Watered-Down Version of Patent Reform Bill Could Have Far Reaching Effects
James Morris
In June, 2005, Congressman Lamar Smith introduced a bill that will undoubtedly have far-reaching effects for the medical device industry if put into law. His H.R. 2795, the Patent Reform Act of 2005, was, by many accounts, the most far-reaching revision of US patent law since the 1952 Patent Act. The bill included a large number of changes to US patent law, some purely administrative in nature and some that go to the heart of the patent system. Subsequently, in July 2005, an amended/substitute version of H.R. 2795 was introduced. The substitute bill is now before the House Judiciary Committee.
Some significant changes included in the bill could affect the way medical device companies approach patents and will be discussed in further detail later in this review. The major changes include adoption of a first-inventor-to-file system; provision of a post-grant administrative opposition system; provision for publication of all patent applications at 18 months after filing; elimination of the best mode requirement; and limitation of circumstances in which inequitable conduct and willful infringement can be found. Among the more controversial provisions included in the original bill were limitations on the ability of patentees to obtain injunctions and a “second bite” opportunity in the post grant opposition system.
Original Bill Provisions
The first version of the bill proposed that a patent holder whose patent had been found to be valid and infringed might still have had difficulty obtaining an injunction to prevent ongoing infringement. The bill provided that, “In determining equity, the court shall consider the fairness of the remedy in light of all the facts and the relevant interests of the parties associated with the invention.”
In addition, the bill would also make it more difficult to put an injunction in place. It directed the courts to automatically “stay” an injunction pending an appeal as long as it was shown that this action would not result in irreparable harm to the patent owner and that the balance of hardships from the stay did not favor the patent owner.
The proposed changes to injunction standards were favored by medical device companies and other high-tech firms that wanted a stronger defense against so-called “patent trolls”—patent holders who make no products but who owned patents that would be used to force companies into expensive settlements so that products could stay on the market.
By contrast, the pharmaceutical industry was generally opposed to this provision because it would limit its ability to maintain exclusivity in the face of competition from generic drug makers. As a result, the proposed changes to injunction standards prompted a noisy public debate, coupled with “blogging” on the Web from all sides of the issue.
This controversy seems to have been eliminated, however, since the revised bill no longer contains any proposed changes to injunction standards.
The original version of H.R. 2795 also introduced an administrative opposition procedure for patent holders alleging infringement. This proposed procedure contained two time frames in which someone could initiate opposition to a patent: the first period was nine months from the grant date of a patent, and the second (the so-called “second bite”) was specified as within six months of notification from the patent holder alleging infringement.
The “second bite” provision was widely criticized. As noted by Gary Griswold in his remarks on behalf of the American Intellectual Property Law Association, the “second bite” would increase the risks faced by patent holders and dampen their enthusiasm for investing in the development and commercialization of their patented technologies—effectively creating a patent revocation system and preventing patent owners from enjoying quiet title to their inventions.
Consequently, the revised bill has omitted the “second bite” opposition provision.
New Bill Impacts Device Industry
In the months following introduction of the substitute bill, public rhetoric has subsided. However, a number of provisions of the substitute bill could still have far-reaching consequences to the medical device industry if these provisions become law.
The version of H.R. 2795 currently pending includes, among others, the following significant changes to the patent laws:
A first-inventor-to-file system. Unlike in other countries, US law currently awards a patent to the first person to invent—not the first person to file—a patent application. H.R. 2795 proposes to harmonize US law with that of most other countries by awarding the patent to the first inventor to file a patent application. This is a fundamental change in US patent law, which has a long history (>200 years) of awarding patents to the first person to make the invention rather than the person who wins the race to the Patent and Trademark Office (PTO). This change will eliminate interference practice.
If this change is adopted, medical device firms will no longer rely on the first-to-invent system. Instead, companies will need to file patent applications quickly to stay ahead of the competition. If enacted, inventors and attorneys should start the patent process as early as possible in the product development life cycle. Keep in mind that such action may consequently increase patent application filings as companies try to ensure their inventions are protected by filing before their competitors do so. Companies may also find that they need to file more patent applications sooner to be sure they are protecting their shareholders’ interests.
Assignee can file a patent application. US law is also unique because it currently allows only the inventor to apply for a patent—although an inventor can always assign his or her invention. H.R. 2795, however, proposes that an assignee can file a patent application on behalf of an inventor who has assigned or is under an obligation to assign his or her invention to the assignee.
This change should significantly reduce the delays and administrative overhead for companies filing patent applications on behalf of, for example, inventors who have left the company. This is particularly significant in light of the need to file patent applications quickly under the proposed first-inventor-to-file system.
Best-mode requirement eliminated. Unlike in other countries, US law currently requires that an inventor disclose, in a patent application, the best way (or mode) of practicing the invention in return for the time-limited right to exclude others. H.R. 2795 proposes to eliminate this requirement.
What does this change mean for businesses? The best-mode requirement is one of the so-called “subjective requirements” of US patent law. During a patent litigation, investigating the subjective question of whether the best mode has been disclosed can result in significant expense. Eliminating the best-mode requirement could reduce the cost of patent litigation.
All patent applications published 18 months after filing. H.R. 2795 would require that any patent application filed in the US PTO that is or will be filed in another country that publishes patent applications must also be published in the United States 18 months after the patent application is filed. An exception exists, however, for applications that are filed in the United States only: These applications are not published.
This is a double-edged sword for med-tech businesses. For companies concerned about so-called “submarine patents” appearing years after they have introduced and sold a product, this provision will make these patent applications public. However, businesses that only file patent applications in the United States and may decide not to pursue a particular patent application in order to, for example, maintain a trade secret could find this provision problematic. Going forward, businesses will have to give careful consideration to whether and when a patent application is filed.
Post-grant opposition procedure established. Under H.R. 2795, a third party would be able to challenge the patentability of a granted patent within nine months of the patent’s grant.
This provision institutes an administrative opposition procedure that is already used in other jurisdictions, such as Europe. Under this provision, patents can be challenged in an administrative procedure within the US PTO. Businesses should be able to realize significant savings in legal fees by monitoring issued patents and challenging them in the US PTO rather than in a court proceeding.
PTO will investigate charges of inequitable conduct. H.R. 2795 provides that the US PTO, rather than the courts, will investigate and rule on charges of inequitable conduct in connection with patent procurement.
What does this change mean for the medical device industry? Inequitable conduct charges are raised as a defense in almost every patent lawsuit and are described by the Federal Circuit Court of Appeals as almost a plague in patent litigation. Defending against a charge of inequitable conduct can typically add significant cost to a patent litigation. Therefore, moving the evaluation of inequitable conduct from the courts to the US PTO should result in reduced legal fees in a patent litigation.
Willful infringement limited. Under current law, willful infringement provides one of the ways in which damages can be enhanced upon a finding of infringement. Damages can, according to the statute, be multiplied by up to three times if the infringer is found to have intentionally infringed the patent. However, determination of whether infringement has been willful is subjective.
H.R. 2795 limits what constitutes willful infringement. Under the bill, this type of infringement is limited to intentional copying or continuing to make a product after written notice, sufficient to file a declaratory judgment action, that specifically points out which claims are infringed by specific products. H.R. 2795 also precludes a finding of willful infringement if the alleged infringer relied on advice of counsel.
What does this change mean for medical device companies? A charge of willful infringement is raised by a patent holder in almost every patent suit, because such infringement can multiply damages awarded. Making it more difficult to find willful infringement should generally reduce the magnitude of damages in patent litigations.
Take-away Message
Medical device companies that operate in the global business environment should be aware that it is likely that the US patent system will be reformed in the near future—and it is quite possible that some of the provisions in H.R. 2795 will become law. Although H.R. 2795 generally may be considered helpful to medical technology firms because it may reduce litigation costs, such legal changes would also require a change in patent procurement strategies because of the first-to-file system. Therefore, now is the best time to start reassessing your company’s patent strategy so that you can be prepared for the coming changes.