Vol. 85, No. 10, October 2012
On Sept. 16, 2011, President Obama signed into law the Leahy-Smith America Invents Act (AIA or the Act).1 The AIA is the most comprehensive reform to U.S. patent laws in nearly 60 years. Since the last significant overhaul of the patent laws in 1952,2 Americans have made major technological achievements, including putting men on the moon and launching the Internet and cell phones. But for decades innovators in the United States have relied on an outdated patent system. This system has been called a barrier to innovation because of the perception that issuance of patents takes too long and that many patents are of low quality when they ultimately do issue.
At the same time, however, it remains too difficult and expensive for competitors to invalidate these poor-quality patents. The slow issuance of patents delays investment in technology firms, which in turn impedes job creation. To remedy these perceived problems and modernize the patent system, Congress enacted the AIA with the goals of eventually creating millions of jobs and securing the United States' position as leader in innovative technology for years to come.3 Some provisions of the AIA have already taken effect, and others are scheduled to be phased in.
Much has been written about the AIA, directed toward patent attorneys who have been kept busy by the law's many nuances. This article, however, provides attorneys who are not patent practitioners with a general overview of some of the major changes to the system and attempts to explain their significance. It is not a comprehensive catalog of all the changes in the law.
The AIA attempts to remedy the flaws of the former patent system with four primary changes. First, the AIA moves the United States from a "first-to-invent" system to a "first-inventor-to-file" system. Second, the AIA creates several new proceedings in the U.S. Patent and Trademark Office (USPTO) for challenging patents. Third, the AIA implements several litigation reforms. Fourth, the AIA gives the USPTO greater control to set fees and retain the funds generated from those fees. Congress hoped these revisions will result in faster issuance of high-quality patents, efficiently weed out low-quality patents (that is, those patents that should not have been issued because they fail to advance the state of the art), and reduce costly litigation practices.
From 'First to Invent' to 'First Inventor to File'
Historically, the United States has had a first-to-invent patent system.4 In a first-to-invent system, the date of invention is defined as the date the invention was conceived. In contrast, other major international patent systems have first-to-file patent systems. In first-to-file systems, the date of invention is defined as the date the applicant applied for the patent.5 The differences in how these systems determine the invention date are significant in at least two respects.
First, the difference between first-to-invent and first-to-file systems is significant when two or more inventors independently file a patent application claiming essentially the same invention. This is a common scenario in a competitive marketplace in which many companies and researchers are pursuing and developing similar technologies. Assuming other conditions of patentability are met, a first-to-invent system will award the patent to the first person who conceived of the invention, even if that person was not the first to file a patent application. In contrast, a first-to-file system will award the patent to the first person who filed a patent application.
Second, the difference between first-to-invent and first-to-file systems is significant because it often determines whether an earlier public disclosure is "prior art" to the invention. Generally speaking, prior art refers to earlier public disclosures of the same or similar discoveries such as those that appear in scientific publications, patents, and public uses of the technology.6 A patent will not be granted if the claimed invention was already described in the prior art or if the claimed invention is obvious in view of the prior art. In a first-to-invent system, the applicant can in certain circumstances establish that he or she actually conceived of the invention before the prior art was published or publicly available. That is, to avoid the effect of certain prior art, the applicant can show that the invention date was before the filing date. In contrast, in a first-to-file system, the applicant would not be entitled to do so because the date of invention is always the same as the filing date.
There are advantages to each approach. The first-to-invent approach historically used in the United States may seem intuitively fairer because it awards priority to the individual who actually conceived of the invention first. The first-to-invent approach may also encourage inventors to disclose their inventions in public forums early on, even before filing an application, without fear that doing so will undermine their subsequent application. Small inventors and universities, in particular, often need to disclose their ideas to potential investors or buyers even before filing an application to obtain funding for further development efforts – including the application process itself.
Leahy-Smith America Invents Act – Significant Provisions
First-to-file system (from first-to-invent system)
March 16, 2013
New USPTO Proceedings:
- Pre-issuance submission process
- Post-grant review process (only for business-method patents filed after March 2013)
- Inter partes review (gradually implemented over four years beginning Sept. 16, 2012)
Sept. 16, 2012
- More flexible patent-marking procedures
- Limitations on false-marking claims
- Restrictions on joinder of unrelated defendants
Sept. 16, 2011
- Sept. 16, 2011, and applied retroactively to cases pending on the effective date
- Sept. 16, 2011
The first-to-file approach also has significant advantages, particularly facets that address deficiencies in the current first-to-invent system. The first-to-file approach makes it much easier to determine priority of invention and is likely to be less costly and less susceptible to fraud and abuse. In the current first-to-invent system, it is often difficult to tell who actually conceived of an invention first, resulting in a costly and esoteric USPTO proceeding known as an "interference" that can take years to complete.
The first-to-invent system in the United States has also led to the development of complex statutes and case law to address potential inequities in the system. For example, the statute discouraged inventors from keeping their inventions secret by imposing a one-year limitation on the ability of an inventor to rely on evidence of an earlier conception date to avoid prior art.7 For similar reasons, an inventor may lose the ability to obtain a patent if he or she has "abandoned" the invention or not been diligent in pursuing an application.8 These issues often arise during patent litigation, adding to the cost and uncertainty of the outcome and resulting in fact-specific determinations and seemingly conflicting case-law precedent. These issues are minimized in a first-to-file system because the filing date provides a clear invention date.
In addition, the United States is the only major nation that uses a first-to-invent approach. This requires applicants who want to file patent applications in other countries to comply with two fundamentally different systems, adding to development costs and increasing the chance of making an inadvertent error. The new patent provisions thus harmonize patent law in the United States with that of other major patent granters.
The new approach will be reflected in a revised section 102 of the patent code, which will take effect on March 16, 2013.9 The statute modifies a "pure" first-to-file system slightly in that it will still allow inventors a one-year grace period to file an application after publicly disclosing their own inventions. As noted earlier, this will allow small inventors to disclose their ideas to obtain funding without running the risk of undermining their own patent application and will, it is hoped, discourage researchers from withholding their findings from the public while they prepare a patent application.
The new approach is not without its critics. Some believe the new system will result in a "race to the patent office" that will favor larger entities over small inventors and universities, because larger companies have more resources to file patent applications quickly.10
Moreover, some critics have argued that the first-to-file approach is unconstitutional because Congress does not have the power to permit persons other than the "first inventor" to obtain a patent. The Copyright and Patent Clause of the U.S. Constitution states that Congress has the power "[t]o promote the Progress of Science and the useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writing and Discoveries." According to this argument, the term "inventors" was intended to refer to the true or first inventor, not to any inventor who just happens to be the first to file an application. Others have argued that the clause merely provides Congress the ability to award patents to inventors if it chooses to do so, and if it does, it can award a patent to any inventor by any means it sees fit.11 These arguments are likely to be tested in the courts once the new provisions are used in the patent office or during litigation.
New USPTO Proceedings
Congress created several new USPTO proceedings to facilitate the issuance of strong patents and the rejection of weak ones. Three of the most significant new USPTO proceedings are the pre-issuance submission, the post-grant review, and the inter partes review.
Pre-issuance Submission. Under the AIA, the first opportunity a third party has to challenge another party's patent application is with the "pre-issuance submission" procedure. This procedure allows third parties, such as competitors, to "submit for consideration and inclusion in the record of a patent application, any patent, published patent application or other printed publication of potential relevance to the examination."12
The pre-issuance submission procedure has the potential to be a very effective way to challenge a competitor's patent application. It allows competitors to submit to the USPTO the most pertinent prior art along with a "concise description of the asserted relevance of each submitted document."13 This is different from an earlier procedure that allowed the submission of prior art but did not allow the party submitting the prior art to comment on it. Furthermore, the burden of proof in the pre-issuance procedure favors patent challengers. Before a patent is issued, the patent applicant has the burden to establish patentability. Once a patent is granted, however, the party challenging patentability has the burden to prove patent invalidity.
Two other aspects of the pre-issuance procedure will facilitate submissions by third parties. First, pre-issuance submissions can be made anonymously. Second, unlike the other proceedings discussed below, using the procedure does not preclude the submitter from using the same arguments in subsequent USPTO proceedings or in court.
The pre-issuance submission process went into effect on Sept. 16, 2012.
Post-grant Review. Another opportunity for a third party to challenge a patent is through the post-grant review procedure. The post-grant review procedure allows a third-party petitioner to challenge the validity of an issued patent within the first nine months after the patent is issued.14 The USPTO will accept a post-grant review when the petitioner establishes in its petition that "it is more likely than not that at least one of the claims challenged in the petition is unpatentable."15
Moving to a "first-inventor-to-file" system
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The post-grant review procedure has several advantages for a potential patent challenger. Unlike the more limited pre-issuance submission, the post-grant review procedure allows a third party to challenge the validity of an issued patent on any basis available under the patent laws, and it permits the submission of factual and expert evidence.16 In addition, the post-grant review procedure has a lower burden of proof to demonstrate invalidity than does litigation (preponderance of the evidence versus clear and convincing evidence). Finally, the process is supposed to be quicker than litigation, because the USPTO is required to render a decision within 12 months in most instances.17
The post-grant review is not without disadvantages, however. To begin, a threshold showing of invalidity must be made before the proceeding is instituted. In addition, the challenger must reveal its identity during the proceeding.18 Perhaps most significantly, the challenger is estopped from raising the same arguments in subsequent proceedings, including litigation.19
The post-grant review procedure went into effect on Sept. 16, 2012, for business-method patents, and will apply to patent applications filed under the new first-inventor-to-file system that goes into effect in March 2013. Other earlier-issued patents are ineligible for post-grant review.
Inter Partes Review. The third type of challenge a third party can bring against a patent is an inter partes review. A third party may seek an inter partes review after the later of nine months after the issuance of the patent or the termination of post-grant review proceedings, but not later than one year after the third party is sued for patent infringement in court.20 Inter partes review has many similarities to a post-grant review except that it is limited to patentability challenges based on patents and printed publications, and the threshold for instituting an inter partes review is whether "there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition."21 As with post-issuance review, the main advantages of inter partes review over court proceedings are the lower burden of proof to invalidate a patent, the speed to disposition, and the potentially lower costs. The inter partes review process will be gradually implemented over four years, starting on Sept. 16, 2012.
These USPTO proceedings have the potential to significantly reduce the amount of patent infringement litigation. Competitors are likely to take advantage of the USPTO's lower burdens of proof to challenge the validity of a patent or patent application, and the expedited review may provide all parties a degree of certainty with which they can move forward with their business.
The AIA also implements several litigation reforms. These include more flexible patent-marking procedures, limitations on "false-marking" claims, and restrictions on joinder of unrelated defendants in patent infringement actions.
More Flexible Patent-marking Procedures. In general, a patent holder must give an alleged infringer notice of the existence of the patent before he or she may recover damages for that infringement.22 One way to give notice is for the patent holder to mark its patented products with the patent numbers of the applicable patents. Under the former statute, patent numbers generally had to be marked on the product itself. To make marking easier and less expensive, the AIA began permitting patent holders to "virtually mark" a product by providing on the product a website address where a list of the applicable patents may be found.23 This allows the patent holder to easily add and delete patents as necessary and to mark products in circumstances in which physical marking would be difficult or too expensive.
Limitations on False-marking Claims. In addition to providing notice to prospective infringers, patent marking also serves to deter competitors from developing similar products. To prevent patent holders from over-marking their products with expired or inapplicable patents, the patent code has long prohibited false marking and provided for a $500 statutory fine.24 Under the former patent statute, any member of the public could bring a false-marking claim and recover the statutory fine amount. A 2009 appeals court decision clarified that the fine applied to each falsely marked product, thus creating the potential for huge damages claims and creating a surge in false-marking litigation.25 This litigation exposed those who marked their products with expired or inapplicable patents to potentially massive fines that many critics believed outweighed the actual harm caused.
To curb the surge in false-marking litigation, the AIA permits only the U.S. government to sue for and recover the statutory fine.26 The AIA also permits those who have suffered competitive injury as a result of false marking to sue, but now only for compensatory damages.27 The new false-marking provisions took effect immediately, were applied retroactively to existing cases, and effectively ended false-marking litigation.
Restrictions on Joinder of Unrelated Defendants. A common practice among nonpracticing entities (NPEs), entities that enforce patents but do not themselves practice the patented inventions (also known pejoratively as "patent trolls"), was to sue dozens of unrelated defendants in a single patent infringement suit. By doing so, plaintiffs were able to reduce their litigation costs while attempting to settle with the defendants. Defendants often complained that the practice was unfair because it encouraged plaintiffs to sue many more defendants than they otherwise would if they had to sue each defendant individually.
Under the AIA, multiple defendants can now be joined in a single suit only when 1) the relief sought is joint and several or the action arises out of the same transactions and same accused product or process; and 2) questions of fact common to all defendants will arise in the action.28
The joinder restrictions were made effective on Sept. 16, 2011, and appear to be having little practical effect. NPEs have been filing suits against single defendants and then consolidating those suits under Federal Rule of Civil Procedure 42 or under the multidistrict litigation statute, 28 U.S.C. § 1407.29
Edward J. Pardon, U.W. 2000, M.D., is a partner in the Madison office of Merchant & Gould P.C. and focuses on patent litigation, particularly pharmaceutical patents, clinically related patents, and similar technologies. He counsels clients in regulatory issues related to the Hatch-Waxman Act and in providing infringement and validity analyses for pharmaceutical patents and has substantial experience in general litigation and physician licensing matters. Reach him at firstname.lastname@example.org.
Shane A. Brunner, U.W. 1999, also is a partner in the firm's Madison office and focuses on intellectual property litigation involving patents, trademarks, and trade secrets in a variety of industry sectors and technical fields, and on business litigation and counseling. Reach him at email@example.com.
USPTO Funding and Control Over Fees
The AIA also responds to longstanding complaints by patent attorneys concerning USPTO funding. Patent filing, issuance, and maintenance fees have historically been set by Congress, and fee revenue collected by the USPTO has been used for other governmental programs unrelated to the USPTO. Patent attorneys have long argued that this fee diversion drains the USPTO of resources and contributes to a growing backlog of applications and poor patent quality as a result of overworked examiners not being able to adequately examine patents. The AIA establishes a specially created "Reserve Fund" for excess fee revenue from which it will theoretically be more difficult to divert money for other programs.30 The law also permits the USPTO director to change these fees through the rulemaking process.31
The AIA is supposed to streamline the patent system to reduce inefficiencies and encourage innovation and job development. It will be several years before we know whether it accomplishes these goals. However, in the meantime, technology and other companies should consider filing patent applications as soon as possible to account for the first-inventor-to-file system and mounting early challenges to competitors' patents in the USPTO.
1 Pub. L. No. 112-29 ("AIA"), 125 Stat. 284.
2 Patent Act of 1952, Pub. L. No. 82-593, 66 Stat. 792.
3 H.R. Rep. No. 112-98, pt. 1, at 38-40.
4 Chisum on Patents 4, 1-OV (2012).
5 See generally H.R. Rep. No. 112-98, pt. 1, at 40-43; Vito DeBari, International Harmonization of Patent Law: A Proposed Solution to the United States' First-to-File Debate, 16 Fordham Int'l L.J. 687 (1993).
6 See generally 35 U.S.C. § 102 (2010).
7 35 U.S.C. § 102(b) (2010).
8 35 U.S.C. § 102(c) (2010).
9 AIA, § 3.
10 Edward Wyatt, Fighting Backlog in Patents, Senate Approves Overhaul, N.Y. Times Online (Sept. 9, 2011), http://tinyurl.com/3sy37xy.
11 See generally Joe Matal, A Guide to the Legislative History of the America Invents Act: Part I of II, Fed. Cir. B.J., 21(3) 436, 461-64 (Mar. 2012).
12 35 U.S.C. § 122(e) (2012).
13 35 U.S.C. § 122(e)(2)(A).
14 35 U.S.C. § 321(c)(2012).
15 35 U.S.C. § 324(a).
16 35 U.S.C. § 321(b).
17 35 U.S.C. § 326(a)(11).
18 35 U.S.C. § 322(a)(2).
19 35 U.S.C. § 325(e).
20 35 U.S.C. §§ 311(c), 315(b).
21 35 U.S.C. § 314(a).
22 35 U.S.C. § 287.
23 35 U.S.C. § 287(a).
24 35 U.S.C. § 292 (2010).
25 Forest Grp. v. Bon Tool Co., 590 F.3d 1295, 1304 (Fed. Cir. 2009).
26 35 U.S.C. § 292(a) (2012).
27 35 U.S.C. § 292(b).
28 35 U.S.C. § 299.
29 Maya M. Eckstein et al., The (Unintended) Consequences of the AIA Joinder Provision, AIPLA Spring Meeting, Austin, Tex., May 10-12, 2012, § IV.
30 See generally AIA § 22, 125 Stat. 336, 35 U.S.C. § 42(c), H.R. Rep. No. 112-98, pt. 1, at 55.
31 AIA § 10.