Chief Justice Paul Michel of the U.S. Court of Appeals for the Federal Circuit wrote to Senator Patrick Leahy, Chairman of the Committee on the Judiciary regarding patent reform. He notes the differences between the Section 10 (b) Interlocutory Appeals of the bill and the appeals already authorized under section 1292(b) of title 28. The bill would add to section 1292(b) a discretionary, second avenue of appeal in cases where claim construction was not outcome-determinative.

While urging that some may believe that these two avenues of pre-trial appeals are sufficient, Michel urged the Committee that if it determines there is a need for a third such avenue, it might consider alternatives to the present provision in Section 10:

For example, the third avenue of appeal could be limited to cases in which, despite the absence of a grant of summary judgment, the trial court determines that claim construction will likely control the verdict on infringement. Under such a provision, the number of interlocutory appeals on this third avenue would, I expect, be far fewer than under the provision as currently drafted. The current language makes automatically appealable any order “determining the construction of claims.” The parties in typical patent infringement cases dispute several claim terms in many claims, often involving many different patents. Whatever the trial judge determines, one or both parties are nearly always unhappy with one or more terms as construed by the district court.

Michel notes that the CAFC currently receives about 500 infringement appeals per year and that number could double under the bill as currently drafted. Concurrently, the average patent infringement appeal takes 11 months to get an opinion, which could double.

With regard to Section 5 of the Patent Reform bill, on apportionment of damages when calculated as a reasonable royalty, the current language requires the court to conduct a tediuous macroeconomic analysis. Currently, damages in patent cases are governed by section 284, which states in relevant 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, together with interest and costs as fixed by the court.

The Patent Reform Act of 2007 (S. 1145) would add the following provisions to 35 U.S.C. §284:

(2) RELATIONSHIP OF DAMAGES TO CONTRIBUTIONS OVER PRIOR ART. -The court shall conduct an analysis to ensure that a reasonable royalty under paragraph (1) 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.

Michel writes:

The language of Section 5 seems drawn from a 30-year-old district court decision in George Pacific. That case is cited frequently, but simply because it comprehensively lists various factors that in different cases may be relevant to determining damages. Of 15 numbered factors, the bill contains only Factor 13, ignoring the rest. The caselaw, moreover, does not require application of that factor in every litigation, but Section 5 would.

The analysis requires determining the economic value of all prior art technology and the economic value of everything in the accused product or process not attributable to the asserted patent. The provision then appears to require that the base for calculating the reasonable royalty be determined by subtracting from sales figures both the value of the prior art and a portion of the value of the accused product or process in order to arrive at the “economic value property attributable to the patent’s specific contribution over the prior art.” The phrase “specific contribution” is not defined. Reading the phrase, I am very uncertain what it is intended to mean. The likelihood is that litigants would disagree as to its meaning and it might take the courts years to clarify it. Meanwhile, if settlements diminish, possible swamping the courts with increased cases, intolerable delay, and uncertainty may ensue. In addition, if interpreted to require the court to identify which limitation(s) among many in each claim embodied the “specific contribution” of the patented invention to the prior art, we would have to embark on an new and difficult task. Assigning a dollar value to the limitation(s) that made the claim allowable would likewise present new and difficult challenges

In addition, the bill requires this massive analysis in every case. Under current practice, apportionment of damages is infrequently invoked. Present law requires the accused infringer to establish a basis for such apportionment. It is attempted in only a limited number of cases and successful in still a smaller number of cases. By contrast, Section 5 requires such analysis in every case. Further, because it does not assign a burden of proof to either party, it is unclear who would call the witnesses and submit the documents needed. Since the provision begins with the phrase “the court shall conduct,” it may be that the trial judge would have to call the witnesses as his own, even though that would be totally out of keeping with his normal, neutral role. And, if the evidence is inconclusive, which party loses?

The language of Section 5 seems drawn from a 30-year-old district court decision in George Pacific. That case is cited frequently, but simply because it comprehensively lists various factors that in different cases may be relevant to determining damages. Of 15 numbered factors, the bill contains only Factor 13, ignoring the rest. The caselaw, moreover, does not require application of that factor in every litigation, but Section 5 would.

See the Michel Letter here: leahy-specter-ltr-6-13-07.pdf

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