Corporate Counsel
The Metropolitan
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Volume 14, No. 2
© 2006 The Metropolitan Corporate Counsel, Inc.
February 2006
Was It A Bang Or A Whimper?
Thomas F. Holt, Jr.
and Kenneth X. Xie
KIRKPATRICK & LOCKHART
NICHOLSON GRAHAM LLP
The year of 2005 was thought by many
to be the year that U.S. patent law would
have its most significant and critical
development since the early 19th century.
The patent reform movement finally
caught Congress’s attention after the publication of two studies, one by the
National Academy of Sciences and the
other by the Federal Trade Commission,
both of which outlined certain shortcomings of the current patent system in the
U.S. The reform movement shifted into
high gear in early June when the Patent
Reform Act of 2005 (H.R. 2795) was
introduced. In the following months, a
draft amendment was submitted by Congressman Lamar Smith, the sponsor of the
bill, and another by a coalition of major
U.S. companies. A hearing was then held
by the House Subcommittee on Courts,
the Internet, and Intellectual Property during which experts and legal scholars representing various industries offered their
support and opposition to the key provisions of the bill. Every slight development concerning the bill was reported in
the trade papers and scrutinized closely by
many in the patent law community.
As the months passed and the new year
approached, however, the much anticiThomas F. Holt, Jr. is a Partner and
Kenneth X. Xie is an Associate in the
Boston office of Kirkpatrick & Lockhart
Nicholson Graham LLP.
Thomas F. Holt, Jr.
Kenneth X. Xie
pated patent reform of 2005 cooled off
and failed to materialize. One of the factors possibly contributing to the stalemate
in patent reform in 2005 was the polarizing effect that certain proposed changes
purportedly had on the software/IT industry as well as the life science/pharmaceutical industry, two very significant
economic personalities in the U.S. Perhaps competing interests resulted in major
lobbying groups promoting positions
against each other which eventually prevented any workable compromises from
being formulated. On one side of the
debate is the software/IT industry which
often finds itself as a defendant in patent
infringement suits because its complex
technologies give rise to products which
often allegedly comprise numerous features, one or more of which correspond to
a claim of a third party patent yet is
arguably also in the public domain. In this
regard, the software/IT industry views the
Patent Reform Act as a vehicle for
improving patent quality and thereby
curbing excessive litigation. The original
draft of the bill very much favored this
view by including a new balancing test for
granting an injunctive remedy in lieu of
the current rule which almost always
grants an injunction automatically upon a
finding of infringement, and a “second
window” provision in the form of postgrant patent opposition procedures.
Again, according to the software/IT industry, the key benefit of such provisions is
improved patent quality which results in
less likelihood of litigation. In effect,
these provisions shift the burden from the
alleged infringers to the patentees in
infringement cases.
On the other side of this issue is the
Please email the authors at tholt@klng.com or kxie@klng.com with questions about this article.
Volume 14, No. 2
© 2006 The Metropolitan Corporate Counsel, Inc.
biotechnology and pharmaceutical industry. Its member companies argue that
their survival depends, to a large extent,
on their ability to rely on their portfolio of
granted patents and the ability to assert
permanently their exclusive rights in
those patents against potential infringers.
Thus it was no surprise that this industry
strongly opposed the original text of the
Patent Reform Act, specifically the
injunction provision and the “second window” provision. They argued that these
two provisions would only diminish the
value of legitimate patents and, thus,
would be detrimental to the whole patent
system. Their lobbying efforts apparently
did not go in vain since both the injunction provision and the “second window”
provisions were left out of Congressman
Smith’s draft amendment circulated in
late July 2005. In addition, the Congressman’s draft amendment completely eliminated another provision in the original bill
which grants authority to the Director to
place limits on the filing of continuation
patent applications. The practice of continuation applications is another feature of
the current U.S. patent system relied upon
heavily by the biotechnology/pharmaceutical industry. It is of interest to note,
however, that the U.S. Patent Office
recently published proposed rule changes
within the U.S. Patent Office that would,
if implemented, significantly curtail use
of and reliance upon continuation application practice.
The above-described draft amendment
is definitely the preferred version of the
biotechnology/pharmaceutical industry,
as was apparent from the testimony of its
representatives in the House subcommittee hearing held on September 15. As a
possible compromise to accommodate
both industries, a new venue provision
was added to the amendment requiring
patent infringement suits to be brought
either in the jurisdiction where the defendant resides or where the defendant has
committed infringement and has a regular
place of business. By forcing patentees to
bring their cases to defendants’ home
field, the draft amendment seeks to please
the software/IT industry and regain sufficient support from both sides to move the
amended bill forward.
Although Congressman Smith’s draft
amendment appeared to be a step in the
direction of enactment in 2005, there have
been no significant developments since
the September hearing. Is this a sign that
more compromise and/or additional
industry support is required? Given the
ever growing concern about large damage settlements in patent infringement
litigations, both sides are pushing hard to
have the current patent law amended to
best serve their respective industry. It is
likely to be difficult to move the bill forward any time soon simply because a
reform bill satisfactory to both industries
will likely require more cooperation and
concession.
While the House version of the Patent
Reform Act of 2005 has stalled, Senator
Ensign and fifteen other co-sponsors
introduced a bill in the Senate entitled the
“National Innovation Act of 2005” (S.
2109) just before the year ended. Given
that the Senate Subcommittee on Intellectual Property held two oversight hearings on the subject of patent reform early
in 2005, many anticipated – and appropriately so – that the Senate would join
the reform movement and publish its
own version of the bill soon after the
House bill was introduced. To the disappointment of many, the Senate remained
quiet on this issue for most of 2005 perhaps, as has been suggested by some,
because members of the Subcommittee
also serve on the Judicial Committee
which is caught up in the high-profile
debates on judicial appointments.
The version of the “National Innovation Act” which was published December
15, 2005 by the Senate does not parallel
the House’s Patent Reform Act of 2005.
Although the bill includes a very brief
last section (Section 503, comprising
about 30 lines of text) entitled “Sense of
Congress on Patent Reform,” Section
503 is silent as to the substance of the
Patent Reform Act and essentially steers
clear of addressing directly any of the
earlier-described controversial issues
central to the Patent Reform Act. In fact,
the Senate’s innovation bill is directed
almost exclusively to federal (and private-sector) initiatives in education, tax,
defense and other policy areas aimed at
promoting innovation in the U.S.
On the patent reform front, Section
503 (30 lines of text out of a total of
about 1400 lines in the entire bill) only
offers broad policy authorizations for
enhancing the quality of patents, but
takes no appreciable stand – explicit or
implicit – on hot issues such as injunction and post-grant opposition proceedings. Section 503 does state that “. . . it
is the sense of Congress that . . . the
patent system should be reformed to
February 2006
enhance the quality of patents, . . . create
incentives for improved search and disclosure of prior art; . . . [and] establish a fair
and balanced post-grant patent review procedure . . . .” Thus, it appears that the Senate has given the nod in a direction of
reform but not yet provided guidance as to
how such reform would best be accomplished.
Elsewhere in the Senate bill, there is
text which may inform the apparent policy
debate currently occupying the Senate.
For example, Section 2 states that “[t]raditional measurements of innovation capacity focused solely on inputs, such as . . .
number of patents . . . . are necessary but
are not sufficient metrics for innovation in
the 21st century’s knowledge economy.”
Section 2 further states that the “purposes
of this Act are to . . . create the most fertile
policy environment for innovation to
occur; . . . [and] examine both the incentives for, and barriers to, innovation to better understand what additional policy
changes are warranted.” Sounds like more
hearings await us in 2006.
Despite this policy debate (and stalemates) in the Congress, the Supreme Court
has promised to assume an active role in
attempting to settle perhaps one of the
ongoing debates on patent reform in 2006.
By granting certiorari to the case MercExchange LLC v. eBay Inc., one of the more
important and highly anticipated patent
cases in recent history, the Supreme Court
is poised to decide whether to uphold the
long established standard for granting permanent injunctions after infringement is
established. This could be the second battleground where the software/IT industry
and the biotechnology/pharmaceutical
industry face off on this contentious issue,
which in the view of many is probably the
most controversial item in the Patent
Reform Act.
In spite of the mixed messages sent by
Congress in 2005, we should expect that
patent law reform is only a matter of time.
Is 2006 the year? Maybe, maybe not. As
Senator Hatch, the Chairman of the Senate
Subcommittee on Intellectual Property, has
stated: “[P]atent reform still has a fair distance to go before a sufficient consensus
forms in Congress around a particular set of
reforms. . . . [T]his is not uncommon for
patent reform legislation, which often takes
several years from conception to enactment.”
One thing is certain – there will be no
shortage of debates and proposals on
patent reform in 2006.