“Second Window” Will Lead to More Uncertainty

by on June 26, 2007 · 14 comments

A centerpiece of the Leahy-Hatch/Berman-Smith Patent Reform Act of 2007 (S. 1145 and H.R. 1908) is the establishment of an injudicious post-grant opposition procedure (also known as a “second window”). According to Chairman Howard L. Berman (D-CA) of the House Subcommittee on Courts, the Internet, and Intellectual Property, a new layer of review is needed because:

In an effort to address the questionable quality of patents issued by the USPTO, the bill establishes a check on the quality of a patent immediately after it is granted or in circumstances where a party can establish significant economic harm resulting from assertion of the patent. [emphasis added.]

There are several key problems with the proposed new procedure for post-grant review contained in sec. 6 of the Patent Reform Act of 2007.


First, someone can challenge a patent anytime, throughout the patent’s life if they can show they are likely to suffer “significant economic harm” from the patent. This is extraordinary, because prosecutions of all but a few of the most egregious crimes (e.g., war crimes; murder; rape, in some jurisdictions) are governed by statutes of limitation which say that causes of action aren’t permitted after a certain period of time. Statutes of limitation are necessary because memories fade and evidence becomes stale, is lost or more easily corrupted as the years pass. Some crimes are so heinous they aren’t subject to a statute of limitations. But patent disputes hardly fit in this category.

Aside from the enormous uncertainty that would arise from an open-ended opportunity for post-grant opposition, sec. 6 also strips patent holders of two important protections they have under current law.

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.

Courts now presume that patents must be valid or they wouldn’t have been issued by the Patent & Trademark Office. A plaintiff has to provide “clear and convincing” evidence that a particular patent doesn’t meet the legal requirements for validity. Sec. 6 eliminates the presumption and sets a lower evidentiary threshold. This sets up a situation where a decision of the PTO has little if any significance because the courts will be considering patent claims anew as if no PTO proceeding ever occurred. If this is what we want, the question arises why are we retaining the PTO? Normally, courts defer to the expertise of administrative agencies unless an abuse of discretion is apparent. This policy tends to reduce litigation by increasing the importance for all parties to fully participate in agency deliberations. The Patent Reform Act of 2007 would eliminate any such incentive.

Professor Adam B. Jaffe justifies this duplication on the grounds that it would be inefficient to subject trivial patents to heightened scrutiny:

Effective reform must start with the recognition that much of the information needed to decide if a given application should be approved is in the hands of competitors of the applicant, rather than the PTO. A review process with multiple potential review levels efficiently balances the need to bring in outside information with the reality that most patents are unimportant. Multilevel review, with the barriers to invoking review and the thoroughness of that review both increasing at higher levels, would naturally focus attention on the most potentially important applications. Most patents would never receive anything other than the most basic examinations. But for those applications that really mattered, parties would have an incentive and opportunities to bring information in their possession before the PTO, and the PTO would have more resources to help it make the right decision.

Professor Jaffe makes a good argument, for an economist. But there is a compelling public policy favoring finality in government decision-making so people can plan for the future. The general rule requires interested parties to make their views known and submit their challenges during the pendency of agency decision-making, not whenever it is convenient. An innovator trying to market his or her idea needs financing and talent, but by subjecting patents to opposition at any time and making the outcome less predictable a Sword of Damocles will hang over the patent holder and innocent collaborators (such as investors and employees) who help market his or her innovation. This will invariably impact capital formation that is vital for innovation.

A new post-grant opposition procedure would also be highly duplicative, since Congress created a re-examination procedure in 1981 which is still with us (also for the purpose of reducing litigation) and the Patent Reform Act of 2007 includes separate provisions for pre-grant opposition in sec. 9.

Finally, it should be noted that even Chairman Berman seems to understand that a post-grant opposition procedure could lead to the abuse of patent holders:

Many have expressed concerns about the possibility of harassment of patent owners who want to assume quiet title over their invention. In an effort to address those concerns, the bill prohibits multiple bites at the apple by restricting the cancellation petitioner to opt for only one window one time. The bill also requires that the Director prescribe regulations for sanctions for abuse of process or harassment.

If history is any guide, this may lead to hundreds or thousands of pages of new regulations, in which case the only thing Chairman Berman may have accomplished is to substitute one problem for another.

  • l0b0t

    Not being a lawyer, I’m having trouble understanding why “…significant economic harm resulting from assertion of the patent.” would be considered cause for action. I was under the impression that the only way to bust a patent was to show that the patented item was already extant and in use by others prior to the date of the patent, is that not the case? The whale-oil concerns and the wagon works certainly suffered “significant economic harm” from the internal combustion engine but that should not be a justifiable reason to go after the engine’s patent. What about the manufacturer’s of pay-telephones versus the mobiles, or Amalgamated Computer Punchcards ltd. vs. Intel/AMD et al. Pity the stoop-laborers, made redundant by the combine harvester. Reductio ad absurdium to be sure but is anything gained by having an overly complicated patent system? You invent something new, you get exclusive rights of use for a limited (VERY limited) period of time, then your invention passes into the public domain. Why is it more complicated than that?

  • dimitris

    First, someone can challenge a patent anytime, throughout the patent’s life if they can show they are likely to suffer “significant economic harm” from the patent. This is extraordinary [...]

    It isn’t; rather, it fairly counterbalances the continuous threat presented by bogus patents throughout their term.

    To use your crime analogy, a (threat of use of a) bogus patent is a crime that takes up to twenty years to perpetrate. A statute of limitations which limits action to the crime’s end date is therefore only fair, and perhaps too lenient.

  • l0b0t

    Not being a lawyer, I’m having trouble understanding why “…significant economic harm resulting from assertion of the patent.” would be considered cause for action. I was under the impression that the only way to bust a patent was to show that the patented item was already extant and in use by others prior to the date of the patent, is that not the case? The whale-oil concerns and the wagon works certainly suffered “significant economic harm” from the internal combustion engine but that should not be a justifiable reason to go after the engine’s patent. What about the manufacturer’s of pay-telephones versus the mobiles, or Amalgamated Computer Punchcards ltd. vs. Intel/AMD et al. Pity the stoop-laborers, made redundant by the combine harvester. Reductio ad absurdium to be sure but is anything gained by having an overly complicated patent system? You invent something new, you get exclusive rights of use for a limited (VERY limited) period of time, then your invention passes into the public domain. Why is it more complicated than that?

  • http://www.techliberation.com/ Tim Lee

    By subjecting patents to opposition at any time and making the outcome less predictable a Sword of Damocles will hang over the patent holder and innocent collaborators, such as investors and employees, who help market his or her innovation.

    Hance, I don’t understand this line of reasoning. I don’t see why it would be fatal for an innovative company to lose a patent. If they had a valuable product before the patent were invalidated, that product would continue to be just as valid afterwards. Losing a patent doesn’t mean losing an invention—it just means the inventor will face more competition than he expected.

    The “Sword of Damacles,” as far as I can see, mostly points in the opposite direction: that a company like Vonage or RIM faces a constant threat of frivolous patent lawsuits. Being convicted of patent infringement is far more damaging to a company than having one of your patents invalidated.

    You write that the presumption of validity “tends to reduce litigation by increasing the importance for all parties to fully participate in agency deliberations,” which may very well be true. But notice the implicit premise here: that “all interested parties” have the resources and knowledge necessary to participate in the USPTO process. To put it in concrete terms: somewhere in San Francisco, a couple of 20-somethings on a shoestring budget are developing the next breakthrough technology. You’re demanding that, as a condition of participating in the technology industry, they hire a team of patent lawyers to monitor every patent application and challenge those that intersect with their own technology. I think it’s pretty obvious that not only do they not have the resources to do that, but it’s also not reasonable to expect them to do so.

    Given the enormous damage a bogus patent can do to an innovative company like Vonage or RIM, we should make it as easy as possible to get bogus patents invalidated. If that raises the costs of holding a patent, that seems like a small price to pay to make sure the patent system doesn’t wreck innocent companies whose only crime is not having hired enough patent lawyers.

  • dimitris

    First, someone can challenge a patent anytime, throughout the patent’s life if they can show they are likely to suffer “significant economic harm” from the patent. This is extraordinary [...]

    It isn’t; rather, it fairly counterbalances the continuous threat presented by bogus patents throughout their term.

    To use your crime analogy, a (threat of use of a) bogus patent is a crime that takes up to twenty years to perpetrate. A statute of limitations which limits action to the crime’s end date is therefore only fair, and perhaps too lenient.

  • http://www.techliberation.com/ Tim Lee

    By subjecting patents to opposition at any time and making the outcome less predictable a Sword of Damocles will hang over the patent holder and innocent collaborators, such as investors and employees, who help market his or her innovation.

    Hance, I don’t understand this line of reasoning. I don’t see why it would be fatal for an innovative company to lose a patent. If they had a valuable product before the patent were invalidated, that product would continue to be just as valid afterwards. Losing a patent doesn’t mean losing an invention—it just means the inventor will face more competition than he expected.

    The “Sword of Damacles,” as far as I can see, mostly points in the opposite direction: that a company like Vonage or RIM faces a constant threat of frivolous patent lawsuits. Being convicted of patent infringement is far more damaging to a company than having one of your patents invalidated.

    You write that the presumption of validity “tends to reduce litigation by increasing the importance for all parties to fully participate in agency deliberations,” which may very well be true. But notice the implicit premise here: that “all interested parties” have the resources and knowledge necessary to participate in the USPTO process. To put it in concrete terms: somewhere in San Francisco, a couple of 20-somethings on a shoestring budget are developing the next breakthrough technology. You’re demanding that, as a condition of participating in the technology industry, they hire a team of patent lawyers to monitor every patent application and challenge those that intersect with their own technology. I think it’s pretty obvious that not only do they not have the resources to do that, but it’s also not reasonable to expect them to do so.

    Given the enormous damage a bogus patent can do to an innovative company like Vonage or RIM, we should make it as easy as possible to get bogus patents invalidated. If that raises the costs of holding a patent, that seems like a small price to pay to make sure the patent system doesn’t wreck innocent companies whose only crime is not having hired enough patent lawyers.

  • http://linuxworld.com/community/ Don Marti

    The fundamental problem is the mismatch between USPTO and the courts. USPTO doesn’t have enough predictive power — it’s failing by granting too many patents that don’t hold up. USPTO got into this mess because of patentability creep — jumping into software and business methods without orders or funding from Congress. In the long run, Congress is going to have to roll back patentability creep to fix the problem of low-quality patents.

  • http://linuxworld.com/community/ Don Marti

    The fundamental problem is the mismatch between USPTO and the courts. USPTO doesn’t have enough predictive power — it’s failing by granting too many patents that don’t hold up. USPTO got into this mess because of patentability creep — jumping into software and business methods without orders or funding from Congress. In the long run, Congress is going to have to roll back patentability creep to fix the problem of low-quality patents.

  • Hance Haney

    Bogus patents and patentability creep

    The changes I have described (new layer of post-grant review, elimination of the presumption of validity and reduced evidentiary burden) wouldn’t merely apply to bogus patents (nor would they even be limited to newer categories of patents such as software and business methods). They would apply to good as well as bad patents and could subject deserving patent holders to harassment. So there is a question of how much collateral damage is reasonable in going after the bogus patents? But I don’t think the changes are necessary, in any event, to root out the bogus patents. In KSR v. Teleflex, the Supreme Court rejected the formalistic analysis of the obviousness standard by the Court of Appeals for the Federal Circuit and clarified that advances which are the product of ordinary skill and common sense are not patentable. So it is already much easier to attack bogus patents. Another recent Supreme Court decision, eBay v. MercExchange will reduce the possibility that a bogus patent will qualify for injunctive relief.

    Losing a patent doesn’t mean losing an invention—it just means the inventor will face more competition than he expected.

    Investors aren’t willing to endure a substantial risk in exchange for a modest return when there are plenty of safe havens for investors seeking modest returns (e.g., government bonds). We should allow truly novel, useful and nonobvious inventions to earn a handsome profit, because the prospect of such a profit leads people to invest their time and money in risky pursuits.

    Being convicted of patent infringement is far more damaging to a company than having one of your patents invalidated.

    If a company is convicted of infringing a patent that means they broke the law. There should be a downside to that.

    [S]omewhere in San Francisco, a couple of 20-somethings on a shoestring budget are developing the next breakthrough technology. You’re demanding that, as a condition of participating in the technology industry, they hire a team of patent lawyers to monitor every patent application and challenge those that intersect with their own technology.

    I don’t think anyone has a right to participate in someone else’s legitimate patented invention. And I am confident that if we have strong protection for intellectual property, a couple of 20-somethings who develop a breakthrough technology will be able to attract the capital necessary to bring it to market.

  • Hance Haney

    Bogus patents and patentability creep

    The changes I have described (new layer of post-grant review, elimination of the presumption of validity and reduced evidentiary burden) wouldn’t merely apply to bogus patents (nor would they even be limited to newer categories of patents such as software and business methods). They would apply to good as well as bad patents and could subject deserving patent holders to harassment. So there is a question of how much collateral damage is reasonable in going after the bogus patents? But I don’t think the changes are necessary, in any event, to root out the bogus patents. In KSR v. Teleflex, the Supreme Court rejected the formalistic analysis of the obviousness standard by the Court of Appeals for the Federal Circuit and clarified that advances which are the product of ordinary skill and common sense are not patentable. So it is already much easier to attack bogus patents. Another recent Supreme Court decision, eBay v. MercExchange will reduce the possibility that a bogus patent will qualify for injunctive relief.

    Losing a patent doesn’t mean losing an invention—it just means the inventor will face more competition than he expected.

    Investors aren’t willing to endure a substantial risk in exchange for a modest return when there are plenty of safe havens for investors seeking modest returns (e.g., government bonds). We should allow truly novel, useful and nonobvious inventions to earn a handsome profit, because the prospect of such a profit leads people to invest their time and money in risky pursuits.

    Being convicted of patent infringement is far more damaging to a company than having one of your patents invalidated.

    If a company is convicted of infringing a patent that means they broke the law. There should be a downside to that.

    [S]omewhere in San Francisco, a couple of 20-somethings on a shoestring budget are developing the next breakthrough technology. You’re demanding that, as a condition of participating in the technology industry, they hire a team of patent lawyers to monitor every patent application and challenge those that intersect with their own technology.

    I don’t think anyone has a right to participate in someone else’s legitimate patented invention. And I am confident that if we have strong protection for intellectual property, a couple of 20-somethings who develop a breakthrough technology will be able to attract the capital necessary to bring it to market.

  • http://www.techliberation.com/ Tim Lee

    I don’t think anyone has a right to participate in someone else’s legitimate patented invention.

    I agree, but that’s not what we’re talking about. The question is, in cases where a patent is illegitimate, how high should the bar be for getting it declared invalid? I don’t have any firm ideas about where the bar should be set, but I think it’s obvious that the current setting of the bar (under which NTP can extort $612 million from RIM for a patent portfolio that everyone agrees is bogus) is too high. Maybe Teleflex will fix the problem. Maybe post-grant review is the wrong approach. But clearly, it’s too difficult right now to get bogus patents invalidated.

    What you seem to be contending (and forgive me if I’m misunderstanding you) is that RIM should have more “fully participated in agency deliberations” regarding NTP’s patent applications. I’m not sure which deliberations you’re talking about, specifically, but in any event this seems to me to be an unreasonable burden on RIM. Keep in mind that NTP was granted its patent in 1995, four years before RIM entered the wireless market, and nearly a decade before the BlackBerry became a household term. You say that “make their views known and submit their challenges during the pendency of agency decision-making,” which I guess means that RIM should have filed its challenges to NTP’s patents in the early 1990s. But this is obviously unreasonable since RIM not only didn’t know about NTP’s patents at that point, but they also probably had no idea they were going to be entering the wireless email market.

    It’s certainly true that administrative agencies and the courts should strive for legal predictability and finality wherever possible. But justice is an even more important principle. And it’s not right to exclude someone from a market based on a bogus patent simply because they didn’t “fully participate in agency deliberations” at the time the patent was granted.

  • http://www.techliberation.com/ Tim Lee

    “four years before RIM entered the wireless market”

    …what I meant here is “the wireless email market.”

  • http://www.techliberation.com/ Tim Lee

    I don’t think anyone has a right to participate in someone else’s legitimate patented invention.

    I agree, but that’s not what we’re talking about. The question is, in cases where a patent is illegitimate, how high should the bar be for getting it declared invalid? I don’t have any firm ideas about where the bar should be set, but I think it’s obvious that the current setting of the bar (under which NTP can extort $612 million from RIM for a patent portfolio that everyone agrees is bogus) is too high. Maybe Teleflex will fix the problem. Maybe post-grant review is the wrong approach. But clearly, it’s too difficult right now to get bogus patents invalidated.

    What you seem to be contending (and forgive me if I’m misunderstanding you) is that RIM should have more “fully participated in agency deliberations” regarding NTP’s patent applications. I’m not sure which deliberations you’re talking about, specifically, but in any event this seems to me to be an unreasonable burden on RIM. Keep in mind that NTP was granted its patent in 1995, four years before RIM entered the wireless market, and nearly a decade before the BlackBerry became a household term. You say that “make their views known and submit their challenges during the pendency of agency decision-making,” which I guess means that RIM should have filed its challenges to NTP’s patents in the early 1990s. But this is obviously unreasonable since RIM not only didn’t know about NTP’s patents at that point, but they also probably had no idea they were going to be entering the wireless email market.

    It’s certainly true that administrative agencies and the courts should strive for legal predictability and finality wherever possible. But justice is an even more important principle. And it’s not right to exclude someone from a market based on a bogus patent simply because they didn’t “fully participate in agency deliberations” at the time the patent was granted.

  • http://www.techliberation.com/ Tim Lee

    “four years before RIM entered the wireless market”

    …what I meant here is “the wireless email market.”

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