Letter from AmeriKat: America Invents Act Remix

The AmeriKat taking what would
be the first of many Kleenexes this
week (picture by prettyinprint reporduced
here under CC licence)

Summer - a time meant for lounging on Scottish wool blankets nibbling on sandwiches flanked by the grounds of a National Trust property. Or for traipsing down some tree-lined avenue with branded bags of summer sales goodies swinging from one's arm. Or for skipping out of work into the summer night to drink Pimms with friends. It is not meant, submits the AmeriKat, to be inundated with torrential rain (cue view outside) or to be suffering from a summer cold (cue view inside). The AmeriKat is currently, and embarrassingly for a Kat, barking like a dog (shudder) as she is battling a bout of bronchitis that has seen her boringly bedridden for the past 48 hours. Those who know her know its a feat to get her to rest and keeping to form, she has kept her mind active by reading the latest US IP reports and listening to hours of Senate and House debates on patent reform on C-SPAN. Exciting times...

Race to Obama - America Invents Act clears House hurdle

The oracle that is USPTO Director David Kappos predicted earlier this spring that he was "off-the-charts optimistic" that the House would pass similar patent reform legislation to the Senate's earlier success of S.23. Sure enough, on 23 June 2011, the House of Representatives passed HR 1249 - the Leahy-Smith America Invents Act (AIA) -with a bipartisan vote of 407 to 117. The bills are substantially similar, but with some important differences (see below). Given there are differences, the two bills will now have to be negotiated and reconciled in a House and Senate conference committee before it goes to the Senate vote and finds it way before President Obama for signing into law.

Both patent reform bills introduce, for the first time in 60 years, a considerable overhaul of US patent law. The biggest change to US patent law is the transition from a first-to-invent system towards a first-inventor-to file (FITF) system whereby each patent application would be allocated an “effective filing date” (the FITF provisions in HR. 1249 and S.23 are substantively identical). Like in the EU, the application’s novelty and obviousness is then judged on the prior art available before the effective filing date of the patent, but with a one year grace period still remaining in effect in respect of the inventor’s own disclosures (see controversy re grace periods and the AIA here and as debated in the House here).

But, as previously reported by this Kat and others, the introduction of FITF was not without vocal opposition in both Houses. Democratic Senator Dianne Feinstein's proposed Amendment No. 133 to S.23, which sought to remove the "first-to-file" provision given its arguable burden on a small independent inventors, went on to be voted down 87-13 by the Senate. During the House debates of the same provision in HR 1249, Constitutional arguments were bounded about claiming that "first-to-file" violated the Constitution as it rewards the winner of the race to the USPTO's doors rather the actual "inventor". Arguments against this opposition were that the availability of applications such as pre-issue disclosure, post-grant review and inter-partes review would rebalance any alleged burden that the first-to-file paradigm could create (even if these same measures are argued to increase the USPTO's patent backlog). (picture, above left - former Attorney-General Michael Mukasey)

Constitutionally, the proponents stated the FITF is consistent with the Constitutional requirement that patents be awarded to the inventor; a mere $110 filing fee for a provisional application, it is argued, allows any inventor, large or small, an inexpensive way to obtain an early priority date with a year to submit a formal patent application. Under the current system, however, an interference proceeding (where two inventors file their patents nearly simultaneously) could cost an inventor upwards to $500,000 - it was argued that such high legal costs act as a chilling mechanism on access to the patent system to inventors. Further, it was argued that FITF helps to ensure that US patent laws accomplish the goals in the Copyright Clause of the Constitution, i.e., by promoting the Progress of Science and Useful Arts (see former Attorney-General Mukasey's legal analysis and reasonsing here). Proponents of FITF also submitted that the patent filing system run by the Founding Fathers' generation in the 1790s, a first-inventor-to-register system, was similar to FITF and further argued the US courts did not even care about who was the "first to invent" until 1870 when the much criticized and expensive interference proceedings were introduced.

USPTO Director David Kappos previously stated that the US is already effectively running a first-to-file system because in 2007 there were only 7 interference applications of which only one was decided on priority of the invention. However, Representative Lamar Smith (R-TX) (picture, right), who introduced HR. 1249, stated that the first-to-invent system was

"outdated and dragged down by frivolous lawsuits and uncertainty regarding patent ownership."

Well...which is it? Will the introduction not result any any noticeable difference, a la Kappos, or will result in a more efficient, less contentious patent ownership procedure, a la Smith? Or is this FITF rhetoric irrelevant and the real reason for it's introduction is just to, dare she say the word... harmonize the US position with its international trading partners? (click here for Matt the Kat's post about Director Kappos's views on the matter)

Harmonization of US patent law was exactly what spirited Rep. Rohrabacher (R-CA) during the House debate into calling the legislation a "travesty", adding to the PTO backlog and "break[ing] the back of small inventors...and empower[ing] multinational and foreign corporations" (see his fiery speech at minute 37 including a citation to a Hoover Institution report damning the AIA). Representative Rohrabacher, writing about the AIA in Politico in March stated:

" We're told [the first-to-file system] is necessary to harmonize with Japanese and European patent law. But these systems were established by elitists and economic shoguns interested in corporate power, not individual rights . If patent law is to be harmonized - their system should be raised to our high standards, not ours eroded to conform to their weaker ones."

Ahhh....this fondly reminds the AmeriKat of this Lewis Black skit (warning: his name is Black, but his language gets a bit blue). But despite the fiery opposition, in which Rohrabacher was not alone, both Houses passed substantively identical first-to-file provisions. First-to-file is here to stay, it seems.

There are several other tweaks to language and addition of some provisions in HR 1249 but one of the bigger changes is that of the funding of the USPTO. S.23 included an amendment which ended the annoying fee diversion whereby the excess fees collected by the USPTO (excess in that it is more than what the USPTO was apportioned in funding by Congress) go back to the federal government where the monies can be invested for things other than the USPTO. Frustratingly, this amendment did not make it in tact to HR 1249 and instead the House "decided to water down [the] language" according to Senator Tom Coburn, the introducer of the fee diversion amendment in the Senate. Now, the excess funds, instead of being controlled by USPTO would, under section 22 of HR 1249, be controlled by the Appropriations Committee. Yikes...kiss that money good-bye! (picture, above, left - Senator Coburn)

For the non-US readers, the Appropriations Committee basically controls the purse of the US government. He who controls the pursue, has the power. And he who hath the power, well...does not necessarily always do what is best. Senator Coburn has more damning things to say about the Appropriations Committee (click here for his press release urging the Senate to oppose Congress's version). Director Kappos, as an unelected member of the executive branch of the government, more coolly stated that

"We are encouraged by the statements of so many Members of Congress calling for the USPTO to have full access to its fees when fee collections exceed Congress' annual appropriation for USPTO. Full funding of the USPTO is necessary for the USPTO to successfully implement the legislation and to more effectively perform its core mission."

The Wall Street Journal reports that despite the further compromise that the bill needs before President Obama sees it, the White House has already signalled its approval of HR 1249. So will there even be a fight on fee-diversion and other controversial provisions like expanded prior-user rights, or will the Senate just adopt the House version? Anyone want to put some money (or milk) on the Senate just voting through HR 1249's text as is?

Letter from AmeriKat: The Rite of Spring

Gone are the evenings when the AmeriKat had to activate her whiskers and night vision to illuminate the darkened journey from her office home. The days are getting longer, the afternoon sun is gliding through her Venetian blinds, and her outer garment of choice is a mere raincoat to guard against the unexpected shower. It is true, Spring may have finally graced London with her presence. However, with Spring has come the formidable western wind - Favonius (or Zephyrus)- that last week wreaked havoc on many a groomed fur coat (picture, left) and once-casually floating skirts -the winds of change have come. The winds of patent reform, first reported by the AmeriKat two years ago, have been the biggest news of the past few weeks, but the winds have also blown off the dust of some old issues and revealed some new issues.

i4i files Supreme Court argument, US Government agrees

The i4i v Microsoft battle is definitely an old IP story dating back to 2007, but only three weeks ago i4i filed their reply to Microsoft's appeal in the U.S. Supreme Court. The filing signals one of the final steps in the litigation before the Supreme Court rule on the issue of what evidential standard is required to prove patent invalidity– that of a higher “clear and convincing” standard or a “preponderance of evidence” standard. The “clear and convincing” standard has been part of US patent law for almost 30 years and supports the presumption that patents, when granted by the USPTO, are assumed to be valid; therefore a higher standard of proof is required to invalidate the patent.

Readers will recall that this case involves an epic battle between the two companies involving i4i’s US Patent No 5.787, 449 (“449 Patent”) which related to markup languages and Extensible Markup Language (“XML”) used in electronic documents. In 2007, i4i filed a patent infringement action against Microsoft in the Eastern District of Texas. Microsoft claimed that the '449 patent was invalid because an earlier version of i4i’s software had anticipated the claim. However, this earlier software, S4, had been destroyed ten years prior to the case so the USPTO Patent Examiners never had the opportunity to examine the i4i’s patent application in light of this alleged prior art. Because the S4 data had been destroyed, Microsoft argued that they never had an opportunity to provide “clear and convincing evidence” of invalidity. The trial jury found in i4i’s favor, Microsoft appealed to the Circuit Court of Appeals who upheld the lower court’s finding and then appealed to the US Court of Appeals for the Federal Circuit. The US Court of Appeals upheld the Circuit Court’s ruling and so Microsoft appealed to the Supreme Court. The Supreme Court granted certiorari in the case November 2010.

As reported by the Amerikat, Microsoft is arguing that the evidential standard to invalidate a patent should be one of a “preponderance” and not of a “clear and convincing” standard (see previous posts here for Microsoft’s argument). The AmeriKat has worked her way through the i4i’s brief for a full two-parter AmeriKat post out this week, but i4i's main argument boils down to the suggestion that Section 282, the section that deals with the burden of establishing invalidity, is not silent on the burden of proof requirement. It uses language that has a settled meaning of a “clear and convincing” standard which is itself settled by Federal Circuit and Supreme Court case law history, i.e., section 282 codified the existing evidential standard. In addition, this heightened standard of proof has specifically been used in cases dealing with prior-use claims of invalidity, such as the case here. Most of i4i's argument is devoted to the stronger underlying public policy argument of maintaining the heighted evidential standard, i.e., promoting strong and stable patent rights to protect the incentives for innovation and investment. A weaker standard, such as the preponderance standard, would arguably have the counter-effect as well as weakening the powers and judgment of the USPTO.

Appealing to the USPTO's powers definitely had the right effect and the US Government came galloping to i4i's defence. A week after i4i's filing, the US government joined 21 other amici curiae briefs in support of i4i, including General Electric, Procter & Gamble, and Johnson & Johnson. The main thrust of their support can boil down to that of the USTPO's judgment:

"By allowing a law jury to second-guess the PTO's judgment even in close cases, the preponderance standard would diminish the expected value of patents and would reduce future inventors' incentives to innovate and to disclose their inventions to the public."

In particular, the US Government contended that when invalidity is challenged in infringement proceedings where the prior art was not and could not be before the USPTO during examination, although the standard of proof is arguably more difficult to determine, it should nevertheless be the clear-and-convincing evidence standard. This is because this standard should be applied uniformly and because it

"reflects the better reading of Section 282 in light of that provision’s text, history, and purposes. Most importantly, the text of Section 282 does not suggest that the standard of proof governing questions of patent validity varies depending on the nature of the evidence that a challenger introduces. Such a variable-proof regime, moreover, would reflect a substantial departure from the way in which evidentiary burdens typically operate. Although juries routinely give different weight to different types of evidence, petitioner identifies no statute under which the standard of proof governing a particular determination depends on the type of evidence that the parties introduce. The Federal Circuit’s longstanding approach to the question presented here, under which evidence that was not before the PTO “may carry more weight and go further toward sustaining the attacker’s unchanging burden” ..."

However, if the worry from the USPTO is that a lower-evidential standard may threaten the value of granted patents, then the AmeriKat wonders what they have to say about the concerns about post-grant reviews that is set out in the America Invents Act (reported last week here). Post-grant reviews are argued by some to increase costs to patent holders and would enable a higher frequency of repeated merit-less challenges, which would decrease the certainty of valid and enforceable patents, and thus the value of the patents. Interestingly, Microsoft's deputy general counsel, Horacio Gutierrez, stated two years ago that post-grant reviews are "essential to maintaining high-quality patents because it allows the validity of questionable patents to be tested."

The AmeriKat will be back later this week with a more detailed report of i4i’s brief.

More Unrest in US Patent Reform and AIA

The winds of change are not shifting the AmeriKat's post from patent issues today. Last week the AmeriKat reported on the America Invents Act (AIA) and the controversy surrounding some of the House's version of the Senate bill S.23. Last week, American Innovators for Patent Reform (AIPR) along with eight other national organizations including the Institute for Electrical and Electronic Engineers (IEEE) and National Association of Patent Practitioners (NAPP) sent a letter to the members of the House of Representatives and the staff of the House Judiciary Committee detailing their many objections to the AIA, including the increasing cost in securing and defending a patent (see post-grant review above), reducing access to the patent system for inventors and small businesses (see post-grant review above), and increase the current 700,000 patent application backlog (see first-to-file scare last week).

A more nuanced objection has also been raised - that of grace periods (picture, right - the AmeriKat's favorite painter, Botticelli's Primavera picturing the Three Graces). There is an arguable tension in switching to a first-to-file system and the issue of grace periods. The letter argues that that with the introduction of the first-to-file standard, the current year "grace period" currently afforded to inventors before filing an application will be shortened. The AIA provides that the grace period will only apply in circumstances where the inventor publishes a disclosure (unhelpfully undefined in the AIA) of the invention, however it is argued that small businesses and startups do not routinely publicly disclose their invention soon after it is made. The worry is that the AIA will return patent law to a system that effectively does not provide for a grace period where there is non-disclosing public-use and on-sale activity, not just disclosure. The Bill's proposed section 102(a)

"includes public-use and on-sale bars which have no counterpart exception for grace in proposed 102(b). This is a bad system part of which has been tried in the U.S. and was abandoned in the Patent Act of 1839, which established a grace period of such activity."

Although, adversaries of the Bill abound, the House promptly picked up the AIA this week where the Senate left off. USPTO Director David Kappos, who will be visiting the AmeriKat's alma mater tomorrow appeared before a subcommittee hearing on the bill on last week saying that AIA's measures would "reduce legal costs, improve fairness, objectivity and transparency, and support US innovators." Director Kappos's written statement can be read here. Broad language like this, says the AmeriKat, is exactly what has inflicted the AIA and created such discord with a section of the US inventor community. The AmeriKat has another - if the purpose of AIA is to reduce backlog, surely the new post-grant review procedures are going to create more strain on the USPTO's staff and resources and further increase the backlog?

Proenza Schouler target Target's Mossimo bag

Now something a bit closer to the AmeriKat's heart - and she realizes she now has a reputation about writing about fashion and shopping so she does not wish to disappoint. Proenza Schouler, the New York based luxury womenswear line headed by designers Jack McCollough and Lazaro Hernandez have spoken out about the similarity between their PS1 bag and Target's Mossimo Messanger bag. The PS1 bag (picture, left) retails for $1,595 and is made of genuine leather. The Mossimo bag retails for $34.99, is currently out of stock on-line (the AmeriKat just checked) and is made of fake leather. Although the placement of the straps and closure are different, the other design features including the shape and weight of the bag are quite similar, suggests Hernandez. As reported by the New York Times he stated that

"Our whole aesthetical idea with this bag was to take the hardware off. And the attitude, the slouch of the bag - they got the weight really right."

The numerous fashion blogs that look out for cheaper versions of the more desirable luxury products heralded Target's bag (picture, right - from the New York Times article) as the perfect affordable version of the much-coveted item. McCollough stated that although he can understand this thinking, such products are detrimental for small companies like Proenza. He stated "Yeah, why save up and buy ours when you can buy theirs right away?"

However, the biggest issue is what the AmeriKat originally thought this piece was about. Target has collaborated with several famous luxury fashion labels and desingers, including Mulberry, Liberty and Isaac Mizrahi. Proenza also previously collaborated with Target a few years ago, designing 65 garments for sale in Target stores and has recently reissued some of those pieces in Target this spring. The Massimo bag is thus appearing in the same store that Proenza's authorized designs are also appearing.

The AmeriKat's day-to-day work focuses on the fashion industry and in recent years she has seen how many luxury brands create bespoke lines and license some of their designs and IP out to hight street and mass retailers such as to H&M and Target (picture, left - 2010's Jimmy Choo and H&M collaboration). Although, arguably, these collaborations represent a new revenue stream to luxury brands and notionally act as getting into the stores before the knock-offs and infringement start there are dangers that can often be ignored. Not only can these types of licensing agreements, if used too often and too frequently, be in danger of diluting the attractive power of a luxury brand (products, prices and exclusivity) but it can also potentially dilute the power of any later infringement actions they wish to take. Knock-offs are usually of poorer quality than the originals, but often so are the designs located on the racks at H&M and Target which are authorized by the luxury designer. What happens to the brand and legal reputation of a luxury brand in these circumstances? Also, when brands licence their IP for lines in high-street and mass retail shops, what are the assurances that the hand that feeds these retailers won't be bitten by the appearances of a later knock-off or infringing item, such as what has allegedly happened in the Proenza case? Is this a matter to be dealt with in the contract between the two? What do readers think?

Letter from AmeriKat: Return of the AmeriKat

For anyone who knows the AmeriKat personally and professionally, they will know that during the past seven weeks the AmeriKat has faced a flurry of deadlines, deliberations, duplicitous documents and a dosing of sleep deprivation. Her absence from her beloved letters was not one of choice, but one of necessity as every two days she was hit with another deadline. (picture, left - the AmeriKat up late in front of one of her many outstanding deadlines) The deadlines were increasing in frequency, but as the old saying goes “absence makes the heart grow fonder”, especially when the absence is not voluntary. When the AmeriKat was writing this post, she was curled up on her bed, watching her clock until she had to leave to catch a flight for yet another deadline. However, now with the passing of the last seven weeks, she has returned to first give you a brief glimpse of the first of the latest US IP tails. She will be back later throughout the week with more detailed posts on some of the most important news in US IP law.

Patent Reform Act 2011 Gets Senate’s Thumbs-Up

Two weeks ago the US Senate passed by overwhelming majority (95-5) the America Invents Act (“AIA”) (a.k.a. the Patent Reform Act 2011). Mr. IP himself, Senator Patrick Leahy (D-Vermont) introduced the Patent Reform Act 2011 to the Senate Judiciary Committee this past January. The AmeriKat has set out below the main provisions that the original draft bill contained before the Senate and what the AIA now contains below (a comparison of the two can be found here):

First -to-File: The biggest change introduced by the AIA would be the transition in the US from a first-to-invent system towards a first-to-file system where each patent application would be allocated an “effective filing date”. Similar to that in the EU, the application’s novelty and obviousness is then judged on the prior art available before the effective filing date of the patent, but with a one year grace period still remaining in effect in respect of the inventor’s own disclosures. Democratic Senator Dianne Feinstein had proposed an amendment (Amendment No. 133) that would have removed these provisions arguing that their effect would be especially burdensome to small independent inventors (click here to watch her introduction of the amendment.) However, the Senate voted down the amendment by 87-13 with proponents of the first-to-file provision arguing that the availability of applications such as pre-issue disclosure, post-grant review and inter-partes review would rebalance any alleged burden that the first-to-file paradigm could create. Opponents to the first-to-file system also believe that this introduction will worsen the huge backlog of patents faced by the USPTO (see post here) and result in the system being clogged up with thousands of unmeritorious inventions.

Damages: The review of the assessment of patent damages that was taken up by Microsoft in their initial appeals in the i4i case last year (see AmeriKat posts here) evidenced only a sliver of general unrest with the assessment of US patent damages. The original draft of the Patent Reform Act 2011 introduced proposed amendments that would provide for specific procedures on how judges in patent cases manage the damages assessment. These included mechanisms for the court to consider the evidentiary merit of each parties’ case on damages and then the judge introducing a methodology that would be used in assessing the damages awards. Close the AmeriKat’s heart at the moment was the old text also requiring a judge to split the damages portion of a trial at a parties request and only rejecting that request in the absence of a good cause, such as “the absence of “issues of significant damages or infringement and validity”. All of these draft provisions did not make it past the Senate's approval perhaps signaling a reluctance to delve into the problematic pool of patent damages which may have held the entire bill’s passage hostage.

Enhanced Damages: In the current US Patent Act, there is not specific reference that the increase of patent damages should only be reserved to cases of willful infringement. Section 284 of the current statute, instead, states that “the court may increase the damages up to three times the amount found or assessed.” The Federal Circuit’s interpretation has limited this section to cases to willful infringement and where the defendant’s actions were objectively reckless. The draft text of the Patent Reform Act had basically codified this precedent, but again, like with general damages, this did not make it to the final text.

USPTO Proceedings: The AIA also introduces under Sec 135 a “derivation proceeding” that arises when an original inventor claims that a patent applicant derived their invention from the original. Third parties will also be allowed to submit any prior art documentation with accompanying relevant reasons for the submission to the USPTO prior to the examination proceedings. A post-grant review proceeding would also be created and which allow any party within 9 months of the patent’s issue to present a validity challenge to one or more of the patent claims. Replacing the inter partes reexamination would be the inter partes review which would limit reviews to issues of novelty and obviousness arising from prior art patents and printed publications. The effect of the post-grant review has been considered by some as not ensuring the quality of the granted patents, but as potentially increasing the expense a patent-holder could face during the adversarial proceedings.

Besides deleting more interesting parts of the bill, the Senate did add Section 18 which deals with provisional measures for the establishment of post-grant review proceedings for the review of the validity of business-method patents. False marking lawsuits would be eliminated under the proposed 146 (k) except for ones filed by the US government or by a competitor who can prove competitive injury as a result of false marking. Also, reduced fees for small entities were also introduced.

The American Innovators for Patent Reform (AIPR), a trade association which promotes innovation by strengthening the US patent system, has opposed the AIA. Alexander Poltorak, the founder and President of AIPR and AIPR stated that the AIA, in particular the first-to-file provision would be viewed as a “defeat by many inventors”, however the removal of the damages provisions (which were referred to as the “most damaging provisions” – no pun intended) were heralded as a success. David Kappos, the USPTO's Director, has said that the US is already operating a pseudo-first-to-file system because in 2007 there have only been 7 interference applications (where two inventors file their patents nearly simultaneously) of which only one was decided on priority of the invention and "the truth is that only .01% of all patent applications could be affected" by the change.

The next stage of the bills life will be in the House (watch the life of a bill, courtesy of Schoolhouse Rock). If passed by Congress , the AIA could well be on its way of becoming the first substantial change to patent law in the U.S. in almost 60 years, but a bill’s life in Congress can be a rocky ride and can usually, as has been seen in IP legislation, die a quite death.

So what do non-US readers think? Is the introduction of the first-to-file system the end of civilization as we know it, or if the AIA is passed by Congress is Director Kappos correct and US inventors will not notice any difference at all?