Proposed Patent Reform Act of 2011
The Patent Reform Act (AKA America Invents Act) has been winding its way through Congress for several years but now seems imminent. The most recent version of the Senate bill (S. 23) passed the Senate on March 8 by a vote of 95-5, and should be passed on to the House for consideration by the time you read this. The House may incorporate changes, or even introduce its own bill, but we assume that some form of the bill will be passed this year. There are several noteworthy changes that the current bill would make to existing law.
First-Inventor-to-File: The United States presently uses a “first-to-invent” system. This allows inventors to show they invented the device on a date earlier than they filed the patent application in order to overcome prior art. Most of the world, however, uses a “first-to-file” system, where the first inventor to the patent office gets the patent.
The reform measure would change over to a first-to-file system, by giving each patent application an “effective filing date,” and the patentability will be judged on whether any prior art was available prior to the filing date. Obviousness will also be judged as of the effective filing date. Inventors will no longer be able to establish prior invention in an interference proceeding. The current one-year grace period to file the application after public disclosure would remain in effect, but only for the inventor’s own disclosures. In addition, a new procedure will address when an inventor asserts that the patent of another is derived from his earlier patent.
Many critics assert that the first-to-file system is stacked against small inventors, favoring corporations who can quickly file numerous applications. Critics also suggest that many applications will be rushed to the patent office before the invention is fully developed, leading to a decline in patent quality.
Micro-entities: Current law allows “small entities” a 50 percent discount on their filing, issuance, and maintenance fees. The proposed act will create another subset called a “micro-entity” who will receive a 75 percent discount. This may encourage individual inventors to file patents, somewhat alleviating the first-to-file hurdle, but the largest expense for most applications lies in the drafting costs, rather than the filing fees.
Third-Party Challenges to Patent Rights: The bill includes three expanded ways that a third party can use the USPTO to challenge a patent: Pre-Issuance Third-Party Submissions; Third-Party Requested Post-Grant Review; and Inter Partes Post Grant Review.
- Pre-Issuance Third-Party Submissions: Under the amendment, third parties would be allowed to submit any printed publication along with a description of the relevance to the USPTO to be considered during the examination of a pending patent application.
- Third-Party Requested Post Grant Review: A post grant review proceeding (similar to the current reexamination proceeding) could be initiated by any party. The review would allow a third party to present essentially any legal challenge to the validity of at least one clam. The request for review must be filed within nine months of issuance.
- Inter Partes Review Proceedings: Once the nine-month window for post grant review is expired, a party may then file for “inter partes review.” This new system would replace inter partes reexamination and would be limited to consideration of novelty and obviousness issues based on prior art patents and printed publications. It appears that third-party requested ex parte reexamination and inventor-requested reexamination would remain viable options.
Virtual Marking: In order to claim damages in a patent case, a patented product must be marked with the patent number. The bill would allow “virtual patent marking” by placing the patent number alongside the product on the Internet.
False Marking: A large number of false patent marking cases have been filed in the past year, often by parties who are making a living off of filing such cases. The bill would eliminate those lawsuits except for ones filed by the U.S. government or filed by a competitor who can prove competitive injury.
Assignees Can File Applications: Unlike many other countries, the United States has required the individual inventors to file the application and to be granted the patent. The bill now allows for assignees (such as corporations) and persons to whom the inventor is under an obligation to assign the invention to file the application and receive the patent grant. In addition, the bill would make it easier for an assignee to file a substitute inventor’s oath when the inventor is non-cooperative.
Best Mode: Although an inventor will still be required to “set forth” the best mode for accomplishing the invention, the statute would be amended to exclude failure to disclose a best mode from being used as a basis for invalidating an issued patent. The PTO will still have a duty to only issue patents where the best mode requirement has been satisfied.
Fee Setting Authority: The PTO would be given authority to adjust its fees, but only in a way that “in the aggregate” recover the estimated costs of PTO activities. Non-electronically filed applications would require an extra $400 fee.
Ninth Circuit Condones Unlabelled Sponsored Links on Google and Bing
Anytime you use a search engine to find a trademarked item, a raft of sponsored ad links for similar products pop up alongside your search results. In Network Automation v. Advanced Systems Concepts, the plaintiff sued to obtain an injunction to stop a competitor from using its trademark as a “keyword” for such advertising. This month, the Ninth Circuit issued a decision effectively condoning those sponsored links-even those that do not immediately disclose who is responsible for the sponsored link. As a result, the Court reversed the lower court’s preliminary injunction against the practice because the lower court had failed to apply the test properly. The Ninth Circuit held that the traditional eight-factor “Sleekcraft” test for trademark infringement still applied in this situation, rather than the abbreviated three-factor “Internet troika” test used by the lower court. The Ninth Circuit sent the case back down to the lower court for further proceedings consistent with the decision.
In its analysis, the Ninth Circuit placed major emphasis on evaluating the appearance of the ads in the context of the results web page as a whole. Since Google and Bing separate the sponsored links from the search result links, the Court thought that this particular trademark owner’s customers (who were searching for a particular job scheduling and management software) would be sufficiently sophisticated to not likely be confused by a competitor’s use of the plaintiff’s trademark as an ad keyword.
When purchasing sponsored links, therefore, you should carefully consider what labeling and appearance you will need for your sponsored ad in light of the apparent sophistication of your competitor’s customers and the appearance of the web page on which your ad will be displayed so that your ad will not create a likelihood of confusion for these customers.
The Fourth Circuit is considering a similar case in Rosetta Stone v. Google. If the Fourth Circuit decides that case in a fundamentally different manner, it may trigger a Supreme Court review to resolve the conflict between the two Circuit courts. We will update the Rosetta Stone case in a future issue.
False Marking Developments
As we have noted in past issues, patent false marking lawsuits have become a cottage industry for a number of law firms seeking to cash in on the statutory penalties associated with a patent owner’s listing of expired or inapplicable patents on its products. Last year, the Federal Circuit threw a substantial roadblock in the way of many of these suits by requiring proof that the patent owner had the specific intent to deceive the public. Pequignot v. Solo Cup Co., 608 F.3d 1356, 1363 (Fed. Cir. 2010). This is a high hurdle for most false marking claims.
Two recent cases demonstrate just how high this hurdle can be. This month, the Federal Circuit applied the standard to complaints, making it difficult for a false marking plaintiff to get past the pleading stage. In In re BP Lubricants, (Fed. Cir. Mar. 15, 2011), the Court held that a plaintiff must plead a false marking claim with “particularity,” stating “the specific who, what, when, where, and how” of the alleged false marking. In contrast, the plaintiff’s complaint only stated that BP was a sophisticated company that knew or should have known its products were marked with an expired patent, along with an unsupported allegation that BP intended to deceive the public. The Federal Circuit noted that the complaint failed to plead facts to infer that BP was aware that the patents had expired. Instead, the “complaint provided only generalized allegations rather than specific underlying facts from which we can reasonably infer the requisite intent.” Thus, the Federal Circuit directed the lower court to dismiss the complaint. Although the plaintiff will have a chance to amend the complaint to allege sufficient underlying facts, in all likelihood he will not be able to sustain his burden.
In a recent district court decision, Heathcote Holdings Corp. v. William K. Walthers, Inc. (N.D. Ill. Mar. 11, 2011), the false marking defendant was granted summary judgment based on lack of specific intent. The defendant showed that no corporate officer knew that the patents listed on its products were expired, and some corporate officers were unaware that the products were marked at all. Thus, the Court concluded, “no single corporate agent possessed the various pieces of information necessary to form the requisite deceptive intent.” On that basis, the Court granted summary judgment in favor of the defendant.
The lesson from these recent cases is that a false marking plaintiff has a very difficult evidentiary burden to meet in order to make and sustain its claim. Nevertheless, companies should still carefully review their products to make certain that they are not marked with expired patents or patents that do not cover the marked device. Avoiding such suits in the first place is always better than any amount of litigation.
As noted above, the Proposed Patent Reform Act, if enacted in its current form, could drastically change this whole area of the law. Only the United States and parties who can show competitive injury from the false marking would be able to bring false marking suits.
Federal Circuit Again Reverses Eastern District of Texas Venue Decision
The Eastern District of Texas is notorious for being patent-plaintiff-friendly, which has made it the venue of choice for numerous patent plaintiffs, especially patent trolls (patent owners whose livelihood is not making anything, but rather suing manufacturers for infringement). Over the past two years, the Federal Circuit has unanimously reversed seven Eastern District refusals to transfer patent cases, sending a clear message for those courts to take their venue decisions more seriously. Patent defendants are hopeful that such decisions will eventually make the Eastern District a less-desirable place for patent plaintiffs to file their actions. Time will tell.
Cislo & Thomas Co-Chairs Internet IP Seminar
On April 20, 2011, Cislo & Thomas will be co-chairing a legal seminar entitled “IT’S A WILD WEB WORLD: Protecting and Defending Your Client’s Intellectual Property Rights on the Internet.” The seminar is sponsored by the Federal Bar Association, and will feature in-house counsel from industry leaders in Internet commerce and services, including Lee Cheng, General Counsel of Newegg Inc. and J. Scott Evans, Senior Legal Director-Global Brand and Trademark of Yahoo! Inc. U.S. District Court Judge Ronald Lew will round out the panel. The seminar will take place at the Kyoto Grande Hotel in downtown Los Angeles, from 6:00 to 8:30 p.m. For more information, visit the Federal Bar Association website at www.fbala.org
Peter S. Veregge, Esq.- Newsletter Editor