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110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    110-314

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



 
                       PATENT REFORM ACT OF 2007

                                _______
                                

 September 4, 2007.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                        [To accompany H.R. 1908]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 1908) 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.

                                CONTENTS

                                                                   Page
The Amendment....................................................     1
Purpose and Summary..............................................    20
Background and Need for the Legislation..........................    21
Hearings.........................................................    46
Committee Consideration..........................................    49
Committee Votes..................................................    50
Committee Oversight Findings.....................................    50
New Budget Authority and Tax Expenditures........................    50
Congressional Budget Office Cost Estimate........................    50
Performance Goals and Objectives.................................    55
Constitutional Authority Statement...............................    55
Advisory on Earmarks.............................................    55
Section-by-Section Analysis......................................    55
Changes in Existing Law Made by the Bill, as Reported............    88

                             The Amendment

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Patent Reform Act 
of 2007''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Reference to title 35, United States Code.
Sec. 3. Right of the first inventor to file.
Sec. 4. Inventor's oath or declaration.
Sec. 5. Right of the inventor to obtain damages.
Sec. 6. Post-grant procedures and other quality enhancements.
Sec. 7. Definitions; patent trial and appeal board.
Sec. 8. Study and report on reexamination proceedings.
Sec. 9. Submissions by third parties and other quality enhancements.
Sec. 10. Tax planning methods not patentable.
Sec. 11. Venue and jurisdiction.
Sec. 12. Additional information; inequitable conduct as defense to 
infringement.
Sec. 13. Best mode requirement.
Sec. 14. Regulatory authority.
Sec. 15. Technical amendments.
Sec. 16. Study of special masters in patent cases.
Sec. 17. Rule of construction.

SEC. 2. REFERENCE TO TITLE 35, UNITED STATES CODE.

    Whenever in this Act a section or other provision is amended or 
repealed, that amendment or repeal shall be considered to be made to 
that section or other provision of title 35, United States Code.

SEC. 3. RIGHT OF THE FIRST INVENTOR TO FILE.

    (a) Definitions.--Section 100 is amended by adding at the end the 
following:
    ``(f) The term `inventor' means the individual or, if a joint 
invention, the individuals collectively who invented or discovered the 
subject matter of an invention.
    ``(g) The terms `joint inventor' and `coinventor' mean any one of 
the individuals who invented or discovered the subject matter of a 
joint invention.
    ``(h) The `effective filing date of a claimed invention' is--
            ``(1) the filing date of the patent or the application for 
        patent containing the claim to the invention; or
            ``(2) if the patent or application for patent is entitled 
        to a right of priority of any other application under section 
        119, 365(a), or 365(b) or to the benefit of an earlier filing 
        date in the United States under section 120, 121, or 365(c), 
        the filing date of the earliest such application in which the 
        claimed invention is disclosed in the manner provided by 
        section 112(a).
    ``(i) The term `claimed invention' means the subject matter defined 
by a claim in a patent or an application for a patent.
    ``(j) The term `joint invention' means an invention resulting from 
the collaboration of inventive endeavors of two or more persons working 
toward the same end and producing an invention by their collective 
efforts.''.
    (b) Conditions for Patentability.--
            (1) In general.--Section 102 is amended to read as follows:

``Sec. 102. Conditions for patentability; novelty

    ``(a) Novelty; Prior Art.--A patent for a claimed invention may not 
be obtained if--
            ``(1) the claimed invention was patented, described in a 
        printed publication, in public use, or on sale--
                    ``(A) more than one year before the effective 
                filing date of the claimed invention; or
                    ``(B) one year or less before the effective filing 
                date of the claimed invention, other than through 
                disclosures made by the inventor or a joint inventor or 
                by others who obtained the subject matter disclosed 
                directly or indirectly from the inventor or a joint 
                inventor; or
            ``(2) the claimed invention was described in a patent 
        issued under section 151, or in an application for patent 
        published or deemed published under section 122(b), in which 
        the patent or application, as the case may be, names another 
        inventor and was effectively filed before the effective filing 
        date of the claimed invention.
    ``(b) Exceptions.--
            ``(1) Prior inventor disclosure exception.--Subject matter 
        that would otherwise qualify as prior art based upon a 
        disclosure under subparagraph (B) of subsection (a)(1) shall 
        not be prior art to a claimed invention under that subparagraph 
        if the subject matter had, before such disclosure, been 
        publicly disclosed by the inventor or a joint inventor or 
        others who obtained the subject matter disclosed directly or 
        indirectly from the inventor or a joint inventor.
            ``(2) Derivation, prior disclosure, and common assignment 
        exceptions.--Subject matter that would otherwise qualify as 
        prior art only under subsection (a)(2) shall not be prior art 
        to a claimed invention if--
                    ``(A) the subject matter was obtained directly or 
                indirectly from the inventor or a joint inventor;
                    ``(B) the subject matter had been publicly 
                disclosed by the inventor or a joint inventor or others 
                who obtained the subject matter disclosed directly or 
                indirectly from the inventor or a joint inventor before 
                the date on which the application or patent referred to 
                in subsection (a)(2) was effectively filed; or
                    ``(C) the subject matter and the claimed invention, 
                not later than the effective filing date of the claimed 
                invention, were owned by the same person or subject to 
                an obligation of assignment to the same person.
            ``(3) Joint research agreement exception.--
                    ``(A) In general.--Subject matter and a claimed 
                invention shall be deemed to have been owned by the 
                same person or subject to an obligation of assignment 
                to the same person in applying the provisions of 
                paragraph (2) if--
                            ``(i) the claimed invention was made by or 
                        on behalf of parties to a joint research 
                        agreement that was in effect on or before the 
                        effective filing date of the claimed invention;
                            ``(ii) the claimed invention was made as a 
                        result of activities undertaken within the 
                        scope of the joint research agreement; and
                            ``(iii) the application for patent for the 
                        claimed invention discloses or is amended to 
                        disclose the names of the parties to the joint 
                        research agreement.
                    ``(B) For purposes of subparagraph (A), the term 
                `joint research agreement' means a written contract, 
                grant, or cooperative agreement entered into by two or 
                more persons or entities for the performance of 
                experimental, developmental, or research work in the 
                field of the claimed invention.
            ``(4) Patents and published applications effectively 
        filed.--A patent or application for patent is effectively filed 
        under subsection (a)(2) with respect to any subject matter 
        described in the patent or application--
                    ``(A) as of the filing date of the patent or the 
                application for patent; or
                    ``(B) if the patent or application for patent is 
                entitled to claim a right of priority under section 
                119, 365(a), or 365(b) or to claim the benefit of an 
                earlier filing date under section 120, 121, or 365(c), 
                based upon one or more prior filed applications for 
                patent, as of the filing date of the earliest such 
                application that describes the subject matter.''.
            (2) Conforming amendment.--The item relating to section 102 
        in the table of sections for chapter 10 is amended to read as 
        follows:

``102. Conditions for patentability; novelty.''.
    (c) Conditions for Patentability; Non-Obvious Subject Matter.--
Section 103 is amended to read as follows:

``Sec. 103. Conditions for patentability; nonobvious subject matter

    ``A patent for a claimed invention may not be obtained though the 
claimed invention is not identically disclosed as set forth in section 
102, if the differences between the claimed invention and the prior art 
are such that the claimed invention as a whole would have been obvious 
before the effective filing date of the claimed invention to a person 
having ordinary skill in the art to which the claimed invention 
pertains. Patentability shall not be negated by the manner in which the 
invention was made.''.
    (d) Repeal of Requirements for Inventions Made Abroad.--Section 
104, and the item relating to that section in the table of sections for 
chapter 10, are repealed.
    (e) Repeal of Statutory Invention Registration.--
            (1) In general.--Section 157, and the item relating to that 
        section in the table of sections for chapter 14, are repealed.
            (2) Removal of cross references.--Section 111(b)(8) is 
        amended by striking ``sections 115, 131, 135, and 157'' and 
        inserting ``sections 131 and 135''.
    (f) Earlier Filing Date for Inventor and Joint Inventor.--Section 
120 is amended by striking ``which is filed by an inventor or inventors 
named'' and inserting ``which names an inventor or joint inventor''.
    (g) Conforming Amendments.--
            (1) Right of priority.--Section 172 is amended by striking 
        ``and the time specified in section 102(d)''.
            (2) Limitation on remedies.--Section 287(c)(4) is amended 
        by striking ``the earliest effective filing date of which is 
        prior to'' and inserting ``which has an effective filing date 
        before''.
            (3) International application designating the united 
        states: effect.--Section 363 is amended by striking ``except as 
        otherwise provided in section 102(e) of this title''.
            (4) Publication of international application: effect.--
        Section 374 is amended by striking ``sections 102(e) and 
        154(d)'' and inserting ``section 154(d)''.
            (5) Patent issued on international application: effect.--
        The second sentence of section 375(a) is amended by striking 
        ``Subject to section 102(e) of this title, such'' and inserting 
        ``Such''.
            (6) Limit on right of priority.--Section 119(a) is amended 
        by striking ``; but no patent shall be granted'' and all that 
        follows through ``one year prior to such filing''.
            (7) Inventions made with federal assistance.--Section 
        202(c) is amended--
                    (A) in paragraph (2)--
                            (i) by striking ``publication, on sale, or 
                        public use,'' and all that follows through 
                        ``obtained in the United States'' and inserting 
                        ``the 1-year period referred to in section 
                        102(a) would end before the end of that 2-year 
                        period''; and
                            (ii) by striking ``the statutory'' and 
                        inserting ``that 1-year''; and
                    (B) in paragraph (3), by striking ``any statutory 
                bar date that may occur under this title due to 
                publication, on sale, or public use'' and inserting 
                ``the expiration of the 1-year period referred to in 
                section 102(a)''.
    (h) Repeal of Interfering Patent Remedies.--Section 291, and the 
item relating to that section in the table of sections for chapter 29, 
are repealed.
    (i) Action for Claim to Patent on Derived Invention.--
            (1) In general.--Section 135(a) is amended to read as 
        follows:
    ``(a) Dispute Over Right to Patent.--
            ``(1) Institution of derivation proceeding.--
                    ``(A) Request for proceeding.--An applicant may 
                request initiation of a derivation proceeding to 
                determine the right of the applicant to a patent by 
                filing a request that sets forth with particularity the 
                basis for finding that another applicant derived the 
                claimed invention from the applicant requesting the 
                proceeding and, without authorization, filed an 
                application claiming such invention. Any such request--
                            ``(i) may only be made within 12 months 
                        after the earlier of--
                                    ``(I) the date on which a patent is 
                                issued containing a claim that is the 
                                same or substantially the same as the 
                                claimed invention; or
                                    ``(II) the date of first 
                                publication of an application 
                                containing a claim that is the same or 
                                is substantially the same as the 
                                claimed invention; and
                            ``(ii) must be made under oath, and must be 
                        supported by substantial evidence.
                    ``(B) Determination of director.-- Whenever the 
                Director determines that patents or applications for 
                patent naming different individuals as the inventor 
                interfere with one another because of a dispute over 
                the right to patent under section 101 on the basis of a 
                request under subparagraph (A), the Director shall 
                institute a derivation proceeding for the purpose of 
                determining which applicant is entitled to a patent.
            ``(2) Determination by patent trial and appeal board.--In 
        any proceeding under this subsection, the Patent Trial and 
        Appeal Board--
                    ``(A) shall determine the question of the right to 
                patent;
                    ``(B) in appropriate circumstances, may correct the 
                naming of the inventor in any application or patent at 
                issue; and
                    ``(C) shall issue a final decision on the right to 
                patent.
            ``(3) Derivation proceeding.--The Patent Trial and Appeal 
        Board may defer action on a request to initiate a derivation 
        proceeding for up to three months after the date on which the 
        Director issues a patent to the applicant that filed the 
        earlier application.
            ``(4) Effect of final decision.--The final decision of the 
        Patent Trial and Appeal Board in a derivation proceeding, if 
        adverse to the claim of an applicant, shall constitute the 
        final refusal by the Patent and Trademark Office on the claims 
        involved. The Director may issue a patent to an applicant who 
        is determined by the Patent Trial and Appeal Board to have the 
        right to a patent. The final decision of the Board, if adverse 
        to a patentee, shall, if no appeal or other review of the 
        decision has been or can be taken or had, constitute 
        cancellation of the claims involved in the patent, and notice 
        of such cancellation shall be endorsed on copies of the patent 
        distributed after such cancellation by the Patent and Trademark 
        Office.''.
            (2) Conforming amendments.--(A) Section 135 is further 
        amended--
                    (i) in subsection (b)--
                            (I) by striking ``(b)(1) A claim'' and 
                        inserting the following:
    ``(b) Same Claims.--
            ``(1) Issued patents.--A claim''; and
                            (II) by striking ``(2) A claim'' and 
                        inserting the following:
            ``(2) Published applications.--A claim''; and
                            (III) moving the remaining text of 
                        paragraphs (1) and (2) 2 ems to the right;
                    (ii) in subsection (c)--
                            (I) by striking ``(c) Any agreement'' and 
                        inserting the following:
    ``(c) Agreements to Terminate Proceedings.--
            ``(1) In general.--Any agreement'';
                            (II) by striking ``an interference'' and 
                        inserting ``a derivation proceeding'';
                            (III) by striking ``the interference'' each 
                        place it appears and inserting ``the derivation 
                        proceeding'';
                            (IV) in the second paragraph, by striking 
                        ``The Director'' and inserting the following:
            ``(2) Notice.--The Director'';
                            (V) by amending the third paragraph to read 
                        as follows:
            ``(3) Judicial review.--Any discretionary action of the 
        Director under this subsection shall be reviewable under 
        chapter 7 of title 5.''; and
                            (VI) by moving the remaining text of 
                        paragraphs (1) and (2) of subsection (c) 2 ems 
                        to the right; and
                    (iii) in subsection (d)--
                            (I) by striking ``(d) Parties'' and 
                        inserting ``(d) Arbitration.--Parties'';
                            (II) by striking ``a patent interference'' 
                        and inserting ``a derivation proceeding''; and
                            (III) by striking ``the interference'' and 
                        inserting ``the derivation proceeding''.
    (j) Elimination of References to Interferences.--(1) Sections 
41(a)(6), 134, 141, 145, 146, 154, 305, and 314 are each amended by 
striking ``Board of Patent Appeals and Interferences'' each place it 
appears and inserting ``Patent Trial and Appeal Board''.
    (2) Section 141 is amended--
            (A) by striking ``an interference'' and inserting ``a 
        derivation proceeding''; and
            (B) by striking ``interference'' each additional place it 
        appears and inserting ``derivation proceeding''.
    (3) Section 146 is amended--
            (A) in the first paragraph--
                    (i) by striking ``Any party'' and inserting ``(a) 
                In General.--Any party'';
                    (ii) by striking ``an interference'' and inserting 
                ``a derivation proceeding''; and
                    (iii) by striking ``interference'' each additional 
                place it appears and inserting ``derivation 
                proceeding''; and
            (B) in the second paragraph, by striking ``Such suit'' and 
        inserting ``(b) Procedure.--A suit under subsection (a)''
    (4) The section heading for section 134 is amended to read as 
follows:

``Sec. 134. Appeal to the Patent Trial and Appeal Board''.

    (5) The section heading for section 135 is amended to read as 
follows:

``Sec. 135. Derivation proceedings''.

    (6) The section heading for section 146 is amended to read as 
follows:

``Sec. 146. Civil action in case of derivation proceeding''.

    (7) Section 154(b)(1)(C) is amended by striking ``interferences'' 
and inserting ``derivation proceedings''.
    (8) The item relating to section 6 in the table of sections for 
chapter 1 is amended to read as follows:

``6. Patent Trial and Appeal Board.''.
    (9) The items relating to sections 134 and 135 in the table of 
sections for chapter 12 are amended to read as follows:

``134. Appeal to the Patent Trial and Appeal Board.
``135. Derivation proceedings.''.
    (10) The item relating to section 146 in the table of sections for 
chapter 13 is amended to read as follows:

``146. Civil action in case of derivation proceeding.''.
    (11) Certain Appeals.--Subsection 1295(a)(4)(A) of title 28, United 
States Code, is amended to read as follows:
                    ``(A) the Patent Trial and Appeal Board of the 
                United States Patent and Trademark Office with respect 
                to patent applications, derivation proceedings, and 
                post-grant review proceedings, at the instance of an 
                applicant for a patent or any party to a patent 
                interference (commenced before the effective date 
                provided in section 3(k) of the Patent Reform Act of 
                2007), derivation proceeding, or post-grant review 
                proceeding, and any such appeal shall waive any right 
                of such applicant or party to proceed under section 145 
                or 146 of title 35;''.
    (k) Effective Date.--
            (1) In general.--The amendments made by this section--
                    (A) shall take effect 90 days after the date on 
                which the President transmits to the Congress a finding 
                that major patenting authorities have adopted a grace 
                period having substantially the same effect as that 
                contained under the amendments made by this section; 
                and
                    (B) shall apply to all applications for patent that 
                are filed on or after the effective date under 
                subparagraph (A).
            (2) Definitions.--In this subsection:
                    (A) Major patenting authorities.--The term ``major 
                patenting authorities'' means at least the patenting 
                authorities in Europe and Japan.
                    (B) Grace period.--The term ``grace period'' means 
                the 1-year period ending on the effective filing date 
                of a claimed invention, during which disclosures of the 
                subject matter by the inventor or a joint inventor, or 
                by others who obtained the subject matter disclosed 
                directly or indirectly from the inventor or a joint 
                inventor, do not qualify as prior art to the claimed 
                invention.
                    (C) Effective filing date.--The term ``effective 
                filing date of a claimed invention'' means, with 
                respect to a patenting authority in another country, a 
                date equivalent to the effective filing date of a 
                claimed invention as defined in section 100(h) of title 
                35, United States Code, as added by subsection (a) of 
                this section.
    (l) Review Every 7 Years.--Not later than the end of the 7-year 
period beginning on the effective date under subsection (k), and the 
end of every 7-year period thereafter, the Under Secretary of Commerce 
for Intellectual Property and Director of the United States Patent and 
Trademark Office (in this subsection referred to as the ``Director'') 
shall--
            (1) conduct a study on the effectiveness and efficiency of 
        the amendments made by this section; and
            (2) submit to the Committees on the Judiciary of the House 
        of Representatives and the Senate a report on the results of 
        the study, including any recommendations the Director has on 
        amendments to the law and other recommendations of the Director 
        with respect to the first-to-file system implemented under the 
        amendments made by this section.

SEC. 4. INVENTOR'S OATH OR DECLARATION.

    (a) Inventor's Oath or Declaration.--
            (1) In general.--Section 115 is amended to read as follows:

``Sec. 115. Inventor's oath or declaration

    ``(a) Naming the Inventor; Inventor's Oath or Declaration.--An 
application for patent that is filed under section 111(a), that 
commences the national stage under section 363, or that is filed by an 
inventor for an invention for which an application has previously been 
filed under this title by that inventor shall include, or be amended to 
include, the name of the inventor of any claimed invention in the 
application. Except as otherwise provided in this section, each 
individual who is the inventor or a joint inventor of a claimed 
invention in an application for patent shall execute an oath or 
declaration in connection with the application.
    ``(b) Required Statements.--An oath or declaration by an individual 
under subsection (a) shall contain statements that--
            ``(1) the application was made or was authorized to be made 
        by individual; and
            ``(2) the individual believes himself or herself to be the 
        original inventor or an original joint inventor of a claimed 
        invention in the application.
    ``(c) Additional Requirements.--The Director may specify additional 
information relating to the inventor and the invention that is required 
to be included in an oath or declaration under subsection (a).
    ``(d) Substitute Statement.--
            ``(1) In general.--In lieu of executing an oath or 
        declaration under subsection (a), the applicant for patent may 
        provide a substitute statement under the circumstances 
        described in paragraph (2) and such additional circumstances 
        that the Director may specify by regulation.
            ``(2) Permitted circumstances.--A substitute statement 
        under paragraph (1) is permitted with respect to any individual 
        who--
                    ``(A) is unable to file the oath or declaration 
                under subsection (a) because the individual--
                            ``(i) is deceased;
                            ``(ii) is under legal incapacity; or
                            ``(iii) cannot be found or reached after 
                        diligent effort; or
                    ``(B) is under an obligation to assign the 
                invention and has refused to make the oath or 
                declaration required under subsection (a).
            ``(3) Contents.--A substitute statement under this 
        subsection shall--
                    ``(A) identify the individual with respect to whom 
                the statement applies;
                    ``(B) set forth the circumstances representing the 
                permitted basis for the filing of the substitute 
                statement in lieu of the oath or declaration under 
                subsection (a); and
                    ``(C) contain any additional information, including 
                any showing, required by the Director.
    ``(e) Making Required Statements in Assignment of Record.--An 
individual who is under an obligation of assignment of an application 
for patent may include the required statements under subsections (b) 
and (c) in the assignment executed by the individual, in lieu of filing 
such statements separately.
    ``(f) Time for Filing.--A notice of allowance under section 151 may 
be provided to an applicant for patent only if the applicant for patent 
has filed each required oath or declaration under subsection (a) or has 
filed a substitute statement under subsection (d) or recorded an 
assignment meeting the requirements of subsection (e).
    ``(g) Earlier-Filed Application Containing Required Statements or 
Substitute Statement.--The requirements under this section shall not 
apply to an individual with respect to an application for patent in 
which the individual is named as the inventor or a joint inventor and 
that claims the benefit of an earlier filing date under section 120 or 
365(c), if--
            ``(1) an oath or declaration meeting the requirements of 
        subsection (a) was executed by the individual and was filed in 
        connection with the earlier-filed application;
            ``(2) a substitute statement meeting the requirements of 
        subsection (d) was filed in the earlier filed application with 
        respect to the individual; or
            ``(3) an assignment meeting the requirements of subsection 
        (e) was executed with respect to the earlier-filed application 
        by the individual and was recorded in connection with the 
        earlier-filed application.
    ``(h) Supplemental and Corrected Statements; Filing Additional 
Statements.--
            ``(1) In general.--Any person making a statement required 
        under this section may withdraw, replace, or otherwise correct 
        the statement at any time. If a change is made in the naming of 
        the inventor requiring the filing of 1 or more additional 
        statements under this section, such additional statements shall 
        be filed in accordance with regulations established by the 
        Director.
            ``(2) Supplemental statements not required.--If an 
        individual has executed an oath or declaration under subsection 
        (a) or an assignment meeting the requirements of subsection (e) 
        with respect to an application for patent, the Director may not 
        thereafter require that individual to make any additional oath, 
        declaration, or other statement equivalent to those required by 
        this section in connection with the application for patent or 
        any patent issuing thereon.
            ``(3) Savings clause.--No patent shall be invalid or 
        unenforceable based upon the failure to comply with a 
        requirement under this section if the failure is remedied as 
        provided under paragraph (1).
    ``(i) Acknowledgment of Penalties.--Any declaration or statement 
filed under this section must contain an acknowledgment that any 
willful false statement is punishable by fine or imprisonment, or both, 
under section 1001 of title 18.''.
            (2) Relationship to divisional applications.--Section 121 
        is amended by striking ``If a divisional application'' and all 
        that follows through ``inventor.''.
            (3) Requirements for nonprovisional applications.--Section 
        111(a) is amended--
                    (A) in paragraph (2)(C), by striking ``by the 
                applicant'' and inserting ``or declaration'';
                    (B) in the heading for paragraph (3), by striking 
                ``and oath''; and
                    (C) by striking ``and oath'' each place it appears.
            (4) Conforming amendment.--The item relating to section 115 
        in the table of sections for chapter 11 is amended to read as 
        follows:

``115. Inventor's oath or declaration.''.
    (b) Filing by Other Than Inventor.--Section 118 is amended to read 
as follows:

``Sec. 118. Filing by other than inventor

    ``A person to whom the inventor has assigned or is under an 
obligation to assign the invention may make an application for patent. 
A person who otherwise shows sufficient proprietary interest in the 
matter may make an application for patent on behalf of and as agent for 
the inventor on proof of the pertinent facts and a showing that such 
action is appropriate to preserve the rights of the parties. If the 
Director grants a patent on an application filed under this section by 
a person other than the inventor, the patent shall be granted to the 
real party in interest and upon such notice to the inventor as the 
Director considers to be sufficient.''.
    (c) Specification.--Section 112 is amended--
            (1) in the first paragraph----
                    (A) by striking ``The specification'' and inserting 
                ``(a) In General.--The specification''; and
                    (B) by striking ``of carrying out his invention'' 
                and inserting ``or joint inventor of carrying out the 
                invention''; and
            (2) in the second paragraph--
                    (A) by striking ``The specification'' and inserting 
                ``(b) Conclusion.--The specification''; and
                    (B) by striking ``applicant regards as his 
                invention'' and inserting ``inventor or a joint 
                inventor regards as the invention'';
            (3) in the third paragraph, by striking ``A claim'' and 
        inserting ``(c) Form.--A claim'';
            (4) in the fourth paragraph, by striking ``Subject to the 
        following paragraph,'' and inserting ``(d) Reference in 
        Dependent Forms.--Subject to subsection (e),'';
            (5) in the fifth paragraph, by striking ``A claim'' and 
        inserting ``(e) Reference in Multiple Dependent Form.--A 
        claim''; and
            (6) in the last paragraph, by striking ``An element'' and 
        inserting ``(f) Element in Claim for a Combination.--An 
        element''.
    (d) Effective Date.--The amendments made by this section--
            (1) shall take effect at the end of the 1-year period 
        beginning on the date of the enactment of this Act; and
            (2) shall apply to any application for patent, or 
        application for reissue patent, that is filed on or after the 
        effective date under paragraph (1).

SEC. 5. RIGHT OF THE INVENTOR TO OBTAIN DAMAGES.

    (a) Damages.--Section 284 is amended--
            (1) in the first paragraph, by striking ``Upon'' and 
        inserting ``(a) In General.--Upon'';
            (2) by designating the second undesignated paragraph as 
        subsection (c);
            (3) by inserting after subsection (a) (as designated by 
        paragraph (1) of this subsection) the following:
    ``(b) Reasonable Royalty.--
            ``(1) In general.-- An award pursuant to subsection (a) 
        that is based upon a reasonable royalty shall be determined in 
        accordance with this subsection. Based on the facts of the 
        case, the court shall determine whether paragraph (2), (3), or 
        (5) will be used by the court or the jury in calculating a 
        reasonable royalty. The court shall identify the factors that 
        are relevant to the determination of a reasonable royalty under 
        the applicable paragraph, and the court or jury, as the case 
        may be, shall consider only those factors in making the 
        determination.
            ``(2) Relationship of damages to contributions over prior 
        art.--The court shall conduct an analysis to ensure that a 
        reasonable royalty under subsection (a) is applied only to that 
        economic value properly attributable to the patent's specific 
        contribution over the prior art. The court shall exclude from 
        the analysis the economic value properly attributable to the 
        prior art, and other features or improvements, whether or not 
        themselves patented, that contribute economic value to the 
        infringing product or process.
            ``(3) Entire market value.--Unless the claimant shows that 
        the patent's specific contribution over the prior art is the 
        predominant basis for market demand for an infringing product 
        or process, damages may not be based upon the entire market 
        value of the products or processes involved that satisfy that 
        demand.
            ``(4) Combination inventions.--For purposes of paragraphs 
        (2) and (3), in the case of a combination invention the 
        elements of which are present individually in the prior art, 
        the patentee may show that the contribution over the prior art 
        may include the value of the additional function resulting from 
        the combination, as well as the enhanced value, if any, of some 
        or all of the prior art elements resulting from the 
        combination.
            ``(5) Other factors.--In determining a reasonable royalty, 
        the court may also consider, or direct the jury to consider, 
        the terms of any nonexclusive marketplace licensing of the 
        invention, where appropriate, as well as any other relevant 
        factors under applicable law.'';
            (4) by amending subsection (c) (as designated by paragraph 
        (1) of this subsection) to read as follows:
    ``(c) Willful Infringement.--
            ``(1) Increased damages.--A court that has determined that 
        the infringer has willfully infringed a patent or patents may 
        increase the damages up to three times the amount of damages 
        found or assessed under subsection (a), except that increased 
        damages under this paragraph shall not apply to provisional 
        rights under section 154(d).
            ``(2) Permitted grounds for willfulness.--A court may find 
        that an infringer has willfully infringed a patent only if the 
        patent owner presents clear and convincing evidence that--
                    ``(A) after receiving written notice from the 
                patentee--
                            ``(i) alleging acts of infringement in a 
                        manner sufficient to give the infringer an 
                        objectively reasonable apprehension of suit on 
                        such patent, and
                            ``(ii) identifying with particularity each 
                        claim of the patent, each product or process 
                        that the patent owner alleges infringes the 
                        patent, and the relationship of such product or 
                        process to such claim,
                the infringer, after a reasonable opportunity to 
                investigate, thereafter performed one or more of the 
                alleged acts of infringement;
                    ``(B) the infringer intentionally copied the 
                patented invention with knowledge that it was patented; 
                or
                    ``(C) after having been found by a court to have 
                infringed that patent, the infringer engaged in conduct 
                that was not colorably different from the conduct 
                previously found to have infringed the patent, and that 
                resulted in a separate finding of infringement of the 
                same patent.
            ``(3) Limitations on willfulness.--(A) A court may not find 
        that an infringer has willfully infringed a patent under 
        paragraph (2) for any period of time during which the infringer 
        had an informed good faith belief that the patent was invalid 
        or unenforceable, or would not be infringed by the conduct 
        later shown to constitute infringement of the patent.
            ``(B) An informed good faith belief within the meaning of 
        subparagraph (A) may be established by--
                    ``(i) reasonable reliance on advice of counsel;
                    ``(ii) evidence that the infringer sought to modify 
                its conduct to avoid infringement once it had 
                discovered the patent; or
                    ``(iii) other evidence a court may find sufficient 
                to establish such good faith belief.
            ``(C) The decision of the infringer not to present evidence 
        of advice of counsel is not relevant to a determination of 
        willful infringement under paragraph (2).
            ``(4) Limitation on pleading.--Before the date on which a 
        court determines that the patent in suit is not invalid, is 
        enforceable, and has been infringed by the infringer, a 
        patentee may not plead and a court may not determine that an 
        infringer has willfully infringed a patent. The court's 
        determination of an infringer's willfulness shall be made 
        without a jury.''; and
            (5) in the third undesignated paragraph, by striking ``The 
        court'' and inserting ``(d) Expert Testimony.--The court''.
    (b) Defense to Infringement Based on Earlier Inventor.--Section 273 
is amended--
            (1) in subsection (a)--
                    (A) in paragraph (1)--
                            (i) by striking ``of a method''; and
                            (ii) by striking ``review period;'' and 
                        inserting ``review period; and'';
                    (B) in paragraph (2)(B), by striking the semicolon 
                at the end and inserting a period; and
                    (C) by striking paragraphs (3) and (4);
            (2) in subsection (b)--
                    (A) in paragraph (1)--
                            (i) by striking ``for a method''; and
                            (ii) by striking ``at least 1 year before 
                        the effective filing date of such patent, and'' 
                        and all that follows through the period and 
                        inserting ``and commercially used, or made 
                        substantial preparations for commercial use of, 
                        the subject matter before the effective filing 
                        date of the claimed invention.'';
                    (B) in paragraph (2)--
                            (i) by striking ``The sale or other 
                        disposition of a useful end product produced by 
                        a patented method'' and inserting ``The sale or 
                        other disposition of subject matter that 
                        qualifies for the defense set forth in this 
                        section''; and
                            (ii) by striking ``a defense under this 
                        section with respect to that useful end 
                        result'' and inserting ``such defense'';
                    (C) in paragraph (3)--
                            (i) by striking subparagraph (A); and
                            (ii) by redesignating subparagraphs (B) and 
                        (C) as subparagraphs (A) and (B), respectively; 
                        and
                    (D) in paragraph (7), by striking ``of the patent'' 
                and inserting ``of the claimed invention''; and
            (3) by amending the heading to read as follows:

``Sec. 273. Special defenses to and exemptions from infringement''.

    (c) Table of Sections.--The item relating to section 273 in the 
table of sections for chapter 28 is amended to read as follows:

``273. Special defenses to and exemptions from infringement.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to any civil action commenced on or after the date of the 
enactment of this Act.
    (e) Review Every 7 Years.--Not later than the end of the 7-year 
period beginning on the date of the enactment of this Act, and the end 
of every 7-year period thereafter, the Under Secretary of Commerce for 
Intellectual Property and Director of the United States Patent and 
Trademark Office (in this subsection referred to as the ``Director'') 
shall--
            (1) conduct a study on the effectiveness and efficiency of 
        the amendments made by this section; and
            (2) submit to the Committees on the Judiciary of the House 
        of Representatives and the Senate a report on the results of 
        the study, including any recommendations the Director has on 
        amendments to the law and other recommendations of the Director 
        with respect to the right of the inventor to obtain damages for 
        patent infringement.

SEC. 6. POST-GRANT PROCEDURES AND OTHER QUALITY ENHANCEMENTS.

    (a) Citation of Prior Art.--
            (1) In general.--Section 301 is amended to read as follows:

``Sec. 301. Citation of prior art

    ``(a) In General.--Any person at any time may cite to the Office in 
writing--
            ``(1) prior art consisting of patents or printed 
        publications which that person believes to have a bearing on 
        the patentability of any claim of a particular patent; or
            ``(2) written statements of the patent owner filed in a 
        proceeding before a Federal court or the Patent and Trademark 
        Office in which the patent owner takes a position on the scope 
        of one or more patent claims.
    ``(b) Submissions Part of Official File.--If the person citing 
prior art or written submissions under subsection (a) explains in 
writing the pertinence and manner of applying the prior art or written 
submissions to at least one claim of the patent, the citation of the 
prior art or written submissions (as the case may be) and the 
explanation thereof shall become a part of the official file of the 
patent.
    ``(c) Procedures for Written Statements.--
            ``(1) Submission of additional materials.--A party that 
        submits written statements under subsection (a)(2) in a 
        proceeding shall include any other documents, pleadings, or 
        evidence from the proceeding that address the patent owner's 
        statements or the claims addressed by the written statements.
            ``(2) Limitation on use of statements.--Written statements 
        submitted under subsection (a)(2) shall not be considered for 
        any purpose other than to determine the proper meaning of the 
        claims that are the subject of the request in a proceeding 
        ordered pursuant to section 304 or 313. Any such written 
        statements, and any materials submitted under paragraph (1), 
        that are subject to an applicable protective order shall be 
        redacted to exclude information subject to the order.
    ``(d) Identity Withheld.--Upon the written request of the person 
citing prior art or written statements under subsection (a), the 
person's identity shall be excluded from the patent file and kept 
confidential.''.
    (b) Reexamination.--Section 303(a) is amended to read as follows:
    ``(a) Within three months after the owner of a patent files a 
request for reexamination under section 302, 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 own initiative, and at any time, the Director may determine 
whether a substantial new question of patentability is raised by 
patents and publications discovered by the Director, is cited under 
section 301, or is cited by any person other than the owner of the 
patent under section 302 or section 311. 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.''.
    (c) Conduct of Inter Partes Proceedings.--Section 314 is amended--
            (1) in the first sentence of subsection (a), by striking 
        ``conducted according to the procedures established for initial 
        examination under the provisions of sections 132 and 133'' and 
        inserting ``heard by an administrative patent judge in 
        accordance with procedures which the Director shall 
        establish'';
            (2) in subsection (b), by striking paragraph (2) and 
        inserting the following:
    ``(2) The third-party requester shall have the opportunity to file 
written comments on any action on the merits by the Office in the inter 
partes reexamination proceeding, and on any response that the patent 
owner files to such an action, if those written comments are received 
by the Office within 60 days after the date of service on the third-
party requester of the Office action or patent owner response, as the 
case may be.''; and
            (3) by adding at the end the following:
    ``(d) Oral Hearing.--At the request of a third party requestor or 
the patent owner, the administrative patent judge shall conduct an oral 
hearing, unless the judge finds cause lacking for such hearing.''.
    (d) Estoppel.--Section 315(c) is amended by striking ``or could 
have raised''.
    (e) Reexamination Prohibited After District Court Decision.--
Section 317(b) is amended--
            (1) in the subsection heading, by striking ``Final 
        Decision'' and inserting ``District Court Decision''; and
            (2) by striking ``Once a final decision has been entered'' 
        and inserting ``Once the judgment of the district court has 
        been entered''.
    (f) Post-Grant Opposition Procedures.--
            (1) In general.--Part III is amended by adding at the end 
        the following new chapter:

               ``CHAPTER 32--POST-GRANT REVIEW PROCEDURES

``Sec.
``321. Petition for post-grant review.
``322. Timing and bases of petition.
``323. Requirements of petition.
``324. Prohibited filings.
``325. Submission of additional information; showing of sufficient 
grounds.
``326. Conduct of post-grant review proceedings.
``327. Patent owner response.
``328. Proof and evidentiary standards.
``329. Amendment of the patent.
``330. Decision of the Board.
``331. Effect of decision.
``332. Settlement.
``333. Relationship to other pending proceedings.
``334. Effect of decisions rendered in civil action on post-grant 
review proceedings.
``335. Effect of final decision on future proceedings.
``336. Appeal.

``Sec. 321. Petition for post-grant review

    ``Subject to sections 322, 324, 332, and 333, a person who is not 
the patent owner may file with the Office a petition for cancellation 
seeking to institute a post-grant review proceeding to cancel as 
unpatentable any claim of a patent on any ground that could be raised 
under paragraph (2) or (3) of section 282(b) (relating to invalidity of 
the patent or any claim). The Director shall establish, by regulation, 
fees to be paid by the person requesting the proceeding, in such 
amounts as the Director determines to be reasonable.

``Sec. 322. Timing and bases of petition

    ``A post-grant proceeding may be instituted under this chapter 
pursuant to a cancellation petition filed under section 321 only if--
            ``(1) the petition is filed not later than 12 months after 
        the grant of the patent or issuance of a reissue patent, as the 
        case may be; or
            ``(2) the patent owner consents in writing to the 
        proceeding.

``Sec. 323. Requirements of petition

    ``A cancellation petition filed under section 321 may be considered 
only if--
            ``(1) the petition is accompanied by payment of the fee 
        established by the Director under section 321;
            ``(2) the petition identifies the cancellation petitioner; 
        and
            ``(3) the petition sets forth in writing the basis for the 
        cancellation, identifying each claim challenged and providing 
        such information as the Director may require by regulation, and 
        includes copies of patents and printed publications that the 
        cancellation petitioner relies upon in support of the petition; 
        and
            ``(4) the petitioner provides copies of those documents to 
        the patent owner or, if applicable, the designated 
        representative of the patent owner.

``Sec. 324. Prohibited filings

    ``A post-grant review proceeding may not be instituted under 
section 322 if the petition for cancellation requesting the proceeding 
identifies the same cancellation petitioner and the same patent as a 
previous petition for cancellation filed under such section.

``Sec. 325. Submission of additional information; showing of sufficient 
                    grounds

    ``(a) In General.--The cancellation petitioner shall file such 
additional information with respect to the petition as the Director may 
require. For each petition submitted under section 321, the Director 
shall determine if the written statement, and any evidence submitted 
with the request, establish that a substantial question of 
patentability exists for at least one claim in the patent. The Director 
may initiate a post-grant review proceeding if the Director determines 
that the information presented provides sufficient grounds to believe 
that there is a substantial question of patentability concerning one or 
more claims of the patent at issue.
    ``(b) Notification; Determinations Not Reviewable.--The Director 
shall notify the patent owner and each petitioner in writing of the 
Director's determination under subsection (a), including a 
determination to deny the petition. The Director shall make that 
determination in writing not later than 60 days after receiving the 
petition. Any determination made by the Director under subsection (a), 
including whether or not to institute a post-grant review proceeding or 
to deny the petition, shall not be reviewable.

``Sec. 326. Conduct of post-grant review proceedings

    ``(a) In General.--The Director shall prescribe regulations, in 
accordance with section 2(b)(2)--
            ``(1) establishing and governing post-grant review 
        proceedings under this chapter and their relationship to other 
        proceedings under this title;
            ``(2) establishing procedures for the submission of 
        supplemental information after the petition for cancellation is 
        filed; and
            ``(3) setting forth procedures for discovery of relevant 
        evidence, including that such discovery shall be limited to 
        evidence directly related to factual assertions advanced by 
        either party in the proceeding, and the procedures for 
        obtaining such evidence shall be consistent with the purpose 
        and nature of the proceeding.
    ``(b) Post-Grant Regulations.--Regulations under subsection 
(a)(1)--
            ``(1) shall require that the final determination in a post-
        grant proceeding issue not later than one year after the date 
        on which the post-grant review proceeding is instituted under 
        this chapter, except that, for good cause shown, the Director 
        may extend the 1-year period by not more than six months;
            ``(2) shall provide for discovery upon order of the 
        Director;
            ``(3) shall provide for publication of notice in the 
        Federal Register of the filing of a petition for post-grant 
        review under this chapter, for publication of the petition, and 
        documents, orders, and decisions relating to the petition, on 
        the website of the Patent and Trademark Office, and for filings 
        under seal exempt from publication requirements;
            ``(4) shall prescribe sanctions for abuse of discovery, 
        abuse of process, or any other improper use of the proceeding, 
        such as to harass or to cause unnecessary delay or unnecessary 
        increase in the cost of the proceeding;
            ``(5) may provide for protective orders governing the 
        exchange and submission of confidential information; and
            ``(6) shall ensure that any information submitted by the 
        patent owner in support of any amendment entered under section 
        329 is made available to the public as part of the prosecution 
        history of the patent.
    ``(c) Considerations.--In prescribing regulations under this 
section, the Director shall consider the effect on the economy, the 
integrity of the patent system, and the efficient administration of the 
Office.
    ``(d) Conduct of Proceeding.--The Patent Trial and Appeal Board 
shall, in accordance with section 6(b), conduct each post-grant review 
proceeding authorized by the Director.

``Sec. 327. Patent owner response

    ``After a post-grant proceeding under this chapter has been 
instituted with respect to a patent, the patent owner shall have the 
right to file, within a time period set by the Director, a response to 
the cancellation petition. The patent owner shall file with the 
response, through affidavits or declarations, any additional factual 
evidence and expert opinions on which the patent owner relies in 
support of the response.

``Sec. 328. Proof and evidentiary standards

    ``(a) In General.--The presumption of validity set forth in section 
282 shall not apply in a challenge to any patent claim under this 
chapter.
    ``(b) Burden of Proof.--The party advancing a proposition under 
this chapter shall have the burden of proving that proposition by a 
preponderance of the evidence.

``Sec. 329. Amendment of the patent

    ``(a) In General.--In response to a challenge in a petition for 
cancellation, the patent owner may file one motion to amend the patent 
in one or more of the following ways:
            ``(1) Cancel any challenged patent claim.
            ``(2) For each challenged claim, propose a substitute 
        claim.
            ``(3) Amend the patent drawings or otherwise amend the 
        patent other than the claims.
    ``(b) Additional Motions.--Additional motions to amend may be 
permitted only for good cause shown.
    ``(c) Scope of Claims.--An amendment under this section may not 
enlarge the scope of the claims of the patent or introduce new matter.

``Sec. 330. Decision of the Board

    ``If the post-grant review proceeding is instituted and not 
dismissed under this chapter, the Patent Trial and Appeal Board shall 
issue a final written decision with respect to the patentability of any 
patent claim challenged and any new claim added under section 329.

``Sec. 331. Effect of decision

    ``(a) In General.--If the Patent Trial and Appeal Board issues a 
final decision under section 330 and the time for appeal has expired or 
any appeal proceeding has terminated, the Director shall issue and 
publish a certificate canceling any claim of the patent finally 
determined to be unpatentable and incorporating in the patent by 
operation of the certificate any new claim determined to be patentable.
    ``(b) New Claims.--Any new claim held to be patentable and 
incorporated into a patent in a post-grant review proceeding shall have 
the same effect as that specified in section 252 for reissued patents 
on the right of any person who made, purchased, offered to sell, or 
used within the United States, or imported into the United States, 
anything patented by such new claim, or who made substantial 
preparations therefor, before a certificate under subsection (a) of 
this section is issued.

``Sec. 332. Settlement

    ``(a) In General.--A post-grant review proceeding shall be 
terminated with respect to any petitioner upon the joint request of the 
petitioner and the patent owner, unless the Patent Trial and Appeal 
Board has issued a written decision before the request for termination 
is filed. If the post-grant review proceeding is terminated with 
respect to a petitioner under this paragraph, no estoppel shall apply 
to that petitioner. If no petitioner remains in the proceeding, the 
panel of administrative patent judges assigned to the proceeding shall 
terminate the proceeding.
    ``(b) Agreement in Writing.--Any agreement or understanding between 
the patent owner and a petitioner, including any collateral agreements 
referred to in the agreement or understanding, that is made in 
connection with or in contemplation of the termination of a post-grant 
review proceeding, must be in writing. A post-grant review proceeding 
as between the parties to the agreement or understanding may not be 
terminated until a copy of the agreement or understanding, including 
any such collateral agreements, has been filed in the Office. If any 
party filing such an agreement or understanding requests, the agreement 
or understanding shall be kept separate from the file of the post-grant 
review proceeding, and shall be made available only to Government 
agencies on written request, or to any person on a showing of good 
cause.

``Sec. 333. Relationship to other pending proceedings

    ``(a) In General.--Notwithstanding subsection 135(a), sections 251 
and 252, and chapter 30, the Director may determine the manner in which 
any reexamination proceeding, reissue proceeding, interference 
proceeding (commenced before the effective date provided in section 
3(k) of the Patent Reform Act of 2007), derivation proceeding, or post-
grant review proceeding, that is pending during a post-grant review 
proceeding, may proceed, including providing for stay, transfer, 
consolidation, or termination of any such proceeding.
    ``(b) Stays.--The Director may stay a post-grant review proceeding 
if a pending civil action for infringement addresses the same or 
substantially the same questions of patentability.

``Sec. 334. Effect of decisions rendered in civil action on post-grant 
                    review proceedings

    ``If a final decision is entered against a party in a civil action 
arising in whole or in part under section 1338 of title 28 establishing 
that the party has not sustained its burden of proving the invalidity 
of any patent claim--
            ``(1) that party to the civil action and the privies of 
        that party may not thereafter request a post-grant review 
        proceeding on that patent claim on the basis of any grounds, 
        under the provisions of section 321, which that party or the 
        privies of that party raised or could have raised; and
            ``(2) the Director may not thereafter maintain a post-grant 
        review proceeding that was requested, before the final decision 
        was so entered, by that party or the privies of that party on 
        the basis of such grounds.

``Sec. 335. Effect of final decision on future proceedings

    ``If a final decision under section 330 is favorable to the 
patentability of any original or new claim of the patent challenged by 
the cancellation petitioner, the cancellation petitioner may not 
thereafter, based on any ground that the cancellation petitioner raised 
during the post-grant review proceeding--
            ``(1) request or pursue a reexamination of such claim under 
        chapter 31;
            ``(2) request or pursue a derivation proceeding with 
        respect to such claim;
            ``(3) request or pursue a post-grant review proceeding 
        under this chapter with respect to such claim; or
            ``(4) assert the invalidity of any such claim in any civil 
        action arising in whole or in part under section 1338 of title 
        28.

``Sec. 336. Appeal

    ``A party dissatisfied with the final determination of the Patent 
Trial and Appeal Board in a post-grant proceeding under this chapter 
may appeal the determination under sections 141 through 144. Any party 
to the post-grant proceeding shall have the right to be a party to the 
appeal.''.
    (g) Conforming Amendment.--The table of chapters for part III is 
amended by adding at the end the following:

``32. Post-Grant Review Proceedings.........................     321''.
    (h) Repeal.--Section 4607 of the Intellectual Property and 
Communications Omnibus Reform Act of 1999, as enacted by section 
1000(a)(9) of Public Law 106-113, is repealed.
    (i) Effective Dates.--
            (1) In general.--The amendments and repeal made by this 
        section shall take effect at the end of the 1-year period 
        beginning on the date of the enactment of this Act.
            (2) Applicability to ex parte and inter partes 
        proceedings.--Notwithstanding any other provision of law, 
        sections 301 and 311 through 318 of title 35, United States 
        Code, as amended by this section, shall apply to any patent 
        that issues before, on, or after the effective date under 
        paragraph (1) from an original application filed on any date.
            (3) Applicability to post-grant proceedings.--The 
        amendments made by subsection (f) shall apply to patents issued 
        on or after the effective date under paragraph (1).
    (j) Regulations.--
            (1) Regulations.--The Under Secretary of Commerce for 
        Intellectual Property and Director of the United States Patent 
        and Trademark Office (in this subsection referred to as the 
        ``Director'') shall, not later than the date that is 1 year 
        after the date of the enactment of this Act, issue regulations 
        to carry out chapter 32 of title 35, United States Code, as 
        added by subsection (f) of this section.
            (2) Pending interferences.--The Director shall determine 
        the procedures under which interferences under title 35, United 
        States Code, that are commenced before the effective date under 
        subsection (i)(1) are to proceed, including whether any such 
        interference is to be dismissed without prejudice to the filing 
        of a cancellation petition for a post-grant opposition 
        proceeding under chapter 32 of title 35, United States Code, or 
        is to proceed as if this Act had not been enacted. The Director 
        shall include such procedures in regulations issued under 
        paragraph (1).

SEC. 7. DEFINITIONS; PATENT TRIAL AND APPEAL BOARD.

    (a) Definitions.--Section 100 (as amended by this Act) is further 
amended by adding at the end the following:
    ``(k) The term `cancellation petitioner' means the real party in 
interest requesting cancellation of any claim of a patent under chapter 
32 of this title and the privies of the real party in interest.''.
    (a) Patent Trial and Appeal Board.--Section 6 is amended to read as 
follows:

``Sec. 6. Patent Trial and Appeal Board

    ``(a) Establishment and Composition.--There shall be in the Office 
a Patent Trial and Appeal Board. The Director, the Deputy Director, the 
Commissioner for Patents, the Commissioner for Trademarks, and the 
administrative patent judges shall constitute the Patent Trial and 
Appeal Board. The administrative patent judges shall be persons of 
competent legal knowledge and scientific ability who are appointed by 
the Director. Any reference in any Federal law, Executive order, rule, 
regulation, or delegation of authority, or any document of or 
pertaining to the Board of Patent Appeals and Interferences is deemed 
to refer to the Patent Trial and Appeal Board.
    ``(b) Duties.--The Patent Trial and Appeal Board shall--
            ``(1) on written appeal of an applicant, review adverse 
        decisions of examiners upon application for patents;
            ``(2) on written appeal of a patent owner, review adverse 
        decisions of examiners upon patents in reexamination 
        proceedings under chapter 30;
            ``(3) review appeals by patent owners and third-party 
        requesters under section 315;
            ``(4) determine priority and patentability of invention in 
        derivation proceedings under section 135(a); and
            ``(5) conduct post-grant opposition proceedings under 
        chapter 32.
Each appeal and derivation proceeding shall be heard by at least 3 
members of the Patent Trial and Appeal Board, who shall be designated 
by the Director. Only the Patent Trial and Appeal Board may grant 
rehearings. The Director shall assign each post-grant review proceeding 
to a panel of 3 administrative patent judges. Once assigned, each such 
panel of administrative patent judges shall have the responsibilities 
under chapter 32 in connection with post-grant review proceedings.''.
    (b) Effective Date.--The amendments made by this section shall take 
effect at the end of the 1-year period beginning on the date of the 
enactment of this Act.

SEC. 8. STUDY AND REPORT ON REEXAMINATION PROCEEDINGS.

    The Under Secretary of Commerce for Intellectual Property and 
Director of the Patent and Trademark Office shall, not later than 2 
years after the date of the enactment of this Act--
            (1) conduct a study of the effectiveness and efficiency of 
        the different forms of proceedings available under title 35, 
        United States Code, for the reexamination of patents; and
            (2) submit to the Committees on the Judiciary of the House 
        of Representatives and the Senate a report on the results of 
        the study, including any of the Director's suggestions for 
        amending the law, and any other recommendations the Director 
        has with respect to patent reexamination proceedings.

SEC. 9. SUBMISSIONS BY THIRD PARTIES AND OTHER QUALITY ENHANCEMENTS.

    (a) Publication.--Section 122(b)(2) is amended--
            (1) by striking subparagraph (B); and
            (2) in subparagraph (A)--
                    (A) by striking ``(A) An application'' and 
                inserting ``An application''; and
                    (B) by redesignating clauses (i) through (iv) as 
                subparagraphs (A) through (D), respectively.
    (b) Preissuance Submissions by Third Parties.--Section 122 is 
amended by adding at the end the following:
    ``(e) Preissuance Submissions by Third Parties.--
            ``(1) In general.--Any person may submit for consideration 
        and inclusion in the record of a patent application, any 
        patent, published patent application, or other publication of 
        potential relevance to the examination of the application, if 
        such submission is made in writing before the earlier of--
                    ``(A) the date a notice of allowance under section 
                151 is mailed in the application for patent; or
                    ``(B) either--
                            ``(i) 6 months after the date on which the 
                        application for patent is published under 
                        section 122, or
                            ``(ii) the date of the first rejection 
                        under section 132 of any claim by the examiner 
                        during the examination of the application for 
                        patent,
                whichever occurs later.
            ``(2) Other requirements.--Any submission under paragraph 
        (1) shall--
                    ``(A) set forth a concise description of the 
                asserted relevance of each submitted document;
                    ``(B) be accompanied by such fee as the Director 
                may prescribe; and
                    ``(C) include a statement by the submitter 
                affirming that the submission was made in compliance 
                with this section.''.
    (c) Effective Date.--The amendments made by this section--
            (1) shall take effect at the end of the 1-year period 
        beginning on the date of the enactment of this Act; and
            (2) shall apply to any application for patent filed before, 
        on, or after the effective date under paragraph (1).

SEC. 10. TAX PLANNING METHODS NOT PATENTABLE.

    (a) In General.--Section 101 is amended--
            (1) by striking ``Whoever'' and inserting ``(a) Patentable 
        Inventions.--Whoever''; and
            (2) by adding at the end the following:
    ``(b) Tax Planning Methods.--
            ``(1) Unpatentable subject matter.--A patent may not be 
        obtained for a tax planning method.
            ``(2) Definitions.--For purposes of paragraph (1)--
                    ``(A) the term `tax planning method' means a plan, 
                strategy, technique, or scheme that is designed to 
                reduce, minimize, or defer, or has, when implemented, 
                the effect of reducing, minimizing, or deferring, a 
                taxpayer's tax liability, but does not include the use 
                of tax preparation software or other tools used solely 
                to perform or model mathematical calculations or 
                prepare tax or information returns;
                    ``(B) the term `taxpayer' means an individual, 
                entity, or other person (as defined in section 7701 of 
                the Internal Revenue Code of 1986) that is subject to 
                taxation directly, is required to prepare a tax return 
                or information statement to enable one or more other 
                persons to determine their tax liability, or is 
                otherwise subject to a tax law;
                    ``(C) the terms `tax', `tax laws', `tax liability', 
                and `taxation' refer to any Federal, State, county, 
                city, municipality, or other governmental levy, 
                assessment, or imposition, whether measured by income, 
                value, or otherwise; and
                    ``(D) the term `State' means each of the several 
                States, the District of Columbia, and any commonwealth, 
                territory, or possession of the United States.''.
    (b) Applicability.--The amendments made by this section--
            (1) shall take effect on the date of the enactment of this 
        Act;
            (2) shall apply to any application for patent or 
        application for a reissue patent that is--
                    (A) filed on or after the date of the enactment of 
                this Act; or
                    (B) filed before that date if a patent or reissue 
                patent has not been issued pursuant to the application 
                as of that date; and
            (3) shall not be construed as validating any patent issued 
        before the date of the enactment of this Act for an invention 
        described in section 101(b) of title 35, United States Code, as 
        amended by this section.

SEC. 11. VENUE AND JURISDICTION.

    (a) Venue for Patent Cases.--Section 1400 of title 28, United 
States Code, is amended by striking subsection (b) and inserting the 
following:
    ``(b) Notwithstanding section 1391 of this title, in any civil 
action arising under any Act of Congress relating to patents, a party 
shall not manufacture venue by assignment, incorporation, or otherwise 
to invoke the venue of a specific district court.
    ``(c) Notwithstanding section 1391 of this title, any civil action 
for patent infringement or any action for declaratory judgment may be 
brought only in a judicial district--
            ``(1) where the defendant has its principal place of 
        business or in the location or place in which the defendant is 
        incorporated, or, for foreign corporations with a United States 
        subsidiary, where the defendant's primary United States 
        subsidiary has its principal place of business or in the 
        location or place in which the defendants primary United States 
        subsidiary is incorporated;
            ``(2) where the defendant has committed a substantial 
        portion of the acts of infringement and has a regular and 
        established physical facility that the defendant controls and 
        that constitutes a substantial portion of the operations of the 
        defendant;
            ``(3) where the primary plaintiff resides, if the primary 
        plaintiff in the action is an institution of higher education 
        as defined under section 101(a) of the Higher Education Act of 
        1965 (20 U.S.C. 1001(a)); or
            ``(4) where the plaintiff resides, if the plaintiff or a 
        subsidiary of the plaintiff has an established physical 
        facility in such district dedicated to research, development, 
        or manufacturing that is operated by full-time employees of the 
        plaintiff or such subsidiary, or if the sole plaintiff in the 
        action is an individual inventor who is a natural person and 
        who qualifies at the time such action is filed as a micro 
        entity under section 124 of title 35.
    ``(d) If the plaintiff brings a civil action for patent 
infringement in a judicial district under subsection (c), the district 
court may transfer that action to any other district or division 
where--
            ``(1) the defendant has substantial evidence or witnesses; 
        and
            ``(2) venue would be appropriate under section 1391 of this 
        title, if such transfer would be appropriate under section 1404 
        of this title.''.
    (b) Interlocutory Appeals.--Subsection (c) of section 1292 of title 
28, United States Code, is amended--
            (1) by striking ``and'' at the end of paragraph (1);
            (2) by striking the period at the end of paragraph (2) and 
        inserting ``; and''; and
            (3) by adding at the end the following:
            ``(3) of an appeal from an interlocutory order or decree 
        determining construction of claims in a civil action for patent 
        infringement under section 271 of title 35.
Application for an appeal under paragraph (3) shall be made to the 
court within 10 days after entry of the order or decree. The district 
court shall have discretion whether to approve the application and, if 
so, whether to stay proceedings in the district court during pendency 
of the appeal.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to any action commenced on or after the date of the enactment of 
this Act.

SEC. 12. ADDITIONAL INFORMATION; INEQUITABLE CONDUCT AS DEFENSE TO 
                    INFRINGEMENT.

    (a) Disclosure Requirements for Applicants.--
            (1) In general.--Chapter 11 is amended by adding at the end 
        the following new section:

``Sec. 123. Additional information

    ``(a) In General.--The Director shall, by regulation, require that 
applicants submit a search report and other information and analysis 
relevant to patentability. An application shall be regarded as 
abandoned if the applicant fails to submit the required search report, 
information, and analysis in the manner and within the time period 
prescribed by the Director.
    ``(b) Exception for Micro Entities.--Applications from micro-
entities shall not be subject to the requirements of regulations issued 
under subsection (a).

``Sec. 124. Micro entities

    ``(a) Definition.--For purposes of this title, the term `micro 
entity' means an applicant for patent who makes a certification under 
either subsection (b) or (c).
    ``(b) Unassigned Application.--A certification under this 
subsection is a certification by each inventor named in the application 
that the inventor--
            ``(1) qualifies as a small entity as defined in regulations 
        issued by the Director;
            ``(2) has not been named on five or more previously filed 
        patent applications;
            ``(3) has not assigned, granted, or conveyed, and is not 
        under an obligation by contract or law to assign, grant, or 
        convey, a license or any other ownership interest in the 
        application; and
            ``(4) does not have a gross income, as defined in section 
        61(a) of the Internal Revenue Code of 1986, exceeding 2.5 times 
        the median household income, as reported by the Bureau of the 
        Census, for the most recent calendar year preceding the 
        calendar year in which the examination fee is being paid.
    ``(c) Assigned Application.--A certification under this subsection 
is a certification by each inventor named in the application that the 
inventor--
            ``(1) qualifies as a small entity as defined in regulations 
        issued by the Director and meets the requirements of subsection 
        (b)(4);
            ``(2) has not been named on five or more previously filed 
        patent applications; and
            ``(3) has assigned, granted, conveyed, or is under an 
        obligation by contract or law to assign, grant, or convey, a 
        license or other ownership interest in the application to an 
        entity that has five or fewer employees and has a gross taxable 
        income, as defined in section 61(a) of the Internal Revenue 
        Code of 1986, that does not exceed 2.5 times the median 
        household income, as reported by the Bureau of the Census, for 
        the most recent calendar year preceding the calendar year in 
        which the examination fee is being paid.''.
            (2) Conforming amendment.--The table of sections for 
        chapter 11 is amended by adding at the end the following new 
        items:

``123. Additional information.
``124. Micro entities.''.
    (b) Inequitable Conduct as Defense to Infringement.--Section 282 is 
amended--
            (1) in the first undesignated paragraph, by striking ``A 
        patent'' and inserting ``(a) In General.--A patent'';
            (2) in the second undesignated paragraph--
                    (A) by striking ``The following'' and inserting 
                ``(b) Defenses.--The following''; and
                    (B) by striking the comma at the end of each of 
                paragraphs (1), (2), and (3) and inserting a period;
            (3) in the third undesignated paragraph--
                    (A) by striking ``In actions'' and inserting ``(d) 
                Notice of Actions; Pleading.--In actions'';
                    (B) by inserting after the second sentence the 
                following: ``In an action involving any allegation of 
                inequitable conduct under subsection (c), the party 
                asserting this defense or claim shall comply with the 
                pleading requirements set forth in Rule 9(b) of the 
                Federal Rules of Civil Procedure.''; and
                    (C) by striking ``Invalidity'' and inserting ``(e) 
                Extension of Patent Term.--Invalidity''; and
            (4) by inserting after subsection (b), as designated by 
        paragraph (2) of this subsection, the following:
    ``(c) Inequitable Conduct.--
            ``(1) Defense.--A patent may be held to be unenforceable, 
        or other remedy imposed under paragraph (3), for inequitable 
        conduct only if it is established, by clear and convincing 
        evidence, that--
                    ``(A) the patentee, its agents, or another person 
                with a duty of disclosure to the Office, with the 
                intent to mislead or deceive the patent examiner, 
                misrepresented or failed to disclose material 
                information concerning a matter or proceeding before 
                the Office; and
                    ``(B) in the absence of such deception, the Office, 
                acting reasonably, would, on the record before it, have 
                made a prima facie finding of unpatentability.
            ``(2) Intent.--In order to prove intent to mislead or 
        deceive under paragraph (1), specific facts beyond materiality 
        of the information submitted or not disclosed must be proven 
        that support an inference of intent to mislead or deceive the 
        Patent and Trademark Office. Facts support an inference of 
        intent if they show circumstances that indicate conscious or 
        deliberate behavior on the part of the patentee, its agents, or 
        another person with a duty of disclosure to the Office, to not 
        disclose material information or to submit materially false 
        information.
            ``(3) Remedy.--Upon a finding of inequitable conduct, the 
        court shall balance the equities to determine which of the 
        following remedies to impose:
                    ``(A) Denying equitable relief to the patent holder 
                and limiting the remedy for infringement to damages.
                    ``(B) Holding the claims-in-suit, or the claims in 
                which inequitable conduct occurred, unenforceable.
                    ``(C) Holding the patent unenforceable.
                    ``(D) Holding the claims of a related patent 
                unenforceable.
            ``(4) Attorney misconduct.--Upon a finding of inequitable 
        conduct, if there is evidence that the conduct can be 
        attributable to a person or persons authorized to practice 
        before the Office, the court shall refer the matter to the 
        Office for appropriate disciplinary action under section 32, 
        and shall order the parties to preserve and make available to 
        the Office any materials that may be relevant to the 
        determination under section 32.''.
    (c) Effective Date.--
            (1) Subsection (a).--The amendments made by subsection 
        (a)--
                    (A) shall take effect at the end of the 1-year 
                period beginning on the date of the enactment of this 
                Act; and
                    (B) shall apply to any application for patent filed 
                on or after the effective date under subparagraph (A).
            (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to any civil action commenced on or after the date 
        of the enactment of this Act.

SEC. 13. BEST MODE REQUIREMENT.

    Section 282(b) (as designated by section 12(b) of this Act) is 
amended by striking paragraph (3) and inserting the following:
            ``(3) Invalidity of the patent or any claim in suit for 
        failure to comply with--
                    ``(A) any requirement of section 112 of this title, 
                other than the requirement that the specification shall 
                set forth the best mode contemplated by the inventor of 
                carrying out his invention; or
                    ``(B) any requirement of section 251 of this 
                title.''.

SEC. 14. REGULATORY AUTHORITY.

    (a) Regulatory Authority.--Section 2(c) is amended by adding at the 
end the following:
    ``(6) The powers granted under paragraph (2) of subsection (b) 
include the authority to promulgate regulations to ensure the quality 
and timeliness of applications and their examination, including 
specifying circumstances under which an application for patent may 
claim the benefit under sections 120, 121 and 365(c) of the filing date 
of a prior filed application for patent.''.
    (b) Clarification.--The amendment made by subsection (a) clarifies 
the scope of power granted to the United States Patent and Trademark 
Office by paragraph (2) of section 2(b) of title 35, United States 
Code, as in effect since the enactment of Public Law 106-113.

SEC. 15. TECHNICAL AMENDMENTS.

    (a) Joint Inventions.--Section 116 is amended--
                    (1) in the first paragraph, by striking ``When'' 
                and inserting ``(a) Joint Inventions.--When'';
                    (2) in the second paragraph, by striking ``If a 
                joint inventor'' and inserting ``(b) Omitted 
                Inventor.--If a joint inventor''; and
                    (3) in the third paragraph, by striking 
                ``Whenever'' and inserting ``(c) Correction of Errors 
                in Application.--Whenever''.
    (b) Filing of Application in Foreign Country.--Section 184 is 
amended--
            (1) in the first paragraph, by striking ``Except when'' and 
        inserting ``(a) Filing in Foreign Country.--Except when'';
            (2) in the second paragraph, by striking ``The term'' and 
        inserting ``(b) Application.--The term''; and
            (3) in the third paragraph, by striking ``The scope'' and 
        inserting ``(c) Subsequent Modifications, Amendments, and 
        Supplements.--The scope''.
    (c) Reissue of Defective Patents.--Section 251 is amended--
            (1) in the first paragraph, by striking ``Whenever'' and 
        inserting ``(a) In General.--Whenever'';
            (2) in the second paragraph, by striking ``The Director'' 
        and inserting ``(b) Multiple Reissued Patents.--The Director'';
            (3) in the third paragraph, by striking ``The provisions'' 
        and inserting ``(c) Applicability of This Title.--The 
        provisions''; and
            (4) in the last paragraph, by striking ``No reissued 
        patent'' and inserting ``(d) Reissue Patent Enlarging Scope of 
        Claims.--No reissued patent''.
    (d) Effect of Reissue.--Section 253 is amended--
            (1) in the first paragraph, by striking ``Whenever'' and 
        inserting ``(a) In General.--Whenever''; and
            (2) in the second paragraph, by striking ``In like manner'' 
        and inserting ``(b) Additional Disclaimer or Dedication.--In 
        the manner set forth in subsection (a),''.
    (e) Correction of Named Inventor.--Section 256 is amended--
            (1) in the first paragraph, by striking ``Whenever'' and 
        inserting ``(a) Correction.--Whenever''; and
            (2) in the second paragraph, by striking ``The error'' and 
        inserting ``(b) Patent Valid if Error Corrected.--The error''.
    (f) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 16. STUDY OF SPECIAL MASTERS IN PATENT CASES.

    (a) In General.--Not later than 180 days after the date of the 
enactment of this Act, the Director of the Administrative Office of the 
United States Courts shall conduct a study of, and submit to the 
Committee on the Judiciary of the House of Representatives and the 
Committee on the Judiciary of the Senate a report on, the use of 
special masters in patent litigation who are appointed in accordance 
with Rule 53 of the Federal Rules of Civil Procedure.
    (b) Objective.--In conducting the study under subsection (a), the 
Director shall consider whether the use of special masters has been 
beneficial in patent litigation and what, if any, program should be 
undertaken to facilitate the use by the judiciary of special masters in 
patent litigation.
    (c) Factors to Consider.--In conducting the study under subsection 
(a), the Director, in consultation with the Federal Judicial Center, 
shall consider--
            (1) the basis upon which courts appoint special masters 
        under Rule 53(b) of the Federal Rules of Civil Procedure;
            (2) the frequency with which special masters have been used 
        by the courts;
            (3) the role and powers special masters are given by the 
        courts;
            (4) the subject matter at issue in cases that use special 
        masters;
            (5) the impact on court time and costs in cases where a 
        special master is used as compared to cases where no special 
        master is used;
            (6) the legal and technical training and experience of 
        special masters;
            (7) whether the use of special masters has an impact on the 
        reversal rate of district court decisions at the Court of 
        Appeals for the Federal Circuit; and
            (8) any other factors that the Director believes would 
        assist in gauging the effectiveness of special masters in 
        patent litigation.

SEC. 17. RULE OF CONSTRUCTION.

    The enactment of section 102(b)(3) of title 35, United States Code, 
under section (3)(b) of this Act is done with the same intent to 
promote joint research activities that was expressed, including in the 
legislative history, through the enactment of the Cooperative Research 
and Technology Enhancement Act of 2004 (Public Law 108-453; the 
``CREATE Act''), the amendments of which are stricken by section 3(c) 
of this Act. The United States Patent and Trademark Office shall 
administer section 102(b)(3) of title 35, United States Code, in a 
manner consistent with the legislative history of the CREATE Act that 
was relevant to its administration by the Patent and Trademark Office.

                          Purpose and Summary

    The purpose H.R. 1908, the ``Patent Reform Act of 2007,'' 
is to address several problems in the patent system that hinder 
the ability of patents to promote future innovation. These 
problems deal primarily with the rampant issuance of poor-
quality patents, abusive practices particular to patent 
litigation, and inefficiencies that are a result of the lack of 
harmonization between patent law in the United States and the 
rest of the world. Among the many agencies and groups calling 
for some form of patent reform include the United States Patent 
and Trademark Office (USPTO), the Federal Trade Commission 
(FTC), the National Academy of Science, the Intellectual 
Property Owners Association, the American Bar Association 
Intellectual Property Division, the American Intellectual 
Property Law Association, and businesses representing every 
sector of industry.
    The reforms included in H.R. 1908, are the creation of a 
post-grant review procedure as a check on poor-quality patents, 
defining how courts are to apportion damages in patent 
infringement cases so that awards reflect patent value, 
clarification of when treble damages may be awarded in order to 
prevent patent hold-ups, updating inter partes reexamination to 
promote greater use of the procedure, eliminating so-called 
``submarine patents'' by requiring 18-month publication for all 
patent applications, allowing third parties to submit prior art 
during patent prosecution as a further check against poor-
quality patents, codifying the doctrine of inequitable conduct 
in order to stem its overuse, clarifying the extent the USPTO's 
regulatory authority, switching the United States patent system 
to a first-inventor-to-file system in order to promote 
harmonization, and creating prior user rights as a means to 
mitigate the change in the scope of prior art required by a 
first-inventor-to-file system.

                Background and Need for the Legislation

    Patents are provided to inventors as an incentive to 
advance the state of knowledge and to develop innovative 
products and services. They do this by granting inventors 
exclusive rights to their inventions for a limited period. In 
exchange for the temporary monopoly right, inventors are 
required to disclose to society the knowledge behind their 
inventions. This social bargain is enshrined in the 
Constitution, which empowers Congress to ``promote the progress 
of . . . science and the useful arts . . . by securing for 
limited times to . . . inventors the exclusive right to their . 
. . discoveries.''\1\
---------------------------------------------------------------------------
    \1\U.S. Const., Art. 1, Sec. 8, Cl. 8.
---------------------------------------------------------------------------
    Over the last several years, agencies like the USPTO and 
FTC, the National Academy of Science, professional 
organizations, industry coalitions, economists, academics and 
others have identified significant problems in the patent 
system. These problems boil down to two main areas--the 
issuance of poor-quality patents and abusive practices 
particular to patent litigation. These problems have hindered 
the ability of patents to spur innovation today and have put at 
risk future innovation. H.R. 1908, the Patent Reform Act of 
2007, is designed to address several of the problems identified 
in the United States patent system and modernize it for the 
21st Century.
    The Patent Reform Act of 2007 affects several parts of our 
patent law. The most significant changes pertain to the first-
inventor-to-file system, the inventor's oath requirement, 
apportionment of damages, willful infringement, prior user 
rights, reexamination generally, ex parte reexamination, inter 
partes reexamination, post-grant review, 18 month publication 
of patent applications, prior art submissions by third parties, 
tax patents, venue, interlocutory appeals, applicant disclosure 
requirements, inequitable conduct, best mode and USPTO 
regulatory authority. Background for each of these topics is 
provided below.

                     FIRST-INVENTOR-TO-FILE SYSTEM

    The United States is the only major industrialized country 
to maintain a first-to-invent patent system. In such a system, 
priority to a patent for an invention is awarded to the first 
inventor. However, often times, especially in cases of dispute 
over the invention date or who invented first, two complex 
issues can arise that leave in doubt whether the applicant has 
the right to the patent. The first relates to ``prior art''--
information already available to the public at the time a 
patent is sought. If the invention already appears in the prior 
art, or is made obvious by it, then the patentee cannot receive 
a patent. But if prior art that defeats the patent application 
is found by the United States Patent and Trademark Office 
(USPTO) during examination, an applicant may prove that the 
invention was conceived and reduced to practice at a date 
earlier than the prior art date, unless the prior art was 
available more than 1 year before the application filing date. 
This process is called ``swearing back'' and is intended to 
allow an inventor to prove he was the first to come up with the 
invention. Maintaining sufficient proof to swear back requires 
the inventor to keep detailed records of all activities leading 
up to the invention and can be quite a burden to demonstrate 
when required. Second, where there are two or more applications 
that claim the same invention, priority to the patent is 
awarded to the inventor who can demonstrate the earliest 
conception of the invention in an administrative proceeding 
called an interference. Again, this process permits the first 
inventor to show that he was indeed the first to come up with 
the invention. Here again, inventors need to keep detailed 
records of all activities leading up to invention in order to 
furnish proof of invention date. These characteristics of a 
first-to-invent patent system leave in doubt whether an 
applicant will actually have the right to patent his invention.
    In all other countries in the world, priority to a patent 
for an invention is awarded to the first person to file a 
patent application for the invention. These systems are aptly 
referred to as first-to-file systems. In such systems, one need 
not prove the date of invention. A second or subsequent 
inventor may secure the patent right in an invention if this 
person was the first to submit a patent application on the 
invention. Also, any prior art references adequately discloses 
the invention and predates that invention's application date 
will invalidate the patent for the invention. A first-to-file 
system is not only more streamlined but also gives inventors 
and the public a clearer idea of whether they have the right to 
patent their inventions.
    There are compelling reasons for the United States to 
switch to a first-inventor-to-file system.\2\ As discussed 
above, maintaining a first-to-invent system requires 
interference proceedings to determine who among two or more 
inventors to the same invention is entitled to the patent 
right. According to a recent study by National Research Council 
(NRC),\3\ these interference proceedings are ``costly and very 
protracted,'' and in general are not worth maintaining. The NRC 
estimates that on average it costs between $750,000 and 
$1,000,000 to participate in an interference proceeding. Costs 
such as these disadvantage small inventors who may not have the 
resources to initiate an interference proceeding, and thus 
undermines any argument that a first-to-invent patent system is 
fairer than a first-inventor-to file patent system. 
Furthermore, a detailed review of patents issued from 1983 
through 2004 showed that greater than 50% of interference 
decisions disadvantaged small entities.\4\
---------------------------------------------------------------------------
    \2\This report uses the term ``first-inventor-to-file,'' rather 
than ``first-to-file,'' because a patent applicant who files later than 
another can be awarded a patent if he demonstrates that the earlier 
filer was not a true inventor.
    \3\National Research Council of the National Academies (hereinafter 
``NRC''), A Patent System for the 21st Century (2004) at 124.
    \4\Perspectives on Patents: Harmonization and Other Matters, 
Hearings Before the Subcommittee on Intellectual Property, Senate 
Judiciary Committee, 109th Cong. (2005) (statement of Hon. Gerald 
Mossinghoff, Former Assistant Secretary of Commerce and Commissioner of 
Patents and Trademarks and Senior Counsel, Oblon, Spivak, McClelland, 
Maier & Neustadt).
---------------------------------------------------------------------------
    The NRC Report also points out that as a practical matter, 
most applicants simply use their date of application as their 
date of invention, and therefore most applicants already 
operate as if the United States has a first-inventor-to-file 
patent system, so there would be little disruption to formally 
change to such a system. Likewise, statistics show that less 
than 1 in 1000 patent applications are ever subject to an 
interference proceeding. Since the first-to-invent aspects of 
our patent system are rarely used, serious doubt is cast on the 
need of having a first-to-invent system.
    Many businesses have urged that the United States move to a 
first-inventor-to-file system. Businesses of every size seek to 
protect their inventions throughout the world and thus they 
apply for and maintain patents for the same invention in 
several countries. Because the basic rules relating to priority 
to invention are different between the United States and the 
rest of the world, businesses are forced to dedicate more 
resources to maintaining their patent portfolios than they 
would otherwise have to if the United States adopted a first-
inventor-to-file system.
    Lastly, patent harmonization is in the long-run interests 
of United States inventors. Greater harmonization will make it 
easier for United States inventors to secure patent rights in 
other countries. Given the increasing globalization of 
commerce, international patent protection will be increasingly 
important to the ability of United States companies to compete. 
Unfortunately, recent attempts to harmonize patent laws, such 
as through the Substantive Patent Law Treaty, have stalled, to 
a large extent, because of the fundamental difference between 
how the United States and the rest of the world award priority 
of invention.
    The Committee has found persuasive the above reasons to 
move the United States patent system to a first-inventor-to-
file system. As such, the legislation gives priority, in most 
cases, to the first inventor to file an application for patent 
on an invention, thus bringing United States patent system into 
conformity with the practices of the rest of the world. In 
order to fully implement this new system, changes are made to 
the definition and scope of prior art. Additionally, to 
facilitate an easy transition to a first-inventor-to-file 
system, the 1-year inventor's grace period is maintained and 
important exceptions to prior art are established, such as a 
first-to-publish rule that preserves an inventor's priority of 
application in limited circumstances where he publicly 
discloses his invention. The grace period and exceptions to 
prior art will effectively address any lingering concerns that 
a first-inventor-to-file system will force inventors to patent 
their inventions before they are ready for patenting, or 
disadvantage inventors whose first regular means of disclosure 
is through publication.
    Additionally, a derivation proceeding is created to 
determine the right to patent in cases where an invention may 
have been misappropriated. There has been some concern that a 
first-inventor-to-file system will encourage theft of 
inventions by unscrupulous parties who may be able to file a 
patent application on the invention before the real inventor 
has an opportunity to do so. An inventor suffering from 
misappropriation can make use of the derivation proceeding even 
if he does not immediately know that his invention has been 
misappropriated. This derivation proceeding will ensure that 
only a true inventor, and not someone who misappropriates an 
invention, will be awarded the patent.
    Finally, so that American inventors are not disadvantaged 
by the lack of an inventor's grace period in other important 
countries, the implementation of these changes are conditioned 
on the major patent authorities in Japan and Europe adopting a 
similar kind of grace period.

                            INVENTOR'S OATH

    Existing 35 U.S.C. Sec. 115 requires an inventor (or if 
relevant, joint inventors) to execute an oath stating that he 
believes himself to be an original inventor of the claimed 
invention and the country of which he is a citizen. This 
requirement, however, does not reflect the realities of modern 
research. The globalization of science and technology has led 
to an environment of international collaborations and migrating 
scientists and engineers, in which it is increasingly difficult 
to obtain the signatures of all the inventors when filing a 
patent application. Often, it is at the time when the research 
is developed to the point at which a patent application can be 
prepared that one or more inventors may no longer reside in the 
United States.
    The legislation amends Sec. 115 to allow a substitute 
statement to be submitted in lieu of an inventor's oath or 
declaration. The statement will be required to state why an 
oath could not be obtained and to have a warning that any false 
statement would be subject to perjury charges. The amendments 
will provide more flexibility in completing the oath 
requirements, particularly in cases where it is difficult to 
reach an inventor who has already assigned his rights.
    Existing Sec. 118 provides that when an inventor refuses to 
execute an application for a patent, or cannot be found or 
reached after diligent effort, a person to whom the inventor 
has assigned or agreed in writing to assign the invention, or a 
person who otherwise shows sufficient proprietary interest in 
the matter to justify the action, may apply for a patent on 
behalf of and as agent for the inventor. As amended, Sec. 118 
will allow a person who has an assignment from an inventor to 
submit a patent application for an invention made by the 
inventor. If the Director permits such a filing, the patent 
will issue in the name of the real party in interest.

                        APPORTIONMENT OF DAMAGES

    The right conferred by a patent on its owner is the right 
to exclude others from making, using, offering to sell, selling 
and importing a patented invention, as set forth in Sec. 271. 
Whoever engages in any of those activities, or induces others 
to do so, without permission of the patent owner infringes the 
patent. The remedies for patent infringement include injunction 
and damages.
    The basic goal of damages for infringement is to put the 
plaintiff patent holder in the same position (economically) as 
it would have been had the defendant not infringed. In other 
words, damages are intended to compensate plaintiff for the 
loss resulting from invasion of his rights; they are not 
intended to provide windfalls or to punish the infringer. In 
only limited circumstances (e.g., treble damages for willful 
infringement) should damages exceed the amount necessary to 
provide full compensation. Thus, the patent damages statute, 
Sec. 284, currently provides, in pertinent part:

        Upon finding for the claimant the court shall award the 
        claimant damages adequate to compensate for the 
        infringement but in no event less than a reasonable 
        royalty for the use made of the invention by the 
        infringer . . .

    Unfortunately, as the Committee has found, courts often 
have difficulty in assuring that damages are: 1) ``to 
compensate for the infringement'' (i.e., compensatory, not 
punitive); 2) ``reasonable;'' and 3) related to ``the use made 
of the invention by the infringer.''
    ``Damages adequate to compensate for the infringement'' are 
plaintiff's loss due to infringement. In some cases, this can 
be ascertained by applying a lost profits analysis (such as 
where an infringing competitor diverts sales from plaintiff). 
However, circumstances often do not allow for a lost profit 
analysis. For instance, a lost profit analysis cannot be used 
where a plaintiff is not (yet) engaged in selling its patented 
product or process, nor has a track record of licensing the 
patent to others. In these situations, under Sec. 284, the 
plaintiff is entitled to a ``reasonable royalty'' in lieu of 
lost profits. A ``reasonableness'' standard allows a fair 
degree of flexibility, hence uncertainty, in calculating 
damages.
    Courts have endeavored to provide certainty and 
predictability to the ``reasonable royalty'' analysis by 
crafting guidelines to be used in calculating awards. In 
Georgia-Pacific Corp. v. United States Plywood Corp.,\5\ the 
court compiled a list of 15 factors to be used as the starting 
point (and, often, the end point) for most reasonable royalty 
damage calculations. The 15 factors are complex and are 
designed to cover a wide range of situations among diverse 
technologies and market practices. Courts often simply provide 
juries all of Georgia-Pacific's 15 possible factors for 
assessing a reasonable royalty and then direct the juries to 
determine a reasonable royalty without much other guidance.\6\ 
This often results in the misapplication of these factors and 
damage awards that are neither just nor related to the 
statutory standard--compensation for ``the use made of the 
invention by the infringer.'' Moreover, damage awards are 
seldom overturned on appeal. Because the record often fails to 
reveal which factors the jury used in calculating the award, it 
is usually hard to identify errors of law. As a result, the 
Federal Circuit uses a highly deferential standard:
---------------------------------------------------------------------------
    \5\318 F.Supp. 1116, 1120 (S.D.N.Y. 1970), modified 446 F.2d 295 
(2d Cir. 1971).
    \6\See, for example, the American of Intellectual Property Law 
Association's Model Patent Jury Instructions 12.15 (``In determining 
the value of a reasonable royalty, you may consider evidence on any of 
the following factors:'' [listing the 15 Georgia-Pacific factors], plus 
``16. Any other economic factor that a normally prudent business person 
would, under similar circumstances, take into consideration in 
negotiating the hypothetical license ''). Similar jury instructions are 
urged by the Federal Circuit Bar Association. and the American Bar 
Association's Model Jury Instructions for Patent Litigation.

        ``The jury's award of damages is entitled to deference. 
        Specifically, the jury's damages award must be upheld 
        unless the amount is grossly excessive or monstrous, 
        clearly not supported by the evidence, or based only on 
        speculation or guesswork.''\7\
---------------------------------------------------------------------------
    \7\Monsanto Co. v. Ralph, 382 F.3d 1374, 1383 (Fed. Cir. 2004).

    Fundamentally, the economic value of a patent is determined 
by the marketplace. Licensing deals are heavily influenced by 
the consequences of infringement. Damage awards that greatly 
exceed plaintiff's loss have a recursive effect on license 
negotiations, and vice versa. A patent holder's fee demand for 
a license increases as damage awards escalate. Awards, in turn, 
reflect inflation in license fees. This results in an upward 
cycle of ever increasing royalties, both those negotiated in 
the market and those awarded by juries. Indeed, the Committee 
was presented with numerous studies showing that current 
litigation practices often produce a royalty award 
substantially in excess of a reasonable royalty. This cycle is 
harmful to our overall economy and especially damaging to 
technology innovation.
    Professor John Thomas of Georgetown University Law Center 
has pointed to three adverse practical consequences resulting 
from this trend:

         L``excessive awards may promote patent 
        litigation. A rational patent proprietor may be 
        unwilling to make fair royalty demands in the boardroom 
        when they are able to obtain significantly higher 
        damages awards in the courtroom;''

         L``the gap between the damages awarded for 
        patent infringement and the marketplace value of a 
        patented invention may also encourage speculation in 
        patents;''

         L``high damages awards ``may cause the scope 
        of patent protection routinely to extend beyond the 
        scope of its claims.''

    And he noted, the threat of these adverse consequences is 
much greater in today's ``environment where high technology 
products increasingly embody not merely a single or handful of 
patented inventions, but hundreds or even thousands of 
them.''\8\ As an example, ``literally thousands of patents have 
been identified as essential to the proposed new standards for 
3G cellular telephone systems.''\9\ Infringement suits 
typically focus on one or a few patents in isolation, rather 
than their relative contribution to an overall product. In 
economic theory, each patentee seeks to capture a share of the 
licensee (or infringer's) surplus.\10\ When the user has to pay 
monopoly rents for each of many patents (called ``royalty 
stacking ''), the sum of the parts can become greater than the 
whole. In other words, the net total damage award can be 
disproportionate to the patent's market utility. In some cases, 
it can exceed the infringer's total profit.\11\
---------------------------------------------------------------------------
    \8\The Patent Reform Act of 2007, Hearings Before the Subcommittee 
on Courts, the Internet and Intellectual Property, House Judiciary 
Committee, 110th Cong. (2007) (statement of John R. Thomas, Professor 
of Law Georgetown University Law Center Washington, D.C.).
    \9\Mark A. Lemley and Carl Shapiro, Patent Holdup and Royalty 
Stacking, 85 Texas L. Rev. 1991, 1992 (2007).
    \10\The FTC describes this as a ``complements problem,'' where 
multiple patent holders each seek monopoly rents in exchange for their 
exclusive rights. Federal Trade Commission, To Promote Innovation: The 
Proper Balance of Competition and Patent Law and Policy (FTC, Oct. 
2003).
    \11\See State Indus. Inc. v. Mor-Flo Indus. Inc., 883 F.2d 1573, 
1580 (Fed. Cir. 1989) (``there is no rule that a royalty be no higher 
than the infringer's net profit'').
---------------------------------------------------------------------------
    Reasonable royalty analysis typically focuses on: 1) what 
the patentee could obtain in the market as a license fee for 
the invention, or 2) the amount of defendant's profits from 
sale of an infringing product. Both mechanisms have their 
limitations. The first is based either on an ``established 
royalty rate'' if the patent-in-suit has been licensed by the 
patentee or, where licensing history is lacking, on a 
constructed ``hypothetical negotiation'' between plaintiff and 
defendant. This can result in excessive royalties where the 
patent is used to block development or marketing of defendant's 
products. Thus, in the 3G example, a holdout patentee can 
extract above-market fees from potential licensees (hence, from 
defendant as a ``hypothetical'' licensee). The second approach, 
using the defendant's profits as a base for reasonable royalty, 
can also lead to excessive damages due to the difficulty in 
calculating what portion of defendant's profits resulted from 
``the use made of the invention by the infringer.''\12\
---------------------------------------------------------------------------
    \12\The case of Fonar Corp. v. General Electric, 107 F.3d 1543 
(Fed. Cir. 1997) illustrates the problem courts have had in calculating 
damages when ``reasonable royalty'' is premised on defendant's profits. 
Fonar's patent was for a method of using a Magnetic Resonance Imaging 
(MRI) machine that reduced the number of scans required to obtain 
multiple images (called ``MAO'' imaging). GE's MRI machines were held 
to infringe the patent. In upholding a reasonable royalty award ($34 
million) based on the entire sales price of GE's machines, the Court of 
Appeals ruled there was no need to apportion GE's profits between the 
patented invention and other components and features of the machines. 
Instead, the court applied the ``Entire Market Value'' rule to award 
damages based on total sales, rather than the separate value of the MAO 
feature. A similar result occurred in Lucent-Alcatel v. Microsoft, 
02CV2060 (SD Cal. 2007), where the jury awarded the patentee of a 
component piece of MP3 audio compression technology $1.52 billion in 
damages, based on world-wide sales of computers running Windows XP, 
which contained the Windows Media Player, which in turn contained an 
MP3 codec, which ultimately contained the patented component.

On August 6, 2007, the jury award in Lucent-Alcatel was set aside by 
the trial court on a motion for new trial, ruling that the Entire 
Market Value rule was inapplicable to the facts of the case.
    Because of the difficulty in evaluating the specific 
contribution a patented invention makes to defendant's profits 
on an infringing product, courts often use a rule known as the 
``Entire Market Value'' to award the entirety of such profits 
to the plaintiff. The Entire Market Value rule was judicially 
created for situations where patented and unpatented components 
are sold and operate together as a functional unit, or where 
the infringed patent is the basis for customer demand'' for the 
entire unit.\13\ Unless that precondition applies, the Entire 
Market Value rule is inapplicable, and a court should 
``apportion'' the infringer's profits to determine the unique 
contribution of the infringed patent. Like other economic 
calculations, apportionment is not an easy task. Despite the 
fact that apportionment appears as one of the Georgia-Pacific 
factors (number 13), it appears to be under-utilized. This can 
lead to excessive damage awards. The Committee believes this 
growing problem can be attributed to the lack of guidance 
provided to and by the courts in calculating reasonable royalty 
damages.
---------------------------------------------------------------------------
    \13\See Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1550 (Fed. 
Cir. 1995).
---------------------------------------------------------------------------
    In order to ensure that damages awards are just and fairly 
compensate inventors, Sec. 284 is significantly amended by 
providing important additional guidance for both courts and 
juries. First, courts will have the responsibility to determine 
what factors are most appropriate to use in determining a 
reasonable royalty in each case. The factors that courts may 
choose from are defined in further amendments of Sec. 284, and 
include apportionment of damages, the entire market value rule, 
and other factors recognized as appropriate.
    Apportionment of damages, as specified in the bill, should 
allow for reasonable royalty calculations that truly reflect 
the value of the invention being infringed. Apportionment is 
also particularly appropriate to use to confront ``stacking 
royalties;'' that is, where a product embodies numerous 
patented components, each requiring a license and associated 
royalty payments.

                          WILLFUL INFRINGEMENT

    Under current 35 U.S.C. Sec. 284 a ``court may increase the 
damages up to three times the amount found or assessed.'' 
Nothing in the existing statute explicitly states on what 
grounds a court may increase damages in an infringement action. 
But courts have found that this provision allows for 
``punitive'' or exemplary damages in appropriate cases, as in 
where infringement is found to be willful or in bad faith.\14\
---------------------------------------------------------------------------
    \14\Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476, 
508 (1964).
---------------------------------------------------------------------------
    There is currently no threshold requirement for having a 
charge of willfulness considered by the court. Thus, given the 
potential benefits of proving willfulness, it is asserted in 
most infringement suits. However, there is substantial question 
as to whether the current standards used by the court to 
determine willfulness are appropriate. For instance, courts 
have found that knowledge of a patent can be used as evidence 
to prove willful infringement of the patent. Further, this 
knowledge can be established by vague assertions in notice of 
infringement and ``invitation to license'' letters.\15\
---------------------------------------------------------------------------
    \15\Christopher A. Harkins, Choosing Between the Advice of Counsel 
Defense to Willful Patent Infringment or the Effective Assistance of 
Trial Counsel: A Bridge or the Troubled Waters?, 5 Nw. J. of Tech and 
Intell. Prop. 209, 219 (2007).
---------------------------------------------------------------------------
    Businesses have employed various strategies to protect 
themselves from willful infringement charges. For instance, a 
company may obtain patent liability opinions from outside 
counsel when they learn of a patent that may relate to its 
products or activities.\16\ This, however, is a very expense 
means to protect against willful infringement claims. The NRC 
estimated that an infringement opinion usually costs between 
$10,000 and $100,000.\17\ Additionally, patent liability 
opinion letters are not always sufficient to establish there 
was no willful infringement.\18\
---------------------------------------------------------------------------
    \16\Knorr-Bremse Systeme Fuer Nutzfahrzeuge Gmbh v. Dana Corp., 383 
F.3d 1337 (Fed. Cir. 2004) (en banc)(providing that an adverse 
inference cannot be imputed if a company seeks a patent liability 
opinion).
    \17\NRC, supra note 3, at 119.
    \18\Harkins, supra note 6, at 225.
---------------------------------------------------------------------------
    Another strategy businesses use to protect themselves from 
a willful infringement charge is to deliberately avoid 
searching for patents altogether, on the theory that if they 
are not aware they are infringing a patent, their activity 
cannot be willful.\19\ This result, however, is the exact 
opposite of the intention of the patent system. As part of the 
social contract underlying the patent system, each patent is 
made publicly available in order to disseminate the knowledge 
contained therein. However, because courts have found that 
where previous knowledge of a patent is evidence of willful 
infringement, some businesses actively avoid consulting patent 
records.
---------------------------------------------------------------------------
    \19\Id.
---------------------------------------------------------------------------
    This bill addresses these problems concerning willfulness 
by amending Sec. 284 to codify that treble damages may be 
awarded when the court has determined that the infringer 
engaged in willful infringement. This bill also limits the 
permitted grounds for a finding of willfulness, by enhancing 
standards for notice of infringement, establishing limitations 
on the time during which an infringer may be held to have 
willfully infringed, and establishing limitations on when a 
pleading of willfulness may be made by the patentee or 
determined by the courts.\20\
---------------------------------------------------------------------------
    \20\Just before this Committee Report went to print, the Court of 
Appeals for the Federal Circuit amended its rule for finding willful 
patent infringement. See In re Seagate Technology, 2007 U.S. App. LEXIS 
19768 (Fed. Cir. 2007) (``proof of willful infringement permitting 
enhanced damages requires at least a showing of objective 
recklessness'' together with actual or constructive knowledge of 
infringement).
---------------------------------------------------------------------------

                           PRIOR USER RIGHTS

    Generally, prior user rights allow someone who had been 
making or using an invention to continue to do so after the 
invention has been patented by another. Prior user rights are 
found under current law in Sec. 273. This was added by the 
American Inventor's Protection Act of 1999 (AIPA), responding 
in part to the Federal Circuit's decision to allow ``business 
methods patents.''\21\ In particular, prior to the State Street 
decision, most patent practitioners believed that business 
methods were unpatentable subject matter, and they did not file 
for patents in this subject area. After State Street, the USPTO 
experienced a flood of business method patent applications. As 
with other expansions of patentable subject matter, the USPTO 
initially had few prior art references to use to judge the 
novelty and obviousness of business method patent applications. 
This led to the issuance of a large number of business method 
patents that were not properly vetted against existing prior 
art. Lawsuits and threats of lawsuits began to surface where 
poor-quality business method patents were being enforced 
against companies who had been practicing the claimed invention 
for years under the assumption such inventions could not be 
patented. While in many of these cases there was ample room for 
defendants to argue that the patents being enforced were 
invalid, the costs of litigating the matter were thought to be 
an unproductive drain on the resources of defendants. The 
defense of prior user rights, which had been considered in 
amendments to the patent statute since the 1980's, was 
established only for business method patents. However, the 
defense as created by the AIPA, may be too narrow, since very 
few prior users have to date invoked it.
---------------------------------------------------------------------------
    \21\State Street Bank & Trust Co. v. Signature Financial Group, 149 
F.3d 1368 (Fed. Cir. 1998).
---------------------------------------------------------------------------
    The defense is limited not only in scope--namely, business 
method patents--but also to a person's prior use of an 
invention at a particular location at the time of the filing of 
a patent that may cover some or all of that same use. These 
limitations were imputed to ensure that incentive to use the 
patent system (vs. trade secret law) were not diminished while 
allowing use of something that was used previous to the filing 
of a patent.
    This legislation widens the scope of prior user rights to 
all patented inventions. Thus, users of all types of 
inventions, products or processes, will now be able to make use 
of the defense if the invention is later patented by another. 
The changes to prior user rights made by this bill do not 
change the original goal of Sec. 273, but enhance the original 
purpose for the provision. This goal, however, is secondary to 
two other goals achieved by the expansion of prior user rights. 
These goals are to 1) give early users limited protection from 
patent infringement and 2) reduce the burden on the applicant 
to file applications on every technology they use (versus 
choosing to use trade secret law) and as a result reduce the 
number of patent applications filed at the USPTO on less 
critical inventions.
    Given the definition and scope of prior art under both 
current law and the modifications of 35 USC Sec. 102 discussed 
above, an inventor must decide whether or not to seek patent 
protection for his invention. If an inventor chooses patent 
protection, the patent system provides the inventor legal 
recourse to prevent others from making or using his invention 
for a period of 20 years in exchange for public disclosure of 
how the invention works. If an inventor chooses not to seek 
patent protection, he does not have to disclose the invention 
to the public and may make exclusive use of the invention 
indefinitely under trade secret law. However, the inventor who 
seeks trade secret protection also runs the risk of another 
inventor independently coming up with and patenting the 
invention. If this were to happen, the first inventor would not 
only lose his monopoly over the invention, but would be subject 
to an infringement suit by the later inventor who chose to 
patent the invention. A limited prior user rights defense, 
however, ensures that an inventor who chooses to protect his 
invention through trade secrets will not be barred from using 
the invention. In this case, a prior user will continue making 
use of the invention, and the subsequent patent holder is 
foreclosed from enforcing his patent right against the prior 
user but may enforce the patent against others.
    The other goal of providing prior user rights is to reduce 
the number of applications filed overall, by removing the 
burden on applicants to file an application on every invention. 
Many companies today file patent applications on every aspect 
of their business, including incremental inventions, in order 
to shield themselves from potential liability for infringement 
if someone were to later patent the invention. This practice of 
defensive patenting has contributed to the increase of patent 
applications in recent years and the resultant backlog in 
examinations. Inventions that are patented for defensive 
reasons are generally not enforced against others and are 
simply used as a safeguard.

                             REEXAMINATION

    After a patent issues, a party seeking to challenge the 
validity and enforceability of the patent has two avenues under 
current law: a reexamination proceeding at the USPTO or 
litigation in district court. The former is used sparingly and 
is considered not very effective; the latter is unwieldy and 
expensive. The average time between patent application and 
final outcome in patent litigation is a staggering 12 years, or 
60% of a patent's life.\22\ The legislation reforms the 
reexamination procedure to make it more effective and encourage 
its wider use. It also creates a new post-grant review 
proceeding that will allow for limited USPTO review of a patent 
on the basis of patentability.
---------------------------------------------------------------------------
    \22\NRC, supra note 3, at 66.
---------------------------------------------------------------------------
    The Committee believes that the ability to have a quality 
check on issued patents is important to the integrity of the 
patent system. Patents of questionable validity may stifle 
innovation, especially in fast-moving technology industries. 
Some patent holders have developed strategic methods to game 
the system based on poor-quality patents, building business 
plans around leveraging monetary value from patent portfolios.
    Reexamination of an issued patent is currently governed by 
Chapters 30 and 31 Title 35. Reexamination serves as an 
expedited, low-cost alternative to patent litigation for 
reviewing limited aspects of patent validity, specifically 
whether an invention was anticipated or made obvious by 
documentary prior art.
    Chapter 30 was added in 1980\23\ and is codified in 35 
U.S.C. Sec. Sec. 301-307. Under this mechanism, an ex parte 
reexamination can be initiated. Patentees may request ex parte 
reexamination of their own patents. Approximately half of all 
ex parte proceedings have been requested by the patentee, often 
as a strategy to insulate the patent from late-surfacing prior 
art by cutting back the claims.
---------------------------------------------------------------------------
    \23\Pub. L. 96-517, 94 Stat. 3016, Sec. 1. The rules governing 
reexamination are found at 37 C.F.R. 1.501-1.570.
---------------------------------------------------------------------------
    Potential challengers have regarded ex parte reexamination 
as insufficient because:

        (1) Lafter a reexamination is ordered, the third 
        party's participation is limited to one statutory reply 
        prior to the examination process, and only if the 
        patent owner files an optional pre-examination 
        statement;

        (2) Lreexamination does not permit challenges to 
        enablement, written description, best mode, or utility; 
        and

        (3) Lthere is no opportunity for the challenger to 
        appeal the examiner's decision on reexamination.

    Subsequent congressional review indicated infrequent use of 
ex parte reexamination. Interested parties suggested that the 
volume of lawsuits in the district courts would be reduced if 
third parties had the opportunity to present their case for 
patent invalidity at the USPTO during reexamination. To address 
those concerns and provide such an opportunity, Congress 
enacted the ``Optional Inter Partes Reexamination Procedure Act 
of 1999'' as Subtitle F of the AIPA. The AIPA retained the 
existing ex parte reexamination procedure intact and separate 
from the newly enacted inter partes reexamination procedure.
    Chapter 31 (35 U.S.C. Sec. 311, et seq.) governs the inter 
partes reexamination procedure, where third parties can more 
fully participate than under the ex parte procedure. They can:

        (1) Lsubmit a written comment each time the patent 
        owner files a response to an ``Office action'' on the 
        merits issued by the USPTO;

        (2) Lappeal an adverse decision of the patent examiner 
        to the Board of Patent Appeals and Interferences 
        (BPAI); and

        (3) Lhave full participation rights in a patent owner's 
        appeal to the BPAI.

    Several infirmities in the reexamination process remained 
following enactment of the AIPA. Of greatest import were that:

        (1) Lit did not provide third-party requesters the 
        ability to appeal to the Federal Circuit, nor to 
        participate in the patent owner's appeal to the Court;

        (2) Lany prior art considered during the initial 
        examination of an application could not serve as the 
        basis for reexamination, since it did not raise ``a 
        substantially new question of patentability.''\24\
---------------------------------------------------------------------------
    \24\In re Portola Packaging Inc., 110 F.3d 786 (Fed. Cir. 1997). 
This was reversed in the 2002 amendments of the Patent Act.

---------------------------------------------------------------------------
        (3) Lthere was no opportunity for discovery;

        (4) Lthe requester was ``estopped'' from asserting in 
        subsequent litigation (including as defendant in an 
        infringement case) patent invalidity based on any 
        ground the requester raised or could have raised in the 
        inter partes reexamination; and

        (5) Lthe new procedure was available only regarding 
        patents issued on applications filed on or after 
        November 29, 1999, the date of enactment of the 
        statute. All previously issued patents, and all patents 
        based on applications pending on the effective date, 
        were excluded from inter partes reexamination.

    Whether a ground for invalidity ``could have been raised'' 
turned on a fact-intensive analysis of the availability of 
prior art at the time the reexamination proceeding was 
conducted. Also, the requester would be estopped from later 
challenging in a civil action any ``fact'' determined in the 
inter partes reexamination.\25\ (). At the same time, ``the 
confirmation of a patent in reexamination is accorded a great 
deal of respect by courts, and hence a reexamination could 
bolster the 'strength' of a patent.''\26\
---------------------------------------------------------------------------
    \25\Optional Inter Partes Reexamination Procedure Act of 1999, 
Sec. 4607, uncodified
    \26\Merges & Duffy, Patent Law And Policy: Cases And Materials 
(2002) at 1210-11.
---------------------------------------------------------------------------
    As a result of the limitations in the inter partes 
reexamination procedure, it was rarely used. Although the USPTO 
had estimated it would receive approximately 400 inter partes 
reexamination requests in the first year alone, not a single 
request was filed. In the first 3 years, only five inter partes 
requests were filed, out of approximately 160,000 patents 
issued.
    In 2002, in order to make the optional inter partes 
reexamination procedures a more attractive alternative to 
litigation, the AIPA's inter partes reexamination practice was 
amended by the Patent and Trademark Office Authorization Act of 
2002.\27\ This act:
---------------------------------------------------------------------------
    \27\Pub. L. 107-273, Sec. 5-6, amending 35 U.S.C. Sec. 303(a), 312 
(a) 134, and 141-44.

        (1) Lprovide third party inter partes reexamination 
        requesters with the right to appeal to the Court of 
        Appeals for the Federal Circuit and to participate in 
---------------------------------------------------------------------------
        the patent owner's appeal to the Court; and

        (2) Lclarify that reexamination (both ex parte and 
        inter partes) may be based on a patent or printed 
        publication previously cited by or to the USPTO, or 
        considered by the USPTO, as long as a substantial new 
        question of patentability is raised.

    The estoppel provisions were not, however, changed by the 
2002 amendments. Another unaddressed limitation was the 
effective date of the inter partes reexamination statute. A 
large number of patents issued before 2002 remained exempt from 
the inter partes reexamination procedures.
    The AIPA included the requirement that USPTO assist 
Congress in its continuing oversight of patent operations. The 
agency was required to submit to Congress, within 5 years of 
enactment, a report evaluating whether the inter partes 
reexamination proceedings established by the Act were 
``inequitable to any of the parties in interest.'' If the 
agency were to find inequity to exist, the USPTO's report must 
then contain ``recommendations for changes . . . to remove such 
inequity.'' In fulfilling this duty, the Director reported to 
Congress in 2004 that changes needed to be made to 
reexamination. The Director provided the following 
recommendations for post-issuance review of patents:

        (1) Lreducing the estoppel effects on challengers;

        (2) Lbroadening challenger participation (currently 
        limited to replying to patentee reexamination filings), 
        such as independent submissions;

        (3) Lenlarging the time for challenger responses 
        (current 30 day time frame may affect thoroughness of 
        response);

        (4) Lenlarging the scope of reexamination (currently 
        limited to novelty and obviousness disclosed by 
        documentary prior art) to include non-documentary prior 
        art or other validity-related questions (e.g., 
        statutory bars, enablement, utility);

        (5) Lscaled filing fees for small entity challengers;

        (6) Lavailability of discovery and cross-examination; 
        and

        (7) Lcreation of a special review panel.

    The Committee is also mindful of recommendations made 15 
years ago by the Advisory Commission on Patent Law Reform:

        ``An essential relationship [exists] between the value 
        of patent rights . . . and the cost of patent 
        litigation. [Reform should] ensure that transactional 
        costs do not prejudice the rights of patentees or the 
        rights of the public through the process of patent 
        enforcement.'' Increased quality of examination will 
        strengthen the presumption of validity, which in turn 
        will decrease the number of unwarranted challenges to 
        patent validity. This will also increase the confidence 
        of the courts in applying the statutory presumption of 
        validity.''\28\
---------------------------------------------------------------------------
    \28\The Advisory Commission On Patent Law Reform, A Report To The 
Secretary Of Commerce (1992).

    The amendments to the reexamination procedure address most 
of the concerns raised by the FTC, the USPTO and the Advisory 
Committee. They are the result of thorough consideration given 
to those views as well as other scholarly commentary.\29\
---------------------------------------------------------------------------
    \29\As the Federal Trade Commission noted in its report on the 
patent system, ``procedures that third parties can use to challenge 
questionable patents may be insufficient.'' Federal Trade Commission 
(``FTC''), To Promote Innovation: The Proper Balance of Competition and 
Patent Law and Policy, Ch. 1, 33 (Oct. 2003).
---------------------------------------------------------------------------

                           CITABLE PRIOR ART

    Prior art that may be cited to establish either an ex parte 
and inter partes reexamination includes ``. . . patents or 
printed publications which that person believes to have a 
bearing on the patentability of any claim of a particular 
patent.''\30\ The Committee heard comments that patent owners 
would, occasionally, offer differing interpretations of cited 
prior art. They might take one position during litigation or 
initial examination, and a different one during reexamination. 
To counteract this practice, the legislation amends 35 U.S.C. 
Sec. 301 to allow the submission of documents, pleadings, or 
evidence from another proceeding that addresses the patent 
owner's statements or the claims addressed by the written 
statements. Consideration of such statements is limited to 
determining the proper meaning of any claims that are the 
subject of the reexamination proceeding. Otherwise the 
operative language of Sec. 301 is retained.
---------------------------------------------------------------------------
    \30\35 U.S.C. Sec. 301.
---------------------------------------------------------------------------
    The legislation retains the types of prior art that can be 
cited under 35 U.S.C. Sec. 301, namely patents and printed 
publications. While the term ``patents'' is self-evident, the 
term ``printed publications'' has become a term of art in case 
law. This applies not just to Sec. 301, but also to Sec. 102, 
which also includes printed publications as prior art. As it 
turns out, a reference does not need literally be ``printed'' 
or a ``publication.'' Rather, these terms have evolved, 
commensurate with advances in technology and public 
accessibility of information.
    In 1966, the President's Commission on the Patent System 
proposed that Sec. 102 be amended to reflect changes in 
technology in the intervening 130 years since ``printed'' first 
appeared in the patent code.\31\ The report recommended 
eliminating the technical requirement of printing, as to 
include other media of wide distribution, such as microfilm and 
computer storage.
---------------------------------------------------------------------------
    \31\President's Commission on the Patent System, To Promote the 
Progress of . . . Useful Arts in an Age of Exploding Technology 7 
(1966).
---------------------------------------------------------------------------
    At the time, the patent office had already begun construing 
``printed'' as including any reproduction ``impressed or fixed 
upon a sheet of paper or other material.''\32\ This included 
microfilm and other fixed media. Courts accepted the expanded 
definition.\33\
---------------------------------------------------------------------------
    \32\Gulliksen v. Halberg, 75 USPQ 252 (Pat. Off. Bd. Int'f. 1937).
    \33\See, e.g., In re Wyer, 655 F.2d 221, 226-27 (CCPA 1981) 
(``traditional dichotomy between 'printing' and 'publication' is no 
longer valid. Given the state of technology in document duplication, 
data storage, and data-retrieval systems, the 'probability of 
dissemination' of an item very often has little to do with whether or 
not it is 'printed' in the sense of that word when it was introduced 
into the patent statutes in 1836 '').
---------------------------------------------------------------------------
    Under current law, if a reference may be obtained through 
reasonable diligence by a person of ordinary skill in the art, 
the reference will qualify as a ``printed publication.''\34\ 
This includes modern forms of communication such as 
presentation slide shows.\35\ Even a single copy of a document, 
such as a doctoral thesis, indexed and catalogued in a library, 
qualifies as a ``printed publication'' if it is ``sufficiently 
accessible to a researcher who exercised reasonable 
diligence.''\36\
---------------------------------------------------------------------------
    \34\MIT v. AB Fortia, 774 F.2d 1104 (Fed. Cir. 1985) (oral 
presentation to technical audience accompanied by distribution of some 
copies satisfied ``publication'' requirement).
    \35\In re Klopfenstein, 380 F.3d 1345 (Fed. Cir. 2004).
    \36\E. I. du Pont de Nemours & Co. v. Cetus Corp., 19 USPQ2d 1174 
(N.D. Calif. 1990).
---------------------------------------------------------------------------
    The Committee intends that case law will continue to inform 
the definition of ``printed publication'' for purposes of prior 
art citation under Sec. 301, as amended by the legislation.

                         EX PARTE REEXAMINATION

    The legislation amends Sec. 303(a) relating to ex parte 
reexaminations. It allows the Director to institute an ex parte 
reexamination at any time based on certain prior art discovered 
by the Director, cited under Sec. 301, or cited by any person 
other than the owner of the patent under Sec. 302 or Sec. 311. 
It permits the Director to order an ex parte reexamination 
based on art submitted in a request by a third party for an 
inter partes reexamination. This change clarifies the existing 
authority of the Director, since prior art that accompanies a 
request under Sec. 311 must be submitted under the provisions 
of Sec. 301, and is therefore available to the Director to use 
in determining whether a substantial new question of 
patentability exists.
    The prior art upon which a substantial new question of 
patentability is raised is the same as that specified in 
Sec. 301, even though that section uses the term ``printed 
publication'' rather than simply ``publication'' as here. As 
noted above, given the evolving meaning of the term 
``publication,'' no operative difference arises between the two 
terms.
    Inter Partes Reexamination
    The legislation also amends Sec. Sec. 314, 315 and 317 
relating to the conduct of inter partes reexamination 
proceedings. The changes are aimed at increasing the 
effectiveness of inter partes reexamination and making it a 
more attractive way to challenge patents without having to 
resort to litigation. The amendments to Sec. Sec. 314, 315 and 
317 accomplish the following:

        1. LReexamination will no longer be conducted by a 
        patent examiner. Rather, an administrative patent judge 
        (APJ) will conduct and decide the reexamination.

        2. LThe petitoner (or ``requestor '') may file replies 
        to any office action on the merits or on any submission 
        by the patent owner.

        3. LThe APJ may hold an oral hearing upon request 
        ``unless the judge finds cause lacking for such 
        hearing.''

        4. LThe scope of estoppel is narrowed. A challenger is 
        still estopped, after decision, from reasserting patent 
        invalidity based on any ground actually raised in an 
        inter partes reexamination, but estoppel no longer 
        extends to any ground that ``could have [been] raised'' 
        during the proceeding.

        5. LThe heading and text of Sec. 317(b), relating to 
        preclusion of inter partes reexamination following 
        civil action, is changed from ``Final Decision'' to 
        ``District Court Decision'' (heading) and ``judgment of 
        the district court'' (body). By this change, an inter 
        partes reexamination may not be instituted after a 
        district court decision.

        6. LInter partes reexamination will be available for 
        all patents, not just those issued after November 29, 
        1999.

                           POST-GRANT REVIEW

    The legislation also adds a new post-grant review procedure 
that can be utilized during the first 12 months after a patent 
issues, or thereafter with consent of the patent owner. The ex 
parte or inter partes reexamination is extremely limited. The 
post-grant review would allow a time constrained challenge to 
an issued patent on any ground going to patentability, not just 
those based on certain prior art (i.e., patents and printed 
publications under Sec. 301). More specifically, the 
reexamination process does not allow a patent to be challenged 
on the basis that the claims were anticipated or made obvious 
by prior non-documentary knowledge, public uses, sale, or that 
the disclosure was inadequate to enable others to practice the 
invention. The new post-grant review procedure is intended to 
fill this gap in patent review.
    Post-grant review offers meaningful opportunities to 
improve patent quality by drawing upon the information and 
expertise of those skilled in the art. Under an ex parte 
examination system, access to competitors' knowledge is 
limited. In contrast, a person skilled in the art engaged in an 
administrative challenge to a patent will be well-positioned to 
supply the best prior art, as well as the expertise necessary 
to probe beneath the surface of an applicant's affidavits and 
declarations. A post-grant review system channels 
administrative and public resources in a cost-effective and 
expeditious way to assure patent quality and validity.
    As part of its 21st Century Strategic Plan, the USPTO 
proposed a new Post-Grant Review system to address patent 
quality, as well as provide an expeditious alternative to 
litigation. Post-Grant Review received great support among all 
major patent interest groups, including the bar, technology 
companies, academicians, and others seeking patent reform.

            18-MONTH PUBLICATION OF ALL PATENT APPLICATIONS

    United States patent law was fundamentally changed in 1999 
with the introduction of pre-grant publication. Prior to this 
change, all applications filed with the USPTO were maintained 
in secrecy until a patent issued from the application. The 
secrecy of a pending application, combined with the ability of 
applicants to file unlimited numbers of continuing 
applications, and a patent term that ran for 17 years from the 
date a patent issued, led to abuse of the system with so-called 
``submarine'' patents. These were patents that were 
deliberately kept under examination for long periods of time 
while a technology was developed in the market-place, and then 
allowed to issue and asserted against businesses that had taken 
the risks and expense of commercializing the technology without 
knowing that applications to patent that technology had been 
filed.
    The 1999 changes required that certain applications be 
published 18-months after they were submitted to the USPTO. 
This requirement eliminated a portion of the submarine patent 
problem. Pre-grant publication also increased the quality of 
issued patents by making applications available as prior art in 
a manner that was more effective than procedures then 
previously available at the USPTO. However, the amended statute 
gave applicants the opportunity to opt out of pre-grant 
publication if they agreed not to file an application on the 
same invention with another national or international patent 
office or agency, thus leaving open the possibility of 
submarine patents.
    The legislation eliminate that opt-out provision, 
preventing an application from remaining a secret after 18 
months. It is the opinion of the Committee that this will 
provide better notice to potential users of inventions that 
have not yet been patented, but may be in the near future, and 
that the availability of all applications as potential prior 
art will reduce the number of patents that issue on closely 
related inventions that may be obvious variants of the same 
invention.

                  THIRD PARTY SUBMISSION OF PRIOR ART

    The quality of issued patents has received a great deal of 
attention in recent years. There has been a growing concern 
that, regardless of the efforts of competent examiners, patents 
have issued on inventions that were publicly known and in use 
prior to the filing of the applications. Much of the reason for 
the issuance of patents on already known inventions is that 
evidence of the knowledge or use is not readily available to 
the patent examiners. This has proven to be especially true in 
newer areas of technology that previously did not exist, or 
were considered not to be eligible for patent protection. 
Examples of such areas of technology include computer software 
and systems, processes implemented by or involving computers, 
and processes that do not necessarily involve what is commonly 
thought of as technology, such as methods of doing business. 
Unlike the academic-based areas of chemistry and biotechnology, 
the computer and business method areas do not have a well-
developed tradition of, or system for, publication in readily 
searchable printed journals. The result has been that examiners 
in the computer and business method fields, and to a lesser 
extent in some other fields, have not been able to find all of 
the prior art that exists in these fields.
    The bill amends 35 U.S.C. Sec. 122(e) to allow third 
parties to submit prior art that may be known to the public, 
but not readily available to the examiner, before the 
determination of patentability is made. Under existing law, 
third parties are allowed to submit information related to a 
published application within 2 months of publication of the 
application or prior to the mailing of a notice of allowance, 
whichever is earlier, but the submission cannot include any 
explanation of the references submitted or any other 
explanation. These and other limiting conditions are set in 37 
CFR Sec. 1.99, and are designed to comply with Sec. 122(c) by 
ensuring that the submissions not amount to a protest or pre-
issuance opposition by a third party. By leaving Sec. 122(c) 
intact, but amending Sec. 122(e) to include broader 
circumstances under which third parties may submit prior art in 
a published application, the Committee intends to increase the 
opportunities for the examiner to have the best prior art 
available during examination of an application. The submission 
must, however, include an explanation of the relevance of the 
prior art to the application being examined. Nor does the 
Committee intend this change to allow for additional third 
party input that would amount to a protest or pre-issuance 
opposition. To meet these ends, and to limit the possibility 
that the process be used to interfere with the progress of 
examination, the time period for submissions by third parties 
is extended to either 6 months after the date of publication, 
or the date of the first rejection of one or more claims in the 
published application, whichever occurs later, unless a notice 
of allowance is mailed earlier than either of those times. Once 
6 months have elapsed from time of publication, or the examiner 
has made a substantive determination related to the 
patentability of the claims, additional third party submissions 
will not be accepted for consideration. In order to assist the 
examiner in focusing on the relevant information in any 
submitted patent or publication, the submitter must explain how 
the reference pertains to the invention claimed in the 
published application. Besides focusing the examiner, the 
requirement for an explanation of each reference will reduce 
the likelihood that a third party will submit large numbers of 
irrelevant or cumulative references. Through these provisions, 
examiners should obtain the benefit of patents and publications 
they may not otherwise see, without significant additional 
burden.

                              TAX PATENTS

    Under current law, patents on tax strategies may be granted 
provided they meet the general requirements of patentability. 
Tax strategy patents negatively impact a broad range of issues, 
and the legislation would accordingly deem them unpatentable 
subject matter.
    Tax strategy patents are considered a subclass of business 
method patents. The USPTO website shows that 60 patents had 
been issued in that subclass as of July 31, 2007, along with at 
least 89 more applications pending. These patents have involved 
many aspects of the tax law, including financial products, 
charitable giving, estate planning, and tax-deferred exchanges. 
Patenting tax strategies also raises the question of patent 
quality, insofar as the relevant prior art may be difficult to 
find.
    The Committee has a number of concerns regarding tax 
strategy patents. As an initial matter, they conflict with the 
primary purpose of our tax laws, to raise money for government 
programs and responsibilities and protect the public fisc. 
Many, perhaps most, tax strategy patents have as their 
fundamental objective the reduction of Federal tax liabilities. 
If the use of tax strategy patents proliferates, encouraged by 
the marketing advantages conferred by a patent's government-
granted monopoly and presumption of validity, many tax lawyers 
anticipate that there will be a corresponding reduction in 
Federal tax revenues. Granting a government monopoly in the 
form of a patent that undermines another key Federal function--
the collection of revenue--seems peculiar, if not 
contradictory, and raises fundamental questions about the 
appropriateness of such patents.
    Moreover, tax strategy patents remove from the public 
domain particular ways to satisfy a taxpayer's legal 
obligations. Those methods cannot be practiced by the taxpayer 
without permission of the patent holder. This will have adverse 
consequences for both the tax payers and tax advisers who may 
face patent infringement suits for using patented tax 
strategies. This undermines public confidence in law and 
uniformity in tax policies. It is also likely to increase 
public dissatisfaction with tax laws if compliance must be 
accompanied by patent searches and licensing.
    Finally, if patents become an important part of the tax 
landscape, the atmosphere could become more secretive and less 
cooperative. The tax system as a whole will suffer if, in order 
to protect their patentable intellectual property, tax 
professionals are no longer willing to discuss, evaluate, and 
criticize each other's insights regarding how to comply with 
the tax system.
    The Committee has considered whether removing tax 
strategies as patentable subject matter would violate the 
United States' obligations as a member of the World Trade 
Organization (WTO), specifically whether the Agreement on Trade 
Related Aspects of Intellectual Property Rights (TRIPs) allowed 
such exclusion.
    Article 27.1 of TRIPs requires that ``patents shall be 
available and patent rights enjoyable without discrimination as 
to the place of invention, the field of technology and whether 
products are imported or locally produced.'' This anti-
discrimination provision raises the question of whether tax 
strategies are a protected ``field of technology.'' Analysis of 
the patent laws of signatories to WTO at the time of 
ratification (1994), and the members' negotiating positions, 
confirms that business methods were not included as a ``field 
of technology,'' either in 1994 or subsequently.\37\
---------------------------------------------------------------------------
    \37\``Examples of items which do not meet [TRIPs patent] criteria 
are . . . methods of doing business, and algorithms and mathematical 
formulas per se, including those incorporated in computer programs.'' 
Suggestion by the United States for Achieving the Negotiating 
Objective, Oct. 17, 1988, at 4.
---------------------------------------------------------------------------
    The table of existing international standards prepared by 
the Secretariat for Uruguay Round negotiators does not show 
that any country had, prior to that time, provided patent 
protection for software or business methods.\38\ Other 
documents prepared for TRIPs negotiators showed that business 
method patents were often excluded, but never included.\39\ 
Indeed, many countries today still do not recognize business 
methods as patentable subject matter.\40\
---------------------------------------------------------------------------
    \38\Synoptic Tables Setting Out Existing International Standards 
And Proposed Standards And Principles, Revision, Sept. 29, 1989.
    \39\``Surely, TRIPs does not prescribe patentability of business 
methods. The generally perceived need for world wide patent law 
harmonisation should not lead to the conclusion that the European 
patent system must follow U.S. developments automatically.'' 
Directorate-General for Research of the European Parliament, The 
Patentability of Computer Programmes (2002) at 14.
    \40\For instance, under the European Patent Convention, business 
methods ``as such'' are unpatentable because they make no contribution 
to the technical arts.
---------------------------------------------------------------------------
    Further, TRIPs allows countries to make exceptions to 
patentable subject matter under certain circumstances. 
Specifically, article 27.3 allows members to exclude from 
patentability inventions that are necessary to protect ordre 
public or morality. As noted above, tax patents may be contrary 
to tax policy, and therefore offend public order. They also 
frustrate regulatory action aimed at diminishing economic 
incentives to exploit tax loopholes. Tax strategy patents can 
change and burden the practice of tax law. It will make 
compliance with U.S. law (the ability to engage in tax 
planning) subject to private regulation and licensing. In 
short, it would privatize public policy and law compliance. For 
these reasons, even if tax strategy patents were otherwise 
covered by TRIPs, they may be excluded under the ordre public 
exception.

                                 VENUE

    Since 1800, the United States district courts have had 
original and exclusive jurisdiction ``of any civil action 
arising under any Act of Congress relating to patents . . 
.''\41\ A special venue statute for patent infringement cases. 
28 U.S.C. Sec. 1400(b), was enacted as part of the 1948 
revision to the Judicial Code. It was designed to limit the 
available forums ``to those reasonably convenient to the 
defendant.''\42\ As such, venue is proper in the judicial 
district where the defendant resides, or where the defendant 
has committed acts of infringement and has a regular and 
established place of business.
---------------------------------------------------------------------------
    \41\28 U.S.C. Sec. 1338(a).
    \42\Bradford Novelty Co. v Manheim, 156 F Supp 489 (SD NY 1957).
---------------------------------------------------------------------------
    The Supreme Court held that Sec. 1400(b) was the exclusive 
provision for venue in patent infringement cases.\43\ The 
general and more expansive venue statute for Federal question 
cases, 28 U.S.C. Sec. 1391(b), could not be used in 
infringement cases, although it was still applicable to other 
cases involving patents; e.g., declaratory relief cases.\44\ 
However, Sec. 1391(c) was amended in 1988 to provide enlarged 
venue for corporate defendants. This change was the basis of 
the Federal Circuit's decision to holding that the amendments 
to Sec. 1391(c) also apply to venue under Sec. 1400(b).\45\ 
Accordingly, corporate defendants in infringement cases can be 
sued wherever personal jurisdiction attaches. That is 
determined by state long-arm statutes. Since these, typically, 
are broad, and include any place the defendant does business, 
Sec. 1391(c) invites plaintiffs to forum shop.
---------------------------------------------------------------------------
    \43\Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 
(1957).
    \44\Schnell v Peter Eckrich & Sons, Inc., 365 U.S. 260 (1961); 
United States Aluminum Corp. v. Kawneer Co., 694 F.2d 193, 195 (9th 
Cir. 1982).
    \45\VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1575 
(Fed. Cir. 1990).
---------------------------------------------------------------------------
    The amendments made by the Act to Sec. 1400 are designed to 
discourage the widespread use of forum shopping and to provide 
greater certainty in venue selection. The Committee believes 
that simply returning to the 1948 venue framework would be too 
strict for modern patterns of technology development and global 
commerce. Accordingly, venue requirements are relaxed by 
providing venue based on plaintiff's residence in many cases. 
In this way venue in patent cases should optimize convenience 
to all parties.

                         INTERLOCUTORY APPEALS

    Currently, interlocutory appeals are permitted in limited 
circumstances, which are specifically described in 28 U.S.C. 
Sec. 1292(a). The most common of these is the grant or refusal 
of a preliminary injunction. In addition to the specified 
interlocutory orders which are appealable as of right, a 
district court may certify other non-final orders for immediate 
appeal if the court is ``of the opinion that such order 
involves a controlling question of law as to which there is 
substantial ground for difference of opinion and that an 
immediate appeal from the order may materially advance the 
ultimate termination of the litigation.''\46\ In addition to 
the discretionary certification by the district court, the 
circuit court must also agree to hear the interlocutory 
appeal.\47\
---------------------------------------------------------------------------
    \46\28 U.S.C. Sec. 1292(b).
    \47\Id.; Fed. R. App. Pro. 5.
---------------------------------------------------------------------------
    The Federal Circuit's jurisdiction in infringement cases 
extends to the same type of interlocutory rulings as permitted 
by Sec. 1292(a) and (b).\48\ Respecting discretionary appeals, 
the Federal Circuit must also agree that interlocutory appeal 
is proper under Sec. 1292 (b).\49\
---------------------------------------------------------------------------
    \48\See 28 U.S.C. Sec. 1292(c).
    \49\See Voda v. Cordis Corp., 476 F.3d 887 (Fed. Cir. 2007).
---------------------------------------------------------------------------
    There is a small class of interlocutory orders that do not 
fit within either Sec. 1292(a) or (b), and yet are permitted. 
The so-called ``collateral order'' doctrine permits appeal of 
district court orders that (1) ``conclusively determine the 
disputed question,'' (2) ``resolve an important issue 
completely separate from the merits of the action,'' and (3) 
are ``effectively unreviewable on appeal from a final 
judgment.''\50\ This doctrine also applies to appeals in patent 
cases.\51\
---------------------------------------------------------------------------
    \50\Coopers & Lybrand v. Livesay, 437 U.S. 463, 468 (1978).
    \51\Intel Corp. v. Commonwealth Sci. & Indus. Research Org., 455 
F.3d 1364 (Fed. Cir. 2006).
---------------------------------------------------------------------------
    Finally, a district court can accelerate appeal by issuing 
a ``partial judgment.''\52\ Thus, if the causes of action in an 
infringement case are severable, the court can (and often does) 
issue partial summary judgment. The partial judgment is final 
and appealable under Sec. 1291.
---------------------------------------------------------------------------
    \52\Fed. R. Civ. Pro. 54(b) (``the court may direct the entry of a 
final judgment as to one or more but fewer than all of the claims or 
parties '').
---------------------------------------------------------------------------
    To review, the Court of Appeals for the Federal Circuit has 
jurisdiction over patent appeals from the district courts in 
five classes of cases:

        (1) LFinal decisions.

        (2) LInterlocutory appeals as of right.

        (3) LDiscretionary interlocutory appeals of controlling 
        questions of law.

        (4) LCollateral orders.\53\
---------------------------------------------------------------------------
    \53\Coopers & Lybrand, supra note 40.

---------------------------------------------------------------------------
        (5) Partial final judgment.

    Another type of interlocutory order, Markman hearings, is 
essentially claim construction rulings that do not neatly fit 
into the narrow categories of immediately appealable 
interlocutory orders. Although often they are dispositive on 
the meaning or validity of a patent, they cannot ordinarily be 
appealed until after trial and judgment. They are not a final 
judgment, nor a ``collateral order,'' nor an interlocutory 
order appealable as of right. The only route for immediate 
appeal is by district court certification under Sec. 1292(b). 
Yet, even where that has occurred, the Federal Circuit has 
declined all such certified questions. Their reason is because 
of ``the difficulties that could flow from premature claim 
interpretation.''\54\
---------------------------------------------------------------------------
    \54\Cybor Corp. v. Fas Techs., 138 F.3d 1448, 1479 (Fed. Cir. 
1998). See also Lava Trading, Inc. v. Sonic Trading Mgmt., LLC, 445 
F.3d 1348, 1350 (Fed. Cir. 2006) (``[w]ithout the vital contextual 
knowledge of the accused products or processes, [an interlocutory] 
appeal takes on the attributes of something akin to an advisory opinion 
on the scope of the . . . patent '').
---------------------------------------------------------------------------
    While the Federal Circuit refuses to hear appeals of just 
Markman rulings, statistics show that they reverse around 50% 
of all Markman rulings do eventually hear when the district 
court ruling is appealed.\55\ The large number of appeals--and 
reversals--significantly increases the time and money it takes 
to resolve infringement suits. As such, the administration of 
justice could be promoted and final resolution of many patent 
disputes could be accelerated if appeals to Markman rulings 
were held prior to the district courts decision on the merits 
of the infringement action. Accordingly, 28 U.S.C. Sec. 1292(c) 
is amended to permit such appeals, at the discretion of the 
district court, since they are in the best position to 
determine whether the scope of patent claims is integral or 
dispositive to the ultimate decision in each case. While such 
interlocutory appeals can occur under the existing statute, it 
is vehicle that will never be used if left up to the Federal 
Circuit. By inserting a special provision in the jurisdictional 
statutes relating to interlocutory patent appeals, it is the 
Committee's intent that this mechanism be more widely 
considered by district courts.
---------------------------------------------------------------------------
    \55\Paul M. Schoenhard, Reversing the Reversal Rate: Using Real 
Property Principles to Guide Federal Circuit Patent Jurisprudence, 17 
Fordham Intell. Prop. Media & Ent. L.J. 299, 302-303 (2007)
---------------------------------------------------------------------------

                         APPLICANT DISCLOSURES

    The determination to grant or not grant a patent is an ex 
parte, non-adversarial procedure where the person who wishes to 
obtain a patent provides information in support of 
patentability and a patent examiner evaluates that information 
in the context of what is known in the relevant art. The 
examiner is expected to be knowledgeable in the technology and 
proficient at searching and evaluating the prior art, and is to 
use his knowledge and resources to determine whether a patent 
should be granted for each application he reviews. However, an 
examiner does not know everything about a particular field, nor 
could he have access to or know where to find all information 
about a particular field.
    On the other hand, patent applicants have a better 
perspective and often the best perspective on what prior art is 
relevant to their invention and more importantly, why it is 
relevant. However, under current law, applicants are only 
required to disclose prior art relevant to their invention of 
which they are aware. This has had two affects, both of which 
have impacted the ability of examiners to thoroughly examine 
applications.
    First, since the current disclosure requirement only 
requires disclosure of prior art that the applicant is aware 
of, many applicants choose not to perform prior art searches. 
This increases the burden upon examiners because they have very 
little information in an application, besides the patent, to 
use in their review. This means examiners must take more time 
than they would have otherwise to search and review the 
relevant prior art. Second, for applicants that do review the 
prior art, in order to fulfill their disclosure requirement and 
avoid a later charge of inequitable conduct, they send the 
office all the prior art references they know of, including 
those that are only vaguely relevant. This creates another 
substantial burden on examiners, as they have to sift through 
voluminous application files.
    To address these two problems with the current system, the 
legislation grants the Director authority to require by rule 
that applicants perform prior art searches and submit to the 
USPTO search reports with their applications. Additionally, the 
Director may also promulgate rules requiring applicants to 
analyze the prior art provided in the search report.

                          INEQUITABLE CONDUCT

    Inequitable conduct has been established by the courts as a 
defense to patent infringement. The primary purpose of this 
defense is to foreclose enforcement of a patent that was 
secured through acts of fraud or other dishonest practice. A 
fraudulently procured patent has long been treated as 
invalid.\56\
---------------------------------------------------------------------------
    \56\United States v. American Bell Tel. Co., 128 U.S. 315 (1888).
---------------------------------------------------------------------------
    Generally, to prove inequitable conduct, it must be shown 
that the patent holder withheld or misstated material 
information with the intent to deceive the USPTO. But because 
this remedy was established by the courts, a number of 
interpretations of the requisite level of materiality and 
intent have been generated, leading to uncertainty in how the 
defense will be applied. For instance, in a recently decided 
Federal Circuit opinion on inequitable conduct, it was found 
that no less than four separate standards for materiality may 
be used in deciding inequitable conduct.\57\ Furthermore, 
courts have bound materiality and intent together, holding that 
a strong showing of one element will be sufficient to overcome 
a weak showing of the other.\58\ This has given courts the 
opportunity to infer intent solely from the materiality of 
information misstated or withheld.
---------------------------------------------------------------------------
    \57\Digital Control v. Merlin Technology, 437 F.3d 1309, 1314-1315 
(Fed. Cir. 2006).
    \58\Id. at 1313; Union Pac. Res. Co. v. Chesapeake Energy Corp., 
236 F.3d 684, 693 (Fed. Cir. 2001); FMC Corp. v. Manitowoc Co. Inc., 
835 F.2d 1411, 1413 (Fed. Cir. 1987).
---------------------------------------------------------------------------
    As applied by the courts, the penalty for engaging in 
inequitable conduct is to render the patent unenforceable, and 
sometimes related patents as well, even if all of the patent's 
claims are otherwise valid. The severity of the penalty 
provides strong motivation for the accused infringer to plead 
inequitable conduct as a defense. However, it has also led to 
over use of the defense, prompting many users of the patent 
system to argue that it is often pled but rarely found.\59\ 
Once plead, it adds significantly to the complexity and expense 
of the trial because it opens avenues to extensive discovery. 
Because it depends on a subjective finding of intent on the 
part of the applicant, it injects a great deal of uncertainty 
into the trial. The possibility of the patent being held 
unenforceable also impacts potential settlement discussions. 
The mere pleading of inequitable conduct places a significant 
burden on the patent owner and has little or no adverse impact 
on the accused infringer. However, it is extremely important to 
maintain an adequate deterrence to applicant lying to the 
USPTO.
---------------------------------------------------------------------------
    \59\John F. Lynch, An Argument for Eliminating the Defense of 
Patent Unenforceability Based on Inequitable Conduct, 16 Am. Intell. 
Prop. Law Asso. Q. J. (1988); Burlington Indus., Inc. v. Dayco Corp., 
849 F.2d 1418 (Fed. Cir. 1988) (``the habit of charging inequitable 
conduct in almost every major patent case has become an absolute 
plague.'').
---------------------------------------------------------------------------
    In order to provide an increased level of certainty to the 
defense, inequitable conduct is codified. This codification 
includes procedural requirements, substantive standards and 
remedies for inequitable conduct.

                               BEST MODE

    Under current law, the first paragraph of 35 U.S.C. 
Sec. 112 requires applicants for a patent to disclose three 
things: (1) a written description of the invention, (2) a 
written description of the manner of making and using the 
invention, sufficient to enable one skilled in the art to make 
and use it, and (3) the best mode contemplated by the inventor 
of carrying out his invention.
    The best mode requirement is unique to American patent law. 
While other patent laws and international agreements (i.e., 
TRIPs) typically impose an enablement requirement, the 
additional requirement of best mode is not required. The public 
policy behind Sec. 112 goes to the heart of the reason that 
patents exist in the United States to advance technology (the 
useful arts) by rewarding inventors for teaching the public how 
to make and use their inventions in the best, most effective 
way of which they are aware. Its inclusion in American law is 
intended to preclude a patentee from maintaining a competitive 
advantage after patent expiration. While the patent must teach 
others how to practice the invention, if the patentee can 
withhold superior modes of practice, he effectively retains a 
trade secret at the same time as receiving patent protection. 
This breaks faith with the fundamental bargain of patent law.
    Determining whether an application complies with the best 
mode requirement involves two factual inquiries. First, it must 
be determined whether or not the inventor knew of or had in 
mind a best mode of practicing the invention. This 
determination is subjective and temporal, in that it requires 
assessing what was in the mind of the inventor at the time the 
application was filed. Second, if it can be determined that the 
inventor did contemplate a best mode for the invention, the 
application disclosure must be analyzed to determine whether 
that best mode was disclosed in sufficient detail to enable one 
skilled in the art to practice the best mode. Failure to 
disclose a known best mode of carrying out the invention, 
whether intentional or accidental, could result in denial of a 
patent on the claimed invention or a holding of invalidity of 
an issued claim.\60\
---------------------------------------------------------------------------
    \60\Manual of Patent Examining Procedure, Chapter 2100, 
Sec. Sec. 2161.01 and 2162.
---------------------------------------------------------------------------
    In recent years, the wisdom of requiring disclosure of best 
mode has been questioned on three grounds. The first is that 
the subjective nature of whether the inventor contemplated a 
best mode, and what that was, requires what may be extensive 
pre-trial discovery to obtain the evidence necessary for a 
clear and convincing showing, if such evidence exists. As with 
other defenses based on subjective findings (e.g., inequitable 
conduct), the defense based on best mode significantly 
increases the expense and complexity of litigation. Moreover, 
since the defense applies only to particular claims in which 
the best mode was known at the time but was not disclosed, it 
must be litigated on a claim-by-claim basis.\61\
---------------------------------------------------------------------------
    \61\See Amgen, Inc. v. Chugai Pharmaceutical Co., Ltd., 927 F.2d 
1200, 1205 n.5 (Fed. Cir. 1991).
---------------------------------------------------------------------------
    The second ground is that best mode applies only to what 
the inventor knew at the time of filing, not modes of practice 
that may be created or refined thereafter. Accordingly, by the 
time of patent litigation, the best mode may already be 
obsolete.
    The third objection to best mode is the expense it adds to 
international filings. Foreign patent applicants wishing to 
protect their inventions in the United States must amend or 
prepare their applications to meet a requirement that is 
unnecessary anywhere else.
    The Committee has acknowledged the desire to address the 
difficulty of litigating extremely subjective elements such as 
best mode.\62\ Therefore, the Committee opted to make failure 
to meet the best mode requirement unavailable as a defense to 
infringement by amending 35 U.S.C. Sec. 282. Failure to include 
best mode in the written description is still grounds for 
rejecting an application, or for opposition under any of the 
post-grant procedures specified in the Act (particularly inter 
partes reexamination or post-grant review). However, the 
requirement to disclose the best mode is retained. By retaining 
the requirement so that applicants provide a full disclosure of 
the invention, which can later be used by the public. By 
removing best mode as a defense to infringement, the bill 
eliminates the incentive to engage in speculative analysis.
---------------------------------------------------------------------------
    \62\NRC, supra note 3, at 54.
---------------------------------------------------------------------------

                          REGULATORY AUTHORITY

    The primary grant of USPTO rulemaking authority is found in 
35 U.S.C. 2(b)(2)(A), which gives the USPTO authority to 
``establish regulations, not inconsistent with law, which shall 
govern the conduct of proceedings in the Office.'' Under this 
authority, the USPTO has promulgated numerous regulations 
related to the processing and granting of patents. A recent 
example of this rulemaking authority are the rules on 
continuation applications recently promulgated.\63\ The reason 
behind this change, as cited by the USPTO, is that continuation 
applications make up a large portion of total applications and 
as such which contributes partially to the USPTO's application 
backlog.\64\ The extent of this authority, however, has been 
questioned, bringing into doubt whether the USPTO may place 
limitations on continuations or require applicants to provide 
documentation to support their applications.
---------------------------------------------------------------------------
    \63\The USPTO's new rules related to continuations allows patent 
applicants to file two continuation applications and one Request for 
Continued Examination (RCE) without restriction, but any further 
continuations or RCEs would be allowed only if they are filed to obtain 
consideration of an amendment, argument or evidence that could not have 
been submitted during the prosecution of the prior-filed application. 
Changes to Practice for Continuing Applications, Patent Applications 
Containing Patentably Indistinct Claims, and Examination of Claims in 
Patent Applications; Final Rule, 72 Fed. Reg. 46716 (Aug. 21, 2007).
    \64\Changes to Practice for Continuing Applications, Requests for 
Continued Examination Practice, and Applications Containing 
Patentability Indistinct Claims, 71 Fed. Reg. 48, 49-50 (Jan. 3, 2006).
---------------------------------------------------------------------------
    Typically, courts will give deference to the rules 
promulgated by an agency if an Act which charges the agency 
with responsibility doesn't speak to the issue that the rule 
pertains to. However, if direction on the issue can be found in 
the statute, any agency rules that conflict with the statute 
must be struck down. This is what was done in 1968 to rules 
established by the USPTO's Board of Patent Appeals and 
Interferences (BPAI) that limited continuations.
    The BPAI had construed a limit on the number of 
continuations an applicant can file based on a literal reading 
of 35 USC Sec. 120 that would suggest only one or two 
continuations could ever be filed. However, in In re Hernicksen 
the Court of Claims and Patent Appeals (CCPA) held that the 
BPAI's decision was flawed.\65\ The CCPA found that the statute 
placed no restrictions on the number of continuations an 
applicant may obtain, and that the BPAI's interpretation of the 
continuations provisions was inconsistent with Sec. 120. Many 
have since suggested that In re Herniksen established that any 
``mechanical rules'' that limit the number of continuations, 
even if passed through normal rulemaking procedures, would be 
in violation of Sec. 120 of the patent statute, despite later 
precedent in In re Bogese II suggesting that the USPTO may 
limit continuations when ``dilatory tactics'' are used in the 
prosecution of applications.\66\
---------------------------------------------------------------------------
    \65\In re Henriksen, 399 F.2d 253 (CCPA, 1968).
    \66\In re Bogese II, 303 F.3d 1362 (Fed. Cir., 2002).
---------------------------------------------------------------------------
    To resolve the ambiguity in the USPTO's rulemaking 
authority, the Committee does not intend to alter it, but only 
clarify and reiterate that the USPTO has always had authority 
to promulgate rules that place limitations or conditions on 
patent applications, including continuation applications, that 
do not directly contradict any such limitations or conditions 
expressly stated in statute. Where Congress has seen fit to 
provide specific limitations or conditions in statute, the 
USPTO may not surpass or take away these limitations or 
conditions by promulgated rule. But where Congress has remained 
silent and no express limitations or conditions are stated in 
statute, the USPTO may make rules that promote the quality and 
timeliness of patent applications which impose limitations or 
conditions, provided such rules are reasonable and do not 
eviscerate the rights and privileges that Congress intended to 
give patent applicants.

                                Hearings

    The Judiciary Committee's Subcommittee on Courts, the 
Internet and Intellectual Property held a day of hearings on 
H.R. 1908 on Thursday, April 26, 2007. Testimony was received 
from Gary L. Griswold, President and Chief Counsel of 
Intellectual Property, 3M Innovative Properties, St. Paul, 
Minnesota; Anthony Peterman, Director, Patent Counsel, Dell 
Incorporated, Round Rock, Texas; Kevin Sharer, Chairman of the 
Board and Chief Executive Officer, Amgen Incorporated, Thousand 
Oaks, California; John R. Thomas, Professor of Law, Georgetown 
University Law Center, Washington, D.C.; William T. Tucker, 
Executive Director, Research and Administration and Technology 
Transfer, University of California, Oakland, California.
    In addition to this hearing, the testimony collected at 
numerous hearings over the past several years has also greatly 
informed the reforms to the patent system called for in H.R. 
1908. These hearings include:

         LClosed door meeting for Member and staff of 
        the Subcommittee briefing on ``Patent Reform,'' held on 
        May 9, 2007. Participants included Pat Choate, 
        Political Economist and Author of Hot Property: The 
        Stealing of Ideas in an Age of Globalization; Gary L. 
        Griswold, President and Chief Counsel of Intellectual 
        Property, 3M Innovative Properties, St. Paul, 
        Minnesota; Bryan Lord, CEO, Amber Waves; Moshe Malina, 
        Director, Associate General Counsel and Chief Patent 
        Counsel for Citigroup, representing the Financial 
        Services Roundtable; Emery Simon, Counsel, The Business 
        Software Alliance (BSA); John R. Thomas, Professor of 
        Law, Georgetown University Law Center, Washington, D.C.

         LOversight Hearing by the Subcommittee on 
        ``American Innovation at Risk: The Case for Patent 
        Reform,'' held on Thursday, February 15, 2007. 
        Testimony was received from Adam B. Jaffe, Professor of 
        Economics and Dean of Arts and Sciences, Brandeis 
        University Whaltham, Massachusetts; Suzanne Michel, 
        Chief Intellectual Property Counsel and the Deputy 
        Assistant Director for Policy Coordination, Federal 
        Trade Commission, Washington, D.C.; Mark Myers, Co-
        Chair of the National Academy of Sciences Report Patent 
        System for 21st Century, Unionville, Pennsylvania; 
        Daniel B. Ravicher, Executive Director, Public Patent 
        Foundation, New York, New York.

         LOversight Hearing by the Subcommittee on 
        ``Patent Trolls: Fact or Fiction?'' held on Thurday, 
        June 15, 2006. Testimony was received from Ed Reines 
        Esq., Weil, Gotshal & Manges, LLP; Dean Kamen 
        President, DEKA Research & Development Corporation, 
        Paul Misener, Vice President for Global Policy, 
        Amazon.com; Chuck Fish, Vice President & Chief Patent 
        Counsel, Time Warner, Inc.

         LOversight Hearing by the Subcommittee on 
        ``Patent Harmonization,'' held on Thursday, April 27, 
        2006. Testimony was received from Q. Todd Dickinson, 
        Vice President and Chief Intellectual Property Counsel, 
        General Electric Company; Robert A. Armitage, Senior 
        Vice President and General Counsel, Eli Lilly and 
        Company; Gary Mueller, President and Chief Executive 
        Officer, Digital Now, Inc.; Pat Choate, Political 
        Economist and Author of Hot Property: The Stealing of 
        Ideas in an Age of Globalization.

         LOversight Hearing by the Subcommittee on 
        ``Patent Quality Enhancement in the Information-Based 
        Economy,'' held on Wednesday, April 5, 2006. Testimony 
        was received from the Honorable Jon W. Dudas, Under 
        Secretary of Commerce for Intellectual Property & 
        Director of the U.S. Patent and Trademark Office; James 
        Balsillie, Chairman and Co-Chief Executive Officer, 
        Research in Motion; Robert A. Stewart, Director and 
        Chief Patent Counsel of Americas, UBS AG; Mark A. 
        Lemley, William H. Neukom Professor of Law, Stanford 
        Law School.

         LOversight Hearing by the Subcommittee on 
        ``Improving Federal Court Adjudication of Patent 
        Cases,'' held on October 6, 2005. Testimony was 
        received from Kimberly A. Moore, Professor of Law, 
        George Mason University School of Law; John B. Pegram, 
        Senior Counsel, New York Office of Fish & Richardson, 
        P.C.; Chris J. Katopis, Counsel, Drinker Biddle & 
        Reath, LLP; the Honorable T. S. Ellis, III, United 
        States District Judge, Eastern District of Virginia.

         LLegislative Hearing by the Subcommittee on 
        ``The Amendment in the Nature of a Substitute to H.R. 
        2795, the Patent Act of 2005,'' held on Thursday, 
        September 15, 2005. Testimony was received from Emery 
        Simon, Counsel, The Business Software Alliance (BSA); 
        Philip S. Johnson Chief Patent Counsel, Johnson & 
        Johnson on behalf of the Pharmaceutical Research and 
        Manufacturers of America (PhRMA); Robert B. Chess, 
        Chairman, Nektar Therapeutics on behalf of the 
        Biotechnology Industry Organization (BIO); John R. 
        Thomas, Professor, Georgetown University Law Center.

         LOversight Hearing by the Subcommittee on 
        ``Review of U.S. Patent and Trademark Office 
        Operations, Including Analysis of General Accounting 
        Office, Inspector General, and National Academy of 
        Public Administration Reports,'' held on September 8, 
        2005. Testimony was received from the Honorable Jon W. 
        Dudas, Under Secretary of Commerce for Intellectual 
        Property & Director of the U.S. Patent and Trademark 
        Office (USPTO); Anu K. Mittal, Director, Science and 
        Technology Issues, U.S. General Accounting Office 
        (GAO); Ronald J. Stern President, Patent Office 
        Professional Association (POPA); Charles Van Horn, 
        Finnegan, Henderson, Farabow, Garrett, and Dunner, LLP.

         LLegislative Hearing by the Subcommittee on 
        H.R. 2795, the ``Patent Act of 2005,'' held on 
        Thursday, June 9, 2005. Testimony was received from 
        Gary L. Griswold, President and Chief Intellectual 
        Property Counsel, 3M Innovative Properties Company on 
        behalf of the American Intellectual Property Law 
        Association (AIPLA); Carl Gulbrandsen, Managing 
        Director, Wisconsin Alumni Research Foundation (WARF); 
        Josh Lerner, Professor, Harvard Business School; Daniel 
        B. Ravicher, Executive Director, Public Patent 
        Foundation (PUBPAT).

         LOversight Hearing by the Subcommittee on the 
        ``Committee Print Regarding Patent Quality 
        Improvement--Part II,'' held on Thursday, April 28, 
        2005. Testimony was received from the Honorable Jon W. 
        Dudas, Under Secretary of Commerce for Intellectual 
        Property & Director of the USPTO; Richard Levin, 
        President, Yale University; Dr. Nathan P. Myhrvold, 
        Chief Executive Officer, Intellectual Ventures; Darin 
        E. Bartholomew, Senior Attorney, Patent Department, 
        John Deere and Company on behalf of the Financial 
        Services Roundtable.

         LOversight Hearing by the Subcommittee on the 
        ``Committee Print Regarding Patent Quality 
        Improvement--Part I,'' Wednesday, April 20, 2005. 
        Testimony was received from J. Jeffrey Hawley, Legal 
        Division Vice President and Director, Patent Legal 
        Staff, Eastman Kodak Company on behalf of Intellectual 
        Property Owners Association (IPO); Richard J. Lutton 
        Jr., Chief Patent Counsel, Apple on behalf of the 
        Business Software Alliance; Jeffrey P. Kusham Esq.; 
        Sidley Austin Brown and Wood, LLP, on behalf of 
        Genetech; William L. LaFuze, Chair, Section of 
        Intellectual Property Law, American Bar Association on 
        behalf of the American Bar Association and the ABA 
        Section of Intellectual Property Law.

         LOversight Hearing by the Subcommittee on 
        ``Patent Quality Improvement: Post-Grant Opposition,'' 
        held on Thursday, June 24, 2004. Testimony was received 
        from Michael K. Kirk, Executive Director, American 
        Intellectual Property Law Association (AIPLA); Jeffrey 
        P. Kushan Esq., Sidley Austin Brown & Wood on behalf of 
        Genentech; Karl Sun, Senior Patent Counsel, Google 
        Inc.; James A. Toupin, General Counsel, USPTO.

         LOversight Hearing by the Subcommittee on 
        ``Patent Quality Improvement,'' held on Thursday, July 
        24, 2003. Testimony was received from, Mark Kesslen, 
        Managing Director and Associate General Counsel, J.P. 
        Morgan Chase & Company on behalf of the Financial 
        Services Roundtable and BITS; David M. Simon, Chief 
        Patent Counsel, Intel Corporation; John R. Thomas, 
        Professor of Law, Georgetown University; Mr. Charles E. 
        Van Horn, Partner, Finnegan, Henderson, Farabow, 
        Garrett & Dunner, on behalf of the American 
        Intellectual Property Law Association (AIPLA).

         LOversight Hearing by the Subcommittee on 
        ``The U.S. Patent and Trademark Office: Fee Schedule 
        Adjustment and Agency Reform,'' held on July 18, 2002. 
        Testimony was received from Charles P. Baker, Chair, 
        Intellectual Property Law Section, American Bar 
        Association; Michael K. Kirk, Executive Director, 
        American Intellectual Property Law Association (AIPLA), 
        Kathryn Barrett Park, Executive Vice President, 
        International Trademark Association (INTA); the 
        Honorable James Rogan, Undersecretary of Commerce for 
        Intellectual Property and Director of the U.S. Patent 
        and Trademark Office.

         LOversight Hearing by the Subcommittee on 
        ``Patent Reexamination and Small Business 
        Innovations,'' held on Thursday, June 20, 2002. 
        Testimony was received by Paul Heckel, Independent 
        Inventor; Dr. Nancy Linck, Senior Vice President, 
        General Counsel & Secretary, Guilford Pharmaceuticals, 
        Inc.; Peter Theis, President, Theis Research, Inc.; Mr. 
        Mark H. Webbink, Senior Vice President & General 
        Counsel, Red Hat, Inc.

         LOversight Hearing by the Subcommittee on 
        ``The U.S. Patent and Trademark Office: Operations and 
        Fiscal Year 2003 Budget,'' held on April 11, 2002. 
        Testimony was received by the Honorable James Rogan, 
        Undersecretary of Commerce for Intellectual Property 
        and Director of the U.S. Patent and Trademark Office, 
        Michael K. Kirk, Executive Director, American 
        Intellectual Property Law Association; John K. 
        Williamson, President, Intellectual Property Owners; 
        Colleen Kelley, National President, National Treasury 
        Employees Union.

         LOversight Hearing by the Subcommittee on 
        ``Patents Improving Quality and Curing Defect,'' held 
        on Thursday, May 10, 2001. Testimony was received by 
        James F. Cottone, President, National Intellectual 
        Property Researchers Association; Michael K. Kirk, 
        Executive Director, American Intellectual Property Law 
        Association (AIPLA); Jeffrey P. Kushan, Esq., Powell, 
        Goldstein, Frazer and Murphy, LLP; David E. Martin, 
        Chief Executive Officer, M.CAM.

         LOversight Hearing by the Subcommittee on 
        ``Business Method Patents,'' held on April 4, 2001. 
        Testimony was received by the Honorable Nicholas 
        Godici; Acting Undersecretary of Commerce for 
        Intellectual Property and Acting Director of the U.S. 
        Patent and Trademark Office; Michael K. Kirk, Executive 
        Director, American Intellectual Property Law 
        Association (AIPLA); Ronald E. Myrick, Chief 
        Intellectual Property Counsel, General Electric on 
        behalf of Intellectual Property Owners Association; 
        Andrew B. Steinberg, Executive Vice President, 
        Administration General Counsel and Corporate Secretary, 
        Travelocity.

    As evidenced by the number of hearings, the Committee has 
been mindful that patent reform is a complex and very important 
policy objective, and has proceeded in a deliberative fashion, 
soliciting at every stage the input and advice of all users of 
the patent system. As the legislation proceeds through the 
legislative process the Committee intends to remain receptive 
to input from all concerned, so as to arrive at a balanced 
final bill that benefits from the fullest consideration of all 
points of view..

                        Committee Consideration

    On May 16, 2007, the Subcommittee on Courts, the Internet 
and Intellectual Property met in open session and ordered the 
bill H.R. 1908 favorably reported, by voice vote, a quorum 
being present. On July 18, 2007, the Committee met in open 
session and ordered the bill H.R. 1908 favorably reported, as 
amended, by voice vote, a quorum being present.

                            Committee Votes

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that there 
were no recorded votes during the Committee's consideration of 
H.R. 1908.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee advises 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.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of rule XIII of the Rules of the House of 
Representatives 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. xxxx, 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, September 4, 2007.
Hon. John Conyers, 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. 1908, the Patent 
Reform Act of 2007.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact for health-
related questions is Julia Christensen, who can be reached at 
226-9010. For other questions, the staff contact is Susan 
Willie, who can be reached at 226-2860.
            Sincerely,
                                           Peter R. Orszag,
                                                  Director.

Enclosure

cc:
        Honorable Lamar S. Smith.
        Ranking Member
H.R. 1908--Patent Reform Act of 2007.

                                SUMMARY

    H.R. 1908 would amend various provisions of current law 
that regulate how the Patent and Trademark Office (PTO) awards 
patents. The bill would alter the rule that prioritizes the 
award of a patent from the ``first to invent'' to the ``first 
inventor to file.'' As a result, PTO would change certain 
procedures followed in awarding patents and procedures that 
allow individuals to challenge the validity of patents that 
have been awarded. The bill would authorize PTO to collect 
certain fees to offset most of the costs associated with these 
new procedures. Several provisions of H.R. 1908 would alter 
intellectual property protections associated with brand name 
drugs and could affect when competing versions of generic drugs 
ultimately enter the market. Other provisions would require PTO 
to prepare several reports for the Congress on the 
effectiveness of the changes to the patent process that would 
be made by H.R. 1908.
    Subject to appropriation of the necessary amounts, CBO 
estimates that implementing the bill would have a net 
discretionary cost of $3 million in 2008 and $11 million over 
the 2008-2012 period. Enacting H.R. 1908 could affect direct 
spending and revenues, but CBO estimates that any such changes 
would be negligible over the 2008-2017 period.
    H.R. 1908 would impose intergovernmental and private-sector 
mandates, as defined in the Unfunded Mandates Reform Act 
(UMRA), on certain patent applicants. Based on information from 
PTO, CBO estimates that the cost of complying with the mandates 
would exceed the annual threshold for private-sector mandates 
established in UMRA ($131 million in 2007, adjusted annually 
for inflation) in each of the first 5 years the mandate is in 
effect. CBO estimates that the costs to state and local 
governments of complying with the mandates would not exceed the 
annual threshold for intergovernmental mandates established in 
UMRA ($66 million in 2007, adjusted annually for inflation).

                ESTIMATED COST TO THE FEDERAL GOVERNMENT

    The estimated budgetary impact of H.R. 1908 is shown in the 
following table. The costs of this legislation fall within 
budget function 370 (commerce and housing credit).

                 By Fiscal Year, in Millions of Dollars
------------------------------------------------------------------------
                                        2008   2009   2010   2011   2012
------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Inter Partes Reexaminations
  Estimated Authorization Level            4     17     28     44     57
  Estimated Outlays                        4     15     26     41     54

Post-grant Reviews
  Estimated Authorization Level            1      4     10      5      2
  Estimated Outlays                        1      4      9      5      2

Offsetting Collections
  Estimated Authorization Level           -2    -29    -35    -40    -44
  Estimated Outlays                       -2    -29    -35    -40    -44

Net Changes
  Estimated Authorization Level            3     -8      3      9     15
  Estimated Outlays                        3    -10      0      6     12
------------------------------------------------------------------------

                           BASIS OF ESTIMATE

    For this estimate, CBO assumes the bill will be enacted 
near the start of fiscal year 2008.
Spending Subject to Appropriation
    H.R. 1908 would create a new procedure to challenge the 
validity of a patent and would authorize PTO to collect fees to 
offset its costs for this activity. Further, PTO expects that 
the volume of requests for certain other patent review 
processes would increase as a result of implementing the bill. 
Under current law, PTO is authorized to collect fees for these 
activities. The collection and spending of those fees are 
subject to provisions in annual appropriations acts, and the 
fees are recorded in the budget as offsets to the discretionary 
spending of PTO. For 2007, the PTO received a gross 
appropriation of $1,771 million, and CBO estimates that amount 
will be offset by $1,799 million in fee collections. Assuming 
appropriation of the necessary amounts, CBO estimates that 
implementing H.R. 1908 would increase the PTO's net outlays by 
$3 million in 2008 and $11 million over the 2008-2012 period.
    Inter Partes Reexaminations. Under current law, an 
individual may question the validity of an awarded patent 
through an inter partes reexamination, which allows both the 
challenger and the patent-holder to participate in the 
proceedings by submitting arguments and filing appeals.
    Inter partes challenges may be raised at any time after a 
patent has been awarded. Because of certain limitations in the 
process, however, very few challenges have been raised. The 
bill would relax these limitations and increase the number of 
patents that could be challenged. Further, the bill would 
require the inter partes proceedings to be conducted by an 
administrative patent judge; under current law, these 
proceedings are conducted by a patent examiner.
    With fewer limitations on future challenges and a larger 
universe of patents open to challenge, CBO expects that the 
number of inter partes proceedings would increase under the 
bill. Based on information from PTO, CBO expects at least 100 
additional employees would be necessary to handle that increase 
in patent challenges. We estimate that implementing the changes 
to the inter partes reexamination procedures would cost about 
$4 million in 2008 to begin hiring and training additional 
staff, and $140 million over the 2008-2012 period. PTO is 
authorized to collect fees that would offset most of the costs 
of conducting those examinations.
    Post-grant Opposition Procedures. H.R. 1908 would authorize 
PTO to initiate a new procedure, at the request of third 
parties, to review the validity of patents already awarded. 
This opportunity for a post-grant review generally would be 
available within 12 months of the date the patent was issued, 
and would take place in a court-like proceeding where both 
parties would be involved in developing and presenting 
information regarding the validity of an awarded patent. The 
bill also would authorize PTO to collect a fee to offset the 
cost of this new process.
    Based on information from PTO, CBO expects that around 300 
requests for post-grant reviews would be made each year once 
regulations defining the process are complete. CBO estimates 
that implementing this new process would cost $1 million in 
2008 and $21 million over the 2008-2012 period, which would be 
offset by fee collections starting in 2009. The cost would be 
higher in the early years because we expect that the agency 
would incur expenses to set up the system before cases would be 
presented for review.
    Offsetting Collections. H.R. 1908 would authorize PTO to 
collect fees to offset the cost of post-grant reviews. In 
addition, PTO is authorized to collect fees under current law 
for inter partes reexaminations. Fees for inter partes reviews 
are set in current law, and PTO cannot increase the fees beyond 
an annual adjustment for inflation. CBO expects that fees for 
inter partes reexaminations would largely but not completely 
offset the cost of those reviews. Based on information from 
PTO, CBO expects that most fee collections would begin in 2009 
after regulations to implement the legislation are completed. 
CBO estimates that fee collections would total $2 million in 
2008 and $150 million over the 2008-2012 period.
Direct Spending
    Several provisions of H.R. 1908 would alter intellectual 
property protections associated with brand name drugs and could 
affect when competing versions of generic drugs ultimately 
enter the market. Changing when lower-priced generic drugs 
would be available to purchasers would affect spending by 
Federal health programs that purchase drugs or provide health 
insurance that covers drugs. Consequently, CBO expects that 
direct spending for Medicare, Medicaid, the Federal Employees 
Health Benefits program, and the Defense Department's TRICARE 
for Life program could be affected under the bill. However, 
based on information provided by experts in patent law and the 
brand and generic drug industry, CBO estimates that net changes 
in direct spending for those programs would be negligible over 
the 2008-2017 period.
    The potential effects of the bill on the pharmaceutical 
industry are highly uncertain. Some provisions of the bill 
could affect patent protections for pharmaceuticals (and the 
timing of generic entry) in countervailing ways. For example, 
allowing a party to administratively challenge the validity of 
a patent through the new post-grant review proceedings at PTO, 
under certain circumstances, would provide generic firms and 
other interested parties with a new tool to eliminate patents 
that block entry of lower priced generic drugs. However, other 
provisions in the bill, such as one that would modify standards 
for proving inequitable conduct by patent holders, could make 
overturning certain patents or the timely launch of their 
products more uncertain for generic firms in some cases.
    CBO anticipates that provisions of the Federal Food, Drug, 
and Cosmetic Act governing marketing of brand and generic drugs 
would significantly limit how H.R. 1908 might affect the timing 
of generic entry over the 2008-2017 period. H.R. 1908 also 
would make certain new requirements prospective in nature and 
thereby limit the effect of such changes on the market entry of 
generic drugs over that period. Because numerous provisions 
would apply to patent cases initiated and new patents issued 
after enactment, we expect that the effect of the bill on 
average drug prices could be significant beyond 2017. The 
nature and extent of any such long-term effects are unclear, 
however.
    The Chief Judge of the U.S. Court of Appeals for the 
Federal Circuit has expressed concerns that section 5 of H.R. 
1908 could significantly lengthen patent trials and delay their 
final resolution.\1\ CBO expects that the provision relating to 
damages would infrequently apply to drug cases involving 
generic competitors and would apply only to cases initiated 
after enactment. Consequently, any potential budgetary effect 
from delaying resolution of pharmaceutical patents probably 
would not be significant over the next 10 years.
---------------------------------------------------------------------------
    \1\Letter from the Honorable Paul R. Michel, U.S. Court of Appeals 
for the Federal Circuit, to the Honorable John Conyers Jr. and the 
Honorable Lamar S. Smith, Chairman and Ranking Member, respectively, of 
the House Committee on the Judiciary, May 21, 2007.
---------------------------------------------------------------------------
Revenues
    Enacting H.R. 1908 also could affect Federal revenues. Any 
change to the average cost for prescription drugs available on 
the market would affect the cost of premiums for private health 
insurance. CBO anticipates that changes in spending by private 
health insurance plans would cause a shift in compensation 
between taxable wages and tax-favored benefits, thereby 
affecting Federal revenue from income taxes and payroll taxes. 
However, because CBO estimates that enacting the bill would 
have a negligible net effect on the average price of drugs over 
the next 10 years, the net effect on Federal revenues would 
also be negligible over that period.

              INTERGOVERNMENTAL AND PRIVATE-SECTOR IMPACT

    H.R. 1908 would impose intergovernmental and private-sector 
mandates, as defined in UMRA, on certain patent applicants. The 
mandates include following new application requirements and 
prohibiting tax planning methods from being patentable.
Required Search Reports
    The bill would direct the Patent and Trademark Office to 
establish regulations that would require certain patent 
applicants to submit a search report, analysis, and other 
information relevant to receiving a patent. Most patent 
applicants, including public universities, would be required to 
follow the new application process. The bill would exempt 
applications from micro-entities, as defined in the bill, from 
providing such reports and information. According to PTO, the 
cost for applicants to research and provide such information 
would be about $5,000 to $10,000 per search report; however, 
some applicants already provide similar information in their 
applications. Based on the number of patent applications per 
year, CBO expects that the direct cost to comply with the 
mandate would exceed the annual threshold for private-sector 
mandates established in UMRA ($131 million in 2007, adjusted 
annually for inflation) in each of the first 5 years the 
mandate is in effect. CBO estimates that the costs to public 
universities of complying with the mandates would not exceed 
the annual threshold for intergovernmental mandates established 
in UMRA ($66 million in 2007, adjusted annually for inflation).
Prohibiting Tax Planning Methods
    The bill also would prohibit tax planning methods from 
being patentable. The prohibition would apply to any 
application for a new or reissued patent that is filed on or 
after the date of enactment. While the number of such 
applicants would likely be small, CBO has no basis for 
estimating the net income that would be forgone by a patent 
applicant for not receiving a patent. Therefore, CBO cannot 
estimate the cost to private entities of complying with this 
mandate. CBO estimates that the costs of complying with this 
mandate for state, local, and tribal entities would be small.

                         ESTIMATE PREPARED BY:

Federal Costs: Susan Willie (226-2860) and Julia Christensen 
    (226-9010)
Impact on State, Local, and Tribal Governments: Elizabeth Cove 
    (225-3220)
Impact on the Private Sector: Paige Piper/Bach (226-2960)

                         ESTIMATE APPROVED BY:

Peter H. Fontaine
Assistant Director for Budget Analysis

                    Performance Goals and Objectives

    The Committee states, pursuant to clause 3(c)(4) of rule 
XIII of the Rules of the House of Representatives, H.R. 1908 
will improve the quality of patents being issued by the USPTO, 
greatly reduce the abusive practices particular to patent 
litigation, and harmonize the United States patent system with 
the rest of the world.

                   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 I, section 8, clause 8 of the 
Constitution.

                          Advisory on Earmarks

    In accordance with clause 9 of rule XXI of the Rules of the 
House of Representatives, H.R. 1908 does not contain any 
congressional earmarks, limited tax benefits, or limited tariff 
benefits as defined in clause 9(d), 9(e), or 9(f) of Rule XXI.

                      Section-by-Section Analysis

                 SEC. 1. SHORT TITLE; TABLE OF CONTENTS

    This section sets forth the short title of the bill as the 
``Patent Reform Act of 2007'' and sets forth a table of 
contents.

           SEC. 2. REFERENCE TO TITLE 35, UNITED STATES CODE

    This section makes clear that amendments made by this Act 
are to made to title 35 of the United States Code, unless 
otherwise stated.

              SEC. 3. RIGHT OF THE FIRST INVENTOR TO FILE

Definitions
    In order to accommodate the change to a first-to-file 
patent system, Section 3(a) amends 35 U.S.C. Sec. 100 to 
include definitions for terms that are used in the context of a 
first-to-file system. These definitions bring added clarity to 
the meaning and application of the terms. Terms added and 
defined include Sec. 100(f) ``inventor'', Sec. 100(g) ``joint 
inventor'', Sec. 100(h) ``effective filing date of a claim 
invention'', Sec. 100(i) ``claimed invention'', and Sec. 100(j) 
``joint invention.''
    The term ``inventor'' refers to a single individual who 
has, working alone, invented or discovered an invention. In 
cases where two or more individuals are responsible for 
inventing or discovering an invention, the term inventor 
applies to all the individuals collectively.
    The term ``joint inventor'' is applied to any one of the 
individuals who have invented or discovered an invention 
together. Such a term is necessary since the term inventor is 
used to refer to either a single inventor or, collectively, to 
all the joint inventors of an invention made or discovered by 
more than one person.
    The ``effective filing date of a claimed invention'' as 
applied in Sec. 100(h)(1) is the date a patent application 
containing a disclosure of the invention is filed. The 
``effective filing date for the claimed invention'' may also be 
the filing date of a previously filed application if the 
current application is entitled to a right of priority to an 
earlier provisional or foreign application under 35 U.S.C. 
Sec. Sec. 119, 365(a) or 365(b), or is entitled to the benefit 
of an earlier filing date of a United States application under 
35 U.S.C. Sec. Sec. 120, 121 or 365(c) as provided by 
Sec. 100(h)(2), so long as the application that is the basis of 
priority fully describes and enables the claimed invention.
    The term ``claimed invention'' is any invention defined by 
a claim in a particular patent or patent application, as 
required by Sec. 112(b) as amended by this Act.
    The term ``joint invention'' is an invention that is made 
from the collaboration of inventive endeavors of two or more 
persons working toward the same end and producing an invention 
by their collective efforts.
Prior Art
    Section 3(b) substantially amends Sec. 102, the definition 
of prior art and conditions for patentability. Broadly, the new 
Sec. 102(a) defines prior art while the new Sec. 102(b) 
establishes exceptions to Sec. 102(a).
    Under the new Sec. 102(a)(1), the issuance of a patent is 
prohibited if the claimed invention was patented, described in 
a publication, in public use, or on sale before the effective 
filing date of an application claiming the invention. Pursuant 
to subparagraph (A), any of these acts operates as an absolute 
bar if done more than a year prior to filing. Such acts also 
operate as a bar under subparagraph (B) if done a year or less 
prior to filing, except for an inventor's own disclosure. 
Working together and as required in a first-to-file patent 
system, these two provisions establish that any prior art 
reference or disclosure (e.g., patent, publication, public use 
or sale) available before the effective filing date of an 
application that teaches or describes the invention may be used 
to defeat the patentability of the invention.
    Under the new Sec. 102(a)(1)(B) the grace period that has 
traditionally been available in the Untied States is 
maintained. This inventor's grace period allows an inventor to 
make his invention publicly available, whether by publication, 
public use, or sale, up to 1 year prior to filing a patent 
application for the invention, without such activity being used 
as prior art against him. This grace period allows an inventor 
to assess the usefulness, marketability and practicality of the 
invention for a limited period of time before undertaking the 
expense of obtaining a patent on the invention. The grace 
period is also very important for universities and nonprofit 
research organizations and will allow academic inventors to 
discuss or publish information concerning their invention 
without fear that such a disclosure would be used against their 
applications.
    The Committee uses the current Sec. 102(b) as the template 
from which to define the scope of prior art in the Act, 
primarily because of how the terms ``in public use'' and ``on 
sale'' have been interpreted by the courts. The provisions of 
Sec. 102(b) are meant to serve a set of very specific policy 
goals which include 1) encouraging inventors to file early for 
patent protection, 2) preventing inventors from extending their 
monopoly in the invention and 3) not taking away from the 
public what it justifiably believes is in the public domain. 
Additionally, there is nothing inherent in a first-to-file 
system that will deter inventors from making use of their 
inventions as trade secrets and then some time later filing a 
patent application for the invention. Thus, the maintenance of 
the ``public use'' and ``on sale'' definitions of prior art are 
needed to prevent such activity.
    The Committee also chose to eliminate any geographical 
limitations placed on the ``in public use'' and ``on sale'' 
prior art found in the current Sec. 102(b). These limitations 
were first created in an era where it took weeks to travel to 
other countries and information concerning inventions in other 
countries, was limited at best. Given advances in 
communications technology and transportation, the average 
person can learn as much about activities in a foreign land as 
he can learn about what is happening in his own neighborhood. 
As such, there is no longer a need to distinguish, for prior 
art purposes, between a public use or sale in this country 
versus one in another. Furthermore, most other countries do not 
limit prior art to domestic knowledge.
    The new Sec. 102(a)(2) carries over the current Sec. 102(e) 
class of prior art, namely patents and patent applications not 
yet published.
Exceptions to Prior Art
    While the Committee finds that the United States should 
make the switch to a first-inventor-to-file system, the 
Committee also recognizes that the limitations inherent in a 
strict first-to-file system may be too restrictive given the 
nature of invention discovery and development, even with the 
inventor's grace period provided in Sec. 102(a)(1)(B). With 
this in mind, this Act incorporates a number of exceptions to 
prior art.
    The first exception to prior art is provided by 
Sec. 102(b)(1). This provision disqualifies any prior art under 
Sec. 102(a)(1)(B) if the same subject matter had already been 
publicly disclosed by the inventor (hereinafter ``first-to-
disclose exception''). This exception effectively creates a 
first-to-disclose rule. If an inventor publicly discloses his 
invention, he preserves his priority to the invention even if 
there is intervening prior art between the inventor's public 
disclosure and the inventor's application for patent, provided 
that the application is made 1 year or less after the initial 
disclosure.
    As a general rule in a first-to-file system, where two 
independent inventors come up with the same invention, priority 
will go to the first inventor to submit an application (new 
Sec. 102(a)(2)). The earlier, or ``senior,'' application will 
operate as prior art against the later, or ``junior,'' 
application and bar the second patent. However, new 
Sec. 102(b)(2) establishes several exceptions to 
Sec. 102(a)(2).
    First, if a senior application claims subject matter that 
was obtained directly or indirectly from a junior applicant who 
was the true inventor, the senior application will not qualify 
as Sec. 102(a)(2) prior art against the junior application. 
This is why the new ``first-to-file'' system is more properly 
characterized as a ``first-inventor-to-file'' system. Second, 
if the subject matter of the senior application was publicly 
disclosed by the junior applicant before the senior application 
was filed, the senior application does not qualify as prior art 
against the junior one under Sec. 102(b)(2). In this sense, the 
new ``first-inventor-to-file'' system is also a ``first-to-
disclose'' system. Finally, under the new Sec. 102(b)(2), a 
published patent or application under Sec. 102(a)(2) that 
normally would constitute prior art against a subsequently 
filed patent application, does not qualify as prior art against 
the subsequent invention if the published patent or application 
and the subsequent invention were owned by or subject to an 
obligation of assignment to the same entity as of the effective 
filing date of the subsequent patent application.
    The new Sec. 102(b)(3) carries over the Cooperative 
Research and Technology Enhancement (CREATE) Act of 2004 (108 
P.L. 453; 118 Stat. 3596), originally codified in Sec. 103(c). 
This re-codification establishes an exception to Sec. 102(a)(2) 
prior art in the possession of parties to a joint research 
agreement. Such prior art will not be counted against a 
subsequently filed application by the parties if the claimed 
invention was developed under a joint research agreement and 
has an effective filing date on or after the date of the joint 
research agreement.
    The above provisions are illustrated by the following 
example. Inventor (I) delivers a paper at an academic 
conference on January 1, disclosing the subject matter of her 
invention. Colleague (C) learns the invention at the conference 
and publishes a paper on the same subject matter on August 1. 
Thereafter, C files a patent application on October 1. I files 
her own application on December 1. Is either I or C entitled to 
a patent?
    I's disclosure at the conference would ordinarily 
constitute prior art under Sec. 102(a)(1). Because it was 
disclosed less than 1 year prior to filing (by both I and C), 
it is covered by Sec. 102(a)(1)(B), which exempts it as prior 
art for I (``disclosures made by the inventor '') but not for 
C. It will defeat C's patent application, but not I's.
    C's publication on August 1 would also ordinarily 
constitute prior art for both I and C. Yet, it is excluded for 
C by Sec. 102(a)(1)(B) and for I by the same paragraph 
(disclosure ``by others who obtained the subject matter 
disclosed directly or indirectly from the inventor ''). If C 
were an independent inventor and did not obtain the subject 
matter from I, C's disclosure by publication on August 1 would 
still not operate as prior art against I because of the 
exception in Sec. 102(b)(1) (earlier disclosure by inventor). 
An independent disclosure will not operate as prior art if the 
applicant had disclosed first (within 1 year of her filing).
    C's patent application on October 1 will also operate as 
prior art against I pursuant to Sec. 102(a)(2) because it was 
effectively filed before the filing date of I's application. 
However, since the subject matter in C's application was 
obtained from I, Sec. 102(b)(2)(A) prevents it from operating 
as prior art. Even if C obtained the subject matter 
independently, and not from I, C's application will not serve 
as prior art because of the exception in Sec. 102(b)(2)(B). 
That is because I publicly disclosed her invention before C 
filed.
    In summary, because of the ``grace period'' in Sec. 102, 
none of the events prior to I's filing on December 1 will 
operate as prior art as to I. C's application, however, is 
barred. He may have a grace period for his own disclosures, but 
not for earlier disclosures by another inventor. Even if C were 
not barred, I could initiate a derivation proceeding against 
him under Sec. 135(a). Upon proof that C derived his invention 
from I, I would be awarded the patent.
    It's right to a patent over C is illustrative of the 
difference of a pure ``first-to-file'' as opposed to ``first-
inventor-to file'' system.
Changes to Obviousness
    Section 3(c) repeals Sec. Sec. 103(b) & (c) and amends the 
definition of obviousness so that obviousness is measured as of 
the date of application for the claimed invention instead of 
the date of invention.
Derivation Proceeding
    In order to address concerns that a first-inventor-to-file 
system may make it easier for an invention to be 
misappropriated from the true inventor, section 3(i) replaces 
the current interference proceeding in Sec. 135(a) with a new 
derivation proceeding that will allow a true inventor to 
challenge an earlier applicant's right to patent. This is a 
formal administrative proceeding that provides an applicant the 
opportunity to show that another, earlier applicant claiming 
essentially the same invention, actually derived the invention 
from the requester, thus removing the earlier application or 
patent as prior art under the exception set forth in 
Sec. 102(b)(2)(A).
    Under the amended Sec. 135(a)(1)(A), an applicant 
requesting a derivation proceeding must set forth the basis for 
finding that an earlier applicant misappropriated the claimed 
invention and without authorization filed an application 
claiming such invention. Also the request must be filed within 
12 months of the date of first publication of an earlier 
application or issuance of a patent on that application, 
whichever is first, covering a claim that is the same or 
substantially the same as the claimed invention.
    Under Sec. 135(a)(1)(B), the Director is to determine 
whether the basis set forth under Sec. 135(a)(1)(A) has been 
met. Under Sec. 135(a)(2), the Patent Trial and Appeal Board 
(PTAB) shall determine the right to the patent and issue a 
final decision thereon. Under Sec. 135(a)(3), the Board may 
defer action on a request for a derivation proceeding until 3 
months after a patent is issued on the earlier-filed 
application. As per Sec. 135(a)(3), the Board's decision 
concerning the merits of the positions advanced during the 
derivation proceeding will serve as the final decision by the 
USPTO as to who has the right to patent. The losing party may 
appeal to the Federal Circuit.
    While a derivation proceeding may appear to have some 
similarity to an interference proceeding, its purpose is not to 
determine who invented first. The only concern of a derivation 
proceeding is whether one applicant obtained the subject matter 
from the other, and is therefore not a true inventor of that 
subject matter.
Condition on Implementation of Section 3
    Section 3(k) contains the effective date for this section. 
The adoption of the ``first-inventor-to-file'' system is 
delayed until 90 days after the President certifies to Congress 
that other ``major patenting authorities'' have adopted a grace 
period substantially similar to the one contained in this 
section. As of time of adoption of this report, neither the 
European Patent Convention nor Japanese patent law provide a 
grace period. The beneficial effect of the grace period 
provided to United States filers by this section could be lost 
should they also seek patent protection in Europe or Japan, 
which are the most frequent destinations for international 
filings by United States nationals. The Committee believes that 
in this limited instance and with Congressional oversight, the 
Executive is the appropriate body to determine whether other 
countries have sufficiently conformed their patent laws to the 
grace period under this section. The Committee is providing 
section 3(k) as guidance to the President, by defining ``major 
patenting authorities'' to mean the patenting authorities in 
Europe and Japan. This is not meant to require that every 
European country adopt a grace period. Rather, it is sufficient 
if the European Patent Office and the patent offices of Germany 
and the United Kingdom do so. Nor must their grace periods 
operate exactly as in this section, or define exempt prior art 
in precisely the same way.
Review of Effects of Section 3 Amendments
    Section 3(l) mandates that the Undersecretary of Commerce 
for Intellectual Property and Director (hereinafter ``the 
Director'' of the Unites States Patent and Trademark Office 
(USPTO) conduct a study on the effectiveness and efficiency of 
the amendments made by this section, and submit to the 
Committees on the Judiciary of the House of Representatives and 
the Senate a report on the results of the study. The report 
must include any recommendations the Director may have on 
amendments to the law and any other recommendations the 
Director may have with respect to the first-inventor-to-file 
system as put into effect by the amendments in this section. 
The first such study must be done not later than the end of the 
7-year period beginning on the effective date of this section 
as set forth in subsection (k). The study must be repeated at 
the end of every 7-year period after the date of the first 
study. It is the opinion of the Committee that the amendments 
in section 3 of the bill serve to implement a fundamental 
change in the operation of the United States patent system. 
Such change, while well-reasoned, requires a mechanism for 
monitoring its long-term effects.

                 SEC. 4. INVENTOR'S OATH OR DECLARATION

    Section 4 amends Sec. Sec. 115 and 118. As amended, 
Sec. 115(a) requires that z patent application include the 
names of the inventors of any invention claimed in the 
application, and that inventors sign an oath or a declaration 
in lieu of oath. Section 115(a) also requires that the inventor 
of each claim in the patent application execute an oath or 
declaration for the application. An oath or declaration must be 
executed by every inventor in the case where an invention has 
more than one inventor.
    Under Sec. 115(b) the oath or declaration required under 
Sec. 115(a) must state that the application was made or 
authorized to be made by the affiant or declarant, and that 
such individual believes himself to be the ``original'' 
inventor of the claimed invention. This change partly reflects 
a change to a first-inventor-to-file system, because the 
affiant or declarant no longer has to state that he believes 
himself to be the ``first'' inventor of the claimed invention. 
Under Sec. 115(c), the Director of the USPTO is allowed to 
require additional information related to the inventor or 
invention to be included in the oath or declaration.
    Under Sec. 115(d)(1), the requirements of Sec. 115 (b) and 
(c) may be met through a substitute statement in lieu of an 
oath or declaration under certain circumstances. These 
circumstances are listed in Sec. 115(d)(2), and include times 
where the inventor is dead, is legally incapacitated, or cannot 
be found or reached after a diligent effort. Section 115(d)(2) 
also allows a substitute statement to be submitted in lieu of 
an oath or declaration when an inventor has an obligation to 
assign his rights to the invention but refuses to make the oath 
or declaration required by Sec. 115(a). Today, many inventions 
are made by employee-inventors who have assigned to their 
employers, in contract or other terms of employment, the rights 
to any inventions they make in connection with their 
employment. Or an employer may claim rights to an invention by 
implication. Where such a relationship exists, this change will 
prevent an employee-inventor from withholding his oath or 
declaration as a means to delay or prevent an employer from 
seeking patent protection of an invention created by the 
employee-inventor, or as a means to negotiate remuneration from 
the employer. Under Sec. 115(d)(3) the substitute statement 
must identify the individual with respect to whom the statement 
is made (i.e., the inventor or joint inventor) and set forth 
the permitted circumstances that are the basis for filing the 
statement (e.g., the inventor has an obligation to assign his 
invention but refuses to sign the oath or declaration). The 
Director of the USPTO is authorized to require additional 
information to be included in the substitute statement. In 
cases where assignment is alleged, the Committee expects the 
Director to require evidence showing the assignment.
    To provide further flexibility, Sec. 115(e) allows an 
individual who is under an obligation to assign the invention 
to make the statements required under Sec. 115 (b) and (c) in 
the assignment document, rather than making the statements in a 
separate filing. Amended Sec. 115(e) exempts individuals from 
the requirements of the section when they file an application 
that claims priority under Sec. 120 or Sec. 365(c) if the 
requirements of this section were met in the earlier 
application. Finally, amended Sec. 115 prohibits the USPTO from 
issuing a notice of allowance under Sec. 151 until the 
conditions of this section are met, thus defining the time at 
which the conditions must be met by the applicant(s) as anytime 
prior to the issuance of a notice of allowance.
    Section 115(f) requires, as a condition before a notice of 
allowance is provided, that the applicant has filed each 
required oath or declaration under Sec. 115(a), or substitute 
statement under Sec. 115(d), or has recorded an assignment 
meeting the requirements of Sec. 115(e).
    Section 115(g) allows an applicant to forgo the 
requirements of Sec. 115 if the application is claiming 
priority based on a continuation application under Sec. 120 or 
a foreign filed application under Sec. 365 and the earlier 
application meets the requirements set out in Sec. 115 (a), (d) 
or (e).
    Section 115(h)(1) allows changes to be made to any 
statements filed under Sec. 115. If the change includes naming 
one or more additional inventors, the Director will establish 
regulations that guide how such a change is to be made. 
However, under Sec. 115(h)(2), no supplemental statement shall 
be required if an oath or declaration under Sec. 115(a) or an 
assignment under Sec. 115(e) is already executed. Section 
115(h)(3) provides that no patent shall be invalid or 
enforceable if the requirements of Sec. 115 are not met. 
However, willful false statements may still serve as a basis 
for making unenforceable patents that are acquired by means of 
inequitable conduct as defined in Sec. 282.
    Section 115(i) requires that any declaration or statement, 
including oaths, include an acknowledgment that any willful 
false statement is punishable by fine or imprisonment, or both, 
under 18 U.S.C. Sec. 1001. This is to ensure that all inventors 
and/or applicants are held accountable for making any 
statements they know are false in an oath or declaration, or a 
substitute statement or assignment that is intended to be in 
lieu of an oath or declaration as permitted under Sec. 115.
    As amended, Sec. 118 will permit a person to whom the 
invention is assigned, or to whom the inventor is under an 
obligation to assign the invention, to apply for a patent on 
the invention without having to show that the inventor cannot 
be found or reached, or has refused to execute the application. 
Also, under the amended Sec. 118, a patent issuing from an 
application filed by anyone other than the inventor will be 
issued to the real party in interest, with notice to the 
inventor. In most cases, the real party in interest will be the 
person to whom the patent is assigned. This change will have 
little impact on the rights of the inventor who has already 
given up his rights to the invention by having assigned his 
rights to the applicant, and should increase the flexibility 
and efficiency with which an assignee may file a patent 
application on inventions made under the assignee's auspices. 
As amended, Sec. 118 will harmonize U.S. patent law relating to 
who can file a patent application with the laws of most if not 
all foreign patent agencies.

            SEC. 5. RIGHT OF THE INVENTOR TO OBTAIN DAMAGES

Apportionment of Damages
    Section 5(a) amends 35 U.S.C. Sec. 284. As amended, 
Sec. 284(a) maintains the current option between lost profits 
and other measures, not less than a reasonable royalty, as the 
basis for damages. The Committee does not intend to change or 
affect the ways courts and juries award damages for lost 
profits. The changes in the bill are addressed to awards of 
damages based on a reasonably royalty theory. Further, the 
plaintiff is still entitled to compensatory damages ``together 
with interest and costs as fixed by the court.''
    Generally, newly added Sec. 284(b) is applicable whenever 
``reasonable royalty'' is used to determine damages. Paragraph 
(1) governs how a reasonable royalty is to be calculated. It 
prescribes three essential steps. First, the court must 
affirmatively determine which of the specified alternative 
methods of calculating a reasonable royalty will be used. Next, 
the court must identify which factors (e.g., from among the 15 
Georgia-Pacific factors or any others) are relevant to the 
selected calculation method. In these first two steps, the 
court acts as gatekeeper, identifying for the jury (or for the 
court's own consideration) the applicable methodology and the 
factors that are both relevant under that methodology and 
supported by the evidence in the case. Finally, the court or 
jury may rely only on the selected method (or methods) and only 
those factors specifically identified as relevant and supported 
by the evidence presented in calculating the amount of 
reasonable royalty. Merely providing a list of the Georgia-
Pacific factors to the jury, as often occurs now, would be 
insufficient and impermissible under the revised Sec. 287(b) 
unless the court explains on the record why only that approach 
can produce a just damages award and is necessary in the 
interest of justice.
    Paragraphs (2), (3) and (5) of Sec. 284(b) provide 
different approaches to the determination of a reasonable 
royalty. The court will select the methodology that best suits 
the facts of the case and the patent-in-suit. The Committee 
expects that paragraphs (2) or (3) will apply in many of cases. 
However, where neither of those methods is capable of achieving 
the standard set out in subsection (a) (``a reasonable royalty 
for the use made of the invention by the infringer ''), then 
the court may use the alternative provided by paragraph (5).
    The Committee anticipates that courts will perform their 
gate-keeping function by conducting a hearing outside the 
presence of a jury in cases tried to a jury for the purpose of 
reviewing the evidence that the parties plan to introduce 
relating to calculation of damages. After assessing the 
admissible evidence relating to reasonable royalty, the court 
will (1) determine the applicable methodology and factors 
relevant under that methodology and explain on the record the 
reasons for its determination; and (2) permit the parties to 
put before the jury only the evidence relevant to the 
methodology and factors determined to be applicable by the 
court. This will prevent confusion of the jury that likely 
would result from the introduction of misleading or irrelevant 
evidence. Making these determinations part of the record will 
facilitate review, both by the court on a post-trial motion and 
on appeal.
    Although individual judges should determine what is 
appropriate based on the facts of the case before them, it 
would be preferable for the analysis to occur earlier in the 
process rather than later. Evidence presented in support of a 
reasonable royalty award often will include experts' economic 
analysis of three relevant sets of commercial considerations 
aimed toward establishing ``a reasonable royalty for the use 
made of the invention by the infringer''--

         Lthe value of the actual invention (its 
        ``specific contribution over the prior art'');

         Lthe impact of the actual invention, if any, 
        on supply of and demand for a product or process 
        incorporating the invention; and

         Lany collateral effects, such as cost savings, 
        increased efficiency in production, lower distribution 
        cost, etc.

    Expert testimony may include opinion testimony on 
development costs, production costs, cost associated with re-
engineering, the market size, changes in both supply and demand 
directly attributable to the invention, evidence of specific 
consumer reliance on the invention and other microeconomic 
analyses. This evidence, when appropriate, may include previous 
licensing of the actual or related inventions, accounting for 
variations in the terms and conditions of such licenses. 
Finally, if available, evidence may be taken on the economic 
value of non-infringing alternatives to the actual invention.
    As amended, Sec. 284(b)(2) provides for apportionment of 
damages as the first of three alternative mechanisms for 
calculating reasonable royalty. This paragraph requires the 
court to conduct an economic analysis of the infringing product 
or process and determine what portion of its value is properly 
attributable to the invention. Expert testimony typically would 
focus on the value of the invention as such, separate and apart 
from the economic value of the product or process that may 
incorporate the invention. It would do so by a process of 
identifying the elements of the invention that render it 
patentable and the economic value properly attributable to 
those elements. The economic valuation should identify the 
specific value of the invention's inventive steps as such, 
separate and apart from other technologies and elements (the 
``prior art '') with which it may be associated. Finally, from 
the infringing product or process's overall value, the court 
must exclude ``the economic value properly attributable to the 
prior art'' and the ``other features or improvements, whether 
or not themselves patented, that contribute economic value to 
the infringing product or process.''
    For example, in a case alleging that the patent-in-suit was 
infringed by a particular aspect of a GPS navigation system 
incorporated in an automobile, the economic analysis would 
focus on determining the incremental value contributed by the 
particular aspect of the GPS system attributable to 
infringement of the actual invention embodied in that patent; 
it should exclude the value contributed by the other GPS 
technology, as well as the value of the car as a whole, its 
engines, body, steering system, seats, drive train, windows, 
etc. Similarly, an invention permitting a bank's customers to 
round up their debit card or credit card charges to even 
dollars and automatically transfer those cents into a savings 
account, should not be valued on the basis of banking services 
generally such as savings, debit card use or brokerage but 
rather on the incremental value attributable to the rounding 
up/transfer process itself.
    Accordingly, paragraph (2) directs the use of an objective 
method to measure a patent's value for damages purposes. 
Inventors should be rewarded for their ``inventive 
contributions;'' they should not be rewarded for others' 
innovations (even where incorporated into the patent) or for 
market success properly attributable to the overall commercial 
context in which the invention is used, except as provided 
under paragraph (3).
    As amended, Sec. 284(b)(3) permits courts to use the 
``entire market value'' rule in calculating damages when the 
prerequisites for use of that standard are met.
    The ``entire market value'' rule is the corollary of 
apportionment. Where separate unpatented products operate as a 
functional unit with the infringing product, or the infringed 
component serves as the basis for customer demand of the 
functional unit, damages may be based on the ``entire market 
value'' of the combination. See Rite-Hite Corp. v. Kelley Co., 
Inc., 56 F.3d 1538 (Fed. Cir. 1995) (in banc). The rule applies 
most often in the case of accessory items which form a single 
functional and marketable unit with the infringing product. 
After-market ``convoyed'' sales can also be included. See Juicy 
Whip, Inc. v. Orange Bang, Inc., 382 F.3d 1367 (Fed. Cir. 
2004). In both cases, defendant's profits on separate, non-
infringing, products may be included in the damages base if the 
market demand for them is determined by the infringed 
invention.
    The test for determining whether the infringed component 
drives the market demand for the overall product or combination 
is refined by Sec. 284(b)(3). ``[T]he patent's specific 
contribution over the prior art [must be] the predominant basis 
for market demand for an infringing product or process.'' The 
``specific contribution'' requirement focuses the inquiry on 
whether the innovative element of the patented product is the 
basis for customer demand, rather than non-innovative (prior 
art) features that just happen to be claimed in the patent. 
This complements the purpose of paragraph (2) to award a patent 
holder for his true contributions, rather than for technologies 
defendant could have incorporated without infringing.
    In using the term ``predominant basis,'' the Committee did 
not intend to imply that the invention should be the one and 
only factor that leads all consumers to make their purchase 
decisions. Rather the intent of the Committee is to ensure that 
this test is met only when the invention is the factor 
determining marketplace acceptance, not in the sense that it is 
the only relevant factor but in the sense that, based on the 
facts presented, the invention's specific contribution over the 
prior art (and not other factors) drives marketplace demand for 
the product or process which incorporates it.
    Typical examples of situations where the patented 
contribution may distinguish over the prior art include 
pharmaceuticals. Often the only reason to purchase a drug is 
the patented active chemical agent for a drug or a treatment. 
In such cases, the invention is the very reason why customers 
purchase the product. In the case of a patented cholesterol-
reducing chemical dispensed in the form of a pill, the customer 
has little interest in the binders, buffers, starches or 
coloring associated with the pill. The sole reason for the 
demand is the therapeutic effect. Similarly, when the invention 
is a new methodology for dispensing medication, such as 
insulin, the dispenser itself, for example an inhaler, may be 
the sole reason for customers to demand the medication in that 
form.. As a general rule, for products with one or two key 
distinct features which are the actual invention, it should be 
relatively easy to establish that the entire market value rule 
applies. However, with respect to products that have many 
constituent components, such as software and integrated 
circuits, it should rarely apply.
    The codification of the ``entire market value rule'' at 
Sec. 284(b)(3) does not otherwise change the operation of the 
rule as it pertains to convoyed sales (``the products or 
processes involved '') so long as they satisfy the customer 
demand created by infringing use of the patent-in-suit.
    The amended Sec. 284(b)(4) applies to damages measures 
under Sec. 284(b)(2) and (3); it is not an independent method 
that can be used as an alternative to them. It reflects the 
reality of modern technology, that innovation may lie simply in 
combining prior art in novel, non-obvious and useful ways. In 
such cases, the value of the invention may lie in increased 
functionality or enhancement of the prior art due to the 
inventive combination.
    Thus, in determining an invention's ``specific contribution 
over the prior art'' (i.e., the value of the patented 
innovation), in the case of a combination, a court should not 
simply exclude the values of previously known elements. Some of 
that value may be attributable to the invention and is properly 
part of plaintiff's damages base. One example provided to the 
Committee was that of a telephone. Its inventor (Alexander 
Graham Bell) mostly combined pre-existing products in a novel 
way. If the separate value of each component preexisting in the 
prior art was simply subtracted from the overall value of the 
telephone, there would be nothing left that could be attributed 
to the novel combination (the patented invention). Clearly, the 
combination increased the value of the coils, wires, 
amplifiers, and so on, that previously existed; Sec. 284(b)(4) 
permits plaintiff to include these ``additions to value'' under 
Sec. 284(b)(2) or (3) by showing the enhanced value of the 
combination due to the patented invention.
    Amended Sec. 284(b)(5) provides alternate mechanisms for 
determining a reasonable royalty when the two principal methods 
(Sec. 284(b)(2) and (3)) have been found by the court to be 
ill-suited to the facts of the case, and the court explains the 
reasons for that determination on the record. Paragraph (5) 
contains two approaches, which may be used singly or in 
combination.
    The first looks to ``any nonexclusive marketplace licensing 
of the invention.'' Where there is an established marketplace 
standard for licensing of the invention for the particular use 
made by the defendant, the royalties obtained under those 
licenses provide an established measurement of ``reasonable 
royalty'' for Sec. 284 purposes. Courts often prefer to use 
this measurement, where available, rather than to estimate a 
royalty by constructing a hypothetical negotiation between the 
parties. This approach derives from the first of 15 factors 
identified by the court in Georgia-Pacific v. United States 
Plywood Corp., 318 F.Supp. 1116, 1120 (S.D.N.Y. 1970), modified 
446 F.2d 295 (2d Cir. 1971).
    The second approach allows the court to select any other 
relevant factors under applicable law. This is designed to 
permit courts to address the situations in which the methods 
set forth in the other paragraphs of Sec. 284(b) will not 
produce a just result. This includes factors courts have used 
in applying Sec. 284 since 1952 or other factors the court 
determines to be necessary to achieve a just result. Since the 
amendments to that section do not change the basic framework 
(``damages adequate to compensate for the infringement, but in 
no event less than a reasonable royalty for the use made of the 
invention by the infringer ''), judicial approaches under 
existing law are relevant to the section as amended. This 
includes the 15 Georgia-Pacific factors. They appear in three 
groupings:

        1. LRates and terms of marketplace licenses (factors 1-
        4, 7);

        2. LNature of the invention, and its economic value to 
        infringer (factors 6, 8-13);

        3. LRelationship and bargaining positions of the 
        parties (factors 5, 15).

A court may use such factors individually or in combination as 
it finds appropriate, provided that it states its reasons on 
the record (including its reason for resorting to paragraph (5) 
in the first place).
    The Georgia-Pacific factors were never intended as an 
exclusive list. As new forms of technology become patented, new 
forms of business relationships appear in the market, and new 
indications of infringement emerge, a court can craft 
additional factors to respond to the specifics of the case at 
hand. In addition, a court may take the opinion testimony of 
experts (factor 14). As noted above, such testimony should 
focus on the microeconomic variables that set the value of the 
actual invention, and should be stated with precision and 
specificity. The value of the invention is a function of many 
variables that affect supply and demand both for the invention 
itself and for products or processes that incorporate or rely 
on the invention. In making these determinations experts should 
focus on both the factors of production that affect the supply 
of the invention--the development, production, distribution, 
etc.--as well as the factors that determine demand, the value 
customers associate with the inclusion of the invention in a 
product or process as compared to products or processes that do 
not include the invention.
    An explanation of how paragraph (5) would apply is provided 
by the example of insulin inhalers, which has been cited to the 
Committee a number of times, and was raised specifically by 
Kathryn L. Biberstein, Senior Vice President of Alkermes, Inc., 
in her testimony to the Senate on the topic of patent reform. 
Ms. Biberstein argued that the language of the bill requiring 
the assessment of damages based on the invention's specific 
contribution over prior art would exclude from damages analysis 
previously known technologies, potentially leaving without 
remedies inventors of devices such as insulin inhalers, where 
both its principal components--insulin and pump inhalers--are 
previously known technologies. Mr. Gary Griswold, of the 3M 
Corporation, made substantially the same arguments in his 
testimony to the House, using the example of Post-It notes.
    Both instances present examples where combinations of 
existing technologies produce a valuable new invention. Of 
course, this is very much the norm. Few inventions are dramatic 
departures. In virtually all cases, inventions are the product 
of incremental change and cumulative growth in knowledge.
    Although the Committee believes that both the insulin pump 
and the Post-It note are very much susceptible to a just 
damages analysis and compensation under paragraph (2) or (3), 
the specific purpose of including paragraph (5) is to ensure 
courts and juries have the latitude to rely on case law and 
common law when it determines just results cannot be achieved 
otherwise.
    Under paragraph (5), licensing by Alkermes or 3M of its 
inventions, the terms and conditions of those licenses, would 
be fully available to the judge or jury as they calculated a 
reasonable royalty and could be considered if the standards 
discussed above are satisfied. If the patent owner has not 
licensed the invention, the court may find applicable the other 
Georgia-Pacific factors. In fact the court under subparagraph 
(5) can rely on any of these factors provided their application 
is not inconsistent with the balance of this section, and the 
court determines that the methods specified in the statute are 
not capable of producing a just result. Still, it is the 
Committee's intention that courts should not continue the 
practice of instructing juries on all 15 Georgia-Pacific 
factors and leaving the jury to determine which factors are 
relevant. As required in Sec. 284(b)(1), if the court 
determines that other factors are to be used to determine a 
reasonable royalty, then the court must also identify which of 
these factors are to be used and why.
Willful Infringement
    Section 5(a) also amends 35 U.S.C. Sec. 284(c), relating to 
willful infringement. As amended, Sec. 284(c)(1) codifies the 
judicial doctrine that treble damages may be awarded when the 
court has determined that the infringer engaged in willful 
infringement.
    Under the amended Sec. 284(c)(2), willful infringement 
cannot be found unless there is clear and convincing evidence 
of one of the following:

        (1) Lthat an infringer continued to infringe after 
        receiving written notice alleging acts of infringement 
        in a manner that gives the alleged infringer reasonable 
        apprehension of suit on those grounds, and identifies 
        with particularity each claim that is infringed, each 
        activity or product that infringes, and the 
        relationship between the claim and the infringing 
        product or activity; or

        (2) Lthe infringer intentionally copied the patented 
        invention with knowledge that it was patented, or

        (3) Lthe infringer continued to infringe after having 
        been found by a court to have infringed the same 
        patent. In this case, the infringer must have been 
        found to infringe a patent by engaging in acts not 
        colorably different from activities that were found in 
        the previous infringement action to have infringed the 
        same patent.

    Amended Sec. 284(c)(3) places limitations on when 
infringing activities may be considered to have been willful. 
First, any act of infringement may not be deemed to be willful 
for any period during which the infringer had an informed good 
faith belief that activities later found to be infringing would 
not infringe the patent, or that the claims were invalid or 
unenforceable. The informed good faith belief may be based on 
reasonable reliance on advice of counsel, evidence that the 
infringer took significant steps to modify its conduct to avoid 
infringement once it became aware of the patent, or other 
evidence that the court may find sufficient to establish good 
faith belief. Under amended Sec. 284(c)(3)(C), an infringer's 
failure to seek or present advice of counsel shall have no 
evidentiary implications regarding willfulness. It is the 
Committee's opinion that a documented search effort aimed at 
establishing freedom to operate, conducted prior to engaging in 
activities that were later found to infringe, may constitute 
evidence against willful infringement provided the search and 
resulting efforts to avoid infringing prior art patents are 
sufficiently extensive.
    Amended Sec. 284 (c)(4) bars the patentee from pleading 
willfulness and the courts from finding willfulness until the 
court first finds that the patent in suit is valid and 
enforceable, and has been infringed by the infringer. The 
determination of willfulness shall be made by the court even 
when the rest of the case is tried to a jury. These provisions 
will reduce significantly the added expense and complications 
attributable to the process of determining willfulness during 
litigation by eliminating any consideration of willfulness in 
cases where the patent in suit is judged to be invalid, 
unenforceable or not infringed. In such cases there can be no 
damages payable to the patentee, and thus no consideration of 
treble damages.
Prior User Rights
    Section 5(b) amends Sec. 273, the defense to infringement 
based on an earlier invention (i.e., ``prior user rights ''). 
Under current law, prior user rights are available only for the 
prior use of business method patents. However, as amended, 
Sec. 273(a) widens the scope of prior user rights to all 
patented inventions. Thus, users of all types of inventions, 
products or processes, will now be able to make use of the 
defense if the invention is later patented by another.
    Another significant change will be the relaxing of 
conditions to make use of the defense. Under current law, in 
order to use the defense, a prior user must have made 
commercial use of the invention more than 1 year prior to 
another's filing of a patent application on the invention. 
However, the amended Sec. 284(b)(1) will allow the prior user 
defense to be applied to a qualifying use prior to the filing 
date of a claimed invention. Furthermore, a qualifying use may 
be either a commercial use or substantial preparation for 
commercial use.
Review of Effects of Section 5 Amendments
    Section 5(e) mandates that the Director conduct a study on 
the effectiveness and efficiency of the amendments made by this 
section, and submit to the Committees on the Judiciary of the 
House of Representatives and the Senate a report on the results 
of the study. The report must include any recommendations the 
Director may have on amendments to the law and any other 
recommendations the Director may have with respect to the right 
of the inventor to obtain damages for patent infringement. The 
study must be done not later than the end of the 7-year period 
beginning on the date of enactment of this Act and at the end 
of every 7-year period after the date of the first study. It is 
the opinion of the Committee that the amendments in section 5 
of the bill will have many positive effects on the patent 
system, but that the changes are sufficiently significant to 
require periodic monitoring. By examining the effects of these 
changes on a regular basis, and by paying attention to such 
feedback as may be obtained through these studies, Congress can 
ensure that any unforeseen negative consequences that may arise 
can be dealt with through future legislation or other 
mechanisms.

      SEC. 6. POST-GRANT PROCEDURES AND OTHER QUALITY ENHANCEMENTS

Reexamination
    Section 6(a) amends ex parte and inter partes reexamination 
and establishes a new post-grant review procedure.
    Under the amended Sec. 301(a)(2), a person requesting 
reexamination may cite to written statements of the patent 
owner made before a Federal court or the USPTO in which the 
patent owner takes a position on the scope of one or more 
patent claims. The Committee heard comments that patent owners 
would, occasionally, offer differing interpretations of cited 
prior art. They might take one position during litigation or 
initial examination, and a different one during reexamination. 
This amendment is meant to allow such earlier statements to 
form part of the reexamination record. These written 
statements, which include, documents, pleadings, or evidence 
from the aforementioned proceedings that address the patent 
owner's statements, shall not be considered for any purpose 
other than to determine the proper meaning of the claims that 
are the subject of the request in a proceeding.
    Under current law, if a reference is ``disseminated or 
otherwise made available to the extent that persons interested 
and of ordinary skill in the subject matter or art, exercising 
reasonable diligence can locate it,'' it will qualify as a 
``printed publication.'' MIT v. AB Fortia, 774 F.2d 1104 (Fed. 
Cir. 1985) (oral presentation to technical audience accompanied 
by distribution of some copies satisfied ``publication'' 
requirement). This includes modern forms of communication such 
as presentation slide shows. In re Klopfenstein, 380 F.3d 1345 
(Fed. Cir. 2004). Even a single copy of a document, such as a 
doctoral thesis, indexed and catalogued in a library, qualifies 
as a ``printed publication'' if it is ``sufficiently accessible 
to a researcher who exercised reasonable diligence.'' E. I. du 
Pont de Nemours & Co. v. Cetus Corp., 19 USPQ2d 1174 (N.D. 
Calif. 1990).
    The Committee endorses the current case law and definition 
of print publication for purposes of prior art citation under 
Sec. 301 and recognizes that the definition will evolve 
commensurate with advances in technology and public 
accessibility of information.
    Section 6(b) amends Sec. 303(a) relating to ex parte 
reexaminations by allowing the Director to determine whether a 
substantial new question of patentability exists based on 
patents or publications discovered by the Director, cited under 
Sec. 301, or cited by any person other than the owner of the 
patent under Sec. 302 or Sec. 311. The term ``publication'' as 
used here is meant to have no operative difference with the 
term ``printed publication'' as used in Sec. 301.
    Section 6(c) amends Sec. 314 relating to the conduct of 
inter partes reexamination proceedings. Amended Sec. 314(a) 
deletes the procedure for reexamination under Sec. Sec. 132 and 
133, and replaces it with a new procedure using Administrative 
Patent Judges (APJs). Under current law, reexaminations are 
conducted by patent examiners in the same manner as initial 
examinations. However, reliance on the same corps of examiners 
to uncover and correct errors in their colleague's initial 
decisions may result in institutional bias. The amendment 
replaces reexamination by patent examiners with reexamination 
by APJs. APJs are defined by 35 U.S.C. Sec. 6 as ``persons of 
competent legal knowledge and scientific ability who are 
appointed by the Director.''
    Amended Sec. 314(b) enlarges the opportunity that a third-
party requester has to participate in an inter partes 
reexamination. Under current Sec. 314(b)(2), the third-party 
requester can reply only to patent owner responses to office 
actions. The amendment allows the requester to also file 
written comments in response to the office action itself. In 
both cases (response to the office action, reply to patent 
owner's response), the requestor's filing must be received 
within 60 days of the precipitating event.
    Amended Sec. 314(d) allows either party to an inter partes 
reexamination to request an oral hearing before the APJ. Here, 
an ``oral hearing'' is equivalent to an oral argument, as at a 
motion hearing or appeal in civil litigation. It is not an 
opportunity to present evidence or witnesses. Since the grounds 
for inter partes reexamination are limited by Sec. 301 to 
documentary prior art, all supporting materials introduced by a 
party should be part of their written submissions. The APJ may 
dispense with an oral hearing if he feels it would not aid 
disposition of contested matters.
    Section 6(d) amends Sec. 315(c), the estoppel provision in 
inter partes reexamination. Under current law, Sec. 315(c) 
estops a third-party requestor from reasserting in civil 
litigation the invalidity of a patent claim ``finally 
determined to be valid and patentable on any ground which the 
third-party requester raised or could have raised during the 
inter partes reexamination proceedings.'' The highlighted 
language creates a form of res judicata, or ``claim 
preclusion'' in civil procedure, by prohibiting renewed 
challenges to patent claims even where a precise ground for 
invalidity was not asserted in the prior action. This has 
discouraged many challengers from utilizing the inter partes 
reexamination procedure. Accordingly, Sec. 315(c) is amended by 
removing the phrase ``or could have been raised.''
    Section 6(e) amends Sec. 317(b), which precludes inter 
partes reexamination of a claim following civil action 
upholding its validity. The heading of Sec. 317(b) is amended 
from ``Final Decision'' to ``District Court Decision'' and its 
text is amended to read ``Once the judgment of the district 
court has been entered.'' By this change, an inter partes 
reexamination may not be instituted after a district court 
decision.
Post-Grant Review
    Section 6(f) adds Chapter 32, commencing with Sec. 321 
which describes a petition for post-grant review as a petition 
by a third-party (``a person who is not the patent owner '') 
seeking ``to cancel as unpatentable any claim of a patent on 
any ground'' going to patentability under Chapter II (35 U.S.C. 
Sec. 100, et seq). A reissue patent under Sec. 251 may be 
challenged on the same grounds. The Director will prescribe the 
filing fee to be paid by the cancellation petitioner.
    Conditions for filing a cancellation petition are defined 
in Sec. 322. The opportunity to challenge is limited to 12 
months after a patent issues or reissues. However, a patent 
owner may consent in writing to a post-grant review proceeding 
at any time. Where a challenger is outside the Sec. 322 window, 
his only means to challenge the validity of a patent is to file 
a request for reexamination or challenge the patent's validity 
in a judicial proceeding.
    Requirements of the petition for cancellation are set forth 
in Sec. 323. A petition must:

        (1) Lbe accompanied by the filing fee;

        (2) Lidentify the cancellation petitioner;

        (3) Lset forth in writing the basis for the 
        cancellation and each claim challenged, including other 
        information as required by the Director; and

        (4) Lprovide copies of patents and printed publications 
        relied upon, both to the office and to the patent owner 
        (or representative).

    The purpose for requiring a petitioner to identify and 
provide copies of his evidence is both to provide full notice 
to the patent holder and to streamline the process. It is 
expected that the Director will promulgate regulations under 
this section to require petitioner to include all information 
he has, relating to the patent (e.g., other documentary 
evidence, affidavits), at the time of filing. Further 
information beyond the initial filing may be submitted only 
pursuant to Sec. 325. A petition that fails to comply with the 
filing requirements, or alleges insufficient grounds for post-
grant review, will be dismissed pursuant to Sec. 325.
    Multiple challenges are prohibited under Sec. 324. A 
cancellation petitioner may not file a second post-grant 
opposition proceeding against the same patent, including other 
claims of the patent, irrespective of its disposition. To avoid 
collusive filings, the ``same cancellation petitioner'' 
includes other parties, although not named in the earlier 
petition, if they were in privy with the petitioner. ``Privy'' 
describes a person or entity that was ``in privity'' with the 
named parties of record. This includes non-parties to the first 
action whose interests are so closely aligned with a named 
party, that a judgment against the latter should be preclusive 
as to all. See generally 18-131 Moore's Federal Practice--Civil 
Sec. 131.40.
    Under Sec. 325(a), the Director may require a cancellation 
petitioner to provide additional information, either before 
initiating the proceeding or after. The Director must determine 
whether the original petition, together with additional 
information supplied, establish a substantial question of 
patentability for at least one claim in the patent. If he 
determines that it does not, the petition must be dismissed.
    A substantial question of patentability exists where there 
is a substantial likelihood that a reasonable examiner would 
consider the prior art reference or other information supplied 
by the petitioner important in deciding whether or not the 
claim is patentable. It is not necessary that a prima facie 
case of unpatentability exist based on the reference or 
information. In re Etter, 756 F.2d 852, 857 n.5 (Fed. Cir. 
1985). Furthermore, questions of patentability reviewed by an 
examiner during prosecution may serve as the basis for post-
grant review.
    Under Sec. 325(b), the Director is required to send notice 
to the patent owner and each petitioner, within 60 days of the 
filing of the petition, of the determination made under 
Sec. 325(a). The Director's determination is not reviewable by 
appeal or otherwise (e.g., by writ of mandamus). Dilatory 
petitions can obstruct successful exploitation of a patent by 
using the post-grant review process as a delaying tactic. 
Foreclosing review is thought necessary to avoid this problem
    Under Sec. 326 the Director is required to promulgate 
regulations governing the conduct of post-grant review 
proceedings. It also specifies that the proceeding will be 
conducted before the PTAB.
    Under Sec. 326(a) the Director is required to promulgate 
regulations in three areas. Paragraph (1) provides specific 
authority, consistent with the USPTO's general regulatory 
authority in 35 U.S.C. Sec. 2(b), to issue regulations 
``establishing and governing post-grant review proceedings . . 
. and their relationship to other proceedings under this 
title.'' The first of these authorizations is modified by the 
requirements set forth in subsection 9(b). The latter 
authorization is read in conjunction with new Sec. 333 
(Relationship to other pending proceedings). Together, they 
allow the Director to coordinate or terminate co-pending 
proceedings related to the same patent.
    Paragraph (2) authorizes regulations regarding submission 
of information by the parties as provided in Sec. 325. Although 
Sec. 323(3) requires a cancellation petitioner to include [with 
the petition] copies of patents and printed publications upon 
which it relies, the form of other permitted or required 
evidence is not specified. This paragraph allows the Director 
to specify what types of submissions (e.g., declarations, 
affidavits) may be made, and when they can be filed.
    Paragraph (3) authorizes regulations regarding discovery. 
Such discovery must be related to factual assertions advanced 
by either party. It is expected that the Director will 
promulgate regulations concerning the availability, scope and 
timing of discovery, limiting it to relevant evidence or 
information likely to lead to relevant evidence. The Director 
can also specify the conditions for protective orders and 
submission of evidence under seal (e.g., confidential matters). 
Discovery may occur only upon order of the Director, as per 
Sec. 326(b)(2) and should reflective of the fact that this is 
an administrative proceeding and not a court proceeding.
    Specific limitations on the regulations promulgated by the 
Director pursuant to Sec. 326(a)(1) are imposed by Sec. 326(b).
    Paragraph (1) requires that a post-grant review proceeding 
conclude no later than 1 year after it is initiated. For good 
cause shown, the Director may extend this period up to 6 
months.
    Paragraph (2) precludes discovery except upon order of the 
Director. Thus, despite a possible broad reading of 
Sec. 326(a)(3) to permit automatic or as-of-right discovery, 
this paragraph requires the Director to order any discovery 
request, which should generally be contingent upon approval by 
the APJs hearing the post-grant review proceeding.
    Paragraph (3) governs publication of petitions for post-
grant review and related documents. Notice of the petition must 
be published in the Federal Register. This will identify the 
petitioner, the patentee or patent holder, and the patent 
claims in dispute. The full petition, together with supporting 
and opposing documents and other pleadings, and orders and 
decisions, will be published to the USPTO website, except for 
those filings made under seal.
    Paragraph (4) authorizes the Director to discourage 
harassment through abuse of the post-grant review process, by 
specifying the actions that constitute abuse and by prescribing 
appropriate sanctions. The Director is given wide discretion to 
protect the integrity of the process, and may impose sanctions 
in the form of monetary fines (or payments to other parties) or 
restrictive orders relating to the proceedings, including 
dismissal of petitions or cancellation of claims.
    Paragraph (5) authorizes regulations to protect 
confidential matters, such as trade secrets.
    Paragraph (6) requires that any submissions by the patent 
owner become part of the patent file, and be made publicly 
available to the same extent as other matter in the file, 
except where subject to protective orders.
    The considerations the Director must take into account in 
promulgating regulations under Sec. 326(a) and (b) are set 
forth in Sec. 326(c). These are: ``the effect on the economy, 
the integrity of the patent system, and the efficient 
administration of the Office.'' As used here, ``effect on the 
economy,'' means simply the cost to the parties of conducting 
the post-grant review process, including complying with the 
regulations issued under this section.
    All post-grant review proceedings under this chapter are 
required to be conducted by the PTAB by Sec. 326(d).
    The patent owner is given the right to respond to the 
cancellation petition by Sec. 327. However, this right is 
available only after a post-grant review proceeding has been 
initiated by the Director pursuant to Sec. 325. Accordingly, 
the determination made by the Director merely tests the 
sufficiency of the allegations and supporting documents in the 
petition; it is not an opportunity to resolve conflicting 
positions. In his response after the Director has initiated the 
proceeding, the patent owner has the right to submit 
affidavits, declarations, expert opinions and other evidence 
bearing on patentability. The time period for the patent 
owner's response shall be set by the Director by regulation.
    Under Sec. 328(a), the presumption of validity set forth in 
Sec. 282 shall not apply in a challenge to any patent claim 
under this chapter. Given that post-grant review is not 
``judicial review,'' with its attendant deference to agency 
determinations, the presumption of validity found in Sec. 282 
is not required, either by the Administrative Procedure Act or 
general separation of powers principles. Indeed, the whole 
purpose of post-grant review is to test the validity of the 
patent vel non; to catch patents that never should have issued 
in the first place.
    The burden of proving a proposition is allocated to the 
party advancing that proposition by Sec. 328(b). The term 
``burden of proof'' is used here in its common sense as 
including both the ``burden of production'' and the ``burden of 
persuasion.'' Both are imposed, with respect to a particular 
proposition, on the party putting forward that proposition. For 
example, a challenger claiming that prior art makes obvious the 
patented invention would have to both (1) produce and 
authenticate the prior art, and (2) persuade the APJ that a 
person of ordinary skill in the relevant art would find the 
invention obvious in light of that prior art.
    Also, Sec. 328(b) defines the standard of persuasion as 
preponderance of the evidence. In the example, the APJ would 
have to find it more likely than not that a person of ordinary 
skill in the art would find the invention obvious in light of 
the reference. This is the same standard used in reexamination 
proceedings. See Patent Office Rule 1.555 (b)(2)(ii).
    Under Sec. 329, in response to a cancellation petition, the 
patent owner may file a motion to amend the patent by canceling 
or substituting any challenged claim or by amending the 
specification or drawings. One such motion may be filed as of 
right under Sec. 329(a); subsequent motions will be granted 
only for good cause shown as per Sec. 329(b). A substitute 
claim cannot enlarge the scope of the original claim nor 
introduce new matter.
    Under Sec. 330, once the Director has initiated a post-
grant review proceeding, the PTAB must render a written 
decision respecting the patentability of any challenged or new 
claim (as permitted by Sec. 329), unless the matter is first 
settled pursuant to Sec. 332.
    Under Sec. 331(a) and following a decision of the PTAB, the 
Director shall issue and publish a certificate canceling any 
claim found by the PTAB to be unpatentable, or incorporating 
into the patent any new claim determined to be patentable.
    Pursuant Sec. 331(b), any new claim incorporated into the 
patent shall have the same effect as that of a reissue patent 
under Sec. 252. A pending case or cause of action for acts that 
infringed a valid claim replaced pursuant to Sec. 329 is not 
abated by that claim's replacement if the new claim is 
substantially similar to the one it replaces. However, acts 
that infringe only newly added claims, but not claims in the 
original patent, that were commenced (or substantial 
preparations were made for such acts) prior to the date of the 
Director's certificate under Sec. 331, may continue under such 
conditions as a court specifies in an infringement action. This 
provision conforms acts commenced prior to a recertified patent 
to the policy of ``prior user rights'' in Sec. 273.
    Under Sec. 332(a), the patent holder and cancellation 
petitioner may agree to settle and terminate the post-grant 
review proceeding at any time before the Board issues its 
written decision. The provisions of Sec. 335, relating to 
estoppel, do not apply to any petitioner who settles under this 
section. Where there are multiple petitioners, the proceeding 
may be settled for fewer than all of them. If the sole 
petitioner settles, or all petitioners settle, the Board shall 
terminate the proceeding.
    Pursuant to Sec. 332(b), all settlement agreements must be 
in writing with a copy filed in the Patent Office. Any 
collateral agreements (such as license or covenant not to sue) 
must accompany the filing. At the request of any party, the 
settlement agreement shall be sealed and made available only to 
government agencies on written request, or other person for 
good cause shown.
    The Director is authorized by Sec. 333(a) to resolve any 
conflicts or inconsistencies arising from the co-pendency of 
post-grant review under this chapter with another post-issue 
review proceeding. Several changes made by this statute can 
affect pending USPTO proceedings. Not only does the newly added 
chapter 32 create a post-grant review process, but adoption of 
the first-inventor-to-file system (section 3 of the statute), 
expanded reexamination procedures (sections 6(a)--(e)), and the 
new derivation proceeding (section 3(i)), among others, can 
affect pending reexamination, reissue and interference 
proceedings. While some sections have a delayed effective date, 
conflicts still could arise among co-pending proceedings. Also, 
because of multiple routes to post-issue review of patents, or 
separate proceedings brought by multiple parties, some overlap 
can be expected even after the statute becomes fully operative. 
Pursuant to Sec. 333(a), the Director may stay, transfer, 
consolidate or terminate such other proceedings. This provision 
is designed to promote judicial economy by having fewer 
proceedings on the same issue.
    Another set of potential conflicts, arising from the co-
pendency of post-grant review proceedings and infringement 
actions in district court, are addressed by Sec. 333(b). Under 
this provision, the Director may stay the post-grant proceeding 
if a pending infringement action addresses the same or 
substantially the same questions of patentability. That would 
presumably occur wherever the claims-in-suit are the same as 
those challenged by the cancellation petitioner. The stay 
authority is discretionary with the Director.
    A final decision in a civil case has a preclusive effect on 
the parties in a later civil action. Section 317(b) in current 
law extends preclusion to later filed or pending inter partes 
examinations. New Sec. 334 does the same for post-grant review 
proceedings. It applies to all patent litigation cases where 
jurisdiction is, or could be, based on 28 U.S.C. Sec. 1338 
(jurisdiction in intellectual property cases). ``Final 
decision'' means a final judgment. Thus, a decision of the 
district court has no preclusive effect until it has been 
upheld on appeal or the time for appeal has lapsed. Preclusion 
extends to any cancellation petitioner who was a party, or a 
``privy'' to a party, in an earlier civil action.
    Preclusion under Sec. 334 operates in two situations. Under 
paragraph (1) a precluded party may not request a post-grant 
review proceeding on any patent claim previously adjudicated 
against it on the basis of any ground that the party raised or 
could have raised. The ``could have raised'' language makes 
this a broad form of preclusion, similar to claim preclusion or 
res judicata in civil litigation. It is not limited to facts or 
legal issues actually decided. Thus, a new ground for 
unpatentability (e.g., newly discovered prior art) ordinarily 
could not serve as a basis for a later-instituted post-grant 
review proceeding. Nominally, preclusion applies only to 
grounds raised under the provisions of Sec. 311, i.e. 
anticipation or obviousness resulting from prior art consisting 
of patents and printed publications. However, the reference to 
Sec. 311 is illustrative, not limiting. Thus, a patent claim 
may not be made the subject of a post-grant review proceeding, 
irrespective of the reason alleged for unpatentability, if it 
had previously been adjudicated in district court.
    Preclusion under paragraph (2) operates in much the same 
way as under paragraph (1), except that it applies to pending 
post-grant review proceedings. Once a final decision adverse to 
the cancellation petitioner has been entered in Federal court, 
any precluded claims must be severed from the pending post-
grant review proceeding. If no claims remain in the proceeding, 
it must be dismissed.
    Preclusion under Sec. 334 operates only if validity of the 
claim is called into question, and upheld, in the prior civil 
action. If the claim is not challenged as unpatentable, then 
the judgment does not preclude a pending or later-filed post-
grant review proceeding.
    Similar to Sec. 334, Sec. 335 provides preclusion where the 
first decision is in a post-grant review proceeding under this 
chapter. However, it differs in an important respect. 
Preclusion applies only to a ground which the cancellation 
petitioner raised, not to grounds that could have been raised. 
Thus, it operates similar to issue preclusion or collateral 
estoppel in civil litigation. Only grounds actually asserted 
(whether or not decided) in the prior proceeding serve as the 
basis for preclusion. This difference is partly based on the 
Committee's intent that some form of post-issue review remain 
available throughout the life of a patent, so as to accommodate 
newly discovered prior art or application of patent claims to 
new circumstances.
    Preclusion under Sec. 335 applies only to final decisions 
of the PTAB issued under Sec. 330. Preclusion is effective as 
soon as the decision issues, even if it is subsequently 
appealed to the Federal Circuit. Of course, if the court 
reverses or remands, the decision may no longer be favorable to 
patentability, thus undoing the basis for asserting preclusion.
    Under Sec. 335, preclusion will apply to all of the 
following, (1) new or ongoing inter partes reexaminations, (2) 
new or ongoing derivation proceedings under Sec. 135(a), (3) 
new or other ongoing post-grant review proceedings under 
chapter 32, and (4) new or ongoing patent litigation cases, 
including declaratory judgment cases.
    Judicial review of a final decision of the PTAB is given 
exclusively to the Federal Circuit by Sec. 336. It references, 
and is therefore identical to, appeal provisions in the patent 
code (specifically 35 U.S.C. Sec. Sec. 141-145) applicable to 
other decisions of the PTAB. Any party to the post-grant review 
proceeding has standing on appeal.
Conforming Amendment
    The table for part III (``Patents and Protection of Patent 
Rights'') is amended to conform to the new chapter added by 
section 6(f).
Repeal of Former Estoppel Provision in Inter Partes Reexamination
    Section 6(h) repeals Sec. 4607 of the Optional Inter Partes 
Reexamination Procedure Act of 1999, which describes the 
estoppel grounds in inter partes reexamination. Estoppel 
resulting from inter partes reexamination decisions is now 
governed by Sec. 315(c), as amendment by this Act.
Effective Dates
    Under section 6(i), the amendments made by section 6 become 
effective 1 year after the date of enactment of this statute. 
Once effective, the amendments made to Sec. 301 (citation of 
prior art) and to chapter 31 (ex parte reexamination) will 
apply to all patents, irrespective of when issued. This 
supercedes any previously stated effective date for inter 
partes reexamination. See Optional Inter Partes Reexamination 
Procedure Act of 1999, Sec. 4608 (applicable only to patents 
issued after Nov. 20, 1999).
    But, chapter 32 (post-grant review procedure) will apply 
only to patents issued on or after the section's effective 
date. Accordingly, patents issued at any time before the 
effective date are subject to the amended reexamination 
provisions, but not subject to post-grant review proceedings.
Regulatory Authority
    Section 6(j), requires the Director to promulgate 
regulations governing chapter 32 post-grant review proceedings 
as described in Sec. 326, not later than 1 year after enactment 
of this Act. This is time frame is made with the effective date 
of chapter 32 in mind. Because the regulations must be in place 
when the post-grant review procedures become operative, the 
Director will need to promulgate and publish the regulations, 
for notice and comment, in advance of the date set by this 
section.

           SEC. 7. DEFINITIONS: PATENT AND TRIAL APPEAL BOARD

    Section 7 amends 35 U.S.C. Sec. 6(a) to define the 
composition of the PTAB to include the Director, Deputy 
Director, Commissioner for Patents, the Commissioner for 
Trademarks, and administrative patent judges. This corrects the 
current language of Sec. 6(a) which names the Deputy 
Commissioner instead of the Deputy Director to the Board.
    As amended, Sec. 6(b) defines the duties of the Board. 
These duties include hearing appeals from adverse decisions by 
examiners, hearing adverse decisions by examiners on ex parte 
reexaminations, hearing appeals from inter partes 
reexamination, determining the right to patent in derivation 
proceedings, and conducting post-grant review proceedings.
    Also under amended Sec. 6(b), the Director is to assign 
each post-grant review proceeding to a panel of three 
administrative patent judges. It is the Committee's intention 
that only administrative patent judges may adjudicate post-
grant review proceedings and that the Director, Deputy 
Director, the Commissioner for Patents, and the Commissioner 
for Trademarks may not participate in the adjudication of post-
grant review proceedings. The purpose of this provision is to 
prevent political considerations from influencing post-grant 
opposition decisions.
    Section 7 also defines an additional term, ``cancellation 
petitioner'' as the real party in interest who requests a post-
grant review proceeding as provided in Chapter 32, and its 
privies.

         SEC. 8. STUDY AND REPORT ON REEXAMINATION PROCEEDINGS

    Section 8 directs the Director to conduct a study of the 
effectiveness and efficiency of reexamination proceedings 
available under Title 35 of the U.S. Code, and to submit a 
report on the results of the study to the Judiciary Committees 
of the House of Representatives and Senate, along with any 
suggestions or recommendations the Director may have to amend 
the law with respect to patent reexamination proceedings or 
otherwise change the way reexamination proceedings operate. The 
study is to be initiated not later than 2 years after the date 
of enactment of this Act. The Director should focus the study 
on whether ex parte reexamination, inter partes reexamination, 
or both, should be phased out or merged, particularly in light 
of the newly created post-grant opposition proceeding.

  SEC. 9. SUBMISSIONS BY THIRD PARTIES AND OTHER QUALITY ENHANCEMENTS

    Section 9 amends Sec. 122 which provides guidelines to the 
publication of pending patent applications. Under current 
Sec. 122(b)(2)(B), an applicant is allowed to request that an 
application not be published if the applicant certifies that 
the invention disclosed in the application will not be the 
subject of an application filed in another country or under a 
multilateral international agreement that requires publication 
of applications 18 months after filing. Section 122(b)(2)(B) is 
struck, thus all non-provisional utility patent applications 
will be published 18 months after application, unless they are 
abandoned prior to the 18 month publication date, or are 
subject to a secrecy order.
    Section 9 also adds Sec. 122(e) which allows third parties 
to submit patents, printed patent applications and other 
publications of potential relevance for consideration by an 
examiner and inclusion in the record of a published 
application. Third party submitted references must be made in 
writing before the earlier of either the mailing of a notice of 
allowance in the application for patent, or the later of 6 
months after the date of publication or the date of the first 
rejection under Sec. 132 of any claim in the application for 
patent. To be considered and placed in the record of a 
published application, a submitted reference must be 
accompanied by a concise description of its asserted relevance, 
any fee that may be prescribed by the Director, and a statement 
that the submission was made in compliance with Sec. 122.

             SEC. 10. TAX PLANNING METHODS NOT PATENTABLE.

    Section 10 amends Sec. 101, which defines patentable 
subject matter, by adding paragraph (b)(1) which states that a 
patent may not be obtained for a tax planning method. Paragraph 
(2) defines the operative terms. Here, a tax planning method is 
any plan, strategy, technique, or scheme that is designed to 
reduce, minimize, or defer a taxpayer's tax liability, or has 
such effect. Excluded from the definition (and hence not 
unpatentable) are tax preparation software or other tools used 
solely to perform or model mathematical calculations or prepare 
tax or information returns. The intention is to prohibit the 
following tax planning methods:

        (1) LPatents claiming strategies for reducing tax 
        liability;

        (2) LPatents claiming investment strategies, to the 
        extent the patent claims the sheltering of income from 
        tax liability; and

        (3) LPatents claiming strategies designed to maximize 
        investment return, to the extent the patent claims the 
        minimization of taxes on those returns.

    Excluded from the definition of ``tax planning method'' 
are, inter alia:

        (1) LPatents claiming software to assist in determining 
        tax liability; and

        (2) LBusiness method patents, including investment 
        strategies, to the extent tax planning methods are not 
        claimed

    If a patent or application claims both excluded and not-
excluded subject matter, the latter claims are unaffected by 
this amendment.
    The exceptions to non-patentability, found in 
Sec. 101(b)(2), covering tax preparation software and the like, 
does not necessarily mean that such items are patentable. 
Rather, any patent or application falling within the exception, 
whenever issued or filed, will be subject to generally 
applicable patent standards and procedures. The Committee does 
not intend by this exclusion to express any view on the 
patentability of such inventions.
    Pursuant to Sec. 101(b)(2)(B), ``taxpayer,'' for purposes 
of Sec. 101(b), is any individual, entity or other person (as 
defined by 26 U.S.C. Sec. 7701) subject to taxation or a tax 
law, or is required to prepare a tax return or other 
information for someone who is.
    ``Tax'' and related terms are defined by Sec. 101(b)(2)(C) 
and include any form of state, local or Federal tax, whether 
income, gift and estate, consumption and sales, property, ad 
valorem or any other similar government levy. It does not 
include foreign taxes.
    Section 10 becomes effective on the date of enactment of 
the Act. It applies to all applications filed on or after the 
effective date, and to all pending applications that have not 
resulted in an issued patent as of the effective date. Patents 
issued before the effective date are unaffected by this 
section. However, pursuant to Sec. 101(b)(3), this grandfather 
provision shall not be construed as validating any patent 
issued before the date of enactment of this Act for an 
invention described in 35 U.S.C. Sec. 101(b), as amended by 
this section.
    This provision expresses the Committee's intent that 
previously issued tax strategy patents should be evaluated, if 
subject to review in litigation or USPTO post-issuance review, 
based on standards existing at the time of issue. The 
prospective exclusion of such patents under Sec. 101(b) shall 
not be construed as expressing the Committee's view that, prior 
to that time, such patents were valid.

                    SEC. 11. VENUE AND JURISDICTION

Venue
    Section 11(a) amends 28 U.S.C. Sec. 1400(b) relating to 
venue in patent cases by completely replacing the current 
language with a detailed means for establishing venue. Section 
11 also amends Sec. 1292 of the same title pertaining to 
interlocutory appeals.
    The new Sec. 1400(b) prohibits manufactured venue by virtue 
of assignment, incorporation, or otherwise. As used in the case 
law, ``manufactured venue'' usually refers to a plaintiff 
taking advantage of the liberal venue rules in Sec. 1391, but 
still in literal compliance with the statute. See, e.g., Sidney 
Coal Co. v. SSA, 427 F.3d 336 (6th Cir. 2005). In this sense, 
manufactured venue is entirely permissible since venue cannot 
be defeated based on plaintiff's motives. Martin v. United 
States, 323 F. Supp. 1131 (D. Pa. 1970). Manufactured venue for 
patent venue purposes is redefined by Sec. 1400(b). It 
precludes venue otherwise permitted by Sec. 1400(c) and (d), if 
the circumstance on which venue is based has no independent 
purpose. It is similar to (but broader than) the collusive 
venue doctrine and similar in function to Sec. 1359 of the 
Judicial Code:

        ``A district court shall not have jurisdiction of a 
        civil action in which any party, by assignment or 
        otherwise, has been improperly or collusively made or 
        joined to invoke the jurisdiction of such court.''

    Examples of manufactured venue under amended Sec. 1400(b) 
include:

        (1) LA patent holder who assigns or licenses his patent 
        rights to a person or entity residing elsewhere, for no 
        apparent reason other than to obtain a preferred venue;

        (2) LCollusive or fraudulent joinder of a plaintiff or 
        defendant to secure venue based on that party's 
        location;

        (3) LA party incorporating or reincorporating, or 
        creating or merging with a subsidiary, in a district 
        primarily for venue purposes;

        (4) LA defendant who seeks a change of venue (see 
        Sec. 1400(d)) based on the situs of relevant evidence 
        or witnesses recently relocated or procured in the 
        transferee district.

    The sole authority for venue on the basis of defendant's 
residence is established under Sec. 1400(c). The expanded venue 
provisions of Sec. 1391(c) are no longer applicable to patent 
infringement cases, although they still are in other cases 
involving patents (e.g., declaratory judgment).
    Under paragraph Sec. 1400(c)(1), venue is proper at the 
following locations:

        (1) LWhere defendant has its principal place of 
        business; or

        (2) LWhere the defendant is incorporated, if a domestic 
        corporation; or

        (3) LWhere the defendant's primary United States 
        subsidiary, if any, has its principal place of business 
        or is incorporated, if the defendant is a foreign 
        corporation;

    The term ``where the defendant resides'' in existing 
Sec. 1400(b) was limited, in the case of a corporate defendant, 
to the state of its incorporation. Fourco Glass Co. v. 
Transmirra Products Corp., 353 U.S. 222 (1957). Within that 
state, its residency is where it has its principle place of 
business. Zin-Plas Corp. v Plumbing Quality AGF. Co., 622 F 
Supp 415 (WD Mich, 1985). The amendment to Sec. 1400(b) expands 
venue based on defendant's residency to include states other 
than the state of incorporation if their principal place of 
business is there, and in the case of foreign corporations. The 
term ``principal place of business'' has a long and well 
established meaning in case law, and its is the Committee's 
intention that the term be so defined. See, e.g., Panhandle 
Eastern Pipe Line Co. v. Federal Power Com'n., 324 U.S. 635 
(1945); United Nuclear Corp. v Moki Oil & Rare Metals Co., 364 
F2d 568 (10th Cir. 1966).
    A foreign defendant without a United States subsidiary 
could not be sued on the basis of Sec. 1400(c)(1). Where 
Sec. 1400 provides no forum for an infringement suit against a 
foreign defendant, a court should look to Sec. 1391(d) (``an 
alien may be sued in any district ''). Brunette Machine Works, 
Ltd. v. Kockum Industries, Inc., 406 U.S. 706, 714 (1972); Zin-
Plas Corp (infringement suit against U.S. citizen with no 
domestic residence governed by Sec. 1391(d)). The amendment to 
Sec. 1400 does not change this rule.
    The amendment to Sec. 1400(b)(1) also does not affect the 
rule that, in case of multiple defendants, venue must be proper 
for all of them. Thus, unless the principal place of business 
or state of incorporation are common, paragraph (1) may not be 
used as a basis for venue.
    Venue under Sec. 1400(c)(2) is more restrictive. Under 
current law, venue is where the defendant has committed acts of 
infringement and has a regular and established place of 
business. Section 1400(c)(2) adds two requirements:

        (1) La substantial portion of the acts of infringement 
        must occur in the district; and

        (2) Lthe defendant must have a regular and established 
        physical facility that the defendant controls and that 
        constitutes a substantial portion of the operations of 
        the defendant.

It is also important to note that both tests under subsection 
(c)(2) must be met. If not, plaintiffs must establish venue 
under the other subsections of this section.
    The requirement of substantial acts of infringement is 
intended to reduce plaintiff forum shopping, especially in 
cases of nationwide sales and uses. The other requirement, 
operations at defendant-controlled physical facility, may also 
reduce the available fora. Regular and established place of 
business, under the existing patent venue statute, is often 
interpreted to require a significant on-going corporate 
presence in the district, but a fixed physical presence has not 
been required. See, e.g., In re Cordis Corp., 769 F2d 733 (Fed. 
Cir. 1985). The amendment to Sec. 1400(c)(2) adds a fixed 
physical presence as a requirement.
    As per 35 U.S.C. Sec. 271(a), acts of infringement can 
occur where the defendant makes, uses, offers to sell, or sells 
any patented invention, or imports an infringing product into 
the United States. Venue based on Sec. 1400(c)(2) would exist 
only where a substantial portion of the infringing acts occurs. 
In the case of infringement by manufacture, that will likely be 
the defendant's principal manufacturing facility, at least for 
the infringing product, which may or may not also constitute a 
substantial portion of the operations of the defendant. If 
these conditions describe separate facilities in different 
districts, then venue cannot be based on Sec. 1400(c)(2). The 
same analysis would apply to infringement by use.
    In the case of infringement by sale or an offer to sell, a 
substantial portion of infringing acts describes where a 
substantial number of sales or offers occur. If defendant does 
not have a qualifying facility in that forum, then 
Sec. 1400(c)(2) is not available.
    Finally, the place of importation, if that is the 
infringing act, must also be where defendant has a qualifying 
physical facility.
    As with Sec. 1400(c)(1), venue based on Sec. 1400(c)(2) 
must be proper as to all defendants. A forum where a 
substantial portion of the acts of infringement occurs with 
respect to one defendant may not be the with respect to another 
defendant. Or, more likely, the multiple defendants will not 
all have qualifying physical facilities in the same forum.
    ``Congress does not in general intend to create venue 
gaps,'' Brunette, 406 at 710. The Committee recognizes, 
however, that the ``all defendants'' rules of Sec. 1400(c)(1) 
and (2) could, in isolated cases, leave a case without a 
suitable forum. It is not the Committee's intent that 
infringement plaintiffs not be able to sue at all. Therefore, 
where no district would have venue under Sec. 1400(c), the 
regular venue statute, 28 U.S.C. Sec. 1391, should apply.
    Under Sec. 1400(c)(3), venue is proper at the primary 
plaintiff's residence if it is an institution of higher 
education as defined by 20 U.S.C. Sec. 1010(a); e.g., 
accredited post-secondary 4-year degree-granting institutions 
and 2-year credit-granting institutions. Most plaintiffs taking 
advantage of this venue provision will be universities with 
research programs. In some cases, however, the university is 
not the patentee or the holder of patent rights, or not the 
``primary plaintiff.''
    Under Sec. 1400(c)(4), venue is proper where the plaintiff 
or subsidiary has an established physical facility dedicated to 
research, development, or manufacturing that is operated by 
full-time employees, or where the sole plaintiff is an 
individual inventor who is a natural person and who qualifies 
at the time such action is filed as a micro entity.
    The plaintiff's physical facility need not be the 
counterpart of a defendant's physical facility for venue under 
Sec. 1400(c)(2). It does not have to be regular and it does not 
have to constitute a substantial portion of the party's 
operations. But it does have to be operated by full-time 
employees, which, may approximate the ``regular'' requirement 
of Sec. 1400(c)(2). Moreover, the facility must be one for 
research, development, or manufacturing. This requirement will 
exclude many ``non-practicing entities;'' i.e., plaintiffs for 
whom the patent-in-suit is more of a financial or investment 
instrument than a means for manufacturing, using or marketing a 
product or process. It is the Committee's intention that 
university licensing entities, whether acting as a unit of a 
university or as a related third party, be considered a 
facility dedicated to research and development.
    As in the case of defendants, venue under Sec. 1400(c)(4) 
must be proper as to all plaintiffs in the case of multiple 
plaintiffs.
    The combined effect of Sec. 1400(c)(3) and (4) is to allow 
many plaintiffs to sue in the forum of their residence. 
However, excluded are patent holding companies and owners of 
``liquid patents.'' See, Amy Landers, Liquid Patents, 84 Denv. 
U.L. Rev. 199, 233 (2006). Venue in cases filed by such 
entities must be based on paragraphs Sec. 1400(c)(1) or (2).
    The exclusive method for change of venue in patent 
infringement cases is provided by Sec. 1400(d), supplanting the 
general change of venue statute, 28 U.S.C. Sec. 1404. In patent 
infringement cases, where venue is governed by Sec. 1400, a 
change of venue is permissible only to another district where 
the defendant has substantial evidence or witnesses, and change 
of venue is proper under Sec. 1404. Where it applies, a 
defendant can choose any forum that would have been proper 
under the old venue statute, as modified by 28 U.S.C. 
Sec. 1391(c) in the case of corporate defendants.
    It is expected that most motions for change of venue under 
Sec. 1400(d) will be filed by defendants. Egregious forms of 
defendant forum shopping are avoided by the rule against 
manufactured venue in Sec. 1400(a). Furthermore, a change of 
venue is discretionary with the district court.
    While Sec. 1400(d) supersedes 28 U.S.C. Sec. 1404, it does 
not supersede 28 U.S.C. Sec. 1406. This latter provision allows 
a court to cure a defect in venue by transferring the case to 
any district or division in which it could have been brought. 
It also allows the parties to waive venue defects, such as by 
failure to timely interpose an objection.
    The Committee understands that certain jurisdictions have 
seen a rapid rise in patent infringement filings in the first 
half of 2007, perhaps due to Congressional efforts to reform 
and bring balance to the patent laws. The Committee urges the 
courts to provide appropriate scrutiny to any recent case 
filings to ensure that they are being pursued in a proper 
venue, and where there is some nexus to the issues of the case. 
If cases have been inappropriately filed, the Committee urges 
the courts to consider transferring them to more appropriate 
forums, according to the procedures permitted under 28 U.S.C. 
Sec. 1404.
Interlocutory Appeals
    Section 11(b) amends 28 U.S.C. Sec. 1292(c) by allowing 
appeals from interlocutory orders that determine construction 
of claims in patent infringement suits. The district court will 
have discretion as to whether to approve the appeal and whether 
to stay the proceedings.
    In most patent infringement cases, a question is raised 
about the scope of the invention as defined by the claims and 
limitations in the patent. Because construing patent claims is 
usually complicated and is a matter of law, Markman v. Westview 
Instruments, Inc., 517 U.S. 370 (1996), courts often conduct 
pre-trial hearings to determine the scope of claims, without 
regard to the question of infringement. These so-called 
``Markman hearings'' do not neatly fit into the narrow 
categories of immediately appealable interlocutory orders and 
cannot ordinarily be appealed until after trial and judgment. 
Furthermore, the Committee has heard testimony that the Federal 
Circuit's reversal rate of claim construction is unusually 
high. For these reasons, the District Courts will now have to 
certify the interlocutory appeal for it to go forward.

 SEC. 12. ADDITIONAL INFORMATION; INEQUITABLE CONDUCT AS A DEFENSE TO 
                              INFRINGEMENT

Disclosure Requirements
    Section 12(a) amends Chapter 11 of Title 35 of the United 
States Code by adding Sec. Sec. 123 and 124.
    The newly created Sec. 123 gives the Director of the USPTO 
authority to require applicants to submit a search report with 
an analysis relevant to the patentability of the invention 
claimed in the application. Noncompliance with the requirements 
within the time periods prescribed by the Director as 
abandonment of the application are also addressed by Sec. 123.
    The proposed statutory language of Sec. 123 does not define 
in any detail what is necessary or sufficient to meet these 
requirements as the Committee believes that is best left to the 
Director. The USPTO has discussed the need for some sort of 
examination support document or applicant quality submission to 
improve the examination process. It may include a thorough 
search of the art in the field of the invention and in related 
fields in which one skilled in the art pertaining to the 
invention would expect to find information applicable to the 
invention. It is also expected that the information discovered 
by the search that is material to the patentability of the 
claimed invention be disclosed to the USPTO along with an 
analysis of how the information relates to the claimed 
invention and how the claimed invention us distinguished over 
the prior art information.
Micro Entities
    The newly created Sec. 124 defines a new category of 
applicant, known as a ``micro entity.'' Under Sec. 124(b), a 
micro entity is defined as a small entity who has not been 
named on five or more previously filed patent applications, has 
not assigned, granted or conveyed a license or other ownership 
interest in the application and is not under an obligation by 
contract or law to do so, and does not have a gross income of 
greater than 2.5 times the Average Gross Income (AGI) as 
reported by the Secretary of Labor. An applicant who has 
assigned rights in the application can qualify as a micro 
entity under Sec. 124(c) if the assignee or licensee is an 
entity with five or fewer employees and has a gross taxable 
income that does not exceed 2.5 times the AGI for the calendar 
year immediately preceding the year in which the examination 
fee is being paid. If the AGI for the previous year has not yet 
been reported, the AGI of the latest year for which it was 
reported should be used.
    The income level ceilings for micro entities under 
Sec. 124(b) and (c) may be further adjusted to reflect annual 
changes in the Consumer Price Index (CPI). This is intended to 
give the Director discretion to adjust the income qualification 
for micro entity status where the CPI rises substantially 
faster than AGI.
    Because fulfilling the requirements of Sec. 123 may be 
particularly burdensome on applicants that qualify as micro 
entities, such entities are exempted from the information 
submission requirements of Sec. 123.
Inequitable Conduct
    Section 12(b) codifies at 35 U.S.C. Sec. 282(c) the 
judicially-created doctrine of ``inequitable conduct'' as a 
defense to patent infringement. The defense of inequitable 
conduct was established by the courts as an equitable remedy 
aimed at deterring applicants from deliberately misstating or 
withholding information that is materially related to the 
examination of an application. The Federal Circuit has held 
that in order to prove inequitable conduct, there must be 
separate showings of: a) materiality of the information 
misstated or withheld and b) intent to deceive the patent 
office. Uncertainty has developed in the application of these 
standards. As such, this codification is intended to preserve 
the primary purpose of the defense, while also making its 
application more predictable and certain. Additionally, it is 
also intended that this codification will allay concerns patent 
applicants have in sharing information with the USPTO 
concerning the patentability of their inventions during 
prosecution.
    Under Sec. 282(c)(1), three substantive elements of the 
defense are spelled out. They are: (1) the applicant (or 
another with the duty to disclose) had ``the intent to mislead 
or deceive the patent examiner;'' (2) in furtherance of such 
intent, the applicant ``misrepresented or failed to disclose 
material information'' to the Office; and (3) in the absence of 
the misrepresentation or nondisclosure, the Office would have 
made a prima facie finding of unpatentability.
    Under Sec. 282(c)(2), intent must be proven as a separate 
element of the offense. Under current doctrine, some courts 
infer intent from the materiality of withheld or misrepresented 
information. The Committee believes this has lead to some 
unjust results. Accordingly, to prove intent under Sec. 282(c), 
specific facts beyond the materiality of the information 
misstated or withheld must be proven, showing deliberate or 
conscious action to deceive or mislead the USPTO. Because 
intent is a subjective matter, going to state of mind, it may 
still be proven inferentially (by circumstantial rather than 
direct evidence). Still, facts independent of the materiality 
of the information must be proven to support such inference.
    In addition to the requirement that the misrepresented or 
withheld information be ``material,'' the information must be 
such that, had the deception not occurred, the examiner would 
have made a prima facie finding that the claimed invention was 
unpatentable. As used here, a prima facie showing of 
unpatentability is a showing that the claimed invention is 
unpatentable for any reason based on the requirements of 
patentability provided in 35 U.S.C. Sec. 101, Sec. 102, 
Sec. 103 or Sec. 112, unless expressly prohibited by other 
parts of the patent statute, that may yet be overcome in a 
rebuttal by the patent applicant. The intention behind this 
codification is to provide clarity about which standard of 
materiality courts should use.
    Courts are given a range of remedies they may provide when 
inequitable conduct is found by Sec. 282(c)(3). These remedies 
include denying the patent holder an injunction against the 
infringer, holding the claims-in-suit or those in which the 
inequitable conduct occurred unenforceable, holding the entire 
patent unenforceable, and holding related patents 
unenforceable. The discretion in remedies given the courts is 
intended to allow them to apply remedies that are commensurate 
to the level of deception and materiality found. While the 
Committee expects the courts to continue to hold patents 
unenforceable where it is proven that the actions of the 
applicant or its agents are so culpable or egregious as to 
constitute fraud on the USPTO, and thereby merit such a harsh 
penalty, there may be circumstances which warrant a less severe 
penalty. For instance, where patent attorneys or agents acting 
without authority, direction or knowledge of the patent 
applicant are found solely responsible for the inequitable 
conduct, a penalty less than unenforceability of the entire 
patent may be in order. Further, there are most likely other 
scenarios that would similarly warrant a less severe penalty 
than holding the entire patent unenforceable, and it is 
expected that the courts will exercise their judgment in 
balancing the equities of each case to decide the appropriate 
remedy.
    Under Sec. 282(c)(4), attorneys and others who are licensed 
to practice before the USPTO may now also be held accountable 
for actions amounting to inequitable conduct where inequitable 
conduct is found and there is evidence that suggests such 
person licensed has engaged in inequitable conduct. These 
persons will be referred by court to the USPTO for disciplinary 
action. Additionally, the court shall order the parties to make 
available to the USPTO any evidence showing this person has 
engaged in inequitable conduct. The Committee has heard that 
people who engage in inequitable conduct are rarely held 
accountable for their actions. The lack of action by the USPTO 
to enforce its own rules concerning the duty imposed on 
attorneys and agents to act with candor, good faith and honesty 
before it creates the opportunity for abuse of these rules. As 
such, the intention behind this provision is to require that 
those persons found to have deceived the USPTO during patent 
prosecution are held accountable.
    Under Sec. 282(d), a person asserting the inequitable 
conduct defense must comply with Rule 9(b) of the Federal Rules 
of Civil Procedure. That means the circumstances constituting 
inequitable conduct must be plead with particularity. The 
pleader must identify specific information showing the 
materiality of misstated or withheld information, as described 
in this section. Averments of fraud or conscious or deliberate 
behavior to mislead or deceive the USPTO may be made generally. 
This requirement is intended to avoid use of the defense simply 
as a dilatory or settlement tactic.

                     SEC. 13. BEST MODE REQUIREMENT

    Section 13 amends Sec. 282(b) to eliminate as a defense to 
patent infringement the patentee's failure to comply with the 
best mode requirement of Sec. 112. Under current law, the 
defense of patent invalidity is available for failure to comply 
with any requirement of Sec. Sec. 112 (specification) or 251 
(reissued patents). Further, Sec. 282(b)(3) is amended to 
strike best mode as a defense; all other defenses are 
unaffected by section 13. The best mode requirement will 
otherwise remain in Sec. 112, where it can serve as a basis for 
rejection of a claim if it appears that the best mode 
contemplated by the inventor has not been disclosed.

                     SEC. 14. REGULATORY AUTHORITY

    Section 14(a) amends Sec. 2(c) to provide guidance as to 
the extent of rulemaking authority granted the USPTO under 
Sec. 2(b). Specifically, this amendment clarifies that the 
USPTO may make rules that pertain to the quality and timeliness 
of applications, which include establishing conditions on the 
use of continuations. The Committee chose to codify this 
amendment under Sec. 2(c) instead of Sec. 2(b) to confirm that 
such power was granted to the USPTO at least as early as 
enactment of Public Law 106-113 (1999), and that this change is 
only a ``clarification of specific powers'' granted in 
Sec. 2(b). To ensure there is no ambiguity on this point, 
section 14(b) states that this language should be construed as 
adding no new rulemaking powers to the USPTO.
    Typically, courts will give deference to the rules 
promulgated by agencies if an Act which charges the agency with 
responsibility doesn't speak to the issue that the rule 
pertains to. However, if direction on the issue can be found in 
the statute, any agency rules that conflict with the statute 
must be struck down.
    In In re Henriksen, 399 F.2d 253 (CCPA, 1968), the Court of 
Claims and Patent Appeals (CCPA) held that a Board of Patent 
Appeals and Interferences (BPAI) decision violated the USPTO's 
rule making authority. The BPAI had construed a limit on the 
number of continuations an applicant could file based on a 
literal reading of 35 USC Sec. 120 that would suggest only one 
or two continuations could ever be filed. The CCPA reversed the 
BPAI's decision, finding that the statute placed no 
restrictions on the number of continuations an applicant may 
obtain and thus the BPAI's mechanical rule on the number of 
continuations an applicant could file was inconsistent with 
Sec. 120. However, later precedent in In re Bogese II, 303 F.3d 
1362 (Fed. Cir., 2002), suggests that the USPTO may limit 
continuations when ``dilatory tactics'' are used in the 
prosecution of applications, thus leading to some confusion as 
to the nature of limits the USPTO can place on continuations 
through rulemaking.
    To resolve the ambiguity behind the USPTO's rulemaking 
authority that In re Hernicksen has caused, the Committee has 
clarified that the USPTO has always had authority to promulgate 
rules that place limitations or conditions on patent 
applications, including continuation applications, that do no 
directly contradict any limitations or conditions expressly 
stated in statute.

                     SEC. 15. TECHNICAL AMENDMENTS

    Section 15 makes a number of technical changes that improve 
the formatting or organization of the patent statute. None of 
the changes in this section are intended to substantive in any 
way.

           SEC. 16. STUDY OF SPECIAL MASTERS IN PATENT CASES

    Section 16 directs the Administrative Offices of the United 
States Courts, in consultation with the Federal Judicial 
Center, to study the use of special masters in patent 
infringement cases. This study will investigate what benefits, 
if any, are derived from the use of special masters in patent 
cases. The study will look into such factors as the costs and 
length of litigation when special masters are used, the role 
special masters are given in patent cases, the legal and 
technical background of special masters and any other factors 
that the Administrative Offices of the United States Courts or 
the Federal Judicial Center believe will assist in determining 
whether the use of special masters in patent litigation should 
be encouraged and/or supported.

                     SEC. 17. RULE OF CONSTRUCTION

    It is the Committee's intention to preserve the CREATE Act 
as originally codified in 35 USC Sec. 103(c), in the new 
Sec. 102(b)(3). Section 17 explicitly states this intention and 
directs any inquiry to the purpose of the new Sec. 102(b)(3) to 
the legislative history of the CREATE Act.

         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 (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

                      TITLE 35, UNITED STATES CODE



           *       *       *       *       *       *       *
PART I--UNITED STATES PATENT AND TRADEMARK OFFICE

           *       *       *       *       *       *       *


      CHAPTER 1--ESTABLISHMENT, OFFICERS AND EMPLOYEES, FUNCTIONS

Sec.
1.    Establishment.
     * * * * * * *
[6.    Board of Patent Appeals and Interferences.]
6.    Patent Trial and Appeal Board.
     * * * * * * *

Sec. 2. Powers and duties

    (a) * * *

           *       *       *       *       *       *       *

    (c) Clarification of Specific Powers.--(1) * * *

           *       *       *       *       *       *       *

    (6) The powers granted under paragraph (2) of subsection 
(b) include the authority to promulgate regulations to ensure 
the quality and timeliness of applications and their 
examination, including specifying circumstances under which an 
application for patent may claim the benefit under sections 
120, 121 and 365(c) of the filing date of a prior filed 
application for patent.

           *       *       *       *       *       *       *


[Sec. 6. Board of Patent Appeals and Interferences

    [(a) Establishment and Composition.--There shall be in the 
United States Patent and Trademark Office a Board of Patent 
Appeals and Interferences. The Director, the Commissioner for 
Patents, the Commissioner for Trademarks, and the 
administrative patent judges shall constitute the Board. The 
administrative patent judges shall be persons of competent 
legal knowledge and scientific ability who are appointed by the 
Director.
    [(b) Duties.--The Board of Patent Appeals and Interferences 
shall, on written appeal of an applicant, review adverse 
decisions of examiners upon applications for patents and shall 
determine priority and patentability of invention in 
interferences declared under section 135(a). Each appeal and 
interference shall be heard by at least three members of the 
Board, who shall be designated by the Director. Only the Board 
of Patent Appeals and Interferences may grant rehearings.]

Sec. 6. Patent Trial and Appeal Board

    (a) Establishment and Composition.--There shall be in the 
Office a Patent Trial and Appeal Board. The Director, the 
Deputy Director, the Commissioner for Patents, the Commissioner 
for Trademarks, and the administrative patent judges shall 
constitute the Patent Trial and Appeal Board. The 
administrative patent judges shall be persons of competent 
legal knowledge and scientific ability who are appointed by the 
Director. Any reference in any Federal law, Executive order, 
rule, regulation, or delegation of authority, or any document 
of or pertaining to the Board of Patent Appeals and 
Interferences is deemed to refer to the Patent Trial and Appeal 
Board.
    (b) Duties.--The Patent Trial and Appeal Board shall--
            (1) on written appeal of an applicant, review 
        adverse decisions of examiners upon application for 
        patents;
            (2) on written appeal of a patent owner, review 
        adverse decisions of examiners upon patents in 
        reexamination proceedings under chapter 30;
            (3) review appeals by patent owners and third-party 
        requesters under section 315;
            (4) conduct post-grant opposition proceedings under 
        chapter 32.
Each appeal and derivation proceeding shall be heard by at 
least 3 members of the Patent Trial and Appeal Board, who shall 
be designated by the Director. Only the Patent Trial and Appeal 
Board may grant rehearings. The Director shall assign each 
post-grant review proceeding to a panel of 3 administrative 
patent judges. Once assigned, each such panel of administrative 
patent judges shall have the responsibilities under chapter 32 
in connection with post-grant review proceedings.

           *       *       *       *       *       *       *


Sec. 41. Patent fees; patent and trademark search systems

    (a) The Director shall charge the following fees:
            (1) * * *
            (6)(A) On filing an appeal from the examiner to the 
        [Board of Patent Appeals and Interferences] Patent 
        Trial and Appeal Board, $300.
            (B) In addition, on filing a brief in support of 
        the appeal, $300, and on requesting an oral hearing in 
        the appeal before the [Board of Patent Appeals and 
        Interferences] Patent Trial and Appeal Board, $260.

           *       *       *       *       *       *       *


PART II--PATENTABILITY OF INVENTIONS AND GRANT OF PATENTS

           *       *       *       *       *       *       *


                CHAPTER 10--PATENTABILITY OF INVENTIONS

Sec.
100.    Definitions.
101.    Inventions patentable.
[102.   Conditions for patentability; novelty and loss of right to 
          patent.]
102.    Conditions for patentability; novelty.
     * * * * * * *
[104.    Invention made abroad.]

           *       *       *       *       *       *       *


Sec. 100. Definitions

    When used in this title unless the context otherwise 
indicates--
    (a) * * *

           *       *       *       *       *       *       *

    (e) The term ``third-party requester'' means a person 
requesting ex parte reexamination under section 302 [or inter 
partes reexamination under section 311] who is not the patent 
owner.
    (f) The term ``inventor'' means the individual or, if a 
joint invention, the individuals collectively who invented or 
discovered the subject matter of the invention.
    (g) The terms ``joint inventor'' and ``coinventor'' mean 
any one of the individuals who invented or discovered the 
subject matter of a joint invention.
    (h) The ``effective filing date of a claimed invention'' 
is--
            (1) the filing date of the patent or the 
        application for patent containing the claim to the 
        invention; or
            (2) if the patent or application for patent is 
        entitled to a right of priority of any other 
        application under section 119, 365(a), or 365(b) or to 
        the benefit of an earlier filing date in the United 
        States under section 120, 121, or 365(c), the filing 
        date of the earliest such application in which the 
        claimed invention is disclosed in the manner provided 
        by section 112(a).
    (i) The term ``claimed invention'' means the subject matter 
defined by a claim in a patent or an application for a patent.
    (j) The term ``joint invention'' means an invention 
resulting from the collaboration of inventive endeavors of two 
or more persons working toward the same end and producing an 
invention by their collective efforts.
    (k) The term ``cancellation petitioner'' means the real 
party in interest requesting cancellation of any claim of a 
patent under chapter 32 of this title and the privies of the 
real party in interest.

Sec. 101. Inventions patentable

    [Whoever] (a) Patentable inventions.--Whoever invents or 
discovers any new and useful process, machine, manufacture, or 
composition of matter, or any new and useful improvement 
thereof, may obtain a patent therefor, subject to the 
conditions and requirements of this title.
    (b) Tax Planning Methods.--
            (1) Unpatentable subject matter.--A patent may not 
        be obtained for a tax planning method.
            (2) Definitions.--For purposes of paragraph (1)--
                    (A) the term ``tax planning method'' means 
                a plan, strategy, technique, or scheme that is 
                designed to reduce, minimize, or defer, or has, 
                when implemented, the effect of reducing, 
                minimizing, or deferring, a taxpayer's tax 
                liability, but does not include the use of tax 
                preparation software or other tools used solely 
                to perform or model mathematical calculations 
                or prepare tax or information returns;
                    (B) the term ``taxpayer'' means an 
                individual, entity, or other person (as defined 
                in section 7701 of the Internal Revenue Code of 
                1986) that is subject to taxation directly, is 
                required to prepare a tax return or information 
                statement to enable one or more other persons 
                to determine their tax liability, or is 
                otherwise subject to a tax law;
                  (C) the terms ``tax'', ``tax laws'', ``tax 
                liability'', and ``taxation'' refer to any 
                Federal, State, county, city, municipality, or 
                other governmental levy, assessment, or 
                imposition, whether measured by income, value, 
                or otherwise; and
                    (D) the term ``State'' means each of the 
                several States, the District of Columbia, and 
                any commonwealth, territory, or possession of 
                the United States.

[Sec. 102. Conditions for patentability; novelty and loss of right to 
                    patent

    A person shall be entitled to a patent unless--
    [(a) the invention was known or used by others in this 
country, or patented or described in a printed publication in 
this or a foreign country, before the invention thereof by the 
applicant for patent, or
    [(b) the invention was patented or described in a printed 
publication in this or a foreign country or in public use or on 
sale in this country, more than one year prior to the date of 
the application for patent in the United States, or
    [(c) he has abandoned the invention, or
    [(d) the invention was first patented or caused to be 
patented, or was the subject of an inventor's certificate, by 
the applicant or his legal representatives or assigns in a 
foreign country prior to the date of the application for patent 
in this country on an application for patent or inventor's 
certificate filed more than twelve months before the filing of 
the application in the United States, or
    [(e) the invention was described in (1) an application for 
patent, published under section 122(b), by another filed in the 
United States before the invention by the applicant for patent 
or (2) a patent granted on an application for patent by another 
filed in the United States before the invention by the 
applicant for patent, except that an international application 
filed under the treaty defined in section 351(a) shall have the 
effects for the purposes of this subsection of an application 
filed in the United States only if the international 
application designated the United States and was published 
under Article 21(2) of such treaty in the English language; or
    [(f) he did not himself invent the subject matter sought to 
be patented, or
    [(g)(1) during the course of an interference conducted 
under section 135 or section 291, another inventor involved 
therein establishes, to the extent permitted in section 104, 
that before such person's invention thereof the invention was 
made by such other inventor and not abandoned, suppressed, or 
concealed, or (2) before such person's invention thereof, the 
invention was made in this country by another inventor who had 
not abandoned, suppressed, or concealed it. In determining 
priority of invention under this subsection, there shall be 
considered not only the respective dates of conception and 
reduction to practice of the invention, but also the reasonable 
diligence of one who was first to conceive and last to reduce 
to practice, from a time prior to conception by the other.

[Sec. 103. Conditions for patentability; non-obvious subject matter

    [(a) A patent may not be obtained though the invention is 
not identically disclosed or described as set forth in section 
102 of this title, if the differences between the subject 
matter sought to be patented and the prior art are such that 
the subject matter as a whole would have been obvious at the 
time the invention was made to a person having ordinary skill 
in the art to which said subject matter pertains. Patentability 
shall not be negatived by the manner in which the invention was 
made.
    [(b)(1) Notwithstanding subsection (a), and upon timely 
election by the applicant for patent to proceed under this 
subsection, a biotechnological process using or resulting in a 
composition of matter that is novel under section 102 and 
nonobvious under subsection (a) of this section shall be 
considered nonobvious if--
            [(A) claims to the process and the composition of 
        matter are contained in either the same application for 
        patent or in separate applications having the same 
        effective filing date; and
            [(B) the composition of matter, and the process at 
        the time it was invented, were owned by the same person 
        or subject to an obligation of assignment to the same 
        person.
    [(2) A patent issued on a process under paragraph (1)--
            [(A) shall also contain the claims to the 
        composition of matter used in or made by that process, 
        or
            [(B) shall, if such composition of matter is 
        claimed in another patent, be set to expire on the same 
        date as such other patent, notwithstanding section 154.
    [(3) For purposes of paragraph (1), the term 
``biotechnological process'' means--
            [(A) a process of genetically altering or otherwise 
        inducing a single- or multi-celled organism to--
                    [(i) express an exogenous nucleotide 
                sequence,
                    [(ii) inhibit, eliminate, augment, or alter 
                expression of an endogenous nucleotide 
                sequence, or
                    [(iii) express a specific physiological 
                characteristic not naturally associated with 
                said organism;
            [(B) cell fusion procedures yielding a cell line 
        that expresses a specific protein, such as a monoclonal 
        antibody; and
            [(C) a method of using a product produced by a 
        process defined by subparagraph (A) or (B), or a 
        combination of subparagraphs (A) and (B).
    [(c)(1) Subject matter developed by another person, which 
qualifies as prior art only under one or more of subsections 
(e), (f), and (g) of section 102 of this title, shall not 
preclude patentability under this section where the subject 
matter and the claimed invention were, at the time the claimed 
invention was made, owned by the same person or subject to an 
obligation of assignment to the same person.
    [(2) For purposes of this subsection, subject matter 
developed by another person and a claimed invention shall be 
deemed to have been owned by the same person or subject to an 
obligation of assignment to the same person if--
            [(A) the claimed invention was made by or on behalf 
        of parties to a joint research agreement that was in 
        effect on or before the date the claimed invention was 
        made;
            [(B) the claimed invention was made as a result of 
        activities undertaken within the scope of the joint 
        research agreement; and
            [(C) the application for patent for the claimed 
        invention discloses or is amended to disclose the names 
        of the parties to the joint research agreement.
    [(3) For purposes of paragraph (2), the term ``joint 
research agreement'' means a written contract, grant, or 
cooperative agreement entered into by two or more persons or 
entities for the performance of experimental, developmental, or 
research work in the field of the claimed invention.

[Sec. 104. Invention made abroad

    [(a) In General.--
            [(1) Proceedings.--In proceedings in the Patent and 
        Trademark Office, in the courts, and before any other 
        competent authority, an applicant for a patent, or a 
        patentee, may not establish a date of invention by 
        reference to knowledge or use thereof, or other 
        activity with respect thereto, in a foreign country 
        other than a NAFTA country or a WTO member country, 
        except as provided in sections 119 and 365 of this 
        title.
            [(2) Rights.--If an invention was made by a person, 
        civil or military--
                    [(A) while domiciled in the United States, 
                and serving in any other country in connection 
                with operations by or on behalf of the United 
                States,
                    [(B) while domiciled in a NAFTA country and 
                serving in another country in connection with 
                operations by or on behalf of that NAFTA 
                country, or
                    [(C) while domiciled in a WTO member 
                country and serving in another country in 
                connection with operations by or on behalf of 
                that WTO member country,
        that person shall be entitled to the same rights of 
        priority in the United States with respect to such 
        invention as if such invention had been made in the 
        United States, that NAFTA country, or that WTO member 
        country, as the case may be.
            [(3) Use of information.--To the extent that any 
        information in a NAFTA country or a WTO member country 
        concerning knowledge, use, or other activity relevant 
        to proving or disproving a date of invention has not 
        been made available for use in a proceeding in the 
        Patent and Trademark Office, a court, or any other 
        competent authority to the same extent as such 
        information could be made available in the United 
        States, the Director, court, or such other authority 
        shall draw appropriate inferences, or take other action 
        permitted by statute, rule, or regulation, in favor of 
        the party that requested the information in the 
        proceeding.
    [(b) Definitions.--As used in this section--
            [(1) the term ``NAFTA country'' has the meaning 
        given that term in section 2(4) of the North American 
        Free Trade Agreement Implementation Act; and
            [(2) the term ``WTO member country'' has the 
        meaning given that term in section 2(10) of the Uruguay 
        Round Agreements Act.]

Sec. 102. Conditions for patentability; novelty

    (a) Novelty; Prior Art.--A patent for a claimed invention 
may not be obtained if--
            (1) the claimed invention was patented, described 
        in a printed publication, in public use, or on sale--
                    (A) more than one year before the effective 
                filing date of the claimed invention; or
                    (B) one year or less before the effective 
                filing date of the claimed invention, other 
                than through disclosures made by the inventor 
                or a joint inventor or by others who obtained 
                the subject matter disclosed directly or 
                indirectly from the inventor or a joint 
                inventor; or
            (2) the claimed invention was described in a patent 
        issued under section 151, or in an application for 
        patent published or deemed published under section 
        122(b), in which the patent or application, as the case 
        may be, names another inventor and was effectively 
        filed before the effective filing date of the claimed 
        invention.
    (b) Exceptions.--
            (1) Prior inventor disclosure exception.--Subject 
        matter that would otherwise qualify as prior art based 
        upon a disclosure under subparagraph (B) of subsection 
        (a)(1) shall not be prior art to a claimed invention 
        under that subparagraph if the subject matter had, 
        before such disclosure, been publicly disclosed by the 
        inventor or a joint inventor or others who obtained the 
        subject matter disclosed directly or indirectly from 
        the inventor or a joint inventor.
            (2) Derivation, prior disclosure, and common 
        assignment exceptions.--Subject matter that would 
        otherwise qualify as prior art only under subsection 
        (a)(2) shall not be prior art to a claimed invention 
        if--
                    (A) the subject matter was obtained 
                directly or indirectly from the inventor or a 
                joint inventor;
                    (B) the subject matter had been publicly 
                disclosed by the inventor or a joint inventor 
                or others who obtained the subject matter 
                disclosed directly or indirectly from the 
                inventor or a joint inventor before the date on 
                which the application or patent referred to in 
                subsection (a)(2) was effectively filed; or
                    (C) the subject matter and the claimed 
                invention, not later than the effective filing 
                date of the claimed invention, were owned by 
                the same person or subject to an obligation of 
                assignment to the same person.
            (3) Joint research agreement exception.--
                    (A) In general.--Subject matter and a 
                claimed invention shall be deemed to have been 
                owned by the same person or subject to an 
                obligation of assignment to the same person in 
                applying the provisions of paragraph (2) if--
                            (i) the claimed invention was made 
                        by or on behalf of parties to a joint 
                        research agreement that was in effect 
                        on or before the effective filing date 
                        of the claimed invention;
                            (ii) the claimed invention was made 
                        as a result of activities undertaken 
                        within the scope of the joint research 
                        agreement; and
                            (iii) the application for patent 
                        for the claimed invention discloses or 
                        is amended to disclose the names of the 
                        parties to the joint research 
                        agreement.
                    (B) For purposes of subparagraph (A), the 
                term ``joint research agreement'' means a 
                written contract, grant, or cooperative 
                agreement entered into by two or more persons 
                or entities for the performance of 
                experimental, developmental, or research work 
                in the field of the claimed invention.
            (4) Patents and published applications effectively 
        filed.--A patent or application for patent is 
        effectively filed under subsection (a)(2) with respect 
        to any subject matter described in the patent or 
        application--
                    (A) as of the filing date of the patent or 
                the application for patent; or
                    (B) if the patent or application for patent 
                is entitled to claim a right of priority under 
                section 119, 365(a), or 365(b) or to claim the 
                benefit of an earlier filing date under section 
                120, 121, or 365(c), based upon one or more 
                prior filed applications for patent, as of the 
                filing date of the earliest such application 
                that describes the subject matter.

Sec. 103. Conditions for patentability; nonobvious subject matter

    A patent for a claimed invention may not be obtained though 
the claimed invention is not identically disclosed as set forth 
in section 102, if the differences between the claimed 
invention and the prior art are such that the claimed invention 
as a whole would have been obvious before the effective filing 
date of the claimed invention to a person having ordinary skill 
in the art to which the claimed invention pertains. 
Patentability shall not be negated by the manner in which the 
invention was made.

           *       *       *       *       *       *       *


                   CHAPTER 11--APPLICATION FOR PATENT

Sec.
111.    Application.
     * * * * * * *
[115.    Oath of applicant.]
115.    Inventor's oath or declaration.
     * * * * * * *
123.    Additional information.
124.    Micro entities.

           *       *       *       *       *       *       *


Sec. 111. Application

    (a) In General.--
            (1) * * *
            (2) Contents.--Such application shall include--
                    (A) * * *

           *       *       *       *       *       *       *

                    (C) an oath [by the applicant] or 
                declaration as prescribed by section 115 of 
                this title.
          (3) Fee [and oath].--The application must be 
        accompanied by the fee required by law. The fee [and 
        oath] may be submitted after the specification and any 
        required drawing are submitted, within such period and 
        under such conditions, including the payment of a 
        surcharge, as may be prescribed by the Director.
            (4) Failure to submit.--Upon failure to submit the 
        fee [and oath] within such prescribed period, the 
        application shall be regarded as abandoned, unless it 
        is shown to the satisfaction of the Director that the 
        delay in submitting the fee [and oath] was unavoidable 
        or unintentional. The filing date of an application 
        shall be the date on which the specification and any 
        required drawing are received in the Patent and 
        Trademark Office.
    (b) Provisional Application.--
            (1) * * *

           *       *       *       *       *       *       *

            (8) Applicable provisions.--The provisions of this 
        title relating to applications for patent shall apply 
        to provisional applications for patent, except as 
        otherwise provided, and except that provisional 
        applications for patent shall not be subject to 
        [sections 115, 131, 135, and 157] sections 131 and 135 
        of this title.

Sec. 112. Specification

    [The specification] (a) In general.--The specification 
shall contain a written description of the invention, and of 
the manner and process of making and using it, in such full, 
clear, concise, and exact terms as to enable any person skilled 
in the art to which it pertains, or with which it is most 
nearly connected, to make and use the same, and shall set forth 
the best mode contemplated by the inventor [of carrying out his 
invention] or joint inventor of carrying out the invention.
    [The specification] (b) Conclusion.--The specification 
shall conclude with one or more claims particularly pointing 
out and distinctly claiming the subject matter which the 
[applicant regards as his invention] inventor or a joint 
inventor regards as the invention.
    [A claim] (c) Form.--A claim may be written in independent 
or, if the nature of the case admits, in dependent or multiple 
dependent form.
    [Subject to the following paragraph,] (d) Reference in 
dependent forms.--Subject to subsection (e), a claim in 
dependent form shall contain a reference to a claim previously 
set forth and then specify a further limitation of the subject 
matter claimed. A claim in dependent form shall be construed to 
incorporate by reference all the limitations of the claim to 
which it refers.
    [A claim] (e) Reference in multiple dependent form.--A 
claim in multiple dependent form shall contain a reference, in 
the alternative only, to more than one claim previously set 
forth and then specify a further limitation of the subject 
matter claimed. A multiple dependent claim shall not serve as a 
basis for any other multiple dependent claim. A multiple 
dependent claim shall be construed to incorporate by reference 
all the limitations of the particular claim in relation to 
which it is being considered.
    [An element] (f) Element in claim for a combination.--An 
element in a claim for a combination may be expressed as a 
means or step for performing a specified function without the 
recital of structure, material, or acts in support thereof, and 
such claim shall be construed to cover the corresponding 
structure, material, or acts described in the specification and 
equivalents thereof.

           *       *       *       *       *       *       *


[Sec. 115. Oath of applicant

    [The applicant shall make oath that he believes himself to 
be the original and first inventor of the process, machine, 
manufacture, or composition of matter, or improvement thereof, 
for which he solicits a patent; and shall state of what country 
he is a citizen. Such oath may be made before any person within 
the United States authorized by law to administer oaths, or, 
when, made in a foreign country, before any diplomatic or 
consular officer of the United States authorized to administer 
oaths, or before any officer having an official seal and 
authorized to administer oaths in the foreign country in which 
the applicant may be, whose authority is proved by certificate 
of a diplomatic or consular officer of the United States, or 
apostille of an official designated by a foreign country which, 
by treaty or convention, accords like effect to apostilles of 
designated officials in the United States, and such oath shall 
be valid if it complies with the laws of the state or country 
where made. When the application is made as provided in this 
title by a person other than the inventor, the oath may be so 
varied in form that it can be made by him. For purposes of this 
section, a consular officer shall include any United States 
citizen serving overseas, authorized to perform notarial 
functions pursuant to section 1750 of the Revised Statutes, as 
amended (22 U.S.C. 4221).]

Sec. 115. Inventor's oath or declaration

    (a) Naming the Inventor; Inventor's Oath or Declaration.--
An application for patent that is filed under section 111(a), 
that commences the national stage under section 363, or that is 
filed by an inventor for an invention for which an application 
has previously been filed under this title by that inventor 
shall include, or be amended to include, the name of the 
inventor of any claimed invention in the application. Except as 
otherwise provided in this section, each individual who is the 
inventor or a joint inventor of a claimed invention in an 
application for patent shall execute an oath or declaration in 
connection with the application.
    (b) Required Statements.--An oath or declaration by an 
individual under subsection (a) shall contain statements that--
            (1) the application was made or was authorized to 
        be made by individual; and
            (2) the individual believes himself or herself to 
        be the original inventor or an original joint inventor 
        of a claimed invention in the application.
    (c) Additional Requirements.--The Director may specify 
additional information relating to the inventor and the 
invention that is required to be included in an oath or 
declaration under subsection (a).
    (d) Substitute Statement.--
            (1) In general.--In lieu of executing an oath or 
        declaration under subsection (a), the applicant for 
        patent may provide a substitute statement under the 
        circumstances described in paragraph (2) and such 
        additional circumstances that the Director may specify 
        by regulation.
            (2) Permitted circumstances.--A substitute 
        statement under paragraph (1) is permitted with respect 
        to any individual who--
                    (A) is unable to file the oath or 
                declaration under subsection (a) because the 
                individual--
                            (i) is deceased;
                            (ii) is under legal incapacity; or
                            (iii) cannot be found or reached 
                        after diligent effort; or
                    (B) is under an obligation to assign the 
                invention and has refused to make the oath or 
                declaration required under subsection (a).
            (3) Contents.--A substitute statement under this 
        subsection shall--
                    (A) identify the individual with respect to 
                whom the statement applies;
                    (B) set forth the circumstances 
                representing the permitted basis for the filing 
                of the substitute statement in lieu of the oath 
                or declaration under subsection (a); and
                    (C) contain any additional information, 
                including any showing, required by the 
                Director.
    (e) Making Required Statements in Assignment of Record.--An 
individual who is under an obligation of assignment of an 
application for patent may include the required statements 
under subsections (b) and (c) in the assignment executed by the 
individual, in lieu of filing such statements separately.
    (f) Time for Filing.--A notice of allowance under section 
151 may be provided to an applicant for patent only if the 
applicant for patent has filed each required oath or 
declaration under subsection (a) or has filed a substitute 
statement under subsection (d) or recorded an assignment 
meeting the requirements of subsection (e).
    (g) Earlier-Filed Application Containing Required 
Statements or Substitute Statement.--The requirements under 
this section shall not apply to an individual with respect to 
an application for patent in which the individual is named as 
the inventor or a joint inventor and that claims the benefit of 
an earlier filing date under section 120 or 365(c), if--
            (1) an oath or declaration meeting the requirements 
        of subsection (a) was executed by the individual and 
        was filed in connection with the earlier-filed 
        application;
            (2) a substitute statement meeting the requirements 
        of subsection (d) was filed in the earlier filed 
        application with respect to the individual; or
            (3) an assignment meeting the requirements of 
        subsection (e) was executed with respect to the 
        earlier-filed application by the individual and was 
        recorded in connection with the earlier-filed 
        application.
    (h) Supplemental and Corrected Statements; Filing 
Additional Statements.--
            (1) In general.--Any person making a statement 
        required under this section may withdraw, replace, or 
        otherwise correct the statement at any time. If a 
        change is made in the naming of the inventor requiring 
        the filing of 1 or more additional statements under 
        this section, such additional statements shall be filed 
        in accordance with regulations established by the 
        Director.
            (2) Supplemental statements not required.--If an 
        individual has executed an oath or declaration under 
        subsection (a) or an assignment meeting the 
        requirements of subsection (e) with respect to an 
        application for patent, the Director may not thereafter 
        require that individual to make any additional oath, 
        declaration, or other statement equivalent to those 
        required by this section in connection with the 
        application for patent or any patent issuing thereon.
            (3) Savings clause.--No patent shall be invalid or 
        unenforceable based upon the failure to comply with a 
        requirement under this section if the failure is 
        remedied as provided under paragraph (1).
    (i) Acknowledgment of Penalties.--Any declaration or 
statement filed under this section must contain an 
acknowledgment that any willful false statement is punishable 
by fine or imprisonment, or both, under section 1001 of title 
18.

Sec. 116. Inventors

    [When] (a) Joint Inventions.--When an invention is made by 
two or more persons jointly, they shall apply for patent 
jointly and each make the required oath, except as otherwise 
provided in this title. Inventors may apply for a patent 
jointly even though (1) they did not physically work together 
or at the same time, (2) each did not make the same type or 
amount of contribution, or (3) each did not make a contribution 
to the subject matter of every claim of the patent.
    [If a joint inventor] (b) Omitted Inventor.--If a joint 
inventor refuses to join in an application for patent or cannot 
be found or reached after diligent effort, the application may 
be made by the other inventor on behalf of himself and the 
omitted inventor. The Director, on proof of the pertinent facts 
and after such notice to the omitted inventor as he prescribes, 
may grant a patent to the inventor making the application, 
subject to the same rights which the omitted inventor would 
have had if he had been joined. The omitted inventor may 
subsequently join in the application.
    [Whenever] (c) Correction of Errors in Application.--
Whenever through error a person is named in an application for 
patent as the inventor, or through error an inventor is not 
named in an application, and such error arose without any 
deceptive intention on his part, the Director may permit the 
application to be amended accordingly, under such terms as he 
prescribes.

           *       *       *       *       *       *       *


[Sec. 118. Filing by other than inventor

    [Whenever an inventor refuses to execute an application for 
patent, or cannot be found or reached after diligent effort, a 
person to whom the inventor has assigned or agreed in writing 
to assign the invention or who otherwise shows sufficient 
proprietary interest in the matter justifying such action, may 
make application for patent on behalf of and as agent for the 
inventor on proof of the pertinent facts and a showing that 
such action is necessary to preserve the rights of the parties 
or to prevent irreparable damage; and the Director may grant a 
patent to such inventor upon such notice to him as the Director 
deems sufficient, and on compliance with such regulations as he 
prescribes.]

Sec. 118. Filing by other than inventor

    A person to whom the inventor has assigned or is under an 
obligation to assign the invention may make an application for 
patent. A person who otherwise shows sufficient proprietary 
interest in the matter may make an application for patent on 
behalf of and as agent for the inventor on proof of the 
pertinent facts and a showing that such action is appropriate 
to preserve the rights of the parties. If the Director grants a 
patent on an application filed under this section by a person 
other than the inventor, the patent shall be granted to the 
real party in interest and upon such notice to the inventor as 
the Director considers to be sufficient.

Sec. 119. Benefit of earlier filing date; right of priority

    (a) An application for patent for an invention filed in 
this country by any person who has, or whose legal 
representatives or assigns have, previously regularly filed an 
application for a patent for the same invention in a foreign 
country which affords similar privileges in the case of 
applications filed in the United States or to citizens of the 
United States, or in a WTO member country, shall have the same 
effect as the same application would have if filed in this 
country on the date on which the application for patent for the 
same invention was first filed in such foreign country, if the 
application in this country is filed within twelve months from 
the earliest date on which such foreign application was filed[; 
but no patent shall be granted on any application for patent 
for an invention which had been patented or described in a 
printed publication in any country more than one year before 
the date of the actual filing of the application in this 
country, or which had been in public use or on sale in this 
country more than one year prior to such filing].

           *       *       *       *       *       *       *


Sec. 120. Benefit of earlier filing date in the United States

    An application for patent for an invention disclosed in the 
manner provided by the first paragraph of section 112 of this 
title in an application previously filed in the United States, 
or as provided by section 363 of this title, [which is filed by 
an inventor or inventors named] which names an inventor or 
joint inventor in the previously filed application shall have 
the same effect, as to such invention, as though filed on the 
date of the prior application, if filed before the patenting or 
abandonment of or termination of proceedings on the first 
application or on an application similarly entitled to the 
benefit of the filing date of the first application and if it 
contains or is amended to contain a specific reference to the 
earlier filed application. No application shall be entitled to 
the benefit of an earlier filed application under this section 
unless an amendment containing the specific reference to the 
earlier filed application is submitted at such time during the 
pendency of the application as required by the Director. The 
Director may consider the failure to submit such an amendment 
within that time period as a waiver of any benefit under this 
section. The Director may establish procedures, including the 
payment of a surcharge, to accept an unintentionally delayed 
submission of an amendment under this section.

Sec. 121. Divisional applications

    If two or more independent and distinct inventions are 
claimed in one application, the Director may require the 
application to be restricted to one of the inventions. If the 
other invention is made the subject of a divisional application 
which complies with the requirements of section 120 of this 
title it shall be entitled to the benefit of the filing date of 
the original application. A patent issuing on an application 
with respect to which a requirement for restriction under this 
section has been made, or on an application filed as a result 
of such a requirement, shall not be used as a reference either 
in the Patent and Trademark Office or in the courts against a 
divisional application or against the original application or 
any patent issued on either of them, if the divisional 
application is filed before the issuance of the patent on the 
other application. [If a divisional application is directed 
solely to subject matter described and claimed in the original 
application as filed, the Director may dispense with signing 
and execution by the inventor.] The validity of a patent shall 
not be questioned for failure of the Director to require the 
application to be restricted to one invention.

Sec. 122. Confidential status of applications; publication of patent 
                    applications

    (a) * * *
    (b) Publication.--
            (1) * * *
            (2) Exceptions.--[(A)] An application shall not be 
        published if that application is--
                    [(i)] (A) no longer pending;
                    [(ii)] (B) subject to a secrecy order under 
                section 181 of this title;
                    [(iii)] (C) a provisional application filed 
                under section 111(b) of this title; or
                    [(iv)] (D) an application for a design 
                patent filed under chapter 16 of this title.
            [(B)(i) If an applicant makes a request upon 
        filing, certifying that the invention disclosed in the 
        application has not and will not be the subject of an 
        application filed in another country, or under a 
        multilateral international agreement, that requires 
        publication of applications 18 months after filing, the 
        application shall not be published as provided in 
        paragraph (1).
            [(ii) An applicant may rescind a request made under 
        clause (i) at any time.
            [(iii) An applicant who has made a request under 
        clause (i) but who subsequently files, in a foreign 
        country or under a multilateral international agreement 
        specified in clause (i), an application directed to the 
        invention disclosed in the application filed in the 
        Patent and Trademark Office, shall notify the Director 
        of such filing not later than 45 days after the date of 
        the filing of such foreign or international 
        application. A failure of the applicant to provide such 
        notice within the prescribed period shall result in the 
        application being regarded as abandoned, unless it is 
        shown to the satisfaction of the Director that the 
        delay in submitting the notice was unintentional.
            [(iv) If an applicant rescinds a request made under 
        clause (i) or notifies the Director that an application 
        was filed in a foreign country or under a multilateral 
        international agreement specified in clause (i), the 
        application shall be published in accordance with the 
        provisions of paragraph (1) on or as soon as is 
        practical after the date that is specified in clause 
        (i).
            [(v) If an applicant has filed applications in one 
        or more foreign countries, directly or through a 
        multilateral international agreement, and such foreign 
        filed applications corresponding to an application 
        filed in the Patent and Trademark Office or the 
        description of the invention in such foreign filed 
        applications is less extensive than the application or 
        description of the invention in the application filed 
        in the Patent and Trademark Office, the applicant may 
        submit a redacted copy of the application filed in the 
        Patent and Trademark Office eliminating any part or 
        description of the invention in such application that 
        is not also contained in any of the corresponding 
        applications filed in a foreign country. The Director 
        may only publish the redacted copy of the application 
        unless the redacted copy of the application is not 
        received within 16 months after the earliest effective 
        filing date for which a benefit is sought under this 
        title. The provisions of section 154(d) shall not apply 
        to a claim if the description of the invention 
        published in the redacted application filed under this 
        clause with respect to the claim does not enable a 
        person skilled in the art to make and use the subject 
        matter of the claim.]

           *       *       *       *       *       *       *

    (e) Preissuance Submissions by Third Parties.--
            (1) In general.--Any person may submit for 
        consideration and inclusion in the record of a patent 
        application, any patent, published patent application, 
        or other publication of potential relevance to the 
        examination of the application, if such submission is 
        made in writing before the earlier of--
                    (A) the date a notice of allowance under 
                section 151 is mailed in the application for 
                patent; or
                    (B) either--
                            (i) 6 months after the date on 
                        which the application for patent is 
                        published under section 122, or
                            (ii) the date of the first 
                        rejection under section 132 of any 
                        claim by the examiner during the 
                        examination of the application for 
                        patent,
                whichever occurs later.
            (2) Other requirements.--Any submission under 
        paragraph (1) shall--
                    (A) set forth a concise description of the 
                asserted relevance of each submitted document;
                    (B) be accompanied by such fee as the 
                Director may prescribe; and
                    (C) include a statement by the submitter 
                affirming that the submission was made in 
                compliance with this section.

Sec. 123. Additional information

    (a) In General.--The Director shall, by regulation, require 
that applicants submit a search report and other information 
and analysis relevant to patentability. An application shall be 
regarded as abandoned if the applicant fails to submit the 
required search report, information, and analysis in the manner 
and within the time period prescribed by the Director.
    (b) Exception for Micro Entities.--Applications from micro-
entities shall not be subject to the requirements of 
regulations issued under subsection (a).

Sec. 124. Micro entities

    (a) Definition.--For purposes of this title, the term 
``micro entity'' means an applicant for patent who makes a 
certification under either subsection (b) or (c).
    (b) Unassigned Application.--A certification under this 
subsection is a certification by each inventor named in the 
application that the inventor--
            (1) qualifies as a small entity as defined in 
        regulations issued by the Director;
            (2) has not been named on five or more previously 
        filed patent applications;
            (3) has not assigned, granted, or conveyed, and is 
        not under an obligation by contract or law to assign, 
        grant, or convey, a license or any other ownership 
        interest in the application; and
            (4) does not have a gross income, as defined in 
        section 61(a) of the Internal Revenue Code of 1986, 
        exceeding 2.5 times the median household income, as 
        reported by the Bureau of the Census, for the most 
        recent calendar year preceding the calendar year in 
        which the examination fee is being paid.
    (c) Assigned Application.--A certification under this 
subsection is a certification by each inventor named in the 
application that the inventor--
            (1) qualifies as a small entity as defined in 
        regulations issued by the Director and meets the 
        requirements of subsection (b)(4);
            (2) has not been named on five or more previously 
        filed patent applications; and
            (3) has assigned, granted, conveyed, or is under an 
        obligation by contract or law to assign, grant, or 
        convey, a license or other ownership interest in the 
        application to an entity that has five or fewer 
        employees and has a gross taxable income, as defined in 
        section 61(a) of the Internal Revenue Code of 1986, 
        that does not exceed 2.5 times the median household 
        income, as reported by the Bureau of the Census, for 
        the most recent calendar year preceding the calendar 
        year in which the examination fee is being paid.

           *       *       *       *       *       *       *


                 CHAPTER 12--EXAMINATION OF APPLICATION

Sec.
131.    Examination of application.
     * * * * * * *
[134.    Appeal to the Board of Patent Appeals and Interferences.
[135.    Interferences.]
134.    Appeal to the Patent Trial and Appeal Board.
135.    Derivation proceedings.

           *       *       *       *       *       *       *


[Sec. 134. Appeal to the Board of Patent Appeals and Interferences]

Sec. 134. Appeal to the Patent Trial and Appeal Board

    (a) Patent Applicant.--An applicant for a patent, any of 
whose claims has been twice rejected, may appeal from the 
decision of the primary examiner to the [Board of Patent 
Appeals and Interferences] Patent Trial and Appeal Board, 
having once paid the fee for such appeal.
    (b) Patent Owner.--A patent owner in any reexamination 
proceeding may appeal from the final rejection of any claim by 
the a primary examiner to the [Board of Patent Appeals and 
Interferences] Patent Trial and Appeal Board, having once paid 
the fee for such appeal.
    (c) Third-party.--A third-party requester in an inter 
partes proceeding may appeal to the [Board of Patent Appeals 
and Interferences] Patent Trial and Appeal Board from the final 
decision of the primary examiner favorable to the patentability 
of any original or proposed amended or new claim of a patent, 
having once paid the fee for such appeal.

[Sec. 135. Interferences

    [(a) Whenever an application is made for a patent which, in 
the opinion of the Director, would interfere with any pending 
application, or with any unexpired patent, an interference may 
be declared and the Director shall give notice of such 
declaration to the applicants, or applicant and patentee, as 
the case may be. The Board of Patent Appeals and Interferences 
shall determine questions of priority of the inventions and may 
determine questions of patentability. Any final decision, if 
adverse to the claim of an applicant, shall constitute the 
final refusal by the Patent and Trademark Office of the claims 
involved, and the Director may issue a patent to the applicant 
who is adjudged the prior inventor. A final judgment adverse to 
a patentee from which no appeal or other review has been or can 
be taken or had shall constitute cancellation of the claims 
involved in the patent, and notice of such cancellation shall 
be endorsed on copies of the patent distributed after such 
cancellation by the Patent and Trademark Office.]

Sec. 135. Derivation proceedings

    (a) Dispute Over Right to Patent.--
            (1) Institution of derivation proceeding.--
                    (A) Request for proceeding.--An applicant 
                may request initiation of a derivation 
                proceeding to determine the right of the 
                applicant to a patent by filing a request that 
                sets forth with particularity the basis for 
                finding that another applicant derived the 
                claimed invention from the applicant requesting 
                the proceeding and, without authorization, 
                filed an application claiming such invention. 
                Any such request--
                            (i) may only be made within 12 
                        months after the earlier of--
                                    (I) the date on which a 
                                patent is issued containing a 
                                claim that is the same or 
                                substantially the same as the 
                                claimed invention; or
                                    (II) the date of first 
                                publication of an application 
                                containing a claim that is the 
                                same or is substantially the 
                                same as the claimed invention; 
                                and
                            (ii) must be made under oath, and 
                        must be supported by substantial 
                        evidence.
                    (B) Determination of director.-- Whenever 
                the Director determines that patents or 
                applications for patent naming different 
                individuals as the inventor interfere with one 
                another because of a dispute over the right to 
                patent under section 101 on the basis of a 
                request under subparagraph (A), the Director 
                shall institute a derivation proceeding for the 
                purpose of determining which applicant is 
                entitled to a patent.
            (2) Determination by patent trial and appeal 
        board.--In any proceeding under this subsection, the 
        Patent Trial and Appeal Board--
                    (A) shall determine the question of the 
                right to patent;
                    (B) in appropriate circumstances, may 
                correct the naming of the inventor in any 
                application or patent at issue; and
                    (C) shall issue a final decision on the 
                right to patent.
            (3) Derivation proceeding.--The Patent Trial and 
        Appeal Board may defer action on a request to initiate 
        a derivation proceeding for up to three months after 
        the date on which the Director issues a patent to the 
        applicant that filed the earlier application.
            (4) Effect of final decision.--The final decision 
        of the Patent Trial and Appeal Board in a derivation 
        proceeding, if adverse to the claim of an applicant, 
        shall constitute the final refusal by the Patent and 
        Trademark Office on the claims involved. The Director 
        may issue a patent to an applicant who is determined by 
        the Patent Trial and Appeal Board to have the right to 
        a patent. The final decision of the Board, if adverse 
        to a patentee, shall, if no appeal or other review of 
        the decision has been or can be taken or had, 
        constitute cancellation of the claims involved in the 
        patent, and notice of such cancellation shall be 
        endorsed on copies of the patent distributed after such 
        cancellation by the Patent and Trademark Office.
    [(b)(1) A claim] (b) Same Claims
            (1) Issued patents.--A claim which is the same as, 
        or for the same or substantially the same subject 
        matter as, a claim of an issued patent may not be made 
        in any application unless such a claim is made prior to 
        one year from the date on which the patent was granted.
    [(2) A claim]
            (2) Published applications.--A claim which is the 
        same as, or for the same or substantially the same 
        subject matter as, a claim of an application published 
        under section 122(b) of this title may be made in an 
        application filed after the application is published 
        only if the claim is made before 1 year after the date 
        on which the application is published.
    [(c) Any agreement] (c) Agreements to Terminate 
Proceedings.--
            (1) In general.--Any agreement or understanding 
        between parties to [an interference] a derivation 
        proceeding, including any collateral agreements 
        referred to therein, made in connection with or in 
        contemplation of the termination of [the interference] 
        the derivation proceeding, shall be in writing and a 
        true copy thereof filed in the Patent and Trademark 
        Office before the termination of [the interference] the 
        derivation proceeding as between the said parties to 
        the agreement or understanding. If any party filing the 
        same so requests, the copy shall be kept separate from 
        the file of [the interference] the derivation 
        proceeding, and made available only to Government 
        agencies on written request, or to any person on a 
        showing of good cause. Failure to file the copy of such 
        agreement or understanding shall render permanently 
        unenforceable such agreement or understanding and any 
        patent of such parties involved in [the interference] 
        the derivation proceeding or any patent subsequently 
        issued on any application of such parties so involved. 
        The Director may, however, on a showing of good cause 
        for failure to file within the time prescribed, permit 
        the filing of the agreement or understanding during the 
        six-month period subsequent to the termination of [the 
        interference] the derivation proceeding as between the 
        parties to the agreement or understanding.
    [The Director]
            (2) Notice.--The Director shall give notice to the 
        parties or their attorneys of record, a reasonable time 
        prior to said termination, of the filing requirement of 
        this section. If the Director gives such notice at a 
        later time, irrespective of the right to file such 
        agreement or understanding within the six-month period 
        on a showing of good cause, the parties may file such 
        agreement or understanding within sixty days of the 
        receipt of such notice.
    [Any discretionary action of the Director under this 
subsection shall be reviewable under section 10 of the 
Administrative Procedure Act.]
            (3) Judicial review.--Any discretionary action of 
        the Director under this subsection shall be reviewable 
        under chapter 7 of title 5.
    [(d) Parties] (d) Arbitration.--Parties to [a patent 
interference] a derivation proceeding, within such time as may 
be specified by the Director by regulation, may determine such 
contest or any aspect thereof by arbitration. Such arbitration 
shall be governed by the provisions of title 9 to the extent 
such title is not inconsistent with this section. The parties 
shall give notice of any arbitration award to the Director, and 
such award shall, as between the parties to the arbitration, be 
dispositive of the issues to which it relates. The arbitration 
award shall be unenforceable until such notice is given. 
Nothing in this subsection shall preclude the Director from 
determining patentability of the invention involved in [the 
interference] the derivation proceeding.

           *       *       *       *       *       *       *


      CHAPTER 13--REVIEW OF PATENT AND TRADEMARK OFFICE DECISIONS

Sec.
141.    Appeal to Court of Appeals for the Federal Circuit.
     * * * * * * *
[146.    Civil action in case of interference.]
146.    Civil action in case of derivation proceeding.

           *       *       *       *       *       *       *


Sec. 141. Appeal to Court of Appeals for the Federal Circuit

    An applicant dissatisfied with the decision in an appeal to 
the [Board of Patent Appeals and Interferences] Patent Trial 
and Appeal Board under section 134 of this title may appeal the 
decision to the United States Court of Appeals for the Federal 
Circuit. By filing such an appeal the applicant waives his or 
her right to proceed under section 145 of this title. A patent 
owner, or a third-party requester in an inter partes 
reexamination proceeding, who is in any reexamination 
proceeding dissatisfied with the final decision in an appeal to 
the [Board of Patent Appeals and Interferences] Patent Trial 
and Appeal Board under section 134 may appeal the decision only 
to the United States Court of Appeals for the Federal Circuit. 
A party to [an interference] a derivation proceeding 
dissatisfied with the decision of the [Board of Patent Appeals 
and Interferences] Patent Trial and Appeal Board on the 
[interference] derivation proceeding may appeal the decision to 
the United States Court of Appeals for the Federal Circuit, but 
such appeal shall be dismissed if any adverse party to such 
[interference] derivation proceeding, within twenty days after 
the appellant has filed notice of appeal in accordance with 
section 142 of this title, files notice with the Director that 
the party elects to have all further proceedings conducted as 
provided in section 146 of this title. If the appellant does 
not, within thirty days after the filing of such notice by the 
adverse party, file a civil action under section 146, the 
decision appealed from shall govern the further proceedings in 
the case.

           *       *       *       *       *       *       *


Sec. 145. Civil action to obtain patent

    An applicant dissatisfied with the decision of the [Board 
of Patent Appeals and Interferences] Patent Trial and Appeal 
Board in an appeal under section 134(a) of this title may, 
unless appeal has been taken to the United States Court of 
Appeals for the Federal Circuit, have remedy by civil action 
against the Director in the United States District Court for 
the District of Columbia if commenced within such time after 
such decision, not less than sixty days, as the Director 
appoints. The court may adjudge that such applicant is entitled 
to receive a patent for his invention, as specified in any of 
his claims involved in the decision of the [Board of Patent 
Appeals and Interferences] Patent Trial and Appeal Board, as 
the facts in the case may appear and such adjudication shall 
authorize the Director to issue such patent on compliance with 
the requirements of law. All the expenses of the proceedings 
shall be paid by the applicant.

[Sec. 146. Civil action in case of interference]

Sec. 146. Civil action in case of derivation proceeding

    [Any party] (a) In General.--Any party to [an interference] 
a derivation proceeding dissatisfied with the decision of the 
[Board of Patent Appeals and Interferences] Patent Trial and 
Appeal Board on the [interference] derivation proceeding, may 
have remedy by civil action, if commenced within such time 
after such decision, not less than sixty days, as the Director 
appoints or as provided in section 141 of this title, unless he 
has appealed to the United States Court of Appeals for the 
Federal Circuit, and such appeal is pending or has been 
decided. In such suits the record in the Patent and Trademark 
Office shall be admitted on motion of either party upon the 
terms and conditions as to costs, expenses, and the further 
cross-examination of the witnesses as the court imposes, 
without prejudice to the right of the parties to take further 
testimony. The testimony and exhibits of the record in the 
Patent and Trademark Office when admitted shall have the same 
effect as if originally taken and produced in the suit.
    [Such suit] (b) Procedure.--A suit under subsection (a) may 
be instituted against the party in interest as shown by the 
records of the Patent and Trademark Office at the time of the 
decision complained of, but any party in interest may become a 
party to the action. If there be adverse parties residing in a 
plurality of districts not embraced within the same state, or 
an adverse party residing in a foreign country, the United 
States District Court for the District of Columbia shall have 
jurisdiction and may issue summons against the adverse parties 
directed to the marshal of any district in which any adverse 
party resides. Summons against adverse parties residing in 
foreign countries may be served by publication or otherwise as 
the court directs. The Director shall not be a necessary party 
but he shall be notified of the filing of the suit by the clerk 
of the court in which it is filed and shall have the right to 
intervene. Judgment of the court in favor of the right of an 
applicant to a patent shall authorize the Director to issue 
such patent on the filing in the Patent and Trademark Office of 
a certified copy of the judgment and on compliance with the 
requirements of law.

           *       *       *       *       *       *       *


                      CHAPTER 14--ISSUE OF PATENT

Sec.
151.    Issue of patent.
     * * * * * * *
[157.    Statutory invention registration.]

           *       *       *       *       *       *       *


Sec. 154. Contents and term of patent; provisional rights

    (a) * * *
    (b) Adjustment of Patent Term.--
            (1) Patent term guarantees.--
                    (A) Guarantee of prompt patent and 
                trademark office responses.--Subject to the 
                limitations under paragraph (2), if the issue 
                of an original patent is delayed due to the 
                failure of the Patent and Trademark Office to--
                            (i) * * *

           *       *       *       *       *       *       *

                            (iii) act on an application within 
                        4 months after the date of a decision 
                        by the [Board of Patent Appeals and 
                        Interferences] Patent Trial and Appeal 
                        Board under section 134 or 135 or a 
                        decision by a Federal court under 
                        section 141, 145, or 146 in a case in 
                        which allowable claims remain in the 
                        application; or

           *       *       *       *       *       *       *

                    (B) Guarantee of no more than 3-year 
                application pendency.--Subject to the 
                limitations under paragraph (2), if the issue 
                of an original patent is delayed due to the 
                failure of the United States Patent and 
                Trademark Office to issue a patent within 3 
                years after the actual filing date of the 
                application in the United States, not 
                including--
                            (i) * * *
                            (ii) any time consumed by a 
                        proceeding under section 135(a), any 
                        time consumed by the imposition of an 
                        order under section 181, or any time 
                        consumed by appellate review by the 
                        [Board of Patent Appeals and 
                        Interferences] Patent Trial and Appeal 
                        Board or by a Federal court; or

           *       *       *       *       *       *       *

                    (C) Guarantee or adjustments for delays due 
                to [interferences] derivation proceedings, 
                secrecy orders, and appeals.--Subject to the 
                limitations under paragraph (2), if the issue 
                of an original patent is delayed due to--
                            (i) * * *

           *       *       *       *       *       *       *

                            (iii) appellate review by the 
                        [Board of Patent Appeals and 
                        Interferences] Patent Trial and Appeal 
                        Boardor by a Federal court in a case in 
                        which the patent was issued under a 
                        decision in the review reversing an 
                        adverse determination of patentability,

           *       *       *       *       *       *       *


[Sec. 157. Statutory invention registration

    [(a) Notwithstanding any other provision of this title, the 
Director is authorized to publish a statutory invention 
registration containing the specification and drawings of a 
regularly filed application for a patent without examination if 
the applicant--
            [(1) meets the requirements of section 112 of this 
        title;
            [(2) has complied with the requirements for 
        printing, as set forth in regulations of the Director;
            [(3) waives the right to receive a patent on the 
        invention within such period as may be prescribed by 
        the Director; and
            [(4) pays application, publication, and other 
        processing fees established by the Director.
If an interference is declared with respect to such an 
application, a statutory invention registration may not be 
published unless the issue of priority of invention is finally 
determined in favor of the applicant.
    [(b) The waiver under subsection (a)(3) of this section by 
an applicant shall take effect upon publication of the 
statutory invention registration.
    [(c) A statutory invention registration published pursuant 
to this section shall have all of the attributes specified for 
patents in this title except those specified in section 183 and 
sections 271 through 289 of this title. A statutory invention 
registration shall not have any of the attributes specified for 
patents in any other provision of law other than this title. A 
statutory invention registration published pursuant to this 
section shall give appropriate notice to the public, pursuant 
to regulations which the Director shall issue, of the preceding 
provisions of this subsection. The invention with respect to 
which a statutory invention certificate is published is not a 
patented invention for purposes of section 292 of this title.
    [(d) The Director shall report to the Congress annually on 
the use of statutory invention registrations. Such report shall 
include an assessment of the degree to which agencies of the 
Federal Government are making use of the statutory invention 
registration system, the degree to which it aids the management 
of federally developed technology, and an assessment of the 
cost savings to the Federal Government of the use of such 
procedures.]

           *       *       *       *       *       *       *


CHAPTER 16--DESIGNS

           *       *       *       *       *       *       *


Sec. 172. Right of priority

    The right of priority provided for by subsections (a) 
through (d) of section 119 of this title [and the time 
specified in section 102(d)] shall be six months in the case of 
designs. The right of priority provided for by section 119(e) 
of this title shall not apply to designs.

           *       *       *       *       *       *       *


 CHAPTER 17--SECRECY OF CERTAIN INVENTIONS AND FILING APPLICATIONS IN 
FOREIGN COUNTRY

           *       *       *       *       *       *       *


Sec. 184. Filing of application in foreign country

    [Except when] (a) Filing in Foreign Country.--Except when 
authorized by a license obtained from the Commissioner of 
Patents a person shall not file or cause or authorize to be 
filed in any foreign country prior to six months after filing 
in the United States an application for patent or for the 
registration of a utility model, industrial design, or model in 
respect of an invention made in this country. A license shall 
not be granted with respect to an invention subject to an order 
issued by the Commissioner of Patents pursuant to section 181 
of this title without the concurrence of the head of the 
departments and the chief officers of the agencies who caused 
the order to be issued. The license may be granted 
retroactively where an application has been filed abroad 
through error and without deceptive intent and the application 
does not disclose an invention within the scope of section 181 
of this title.
    [The term] (b) Application.--The term ``application'' when 
used in this chapter includes applications and any 
modifications, amendments, or supplements thereto, or divisions 
thereof.
    [The scope] (c) Subsequent modifications, amendments, and 
supplements.--The scope of a license shall permit subsequent 
modifications, amendments, and supplements containing 
additional subject matter if the application upon which the 
request for the license is based is not, or was not, required 
to be made available for inspection under section 181 of this 
title and if such modifications, amendments, and supplements do 
not change the general nature of the invention in a manner 
which would require such application to be made available for 
inspection under such section 181. In any case in which a 
license is not, or was not, required in order to file an 
application in any foreign country, such subsequent 
modifications, amendments, and supplements may be made, without 
a license, to the application filed in the foreign country if 
the United States application was not required to be made 
available for inspection under section 181 and if such 
modifications, amendments, and supplements do not, or did not, 
change the general nature of the invention in a manner which 
would require the United States application to have been made 
available for inspection under such section 181.

           *       *       *       *       *       *       *


CHAPTER 18--PATENT RIGHTS IN INVENTIONS MADE WITH FEDERAL ASSISTANCE

           *       *       *       *       *       *       *


Sec. 202. Disposition of rights

    (a) * * *

           *       *       *       *       *       *       *

    (c) Each funding agreement with a small business firm or 
nonprofit organization shall contain appropriate provisions to 
effectuate the following:
            (1) * * *
            (2) That the contractor make a written election 
        within two years after disclosure to the Federal agency 
        (or such additional time as may be approved by the 
        Federal agency) whether the contractor will retain 
        title to a subject invention: Provided, That in any 
        case where [publication, on sale, or public use, has 
        initiated the one year statutory period in which valid 
        patent protection can still be obtained in the United 
        States] the 1-year period referred to in section 102(a) 
        would end before the end of that 2-year period, the 
        period for election may be shortened by the Federal 
        agency to a date that is not more than sixty days prior 
        to the end of [the statutory] that 1-year period: And 
        provided further, That the Federal Government may 
        receive title to any subject invention in which the 
        contractor does not elect to retain rights or fails to 
        elect rights within such times.
            (3) That a contractor electing rights in a subject 
        invention agrees to file a patent application prior to 
        [any statutory bar date that may occur under this title 
        due to publication, on sale, or public use] the 
        expiration of the 1-year period referred to in section 
        102(a), and shall thereafter file corresponding patent 
        applications in other countries in which it wishes to 
        retain title within reasonable times, and that the 
        Federal Government may receive title to any subject 
        inventions in the United States or other countries in 
        which the contractor has not filed patent applications 
        on the subject invention within such times.

           *       *       *       *       *       *       *


           PART III--PATENTS AND PROTECTION OF PATENT RIGHTS

Chap.                                                               Sec.
      Amendment and Correction of Patents............................251
     * * * * * * *
321 Post-Grant Review Proceedings.....................................

           *       *       *       *       *       *       *


CHAPTER 25--AMENDMENT AND CORRECTION OF PATENTS

           *       *       *       *       *       *       *


Sec. 251. Reissue of defective patents

    [Whenever] (a) In general.--Whenever any patent is, through 
error without any deceptive intention, deemed wholly or partly 
inoperative or invalid, by reason of a defective specification 
or drawing, or by reason of the patentee claiming more or less 
than he had a right to claim in the patent, the Director shall, 
on the surrender of such patent and the payment of the fee 
required by law, reissue the patent for the invention disclosed 
in the original patent, and in accordance with a new and 
amended application, for the unexpired part of the term of the 
original patent. No new matter shall be introduced into the 
application for reissue.
    [The Director] (b) Multiple reissued patents.--The Director 
may issue several reissued patents for distinct and separate 
parts of the thing patented, upon demand of the applicant, and 
upon payment of the required fee for a reissue for each of such 
reissued patents.
    [The provisions] (c) Applicability of this title.--The 
provisions of this title relating to applications for patent 
shall be applicable to applications for reissue of a patent, 
except that application for reissue may be made and sworn to by 
the assignee of the entire interest if the application does not 
seek to enlarge the scope of the claims of the original patent.
    [No reissued patent] (d) Reissue patent enlarging scope of 
claims.--No reissued patent shall be granted enlarging the 
scope of the claims of the original patent unless applied for 
within two years from the grant of the original patent.

           *       *       *       *       *       *       *


Sec. 253. Disclaimer

    [Whenever] (a) In general.--Whenever, without any deceptive 
intention, a claim of a patent is invalid the remaining claims 
shall not thereby be rendered invalid. A patentee, whether of 
the whole or any sectional interest therein, may, on payment of 
the fee required by law, make disclaimer of any complete claim, 
stating therein the extent of his interest in such patent. Such 
disclaimer shall be in writing, and recorded in the Patent and 
Trademark Office; and it shall thereafter be considered as part 
of the original patent to the extent of the interest possessed 
by the disclaimant and by those claiming under him.
    [In like manner] (b) Additional disclaimer or dedication.--
In the manner set forth in subsection (a), any patentee or 
applicant may disclaim or dedicate to the public the entire 
term, or any terminal part of the term, of the patent granted 
or to be granted.

           *       *       *       *       *       *       *


Sec. 256. Correction of named inventor

    [Whenever] (a) Correction.--Whenever through error a person 
is named in an issued patent as the inventor, or through error 
an inventor is not named in an issued patent and such error 
arose without any deceptive intention on his part, the Director 
may, on application of all the parties and assignees, with 
proof of the facts and such other requirements as may be 
imposed, issued a certificate correcting such error.
    [The error] (b) Patent valid if error corrected.--The error 
of omitting inventors or naming persons who are not inventors 
shall not invalidate the patent in which such error occurred if 
it can be corrected as provided in this section. The court 
before which such matter is called in question may order 
correction of the patent on notice and hearing of all parties 
concerned and the Director shall issue a certificate 
accordingly.

           *       *       *       *       *       *       *


                  CHAPTER 28--INFRINGEMENT OF PATENTS

Sec.
271.    Infringement of patent.
272.    Temporary presence in the United States.
[273.    Defense to infringement based on earlier inventor.]
273. Special defenses to and exemptions from infringement.

           *       *       *       *       *       *       *


[Sec. 273. Defense to infringement based on earlier inventor]

Sec. 273. Special defenses to and exemptions from infringement

    (a) Definitions.--For purposes of this section--
            (1) the terms ``commercially used'' and 
        ``commercial use'' mean use [of a method] in the United 
        States, so long as such use is in connection with an 
        internal commercial use or an actual arm's-length sale 
        or other arm's-length commercial transfer of a useful 
        end result, whether or not the subject matter at issue 
        is accessible to or otherwise known to the public, 
        except that the subject matter for which commercial 
        marketing or use is subject to a premarketing 
        regulatory review period during which the safety or 
        efficacy of the subject matter is established, 
        including any period specified in section 156(g), shall 
        be deemed ``commercially used'' and in ``commercial 
        use'' during such regulatory [review period;] review 
        period; and
            (2) in the case of activities performed by a 
        nonprofit research laboratory, or nonprofit entity such 
        as a university, research center, or hospital, a use 
        for which the public is the intended beneficiary shall 
        be considered to be a use described in paragraph (1), 
        except that the use--
                    (A)  * * *
                    (B) may not be asserted as a defense with 
                respect to any subsequent commercialization or 
                use outside such laboratory or nonprofit 
                entity[;].
            [(3) the term ``method'' means a method of doing or 
        conducting business; and
            [(4) the ``effective filing date'' of a patent is 
        the earlier of the actual filing date of the 
        application for the patent or the filing date of any 
        earlier United States, foreign, or international 
        application to which the subject matter at issue is 
        entitled under section 119, 120, or 365 of this title.]
    (b) Defense to Infringement.--
            (1) In general.--It shall be a defense to an action 
        for infringement under section 271 of this title with 
        respect to any subject matter that would otherwise 
        infringe one or more claims [for a method] in the 
        patent being asserted against a person, if such person 
        had, acting in good faith, actually reduced the subject 
        matter to practice [at least 1 year before the 
        effective filing date of such patent, and commercially 
        used the subject matter before the effective filing 
        date of such patent.] and commercially used, or made 
        substantial preparations for commercial use of, the 
        subject matter before the effective filing date of the 
        claimed invention.
            (2) Exhaustion of right.--[The sale or other 
        disposition of a useful end product produced by a 
        patented method] The sale or other disposition of 
        subject matter that qualifies for the defense set forth 
        in this section, by a person entitled to assert [a 
        defense under this section with respect to that useful 
        end result] such defense shall exhaust the patent 
        owner's rights under the patent to the extent such 
        rights would have been exhausted had such sale or other 
        disposition been made by the patent owner.
            (3) Limitations and qualifications of defense.--The 
        defense to infringement under this section is subject 
        to the following:
                    [(A) Patent.--A person may not assert the 
                defense under this section unless the invention 
                for which the defense is asserted is for a 
                method.]
                    [(B)] (A) Derivation.--A person may not 
                assert the defense under this section if the 
                subject matter on which the defense is based 
                was derived from the patentee or persons in 
                privity with the patentee.
                    [(C)] (B) Not a general license.--The 
                defense asserted by a person under this section 
                is not a general license under all claims of 
                the patent at issue, but extends only to the 
                specific subject matter claimed in the patent 
                with respect to which the person can assert a 
                defense under this chapter, except that the 
                defense shall also extend to variations in the 
                quantity or volume of use of the claimed 
                subject matter, and to improvements in the 
                claimed subject matter that do not infringe 
                additional specifically claimed subject matter 
                of the patent.

           *       *       *       *       *       *       *

            (7) Limitation on sites.--A defense under this 
        section, when acquired as part of a good faith 
        assignment or transfer of an entire enterprise or line 
        of business to which the defense relates, may only be 
        asserted for uses at sites where the subject matter 
        that would otherwise infringe one or more of the claims 
        is in use before the later of the effective filing date 
        [of the patent] of the claimed invention or the date of 
        the assignment or transfer of such enterprise or line 
        of business.

           *       *       *       *       *       *       *


   CHAPTER 29--REMEDIES FOR INFRINGEMENT OF PATENT, AND OTHER ACTIONS

Sec.
281.    Remedy for infringement of patent.
     * * * * * * *
[291.    Interfering patents.]

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Sec. 282. Presumption of validity; defenses

    [A patent] (a) In general.--A patent shall be presumed 
valid. Each claim of a patent (whether in independent, 
dependent, or multiple dependent form) shall be presumed valid 
independently of the validity of other claims; dependent or 
multiple dependent claims shall be presumed valid even though 
dependent upon an invalid claim. Notwithstanding the preceding 
sentence, if a claim to a composition of matter is held invalid 
and that claim was the basis of a determination of 
nonobviousness under section 103(b)(1), the process shall no 
longer be considered nonobvious solely on the basis of section 
103(b)(1). The burden of establishing invalidity of a patent or 
any claim thereof shall rest on the party asserting such 
invalidity.
    [The following] (b) Defenses.--The following shall be 
defenses in any action involving the validity or infringement 
of a patent and shall be pleaded:
            (1) Noninfringement, absence of liability for 
        infringement or unenforceability[,].
            (2) Invalidity of the patent or any claim in suit 
        on any ground specified in part II of this title as a 
        condition for patentability[,].
            [(3) Invalidity of the patent or any claim in suit 
        for failure to comply with any requirement of sections 
        112 or 251 of this title,]
            (3) Invalidity of the patent or any claim in suit 
        for failure to comply with--
                    (A) any requirement of section 112 of this 
                title, other than the requirement that the 
                specification shall set forth the best mode 
                contemplated by the inventor of carrying out 
                his invention; or
                    (B) any requirement of section 251 of this 
                title.
            (4) Any other fact or act made a defense by this 
        title.
    (c) Inequitable Conduct.--
            (1) Defense.--A patent may be held to be 
        unenforceable, or other remedy imposed under paragraph 
        (3), for inequitable conduct only if it is established, 
        by clear and convincing evidence, that--
                    (A) the patentee, its agents, or another 
                person with a duty of disclosure to the Office, 
                with the intent to mislead or deceive the 
                patent examiner, misrepresented or failed to 
                disclose material information concerning a 
                matter or proceeding before the Office; and
                    (B) in the absence of such deception, the 
                Office, acting reasonably, would, on the record 
                before it, have made a prima facie finding of 
                unpatentability.
            (2) Intent.--In order to prove intent to mislead or 
        deceive under paragraph (1), specific facts beyond 
        materiality of the information submitted or not 
        disclosed must be proven that support an inference of 
        intent to mislead or deceive the Patent and Trademark 
        Office. Facts support an inference of intent if they 
        show circumstances that indicate conscious or 
        deliberate behavior on the part of the patentee, its 
        agents, or another person with a duty of disclosure to 
        the Office, to not disclose material information or to 
        submit materially false information.
            (3) Remedy.--Upon a finding of inequitable conduct, 
        the court shall balance the equities to determine which 
        of the following remedies to impose:
                    (A) Denying equitable relief to the patent 
                holder and limiting the remedy for infringement 
                to damages.
                    (B) Holding the claims-in-suit, or the 
                claims in which inequitable conduct occurred, 
                unenforceable.
                    (C) Holding the patent unenforceable.
                    (D) Holding the claims of a related patent 
                unenforceable.
            (4) Attorney misconduct.--Upon a finding of 
        inequitable conduct, if there is evidence that the 
        conduct can be attributable to a person or persons 
        authorized to practice before the Office, the court 
        shall refer the matter to the Office for appropriate 
        disciplinary action under section 32, and shall order 
        the parties to preserve and make available to the 
        Office any materials that may be relevant to the 
        determination under section 32.
    [In actions] (d) Notice of Actions; Pleading.--In actions 
involving the validity or infringement of a patent the party 
asserting invalidity or noninfringement shall give notice in 
the pleadings or otherwise in writing to the adverse party at 
least thirty days before the trial, of the country, number, 
date, and name of the patentee of any patent, the title, date, 
and page numbers of any publication to be relied upon as 
anticipation of the patent in suit or, except in actions in the 
United States Court of Federal Claims, as showing the state of 
the art, and the name and address of any person who may be 
relied upon as the prior inventor or as having prior knowledge 
of or as having previously used or offered for sale the 
invention of the patent in suit. In the absence of such notice 
proof of the said matters may not be made at the trial except 
on such terms as the court requires. In an action involving any 
allegation of inequitable conduct under subsection (c), the 
party asserting this defense or claim shall comply with the 
pleading requirements set forth in Rule 9(b) of the Federal 
Rules of Civil Procedure. [Invalidity]
    (e) Extension of Patent Term.--Invalidity of the extension 
of a patent term or any portion thereof under section 154(b) or 
156 of this title because of the material failure--
            (1) by the applicant for the extension, or
            (2) by the Director,
to comply with the requirements of such section shall be a 
defense in any action involving the infringement of a patent 
during the period of the extension of its term and shall be 
pleaded. A due diligence determination under section 156(d)(2) 
is not subject to review in such an action.

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Sec. 284. Damages

    [Upon] (a) In general.--Upon finding for the claimant the 
court shall award the claimant damages adequate to compensate 
for the infringement, but in no event less than a reasonable 
royalty for the use made of the invention by the infringer, 
together with interest and costs as fixed by the court.
    (b) Reasonable Royalty.--
            (1) In general.-- An award pursuant to subsection 
        (a) that is based upon a reasonable royalty shall be 
        determined in accordance with this subsection. Based on 
        the facts of the case, the court shall determine 
        whether paragraph (2), (3), or (5) will be used by the 
        court or the jury in calculating a reasonable royalty. 
        The court shall identify the factors that are relevant 
        to the determination of a reasonable royalty under the 
        applicable paragraph, and the court or jury, as the 
        case may be, shall consider only those factors in 
        making the determination.
            (2) Relationship of damages to contributions over 
        prior art.--The court shall conduct an analysis to 
        ensure that a reasonable royalty under subsection (a) 
        is applied only to that economic value properly 
        attributable to the patent's specific contribution over 
        the prior art. The court shall exclude from the 
        analysis the economic value properly attributable to 
        the prior art, and other features or improvements, 
        whether or not themselves patented, that contribute 
        economic value to the infringing product or process.
            (3) Entire market value.--Unless the claimant shows 
        that the patent's specific contribution over the prior 
        art is the predominant basis for market demand for an 
        infringing product or process, damages may not be based 
        upon the entire market value of the products or 
        processes involved that satisfy that demand.
            (4) Combination inventions.--For purposes of 
        paragraphs (2) and (3), in the case of a combination 
        invention the elements of which are present 
        individually in the prior art, the patentee may show 
        that the contribution over the prior art may include 
        the value of the additional function resulting from the 
        combination, as well as the enhanced value, if any, of 
        some or all of the prior art elements resulting from 
        the combination.
            (5) Other factors.--In determining a reasonable 
        royalty, the court may also consider, or direct the 
        jury to consider, the terms of any nonexclusive 
        marketplace licensing of the invention, where 
        appropriate, as well as any other relevant factors 
        under applicable law.
    [When the damages are not found by a jury, the court shall 
assess them. In either event the court may increase the damages 
up to three times the amount found or assessed. Increased 
damages under this paragraph shall not apply to provisional 
rights under section 154(d) of this title.]
    (c) Willful Infringement.--
            (1) Increased damages.--A court that has determined 
        that the infringer has willfully infringed a patent or 
        patents may increase the damages up to three times the 
        amount of damages found or assessed under subsection 
        (a), except that increased damages under this paragraph 
        shall not apply to provisional rights under section 
        154(d).
            (2) Permitted grounds for willfulness.--A court may 
        find that an infringer has willfully infringed a patent 
        only if the patent owner presents clear and convincing 
        evidence that--
                    (A) after receiving written notice from the 
                patentee--
                            (i) alleging acts of infringement 
                        in a manner sufficient to give the 
                        infringer an objectively reasonable 
                        apprehension of suit on such patent, 
                        and
                            (ii) identifying with particularity 
                        each claim of the patent, each product 
                        or process that the patent owner 
                        alleges infringes the patent, and the 
                        relationship of such product or process 
                        to such claim,
                the infringer, after a reasonable opportunity 
                to investigate, thereafter performed one or 
                more of the alleged acts of infringement;
                    (B) the infringer intentionally copied the 
                patented invention with knowledge that it was 
                patented; or
                    (C) after having been found by a court to 
                have infringed that patent, the infringer 
                engaged in conduct that was not colorably 
                different from the conduct previously found to 
                have infringed the patent, and that resulted in 
                a separate finding of infringement of the same 
                patent.
            (3) Limitations on willfulness.--(A) A court may 
        not find that an infringer has willfully infringed a 
        patent under paragraph (2) for any period of time 
        during which the infringer had an informed good faith 
        belief that the patent was invalid or unenforceable, or 
        would not be infringed by the conduct later shown to 
        constitute infringement of the patent.
            (B) An informed good faith belief within the 
        meaning of subparagraph (A) may be established by--
                    (i) reasonable reliance on advice of 
                counsel;
                    (ii) evidence that the infringer sought to 
                modify its conduct to avoid infringement once 
                it had discovered the patent; or
                    (iii) other evidence a court may find 
                sufficient to establish such good faith belief.
            (C) The decision of the infringer not to present 
        evidence of advice of counsel is not relevant to a 
        determination of willful infringement under paragraph 
        (2).
            (4) Limitation on pleading.--Before the date on 
        which a court determines that the patent in suit is not 
        invalid, is enforceable, and has been infringed by the 
        infringer, a patentee may not plead and a court may not 
        determine that an infringer has willfully infringed a 
        patent. The court's determination of an infringer's 
        willfulness shall be made without a jury.
    [The court] (d) Expert Testimony.--The court may receive 
expert testimony as an aid to the determination of damages or 
of what royalty would be reasonable under the circumstances.

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Sec. 287. Limitation on damages and other remedies; marking and notice

    (a) * * *

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    (c)(1) * * *

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    (4) This subsection shall not apply to any patent issued 
based on an application [the earliest effective filing date of 
which is prior to] which has an effective filing date before 
September 30, 1996.

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[Sec. 291. Interfering patents

    [The owner of an interfering patent may have relief against 
the owner of another by civil action, and the court may adjudge 
the question of the validity of any of the interfering patents, 
in whole or in part. The provisions of the second paragraph of 
section 146 of this title shall apply to actions brought under 
this section.]

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[Sec. 301. Citation of prior art

    [Any person at any time may cite to the Office in writing 
prior art consisting of patents or printed publications which 
that person believes to have a bearing on the patentability of 
any claim of a particular patent. If the person explains in 
writing the pertinency and manner of applying such prior art to 
at least one claim of the patent, the citation of such prior 
art and the explanation thereof will become a part of the 
official file of the patent. At the written request of the 
person citing the prior art, his or her identity will be 
excluded from the patent file and kept confidential.]

Sec. 301. Citation of prior art

    (a) In General.--Any person at any time may cite to the 
Office in writing--
            (1) prior art consisting of patents or printed 
        publications which that person believes to have a 
        bearing on the patentability of any claim of a 
        particular patent; or
            (2) written statements of the patent owner filed in 
        a proceeding before a Federal court or the Patent and 
        Trademark Office in which the patent owner takes a 
        position on the scope of one or more patent claims.
    (b) Submissions Part of Official File.--If the person 
citing prior art or written submissions under subsection (a) 
explains in writing the pertinence and manner of applying the 
prior art or written submissions to at least one claim of the 
patent, the citation of the prior art or written submissions 
(as the case may be) and the explanation thereof shall become a 
part of the official file of the patent.
    (c) Procedures for Written Statements.--
            (1) Submission of additional materials.--A party 
        that submits written statements under subsection (a)(2) 
        in a proceeding shall include any other documents, 
        pleadings, or evidence from the proceeding that address 
        the patent owner's statements or the claims addressed 
        by the written statements.
            (2) Limitation on use of statements.--Written 
        statements submitted under subsection (a)(2) shall not 
        be considered for any purpose other than to determine 
        the proper meaning of the claims that are the subject 
        of the request in a proceeding ordered pursuant to 
        section 304 or 313. Any such written statements, and 
        any materials submitted under paragraph (1), that are 
        subject to an applicable protective order shall be 
        redacted to exclude information subject to the order.
    (d) Identity Withheld.--Upon the written request of the 
person citing prior art or written statements under subsection 
(a), the person's identity shall be excluded from the patent 
file and kept confidential.

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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.]
    (a) Within three months after the owner of a patent files a 
request for reexamination under section 302, 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 own initiative, and at 
any time, the Director may determine whether a substantial new 
question of patentability is raised by patents and publications 
discovered by the Director, is cited under section 301, or is 
cited by any person other than the owner of the patent under 
section 302 or section 311. 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.

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Sec. 305. Conduct of reexamination proceedings

    After the times for filing the statement and reply provided 
for by section 304 of this title have expired, reexamination 
will be conducted according to the procedures established for 
initial examination under the provisions of sections 132 and 
133 of this title. In any reexamination proceeding under this 
chapter, the patent owner will be permitted to propose any 
amendment to his patent and a new claim or claims thereto, in 
order to distinguish the invention as claimed from the prior 
art cited under the provisions of section 301 of this title, or 
in response to a decision adverse to the patentability of a 
claim of a patent. No proposed amended or new claim enlarging 
the scope of a claim of the patent will be permitted in a 
reexamination proceeding under this chapter. All reexamination 
proceedings under this section, including any appeal to the 
[Board of Patent Appeals and Interferences] Patent Trial and 
Appeal Board, will be conducted with special dispatch within 
the Office.

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Sec. 314. Conduct of inter partes reexamination proceedings

    (a) In General.--Except as otherwise provided in this 
section, reexamination shall be [conducted according to the 
procedures established for initial examination under the 
provisions of sections 132 and 133] heard by an administrative 
patent judge in accordance with procedures which the Director 
shall establish. In any inter partes reexamination proceeding 
under this chapter, the patent owner shall be permitted to 
propose any amendment to the patent and a new claim or claims, 
except that no proposed amended or new claim enlarging the 
scope of the claims of the patent shall be permitted.
    (b) Response.--(1) With the exception of the inter partes 
reexamination request, any document filed by either the patent 
owner or the third-party requester shall be served on the other 
party. In addition, the Office shall send to the third-party 
requester a copy of any communication sent by the Office to the 
patent owner concerning the patent subject to the inter partes 
reexamination proceeding.
    [(2) Each time that the patent owner files a response to an 
action on the merits from the Patent and Trademark Office, the 
third-party requester shall have one opportunity to file 
written comments addressing issues raised by the action of the 
Office or the patent owner's response thereto, if those written 
comments are received by the Office within 30 days after the 
date of service of the patent owner's response.]
    (2) The third-party requester shall have the opportunity to 
file written comments on any action on the merits by the Office 
in the inter partes reexamination proceeding, and on any 
response that the patent owner files to such an action, if 
those written comments are received by the Office within 60 
days after the date of service on the third-party requester of 
the Office action or patent owner response, as the case may be.
    (c) Special Dispatch.--Unless otherwise provided by the 
Director for good cause, all inter partes reexamination 
proceedings under this section, including any appeal to the 
[Board of Patent Appeals and Interferences] Patent Trial and 
Appeal Board, shall be conducted with special dispatch within 
the Office.
    (d) Oral Hearing.--At the request of a third party 
requestor or the patent owner, the administrative patent judge 
shall conduct an oral hearing, unless the judge finds cause 
lacking for such hearing.

Sec. 315. Appeal

    (a) * * *

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    (c) Civil Action.--A third-party requester whose request 
for an inter partes reexamination results in an order under 
section 313 is estopped from asserting at a later time, in any 
civil action arising in whole or in part under section 1338 of 
title 28, the invalidity of any claim finally determined to be 
valid and patentable on any ground which the third-party 
requester raised [or could have raised] during the inter partes 
reexamination proceedings. This subsection does not prevent the 
assertion of invalidity based on newly discovered prior art 
unavailable to the third-party requester and the Patent and 
Trademark Office at the time of the inter partes reexamination 
proceedings.

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Sec. 317. Inter partes reexamination prohibited

    (a) * * *
    (b) [Final Decision.--Once a final decision has been 
entered] District Court Decision.--Once the judgment of the 
district court has been entered against a party in a civil 
action arising in whole or in part under section 1338 of title 
28, that the party has not sustained its burden of proving the 
invalidity of any patent claim in suit or if a final decision 
in an inter partes reexamination proceeding instituted by a 
third-party requester is favorable to the patentability of any 
original or proposed amended or new claim of the patent, then 
neither that party nor its privies may thereafter request an 
inter partes reexamination of any such patent claim on the 
basis of issues which that party or its privies raised or could 
have raised in such civil action or inter partes reexamination 
proceeding, and an inter partes reexamination requested by that 
party or its privies on the basis of such issues may not 
thereafter be maintained by the Office, notwithstanding any 
other provision of this chapter. This subsection does not 
prevent the assertion of invalidity based on newly discovered 
prior art unavailable to the third-party requester and the 
Patent and Trademark Office at the time of the inter partes 
reexamination proceedings.

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                CHAPTER 32--POST-GRANT REVIEW PROCEDURES

Sec.
321. Petition for post-grant review.
322. Timing and bases of petition.
323. Requirements of petition.
324. Prohibited filings.
325. Submission of additional information; showing of sufficient 
          grounds.
326. Conduct of post-grant review proceedings.
327. Patent owner response.
328. Proof and evidentiary standards.
329. Amendment of the patent.
330. Decision of the Board.
331. Effect of decision.
332. Settlement.
333. Relationship to other pending proceedings.
334. Effect of decisions rendered in civil action on post-grant review 
          proceedings.
335. Effect of final decision on future proceedings.
336. Appeal.

Sec. 321. Petition for post-grant review

    Subject to sections 322, 324, 332, and 333, a person who is 
not the patent owner may file with the Office a petition for 
cancellation seeking to institute a post-grant review 
proceeding to cancel as unpatentable any claim of a patent on 
any ground that could be raised under paragraph (2) or (3) of 
section 282(b) (relating to invalidity of the patent or any 
claim). The Director shall establish, by regulation, fees to be 
paid by the person requesting the proceeding, in such amounts 
as the Director determines to be reasonable.

Sec. 322. Timing and bases of petition

    A post-grant proceeding may be instituted under this 
chapter pursuant to a cancellation petition filed under section 
321 only if--
            (1) the petition is filed not later than 12 months 
        after the grant of the patent or issuance of a reissue 
        patent, as the case may be; or
            (2) the patent owner consents in writing to the 
        proceeding.

Sec. 323. Requirements of petition

    A cancellation petition filed under section 321 may be 
considered only if--
            (1) the petition is accompanied by payment of the 
        fee established by the Director under section 321;
            (2) the petition identifies the cancellation 
        petitioner;
            (3) the petition sets forth in writing the basis 
        for the cancellation, identifying each claim challenged 
        and providing such information as the Director may 
        require by regulation, and includes copies of patents 
        and printed publications that the cancellation 
        petitioner relies upon in support of the petition; and
            (4) the petitioner provides copies of those 
        documents to the patent owner or, if applicable, the 
        designated representative of the patent owner.

Sec. 324. Prohibited filings

    A post-grant review proceeding may not be instituted under 
section 322 if the petition for cancellation requesting the 
proceeding identifies the same cancellation petitioner and the 
same patent as a previous petition for cancellation filed under 
such section.

Sec. 325. Submission of additional information; showing of sufficient 
                    grounds

    (a) In General.--The cancellation petitioner shall file 
such additional information with respect to the petition as the 
Director may require. For each petition submitted under section 
321, the Director shall determine if the written statement, and 
any evidence submitted with the request, establish that a 
substantial question of patentability exists for at least one 
claim in the patent. The Director may initiate a post-grant 
review proceeding if the Director determines that the 
information presented provides sufficient grounds to believe 
that there is a substantial question of patentability 
concerning one or more claims of the patent at issue.
    (b) Notification; Determinations Not Reviewable.--The 
Director shall notify the patent owner and each petitioner in 
writing of the Director's determination under subsection (a), 
including a determination to deny the petition. The Director 
shall make that determination in writing not later than 60 days 
after receiving the petition. Any determination made by the 
Director under subsection (a), including whether or not to 
institute a post-grant review proceeding or to deny the 
petition, shall not be reviewable.

Sec. 326. Conduct of post-grant review proceedings

    (a) In General.--The Director shall prescribe regulations, 
in accordance with section 2(b)(2)--
            (1) establishing and governing post-grant review 
        proceedings under this chapter and their relationship 
        to other proceedings under this title;
            (2) establishing procedures for the submission of 
        supplemental information after the petition for 
        cancellation is filed; and
            (3) setting forth procedures for discovery of 
        relevant evidence, including that such discovery shall 
        be limited to evidence directly related to factual 
        assertions advanced by either party in the proceeding, 
        and the procedures for obtaining such evidence shall be 
        consistent with the purpose and nature of the 
        proceeding.
    (b) Post-Grant Regulations.--Regulations under subsection 
(a)(1)--
            (1) shall require that the final determination in a 
        post-grant proceeding issue not later than one year 
        after the date on which the post-grant review 
        proceeding is instituted under this chapter, except 
        that, for good cause shown, the Director may extend the 
        1-year period by not more than six months;
            (2) shall provide for discovery upon order of the 
        Director;
            (3) shall provide for publication of notice in the 
        Federal Register of the filing of a petition for post-
        grant review under this chapter, for publication of the 
        petition, and documents, orders, and decisions relating 
        to the petition, on the website of the Patent and 
        Trademark Office, and for filings under seal exempt 
        from publication requirements;
            (4) shall prescribe sanctions for abuse of 
        discovery, abuse of process, or any other improper use 
        of the proceeding, such as to harass or to cause 
        unnecessary delay or unnecessary increase in the cost 
        of the proceeding;
            (5) may provide for protective orders governing the 
        exchange and submission of confidential information; 
        and
            (6) shall ensure that any information submitted by 
        the patent owner in support of any amendment entered 
        under section 329 is made available to the public as 
        part of the prosecution history of the patent.
    (c) Considerations.--In prescribing regulations under this 
section, the Director shall consider the effect on the economy, 
the integrity of the patent system, and the efficient 
administration of the Office.
    (d) Conduct of Proceeding.--The Patent Trial and Appeal 
Board shall, in accordance with section 6(b), conduct each 
post-grant review proceeding authorized by the Director.

Sec. 327. Patent owner response

    After a post-grant proceeding under this chapter has been 
instituted with respect to a patent, the patent owner shall 
have the right to file, within a time period set by the 
Director, a response to the cancellation petition. The patent 
owner shall file with the response, through affidavits or 
declarations, any additional factual evidence and expert 
opinions on which the patent owner relies in support of the 
response.

Sec. 328. Proof and evidentiary standards

    (a) In General.--The presumption of validity set forth in 
section 282 shall not apply in a challenge to any patent claim 
under this chapter.
    (b) Burden of Proof.--The party advancing a proposition 
under this chapter shall have the burden of proving that 
proposition by a preponderance of the evidence.

Sec. 329. Amendment of the patent

    (a) In General.--In response to a challenge in a petition 
for cancellation, the patent owner may file one motion to amend 
the patent in one or more of the following ways:
            (1) Cancel any challenged patent claim.
            (2) For each challenged claim, propose a substitute 
        claim.
            (3) Amend the patent drawings or otherwise amend 
        the patent other than the claims.
    (b) Additional Motions.--Additional motions to amend may be 
permitted only for good cause shown.
    (c) Scope of Claims.--An amendment under this section may 
not enlarge the scope of the claims of the patent or introduce 
new matter.

Sec. 330. Decision of the board

    If the post-grant review proceeding is instituted and not 
dismissed under this chapter, the Patent Trial and Appeal Board 
shall issue a final written decision with respect to the 
patentability of any patent claim challenged and any new claim 
added under section 329.

Sec. 331. Effect of decision

    (a) In General.--If the Patent Trial and Appeal Board 
issues a final decision under section 330 and the time for 
appeal has expired or any appeal proceeding has terminated, the 
Director shall issue and publish a certificate canceling any 
claim of the patent finally determined to be unpatentable and 
incorporating in the patent by operation of the certificate any 
new claim determined to be patentable.
    (b) New Claims.--Any new claim held to be patentable and 
incorporated into a patent in a post-grant review proceeding 
shall have the same effect as that specified in section 252 for 
reissued patents on the right of any person who made, 
purchased, offered to sell, or used within the United States, 
or imported into the United States, anything patented by such 
new claim, or who made substantial preparations therefor, 
before a certificate under subsection (a) of this section is 
issued.

Sec. 332. Settlement

    (a) In General.--A post-grant review proceeding shall be 
terminated with respect to any petitioner upon the joint 
request of the petitioner and the patent owner, unless the 
Patent Trial and Appeal Board has issued a written decision 
before the request for termination is filed. If the post-grant 
review proceeding is terminated with respect to a petitioner 
under this paragraph, no estoppel shall apply to that 
petitioner. If no petitioner remains in the proceeding, the 
panel of administrative patent judges assigned to the 
proceeding shall terminate the proceeding.
    (b) Agreement in Writing.--Any agreement or understanding 
between the patent owner and a petitioner, including any 
collateral agreements referred to in the agreement or 
understanding, that is made in connection with or in 
contemplation of the termination of a post-grant review 
proceeding, must be in writing. A post-grant review proceeding 
as between the parties to the agreement or understanding may 
not be terminated until a copy of the agreement or 
understanding, including any such collateral agreements, has 
been filed in the Office. If any party filing such an agreement 
or understanding requests, the agreement or understanding shall 
be kept separate from the file of the post-grant review 
proceeding, and shall be made available only to Government 
agencies on written request, or to any person on a showing of 
good cause.

Sec. 333. Relationship to other pending proceedings

    (a) In General.--Notwithstanding subsection 135(a), 
sections 251 and 252, and chapter 30, the Director may 
determine the manner in which any reexamination proceeding, 
reissue proceeding, interference proceeding (commenced before 
the effective date provided in section 3(k) of the Patent 
Reform Act of 2007), derivation proceeding, or post-grant 
review proceeding, that is pending during a post-grant review 
proceeding, may proceed, including providing for stay, 
transfer, consolidation, or termination of any such proceeding.
    (b) Stays.--The Director may stay a post-grant review 
proceeding if a pending civil action for infringement addresses 
the same or substantially the same questions of patentability.

Sec. 334. Effect of decisions rendered in civil action on post-grant 
                    review proceedings

    If a final decision is entered against a party in a civil 
action arising in whole or in part under section 1338 of title 
28 establishing that the party has not sustained its burden of 
proving the invalidity of any patent claim--
            (1) that party to the civil action and the privies 
        of that party may not thereafter request a post-grant 
        review proceeding on that patent claim on the basis of 
        any grounds, under the provisions of section 321, which 
        that party or the privies of that party raised or could 
        have raised; and
            (2) the Director may not thereafter maintain a 
        post-grant review proceeding that was requested, before 
        the final decision was so entered, by that party or the 
        privies of that party on the basis of such grounds.

Sec. 335. Effect of final decision on future proceedings

    If a final decision under section 330 is favorable to the 
patentability of any original or new claim of the patent 
challenged by the cancellation petitioner, the cancellation 
petitioner may not thereafter, based on any ground that the 
cancellation petitioner raised during the post-grant review 
proceeding--
            (1) request or pursue a reexamination of such claim 
        under chapter 31;
            (2) request or pursue a derivation proceeding with 
        respect to such claim;
            (3) request or pursue a post-grant review 
        proceeding under this chapter with respect to such 
        claim; or
            (4) assert the invalidity of any such claim in any 
        civil action arising in whole or in part under section 
        1338 of title 28.

Sec. 336. Appeal

    A party dissatisfied with the final determination of the 
Patent Trial and Appeal Board in a post-grant proceeding under 
this chapter may appeal the determination under sections 141 
through 144. Any party to the post-grant proceeding shall have 
the right to be a party to the appeal.

           *       *       *       *       *       *       *


Sec. 363. International application designating the United States: 
                    Effect

    An international application designating the United States 
shall have the effect, from its international filing date under 
article 11 of the treaty, of a national application for patent 
regularly filed in the Patent and Trademark Office [except as 
otherwise provided in section 102(e) of this title].

           *       *       *       *       *       *       *


CHAPTER 37--NATIONAL STAGE

           *       *       *       *       *       *       *


Sec. 374. Publication of international application

    The publication under the treaty defined in section 351(a) 
of this title, of an international application designating the 
United States shall be deemed a publication under section 
122(b), except as provided in [sections 102(e) and 154(d)] 
section 154(d) of this title.
    The publication under the treaty of an international 
application shall confer no rights and shall have no effect 
under this title other than that of a printed publication.

Sec. 375. Patent issued on international application: Effect

    (a) A patent may be issued by the Director based on an 
international application designating the United States, in 
accordance with the provisions of this title. [Subject to 
section 102(e) of this title, such] Such patent shall have the 
force and effect of a patent issued on a national application 
filed under the provisions of chapter 11 of this title.

           *       *       *       *       *       *       *

                              ----------                              


                      TITLE 28, UNITED STATES CODE



           *       *       *       *       *       *       *
PART IV--JURISDICTION AND VENUE

           *       *       *       *       *       *       *


CHAPTER 83--COURTS OF APPEALS

           *       *       *       *       *       *       *


Sec. 1292. Interlocutory decisions

    (a) * * *

           *       *       *       *       *       *       *

    (c) The United States Court of Appeals for the Federal 
Circuit Shall Have Exclusive Jurisdiction.--
            (1) of an appeal from an interlocutory order or 
        decree described in subsection (a) or (b) of this 
        section in any case over which the court would have 
        jurisdiction of an appeal under section 1295 of this 
        title; [and]
            (2) of an appeal from a judgment in a civil action 
        for patent infringement which would otherwise be 
        appealable to the United States Court of Appeals for 
        the Federal Circuit and is final except for an 
        accounting[.]; and
            (3) of an appeal from an interlocutory order or 
        decree determining construction of claims in a civil 
        action for patent infringement under section 271 of 
        title 35.
Application for an appeal under paragraph (3) shall be made to 
the court within 10 days after entry of the order or decree. 
The district court shall have discretion whether to approve the 
application and, if so, whether to stay proceedings in the 
district court during pendency of the appeal.

           *       *       *       *       *       *       *


Sec. 1295. Jurisdiction of the United States Court of Appeals for the 
                    Federal Circuit

    (a) The United States Court of Appeals for the Federal 
Circuit Shall Have Exclusive Jurisdiction.--
            (1) * * *

           *       *       *       *       *       *       *

            (4) Of an appeal from a decision of.--
                    [(A) the Board of Patent Appeals and 
                Interferences of the United States Patent and 
                Trademark Office with respect to patent 
                applications and interferences, at the instance 
                of an applicant for a patent or any party to a 
                patent interference, and any such appeal shall 
                waive the right of such applicant or party to 
                proceed under section 145 or 146 of title 35;]
                    (A) the Patent Trial and Appeal Board of 
                the United States Patent and Trademark Office 
                with respect to patent applications, derivation 
                proceedings, and post-grant review proceedings, 
                at the instance of an applicant for a patent or 
                any party to a patent interference (commenced 
                before the effective date provided in section 
                3(k) of the Patent Reform Act of 2007), 
                derivation proceeding, or post-grant review 
                proceeding, and any such appeal shall waive any 
                right of such applicant or party to proceed 
                under section 145 or 146 of title 35;

           *       *       *       *       *       *       *


CHAPTER 87--DISTRICT COURTS; VENUE

           *       *       *       *       *       *       *


Sec. 1400. Patents and copyrights, mask works, and designs

    (a) * * *
    [(b) Any civil action for patent infringement may be 
brought in the judicial district where the defendant resides, 
or where the defendant has committed acts of infringement and 
has a regular and established place of business.]
    (b) Notwithstanding section 1391 of this title, in any 
civil action arising under any Act of Congress relating to 
patents, a party shall not manufacture venue by assignment, 
incorporation, or otherwise to invoke the venue of a specific 
district court.
    (c) Notwithstanding section 1391 of this title, any civil 
action for patent infringement or any action for declaratory 
judgment may be brought only in a judicial district--
            (1) where the defendant has its principal place of 
        business or in the location or place in which the 
        defendant is incorporated, or, for foreign corporations 
        with a United States subsidiary, where the defendant's 
        primary United States subsidiary has its principal 
        place of business or in the location or place in which 
        the defendants primary United States subsidiary is 
        incorporated;
            (2) where the defendant has committed a substantial 
        portion of the acts of infringement and has a regular 
        and established physical facility that the defendant 
        controls and that constitutes a substantial portion of 
        the operations of the defendant;
            (3) where the primary plaintiff resides, if the 
        primary plaintiff in the action is an institution of 
        higher education as defined under section 101(a) of the 
        Higher Education Act of 1965 (20 U.S.C. 1001(a)); or
            (4) where the plaintiff resides, if the plaintiff 
        or a subsidiary of the plaintiff has an established 
        physical facility in such district dedicated to 
        research, development, or manufacturing that is 
        operated by full-time employees of the plaintiff or 
        such subsidiary, or if the sole plaintiff in the action 
        is an individual inventor who is a natural person and 
        who qualifies at the time such action is filed as a 
        micro entity under section 124 of title 35.
    (d) If the plaintiff brings a civil action for patent 
infringement in a judicial district under subsection (c), the 
district court may transfer that action to any other district 
or division where--
            (1) the defendant has substantial evidence or 
        witnesses; and
            (2) venue would be appropriate under section 1391 
        of this title, if such transfer would be appropriate 
        under section 1404 of this title.

           *       *       *       *       *       *       *

                              ----------                              


 SECTION 4607 OF THE INTELLECTUAL PROPERTY AND COMMUNICATIONS OMNIBUS 
                           REFORM ACT OF 1999

[SEC. 4607. ESTOPPEL EFFECT OF REEXAMINATION.

    [Any party who requests an inter partes reexamination under 
section 311 of title 35, United States Code, is estopped from 
challenging at a later time, in any civil action, any fact 
determined during the process of such reexamination, except 
with respect to a fact determination later proved to be 
erroneous based on information unavailable at the time of the 
inter partes reexamination decision. If this section is held to 
be unenforceable, the enforceability of the remainder of this 
subtitle or of this title shall not be denied as a result.]