SPEAKERS CONTENTS INSERTS
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20–019 PDF
2005
HOLMES GROUP, THE FEDERAL CIRCUIT, AND THE STATE OF PATENT APPEALS
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, THE INTERNET,
AND INTELLECTUAL PROPERTY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
MARCH 17, 2005
Serial No. 109–7
Printed for the use of the Committee on the Judiciary
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Available via the World Wide Web: http://www.house.gov/judiciary
COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
DANIEL E. LUNGREN, California
WILLIAM L. JENKINS, Tennessee
CHRIS CANNON, Utah
SPENCER BACHUS, Alabama
BOB INGLIS, South Carolina
JOHN N. HOSTETTLER, Indiana
MARK GREEN, Wisconsin
RIC KELLER, Florida
DARRELL ISSA, California
JEFF FLAKE, Arizona
MIKE PENCE, Indiana
J. RANDY FORBES, Virginia
STEVE KING, Iowa
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TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas
JOHN CONYERS, Jr., Michigan
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SÁNCHEZ, California
ADAM SMITH, Washington
CHRIS VAN HOLLEN, Maryland
PHILIP G. KIKO, Chief of Staff-General Counsel
PERRY H. APELBAUM, Minority Chief Counsel
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Subcommittee on Courts, the Internet, and Intellectual Property
LAMAR SMITH, Texas, Chairman
HENRY J. HYDE, Illinois
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
WILLIAM L. JENKINS, Tennessee
SPENCER BACHUS, Alabama
BOB INGLIS, South Carolina
RIC KELLER, Florida
DARRELL ISSA, California
CHRIS CANNON, Utah
MIKE PENCE, Indiana
J. RANDY FORBES, Virginia
HOWARD L. BERMAN, California
JOHN CONYERS, Jr., Michigan
RICK BOUCHER, Virginia
ZOE LOFGREN, California
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
ROBERT WEXLER, Florida
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SÁNCHEZ, California
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BLAINE MERRITT, Chief Counsel
DAVID WHITNEY, Counsel
JOE KEELEY, Counsel
ALEC FRENCH, Minority Counsel
C O N T E N T S
MARCH 17, 2005
OPENING STATEMENT
The Honorable Lamar Smith, a Representative in Congress from the State of Texas, and Chairman, Subcommittee on Courts, the Internet, and Intellectual Property
WITNESSES
Edward R. Reines, Esq., Weil, Gotshal & Manges, LLP
Oral Testimony
Prepared Statement
Mr. Arthur D. Hellman, Professor of Law, University of Pittsburgh School of Law
Oral Testimony
Prepared Statement
Mr. Sanjay Prasad, Chief Patent Counsel, Oracle Corporation
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Oral Testimony
Prepared Statement
Meredith Martin Addy, Esq., Brinks, Hofer, Gilson & Lione
Oral Testimony
Prepared Statement
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Howard L. Berman, a Representative in Congress from the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property
Prepared Statement of the Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan
Prepared Statement of Joshua D. Sarnoff, on behalf of the Electronic Frontier Foundation
Letter from James B. Kobak, Jr., to the Subcommittee on Courts, the Internet, and Intellectual Property
Letter to the Honorable Lamar Smith, and the Honorable Howard L. Berman from Michael K. Kirk, Executive Director, American Intellectual Property Law Assocation (AIPLA)
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Status Report on Developments Relating to the Jurisdiction of the United Sates Court of Appeals for the Federal Circuit submitted by the Holmes Group Task Force, Intellectual Property Committee, Section of Antitrust Law, American Bar Association, and a Report on the United States Court of Appeals for the Federal Court, Section of Antitrust Law, American Bar Association
Letter from Meredith Martin Addy, Esq., Brinks Hofer Gilson & Lione to Blaine Merritt, Esq., Chief Counsel, Subcommittee on Courts, the Internet, and Intellectual Property, Committee on the Judiciary, regarding corrections to written statement of March 17, 2005
HOLMES GROUP, THE FEDERAL CIRCUIT, AND THE STATE OF PATENT APPEALS
THURSDAY, MARCH 17, 2005
House of Representatives,
Subcommittee on Courts, the Internet,
and Intellectual Property,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 4:12 p.m., in Room 2141, Rayburn House Office Building, the Honorable Lamar Smith (Chair of the Subcommittee) presiding.
Mr. SMITH. The Subcommittee on Courts, the Internet, and Intellectual Property will come to order.
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Let me make some preliminary observations, and the obvious one is to thank you all for waiting. We had a series of votes that we were not expecting now, and that is what held us up.
In addition to that, those were the last votes, as they say in the cloakroom, of the day, of the week, and I think of the month. And so a lot of Members are rushing to the airport to catch flights or are heading back home. So the fact that there may or may not be very many Members present has nothing to do with the record that we establish or the importance that we consider the subject matter to be. So I want to reassure you about that.
We are, in fact, going to move forward and introduce legislation as a result of your testimony today. Hopefully by the time we finish we will have moved a little bit closer together—maybe I should say three of you have moved a little bit closer to the one, or one may have moved a little bit closer to the other three. And as you might anticipate, my line of questioning in just a few minutes will be to ask you all what you think of the others' suggestions and to try to see if we cannot reach if not a consensus, then some kind of a working agreement on the direction that we should go, because it is an important subject.
I will recognize myself for an opening statement, and then we will introduce our witnesses.
The purpose of today's hearing is to review the Supreme Court decision of Holmes Group versus Vornado Air Circulation Systems to determine whether the U.S. Court of Appeals for the Federal Circuit should have greater authority to hear all patent appeals from lower courts. In addition, the Subcommittee will explore the extent to which the Federal Circuit is accomplishing its main intended purpose of unifying patent law.
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Congress created the Federal Circuit in 1982 by merging the Court of Claims and the Court of Customs and Patent Appeals. The history of the enacting legislation reveals that Congress believed the merger would reduce overlapping functions between the two courts and create greater administrative efficiency within the Federal system.
More importantly, patent practitioners, academics, and the Hruska Commission, which Congress created to study the Federal appellate structure, determined that the regional circuits were doing a poor job of developing coherent patent law. Specifically, litigants complained that the application of patent law to the facts of a case often produced different outcomes in different courtrooms in substantially similar cases. In other words, forum shopping was rampant, as some circuits were regarded as pro-patent and other circuits as anti-patent.
Arguably, channeling patent cases into a single appellate forum would create a stable, uniform law and would eliminate forum shopping. Greater certainty and predictability would foster technological growth and industrial innovation and would facilitate business planning.
Given this backdrop, some practitioners believe Holmes Group contravened the will of Congress when it created the Federal Circuit. The Holmes decision, which applies the well-pleaded complaint rule to patent appeals, induces litigants to engage in forum shopping among the regional circuits and State courts. Legal experts predict an erosion in the coherence of patent laws that has been steadily building since the circuit's creation in 1982.
In addition to debating the merits of Holmes Group, the Subcommittee will also explore the matter of how well the Federal Circuit is discharging its obligation to unify patent law. Opinions will always vary, but the Federal Circuit is probably viewed by most practitioners and others as having largely complied with its mandate to bring stability, uniformity, and predictability to patent law.
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In contrast, critics of the court voice the same concerns today that were first articulated on the eve of its creation, namely, that the Federal Circuit is a specialty court which might take patents out of the mainstream of legal thought, expose the court to a one-sided view of the issues, and discourage qualified people from serving as judges. There is value, say these critics, in the tension produced by the percolation of ideas within the judiciary.
Moreover, since the Federal Circuit is more statistically apt to affirm patentee rights, critics of the patent system in general believe that the court may represent a roadblock to ongoing efforts by Congress and the Patent and Trademark Office to improve patent integrity or quality.
Now, we obviously have a good panel today, and we will look forward to hearing from you all on these issues.
Before you begin, I am going to ask you if you will stand and raise your right hands so I can swear you in.
[Witnesses sworn.]
Mr. SMITH. Let me introduce the witnesses. Our first witness is Edward Reines, a partner in the technology litigation practice of Weil, Gotshal & Manges in Redwood Shores, California. Mr. Reines is Secretary of the Federal Circuit Bar Association and serves on its Board of Governors. He also teaches a patent litigation course at the University of California-Berkeley's Boalt Hall School of Law. Mr. Reines received his J.D. from Columbia Law School with honors and a B.S. from the University of Albany with honors as well.
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Our next witness is Arthur Hellman, professor at the University of Pittsburgh School of Law. Professor Hellman has testified a number of times before our Subcommittee on courts and constitutional issues. He received his B.A. magna cum laude from Harvard College in 1963 and his J.D. in 1966 from Yale Law School.
Our next witness is Sanjay Prasad, the chief patent counsel for Oracle Corporation. He serves on the Board of Directors of the Intellectual Property Owners Association and is a past Chair of the IP Council's Roundtable of the Information Technology Association of America. Mr. Prasad earned his J.D. from Syracuse University College of Law, where he was an editor of the Law Review. He also earned a master's in computer engineering and a bachelor's in electrical engineering, both from Boston University.
Our final witness is Meredith Martin Addy, a partner in the Chicago law firm of Brinks Hofer Gilson & Lione, where she focuses on intellectual property litigation. Ms. Addy is a member of the U.S. Federal Circuit Advisory Council that meets with the Federal Circuit judges at least twice a year to discuss practice and procedure. Ms. Addy received B.S. and B.A. degrees from Rice University, her J.D. from Georgia, and a master's in law from the John Marshall Law School.
We welcome you all. Ms. Addy, I have to ask you: Do you have a time constraint or are you able to stay with us for the next 40 minutes?
Ms. Addy. I have no time constraints.
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Mr. SMITH. Okay. I understood you had to catch a plane, so good, I am glad you are with us. And I have to ask you: Are you from Texas, having gone to Rice University? I was curious.
Ms. Addy. I am originally from Georgia.
Mr. SMITH. Originally from?
Ms. Addy. Georgia.
Mr. SMITH. We welcome you all. Mr. Reines, if you will begin.
TESTIMONY OF EDWARD R. REINES, ESQ., WEIL, GOTSHAL & MANGES, LLP
Mr. REINES. Thank you very much, Chairman Smith. It is a pleasure to be able to participate in this hearing. I want to thank the Subcommittee and its staff for investing the time in the Holmes Group issue. This is, in my view, a great example of a problem that is best dealt with when it is manageable rather than waiting for it to be unmanageable before we turn to it.
As the Chairman accurately described, the 97th Congress in 1982 passed the Federal Courts Improvement Act, and I think the consensus is that was a major legislative success. It eliminated forum shopping and it cleaned up the choice of law and issues that we had with different regional circuits going in their own directions.
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The reintroduction of regional circuits creates a number of problems with forum shopping that will take place, I think, increasingly over time. This is the kind of issue where I think you are going to have a snowball effect. So what you have is, you know, as you start out, people don't know what the benefits are of forum shopping for different regional circuit courts because it's an unknown at this point. But once a decision falls one way or the other, one extreme or another, as is bound to happen, the concern level will grow as people try to use that decision and move their cases to those circuits, and then you get a snowball effect, as people find one circuit pro-patent or anti-patent.
The reason is because once the regional circuit says that it's going to apply its own law—and we've seen that; it's unlikely they're going to defer to a sister court—some of the old precedents will come back. People that are members of the Seventh Circuit are going to rely on old Seventh Circuit precedents that may be pro- or anti-patent. And so it's a reversion to pre-1982, and I think we can see that happening at the regional circuit level.
The State court problem, we are also seeing problems, and somewhat surprisingly, the problem there is moving more quickly. In the State of Indiana, in the Green case now, patent and copyright cases have to be within the jurisdiction of the State court if they're pled with a counterclaim. So right now in the State of Indiana, if there's a counterclaim that's copyright or patent, it will be adjudicated by the State court.
For centuries, patent and copyright cases have not been within the jurisdiction of the State courts. Just a few weeks ago, in New York, there was a recent decision from the Supreme Court. In New York, the trial court actually publishes some of their decisions, which you don't see frequently with State trial courts, and a few weeks ago there was a decision that happened to pop out of there that said we're going to take jurisdiction over copyright in the State court and New York Supreme Court, which if you've been there, you know that they don't really have a lot of background or familiarity with that subject matter—the point being that there's thousands of State courts around the country where—that aren't publishing opinions, that are presumably making similar decisions to the decision made by the New York State court. So the scope of the problem's under the radar at the trial court level. As those percolate up through the appeals, we'll see more and more problems. It's just going to take time, but it's going to have a snowball effect.
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So I think there's no dispute among the witnesses and, frankly, I haven't heard significant dispute among the scholarship, either, that there is a problem, both State courts being in patent and copyright—exercising patent and copyright jurisdiction, and regional circuits starting to adjudicate patent cases. So I think that's clear.
Now, there's two questions. One is: Why address it now? The answer is to nip it in the bud. It's the type of problem that snowballs. Once you have vested interests that see an area of law that they can exploit—and I have no idea what that vested interest is going to be now, but there will be vested interests that will be developing as decisions continue to come out. And undoing that will be far more difficult than just stopping the problem before it becomes major.
On the solutions, the Federal Circuit Bar Association 2 years ago came up with a solution, and there's really seven benefits to the solution that we propose. One is it's simple. And two is it's effective. We remove no text from any statute. We added a total of five words. Those words come directly from related statutes, so the words ''claim for relief'' is from Federal Rule of Civil Procedure 8 and is defined in that rule. There's no ambiguity about it beyond what pre-exists and is inevitable. So that's one.
The other word that we use is ''involving,'' and in the appellate statute for Federal Circuit jurisdiction now, it's used—this exact same word, ''involving''—involving a claim. So we use words right from the related statutes. We added only five words. We removed nothing.
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There's no question from anyone that I've heard that it solves the problem. You might hear a nitpick about procedural this or that, but no one says that the solution of the Federal Circuit Bar Association won't solve the problem. And if you want to do something when you're attempting a solution, you want to make sure it works.
And the other important thing about the proposal is it keeps the structure the way it is now of having the district court jurisdiction the same as the appellate jurisdiction of the Federal Circuit for patent cases. So that it's derivative. The way it's drafted now, 1295 says the Federal Circuit has jurisdiction over patent cases where there's been original jurisdiction under 1338. So that way you keep that tied together. And also, the exclusivity is solved because that's in the second sentence and flows directly from there. So it keeps everything tied together.
Our proposal has the benefit of having studied over years. There has been at least 10, 12 Law Review articles focused on the subject, suggesting legislative solutions, looking at ours. And no one has come up with anything that is a significant issue. Scholars have been looking at it for some time. Professor Hellman recently came out with some comments about it, which is the first I have heard of anything that really argues that there are some issues with it.
The fourth thing I wanted to say is the main argument made is that this changes the formulation of the well-pleaded complaint rule. That's what you hear, and so one thing I've thought about, well, is that really as significant as it sounds? To me, it's not as sacred as some have wanted to make it.
For one thing, if you look at the Federal question jurisdiction, there are at least ten Federal question statutes right now on the books that don't employ that language. So you have admiralty, civil rights, inter-pleader, and maybe most significantly, Federal claims. The other main jurisdiction, as the Chairman stated earlier, within the Federal Circuit—there's two sort of large chunks. One is patents and one is Federal claims. And the Federal Circuit jurisdiction is derivative of both of those jurisdictions below.
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The Federal claims statute doesn't use the well-pleaded complaint rule. It doesn't use the ''arising under.'' So the fact that so many different Federal question statutes don't use that suggests it really isn't sacred to use that particular formulation, as some assume, without any real analysis.
The second point about it is that you would think if it was such an important principle whose—where a change would threaten established bodies of laws and established rules, that someone would be able to point to one and would say—we'd use this study, someone would say, well, if you disconnect this from the standard formulation in a few of the Federal question statutes, you'll just have this problem or that problem. The only thing I have ever heard is Professor Hellman's criticisms, which are two. One of them is that we would be giving under this statute as amended jurisdiction over the civil action, meaning the whole case, and not on a per-claim basis under the patent jurisdiction statute; and that as a result of that, you would be giving jurisdiction to every claim included in such a case even if it's not on its own a Federal claim.
But that argument really doesn't make any sense and doesn't carry any water at all because the statute as it stands now says the exact same thing. The statute as it stands now says there will be jurisdiction over a civil action arising under a patent suit. So it purports to have the same general civil action——
Mr. SMITH. Mr. Reines, would you conclude your testimony?
Mr. REINES. I will. Thank you very much.
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I guess the final point I wanted to make on that is the second issue that's raised is that by adding the words ''claim for relief'' that you are disturbing existing law as to what's a claim for relief. That's an established phrase in the Federal Rules of Civil Procedure. I just don't see that as being a problem.
So we thank you very much for hosting here, and I hope to answer any questions you have.
[The prepared statement of Mr. Reines follows:]
PREPARED STATEMENT OF EDWARD R. REINES
Mr. Chairman, Ranking Member Berman, and Members of the Subcommittee:
In Holmes Group v. Vornado Air Circulation Sys., Inc., 122 S.Ct. 1889 (2002) (''Holmes Group''), the Supreme Court voided the established principle that all patent infringement claims are to be appealed to the Federal Circuit. Instead, the Supreme Court limited the appellate jurisdiction of the Federal Circuit to those cases in which the claim for patent infringement was first asserted in the complaint, and not in a responsive pleading. The Court explicitly based the ruling, not on the Congressional intent behind the relevant statutes or on any policy rationale, but on a literalistic parsing of the text of the particular statutes involved.
Regional circuits have now begun hearing patent infringement disputes on a sporadic basis, with a 20-year gap in their precedent. See, e.g., Telecomm Technical Services Inc. v. Rolm Co., 388 F.3d 820 (11th Cir. 2004). Even more unsettling, Holmes Group has been construed to grant state courts jurisdiction over copyright and patent claims, even though such claims have been treated as within the exclusive jurisdiction of the federal courts for decades, if not centuries. See Green v. Hendrickson Publishers, Inc., 770 N.E. 2d 784 (Ind. 2002); Ross & Cohen LLP v. Eliattia (N.Y. Sup. Ct. 2005) (reprinted at 1/24/2005 N.Y.L.J. 18).
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The Federal Circuit was unquestionably created, among other reasons, to resolve all patent appeals so as to create uniformity in the application and development of patent law. The post-Holmes Group cases make clear that the statutes governing the jurisdiction of the Federal Circuit, as interpreted, do not fulfill Congress' intent. Congress simply did not intend that the Federal Circuit would share the development of patent law with the state courts and regional federal circuit courts of appeal. Rather, Congress intended for the Federal Circuit to function as the unified court of appeals for patent claims for the many valid reasons documented in its committee reports. Thus, a problem exists because important statutes passed by Congress have been construed in a way that conflicts with the clear Congressional intent behind those very same statutes.
The Federal Circuit Bar Association, in June 2002, created a committee (''FCBA Committee'') to consider the wisdom of a legislative response to Holmes Group. The FCBA Committee, comprised of Don Dunner, Professor Mark Lemley, Molly Mosley-Goren, Joseph Re, Steve Carlson, and myself, included leading lights in academia and experienced members of the bar.(see footnote 1) After extensive deliberation and analysis, and the consideration of multiple alternatives, the FCBA Committee concluded that the proposal set forth below is the most appropriate legislative response to Holmes Group. See Report of the Ad Hoc Committee to Study Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 12 Fed. Cir. B.J. 713, 714 (2003).(see footnote 2) This proposal already enjoys the support of the Federal Circuit Bar Association (''FCBA''), the Intellectual Property Owners Association (''IPO''), and the United States Counsel for International Business (''USCIB''), among others.
The FCBA proposes a straightforward legislative solution. We recommend an amendment to 28 U.S.C. Section 1338(a) that simply adds the phrase ''involving any claim for relief,'' as follows:
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The district courts shall have original jurisdiction of any civil action involving any claim for relief arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks. Such jurisdiction shall be exclusive of the courts of the states in patent, plant variety protection and copyright cases.
28 U.S.C. §1338(a) (bold text proposed). Because the Federal Circuit's jurisdiction over patent infringement appeals is derivative of the district court's patent jurisdiction defined in the first sentence of Section 1338(a), this solution will ensure exclusive jurisdiction for the Federal Circuit over all patent appeals. In addition, because Section 1338(a) also addresses federal exclusivity over patent and copyright claims, this proposal will at the same time ensure exclusive federal jurisdiction over all patent and copyright claims.
I. THE PROBLEM
A. The Pre-Federal Circuit Patent Law Morass
Before patent appeals were centralized in the Federal Circuit in 1982, the patent law of the regional circuits was chaotic. The complexity of patent cases, both in technical and legal dimensions, exacerbated the tendency of circuits to develop conflicting bodies of law. The lack of uniformity was disadvantageous for several reasons. The disjointed state of the law created costly uncertainty for innovators, whether they sought to enforce ownership rights or faced threats of patent infringement suits. Further, the lack of uniformity created an incentive for forum shopping, which was exploited with zeal by litigants.
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Scholars examining the state of patent law before the creation of the Federal Circuit routinely describe it disapprovingly. As one noted, ''some circuits imposed higher standards on patentees attempting to assert the validity of their patents. Other circuits were known for being pro-patentee. Varying standards among the circuits and other factors caused uncertainty and great concern to American businesses that did not know if their patent protection would be sustained in court.'' See Christian A. Fox, On Your Mark, Get Set, Go! A New Race to the Courthouse Sponsored by Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 2003 BYU L. REV. 331, 333 (2003) (citations omitted). Of course, there is the famous story of then-Second Circuit Court of Appeals Judge Thurgood Marshall's visit with senators in advance of his confirmation hearing. When asked by one senator what he thought of patents, he reportedly replied: ''I haven't given patents much thought, senator, because I'm from the Second Circuit and as you know we don't uphold patents in the Second Circuit.''
These problems were not merely anecdotal. See, e.g., Manufacturing Research Corp. v. Graybar Electric Co., 679 F.2d 1355, 1361 n.11 (11th Cir. 1982) (describing the ''morass of conflict'' in the Eleventh Circuit, and the former Fifth Circuit, concerning the proper standard of proof needed to invalidate a patent). The uncertainty fostered by the disparate treatment of patent law in the regional circuits sparked legislative interest.
B. Congress Carefully Studied The Problems In The Patent Area Before Creating The Federal Circuit
In view of reports about problems in the patent area, Congress studied the issue extensively. After hearings and analysis, the House Report concluded that, in the patent area, ''current law lacks uniformity or is inconsistently applied.'' See H.R. Rep. No. 312, 97th Cong. 1st Sess. (1981) (''House Report'') at 20. Further, the House Report concluded that patent litigation has been ''characterized by undue forum-shopping and unsettling inconsistency in adjudications.'' Id. Based on prior government reports, the House Report recognized that ''patent law is an area in which the application of the law to the facts of a case often produces different outcomes in different courtrooms in substantially similar cases.'' Id. Indeed, the House Report observed that the evidence showed that ''some circuits are regarded as 'pro-patent' and other 'anti-patent,' and much time and money is expended in 'shopping' for a favorable venue.'' Id. at 20–21. The House Report noted that ''[p]erceived disparities between the circuits have led to 'mad and undignified races' between alleged infringers and patent holders to be the first to institute proceedings in the forum they consider most favorable.'' Id. at 21.
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The House Report also concluded that the pre-1982 state of patent litigation was detrimental to the economy. For example, it noted that the lack of uniformity made it ''particularly difficult for small business to make useful and knowledgeable investment decisions where patents are involved.'' Id. at 22. The House Report explained that addressing the problems in the patent area ''will be a significant improvement from the standpoint of the industries and businesses that rely on the patent system.'' Id. at 23. S. Rep. No. 275, 97th Cong., 1st Sess. (1981) (''Senate Report'') at 5 (''[The Industrial Research Institute] polled its membership and found them overwhelmingly in favor of centralizing patent appeals in a single court.'').
The House Report summed up its analysis by observing that ''Patents have served as a stimulus to the innovative process'' and that improvements in the then-problematic state of patent law ''can have important positive ramifications for the nation's economy.'' Id. at 23.
C. The Creation Of The Federal Circuit And The Present Statutory Scheme
After the Congressional inquiry into the problems in the patent area I just summarized, Congress passed the Federal Courts Improvement Act in 1982, intending to consolidate all patent appeals in a new court, the Federal Circuit Court of Appeals. Under that Act, the Federal Circuit's jurisdiction over patent cases is governed primarily by two statutory provisions. The Federal Circuit's jurisdiction is fixed with reference to the jurisdiction of federal district courts by 28 U.S.C. Section 1295(a)(1), which provides in pertinent part:
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The United States Court of Appeals for the Federal Circuit shall have exclusive jurisdiction—
(1) of an appeal from a final decision of a district court of the United States, the United States District Court for the District of the Canal Zone, the District Court of Guam, the District Court of the Virgin Islands, or the District Court for the Northern Mariana Islands, if the jurisdiction of that court was based, in whole or in part, on section 1338 of this title, except that a case involving a claim arising under any Act of Congress relating to copyrights, exclusive rights in mask works, or trademarks and other claims under section 1338(a) shall be governed by sections 1291, 1292, and 1294 of this title;
28 U.S.C. §1295(a)(1) (emphasis supplied).
The district court jurisdictional statute to which the Federal Circuit's appellate jurisdiction is fixed is 28 U.S.C. Section 1338(a). This statute provides for the district courts' original jurisdiction over patent infringement cases:
The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks. Such jurisdiction shall be exclusive of the courts of the states in patent, plant variety protection and copyright cases.
28 U.S.C. §1338(a). Thus, in order for the Federal Circuit to have jurisdiction over an appeal, the district court's original jurisdiction must have arisen, at least in part, under an Act of Congress relating to patents.
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As I noted earlier, Congress created the Federal Circuit with the goal of, among other things, promoting uniformity in patent law. Kennedy v. Wright, 851 F.2d 963, 966 (7th Cir. 1988) (''The Federal Circuit's exclusive jurisdiction under §1295(a)(1) was created, after all, so that there could be a uniform jurisprudence of patent law.''). The following are some of the statements in the legislative history that illustrate Congressional intent in this regard:
''A single court of appeals for patent cases will promote certainty where it is lacking to a significant degree and will reduce, if not eliminate, the forum-shopping that now occurs.'' House Report at 22.
''For these reasons the establishment of a single court to hear patent appeals was a major recommendation of the Domestic Policy Review initiated by President Jimmy Carter. . . .'' House Report at 22.
''[T]he Industrial Research Institute, a private, non-profit corporation with a membership of approximately 250 industrial companies that account for a major portion of the industrial research and development in the United States, polled its membership and found them overwhelmingly in favor of centralizing patent appeals in a single court.'' House Report at 22.
''[T]he central purpose is to reduce the widespread lack of uniformity and uncertainty of legal doctrine that exist in the administration of patent law.'' House Report at 23.
''Similarly, the uniformity in the law that will result from the centralization of patent appeals in a single court will be a significant improvement from the standpoint of the industries and businesses that rely on the patent system.'' House Report at 23.
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''[The Industrial Research Institute] polled its membership and found them overwhelmingly in favor of centralizing patent appeals in a single court.'' Senate Report at 5.
Because Congress was also deeply concerned with forum shopping in the patent area, Congress did not intend to limit Federal Circuit jurisdiction to patent claims raised in the complaint. Congress expressly contemplated that counterclaims for patent infringement could influence appellate jurisdiction. The legislative history reflected an intent to have all patent appeals go to the Federal Circuit, including appeals from cases with patent counterclaims, unless the patent law counterclaim was frivolous, trivial, or manipulatively included:
Federal District judges are encouraged to use their authority under Federal Rules of Civil Procedure, see Rules 13(i), 16, 20(b), 42(b), 54(b), to ensure the integrity of the federal court of appeals by separating final decisions on claims involving substantial antitrust issues from trivial patent claims, counterclaims, cross-claims, or third party claims raised to manipulate appellate jurisdiction.
. . .
If, for example, a patent claim is manipulatively joined to an antitrust action but severed or dismissed before final decision of the antitrust claim, jurisdiction over the appeal should not be changed by this Act but should rest with the regional court of appeals.
Senate Report at 19–20. Recognizing that ''[i]mmaterial, inferential, and frivolous allegations of patent questions will not create jurisdiction in the lower court,'' Congress reasoned that ''therefore there will be no jurisdiction over these questions in the appellate court.'' Senate Report at 19. Thus, Congress was fully aware that a patent law counterclaim could direct a case to the Federal Circuit on appeal. Congress nonetheless did not call for a bar on Federal Circuit jurisdiction over patent law counterclaims. Rather, Congress relied on the fact that courts would be capable of sifting out sham or unrelated patent counterclaims designed to create jurisdiction improperly in the Federal Circuit.
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Consistent with the legislative history, from the creation of the Federal Circuit in 1982 until Holmes Group issued in 2002, courts have uniformly interpreted the above jurisdictional statutes to grant the Federal Circuit exclusive jurisdiction over all patent appeals, regardless of the particular pleading containing the patent claim. This principle was first established in a series of Federal Circuit cases, including Schwarzkopf Development Corp. v. Ti-Coating, Inc., 800 F.2d 240, 244 (Fed. Cir. 1986) (stating that bona fide counterclaims for patent infringement trigger Federal Circuit jurisdiction); In re Innotron Diagnostics, 800 F.2d 1077, 1080 (Fed. Cir. 1986) (asserting jurisdiction over patent infringement claim that was consolidated into pre-existing antitrust case); and Aerojet-General Corp. v. Machine Tool Works, Oerlikon-Buehrle Ltd., 895 F.2d 736 (Fed. Cir. 1990) (asserting jurisdiction over patent infringement counterclaim). This interpretation of the Federal Circuit's jurisdiction was shared by its sister circuits. See, e.g., Xeta, Inc. v. Atex, Inc., 825 F.2d 604 (1st Cir. 1987) (applying Schwartzkopf and Innotron to hold that ''the patent counts of a counterclaim fall within the district court's jurisdiction under 28 U.S.C. §1338.'').
D. Holmes Group Decision
In Holmes Group, the Supreme Court removed the jurisdiction over appeals in cases involving patent counterclaims that the Federal Circuit had been exercising for two decades. According to the Supreme Court, whether a civil action ''arises under'' the patent law as provided by Section 1338(a) involves only an analysis of the complaint, not responsive pleadings. The Court reached this conclusion because of its belief that the particular language of Section 1338(a) necessarily implicates the well-pleaded complaint rule. Holmes Group, 122 S.Ct. at 1893. The well-pleaded complaint rule allows a court to only consider the complaint allegations in determining what law a civil action ''arises under.'' Id.
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E. Holmes Group Disrupted Two Fundamental Principles Of Intellectual Property Litigation
Holmes Group has unsettled two fundamental principles governing the jurisdiction of federal courts over intellectual property cases. When a patent infringement claim is present in a case, but not in the complaint, the appeal must now go to one of the eleven regional circuits, not the Federal Circuit. On an irregular basis, the regional courts of appeals have now recommenced issuing opinions in patent infringement cases. See, e.g., Telecomm Technical Services Inc. v. Rolm Co., 388 F.3d 820 (11th Cir. 2004). More such appeals are on the way, as the Federal Circuit has transferred other cases out of its jurisdiction pursuant to Holmes Group. See, e.g., Medigene AG v. Loyola Univ., 2002 WL 1478674 (Fed. Cir. June 27, 2002) (transferring appeal to Seventh Circuit).
The second fundamental problem created by Holmes Group is the disruption of the long-standing principle that patent and copyright infringement claims are within the exclusive jurisdiction of the federal courts. See Puerto Rico Telephone Co. v. Telecommunications Regulatory Board, 189 F.3d 1, 13 (1st Cir. 1999) (recognizing that Section 1338 ''confer[s] on the federal courts exclusive jurisdiction over any action arising under a federal statute 'relating to' patents and copyrights''); North Dakota v. Fredericks, 940 F.2d 333, 336 (8th Cir. 1991) (''Federal district courts have original and exclusive jurisdiction of patent-infringement cases.''); Schwarzkopf Development Corp. v. Ti-Coating, Inc., 800 F.2d 240, 244 (Fed. Cir. 1986) (''Adjudication of a patent counterclaim is the exclusive province of the federal courts.''); Bassett v. Mashantucket Pequot Tribe, 204 F.3d 343, 352 (2d Cir. 2000) (''[T]he Copyright Act gives federal courts exclusive jurisdiction to enforce its provisions.''). Holmes Group has been interpreted to limit federal exclusivity to cases where the patent or copyright claim is asserted in a well-pleaded complaint. See Green v. Hendrickson Publishers, Inc., 770 N.E. 2d 784 (Ind. 2002); Ross & Cohen LLP v. Eliattia (N.Y. Sup. Ct. 2005) (reprinted at 1/24/2005 N.Y.L.J. 18).
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In Green, the Supreme Court of Indiana explained that ''until very recently the logic and language of a consistent body of federal decisions appeared to preclude a state court from entertaining a counterclaim under copyright [or patent] law.'' After thorough analysis, Green found this logic ''trumped'' by Holmes Group, and concluded that state courts may now adjudicate patent and copyright claims asserted in counterclaims and other responsive pleadings. Similarly, in Ross, the state court determined that, because a copyright infringement claim was first asserted in a counterclaim, ''under the well-pleaded complaint rule, this Court [a state court] has jurisdiction to determine the counterclaim on the merits.'' Under Green and Ross, state courts will have jurisdiction over patent and copyright infringement counterclaims even though federal courts have had exclusive jurisdiction over such claims since the 1800s.
The reallocation of jurisdiction stemming from Holmes Group means the Federal Circuit no longer has unified jurisdiction over patent appeals because regional circuit courts of appeal and state courts will now also decide such cases. Although some degree of comity may be given to Federal Circuit law, the regional circuits may believe they are bound by their own 20+ year old precedent. Indeed, the Telecomm court characterized Federal Circuit's precedent as merely ''persuasive authority.'' Telecomm, 388 F.3d at 826. Thus, under Holmes Group, each circuit would have to decide whether to bind itself to Federal Circuit law, apply the old patent law it created before patent jurisdiction was removed from it in 1982, or simply create new precedents from scratch. In Telcomm, the eleventh circuit attempted to avoid this conundrum by citing no patent law precedent of any kind in deciding the complex patent law issue it faced. Telecomm, 388 F.3d at 826.
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The inevitable lack of uniformity between Federal Circuit law and the regional circuit and state court precedents will create an incentive for a return to the forum shopping that the Federal Circuit was designed to eliminate. Over time, as the various regional circuits and state court systems renew adjudicating patent disputes, more doctrinal differences will be inevitable. As a consequence, wasteful forum shopping will surely resume. In short, while manageable now, this problem is bound to snowball.
Justice Stevens' concurrence in Holmes Group suggests that one justice believes that allowing conflicting patent appeals to percolate through the regional circuits (and through the state courts under Green and Ross) could be beneficial. See 122 S.Ct. at 1898 (Stevens, J., concurring). However, we believe that Congress had valid reasons for rejecting that approach and concluding that any such benefit is far outweighed by the resulting cost of doctrinal unpredictability and forum shopping. Because a substantial, but sporadic number of cases will be appealed to the regional circuits or state courts of appeals, patent law outside of the Federal Circuit will develop in fits and starts. It is doubtful that any coherent body of non-Federal Circuit patent law will develop in the foreseeable future.
Other commentators have drawn similar conclusions about the cost of Holmes Group. For example, commentators have emphasized the danger of the resurrection of ''dead letter'' anti-patent precedents from particular circuits. See, e.g., Elizabeth I. Rogers, The Phoenix Precedents: The Unexpected Rebirth of Regional Circuit Jurisdiction over Patent Appeals and the Need for a Considered Congressional Response, 16 Harv. J.L. & Tech. 411, 462 (2003) (''In those cases in which a patentee is unlucky enough to find herself stuck in a situation in which Vornado will vest appellate review in a regional circuit whose long-dormant precedents were unfriendly to patents, certain patent rights that were previously fairly stable and predictably valued may now be rendered worthless.''). Doctrinal variances between circuits may restart the forum shopping that Congress sought originally to minimize. See, e.g., Christian A. Fox, On Your Mark, Get Set, Go! A New Race to the Courthouse Sponsored by Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 2003 BYU L. Rev. 331, 352 (2003) (''[T]he Court's decision may reintroduce inconsistencies and forum shopping in patent law cases and spark races to the courthouse between patentees and alleged patent infringers. In summary, [Holmes Group] could undercut the foundation of uniform patent law that the Federal Circuit has helped establish over the past twenty-one years, a foundation that provides vital support for the economy and businesses of the United States.''). Many agree that Congress will have to act to repair the dangerous condition posed by Holmes Group. See, e.g., Scott W. Hackwelder, An Argument for Congressional Amendment of Federal Circuit Jurisdiction in Response to Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 54 Syracuse L. Rev. 475, 498 (Warning that ''adverse effects stemming from the Holmes Group decision may have to be realized before Congress again takes corrective action to address the issue of patent law uniformity.''). One commentator explained the need for curative legislation in direct terms:
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The original intent of Congress in forming the Federal Circuit was to establish some continuity and consistency when settling patent law disputes. This decision is contrary to Congress' clear mandate to have the Federal Circuit settle patent law disputes. Now it's just a question of how long it will take for a bill to be introduced which will reestablish the Federal Circuit's jurisdiction over patent law disputes.
Joseph Etra, Holmes v. Vornado: A Radical Change In Appellate Jurisdiction, 5 Colum. Sci. & Tech. L. Rev. 4.
Congress should not wait until a critical mass of adverse effects materializes and the problem gets out of hand. Once inconsistent decisions begin to populate the law of the regional circuits, parties may develop vested interests in maintaining the opportunity to shop in particular forums. At that point, the reform which now has broad support will become much more difficult to achieve.
II. THE PROPOSED SOLUTION
The Supreme Court expressly resolved Holmes Group on a technical parsing of the relevant statutes, and did not even purport to conform its holding to Congress' intent in creating the Federal Circuit. See Holmes Group, 122 S.Ct. at 1895 (''Our task here is not to determine what would further Congress' goal of ensuring patent-law uniformity, but to determine what the words of the statute must fairly be understood to mean.''). The Supreme Court, and Justice Scalia in particular, have repeatedly emphasized that where defects in statutory language fail to give effect to Congressional intent, it is the role of Congress, not the courts, to re-draft the relevant statute. See, e.g., Hartford Underwrites Ins. Co. v. Union Planters Bank, 530 U.S. 1, 13–14 (2000) (Scalia, J.) (''It suffices that the natural reading of the text produces the result we announce. Achieving a better policy outcome—if what petitioner urges is that—is a task for Congress, not the courts.'').
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After extensive deliberation, the FCBA has concluded that the most appropriate legislative response to Holmes Group is to amend Section 1338(a) to read as follows:
The district courts shall have original jurisdiction of any civil action involving any claim for relief arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks. Such jurisdiction shall be exclusive of the courts of the states in patent, plant variety protection and copyright cases.
28 U.S.C. §1338(a) (bold text proposed). The FCBA believes that this surgical insertion of five words into the jurisdictional statute is the most logical and elegant solution to Holmes Group. However, the overriding concern of the FCBA is to see the Holmes Group problem fixed. The FCBA is not preoccupied with pride of authorship in a particular solution or in mere semantic differences between this proposal and others. In the course of its study, the FCBA considered many potential legislative solutions. See, e.g., Report of the Ad Hoc Committee to Study Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 12 Fed. Cir. B.J. 713, 719–23 (2003). The FCBA selected the solution I advocate now because it offers the following advantages:
It minimizes additions and deletions to the current statutory language and borrows existing phraseology from related statutes and rules.
It exploits the fact that Federal Rules of Civil Procedure 8 defines ''claim for relief,'' broadly to include ''an original claim, counterclaim, cross-claim, or third party claim'' and thus employs an established term with known meaning. Fed. R. Civ. P. 8.
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It exploits the fact that 28 U.S.C. §1295(a)(1), which sets forth Federal Circuit appellate jurisdiction, uses the term ''involving a claim'' and thus employs an established term with known meaning.
It ensures that federal courts shall have exclusive jurisdiction over all claims for relief arising under the patent laws.
It ensures that the Federal Circuit will have jurisdiction over all appeals from civil actions in which either party asserted a claim for relief arising under the patent laws.
In short, inserting the phrase ''involving any claim for relief'' into 28 U.S.C. §1338(a) elegantly restores both federal court exclusivity over patent and copyright cases and federal circuit jurisdiction over patent claims in one stroke. It preserves the existing language of the various statutes while adding only a single well-understood phrase, which draws meaning from Federal Rule of Civil Procedure 8 and 28 U.S.C. Section 1295(1).
Since the FCBA Committee recommended this solution in 2002, it has received widespread support. The FCBA has evaluated the comments of which it has learned. They have generally been quite minor. The main comments are that: (1) there might be undesired, incidental procedural hitches resulting from the particular language proposed, (2) defendants may include non-bona fide patent counterclaims in a case so the Federal Circuit receives an appeal, and (3) a more far-reaching approach might solve more problems. The first critique has been articulated by another witness, Professor Hellman, and I start there first.
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A. Professor Hellman's Critique Of The FCBA Proposal
Professor Hellman agrees that Holmes Group has created a significant problem and that a solution is warranted. He has put forward an alternative proposal based on two issues he has with the FCBA solution.
First, Professor Hellman expresses concern that amending 28 U.S.C. Section 1338(a) in the manner suggested by the FCBA could reopen the interpretation of precedents on an otherwise unrelated topic. Specifically, Professor Hellman raises an issue as to whether the FCBA proposal will cause a reconsideration of when a claim that is not a traditional patent or copyright infringement claim implicates patent or copyright issues sufficiently that it should be treated as a patent or copyright claim for purposes of jurisdiction. In Christianson v. Colt Industries, 486 U.S. 800, 808–09 (1988), the Supreme Court ruled that, for jurisdictional purposes, a non-patent claim that depends ''on resolution of a substantial question of federal patent law'' is effectively a patent ''claim'' for jurisdictional purposes Christianson, 486 U.S. at 808–09. In copyright law, copyright jurisdiction turns on whether ''a complaint alleges a claim or seeks a remedy provided by the Copyright Act.'' Bassett v. Mashantucket Pequot Tribe, 204 F.3d 343, 355 (2d Cir. 2000).
The FCBA solution is not designed to address this issue at all. Further, there is no reason to believe the proposed addition would affect this issue. Both the statute in its current form and the proposed change require the presence of a claim for relief. The judicial interpretation on what constitutes such a claim thus should not be affected by the proposed change.
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Professor Hellman's concern in this regard would apply with equal or greater force to what I understand to be his own proposal. Both his re-write of the Federal Circuit's appellate jurisdiction provision (28 U.S.C. §1295(a)(1)), and his rewrite of the federal exclusivity provision (28 U.S.C. §1338(a)), track the FCBA proposal and add the phrase ''claim for relief.'' This observation is not intended as a criticism of Professor Hellman's proposal. Neither proposal raises a significant issue in this regard.
Second, Professor Hellman theorizes that that the FCBA's proposed addition of language to 28 U.S.C. Section 1338(a) may somehow render obsolete supplemental jurisdiction for certain claims by giving the district court original jurisdiction over the entire ''civil action'' rather than just the specific federal claims within the case. This critique has no force because 28 U.S.C. Section 1338(a) as it presently stands already gives district courts original jurisdiction over the entire civil action. The jurisdiction statute currently states: ''The district courts shall have original jurisdiction of any civil action arising under. . . .'' 28 U.S.C. §1338(a) (emphasis supplied). The FCBA proposal preserves that language: ''The district courts shall have original jurisdiction of any civil action involving any claim for relief arising under. . . .'' Thus, once a civil action triggers jurisdiction under 28 U.S.C. §1338(a) by including a patent or copyright claim, the scope of original jurisdiction remains consistent with pre-Holmes Group law.
In sum, while it is, of course, possible that unintended consequences might be generated by any amendment to Section 1338, the FCBA proposal, which is over two years old, has been thoroughly evaluated. As demonstrated by the relatively minor concerns expressed by Professor Hellman, the proposal has withstood that scrutiny remarkably well.
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B. The Manipulative Use Of Patent Counterclaims
There has been some concern expressed that, if patent counterclaims create appellate jurisdiction in the Federal Circuit—as they did prior to Holmes Group, parties may manipulatively include such counterclaims in a case so that the Federal Circuit would hear an appeal it might not otherwise have jurisdiction over. At the outset, there is no evidence that this has been a problem over the last twenty years, despite the fact that the Federal Circuit could have exercised jurisdiction over such cases before Holmes Group. In any event, this concern ignores the wealth of case management tools at the disposal of district court judges to combat any such abuses.
As explained above, when Congress created the Federal Circuit, it expected that patent counterclaims would trigger Federal Circuit appellate jurisdiction. To address potential abuse, Congress specifically encouraged district courts to use all the procedural devices at their disposal to prevent the manipulation of appellate jurisdiction through the improper addition of counterclaims or otherwise.(see footnote 3) For example, if a counterclaim is frivolous or a sham, the district court can readily dismiss it and strike it from the case. If a patent counterclaim is unrelated to the claims in the complaint, the district court can readily sever or otherwise separate that counterclaim from the case so that improper manipulation does not take place.(see footnote 4)
C. There Is No Need For Changes To Other Aspects Of The Federal Circuit's Patent Appeal Jurisdiction
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The FCBA has considered the effect of Holmes Group on a variety of procedural contexts, such as amended complaints, patent claims that are resolved pre-appeal, and consolidated actions. For the reasons below, the FCBA believes that a legislative response to Holmes Group should not specifically address these other procedural contexts.
1. Amended Complaints
The FCBA has considered whether the legislative proposal needs to contain express language to ensure that patent claims brought first in amended pleadings trigger Federal Circuit jurisdiction. The FCBA concludes that the proposed language is sufficient to give the Federal Circuit jurisdiction over appeals in cases where patent claims were interjected in amended pleadings. As proposed, 28 U.S.C. Section 1338(a) would be amended to refer to ''any claim for relief'' arising under patent law, which should adequately address amended pleadings. Moreover, existing law appears to hold that the Federal Circuit properly has jurisdiction over appeals where patent claims were first stated in amended pleadings.
Indeed, existing caselaw routinely confirms that, in jurisdictional disputes, the amended pleadings govern. See, e.g., Johnson v. Hussmann Corp., 805 F.2d 795 (8th Cir. 1986) (overruled on other grounds) (''Appellant's amended complaint had been artfully pleaded to avoid federal jurisdiction.''); Coastal Corp. v. Texas Eastern Corp., 869 F.2d 817 (5th Cir. 1989) (''Coastal's amended complaint filed on January 31 conferred jurisdiction on the district court at least from thence forward. . . .''); Boelens v. Redman Homes, Inc., 759 F.2d 504 (5th Cir. 1985) (finding federal jurisdiction lacking, because ''plaintiffs did not allege in the amended complaint or the pretrial order that the defendants' warranty, on its face, violated any of the substantive provisions of [federal law].'').
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Indeed, Justice Stevens recognized in his concurrence in Holmes Group that the Federal Circuit would, indeed, have jurisdiction over appeals containing an amended claim for patent infringement. See Holmes Group, 122 S.Ct. at 1896 (Stevens, J., concurring) (''Thus, if a case began as an antitrust case, but an amendment to the complaint added a patent claim that was pending or was decided when the appeal is taken, the jurisdiction of the district court would have been based 'in part' on 28 U.S.C. §1338(a), and therefore §1295(a)(1) would grant the Federal Circuit jurisdiction over the appeal.'').
Thus, the FCBA has concluded that under existing law, the Federal Circuit may properly exercise appellate jurisdiction over cases in which a patent claim was first asserted in an amended pleading. Accordingly, the proposed amendment does not need to specifically refer to amended pleadings.
2. Patent Claims Resolved Pre-Appeal
The FCBA has also determined that the legislative proposal need not specifically address situations in which the patent claims asserted at the district court level are no longer at issue on appeal. Because no patent claims are left in such cases, the uniformity of patent law is not implicated by where such appeals are adjudicated. Furthermore, the general rule under existing law is to fix appellate jurisdiction at the outset of a case so that the parties and the trial court know the governing law for purposes of resolving motions, writing jury instructions, and generally applying the law in the district court. Whether a patent claim is resolved pre-appeal generally has no impact on appellate jurisdiction, assuming it was bona fide. See Kennedy v. Wright, 851 F.2d 963 (7th Cir. 1988) (Easterbrook, J.) (rejecting notion that Federal Circuit jurisdiction should reflect the issues actually litigated in a case, and transferring appeal from contract-based ''patent ownership'' phase of bifurcated patent suit to the Federal Circuit); Abbott Labs. v. Brennan, 952 F.2d 1346 (Fed. Cir. 1991) (''The path of this appeal was established with the filing of the civil action to obtain a patent in accordance with 35 U.S.C. §146 and although the §146 issue was not appealed, this appeal of the other issues was correctly taken to the Federal Circuit.'').
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A limited exception to this rule is for voluntary dismissals of patent claims. Where a plaintiff voluntarily dismisses its patent claims, the courts have found jurisdiction to lie in the regional circuits. In Gronholz v. Sears, Roebuck and Co., 836 F.2d 515 (Fed. Cir. 1987), after plaintiff filed a two-count complaint for patent infringement and for unfair competition, and subsequently voluntarily dismissed its patent count, the Federal Circuit treated plaintiff's voluntary dismissal of its patent count as an amendment of the original complaint, and ruled that ''[a]pplying the well-pleaded complaint rule to the complaint then remaining, we determine that the present suit does not 'arise under' the patent laws for jurisdictional purposes.'' The Ninth Circuit agreed with this approach in Denbicare U.S.A., Inc. v. Toys R Us, Inc., 84 F.3d 1143 (9th Cir. 1996) (exercising jurisdiction over appeal of remaining claims after patent-related claim was voluntarily dismissed).
The FCBA has concluded that the legislative proposal need not specifically address cases where patent claims are resolved pre-appeal. Congress' goal to promote uniformity in patent law does not appear to be frustrated in this situation because in these cases the patent claims are not at issue on appeal. Because the Federal Circuit will generally have jurisdiction over appeals from cases having patent counts in the plaintiff's pleadings, there is nothing to ''fix'' legislatively concerning these cases.
3. Consolidated Cases
The FCBA has considered whether the proposed legislation should contain express provisions concerning consolidated cases. Consolidated suits present a wide variety of procedural contexts, depending on whether the suits are consolidated for trial or only pre-trial proceedings, the issues raised in the non-patent suits, the number and identity of the parties, the timing of the suits, and the terms of the district court's consolidation order. Because of the wide range of procedural postures presented by consolidated suits, the FCBA believes that appellate jurisdiction over these disputes is best left to case-by-case development. As noted above, district courts have powerful tools to structure cases in the interests of justice.
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In cases consolidated for a merits determination, the Federal Circuit and the regional circuits have often ruled that non-patent and patent suits should all be appealed to the Federal Circuit. For example, in Interpart Corp. v. Italia, 777 F.2d 678 (Fed. Cir. 1985), Interpart's 1980 non-patent suit against Vitaloni was consolidated with Vitaloni's 1982 patent suit against Interpart. After Vitaloni lost in both cases, Vitaloni appealed the non-patent claims to the Ninth Circuit and the ''exceptional case'' ruling from its patent claims to the Federal Circuit. Both courts of appeals agreed that the Federal Circuit should have jurisdiction over both suits. Id. at 680–81. The Federal Circuit followed this approach in In re Innotron Diagnostics, 800 F.2d 1077 (Fed. Cir. 1986).
In Nilssen v. Motorola, Inc., 255 F.3d 410 (7th Cir. 2001), Judge Easterbrook suggested that the proper approach to consolidated proceedings is for the district court to order them consolidated for appeal where appropriate. In Nilssen, after the district court severed the patent and non-patent cases, and the Federal Circuit declined jurisdiction over the appeal from the non-patent cases, the Seventh Circuit ordered the two fragments re-consolidated, and ordered that the ''cases must be rejoined for all purposes, including any appeal from the final judgment.''
In Tank Insulation Int'l, Inc. v. Insultherm, Inc., 104 F.3d 83 (5th Cir. 1997), the Fifth Circuit found jurisdiction over an appeal from the antitrust-related component of a previously consolidated suit involving patent and antitrust components. Had the components remained consolidated at the time of appeal, the Fifth Circuit stated it would not have had jurisdiction: ''So long as the actions were consolidated, section 1295 unquestionably vested the Federal Circuit with exclusive jurisdiction of the entire action; however, when the consolidation order was vacated, the antitrust action returned to its original, independent status.'' Id. at 85.
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As for cases consolidated only for pre-trial purposes, in FMC Corp. v. Glouster Eng'g Co., 830 F.2d 770 (7th Cir. 1987) (Posner, J.), the Seventh Circuit ruled that discovery-related disputes arising from the antitrust-related component of a consolidated action should be appealed to the regional circuit, not the Federal Circuit, because consolidation for pre-trial purposes should not direct the ultimate appeal in the antitrust suit to the Federal Circuit.
The FCBA concludes that because of the wide variety of procedural contexts presented in consolidated cases, questions of appellate jurisdiction over these disputes are best addressed on a case-by-case basis. For cases consolidated for a merits determination, many courts have found that the best approach is to direct the entire action to the Federal Circuit for appeal. For consolidated cases only involving patent counterclaims, a legislative response directed to the counterclaim issue should be sufficient, without generally addressing consolidated suits.
III. CONCLUSION
Holmes Group has been implemented to give state courts and regional federal circuit courts of appeal jurisdiction over patent claims. This conflicts sharply with the Congressional intent behind the creation of the Federal Circuit, not to mention a host of policy considerations.
We believe the most appropriate response to Holmes Group (as well as Green and Ross) is to amend 28 U.S.C. §1338 to ensure that the district courts have original jurisdiction over all claims for relief arising under the patent laws. Because the Federal Circuit's jurisdiction is derivative of the district court's jurisdiction under Section 1338(a), this amendment will vest the Federal Circuit with appellate jurisdiction over all cases containing patent infringement claims. Furthermore, this amendment will ensure that there is exclusive federal jurisdiction over all patent infringement claims.
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Mr. SMITH. Thank you, Mr. Reines.
Professor Hellman?
TESTIMONY OF ARTHUR D. HELLMAN, PROFESSOR OF LAW, UNIVERSITY OF PITTSBURGH SCHOOL OF LAW
Mr. HELLMAN. Thank you, Mr. Chairman. I appreciate this opportunity to discuss this seemingly narrow but, in fact, quite important subject.
As you already heard, in the Holmes Group decision the Supreme Court repudiated the understanding of the law that prevailed in the lower courts on two important points: The Court held that the appellate jurisdiction of the Federal Circuit does not encompass claims—cases in which claims under the patent laws are raised in a responsive pleading rather than in the plaintiff's complaint. The consequence of that decision, as again you've heard, appears to be and to some courts already is that the State courts are not precluded by 1338 from hearing counterclaims under the patent and also under the copyright laws.
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I agree with the other witnesses that these outcomes are undesirable from a policy standpoint and that Congress should take action to reverse that. The question is: How might that be done?
Well, because the Court's holding was predicated on the interpretation of the first sentence of section 1338(a), it might seem that the logical corrective is to amend that sentence. And that, as you've just heard, is the approach suggested by the Federal Circuit Bar Association committee, and my initial reaction was that was fine. But it does seem to me now, having looked at it further, that the seemingly logical approach is not the optimal one. The first sentence of 1338 is the basic grant of original jurisdiction to the district courts. That's language that has remained unchanged for more than half a century, and it does seem to me, contrary to Mr. Reines, that any alteration in that language runs the risk of unsettling the law in ways that no one can fully anticipate.
I think it's significant in this respect—I've discussed some of the possibilities in my statement. I think it's significant in this respect that the American Law Institute was considering a similar change on a kind of wholesale level—in its proposal for revising the Federal Judicial Code from an action-based grant of jurisdiction to a claim-based grant of jurisdiction. And they decided it was just too treacherous—that's their word—that there was too great a risk of unintended consequences.
So if I were alone on this and seeing that change as having these potential problems, I probably would not be making the point so strongly. But it does seem to me that the experience of the ALI is quite significant in that respect, and related.
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So, to my mind, it seems to me that Congress should not pursue that path if its purposes can be accomplished through legislation that is less likely to have ramifications outside the immediate context, and I think that you can do that.
With respect to State court jurisdiction, I think the best approach is the most direct. What we want to do is to assure that State courts are precluded from hearing claims under the patent and copyright laws. It seems to me the simplest way to do that is to say that, and the place to say that is in the second sentence of 1338(a) that is the exclusive jurisdiction provision. And I have suggested a draft. There may be better ways of doing it, but it seems to me if you're concerned about preserving exclusivity, the place to do it is in the sentence that defines exclusivity.
Now, there is one difficulty with that. If you do that alone, a patent or copyright counterclaim brought in State court would have to be dismissed, and the defendant would have to file a new suit in Federal court. So you end up with the parties litigating two suits, even though the claims are closely related or perhaps even interdependent. That's just not very efficient. To avoid that, Congress could enact a statute that would authorize removal on the basis of a patent or copyright counterclaim. I have proposed such a statute in my testimony. I'd be happy to discuss it.
That brings me to the holding of Holmes Group itself and the appellate jurisdiction of the Federal Circuit when patent claims are raised in a responsive pleading. Again, it seems to me that the best approach is to say directly what you're trying to accomplish. And following that precept, I offer a suggestion for revising one sentence of section 1295(a), which is the grant of appellate jurisdiction to the Federal Circuit. I might add that that has the additional benefit of eliminating what is now the circumlocution of 1295(a), which vests a very broad jurisdiction in its first clause, only to take some of it away in the second part of that same sentence.
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Now, in my statement I've also discussed some of the broader issues raised by the Federal Circuit's jurisdiction over patent appeals. I'll say right away none of those are urgent. None would justify delaying a Holmes fix—I do agree with Mr. Reines on that—if the Subcommittee agrees that a fix is in order. But this is an oversight hearing, and as your initial remarks indicated, Mr. Chairman, we're looking beyond the immediate problems.
And it seems to me the most substantial concern that's been raised is that we may be losing the benefits of what's been called ''percolation'' on the non-patent issues that typically arise in patent cases. And one way of dealing with that would be some kind of transfer provision. But that is an idea, I will admit, that has not itself had sufficient percolation. So I'm not suggesting any immediate action on that.
In contrast, the unfortunate policy consequences of Holmes Group I think are quite clear, and the only question is how to go about setting them right.
Thank you for the opportunity to express my views on that subject, and I'll welcome your questions.
[The prepared statement of Mr. Hellman follows:]
PREPARED STATEMENT OF ARTHUR D. HELLMAN
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Mr. SMITH. Thank you, Professor Hellman.
Mr. Prasad?
TESTIMONY OF SANJAY PRASAD, CHIEF PATENT COUNSEL, ORACLE CORPORATION
Mr. PRASAD. Thank you, Mr. Chairman. Thank you for investigating this issue and for the opportunity to testify today. Let me include my full testimony as part of the record and provide to you a summary of the testimony today.
Mr. Chairman, Oracle is the world's largest enterprise software company, with a portfolio of over 500 patents, and it is a world leader in innovative software solutions for business and Government. It is my responsibility to advise Oracle on patent and other related intellectual property matters.
As an information age company, Oracle has no factories and production lines. All of our revenues derive from the licensing of our software and related services. Simply put, our IP is the core of our business.
Mr. Chairman, as you know, patent disputes do not occur in a vacuum. Very often such suits are accompanied by trademark, trade secret, or contract claims. In these cases, we can be either a plaintiff or a defendant, so we cannot be said to be either pro-patent or anti-patent. Our goal is to ensure that the courts provide a predictable and efficient way to resolve patent disputes.
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Patent cases are some of the most complex and expensive cases that Oracle litigates, with attorney's fees typically running into the millions of dollars for a single case. Frequently, the outcome of these cases turn on highly technical disputes involving intricate matters of computer science, database structures, and other technologies that are difficult for a lay audience, including a judge or a jury, to understand.
A high-technology business such as Oracle's can face substantial risks when the court presiding over one of our patent cases lacks the time and resources to understand the technology at issue.
The court system that Congress set up in 1982 under the Federal Circuit goes a long way to improving patent litigation. The Federal Circuit is widely created—credited with establishing a unified body of law, which until now has governed all patent disputes nationwide. The creation of the Federal Circuit has largely eliminated wasteful forum shopping, and it has given a higher degree of predictability of patent cases. The judges on the Federal Circuit are accustomed to resolving technology disputes and have scientifically trained clerks and staff.
As a result, all parties can feel confident that the Federal Circuit has the knowledge, willingness, and sense of mission to properly understand the technology and law presented in its cases.
Sending all patent appeals to a single court having a basic comfort level with technology is essential for a rational patent system. This is precisely what Congress intended when it created the Federal Circuit in 1982, stating, ''The establishment of a single court to hear patent appeals was repeatedly singled out as one of the most far-reaching reforms that could be made to strengthen the United States patent system in such a way as to foster technological growth and industrial innovation.''
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Yet the recent jurisdictional changes posed by Holmes represent a serious and formidable challenge to the 1982 Act and threaten to profoundly undermine the purpose of that Act in three ways. Let me address each of those separately.
First, Holmes undercuts Congress' goal of a single body of patent law. With the reversion of patent jurisdiction to the regional appellate courts, we are moving backward to a system with 13 silos of governing law. In fact, we already have the first patent ruling out of a regional appellate court—the Eleventh Circuit'S ruling in Telecomm Technical Services versus Rolm—which suggests that the Eleventh Circuit will be following its own law and not that of the Federal Circuit.
Mr. Chairman, although in many fields of law it may be helpful to have issues percolate through the various regional court circuits, it is implausible that such benefits would occur in patent cases under Holmes because patent cases will reach the regional circuits only on a sporadic basis. Simply put, the 20-year gap in the patent law of these circuits would inevitably delay the creation of a rational body of patent law.
Second, Holmes is likely to prompt a renewed emphasis on forum shopping. In a single patent case, litigants can consume a year, and easily hundreds of thousands of dollars, by jockeying to have their case heard in a circuit perceived to have more favorable law. We are troubled by the prospect of a return to the costly days of forum shopping, with exorbitant amounts of time and money spent not on superior innovation, but satellite litigation.
Third, Holmes has been interpreted to extent jurisdiction over some patent and copyright cases to State courts. It has long been understood that patent infringement cases are within the exclusive jurisdiction of the Federal courts. The Federal trial courts are accustomed to patent cases; State courts are not.
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Moreover, it is an open question whether these State courts will be bound to follow Federal Circuit law, as Mr. Reines mentioned earlier, or the law of their regional circuit, as it was left off over 20 years ago. This, too, has the potential to undermine what Congress worked so hard to foster.
Mr. Chairman, to conclude, the decision by Congress in 1982 to centralize patent disputes was driven by important public policy goals. Holmes undermines those goals by, one, fracturing the uniform body of patent law; two, encouraging forum shopping; and, three, extending jurisdiction of certain patent and copyright cases to State courts. In our view, it only makes sense to re-establish what Congress created in 1982, by correcting the jurisdiction of the Federal Circuit to cover all patent infringement cases nationwide.
Thank you again, Mr. Chairman, for the opportunity to participate in today's hearing, and I would be happy to respond to any of the Committee's questions.
[The prepared statement of Mr. Prasad follows:]
PREPARED STATEMENT OF SANJAY PRASAD
INTRODUCTION
Mr. Chairman, Ranking Member Berman, members of the Subcommittee, my name is Sanjay Prasad. I am the Chief Patent Counsel at Oracle Corporation. Thank you for the opportunity to testify today. Both the Chair and the Ranking Member of this subcommittee have a strong record of leadership on vital issues related to intellectual property, and today's hearing on the patent appeals process is both necessary and timely.
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Oracle is the world's largest enterprise software company, and a world leader in innovative information management solutions for business and government. It is my responsibility to advise Oracle on patent and other intellectual property matters pertaining to technology. This includes managing Oracle's patent portfolio, entering into patent licensing agreements with other parties, evaluating patent claims asserted against Oracle, and managing outside litigation counsel. Oracle has over 500 U.S. patents. Oracle regularly engages in technology licensing involving Oracle and third-party copyrighted and patented software, and Oracle is regularly involved in patent litigation, either as a plaintiff or a defendant.
TESTIMONY
Oracle epitomizes the kind of company that America's patent and copyright laws are designed to promote. For example, in 1979 shortly after its founding, Oracle introduced the first commercially available relational database. In 1996, Oracle was the first software company to move all of its business application software to the Internet and Oracle's database software continues to be widely recognized as the most capable and secure database software available. Oracle software is used daily by governments, businesses and educational and other institutions around the world to securely and efficiently manage their critical data and business processes.
As an information age company Oracle has no factories and production lines. All of Oracle's revenue is derived from the licensing of its software and related services. Intellectual property, the product of human innovation, is the lifeblood of Oracle's business. Copyright law protects expressive content and thereby protects against piracy and unlicensed use of Oracle's software. Patent law protects the novel and non-obvious techniques embodied in the software. Uniformity and balance in both copyright and patent law is necessary to promote investment in innovative software products and services. This provides a dual benefit. First, it provides greater certainty that the substantial investments required to develop innovative software can be protected. Second, it provides greater certainty in determining whether a product planned for development or distribution infringes any third-party intellectual property.
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Disputes over intellectual property and particularly patents are increasingly common. In 2004 there were over 2800 patent cases filed in the U.S. See <http://www.ipriori.com/statistics.htm>. Disputes over patents do not occur in a vacuum. Very often, patent suits are accompanied by trademark, trade dress, trade secret, or contract claims. In patent cases, Oracle is both a plaintiff and a defendant, so Oracle cannot be said to be either ''pro-patent'' or ''anti-patent.'' Oracle's motivation is to ensure that the courts provide a rational and efficient way to fairly resolve patent disputes. As either a plaintiff or a defendant, Oracle needs certainty and predictability in intellectual property law.
Patent cases are some of the most complex and expensive cases that Oracle and other high technology companies litigate. Rivals commonly seek to obtain injunctions to shut down integral parts of a company's products, or may try to misappropriate key technologies. Attorney fees typically run into the millions of dollars for a single patent litigation. Frequently, the outcome of these cases turns on highly technical disputes, involving intricate matters of computer science, database structures, networking systems, and other technologies that are difficult for a lay audience, including a judge or jury, to understand. A high technology business such as Oracle's can face substantial risks when the court presiding over one of our patent cases lacks the time and resources to understand the technology at issue.
The court system that Congress set up in 1982 under the Federal Circuit goes a long way to rationalizing patent litigation. The Federal Circuit, while imperfect, is widely credited with establishing a unified body of patent law. This same body of law, until now, has governed all patent disputes nation-wide. The creation of the Federal Circuit has largely eliminated wasteful forum shopping, and it has given a higher degree of predictability to patent cases. Because the judges on the Federal Circuit are accustomed to resolving technology disputes, and because they have scientifically trained clerks and staff, businesses can feel reasonably confident that the Federal Circuit has the faculty and the willingness, and the sense of mission, to properly understand the technology presented in its cases. Sending all patent appeals to a single court having a basic comfort level with technology is essential for a rational patent system. This is precisely what Congress intended when it created the Federal Circuit in 1982. Indeed, the House Report accompanying the 1982 Act notes that ''[t]he establishment of a single court to hear patent appeals was repeatedly singled out by the witnesses who appeared before the Committee as one of the most far-reaching reforms that could be made to strengthen the United States patent system in such a way as to foster technological growth and industrial innovation.'' See H.R. Rep. No. 312, 97th Cong. 1st Sess. (1981) (''House Report'') at 20. Over twenty years later, Oracle agrees with those witnesses, and the considered judgment of Congress.
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Yet, the recent jurisdictional changes posed by Holmes Group represent a serious and formidable challenge to the 1982 Act, and this challenge is being launched on three fronts. First, we are in the midst of an attack on a single body of patent law. With the reversion of patent jurisdiction to the regional circuit courts of appeals, we are moving backward to a system with thirteen silos of governing law, instead of a single body of patent law, as Congress had envisioned in 1982. We already have the first patent ruling out of a regional circuit court of appeals—the Eleventh Circuit's ruling in Telecomm Technical Services Inc. v. Rolm Co., 388 F.3d 820 (11th Cir. 2004), which suggests that the Eleventh Circuit will be following its own law, not the law of the Federal Circuit. Each case that gets directed to the regional circuit courts has the potential to add to this backward spiral away from a uniform body of law. It will become harder for Oracle to predict the outcome of patent cases when the law is split among thirteen circuits.
The attack on a single body of law is likely to prompt a second front: a renewed emphasis on forum shopping. In a single patent case, litigants can consume a year, and easily hundreds of thousands of dollars, by jockeying to have their case heard in a circuit that they perceive has favorable law. Again, Congress in 1982 succeeded in eliminating much of this wasteful forum shopping by establishing a single court of appeals for patent cases and thereby fostering the creation of a unified body of governing law. Oracle is troubled by the prospect of yet another backward spiral—a return to the costly days of forum shopping, with exorbitant amounts of time and money spent not on superior innovation, but satellite litigation.
The third front created by the challenge of Holmes Group was launched when Holmes Group was interpreted to grant state courts jurisdiction over some patent and copyright cases. It has long been understood that patent infringement cases are within the exclusive jurisdiction of the federal courts. The federal trial courts are accustomed to patent cases, and generally have adequate time and resources to dedicate to patent disputes. But federal courts, even with all their experience, are still challenged by patent cases. State courts, on the other hand, have not handled patent infringement cases in modern times, if at all. The procedures that are specific to patent cases (especially claim construction, or ''Markman,'' hearings) are simply not done in state courts. This is an entire body of law, intertwined with demanding technological facts, that state courts are not accustomed to handling. Litigating patent cases in state courts would be an unknown. Indeed, it is an open question of whether these state courts would be bound to follow Federal Circuit law, or the law of their regional circuit, as it was left off over 20 years ago. This too, is a backward spiral, but it has the greatest potential to undermine what Congress worked so hard to foster 23 years ago.
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Three fronts—three real-world concerns for Oracle. Through no fault of its own, Oracle could bring a non-patent claim in federal court, perhaps under a contract through diversity jurisdiction, or perhaps in a trade dress or trademark matter, and be faced with a counterclaim for patent infringement. Under Holmes Group, that claim would no longer be appealed to the Federal Circuit, but would instead be directed to a regional circuit court of appeals. Similarly, it is entirely possible that Oracle could bring a case in state court on a matter appropriate for resolution there, such as to seek payment on a contract, and become entangled with a counterclaim for patent infringement. Under Holmes Group, such a case may never be tried or appealed through the federal court system.
The decision by Congress in 1982 to centralize patent disputes was driven by laudable and credible public policy goals. However, I ask this subcommittee, and all of my fellow witnesses here: What is the public policy benefit to be gained from the re-allocation of patent jurisdiction among the regional circuits and state courts? I for one believe there is nothing to gain, but much to lose. Although in many fields of law, it may be helpful to have issues ''percolate'' through the various regional circuits, it is implausible that such benefits would occur in patent cases under Holmes Group. The distinction is that the majority of patent cases will continue to be appealed to the Federal Circuit. It will only be the occasional patent case that is appealed to the regional circuits, or that will be tried through the state court system. Patent law in the regional circuits will develop, at best, in fits and starts. It is hard to conceive how a cohesive body of patent law could develop in the regional circuits, given that patent cases will reach the regional circuits only on a sporadic basis, in the occasional cases when patent claims are first asserted in a responsive pleading. Because there is more than a 20-year gap in the patent law of the regional circuits, it could take decades for the various regional circuits to ''catch up'' to intervening Supreme Court rulings (most notably Markman v. Westview Instruments, 517 U.S. 370 (1996)), and create a rational body of law around these new developments. Although the regional circuits could defer to Federal Circuit precedent, it is unlikely that they will do so—indeed, the Eleventh Circuit has already suggested that it will not follow this approach.
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Oracle strongly endorses the approach of the Federal Circuit Bar Association to restore the Federal Circuit's jurisdiction to its state prior to Holmes Group. There is too much at stake to have cases sporadically appealed through courts with little or no experience in patent law. Rather, it makes complete sense to re-establish what Congress created in 1982, by correcting the jurisdiction of the Federal Circuit to cover all patent infringement cases nationwide, regardless if the patent claim was asserted in a complaint or in a responsive pleading. The amendments proposed by the FCBA will properly restore the Federal Circuit's jurisdiction, and will help promote Congress' goal of creating a unified body of patent law to promote technological progress in America.
Thank you again, Mr. Chairman, for the opportunity to participate in today's hearing, and I look forward to working with you and this subcommittee to ensure that our nation's patent laws and procedures protect and promote innovation.
Mr. SMITH. Thank you, Mr. Prasad.
Ms. Addy?
TESTIMONY OF MEREDITH MARTIN ADDY, ESQ., BRINKS, HOFER, GILSON & LIONE
Ms. ADDY. Mr. Chairman, Members of the Subcommittee, thank you for the opportunity to present my views today on the Federal Circuit and the state of patent appeals. I will present my views from the perspective of a practitioner and of a former law clerk.
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I will highlight my written testimony and focus on three types of comments and criticisms that the Federal Circuit has faced regarding patent appeals. The first type is that the Federal Circuit is too pro-patent. The second type is that patentable subject matter has been expanded. And the third type is that the Federal Circuit is in some cases panel-dependent.
Before talking about the three types, I'd like to talk for a minute for context on the state of the law when the Federal Circuit started in 1982.
During the early days of the Federal Circuit, with its mandate to increase uniformity and stability and remove forum shopping, the Federal Circuit did not start with a clean slate for precedent. The Federal Circuit inherited the precedent of its predecessor courts, and for patent appeals, that was the Court of Customs and Patent Appeals, the CCPA. That court heard cases on appeal from the Patent and Trademark Office, so cases where an inventor did not get his patent or interferences, that court, however, did not hear cases having to do with patent infringement. As you know, those cases went to the regional circuit.
So because the Federal Circuit inherited the case law of its predecessor court, it had to sit en banc to overrule that law. In addition, it had to look at the myriad of different regional circuit laws on litigation issues and figure out which one, if any, to apply.
The first part of its existence was spent stabilizing major patent doctrines. Today, the Federal Circuit is poise to address issues within those doctrines.
Turning to some of the recent commentary and criticisms, it is my position that the Federal Circuit has satisfied its mandate to unify and stabilize patent law. But it has done so not without criticism. And, in fact, the patent bar has lively debates on the state of various intricate patent doctrines and how they're fairing at the Federal Circuit. I will not address those specific doctrines here, but I will reserve my analysis to more general commentary.
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The first issue is the patent—is the Federal Circuit too pro-patent? If the Federal Circuit is perceived to be too pro-patent, it may be in response to the perception that many of the regional circuits were anti-patent. However, I believe that in recent years, the Federal Circuit has become less pro-patent, and I think that it is more in the middle of the road.
However, critics say that its pro-patent stance hurts the quality of patents. Bear in mind, however, that only about 1.5 percent of patents are ever litigated, and only—less than that are appealed to the Federal Circuit. So if the quality of patents is deteriorating, it cannot be solely the Federal Circuit that is responsible for a deteriorating quality of patents.
The FTC has issued a report that is concerned about the quality of patents, and it suggests that in order to raise the level of the quality of patents, we should lower the standard at the Federal Circuit for proving invalidity. However, the issues that the Federal Trade Commission raises are problems having to do with the PTO, and if those problems exist, I believe they should be fixed at the PTO and not at the Federal Circuit.
In fact, if you were to lower the standard for proving invalidity at the Federal Circuit, you would inject an uncertainty into patent law. The PTO examiners look at the prior art, and when a patent issues, it has a presumption of validity because of that examination. Without that presumption of validity, neither the public nor the patentee would know the scope of his patent. It is my opinion that the standards for proving invalidity at the Federal circuit are good.
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The second issue is the expansion of the scope of patentable subject matter. The court has recognized that business methods and computer software are patentable subject matter, and critics say that that expansion is not warranted. But the patent statute has been construed broadly to include anything under the sun made by man. Patenting of business methods and software patents has been a positive innovation for that industry, positive for that industry because it has brought into the public domain documents on that technology that were formerly kept as trade secrets.
And, number three, the third issue I'd like to discuss are the perceived panel dependencies at the Federal Circuit. Federal Circuit judges respect their unique position as basically the sole arbiters of patent law. And they recognize the need for uniform application of the law.
Precedent at the Federal Circuit progresses at light speed compared to other circuits, compared to other issues left to percolate in the regional circuits. And each Federal Circuit judge addresses the same patent doctrines much more frequently than regional circuit judges address issues. Because of that, we may be more able to spot these perceived inconsistencies. But some commentators have said that's a positive thing and it's analogous to the percolation in the regional circuits.
My experience has been that these differing views are necessary to identify the true nature of the doctrines and the necessity for en banc hearings.
In conclusion, I believe that the constructive criticism of the Federal Circuit is a good thing. It helps us gauge whether the Federal Circuit is doing its job, and I believe that the Federal Circuit has succeeded in fulfilling its mandate to unify and stabilize patent law. The Federal Circuit has developed a vibrant body of patent jurisprudence. There is none in State court. In the regional circuits, it's 23 years old. And because of its unique experience, the Federal Circuit is poised to accept plenary authority to hear patent appeals.
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Thank you, Mr. Chairman.
[The prepared statement of Ms. Addy follows:]
PREPARED STATEMENT OF MEREDITH MARTIN ADDY
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Mr. SMITH. Thank you, Ms. Addy.
The problem with listening to four lawyers is that you all sound persuasive, and I do want to address some of the larger issues. But, Ms. Addy, since you brought up the Federal Circuit, let me ask you this question. You may or may not know that the last year for which we have figures, 2003, the Federal Circuit was affirmed by the Supreme Court less than 30 percent of the time. You implied that the Federal Circuit Court was doing just fine. Do you see any significance or does the low affirmation percentage raise any questions in your mind about the Federal Circuit? Or does it raise questions about the Supreme Court?
Ms. Addy. I believe the average for regional circuits as a whole is also lower than 30 percent. So I'm not sure that the numbers at the Federal Circuit are much different.
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Mr. SMITH. Maybe in context. That's interesting.
Ms. Addy. But at the same time, I think it's a very good thing that the Federal Circuit is reviewed by the Supreme Court. The Supreme Court is watching what the Federal Circuit does. It's taking cases that it thinks maybe the Federal Circuit hasn't expressed the doctrine exactly as it should. And that is a good thing.
Mr. SMITH. Okay. One other question, and this gets more to the general subject. Everyone else was pretty clear. Mr. Prasad was clear about supporting the Federal Bar-suggested solution, as was Mr. Reines, and Professor Hellman had his own solution, which I'm going to ask you about momentarily. You were less clear in what you supported. Do you incline toward the Federal Bar solution in the way they would amend 1338?
Ms. Addy. Yes, Mr. Chairman, I do lean toward the Federal Circuit Bar Association's proposed amendment.
Mr. SMITH. Okay. Good. Now, that gets into obviously the threshold issue today, which is how to amend 1338. Everybody agrees that it ought to be amended. Professor Hellman would amend a different sentence than the Federal Bar.
Mr. Reines and Mr. Prasad and Ms. Addy, what do you think about Professor Hellman's solution? It sounds like, as I say, all the solutions are reasonable. We're trying—we're going to have to—I think we need to make some change. What do you think about his idea and his point that if you change the sentence of 1338 that the Federal Bar suggests, that will create confusion, we have 50 years of history there and so forth and so on? Let me actually start with Mr. Reines and work my way down the panel.
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Mr. REINES. Thank you very much——
Mr. SMITH. And then, Professor Hellman, we'll let you respond.
Mr. REINES. Thank you very much, Chairman Smith. My analysis is that when you change—if what you're really worried about is unintended consequences that you can't foresee—and I think we have got a consensus that's really what you're talking about—then what you should try to do is change as little as you can. And the total rewrite to the second sentence of 1338 that's been proposed by Professor Hellman and the total rewrite of 1295(a), which is a total rewrite, I think leads to the potential for more.
Now, again, our Federal Circuit Bar Association's chief interest is in solution, so we would work to help anything that we think can address this that doesn't create negative consequences elsewhere. But the total rewrite solution creates more potential disturbances.
Mr. SMITH. So you actually think Professor Hellman's solution would unsettle the law more than the Federal Bar solution?
Mr. REINES. If what you're worried about—and then there's one other thing, that—and I mentioned this a little bit in my opening comments, which is if you decouple the district court jurisdiction versus the appellate court jurisdiction, and you now make the exclusive jurisdiction—decouple that from the district court, right? So the way it is now, this is the district court's original jurisdiction, and that's exclusive. All right? That's the way that 1338—and 1295, the appellate jurisdiction says—the appellate jurisdiction is from the—is for cases that are under the district court jurisdiction. They're all tied together. You don't get gaps. You don't have disconnects, okay?
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With Professor Hellman's articulated concerns in his testimony about, well, if the well-pleaded complaint rule is construed differently and now disrupted, you still have that because when he says, for example, on the exclusivity, Federal exclusivity, he says no State court shall have jurisdiction over any claim for relief arising under any Act of Congress. There's no telling that someone might say, well, that's not a claim for relief or this isn't a claim for relief or whatever argument you're making relative to our change would apply to the exclusivity provision. But it wouldn't apply to the district court original jurisdiction. So you could have a gap there.
And the same with respect to the appellate jurisdiction. The way the appellate jurisdiction is is in any civil action in which a party has asserted a claim for relief. That's Professor Hellman's solution, which maps to what we're proposing basically. But if that's different—if he's right that that's different from the original jurisdiction of the district court, you're going to have a gap. So you might have a case that does fall within the original jurisdiction of the district court under patents, but doesn't go to the appeal court because of his concern that maybe by changing that formulation of language you change the scope. So if you keep to all three based on the same thing, you don't have those gaps.
Mr. SMITH. Okay. Mr. Prasad?
Mr. PRASAD. Thank you, Mr. Chairman. The principal concern really is as Mr. Reines expressed, and Mr. Hellman also, that a solution be reached. And so the—I think we have a preference for the approach taken by the Federal Circuit Bar Association, and I agree that and understand that the only dispute really is in some of the unforeseen consequences that may flow from that.
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As a matter of logic, it would seem to me that the fewer changes, the better, and that the fewer unforeseen consequences that may flow from that.
Mr. SMITH. Okay. Thank you. And, Professor Hellman, what do you think of the critiques?
Mr. HELLMAN. Well, thank——
Mr. SMITH. And, by the way, in your answer tell me if you could live with the Federal Bar solution as well.
Mr. HELLMAN. Well——
Mr. SMITH. Which you initially supported.
Mr. HELLMAN. Yes, which I initially thought was fine.
Let me start with Mr. Reines' point about decoupling. It seems to me decoupling is in a way what we want to do because we don't—there's not a problem with the original jurisdiction. The first sentence of section 1338(a) defines the original jurisdiction. Nobody is concerned about that. Nobody is concerned that the Holmes Group decision narrows or expands the original jurisdiction from what we want it to be. Indeed, in the ad hoc committee report, they recognized the possibility and, indeed, in my view the probability that counterclaims would be now within the original jurisdiction and, therefore, the removal jurisdiction, but until now that has not been a problem for anyone.
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A couple of other comments on this question of unanticipated consequences, and I certainly agree that when you look at it, the difference between changing a few words and changing a lot of words seems to militate in favor of the solution that changes fewest words. The question, though, is where those words are, and the words that the ad hoc committee would change are in a single sentence that has all sorts of ramifications.
I alluded earlier to the American Law Institute proceedings, and I'd like to say just one or two more words about that because I think it's very instructive. What they were considering was revising the statutes that grant original jurisdiction to the district courts at the level of the action rather than the claim. And that certainly sounds very much like the ad hoc committee proposal.
But they rejected the idea of doing that, after a lot of study, and they concluded—and I want to quote their language here—that ''A subtle and complex set of secondary meanings now govern these statutes,'' and if you try to rewrite them, you ''proceed at great risk of creating unintended consequences.''
Now, the American Law—the Federal Judicial Code Project, I should say, was not just academicians. I mean, you might think, well, academics see these problems where they don't exist, and that is part of our stock in trade, I have to admit. But this wasn't just academics. This was judges and lawyers, includes people who are very knowledgeable about title 28, people who live and breathe it. And I think it's very telling that after looking carefully at the idea, they decided that altering the language or approach of the statutes defining original jurisdiction was treacherous.
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So a final point on that. There may be a lesson from what happened with the 1982 statute. If you go back—and I think there's some of the material in Mr. Reines' statement, which indicates that the people who shepherded that legislation through Congress in the early 1980's did think that they were including patent counterclaims in the Federal Circuit's jurisdiction. They refer to them in some of their discussion. And yet they chose to use language, which, based on a century of precedents, would allow courts to look only at the complaint. And it seems to me there may be something of a lesson there that if you want to change the jurisdiction, you should do so directly and address the problems. The problems are exclusivity. The problems are appellate jurisdiction. They are not original jurisdiction, and it seems to me that although it is seemingly the simplest solution, it is the one that is the riskier.
Thank you.
Mr. SMITH. Okay. And could you live with the Federal Bar? You think it is too dangerous and too risky and too treacherous?
Mr. HELLMAN. Well, I have to say, frankly, if you propose that as a statute, if you write it as a bill, and the Federal jurisdiction experts as well as the patent folks look at it and nobody else sees this problem, I'm certainly not going to say, well, you know, I have a special insight into the particular problems. But it seems to me that's the way to do it. Let's have some wider circulation, not just among people who are experts in patent law, but people who have devoted their lives to looking at the Federal jurisdiction statutes and how courts construe them. If they don't see the problem, then fine, it is a simpler solution. But it seems to me that you cannot assume, especially after Holmes Group—I mean, after all, Holmes Group is a statute that—excuse me, a case, a case that is based on careful parsing of language and is really very self-consciously and almost proudly indifferent to whether or not it is interpreting the law in a way that fosters the congressional policy. It seems to me that calls for some very, very careful drafting.
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Mr. SMITH. I agree with you, and I also agree with your suggestion of wider circulation may not be a bad idea as well.
That is all very helpful. Mr. Reines, any final comments on direction we should go? You are comfortable? Having listened and heard from Professor Hellman, are you still as comfortable as you were when you arrived with the Federal Bar solution?
Mr. REINES. Yes, I am, Chairman. I am very appreciative of the Committee taking a look and addressing this at this point in time. I think it's critical.
Mr. SMITH. Okay. And, Mr. Prasad, are you—has your mind been changed at all by hearing Professor Hellman? That puts somebody in an awkward position. Maybe it puts you in an awkward position, too. I think he made some very good suggestions that we'll consider, but what is your view?
Mr. PRASAD. He does make some good suggestions, and I must say I'm much more familiar with the Federal Circuit Bar Association suggestion than I am with Mr. Hellman's. And so without having considered it must further, let me still stay with my preference for the Federal Circuit Bar Association's proposal, but I am not opposed to considering Mr. Hellman's proposal either.
Mr. SMITH. Also, you would probably agree that if we go forward with the Federal Bar suggesting for how to amend 1338, we ought to go forward slowly and methodically and precisely.
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Mr. PRASAD. Well, yes, I agree with the underlying precept of that, which is to do no harm and to do it correctly. But I would suggest that it be done expeditiously.
Mr. SMITH. Fair enough.
Ms. Addy?
Ms. Addy. Thank you, Mr. Chairman. I echo the concerns of my colleagues with Professor Hellman's suggestion, except I was impressed with it when I read it. My main concern right now is that the Federal Circuit Bar Association proposal has been around and it's been discussed. It's been thought about quite a bit, and I think Professor Hellman's is a new—is a new suggestion. So I still support the Federal Circuit Bar Association's proposal, but I am happy to hear that if you go forward, you're going to take a look at the potential ramifications of it.
Thank you.
Mr. SMITH. You are all very agreeable today. This is an unusual panel.
Well, that concludes my questions. As I say, everything you have said has been very helpful. We will move ahead expeditiously, but hopefully judiciously as well.
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And so thank you all again. We stand adjourned.
[Whereupon, at 5 p.m., the Subcommittee was adjourned.]
A P P E N D I X
Material Submitted for the Hearing Record
PREPARED STATEMENT OF THE HONORABLE HOWARD L. BERMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, AND RANKING MEMBER, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY
Mr. Chairman, thank you for scheduling our first patent hearing of the year. I hope this is the beginning of a series of hearings designed to address problems in Patent Law and the Patent system as a whole.
Our country's economy thrives because it can rely on strong protection for intellectual property. Robust patent protection for valid patents promotes innovation. However, I also believe that the patent system is strongest, and incentives for innovation greatest, when patents protect only truly deserving inventions. When functioning properly, the patent system should encourage and enable inventors to push the boundaries of knowledge and possibility. If the patent system allows questionable patents to be granted and does not provide adequate safeguards against patent abuses, the system may actually stifle innovation and interfere with competitive market forces. Companies must have confidence in the quality of patents and a system that enables them to enforce their patents if they are going to continue to invest in research and development—to find the next drug to cure cancer, to create the newest technology to search the internet, or to develop the latest robot to build a car.
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Without stability, uniformity and dependability in the patent system, the market will not be assured of the high quality patents essential to spurring innovation. It was with this idea in mind that we created the Federal Circuit. Before we consolidated the authority for patent decisions into one court, the regional circuit decisions were all over the map. In one Circuit, the validity of patents was rarely affirmed, while in another, patents were rarely declared invalid. Patent litigators became the ultimate forum shoppers because the Circuit you filed in almost always assured your outcome.
The creation of the Federal Circuit in 1982 has been a boon to innovation. Patentees have been able to rely on the Federal Circuit to provide a coherent body of patent law precedent. The judges on the court, who are experts in the very complex field of patent law, have developed a consistent body of rulings that serve as clear guidance to those addressing patent validity and infringement issues. However, after almost two decades, some argue that the consolidation of patent law in one court has had some downside. Critics contend that with a single court handling all appeals in patent cases, patent issues have been taken out of the mainstream of legal thought. Another criticism is that the Federal Circuit's rulings have been more ''pro patent'' then previous courts in that they are statistically more likely to affirm a patentee's rights. So the court, in some ways, may be a hinderance to efforts by Congress and the Patent and Trademark Office to improve patent quality and integrity.
It is with an eye toward addressing these issues that we are delving into the concerns raised by the Holmes decision. The result of the Holmes case is that alternative forums, such as the regional circuit courts or even state courts, can decide patent appeal issues. The re-entry of the Circuits and the entry of state courts into the process of deciding patent law issues appears to interfere with the policies Congress sought to advance when it created the Federal Circuit. In our discussions about this issue, we should keep in mind the goal of maintaining the integrity of the patent system.
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I look forward to hearing from the witnesses to further explain alternatives to resolving the issues raised by the Holmes case. And I hope to work with the Chairman on a possible legislative fix to this problem and other matters within the patent system.
PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
I understand the need and desire for uniformity in patent cases, but I am concerned about proposals that would render the regional circuit courts of appeals virtually meaningless.
We all know that one of the Federal Circuit's primary responsibilities is hearing patent appeals. When we created the court, we did it to ensure uniformity in that area of law. In 2002, however, the Supreme Court held the Federal Circuit did not have jurisdiction where patents were merely a counter-claim, as opposed to one of the plaintiff's original claims.
So now there are proposals to say that any case with patent issues arising at any stage would be appealed directly to the Federal Circuit. I have two major concerns with this idea. First, any party wishing to go to the Federal Circuit instead of a regional appellate court could merely include a frivolous patent argument. The regional circuits would be stripped of any responsibility.
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Second, the proposal could fundamentally alter other areas of law. Cases mainly about antitrust law or contracts could end up in the Federal Circuit by virtue of one patent-related counter-claim. The Federal Circuit would thus become the de facto court of jurisdiction for any business-related lawsuit, and that is not the system we envisioned.
Having said that, I am open to hearing what problems exist within the Federal Circuit and what we can do to allow it to function better.
PREPARED STATEMENT OF JOSHUA D. SARNOFF, ON BEHALF OF THE ELECTRONIC FRONTIER FOUNDATION
On behalf of the Electronic Frontier Foundation (EFF), I thank you for the opportunity to submit this testimony on the recent Supreme Court decision in Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826 (2002), and whether to consolidate appellate jurisdiction over all patent law issues in a single federal Court of Appeals. I teach patent law at the Washington College of Law (WCL), American University, and through the Glushko-Samuelson Intellectual Property Law Clinic at WCL have represented EFF and other organizations as amici curaie in Supreme Court and Federal Circuit patent cases. My testimony is submitted in a personal capacity and on behalf of EFF, and thus does not necessarily reflect the views of American University. In Holmes Group, the Supreme Court held that Congress intended for appellate jurisdiction in patent cases to conform to the ''well pleaded complaint rule,'' and thus did not vest exclusive appellate jurisdiction in the U.S. Court of Appeals for the Federal Circuit (but rather retained jurisdiction in other Courts of Appeals to decide patent law issues raised as counterclaims). There is no constitutional hurdle to legislating a different result. Thus, my comments address only the purported wisdom of vesting exclusive jurisdiction over patent law issues in a single appellate court.
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EFF is a nonprofit, membership-supported civil liberties organization working to protect consumer interests, innovation and free expression in the digital world. EFF and its 15,000 dues-paying members are concerned to preserve the public benefits that result from innovative efforts and social activities that are unencumbered by patent litigation and licensing threats. EFF and its members have an interest in the development of patent laws and of their interpretation by the federal courts in a manner that reflects these concerns. In this regard, EFF believes that judicial competition in developing the patent law is a better long-term strategy than an improperly constrained uniformity.
I have three basic points to make today. First, although uniformity in patent law is desirable, it is desirable only as the product of a process in which the relevant policies are properly analyzed and competing concerns are adequately considered. Vesting exclusive jurisdiction over all patent law issues in a single appellate court may impose uniformity before better interpretations of the law can be developed and may result in inadequate consideration of competing interests. By limiting legal interpretation to a single Court of Appeals, the relevant policy decisions (and alternatives) also are deprived of the chance for empirical validation before a unitary interpretation is imposed. Congress should therefore reject this particular means of achieving uniformity in patent law, and should preserve appellate court competition in developing interpretations of the patent law.
Second, vesting exclusive jurisdiction in a single appellate court may result in a systematic bias that favors patent holders, but more importantly will preclude the most effective remedy for any such bias that does result. There are reasons to be concerned that the Federal Circuit reflects such a ''pro-patentee'' bias, and one of its members has recently admitted as much (at least in regard to willful infringement law). But whether or not the perception of bias is accurate, the potential for bias reinforces the wisdom of the Holmes Group decision. Patent law issues that are improperly decided by the Federal Circuit may be revisited by the regional Circuit Courts of Appeals if and when the issues arise through counterclaims. Congress thus should discourage rather than codify the Federal Circuit's recent efforts to informally aggrandize its jurisdiction so as to become the sole appellate patent court.
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Third, legal interpretation within appellate jurisdictions is path dependent. Such path dependence makes it more difficult to develop alternative interpretations, as well as to reverse erroneous decisions, within that jurisdiction. Litigants are unlikely to raise issues that have already been adversely decided within a jurisdiction. The path dependence of interpretation reinforces the importance of assuring appellate competition to permit development of legal interpretations. Interpretation across appellate jurisdictions follows the persuasive weight of the legal reasoning of the earlier decisions, and litigants remain free to raise issues and judges to develop better interpretations of the law. Vesting exclusive jurisdiction in a single appellate court will not provide a process that promotes the reasoned development of patent law, and will impede or delay efforts to fix the law.
UNIFORMITY AND THE NEED FOR COMPETITIVE DEVELOPMENT OF THE LAW.
As Ralph Waldo Emerson famously stated many years ago, ''A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.'' Although Emerson did not describe how to distinguish between a foolish and a wise consistency, the basic idea can be readily applied to the issue of federal appellate court jurisdiction. We should seek to impose uniform interpretations of the law only if they are the product of well reasoned elaboration. Following this principle, the Supreme Court typically rejects petitions for certiorari unless and until the Circuit Courts of Appeals in a number of cases have elaborated the basic legal principles at issue and have generated a conflict of sufficient importance that an imposed uniformity is deemed to be warranted. Significantly, the Supreme Court frequently lets inter-Circuit conflicts linger, either to determine before intervening the effects over time of the various rules adopted by the Circuit Courts or to allow the so-called problem of lack of uniformity to resolve itself through private action that adjusts to the differing conditions in the various jurisdictions.
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Because patent rights are exclusively federal and have effect throughout the territory of the United States, such inter-Circuit conflicts in patent law are presumptively undesirable. But the question for this Committee is not whether to promote greater uniformity of patent law, but at what cost. Although I support the goal of achieving greater patent law uniformity, I believe that the benefits of achieving greater uniformity by eliminating inter-Circuit conflicts would be outweighed by the costs of eliminating the development of reasoned alternative interpretations of the law. This is not merely because I disagree with many of the interpretive choices of the Federal Circuit (even though the existing jurisprudence of the Federal Circuit provides ample grounds for such a position). Rather, I believe that patent law is sufficiently important that reasoned elaboration of patent law should draw on the collective wisdom of appellate jurists throughout the nation, and that there needs to be an institutional mechanism to counter-balance initial appellate decisions that are wrongly decided or that reflect bad policy choices. I hold this view even though I recognize the highly technical nature of patent litigation and the concomitant need for federal appellate courts to develop specialized expertise.
Congress has enacted the basic requirements of patent law in Title 35 of the United States Code, but has left the vast majority of patent law jurisprudence to judicial elaboration through statutory construction on a common-law development model. Such development benefits from the collective wisdom of more minds and perspectives, rather than fewer, and from the evaluation of prior experiences when applying varying interpretations of the law. Thus, I support the development of greater uniformity in patent law only following the reasoned articulation of competing patent law policies by the various Courts of Appeals. The Supreme Court has been showing a greater interest in patent law issues over the last three years, which is an encouraging development and will help to further develop its expertise. There is no question that the Supreme Court would benefit from the reasoned consideration of patent law issues by additional Circuit Courts of Appeals before seeking to impose uniformity in patent cases. As Justice Stevens noted in concurrence in Holmes Group, ''[a]n occasional conflict in decisions may be useful in identifying questions that merit this Court's attention.'' 535 U.S. at 839.
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Further, consolidating review of all patent law issues within a single Court of Appeals simply may not result in the desired uniformity. Instead of so-called ''circuit-splits,'' the pressure on the Federal Circuit to resolve conflicting policy issues has led to ''panel-splits.'' And unlike in copyright or trademark, the business community cannot adopt different approaches depending on the geographical jurisdiction in which the relevant activities are conducted. For example, in Phillips v. AWH Corp., Nos. 03–1269, 03–1286, the Federal Circuit has recently sought to clarify the applicable rules for claim construction, which are widely perceived to be inconsistently applied and in need of greater specification. I submitted an amicus brief on behalf of EFF and other organizations in the Phillips case, encouraging the Federal Circuit to adopt claim construction rules that impose greater interpretive uniformity on its own panels, the district courts, and society at large. But it is widely feared that the Federal Circuit will not provide the patent bar with sufficient guidance, and that panels of the Federal Circuit will continue to apply the interpretive rules in an unpredictable fashion.
If, however, the Federal Circuit does provide sufficiently clear guidance and panels of its judges scrupulously follow that guidance, there remains the concern that the Federal Circuit in the Phillips case will impose a foolish consistency that outweighs the benefits of achieving uniformity. Although I believe this outcome is much less likely than the failure to provide adequate guidance, given the substantial social costs of the existing lack of predictability, it may be very difficult to reverse such Federal Circuit rules if they prove unworkable or undesirable over time. The rules would need to be changed en banc, stare decisis will exert pressure to stick with the rules, and as discussed below litigants may be reluctant to challenge the clearly established precedent. This result is particularly likely given the Federal Circuit's perceived institutional competence.
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Given these concerns, the Committee should evaluate whether too great an emphasis already has been placed on achieving a constrained uniformity of patent law through the current jurisdictional arrangements, which provide the Federal Circuit with exclusive appellate jurisdiction over all cases that ''arise under'' patent law pursuant to 28 U.S.C. Sections 1295(a)(1) and 1338(a). Even following Holmes Group, other jurisdictions may follow the lead of the Federal Circuit's more developed jurisprudence. As a practical matter, competitors and the public routinely conform their conduct to Federal Circuit law, as they cannot reasonably rely on the low likelihood that patent law issues will arise only as counterclaims in litigation. This deprives patent law of the ability to obtain empirical validation that the interpretive choices of the Federal Circuit impose good policies, as there is no set of alternative interpretations with which to compare the results. Similarly, it deprives patent law of the development of those alternatives in the first instance.
Further, even without legislative authority to do so, the Federal Circuit has been seeking to arrogate to itself the role of establishing uniform patent law interpretations in all instances. For example, in Unitherm Food Systems, Inc. v. Swift-Eckrich, Inc., 375 F.3d 1341, 1355 n.3 (Fed. Cir. 2004), the Federal Circuit recently encouraged other federal Appellate Courts to defer to the Federal Circuit's choice of law principles when determining when a patentee's behavior strips it of antitrust immunity, removing any questions of patent law from (and leaving only antitrust law to) the regional Circuit Courts of Appeals. The Federal Circuit characterized its choice of law rule as ''a sensible approach to preserving the uniformity of patent law without regard to the appellate forum.'' But this rule is sensible only if the desired outcome is to assure that Federal Circuit law (or any single Circuit's law) prevails on patent law issues. This concrete example provides a good illustration of why such constrained uniformity may not be desirable. The Federal Circuit simply may not have the best insight into the proper balance between the antitrust law and patent law, and there are reasons to think that obtaining the insights of distinguished jurists of antitrust law and economic theory in other Circuits (e.g., the ''Chicago-School'' jurists of the 7th Circuit) would be beneficial.
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BIAS AND THE NEED FOR COMPETITIVE DEVELOPMENT AS A REMEDY.
For many years, the Federal Circuit has been criticized for being biased in favor of patentees, particularly in its early years.(see footnote 5) When it was created, the Federal Circuit was vested with jurisdiction over appeals from other administrative and specialty courts so as to reduce the likelihood of becoming too narrowly specialized and of developing an institutional bias.(see footnote 6) Although I share these concerns about bias without here putting my concerns to the proof, it is more important to relate what one of the Federal Circuit's own judges has said and to focus on providing a remedy against the potential for such bias. Again, as Justice Stevens noted when concurring in Holmes Group, ''occasional decisions by courts with broader jurisdiction will provide an antidote to the risk that the specialized court may develop an institutional bias.'' 535 U.S. at 839.
In the recent case of Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004) (en banc), the Federal Circuit reconsidered en banc its prior rules for willful patent infringement law. The Court of Appeals apparently took the case because of the clamor from the bar that the law was out of touch with existing practices and because the Federal Circuit's earlier rules unduly penalized alleged infringers and encouraged disingenuous legal opinions. What is significant about this case is the self-perception of the Federal Circuit's role that was articulated during oral argument by Judge Pauline Newman, who is likely the most respected living patent jurist. Judge Newman stated from the bench words to the effect that the Federal Circuit had self-consciously adopted its rules on willful infringement because the public was not paying enough attention to patent rights in the early 1980s, that times have since changed and patent rights are now better respected, and thus that the earlier rules are no longer needed. It would be difficult to find a clearer statement that the Federal Circuit views its role as protecting the interests of patentees. Further, it took the Court over twenty years to reach an en banc decision to reverse the excesses of its earlier rules, and then did so only because it thought that circumstances had changed and thus that its earlier rules were now unnecessary to protect patentees.
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Although Judge Newman's statement was limited to the particular context of willful infringement law, it raises serious concerns regarding institutional bias on the Federal Circuit. Further consolidating appellate jurisdiction over patent law in the Federal Circuit would reinforce any institutional bias that exists and would preclude any meaningful remedy for such bias. The most significant remedy for bias is to assure judicial competition in the development of patent law, so that the Federal Circuit does not develop exclusive competence and an unwarranted monopoly of legal interpretation. For example, the Federal Circuit decided Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), in which ''a century of law under the [patent] exhaustion doctrine was abruptly swept away.''(see footnote 7) So long as other appellate jurisdictions are competent under the Holmes Group to decide patent law issues by developing their own circuit patent law, the potential remains to achieve a more reasoned and balanced approach. EFF thus has submitted an amicus brief in the Ninth Circuit Court of Appeals in Arizona Cartridge Remanufacturers Assoc., Inc. v. Lexmark, No. 03–16987, seeking to restore the patent exhaustion law that the Federal Circuit unilaterally removed. But given the current jurisdictional arrangements, it has taken over a decade to get to another circuit to review this issue.
PATH DEPENDENCE REINFORCES THE NEED FOR COMPETITIVE DEVELOPMENT.
Legal interpretation is path dependent. At the most basic level, the principle of stare decisis requires some reason to adopt a different interpretation or principal of law in subsequent cases. At the level of institutional design, decisions of an initial panel of an appellate court are supposed to be binding on subsequent panels of the same court, unless and until the entire court revisits and revises the issue en banc. In contrast, initial panel decisions of one appellate court are not binding on the panels of other appellate jurisdictions, which are then free to develop their own interpretations or principles guided by the strength (or lack thereof) of the reasoning of the earlier decisions from the initial jurisdictions. This means that initial decisions within any particular appellate jurisdiction attain much greater significance in determining what rules gets adopted and how difficult it is to revise those rules. In contrast, decisions among multiple appellate jurisdictions develop based on the competitive strength of judicial reasoning. The latter form of developing the law is much to be preferred.
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The recent case of Merck KGaA v. Integra LifeSciences I, Ltd., 331 F.3d 860 (Fed. Cir. 2003), further demonstrates the difficulty of correcting bad initial decisions of a single appellate court, even when potentially subject to review in the Supreme Court. Although Judge Newman issued a blistering dissent that excoriated her colleagues for severely constraining the scope of the historic experimental use exception to patent infringement and would have held that the exception applied to the conduct at issue, see id. at 873–75, the Petitioner in that case studiously refused to assert that the exception applied to the conduct at issue on appeal. As noted by various law professors as amici in the Supreme Court, litigants are extremely reluctant to challenge current Federal Circuit precedents (or those of any specific appellate court) for fear of being sanctioned or of undermining the perceived strength of other challenges they might make. See, e.g., Brief of Intellectual Property Professors as Amici Curiae in Support of Neither Party. Merck v. Integra, No. 03–1237 (citing Allen Eng'g Corp. v. Bartell Indus., 299 F.3d 1336, 1356 (Fed. Cir. 2002)).
I have submitted on behalf of EFF and other organizations an amicus curiae brief urging the Supreme Court to reach the experimental use issue in the Merck case, notwithstanding Petitioner's refusal to rely on it. In this way, the Court might revise the Federal Circuit's constricted interpretations of this critically important patent law doctrine, which is causing adverse effects. But the Supreme Court may not do so in this case, and may never be presented with a case that clearly presents the issue. Correction of the law then would be denied or delayed unless and until Congress codifies a revision. For this reason, the National Academy of Sciences, the American Intellectual Property Law Association, and the American Bar Association have all proposed that Congress act to reverse the Federal Circuit's erroneous interpretations of this patent law doctrine.
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The path dependence of legal interpretation reinforces the need to assure that exclusive jurisdiction over patent law issues is not vested in a single appellate court. As demonstrated above in regard to willful infringement, exhaustion, and experimental use issues, the effective monopoly of Federal Circuit jurisdiction over patent law interpretation has delayed and may prevent correction of erroneous interpretations of patent law. Congress should seek to encourage such correction by making it easier to revise judge-made patent law interpretive rules over time. Further consolidating patent law interpretive jurisdiction by vesting it exclusively in a single Court of Appeals will not accomplish this beneficial objective. To the extent that this corrective function can more readily be accomplished by delegating substantive lawmaking authority to the U.S. Patent and Trademark Office, which is subject to political processes, Congress should consider that alternative (although it would simultaneously need to impose substantial measures to prevent agency capture and to correct any institutional bias within the PTO(see footnote 8)).
CONCLUSION
Congress should seek a wise, not a foolish, consistency in the development of patent law by the federal Courts of Appeals. There is no need to revise the rule of Holmes Group by vesting exclusive jurisdiction over patent law issues in the Federal Circuit, and doing so is likely to cause affirmative damage by precluding the development of reasoned alternative interpretations of patent law. Given the potential for institutional bias on the Federal Circuit, moreover, Congress needs to preserve some remedy that permits alternative interpretations of the law to be developed. Congress also may wish to consider whether to terminate its twenty-year experiment with vesting ''arising under'' jurisdiction for patent law exclusively in a single Court of Appeals. Finally, Congress should seek to minimize the path dependence of patent law, so that interpretive errors are more easily corrected and so that the law can more readily respond to changed circumstances.
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I thank you again for the opportunity to submit this testimony, and I would be happy to provide additional testimony on this issue and on other patent law reform issues that the Committee may address, such as the need for legislation to codify a broader experimental use exception if the Supreme Court does not revise the Federal Circuit's improper interpretations.
LETTER FROM JAMES B. KOBAK, JR., TO THE SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY
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LETTER TO THE HONORABLE LAMAR SMITH, AND THE HONORABLE HOWARD L. BERMAN FROM MICHAEL K. KIRK, EXECUTIVE DIRECTOR, AMERICAN INTELLECTUAL PROPERTY LAW ASSOCATION (AIPLA)
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STATUS REPORT ON DEVELOPMENTS RELATING TO THE JURISDICTION OF THE UNITED SATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT SUBMITTED BY THE HOLMES GROUP TASK FORCE, INTELLECTUAL PROPERTY COMMITTEE, SECTION OF ANTITRUST LAW, AMERICAN BAR ASSOCIATION, AND A REPORT ON THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL COURT, SECTION OF ANTITRUST LAW, AMERICAN BAR ASSOCIATION
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LETTER FROM MEREDITH MARTIN ADDY, ESQ., BRINKS HOFER GILSON & LIONE TO BLAINE MERRITT, ESQ., CHIEF COUNSEL, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY, COMMITTEE ON THE JUDICIARY, REGARDING CORRECTIONS TO WRITTEN STATEMENT OF MARCH 17, 2005
(Footnote 1 return)
The following is a brief description of the members of the committee. Don Dunner is a partner at Finnegan, Henderson, Farabow, Garrett & Dunner L.L.P. and served as Chairman of the Advisory Committee to the Federal Circuit for the first ten years of the Court's existence and participated in the drafting of the Court's rules (1982–92). Mark Lemley is the William H. Neukom Professor of Law at Stanford Law School where he teaches intellectual property, computer and Internet law, patent law, and antitrust. Molly Mosley-Goren is of counsel at Fish & Richardson P.C., and author of Jurisdictional Gerrymandering? Responding to Holmes Group v. Vornado Air Circulation Systems, 36 J. Marshall L. Rev. 1 (2002). Joseph Re, Treasurer of the Federal Circuit Bar Association, is a partner at Knobbe, Martens, Olson & Bear, L.L.P. He clerked for the Honorable Howard T. Markey, Chief Judge of the U.S. Court of Appeals for the Federal Circuit. Steve Carlson is a practicing patent litigation attorney in Weil, Gotshal & Manges L.L.P.'s Silicon Valley Office. He clerked for the Honorable Paul R. Michel, Chief Judge of the U.S. Court of Appeals for the Federal Circuit. I chaired the committee.
(Footnote 2 return)
A copy of this report is submitted with this testimony.
(Footnote 3 return)
Senate Report at 19–20 (''Federal District judges are encouraged to use their authority under Federal Rules of Civil Procedure, see Rules 13(i), 16, 20(b), 42(b), 54(b), to ensure the integrity of the federal court of appeals by separating final decisions on claims involving substantial antitrust issues from trivial patent claims, counterclaims, cross-claims, or third party claims raised to manipulate appellate jurisdiction. . . . If, for example, a patent claim is manipulatively joined to an antitrust action but severed or dismissed before final decision of the antitrust claim, jurisdiction over the appeal should not be changed by this Act but should rest with the regional court of appeals.'') (emphasis supplied).
(Footnote 4 return)
Some have implied that it might be desirable to keep the status quo so that the antitrust issues that necessarily have patent issues embedded in them will be occasionally resolved by the federal regional circuit courts of appeal or state courts. This makes no sense for a host of reasons. First, the Federal Circuit grants fair treatment to antitrust issues. Second, if the Federal Circuit were not doing so, obviously the Supreme Court would quickly step in and remedy the situation. The Supreme Court has not shown itself to be shy when it comes to the Federal Circuit or any other court. Third, having cases only irregularly appealed to the eleven regional circuits is a poor way to develop a coherent body of precedent to compete with Federal Circuit law. Fourth, if a regional circuit did create materially different rules than the Federal Circuit, because jurisdiction would turn on which pleading contained the patent claim, unseemly races to the Court would necessarily follow. The Federal Circuit was created precisely to avoid ''expensive, time-consuming and unseemly forum-shopping.'' House Report at 20. Fifth, patent law more broadly would suffer because there would be no solution to the Holmes Group problems identified earlier in my testimony.
(Footnote 5 return)
See, e.g., Mark D. Janis, Reforming Patent Validity Litigation: The Dubious Preponderance, 19 Berkeley Tech. L.J. 923, 928 (2004); Allan N. Litmann, Restoring the Balance of Our Patent System, 37 IDEA 545, 552–70 (1997); Lawrence M. Sung, Intellectual Property Protection or Protectionism? Declaratory Judgement Use by Patent Owners Against Prospective Infringers, 42 Am. U. L. Rev. 239, 248 n.47 (1992); Rochelle C. Dreyfuss, The Federal Circuit: A Case Study in Specialized Courts, 64 N.Y.U. L. Rev. 1, 26–30 (1989); Eric Schmitt, Judicial Shift in Patent Cases, New York Times, Jan. 21, 1986, at D2.
(Footnote 6 return)
See, e.g., William H. Burgess, Simplicity at the Cost of Clarity: Appellate Review of Claim Construction and the Failed Promise of Cybor, 153 U. Pa. L. Rev. 763, 764 (2004).
(Footnote 7 return)
Richard H. Stern, Post-Sale Patent Restrictions After Mallinckrodt: An Idea in Search of a Definition, 5 Alb. L.J. & Sci & Tech. 1, 6 (1994).
(Footnote 8 return)
See, e.g., Orin S. Kerr, Rethinking Patent Law in the Administrative State, 42 Wm. & Mary L. Rev. 127, 188 (2000); Craig A. Nard, Deference, Defiance, and the Useful Arts, 56 Ohio St. L.J. 1415, 1502–03 (1995).