**LEAHY-HATCH / BERMAN-SMITH**

**THE PATENT REFORM ACT OF 2007**

**SECTION-BY-SECTION**

**Sec. 1.  Short Title; Table of Contents**.  This Act may be cited as
the Patent Reform Act of 2007.

**Sec. 2. Reference to Title 35, United States Code**.  All references
to sections are to title 35, United States Code.

**Sec. 3.  Right of the First Inventor to File. **

*In general. \--* The United States stands alone among Nations that
grant patents in giving priority for a patent to the first inventor, as
opposed to the first to file a patent application for a claimed
invention.  The result is a lack of international consistency, and a
complex and costly system in the United States to determine inventors'
rights.  The United States Patent Office ("USPTO") currently uses an
interference proceeding to determine which party was first to "invent"
the claimed invention, where competing claims arise.  The determination
is intensely fact-specific and costly to resolve.  By contrast, a
first-to-file system injects needed clarity and certainty into the
system. 

This section converts the United States' patent system into a
first-to-file system, giving priority to the earlier-filed application
for a claimed invention.  Interference proceedings are replaced with a
derivation proceeding to determine whether the applicant of an
earlier-filed application was not the proper applicant for the claimed
invention **--** such a proceeding will be faster and less expensive
than were interference proceedings.  This section also encourages the
sharing of information by providing a grace period for publicly
disclosing the subject matter of the claimed invention, without losing
priority.

Specifically, this section makes the following amendments to implement
the first-to-file system:

Subsection (a). -- § 100 is amended to include definitions for terms
necessary for the conversion to first-to-file.

Subsections (b) & (c). -- § 102 is replaced and § 103 is amended, as
follows.  A patent may not issue for a claimed invention if the
invention was patented, described in printed material, or in public use
(1) more than a year before the filing date or (2) anytime prior to the
filing date if not through disclosure by the inventor or joint
inventor. 

A patent also may not be issued if the claimed invention was described
in a patent or patent application by another inventor filed prior to the
filing date of the claimed invention.  A grace period is provided for an
inventor or joint inventor that discloses the subject matter of the
claimed invention.

Further, an exception is made for claiming an invention if the subject
matter previously disclosed was obtained directly or indirectly from the
inventor or joint invention or if the subject matter was owned by the
same person or subject to an obligation of assignment to the same
person.

The CREATE Act is preserved by including an exception for subject matter
of a claimed invention made by parties to a joint research agreement.

Subsections (d) & (e). -- § 104 (requirements for inventions made
abroad) and § 157 (statutory invention registration) are repealed, as
part of the transition to first-to-file.  

Subsection (f). -- Amends § 120 related to filing dates to conform with
the CREATE Act.

Subsection (g). -- Makes various conforming amendments for first-to-file
transition.

Subsections (h), (i) & (j). -- Repeals the interference proceeding
authorized in § 291 and creates a new "derivation proceeding" in §
135(a), designed to determine the inventor with the right to file an
application on a claimed invention.  An applicant requesting a
derivation proceeding must set forth the basis for finding that an
earlier applicant derived the claimed invention and without
authorization filed an application claiming such invention.  The request
must be filed within 12 months of the date of first publication of an
application for a claim that is substantially the same as the claimed
invention.  The party making the request (1) must have filed an
application not later than 18 months after the effective filing date of
the opposing application or patent and (2) must not have filed an
application, within one year of the earliest effective filing date of
the application, containing a claim that is substantially the same as
the invention claimed in the earlier filing application.  The Patent
Trial and Appeal Board (the "Board") shall determine the right to patent
and issue a final decision thereon.  Decisions of the Board, in general,
may be appealed to the Federal Circuit. 

**Sec. 4. Inventor's Oath or Declaration**. 

*In general. \--* The section streamlines the requirement that the
inventor submit an oath as part of a patent application. 

An applicant may submit a substitute statement in lieu of the inventor's
oath in certain circumstances, including if the inventor is unable or
unwilling to make the oath.  Failure to comply with the requirements of
this section will not be a basis for invalidity or unenforceability of
the patent if the failure is remedied by a supplemental and corrected
statement.    

An assignee of an invention, or a person who otherwise shows sufficient
proprietary interest, may file an application for the patent. 

**Sec. 5.  Remedies for Infringement and Affirmative Defenses
Thereto. **

*Relationship of Damages to Improvements over the Prior Art.*--- As
products have become more complex, often involving hundreds or even
thousands of patented aspects, litigation has not reliably produced
damages awards in infringement cases that correspond to the value of the
infringed patent.  This section, therefore, preserves the current rule
that mandates that a damages award shall not be less than a "reasonable
royalty" for the infringed patent, and further requires the court to
conduct an analysis to ensure that, when a "reasonable royalty" is the
award, it reflects only the economic value of the patent's "specific
contribution over the prior art", i.e. the truly new "thing" that the
patent reflects.  The court also has to identify the factors that will
be considered in determining a reasonable royalty, ensuring that the
record is clear on what the judge or jury looked at in awarding
damages.  The court must also consider any non-exclusive marketplace
licensing of the invention, if there is such a history, in determining a
reasonable royalty.  Finally, the court is instructed to consider any
other relevant law, which is included to ensure that the significant
body of judge-made law on the topic of damages awards in infringement
cases is preserved.  

*Willful infringement.---*  A willful infringer of a patent is liable
for treble damages.  The current definition of willful infringement,
however, perversely discourages parties from reviewing issued patents to
determine whether a patent exists.  This section provides that a court
may only find willful infringement if the patent owner shows, by clear
and convincing evidence, that (1) the infringer, after receiving written
notice from the patentee, performed one of the acts of infringement, (2)
the infringer intentionally copied the patented invention with knowledge
that it was patented, or (3) after having been found by a court to have
infringed a patent, the infringer engaged in conduct that again
infringed on the same patent.  An allegation of willfulness is subject
to a "good faith" defense.

*Prior user rights*.--- The defense to infringement for patents
involving a "method of doing or conducting business" based on the
alleged infringer's having reduced the subject matter to practice one
year prior to the filing date is amended to apply to all patents and
require only that the subject matter be commercially used (or
substantial preparations be made for commercial use) prior to the
effective filing date of the claimed invention. 

**Sec. 6.  Post-Grant Procedures**.

*In general*.--- After a patent issues, a party seeking to challenge the
validity and enforceability of the patent has two avenues under current
law: by reexamination proceeding at the USPTO or by litigation in
federal district court.  The former is used sparingly and is considered
not very effective; the latter, district court litigation, is unwieldy
and expensive.  This section therefore creates a new, post-grant review
that provides an effective and efficient system for considering
challenges to the validity of patents.  Addressing concerns that a
post-grant review procedure could be abused by cancellation petitioners,
this section requires the Director to prescribe rules for abuse of
discovery or improper use of the proceeding.  In addition, it bars
successive petitions in either the first or second window, and prohibits
a party from reasserting claims in court that it raised in post-grant
review. 

*Reexamination procedures.*--- Amends the reexamination procedures of §
303(a) to provide that, within three months of a request for
reexamination of a patent by the patent owner, or at any time on the
Director's own initiative, the Director may determine whether a
substantial new question of patentability is raised by patents
discovered by him or cited by any other person.

*Post-grant review procedures.*---

§ 321.-- Permits a person who is not the patent owner to file a
"petition for cancellation" before the Patent Trial and Appeal Board
based on any ground that might be raised under section 282(a)(2) and
(3).  The Director shall establish fees to be paid by the person
requesting the proceeding. 

§ 322.-- The petition for cancellation can only be filed (1) within 12
months of the patent's issue or reissue (known as the "first window"),
or (2) if there is substantial reason to believe that the continued
existence of the challenged claim is likely to cause the petitioner
significant economic harm, the petitioner has received notice from the
patent holder alleging infringement by the petition, or the patent owner
consents to the proceeding in writing (known as the "second window").

§ 323.-- Certain procedures are required, including setting forth the
basis for the petition.

§ 324.-- Successive petitions under either the first or second window
are prohibited, unless the patent owner consents in writing.

§ 325. -- The Director may not institute a post-grant review proceeding
unless the Director determines that the information presented provides
sufficient grounds to proceed. 

§ 326.-- The Director shall establish rules and standards for post-grant
review, which should result in a final decision within 12 months.  Rules
for discovery may, and sanctions for abuse of process shall, be
prescribed by the Director. 

§ 327.-- The patent owner has a right to file a response to the
cancellation petition and may include affidavits, declarations and any
additional factual evidence and expert opinions on which the patent
owner relies in support of the response. 

§ 328.-- The presumption of patent validity does not apply in post-grant
review; burden of proof is preponderance of the evidence.

§ 329.-- Patent owner may file one motion to amend the patent, or cancel
or propose a substitute to any challenged patent claim, in response to a
challenge, provided that the amendment may not enlarge the claim or
introduce new matter.

§ 330.-- The Board shall issue a final decision if the challenge is not
otherwise dismissed.

§ 331.-- If a final decision of the Board that is not timely appealed,
the Director shall publish a certificate canceling any claim determined
unpatentable.

§ 332.-- The Director may determine rules relating to other ongoing
proceedings.

§ 333.-- A party against whom final judgment has been entered under 28
U.S.C. § 1338 may not file for post-grant review based on propositions
that party could have raised in federal court.

§ 334.-- A petitioning party whose petition with respect to any original
or new claim of the patent is denied may not, based on any ground which
the petitioner raised, pursue reexamination of such claims, interference
of such claims, post-grant review of such claims, or assert the
invalidity of such claims in any civil action under 28 U.S.C. § 1338.

§ 335. -- A party dissatisfied with the final determination of the
Director in a post-grant review may appeal the determinations under
sections 141 through 144.

**Sec. 7. Definitions; Patent Trial and Appeal Board**.

The Board of Patent Appeals and Interferences is replaced with the new
Patent Trial and Appeal Board.  The Board is charged with reviewing
adverse decisions of examiners upon applications and reexamination
proceedings, determining priority and patentability, and presiding over
the new post-grant review proceedings. 

**Sec. 8. Study and Report on Reexamination Proceedings**.

The Director shall, not later than 3 years after the date of enactment,
conduct a study on the effectiveness of the different forms of review
under title 35, and submit a report to the House and Senate Judiciary
Committees on the results of the study, along with any suggested
amendments. 

**Sec. 9.  Submissions by Third Parties and Other Quality
Enhancements**. 

*In general.*--- This section is designed to improve patent quality by
creating a mechanism for third parties with knowledge of the subject
matter of a claimed invention to submit relevant information about prior
art to the USPTO.

Subsection (a). -- § 122(b)(2), which provides confidentiality to patent
applications for an applicant who is not filing in another country, is
repealed. 

Subsection (b). -- Creates a mechanism in § 122 for third parties to
submit timely, pre-issuance information relevant to the examination of
the application. 

**Sec. 10.  Venue and Jurisdiction**. 

*In general*.--- This section addresses two litigation issues unique to
the patent world.  Subsection (a) deals with venue.  A venue section
specific to patent infringement cases exists in 28 U.S.C. § 1400(b).  A
change in the general venue provision, 28 U.S.C. § 1391, was later read
into the patent venue provision.  The result has been forum shopping,
which this subsection addresses.  Subsection (b) makes patent reform
litigation more efficient by providing the Federal Circuit jurisdiction
over interlocutory orders in what have become known as *Markman* orders,
in which the district court construes claims of a patent.  The contours
of the claim are crucial to resolution of the patent litigation, and
authorizing interlocutory appeals will add predictability at an earlier
stage of litigation. 

Subsection (a). --  The jurisdiction and venue provision for patent
cases is amended to specify that any action brought related to patents,
other than an action for declaratory judgment or seeking review of a
decision of the Board, must be brought in the district where either
party resides or where the defendant has committed acts of infringement
and has a regular place of business.  For purposes of this section, a
corporation resides either where its principal place of business is
located or where it is incorporated. 

Subsection (b). -- The Federal Circuit is given jurisdiction over
interlocutory orders regarding claim constructions. 

**Sec. 11. Regulatory Authority.**

The Director is granted rulemaking authority "to carry out the
provisions of this title or any other law applicable" to the PTO or that
is necessary to govern the operation and organization of the office. 

**Sec. 12. Technical Amendments**.

**Sec. 13.  Effective Date**.  Except as otherwise provided, this Act
takes effect 12 months after the date of enactment and applies to any
patent issued on or after that effective date.