COMMITTEE 101 Jeffrey R. Kuester, Chair

PATENT LEGISLATION

Scope of Committee: Pending federal legislation relating to the patent laws or affecting patent rights which does not directly relate to the work of another committee. The committee also studies and makes recommendations for suggested revisions of the existing U.S. patent laws, subject to correlation with the work of other committees.

SUBCOMMITTEE A Jeff Kushan,

Subject 1. REEXAMINATION

PROPOSED RESOLUTION 101-4

xxx (Passed by Council 8/01; 101-1)

Section favors, in principle, amending the inter partes and Director-ordered reexamination authority under 35 U.S.C. to clarify the estoppel effect of an inter partes reexamination proceeding on parties involved in subsequent litigation involving the patent, to ensure that such estoppel applies only after a complete determination of the issues giving rise to the estoppel; to permit appeals to the Federal Circuit by any party to an inter partes reexamination proceeding, including the third party requester; and to overrule the holding of In re Portola Packaging, 110 F.3d 786 (Fed. Cir. 1997).

246 (Passed by Council Conference Call 9/95; AR110-R103-1)

Section opposes, in principle, the imposition of significantly higher fees for the filing of requests for reexamination that are not, and cannot now be factually demonstrated to comply with 35 U.S.C. 41(d), and, therefore, the Section specifically opposes the fee levels in proposed rule 1.20, title 37 C.F.R., as published in the Patent and Trademark Office's Notice of Proposed Rulemaking at 60 Fed. Reg. 41035 (Aug. 11, 1995), since no past experience exists to justify such fees, and favors a more realistic level be set initially until sufficient experience is available to set an appropriate fee under 35 U.S.C. 41(d).

214 (Passed by Council Conference Call 9/95; AR110-R103-2)

Section opposes, in principle, the imposition of fees for the filing of requests for reexamination that are largely disparate between patent owners and third parties, and, therefore, the Section specifically opposes the disparity in proposed rule 1.20, title 37 C.F.R., as published in the Patent and Trademark Office's Notice of Proposed Rulemaking at 60 Fed. Reg. 41035 (Aug. 11, 1995).

246 (Passed by Council Conference Call 9/95; AR111-R103-3)

Section favors, in principle, the provision of a reasonable time for the parties in a reexamination proceeding to prepare and file responses to Office Actions, and, therefore, the Section specifically favors lengthening the 30-day response periods set out in proposed rules 1.945 and 1.947, title 37 C.F.R., as published in the Patent and Trademark Office's Notice of Proposed Rulemaking at 60 Fed. Reg. 41035 (Aug. 11, 1995), to at least two months, followed by an additional one-month extension that can be purchased.

246 (Passed by Council Conference Call 9/95; AR112-R103-4)

Section favors, in principle, allowing the Appellant, in an inter partes appeal from a reexamination decision to the Board of Patent Appeals and Interferences, to file a brief in reply to the opening brief of the Respondent and any Examiner's Answer, and, therefore, the Section specifically favors changing the provisions in proposed rules 1.963-73, title 37 C.F.R., as published in the Patent and Trademark Office's Notice of Proposed Rulemaking at 60 Fed. Reg. 41035 (Aug. 11, 1995), to permit the filing of such a reply brief.

246 (Passed by Council Conference Call 9/95; AR112-R103-5)

Section favors, in principle, permitting the parties to an appeal, from a reexamination decision to the Board of Patent Appeals and Interferences, to consider all the written submissions in the appeal prior to deciding whether to request an oral hearing, and, therefore, the Section specifically favors changing the provisions set out in proposed rules 1.971 and 1.973, title 37 C.F.R., as published in the Patent and Trademark Office's Notice of Proposed Rulemaking at 60 Fed. Reg. 41035 (Aug. 11, 1995), to permit such consideration.

246 (Passed by Council Conference Call 9/95; AR113-R103-6)

Section favors, in principle, permitting one or more of the parties to make a transcript of the statements made at substantive interviews part of the record of reexamination proceedings, provided that the requesting party provide the means and bear the expense of obtaining such a transcript, and, therefore, the Section specifically favors addition of such a provision to proposed Rule 1.955, title 37 C.F.R., as published in the Patent and Trademark Office's Notice of Proposed Rulemaking at 60 Fed. Reg. 41035 (Aug. 11, 1995).

246 (Passed by Council Conference Call 9/95; AR115-R103-9)

Section favors, in principle, requiring an Examiner's Answer to be filed within a reasonably short fixed period of time in every appeal of a reexamination decision to the Patent Board of Appeals and Interferences.

218 (Passed 1995 AR94-R102-3)

Section favors expanded examination of patent applications, and Specifically favors passage by Congress, in a timely fashion, of legislation providing for amendments to the reexamination system to allow both greater third party participation, and expansion of the grounds for reexamining a patent to include the requirements of 35 U.S.C. § 112 (1st and 2nd paragraphs), excluding the best mode requirement.

246 (Passed 1995 AR115-R103-13)

Section favors, in principle, the right of a third party requester in a reexamination proceeding before the Patent and Trademark Office to appeal a decision adverse to the third party requester to the Board of Patent Appeals and Interferences and to the Court of Appeals for the Federal Circuit and the right of a third party requester to participate in any appeal taken by a patent owner, providing that an appeal, or participation in an appeal, by a third party requester constitutes a waiver by that third party requester of the right to raise any issue that was raised in the reexamination proceeding in any other forum.

246 (Passed 1994 AR82-R104-1)

Section favors in principle the general rule that any person other than the patent owner seeking reexamination of a patent shall aver by oath or declaration that no court has estopped that person from attacking the validity of that patent because of assignor estoppel.

246 (Passed 1994 AR449-R-TF-11)

Section reaffirms, in principle, its support in its prior Resolutions, 1985 SP 44-R108-2, 1989 SP 41-R103-9, and 1993 AR 118-R108-7, for an improved reexamination procedure as a means for members of the public to correct, in certain circumstances, improperly issued patents.

246 (Passed 1994 AR449-R-TF-12)

Section favors, in principle, the conduct of a study whether legislation should be enacted to permit reexamination, under appropriate limitations, where a substantial new question of patentability may not be present, provided that adequate protection of the patentee against harassment is a paramount requirement for reexamination in any such study.

246 (Passed 1993 AR102-R104-1)

Section favors in principle the general rule that an assignor of a patent right who has been found by a court to be estopped from attacking the validity of a patent because of assignor estoppel is also estopped from challenging the validity of that patent in reexamination.

246 (Passed 1993 AR118-R108-6)

Section favors in principle a requirement that the U.S. Patent and Trademark Office in conducting reexamination of a patent shall do so under conditions providing that the basis for and scope of reexamination should include compliance with all aspects of 35 U.S.C. § 112 except for best mode.

246 (Passed 1993 AR118-R108-7)

Section favors in principle a requirement that the U.S. Patent and Trademark Office in conducting reexamination of a patent shall do so under conditions providing that the order for reexamination and the first office action should be consolidated and any third party requester should be permitted, within strict time deadlines, to submit written comments on the patent owner's response to the first office action; and further providing that the third party's comments should be limited to issues covered by the examiner's office action and the patent owner's response.

246 (Passed 1993 AR119-R108-8)

Section favors in principle a requirement that the U.S. Patent and Trademark Office in conducting reexamination of a patent shall do so under conditions providing that a third party requester should have the right to participate in any examiner interview initiated by the patent owner or by the examiner; and further providing that such an interview should be conducted under controlled conditions before the examiner and a senior USPTO representative and the third party should not be permitted to initiate interviews.

246 (Passed 1993 AR120-R108-10)

Section favors in principle a requirement that the U.S. Patent and Trademark Office in conducting reexamination of a patent shall do so under conditions providing that a reexamination should not be initiated or continued on any patent claim held valid in an entered judgment, or its equivalent, of a district court in an action in which the requesting party or its privies raised or could have raised the same issues.

246 (Passed 1992 AR132-R151-1)

Section is opposed in principle to the repeal of 35 U.S.C. §§ 301-307.

246 (Passed 1989 SP41-R103-9)

Section reaffirms its approval in principle of patent reexamination as a cost effective method for obtaining determinations of patent validity prior to or during litigation; and Specifically, the Section favors in principle the consideration by the Patent and Trademark Office of a directive wherein the patent examiner selected to conduct the reexamination procedure is a patent examiner other than the one who examined the application resulting in the patent being reexamined.

246 (Passed 1985 SP 44-R108-2)

Section approves in principle the enactment of legislation which would provide for a greater degree of participation by third-party requestors in patent reexamination proceedings, and Specifically, supports the enactment of legislation that would specifically extend to third-party requestors the privilege of responding to a reasonable extent (to be determined by the Commissioner) one time to each response to an official action by the patent owner.

Origin and Status of the Proposed Resolutions

The proposed resolutions result from review by Committee 101, Patent Legislation, of issues related to patent reexamination reform. The Section Council considered these issues at its August 4, 2001, and January 20, 2002, meetings, and, after discussion and debate, committed the issues to the Committee for further study.

At the August 4 Council meeting, two proposed resolutions generally supporting legislation pending in the Congress were presented with a draft report prepared by the Committee and its Reexamination Reform subcommittee. Resolution 101-1 was adopted with amendments that deleted reference to (1) provisions for expanding the statutory grounds for reexamination and (2) the endorsement of specific pending bills. (The resolution as adopted is set forth under "Past Actions," above.) The draft report was also adopted. Resolution 101-2, which would have endorsed the adoption of rules by the PTO to ensure that evidence considered in connection with reexamination on "expanded" grounds could be reviewed accurately, efficiently, and fairly, was again referred to the Committee for further study.

In a subsequent Council discussion of the resolution on November 5, 2001, certain additional issues were raised and discussed. The discussions revealed that some of the issues addressed by the resolution and discussed by the Committee could be expressed more precisely, and the resolution could be drafted to reflect more of the issues that were raised in the deliberations within the Council and in the committees that considered and approved the resolutions and the accompanying report. These concerns were reflected in the revised resolution considered by Council in January.

At the January 20, 2002 Council meeting, the resolutions were again taken up for consideration and discussion. Several observations were made regarding the nature of evidence that could be the basis of a reexamination proceeding. In particular, concerns were expressed that evidence other than in the form of a patent or printed publication could present issues that could not fairly be resolved by the PTO. The concerns were focused on evidence that would be provided to support an assertion that a patent claim was invalid under 102(a) or (b) for lacking novelty, or under 103 for being obvious. Such concerns included the view that certain types of evidence (i.e., testimonial) could not be fairly evaluated absent the provision of an opportunity to cross-examine the party providing the testimonial evidence. Some discussion ensued at the meeting regarding whether such concerns could be remedied, such as by giving the patent owner the right to commence an action in a district court to assess evidence that was not fairly considered in the PTO procedure.

During the Council meeting, a suggestion was made to segment the resolution into discrete resolutions relating to amendments to the inter partes authority regarding compliance with 112, first and second paragraph issues, on the one hand, and questions of patentability raised by evidence other than patents or printed publications under sections 102 and 103 on the other. The Council elected to defer taking a position in support or against either proposal, as segmented.

It is important to note that in the discussions before the Committee and before the Council, support has been expressed by most of the participants for the general objective of creation of better administrative procedures before the PTO that can be used to resolve questions of patentability in an efficient, relatively inexpensive, and fair manner. However, many have voiced reservations about the capacity of the agency to effectively manage and evaluate certain types of evidence in an adversarial context, particularly evidence in the form of testimony. In particular, some expressed the view that, without proper constraints on the nature of evidence that could be introduced by the parties and considered by the PTO, the inter partes reexamination procedure could be used to obtain a final decision prejudicial to the rights of the patent owner without affording that patent owner a full and fair opportunity to develop the evidentiary record on which the decision is based.

The present resolutions and the accompanying revised report reflect further consideration of the issues raised in the Council meetings and the deliberations of the Committee. To better segregate the issues, former proposed resolution 101-3 has been recast as two distinct resolutions, 101-4 and -5, directed to questions of patentability raised under § 102 and § 112, respectively. Substantive revisions are incorporated in the former resolution. New proposed resolution 101-6 underscores the Section’s concerns that any reexamination procedure must allow the full and fair development of any record evidence before such evidence is relied upon as the basis for a final decision, and that an estoppel attaching to such a decision not exceed the scope of issues actually treated in the reexamination. Proposed resolution 101-4, supporting an expansion of the authority for § 102-based reexamination, employs language that limits the type of evidence that may be the basis of a finding of a substantial new question of patentability and its resolution, within the inter partes and Director-ordered reexamination procedures. The resolution supports consideration of objective, non-testimonial evidence other than in the form of patents and printed publications. The resolution, as amended, thus would not support expansion of the reexamination authority to permit consideration of testimonial or opinion evidence. The constraint on the type of evidence would limit the range of fact situations for which reexamination will be an appropriate means of testing the validity of issued claims. The resolution thus is based on the belief that, in light of the fact that one of the principal objectives of the reexamination authority is an expeditious procedure for confirming patentability or establishing unpatentability, restrictions that exclude "subjective" or testimonial evidence are appropriate.

The revised resolutions seek to strike an appropriate balance between the benefits of enhancing the utility of reexamination as a tool to resolve issues of patent validity and the risks of exposing the patent owner to a greater range of evidentiary and legal challenges in a procedurally limited forum. The resolutions and this report express the Section’s recognition of the paramount importance of maintaining the ability of patent owners and the public to rely on reexamination proceedings for fully and fairly supported patentability determinations.

Background

The U.S. patent reexamination system was established in 1980 as an expedited administrative procedure to review certain issues of patent validity based on a printed publication or a patent. In 1999, the American Inventors Protection Act (AIPA) established a revised form of the procedure that provides a third party requestor a greater opportunity to participate in the reexamination proceeding.

The inter partes procedure as enacted by the AIPA was consistent with past Section resolutions regarding the form and manner of the third party interventions in reexamination proceedings (e.g., 1985 SP 44-R108-2; 1993 AR 118-R108-7 and -8; 1994 AR 449-R-TF-11; 1995 AR 94-R102-3). The AIPA, however, did not implement a number of other principles outlined in past resolutions, including those pertaining to scope of the grounds upon which reexamination could be based (see 1993 AR 118-R108-6; 1994 AR 449-R-TF-11).

Reform of the reexamination system is again under active consideration by the Congress. Three bills have been introduced in the 107^th Congress that would make a number of amendments to the ex parte and inter partes reexamination systems resulting from the AIPA. Among these is H.R. 2231, which would expand the grounds upon which inter partes reexamination may be based and would clarify the statutory estoppels arising from inter partes reexamination.

In Resolution 101-1, adopted by Council on August 4, 2001, the Section indicated its support for policies consistent with the provisions of H.R. 2231 relating to the clarification of statutory estoppels. The remaining provisions of that bill would further the general policies advocated by the Section since the reexamination statute was first enacted in 1981, as reflected in the resolutions the Section has formally adopted over the past fifteen years in relation to reform of the reexamination system.

The Section supports the enactment of legislation, such as H.R. 2231, which would expand the grounds on which a request for reexamination may be based. At the same time, however, the Section sees the need for procedural limitations to guard against abuses of the inter partes reexamination procedure by third-party requesters and to avoid burdening the USPTO with requirements to resolve issues that it may not be able to engage effectively. In particular, the Section recommends consideration of certain issues regarding the implementation of the changes proposed in H.R. 2231 as noted below.

H.R. 2231, introduced by Rep. Lofgren, would broaden the grounds that can serve as a basis for an inter partes reexamination proceeding and would mitigate the statutory estoppel effect of an inter partes reexamination proceeding on a third party requestor in subsequent litigation involving the patent.

With reference to expanding the scope of inter partes reexamination proceedings, the legislation would amend 35 U.S.C. § 311 to permit a third party to request reexamination on the basis of evidence demonstrating that a substantial new question of patentability exists under §§ 102(a) or (b), 103, or 112, first or second paragraph (other than the best mode requirement). Relative to the existing reexamination authority, the legislation would expand the grounds that may serve as a finding of a substantial new question of patentability in two respects.

The legislation would also authorize the Director of the Patent and Trademark Office to initiate a reexamination proceeding on these additional grounds on his or her own initiative.

The bill includes a number of provisions that appear designed to impose structure to and safeguards in reexamination proceedings based on the newly expanded grounds. Most significantly, reexaminations may be commenced on the new grounds (i.e., other than on the basis of a patent or printed publication) only within one year from the date of grant of the patent. This time limit would apply to reexaminations requested by third parties or by the Director.

The bill also leaves intact the requirement of an independent and non-reviewable determination of a substantial new question of patentability by the Director prior to initiation of a reexamination proceeding. Retaining this precondition to reexamination proceedings suggests that the amendments will not lead to European-style opposition proceedings, under which oppositions may be commenced on a lower threshold of proof.

Reexaminations conducted under the amended law would also require an evidentiary showing to support the request for reexamination. The evidentiary requirement appears designed to create a parallel to the existing authority, under which a patent or printed publication serves an important and independent evidentiary function.

Discussion

The proposed resolutions reflect the support of the Section for enactment of reforms to the U.S. reexamination system. In particular, the resolutions address issues related to the scope of inter partes and Director-initiated reexamination, which pending H.R. 2231 (107^th Congress) would expand. The policies supported in the resolutions, which would be implemented by the pending bill, would render reexamination – particularly the inter partes procedure introduced by the AIPA – more robust and effective as a tool for reviewing patent validity issues.

The proposed resolutions would support legislative reforms to permit review of patent validity on the basis of a broader range of evidence and issues than is permitted under current authority. Specifically, Resolution 101-4 would support enactment of an authority to permit evidence other than in the form of a patent or printed publication to be the basis of review of a substantial question of patentability under 35 U.S.C. §§ 102(b) and 103. Resolution 101-5 would support reforms to permit the review of questions of validity under § 112, first or second paragraph, other than the best mode requirement, either at the request of a third party through a revised inter partes reexamination procedure or on the initiative of the Director of the USPTO in the context of an ex parte proceeding.

Broadening the scope of grounds and the issues that can be addressed through reexamination proceedings is consistent with the objectives of many resolutions adopted by the Section over the past fifteen years. Resolution 1985 SP 44-R108-2 advocated "a greater degree of participation by third-party requesters" and "the privilege of responding to a reasonable extent" to replies by the patent owner in reexamination. In Resolution 1993 AR 118-R-108-6, the Section voted in favor of including "all aspects of 35 U.S.C. § 112 except for best mode" within the scope of reexamination, and in 1993 AR 119-R-108-8, in favor of providing third-party reexamination requesters the opportunity to participate (under controlled conditions) in personal interviews between the patentee and the examiner. It "reaffirm[ed] . . . its support" for these resolutions, among others, in 1994 AR 449-R-TF-11, stating the need for "an improved reexamination procedure as a means for members of the public to correct, in certain circumstances, improperly issued patents."

The proposed resolutions would support expansion of the authority for reexamination in a manner generally consistent with that proposed by H.R. 2231 and with past resolutions of the Section. However, they support certain issues that have not been explicitly addressed by past Section resolutions, or that are treated in a manner distinct from the approach taken in such past resolutions.

The first resolution supports legislation to permit certain types of reexamination proceedings to be initiated on the basis of not only on patents and printed publications, but also upon non-testimonial evidence demonstrating that an invention was in public use, or had been sold or offered for sale more than one year prior to the effective filing date of the patent. The resolution does not endorse challenges based on other patent-defeating events, such as derivation (35 U.S.C. § 102(f)), prior invention (§ 102(g)), or abandonment (§ 102(c)). It is limited to evidence demonstrating public use or sale of an invention more than one year prior to the effective filing date of the patent. Evidence of public use or knowledge of the invention that would qualify only under section 102(a) thus could not serve as the basis of a reexamination proceeding as proposed in the resolution.

The arguments in favor of expanding the grounds for reexamination to include substantial new questions of patentability raised by certain types of evidence establishing that the invention is not novel under 102(b), or is obvious under 103, have substantial merit and should be supported by the Section. In particular, allowing reexaminations to be based on evidence of public use or sale within the meaning of sections 102(b) would address concerns expressed by some that a significant body of relevant prior art for certain classes of inventions (e.g., software, business methods) is not formally published and has not been incorporated into the patent literature. Allowing reexaminations to be based on such evidence would help respond to concerns that such evidence cannot be easily found by PTO during original examination. Permitting the PTO to evaluate such prior art and evidence of patent-defeating acts in a reexamination proceeding would allow members of the public to assess patent validity in a cost-effective and efficient manner. An expansion of the authority for reexamination would thus provide substantial benefits to small businesses and other entities having limited resources.

Resolution 101-4 addresses specific concerns of the Section with regard to the handling and evaluation by the PTO of evidence that is cited in connection with a request for an inter partes reexamination proceeding or that is relied upon by the Director in ordering a reexamination on his own initiative. Unlike its ability to treat fact issues that are based on the evaluation of uncontested documentary evidence (e.g., patents or printed publications) or upon declarations, the expertise of the PTO in resolving inter partes disputes is concentrated largely in the Board of Patent Appeals and Interferences. It is not clear that the agency currently has resources to engage such issues on a substantially broader basis than it does now. The Section has previously expressed concern in this regard. For example, in prior resolution no. 1993 AR119-R108-8, it supported third party participation in interviews in an inter partes reexamination only "under controlled conditions before the examiner and a senior USPTO representative." As a consequence, the resolution as now proposed advocates limitations on the type of evidence that may be submitted by a third-party requester or considered by the Director to initiate an "expanded grounds" § 102 reexamination. In particular, it requires that the evidence that raises a substantial new question of patentability not be testimonial.

Non-testimonial evidence, within the meaning of the resolution, is most likely to be objective and of a form and nature that is not commissioned solely to serve the position of its proponent. Moreover, it will require no additional investigation, such as cross-examination or other inquiry, to establish its trustworthiness or reliability. Such evidence would include, for example, documents or objects already in existence at the critical date for patentability. It could take the form of patents or printed publications, but could also include software products, laboratory notebooks, contract documents, sales proposals, videotapes of advertisements or sales presentations, etc. Also included would be samples of products or articles, which can be reliably inspected as to their attributes.

The resolution advocates excluding testimonial evidence from the type of evidence that can serve as a basis for initiating a reexamination proceeding, either on request by a third party or on the Director’s initiative. Testimonial evidence includes not only live witnesses, but also documentation of live witness testimony, such as a transcribed or videotaped deposition, affidavits, declarations, etc. Thus, an affidavit prepared by an individual attesting to events that occurred in the past should not be capable of serving as the basis of a reexamination proceeding. A fair consideration of such evidence would not be possible without providing the patent owner an opportunity to cross-examine the witness, affiant, or declarant as to the accuracy or reliability of the testimony. As such, the resolution expresses the sentiment of the Section that testimonial evidence should not be capable of serving as the basis of a request or determination to initiate an expanded inter partes reexamination procedure. The limitation is designed to avoid having the PTO evaluate the credibility of witnesses, an area in which PTO personnel generally have little formal legal expertise.

For evidence to serve as the basis of a reexamination proceeding as proposed in the resolution, the PTO will have to conclude that the evidence meets certain requirements. In particular, the PTO will have to confirm that the evidence relates to public activity as of a particular date in order to qualify as evidence of a statutory bar under § 102(b). The resolution presumes that the PTO will adopt rules and practices to govern evaluation of evidence regarding such issues, as it has with regard to evaluation of such information in the context of original examination.

The resolution accommodates the use of the evidence traditionally cited in ex parte examination in an "expanded grounds" reexamination proceeding once such a proceeding has commenced. The Section does not intend to prohibit parties participating in an inter partes or Director-ordered reexamination proceeding from expressing its opinions and supporting those opinions through affidavits, declarations, or other suitable evidence. Current practice, governed by rules and formal procedures that have already been promulgated by the PTO, ensures that such evidence will be in documentary form, and the Section favors continuing such practice in all proceedings before the Office. Moreover, opinion evidence, such as declarations and affidavits, is routinely evaluated by patent examiners,

The credibility and relevance of opinions submitted in declarations under 37 C.F.R. § 1.132, which are testimonial in nature, are routinely evaluated by Office personnel in the course of making patentability determinations. Additionally, in the context of their technical experience, the scientists and engineers employed by the PTO as patent examiners have been trained in assessing the probative value of various forms of factual evidence. Thus, for example, examiners routinely consider documentary opinion evidence submitted to explain the significance of a fact. Such opinion evidence, however, would be accorded no greater weight in a reexamination than in any other PTO proceeding. Furthermore, in accord with longstanding precedent, PTO practice, and the general principles of administrative law, the Director (through his or her designated examiners) would bring the technical expertise of the agency to bear in evaluating the probative value of the proffered evidence and the sufficiency of the evidence as a whole to establish an asserted fact. Finally, a party offering evidence in an affidavit or declaration attests to the truth of the statements set forth, at the risk of rendering the patent unenforceable or incurring other statutory penalties. The Section believes that providing an express limitation in the statute as to the type of evidence that may be considered by the Director in initiating or conducting a reexamination proceeding will provide the greatest assurance that the PTO will be able to evaluate all of the evidence in the proceeding accurately, fairly, and efficiently. Potential users of inter partes reexamination would have to consider this limitation prior to submitting a request for such a proceeding. If a potential user considers that it will not be able to fairly resolve the relevant questions of patentability solely on the basis of the objective, non-testimonial evidence, that user will be likely to choose a forum other than the PTO (i.e., the Federal courts) to contest validity of the patent. Some parties thus will not be able to take advantage of the relatively less costly and more expedient administrative process that inter partes reexamination in the PTO is designed to provide. However, this limitation helps provide the best protection for the functional integrity of the agency’s operations. With the proposed safeguards, the Section considers that the PTO has the capability to adopt suitable measures for managing and resolving a variety of contested fact situations.

The second resolution would support more limited authority to conduct reexaminations involving issues under § 112 than did past Section resolutions. Rather than endorsing legislation that would permit the treatment of issues based on any requirement of § 112, the present resolution supports reexamination on grounds limited to the first and second paragraphs of § 112, other than the best mode requirement. This resolution would also support a time limit, not specified in the resolution, running from the date of the patent grant for the initiation of reexaminations based on the newly authorized grounds.

The Section, through its past resolutions, has expressed its support for legislation that would expand the scope of non-prior art based challenges to permit review of questions of patentability under § 112 except those involving the best mode requirement. It is likely that a substantial majority of the patentability deficiencies under § 112 that could be effectively established through an administrative reexamination procedure would involve the enablement and written description requirements of § 112, first paragraph. Consequently, legislation that would permit reexamination involving the first and second paragraphs of § 112, such as H.R. 2231, would significantly advance the objectives of the Section stated in its past resolutions and should be supported.

The third resolution expresses the Section’s concern that for an administrative reexamination proceeding to be effective, both in terms of the resolution of commercial disputes and as a matter of public policy, it must be fundamentally fair to all parties. A critical aspect of such fairness is that the estoppel arising from the reexamination proceeding should not exceed the scope of the issues that the procedural limitations of a PTO proceeding allow a party to develop. The Section is already on record as favoring an estoppel that applies only "after a complete determination of the issues giving rise to the estoppel," as stated in the recently adopted Resolution 101-1. The present resolution expresses the view that an issue cannot be "complete[ly] determin[ed]" if either or both of the parties to an inter partes proceeding do not even raise the issue.

Another important component of fairness is the ability of the parties to examine fully any evidence that is put forth and to develop a thorough and balanced record involving such evidence for review. These concerns are reflected in the limitations in proposed resolution 101-4 relating to the type of evidence that can be cited or considered to initiate a reexamination proceeding. Proposed resolution 101-6 reflects the Section’s belief that the PTO has the authority to define procedures for the presentation and consideration of "nontraditional" evidence to protect the rights of the parties in a reexamination proceeding, and it expresses the Section’s support for the exercise of such authority.

Both of proposed resolutions 101-4 and –5 advocate inclusion of a time limit for initiating reexamination proceedings based on the new grounds. The resolutions do not specify a particular time limit, but instead reflect the general belief of the Section that some time limit for raising the these grounds would be a desirable element of a revised reexamination system. While some within the Section believe that "expanded grounds" reexamination should be available at any time while the patent is in force, most of the members who have expressed an opinion tend to favor a relatively short time limit, indicating preferences that range from about nine months to two years.

The absence of a fixed time limit in the resolutions also derives from the recognition that there are both benefits and drawbacks to use of a time limit for reexamination requests. For example, some have noted that a time limit on the availability of reexamination may stimulate requests for reexamination simply by virtue of the expiration of the period for administrative review, rather than due to the commercial significance of the patent. Moreover, the commercial significance of a patent will often not be appreciated until several years after patent grant. Thus, a system that does not permit reexamination to be commenced after a specific date (e.g., one year after patent grant) could undercut desirable public policy objectives. On the other hand, evidence that is not in the form of a patent or printed publication will often become less reliable and harder for the PTO to evaluate with the passage of time. In addition, patent owners tend to rely more on the assurance of validity of the patent with the passage of time.

The Section’s support for a time limit for certain types of reexamination proceedings reflects a desire to balance the availability of reexamination as a cost-effective means for reviewing questions affecting patent validity against the need to protect patent owners from interference with their legitimate use of, and reliance on, patent rights. The resolutions reflect the view that, on balance, reexamination proceedings should be available for a limited period of time where that review is based on grounds other than those implicated by a patent or printed publication.

Proposed resolutions 101-4 and –5 express the support of the Section for amendments to the reexamination authority to permit the Director of the PTO to commence reexamination proceedings on the newly "expanded" grounds (i.e., in the absence of any request by a third party). In this regard, the Section finds substantial merit in providing for a limited period of time for the Director to take such steps in these circumstances. The Section also notes that it may be more desirable to extend this authority to the Director through an amendment to 35 U.S.C. § 303, which establishes the Director’s authority to order an ex parte reexamination, rather than through an amendment to § 312 which concerns inter partes proceedings, as proposed in H.R. 2231.

The resolutions are advanced to support current efforts in Congress that would improve the reexamination system. The changes being deliberated by Congress would refine the existing reexamination authority system in a manner generally consistent with the objectives of the Section to make reexamination a more useful mechanism for third parties to review questions of patent validity that are amenable to administrative resolution.

The Section believes that elements in the pending legislation would achieve this objective. It further believes that the pending legislation provides a number of measures that would prevent abuse of the system, taking reasonable account of the practical limitations on proceedings before the PTO. One element of H.R. 2231, for example, calls for a threshold showing by any third party that requests reexamination of issues of patent validity. In particular, it calls for both a reasoned statement substantiating the alleged deficiencies relating to patentability and the submission of evidence in support of the reasoned statement. The current statutory authority for reexamination requires both components: a third party requesting reexamination under either 35 U.S.C. § 302 or current § 311 must both cite documentary evidence (i.e., at least one patent or printed publication) and provide an explanation of its pertinence as applied to one or more claims of the challenged patent.

The resolutions reaffirm the Section’s support for post-grant proceedings that balance, on the one hand, the public’s interest in having an accessible and economical alternative to litigation for probing the validity of issued patents, and on the other, the patent holder’s right to be free from harassment through administrative proceedings predicated on thinly based allegations of patent invalidity. The Section has endorsed both of these objectives in, e.g., prior resolutions 1994 AR449-R-TF-11 and -12, 1993 AR118-R108-6, 1989 SP41-R-103-9, and 1985 SP 44-R108-2.

The resolutions implicitly support the retention of the preliminary and largely non-reviewable finding by the PTO in all reexamination proceedings of a substantial new question of patentability prior to commencing a reexamination proceeding. The retention of this preliminary requirement is an important safeguard that serves to prevent groundless challenges to patents. The express establishment of statutory authority for a determination by the Director regarding the evidence that a prospective reexamination proceeding is likely to entail will fortify the integrity of the process.

The proposed resolutions also endorse retaining the general structure found in current law for all reexamination requests. Thus, for example, a party alleging the failure of one or more patent claims to comply with the enablement or written description requirements of § 112 would need to explain why the claims are deficient and would have to provide some reasoned argument or evidence to support its allegations. Such a requirement would prevent the filing of third-party requests for reexamination lacking a reasonable legal or evidentiary basis.

The Section notes that the pending legislation (H.R. 2231) contains no provisions that would expressly restrict the types of evidence that may be considered by the PTO. The Section supports the introduction of amendments to H.R. 2231 to clarify that, if enacted, the legislation could not be construed to impose requirements on the PTO to conduct proceedings that it could not manage in a fair or efficient manner.

The Congressional objectives in passing the first reexamination statute were to provide an effective and inexpensive alternative to litigation for the public to challenge the validity of issued patents, while protecting the patent owner from unreasonable harassment that would interfere with the legitimate enjoyment of the statutory property rights. The positions that the Section has formally adopted over many years have been in accord with that balance sought by the Congress. See, e.g., the testimony of then-Section Chairman Thomas E. Smith before the House Subcommittee on Courts and Intellectual Property, June 8, 1995. The present resolutions express the Section’s endorsement of principles found in currently pending legislation that would enhance the effectiveness of reexamination as a means of reviewing the validity of patents while providing important safeguards to protect the rights of the patent holder. As the provisions of the pending legislation would advance the objectives of the reexamination statute, the pending reexamination reform bills merit the Section’s support.

SUBCOMMITTEE B Robert A. Armitage,

Subject 2. COMPULSORY LICENSING

Past Action.

(Passed 1938 CR 50-ABA 1938; Archived 1997)

Section disapproved McFarlane Bills H.R. 9259 and 10,068 and Connery Bill H.R. 9815, 75th Congress, providing for granting of compulsory licenses.

(Passed 1940 SP 10-ABA 1940; Archived 1997)

Section disapproved H.R. 7192 (76th Congress) providing for compulsory licensing of patents pooled in violation of the Antitrust Laws.

(Passed 1942 SP 13-ABA 1943; Archived 1997)

Section passed a resolution disapproving H.R. 675 (78th Congress). The Bill gives the President power to issue licenses under any patents for any purpose not only during any period when the United States is actually at war but also when there exists a state of war "involving" the United States.

(Passed 1961 SP 55-ABA 1962; Archived 1997)

Section disapproves in principle any requirements that the holder of a patent on a new drug license others for use thereof and provide all technical information required for manufacturing, preparation or propagation of the drug without restriction upon manufacture, use or sale other than payment of a royalty limited to a percentage of the gross selling price of the drug, and specifically disapproves such proposed requirement as contained in S.1552 and H.R. 6245.

The Section has consistently – over more than 60 years – opposed compulsory licensing legislation with respect to patented innovations. The above resolution restates this longstanding opposition and, in particular, focuses this restatement of position on currently pending legislation, H.R. 1708, 107^th Congress. H.R. 1708 would provide for an institutionalized system of compulsory licensing for medicine-related patents. This bill is unwise, unnecessary, and, in its proposed reach, unprecedented in the 211 years of the U.S. patent system.

The major provision of H.R. 1708 would add a new 35 U.S.C. §158 to the patent laws that would include the following:

1. In the case of any patented invention relating to health care (i.e.¸ "any drug or device (as those terms are defined in section 201 of the Federal Food, Drug, and Cosmetic Act), any biological product (as defined in section 351 of the Public Health Service Act), or any technology or process to the extent the technology or process is applied to health or health care"), the Secretary of Health and Human Services and the Federal Trade Commission would each have the right to authorize the grant of compulsory licenses.
2. The compulsory license could be granted if any of the following were established.
1. The patent holder has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in a field of use.
2. The compulsory license is necessary to alleviate health or safety needs that are not adequately satisfied by the patent holder or its voluntary licensees.
3. The patent holder has engaged in anti-competitive behavior.
4. The patent holder has engaged in other, specified behaviors that are regarded as abusive. Specific examples of such abusive behavior are –
1. the patented invention is priced excessively relative to the median price for developed countries or by other reasonable standards, and that such pricing contravenes the public interest; or
2. the patented invention is an essential component of a health care product that involves patents, and the licensing terms for the patent on the invention are not reasonable and deter innovation or product development, contrary to the public interest.
5. A "dependent patent" has been issued and the compulsory license is needed to practice the invention of the dependent patent.
6. The patented invention is used for research purposes that would benefit the public health, and a compulsory license is needed to obtain reasonable terms and conditions.
3. The WTO TRIPs Article 31 (Agreement on Trade-Related Aspects of Intellectual Property Rights referred to in section 101(d)(15) of the Uruguay Round Agreements Act) provisions would apply to the following extent:
1. Efforts must be made to obtain authorization from the patent owner to voluntarily license the patented invention on reasonable commercial terms and conditions and such efforts have not been successful within a reasonable period of time.
2. The right holder shall be paid adequate remuneration for the use of the patent.
3. For dependent compulsory licenses, the patent owner shall be entitled to a license on reasonable terms to use the invention claimed in the dependent patent.
4. In determining the reasonableness of licensing terms and the remuneration for the use of a patent the following factors must be considered—
1. the risks and costs associated with the invention claimed in the patent and the commercial development of products that use the invention;
2. the efficacy and innovative nature and importance to the public health of the invention or products using the invention;
3. the degree to which the invention benefited from publicly funded research;
4. the need for adequate incentives for the creation and commercialization of new inventions;
5. the interests of the public as patients and payers for health care services; and
6. the public health benefits of expanded access to the invention.
5. Implementing regulation could be adopted consistent with TRIPs adopt regulations.
6. Any person engaged in the manufacture and sale of any patented medicine must report to the Secretary of Health and Human Services annually an audit of all financial information relevant to the pricing of the medicine nationally and internationally, an accounting of the costs allocated to research and development of that drug, as well as costs allocated to other research and development activities. A person who fails to submit a report shall be liable to the United States for a civil penalty in an amount not to exceed $25,000 for each such violation; each day such a violation continues shall, constitutes a separate violation.

The proposed legislation carries with it an implicit assumption that patent rights are contrary to the public health interests of citizens of the United States because they may operate to prevent the public from being assured of ready access to medicines. The Section strongly disagrees with this assumption as it relates to the effect of the patent system on medical innovation and access to the fruits of such innovation. Such a perspective conflicts with the extensive experiences within the United States concerning the criticality of strong and effective patent rights on discovery, development and availability of innovative medicines. Indeed, the ability to "promote the Progress of" the medical arts "by securing for limited Times to … Inventors the exclusive Right to their respective … Discoveries" has produced innovations that have profoundly improved the health and well-being of millions of citizens and spared many from death and disability.

The patent grant is fundamentally a grant of exclusivity. This has long been recognized judicially. As a property right, the essence of the patent right is destroyed where the invention can be used without authorization of the property owner. Allowing for a broadly based scheme of non-voluntary licenses fundamentally changes the patent property by transforming it into an expectation for some monetary remuneration in return for the disclosure of the invention through the patent.

The antithetical relationship between patents as property and non-voluntary licenses is most clear from a consideration of the manner in which patent property is created and, once created, thereafter exists. A valid patent property comes into being only because an inventor has discovered something entirely novel and unobvious. Thus, by according property rights to an invention, the government takes nothing from the public. To the contrary, the disclosure required in the patent provides the public with the complete opportunity to make and use the novel and unobvious subject matter. Once the patent property is established, the patent right then endures only for a limited term. Under current U.S. patent law, this term normally extends 20 years from the date the patent is sought. Thus, the patent property effectively self-destructs, allowing the public to freely make and use the formerly patented invention once the patent property self-extinguishes.

The fact that a valid patent takes nothing from the public domain and can extend for only a limited period of time thus makes compulsory licensing a particularly egregious affront to the patent property. Courts have long recognized this affront by noting the destructive impact unauthorized use would inflict on the patent property:

The type of compulsory license proposed in H.R. 1708 is particularly pernicious. It would have its most significant impact on innovative medicines. In many situations, an innovative medicine may take 10 to 15 years to discovery and then to develop for commercial marketing. The vast majority of efforts to develop new medicines ultimately fail. In many situations, the development process needed to establish the manner in which the medicine can be safely and effectively used will consume the majority of the 20-year patent term. For those few biomedical discoveries that succeed commercially, H.R. 1708 would provide wide-ranging compulsory licenses, wholly eviscerating the incentives to develop the succeeding generation of innovative medicines.

As noted above, after the relatively brief period of the statute-limited patent term, typically no more than 14 years, the patent protection for the medicine will have expired. Immediately, generic versions of the medicine can be made available to the public. These generic versions are able to successfully compete with the innovator’s branded product. Currently, over one-half of all prescription medicines that are dispensed in the United States are for generic drugs.

Thus, H.R. 1708 appears to reflect the illogical and unsustainable view that patents operate to reduce access to medicines because a patent can preclude so-called "generic" competition for a limited period. However, the failure to provide the required incentives to discover and develop a new medicine is the most pernicious denial of access to the medicine. Unless discovered and developed, a medicine is not available to any patient at any price.

Further, a substantial percentage of the profits from selling every innovative medicine are effectively reinvested in research and development efforts aimed at producing the next generation of innovative medicines. For example, a medium-sized, research-based pharmaceutical company may expend several billion dollars every year on pharmaceutical research and development. This represents between 15 and 20% of the sales revenue of a pharmaceutical company that is plowed back into these research efforts. These efforts typically produce only one or two innovative new medicines each year. H.R. 1708 would make this entire process of funding new medical innovation dependent upon receiving "adequate remuneration" from compulsory licensees sufficient to fund further type of high-risk research.

A simple example illustrates the chilling effect on funding innovative research following the grant a compulsory license on a new medicine. If a generic medicine were sold for one-half the price of the innovator patented medicine and the "adequate remuneration" under the innovator’s patent was pegged at 40% of the sales revenues of the generic drug, the innovator would be faced with the stark choice of slashing its R&D budget or devoting 100% of the remuneration received under the compulsory license to sustain its research and development budget.

The innovative pharmaceutical industry provided over 150 new medicines between 1975 and 1994. During the past decade, many of these medicines have lost patent protection and are now available to patients in the form of generic drug alternatives. During the current decade, additional patent expirations will allow generic manufacturers to made alternative versions for essentially all of these medicines. Thus, the efficiency of the current system as an engine for producing better medicines and then making these medicines promptly available to the public in the form of generic drugs appears to be beyond challenge.

Finally, any perceived need for a statutory law providing for compulsory licenses is additionally mitigated by the discretionary nature of injunctive relief in patent cases. The Federal Circuit has noted that patent rights do not trump the need to protect the public interest:

During the past 60 years the Section has repeatedly opposed broadly cast compulsory licensing authority. The Section has done so noting that such an authority is not only unnecessary, but conflicts with sound legal, social or economic policies. The biomedical revolution that has brought wave after wave of innovative medicines to millions of Americans would be put at particular risk if H.R. 1708 were enacted into law. Free from broadly based compulsory licensing provisions, the U.S. patent system works powerfully in the public interest. It provides the U.S. public with the dual benefits of ever-improving medical therapies and lower-cost generic alternatives as patent protection reaches the end of its statute-limited term. Enactment unprecedented compulsory licensing provisions should not permitted to destroy this public good.

SUBCOMMITTEE C Robert M. Bauer,

Subject 3. PATENT LAW TREATY IMPLEMENTING LEGISLATION.

700 (Passed 2000 AR -R102-9)

Section favors, in principle, that any International Patent Law Treaty contain a provision that no country be obliged against its wishes to accept the filing of applications in electronic form or by electronic means to the exclusion of filing applications on paper, however, after a period of 10 years, a country may exclude the filing of communication on paper but must nevertheless accept such communications on paper with respect to meeting a time limit deadline, although a subsequent electronic form may have to be submitted, and particularly favors the adoption of those portions of Article 8 and its associated Regulations of the proposal for the Patent Law Treaty relating hereto.

700 (Passed 2000 AR -R102-16)

Section favors, in principle, that any International Patent Law Treaty contain a provision for the restoration of the priority right where a subsequent application is filed after the expiration of the priority period, but within a period of not more than two months thereafter, and where the failure to file the application within the priority period occurred in spite of all due care required by the circumstances having been taken, or, at the option of the country, was unintentional, and particularly favor the adoption of those portions of Article 13 and its associated Regulations of the proposed Treaty relating hereto.

700 (Passed 2000 AR -R102-17)

Section favors, in principle, that any International Patent Law Treaty contain a provision for standardized procedures concerning: (1) requests for recordation of a change in the name or address of an applicant or owner where there is no change in the person of that applicant or owner; (2) requests for recordation of a change in the person of an applicant and owner, in particular, changes resulting from a change of ownership; (3) requests for recordation of a licensing agreement or security interest; and (4) requests for correction of a mistake, and particularly favors the adoption of those portions of Article 14 and its associated Regulations of the proposed Treaty relating hereto.

At the 2000 Summer Conference, the Section approved 17 resolutions relating to the Patent Law Treaty (PLT) developed by the World Intellectual Property Organization (WIPO) Standing Committee on the Law of Patents (SCP) and adopted at the May 11 – June 2, 2000 diplomatic conference in Geneva. Sixteen of the seventeen resolutions were adopted without debate. The first two above resolutions have been identified as requiring implementing legislation to make changes in the current statutory language.

The third resolution above was adopted after amendment and debate. The resolution related to the restoration of priority rights when an application is filed after expiration of the priority period, namely the 12 month period under the Paris Convention. The original language of the resolution allowed for restoration of priority rights if the application was filed "within a prescribed time limit" after expiration of the priority period and the failure to file the application within the priority period either occurred in spite of all due care or, at the option of the country, was unintentional. The resolution was adopted after changing "prescribed time limit" to "a period of not more than two months."

Draft legislation to implement the Patent Law Treaty in the United States is currently being finalized by the U.S. Patent and Trademark Office (PTO). The draft legislation is not yet available to the subcommittee or to the general public. It is expected that the PLT Implementing Legislation will not change many sections of the patent law since the PTO intentionally negotiated for treaty language that would require only minimal changes to the patent law. Nevertheless, some of the changes will significantly affect patent prosecution. For example, with respect to the restoration of priority rights under the Paris Convention, the PLT allows for restoration if the delay was unintentional, or unavoidable, at the discretion of the Director of the PTO. The PLT Implementing Legislation will have an unintentional standard.

The subcommittee intends to promptly review the draft PLT Implementing Legislation when it becomes available and to provide suggestions and comments relating thereto at that time. An important consideration is the effective date of the PLT Implementing Legislation. Although the treaty was signed by approximately 73 countries, it only goes into effect after it has been ratified by 10 of the signature countries. To date, only the Republic of Moldova has ratified the treaty. There is a significant possibility that the treaty will not be ratified at the time the PLT Implementing Legislation is passed by Congress. If the PLT Implementing Legislation were to only become effective upon treaty ratification, then many of the desireable changes would be delayed for perhaps a long period of time.

The US PTO is considering making the provisions of the PLT Implementing Legislation become effective within a certain time period without regard to the status of ratification of the treaty. This would make the benefits thereof available irregardless of the eventual date of treaty ratification and, hopefully, would prompt other countries to accelerate the rate of ratification of the treaty. These benefits include: 1) electronic filing; 2) a grace period for unintentional non-compliance with the Paris Convention; and 3) effective recordation of documents concerning international patent transactions. In particular, the US PTO is considering making the provisions relating to the restoration of rights under the Paris Convention retroactive to at least September 11, 2001. This would provide relief to those who were unintentionally unable to make patent filings due to the terrorist attacks on September 11, 2001 or subsequent interruptions of mail service in and around the Washington, DC area.

SUBCOMMITTEE D Robert A. Blaha,

Subject 4. PERIPHERAL CLAIMING SYSTEM EROSION PREVENTION

Past Action. None.

When the Court of Appeals for the Federal Circuit (Federal Circuit) was created in 1982, many hoped that the result would be judicial consistency that would strengthen the patent system. While the patent system did initially seem strengthened, the last few years have been marked by such great judicial narrowing of patent rights that the entire patent system is now in jeopardy. In fact, courts have so substantially narrowed so many patents in the name of notice to the public that findings of infringement at the appellate level have become increasingly rare.

If this trend persists, there will be significant repercussions for parties throughout the patent system. If it is unlikely that courts will rule in favor of patentees, the value of patents will quickly drop, and license fees will be substantially reduced. Inevitably, fewer patent applications will be filed since companies will not continue to patent their inventions if courts define the scope of protection for litigated patents so narrowly that a competitor can easily design around them. This disturbing trend should be a strong wake-up call for businesses that depend on the patent system.

The scope of protection provided by a patent has been severely curtailed by a number of recent decisions from the Federal Circuit. While these decisions bode well for potential infringers, they offer virtually no protection to the patent owner beyond the specific embodiments disclosed in the specification. Additionally, these decisions provide little guidance to patent owners in infringement analyses. Hence, the patent attorney is now required to consider a multitude of additional issues when preparing every patent application, thereby increasing the cost and time associated with patenting an invention.

The type of judicial narrowing at issue here typically happens when a court imports limitations into the claims from the specification, the written description of the patent, or based on statements regarding that description made by the applicant during prosecution of the underlying patent application. Unfortunately, the rules for importing such limitations are, at best, confusing. As Federal Circuit Judge Dyk said, most succinctly and alarmingly, in a recent concurring opinion in SciMed Life Systems v. Advanced Cardiovascular Systems, No. 99-1499 (Fed. Cir., March 14, 2001):

It is this very "confusion" that will undermine the patent system. Uncertainty as to whether claims mean what they say they mean, at least for literal infringement, destroys any assurance that a potential patentee’s investment in the patent process will be secure. Regardless of the maximum scope provided by the doctrine of equivalents, public notice as to the minimum scope provided by literal infringement simply must be preserved.

The problem is best exemplified in Bell Atlantic Network Systems, Inc. v. Covad Communications Group, Inc., No. 00-1475 (Fed. Cir., August 17, 2001). In Bell Atlantic, the Federal Circuit held that, by using the term "mode" consistently throughout the specification, Bell Atlantic was confined to the meaning of the term as it was redefined "by implication" in the specification. Moreover, since the patentees consistently described a first (upstream) and second (downstream) data channel as being unidirectional, the court concluded that the term "channel" was limited to only "unidirectional" communications. Additionally, the court held that, since the first and second channels were consistently described in the specification as an amount of bandwidth separated by frequency, the term "channel" meant only "frequency" channels. Thus, despite recognizing the ordinary meaning of "channels" to include separations created by time division multiplexing, echo cancellation, or other common modulation techniques, the court redefined the term "channels" in Bell Atlantic’s claims to include only "frequency" channels.

While courts routinely look to the specification to interpret claim language, Bell Atlantic marks the first time when the court redefined a claim term primarily due to "consistent usage" of descriptive language in a preferred embodiment. In other words, Bell Atlantic marks the first time that the court primarily relied on the specification to implicitly redefine a well-known claim term. Hence, as a consequence of Bell Atlantic, the use of consistent terms to describe various features of a "preferred" embodiment may unintentionally limit the breadth of an otherwise well-recognized, ordinary definition of a claim term.

At first inspection, the result in Bell Atlantic may seem logical. After all, a patentee may choose to be his own lexicographer, thereby using a term in a manner that is different from its ordinary meaning. Vitronics, 90 F.3d at 1582, 39 USPQ2d at 1576. Hence, the court must examine the intrinsic evidence to determine whether the patentee has applied an unconventional meaning to a claim term. Hockerson, 222 F.3d at 955, 55 USPQ2d at 1490. In this regard, the specification may act as a dictionary "when it expressly defines terms used in the claims or when it defines terms by implication." Vitronics, 90 F.3d at 1582, 39 USPQ2d at 1577. "Thus, the specification is always highly relevant to the claim construction analysis. Usually, it is dispositive; it is the single best guide to the meaning of a disputed term." Id.

However, the reasoning applied in Bell Atlantic has no practical or logical limit. If consistent usage of terminology creates a "definitional hook" for courts to import any limitation from the specification, then courts may import as few or as many details as necessary to completely redefine the scope of a patent. Unfortunately, while very careful patent drafters may be able to circumvent some of the definitional narrowing, as discussed below, narrowing based on "consistent usage" is practically unavoidable. Thus, patent drafters are generally helpless against this latest attack on our peripheral claiming system.

Broadly speaking, the effect of the Federal Circuit decisions is a body of patent law that provides public notice only as to the maximum breadth of claim protection without regard to the equally important, if not more important, need for public notice of the minimum scope of claim protection that will be upheld for patent owners. Evidence of the import which the court places on this one-sided public notice can be found in Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1583, 39 USPQ2d 1573, 1577 (Fed. Cir. 1996). In Vitronics Corp., the court stated that an important consideration in claim construction was whether the patent provides adequate notice to the public of the proposed claim construction. While the present trend conforms with the goal of the Federal Circuit to breathe certainty into the body of patent law, a vast majority of recent Federal Circuit decisions regarding claim interpretation have undermined public confidence in the ability of the patent system to protect innovation.

The current trend of Federal Circuit holdings has stayed the course regarding the policy of supporting public notice as to the maximum limits of a patent claim, such as when the doctrine of equivalents does not apply to enhance the literal scope of a claim limitation. See e.g., Festo v. Shoketsu Kinzoku Kogyo Kabushiki, F.3d (Fed. Cir. 2000). In Festo, the court made it clear that narrowing claim amendments, made for purposes of patentability, would eliminate all equivalents to the amended claims under the doctrine of prosecution history estoppel.

Regardless of how positive the "narrowing" trend may seem from the perspective of the public, the trend exposes patent owners and inventors to potential infringers, thereby leaving them with little protection and even less guidance on how to prevent infringement due to the eroding scope of their patent claims. Unfortunately, patent owners are placed in the unenviable position of having little or no notice as to where the claim erosion might end. In order to make an informed decision on whether to invest resources in procuring a patent for a particular invention, patent owners and inventors need to have an indication of both the minimum and the maximum scope of protection.

The United States has not always had a peripheral claiming system. According the Supreme Court in Markman v. Westview Instruments, 517 U.S. 370 (1996):

Thus, the present erosion of our peripheral claiming system is nothing short of a regression back to the problems of unpredictability that characterized our very early patent system. The claims in a patent had since become equivalent to the "metes and bounds" description of a plat of land in a real estate deed, while the specification was free to fully enable the invention. Thus, under the peripheral claiming system, the claims described the scope of the invention introduced in the patent so that patentees and third parties could reliably determine the boundaries over which the third parties were not to trespass. Thus, since the early days, an infringement analysis was primarily directed at the claims, and only under limited circumstances would the analysis stray from an evaluation of the specific language of the claims.

Until most recently, a patent specification was not intended to define the scope of an invention. Defining the scope of the invention was the purpose of the claims. Significantly, the specification of the patent must provide sufficient information to enable a person of ordinary skill in the art to make and use the invention and set forth the best mode contemplated by the inventor. As a result, a majority of inventors and patent attorneys presently draft patents that include a set of figures and a detailed description focused on enabling the best mode of practicing the invention. Patent attorneys then present peripheral claims with the focus on defining the "metes and bounds" of the invention.

In the past, the specification was consulted to assist in the interpretation of claims under three primary conditions. First, the specification was consulted when a term used in a claim was ambiguous. Second, the specification was consulted when the applicant had acted as a lexicographer to explicitly redefine a word. Third, under 35 USC § 112, paragraph 6, the specification was consulted when an applicant expressed a particular claim element as a "means for" or "step for" performing a particular function. While it was once settled law that the specification would rarely be used to significantly narrow claim terms outside these exceptions, the Federal Circuit now routinely consults the patent specification to establish more narrow "definitions" of claim terms. While the first condition listed above, the "ambiguous" terminology situation, is clearly an exception that could also easily swallow the rule if not appropriately applied, the latest implicit redefinition practices strike at the very heart of the peripheral claiming system.

Two lines of case law exist regarding the process of interpreting claims. For example, in the case of Gart v. Logitech, 59 USPQ2d 1290 (Fed. Cir. 2001), the court relied on the more traditional process of first pointing out that claim terms are given their ordinary and customary meaning unless the patentee has deliberately chosen to be his or her own lexicographer, or the claim lacks sufficient clarity such that there is no means by which the scope of the claim may be ascertained from the language used. On the other hand, other panels of the Federal Circuit refuse to give any real attention to ordinary and customary meaning, and look primarily within the four corners of the application and the prosecution history to "define" the claim terms, thereby interpreting the claims "in view of" the specification. See, e.g., Solomon v. Kimberly Clark, No. 97-1571 (Fed. Cir. May 26, 1998)(unpublished); Unique Coupons v. Northfield, No. 00-1300 (Fed. Cir. June 13, 2001)(unpublished).

This second or intrinsic approach to claim interpretation is in line with the court’s holding in Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576 (Fed. Cir. 1996), where the court stated, "[i]n construing a claim limitation, we look to the claim language, the written description, the prosecution history, and, if necessary, extrinsic evidence." Additionally, in Hoechst Celanese Corp. v. BP Chems, Ltd. 78 F.3d 1575 (Fed. Cir. 1996), the court added that "it is always necessary to review the specification to determine whether the inventor has used any terms in a manner inconsistent with their ordinary meaning. The specification acts as a dictionary when it expressly defines terms used in the claims or when it defines terms by implication." It is the reach of this "implicit" definitional analysis that seriously undermines our peripheral claiming system.

A review of recent Federal Circuit holdings in the area of claim interpretation indicates that, until Bell Atlantic, patentees could obtain at least a limited visibility into avoiding or diminishing the specification-based redefining of claim terms. In this regard, outside the well-recognized exceptions to using only the ordinary meaning of the claim terms (i.e., ambiguous claim language, explicit redefinition, and 35 U.S.C. § 112 ¶ 6), inventors could identify several other specification-based redefinitions and proceed with caution. These problems of specification-based redefinitions, which are discussed in greater detail below, arise in the context of: unqualified "invention" statements; Summary of the Invention; Abstract of the Disclosure; alternative embodiments; prior art distinctions; claim language; and statements of "significance." By no means is the present discussion intended to be an exhaustive list of categories or cases where the court has redefined claims "in light of the specification." It is merely a sampling to point out how Bell Atlantic departs dangerously from at least some of the more avoidable redefinition categories.

The avoidance of closed-ended expressions has always been important for patentees. For example, statements regarding "the invention" or "all embodiments of the invention" have been interpreted to expressly limit the claims. See, e.g., SciMed Life Systems v. Advanced Cardiovascular Systems, No. 99-1499 (Fed. Cir., March 14, 2001). Thus, it is important to include qualifying and open-ended statements, such as "one embodiment of the invention, among others." While such "broadening" language may not always have the intended effect of broadening the scope of the invention, it may at least help in preventing a court from narrowing the scope of protection from statements that appear to be all-encompassing.

The court has placed great weight on statements in the Summary of the Invention section of the respective patents. See, e.g., Solomon v. Kimberly Clark, No. 97-1571 (Fed. Cir. May 26, 1998)(unpublished); Unique Coupons v. Northfield, No. 00-1300 (Fed. Cir. June 13, 2001)(unpublished). Other decisions have also relied, at least in part, on the Summary of the Invention to severely restrict the scope of patent claims. These cases include SciMed and Bell Atlantic. Since the Summary of the Invention section is not a required section for patent applications, serious consideration should be given to omitting the Summary section entirely in view of these and other decisions. In fact, it is reported that Motorola, for many years, has omitted the Summary of the Invention in most of its patents. If patentees still choose to include a Summary section in their applications, the Summary should mirror the broadest claims and should be amended after prosecution to reflect any claim amendments.

Some panels of the Federal Circuit have also based their decisions on the Abstract of the Disclosure section of patents. See, e.g., Unique Coupons v. Northfield, No. 00-1300 (Fed. Cir. June 13, 2001)(unpublished); Space Systems/Loral, Inc. v. Lockheed Martin Corp., Nos. 99-1255, 99-1289 (Fed. Cir., Aug. 23, 2000)(unpublished); Hill-Rom Co. v. Kinetic Concepts, Inc., 209 F.3d 1337, 1341, 54 USPQ2d 1437, 1440 n. 1 (Fed. Cir. 2000). Since the Abstract is a required section, applicants should concentrate on including very little in the Abstract. At most, the Abstract should include only the broadest independent claim. Like the Summary section, the Abstract should be reviewed and amended where necessary to reflect the scope of any amended claims.

The disclosure of alternative embodiments also continues to be very important. For example, in Unique Coupons, the court held that, since the specification only disclosed one embodiment, the claims would "require" the limitations associated with that one embodiment. As previously described in reference to Bell Atlantic, supra, disclosing only one embodiment in a consistent manner serves to "implicitly define" claim terms. Clearly, the inclusion of alternative embodiments for important claimed limitations is an important patent drafting consideration. It will probably not be enough to simply include boilerplate statements regarding other unidentified embodiments, or to simply use permissive language regarding the limitations such as "e.g.," "may," or "can." However, the use of such open-ended phrases may prove particularly useful when alternative embodiments are disclosed.

Unfortunately, unless done carefully, the listing of alternative embodiments may actually backfire and create even narrower definitions for claim terms. See, e.g., O. I. Corp. v. Tekmar Company, Inc., 115 F.3d 1576, 42 USPQ2d 1777 (Fed. Cir. 1997). In O. I. Corp., the Federal Circuit, in interpreting the common word "passage," relied in part on expressions of alternative structures in the specification. The specification, in describing "passage," stated that "other non-smooth geometries may be used" and "the second section of the bore may be conical." Ultimately, the court decided that the word "passage" must include only "non-smooth" and "conical" passages. Since the alternative embodiments in the specification did not suggest other structures in an open-ended fashion, the court defined the term "passage" more narrowly than its ordinary meaning. Thus, in an attempt to broaden a claim term by discussing alternative embodiments, the patent drafter actually narrowed the claim term.

Additionally, O. I. Corp. illustrates the point that the court may have simply found a way to transfer the specification-based restrictions that were placed on means-plus-function claims to all claims. Now that the court has began following the statutory mandate of going to the specification to identify corresponding structure for use in narrowing the literal meaning of a means-plus-function claim element, it seems as if the court is unable to break this habit. While the lower court, in O. I. Corp., found non-infringement based upon its limited interpretation of the word "passage" under 35 USC § 112, ¶ 6, the Federal Circuit reached the same conclusion using a different route. The Federal Circuit removed the term "passage" from the prescribed § 112, ¶ 6 analysis, but found the term to have been "defined" more narrowly in the specification. To stretch the point even further, the court came to this conclusion despite the fact that the words left in the means plus function element at that point were unsupported by corresponding structure explicitly disclosed in the specification, which the court surprisingly found "apparently occurs by means known to those skilled in the art."

When coupled with the court’s recognition that the doctrine of claim differentiation did not help the patentee in that case, one must conclude that the court is extremely serious about its intention to continue finding new "definitions" in specifications. Thus, it seems that when the court seeks to redefine a term, predictability and coherency may be sacrificed.

The court also finds an implicit redefinition of words used to describe prior art problems or features. See, e.g., SciMed Life Systems v. Advanced Cardiovascular Systems, No. 99-1499 (Fed. Cir., March 14, 2001); O. I. Corp. v. Tekmar Company, Inc., 115 F.3d 1576, 42 USPQ2d 1777 (Fed. Cir. 1997). While it may initially seem justified to find an implicit redefinition of words used in referring to prior art, such reasoning is generally illogical and not founded on genuine patentability concerns. For example, in O. I. Corp., the court relied in part upon a statement in the patent specification that suggested that "passages" in the prior art were generally smooth to redefine the term "passage" to exclude smooth passages. Clearly, "smooth passages," albeit smooth, are "passages" nonetheless. If the Federal Circuit’s reasoning in O. I. Corp. were correct (i.e., that "smooth passages" are not "passages"), then every noun prefaced by an adjective would mean something absurd. For example, "short people" would not be "people"; "tall buildings" would not be "buildings"; "fast cars" would not be "cars" within the meaning of the word.

This type of redefinition provides no public notice to either the patentee or the general public because neither may rely on what is written in the patent. Practically speaking, only the a posteriori result of litigation would show the meaning of a term that should have been clear a priori. This uncertainty in the meaning of claim terms is contrary to the notion that a patent should provide notice, whether the notice be to the patentee or the general public.

In addition, if a redefinition is necessary for patentability, it might arguably be understandable to find a new meaning to a claim term based on references to prior art. In other words, if the only point of novelty in a claim arises from the use of a well-known term, then it might be reasonable to redefine a claim term on that basis. In other words, if the only point of novelty that can be found in a claim is a limitation arising in a redefinition of a claim element, it might be reasonable to redefine the claim term on that basis. For example, in Clearstream Wastewater Sys., Inc. v. Hydro-Action, Inc., 206 F.3d 1440 (Fed. Cir. 2000), the court pointed out that a means-plus-function element should extend to cover prior art structures unless the means-plus-function element is the only point of novelty in the claim. Likewise, it might be reasonable for a court to construe a claim term more narrowly if such a construction was necessary for patentability. After all, it has been recognized that most claims are simply combinations of old elements. Unfortunately, the court often ignores patentability concerns and finds a redefinition of terminology simply because prior art is referenced.

In ManTech Environmental Corp. v. Hudson Environmental Services, Inc., 152 F.3d 1368 (Fed. Cir. 1998), the court held that, since the claims and written description in the patent were unambiguous, it was correct for the lower court to construe the claims solely on the basis of the "intrinsic" evidence -- the claim language and the written description. However, despite their concurrence with the approach taken by the lower court, the Federal Circuit construed the term "well" more broadly than the lower court, making it necessary to vacate the lower court’s summary judgment finding non-infringement and remand the case. In patents claiming methods for remediating a hydrocarbon-contaminated region of a subterranean body of groundwater to eliminate or reduce the concentration levels of hydrocarbon contaminants, the term "well" required structure that, according to the Federal Circuit, enabled either monitoring or injecting the groundwater, or both. However, the term "well" was not so broad as to cover any device that allowed access to groundwater (as one might have expected if an ordinary meaning were applied). On the other hand, neither did the word "well" necessarily require structure that enabled both monitoring and injecting the groundwater. Although the Federal Circuit did not apply the narrower definition applied by the lower court, the definition that the court applied was certainly narrower than the ordinary meaning.

In ManTech, the court focused its analysis on the language in the claims, which stated that some "wells" performed one function and others performed a second function. Thus, the court concluded that the claims required a redefinition of the word "well" to only include structures that performed at least one of those claimed functions. While sounding somewhat reasonable at first glance, this reasoning is also illogical and proves too much because, similar to the logic of O. I. Corp., any noun prefaced by an adjective would narrow the non-modified noun. Likewise, any element modified by additional limitations would narrow the very definition of the non-modified element itself. For example, if a claim includes a "screw," it does not change the definition of the word "screw" simply because the claim might further be limited to screws that are three inches long. While the claim will certainly include the additional limitations, the definition of the primary element itself, the "screw" in this example, has not been redefined by the patentee such that the word now has that narrower meaning for all claims in the patent. As one can see, limitations that are added to a claim element do not inherently redefine the claim element itself. It would be unreasonable to suggest otherwise. Once again, this type of redefinition provides neither clarity nor notice to the public.

In Advanced Cardiovascular Systems, Inc. v. SciMed Life Systems, No. 00-1454 (Fed. Cir., August 6, 2001), the court suggested that statements of significance can be used to redefine claim terms. There, the court refused to redefine the claim terms "connecting elements," "interconnected," "connecting members," and "struts for connecting," even though the specification disclosed the connecting elements to be both generally parallel to each other and parallel to a stent’s longitudinal axis. This conclusion was based on the absence of statements of "significance" in the specification. While the drawing showed the parallel relationships, the court stated that "[s]ince nothing in the specification assigns significance to the fact that the drawings align the connecting elements parallel both to each other and to the stent’s longitudinal axis, we will not allow this aspect of the drawings to be imported into the claims as a limitation."

While this case could suggest to some that it is better not to discuss some elements of the drawings out of fear that the discussion could trigger a redefinition by a court, it is probably more reasonable to interpret the case to avoid comments regarding the importance or significance of particular elements.

Conclusion

The Federal Circuit’s use of a specification of a patent to narrow claim terms has already eroded confidence in the patent system. If left unchecked, it is foreseeable that the continued narrowing of claim terms will undermine all confidence in the patent system. Additionally, if the reasons for narrowing claim terms are based on flawed logic, then, not only will the patent system be undermined, but serious doubt may be cast on the integrity of future court decisions.

The patent system only provides the owner a monopoly for a limited time in return for the owner’s full disclosure of the invention so that the public can make, use, and learn from the invention. As the disclosures of inventors are turned against them to permit potential infringers to curtail the scope of protection, inventors will eventually decide that the ultimate return for their investment in preparing and procuring a patent is not worth the effort. Conversely, potential infringers with deep pockets may elect to push the envelope and engage in the manufacture, use, and sale of patented inventions simply because the underlying patents provide detailed disclosures with consistent descriptions of claimed limitations.

Not only will continuing this recent trend in cases undermine confidence in the patent system, continuing to cross the once bright line between claims and specifications will frustrate the statutory focus of the specification (i.e., to enable those skilled in the art to make and use the invention) and the peripheral claims (i.e., to set the scope of the disclosed invention). For example, one can envision a group of inventors and patent attorneys who will risk reducing their disclosures beyond the minimum threshold of enablement in order to protect the breadth of the inventions. Thus, inventors and patent attorneys that select this approach will thwart the Constitutional purpose of the patent system for inventors to disclose their inventions to the public to promote the progress of the useful arts. Sparse patent specifications also promote the abuse of the patent system by people in the business of obtaining patents, who contribute no real innovation, and merely obtain patents to hold legitimate companies hostage.

No longer can patent attorneys be able to calm nervous inventors by advising them not to worry about disclosing details of their invention in their patent since those details may now unintentionally limit or "define" claim elements. As a result, patents may soon be drastically different from those issuing today. In fact, we may be headed toward a copyright-like patent system. In such system, patentees could discern practically nothing about their scope of protection. They could merely hope to prevent direct copiers of the exact embodiments disclosed in their patent specifications.

The court may be reacting to a few highly-publicized patents having broad claims, which portray our patent system as a mere registration system. The court may also be reacting to the overreaching nature of patent holders that attempt to "stretch" the breadth of their issued claims to encompass the activities of their competition. Regardless of the court’s intentions, it should refrain from this type of judicial legislating. Congress has established a statutory framework that includes peripheral claims. Should this scheme prove unacceptable, it should be Congress that revokes peripheral claiming. As patent specifications continue to be used by the court to substantially narrow claims, the court effectively rewrites the statutory scheme, thereby rendering the statutory framework meaningless.

In order to fulfill the public notice initiative, the Patent and Trademark Office could respond by specifically pointing out whether claim terms have been given special meanings that would limit the claims to scopes that are narrower than their ordinary meanings. The assumption of such an obligation by the Patent Office might create an opportunity for courts to more confidently rely on ordinary meanings of the claim terms.

More importantly, Congress should address this issue by specifying when and to what extent claim elements should be redefined by a court. The Section should support the above resolution with this goal in mind. Specifically, the resolution calls upon Congress to enact a statutory provision requiring courts to "construe each claim term in accordance with its common ordinary meaning unless no common ordinary meaning exists, the specification or prosecution history explicitly redefine the claim term, the claim term falls within 35 U.S.C. 112 (6), or another permissible construction is necessary to preserve patentability of the claim as a whole."

The courts are continuing to erode our peripheral claiming system in a way that may ultimately destroy our patent system. Consequently, innovation may slow down if patentees are not allowed to rely on minimum guaranteed scopes of patent protection. Meanwhile, practitioners should be aware that there are now many opportunities to make various types of redefinition "mistakes" in drafting patent applications. While such a reaction might seem reasonable, one would hope that Congress would correct this narrowing trend without forcing patent drafters to risk not meeting the enablement requirement of 35 U.S.C. § 112. In addition, even if the inventors and patent attorneys overcome the § 112 hurdle, they run the risk of not supporting enough limitations with sufficient detail to overcome the hurdles of anticipation and non-obviousness during prosecution.

SUBCOMMITTEE E N. Andrew Crain,

Subject 5. ON-SALE BAR SUPPLIER EXCEPTION

Past Action.

237 (Passed 1993 AR124-R108-22)

Section opposes in principle modification of the patent laws, including paragraph (b) of Section 102, Title 35, in such manner as to abolish the current U.S. case law permitting an inventor to conduct public uses, sales and/or on sales for experimental purposes more than one year prior to the effective U.S. filing date of an application without affecting the right to a patent.

237 (Defeated 1995 AR147-R108-1)

Section favors, in principle, limiting "on sale" in 35 U.S.C. §102(b) to actual sales, including the delivery of the invention, or a product made by the invention.

237 (Defeated 1997 AR28-R101-3)

Section favors, in principle, (1) substituting for the existing one-year "in public use or on sale" bars as set forth in 35 U.S.C. § 102(b) two separate one-year patent barring provisions with respect to any subject matter — (a) representing public knowledge or use of the invention, to the extent based on knowledge and activities that are effectively accessible to persons skilled in the art, and (b) commercialized by the patent applicant or a successor in interest to a commercially significant extent, through a sale of the invention or other comparable commercial exploitation, — (2) recognizing, for the purpose of calculating the one-year barring period under 35 U.S.C. § 102(b), a patent application filed outside the United States to the same extent and effect as a patent application filed inside the United States, and (3) recognizing, for all barring purposes under 35 U.S.C. § 102(b), knowledge or activities outside the United States to the same extent and effect as knowledge or activities inside the United States.

237 (Defeated 1999 AR51-R108-5)

Section favors, in principle, legislation that to be "on sale" as set forth in Section 102(b), Title 35, United States Code, the invention must be (1) the subject of a commercial offer for sale and (2) "ready for patenting" as held by the Supreme Court in Pfaff v. Wells Electronics, Inc., where the latter condition can be satisfied (a) by proof of reduction to practice or (b) by proof that the inventor prepared drawings or other descriptions sufficient to enable a person skilled in the art to practice the invention.

270 (Passed 1968 S.SP 27-ABA 1968; Retained 1997)

Section disapproves in principle changing the present law to give a party the right to continue the practice of an invention in the United States if he had begun commercial manufacture, use or sale in the United States, or had made substantial preparation for the practice of the invention in the United States prior to the earlier of the patentee's effective filing date or first public disclosure, as provided in Section 274 of the Subcommittee Print; and therefore opposes enactment of the Subcommittee Print.

270 (Passed 1985 SP 34-R101-1; ABA 1986, with amendments; Retained 1999)

Section supports in principle the enactment of legislation which (a) would establish that whoever without authority uses or sells within, or imports into, the United States during the term of a United States process patent a product produced by such patented process, infringes the process patent, and (b) would create a rebuttable presumption, in actions based on such use, sale, or importation, that a product was produced by the patented process, if the court finds (1) that a substantial likelihood exists that the product was produced by the patented process and (2) that the claimant has exhausted all reasonably available means through discovery or otherwise to determine the process actually used in the production of the product and was unable so to determine; provided, however, that the legislation shall further provide that (i) no damages for infringement shall be recovered based on such use, sale or importation except on proof that the infringer knew of or was notified of the infringement and continued to infringe thereafter, in which event damages shall be recovered only for infringement occurring after such knowledge or notice, and (ii) the rebuttable presumption shall not apply if at the time of commencement of the action, the manufacturer of the product produced by the patented process is either subject to the jurisdiction of a United States District Court in which venue as to such manufacturer can be established under 28 U.S.C. §1400(b), or consents to such jurisdiction in the District Court in which the action has been brought; and specifically supports HR 1069 (Moorhead, 99th Congress, 1st Session) or similar legislation if the rebuttable presumption established in Sec. 5 thereof is qualified as recommended above.

270 (Passed 1986 SP 32-R101-9; Retained 1999)

Section supports in principle, in any legislation which would make it an act of infringement to import, use, or sell in this country a product made abroad by a process patented in this country, a provision which would continue to allow any person to use, sell, or import any specific product which on a stated and fixed date was already imported for sale or use in this country, or for which substantial preparation for import for sale or use in this country had been made, to the extent equitable for the protection of investments made in this country or business commenced in this country before that date.

For some patent practitioners, consideration of the on-sale bar prior to filing a patent application may simply include inquiring as to whether an invention to be patented has been offered for sale by the client. This type of on sale activity can be characterized as "front door" activity. Unfortunately, those practitioners may overlook indirect, or "back door," sales activities. Back door sales activities may involve situations in which the client is actually the buyer. For example, it is not uncommon for a client having no manufacturing capabilities to engage a supplier to manufacture products embodying the invention. However, unless the client files a patent application on the invention within one year from the supplier’s offer or actual sale to the client, then, according to the Federal Circuit Court of Appeals (Federal Circuit), the on-sale bar will likely apply to this back door sales activity to bar patenting of the invention.

In attempting to prevent the application of the on-sale bar to back door sales activities, patentees have argued for supplier exceptions and joint inventor exceptions. Unfortunately, those attempts to "lock" the back door have failed, and recent Federal Circuit decisions should leave little doubt that front door and back door on-sale activities can trigger the bar. Therefore, patent practitioners should make special efforts to ask their clients about back door on-sale activities.

In refusing to acknowledge a supplier exception to the bar, the Federal Circuit has indicated that it is for Congress and not the courts to provide an exception to the on-sale bar for sales from a supplier to a patentee. This resolution addresses why Congress should accept the Federal Circuit’s invitation and act where the court refuses to do so.

While the problem may exist for large and small concerns alike, the problem is much more acute for smaller entities. With the on-sale bar applying to back door sales activities, many independent inventors and other small entities not capable of internal manufacturing are disadvantaged when compared to larger entities having internal manufacturing capabilities. Thus, those larger-sized entities can internally manufacture and stockpile products years before the first "front door" sales activities without triggering the on-sale bar, while this is not true for independent inventors and other smaller sized entities who cannot internally manufacture products. As construed by the Federal Circuit, the on-sale bar therefore economically disadvantages inventors and assignees without manufacturing capabilities. While Congress might be well-advised to remedy this apparent discrimination against smaller entities, patent practitioners must remember to be especially diligent in this area for these types of clients.

This inquiry may also find application with larger entities that do not themselves manufacture products or that periodically outsource one or more components. It is not uncommon in the present economy for larger companies to subcontract manufacturing to outside suppliers, and such transactions may even occur within the bowels of large companies without the guidance of patent counsel. Nevertheless, such sales and even offers to sell made by the supplier to the larger entity may constitute bar-triggering events unless such sales can properly be characterized as experimental. As such, Congressional action in this area may provide relief for larger entities that do not manufacture products, but until then, practitioners should not overlook these types of transactions as potential bar triggering events.

Pursuant to 35 U.S.C. § 102, the on-sale bar provides that a person may obtain a patent unless "(b) the invention was …on sale in this country, more than one year prior to the date of the application for patent in the United States." 35 USC §102 (b) (2001). The Supreme Court, in Pfaff v. Wells Electronic, Inc., 525 U.S. 55, 59 (1998), established a two-pronged test in an effort to provide greater certainty in applying the on-sale bar. The on-sale bar applies when (1) the invention at issue had become the "subject of a commercial offer for sale" more than one year before the filing of the patent application; and (2) the invention was ready for patenting. Id. at 67. The Federal Circuit has recently provided a large volume of additional guidance for applying both prongs of the Pfaff test, including revealing that back door sales activities can satisfy the first prong. The Federal Circuit has now made it clear that it is irrelevant who makes the commercial offer. See Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353, 1355 (Fed.Cir.2001). Indeed, the Federal Circuit has even indicated that the on-sale bar applies to an invention stolen by a thief and later sold to an innocent buyer who subsequently offers the invention for sale.

The first prong of the Pfaff test has the dual requirement that the offer must be a "commercial offer," and that it be an offer regarding the patented invention. Since Pfaff, the Federal Circuit has provided a bright-line rule as to what constitutes a "commercial offer." "[O]nly an offer which rises to the level of a commercial offer for sale, one which the other party could make into a binding contract by simple acceptance (assuming consideration), constitutes an offer for sale under § 102 (b)." Group One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041, 1048, (Fed. Cir. 2001).

In Brasseler v. Stryker Sales Corp., 182 F.3d 888 (Fed. Cir. 2001), the Federal Circuit continued to provide certainty in this area by rejecting a patentee’s invitation to establish a joint-developer’s exception to the on-sale bar. The court first noted that it had previously rejected the notion of a joint ownership exception, finding that a sale between separate and distinct legal entities qualifies as a sale under the statutory bar even where there is an overlap of ownership between the buyer and seller. In Brasseler, the patentee had purchased three thousand products embodying the patented invention from the seller who, along with the patentee, employed some of the named inventors of the subsequently patented invention. The court found the transaction between the buyer-patentee and the seller to be a commercial sale between two separate legal entities, notwithstanding the fact that the patentee-buyer and seller each employed named inventors. Because the seller had invoiced the buyer-patentee for the sale of the jointly developed product, which the patentee intended to market to the public, and because the patentee and seller treated the transaction as a sale of a product, the Federal Circuit refused to establish a joint development exception to the on-sale bar.

Perhaps as significant as the refusal to create a joint inventorship exception is the court’s treatment of the matter with regard to inequitable conduct and attorneys fees. The court affirmed an award of attorney fees against the patentee as an exceptional case since the patentee had apparently breached its duty of candor at the Patent Office by not disclosing the facts surrounding the back door on-sale event. Furthermore, the facts suggested that the client revealed to the patent attorneys that the one year was about to expire, but the patent attorneys did not investigate further into the matter. The court found the inaction by the attorneys to be evidence of bad faith, a "studied refusal to timely investigate." See Brasseler at 890. Thus, the court now obviously considers it to be so well-known that back door on-sale activities will trigger the on-sale bar that attorney fees are available and that patent practitioners should timely investigate such matters or risk a finding of inequitable conduct in some cases.

More recently, in Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353 (Fed. Cir. 2001), the Federal Circuit explicitly refused to create a supplier exception to the on-sale bar. In that case, OEA’s patent was invalidated because OEA had contracted with its supplier to have a commercial embodiment of the invention mass produced prior to the 102(b) critical date. Prior to the critical date, OEA arranged for its supplier to manufacture 20,000 units of the claimed invention and also agreed upon a requirements contract that would annually supply OEA with millions of units embodying OEA’s invention. OEA did not dispute that its activities constituted commercial offers; however, OEA argued for a supplier exception to the on-sale bar for patentee-supplier relationships.

Unfortunately, in refusing to create such an exception, the Federal Circuit emphasized the literal text of § 102(b). Accordingly, anyone, be it a supplier, a patentee, or another third party, who places the invention on-sale may trigger the on-sale bar. Moreover, the court iterated that all OEA had to do was simply file its patent application in a timely manner to preserve its rights, thereby obviating any need for a patentee-supplier exception to the on-sale bar.

The policy rationale proffered by the Federal Circuit for the on-sale bar stems from the notion of encouraging inventors to promptly enter the patent system, thereby leading to the widespread disclosure of inventions to the public. This rationale also seeks to prevent what essentially constitutes an extension of patent term by commercially exploiting the invention prior to filing the patent application. While these policies clearly justify application of the on-sale bar in "front door" sales situations, there is certainly no unfair term extension involved in back door activities that merely involve a patentee preparing to build an inventory that may not be commercialized for years. Moreover, the rule effectuated to protect these policies may unfairly discriminate against smaller entity patentees and inventors that cannot manufacture a product without aid from a third party supplier.

To illustrate the disproportionality, consider the following example. Mega Corp. is a large global corporation of many thousand employees, including its own internal research and development and manufacturing divisions. Products conceived and developed by Mega Corp.’s research and development division are manufactured by Mega Corp’s manufacturing division. In this example, Mega Corp.’s manufacturing division made 5,000,000 units of Mega Corp.’s latest product development, which will be highly marketed, and stored the products in a warehouse—all before the first sale to the public. Once the 5,000,000 units were made and warehoused, Mega Corp. released its marketing campaign in time for the Christmas season and sold the 5,000,000 units to retailers. Mega Corp. subsequently filed a patent application on the invention embodied in the product sold on the one-year anniversary of the first sale or offer for sale.

Consider also Smallco Inc., which is a small company of approximately 50 employees with no manufacturing capabilities. Smallco is essentially a distributor of products in its industry and has employees that design new products tailored to Smallco’s industry. At the same time as Mega Corp., Smallco developed an internal product conception that it desired to mass produce and sell. However, because Smallco does not have any manufacturing capabilities, Smallco engaged Supply, Inc, a third party supplier, for the purpose of manufacturing the product embodying the invention for the subsequent sale, by Smallco, to the public. Thus, Supply, Inc. manufactured, according to its agreement with Smallco, 5,000,000, units, and Smallco, upon delivery, stored the units in a rented warehouse prior to the first sale to the public. In time for the Christmas season, Smallco later made its first "front door" sale or offer for sale after the units were manufactured and stored in the warehouse. Smallco subsequently filed its patent application on the invention embodied in the manufactured product on the one-year anniversary of Smallco’s first "front door" sale or offer for sale, which is 13 months after Smallco received Supply Inc.’s offer to manufacture and sell the products to Smallco.

Assuming both patents issue, and putting aside any inequitable conduct issues that may arise from Smallco’s failure to disclose the back door sales from Supply, Inc., Smallco’s patent is most likely invalid under 102(b), while Mega Corp.’s patent is not. Smallco’s patent is invalid even though its pre-filing activity is essentially the same as that of Mega Corp., whose patent is not affected by its own internal manufacturing and product stockpiling. Therefore, Mega Corp. has distinct legal and economic advantages as a larger company because it has the ability to manufacture and stockpile the product to be later patented without invoking the on-sale bar. In contrast, Smallco’s engagement of Supply, Inc. to manufacture the product that Smallco cannot itself manufacture would constitute an on-sale bar triggering event that would invalidate Smallco’s patent, which, in this example, issued from an application filed on the one-year anniversary of Smallco’s first "front door" sale or offer for sale.

It is not uncommon for a company to manufacture and warehouse units prior to sale, and in Smallco’s case of having to engage Supply, Inc. to make the product, the back door sale is not enabling Smallco to unfairly commercially exploit the invention beyond the patent term. It may indeed be irrelevant whether the products are actually delivered and warehoused, as the offer itself may be sufficient to trigger the bar. The on-sale bar clock for Smallco begins when Supply, Inc. sells or offers to sell Smallco the product embodying Smallco’s invention, whereas Mega Corp.’s on-sale bar clock does not begin counting until Mega Corp.’s first "front door" sale. The time between initial manufacturing and first "front door" sale for Mega Corp. and Smallco can be years, so Mega Corp has a clear economic advantage under the patent law.

Perhaps the simplest solution to this situation, in a perfect world, is for Smallco to file its patent application as soon as possible, at least by the one-year anniversary of any offer to sell by Supply, Inc. In many situations, prompt filing renders many of these issues moot. Therefore, the best solution that has the highest probability of protecting Smallco’s invention is prompt filing.

However, this is not a perfect world, and even the timely filing of a patent application does not guarantee that Smallco will have complete patent protection for all aspects of the manufactured and marketed product. Indeed, it is not unusual for novel features of a product to be later discovered after the product has been manufactured, marketed, and/or used by the public/consumer. In addition, another benefit of the on-sale bar is discouraging inventors from filing patent applications for ideas that have no commercial feasibility. Thus, one result of these recent rulings is that more patent applications will be filed for commercially impractical inventions since there will be less time to recognize such impracticality.

One possible solution to this problem is for Congress to create a patentee-supplier exception. Indeed, in Special Devices, the Federal Circuit specifically stated that it is for Congress to create such an exception and not the Courts. As such, Congress should resolve this inequity to ensure that smaller patentees are not be unfairly punished for being small and without manufacturing capabilities. It should not be possible under the law for one party to be able to freely manufacture in preparation for subsequent sales while another party is prevented from outsourcing the same manufacturing prior to subsequent sales because such manufacturing would constitute improper back door sales activities.

As stated above, supplier sales may be problematic for larger non-manufacturing entities as well. The above example is intended to especially highlight this disparity for smaller entities, but the problem also exists for larger companies who do not manufacture their own products. A supplier exception can protect these types of entities as well.

It is clear that the Federal Circuit is intent on applying the on-sale bar to back door sales activities. Therefore, practitioners should be diligent in discussing these issues with their clients and investigating as necessary. In addition, practitioners should advise clients to file early and often in an attempt to gain the broadest and most complete scope of the invention prior to any offer or sale from a supplier of the invention to be patented. In addition, Congress should create a supplier exception to level the field for non-manufacturing concerns.

SUBCOMMITTEE F Gordon T. Arnold,

Subject 6. COLLABORATIVE RESEARCH PROMOTION ACT

Past Action: None

A proposal has been made for legislation that would be entitled "The Collaborative Research Promotion Act of 2002" which would propose amending section 103(c) to add a section to remove from obviousness considerations prior art that "was disclosed to the inventor of the claimed invention by another as part of a collaboration . . ." The stated purpose of such an amendment is to overrule Oddzon Products, Inc. v. Just Toys, Inc., 122 F.3d 1396, 43 U.S.P.Q.2d 1641 (Fed. Cir. 1997), which read the current statute as allowing for removal for commonly-owned inventions or inventions under an obligation of common ownership. The proponents of the bill state that collaborative research is chilled by the Oddzon decision.

The Section opposes the approach of the supporters of such a bill and believe that a different approach should be applied -- namely to change the date at which the exclusion from consideration should occur to the date of filing of the oldest application to which the claim in question claims the benefit of filing. The sections specific reasons are as follows:

First, "collaboration" is a poor concept for the patent statute. Those who make part of their living fighting about what definition a word should have, and whether a particular definition -- even the other side's - has been met, will love it.

The "problem" that the proposed statute is attempting to address has to do with what happens when organizations begin "collaborating" without an agreement. Therefore, a threshold issue is whether there is a problem to be addressed by the patent statute, at all. If Meeker University and Kuester Research want to do something together, if they want to have a "joint enterprise" or a "joint venture", or a "partnership," they will have an agreement about what will be done with costs, profits, and property (including intellectual property). If they do not, then the laws of most jurisdictions will impose some set of rules on them. One or both may like those rules or dislike them. But there is a system in place. It is not a "penalty" to apply that system, as has been suggested.

If Meeker and Kuester do not like the effect the system will impose, they create a non-patent-law document, creating an obligation to assign, under the laws of some state or foreign country, and they deal with it. The current version of 103(c) deals with obligations to assign, which are creature of contract law.

There is a large body of statutes and jurisprudence to help us deal with what single jurisdiction's law will govern the existence and interpretation of an agreement creating an obligation to assign. But ultimately one jurisdiction's rules will apply. If we get into "collaborations," we are dealing with deciding whether something is or is not prior art based on inventorship and "collaboratorship" combinations. If we do that, we will have a new area of law that will qualify for the "muddiest" award.

Note that researchers who "collaborate" when there is no agreement are probably in violation of their employment agreements. Do we want to encourage that?

Next, what to do?

(1) Doing nothing would encourage organizations to (a) recognize the "problem," if it really is a problem, and (b) deal with the problem in the normal way relationships are dealt with (contract). Researchers do not care one bit about patent law. They are totally unaware of the definition of "prior art" for purposes of "obviousness" as opposed to "novelty." An amendment to section 103 in this regard will not change the behavior of researchers. The Section doubts that Oddzon Products has changed their behavior either. If it has, it has probably reduced the unauthorized disclosure of trade secrets without risking the "advancement of the useful arts."

(2) Some have suggested that an amendment to allow purchase at any time bring you into 103(c). The Section disagrees. It will not encourage the advancement of the useful arts to allow the prior art definition of some invention to change after the date the application is filed. It will, however, add uncertainty, increase litigation, and generally weaken the patent system. A weak system will slow the advancement.

(3) The current law makes the date of invention the cut-off; and, if you start a research project without an agreement, you should have some incentive to get an agreement in place. But "invention" occurs, sometimes, quickly. Luckily, for this issue anyway, drafting and filing of patent applications, even provisionals, does not occur in the blink of an eye; and, patent lawyers are involved in that process, most of the time. They, unlike researchers, worry about these things and already ask ownership and joint inventor questions. Therefore, some on the committee feel that, if anything were to be done, changing 103(c) should be changed to read:

However, a significant portion of the committee was opposed to such an amendment. Other suggestions for amendment also failed to develop a consensus of support. Therefore, the Section cannot make a proposal to address the perceived problem at this time.

For Against Abstain Not Heard From Info Only

Resolution 101-4 19 2 2 137

Resolution 101-5 20 1 2 137

Resolution 101-6 21 1 1 137

Resolution 101-7 22 1 137

Resolution 101-8 22 1 137

Resolution 101-9 22 1 137

Resolution 101-10 18 3 2 137

Resolution 101-11 22 1 137

Resolution 101-12 14 3 3 137

Members Approving Report: