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Friday, March 20, 2009

Senator Kyl's New Patent Bill -- Reopening the Patent-Reform Debates
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Earlier this week, Senator Kyl introduced a new patent reform bill of his own.  This one will compete with the bill introduced by Senators Leahy and Hatch a few weeks ago.  I wrote about my first impressions of the Leahy-Hatch bill here.

Dennis Crouch at Patently-O has noted that the Kyl bill is more patent-holder friendly than the Leahy-Hatch bill.  That it is.  The bill stirs up a lot of issues that I had considered resolved by now.  To the extent that the Kyl bill garners some support on the Judiciary Committee, it calls into question how quickly the Senate will be able to pass any patent reform measure this session.

The most contentious issue for patent reform (lately, at least) regards calculation of damages.  Damages consumed much if not most of the time during the Senate hearing on the Leahy-Hatch bill a few weeks ago.  At the risk of over-simplification, the Leahy-Hatch bill tried to ensure a couple of things regarding reasonable royalties for damages:

(1)  If a patent covers a discrete component of an infringing system (e.g., the modem in a computer), damages should ordinarily be based on the value of the modem and not the entire market value of the computer.  This is the "entire-market-value rule" question and is currently up for decision in the Court of Appeals for the Federal Circuit.  (Disclaimer:  Several years ago, I worked on that case at the trial level.)

(2)  Damages should be assessed with reference to the "claimed invention's specific contribution over the prior art."  (quoting from page 27 of the Leahy-Hatch bill).  An extensive critique of such methodology appears here.  Such critics argue that the "specific contribution" formulations are unreasonably vague and sell short the value of patented inventions.

The Kyl bill backs off of both of these reforms.  That is unfortunate for the entire-market-value rule, which I think makes a lot of sense in the manner in which it has been addressed by Leahy-Hatch.  I am more sympathetic to Senator Kyl's questioning of the "contribution over the prior art" language.  The language in the Leahy-Hatch bill is, indeed, highly subjective.  I have also not seen any empirical evidence that such reform is necessary, though I'm open-minded to persuasion.

The Kyl bill also has a substantially different reexamination scheme than the Leahy-Hatch bill.  Senator Kyl tries to ensure that litigation will not be slowed by manipulative reexamination filings by litigation defendants.  This is sensible.  District court cases are routinely stayed for five or more years pending reexamination by the Patent & Trademark Office of the patents in suit.  That is unacceptable.  I am not familiar with any other types of agency action (in non-patent cases) that routinely result in multi-year stays of district court litigation; in non-patent contexts, such stays would be considered abhorrent.  Allowing litigation to go forward (under the Kyl bill) is really just the second-best solution, however.  The best solution would be to develop a reexamination scheme where litigation could be stayed briefly pending an expedited reexamination by the PTO.  Yet despite the existing (and illusory) administrative requirement that such patent reexaminations be conducted with "special dispatch," the reexamination process still takes far too long.  As best as I can tell, neither the Kyl bill nor the Leahy-Hatch bill adequately fixes that real underlying problem.

Senator Kyl also has a different take on the question of patent venue.  As a former patent litigator and civil procedure professor, this is an issue dear to my heart, and one that I wrote about in some depth not long ago.  The Leahy-Hatch bill looks just like the proposals from last year that were the subject of my paper.  As I explained in my paper, the venue language was too vague and subjective.  Moreover, because venue was so restrictive, it risked creating situations where venue against multiple defendants was appropriate nowhere.  Under such circumstances, a plaintiff would have to bring suit against separate defendants separately, which is as inefficient for the courts as it is for the plaintiff.

The Kyl bill's venue provision seems to account for multiple defendants -- it provides venue where "a party has a regular and established physical facility" related to the patent in suit.  Thus, so long as one party has a facility and so long as personal jurisdiction exists for all defendants, then venue will exist. So that's better than the Leahy-Hatch bill.  But by providing venue wherever any party has such a facility, the bill risks allowing concentration of cases in  inappropriate places like the Eastern District of Texas.  Moreover, to the extent that the committee reports from the last Congress are correct that there is a risk of plaintiffs moving to reincorporate in favorable patent venues, then Kyl fails to resolve that problem.  There are some other oddities in Senator Kyl's bill.  Just as we eliminate the importance of "conception" and "actual reduction to practice" by moving from a first-to-conceive to first-to-file system, he exhumes those concepts for purposes of venue.  I'm not sure why.  He would also base venue on the location where a party has, for instance, manufactured "a product that embodies an invention claimed in a patent in suit."  Is that language really meant to turn on which products of the defendant infringe?  I hope not.  Given that plaintiffs rarely plead what the accused products are, Senator Kyl's overall scheme is at odds with patent litigation practice.

Another oddity in the Kyl bill is a provision (to be enacted as 35 U.S.C. s 298) that codifies aspects of Daubert for, and only for, patent cases.  I don't think that there is any reasonable justification for having a special set of standards for the qualification of experts in patent cases, as opposed to other highly technical cases.  Some of the most egregious examples of patent law run amok have occurred when patent law is interpreted differently than other areas of law, even when it ought not.  The Supreme Court has occassionally stepped in to help.  See, e.g., EBay (overturning Federal Circuit's special rules for injunctions in patent cases) and Zurko (overturning Federal Circuit's special rules for deference to PTO).   The Kyl bill's Daubert provision is a step in the wrong direction.

I'm sure there are many other significant differences, but these were my preliminary thoughts.  I'd be happy to hear yours.

posted by Sidney Rosenzweig @ 2:56 PM | IP

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