![](media/image1.jpeg){width="6.489583333333333in"
height="1.15625in"}**Legislative
Bulletin...........................................September 7, 2007**

> **Contents:**
>
> **H.R. 1908** --- Patent Reform Act of 2007

H.R. 1908 --- Patent Reform Act of 2007 (*Rep. Berman, D-CA*)

**[Order of Business]{.underline}:** The bill is scheduled for
consideration on Friday, September 7, 2007, under a structured rule.

**[Background]{.underline}:** Article I, Section 8, Clause 8 of the U.S.
Constitution states that Congress shall have power to:

> "promote the Progress of Science and useful Arts, by securing for
> limited Times to Authors and Inventors the exclusive right to their
> respective Writings and Discoveries"

Congress passed the first patent statute in 1790, which did not create a
patent office, but directed applicants to file a petition with the
Secretary of State. The Patent Office remained under the Department of
State until 1849, was then transferred to the Department of the
Interior, and in 1925 was transferred to the Commerce Department, where
it remains today. The last major overhaul of U.S. patent law was over 50
years ago.

For additional information regarding patent reform, please see [CRS
Report RL33996](http://www.congress.gov/erp/rl/pdf/RL33996.pdf).

**[Summary]{.underline}:** H.R. 1908 would make substantial changes to
U.S. patent law that are expected to have a significant impact on the
U.S. patent system. Among the more notable and controversial provisions
are a shift to a first-to-file priority system (instead of the current
first-to-invent system), applying new "apportionment" rules to patent
infringement damages, a new post-grant review process, higher burdens to
find "willful infringement," expanded regulatory authority for the U.S.
Patent and Trademark Office, as well as the harmonization of U.S. patent
law with the prevailing laws of other major industrialized nations.

The bill would also impose intergovernmental and private-sector mandates
of \$985 million over five years, and would have a net discretionary
cost of \$11 million over five years.

**[Discussion of Key Issues & Conservative Concerns]{.underline}:**
While conservatives have weighed in both for and against various
provisions and on the overall bill, there does seem to be broad support
for patent reform in general. Support for the bill has generally come
from the high-technology, financial services, cable, and wireless
industries, who seek to modernize patent law for the 21^st^ century.
Opposition and concern has generally come from the bio-technology and
emerging-technology industries, venture capital, universities, and
manufacturing sectors, who believe the legislation downgrades the patent
rights that current law affords. The most controversial provisions are
discussed below.

[First-to-File System.]{.underline} Currently, the U.S. operates under a
"first-to-invent" patent system, where a patent is awarded to the
inventor that was the very first to invent the patented item (in cases
where two patent applications are filed at the same time). In instances
where a patent has already been awarded, current law provides a vehicle
(initiating "interference proceedings") to determine the first inventor.
H.R. 1908 would replace the current system with a first-to-file system,
under which the first inventor to file for a patent would be awarded the
patent, regardless of the actual date of invention. This change would
harmonize a major component of the U.S. patent system with the vast
majority of other countries in the rest of the world (there is no global
patent system, so the various provisions of patent law in different
countries can have significant impact upon inventors around the world).
The U.S. is currently the only industrialized nation that does not
operate under a first-to-file system. The bill would replace
interference proceedings with "derivation proceedings," which would
provide a forum to determine if a patent application that was first
filed was misappropriated from another inventor.

Proponents of this provision assert that a first-to-file system would
make major strides in addressing the current disparities between U.S.
law and foreign law, and would eliminate expensive and lengthy
interference proceedings that are often ineffective. Some have estimated
that the average cost of an interference proceeding is \$600,000, which
can present a substantial barrier to smaller players in the patent
system (such as universities and small high-tech firms). Opponents of
this provision assert that it will create a "race to the Patent Office,"
which will in turn significantly disadvantage small inventors that do
not have the resources that larger corporations do, resulting in poorly
crafted patent applications and lost opportunities for those entities.

[]{.mark}

[Patent Infringement Damages & Willful Infringement.]{.underline}
Current U.S. patent law provides that a patent holder is entitled to
damages to compensate for patent infringement, and must either be
compensated for lost profits or at least receive a "reasonable royalty."
Thus, patent owners who do not manufacture their patented item may seek
a reasonable royalty as compensation, while those that do manufacture
their patent may seek lost profits. A court currently has broad
discretion in determining fair compensation and penalty for infringement
by considering a range of issues appropriate to the circumstances (often
based on the 15 factors enumerated in *Georgia Pacific Corp v. U.S.
Plywood-Champion Papers, Inc.* decided in 1999).

[]{.mark}

Determining appropriate damages for infringement of a particular patent
can be a difficult and cumbersome process, since a product (such as a
computer) can draw upon hundreds or even thousands of different patents.
Thus, determining the value of a single patent to the overall value and
marketability of the overall product is particularly arduous. The
"entire market value rule" may be used by a court to permit recovery of
damages "based upon the entire apparatus containing several features,
where the patent-related feature is the basis for consumer demand."[^1]
Conversely, a court may apply principles of "apportionment" to determine
the appropriate amount of damages for infringement, where damages are
awarded only for the portion of the product value that is affected by
the relevant patent. In addition, a court may find that a patent was
willfully infringed, which allows the damages to be increased up to
three times the amount assessed.

[]{.mark}

H.R. 1908 would change the damages calculation in patent infringement
cases regarding reasonable royalties, and modify the process to
determine if damages may be based on the entire market value of the
product containing the patented item. The bill would direct judges to
determine how a royalty assessment should be conducted based one of
three methods -- one being a revised apportionment analysis, and another
being an entire market analysis with a higher threshold. The bill would
also significantly restrict a court or jury's ability to make a finding
of willful infringement (and therefore limit additional damages that can
be awarded).

[]{.mark}

Proponents argue this provision is necessary in light of recent cases
where patent owners have been awarded excessive judgments when only one
component of a complex product may infringe on a patent, and often cite
the \$1.52 billion judgment against Microsoft in *Alcatel-Lucent v.
Microsoft*. Proponents also argue that the current system has created an
industry of patent speculators who use the threat of an expensive and
unpredictable lawsuit to extort money from infringement defendants.
Regarding damages related to willful infringement, proponents argue that
recent cases have been miscalculated and excessive.

Opponents argue that these provisions would not adequately compensate
patentees for the actual harm caused by the patent infringement and that
the patent owner's damages would be reduced to that portion of the
patented invention which in the judge's view constitutes a unique
contribution over prior art. They also argue that courts can (and do)
ensure that any damages awarded by juries are appropriate and not
excessive by exercising their discretionary oversight, and cite the fact
that the damages verdict in the Microsoft case was recently reversed
(due to an incorrect calculation for damages by the jury) and this past
Tuesday the entire \$1.52 judgment was overturned by a U.S. Senior
District Court in San Francisco. Further, the chief judge of the U.S.
Court of Appeals for the Federal Circuit has argued that the provision
regarding apportionment is highly complicated and would be a "massive
undertaking for which courts are ill-equipped." Opponents of the
enhanced criteria in order to determine willful infringement argue that
these changes will make it much more difficult to obtain punitive
damages from unscrupulous and aggressive patent infringers.

[]{.mark}

[Post-Grant Review Procedures.]{.underline} Current U.S. law does not
contain post-grant review procedures, providing for a comprehensive
review of a patent already granted to ensure its validity, while similar
procedures are common-place in foreign law. While U.S. law does provide
for reexamination proceedings, this is viewed by some as too narrow and
limited in scope and application. Some critics charge that the lack of
post-grant review procedures has resulted in poorly defined patents and
increased litigation after patent issuance.

H.R. 1908 creates a new post-patent grant review process administered by
the USPTO to determine patent validity. An entity could petition for the
cancellation of an issued patent within 12 months of its initial
issuance (where there is no presumption of validity of the patent in
question), and a detailed review process must be followed to determine
the patent's validity.

As noted above, proponents of these provisions argue that this will
improve patent validity and decrease patent litigation, as well as
harmonize U.S. law with that of other countries. Opponents argue that
this new vehicle afforded to infringers would increase litigation by
making challenges easier, provides an open-ended route to challenge
valid patents that would increase uncertainly in patent validity (via
the expanded reexamination provisions), and would disproportionately
affect small companies and non-profit research groups that do not have
the means and the time to endure such proceedings and the associated
bureaucracy. Opponents also argue that the resulting uncertainty
regarding issued patents may make it very difficult to attract venture
capital necessary for research and development on new innovations.

[]{.mark}

[Rule-Making Authority.]{.underline} The USPTO currently has limited
authority to promulgate regulations regarding patents -- only those
directed toward the conduct of proceedings at the USPTO. As explained by
a Federal Circuit Court, "Congress has not vested the \[USPTO Director\]
with any general substantive rulemaking power..." H.R. 1908 would grant
USPTO broad rule-making authority, allowing the USPTO to "promulgate
regulations to ensure the quality and timeliness of applications and
their examinations..."

Proponents, including the USPTO and the Commerce Department (its parent
agency), argue that broader authority is necessary to "ensure an
efficient and quality-based patent examination process," and these
enhanced power is necessary for USPTO to keep pace with technological
advances of today's inventions and the patent process that is so
integral to commerce.

Opponents argue that this provision is vague and undefined and would
grant overly broad rulemaking authority to the USPTO Director, would
abdicate congressional power and responsibility in this sphere, and
dilute the effective role courts have played in recent years.

[Venue]{.underline}. The bill places new restrictions on the defendant's
ability to "forum shop" for patent friendly districts in which to file a
patent infringement claim. The bill narrows a party's ability to only
bring a civil action in judicial districts where it has its *principal*
place of business or where the defendant has committed a substantial
portion of the supposed acts of infringement. Proponents of this
provision, including the Justice Department, argue that this will
reasonably restrict the ability of plaintiffs to select a forum "that
has little connection to either party" (though DoJ has some concerns
with the net effect of the current language). Opponents argue that this
provision would unduly restrict a patent owner's access to the courts by
restricting venue to a small minority of U.S. jurisdictions.

[Bill Cost, Mandates, and Other Issues.]{.underline} The U.S. Patent and
Trademark Office (USPTO) operates from user fees collected from those
filing applications for patents and trademarks. Thus, while H.R. 1908
would increase the PTO's net outlays by \$3 million in 2008 and \$11
million over the 2008-2012 period, the bill authorizes USPTO to collect
fees to offset its increased costs. As noted above, the bill would also
impose intergovernmental and private-sector mandates on certain patent
applicants of almost \$1 billion over five years.

Further, CBO notes that "several provisions of H.R. 1908 would alter
intellectual property protections associated with brand name drugs and
could affect when competing versions of generic drugs ultimately enter
the market. The potential effects of the bill on the pharmaceutical
industry are highly uncertain."

**[Section-by-Section Analysis]{.underline}:** The specific provisions
of the bill are summarized below by section.

***Sections 1 & 2 -- Short Title, Table of Contents, Etc.***

-   Includes the short title of the bill and table of contents, and
    notes that references to U.S. Code sections which do not include a
    Title are referring to Title 35 (patent law).

***Section 3 -- Right of the First Inventor to File.***

-   Changes U.S. patent law to award patents on a first-to-file basis
    (or, more specifically, a first-inventor-to file system), instead of
    the current first-to-invent priority basis, and makes various
    conforming amendments as noted below. See Conservative Concerns
    section for a broader discussion of the first-to-file system.

-   Prohibits a patent from being issued if the claimed invention was
    (already) patented, described in a printed publication, in public
    use, or on sale (i.e. -- if "prior art" exists) either: 1) one year
    before the effective filing date or 2) one year or less before the
    effective filing date other than through disclosures made by the
    inventor that filed the patent (or by persons who obtained the
    disclosed information from the inventor).

> In other words, this provision retains current law which provides an
> inventor a one-year grace period in which he can make his
> invention/process publicly available prior to filing a patent
> application without this activity being used against him in seeking
> the patent later (so long as he files his patent application within
> one year of the initial publication of the invention). As noted in the
> committee report, the grace period "allows an inventor to assess the
> usefulness, marketability and practicality of the invention for a
> limited period of time before undertaking the expense of obtaining a
> patent on the invention."
>
> [Note]{.underline}: "Prior Art" generally refers to any and all
> information regarding a particular invention that has been made
> publicly available, in any form, during a specified period of time.

-   Stipulates certain exceptions where prior disclosures of the
    invention may not be considered prior art and thus may not be used
    to support the patent application, such as if the subject matter of
    the invention had been publicly disclosed (prior to the claimed
    disclosure within one year of the patent application) by the
    inventor or others who obtained the information from the inventor.

-   Stipulates that subject matter and a claimed invention will be
    deemed to have been owned by the same person or subject to an
    obligation of assignment (e.g. -- an employee which is the inventor
    who is obligated to assign the invention to his employer) to the
    same person if:

    -   the (claimed) invention was made by or on behalf of parties to a
        joint research agreement that was in effect on or before the
        filing date of the invention;

    -   the invention was made as a result of activities undertaken
        within the scope of the joint research agreement; and

    -   the application for patent for the invention discloses or is
        amended to disclose the names of the parties to the joint
        research agreement.

-   Repeals existing provisions for inventions made abroad (which have
    been in place for decades and that the committee report stated are
    obsolete).

-   Replaces current interference proceedings (currently used to
    determine who the first inventor is) with new derivation proceedings
    (used to determine if a patent application that was first filed was
    misappropriated from another inventor). This provision allows an
    applicant to request initiation of a derivation proceeding
    (conducted by USPTO) to determine the right of the applicant to a
    patent. The request must explain the basis for finding that another
    applicant derived the claimed invention from the application
    requesting the proceedings and then filed an application claiming
    the invention (without authorization). The request must be made
    within 12 months of the earlier of 1) the date when the patent of an
    invention in question is issued, or 2) the date of first publication
    of an application for a patent of the invention in question.

-   Allows the Patent Trial and Appeal Board (PTAB) to oversee
    derivation proceedings. Allows the PTAB to defer action on the
    proceedings for up to three months after the USPTA issued a patent
    to the applicant that filed the earlier application.

> [Note]{.underline}: The PTAB is established in Section 7 of the bill
> (discussed below), and also oversees post-grant review proceedings
> (discussed in Section 6).

-   **Effective Date:** Stipulates that the above provisions will take
    effect 90 days after the President transmits to Congress a finding
    that "major patenting authorities" (those "at least" in Europe and
    Japan) have adopted a grace period substantially the same as: a
    grace period consisting of 1-year ending on the effective filing
    date of a claimed invention, during which disclosures of the subject
    matter (of the invention) by the inventor or others who obtained the
    subject matter from the inventor (either directly or indirectly), do
    [not]{.underline} qualify as prior art to the claimed invention.

> In other words, Japan and other European countries must have
> substantially the same grace period in place (as certified by the
> President) before all the above provisions related to the U.S. move to
> a first-inventor-to-file patent system.

-   Requires the Under Secretary of Commerce for Intellectual Property
    and the USPTO Director to conduct a study every seven years on the
    effectiveness and efficiency of the above provisions and to submit a
    report to the relevant congressional committees.

***Section 4 -- Inventor's Oath or Declaration.***

-   Requires each inventor (as required to be listed in the patent
    application) to take an oath or declaration consisting of the
    following statements:

    -   the application was made or was authorized to be made by the
        individual;

    -   the individual believes himself or herself to be the original
        inventor or an original joint inventor of a claimed invention in
        the application.

> The provision allows the Director to specify additional information
> relating to the inventor or invention that would be required. The
> provision also allows the applicant to provide a substitute statement
> under certain circumstances.

-   Permits a person that the inventor has assigned (or is under an
    obligation to assign) to make an application for a patent. A person
    who shows sufficient proprietary interest in the matter may file a
    patent application on behalf of the inventor "on proof of the
    pertinent facts and a showing that such action is appropriate to
    preserve the rights of the parties." The patent will be issued to
    the "real party in interest" (the patent filer, not the inventor),
    and the USPTO is not required to notify the inventor.

> ***Section 5 -- Right of the Inventor to Obtain Damages.***
>
> [Note]{.underline}: The bill retains current law providing for damages
> to be awarded to a prevailing claimant to compensate for the
> infringement, which are to be "no less than a reasonable royalty" for
> the use of the invention by the infringer, plus interest and costs as
> determined by the court. Thus, damages may be awarded based on lost
> profits (if it is possible to determine) or a reasonable royalty. As
> such, the provisions below modify how a "reasonable royalty" is to be
> determined.

-   Requires that an award of damages based on a reasonable royalty must
    use one of the three calculation methods listed below. Requires the
    court to identify the relevant factors to determine a reasonable
    royalty under the applicable method below and consider *only* those
    factors in making the determination. \[emphasis added\]

    -   Requires the court to conduct an analysis to ensure that a
        reasonable royalty is applied only to that economic value
        properly attributable to the patent's specific contribution over
        the prior art (apportionment). Requires the court to exclude
        from the analysis the economic value properly attributable to
        the prior art, and other features or improvements, whether or
        not themselves patented, that contribute economic value to the
        infringing product or process.

    -   Prohibits damages to be based upon the entire market value of
        the products or processes involved that satisfy that demand,
        *unless* the claimant shows that the patent's specific
        contribution over the prior art is the "predominant basis" (not
        defined) for market demand for an infringing product or process.

    -   Allows the court, in determining a reasonable royalty, to
        consider (or direct the jury to consider) the terms of any
        nonexclusive marketplace licensing of the invention as well as
        any other relevant factors under applicable law.

> [Note]{.underline}: As the committee reports notes, "providing a list
> of the [Georgia-Pacific
> factors](http://nys-stlc.syr.edu/lawlibrary/patent/remedies.aspx) to
> the jury, as often occurs now, would be insufficient and impermissible
> under the revised 287(b) unless the court explains on the record why
> only that approach can produce a just damages award and is necessary
> in the interest of justice." The court would first be required to
> choose a calculation method, identify the appropriate factors, then
> only consider those specific factors in the determination. However,
> based on the plain text of the bill, it is not clear that the court
> must stipulate "*on the record* why *only* that approach can produce a
> *just damages* award and is *necessary* in the interest of justice."
> \[emphasis added\]

-   Retains current law provisions regarding willful infringement
    damages, which allows a court to triple the damages found and
    assessed under 35 U.S.C. § 284 (as described above), except the bill
    adds additional requirements in finding willful infringement (as
    described below).

-   Allows a court to find that an infringer has willfully infringed a
    patent *only* if the patent owner presents "clear and convincing
    evidence" that:

    -   after receiving written notice from the patentee alleging acts
        of infringement (sufficient to give the infringer a reasonable
        expectation of suit on the patent) which specifically identifies
        each patent claim that the patent owner alleges is being
        infringed, the infringer performed one or more of the following
        alleged acts of infringement:

        -   the infringer intentionally copied the patented invention
            with knowledge that it was patented; or

        -   after having been found by a court to have infringed the
            patent, the infringer engaged in conduct that was not
            *colorably* different from the conduct previously found to
            have infringed the patent, and that resulted in a second
            finding of infringement.

> [Note]{.underline}: The above provisions would make it significantly
> more difficult for a court to make a finding of willful infringement,
> since a court or jury is currently under no obligation to meet any
> specific requirements in order to make this finding (other than any
> specific requirements a particular judge may impose upon a jury).

-   Prohibits a court from finding that an infringer has willfully
    infringed a patent for any period of time during which the infringer
    had an "informed good faith belief" (as defined within the
    provision) that the patent was invalid or unenforceable, or would
    not be infringed by the conduct later shown to constitute
    infringement.

-   Expands current "prior user rights" (which may be used to defend
    against a charge of infringement) to apply to all patented
    inventions, rather than just business method patents as in current
    law. The provision also expands the timeframe in which this defense
    can be utilized.

***Section 6 -- Post-Grant Procedures.***

-   Allows any person to submit to the USPTO in writing:

    -   prior art consisting of patents or printed publications which
        that person believes to be relevant on the patentability of any
        claim of a particular patent; or

    -   particular statements of the patent owner filed in a proceeding
        before a federal court or the USPTO in which the patent owner
        takes a position on the scope of one ore more patent claims.

-   Provides that the submission of prior art or statements to USPTO
    discussed above will become part of the official file of the patent
    *if* the person submitting the information explains in writing the
    pertinence and manner of applying the prior art or written
    submission to at least one claim of the patent. The provision also
    allows the person's identity who is submitting the information to be
    withheld upon written request.

-   Modifies the patent reexamination provisions in current law to allow
    a reexamination request to be initiated at any time during the life
    of the patent, and further stipulates that the Director may
    determine whether a substantial new question of patentability is
    raised by information discovered by the Director or any person
    *other than the owner of the patent* (not stipulated in current
    law).

-   Strikes the reexamination provisions in current law (35 U.S.C. § 132
    & 133) and replaces them with a new provision that utilizes
    administrative patent judges (APJ) under procedures which the
    Director must establish. Reexaminations are currently conducted by
    patent examiners in the same manner as an initial patent
    examination. The committee report states that "reliance on the same
    corps of examiners to uncover and correct errors in their
    colleague's initial decisions may result in institutional bias."
    This provision also allows a third-party requester to file written
    comments in response to a Patent Office action, and also allows
    either party to request oral hearings before the APJ.

-   **Creates new post-grant review procedures** available to a
    third-party (a person who is not the patent owner) where a person
    may file a cancellation petition seeking "to cancel as unpatentable
    any claim of a patent on any ground," and allows the Director to
    determine the appropriate filing fee.

-   Allows post-grant proceedings to be initiated (per a filed
    cancellation petition) if:

    -   the petition is filed within 12 months of the patent's issuance
        (or reissuance); or

    -   the patent owner consents in writing to the proceedings.

-   Allows a cancellation petition to be considered only if:

    -   the petition is accompanied by the fee (to be established by the
        Director);

    -   the petition identifies the cancellation petitioner (the person
        filing the petition);

    -   the petition sets forth in writing the basis for the
        cancellation, identifying each claim challenged and providing
        relevant information (as the Director may require by
        regulation), and includes copies of patents and printed
        publications that the cancellation petitioner relies upon in
        support of the petition; and

    -   the petitioner provides copies of those documents to the patent
        owner or his designated representative.

-   Prohibits a post-grant review proceeding if the petition for
    cancellation identifies the same cancellation petitioner and same
    patent as a previous petition for cancellation.

-   Requires the Director to notify the patent owner and each petitioner
    in writing of the Director's determination regarding the
    cancellation petition within 60 days of receiving the petition.

-   Allows the patent owner, in response to a cancellation petition, to
    file one motion to amend the patent in one or more of the following
    ways: 1) cancel any challenged patent claim, 2) propose a substitute
    claim (for each claim), and 3) amend the patent drawings or
    otherwise amend the patent other than the claims. Additional motions
    to amend may be permitted only for "good cause shown."

-   Requires the Director to prescribe regulations to establish and
    govern post-grant review proceedings and related procedures. Those
    regulations must:

    -   require that a final determination in a post-grant proceeding be
        made within one year of the date the review was initiated,
        except the Director may grant one six-month extension;

    -   provide for discovery (information sharing and examination among
        parties) upon order of the Director;

    -   provide for publication of notice in the Federal Register of the
        filing of a petition for post-grant review, for publication of
        the petition and relevant documents on the USPTO website, and
        for filings under seal exempt from publication requirements;

    -   prescribe sanctions for abuse of discovery, abuse of process, or
        any other improper use of the proceeding;

    -   allow for protective orders governing the exchange and
        submission of confidential information; and

    -   ensure that any information submitted by the patent owner in
        support of any amendment to the patent will be made publicly
        available.

-   Requires the PTAB to issue a final written decision regarding the
    patentability of any patent claim challenged (and any new claim
    added based on a patent amendment), provided the review was
    initiated and not previously dismissed or settled.

-   Provides that a post-grant review proceeding will be terminated upon
    the joint request of the petitioner and the patent owner
    (settlement), unless the PTAB has issued a written decision prior to
    the request for termination being filed. This provision requires
    that any settlement agreement regarding the cancellation be in
    writing and filed at USPTO.

-   If the patent owner prevails in a post-grant review, the petitioner
    is thereafter prohibited from requesting or pursuing a
    reexamination, derivation proceedings, or a new post-grant review
    based on any argument raised during the post-grant review.

-   Allows a dissatisfied party of the final PTAB determination in a
    post-grant review to appeal the determination to the U.S. Court of
    Appeals to the Federal Circuit.

-   **Effective Date:** Stipulates that the provisions of Section 6 will
    take effect one year after the bill's enactment. Stipulates that the
    post-grant review provisions will only apply to patents issued on or
    after enactment. As noted by the committee report, "patents issued
    at any time before the effective date are subject to the amended
    reexamination provisions, but not subject to post-grant review
    proceedings."

***Section 7 -- Patent Trial and Appeal Board (PTAB).***

-   Creates a new Patent Trial and Appeal Board at the USPTO, and
    stipulates that the PTAB Board will consist of the Director, Deputy
    Director, the Commissioner for Patents, the Commissioner for
    trademarks, and the administrative patent judges (APJ). It further
    stipulates that the APJs must be of "competent legal knowledge and
    scientific ability" who will be appointed by the Director.

-   Defines the PTAB duties as:

    -   reviewing adverse decisions of examiners upon application for
        patents (on written appeal of an applicant);

    -   reviewing adverse decisions of examiners upon patents in
        reexamination proceedings (upon written appeal of a patent
        owner);

    -   reviewing appeals by patent owners and third-party requesters;

    -   determining priority and patentability of invention in
        derivation proceedings;

    -   conducting post-grant opposition proceedings;

-   Stipulates that each appeal and derivation proceeding must be heard
    by at least three members of the PTAB, and further stipulates that
    each post-grant review must be assigned to a panel of three APJs.

-   **Effective Date:** Stipulates that the provisions of Section 7 will
    take effect one year after the bill's enactment.

***Section 8 -- Study and Report on Reexamination Proceedings.***

-   Directs the Under Secretary of Commerce for Intellectual Property
    and the USPTO Director, within two years of enactment of this Act,
    to conduct a study on the effectiveness and efficiency of the
    different forms of proceedings available under Title 35 regarding
    the reexamination of patents, and submit the results to the
    appropriate congressional committees, including the Director's
    recommendations regarding these proceedings.

***Section 9 -- Submissions by Third Parties.***

-   Provides guidelines to the publication of pending patent
    applications. Specifically, the bill allows any person to submit for
    consideration and inclusion in the record of a patent application,
    any patent, published patent application, or other publication of
    potential relevance to the application examination, if the
    submission is made in writing before a specified date.

***Section 10 -- Tax Planning Methods Not Patentable.***

-   Stipulates that a patent may not be obtained for a tax planning
    method. The bill defines a "tax planning method" as a plan,
    strategy, technique, or scheme that is designed to reduce, minimize,
    or defer, or has, when implemented, the effect of reducing,
    minimizing, or deferring, a taxpayer's tax liability, but does not
    include the use of tax preparation software or other tools..."
    Stipulates that this provision will take effect on the date of
    enactment of the Act and will apply to patent applications filed on
    or after enactment.

***Section 11 -- Venue and Jurisdiction.***

-   Strikes 28 U.S.C. § 1400 regarding venue for patents and copyrights,
    which reads as follows:

> \(a\) Civil actions, suits, or proceedings arising under any Act of
> Congress relating to copyrights or exclusive rights in mask works or
> designs may be instituted in the district in which the defendant or
> his agent resides or may be found.
>
> \(b\) Any civil action for patent infringement may be brought in the
> judicial district where the defendant resides, or where the defendant
> has committed acts of infringement and has a regular and established
> place of business.

-   Replaces the above section regarding venue with the following
    provision (with regard to patents), which states that a party "shall
    not manufacture venue by virtue of assignment, incorporation, or
    otherwise to invoke the venue of a specific district court."

-   Stipulates that any civil action for patent infringement or any
    action for declaratory judgment may be brought only in a judicial
    district:

    -   where the defendant has its *principal* place of business or in
        the location or place in which the defendant is incorporated, or
        for foreign entities with a U.S. subsidiary, where the
        defendant's primary U.S. subsidiary has its principal place of
        business or in the location or place in which the defendants
        primary U.S. subsidiary is incorporated;

    -   where the defendant has committed a *substantial* portion of the
        acts of infringement and has a regular and established
        *physical* facility that the defendant controls and that
        constitutes a substantial portion of the operations of the
        defendant;

    -   where the primary plaintiff resides, if the primary plaintiff in
        the action is an institution of higher education; or

    -   where the plaintiff resides, if the plaintiff or a subsidiary of
        the plaintiff has an established *physical* facility in the
        district dedicated to research, development, or manufacturing
        that is operated by full-time employees of the plaintiff or the
        subsidiary, or if the sole plaintiff in the action is an
        individual inventor who is a natural person and who qualifies at
        the time the action is filed as a micro entity (under 35 U.S.C.
        § 124).

-   Allows the district court to transfer any civil action brought under
    the provision above to any other district court or division
    where, 1) the defendant has substantial evidence or witnesses,
    and 2) venue would be appropriate under 28 U.S.C. § 1391 (regarding
    venue generally) and 1404 (regarding change of venue).

-   Allows appeals from interlocutory orders that determine construction
    of claims in patent infringement suits. The bill stipulates that the
    district court has discretion whether to approve the appeal or
    whether to stay proceedings in the district court pending the
    appeal.

> [Note]{.underline}: Interlocutory orders generally refer to an order
> or judgment given in an intermediate stage the initiation and
> termination of a cause of action, used to provide a temporary decision
> (which is not final and usually not subject to appeal).

***Section 12 -- Additional Information; Inequitable Conduct as Defense
to Infringement.***

-   Requires the Director to require applicants to submit a search
    report and other information and analysis relevant to patentability.
    The bill stipulates that an application will be regarded as
    abandoned if the applicant fails to submit the required search
    report within the manner and timeframe prescribed by the Director.
    [Note]{.underline}: PTO estimates that the cost for applications to
    research and provide such information would be about \$5,000 to
    \$10,000 per search report (according to CBO).

-   Stipulates that micro-entities are not subject to the above
    requirement. As summarized by the committee report, a micro-entity
    is "a small entity who has not been named on five or more previously
    filed patent applications, has not assigned, granted or conveyed a
    license or other ownership interest in the application and is not
    under an obligation by contract or law to do so, and does not have a
    gross income of greater than 2.5 times the Average Gross Income
    (AGI) as reported by the Secretary of Labor."

-   This provision codifies the judicially-created doctrine of
    "inequitable conduct" as a defense to patent infringement. The
    committee report states that "the defense of inequitable conduct was
    established by the courts as an equitable remedy aimed at deterring
    applicants from deliberately misstating or withholding information
    that is materially related to the examination of an application."

***Section 13 -- Best Mode Requirement.***

-   Eliminates as a defense to patent infringement the patentee's
    failure to comply with the best mode requirement (35 U.S.C. § 112).

***Section 14 -- Regulatory Authority.***

-   Modifies the powers and duties of the USPTO (35 U.S.C. § 2) to
    include the authority to promulgate regulations to "ensure the
    quality and timeliness of applications and their examinations..."

***Section 15 -- Technical Amendments.***

-   Makes various technical and conforming amendments.

***Section 16 -- Study of Special Masters in Patent Cases.***

-   Requires the Director of the Administrative Office of the U.S.
    Courts to conduct a study of the use of special masters in patent
    litigation who are appointed in accordance with Rule 53 of the
    Federal Rules of Civil Procedure, and submit a report to Congress on
    the findings.

***Section 17 -- Rule of Construction.***

-   The committee report states "It is the Committee's intention to
    preserve the CREATE Act \[Cooperative Research and Technology
    Enhancement Act; P.L. 108-453) as originally codified in 35 U.S.C. §
    103(c), in the new 102(b)(3). Section 17 explicitly states this
    intention and directs any inquiry to the purpose of the new
    102(b)(3) to the legislative history of the CREATE Act.

**[Outside Organizations Supporting]{.underline}**: The following is a
short list of major organizations that are supporting H.R. 1908, or view
the bill and its provisions favorably:

> Adobe
>
> Apple
>
> Chevron Corp.
>
> Business Software Alliance
>
> Cisco Systems
>
> Comcast
>
> Countrywide Financial Corp.
>
> Dell
>
> eBay
>
> Intel
>
> Intuit
>
> Hewlett-Packard
>
> Mastercard Worldwide
>
> Microsoft
>
> NCR Corp.
>
> Oracle
>
> Seagate Technology
>
> Symantec
>
> Time Warner
>
> Visa U.S.A.

[Click here](http://www.patentfairness.org/about.cfm) for a more
complete list of organizations that support H.R. 1908.

**[Outside Organizations Opposing]{.underline}**: The following is a
short list of major organizations that are opposing, or have serious
concerns with, the reported version of H.R. 1908:

> 3M
>
> AFL-CIO
>
> Advanced Medical Technology Assoc.
>
> Allergan, Inc.
>
> American Conservative Union
>
> Biotechnology Industry Organization
>
> BIOCOM
>
> Caterpillar
>
> Christian Coalition
>
> Corning
>
> Cummins
>
> Dow Chemical
>
> DuPont
>
> Eagle Forum
>
> Eli Lilly
>
> Exxon Mobil
>
> General Electric
>
> Innovation Alliance
>
> The Leadership Institute
>
> Medical Device Manufacturers Assoc.
>
> Merck
>
> Motorola
>
> National Assoc. of Manufacturers
>
> NanoBusiness Alliance
>
> NCPPA
>
> Novartis
>
> PepsiCo
>
> PhRMA
>
> Procter & Gamble
>
> Professional Inventors Alliance
>
> Qualcomm
>
> SanDisk
>
> United Steelworkers
>
> Weyerhaeuser
>
> [Click
> here](http://www.house.gov/hensarling/rsc/doc/PatentReformOppositionLtr.pdf)
> for a more complete list of organizations that oppose, or have voiced
> strong concerns, about H.R. 1908.

**[Amendments]{.underline}:** Amendments made in order under the
structured rule will be summarized in a separate RSC document.

**[Bonus Fact]{.underline}:** The first patent statute was passed on
April 5, 1790, by the Congress of the twelve United States. Rhode Island
was ratified and joined the Union as the thirteenth state 49 days later,
on May 29, 1790. Patents were originally valid for 14 years, whereas
currently a patent has a 20-year lifespan, during which time the patent
holder may sell the patent, license it, or enforce granted patent
rights.

**[Committee Action]{.underline}:** H.R. 1908 was introduced on April
18, 2007, and referred to the Committee on the Judiciary's Subcommittee
on Courts, the Internet, and Intellectual Property. Subcommittee
hearings were held on April 26^th^, and a mark-up was held at the
sub-committee and the committee level. The full committee reported the
amended bill by a voice vote on July 18, 2007 (House Report
[110-314](http://www.congress.gov/cgi-lis/cpquery/R?cp110:FLD010:@1(hr314))).

**[Administration Policy]{.underline}:** A Statement of Administration
Policy (SAP) on H.R. 1908 is not yet available.

**[Cost to Taxpayers]{.underline}:** According to CBO, H.R. 1908 will
authorize \$3 million in FY2008 and \$22 million over the FY08-FY12
period. [Click here](http://www.cbo.gov/ftpdocs/85xx/doc8591/hr1908.pdf)
to view full CBO Report.

**[Does the Bill Expand the Size and Scope of the Federal
Government?]{.underline}:** Yes. As noted above, the bill provides
expanded rule-making authority to the U.S. Patent and Trademark Office.

**[Does the Bill Contain Any New State-Government, Local-Government, or
Private-Sector Mandates?]{.underline}:** Yes. According to CBO, "**H.R.
1908 would impose intergovernmental and private-sector mandates, as
defined in the Unfunded Mandates Reform Act (UMRA)**, on certain patent
applicants. Based on information from PTO, CBO estimates that the cost
of complying with the mandates would exceed the annual threshold for
private-sector mandates established in UMRA (\$131 million in 2007,
adjusted annually for inflation) in each of the first five years the
mandate is in effect. CBO estimates that the costs to state and local
governments of complying with the mandates would not exceed the annual
threshold for intergovernmental mandates established in UMRA (\$66
million in 2007, adjusted annually for inflation)."

**Collectively, this would amount to \$197 million in unfunded mandates
on the intergovernmental and private sectors for FY2007 and \$985
million in unfunded mandates over the FY07-FY11 period.**

**[Constitutional Authority]{.underline}:** The Judiciary Committee, in
House Report
[110-314](http://www.congress.gov/cgi-lis/cpquery/R?cp110:FLD010:@1(hr314)),
cites constitutional authority in Article I, Section 8, Clause 8
(granting of patents and trademarks).

House Rule XIII, Section 3(d)(1), requires that all committee reports
contain "a statement citing the *specific* powers granted to Congress in
the Constitution to enact the law proposed by the bill or joint
resolution." *\[emphasis added\]*

**[RSC Staff Contact]{.underline}:** Derek V. Baker;
[derek.baker@mail.house.gov](mailto:Derek.baker@mail.house.gov);
202-226-8585

\###

[^1]: State Indus., Inc. v. Mor-Flo Indus., Inc. See CRS Product
    RL33996, p. 21.