S. REP. 110-259, S. REP. 110-259 (2008)
`
`S. REP. 110-259, S. Rep. No. 259, 110TH Cong., 2ND Sess. 2008, 2008 WL 275437 (Leg.Hist.)
`THE PATENT REFORM ACT OF 2007
`
`SENATE REPORT NO. 110–259
`
`January 24, 2008
`
`*1 Mr. Leahy, from the Committee on the Judiciary, submitted the following
`
`REPORT
`
`[To accompany S. 1145]
`
`The Committee on the Judiciary, to which was referred the bill (S. 1145), to amend title 35, United States Code, to provide
`for patent reform, having considered the same, reports favorably thereon with an amendment and recommends that the bill (as
`amended) do pass.
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`CONTENTS
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`I Background and Purpose of S 1145, the Patent Reform Act of 2007
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`II History of the Bill and Committee Consideration
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`III Section-by-Section Summary of the Bill
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`IV Congressional Budget Office Cost Estimate
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`V Regulatory Impact Evaluation
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`VI Conclusion
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`VII Additional and Minority Views
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`VIII Changes to Existing Law Made by the Bill, as Reported
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`I. BACKGROUND AND PURPOSE OF THE PATENT REFORM ACT OF 2007
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`PURPOSE AND SUMMARY OF LEGISLATION
`
`Purpose
`
`The Constitution explicitly grants Congress the power to “promote the progress of science and useful arts, by securing
`for limited times to . . . inventors the exclusive right to their respective . . . *2 discoveries.” 1 Congress has responded by
`authorizing patents to issue to inventors of new and useful inventions or improvements on inventions. 2 The patent law thus
`accomplishes two objectives, consistent with the authorization granted by the Constitution: first, it encourages inventors by
`granting them limited, but exclusive rights to their inventions; second, in exchange for the grant of those exclusive rights, the
`patent law requires disclosure of the invention and terminates the monopoly after a period of years. 3 This disclosure and limited
`time benefits both society and future inventors by making the details of the invention available to the public immediately, and the
`right to work that invention available to the public after the expiration of 20 years from the date the patent application was filed.
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`Congress has not enacted comprehensive patent law reform in more than 50 years. 4 The object of the patent law today
`must remain true to the constitutional command, but its form needs to change, both to correct flaws in the system that have
`become unbearable, and to accommodate changes in the economy and the litigation practices in the patent realm. The need to
`update our patent laws has been meticulously documented in six hearings before the Senate Judiciary Committee, in addition
`to reports written by the Federal Trade Commission and the National Academy of Sciences, 5 hearings before the House of
`Representatives Judiciary Committee's Subcommittee on the Internet, Intellectual Property, and the Courts, and a plethora of
`academic commentary. 6
`
`The growing impetus towards modernizing and improving the patent system has found expression not only in Congress, but
`in the other branches of government as well, with the Supreme Court taking up an ever-increasing number of patent cases, 7
`and the *3 United States Patent and Trademark Office (USPTO) addressing itself to regulatory changes through rulemaking. 8
`The voices heard in this debate are too numerous to list, but include representatives from all those who use, administer, study,
`teach, benefit from, report on, or are affected by the patent system: small inventors, academics, universities, government
`agencies, corporations, non-profit organizations, industry organizations, bar associations, and members of the general public.
`The proposed changes have been far-reaching and hardly uniform, but they have focused Congressional attention on three major
`areas of concern: (i) appropriate procedures for prosecuting, and standards for allowing, patents; (ii) increasing rates, costs, and
`uncertainty in patent litigation, 9 and (iii) inconsistencies between the U.S. patent system and the other major patent systems
`throughout the industrialized world which disadvantage U.S. patent holders.
`
`First, questions have been raised regarding whether the current scope of what is patentable is too broad, and whether the current
`standard for obtaining a patent is too low in practice. Many have questioned whether the current USPTO patent examination
`system is capable of handling the growing number, 10 and increased complexity, of patent applications. In particular, questions
`have been repeatedly raised about how–and how much–the USPTO is funded, and about whether patent fees reflect the work
`necessary to ensure the issuance of high quality patents. A related concern focuses on whether patent applicants are bearing
`their burden of responsibility in searching the current state of the art and preparing and filing high quality applications.
`
`Second, in recent years the cost and uncertainty of patent litigation has escalated, leading many to believe that it is an
`unbearable drag on the innovation that the patent system is supposed to foster. Patent holders can often sue an alleged infringer
`anywhere they wish in the United States. They may allege damages that are not always commensurate with the value of their
`inventions, and then often argue that these sums should be tripled based on alleged acts of willful infringement by the accused
`infringer. There are also troubling, plaintiff-focused litigation concerns, including that the doctrine of inequitable conduct needs
`improvements and codification. 11 Patent litigations typically take several years to *4 complete, if appealed may be remanded
`more than once, and can cost several million dollars. 12 In addition, litigation concerns can encourage unreasonable posturing
`during licensing negotiations, as well as premature settlements simply to avoid the high cost and uncertainty of patent litigation.
`Moreover, currently, there is no viable, inexpensive, quick administrative alternative for resolving patent validity issues.
`
`Third, because business and competition are increasingly global, many patent applicants filing in the United States often
`seek patents in other countries for their inventions as well. Yet the United States' patent system differs from every other patent
`system in the world in one major respect–it awards patents to the “first to invent,” while every other patent system uses a “first
`to file” rule. 13 As a result, U.S. patent applicants who also file abroad are forced to navigate through two different patent filing
`systems, adding cost and uncertainty to their package of patent rights.
`
`The purpose of the Patent Reform Act of 2007, as reported by the Senate Judiciary Committee, is to ensure that the patent
`system in the 21st century accurately reflects the 18th century Constitutional imperative while ensuring that it does not unduly
`hinder innovation. Congress must promote innovation through the enticement to inventors of temporally limited monopolies on
`their inventions, and it must do so for the ultimate benefit of the public. The legislation is designed to establish a more efficient
`and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs. If
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`the United States is to maintain its competitive edge in the global economy, it needs a system that will support and reward all
`innovators with high quality patents. The time has come for Congress to reconsider the 50 year old patent statute and how it
`is currently being applied. The Committee has heard from numerous interested parties and, given the complex nature of patent
`law as well as the often conflicting interests involved, has tried to consider all of those concerns and produce a balanced set of
`changes that will move the patent system into the 21st century. Moreover, and in response to various concerns raised before the
`Committee, the bill as originally introduced has been significantly modified to reflect a more balanced, modest approach.
`
`*5 Summary of Changes
`
`The Patent Reform Act of 2007 has three primary goals: (i) to improve patent quality and the patent application process;
`(ii) to improve and clarify several aspects of patent litigation, including the creation of a less expensive, more expeditious
`administrative alternative to litigating patent validity issues; and (iii) to make the United States' patent system, where it is useful
`to do so, more consistent with patent systems throughout the rest of the industrialized world.
`
`In general, the numbered sections of the Act do the following:
`
`(1) title the Act the Patent Reform Act of 2007;
`
`(2) change the system to a “first-inventor-to-file” system;
`
`(3) make it simpler for patent applicants to file and prosecute their applications;
`
`(4) codify and clarify the standard for calculating reasonable royalty damage awards, as well as awards for willful
`infringement;
`
`(5) create a relatively efficient and inexpensive administrative system for resolution of patent validity issues before the
`USPTO;
`
`(6) establish the Patent Trial and Appeal Board;
`
`(7) provide for eventual publication of all applications and enhance the utility of third parties' submissions of relevant
`information regarding filed applications;
`
`(8) improve venue in patent cases and provide for appeals of claim construction orders when warranted;
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`(9) give the USPTO the ability to set its fees;
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`(10) remove the residency restriction for judges on the United States Court of Appeals for the Federal Circuit;
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`(11) authorize USPTO to require patent searches with explanations when a patent application is filed;
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`(12) codify and improve the doctrine of inequitable conduct;
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`(13) give the Director of the USPTO discretion to accept late filings in certain instances;
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`(14) limit patent liability for institutions implementing the “Check 21” program;
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`(15) end USPTO “fee diversion”;
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`(16) make necessary technical amendments; and
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`(17) set the effective date of the Act.
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`SECTION 1: SHORT TITLE; TABLE OF CONTENTS
`
`This section provides that the Act may be cited as the “Patent Reform Act of 2007.” It also provides a table of contents for
`the Act.
`
`SECTION 2: RIGHT OF THE FIRST INVENTOR TO FILE
`
`First inventor to file; grace period; and prior art
`
`Background
`
`Every industrialized nation other than the United States uses a patent priority system commonly referred to as “first-to-file.”
`In a first-to-file system, when more than one application claiming the same invention is filed, the priority of a right to a patent is
`given to the earlier-filed application. The United States, by contrast, currently uses a “first-to-invent” system, in which priority
`is established through a proceeding to determine which applicant actually invented the claimed invention first. Differences
`between the two *6 systems arise in large part from the date that is most relevant to each respective system. In a first-to-
`file system, the filing date of the application is most relevant; 14 the filing date of an application is an objective date, simple
`to determine, for it is listed on the face of the patent. In contrast, in a first-to-invent system, the date the invention claimed in
`the application was actually invented is the determinative date. Unlike the objective date of filing, the date someone invents
`something is often uncertain, and, when disputed, typically requires corroborating evidence as part of an adjudication.
`
`There are three significant, practical differences between the two systems. The first concerns the rare instance in which two
`different people file patent applications for the same invention. In a first-to-file system, the application with the earlier filing date
`prevails and will be awarded the patent, if one issues. In the first-to-invent system, a lengthy, complex and costly administrative
`proceeding (called an “interference proceeding”) must be conducted to determine who actually invented first. 15 Interference
`proceedings can take years to complete (even if there is no appeal to the United States Court of Appeals for the Federal Circuit),
`cost hundreds of thousands of dollars, and require extensive discovery. 16 In addition, since it is always possible an applicant
`could be involved in an interference proceeding, U.S. patent holders must maintain extensive recording and document retention
`systems in case they are later required to prove the very day they invented the claimed invention.
`
`The second difference involves prior art. A patent will not issue if the invention is not new, 17 or if it would have been obvious
`to someone in the relevant area of technology (commonly referred to as “a person of ordinary skill in the art”). 18 A patent
`issuing office will examine all prior art–that is, all relevant information that existed before the patented invention–to determine
`whether an invention is indeed new and not obvious. Traditionally, the most common form of prior art has been other patents
`and printed publications. In the first-to-file system, prior art includes all art that exists prior to the filing date–again, an objective
`inquiry. In contrast, in a first-to-invent system, prior art is measured from the more uncertain date of invention. 19
`
`Third, in some first-to-file systems, prior art can include the inventor's own disclosure of his invention prior to the filing
`date of his application. Such systems typically do not provide the inventor any grace period during which time he is allowed to
`publish his invention without fear of it later being used against him as prior art. That is, if an inventor publishes the invention
`in an academic journal, that publication may act as prior art and bar the inventor's own later-filed application. Thus, inventors
`in first-to-file systems must generally keep their inventions secret prior to filing applications for them, thereby sacrificing a
`significant part of one of the *7 benefits of the patent system–disclosure of inventions. Although some first-to-file systems do
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`provide the inventor some sort of grace period, others do not. 20 In contrast, the United States' first-to-invent system provides
`the inventor a grace period of one year, during which an inventor's prior disclosure of the invention cannot be used as prior
`art against the inventor's application. 21
`
`The Committee heard from universities and small inventors, in particular, about the importance of maintaining that grace
`period in our system. 22 They argued that the grace period affords the necessary time to prepare and file applications, and in
`some instances, to obtain the necessary funding that enables the inventor to prepare adequately the application. In addition,
`the grace period benefits the public by encouraging early disclosure of new inventions, regardless of whether an application
`may later be filed for a patent on it.
`
`The first-to-file system is used in every patent system, other than the United States, 23 because it has the advantages of
`simplicity, efficiency and predictability. A first-to-file system avoids costly interference proceedings, provides better notice to
`the public, simplifies the prior art scheme that may preclude a patent from issuing, and provides more certainty to the patent
`system. In addition, a first-to-file system encourages the prompt filing of patent applications.
`
`Numerous organizations, institutions, and companies have advocated the U.S. adopt a first-to-file system similar to those
`used in the rest of the world. 24 The NAS made a similar recommendation *8 after an extensive study of the patent system. 25
`When the United States' patent system was first adopted, inventors did not typically file in other countries. It is now common
`for inventors and companies to file for protection in several countries at the same time. 26 Thus United States applicants, who
`also want to file abroad, are forced to follow and comply with two different filing systems. Maintaining a filing system so
`different from the rest of the world disadvantages United States' applicants, the majority of which also file in other countries. 27
`A change is long overdue. 28
`
`Discussion of changes
`
`Section 2 of the Patent Reform Act of 2007, drawing on the best aspects of the two existing systems, creates a new “first-
`inventor-to-file” system. This new system provides patent applicants in the United States the efficiency benefits of the first-to-
`file systems used in the rest of the world. The new system continues, however, to provide inventors the benefit of the one-year
`grace period. As part of the transition to a simpler, more efficient first-inventor-to-file system, this section eliminates costly,
`complex interference proceedings, because priority will be based on the first application. A new administrative proceeding–
`called a “derivation” proceeding–is created to ensure that the first person to file the application is actually a true inventor.
`Section 2 also simplifies how prior art is determined, provides more certainty, and reduces the cost associated with filing and
`litigating patents.
`
`More specifically, Section 2 makes the following improvements. First, Section 2 moves the U.S. system much closer to a
`first-to-file system by making the filing date that which is most relevant in determining whether an application is patentable. In
`addition, Section 2 eliminates costly, complex interference proceedings since priority fights–who invented first–are no longer
`relevant. However, the new USPTO derivation proceeding is created to ensure that the first person to file the application is
`also actually a true inventor; someone who has not invented something will not be able to file a patent for the invention. If a
`dispute arises as to which of two applicants is a true inventor (as opposed to who invented it first), it will be resolved through
`an administrative proceeding by the Patent Board.
`
`Second, Section 2 maintains a one-year grace period for U.S. applicants. Applicants' own publication or disclosure that occurs
`within one year prior to filing will not act as prior art against their applications. Similarly, disclosure by others during that time
`based on information obtained (directly or indirectly) from the inventor *9 will not constitute prior art. This one-year grace
`period should continue to give U.S. applicants the time they need to prepare and file their applications.
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`Third, this section also, and necessarily, modifies the prior art sections of the patent law. Prior art will be measured from the
`filing date of the application and will typically include all art that publicly exists prior to the filing date, other than disclosures
`by the inventor within one year of filing. Prior art also will no longer have any geographic limitations; thus in section 102 the
`“in this country” limitation as applied to “public use” and “on sale” is removed, and the phrase “available to the public” is
`added to clarify the broad scope of relevant prior art, as well as to emphasize the fact that it must be publicly available. Prior
`art based on earlier-filed United States applications is maintained. 29
`
`Sections (and subsections) of the existing statute are renumbered, modified, or deleted consistent with converting to a first-
`inventor-to-file system. Finally, the intent behind the CREATE Act 30 to promote joint research activities is preserved by
`including a prior art exception for subject matter invented by parties to a joint research agreement.
`
`SECTION 3: INVENTOR'S OATH OR DECLARATION
`
`Background
`
`The U.S. patent system, when first adopted in 1790, contemplated that individual inventors would file their own patent
`applications, or would have a patent practitioner do so on their own behalf. It has become increasingly common for patent
`applications to be assigned to corporate entities, most commonly the employer of the inventor. 31 In fact, many employment
`contracts require employees to assign their inventions to their employer. 32
`
`Current law still reflects the antiquated notion that it is the inventor who files the application, not the company-assignee.
`For example, every inventor must sign an oath as part of the patent application stating that the inventor believes he or she is
`the true inventor of the invention claimed in the application. 33 By the time an application is eventually filed, however, the
`applicant filing as an assignee may have difficulty locating and obtaining every inventor's signature for the statutorily required
`oath. Although the USPTO has adopted certain regulations to allow filing of an application when the inventor's signature is
`unobtainable, 34 many have *10 advocated that the statute be modernized to facilitate the filing of applications by assignees. 35
`
`Discussion of changes
`
`Section 3 of the Act updates the patent system by facilitating the process by which an assignee may file and prosecute patent
`applications. It provides similar flexibility for a person to whom the inventor is obligated to assign, but has not assigned, rights
`to the invention (the “obligated assignee”).
`
`Section 115 of title 35 is amended to allow a substitute statement to be submitted in lieu of an inventor's oath where either
`the inventor is (i) unable to do so, or (ii) is both unwilling to do so and under an obligation to assign the invention. If an error
`is discovered, the statement may be later corrected. A savings clause is included to prevent an invalidity or unenforceability
`challenge to the patent based on failure to comply with these requirements, provided any error has been remedied. Willful false
`statements may be punishable, however, under federal criminal laws. 36
`
`Section 118 is also amended to make it easier for an assignee to file a patent application. The amendment now allows obligated
`assignees–entities to which the inventor is obligated to assign the application–to file applications as well. It also allows a person
`who has a sufficient proprietary interest in the invention to file an application to preserve the person's rights and those of the
`inventor.
`
`SECTION. 4: RIGHT OF THE INVENTOR TO OBTAIN DAMAGES
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`Reasonable Royalty
`
`Background
`
`Patent holders are granted the right to exclude others from making, using, selling and importing their patented inventions. 37
`When another party, without the inventor's permission, commits one of these acts, or actively induces such act, that party
`infringes the patent. 38 The remedies for infringement include an injunction 39 and damages. Damages are intended to
`compensate the patent holder for the infringement of patent rights; absent some egregious circumstances, damages are not meant
`to be punitive or excessive in nature. 40
`
`The measure for damages for infringement can be either (i) profits lost by the patent holder because of the infringement
`(“lost profits”), or (ii) “not less than a reasonable royalty.” 41 Patent holders typically opt for a “lost profits” award when the
`infringers are selling *11 competing products, so that sales of infringing products result in fewer sales of the patent holder's
`competing product, and hence lost profits on those lost sales. The Committee has heard no concerns expressed with current
`determinations of lost profits, and therefore the Act does not alter the relevant law.
`
`Historically, the considerable majority of infringement cases were lost profits cases. 42 However, in recent years it has become
`more common that the patent holder does not produce a competing product, either because the patent holder is focused on
`research and development rather than production (which is the case for many small inventors and universities), or because
`the patent at issue had been purchased, not for the purpose of manufacture, but for the purpose of licensing (or litigation), 43
`or because the infringed patent is so new to the marketplace that there has yet to be any real competition to it. 44 Thus, an
`increasing number of cases require the calculation of an appropriate reasonable royalty. 45
`
`Juries are given little useful guidance in calculating that reasonable royalty, which provides the floor for a damages award;
`often, the jurors are presented with the fifteen “Georgia-Pacific” factors 46 and some version of the “entire market value” rule,
`and then left *12 to divine an appropriate award. 47 The Committee has no intention to degrade the utility of these factors when
`they are applied appropriately, but they do not represent the entire universe of useful instructions, nor have they been presented
`to juries with sufficient guidance to ensure appropriate damages awards. Juries (and perhaps judges) that lack adequate legal
`guidance to assess the harm to the patent holder caused by patent infringement are the focus of the problem the Committee
`seeks to address.
`
`No doubt several alarming cases, which have captured the attention of the public and the Congress, represent the tip of the
`iceberg; these, not surprisingly, involve out-sized damages awards. 48 Leaving aside the ultimate, and appropriate, results in
`these cases, the purpose of this legislation is not to rectify judicial errors, nor is it to alter dramatically the substance of the
`standards by which a reasonable royalty may be calculated, but rather to bring clarity and guidance to the application of the
`law of damages.
`
`Long past is the day in which the typical invention is a sui generis creation; today's patents are often combinations, and many
`products comprise dozens, if not hundreds or even thousands of patents, and the infringed patent may well be one smaller part of
`a much larger whole. Once infringement is proven, the patent holder is entitled to compensation for the use of the invention. 49
`But if juries award damages based on the value of the entire product, and not simply on the infringement–a danger exacerbated
`in some cases by overly expansive claim drafting–then damages awards will be disproportionate to the harm.
`
`The current damage statute is vague and provides little guidance to judges or juries determining the proper damage award,
`particularly when the award is based on the reasonable royalty standard. 50 Given that damages are typically just one of many
`issues in a patent trial, and given that the jury typically has 15 different factors to consider just to determine a reasonable royalty,
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`commentators have correctly questioned whether juries are being properly advised on the evidence and factors to consider
`when determining damages. 51 The time has come to give judges, and juries, better guidance on the proper way to calculate
`a reasonable royalty.
`
`*13 Discussion of changes
`
`This section codifies the analysis the judge and jury should perform in determining an appropriate reasonable royalty. The
`judge is required to determine, from the liability phase of the trial and from any additional necessary hearings, whether the case
`is one that falls within the “entire market value” domain, the “marketplace licensing” domain, or outside both those realms.
`The judge must also identify for the jury all, and only, the relevant factors in determining a reasonable royalty. The Committee
`envisions a more active, and better documented, role for district courts (with the aid of the parties) in giving their juries guidance
`on the appropriate law for calculating reasonable royalties.
`
`In new subparagraph (c)(1)(A) of section 284, the entire market value rule may be applied if the patented invention's
`contribution over the prior art is the predominant basis, and not just one of several bases, for the market demand of the infringing
`product or process. The Committee intends this section to be a codification of the existing law regarding the entire market
`value rule. 52
`
`New subparagraph (c)(1)(B) provides that the royalty may be based on other comparable, nonexclusive licenses of the
`patented invention if there has been a sufficient number of licenses to indicate a general marketplace recognition of the
`reasonableness of the licensing terms. The Committee heard that in many instances existing licenses of the patent can be one
`of the better indicators in determining an appropriate royalty to compensate for infringement. 53
`
`New subparagraph (c)(1)(C) requires that if neither (A) nor (B) is applicable, the trier of fact ensures that the damages award
`accurately reflects the harm caused by the infringement; no methodology is prescribed for this determination, but the jury is
`simply admonished to apply the reasonable royalty calculation only to the portion of the economic value of the infringing
`product or process properly attributable to the claimed invention's specific contribution over the prior art. The Committee intends
`“specific contribution over the prior art” to mean the reason the patent was allowed in view of the existing information at the
`time of the invention. 54 The Committee also intends that the damages be calculated in the *14 context of the infringement.
`In the case of a combination invention whose elements are present individually in the prior art, the contribution over the prior
`art may include the value of the additional function and enhanced value resulting from the combination, if any, if the patent
`holder demonstrates that value.
`
`New paragraph (c)(2) preserves the court's authority to consider, or direct a jury to consider, other relevant factors in
`calculating the reasonable royalty, no matter which subparagraph is otherwise applicable. These include consideration of any of
`the 15 Georgia-Pacific factors that may be relevant to a given damage calculation, as well as any other factors courts determine
`relevant.
`
`Subsection (d) clarifies that these changes have no effect on damage awards not based on reasonable royalty calculations.
`The Committee intends that this subsection will ensure the changes made to section 284 of title 35 will not have any effect on
`damage calculations when, for example, the lost profit calculation is the appropriate damage remedy.
`
`Willfulness
`
`Background
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`Current law allows for up to the trebling of damages when it is determined the infringement was “willful.” 55 The statute,
`however, provides no guidance regarding what activities constitute willful infringement. The Committee has heard that this
`lack of clarity has resulted in excessive pleading, 56 and inappropriate findings, of willfulness which, in turn, have inflated
`litigation and transaction costs as well as damage awards.
`
`Lacking statutory guidance, courts have established the principle that an infringement will not be found willful unless the
`infringer was put on notice that it was infringing; unfortunately, courts have set that notice threshold quite low. The patent
`holder may simply send a conclusory letter suggesting the alleged infringer may be infringing one or more of its patents, without
`providing any specifics stating which activities allegedly infringe which patents. 57 Companies can receive several such letters
`a week, potentially making them liable for treble damages based on willfulness if they are later found to have infringed a patent
`that was asserted in the conclusory letter. 58
`
`Courts have held that companies can also put themselves on sufficient notice by becoming aware of the patent by a means
`other than notice from the patentee. 59 As a result, some companies instruct *15 their employees not to conduct patent searches
`out of fear their actions may later be used against them in a patentee's attempt to prove willful i