
Interferences from the final decision of the administrative 
patent judge favorable to the patentability of any original or 
proposed amended or new claim of a patent, having once paid the 
fee for such appeal. [The third-party requester may not appeal 
the decision of the Board of Patent Appeals and Interferences.]

           *       *       *       *       *       *       *


CHAPTER 13--REVIEW OF PATENT AND TRADEMARK OFFICE DECISIONS

           *       *       *       *       *       *       *


Sec. 141. Appeal to Court of Appeals for the Federal Circuit

    An applicant dissatisfied with the decision in an appeal to 
the Board of Patent Appeals and Interferences under section 134 
of this title may appeal the 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 of this title. A patent owner, or a third-party 
requester in an inter partes reexamination proceeding, who is 
in any reexamination proceeding dissatisfied with the final 
decision in an appeal to the Board of Patent Appeals and 
Interferences under section 134 may appeal the decision only to 
the United States Court of Appeals for the Federal Circuit. A 
party to an interference dissatisfied with the decision of the 
Board of Patent Appeals and Interferences on the interference 
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 interference, within twenty days 
after the appellant has filed notice of appeal in accordance 
with section 142 of this title, files notice with the Director 
that the party elects to have all further proceedings conducted 
as provided in section 146 of this title. If the appellant does 
not, within thirty days after the filing of such notice by the 
adverse party, file a civil action under section 146, the 
decision appealed from shall govern the further proceedings in 
the case.

           *       *       *       *       *       *       *


PART II--PATENTABILITY OF INVENTIONS AND GRANT OF PATENTS

           *       *       *       *       *       *       *


CHAPTER 31--OPTIONAL INTER PARTES REEXAMINATION PROCEDURES

           *       *       *       *       *       *       *


Sec. 315. Appeal

    (a) * * *

           *       *       *       *       *       *       *

    [(b) Third-Party Requester.--A third-party requester may--
            [(1) appeal under the provisions of section 134 
        with respect to any final decision favorable to the 
        patentability of any original or proposed amended or 
        new claim of the patent; or
            [(2) be a party to any appeal taken by the patent 
        owner under the provisions of section 134, subject to 
        subsection (c).]
    (b) Third-Party Requester.--A third-party requester--
            (1) may appeal under the provisions of section 134, 
        and may appeal under the provisions of sections 141 
        through 144, with respect to any final decision 
        favorable to the patentability of any original or 
        proposed amended or new claim of the patent; and
            (2) may, subject to subsection (c), be a party to 
        any appeal taken by the patent owner under the 
        provisions of section 134 or sections 141 through 144.

           *       *       *       *       *       *       *


                           Markup Transcript



                            BUSINESS MEETING

                        WEDNESDAY, JUNE 20, 2001

                  House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 11:07 a.m., in 
Room 2141, Rayburn House Office Building, Hon. F. James 
Sensenbrenner [Chairman of the Committee] presiding.
    The next item on the agenda is the adoption of H.R. 1886 to 
amend title 35, United States Code, to provide for appeals by 
third parties in certain patent reexamination proceedings.
    [H.R.1886 follows:]
    
    
    Chairman Sensenbrenner. The Chair recognizes the gentleman 
from North Carolina, Mr. Coble, the Chairman of the 
Subcommittee on Courts, the Internet, and Intellectual 
Property, for purposes of a motion.
    Mr. Coble. Mr. Chairman, the Subcommittee on Courts, the 
Internet, and Intellectual Property reports favorably the Bill 
H.R. 1886 and moves its favorable recommendation to the full 
House.
    Ms. Lofgren. Mr. Chairman?
    Chairman Sensenbrenner. Without objection, H.R. 1886 will 
be considered as read and open for amendment at any point.
    The Chair first recognizes the gentleman from North 
Carolina to strike the last word, if it is the last word.
    Mr. Coble. And this will not require 5 minutes, Mr. 
Chairman.
    This bill is another straightforward bill. It attempts to 
improve the patent reexamination system. It aims at closing an 
unfortunate administrative loophole and bridging legal gap in 
the working of our patent system.
    The reform also comes out of the two hearings that the 
Subcommittee has conducted earlier this session. While I 
strongly endorse the professionalism of the Patent and 
Trademark Office, I also believe it is necessary to place a 
check on the PTO's action by affording all participants 
judicial review before a Federal Appeals Court. This check by a 
higher independent authority is an important safeguard and adds 
transparency to the process.
    Rest assured that this appellate review will not impose 
additional burdens on patent holders arising from Federal 
trials. I urge the full Committee to support passage of this 
overdue bill.
    Chairman Sensenbrenner. The gentlewoman from California, 
Ms. Lofgren?
    Ms. Lofgren. I move to strike the last word.
    Chairman Sensenbrenner. The gentlewoman is recognized for 5 
minutes.
    Ms. Lofgren. I note that Ranking Member Berman also 
supports H.R. 1886 and urges the Committee to do the same. We 
believe that this is a good, although small step, in approving 
the reexamination procedure, and we note that--and I think the 
Chairman agrees--there may be some additional measures that we 
will need to take, but certainly that should not deter us from 
supporting this bill today, and I yield back the balance of my 
time.
    Chairman Sensenbrenner. The time of the gentlewoman has 
expired.
    Without objection, all Members may place opening statements 
in the record at this point.
    Chairman Sensenbrenner. Are there any amendments?
    Mr. Coble. No amendments, Mr. Chairman.
    Chairman Sensenbrenner. There being no amendments, the 
question now occurs on the motion to report H.R. 1886 
favorably. The Chair notes the presence of a reporting quorum.
    All in favor say aye.
    Opposed, no.
    The ayes have it, and the motion to report favorably is 
adopted.
    Without objection, the bill--well, without objection, the 
Chairman is authorized to move to go to conference, pursuant to 
House rules.
    Without objection, the staff is directed to make technical 
and conforming changes. All Members will be given 2 days, as 
provided by House rules, in which to submit additional 
dissenting supplemental or minority views.

                                
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