As patent reform looks increasingly likely, the retail industry is beginning to look at how patent reform will impact the retail supply chain. Earlier this week, the National Retail Foundation (“NRF”) wrote to Congress supporting Section 18 of H.R. 1249 which creates a post-grant, adversary proceeding for challenging the validity of patents at the Patent Office. The NRF advocates for Section 18 as a cost-effective alternative to costly patent litigation. While post-grant review (like inter partes reexams) would likely be cheaper than district court patent litigation, Section 18 has significant draw backs.

Section 18 post-grant review is limited to “covered business method patents” defined as patent with claims for “a method or corresponding apparatus for performing data processing or other operations used in the practice, administration or management of a financial product or service, except that the term does not include patents for technological inventions.”  While banking patents are the clear focus of Section 18, it will also likely cover retail industry business methods to the extent they involve financial transactions.  This could include, for example, internet shopping cart technologies or credit/debit card reader devices.  But it will likely not cover the many internet/software methods focused upon the use of databases or mapping software.  In order to provide the retail industry broad protections, Section 18 will need to be broadened significantly.  Additionally, to have standing to institute a Section 18 patent review, the movant must have been sued.  So, entities that have received a demand letter have to wait until they are sued to use Section 18.

And finally, Section 18 post-grant review suffers from the same weaknesses as the existing reexamination system:

• The movant loses the ability to assert the prior art used in the review in the district court.  And the movant’s co-defendants face a risk of losing their rights to assert the prior art also.
• Once the movant initiates post-grant review there is no way to stop the review, which can limit movant’s ability to settle its case should circumstances or business needs change.
• District courts are not required to stay their cases pending review.  Section 18, however, does suggest that courts consider whether fact discovery is complete and whether a trial date has been set.  That suggests a higher standard for denying a stay pending post-grant review than for current reexams.  But Section 18 does not require a stay or change the discretionary standard.

While Section 18 post-grant review would be an exciting new tool in the retail supply chain’s patent defense toolbox, it is at best a half-measure.  In order for it to be truly effective, post-grant review needs to be broader.