Sensenbrenner to Kappos: Prior User Rights is Poison Pill

Congressman Bob Goodlatte (R-VA), Chair of House IP Subcommittee

Today the House Subcommittee on Intellectual Property, Competition and the Internet, which is a subcommittee of the House Committee on the Judiciary, held a hearing on the America Invents Act, the House version of patent reform. While the House and Senate bills are largely identical, there is one striking difference between the two, and that difference relates to prior user rights. In the United States we have a very limited prior user rights defense today that relates to business methods only, but the House bill would extend a prior user rights defense to all inventions and patents except those that created through funding by the U.S. federal government or those funded solely by Universities.  According to Congressman Jim Sensenbrenner (R-WI) the inclusion of prior user rights might just be the poison pill that kills patent reform.

Personally speaking, I am sick and tired of legislative carve outs. If prior user rights are such a great idea then have them apply across the board. Of course, prior user rights are decidedly not a good idea and the bill could never pass if there were not an exception for Universities. That should tell you something right there!  Unfortunately, the House will be urged to retain prior user rights defenses and some of the arguments in favor at the hearing are flat wrong, disingenuous and border on wanton misrepresentation.

Under a strict prior user rights regime, like the House wants, those who innovated and then concealed that innovation from the public would be able to use their secret, concealed innovation as a defense to a patent infringement action. So, in other words, prior user rights rewards those who hide innovation from the public and penalizes those who disclose their innovations to the public. The entire purpose of a patent system is to disseminate information to allow others to build upon what has come before. That is how a patent system fosters innovation. A patent system that rewards trade secret rights over patent rights is an abomination. Not only does such a system fail to advance the Constitutional purpose of patents, but it retards the primary intent of a patent system.

In his prepared remarks David Kappos, Director of the United States Patent and Trademark Office said: “Expanding the prior user defense, I believe, is pro-manufacturer, pro-small business, and, on balance, good policy.” If Director Kappos said that an expanded prior user defense is pro-manufacturer and pro-big company I would agree with him, but when he adds “pro-small business” there is no way I can agree with that statement. Small businesses, independent inventors and technology start-ups patent their innovations because they need those exclusive rights in order to attract capital investment. There is absolutely no way that a patent that is easier to defend against will benefit those who need patents for business purposes, such as investment.

Prior to Kappos’ prepared remarks, which didn’t start until 2:36pm due to delays caused by voting in the House, Committee Subcommittee Chair Bob Goodlatte (R-VA) informed everyone that Director Kappos was scheduled to leave the country and would not be able to remain and answer questions, but rather would answer any questions in writing.  To this Congressman Sensenbrenner called a point of order and said it was unacceptable to have Director Kappos leave immediately.  Accommodations were made so that Congressman Sensenbrenner could ask at least a couple questions, with Congresswoman Zoe Lofgren (D-CA) following and Judiciary Committee Chair Congressman Lamar Smith (R-TX) wrapped up the limited Kappos availability for questioning so he could get to the airport for his overseas mission.

Congressman Sensenbrenner

It is fair to say that Sensenbrenner’s posture suggested that he was extremely irritated by the inability of Director Kappos to submit fully to questioning, but acknowledged that the Subcommittee needs to do better with respect to scheduling.  Sensenbrenner moved on to his grievance, which is prior user rights.  Sensenbrenner characterized prior user rights as a get out of jail free card for the Chinese to avoid infringing.  Congressman Sensenbrenner even suggested that the existence of prior user rights “could very well be a poison pill.”  I couldn’t agree more!

Director Kappos acknowledged that the Obama Administration currently has no position on prior user rights.  Sensenbrenner asked when one could be expected, and it seems as if the Administration will soon have a position.  Kappos did state that some companies are locating outside the United States in places where there are prior user rights and Kappos said he thought it was a good idea to close that loophole to keep companies from moving.  This was unconvincing for Sensenbrenner, and it strikes me as a very weak argument.  No companies are locating outside the U.S. because of prior user rights.  These companies would still be liable in the U.S. for infringement regardless of the fact that where they locate has prior user rights.

Congressman Sensenbrenner also suggested that Congress should separate out fee diversion because “everyone agrees that getting rid of fee diversion is a step in the right direction.”  Sensenbrenner said “separate fee diversion and let the bill sink or swim.” Not a bad idea probably, and certainly the way to go if it is fee diversion in exchange for prior user rights.  I see absolutely nothing in this legislation worth accepting the terrible effect of prior user rights.

There is something fundamentally unfair about allowing something that is secret to erode a patent right. The inventor who seeks to patent and is thereby required to disclose could never have known about what is kept secret, so even a no-stone-unturned search wouldn’t have revealed the prior use. That is, after all, what is meant by it being secret. Yet, this secret use will effectively limit the scope of the patentees rights? That strikes me as borderline absurd. But for the patentee society wouldn’t have derived any informational benefit from the secret, so why should society set up rules and laws that reward the secret? This is something that has always distinguished American law compares with laws around the globe. In the United States trade secrets are extremely fragile rights and when push comes to shove a patent always wins out over a trade secret because of the fundamental Constitutional purpose that seeks and rewards disclosure. We tolerate the quid-pro-quo of granting exclusive rights in exchange for disclosure. What exactly have those who keep innovation secret done to deserve any kind of quid-pro-quo? Yet they get an enormous quid-pro-quo under a prior user rights system.

Acting as Chair of the Subcommittee Congressman Sensenbrenner recessed the hearing after Kappos wrapped up.  There is a Libya briefing that is scheduled to run through 3:30pm, but such briefings almost always run late.  So the hearing will commence at the call of the Chair, Congressman Goodlatte.

When the hearing resumes the second panel will include Mark Chandler, who is Senior Vice President and General Counsel at Cisco Systems, Inc.  Unless he changes his prepared remarks, he will testify about prior user rights as being essential. He is expected to tell the Subcommittee that “the House should ensure that prior user rights remain in any final legislation. Prior user rights are vital to a functional first-to-file system.” He will then go on to make a statement that is enormously untrue: “Nearly all stakeholders agree that a first-to-file system must have a prior user defense.” Nearly all? Really? Obviously Chandler would like the Subcommittee to believe something that is false. This strikes me as a feeble attempt to marginalize those who are against prior user rights. For crying out loud, it isn’t even true that “nearly all stakeholders agree” on first to file. While I am not against first to file it is impossible not to notice the coalition lined up against first to file. How can anyone who wants to present as a learned industry expert make the statement that nearly everyone agrees that prior user rights are absolutely necessary and desirable? Were you consulted? I know I wasn’t, and I suspect the many fighting against first to file were not consulted either.

Perhaps the biggest misrepresentation at at the Subcommittee hearing will be about the parade of horribles that will befall the industry should Congress not include a prior user rights defense. Chandler is expected to tell the Subcommittee:

Without prior user rights, domestic opportunists and offshore adversaries will accelerate the patent mills they have today to file on every minor change in an American product, and then use our courts to try to extract damages from the true innovators here, or to block us from selling our own products. The effect would be to set off an enormous defensive patent filing race which our current system does not require and would divert the valuable resources of America?s innovators.

I am really trying not to say that Chandler’s testimony is a lie, but he either knows or should know that this statement is absolutely 100% false.  The patent mills are going to file on “every minor change in an American product”?  If Chandler really is an industry expert one would expect that he would be familiar with the most important and influential Supreme Court decision in the patent space in at least half a century — KSR v. Teleflex.  Perhaps Mr. Chandler didn’t get the memo, but the Supreme Court has really ratcheted up the obviousness requirement over the last several years, and the United States Court of Appeals for the Federal Circuit has followed.  It is simply not possible to obtain patents on minor variations and the suggestion that it is possible is borderline ridiculous.

Just recently in Tokai Corp. v. Easton Enterprises, Inc., the Federal Circuit applied an expansive reading of KSR to find that the claims in question were invalid on summary judgment. The invention in question, an improvement to the safety features of a BBQ grill lighter, used mechanical features to make it possible for the trigger to be pulled simultaneously with depression of the lock-releasing button. The closest prior art, which was the base reference upon which obviousness was premised, did not have any safety feature or mechanisms whatsoever. Thus, a utility lighter needed to be combined with other prior art references having a safety mechanism. The Federal Circuit panel found the claims to be obvious over the closest prior art in view of the safety features of the utility lighter.  What makes Tokai particularly noteworthy is that even if all of the pieces and parts identified by the Federal Circuit were combined by one of skill in the art it still could not produce the claimed device in question.  So there was need to modify at least one part using “common sense” before combining.  So in Tokai the “common sense” aspects of obviousness took another large leap forward. For more on Tokai see KSR Fears Realized.

So does Mr. Chandler really expect anyone who understands anything about patent law to believe that patent mills will be able to patent “every minor change”?  I suspect he is hoping that Congress isn’t very familiar with the patentability requirements and has missed completely the handling of obviousness by the federal courts.  It certainly seems to me that he is trying to pull the wool over the eyes of House Members.

Of course Cisco and the other big technology companies want a prior user right defense.  They get sued for infringing the patents of others with regularity and they would greatly prefer those patents to be weaker an easier to avoid.  These big companies have obtained the benefits of the patent system and they seem to in a very straight forward and open way want to make it more difficult for the next generation of start-up company to enjoy the same benefits they received.  If patents are weaker being big and having market dominance is enough to prevail.  You can’t really blame them, who wouldn’t advocate for what is in their own best interest?  But you can hope that Congress gets this right.

Three cheers for Congressman Sensenbrenner!  Keep up the fight!