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107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    107-120

======================================================================



 
 SUBSTANTIAL NEW QUESTION OF PATENTABILITY IN REEXAMINATION PROCEEDINGS

                                _______
                                

 June 28, 2001.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1866]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 1866) to amend title 35, United States Code, to 
clarify the basis for granting requests for reexamination of 
patents, having considered the same, reports favorably thereon 
with an amendment and recommends that the bill as amended do 
pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     2
Purpose and Summary..............................................     2
Background and Need for the Legislation..........................     2
Hearings.........................................................     4
Committee Consideration..........................................     5
Vote of the Committee............................................     5
Committee Oversight Findings.....................................     5
Performance Goals and Objectives.................................     5
New Budget Authority and Tax Expenditures........................     5
Congressional Budget Office Cost Estimate........................     5
Constitutional Authority Statement...............................     6
Section-by-Section Analysis and Discussion.......................     6
Changes in Existing Law Made by the Bill, as Reported............     7
Markup Transcript................................................     8

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. DETERMINATION OF SUBSTANTIAL NEW QUESTION OF PATENTABILITY 
                    IN REEXAMINATION PROCEEDINGS.

    Sections 303(a) and 312(a) of title 35, United States Code, are 
each amended by adding at the end the following: ``The existence of a 
substantial new question of patentability is not precluded by the fact 
that a patent or printed publication was previously cited by or to the 
Office or considered by the Office.''.

SEC. 2. EFFECTIVE DATE.

    The amendments made by this Act shall apply with respect to any 
determination of the Director of the United States Patent and Trademark 
Office that is made under section 303(a) or 312(a) of title 35, United 
States Code, on or after the date of the enactment of this Act.

                          Purpose and Summary

    H.R. 1866 clarifies the basis for the U.S. Patent and 
Trademark Office (PTO) to determine whether the request for the 
reexamination of a patent should be granted. As part of the 
original 1980 reexamination statute, Congress struck a balance 
between curing allegedly defective patents and preventing the 
harassment of patentees. It adopted a standard requiring a 
request for reexamination to raise a ``substantial new question 
of patentability.'' \1\ The scope and meaning of this standard 
have come under fire. This bill overturns the holding of In re 
Portola Packaging Inc.,\2\ a 1997 Federal court decision 
imposing an overly-strict limit that reaches beyond the text of 
the Patent Act.
---------------------------------------------------------------------------
    \1\ 35 U.S.C. Sec. Sec. 301 et seq.; H.R. Rep. No. 96-1307 (1980), 
reprinted in 1980 U.S.C.C.A.N. 6460.
    \2\ 110 F.3d 786 (Fed. Cir. 1997).
---------------------------------------------------------------------------

                Background and Need for the Legislation

    Many critics, including members of this Committee, believe 
that in In re Portola Packaging Inc. the three judge panel of 
the United States Court of Appeals for the Federal Circuit 
(hereinafter ``Federal Circuit'') incorrectly interpreted 
Congress' original intent underlying the reexamination statute 
and limited the application of the process. The court 
established a standard whereby reexamination is statutorily 
barred whenever a question arose concerning previous prior art 
references, notwithstanding the availability of obvious 
evidence which clearly addresses the question of the patent's 
validity.\3\
---------------------------------------------------------------------------
    \3\ Id. at 791.
---------------------------------------------------------------------------
    This court-imposed standard has frustrated members of the 
public. It has also lead to abuse by patent agents and lawyers 
who are gaming the system now in place. Earlier this Spring, 
for example, the Subcommittee heard testimony that some 
applications may include hundreds of prior art references, 
knowing that the PTO examiner has only a few precious hours to 
review the application before she is required to make a 
decision on its grant.\4\ Therefore, a weak patent application 
may be prepared in a fashion so that the resulting patent would 
likely be insulated from subsequent review through 
reexamination even if there was a ``smoking gun'' bearing on 
its validity. This frustrates the goals of Congress behind the 
1980 \5\ and 1999 \6\ statutes permitting the PTO to permit the 
reexamination of patents under the appropriate circumstances.
---------------------------------------------------------------------------
    \4\ Patents: Improving Quality and Curing Defects, Before the 
Subcomm. on Courts, the Internet, and Intellectual Property of the 
House Comm. on the Judiciary, 107th Cong., 1st Sess. 65 (2001) 
(Statement of Dr. Martin).
    \5\ 35 U.S.C. Sec. Sec. 301 et seq.
    \6\ 35 U.S.C. Sec. Sec. 311 et seq.
---------------------------------------------------------------------------
    While this bill clarifies that previously considered prior 
art will not necessarily bar a request for reexamination, the 
bill does not eliminate the requirement for a ``substantial new 
question of patentability'' to be present for the agency to 
permit reexamination. The appropriate test to determine whether 
a ``substantial new question of patentability'' exists should 
not merely look at the number of references or whether they 
were previously considered or cited but their combination in 
the appropriate context of a new light as it bears on the 
question of the validity of the patent.
    However, this bill is not a license to abuse patentees and 
waste the life of a patent. The point must be stressed that the 
past requirement of ``a substantial new question of 
patentability'' has not been diminished. The issue raised must 
be more that just questioning the judgment of the examiner. 
There should be substantial evidence that the examiner did not 
properly understand the reference, or did not consider a 
portion of the reference in making his decision. That 
substantial new question must be put forward clearly in the 
request for reexamination. The bill preserves the necessary 
safeguard in the Patent Act against harassment of patentees 
with the safety-valve of a ``substantial new question of 
patentability'' standard, not merely ``any sort of question.'' 
The agency has discretion in this determination to permit 
reexamination, but it is not absolute. While the bill clarifies 
the basis for a reexamination determination and removes the 
overly-strict bar established by the court, which renders the 
available process useless in many obvious instances such as 
with previously considered prior art, the courts should 
judiciously interpret the ``substantial new question'' standard 
to prevent cases of abusive tactics and harassment of patentees 
through reexamination.
    The U.S. Patent and Trademark Office (PTO) is the agency 
that examines applications for a patent, reviews the applicable 
evidence (e.g., ``prior art''), and makes decisions to award 
the patent grant. Since the PTO is the Federal agency with the 
expertise and ``first look'' at a patent's validity and scope, 
Congress decided that the PTO was the proper agency with the 
necessary expertise to take a ``second look'' at a patent's 
validity in certain cases when new information became 
available. In 1980, Congress created an ex parte reexamination 
system for this purpose.\7\
---------------------------------------------------------------------------
    \7\ Id. at Sec. Sec. 301, et seq.
---------------------------------------------------------------------------
    The 1980 reexamination statute was enacted with the intent 
of achieving three principal benefits. It is noted that the 
reexamination of patents by the PTO would: (i) settle validity 
disputes more quickly and less expensively than litigation; 
(ii) allow courts to refer patent validity questions to an 
agency with expertise in both the patent law and technology; 
and (iii) reinforce investor confidence in the certainty of 
patent rights by affording an opportunity to review patents of 
doubtful validity.\8\ More than 20 years after the original 
enactment of the reexamination statute, the Committee on the 
Judiciary still endorses these goals and encourages third 
parties to pursue reexamination as an efficient way of settling 
patent disputes.
---------------------------------------------------------------------------
    \8\ 126 Cong. Rec. 29, 895 (1980) (Statement of Rep. Kastenmeier). 
See also H.R. Rep. No. 96-1307 (1980), reprinted in 1980 U.S.C.C.A.N. 
6460; see Patlex Corp. v. Mossinghoff, 758 F.2d 594, 601; 225 U.S.P.Q. 
(BNA) 243, 248 (Fed. Cir. 1985).
---------------------------------------------------------------------------
    According to the data produced by the PTO, the number of 
requests for reexamination during the past decade has remained 
relatively constant, even as the number of total number of 
patent filings has increased dramatically:


    This ``1980-reexamination system'' was considered useful 
and efficient, but limited in several ways, including its scope 
and the participation of third parties. In 1999, as part of the 
American Inventors Protection Act,\9\ Congress created an 
optional and expanded reexamination system which was 
specifically designed to be used by third parties, known as 
inter partes reexamination.
---------------------------------------------------------------------------
    \9\ Intellectual Property and Communications Omnibus Reform Act of 
1999, Sec. Sec. 4601 et seq., Pub. L. No. 106-113 (Nov. 11, 1999).
---------------------------------------------------------------------------
    With inter partes reexamination, it is believed that a 
better balance can be achieved toward the goal of improving 
patent quality and validity. This type of reexamination is 
praised because it is intended to be a cheaper and more 
efficient procedure to review poor-quality or otherwise 
defective patents than through the Federal courts. The 
participation by third parties is considered vital because in 
many circumstances they have the most relevant prior art 
available and incentive to seek to invalidate an allegedly 
defective patent.

                                Hearings

    The Committee's Subcommittee on Courts, the Internet, and 
Intellectual Property did not hold a legislative hearing on the 
bill, H.R. 1866. However, the Subcommittee held two related 
oversight hearings: (1) on ``Business Method Patents'' on April 
4, 2001, and; (2) on ``Patents: Improving Quality and Curing 
Defects'' on May 10, 2001. Testimony during the hearing was 
received from seven witnesses, representing seven 
organizations, with additional material submitted by three 
individuals and organizations.

                        Committee Consideration

    On May 22, 2001, the Subcommittee on Courts, the Internet, 
and Intellectual Property met in open session and ordered 
favorably reported the bill H.R. 1866 with a single amendment 
in the nature of a substitute, by a voice vote, a quorum being 
present. On June 20, 2001, the Committee met in open session 
and ordered favorably reported the bill H.R. 1866 with a single 
amendment in the nature of a substitute by voice vote, a quorum 
being present.

                         Vote of the Committee

    There were no recorded votes on the bill.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

                    Performance Goals and Objectives

    H.R. 1866 does not authorize funding. Therefore, clause 
3(c) of rule XIII of the Rules of the House is inapplicable.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of House Rule XIII is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 1866, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 27, 2001.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1866, a bill to 
amend title 35, United States Code, to clarify the basis for 
granting requests for reexamination of patents.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Ken Johnson 
(for federal costs), who can be reached at 226-2860, Scott 
Masters (for the state and local impact), who can be reached at 
225-3220, and Paige Piper/Bach (for the private-sector impact), 
who can be reached at 226-2940.
            Sincerely,
                                  Dan L. Crippen, Director.

Enclosure

cc:
        Honorable John Conyers Jr.
        Ranking Member
H.R. 1866--A bill to amend title 35, United States Code, to clarify the 
        basis for granting requests for reexamination of patents.
    H.R. 1866 would alter the standards used by the Patent and 
Trademark Office (PTO) to accept or reject requests to 
reexamine a patent's validity. CBO estimates that implementing 
the bill would cost the agency about $1 million a year, 
assuming the appropriation of the necessary amounts. Enacting 
H.R. 1866 would not affect direct spending or receipts; 
therefore, pay-as-you-go procedures would not apply.
    H.R. 1866 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    H.R. 1866 would address a 1997 ruling by the U.S. Court of 
Appeals for the Federal Circuit that concluded the PTO may not 
grant a request to reexamine a patent if that request cites the 
same evidence presented in previous proceedings. Once that 
ruling was issued, reexamination requests declined from an 
average of about 400 a year to about 350 a year. Based on 
information from the PTO, CBO expects that implementing H.R. 
1866 would cause the number of requests to increase. As a 
result, the agency would need to hire additional patent 
examiners to review the new requests and attorneys to handle 
any appeals arising from these cases. CBO estimates that adding 
these new staff would cost the agency about $1 million a year, 
subject the availability of appropriated funds.
    The CBO staff contacts for this estimate are Ken Johnson 
(for federal costs), who can be reached at 226-2860, Scott 
Masters (for the state and local impact), who can be reached at 
225-3220, and Paige Piper/Bach (for the private-sector impact), 
who can be reached at 226-2940. The estimate was approved by 
Peter H. Fontaine, Deputy Assistant Director for Budget 
Analysis.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in article 1, section 8, clause 8 of the 
Constitution.

               Section-by-Section Analysis and Discussion

Section 1. Determination of Substantial New Question of Patentability 
        in Reexamination Proceedings.
    Section one of the bill amends sections 303(a) and 312(a) 
of title 35, United States Code, by adding at the end the 
following: ``The existence of a substantial new question of 
patentability is not precluded by the fact that a patent or 
printed publication was previously cited by or to the Office or 
considered by the Office.''
Sec. 2. Effective Date.
    Section two provides that amendments made by the bill apply 
prospectively with respect to a determination of an issue 
meriting reexamination by the Director of the United States 
Patent and Trademark Office that are made under section 303(a) 
or 313(a) of title 35, United States Code, on and after the 
date of the enactment.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italics and existing law in which no change is 
proposed is shown in roman):

                      TITLE 35, UNITED STATES CODE



           *       *       *       *       *       *       *
PART III--PATENTS AND PROTECTION OF PATENT RIGHTS

           *       *       *       *       *       *       *


CHAPTER 30--PRIOR ART CITATIONS TO OFFICE AND EX PARTE REEXAMINATION OF 
PATENTS

           *       *       *       *       *       *       *


Sec. 303. Determination of issue by Director

    (a) Within three months following the filing of a request 
for reexamination under the provisions of section 302 of this 
title, the Director will determine whether a substantial new 
question of patentability affecting any claim of the patent 
concerned is raised by the request, with or without 
consideration of other patents or printed publications. On his 
own initiative, and any time, the Director may determine 
whether a substantial new question of patentability is raised 
by patents and publications discovered by him or cited under 
the provisions of section 301 of this title. The existence of a 
substantial new question of patentability is not precluded by 
the fact that a patent or printed publication was previously 
cited by or to the Office or considered by the Office.

           *       *       *       *       *       *       *


CHAPTER 31--OPTIONAL INTER PARTES REEXAMINATION PROCEDURES

           *       *       *       *       *       *       *


Sec. 312. Determination of issue by Director

    (a) Reexamination.--Not later than 3 months after the 
filing of a request for inter partes reexamination under 
section 311, the Director shall determine whether a substantial 
new question of patentability affecting any claim of the patent 
concerned is raised by the request, with or without 
consideration of other patents or printed publications. On the 
Director's initiative, and at any time, the Director may 
determine whether a substantial new question of patentability 
is raised by patents and publications. The existence of a 
substantial new question of patentability is not precluded by 
the fact that a patent or printed publication was previously 
cited by or to the Office or considered by the Office.

           *       *       *       *       *       *       *


                           Markup Transcript



                            BUSINESS MEETING

                        WEDNESDAY, JUNE 20, 2001

                  House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 11:07 a.m., in 
Room 2141, Rayburn House Office Building, Hon. F. James 
Sensenbrenner [Chairman of the Committee] presiding.
    Chairman Sensenbrenner. The next item on the agenda is H.R. 
1866 to amend title 35, United States code, to clarify the 
basis for granting patents and for granting requests for 
reexamination of patents.
    [H.R. 1866 follows:]
    
    
    Chairman Sensenbrenner. The Chair recognizes the gentleman 
from North Carolina, Mr. Coble, Chairman of the Subcommittee on 
Courts, the Internet, and Intellectual Property, for a motion.
    Mr. Coble. Mr. Chairman, the Subcommittee on Courts, the 
Internet, and Intellectual Property reports favorably the Bill 
1866, with a single amendment in the nature of a substitute, 
and moves its favorable recommendation to the full House.
    Chairman Sensenbrenner. Without objection, the bill will be 
considered as read and open for amendment at any point. And the 
Subcommittee amendment in the nature of a substitute, which the 
Members have them before them, will be considered as read and 
be considered as the original text for purposes of amendment. 
Without objection, so ordered.
    [The amendment follows:]
    
    
    Chairman Sensenbrenner. The Chair now recognizes the 
gentleman from North Carolina to strike the last word and for 5 
minutes.
    Mr. Coble. I thank the Chairman.
    Mr. Chairman and Members of the full Judiciary Committee, 
the Congress established a patent reexamination system in 1980. 
It has worked well until it was severely limited by a court 
decision. H.R. 1866 is intended to overturn the 1997 In re: 
Portola Packaging case. That decision severely impairs the 
patent reexamination process. Reexamination was intended to be 
an important quality check on defective patents. The Portola 
case is criticized for establishing an illogical and overly 
strict bar concerning the scope of reexamination request.
    The bill that we consider preserves the substantial new 
question standard that is an important safeguard to protect all 
inventors against frivolous actions, while allowing the process 
to continue, as originally intended. At Subcommittee, the bill 
was amended to correct a clerical error. Since the bill's 
introduction, we have heard from the public, members of the 
bar, and critics of the decision who have recommended that we 
make an additional change to ensure the result that we seek.
    Accordingly, I will offer an amendment on this point at the 
opportune time. I believe that by adding this one sentence to 
the Patent Act, we help prevent the misuse of defective 
patents, especially those concerning business methods.
    Mr. Chairman, I don't see Mr. Berman, the Ranking Member, 
here, but he concurs with the passage of this bill.
    Ms. Lofgren. Mr. Chairman?
    Chairman Sensenbrenner. For what purpose does the 
gentlewoman from California seek recognition?
    Ms. Lofgren. To quickly note that Mr. Berman did ask that 
his support of the bill, as well as the amendment being 
offered, be noted the whole Subcommittee was in support of both 
bills, actually, before us, as well as the amendment.
    Chairman Sensenbrenner. Without objection, all Members may 
place opening statements in the record at this time.
    Chairman Sensenbrenner. This bill and the next one are 
fairly noncontroversial. I'd ask that we run them through, and 
since we have a reporting quorum here, before going to lunch.
    And the gentleman from North Carolina has an amendment at 
the desk, and the clerk will report the amendment.
    The Clerk. Amendment to the amendment in the nature of a 
substitute----
    Mr. Coble. Mr. Chairman, unanimous consent that the 
amendment be considered as read.
    The Clerk.--to H.R. 1866----
    Chairman Sensenbrenner. Without objection, the objection Is 
considered as read.
    [The amendment follows:]
    
    
    Chairman Sensenbrenner. The gentleman from North Carolina 
is recognized for 5 brief minutes.
    Mr. Coble. I thank the Chair.
    Mr. Chairman, Mr. Berman and I have open doors on these 
processes, and our office has received input from a variety of 
sources who have expressed concern that while we try to 
overturn the Portola case, there may be some wiggle room for 
the court. This is addressed by the simple change made by the 
amendment. This is what I call a belt-and-suspenders approach, 
which attempts to clarify our intent. The goal is to allow 
reexamination of those cases where a genuine, substantial new 
question of patentability arises in light of prior art, which 
was reviewed by the Patent Office. At the same time, it leaves 
in place all of the protections for inventors, including the 
independents, which exist under current law against frivolous 
or harassing conduct.
    While many believe the base text is satisfactory to meet 
that goal, I hope this removes any doubt, and I urge my 
colleagues to support the amendment to H.R. 1866.
    Chairman Sensenbrenner. Does the gentleman yield back the 
balance of his time?
    Mr. Coble. I yield back the balance of my time.
    Chairman Sensenbrenner. Further discussion on the 
amendment?
    Ms. Lofgren. Just to note that we also support the 
amendment.
    Chairman Sensenbrenner. The question is on adoption of the 
amendment.
    Those in favor will say aye.
    Opposed, no.
    The ayes appear to have it. The ayes have it, and the 
amendment is agreed to.
    Are there further amendments?
    [No response.]
    Chairman Sensenbrenner. Hearing none, the question occurs 
on the amendment in the nature of a substitute, as amended.
    All of those in favor will signify by saying aye.
    Opposed, no.
    The ayes appear to have it. The ayes have it, and the 
amendment in the nature of a substitute is agreed to.
    The question now occurs on the motion to report the Bill 
H.R. 1866 favorably, as amended by the amendment in the nature 
of a substitute, as amended. The Chair notes the presence of a 
reporting quorum.
    Those in favor will say aye.
    Opposed, no.
    The ayes appear to have it. The ayes have it, and the 
motion to report favorably is adopted.
    Without objection, the bill will be reported favorably to 
the House in the form of a single amendment in the nature of a 
substitute, incorporating the amendments adopted here today.
    Without objection, the Chairman is authorized to move to go 
to conference, pursuant to House rules.
    Without objection, the staff is directed to make any 
technical and conforming changes, and all Members will be given 
2 days, as provided by House rules, in which to submit 
additional dissenting supplemental or minority views.