<DOC>
[109th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:20019.wais]
HOLMES GROUP, THE FEDERAL CIRCUIT, AND THE STATE OF PATENT APPEALS
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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
Available via the World Wide Web: http://www.house.gov/judiciary
______
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COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
LAMAR SMITH, Texas RICK BOUCHER, Virginia
ELTON GALLEGLY, California JERROLD NADLER, New York
BOB GOODLATTE, Virginia ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
DANIEL E. LUNGREN, California ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah MAXINE WATERS, California
SPENCER BACHUS, Alabama MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana ROBERT WEXLER, Florida
MARK GREEN, Wisconsin ANTHONY D. WEINER, New York
RIC KELLER, Florida ADAM B. SCHIFF, California
DARRELL ISSA, California LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona ADAM SMITH, Washington
MIKE PENCE, Indiana CHRIS VAN HOLLEN, Maryland
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas
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 HOWARD L. BERMAN, California
ELTON GALLEGLY, California JOHN CONYERS, Jr., Michigan
BOB GOODLATTE, Virginia RICK BOUCHER, Virginia
WILLIAM L. JENKINS, Tennessee ZOE LOFGREN, California
SPENCER BACHUS, Alabama MAXINE WATERS, California
BOB INGLIS, South Carolina MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida ROBERT WEXLER, Florida
DARRELL ISSA, California ANTHONY D. WEINER, New York
CHRIS CANNON, Utah ADAM B. SCHIFF, California
MIKE PENCE, Indiana LINDA T. SANCHEZ, California
J. RANDY FORBES, Virginia
Blaine Merritt, Chief Counsel
David Whitney, Counsel
Joe Keeley, Counsel
Alec French, Minority Counsel
C O N T E N T S
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MARCH 17, 2005
OPENING STATEMENT
Page
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Chairman, Subcommittee on Courts, the
Internet, and Intellectual Property............................ 1
WITNESSES
Edward R. Reines, Esq., Weil, Gotshal & Manges, LLP
Oral Testimony................................................. 3
Prepared Statement............................................. 6
Mr. Arthur D. Hellman, Professor of Law, University of Pittsburgh
School of Law
Oral Testimony................................................. 33
Prepared Statement............................................. 35
Mr. Sanjay Prasad, Chief Patent Counsel, Oracle Corporation
Oral Testimony................................................. 61
Prepared Statement............................................. 62
Meredith Martin Addy, Esq., Brinks, Hofer, Gilson & Lione
Oral Testimony................................................. 65
Prepared Statement............................................. 68
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.......................................... 89
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan.......... 90
Prepared Statement of Joshua D. Sarnoff, on behalf of the
Electronic Frontier Foundation................................. 90
Letter from James B. Kobak, Jr., to the Subcommittee on Courts,
the Internet, and Intellectual Property........................ 95
Letter to the Honorable Lamar Smith, and the Honorable Howard L.
Berman from Michael K. Kirk, Executive Director, American
Intellectual Property Law Assocation (AIPLA)................... 99
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.................................................... 102
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................................................. 234
HOLMES GROUP, THE FEDERAL CIRCUIT, AND THE STATE OF PATENT APPEALS
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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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.\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).\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.
---------------------------------------------------------------------------
\1\ 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.
\2\ A copy of this report is submitted with this testimony.
---------------------------------------------------------------------------
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:
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. Sec. 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.
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.
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:
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. Sec. 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. Sec. 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.
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 Sec. 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:
<bullet> ``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.
<bullet> ``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.
<bullet> ``[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.
<bullet> ``[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.
<bullet> ``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.
<bullet> ``[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.
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. Sec. 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.
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).
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.
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:
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.'').
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. Sec. 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:
<bullet> It minimizes additions and deletions to the current
statutory language and borrows existing phraseology from
related statutes and rules.
<bullet> 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.
<bullet> It exploits the fact that 28 U.S.C. Sec. 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.
<bullet> It ensures that federal courts shall have exclusive
jurisdiction over all claims for relief arising under the
patent laws.
<bullet> 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. Sec. 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.
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.
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. Sec. 1295(a)(1)), and his rewrite of the federal exclusivity
provision (28 U.S.C. Sec. 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. Sec. 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. Sec. 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.
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.\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.\4\
---------------------------------------------------------------------------
\3\ 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).
\4\ 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.
---------------------------------------------------------------------------
C. There Is No Need For Changes To Other Aspects Of The Federal
Circuit's Patent Appeal Jurisdiction
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].'').
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. Sec. 1338(a), and therefore Sec. 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. Sec. 146
and although the Sec. 146 issue was not appealed, this appeal of the
other issues was correctly taken to the Federal Circuit.'').
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.
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.
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. Sec. 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.
ATTACHMENT
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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.
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.
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.
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.
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.''
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Thank you, Mr. Chairman.
[The prepared statement of Ms. Addy follows:]
Prepared Statement of Meredith Martin Addy
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
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.
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.
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?
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.\1\ 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.\2\ 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.
---------------------------------------------------------------------------
\1\ 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.
\2\ 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).
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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.
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.'' \3\ 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.
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\3\ 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).
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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.
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.
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 \4\).
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\4\ 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).
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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.
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
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