“With more than 700,000 patent applications waiting in a three-year line for approval, reform cannot come soon enough for inventors waiting to take their ideas from dusty garages to the assembly line. The next laptop computer, iPod or other great invention can’t put Americans back to work if it’s waiting in a patent office backlog. This legislation will ensure that our patent system spurs innovation, fuels our economy and creates jobs, instead of holding businesses back.

“This bipartisan bill is an example of what we can accomplish when we work together. We hope Republicans stop playing to their base with a reckless spending bill that would destroy 700,000 American jobs, and instead start helping Democrats pass common-sense solutions that create jobs.”

• In order to win the future, America must out-innovate and out-build the rest of the world.  Yet the U.S. patent system lags woefully behind.  Over 750,000 patent applications have yet to be approved due to inefficiencies in the approval process.
• The America Invents Act will create jobs and promote innovation by reforming the nation’s patent filing system for the first time in nearly 60 years.
• The America Invents Act is self-funding and will not add a dime to the deficit.

LEGISLATIVE BACKGROUND

A patent is a limited property right that the government offers to inventors in exchange for their agreement to share the details of their inventions with the public. The right a patent carries is exclusive, for a designated period of time, and may be sold, transferred or given away. Under Article I, Section 8, Clause 8, of the U.S. Constitution, Congress has the power “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”

Ithas been nearly 60 years since the last meaningful reforms of the nation’s patent system were enacted. Technological advances, improvements to manufacturing, and an evolving marketplace make it critical to update the United States patent system in a manner that will allow inventors and innovators to compete in the global marketplace.

The America Invents Act of 2011, which was unanimously reported out of the Senate Judiciary Committee on February 3rd, mirrors key improvements to the long-pending legislation that were announced last March as part of an compromise reached by the bill’s lead sponsors with then-Judiciary Committee Ranking Member Jeff Sessions (R-Ala.), Senator Jon Kyl (R-Ariz.), and others.  The legislation will make the first significant changes to the nation’s patent system in nearly 60 years, creating jobs and boosting the economy without adding to the nation’s deficit.  Different versions of the legislation have been introduced going back to the 109th Congress.

The current bill mirrors the Patent Reform compromise legislation introduced by Chairmen Leahy in March 2010, with three exceptions. Most notably, this legislation includes a provision preventing patents on tax strategies, which will reduce the cost of compliance for taxpayers during tax season.  Secondly, S. 23’s provision codifying a heightened judiciary standard for “willful infringement” was struck during committee mark-up.  And finally, to establish greater uniformity and equity in patent law, S. 23 includes a provision that ensures federal court jurisdiction over all patent issues even if the patent issue arises in the defendant’s counterclaim.

KEY FACTS

Reforming America’s patent system will accelerate economic growth, spur job creation, and expand America’s ability to innovate.

• Technological innovation is linked to three-quarters of the nation’s post-WWII growth rate. Two innovation-linked factors—capital investment and increased efficiency—represent 2.5 percentage points of the 3.4 percent average annual growth rate achieved since the 1940’s. [U.S. Commerce Dept. Report, 4/13/2010]
• Some Estimates Suggest Millions of New Jobs Could Be Created Through Reform. “To be sure, not every patent creates a job or generates economic value. Some, however, are worth thousands of jobs — Jack Kilby’s 1959 patent for a semiconductor, for example, or Steve Wozniak’s 1979 patent for a personal computer. It’s impossible to predict how many new jobs or even new industries may lie buried within the patent office’s backlog. But according to our analysis of the data in the Berkeley Patent Survey, each issued patent is associated with 3 to 10 new jobs.” [New York Times, 8/05/2010]
• Innovation produces high-paying jobs. Average compensation per employee in innovation-intensive sectors increased 50 percent between 1990 and 2007—nearly two and one-half times the national average. [U.S. Commerce Dept. Report, 4/13/2010]
• Delay in the granting of rights has substantial costs. Recent reports conclude that the U.S. backlog (currently at 750,000 applications) could ultimately cost the U.S. economy billions of dollars annually in “foregone innovation.” [U.S. Commerce Dept. Report, 4/13/2010]
• China bucked an unprecedented decline in global patent filings in 2009, boosting its total by 29.7 percent, while the United States saw a fall of 11.4 percent, the world patent watchdog WIPO said in 2010. In October, Thomson Reuters issued a report forecasting that China would surpass the United States in patent filings in 2011. [Reuters, 2/8/2010; Thomson Reuters, 10/5/2010]

The America Invents Acttransitions the United States to a first-inventor-to-file system. This is intended to simplify the application system and bring it in line with the international trading partners. It is designed to reduce costs and improve the competitiveness of American inventors seeking protection in the global marketplace.

• The America Invents Act creates a new “first-inventor-to-file” system that will provide patent applicants in the United States with the efficiency benefits of the first-to-file systems used in the rest of the world. The system will make the filing date most relevant in determining whether an application is patentable.
• Under the old first-to-invent system, disputes over who is the first to invent are litigated via complex “interference” proceedings. Though uncommon, these are an expensive deterrent for all but the most financially well-off and commercially viable inventions.[CRS, 2/08/2011]
• A shift to a first-inventor-to-file system will eliminate the need for interference proceedings and, in turn, provide certainty for small businesses and individual inventors that their innovations will be protected. [CRS, 2/08/2011]
• The first-to-file system created by the America Invents Act rule does not permit one individual to copy another’s invention. The America Invents Act establishes a new administrative “derivation” proceeding to ensure that the first person to file the application is actually a true inventor and not just a copier.
• A first- to-file system moves the American system closer to harmony with almost every other patent system in the world, which provides American inventors and businesses greater global patent protection.
• “The bill is a significant step forward in improving U.S. patent law. Many of its provisions, including the adoption of a first-inventor-to-file system and the expansion of post-grant review options, will aide in strengthening the system as a whole.” – American Intellectual Property Law Association, March 5, 2010

The America Invents Act will improve patent quality by allowing third parties to submit information related to a pending application for consideration by a patent examiner.

• By allowing the scientific community to weigh in on patent applications, much like amicus briefs to a court, patent examiners will have better information and valuable additional research which will enable them to grant higher quality patents.
• The America Invents Act also creates a “first window” post-grant opposition proceeding, which will help weed out patents that should not have issued in the first place by allowing an early challenge to such patents.
• “Significant improvements have been made in [post-grant review] procedures, reducing the ability to use those procedures for abusive serial challenges to patents and thereby reducing the administrative burden on the U.S Patent and Trademark Office. The resultant procedures will provide a faster, less costly alternative to civil action to challenge patents, improving patent quality by eliminated invalid patents while reducing abusive challenges and reducing litigation costs.” – Higher Education Associations, March 5, 2010

The America Invents Act will make it easier for individuals and small businesses to protect their inventions through improvements to the patent challenge system that provides a more meaningful alternative to litigation.

• Inefficiencies in the system are bad for challengers who have meritorious challenges but cannot get a final decision from the Patent and Trademark Office. They are also bad for patent owners who can have their patents tied up in review for years, even if the challenge is not ultimately going to be successful.
• By establishing an adversarial inter partes review conducted by Administrative Patent Judges, the America Invents Act creates a more meaningful alternative to litigation that  helps curb harassment of patent owners.

The America Invents Act addresses concerns that damage awards sought in patent infringement cases are often excessive and disconnected from the actual harm.

• Patent Courts help protect the innovative concepts and ideas that drive our economy.  This bill strengthens the “gate-keeping role” under which judges will assess the legal basis for the specific damages theories and jury instructions sought by the parties. These “gate-keeping” reform provisions will ensure greater consistency, uniformity and fairness in the way the courts administer patent damages law.

The America Invents Act provides fee-setting authority for the Patent and Trademark Office Director to ensure the PTO is properly funded and can reduce the backlog of patent applications.

• “[T]he USPTO currently has an unexamined patent application backlog of over 750,000…In order to reduce the backlog, the USPTO will have to incur significant additional expenses…However, the fee schedule in the current patent statute fails to provide the USPTO with the flexibility it needs to assure that its future revenues are commensurate with the costs it will incur to modernize its operations. The current fee structure is inflexible and poorly aligned with actual costs, making it exceedingly difficult to fund long-needed modernizations.” [U.S. Commerce Dept. Report, 4/13/2010]
• The fee-setting authority patent reform gives to the USPTO will contribute significantly to the agency’s planned 40 percent reduction in patent pendency. [U.S. Commerce Dept. Report, 4/13/2010]
• The bill “requires that smaller businesses continue to get a 50 percent reduction in fees and creates a new “micro-entity” class — with a 75 percent reduction — for independent inventors who have not been named on five or more previously filed applications and have gross incomes not exceeding 2.5 times the average.” [AP, 2/28/2010]

The America Invents Act will benefit taxpayers directly by prohibiting patents on tax strategies, which often lead to additional fees on taxpayers who are simply complying with the tax laws.

• The Patent Office began issuing patents for strategies to comply with, or reduce liabilities under, the tax code in 1998.  But, many of the patents issued since then were on strategies that were obvious and in prior use by tax professionals, and therefore should not have issued.
• The emergence of tax strategy patents has caused tremendous problems for accountants and taxpayers.  As such, the America Invents Act will prevent any further issuance of tax strategy patents, by deeming tax strategies within the prior art, thereby preventing the tax implications of an invention from being the basis for a patent.
• The American Institute of CPAs wrote, “the problems associated with tax strategy patents are multiple and complex…No one should have a monopoly on a particular form of tax compliance.  And no taxpayer should be put at risk of lawsuits or royalties simply for complying with Federal tax law. Tax strategy patents undermine the integrity of our tax code and unnecessarily complicate compliance.” [American Institute of CPAs, 1/25/2011

The America Invents Act is bipartisan legislation with broad support from the business community, trade associations, educators and unions.

• “The bill is a significant step forward in improving U.S. patent law. Many of its provisions, including the adoption of a first-inventor-to-file system and the expansion of post-grant review options, will aide in strengthening the system as a whole.” – American Intellectual Property Law Association, March 5, 2010
• “The America Invents Act of 2011 would improve the patent system in ways that would benefit all sectors of the U.S. economy by enhancing patent quality and the efficiency, objectivity, predictability, and transparency of the patent system.” — Biotechnology Industry Organization, February 3, 2011
• “Our coalition strongly supports The America Invents Act of 2011 and the Senators’ efforts to introduce a bill early in the Congressional Session, to garner strong bipartisan support, and to build upon the bipartisan compromise that was agreed to last year. Americans want jobs – and patent reform is part of the solution. With passage of patent reform legislation, the United States Patent and Trademark Office will be better able to provide the incentives needed to create jobs. This legislation will ensure our nation’s patent system will promptly provide inventors with high quality patents and protections needed to spur innovation, develop new products, and create jobs.” – Coalition for 21st Century Patent Reform, January 20, 2011 (Coalition members include ExxonMobil, General Electric, Johnson & Johnson)
• “The United States is the most innovative and entrepreneurial nation in the world. If we are going to maintain our enviable position at the forefront of the world economy, it is absolutely essential for us to have an efficient and streamlined patent system. This bipartisan legislation, which would be the first major overhaul of our patent system in nearly six decades, is an important step toward maintaining our global competitive edge.” – Sen. Orrin Hatch, February 3, 2011
• “An effective and efficient patent system will help spur innovation and inventions and improve patent quality, and as a result, will provide incentive for entrepreneurs to create jobs.” – Sen. Chuck Grassley, February 3, 2011

STATE & INDUSTRY SPECIFIC RESOURCES
Pending United States Patent & Trade Office patent applications by state:

2009 Patents Granted by the United States Patent & Trade Office by state:

2009 Patents Granted by the United States Patent & Trade Office by Technology:

PATENT LAW VOTE REPORT

The following report details each of the votes the Senate has conducted regarding U.S. patent law since the 99th Congress. Click hereto view this report. (released: 2/24/11)

SENATE JUDICIARY COMMITTEE: Section-By-Section
THE AMERICA INVENTS ACT OF 2011
Sec. 1.  Short Title; Table of Contents.
Sec. 2.  Right of the First Inventor to File. This section converts the United States’ patent system from a first-to-invent to a first-inventor-to-file application system.  The transition will bring needed clarity and certainty to the patenting process and will harmonize the U.S. system with the rest of the world, which will enable greater work sharing and efficiency at the USPTO.
In general, the earlier-filed application by an inventor for a claimed invention will receive priority.  The transition will retain a one-year grace period, which permits the sharing of information by the inventor or co-inventor without such disclosure constituting prior art for the application.  A new derivation proceeding is created to determine whether the applicant of an earlier-filed application was not an actual inventor for the claimed invention. This proceeding will be faster and less expensive than current interference proceedings under the first-to-invent system.  The transition will occur eighteen months after enactment.
This section also limits who can bring false markings claims to the Department of Justice or a person who has suffered a competitive injury as a result of a violation of the false markings provision.
This section also provides for a study by the Chief Counsel for Advocacy of the Small Business Administration, in consultation with the USPTO, on the effect of the first-inventor-to-file transition, and a report by the USPTO on whether to expand prior user rights.
Sec. 3.  Inventor’s Oath or Declaration.  This section streamlines the requirement that the inventor submit an oath as part of a patent application, particularly in situations in which an inventor is unable or unwilling to submit the oath, but is under an obligation to do so.  It further facilitates the process by which a person to whom an inventor has assigned an invention may file the patent application.
Sec. 4.  Damages. As products have become more complex, often involving hundreds or even thousands of patented aspects, litigation has not reliably produced damages awards in infringement cases that correspond to the value of the infringed patent.  In order to improve consistency, uniformity and fairness in damage awards, this section includes a “gatekeeper” provision for damage awards, giving judges more of a role in determining the factors the trier of fact can consider in assessing damages.  This “gatekeeper” provision requires the court to identify the methodologies and factors that are relevant to a reasonable royalty calculation.  It further requires the court to determine whether one or more of a party’s damages contentions lacks a legally sufficient evidentiary basis, prior to the introduction of any supporting evidence.   Additionally, this section authorizes either party to request that a patent infringement trial be sequenced so that questions of fact relating to the infringement are decided prior to (and separately from) issues relating to damages.  This section makes no substantive changes to the current law guiding the damage calculation itself.
This section also expands the current prior user defense for business method patents to include affiliates of the prior user and authorizes virtual marking of a patent.  Finally, this section provides that failure to obtain the advice of counsel with respect to any alleged infringement may not be used as evidence of willful infringement.
Sec. 5.  Post-Grant Review Proceedings.  After a patent is issued, a party seeking to challenge the validity and enforceability of the patent has two avenues under current law: an inter partes reexamination (“IPR”) proceeding at the USPTO or litigation in federal district court.  The former is used sparingly, takes more than three years on average to complete, and is considered not very effective; the latter, district court litigation, is unwieldy and expensive.  This section improves on the current inter partes process and creates a new “first window” post-grant opposition process.
This section makes several key changes to IPR.  First, this section converts IPR from an examination model to an oppositional model, conducted by Administrative Patent Judges, which contains procedural changes that will allow the USPTO to complete most reviews within 12 months.  The challenge will be heard by a panel of three Administrative Patent Judges, and its decision is appealable directly to the Federal Circuit.  Second, to institute a proceeding, a challenger must show a “reasonable likelihood” that it would prevail in invalidating a claim of the patent, which is a new threshold.  Third, the proceeding will include new, procedural safeguards to prevent a challenger from using IPR to harass patent owners.  Fourth, while IPR challenges still must be based on patents or printed publications, they may also now include written statements made by the owner of a patent in court or at the USPTO regarding the scope of the claims.  Finally, this section includes a “reasonably could have raised” estoppel standard, preventing a challenger from raising in court an argument that reasonably could have been raised during an IPR that the challenger instituted and completed.
This section also creates a new “first window” post-grant opposition proceeding, available for nine months after the grant of a patent, to challenge a claim in an issued patent on any basis.  (This is broader than the current inter partes reexamination, which has no time constraint, but is limited to challenges based on prior art and printed publications.)  This will quickly weed out patents that should not have issued, reducing counterproductive litigation later in the life of a patent.  A petition for review under this “first window” proceeding will move forward upon a determination by the USPTO Director that it is more likely than not that one or more of the claims is unpatentable.
Sec. 6.  Patent Trial and Appeal Board.  The Board of Patent Appeals and Interferences is replaced with the new Patent Trial and Appeal Board.
Sec. 7.  Preissuance Submissions by Third Parties. This section creates a mechanism for third parties to submit timely information during the patent examination process that is relevant to the examination of the application, including a concise statement of the relevance of the submission.
Sec. 8.  Venue. This section amends the patent law-specific venue provision in title 28, primarily to prevent plaintiffs from manufacturing venue by allowing any action to be transferred to a venue that the court determines to be clearly more convenient for either party or witnesses.
Sec. 9.  Fee Setting Authority. This section gives the USPTO Director rulemaking authority to set or adjust its fees, provided that such fee amounts in the aggregate are set to recover the estimated cost to the Office for the activities performed.  However, this section mandates a reduction of fees by 50% for small entities and 75% for micro-entities.  The Director may also reduce fees upon consultation with the Patent Public Advisory Committee and the Trademark Public Advisory Committee.  This section provides a process by which the Director must consult the Patent Public Advisory Committee and the Trademark Public Advisory Committee on fee changes.
Any proposal for a change in fees (including the rationale, purpose, and possible expectations or benefits that will result) shall be published in the Federal Register and shall seek public comment for a period of not less than 45 days.  The Director shall notify Congress of any final proposed fee change and Congress shall have up to 45 days to consider and comment before any proposed fee change becomes effective.
This section also creates an incentive for electronic filings.
Sec. 10.  Supplemental Examination. This section provides a patent owner with the opportunity to request a supplemental examination of a patent.  The patent owner may provide corrected or new information to the Office that was not presented, or not accurately presented during the application process.  If the Office concludes a supplemental examination, the patent cannot be held unenforceable on the basis of information considered in the supplemental examination.  A request for supplemental examination must be requested before an allegation of unenforceability is made with particularity in a proceeding under Hatch-Waxman or before an action is instituted under the Tariff Act.

Sec. 11.  Residency of Federal Circuit Judges. This section repealsthe District of Columbia area residency requirement for Federal Circuit judges, but does not authorize work stations outside of the area.
Sec. 12.  Micro Entity Defined. This section creates a new definition outlining the qualifications for “micro-entity” status.  Parties meeting the definition will receive a 75% reduction in fees.
Sec. 13.  Funding Agreements. This section changes current law to permit a nonprofit organization that has a funding agreement for the operation of a Government-owned-contractor-operated facility to retain 85%, rather than 25% under current law, of licensing royalties in excess of the amount equal to 5% of the annual budget of the facility.
Sec. 14. Tax Strategies. This section restricts the patentability of tax strategies by deeming tax strategies to be within the prior art, and therefore not novel or nonobvious.
Sec. 15.  Best Mode requirement. Current law requires that a patent application set forth the “best mode” contemplated by an inventor of carrying out the invention, and can lead to a subjective challenge and review of whether the inventor knew of a particular mode of practicing the invention years after the fact.  This section removes the failure to disclose the “best mode” as a basis for canceling or holding either invalid or unenforceable a patent claim in a civil action.
Sec. 16.  Technical amendments. This section sets forth technical amendments consistent with the purposes of this Act.
Sec. 17.  Clarification of Jurisdiction. This section clarifies that state courts do not have jurisdiction over claims arising under the patent laws, even if those claims are pled in a counterclaim.  Further, this section clarifies that the Federal Circuit has exclusive jurisdiction from cases in which a party has asserted a compulsory counterclaim under the patent laws.
Sec. 18.  Effective Date; Rule of Construction. Except as otherwise provided, this Act takes effect one year after the date of enactment and applies to any patent issued on or after that effective date.