FTC Proposal Could Dramatically Affect the Patent Landscape

After conducting a study on how the U.S. patent system affects competition and innovation, the Federal Trade Commission (FTC) has suggested several legislative and judicial reforms to current U.S. patent law that might change the way we litigate patents. If implemented, these reforms could make it easier to challenge the validity of patents and could provide accused infringers with additional defenses to charges of infringement and willful infringement.

The FTC's proposal, contained in an October 2003 report titled “To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy,” seeks to lower the standard of proof for patent validity challenges. For at least the past 70 years, courts have required patent invalidity to be proven by the heightened standard of clear and convincing evidence. The FTC's proposal would lower the bar to a preponderance of the evidence standard. If adopted, such a change in the law would make it easier for patent holders to prove infringement at trial, and to have those infringement findings upheld on appeal.

The FTC also proposes relaxing the standards for proving obviousness. Obviousness is typically proven, for example, by showing that the subcomponents of the patented invention were present in the prior art, and that there existed a motivation to combine them to arrive at the invention. If a patent challenger cannot find a subcomponent in the prior art, or if the prior art does not contain an express motivation to combine the subcomponents, proving obviousness can be a much more daunting task. The FTC's proposal would eliminate that difficulty by permitting courts to consider both “inherent knowledge” and the problem-solving ability of one of ordinary skill in the art.

One common way for a patent owner to rebut an obviousness challenge is to show that the invention is a commercial success. But the FTC would increase the level of scrutiny that courts must give to such showings. Taken together, the FTC would make it easier for a patent challenger to prove obviousness, while at the same time making it more difficult for the patent owner to rebut obviousness.

The FTC is also urging Congress to enact a post-grant review proceeding conducted in the USPTO before an administrative law judge. Under the FTC's proposal, the administrative law judge would be empowered to rule on issues of novelty, obviousness, written description, enablement, and utility, with limited discovery and cross-examination of witnesses. This would provide patent challengers with a powerful mechanism to administratively challenge patents ' one with greater reach than current re-examination proceedings.

The FTC also wants to provide a “prior user defense” to companies ensnarled by continuation patents. Under this defense, a third party who reduced to practice, used, or made substantial preparation to use, a product or process before the first publication of a claim covering that product or process in a continuing application might not be subject to any infringement liability. The defense would specifically apply where the parent application did not include a “properly described claim” covering the third party's product or process, and the allegedly infringed claim did not exist in the parent application before the third party's reduction to practice, use, or substantial preparation for use. This version of a prior-user defense would go beyond the limited prior-user defense applicable to business-method patents set forth in 35 U.S.C. '273(b).

Finally, the FTC recommends that Congress limit the grounds for willful infringement. Based on the FTC's concern that too many parties avoid reading their competitors' patents out of fear of laying a foundation for a claim of willful infringement, the FTC recommends that to prove willfulness, a patentee must prove that it gave the infringer actual written notice of the infringement or that the infringer knowing that the invention was patented deliberately copied the invention.

While it is still too soon to tell how much if any of the FTC's proposed reforms will be enacted by Congress or implemented by the judiciary, if adopted, the reforms will have sweeping repercussions in the patent field. Regardless of whether the reforms are adopted, their soundness will likely be a hot topic for years to come.

After conducting a study on how the U.S. patent system affects competition and innovation, the Federal Trade Commission (FTC) has suggested several legislative and judicial reforms to current U.S. patent law that might change the way we litigate patents. If implemented, these reforms could make it easier to challenge the validity of patents and could provide accused infringers with additional defenses to charges of infringement and willful infringement.

The FTC's proposal, contained in an October 2003 report titled “To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy,” seeks to lower the standard of proof for patent validity challenges. For at least the past 70 years, courts have required patent invalidity to be proven by the heightened standard of clear and convincing evidence. The FTC's proposal would lower the bar to a preponderance of the evidence standard. If adopted, such a change in the law would make it easier for patent holders to prove infringement at trial, and to have those infringement findings upheld on appeal.

The FTC also proposes relaxing the standards for proving obviousness. Obviousness is typically proven, for example, by showing that the subcomponents of the patented invention were present in the prior art, and that there existed a motivation to combine them to arrive at the invention. If a patent challenger cannot find a subcomponent in the prior art, or if the prior art does not contain an express motivation to combine the subcomponents, proving obviousness can be a much more daunting task. The FTC's proposal would eliminate that difficulty by permitting courts to consider both “inherent knowledge” and the problem-solving ability of one of ordinary skill in the art.

One common way for a patent owner to rebut an obviousness challenge is to show that the invention is a commercial success. But the FTC would increase the level of scrutiny that courts must give to such showings. Taken together, the FTC would make it easier for a patent challenger to prove obviousness, while at the same time making it more difficult for the patent owner to rebut obviousness.

The FTC is also urging Congress to enact a post-grant review proceeding conducted in the USPTO before an administrative law judge. Under the FTC's proposal, the administrative law judge would be empowered to rule on issues of novelty, obviousness, written description, enablement, and utility, with limited discovery and cross-examination of witnesses. This would provide patent challengers with a powerful mechanism to administratively challenge patents ' one with greater reach than current re-examination proceedings.

The FTC also wants to provide a “prior user defense” to companies ensnarled by continuation patents. Under this defense, a third party who reduced to practice, used, or made substantial preparation to use, a product or process before the first publication of a claim covering that product or process in a continuing application might not be subject to any infringement liability. The defense would specifically apply where the parent application did not include a “properly described claim” covering the third party's product or process, and the allegedly infringed claim did not exist in the parent application before the third party's reduction to practice, use, or substantial preparation for use. This version of a prior-user defense would go beyond the limited prior-user defense applicable to business-method patents set forth in 35 U.S.C. '273(b).

Finally, the FTC recommends that Congress limit the grounds for willful infringement. Based on the FTC's concern that too many parties avoid reading their competitors' patents out of fear of laying a foundation for a claim of willful infringement, the FTC recommends that to prove willfulness, a patentee must prove that it gave the infringer actual written notice of the infringement or that the infringer knowing that the invention was patented deliberately copied the invention.

While it is still too soon to tell how much if any of the FTC's proposed reforms will be enacted by Congress or implemented by the judiciary, if adopted, the reforms will have sweeping repercussions in the patent field. Regardless of whether the reforms are adopted, their soundness will likely be a hot topic for years to come.