While there have been various changes to U.S. patent law in the years since the last significant revamping of the U.S. patent system in 1952, not any have been as sweeping in scope as the changes that recently became law through the Leahy-Smith America Invents Act (H.R. 1249). With campaign-style fanfare, President Obama signed the new law into effect on September 16, 2011 and, in so doing, placed U.S. patent law in greater alignment with foreign patent law, changed the manner in which patents are prosecuted and litigated in the U.S., and invited constitutional challenges to the validity of certain aspects of the new law. This article provides an overview of the more salient provisions of the new law, some of which went into effect immediately, others of which will phase in over time.
The Race To The USPTO Is On – We Have Moved To A First-Inventor-To-File System
Since the first U.S. Patent Act of 1790, the U.S. patent system, unlike most foreign systems, gave priority to the first to invent an invention, even when that inventor was not the first to file a patent application in the U.S. Patent and Trademark Office (USPTO). One of the most significant provisions of the new law, which will take effect on March 16, 2013, replaces this system with a first-inventor-to-file system (i.e., priority goes to the first inventor to apply for a patent), thereby aligning the U.S. patent system with foreign systems. Importantly, this means that it is now critical to file U.S. patent applications as early as possible. This also means that an inventor will no longer be able to rely on the date of invention to overcome a prior art reference (e.g., a prior patent or other publicly accessible publication that teaches or suggests the inventor’s invention so as to disqualify the inventor’s patent application for lack of novelty or as obvious). Furthermore, this marks the end of the old USPTO interference proceeding, the purpose of which was to determine who invented first, and instead provides for a new “derivation proceeding” limited to determining whether an invention was derived or stolen from a patent applicant who was not the first to file.
Concomitantly, the new law’s broadened definition of novelty-defeating prior art to include inventions that were patented, described in a printed publication, in public use, on sale or “otherwise available to the public” anywhere in the world before the patent application filing date eliminates and modifies aspects of the one-year grace period afforded under the old law for filing a patent application after a public disclosure, use or commercial activity. An inventor may now obtain a grace period for only the inventor’s own “disclosure” occurring one year or less before the application filing date. It is noted that the ambiguous statutory catch-all language “otherwise available to the public” and the vague term “disclosure” both invite clarification by the courts.
Generally speaking, the shift to a first-inventor-to-file system may be expected to put added pressure on companies that do not already have the early filing mindset from experience prosecuting patent applications outside of the U.S. That is, if a company has an invention in the pipeline, it might be necessary to file multiple patent applications over time as research and development activities continue for fear that a competitor will beat it in the race to the USPTO. Under the old patent law regime, that same company could have quietly developed the invention and then filed a U.S. patent application in due course.
Critics of the new law predict that the change to a first-inventor-to-file system and the alteration of the old one-year grace period will inhibit access to angel and venture capital and, as a result, slow the rate of formation of startup companies in the U.S. that rely on patents to protect against competition. Whether or not this will actually happen remains to be seen. Generally, the argument is that many startups will face a “Catch-22” situation, in that they require capital, strategic partners and time for research and development before actively pursuing patent protection, yet without early and perhaps multiple patent applications in place they are hard-pressed to attract the necessary capital and partners. As to the newly limited one-year grace period in particular, given the ambiguity of what constitutes a “disclosure,” startups would be well-advised to be circumspect when they discuss their inventions to raise capital.
USPTO Fees Have Gone Up; Applicants Can Request Prioritized Examination
Coinciding with the switch to a first-inventor-to-file system that encourages early patent application filings, the USPTO has already raised its filing fees and many other fees by 15 percent. Indeed, the new law gives the USPTO the authority to set/adjust fees going forward for several years.
Also, the USPTO is now authorized to offer prioritized examination of patent applications (for developments that are important to the national economy) to those applicants who are willing and able to pay the requisite premium fee. How the USPTO will actually implement prioritized examination is not set out in the new law and, as such, remains to be determined by the USPTO.
On the topic of fees, Congress has a history of diverting USPTO revenue to other purposes, leaving the USPTO chronically underfunded. This activity has been blamed for causing delayed examination of patent applications and stymieing innovation. While the new law falls short of guaranteeing that the USPTO will be able to keep all the substantial revenue it generates through fees, it provides for the creation of a fund to receive USPTO fees, necessitating that the USPTO petition Congress to draw from the fund. Only time will tell if the USPTO will actually receive the full funding necessary to obtain the additional resources it needs to meet the lofty goals and requirements of the new law.
There Are New Administrative Mechanisms For Challenging A Patent
Under the old patent law, a third party could challenge the validity of an issued patent outside of a courtroom through an administrative USPTO reexamination proceeding, which could be ex-parte (without third party involvement) or inter partes (with continued third party involvement). While ex-parte proceedings remain available, the new law introduces a new third party patent opposition procedure, known as “post-grant review,” and a revised inter partes review proceeding. Effective September 16, 2012 (for any patent issued before, on or after that date), a third party may petition the USPTO to conduct a post-grant review based on numerous invalidity grounds under the patent statute and with a lower burden of proof (i.e., invalidity by a preponderance of evidence) as compared to the evidentiary standard applied in federal civil court proceedings (i.e., clear and convincing evidence of invalidity); inter partes review may be based on only patent and printed publication prior art. Both post-grant and inter partes review must generally be commenced within nine months of patent issuance; neither procedure is available if a related civil lawsuit has been filed. Critics of the new post-grant review process predict that it will give rise to greater uncertainty over issued patents than under the old law, which could, for example, lead angel and venture capitalists to defer investing in startups that rely on patents to protect against competition.
Also, effective September 16, 2012, the new law extends the period during which a third party may advise the USPTO of prior art or other relevant information during the prosecution of a pending patent application.
Patent Owners Can Preempt Enforceability Issues Due To Prosecution Flaws That Might Be Raised During Litigation
The new law additionally establishes a supplemental examination procedure enabling a patent owner to request the USPTO to “consider, reconsider, or correct information believed to be relevant to the patent.” The patent owner can use this procedure, which will also become available on September 16, 2012, to preemptively avoid facing an inequitable conduct defense in subsequent litigation based on the patent owner’s failure to advise the USPTO of relevant prior art during patent application prosecution. However, the new law obligates the USPTO to order patent reexamination if supplemental examination raises a substantial new question of patentability, and to refer evidence of any fraud on the USPTO to the Attorney General.
Business Method and Tax Strategy Patents Are Called Out
Given the high level of interest by companies and the U.S. Supreme Court in business method patents, it is not surprising that the new law contains several provisions relevant to such patents. Effective September 16, 2012, the validity of business method patents covering financial products, even if issued before that effective date, is subject to a special, transitional, administrative USPTO review of such patents involved in litigation. The burden of proof for invalidating these patents is the lower preponderance of evidence standard. This transitional program will “sunset” after several years.
Additionally, patents covering tax strategies (i.e., for reducing, avoiding or deferring tax liability) are no longer available. This applies to any tax strategy patent application that was pending on, or filed on or after September 16, 2011, and to any tax strategy patent that issued on or after that date. The new law carves out an exclusion for technological inventions (including computer programs) used solely for preparing or effecting tax filings or for financial management purposes (to the extent severable from any tax strategy).
Litigation Defenses And Procedures Are Affected
Effective immediately, the prior commercial use defense previously applicable only to infringement of business method patents is now a defense to other types of patents. That is, without limitation to business method patents, an accused infringer can avoid patent infringement liability if the accused infringer can establish by clear and convincing evidence that it commercially used the patented subject matter more than one year before the patent’s filing date. This defense has various holes, however. For example, the defense is not available if the subject matter on which it is based was derived from the patent owner or from those in privity with the patent owner. Also, the defense does not equate to a general license to practice the patented invention; it extends to only the specific subject matter shown to have been a qualifying commercial use.
Another litigation defense affected by the new law is the so-called “best mode” defense. Historically, an accused infringer could argue patent invalidity and unenforceability by reason of the patent’s failure to disclose the best way to practice the invention. While a patent application must still set forth the best mode of the invention, under the new law, effective immediately, an accused infringer cannot assert a failure to disclose the best mode as a defense.
Another provision of the new law that takes immediate effect limits the manner in which unrelated parties can be joined as defendants in a single lawsuit. Under the old law, patent owners (especially, so-called “patent trolls”) were able to file one action against multiple disparate defendants, affording the patent owner plaintiffs significant advantages in terms of economies of scale and complicating attempts to change venue. The new law now prohibits accused infringers from being joined in a single lawsuit “based solely on allegations that they each have infringed the patent or patents in suit.” Thus, the new law substantially reduces the economic incentive to litigate against multiple infringers. It is, therefore, not surprising that a flurry of patent infringement complaints were filed on the eve of the new law’s enactment.
In another vein, the new law codifies current case law by expressly prohibiting a patent owner from asserting willful or induced infringement based on failure of the alleged infringer to obtain a favorable opinion from counsel. Curiously, this does not take effect immediately; rather, it applies to all civil actions commenced on or after September 16, 2012.
False Patent Marking Lawsuits Are History?
Under U.S. patent law, whoever falsely marks an unpatented article with a patent number for the purpose of deceiving the public shall be subject to fines not to exceed $500 for every such offense. Prior to enactment of the new law, any private citizen could bring a qui tam action to recover the penalty and retain half. A 2009 decision by the U.S Court of Appeals for the Federal Circuit, which held that the false marking penalty is assessed on a per article/product basis (opening the door for millions of dollars in penalties for ubiquitous products), gave birth to a new cottage industry of false marking litigation by plaintiffs who had not suffered any direct harm and proceeded merely by showing false marking. Their principal targets were patent owners who neglected to remove expired patent numbers from their products. Putting an end to this “troll-like” practice, false patent marking lawsuits, both those currently pending and new, initiated by qui tam plaintiffs are, effective immediately, essentially abolished under the new law, which now requires a plaintiff to show actual competitive injury. In other cases, remedies are limited. While this is almost certain to be challenged on constitutional grounds, the unsurprising immediate result has been a flood of motions to dismiss by those accused of false marking.
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It remains to be seen whether the new patent law, the product of six years of consideration and debate in Congress, will actually improve patent quality, bolster economic development, sustain American innovation and protect American jobs. What is indisputable is that the new law makes the most significant changes to the patent system in more than half a century. Patent reform will have a significant impact on the way patents are prosecuted, litigated and licensed.
Randy Lipsitz is a Partner, Richard Moss is Special Counsel and Aaron Frankel is an Associate in the Intellectual Property and Technology Law Department of Kramer Levin Naftalis & Frankel LLP in New York City.