For patent law, 2008 was a year on the verge of upheaval. Patent law, and patent office policy, is in a state of flux. Many proposals have been circulated for patent “reform.” A common refrain is the need to reduce backlogs and application pendency, increase patent “quality”, and rein in business method and software patents. These issues are being debated in Congress, in academic circles, and at the Patent Office. Meanwhile, the courts are taking their opportunity to clarify, and sometimes correct, the existing law as the opportunity arises.
What follows are summaries of a few of the biggest patent stories of 2008.
USPTO Continuation and Claims Rules
In 2007, the United States Patent and Trademark Office proposed new rules, with retroactive applicability, limiting the number of claims and continuations an application is allowed. The rules would have essentially limited an application to 5 independent claims and 25 total claims. Under the rules a maximum of two continuation applications and one Request for Continued Examination (RCE) would be allowed for each application.
Late in 2007, suit was filed by pharmaceutical company GlaxoSmithKline (GSK) and inventor Triantafyllos Tafas to enjoin the USPTO from implementing the new rules. The District Court for the Eastern District of Virginia granted a preliminary injunction just before the rules were to have gone into effect.
In 2008, the suit continued to its conclusion, with the Judge granting Tafas’ and GSK’s motions for summary judgment. The Judge held that the proposed rules were substantive in nature, and thus went beyond the USPTO’s rulemaking authority in violation of the Administrative Procedure Act.
The case is currently on appeal at the Federal Circuit, where oral argument was held in December. Based on the facts and on the questioning at the oral argument, most believe that the Federal Circuit will uphold the lower court’s decision.
Other USPTO Proposed Rules
Besides the claims and continuations rules, the USPTO promulgated a number of other new regulations related to appeal briefs, Information Disclosure Statements (IDS), and Markush claims. The new appeal brief rules were meant to deal with the crush of new appeals that would be filed in response to the new limitation on the number of continuations and RCEs that would follow from the continuations rules. Ostensibly, the new appeal rules were meant to streamline the appeal process, however they appear to impose onerous and unnecessary burdens on applicants, greatly increasing the cost of appeal.
The new IDS rules would require an applicant submitting more than 20 references relevant to the examination of an application to give a detailed explanation of each one. This would greatly increase the cost of filing new applications and would expose practitioners to allegations of unethical conduct if mistakes were made in the detailed explanation.
The USPTO released these rules with the claim that they would add no significant regulatory burden on applicants. Unfortunately, there was no data to back up that claim. David Boundy, the Vice President of Intellectual Property for Cantor Fitzgerald L.P., and Dr. Richard Belzer, a former staff economist in the Office of Management and Budget (OMB) led the drive to submit estimates of the enormous burden of complying with the new regulations to the OMB.
The OMB took note, and the USPTO was forced to shelve the new rules for the time being. Shortly thereafter, incoming President Obama requested that all new agency rulemaking be suspended to give him an opportunity to review it as the new administration took over. It remains to be seen whether these proposed rules will be revived in 2009.
Patent Reform Legislation
The Patent Reform Act of 2007 (S. 1145) was passed by the House in September, 2007 and reported by the Senate Judiciary Committee in January, 2008. However, the Act was a lightning rod for various interest groups and got bogged down in committee. With U.S. patents valued in the tens of billions of dollars, any change in patent rights is sure to draw great interest from a number of different industries willing to bring their lobbying clout to bear. As a result, the bill never reached the Senate floor and was removed from the Senate calendar.
The bill would have made a number of important changes to patent law. For example, it would have changed the U.S. patent system from first-to-invent to first-to-file. In a first-to-invent system, under many circumstances the person with the earliest invention date is given priority, regardless of the date their patent application is filed. Under a first-to-file regime, priority is given to the application with the earliest filing date, regardless of the date of invention.
The switch from first-to-invent to first-to-file would bring the U.S. in line with the rest of the world and avoid the need for costly interference proceedings to determine who was truly the first to invent when the issue is disputed. However, the change would also disadvantage small inventors who are typically less experienced with the patent system.
The bill would also allow assignees to file patent applications on behalf of inventors, ban tax planning patents, allow third-party submission of documents relevant to patent examination, provide a new method for post-grant challenge of patents, and reduce damage awards for infringement by changing the way they are calculated. The bill was generally believed to reduce the value of patents.
Late in the year Senator Jon Kyl introduced a revised patent reform bill to compete with the original bill put forward by Senator Patrick Leahy. Both bills are likely to be reintroduced early this year.
The New Administration
Of course, with the patent reform bill likely to be reintroduced, the question becomes whether the new administration will support it. It is unclear where President Obama stands on patent reform issues. During the campaign, he introduced a “gold-plated-patent” proposal, whereby applications could be given a very rigorous examination and would issue as patents with a special presumption of validity. However, this idea seems to have fallen by the wayside, as it was later dropped from Obama’s website.
One of President Obama’s top intellectual property advisors is Professor Arti Rai of the Duke University School of Law, who co-signed an amicus brief in support of the USPTO in Tafas v. Dudas. However, she has also opined that the proposed new USPTO rules would not have improved the application backlog and that the people in charge at the PTO should have a background in patent law. The administration has also been taking a balanced approach and considering input from a variety of sources, including practitioners.
Many speculate that with the ongoing economic crisis, policy issues such as patent reform will be relegated to the back burner. However, President Obama was formerly a law school professor and has expressed interest in the issue. It remains to be seen whether President Obama will choose to bring the issue to the forefront in 2009.
Two Important Cases
Two of the more important cases that were decided in 2008 were In re Bilski and LG v. Quanta.
In In re Bilksi the Federal Circuit handed down a new rule for subject matter eligibility, holding that a claim must be tied to a particular machine or apparatus or transform a particular article into a different state or thing in order to be patentable. In order for transformation of data to satisfy the transformation test, the data must be representative of a physical object or substance. For a complete analysis, see my article here.
In June, 2008, the Supreme Court of the United States decided LG v. Quanta, taking the opportunity to clarify the rule of patent exhaustion. The exhaustion doctrine has generally been applied to patented articles, holding that once such a product has been sold, there are no remaining restrictions on its use. The purchaser is free to resell it or use it in any way desired, without restriction.
In Quanta, the Supreme Court held that the doctrine extends to method claims when components are sold which substantially embody a method claim. Thus, the products sold can trigger the exhaustion doctrine even if they do not fully practice the claimed method.
Of note is that there were no contractual provisions in the license at issue in this case which would have restricted the actions of the purchaser. The Supreme Court noted that such provisions would present a different case. Most likely, such restrictions can be accomplished by contract law, through careful drafting of licensing agreements. Licensors should be aware of these issues during licensing negotiations, knowing that patent law may offer them no protection in this area.
Summary
All in all, 2008 was a year when patent practitioners and industry fought successfully against radical new regulations proposed by the Patent Office and by Congress. The question for 2009 is whether the reform proposals will themselves be reformed, and if not whether their implementation will once again be successfully opposed.
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