GATT Giveth and GATT Taketh Away


The GATT amendments to the U.S. patent statute, Title 35, U.S. Code, impose a subtle effect on potential damages recovery and injunctions in future U.S. patent infringement litigation. It is well-recognized that the term of a U.S. patent filed on June 8, 1955 will have its patent term limited to twenty years from the earliest U.S. filing date on which it is based. For U.S. patents derived from applications filed before June 8, 1995 the patent term may now be the longer period of time from either twenty years from the earliest claimed filing date or seventeen years from the date of its grant. What is less clear is that the latter patent may not enjoy the typical rights of injunctive relief and recovery of damages for any resulting extended term of such patent.

Since the 1952 U.S. Patent Act (with its subsequent amendments), remuneration for patent infringement has been provided by Title 35, Sections 183 (an injunction against further infringement), 184 (damages not less than a reasonable royalty, possibly trebled), and 185 (possible attorney fees recovery in an "exceptional case"). Will that always be the law after GATT?

The question derives, in part, from an apparent inconsistency in the provisions of the adopting statute, the Uruguay Round Agreements Act ("URAA") and the actual language of the amendment of Section 154(c) of Title 35. At the very least, the two provisions do not quite run in double harness.

In pertinent part, Section 534(b)(1) of the URAA provides,

(b) PATENT APPLICATIONS. --

(1) IN GENERAL--

... the amendments made by section 532 take effect on [June 8, 1995] and shall apply to all patent applications filed in the United States on or after [June 8, 1995].

By contrast, Section 154(c) of Title 35, as now amended by the above section of the URAA, reads as follows--

(c) CONTINUATION. --

(1) DETERMINATION. -- The term of a patent that is in force on or that results from an application filed before [June 8, 1995] shall be the greater of the 20-year term as provided in subsection (a), or 17 years from grant, subject to any terminal disclaimers.

(2) REMEDIES. -- The remedies of sections 283 [damages], 284 [injunction], and 285 [attorneys fees] of this title shall not apply to Acts which --

(A) were commenced or for which substantial investment was made before [June 8, 1995]; and

(B) became infringing by reason of paragraph (1).

(3) REMUNERATION. -- The acts referred to in paragraph (2) may be continued only upon the payment of an equitable remuneration to the patentee that is determined in an action brought under chapter 28 and chapter 29 (other than those provisions excluded by paragraph (2)) of this title.

Thus, while the language of the URAA suggests that it applies only to patents granted on applications filed on or after June 8, 1955, Section 154(c) is clearly intended also to apply to already-granted patents which are in force on that date regardless of the application filing date. This language of Section 154(c) must be taken as controlling, for otherwise the various remedial provisions of this section would be meaningless. The intent of Section 154(c) is to provide, for applications pending on June 7, 1995 and for then granted patents, the benefit of the new twenty-year rule while also protecting the seventeen year patent term (if it is longer) which existed under the pre-GATT Section 154 provisions.

The provisions of new Section 154(c) appear to have the effect of introducing the possibility of a form of compulsory license for the first time in U.S. patent statutes. The effect is interesting to consider in regard to several possible scenarios.

If, for instance, there is "in force" as of June 8, 1995, a U.S. patent which was granted on, say, December 1, 1978, and which would normally have expired seventeen years later, on December 1, 1995, but which derives from an application which had been filed on September 1, 1977, its new expiration date will be September 1, of 1997, i.e., twenty years from the filing date. The patent has received an additional life of twenty-one months. However, the patent owner's rights for that additional twenty-one month period are now somewhat less than "exclusionary" and are severely restricted to "equitable remuneration" under Section 154(c)(3) with respect to any "infringer" who prior to June 8, 1995, had commenced or had made a "substantial investment" to prepare for an act of infringement (perhaps in anticipation of the patent's pre-Gatt expiration on December 1, 1995). An injunction under Section 283, damages (including trebling of damages) under Section 284, and possible recovery of attorneys fees under Section 285 are specifically excluded from the patent owner's remedies for the extended period of patent lifetime.

For instance, preparation for and investment in the construction of a manufacturing plant or for the sale or importation of a pharmaceutical product could well have been underway in late 1994 or early 1995. The "infringing" operation of such a plant or the sale of the product will remain subject to damages recovery or injunctive relief for the period up to December 1, 1995. But, for any such infringing acts subsequent to December 1, 1995 and through September 1, 1997, the only relief the patent owner may secure is "equitable remuneration." This is so because the acts committed during that period "became infringing" only as a result of Section 154(c)(1). As a practical matter, these circumstances may also make it difficult to secure a preliminary injunction against the infringing acts if they are now commenced prior to the "normal" patent expiration date, i.e. during the relatively short period between June 8 and December 1, 1995. The patent owner may have considerable difficulty of showing the required "irreparable harm" from infringement for a period of just a few months when the statute clearly permit the acts to continue immediately thereafter.

Next, consider a patent granted on Decmber 1, 1980, on an application filed September 1, 1978. The pre-GATT seventeen-year expiration date is December 1, 1997, but now the twenty-year expiration date is September 1, 1998, nine months later. Presumably, the patent owner could obtain an injunction under Section 283 and full damages under Section 284 for all infringing acts occurring prior to December 1, 2007. However, if the infringer had commenced or made substantial investment prior to June 8, 1995 for those infringing acts, the patent owner would have no recovery for any infringing acts between December 1, 1997 and September 1, 1998 except equitable remuneration. On the other hand, if there was no commencement of infringing acts or substantial investment therefor prior to June 8, 1995, the patent owner's recovery will still reach the full extent of Sections 283, 284 and 285 for the full term of the patent to September 1, 1998.

Query: What will be the burden of proof to show that investments made prior to June 8, 1995 were made in contemplation of continuing the infringing "Acts" in the year 1998? What magnitude of the pre-June 8, 1995 acts will limit the patent owner to "equitable remuneration." Is a "token" sale sufficient? Does the phrase (in Section 154(c)), "The acts referred to in paragraph (2)," limit "equitable remuneration" to future acts only of the same nature and scope as those which had been performed prior to June 8, 1995, or can the would-be infringer expand the sales or manufacturing activities free from a fear of injunction?

Perhaps even more intriguing is the question of whether a patent which retains a seventeen-year term under Section 154(c)(1), will for the entirety of its term be subject to the limitations of Section 154(c)(3). Suppose the earliest application filing date clamed in the patent is July 1, 1974 and the patent is granted July 2, 1995. Twenty years from July 1, 1974 is July 1, 1994. Absent extraordinary circumstances, the patent grant will have occurred later than twenty years from the earliest filing date. Consequently, the seventeen-year term from the date of grant is the longer term for the patent under Section 154(c)(1). Consequently, it can be argued that any and all later, post-grant, acts of infringement would become infringing because of that section. If those later acts are the result of either the actual commencement thereof or for which substantial investment was made prior to June 8, 1995, the patent owner's sole remedy would then be equitable remuneration for the entire seventeen year term of this patent with no possibility of injunctive relief or of other damages or attorney's fees recovery. By the same token, that patent could then be practiced subject only to the equitable payment. In effect a compulsory license could be demanded by the infringer.

This reasoning appears to be supported by the fact that the first paragraph of Section 154, which provided for the traditional U.S. patent term of seventeen years from the date of grant, has also been amended to delete its former provision of the seventeen-year patent term. This being so, it would appear that in the above illustration the infringing acts during the seventeen year patent term became infringing solely by reason of Section 154(c)(1). This is a major difference between the URAA which limited its effect only to those U.S. patent applications filed on or after June 8, 1995 and the amendment to Section 154.

A further anomaly results from the fact that Section 154(c)(1) only makes reference to "subsection (a)" of Section 154. Consequently, all provisions of "Remedies" or of "Remuneration" under subsection (c) are tied only to that subsection (a). There is, however, also subsection (b) which is composed of two subparagraphs. These provide for extensions of the patent term of up to five years for, respectively, delays in grant due to secrecy or an interference and for appeal proceedings. But, there is no reference to or contemplation of or provision for any such five-year patent term extensions within the language of Section 154(c) which is confined, at most, to subsection (a).

As a result, the possibility does exist that a patent owner's rights may (1) for an initial time include all the remedies of Sections 183, 184 and 185; then (2) go through a period wherein those remedies are excluded and the patent owner is confined to "equitable remuneration"; followed, finally, by (3) a terminal, extended patent term under subsection (b) in which all of the Section 183, 184 and 185 remedies are once again available. An extraordinary result, indeed, but the clear result of the plain wording of the respective statutory paragraphs.

What does seem clear is that "equitable remuneration" will be adjudicated by the court and will not be a jury question since a right to trial by jury in the U.S. does not exist for "equitable" issues.

What will be the measure of "equitable remuneration"? The term is not expressly defined in the statute. Guidelines may, however, be found in existing jurisprudence under Sections 252 and 307(b) which deal with "intervening rights" for reissue and reexamined patents. To the extent that prior U.S. case law had determined what would be proper terms "equitable for the protection of investments made or business commenced" under those sections, the same reasoning may apply to Section 154(c). Despite the exclusion of "remedies" under Section 284, a "reasonable royalty" may still be a dominating guideline for the "equitable" determination. One can also speculate that the "equitable remuneration" determination will be affected by the length of the period between the "old" seventeen-year expiration date and the "new" twenty-year-from-filing extended expiration date.

Caselaw

Previous U.S. caselaw has, however, come down relatively hard on would-be infringers who sought to "jump the gun" on patent expiration. The Federal Circuit held in Paper Converting Machine Co. v. Magna-Graphics Corp., 223 U.S.P.Q. 591 (Fed. Cir. 1984) that, unlike the "horror" of giving a U.S. patent extraterritorial protection, "there is no corresponding horror of a valid United States patent giving economic benefits not cut off entirely on patent expiration." 223 U.S.P.Q. at 595. There, the Federal Circuit indicated that to permit competitors to assemble and test a patented invention before complete expiration of a patent term would render the last year of the patent worthless, and would "emasculate the congressional intent to prevent the making of a patented item during the patent's full term of 17 years." 223 U.S.P.Q. at 597. Thus, in that case, (involving contributory infringement), the court further held,

Where, as here, significant, unpatented assemblies of elements are tested during the patent term, enabling the infringer to deliver the patented combination [merely] in parts to the buyer, without testing the entire combination together as was the infringer's usual practice, testing the assemblies can be held to be in essence testing the patented combination and, hence, infringement.

223 U.S.P.Q. at 597. See also, Amsted Industries Inc. v. National Castings Inc. , 16 U.S.P.Q.2d 1737 (N.D.Ill. 1990) and BIC Leisure Products Inc. v. Windsurfing International Inc., 9 U.S.P.Q.2d 1152 (S.D.N.Y. 1988). Both of these cases concluded that the pre-patent expiration activities permitted "accelerated entry," or, in the case of Windsurfing, "re-entry," into the market, with an enhanced post-patent-expiration acquisition of market share which would not have occurred but for the earlier infringing acts. Therefore, even though the consequent loss to the patent owner occurred in the period following patent expiration, such loss was deemed to be legally cognizable "damages" because it could be attributed to the earlier, pre-expiration, infringing acts.

Future Application

Whether the reasoning of those cases will now be applied to determinations under Section 154(c) is unclear. Is there any significant difference in that the "infringing" activities (which qualify for the "equitable remuneration" treatment) are clearly to be permitted in the extended patent lifetime (subject only to the equitable payments to the patent owner). Consequently, the patent owner is necessarily exposed to competitive activity after the seventeen year period. But, was that not also true in the previous cases? Should there now still be a "damages" award for the resulting early entry or premature capture of market share from the infringing activities prior to the extended patent term?

For design patents, since 1952 a separate statutory section, Section 289, has provided for the separate remedy of recovery of the infringer's profits (and "not less than $250") for each act of infringement. There is no exception as to this statutory provision in amended Section 154(c)(2) and it will presumably remain in full effect for any extended term of a design patent regardless of when the infringing acts were commenced.