March 4, 2010 – The United States Senate Judiciary Committee released details of a new compromised patent reform bill entitled the "Patent Reform Act of 2010." Introduced by Senators Patrick Leahy (D-VT) and Orrin Hatch (R-UT), the proposed amendment retains several of the key components of the original bill but also adds new provisions such as a provision limiting false patent marking lawsuits and the creation of a new administrative post-grant review procedure.

The full client alert can be found here.

The full text of the letter can be found here.

February 2, 2010 - A bipartisan group of lawmakers sent a letter to the leadership of the House of Representatives urging them to oppose the current patent reform legislation. In the letter, the lawmakers stated "[t]he recession has illustrated the need for the U.S. to maintain a diverse economy and promote policies that encourage American companies to research, develop, and manufacture products in the United States. Key to these pro-growth policies is strong patent protections that ensure the patent application process is efficient and fair for big and small companies alike." The lawmakers called the Patent Reform Act of 2007 which did not pass, "misguided" and urged the House leadership not to adopt the pending Patent Reform Act of 2009. The letter criticized several provisions of the current bill, including the "apportionment-centric" system of patent damages. Apportionment requires any reasonable royalty damage award to capture only the economic value properly attributable to the patent’s specific contribution over the prior art. The letter stated: "[a]n apportionment-centric system of damages ignores the fact that current patent protections adequately take into account apportionment concerns and would reduce the overall value of patents."

The full text of the letter can be found here.

December 17, 2009 – For the fourth time since 2008, The Court of Appeals for the Federal Circuit issued a writ of mandamus ordering a patent case to be transferred out of E.D. Texas. The most recent case stemmed from Judge Davis' denial of Nintendo's motion to transfer the Motiva LLC v. Nintendo Co., case to the Western District of Washington. Motiva is an Ohio-based company. Nintendo is a Japanese company with a Redmond, Washington based affiliate. The Federal Circuit found that the district court "clearly abused its discretion in denying transfer from a venue with no meaningful ties to the case."

To view the actual decision click here.

Three other notable cases the Federal Circuit ordered to be transferred out of E.D. Texas are In re. Volkswagen of Am., Inc., 545 F.3d 304 (5th Cir. 2008), In re TS Tech USA Corp., 551, F3d 1315 (Fed. Circ. 2008) and In re: Hoffman-La Roche Inc.

September 11, 2009 -- The Court of Appeals for the Federal Circuit vacated a $357 million damages award against Microsoft, signaling a new willingness to review unreasonable damage amounts awarded by juries in patent cases.

While it remains to be seen how the Court's decision in Lucent Technologies, Inc. v. Gateway, Inc. will affect the damages provision currently in the Patent Law Reform Act of 2009, if at all, the decision shows the Court's willingness to crackdown on jury awards that are not supported by "substantial evidence."

Additionally, while it is not clear the jury applied the Entire Market Value Rule in reaching its verdict, the Court emphasized that the Entire Market Value Rule (which allows for the recovery of damages based on the value of the entire apparatus containing several features) applies only when "the patent-related feature is the basis for customer demand." The Court reasoned that “to the extent the jury relied on the Entire Market Value Rule to arrive at the lump-sum damages amount, that award is not supported by substantial evidence and is against the clear weight of the evidence."

To view the actual decision click here. For more discussions regarding the Lucent Technologies, Inc. v. Gateway, Inc, click here.

April 30, 2009 -- The House Judiciary Committee held a hearing on the House Patent Reform Act of 2009 (H.R. 1260). H.R. 1260 closely tracks the original Senate bill (S. 515) that did not make it out of the Senate Judiciary Committee until the Committee made several amendments to it, including to the damages, venue and post-grant review provisions. The members of the House Judiciary Committee stated that they would not necessarily accept wholesale amendments to their proposed bill based on the Senate Judiciary Committee's changes to its bill. The main topic of discussion surrounded the damages provision. The House bill still includes the provisions that would require an apportionment of damages based on the value of the patented invention over prior art. The amended Senate bill was amended to eliminate the apportionment approach in favor of having the courts act as "gate keepers." Chairman Conyers noted that it was the damages provisions that could stop a Patent Reform Act from passing and that a compromise will have to be reached, but that he did not necessarily think the compromise that the Senate bill adopted was the answer.

As was the case earlier this year at the Senate hearing on S. 515, the Committee heard input from industry leaders and legal scholars. Those on the panel were:

• David Simon, Chief Patent Counsel of Intel, Inc.;
• Phillip Johnson, Chief Intellectual Property Counsel of Johnson & Johnson, also representing the Coalition for 21st Century Patent Reform;
• Prof. John Thomas of Georgetown University Law School;
• Jack Lasersohn, Partner of Vertical Group: Speaking on behalf of venture capitalist groups;
• Dean Kamen, DEKA Research and Development, Inc. (a non-practicing entity);
• Mark Chandler, Senior Vice President, General Counsel and Secretary of Cisco Systems, Inc.
• Bernard Cassidy, Senior Vice President and General Counsel of Tessera, Inc. (a non-practicing entity).

The comments from the panel largely stayed along industry lines and echoed the statements made in the Senate hearings.

Mssrs. Simon and Chandler expressed their support for the House version of the bill and the need for more certainty in the damages arena of patent law and improving the quality of patents through post-grant review as it is proposed in this version.

Mr. Johnson voiced support for the Senate version of the bill, particularly the adoption of the gate keeping function of the courts on damages issues.

Mr. Lasersohn stated his belief that there was no need for damages reform, citing statistics about damages awards in cases that go to trial to support his position that many of the fears of others are overstated.

Mr. Kamen expressed his belief that Congress look at the big picture by not focusing only on what is wrong, but on what the patent laws provide and instead nurture those portions of the laws. He suggested better funding and more examiners in the PTO to ensure better patents. He cautioned against reform to solve smaller problems that in turn could hurt the more important overall good.

Mr. Cassidy used his time to discuss the post-grant review (while expressing his agreement with Mssrs. Lasersohn and Kamen). He stated his views that the current state of the law is balanced against patent holders and, as such, harms the foundation and strength of U.S. patent protection.

Prof. Thomas spoke about the need for substantive as well as evidentiary reform and sees the bill as it currently stands as relying too much on current standards - dealing more with the evidentiary side as opposed to substantive issues.

To view the actual amendment click here.

April 2, 2009 -- In today's executive business meeting, the Senate Judiciary Committee adopted the latest proposed amendment to the Senate's 2009 Patent Reform Act. The Committee then voted the bill to the floor as amended. The amendment made the following modifications to controversial sections of proposed Senate Bill 515:

• (a) Damages - Creation of a gatekeeper function for courts to determine whether evidence is legally sufficient before it reaches a jury;
• (b) Willfulness - Movement toward codifying the standard set forth in In re Seagate, it also provides specific factors that can serve as evidence of an "informed good faith belief";
• (c) Post-grant review - Removal of the specific inclusion of prior art that was in "public use or sale in the United States" as allowable prior art in these proceedings;
• (d) Venue - Codification of the In re T.S. Tech standard, which requires transfer when the "transferee venue is clearly more convenient" than the current venue;
• (e) Interlocutory appeal after claim construction - A district court may certify an interlocutory appeal only when an appeal will either "materially advance" the termination of the litigation or "likely control the outcome of the case";
• (f) Best mode - Removal of failure to disclose the best mode as a basis for finding a patent invalid; and
• (g) Pilot Program - Allow judges to request or refuse patent cases.

To view the actual amendment click here.

There was heated discussion of provisions regarding inequitable conduct. This discussion surrounded whether there would be consideration of possible amendment to specifically address the inequitable conduct concerns. As to this issue, Senator Hatch stated that: "Our patent system must reward innovators with high-quality patents and a level of certainty during the patent process. We cannot let non-innovators keep us from creating a strong and vibrant environment for innovation and entrepreneurship that will carry this country long into the 21st Century." Notably, Senator Hatch (originally a strong proponent of the bill and co-sponsor) no longer supports this bill because he felt that the amended bill does not address the issues that it originally set forth to accomplish, saying: "For years now, I have worked long and hard in pushing patent reform legislation. My primary purpose for doing this bill was to improve patent quality and limit unnecessary and counterproductive litigation costs. I do not believe the bill, in its current form, accomplishes these goals." 

March 31, 2009 -- The Senate Judiciary Committee held a mark-up session which was largely focused on patent infringement action damage reform. A change was proposed to create a "gate keeping" role for judges to decide what evidence and factors are relevant in determining damages in a particular case.

March 26, 2009 -- The Senate Judiciary Committee adopted an amendment to the Senate version of the Patent Reform Act of 2009 allowing "virtual marking," or references to websites when marking products. To view the actual amendment click here.

March 10, 2009 -- The Senate Judiciary Committee held a hearing on the Senate Patent Reform Act of 2009. The Committee heard input from industry and government leaders:

1. Patrick Leahy, Chairman of the Senate Judiciary Committee: He supports the bill and linked patent reform and IP in general to the Nation's economy. He sees this bill as a way to improve patent quality and increase certainty for parties in litigation.

2. Steven Appleton, Chairman and CEO of Micron Tech., Inc.: He supports the bill, citing the current economic conditions as a need for expediency. He believes that current laws impede the development of new products and jobs by forcing companies to devote substantial resources to litigation (at R&D's expense). He recited a host of statistics regarding NPEs (Non-Practicing Entities) to support the need for curbed litigation.

3. Herbert Wamsley, Executive Director of Intellectual Property Owners Association: The IPO supports patent reform generally but sees several issues with the proposed bill. The IPO generally supports 1) the change to a first-to-file system, 2) the new procedure for post-grant review (if done quickly at reasonable cost), and 3) elimination of the “or could have raised” requirement in the inter partes re-exam of the old legislation. The IPO generally opposes 1) the willfulness provision, 2) the venue provision, 3) interlocutory appeals of claim construction, and 4) enabling the PTO to set fees. The IPO remains split on damages reform.

4. Phillip S. Johnson, Chief IP Counsel at Johnson & Johnson, also representing the Coalition for 21st Century Patent Reform: He reminded the Committee to balance the investment in, and incentive to get, patents against the cost to enforce and maintain them (particularly the relationship between protection and R&D investment). He stated general support for 1) the change to a first-to-file system and 2) expansion of application review to include public submissions. He stated general opposition to 1) inclusion of a "public use or sale" portion for inter partes re-exam given that forum's lack of cross-examination and discovery, 2) the damages provisions as currently stated, 3) the interlocutory appeal provision, 4) the willfulness provision, and 5) the venue provision.

5. Taraneh Maghame, Vice President of Tessera, Inc.: She sees a need for strong IP protection and believes the bill, especially the damages and post-grant review provisions, could be the start of a transfer of wealth from the U.S. to foreign manufacturers. She believes this bill weakens the patent system by lessening patent holders' rights.

6. David Kappos, Vice President and Assistant GC, IP Law and Strategy for IBM Corp.: He stated support for the bill and believes it removes roadblocks to the development of new innovations and allows a surge in economic growth. He proposes use of the Quanta measure of an essential feature for determining damages.

7. Mark Lemley, Professor at Stanford Law School: He believes that reform is necessary, but does not support the bill. He urges easing the burden of proof for showing lost profits and enforcing strict separation of lost profits from reasonable royalties. He also supports generally 1) the change to a first-to-file system, 2) post-grant review, and 3) enabling the PTO to set its own fees.

March 3, 2009 -- House (H.1260) and Senate (S.515) versions of the "Patent Reform Act of 2009" were introduced. They are similar to legislation introduced in 2008, and primarily focus on patent litigation reform. The exception to this is the introduction of a first-to-file system, which would allow U.S. patent prosecution to more closely resemble the rest of the world. Regarding reforms to patent litigation practice, there are four primary changes:  

• Damage limitations in patent infringement cases -- narrows market value construction of damages and allows juries to consider apportionment
• Toughened standard for finding "willful" infringement -- codified, rather than court discretion; this may impact due diligence requirements for in-house patent counsel
• Expanded procedures to challenge patents after issuance and the right of third parties to submit prior art during prosecution
• Restrictions on venues where patent cases can be filed -- based on where the defendant is active, unless plaintiff is non-profit, university, or an individual inventor

To view the full text of the bill click here.

The White & Case 2009 Patent Reform Update is prepared for the general information of our clients and other interested persons. It should not be acted upon in any specific situation without appropriate legal advice.

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