First-To-File in the U.S., Small Entity Inventors, and Grace Periods

University of Virginia law professor Margo A. Bagley has published a draft paper titled "The Need for Speed (and Grace): Issues in a First-Inventor-to-File World" that looks at various issues and concerns over a first-to-file regime (FITF) proposed recently in the Patent Reform Act. A refreshing aspect of the paper is that it is less concerned on the merits of "whether" the U.S. should switch to FITF and more on "when" and under what circumstances the change should happen to be most beneficial to small entity inventors in the U.S. and beyond:

Small entity inventors include those in universities and other non-profit organizations. The patenting activity of university inventors is of particular interest not only because it is increasing but also because it is associated with entrepreneurship. According to the Association of University Technology Managers (AUTM), its members, more than 80% of whom are colleges and universities, received over $45 billion in research support, filed 15,908 U.S. patent applications (compared to 10,687 in 2001), received 3255 patents, and launched 553 start-up companies in 2006 alone. In fact, since 1980, when the Bayh-Dole Act supporting university-industry technology transfer was passed, AUTM members have founded over 5,724 new companies, or more than one company every two days.

* * *

Because academic researchers have traditionally focused on basic research, as opposed to applied research, inventions generated in universities and disclosed to Technology Transfer Offices (“TTOs”) for patent protection are often embryonic and have only speculative commercial value. University TTOs, having limited funds and an increasing number of invention disclosures, must decide which inventions to prosecute with little information on potential commercialization success. For example, in 2006, AUTM members received 18,874 new invention disclosures from researchers but filed only 11,622 new patent applications.

Interestingly, while the US remains alone in not having FITF, foreign knowledge tranfer offices view this as a good thing. According to ProTon Europe (link), the pan-European network of knowledge transfer offices and companies affiliated with universities and other public research organizations:

European universities and other public research organizations still file on average 5 times less patent applications than their U.S. counterparts, although the total research budgets are comparable. The lower propensity to patent is attributable to 2 main factors: . . . .

The fact that the U.S. patent system is much more favourable to universities than the European system. In addition to lower cost and single language, the U.S. universities are taking advantage of the protection of inventors by the first-to-invent principle, a grace period of one year, the continuation-in-part system, provisional applications, 50% reduction in filing and maintenance fees, no maintenance fees before grant, wider patentable inventions, etc. There is no question that the U.S. universities could not have achieved the reported benefits for the U.S. economy in terms of new products, new companies, and new jobs with the patent system available in Europe.

Thus, through a robust grace period, small entities can get time for commercialization assessments, revenue generation, and academic discourse. However, in order to be truly effective and "harmonized," Bagley argues that FITF in the U.S. must also be accompanied by grace periods in "absolute novelty" jurisdictions, like the EU:

A U.S. move to FITF is unlikely to signal “the end of the world” for small entity inventors, but it does not seem to offer enough benefits, as currently proposed, to justify its potential harms. Nevertheless, if the U.S. is to move to a FITF patent regime, when should it do so? Only when such a move will provide a clear advantage for small entities by facilitating the adoption of a one year grace period outside of the U.S.

[A] move by the United States to a FITF system will likely have negative ramifications for small entity inventors. Delaying a move to FITF until it can be used to facilitate the adoption of a one-year grace period in other countries will allow the United States to make the bitter pill of the race to the patent office considerably easier for many researchers and entrepreneurs to swallow by providing them with something very useful in return. The adage “haste makes waste” surely applies here: a hasty move to FITF may waste our best hope for obtaining from other countries the grace period that is so critical for small entity innovation, academic discourse and prompt dissemination of information.

Read/download a copy of Professor Bagley's draft paper here (link).

Patent Reform Touches DNC in Denver

From the "Tech Daily Dose" for Congressional Daily:

Rep. Zoe Lofgren, D-Calif., told a crowd in Denver on Tuesday that it is crucial for Congress to pass legislation to update the U.S. patent system next year -- even if the measure is a scaled back version of the broad, controversial language that was in play during the 110th Congress. The House passed its patent bill but a companion stalled in the Senate.

Lofgren, who represents the Bay Area and is a key member of the House Judiciary Committee, said a new effort should begin with "things we know we can agree on." A proposal that would curb judicial "venue-shopping" for favorable courts is critical as is language to address patent abuses, she said. "How do you legally set a framework that prevents abuses and allows for a vigorous system that protects intellectual property?" Lofgren asked aloud. "It's not easy to come up with solutions."

Read the short article here (link)

Patent Reform Crawling Back In 2008? Lemley Proposal For Damages May Provide Answers

Friday's CongressDaily reported that Senate Minority Whip Kyl and his staff are in the process of drafting patent reform legislation, and they are expected to unveil their proposal in September. According to sources, the draft "is said to be much different from the version introduced by Senate Judiciary Chairman Patrick Leahy and Sen. Orrin Hatch."

While the details have not been revealed, the legislation is expected to address damages, post-grant review, inequitable conduct and "patent quality initiatives."

On damages, "litigants would be encouraged to use precise economic analyses to determine damages rather than less exact calculations." Post-grant reviews would be available for 12-18 months after issue, where reviews would be limited to issues of novelty and obviousness. On inequitable conduct, the legislation would "would require patent applicants to be more forthcoming to the PTO or face penalties." However, unlike previous legislation, the new proposal would address allegations of misconduct through administrative proceedings rather than in the courts.

Also, submission of search reports and analysis relevant to patentability will be required for every application. Commerce Secretary Gutierrez previously wrote to lawmakers that this provision would be "the strongest step toward improved patent quality."

For more information, see

- "Kyl Maps Out A Separate Course On Patent Legislation" (link)

- "Groups Plot Strategy For Patent Overhaul In Next Congress" (link)

Issues surrounding damages continues to divide the patent community however. Critics of the current regime argue that "reasonable royalty" damages are overcompensating (non-practicing) patentees. Accordingly, damage apportionment has been put forward as a means to curb the perceived overcompensation.

However, should Congress tweak reasonable royalty compensation, or should they look somewhere else? A recent paper by professor Mark Lemley suggests that easing restrictions on "lost profits" damages may provide a better means for market competitors to recoup damages, while reducing tendencies of courts to provide "kickers" on reasonable royalties. From the abstract:

[T]he lines between lost profits and reasonable royalties are blurring. In significant part this is because courts have insisted on strict standards of proof for entitlement to lost profits. Specifically, patentees must prove demand for the patented product, the absence of noninfringing substitutes, the ability to meet additional demand in the absence of infringement, and the proportion of those sales that represent profits. This in turn means that many patent owners who have in fact probably lost sales to infringement cannot prove lost profits damages, and turn to the reasonable royalty measure. The result is that courts have distorted the reasonable royalty measure in various ways, adding "kickers" to increase damages, artificially raising the reasonable royalty rate, or importing inapposite concepts like the "entire market value rule" in an effort to compensate patent owners whose real remedy probably should have been in the lost profits category.

In Part I, I explain the strict requirements for proving lost profits, and give examples of patentees who have failed to meet these requirements. In Part II, I explain how relegating these patentees to reasonable royalties has led to problematic changes in reasonable royalty law. Finally, I suggest in Part III that courts should draw a sharp division between the injury suffered by patentees who compete with infringers and those who do not. Patentees who compete should be entitled to the best estimate of lost profits, even if not all elements of proof are available. Doing so will avoid overcompensating patent owners in reasonable royalty cases.

Read more of Lemley's paper, titled "Distinguishing Lost Profits from Reasonable Royalties" here (link)

Obama On the USPTO: Reading from the CPF Playbook?

Excerpt from interview with Senator Obama from the WSJ:

As I mentioned during the speech, there may be programs that no longer work. There's certainly all kinds of previsions [sic] in our tax code that are antiquated and are not spurring economic growth. We've got offices like the patent office that are outdated to take advantage of new discoveries here in the United States. We need to retool our government so that it works with a 21st century economy and in some ways our campaign has shown what happens when you retool political campaigns to a new requirement. I think we need to do the same thing with government as well.

Read the interview in its entirety here.

Interesting choice of words: "outdated to take advantage of new discoveries"? The patent system certainly has flaws, but not many practitioners have categorized patent reform as a necessary mechanism for improving an "outdated" system (at least not between themselves). The notable exception here is the Coalition for Patent Fairness, which appears to make this issue a consistent and central theme in their call for patent reform. To wit, from their recent press releases:

• "The country's system of granting patents for inventions, last revised some 50 years ago, needs updating . . ."

• "Our nation's outdated patent system curtails creativity and innovation . . ."

• "Our current patent system is woefully outdated and threatens to curtail creativity and innovation . . ."

• "Washington hasn't redrawn the rules in a major way since the 1950s . . ."

• "The days when typewriters reigned supreme are in fact the last time our nation's patent laws were updated . . ."

• "Patent law hasn't had an overhaul since the 1950s. It's time to bring it into the 21st century."

A nod of the head for "CPF-style" patent reform in 2009? You decide.

Congress Requests Answers From The USPTO; Rough Times Ahead?

"The ancient Romans had a tradition: whenever on of their engineers constructed an arch, as the capstone was hoisted into place, the engineer assumed accountability for his work in the most profound way possible: he stood under the arch."

-- Michael Armstrong

On April 29, Howard Berman, Chairman, Subcommittee on Courts, the Internet, and Intellectual Property shot off a letter to USPTO Director Jon Dudas, asking some rather pointed questions on USPTO management and practice. What is apparent from the letter is that someone (or some group) has gotten the ear of Congress and is publicly unleashing some pent-up grievances held by practitioners against the PTO.

Of course, there is no hellfire and brimstone in Berman's letter, but is is clear from the tone that something doesn't smell quite right to the Congressman (e.g., pointing out multiple PTO shortcomings, referring to "USPTO estimates" in quotations), and you can feel the sweat rolling off your brow if you imagine yourself being tasked with answering the questions posed.

Some of the highlights of the letter:

• According to the recent GAO report titled "Hiring Efforts Are Not Sufficient to Reduce the Patent Application Backlog, " the GAO found that the USPTO cannot hire enough patent examiners to reduce patent pendency in the next five years. 1t seems, however, that this projection is based on estimates provided by the USPTO. . . . Please provide all data related to these "USPTO estimates, " including mathematical models, and underlying statistics and assumptions such as examiner retention and productivity. Under these same assumptions, hypothetically, how many patent examiners would have to be hired in the next five years in order to reduce the patent backlog?

• After release of the above mentioned GAO report, the USPTO issued"a press release on October 4, 2007 that stated the USPTO would"review assumptions the agency uses to establish production goals for patent examiners." (See attachment 5). Then, before the Subcommittee, Director Dudas confirmed that the USPTO has begun to study patent examiner production goals. Please provide details on the methodology of the study and personnel conducting it. What is the current progress of the study and when can Congress expect the study to be completed? To what extent is the Patent Office Professional Organization and the Patent Public Advisory Committee involved in this study?
  

• As evidence of greater quality, Director Dudas mentioned in his testimony that in 2000, 70% of all applications led to a patent while in the first quarter of2007, only 44% ofall applications led to a patent. How did the USPTO account in these statistics for Request for Continuing Examination (RCE) applications, continuation applications and the applications that had to be abandoned in order to file continuation applications?
  

Also a question from Representative Darrell Issa:

• Examination on Request (or, as the USPTO called it, Deferred Examination) is used in many countries such as Canada and Japan. Under such a system, applications are not examined automatically, as in the U.S., but only upon a specific Request for Examination within a set time period, say 3 years. If no request is filed within that period, the application is deemed abandoned and is never examined. From experience of other patent offices, 10% to 40% of applications are never examined under Examination on Request systems, resulting in substantial workload reduction. This is due to applicants' voluntary abandonment of obsolete applications prior to the Request for Examination deadline. Under current USPTO practice, applications that become obsolete, but receive examination by the USPTO, are the worst investment the USPTO can make because their obsolescence means that the patents are unlikely to fetch any renewal fees.

• Why did the USPTO reject such a method that has the potential to reduce its workload and increase efficiency?
  

Last, but not least, it appears that "RIM-Gate" continues to hound the PTO. From Berman's letter:

• According to a Time article dated April 2, 2006, and supported by an email allegedly from James Toupin dated January 3, 2005, senior USPTO officials met with Research in Motion (RIM) CEO Jim Balsillie while a reexamination concerning patents owned by NTP and at issue in a lawsuit filed by NTP against RIM, was before the USPTO (See attachments 10 and 1I). Did this meeting take place? What was discussed at this meeting? What is the USPTO's policy concerning ex parte communications between senior USPTO officials and parties who have an interest in the outcome of proceedings before the Office? In what other instances, if any, did senior USPTO officials engage in similar ex parte communications with parties that had an interest in the outcome ofa proceeding being conduct before the Office?
  

For more information, see Patently-O (link), and also take a good look at NTP's April 2006 response during reexamination (hint: start at page 74), where many of the juicy bits are displayed for the public.

Download a copy of Berman's letter here (link)

Friday Shorts: Bilski, Troll Tracker, Patent Reform

Bilski Oral Arguments Aweigh! Yesterday, the CAFC heard oral arguments for In re Bilski, No. 2007-1130 to consider what, and what is not, patentable subject matter. To listen to an MP3 of the oral arguments, click here.

Eyewitness accounts are rolling in - over at the PLI Blog, Gene Quinn has a good play-by-play of the oral arguments (link). Josh Sarnoff over at the AU Program on Information Justice and Intellectual Property Blog (link) has an eyewitness account and some additional thoughts. Charley Mecedo kindly emailed me his account of the argument

InformationWeek also has an article here (link), and the Associated Press weighed in here (link).

No one has a sense of how the CAFC will exactly rule on this issue. The consensus, at this point, is that State Street will likely be intact, software will still be patentable, and we can expect another layer of analysis to be added to the onion skin of patentable subject matter (e.g., post-solution activity, etc.).

Patent Troll Tracker Litigation Update: Joe Mullin has the latest on the fireworks surrounding the defamation lawsuit against Frenkel (aka The Patent Troll Tracker). There's a lot in his latest post (link), including commentary from none other than Ray Niro.

Is Patent Reform Getting Ready For a Tapout? From the Economist: "While the arguments rage in the courts, Congress seems content to do nothing at all about patent reform. On May 5th the Senate removed the bipartisan Patent Reform Act from its calendar."

NYT: Patent Reform "Boon To Lobbyists", Dudas Claims Applications Are Getting "Worse and Worse"

In a new article, the New York Times discusses some divergent perspectives on the patent reform act, noting that over the last 15 months, the Coalition for Patent Fairness and the Coalition for 21st Century Patent Reform collectively spent $4.3 million lobbying on the legislation (CPF = $2.5M, 21CPR = $1.8M). This number doesn't include amounts spent by other groups and individual corporations that could easily double this amount.

In addition to lobbying, the article also focused on the ongoing debate over inequitable conduct. One noteworthy statistic cited in this regard is specifically aimed at pharmaceutical patents:

In the last 15 years, the United States Court of Appeals for the Federal Circuit, which handles patent cases, has affirmed findings of inequitable conduct in at least 40 cases, including 14 that involved pharmaceutical or health care products. Similar findings have been issued by federal district judges in an unknown number of cases that were not appealed.

One of the more interesting points in the article were the comments of USPTO Director Jon Dudas, who had the following to say:

We are getting more and more unpatentable ideas, worse and worse quality applications. Historically, in the last 40 years, the allowance rate — the percentage of applications ultimately approved — hovered around 62 percent to 72 percent. It went up to 72 percent in 2000, but dropped to 43 percent in the first quarter of this year.

This comment follows his statement at an IP Symposium earlier this month (reported by EE Times), in which he stated:

We've seen a problem with quality . . . [I question whether the current system is] making it too easy for people who want to file poor [patent] applications?

Also, compare this to the comments he made to IAM last month on patent quality:

[W]e’ve determined the quality of patents granted has been improving, and we expect this to continue because of current and future quality initiatives. A major concern we have at the USPTO--and it is a concern I have heard from many IP offices around the world--is the room for improvement in applications coming through our door.

Incidentally, IAM had a great article that discussed the "patent quality debate", where various IP leaders commented on patent quality (to see a brief except, click here). Quite interestingly, Alison Brimelow, President of the European Patent Office noted that, in her view, "[i]n spite of anecdotal evidence to the contrary, there is no hard empirical evidence that patent quality has substantially deteriorated in the last five or 10 years."

Monday Shorts - Business Method Challenge at the CAFC

Bye Bye Business Methods? The CAFC decided, sua sponte, to order an en banc rehearing of In Re Bilski. The following 5 questions were presented:

1. Whether claim 1 of the 08/833,892 patent application claims patent-eligible subject matter under 35 U.S.C. § 101?

2. What standard should govern in determining whether a process is patent-eligible subject matter under section 101?

3. Whether the claimed subject matter is not patent-eligible because it constitutes an abstract idea or mental process; when does a claim that contains both mental and physical steps create patent-eligible subject matter?

4. Whether a method or process must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101?

5. Whether it is appropriate to reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled in any respect?

See more details over at Patently-O (link), along with related briefing on similar matter in the Metabolite v. LabCorp case (link1, link2, link 3)


Chief Judge Michel Weighs In (Again) On Patent Reform: Chief Judge Michel gave the keynote speech at the Association of Corporate Patent Counsel on January 28, 2008. The following is an excerpt of the address:

When I joined the court almost 20 years ago, 90 percent of our cases were from completed trials, bench trial or jury trial. Now, today, between 70 and 80 percent of our cases are from summary judgments. So we already have a huge number of interlocutory [appeals], i.e., pretrial appeals where the critical issue is claim construction. So the question becomes, well, do we need a lot more of those? Are we missing a large portion of the cases in which the claim construction is so decisive that we better have an immediate appellate review of the district judge’s construction? Well, maybe so but it’s not obvious to me that it’s the case and the [Senate] report, at least as I read it, doesn’t make much of a case, and it certainly shows no awareness at all of the fact that the vast majority of our appeals are pretrial appeals and do turn on claim construction.

Read the entire transcript here (link).


PTO Releases Prior Copies of MPEP: On February 7, the PTO announced that all prior editions and revisions of the MPEP are available in PDF format on the MPEP webpage (link). An interesting quote from the original 1949 MPEP (section 3) :

An art, process or method is a mode of treatment of certain materials to produce a given result. It is an act, or a series of acts, performed upon the subject matter to be transformed an reduced to a different state of thing. Cochrane v. Deener, 1877 C.D. 242. A method which produces an intangible result, such as transmitting speech by a telephone comes within this definition also.

PTO Updates Declaration Docs and Other Forms: On February 13, the USPTO has modified its Declaration form (PTO/SB/01) to include a checkbox which provides the applicant with the option to preauthorize the EPO and JPO to access its US application(s) [in order to obtain priority documents]. Essentially, this updated Declaration form bypasses the need to file a separate form PTO/SB/39, "Authorization to Permit Access to Application by Participating Offices." See other form updates here, courtesy of I/P Updates.


CBO Estimates Cost of Patent Reform: On February 15, the CBO estimated the costs of enacting S. 1145:

CBO estimates that enacting the bill would increase direct spending by $26.9 billion and revenues by $25.5 billion over the 2009-2018 period. Much of that change would result from making permanent PTO’s authority to collect and spend certain fees, thus shifting the collections and spending out of PTO’s appropriation account. In total, those changes would increase budget deficits (or decrease surpluses) by $1.4 billion over the 2009-2018 period.

View the entire report here (link)

The Politics of Patent Reform

The House Small Business Committee will hold a hearing this morning entitled, “The Importance of Patent Reform on Small Business.” Organizations appearing before the committee include the USPTO, Proctor & Gamble, the National Venture Capital Association, and the Innovation Alliance.

So far, the patent reform debate has been largely a discussion between “big tech,” which wants sweeping changes, and “big pharma,” which does not. The overall issue of the hearing will focus on the roles technology transfer-oriented firms play in the U.S. economy, and how difficult it should be for companies to obtain, defend, and infringe, patents.

Historically, pharmaceutical manufacturers and their employees have given more than twice as much — $29.9 million versus $14.8 million – to Republicans than to Democrats. Democrats have returned the favor by pushing for re-importation of prescription drugs, lower drug prices, and other anathema topics. Changing patent laws fits into the same category. Computer and software companies have been more even-handed. They dispensed $31.5 million, versus $30.2 million, for Republicans over Democrats during a similar period.

Now that the balance of power has changed in Congress, it appears the traditional battle lines between computer-tech and biotech are becoming more fragmented.

The Pharmaceutical Research and Manufacturers of America (PhRMA) is the pharmaceutical industry's top trade organization, and is the biggest pharmaceutical lobby. The group maintains that patent protection should be strong, and that opportunities for invalidating patents should be limited.

Taking a middle-of-the-road approach, the Coalition for 21st Century Patent Reform was created last week. Members of the group (referred to by lobbyists as "Pharma-lite") support the recommendations of the National Academy of Sciences, which advocate a stronger and more open USPTO, and also advocate eliminating subjective elements of patent litigation. Members include 3M, Caterpillar, Eli Lilly, General Electric, Johnson & Johnson and Proctor & Gamble (see patent reform positions here).

On the computer-tech side, the Business Software Alliance (BSA) includes members such as Microsoft, IBM, CA, Adobe, Cisco, HP, Intel and Apple. The BSA also wants a stronger and more open USPTO, and limits on damages. However, the BSA also wants a strong post-grant review system so that patents may be invalidated without going to court (see patent reform positions here).

In a similar vein, the Coalition for Patent Fairness, also wants more flexibility in challenging patents (see here). Many members of the Coalition also belong to the BSA.

However, an increasing minority of tech companies that rely on licensing revenue are fighting back efforts to challenge patents at any given time. Led by Qualcomm and other chip-design companies, a new lobbying force called Innovation Alliance is accusing dominant tech incumbents of using patent reform to weaken their less-capitalized brethren. According to the Alliance, allowing unlimited challenges in the PTO on issued patents would seriously disrupt the business models of companies that rely on licenses for generating revenue.

• See GigaOM article, "Patent Overhaul now on D.C. Agenda."

Berman: Pharma to Blame For Holding Back Patent Reform

Congressman Howard Berman (D-Ca) recently spoke at the opening of the Tech Policy Summit in San Jose, where telecommunications and high-tech speakers gathered to discuss issues ranging from trade agreements to patent rules to Internet traffic. Yesterday's discussions included numerous topics related to patent reform, and included speakers Jon Dudas, Mark Lemley, and Nathan Myhrvold, among others.

A wide number of bloggers from ZDNet and other groups are attending the conference, and have provided some interesting feedback on the positions taken by various speakers:

Mark Lemley

The USPTO backlog is killing the patent system. Add to the fact that a fair portion of patent applications are borderline frivolous (e.g. using laser pointer to exercise a cat), lots of time is needlessly wasted, thus increasing the backlog.

Standards setting organizations need to figure out what a "reasonable royalty" is, and patent infringement settlements need to be more in line with the actual value of the intellectual property.

With the recently invigorated Supreme Court: "It's a question of whether they take a hatchet to the rules or a more measured approach. We are starting to see a swing away from patent owners to the other side of the spectrum."

Nathan Myhrvold

Myhrvold complained that some tech companies are allergic to paying patent-related royalties. "Most tech companies play 'catch me if you can'" (although AutoDesk's CEO Carl Bass later countered that "if companies concerned with innovation infringe on someone else's patents, you can't protect your own").

Market rates for patent royalties need to be established, much like the consumer electronics industry or publishing industry. "Unfortunately, even without people colluding in some way [which could have anti-trust implications], there is not much of a market if you do patent deals without litigation and keep it secret."

Howard Berman

Legislation to overhaul aspects of the patent system could take shape in as few as two or three weeks, and will happen before any copyright reform.

Previous attempts at patent reform died in a crossfire between the technology industry, which broadly supported changes, and the pharmaceutical industry, which opposed them. Berman claims he had been pushing for changes since 2000.

Berman also claimed the pharmaceutical industry relied on its strong ties to the Republican leadership to reject changes to patent law. “The order came from on high, not to move legislation. Rather than a mechanism to work through differences, essentially, it was a sham process, because the [Republican] leadership of the committee was told not to move the bill.”

Berman added that “this is an issue that doesn’t break down on partisan grounds,” and the technology sector’s desire to seek changes in patent laws has “created a groundswell, a strong momentum for reform, to make it the highest priority of our subcommittee.”


See blogging and other coverage on the event:

Tech Policy Summit Blog

ZDNet

TechDirt

The Technology Chronicles

Uberpulse

The 463 Blog

Tech Daily Dose

Funny quote from the 463 Blog: "It took Andrew Noyes [from Tech Daily Dose] 23 hours to get to San Jose; he lost his luggage; but, he is still the best dressed here."

Rep. Boucher (D-Va.) Promises "Early" Passage of Patent Reform In 2007

Last Wednesday, U.S. Rep. Rick Boucher (D-Va.) predicted before an early morning crowd at the State of the Internet Conference that the tech industry's interest in patent reform would be rewarded early in the 110th Congress.

Reports stated that, hours after the conference, Boucher and Rep. Howard Berman (D-Calif.) (re)introduced the Patents Depend on Quality Act of 2006 (PDQ Act). Boucher said hearings would begin this month, and he hoped for a full floor vote by March or April.

The reports don't provide any further detail on the proposed law (and Thomas and GovTrack don't show any updates yet), but it is presumed that the current PDQ Act is substantially the same as H.R. 5096 introduced in April of '06 (see text here).

For those keeping track, the PDQ Act is considered to be the narrowest of various reform acts that were paraded through Congress in '05 (H.R. 2795) and '06 (S.3818). So far, none of the proposed laws have seen the light of day.

Maybe the third time's the charm for this bill. As mentioned above, this bill is a retread of H.R. 5096, which, in turn, is a retread of H.R. 5299 ("Patent Quality Assistance Act of 2004"). In short, the PDQ Act proposes many of the more widely-accepted aspects of patent reform: post-grant review within the PTO, 3rd-party submission of prior art following publication, and removal of the estoppel provision for inter partes reexamination. However, the PDQ Act does contain the controversial "second window" for post-grant review, which may cause some problems (see more from Matt Buchanan's blog post here).

Andrew Noyes, who posts on the Tech Daily Dose blog for the National Journal's Technology Daily, was present at the conference in which Boucher made his remarks, and adds the following tidbits:

Aaron Cooper, a staffer for Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., said his boss and Sen. Orrin Hatch, R-Utah, will likely introduce a bill similar to the one they sponsored last year (S.3818).

But Ryan Triplette, who works for the panel's Ranking Republican Arlen Specter of Pennsylvania, said her boss wants in on the action. He was not at the negotiating table last year so "we're not as wedded to S.3818," she said. The issue is a top priority for Specter. "This is something that can get done this Congress," Triplette
said.

In the House, Reps. Rick Boucher, D-Va., and Howard Berman, D-Calif.,
will lead the charge. Amy Levine, a staffer for Boucher, said "you will see real initiative and a real drive to get patent reform legislation through."

Branden Ritchie, who works for Rep. Bob Goodlatte, R-Va., agreed that lawmakers "moved the ball pretty far" last year through a series of hearings and legislation. "We're looking forward to doing that again this time."

See report from InternetNews.com here.

On a side-note, Andrew also blogged about copyright issues discussed at the conference, and particularly about user-generated content. A panel featuring Jim DeLong of the Progress & Freedom Foundation, Pam Samuelson of the Berkeley Center for Law & Technology and Steven Starr from Revver.com started their session off with a video called "Brokeback to the Future," which induced more than a few chuckles in the audience - to view the video, click here.

Klemens: Bring Back Freeman-Walter-Abele For Software Patents!

Ben Klemens, author of "Math You Can't Use," is a guest scholar at the Center on Social and Economic Dynamics at the Brookings Institution, where he writes programs to perform quantitative analyses and policy-oriented simulations. He also consults for the World Bank on intellectual property in the developing world and computer-based simulations of immigration policy.

Ben is also an aggressive critic of software patents (who has previously butted heads with the 271 blog on this topic), and has just published a working paper titled "Drawing the Line: The Rise of the Information Processing Patent." The paper highlights many of the points brought up in his book, and provides some updates on recent developments in software patents.

Ben's work is important because he is one of the few critics that does a decent job at times in dissecting many of the problems facing the software industry in light of patents (as opposed to IP anarchists Eben Moglen and Richard Stallman, who propose banning software patents and other IP entirely). While I do not agree with many of his conclusions (e.g., software is math and is therefore unpatentable), his papers are often thought-provoking and well-written.

The timing of Ben's most recent article is interesting, since the criticism of software patents has now served as a catalyst for other industry and business members to call for sweeping reforms that would limit patentable subject matter and restrict patent rights across the board. While people have reflexively equated patents with a "pro-business" outlook, this has started to change. As Professor Wegner stated in his recent post on Patently-O, in today's business climate, being "pro-business" means to some people that you are "anti-patent."

And this sentiment is showing support in the USPTO as well. Setting backlog issues aside, the PTO has always been resistant to expanding the scope of patentable subject matter, and continues to be vexed over the proper handling of software and business-method patents. Recently, the undeniable fact exists that the PTO has renewed efforts to find any way to limit patentable subject matter (sua sponte, I might add), and has demonstrated unusual eagerness in aggressively attacking software patents. After reading Ben's paper, I was surprised how much Ben's recommendations had in common with the PTO's Interim Guidelines for Examination of Patent Applications for Patent Subject Matter Eligibility.

Critics contend that the primary problem with software patents is that they do not apply singularly to a specific "software" industry. While certain "centralized" technologies (such as biotech) have an inherently limited base of patents and patent owners, Klemens argues that the cost of R&D and compliance on account of patents is relatively straightforward, since most companies know who the developers are, and the technologies they normally develop in. However, since software is "decentralized," patents related to software have the potential to spill over to all industries, making patent compliance extremely difficult, if not impossible to accomplish.

While companies fabricating semiconductors or synthesizing drugs know where most of the patent threats lie, the same cannot be said of companies trying to assess a patent threat on software being used within the company, regardless of whether the software was developed there or not. As such, situations arise where a telephone company (e.g., Southwestern Bell Corp.) can send cease-and desist letters to a toy company (e.g., Museum Tour) on software patents related to a web-based structured document browser. As Klemens points out, "[i]t is unlikely that the owners of Museum Tour thought of themselves as a computer software firm, but by having a web site, they effectively were."

Accordingly, Klemens argues that

[i]t is wrong to think of software patents as only affecting companies that vend software. The majority of software designers and authors are at companies where software is simply necessary for daily operation. Whereas the set of people who have the know-how, equipment, and inclination to work on a mechanical device may be limited to a few hundred organizations, the set of people who work full-time on writing new and potentially innovative software is distributed among millions of organizations.

The paper goes further to posit that one of the main reasons why software patents permeate through multiple industries and cause problems is due to the elimination of the “insignificant postsolution activity” test put forward in Freeman-Walter-Abele:

The size of the software and business method pseudo-industries derives directly from the elimination of the concept of insignificant postsolution activity. Information and the tools to manage information are truly ubiquitous, but the equipment needed to engage in significant postsolution activity, such as testing a chemical’s properties or verifying that a machine actually runs, are available to a more limited range of people. Therefore, when inventions with no significant postsolution activity are allowed, the number of potential innovators grows exponentially.

* * *

The problems with patents in a massively decentralized industry stem from the elimination of the “insignificant postsolution activity” stipulation on patentable subject matter. Virtually every company in the country has a computer on hand, and those of a certain scale have full-time employees actively writing code. Yet only a handful of companies have employees actively synthesizing new drugs. This is closely related to the fact that information processing is a general requirement for anyone with information, and that information processing tools are considered to be stock equipment.

Thus, the recommendation of this paper is not an innovation, but a regression. A great many of the problems with patents that fill the newspapers and vex businessmen can be solved by reinstating the distinction from Diehr and its predecessors that indicate a device is patentable only if it is based on steps that are simultaneously novel and non-trivially physical.

Of course, at this point, most of Ben's suggestions are purely academic, since CAFC caselaw has expressly overruled Freeman-Walter-Abele. However, in light of the current climate perceived at the USPTO and Supreme Court, these is the distinct possibility that these questions will be raised again sooner than we think.

Download/read Ben's paper here.

Read the transcript from Brookings Institution symposium "Software and Law: Is Regulation Fostering or Inhibiting Innovation?"

• Patent Trolls: The paper addresses "patent trolls" and also provides a revised definition of "patent troll," which, in my opinion, is more accurate: "a patent troll is one who unfairly takes advantage of informational asymmetries by suing independent inventors who are ignorant of the field of patents in which the troll works."
• "The Rule of 25": Chip Lutton, Chief Counsel of IP at Apple testified before the House Subcommittee on Courts, the Internet, and Intellectual Property on April 20, 2005, where he offered a “rule of 25” on patent litigation: for every case litigated, there are 25 that are filed, and for every 25 that are filed, there are 25 notice letters claiming a patent
  infringement sent out. For more info, see here and here.