Protecting American Inventors
by Timothy E. Newholm & Mary E. Eberle
The signing of the American Inventors Protection Act of
19991 in November 1999 culminated from
several years of often-contentious debate over the best mechanisms for
procuring and enforcing patents in today's global economy. As some of
its most controversial provisions are phased in on Nov. 29, 2000, the
public is beginning to feel its impact. The Act
attempts to:
- balance the interests of inventors with those of the general
public;
- harmonize U.S. practices with those of the rest of the world while
preserving the United States' unique first-to-invent patent system;
- prevent disreputable invention promotion companies from bilking
inventors while encouraging inventors to partake in the patent system;
and
- improve the ability of the United States Patent and Trademark Office
(USPTO) to deal with the needs of modern businesses while providing
greater access to the patent procurement process by interested third
parties.
The degree to which the Act met its goals is subject to much debate.
However, there is no debate that the Act will have far-ranging impacts
on the patent procurement and enforcement processes. The average company
and its counsel need to be aware of these impacts to avoid the pitfalls
associated with them. The following discussion addresses the Act's
provisions in order of their effect on the average company.
Domestic Publication of Patent Applications Published Abroad
Many patent applications filed in the USPTO now will be published 18
months after they are filed, even if they have not yet matured into
patents.2 This early publication is a marked
departure from prior practice, under which all patent applications
remained secret until the patent was granted.3 Proponents of the old practice argued that
secrecy promoted innovation by permitting inventors to attempt to retain
trade secrets in an invention if they could not obtain protection of the
desired scope. Opponents argued that secrecy permitted inventors to
"sandbag" unsuspecting companies by letting the companies tool-up and
establish sales records before the inventors permitted their patents to
issue.
Small inventor lobbies attacked this legislation with a vengeance,
contending that it was nothing more than an invitation for large,
deep-pocketed corporations to use the published patent application as a
blueprint to steal an invention before the patent issued. However,
Congress was under strong pressure to enact it because of pressures to
"harmonize" United States practice with the rest of the world's major
industrialized countries, all of which have early publication.
In one of several major compromises in the legislation, Congress
voted to require early publication, but left two outs for inventors who
do not want their applications to be published. First, the inventor can
simply abandon the application before the 18th month of its pendancy, in
which case the application will not be published. Second, the inventor
can certify that he or she has not filed and does not intend to file an
application in another country with early publication. That
certification can be rescinded at any time, in which case the inventor
may file an application abroad, and the application will be published
both abroad and in the United States.
This provision also creates provisional benefits of a reasonable
royalty for the period of time between the date of publication and the
date of patent grant.4 The provisional
benefits are intended to preclude a free-ridership period during which a
competitor could copy with impunity the invention claimed in a published
but not yet granted application. The reasonable royalty may be assessed
against any third party who makes, uses, sells, or imports the invention
in the United States during the relevant time.
Three conditions must be met for the patent holder to obtain this
reasonable royalty. First, the accused infringer must have actual notice
of the published application before royalties may accrue. Second, the
application must ultimately mature into a granted patent that claims an
invention that is identical or substantially identical to that claimed
in the published application. Third, the patentee must bring an action
for the reasonable royalty no later than six years after the patent
issues.
Critics argue that early publication secures no discernable benefit
because only applications that also are filed in countries with early
publication will be published in the United States. Hence, publication
in the U.S. provides no additional early disclosure beyond that provided
by the corresponding foreign application. They also argue that any
marginal benefit of early publication is outweighed by the cost of
publication. Pre-grant publication will cost the USPTO about $11 million
in 2001.5 These costs will be passed along
to inventors in the form of a $300 publication fee per published
application that issues as a patent. Moreover, to facilitate pre-grant
publication, the USPTO adopted a body of rules that places a range of
new restrictions on the format and content of patent applications and on
the procedure for amending pending applications.6 Conforming to these rules will drive up the
costs of obtaining a patent.
"First Inventor" Defense
Until now, a company that commercialized a process may have been
liable for infringement of another party's patent, even if it developed
that process before the application for the other party's patent was
filed with the USPTO, so long as the other party could prove that it
developed the invention before the infringing company developed its
process. The Act's "First Inventor Defense" provision is designed to
provide limited protection for potential infringers under these
circumstances. This provision's title is a misnomer because the
provision does not require that the party asserting the defense must be
the first inventor of the relevant subject matter. Instead, the party
asserting the defense only need prove that it commercially practiced its
process prior to the filing of the other party's patent application.
Early versions of the proposed legislation permitted the defense to
be raised in every case of infringement. Congress subsequently limited
the defense to methods of doing or conducting business that otherwise
would infringe a method claim of a patent. Hence, this defense is
applicable to only a relatively small percentage of patents.
Three conditions must be satisfied to assert the first inventor
defense. First, the accused infringer must successfully practice the
method (known as "reducing the method to practice") at least one year
before the patent holder filed his or her patent application. Second,
the accused infringer must commercially exploit the method before the
patent application is filed. Third, the accused infringer cannot assert
the defense if he or she abandoned its use before the application was
filed in the USPTO.
The first inventor defense has several notable limitations in
addition to applying to only a small range of potentially infringing
activities. For instance, an accused infringer cannot assert this
defense if it copied or "derived" the method from the inventor. In
addition, if a patent claims both a method of doing business and other
aspects of the invention not covered by this provision of the Act, such
as a computer programmed to carry out the method steps, the defense
applies only to the claims directed to a method of doing business. As a
result, an accused infringer may succeed in asserting the defense but
still be liable for patent infringement.
An accused infringer should exercise great caution when deciding
whether to assert the first inventor defense. Like most other
affirmative defenses to patent infringement, all elements of the defense
must be established by the difficult-to-meet clear and convincing
evidence standard. Worse, if the defense is unsuccessful and the court
determines that the accused infringer has failed to demonstrate a
"reasonable basis" for asserting the defense, the court must find the
case exceptional for purposes of awarding attorneys fees.
Optional Inter Partes Reexamination Procedure
Reexamination is a procedure by which the validity of a patent can be
challenged in the USPTO rather than in federal court. The USPTO will
reexamine an issued patent if a reexamination requester demonstrates to
the USPTO's satisfaction that there is a substantial new question of
patentability based on printed publications that were available as prior
art against the original application for the patent, but that were not
considered by the USPTO while the original application for the patent
was pending.7 Reexamination may be requested
either by a patent holder who wants to bolster a suspect patent or a
third party who wants to invalidate a patent.8 In either event, the substantive examination
portion of the reexamination process is essentially the same, and
terminates with the issuance of a reexamination certificate. The
reexamination certificate may confirm the patentability of claims,
cancel claims, or both.
Reexamination can be attractive to patent challengers because it is
less expensive than patent litigation and because the presumption of
validity, which imposes a substantial hurdle to invalidating a patent in
federal court, does not apply to reexamination proceedings. However,
patent challengers have been wary of reexamination before now because
the requester's role in the reexamination process was limited. Once the
request was granted, the third party requester was prohibited from
further involvement in the reexamination process. Reexamination instead
proceeded entirely ex parte, just as in examination of any other patent
application. Hence, the requester had no opportunity to communicate with
the USPTO examiner who was examining the application or to participate
in any appeals. This lack of requester participation generated
substantial concerns regarding the requester's ability to assure an
equitable outcome of the reexamination process.
The American Inventors Protection Act includes a provision that
attempts to address these concerns of third party requesters. Instead of
eliminating the existing ex parte reexamination system, the new law
supplements it with an optional inter partes reexamination system that
is available to third parties who desire greater participation in the
reexamination process.9 A third party
requester now is entitled to submit one written response to each
response filed by the patent holder during the reexamination process.
Hence, for the first time, a third party requester can offer a
counterpoint to each point raised by the patent holder during
reexamination.
However, a third party requester's involvement in reexamination
proceedings remains limited under the new law. The law provides for only
written comments, not examiner interviews. Moreover, while a third party
can participate in a patent owner's appeal to the Board of Patent
Appeals and Interferences (the USPTO's internal appellate tribunal), it
is not permitted to participate in the typical next level of appeal to
the Court of Appeals for the Federal Circuit (CAFC).10 The third party requester therefore still
is forced to fight with one hand behind its back, particularly during
the later, critical stages of the reexamination process.
A third party requester who elects inter partes reexamination does so
at substantial risks. Once an inter partes reexamination is declared
(regardless of whether the third party participates in the proceedings
or a final decision is rendered), the requester is estopped from
asserting an invalidity defense in any civil action on any ground that
was raised or could have been raised during the reexamination
proceeding. The converse also is true. Once a final decision has been
entered against a party in a civil action or another reexamination
proceeding, that party is prohibited from raising any issues in a
subsequent inter partes reexamination that it could have raised in the
prior civil action or reexamination.11
Inventor Protection
The Act includes a provision, known as the "Inventors Rights Act of
1999," that provides a policing mechanism for regulating the activities
of sometimes-unscrupulous invention promoters. An "invention promoter"
is defined as any entity (with several specific exceptions) that
contracts with an inventor to develop or market the inventor's products
or services. One of the most infamous invention promoters is American
Inventors Corp., which has been indicted for mail fraud, money
laundering, and tax evasion for allegedly bilking more than 34,000
inventors out of nearly $100 million.12
The new law requires that all invention promoters must provide
written information about the company's practices and success rate
before entering into a written contract with an inventor.13 For instance, it must inform the inventor
of the total number of evaluations the invention promoter has provided
in the past five years, broken down by positive and negative
evaluations. It also must provide information on the number of inventors
who contracted with the invention promoter, the number of inventors who
received profits from their inventions in excess of the fees paid, and
the number of inventors who entered into license agreements as a result
of the invention promoter's services.
An inventor who believes that he or she is injured by an invention
promoter's actions may file a civil action seeking either actual damages
or statutory damages of no more than $5,000. Treble damages are
available for intentional or willful behavior by the invention
promoter.
Patent and Trademark Office Efficiency
This provision is intended to permit the USPTO to run itself in a
more business-like manner than most government organizations.14 It recasts the USPTO as a performance-based
organization and gives the USPTO substantial autonomy in managing its
budget, personnel, procurement, and other administrative functions. It
also provides for presidential appointment of a director who heads up
the agency. The director is assisted by a deputy director, a
commissioner of patents, and a commissioner of trademarks, all of whom
are appointed by the secretary of commerce.
The new law also establishes separate public advisory committees or
advisory panels for patents and trademarks, each with nine members
appointed by the secretary of commerce for three-year terms.15 These committees, first formed on July 17,
2000, review and report on the policies, goals, performance, budget, and
user fees of the USPTO. Each committee must include individuals with
substantial background and achievement in finance, management, labor
relations, science, technology, and office automation.
One important goal of USPTO reorganization has not been met. The
USPTO is funded entirely by user fees paid by patent applicants upon the
submission of new applications and several other documents. However, for
the last several years, Congress has routinely appropriated a budget for
the USPTO that is less than the accumulated fees collected by the USPTO
and has diverted the remaining funds to other, unrelated government
agencies. The USPTO, inventors' groups, and the intellectual property
bar have complained bitterly that this practice constituted a hidden tax
that increased filing costs with no benefit to patent applicants. The
Act does not solve this problem. In fact, the House of Representatives
has proposed to divert more than $250 million of collected funds to
other agencies in 2001. The USPTO insists that it will be unable to
perform effectively if these fund diversions continue.
Patent-term Guarantee
Under the old law that took effect in 1995, most patents had a term
of 20 years from the application filing date for that patent.16 This term could be extended, but only up to
five years and only for a few enumerated delays caused by specified
USPTO procedures. Extensions were not available for routine delays that
were not caused by any of the specified procedures.
To compensate for USPTO processing delays and for delays in
prosecuting applications, the new law extends the term of any patents
that remain pending more than three years. Diligent applicants, that is,
those who respond promptly to all USPTO communications, are guaranteed a
minimum 17-year patent term. However, any patent term extension obtained
under this provision is reduced by one day for every day of delay caused
by an applicant, including delays caused by routine requests for time
extensions. Therefore, patent applicants should strive to respond to all
USPTO actions promptly to avoid loss of patent term.
Conclusion
The degree to which the American Inventors Protection Act of 1999
succeeded in its goals is subject to much debate in the intellectual
property law community. The early consensus is that the Act's success is
mixed. The Act's supporters argue that it will curb the practice of
unscrupulous invention promoters and help position the USPTO to meet the
demands of today's rapidly changing business and political climates.
However, the Act's detractors argue that many of its substantive
provisions were watered down so much in an effort to build a consensus
that they have little practical value.
Endnotes
1 Chapter 35 of the U.S. Code
has been amended by the Act (full text of new legislation is available
at http://www.uspto.gov/web/offices/dcom/olia/aipa/index.htm).
The text of the Act is contained in Title IV of S. 1948, the
Intellectual Property and Communications Omnibus Reform Act of 1999, as
introduced in the 106th Congress on Nov. 17, 1999, and which was
incorporated and enacted into law on Nov. 29, 1999, by §
1000(a)(9), Division B, of Public Law 106-113, 113 Stat. 1501
(1999).
2 35
U.S.C.A. § 122 (West Supp. 2000); see also Changes to Implement
Eighteen-Month Publication of Patent Applications, 65 Fed. Reg. 17,946
(Apr. 5, 2000) (to be codified at 37 C.F.R., pts. 1, 5).
3 35 U.S.C.
§ 122 (1994).
4 35
U.S.C.A. § 154 (West Supp. 2000).
5 Transcript of
Commissioner's February 10th Online Discussion (Feb. 24, 2000) (http://uspto.gov/web/offices/com/chats/chat0002.htm).
6 65 Fed.
Reg. 54,604 (Sept. 8, 2000).
7 35
U.S.C.A. § 312(a) (West Supp. 2000); see also Rules to Implement
Optional Inter Partes Reexamination Proceedings, 65 Fed. Reg. 18,154
(Apr. 6, 2000) (to be codified at 37 C.F.R., pt. 1).
8 35
U.S.C.A. § 311(a) (West Supp. 2000).
9 Id. at
§ 314(b)(3).
10 Id. at
§§ 315, 134.
11 Id. at
§ 317(b).
12 George
Graham and Doug Hanchett, "Dreams Turn into Nightmares," The Union News
and Sunday Republican, Sept. 26, 1999.
13 35
U.S.C.A. § 297 (West Supp. 2000).
14 Id. at
§ 1; see also PTO Becomes Performance-Based Organization (March 29,
2000) (http://www.uspto.gov/web/offices/com/speeches/00-21.htm)
(press release by PTO).
15 35
U.S.C.A. § 5 (West Supp. 2000); see also Notice and Request for
Nominations to the Public Advisory Committees, 65 Fed. Reg. 16,564
(2000).
16 35 U.S.C. §
154(a)(2) (1994 & Supp. II).
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