`
`S5429
`
`September 8, 2011
`the primary goal of the U.S. Patent
`and Trademark Office.
`I rise
`Mr. KYL. Madam President,
`today to say a few words about aspects
`of the present bill that differ from the
`bill that passed the Senate in March. I
`commented at
`length on the Senate
`bill when that bill was before this
`body. Since the present bill and the
`Senate bill are largely identical, I will
`not repeat what I said previously, but
`will simply refer to my previous re-
`marks, at 157 Cong. Rec. 1368-80, daily
`ed. March 8,
`2011, which obviously
`apply to the present bill as well.
`As I mentioned earlier, Mr. SMITH ne-
`gotiated his bill with Senators LEAHY,
`GRASSLEY, and me as he moved the bill
`through the House of Representatives.
`The final House bill thus represents a
`compromise, one which the Senate sup-
`porters of patent reform have agreed to
`support in the Senate. The provisions
`that Mr. SMITH has added to the bill
`are ones that we have all had an oppor-
`tunity to consider and discuss, and
`which I fully support.
`Section 19(d) of the present bill adds
`a new section 299 to title 35. This new
`section bars joinder of accused infring-
`ers as codefendants, or consolidation of
`their cases for trial, if the only com-
`mon fact and transaction among the
`defendants is that they are alleged to
`have infringed the same patent. This
`provision effectively codifies current
`law as it has been applied everywhere
`outside of
`the Eastern District of
`Texas. See Rudd v. Luac Products Corp.,
`2011 WL 148052.
`(N.D. Ill. January 12,
`2011), and the committee report for this
`bill at pages 54 through 55.
`H.R. 1249 as introduced applied only
`to joinder of defendants in one action.
`As amended in the mark up and in the
`floor managers’ amendment,
`the bill
`extends the limit on joinder to also bar
`consolidation of trials of separate ac-
`tions. When this change was first pro-
`posed, I was skeptical that it was nec-
`essary. A review of legal authority,
`however,
`reveals that under current
`law, even if parties cannot be joined as
`defendants under rule 20,
`their cases
`can still be consolidated for trial under
`rule 42. For example, as the district
`court held in Ohio v. Louis Trduth
`Dairy,
`Inc., 163 F.R.D. 500, 503 (S.D.
`Ohio 1995), “[e]ven when actions are
`improperly joined,
`it
`is
`sometimes
`proper to consolidate them for trial.”
`The same conclusion was reached by
`the court in Kenvin v. Newburger, Loeb
`& Co., 37 F.R.D. 473 (S.D.N.Y. 1965),
`which ordered severance because of
`misjoinder of parties, concluding that
`the claims against the defendants did
`not arise out of single transaction or
`occurrence, but then suggested the de-
`sirability of a joint trial, and expressly
`made its severance order without prej-
`udice to a subsequent motion for con-
`solidation under rule 42(a). Similarly,
`in Stanford v. TVA, 18 F.R.D. 152 (M.D.
`Tenn. 1955), a court found that the de-
`fendants had been misjoined, since the
`claims arose out of independent trans-
`actions, and ordered them severed. The
`
`subsequently found, however,
`court
`that a common question existed and
`ordered the defendants’ cases consoli-
`dated for trial.
`That these cases are not just outliers
`is confirmed by Federal Practice and
`Procedure, which comments as follows
`at §2382:
`Although as a general proposition it is true
`that Rule 42(a) should be construed in har-
`mony with the other civil rules, it would be
`a mistake to assume that the standard for
`consolidation is the same as that governing
`the original joinder of parties or claims. .
`.
`.
`[M]ore than one party can be joined on a side
`under Rule 20(a) only if there is asserted on
`behalf of or against all of them one or more
`claims for relief arising out of the same
`transaction or occurrence or series of trans-
`actions or occurrences. This is in addition to
`the requirement that there be some question
`of law or fact common to all the parties. But
`the existence of a common question by itself
`is enough to permit consolidation under Rule
`42(a), even if the claims arise out of inde-
`pendent transactions.
`If a court that was barred from join-
`ing defendants in one action could in-
`stead simply consolidate their cases for
`trial under rule 42, section 299’s pur-
`pose of allowing unrelated patent de-
`fendants to insist on being tried sepa-
`rately would be undermined. Section
`299 thus adopts a common standard for
`both joinder of defendants and consoli-
`dation of their cases for trial.
`Another set of changes made by the
`House bill concerns the coordination of
`inter partes and postgrant review with
`civil litigation. The Senate bill, at pro-
`posed sections 315(a) and 325(a), would
`have barred a party or his real party in
`interest from seeking or maintaining
`an inter partes or postgrant
`review
`after he has filed a declaratory—judg—
`ment action challenging the validity of
`the patent. The final bill will still bar
`seeking IPR or PGR after a declara-
`tory—judgment action has been filed,
`but will allow a declaratory—judgment
`action to be filed on the same day or
`after the petition for IPR or PGR was
`filed. Such a declaratory—judgment ac-
`tion, however, will be automatically
`stayed by the court unless the patent
`owner countersues for
`infringement.
`The purpose of allowing the declara-
`tory—judgment action to be filed is to
`allow the accused infringer to file the
`first action and thus be presumptively
`entitled to his choice of venue.
`The House bill also extends the dead-
`line for allowing an accused infringer
`to seek inter partes review after he has
`been sued for infringement. The Senate
`bill
`imposed a 6-month deadline on
`seeking IPR after the patent owner has
`filed an action for infringement. The
`final bill extends this deadline, at pro-
`posed section 315(b),
`to 1 year. High-
`technology companies,
`in particular,
`have noted that they are often sued by
`defendants asserting multiple patents
`with large numbers of vague claims,
`making it difficult to determine in the
`first few months of the litigation which
`claims will be relevant and how those
`claims are alleged to read on the de-
`fendant’s products. Current
`law im-
`poses no deadline on seeking inter
`
`partes reexamination. And in light of
`the present bill’s enhanced estoppels, it
`is important
`that
`the section 315(b)
`deadline afford defendants a reasonable
`opportunity to identify and understand
`the patent claims that are relevant to
`the litigation. It is thus appropriate to
`extend the section 315(b) deadline to
`one year.
`The final bill also extends inter-
`vening rights to inter partes and post-
`grant review. The bill does not allow
`new matter to be introduced to support
`claims in IPR and PGR and does not
`allow broadening of claims in those
`proceedings. The aspect of intervening
`rights that is relevant to IPR and PGR
`is section 252, first paragraph, which
`provides
`that damages accrue only
`from the date of the conclusion of re-
`view if claim scope has been sub-
`stantively altered in the proceeding.
`This restriction applies even if the
`amendment only narrowed the scope of
`the claims. See Engineered Data Prod-
`ucts, Inc. v. GBS Corp., 506 F.Supp.2d
`461, 467 (D. Colo. 2007), which notes that
`“the Federal Circuit has routinely ap-
`plied the intervening rights defense to
`narrowing amendments.” When patent-
`defeating prior art is discovered, it is
`often impossible to predict whether
`that prior art will be found to render
`the entire invention obvious, or will
`only require a narrowing amendment.
`When a challenger has discovered such
`prior art, and wants to practice the in-
`vention, intervening rights protect him
`against the risk of gong forward—pro—
`vided, of course, that he is correct in
`his judgment that the prior art at least
`requires a substantive narrowing of
`claims.
`The final bill also adds a new sub-
`section to proposed section 257, which
`authorizes supplemental examination
`of patents. The new subsection pro-
`vides that the Director shall refer to
`the U.S. Attorney General any “mate-
`rial fraud” on the Office that is discov-
`ered
`during
`the
`course
`of
`a
`Supplemental Examination. Chairman
`Smith’s explanation of this addition, at
`157 Cong. Rec. E1182—83 (daily ed. June
`23, 2011), clarifies the purpose and ef-
`fect of this new provision. In light of
`his
`remarks,
`I
`find
`the
`addition
`unobjectionable. I would simply add to
`the Chairman’s remarks that, in evalu-
`ating whether a fraud is “material” for
`purpose of referral, the Director should
`look to the Federal Circuit’s decision
`in Therdsense, Inc. v. Becton, Dickinson
`and Co., _F.3dj, 2011 WL 2028255
`(May 25, 2011). That case holds, in rel-
`evant part, that:
`[T]he materiality required to establish in-
`equitable conduct
`is but—for materiality.
`When an applicant fails to disclose prior art
`to the PTO, that prior art is but—for material
`if the PTO would not have allowed a claim
`had it been aware of the undisclosed prior
`art. Hence, in assessing the materiality of a
`withheld reference,
`the court must deter-
`mine whether the PTO would have allowed
`the claim if it had been aware of the undis-
`closed reference.
`Finally, perhaps the most important
`change that the House of Representa-
`tives has made to the America Invents
`
`YODLEE 2001
`PLAID V. YODLEE
`IPR2016-00275
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`1
`
`YODLEE 2001
`PLAID V. YODLEE
`IPR2016-00275
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`
`
`S5430
`
`CONGRESSIONAL RECORD — SENATE
`
`Act is the addition of a prior—commer-
`cial—use defense. Current
`law, at sec-
`tion 273, creates a defense of prior—user
`rights that applies only with respect to
`business—method patents. The final bill
`rewrites section 273, creating a PCU de-
`fense that applies to all utility patents.
`University
`researchers
`and
`their
`technology—transfer offices had earlier
`objected to the creation of such a de-
`fense. Their principal concern was that
`the defense would lead to a morass of
`litigation over whether an infringer
`was entitled to assert it, and the ex-
`pense and burden of
`this litigation
`would ultimately prevent universities
`and small companies from enforcing
`valid patents. The compromise reached
`in the House of Representatives ad-
`dresses university concerns by requir-
`ing a defendant to show that he com-
`mercially used the subject matter that
`infringes the patent at least 1 year be-
`fore the patent owner either filed an
`application or disclosed the invention
`to the public. The House compromise
`also precludes assertion of the defense
`against most university—owned patents.
`The PCU defense is similar to the
`prior—user
`right
`that exists
`in the
`United Kingdom and Germany. The de-
`fense is a relatively narrow one. It does
`not create a general
`license with re-
`spect
`to the patented invention, but
`rather only allows the defendant
`to
`keep making the infringing commer-
`cial use that he establishes that he
`made 1 year before the patentee’s filing
`or disclosure. The words “subject mat-
`ter,” as used in subsection (a), refer to
`the infringing acts of the defendant,
`not
`to the entire patented invention.
`An exception to this limit, which ex-
`pands the defense beyond what would
`be allowed in the United Kingdom, ap-
`pears in subsection (e)(3), which allows
`the defendant to increase the quantity
`or volume of the use that he estab-
`lishes that he made of the invention.
`Subsection (e)(3) also confirms that the
`defendant may improve or otherwise
`modify his activities in ways that do
`not
`further
`infringe the patent, al-
`though one would think that
`this
`would go without saying.
`The PCU defense is principally de-
`signed to protect the use of manufac-
`turing processes. For many manufac-
`turing processes,
`the patent system
`presents a catch—22:
`if the manufac-
`turer patents the process, he effec-
`tively discloses it to the world. But
`patents for processes that are used in
`closed factories are difficult to police.
`It
`is all but
`impossible to know if
`someone in a factory in China is in-
`fringing such a patent. As a result, un-
`scrupulous foreign and domestic manu-
`facturers will simply use the invention
`in secret without paying licensing fees.
`Patenting such manufacturing proc-
`esses effectively amounts to giving
`away the invention to competitors. On
`the other hand,
`if the U.S. manufac-
`turer does not patent
`the process, a
`subsequent party may obtain a patent
`for it, and the U.S. manufacture will be
`forced to stop using a process that he
`was the first to invent and which he
`has been using for years.
`
`defense
`prior—commercial—use
`The
`provides relief to U.S. manufacturers
`from this Catch—22, allowing them to
`make long—term use of a manufac-
`turing process without having to give
`it away to competitors or run the risk
`that it will be patented out from under
`them.
`Subsection (a) expands the defense
`beyond just processes to also cover
`products that are used in a manufac-
`turing or other commercial process.
`Generally, products that are sold to
`consumers will not need a PCU defense
`over the long term. As soon as the
`product is sold to the public, any in-
`vention that is embodied or otherwise
`inherent in that product becomes prior
`art and cannot be patented by another
`party, or even by the maker of the
`product after the grace period has ex-
`pired. Some products, however, consist
`of tools or other devices that are used
`only by the inventor inside his closed
`factory. Others consist of substances
`that are exhausted in a manufacturing
`process and never become accessible to
`the public. Such products will not be-
`come prior art. Revised section 273
`therefore allows the defense to be as-
`serted with respect to such products.
`The defense can also be asserted for
`products that are not used to make a
`useful end result that is sold to others,
`but that are used in an internal com-
`mercial process. This would include,
`for example, customized software that
`is used to run a company’s human—re—
`sources system. So long as use of the
`product is integrated into an ongoing
`commercial process, and not merely
`fleeting or experimental or incidental
`to the enterprise’s operations, the PCU
`defense can be asserted with respect to
`that product.
`The present bill requires the defend-
`ant to commercially use the invention
`in order to be able to assert
`the de-
`fense. Chairman SMITH has suggested,
`at 157 Cong. Rec. E1219 (daily ed. June
`28, 2011),
`that in the future Congress
`should expand the defense so that it
`also applies when a company has made
`substantial preparations to commer-
`cially use an invention. Some have also
`suggested that the defense should be
`expanded to cover not just using, but
`also making and selling an invention if
`substantial preparations have been
`made to manufacture the invention.
`This would expand the defense to more
`fully compensate for the repeal of cur-
`rent section 102(g), which allows a
`party to invalidate a patent asserted
`against it if the party can show that it
`had conceived of the invention earlier
`and diligently proceeded to commer-
`cialize it.
`On the one hand, universities and
`others have expressed concern that a
`“substantial preparations” predicate
`for asserting the PCU defense would
`lead to expensive and burdensome liti-
`gation over whether a company’s ac-
`tivities reflect conception and diligent
`commercialization of
`the invention.
`Some argue that it is often the case
`that different companies and research-
`ers are working on the same problem,
`and it is easy for the unsuccessful par-
`
`September 8, 2011
`ties to later recharacterize their past
`efforts as capturing or diligently im-
`plementing the successful researcher’s
`invention. Questions have also arisen
`as to how tentative preparations may
`be and still qualify as “substantial
`preparations.” For example, if a com-
`pany had not broken ground for its fac-
`tory, but had commissioned an archi-
`tect to draw up plans for it, would that
`qualify‘? Would taking out a loan to
`build the factory qualify as substantial
`preparations‘?
`On the other hand, proof of concep-
`tion and diligent commercialization
`are currently used to apply section
`102(g)(2), and I have not heard com-
`plaints that the current defense has re-
`sulted in overly burdensome litigation.
`In the end, however, a substantial-
`preparations predicate is not included
`in this bill simply because that was the
`agreement
`that was struck between
`universities and industry in the House
`of Representatives last summer, and
`we are now effectively limited to that
`agreement. Perhaps this issue can be
`further explored and revisited in a fu-
`ture Congress,
`though I suspect that
`many members will want a respite
`from patent
`issues after this bill
`is
`completed.
`The final bill also drops the require-
`ment of a showing of a reduction to
`practice that previously appeared in
`subsection (b)(1). This is because the
`use of a process, or the use of product
`in a commercial process, will always
`constitute a reduction to practice.
`One change made by the original
`House bill that proved contentious is
`the expansion of the personal nature of
`the defense, now at subsection (e)(1)(A),
`to also include uses of the invention
`made by contractors and vendors of the
`person asserting the
`defense. The
`House bill originally allowed the de-
`fendant to assert the defense if he per-
`formed
`the
`commercial
`use
`or
`“caused” its performance. The word
`“caused,” however, could be read to in-
`clude even those uses that a vendor
`made without instructions or even the
`contemporaneous knowledge
`of
`the
`person asserting the defense. The final
`bill uses the word “directed,” which
`limits the provision only to those
`third—party commercial uses that the
`defendant actually instructed the ven-
`dor or contactor to use. In analogous
`contexts, the word “directed” has been
`understood to require evidence that the
`defendant affirmatively directed the
`vendor or contractor in the manner of
`the work or use of the product. See, for
`example, Ortega v. Puccia, 75 A.D. 54, 59,
`866 N.Y.S.2d 323, 328 (N.Y. App. 2008).
`Subsection (e)(1)(A)’s reference to en-
`tities that “control, are controlled by,
`or under common control with” the de-
`fendant borrows a term that is used in
`several federal statutes. See 12 U.S.C.
`1841(k), involving bank holding compa-
`nies, 15 U.S.C. 78c(a)(4)(B)(vi),
`involv-
`ing securities
`regulation,
`15 U.S.C.
`6809(6), involving financial privacy, and
`49 U.S.C. 30106(d)(1),
`involving motor
`vehicle safety. Black’s Law Dictionary
`378 (9th ed. 2009) defines “control” as
`the “direct or indirect power to govern
`
`2
`
`
`
`CONGRESSIONAL RECORD — SENATE
`
`S5431
`
`September 8, 2011
`the management and policies of a per-
`son or entity, whether through owner-
`ship of securities, by contract, or oth-
`erwise; the power or authority to man-
`age, direct, or oversee.”
`A few other aspects of the PCU de-
`fense merit brief mention. Subsection
`(e)(5)(A), the university exception, was
`extended to also include university
`technology—transfer
`organizations,
`such as the Wisconsin Alumni Research
`Foundation. Subparagraph (B), the ex-
`ception to the university exception, is
`only intended to preclude application
`of subparagraph (A) when the federal
`government
`is affirmatively prohib-
`ited, whether by statute, regulation, or
`executive order, from funding research
`in the activities in question.
`In the course of the recodification of
`former subsection (a)(2) as new (c)(2),
`the
`former’s
`subparagraph (B) was
`dropped because it is entirely redun-
`dant with subparagraph (A).
`Finally, subsection (e)(4), barring as-
`sertion of the defense if use of the sub-
`ject matter has been abandoned, should
`not be construed to necessarily require
`continuous use of the subject matter.
`It is in the nature of some subject mat-
`ter that it will be used only periodi-
`cally or seasonally. If such is the case,
`and the subject has been so used, its
`use has not been abandoned.
`I would also like to take a moment
`to once again address the question of
`the grace period created by this bill.
`During the House and Senate debates
`on the bill, opponents of the first—to—
`file system have occasionally asserted
`that
`they oppose the bill’s move to
`first
`to file because it weakens the
`grace period. See 157 Cong. Rec. S1094,
`S1096, S1112 (daily ed. March 2, 2011),
`and 157 Cong. Rec. H4424, H4430 (daily
`ed. June 22, 2011).
`Some of
`these arguments are dif-
`ficult
`to understand,
`in part because
`opponents of first to file have used the
`term “grace period” to mean different
`things. Some have used the term to
`mean the period between the time
`when the inventor conceives of the in-
`vention and the time when he files a
`full or even provisional application.
`Obviously, if the “grace period” is de-
`fined as
`the first—to—invent
`system,
`then the move to first
`to file elimi-
`nates that version of the grace period.
`Others, however, have suggested that
`public uses, sales, or “trade secrets”
`will bar patenting under new section
`102(b), even if they consist of activities
`of the inventor during the year before
`filing.
`This is not the case, and I hope that
`courts and executive officials inter-
`preting this act will not be misled by
`arguments made by opponents of this
`part of the bill. The correct interpreta-
`tion of section 102 and the grace period
`is that which has been consistently ad-
`vanced in the 2007 and 2011 committee
`reports for this bill, see Senate Report
`110-259, page 9, and House Report 112-
`98, page 43, as well as by both Chair-
`man SMITH and Chairman LEAHY, see
`157 Cong. Rec. S1496—97 (daily ed. March
`
`9, 2011), and 157 Cong. Rec. H4429 (daily
`ed. June 22, 2011). These two chairmen
`are the lead sponsors and authorizing
`chairmen of this year’s bills, which are
`identical with respect to section 102. As
`Chairman SMITH most
`recently ex-
`plained in his June 22 remarks, “con-
`trary to current precedent, in order to
`trigger the bar in new 102(a) in our leg-
`islation, an action must make the pat-
`ented subject matter ‘available to the
`public’ before the effective filing date.”
`Therefore, “[i]f an inventor’s action is
`such that it triggers one of the bars
`under 102(a), then it inherently triggers
`the grace period in section 102(b).”
`When the committee included the
`words “or otherwise available to the
`public” in section 102(a),
`the word
`“otherwise” made clear that the pre-
`ceding items are things that are of the
`same quality or nature. As a result, the
`preceding events and things are limited
`to those that make the invention
`“available to the public.” The public
`use or sale of an invention remains
`prior art, thus making clear that an in-
`vention embodied in a product that has
`been sold to the public more than a
`year before an application was filed,
`for example, can no longer be patented.
`Once an invention has entered the pub-
`lic domain, by any means, it can no
`longer be withdrawn by anyone. But
`public uses and sales are prior art only
`if they make the invention available to
`the public.
`I
`In my own remarks last March,
`cited judicial opinions that have con-
`strued comparable legislative language
`in the same way. Since that time, no
`opponent of the first—to—file transition
`has identified any caselaw that reads
`this legislative language any other
`way, nor am I aware of any such cases.
`I would hope that even those opponents
`of first to file who believe that sup-
`porters of the bill cannot rely on com-
`mittee reports and sponsors’
`state-
`ments would at least concede that Con-
`gress is entitled to rely on the con-
`sistent judicial construction of legisla-
`tive language.
`Finally, I would note that the inter-
`pretation of 102 that some opponents
`appear to advance—that nondisclosing
`uses and sales would remain prior art,
`and would fall outside the 102(b) grace
`period—is utterly
`irrational. Why
`would Congress create a grace period
`that allows an invention that has been
`disclosed to the world in a printed pub-
`lication, or sold and used around the
`world, for up to a year,
`to be with-
`drawn from the public domain and pat-
`ented, but not allow an inventor to
`patent an invention that, by definition,
`has not been made available to the
`public‘? Such an interpretation of sec-
`tion 102 simply makes no sense, and
`should be
`rejected for
`that
`reason
`alone.
`two other
`address
`also
`Let me
`misstatements that have been made
`about the bill’s first—to—file system. In
`remarks appearing at 157 Cong. Rec.
`S1095 (daily ed. March 2, 2011), it was
`suggested that a provisional applica-
`
`tion filed under the first—to—file system
`will be vulnerable to an attack that
`the inventor failed to disclose the best
`mode of the invention. This is incor-
`rect. Section 15 of this bill precludes
`the use of the best—mode requirement
`as a basis for cancelling a claim or
`holding it
`invalid. It was also sug-
`gested, at the same place in the record,
`that discovery would not be allowed in
`the derivation proceedings created by
`section 3(i) of the bill. That is incor-
`rect. Section 24 of title 35 allows dis-
`covery in any “contested case.” The
`Patent Office’s regulations, at 37 CFR
`41.2(2), indicate that contested cases in-
`cluded Board proceedings such as inter-
`ferences. It is not apparent to me why
`these laws and regulations would sug-
`gest anything other
`than that dis-
`covery will be allowed in derivation
`proceedings.
`Finally, let me close by commenting
`on section 18 of the bill. Some legiti-
`mate interests have expressed concern
`that non—business—method patents will
`be subject
`to challenge in this pro-
`ceeding. I have been asked to, and am
`happy to, reiterate that technological
`inventions are excluded from the scope
`of the program, and that these techno-
`logical
`inventions include inventions
`in the natural sciences, engineering,
`and computer operations—and that in-
`ventions in computer operations obvi-
`ously include software inventions.
`This does not mean that a patent is
`ineligible for review simply because it
`recites software elements or has been
`reduced to a software program. If that
`were the case, then very few of even
`the most notorious business—method
`patents could be reviewed under sec-
`tion 18. Rather, in order to fall within
`the technological—invention exclusion,
`the invention must be novel as soft-
`ware. If an invention recites software
`elements, but does not assert that it is
`novel as software, or does not colorably
`appear to be so, then it is not ineligible
`for review simply because of that soft-
`ware element. But an actual software
`invention is a technological invention,
`and is not subject to review under sec-
`tion 18.
`Mr. LEVIN. Madam President, I sup-
`port the America Invents Act.
`Right now, as our economy struggles
`to recover, this legislation is needed to
`help create jobs and keep our manufac-
`turers competitive.
`It will
`further
`strengthen and expand the ability of
`our universities to conduct
`research
`and turn that research into innovative
`products and processes
`that benefit
`Michigan and our Nation.
`Because of this legislation, we will be
`able to see that boost up close in my
`home State of Michigan, where a new
`satellite Patent and Trademark Office
`will be established in Detroit. This of-
`fice will help modernize the patent sys-
`tem and improve the efficiency of pat-
`ent review and the hiring of patent ex-
`aminers.
`In addition, in an important victory
`after years of effort
`to address the
`problem, section 14 of the act finally
`
`3