patents in the 21 century - morrison &...

PATENTS IN THE 21st CENTURYTHE LEAHY-SMITH AMERICA INVENTS ACT

Westlaw Journal Expert Commentary Series

41264794

Robert A. Armitage, Esq. Eli Lilly & Co.

David Boundy, Esq. Cantor Fitzgerald

Michael Dixon, Esq. Akerman Senterfitt

Edward Fan, Esq., and Karen Townsend, Esq. Torys LLP

Marc Hubbard, Esq. Gardere Wynne Sewell LLP

Matthew I. Kreeger, Esq., Eric S. Walters, Esq., and Zahra Hayat, Esq. Morrison & Foerster

Ammon Lesher Turner Padget Graham & Laney

Todd McCracken National Small Business Administration

Robert G. McMorrow Jr., Esq. Connolly Bove Lodge & Hutz LLP

James Mullen, Esq. Morrison & Foerster

Philippe Signore, Esq., Steve Kunin, Esq., and Jonathan Parthum, Esq. Oblon, Spivak, McClelland, Maier & Neustadt LLP

Ed Walsh, Esq., and Janice Vatland, Esq. Wolf, Greenfield & Sacks

CONTRIBUTING AUTHORS

© 2012 Thomson Reuters2 | PATENTS IN THE 21ST CENTURY: THE LEAHY-SMITH AMERICA INVENTS ACT

TABLE OF CONTENTSWestlaw Journal – Intellectual PropertyPresident Signs Long-Awaited Patent Reform Legislation ....................................................................3

Commentary

Overview

The Sweeping Changes of the 2011 America Invents Act ....................................................................4By Michael Dixon, Esq.Akerman Senterfitt

The America Invents Act: Will it be the Nation’s Most Significant Patent Act Since 1790? .............8By Robert A. Armitage, Esq.Eli Lilly & Co.

Focus on Provisions

The New Grace Period Under the American Invests Act .................................................................... 11By Ammon LesherTurner Padget Graham & Laney

Advising Clients on the First-to-File System ...................................................................................... 14By Marc Hubbard, Esq.Gardere Wynne Sewell LLP

United States Converts to First-to-File Patent System ......................................................................17By Edward Fan, Esq., and Karen Townsend, Esq.Torys LLP

Post-Grant Review: A Preview ............................................................................................................. 19By Robert G. McMorrow Jr., Esq.Connolly Bove Lodge & Hutz LLP

Challenging a Patent: Before and After the America Invents Act ...................................................22By Ed Walsh, Esq., and Janice Vatland, Esq.Wolf, Greenfield & Sacks

Practice Strategies

How the Patent Reform Act Will Change Patent Litigation ..............................................................25By Matthew I. Kreeger, Esq., Eric S. Walters, Esq., and Zahra Hayat, Esq.Morrison & Foerster

Practice Implications of the Leahy-Smith America Invents Act .......................................................28By Philippe Signore, Esq., Steve Kunin, Esq., and Jonathan Parthum, Esq.Oblon, Spivak, McClelland, Maier & Neustadt LLP

Commercial Advantage Through Understanding the Post-Issuance Review System of the America Invents Act ...................................................................................................................32By James Mullen, Esq.Morrison & Foerster

Contrary Views

Patent Reform Bill Hurts Small Business ...........................................................................................35Todd McCrackenNational Small Business Administration

Why Patent Reform is Bad for Startups, Small Business, Patent Attorneys and America .............38By David Boundy, Esq.Cantor Fitzgerald

LETTER FROM THE EDITOROutdated. A barrier to innovation. Job stifling.

Those are some of the terms used to describe the state of the U.S. patent system.

For years, Congress has grappled with how to fix the patent law. Now, for the first time in 60 years, it has acted to fix what has been widely seen as a broken system.

President Barack Obama signed into law the Leahy-Smith America Invents Act Sept. 16, 2011.

The reforms included in the law will have a meaningful impact on American entrepreneurs and inventors for generations to come and will promote job creation, according to Sen. Patrick J. Leahy (D-Vt.), who co-sponsored the legislation with Rep. Lamar Smith (R-Texas).

This special issue contains commentary from its supporters who hail its major changes, including the implementation of the first-to-file system and other provisions such as a new procedure for post-grant review.

But the new law also has its detractors.

Some small businessmen and entrepreneurs think the new system poses a huge disadvantage for smaller companies and start-ups, because the first-to-file provision greatly diminishes the existing one-year grace period that allows inventors to refine their ideas and seek funding to develop a patent before they have to make the details of their patent public.

This Westlaw Journal special report features expert analysis of the major points of the law, both pro and con. The commentaries provide a comprehensive review of the law, and offer insights and practice tips for some of its key provisions.

Please see our Westlaw Journal newsletters for continuing coverage of related analysis and updates regarding implementation of this major legislation.

Deborah Nathan, Esq. Senior Attorney Editor

Phyllis Skupien, Esq. Managing Editor

West Publishing, A Thomson Reuters business

Patents in the 21st Century: The Leahy-Smith America Invents Act

Publisher: Mary Ellen Fox

Managing Editor: Phyllis Lipka Skupien, Esq.

Production Coordinator: Tricia Gorman

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PATENTS IN THE 21ST CENTURY: THE LEAHY-SMITH AMERICA INVENTS ACT | 3© 2012 Thomson Reuters

President Signs Long-Awaited Patent Reform Legislation

President Barack Obama signed the Leahy-Smith America Invents Act Sept. 16, ushering in a long-awaited overhaul of the U.S. patent system.

Obama signed the bill after the Senate passed the measure Sept. 8 by an 89-9 bipartisan vote.

The House of Representatives passed the bill in June.

President Obama hailed the new law as a boon to creating new businesses and jobs.

“I am pleased to sign the America Invents Act,” Obama said in a press statement following the bill signing.

“This much-needed reform will speed up the patent process so that innovators and entrepreneurs can turn a new invention into a business as quickly as possible,” he said.

Sen. Patrick J. Leahy, D-Vt., co-sponsor of the legislation, echoed the president’s comments.

The law “is a true jobs bill at a time when we need it the most,” Leahy said in a press statement.

“This is bipartisan, commonsense legislation that will spur the innovation that drives the American economy,” Leahy said, commenting that the law is the product of six years of battles and compromise on Capitol Hill under two presidents.

The new law allows the U.S. Patent and Trademark Office to set its own fees and to do the hiring and technical upgrades needed to catch up on a backlog of nearly 700,000 patent applications.

PTO Director David Kappos hailed the provision.

“This bill will give the [PTO] the tools it needs to deliver cutting edge technologies to the marketplace sooner and drive down the backlog of patent applications,” Kappos said in a statement after the Senate action.

“We intend to aggressively implement that mandate by immediately hiring new examiners, instituting new patent acceleration tools and aggressively modernizing our IT infrastructure,” Kappos said.

Under the new law, the PTO will grant patents to the first inventors to file, rather than requiring inventors to show they were the first to develop an innovation.

The first-to-file system will bring the U.S. patent process in line with that of many other countries.

The law establishes a post-grant review process to allow challenges to patents before they are used in litigation.

Another new provision puts a limitation on “false marking” suits.

Currently, there has been what some have called a plague of false-marking lawsuits by plaintiffs who stand to gain by sharing the proceeds of any consequent settlement or court award.

The America Invents Act will substantially reduce false-marking suits by requiring that plaintiffs show a personal injury or interest in the suit.

The new law will be fully implemented by 2014.

Photo by Marcelle LeahyPresident Obama signs the Leahy-Smith America Invents Act Sept. 16.

4 | PATENTS IN THE 21ST CENTURY: THE LEAHY-SMITH AMERICA INVENTS ACT © 2012 Thomson Reuters

COMMENTARY

The Sweeping Changes of the 2011 America Invents ActBy Michael Dixon, Esq. Akerman Senterfitt

After more than 10 years within Congress, the America Invents Act was enacted on Sept. 16, 2011, and includes the most comprehensive legislative patent reform in the United States in more than 60 years. The act attempts to increase the quality of issued U.S. patents by reducing uncertainty and increasing opportunities for third-party involvement both pre- and post-issuance. Specifically, the act has changed the U.S. patent system from a first-to-invent to a first-to-file system, created a pre-issuance prior-art submission mechanism and created numerous post-grant challenge mechanisms in an effort to reduce litigation costs, strengthen U.S. patents and harmonize U.S. patent law with the majority of foreign jurisdictions.

WHAT CONSTITUTES PRIOR ART?

The act changed U.S. patent law from a first-to-invent to a first-to-file system. The first-to-invent system had been considered supportive of independent inventors and small companies with limited resources by allowing them time to finalize the invention and seek patent protection. However, the first-to-invent system created ambiguity as to which inventor had priority and what constituted prior art. Moreover, the system was not aligned with foreign countries.

Section 102 has been revised in that the first inventor to file a patent application has the priority of invention, with notable exceptions. As an accommodation to independent inventors and small companies, the one-year grace period remains intact. Thus, an inventor may file a patent application within one year of first offering to sell or publicly disclosing the idea.

Nonetheless, revised Section 102 has created ambiguity where there was once some degree of certainty. In particular, Section 102, which once described prior art as art that “was known or used by others in this country, or patented or described in a printed publication in this or a foreign country,” now describes prior art as that which is “otherwise available to the public.” Undoubtedly, it will take some time for the Federal U.S. Circuit

Court of Appeals to sort this out but not before potentially prolonged prosecution and an increase in appeals before the newly created Patent Trial and Appeal Board and the Federal Circuit.

Furthermore, the expansion of prior art from offers for sale and public use occurring in the United States to those occurring outside the United States will likely reduce the enforceability of U.S. patents as U.S. patent examiners will most likely not have such information available to them during prosecution, thereby creating uncertainty when determining the likely success of enforcing a patent.

Additionally, revised Section 102 includes an interesting provision for inventors who publish documents describing their inventions. Specifically, a patent application filed by Inventor A does not qualify as prior art to Inventor B if Inventor B had publicly disclosed the invention, such as through a publication or presentation, before the patent application was filed by Inventor A, so long as the public disclosure does not occur more than a year before Inventor B’s filing of the patent application. Thus, a third-party

patent application filed after publication by an inventor does not qualify as prior art to the inventor’s later-filed patent application filed within one year of the earliest publication.

At first blush, revised Section 102 appears to incentivize public disclosure of an invention before filing a patent application. However, such disclosure would result in the loss of potential foreign rights in most foreign countries, with the exception of Australia, Canada and Japan.

Preserving an inventor’s rights may best be accomplished by filing a U.S. provisional patent application, and, if necessary, filing multiple provisional patent applications as the invention evolves, thereby eliminating any negative implications at the foreign stage from an earlier public disclosure.

CHALLENGING U.S. PATENTS, PATENT APPLICATIONS

The act has created the new challenge mechanisms of pre-issuance submission, post-grant review and supplemental examination, and has replaced inter partes examination with inter partes review.

Courtesy of USPTO

One of the most significant changes made by the act is the shifting of the U.S. patent system from a system that grants a patent to the inventor who is first to invent the claimed invention to a system that grants a patent to the inventor who is first to file a patent application at the U.S. Patent and Trademark Office, shown here.


In addition, while the elimination of the first-to-invent system has brought interference practice to an end, the act retained a slightly modified version of derivation proceedings that includes a limited one-year time period for initiating a derivation proceeding.

The derivation proceeding is an adversarial proceeding decided by settlement or arbitration before the Patent Trial and Appeal Board in which each party is able to present evidence and take testimony to determine whether the inventor named in an earlier-filed application that was filed without authorization derived the claimed invention from the inventor of a later-filed application. The derivation proceeding must begin within one year of the date of first publication of a claim to an invention that is substantially the same as the earlier application’s claim to the invention.

Pre-Issuance Submission

The pre-issuance submission mechanism further bolsters corporate intelligence initiatives by enabling third parties to submit prior art consisting of patents, published patent applications and printed publications of potential relevance to the examiner of a patent application. Prior-art submissions must set forth a concise summary of the relevance of each prior-art submission.

The submissions may be submitted before the earlier of the date of a notice of allowance, or the later of six months after publication of the application or the date of first rejection of any claim in the patent application. Essentially, if a notice of allowance is not issued within two years of the filing of a patent application and there is no claim for priority to an earlier-filed patent application, third-party submissions may occur for at least two years. A publication earlier than 18 months or an early notice of allowance will reduce the available window for third parties to file pre-issuance submissions.

Businesses should augment ongoing monitoring programs in which published patent applications assigned to competitors are identified with prior-art searches and pre-issuance submissions. Businesses should also carefully consider whether filing for foreign patent protection is necessary to their business concerns and, if not, should file a request for nonpublication, thereby keeping their pending patent applications secret within the patent office and effectively

eliminating the possibility of pre-issuance submissions being submitted against their patent applications.

Post-Grant Review

The newly created post-grant review process resembles European oppositions in which third parties can challenge the validity of a patent on any ground as a less expensive dispute resolution procedure than federal

that is lower than the “reasonable likelihood that petitioner will prevail” standard of the newly formed inter partes review that applies to all other technologies after nine months from issuance.

The post-grant review process can be used to stay litigation, and only those issues actually raised within post-grant review — not all issues that could have been raised — will be prevented from being raised at trial.

Businesses should augment ongoing monitoring programs in which published patent applications assigned to

competitors are identified with prior-art searches and pre-issuance submissions.

court litigation. Within nine months of issuance of a U.S. patent, a post-grant review may be initiated as long as the petitioner has not already filed a civil action challenging the validity of the patent.

A post-grant review petition must satisfy one of two threshold requirements:

• Unless rebutted, it must be more likely than not that at least one challenged claim is unpatentable.

• The petition must raise a novel or unsettled legal question of importance.

Importantly, a post-grant review proceeding may be based on any ground for invalidity. This is consistent with the revised Section 102 but broader than current ex parte re-examination and newly formed inter partes review, which are both limited to patents or printed publications.

Thus, within nine months of patent issuance a third-party competitor may attack the patent through post-grant review with any prior art, such as public uses, prior publications, offers to sell, actual sales, lack of enablement and inadequate written description. Challenges for lack of setting forth the best mode are unavailable.

Section 18 of the act provides a transitional program for review of “covered business method patents,” which resembles an extended post-grant review system. Beginning Sept. 16, 2012 — and running until Sept. 16, 2020, unless extended by Congress — a party charged with patent infringement of a business-method patent may petition for post-grant review of the asserted patent upon meeting a threshold

Prior art allowed in a post-grant review proceeding is broader than the prior art allowed in an inter partes review proceeding. In particular, a post-grant review proceeding may allow use of prior art falling under the

• New procedure permitting a patent owner to request an additional examination by the PTO to “consider, reconsider or correct information believed to be relevant to the patent.”

• Enables a patent owner to have a patent examiner determine questions of patent enforceability before an infringer raises them at trial.

• Allows a patent owner to cure some previous failures to disclose that otherwise would be grounds for a finding of inequitable conduct.

• A patent cannot later be held unenforceable based on conduct relating to information that had been considered during the supplemental examination.

• Will take effect Sept. 16, 2012.

Supplemental Examination Under

35 U.S.C. § 257


pre-act Section 102(a), as well as prior art by the applicant and prior art that describes the invention more than one year before the filing date of the patent application.

Guidance is likely forthcoming from the U.S. Patent and Trademark Office to determine what qualifies as a “covered business method patent,” which the act delineates as being a patent that claims “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 ... [and are not] technological inventions.”

Business-method patent owners should consider conducting a thorough pre-suit

a substantial new question of patentability,” the PTO will order a re-examination. Upon conclusion of the proceeding, the PRO will issue a certificate indicating whether the information presented during the proceeding by the patent owner presented a “substantial new question of patentability.”

A patent may not be held unenforceable based on information that had been previously considered during a supplemental examination proceeding, provided that the supplemental examination request was made before the allegations of misconduct are pleaded in court proceedings.

The substantial-new-question-of-patentability standard of the supplemental examination

a challenger must now establish that there is a “reasonable likelihood that the petition will prevail.” The previous threshold for inter partes re-examination required that a substantial new question of patentability existed to initiate a re-examination proceeding. The legislative history states that the new threshold is higher than the “substantial new question of patentability” threshold, which was met in nearly 95 percent of inter partes re-examination requests.

The revisions to inter partes re-examination do not impact ex parte re-examinations proceedings, which remain the same.

The inter partes review proceeding will include new procedural safeguards to prevent a challenger from using inter partes review to harass patent owners. The inter partes review challenges may also now include prior art, including written statements made by the owner of a patent in another lawsuit or at the PTO regarding the scope of the claims.

Finally, this section creates estoppel for an inter partes review challenger. In particular, a challenger who “reasonably could have raised” an argument during an inter partes review is prevented from raising such an argument in court.

The act provides a timeline for transitioning from the inter partes re-examination to the inter partes review to prevent a rush of filings before Sept. 16, 2012. Any request for inter partes re-examination filed by Sept. 16, 2012, will be granted if a “reasonable likelihood that the petition will prevail” is shown, which is the new standard for inter partes review, and such standard will be applied throughout the proceeding. Any request for inter partes re-examination filed after Sept. 16, 2012, will not be granted. Only a request for inter partes review may be filed after Sept. 16, 2012.

The practical application of the inter partes review is unclear as the act describes many of the limitations in only broad terms. For instance, the act’s provision for allowing limited discovery related only to factual assertions by either party will have to be fleshed out. With such ambiguity, there is the risk that such changes will not reduce litigation costs; rather, the costs of challenging and defending a patent will increase with the creation of these alternative challenge mechanisms.

Prior art allowed in a post-grant review proceeding is broader than the prior art allowed

in an inter partes review proceeding.

analysis to determine whether prior art exists that could result in a business-method post-grant review proceeding. Business-method patent owners may also consider delaying enforcement actions until the PTO issues guidance on this issue. Prior to patent issuance, inventors should consider applying for claims directed to the application of their concept to industries other than the financial industry.

Supplemental Examination

Section 12 of the act, codified at 35 U.S.C. § 257, provides for supplemental examination after Sept. 16, 2012. This procedure enables a patent owner to have any information considered quickly by a U.S. patent examiner to determine patent enforceability before being raised by an infringer at trial without requiring that the patent go through re-examination. Thus, a patent owner may have any information considered by the PTO and presumably may even be able to cure some intentional failures to disclose prior art that would otherwise be grounds for a finding of inequitable conduct.

However, the act does state that if the director becomes aware of material fraud on the PTO, the director may confidentially refer the matter to the attorney general for criminal prosecution, if appropriate.

The PTO will conduct a supplemental examination of the patent within three months of receiving a supplemental examination request. Should the new information “raise

proceeding is the same standard in ex parte re-examinations, which have generally been freely granted in the past. Presumably, the PTO will issue guidelines clarifying application of the supplemental-examination process before supplemental examination takes effect next year.

Inter Partes Review

The act creates inter partes review, which replaces inter partes re-examination Sept. 16, 2012, as a mechanism for review of a U.S. patent based on prior-art patents and printed publications.

The inter partes review will be conducted by administrative patent judges and will allow the PTO to complete most reviews within 12 months. Their decision will be appealable directly to the Federal Circuit. An inter partes review may not be pursued if an accused infringer has already filed a declaratory judgment action challenging the patent or if more than six months has passed since the date the infringer was served with a complaint. A patent owner will have the opportunity to explain why the inter partes review should not be initiated before it is initiated, unlike the inter partes re-examination process, in which input is accepted only after a re-examination proceeding has been initiated.

To invalidate a claim of the patent to institute an inter partes review proceeding,


LITIGATION

Prior-Commercial-Use Defense

Section 5 of the act expands the prior-commercial-use defense beyond business-method patents. In particular, an alleged infringer of a process, a machine or composition of matter used in a manufacturing process is not liable for infringement if a use occurred at least one year before the earlier of (a) the effective filing date of the claims invention or (b) the date on which the claim invention was disclosed to the public.

The alleged infringer must have commercially used the product in good faith in connection with an internal commercial use or an actual arm’s length sale or transfer. The alleged infringer carries the burden of proof and shall establish the defense with clear and convincing evidence.

The broadening of the prior-commercial-use defense strengthens the option available to businesses struggling with the decision of how to best protect a method of manufacture or the like used within the business. Now, rather than obtaining patent protection and disclosing the invention for all to see with little chance of uncovering an infringing use, a business may keep the method secret and if challenged, rely on the prior commercial use defense with proper documentation to avoid liability.

Opinions of Counsel

The act codifies In re Seagate Technology LLC1

as it relates to willfulness and clarifies the case law decided thereafter. In particular, Section 17, codified at 35 U.S.C. § 298, provides that the failure of an alleged infringer to obtain an opinion of counsel of noninfringement or the decision of an alleged infringer to not disclose to a plaintiff the opinion of counsel of noninfringement may not be used to prove that the accused infringer willfully infringed the patent or that the alleged infringer induced infringement.

Best Mode

Foreign patentees are typically ill-prepared to comply with the best-mode requirement in 35 U.S.C. § 112. Section 15 of the act, codified at 35 U.S.C. § 282 and effective upon the act’s enactment, provides that failure to comply with best mode shall not be a basis upon which a patent may be held invalid or

unenforceable, thereby further harmonizing U.S. patent law with foreign jurisdictions.

Qui Tam False Marking

Section 16 of the act has effectively stamped out the cottage industry in pursuit of easy money by enforcing the previous false-marking statute at 35 U.S.C. § 292. In particular, effective upon the act’s enactment date and applicable to pending cases, only the United States may sue for the penalty authorized under the statute, and a person who suffered a competitive injury as a result of a violation of this statute may pursue a civil action for damages. Marking a product with a patent that has expired is no longer a violation of Section 292.

The act also created virtual marking to reduce the burden upon patent owners to comply with the marking requirement. Specifically, a product may be marked with “patent” or “pat.” together with an Internet address that associates a U.S. patent with the product.

Joinder

Section 16 of the act, codified at 35 U.S.C. § 299, sets news limits on joinder of accused infringers as parties in one action. Under Section 16, accused infringers may be joined only if relief is asserted against the parties jointly or severally, or arising from the same transaction or occurrence relating to the making, using, importing or selling of the accused product. Simply alleging infringement of the same patent is no longer sufficient.

While combining multiple infringers producing the same class of products is no longer available, combining multiple infringers that are vertically aligned and jointly infringe a patent remains allowable. The limitation of joinder will likely be problematic to plaintiffs and defendants alike as inconsistent Markman claim-interpretation rulings2 are more likely to occur.

LIMITATION OF PATENTABLE SUBJECT MATTER

The United States has long had fewer limitations on what constituted patentable subject matter. However, the act has carved out some territory from that broadly defined patentable subject matter. In particular, the act states that any strategy for reducing, avoiding or deferring tax liability

is insufficient to differentiate an invention from the prior art but excludes systems used for the preparation of tax returns or that organize such data or systems used solely for financial management.

CONCLUSION

While the America Invents Act is the broadest legislative patent reform in the United States in years, the consequences of the application of many of the act’s provisions remain uncertain in view of the broad language of the act. The rulemaking proceedings within the PTO over the next year will attempt to provide more clarity; however, it will likely take years before aspects of the act have been settled. Time will tell if the act’s provisions reduce costs and increase the quality of issued U.S. patents, or whether unintended consequences dominate the landscape.

NOTES1 497 F.3d 1360 (Fed. Cir. 2007) (en banc).

2 See Markman v. Westview Instruments Inc., 517 U.S. 370 (1996).

Michael K. Dixon of Akerman Senterfitt represents clients in an array of intellectual property matters, with an emphasis on patent procurement, patent litigation, technology transfer transactions such as drafting and negotiating licenses, intellectual property due diligence in private equity and mergers and acquisitions, intellectual property asset management, intellectual property law opinions, trademarks, protection of trade secrets, confidentiality agreements, and copyrights. He represents a broad range of clients, including Fortune 500 companies, universities, start-up companies and individuals.


COMMENTARY

The America Invents Act: Will it be the Nation’s Most Significant Patent Act Since 1790?By Robert A. Armitage, Esq. Eli Lilly & Co.

On Sept. 16 the 150-page Leahy-Smith America Invents Act, H.R. 1249, became law. It is, without question, significant, even record-setting, patent legislation.

The America Invents Act is — by far — the lengthiest patent act in our nation’s history. It is more than double the size of the bill creating the 1952 Patent Act, which recodified the entirety of U.S. patent law from scratch.

The new act’s legislative gestation consumed over six years. Only once before, in enacting the American Inventors Protection Act of 1999, did Congress take so long to bring a new patent law into being.

Being the lengthiest patent act of all time — and the slowest to transit Congress — constitute at best uninspiring superlatives. They hardly suggest that this new congressional work product might one day be acknowledged not just as a significant advance in U.S. patent law, but as the most significant since the first Congress crafted the first patent act in 1790.

To make good on such a brash and bold aspiration would be to fulfill a very tall order.

It would require that the new law surpass in its implications and affect both the Patent Act of 1836 (creating the patent office and the modern system of patent examination) and the 1952 Patent Act (providing a complete and cogent, ground-up restatement of all U.S. patent law under a full statutory recodification). In other words, the America Invents Act needs to achieve nothing short of extraordinary credentials to top the significance of these two great patent acts of the 19th and 20th centuries.

Just why might the America Invents Act someday realize such an outsized potential? For the proponents of the new law, it holds the promise of accomplishing two things, each of which is potentially profound.

The first possible accomplishment would be to work a revolution in the criteria by which a new invention can be judged to have been validly patented in the United States. The new act both limits and then reshapes patenting rules to those that, both individually and collectively, are transparent, objective, predictable and simple. It also successfully retains and even enhances the

historic inventor-friendly and collaboration-friendly features that have long set U.S. patent law apart from patent systems globally.

The second potential impact is even more ambitious: that our new patent law will serve as a beacon to guide future changes in foreign patent laws so that in the decades ahead, foreign patent laws would come to be built around the very same principles Congress enshrined in our new law. Should this potential be realized, greater harmonization of the world’s patent laws may come to mean nothing more than foreign patent laws adopting the mold and model of America Invents Act provisions.

HOW DOMESTIC PATENT LAW PRINCIPLES WILL BE REVOLUTIONIZED

The New Law is TOPS

The proponents of the America Invents Act sought a new patent law — and a reformed patent system — operating with greater transparency, objectivity, predictability and simplicity in the determination of whether a valid patent could be granted on an invention. To a quite stunning degree, they got what they were seeking with the enactment of the America Invents Act.

Transparency. Once the America Invents Act takes full effect, only information that has become available to the public before an inventor seeks a patent for an invention — or had become publicly available from an earlier patent filing by someone else — will be used to determine whether the invention to be patented is sufficiently different from pre-existing knowledge to merit a patent. To achieve this result, the America Invents Act erases from U.S. patent law an array of archaic principles and practices that resulted in secret knowledge or secret activities — sometimes secret activities undertaken by the inventor and other times secret work done by third parties — being cited to prevent

Photo by Sen. Patrick J. Leahy

The America Invents Act, shown here after President Obama signed it, more than double the size of the bill creating the 1952 Patent Act, which recodified the entirety of U.S. patent law from scratch.


a patent from issuing or to destroy its validity once granted.

Objectiveness. In a similar manner, the new statute removes from existing patent law subjective tests that have historically been considered in the assessment of whether a patent is valid. When did the inventor first think of the invention in its completed form? On the day of the patent filing, what did the inventor contemplate would be the best mode for practicing the invention? These types of subjective inquires have no relevance under the America Invents Act. This full objectivity in patenting principles will be particularly relevant in assessing whether the inventor’s patent filing sufficiently disclosed the new invention. Henceforth, a sufficient disclosure rests on two objective standards: whether the actual embodiments of the claimed invention are properly identified in the patent, and whether those embodiments could be put to a practical and substantial use based on the information provided by the inventor in the patent.

Predictability. To a remarkable extent, the new law secures greater predictability in the assessment of a patent’s validity by removing unneeded patent law concepts that were fact-intensive and required much discovery during lawsuits to resolve. What remains is a patent law focused on legal standards in preference to extensive factual inquiries.

Predictability is further enhanced for inventors through a set of new remedial and “safe harbor” provisions aimed at permitting an inventor to address and rectify errors and omissions in the information provided to the U.S. Patent and Trademark Office prior to the grant of the patent. If an inventor is incorrectly named in the patent, the naming of the inventor can be more readily corrected. If the inventor supplied a deficient oath as to inventorship, a corrected substitute can be more readily provided and accepted. If other information was missing or incorrect during the original examination of the patent, the missing or corrected information can now be provided and considered in a new procedure that is specifically tailored for this purpose. In each of these respects, patents will become more predictably valid and predictably enforceable.

Simplicity. What the America Invents Act has in essence done is to boil the entirety of U.S. patent law down to a set of four largely legal questions and standards that, while

they fully protect the public from overly broad or overly vague patents, require little discovery and minimal fact-finding. In a sentence, once the law fully takes hold, the validity for a patent will require no more than that an inventor’s claimed invention be confined to subject matter that is:

• Sufficiently different from what was already available to the public (or previously disclosed in a publicly available patent filing made by someone else) as of the date that the inventor’s patent was sought.

• Sufficiently disclosed so that the actual embodiments of the invention are identified and can be put to a substantial and practical use.

• Sufficiently definite so a skilled person reading the patent knows what is and is not being patented.

• Sufficiently concrete so that whatever is claimed in the patent is not excessively conceptual or otherwise abstract in character.

Once the new patent law is fully implemented, patents granted under it will be valid or invalid based on whether these four legal criteria are met, producing a patent law its proponents contend is TOPS: transparent, objective, predictable and simple. Indeed, by being TOPS, basing patenting on information available to the public and largely restricting the law to legally rather than factually grounded tests for patenting, it becomes possible that in much patent litigation, little — perhaps no — discovery from the inventor may be of any relevance to the validity of a patent. This, of course, would represent a profound reversal of the situation that applies under existing U.S. patent law.

U.S. Patent Law Becomes Even More Inventor-Friendly and Collaboration-Friendly

Making the substantive patent law simpler and more transparent was, however, only the beginning of the benefits that supporters

of the new act now tout. The United States has long recognized a “grace period” during which inventors who disclosed their inventions during the year before seeking patents were not subject to their own disclosures being used against them to destroy the validity of their patents.

The America Invents Act not only continues these protections for inventors, but further enhances them with a guarantee to the first inventor to publicly disclose an invention of the right either to patent the invention, provided a patent filing is made during the one-year grace period after the disclosure, or to dedicate the invention to the public, in the event the inventor elects not to seek a patent.

The same can be said for the so-called “collaboration-friendly” features of U.S. patent law. In 1999, and again in 2004, Congress amended patent law initially to protect co-workers, and later to protect all individuals working collaboratively under joint research agreements, from having their respective patent filings cited against one another as “prior art.” Prior to these changes, an earlier-filed patent application of one such co-worker or collaborator could be cited as a ground for holding the later patent filings of any others unpatentable, even if the earlier patent filing had not become public at the time the later patent filing was made.

The America Invents Act reinforces these unique collaboration-friendly features of U.S. patent law by providing that such earlier patent filings cannot be cited to show either lack of novelty or obviousness in the later patent filing of another co-worker or collaborator. The ironclad protections of this type now found in U.S. patent law are unprecedented; foreign patent systems typically hamper collaborative work by allowing all of the earlier patent filings of inventors, co-workers and other collaborators to be cited as prior art to destroy the novelty of later-filed patents within the same organization or joint-research group.

Looking globally across patent systems today, it becomes clear that one and only one

The statute successfully retains and even enhances the historic inventor-friendly and collaboration-friendly

features that have long set U.S. patent law apart from patent systems globally.


patent system now exists that fully recognizes the realities of invention in the 21st century. In an era of cooperation and collaboration among research organizations, it is essential that patenting principles reflect that reality. The U.S. patent law now embodies the international “gold standard” for protecting the fruits of collaborative research — and can be credibly monikered as the world’s first truly 21-century patent law.

How U.S. Law Will Set The Standard for the Public’s Role in the Patenting Process

As early as 1980, Congress recognized that the 1836 model of patent examination was deficient in failing to provide any formalized means for public participation in the patenting process. In that year, Congress passed a bill providing for the ex parte re-examination of previously issued patents, on the limited ground of whether a patent or other publication raised a substantial new question of patentability. These provisions were subsequently broadened in 1999 under the American Inventors Protection Act to add an inter partes re-examination procedure.

someone challenging a patent’s validity can receive a prompt and fair adjudication of each significant validity issue raised by the challenger. The new procedures are termed “post-grant review” and “inter partes review,” with the first available only during the period immediately after a patent issues and the latter available thereafter throughout the life of the patent.

These replacement procedures are to be conducted by legally trained, technically competent administrative patent judges, not (as under current law) patent examiners. They can only be initiated through a request that provides all the legal arguments and factual support for moving ahead with the proceeding at the time the request to challenge the patent is initially lodged with the Patent and Trademark Office. They are to be confined to addressing only issues where a serious question of validity has been established, an issue that is more likely than not to invalidate the patent or for which there is at least a reasonable likelihood of invalidation.

As a result of being “front loaded” with the relevant evidence and arguments of

Patent Office typically takes five times — even 10 times — as long to resolve a “patent opposition” as the new U.S. law will permit, the new U.S. post-grant regime, if effectively implemented, may well earn the status of international gold standard for defining the mechanisms for public participation in the patenting process.

What The New Act Means for Efforts at Global Patent Cooperation and Harmonization

The America Invents Act — the world’s first truly 21-century patent law — contains all the elements needed for a patent system to operate effectively, efficiently, economically and equitably. If the decade ahead yields greater international patent cooperation and harmonization among patent systems around the world, the starting point for that effort should lie in the incorporation of its provisions into patent laws across the globe.

Should that promise be realized, the America Invents Act will have realized its full potential as the most significant patent act since 1790, not only for the United States, but for inventors and creators everywhere, as well as those who invest in the creation of new inventions, those who are employed producing and selling them, and, of course, those who are then able to benefit from them as consumers.

What the America Invents Act has in essence done is to boil the entirety of U.S. patent law down to a set of four largely legal questions and standards that require little

discovery and minimal fact-finding.

The America Invents Act phases out the 1999 inter partes procedure and instead offers what could prove to be the world’s best provisions for public participation in the patenting process. First, the new law provides effective public participation early in the patenting process — before a decision to issue a patent is made by a patent examiner. It does so by providing a formal mechanism for submitting information relevant to whether the subject matter for which a patent is being sought is new and nonobvious — sufficiently different from the prior art to merit issuing a patent.

In a more sweeping set of statutory changes, the replacement for the 1999 re-examination law provides that both the patent owner and

the challenger and limited to truly serious questions of patent validity, each of these new proceedings is subject to a one-year statutory deadline to reach a final decision. Because of the legal nature of the patent validity issues under the America Invents Act — and the limited nature of the factual matters that will underlie those legal determinations — the new procedures provide for limited discovery, assuring fairness while tightly controlling the time and costs required to get to a final resolution.

Again, the promise of the new law is nothing short of revolutionary. By moving away from the so-called “opposition” procedures used in Europe since the 1970s, where the European

Robert A. Armitage is senior vice president and general counsel of Eli Lilly & Co. Reprinted with permission from the Washington Legal Foundation. © 2011.


COMMENTARY

The New Grace Period Under the America Invents ActBy Ammon Lesher, Esq. Turner Padget Graham & Laney

On Sept. 16, 2011, President Obama ceremoniously signed the America Invents Act into law and proclaimed that the “much-needed reform will speed up the patent process so that innovators and entrepreneurs can turn a new invention into a business as quickly as possible.”1 Given the extreme partisanship that exists in Washington these days, it was refreshing to see a piece of legislation pass through the Senate by a vote of 89-9.

However, it appears that even when Congress can actually agree on something, it is still unable to formulate a comprehensive solution. Right now, there is considerable debate occurring throughout the patent world as to whether the AIA is, in fact, an improvement to our existing system. Regardless of which side of the fence you are on when it comes to the law’s impact, the AIA is arguably the most significant change to U.S. patent laws since the 1836 Patent Act, which established the modern American system of patent examination.

At the heart of the AIA is the change to a first-inventor-to-file system, which replaces the “well-developed 200-year-old American patent system that has a proven record as the best in the world.”2 This alone begs the question whether “harmonization” is in fact in our country’s best interest.

One of the most noteworthy changes in the new Section 102 is that the prior-art categories now extend to events occurring anywhere in the world. In contrast, current Section 102(a) and the “public use” and “on sale” bars under current Section 102(b) are all limited to acts occurring within the United States. The broadened scope of available prior art will undoubtedly increase the costs associated with prior-art searches conducted in furtherance of an invalidity defense.

In addition, the new Section 102 eliminates the separate categories of prior art that exist under the current laws. Currently, 35 U.S.C. § 102(a) is directed to the acts of others, versus the prior-art events set forth in Section 102(b), which are applicable to an inventor and have occurred more than one year before the filing date. Under the new Section 102 there is no segregation of these prior art-events.

Replacement of the first-to-invent system with a first-inventor-to-file system necessitated a complete rewrite of 35 U.S.C. § 102, altering the definition of “prior art” under the new regime. The complexities introduced through the new Section 102 alone are so great that it would be impossible to discuss each change in a meaningful way in this article. Therefore, this article will focus on one particular aspect of the new Section 102 that will haunt patent practitioners and litigators for the foreseeable future.

As an introduction, the new Section 102 has an effective date of March 16, 2013. This means that an application containing a single claim that is not based upon an earlier application entitled to a priority date before March 16, 2013, is governed by the first-inventor-to-file system.3 However, the transition will effectively take several years, given that an applicant will be able to file continuation applications under 35 U.S.C. § 120, with an ultimate priority date before March 16, 2013, in order to continue operating under the first-to-invent system.

Accordingly, the initial step for any patent litigator in evaluating a potential dispute must be to determine which set of patent laws is applicable to the patent at issue. Failure to perform this critical first step could lead to disastrous results.

The America Invents Act is arguably the

most significant change to U.S. patent laws

since the 1836 Patent Act, which established the modern American

system of patent examination.

Sen. Patrick J. Leahy (left) and Rep. Lamar Smith (right) sponsored the America Invents Act.

The most perplexing aspect of the AIA, however, is the ambiguity and uncertainty associated with one of the most important provisions of the new law: the grace period.

Under current law, an inventor’s own activities are excluded from the prior art if they occur within the one-year period leading up to filing.4 This uniquely American provision has fostered efficient innovation for decades, allowing inventors to fully develop their inventions and make informed decisions as to whether the cost of seeking patent protection is justified by the potential value of the technology at issue.

With the passage of the AIA, Congress has seemingly narrowed the activities protected by the grace period and introduced an unacceptable level of uncertainty that will remain until the courts are forced to resolve the issue. Under the new Section 102(a)(1), a person is entitled to a patent unless:


[T]he claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.5

The public-use and on-sale bars are well-established under the current law. However, Congress has added a new catchall category to cover inventions that are “otherwise available to the public” prior to the time an application is filed. The applicable grace period for inventors is set forth in new Section 102(b)(1)(A), which states:

[A] disclosure made one year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention … if … the disclosure was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor.6

Congress’ failure to clearly and consistently delineate the boundaries of the new grace period will create problems for years to come. Instead of preserving the comprehensive exemption for an inventor’s own acts during the one-year period before filing, Congress chose to exclude only qualifying “disclosures” from the prior art. However, new Section 102(a)(1) includes statutory bars that may or may not qualify as “disclosures” under the literal wording of the statute.

The public-use and on-sale bars were absent from the original bill introduced in 2005 and were not added until this year.7 In the 2005 bill, prior-art events under 35 U.S.C. § 102(a)(1) occurred when an invention had previously been patented, described in a printed publication, or otherwise publicly known.”8 The 2005 bill clearly defined the scope of the grace period under Section 102(b)(3)(A), which provided that:

[S]ubject matter is publicly known for the purposes of subsection (a)(1) only when (i) it becomes reasonably and effectively accessible through its use, sale or disclosure by other means; or (ii) it is embodied in or otherwise inherent in subject matter that has become reasonably and effectively accessible.9

Under subsections (a) and (b) of this provision, any prior-art event would serve as a bar only where it occurred more than one year prior to the filing of the application, or through

disclosures made by someone other than the inventor, or a joint inventor, or by others who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor.10 Clearly, in order for an event to qualify as prior art under this provision, it had be both “public” and “accessible.”

Congress’ intent to include a complete one-year exemption for an inventor’s own pre-filing actions within the 2005 act was clear and unequivocal. Further, the definitional statements within the statutory language undeniably overruled the broad definition of “public use” as set forth in Metallizing Engineering Co. v. Kenyon Bearing & Auto Parts Co.11 and its progeny. The AIA provides no such clarity.

in such activity must argue either that the literal wording of “public use” is in clear contradiction to secret commercialization; or that such commercialization constitutes a “disclosure” under the new Section 102 and is, therefore, protected if it occurred within one year prior to the filing.

In contrast, alleged infringers will argue that the term public use was preserved from the old law and must be applied in accordance with prior precedent. The fact that a provision expressly overruling Metallizing Engineering was included in the 2005 bill and subsequent versions of patent reform, but was later excluded from the AIA, will only serve to bolster this position. Therefore, each party will be forced to evaluate the merits of these types

Congress’ failure to clearly and consistently delineate the boundaries of the new grace period will create

problems for years to come.

In Metallizing Engineering, the 2nd U.S. Circuit Court of Appeals held that an inventor‘s secret commercialization of an invention creates a patentability bar against the inventor, and is considered a public use under 35 U.S.C. § 102(b).12 This holding was later followed by the U.S. Supreme Court, which recognized that “it is a condition upon an inventor’s right to a patent that he shall not exploit his discovery competitively after it is ready for patenting; he must content himself with either secrecy, or legal monopoly.”13

Further, the Federal U.S. Circuit Court of Appeals has, on multiple occasions, followed the precedent that “[a] commercial use is a public use even if it is kept secret.”14 While prior precedent has established that this type of activity constitutes a public use under new Section 102(a), it is not evident whether such public use would also constitute a disclosure under Section 102(b)(1)(A).

Congress’ affirmative addition of the public-use limitation and effective elimination of the comprehensive one-year grace period allowed for in the 2005 bill is persuasive evidence of its intent to narrow the grace period and preserve the Metallizing Engineering bar to patentability. However, this issue will not be settled until many years from now, when the first test case is brought before the Federal Circuit.

In cases involving secret commercialization activity, parties will be faced with uncertain positions. Patentees that arguably engaged

of cases with little to no guidance on how a court may interpret the critical provisions of the new law.

One commentator has suggested the AIA does in fact overrule Metallizing Engineering and that “basing patenting on information available to the public and largely restricting the law to legally rather than factually grounded tests for patenting, it becomes possible that in much patent litigation, little — perhaps no — discovery from the inventor may be of any relevance to the validity of a patent.”15 Unfortunately, this position is incorrect.

The global scope of available prior art and the seemingly narrowed protections of the new grace period mean that alleged infringers will expend substantial time and expense attempting to unearth any potentially patent-defeating event. Further, if any discovered activity originated with the inventor, the question will then become whether it was a public use, was on sale, or was otherwise available to the public under new Section 102(a), but fails to qualify as a disclosure under Section 102(b)(1). Under such circumstances, a patentee may be forced to settle a dispute for far less than its actual value, as opposed to rolling the dice on a novel interpretation of an ambiguous statute.

The AIA does many things well; however, its failure to clearly define the scope of the applicable prior art with respect to the grace


period will present significant problems in many future cases. Many commentators also question whether the grace period is personal to the inventor or whether an early disclosure by an inventor may prevent a subsequent third-party disclosure from becoming prior art.16

These arguments are indicative of the problem. One provision of the new Section 102 appears to encourage early “disclosure” of an invention, while another provision within the same statute seemingly discourages such conduct by failing to delineate the boundaries of what qualifies as a “disclosure.” Prior-art and invalidity issues are raised in practically every patent infringement case.

Before the new Section 102 becomes effective, here’s hoping that Congress will amend this particular provision, providing clarity and predictability for innovators, practitioners and the courts.

NOTES1 See Press Release, White House, President Obama Signs America Invents Act, Overhauling the Patent System to Stimulate Economic Growth, and Announces New Steps to Help Entrepreneurs Create Jobs (Sept. 16, 2011), available at http://www.whitehouse.gov/the-press-office/2011/09/16/president-obama-signs-america-invents-act-overhauling-patent-system-stim.

2 See Ron Katznelson, The America Invents Act’s repeal of secret commercial use bar is constitutionally infirm, IP Watchdog (May 31, 2011), available at http://ipwatchdog.com/2011/05/31/the-america-invents-acts-repeal-of-secret-

commercial-use-bar-is-constitutionally-infirm/id=17489/.

3 America Invents Act, Pub. L. 112-29, § 3(n)(1)(A).

4 35 U.S.C. § 102.

5 America Invents Act, Pub. L. 112-29, at 10 (1st Sess. 2011) (emphasis added).

6 Id. at 6 (emphasis added).

7 See Lamar Smith, Patent Reform Act of 2005, H.R. 2795 (1st Sess. 2005) (emphasis added).

8 Id. at 3(emphasis added).

9 Id. at 5-6.

10 Id. at 3.

11 Metallizing Eng’g Co. v. Kenyon Bearing & Auto Parts Co., 153 F.2d 516 (2d Cir. 1946).

12 Id.

13 Pfaff v. Wells Elecs., 525 U.S. 55, 68 (1998) (quoting Metallizing Eng’g, 153 F.2d at 520).

14 Kinzenbaw v. Deere & Co., 741 F.2d 383, 390 (Fed. Cir. 1984) (citing Metallizing Eng’g, 153 F.2d at 520); D.L. Auld Co. v. Chroma Graphics Corp., 714 F.2d 1144 (Fed. Cir. 1983).

15 Robert A. Armitage, Leahy-Smith America Invents Act: Will it be nation’s most significant patent act since 1790?, Wash. LegaL Found. LegaL Backgrounder, Vol. 26 No. 21 (Sept. 23, 2011), (available at http://www.wlf.org/publishing/publication_detail.asp?id=2268).

16 See Gene R. Quinn, Prior art under America Invents: The USPTO explains first to file, IP Watchdog (Oct. 4, 2011), available at http://ipwatchdog.com/2011/10/04/prior-art-america-invents-uspto-explains-first-to-file/id=19571/.

Ammon Lesher is an intellectual property attorney with Turner Padget Graham & Laney in Greenville, S.C. His practice focuses exclusively on patents, trademarks, copyrights and trade secrets, and on the procurement and enforcement of intellectual property rights for both corporate and individual clients. His work includes patent prosecution, trademark and copyright registrations, and patent, trademark and copyright litigation. He also handles inter partes proceedings within the Patent and Trademark Office. He can be reached at [email protected] or (864) 552-4640.


COMMENTARY

Advising Clients on the First-to-File SystemBy Marc Hubbard, Esq. Gardere Wynne Sewell LLP

The Leahy-Smith America Invents Act changes the American patent system from a “first to invent” to a “first inventor to file” system. What do you tell clients about the switch and, more importantly, how do you prepare them for it?

TIME TO GET READY

To make the switch from a first-to-invent system to a first-to-file system the AIA amends Section 102 of Title 35 of the U.S. Code by substituting an entirely new novelty standard bearing little resemblance to the current one.

The new standard will apply only to claims with an effective filing date on or after March 16, 2013. Applications filed before this date, as well as all claims in applications filed after this date entitled to priority from or the benefit of earlier filed applications, will be subject to the existing rules. It may seem like there is plenty of time to get ready, but clients need to start planning well before effective date of the amendment.

ABSOLUTE NOVELTY, WITH A GRACE PERIOD

The new novelty standard is essentially comprised of two parts or rules: one relating to acts and the other relating to previously filed U.S. applications.

The first rule, which is set out in the new Section 102(a)(1), is that the claimed invention cannot have been made available to the public in any way, including by patenting or printed publication, before the earliest effective filing date for the claimed invention. This is consistent with the absolute-novelty requirements in most countries. However, unlike the absolute-novelty standard used by other countries, the rule further specifies that novelty is lost when the claimed invention has been in “public use” or “on sale.” If these terms are interpreted the same as they are under current law, nonpublic events can result in a loss of novelty.

There are two exceptions to this rule.

The first, set out in Section 102(b)(1)(A), is a one-year grace period for direct or indirect

it and the claimed invention are owned by, or are subject to an obligation to assign to, the same person as of the effective filing date of the claimed invention. This first exception is consistent with current law. Second, subject matter disclosed in a prior application that was obtained directly or indirectly from the inventor of the claimed invention is not prior art. Third, subject matter in a prior application is not prior art if the inventor publicly disclosed it before the effective filing date of the prior application.

To address joint-research situations, Section 102(c) provides that the subject matter of the prior application and the claimed invention will be deemed to be owned by the same person if both were developed by or on behalf of a party to a joint-research agreement that was in effect prior to the effective filing date of the claimed invention. The claimed invention must also have been the result of activities under the agreement, and the application must identify, or be amended to identify, all parties to the agreement.

If these conditions are satisfied, a prior application of a party to a joint-research agreement will not be prior art as a claimed invention arising from the joint research (unless there has been a publication or other

disclosures of the inventor. A disclosure up to one year before the effective filing date of an invention is not considered prior art if the disclosure is made by either the inventor or someone who obtains the subject matter of the disclosure directly or indirectly from the inventor. The term “disclosure” has not been defined by the AIA.

Under the second exception, found in Section 102(b)(1)(B), a third-party disclosure of a claimed invention is not prior art if it is made after the inventor, or a person who obtains it from the inventor, publicly discloses it. Therefore, a public disclosure of an invention prevents others from patenting it and permits an inventor to wait up to one year to file a patent application without losing novelty.

PRIOR APPLICATIONS

The second novelty rule, stated in Section 102(a)(2), specifies that all patents and applications that have been published or deemed published under Section 122, and that have an earlier effective filing date than the claimed invention, constitute prior art.

The effective filing date of an application is, according to Section 102(d), the filing date of the earliest application containing the relevant subject matter, to which the application is entitled to claim priority, or which the application can claim the benefit of, under Sections 119, 120, 121 or 365. This means that all earlier filed applications, except for those that have not been published, constitute prior art, in contrast to the current novelty rule of Section 102(e), which limits the prior art effect of published applications and patents to those filed before the date of invention.

Furthermore, unlike the current rule in Section 102(e), applications claiming priority to foreign filed applications will have prior-art effect as of their priority dates and not their filing dates in the United States.

There are three exceptions to this second rule, which are set out in Section 102(b)(2). First, subject matter disclosed in a prior application is not considered prior art if both

U.S. Patent and Trademark Office Director David Kappos hailed the act.


novelty-defeating act before the effective filing date for the claimed invention).

KEY POINTS TO KEEP IN MIND WHEN ADVISING CLIENTS

Some clients believe that, under the new law, a third party who did not invent will be able to “steal” the invention from the client and obtain a patent on it. However, as is the case under current law, only a true inventor may apply for a patent. A client can be further reassured that the disclosure of the client’s invention in an application by a third party who obtained it from the inventor cannot be used against the inventor’s own application. Should the third party apply for a patent, the inventor can initiate a derivation proceeding.

Another fear, expressed by smaller clients, is that patenting will turn into a race to the Patent and Trademark Office under the first-to-file system. Unfortunately, this

clients can take some comfort that they will not immediately lose their U.S. patent rights by disclosing an invention to a third party or by publishing details of it, or that actions of third parties who obtain information about the invention cannot result in a loss of rights.

But clients should be cautioned that such disclosure presents yet additional risks. If it is a public disclosure, the client will most likely lose patent rights in most countries outside the United States. Furthermore, determining whether a third party obtained the invention from the client, particularly if the client made a public disclosure, may be difficult or impractical and we do not yet know what type of showing will be required to prove that information about the invention in a publication or prior application was obtained from the inventor.

A client now also has the interesting option of publicly disclosing the invention as a way

cannot be used against it when evaluating obviousness, third party applications filed in the interim could be used in combination with other references to demonstrate obviousness. Waiting up to a year to file an application could be the difference between the invention being not obvious and obvious. After a year, the public disclosure also can be used to show obviousness of, for example, the client’s own improvements.

Finally, it is critical to keep in mind that a commercial use or offer for sale by the inventor might not be treated as a disclosure and thus receive the benefit of the one-year grace period. If “public use” and “on sale” continue to be interpreted as they are under current law, these acts will not necessarily involve a disclosure of the invention to a third party, and they will involve more than a mere disclosure. It will likely be many years before the Federal U.S. Circuit Court of Appeals provides guidance on these issues.

Officials at the PTO have sidestepped the issue on how to interpret the new Section 102 for now, saying that the courts will need to answer these questions. Until there is some case law on the issue, the prudent counsel to clients would be to avoid commercial use, offers for sale, or any novelty-defeating activity that could be viewed as more than a mere disclosure, until a decision on filing an application is reached.

INTERIM STRATEGIES

Clients may continue to use their current patenting strategies in advance of the switch to the first to file system, but they should make a couple of adjustments.

Clients should seriously consider filing applications before March 16, 2013, on any invention ready to patent, as the old law is likely to be more advantageous from a patentability perspective than the new law. Furthermore, unless there is clarification on the issue of whether offers for sale and commercial use constitute disclosures, an application should be filed, as a precaution, before the 2013 switchover date on any invention that may have been in public use or on sale before that date.

Clients who are considering the strategy of making a public disclosure of an invention before filing an application should consider the possibility of beginning to make such public disclosures starting March 16, 2012.

A public disclosure of an invention prevents others from patenting it and permits an inventor to wait up to one year

to file a patent application without losing novelty.

fear may turn out to be real. PTO Director David Kappos and others have been saying that it will be important to file “early and often.” On the one hand, under the current first-to-invent system, it has always been better to file earlier than later due to the risk of third-party activities creating bars to patenting. On the other hand, the new first-to-file system poses additional risks. Third-party activities will have immediate prior-art effect in most cases, rather than prior-art effect only after one year. Furthermore, previously filed applications can be used not only for determining novelty, but also to show obviousness.

The race to get an application on file with the PTO will, of course, need to be balanced against the increasing importance in the United States of a well-prepared specification that will support the desired scope of claims. Deciding when an invention is ready for patenting will be a difficult call. One solution might be filing a series of applications as development work continues, but such an approach will be much more costly, even if the applications are filed provisionally.

Although the risk of unpatentability increases the longer a client waits to file an application,

of creating, in effect, a priority right in the United States. In addition to cutting off the possibility of a third party obtaining a patent on the invention in a patent application filed after the publication, a publication of the invention will preserve a right to file an application on the invention for up to a year. Thus, for a client not interested in patenting the invention outside the United States, promptly publishing a description of the invention will give the client time to figure out whether to patent the invention, and at the same time create prior art against third parties obtaining a patent on the invention or an obvious variant of it. For clients with limited resources, publication could partially offset the need to rush to the PTO.

However, a public disclosure does have disadvantages. It will force the client to make a decision on applying for a patent within a 12-month period, when the client might not have the resources to file an application, is still developing the invention or otherwise cannot make a decision.

Furthermore, obviousness will now be determined as of the filing date of the application, not as of the date of invention. Although a client’s prior applications


AFTER THE TRANSITION

Following the switchover March 16, 2013, and until there is clarification on what is meant by “disclosure,” it would be wise for all clients to file applications before engaging in any activity that might be considered a public use or an offer for sale until a priority application is filed.

As most applications will be prior art as of their filing date, even for obviousness purposes, filing “early and often” is probably the best strategy going forward. Everyone will need to make decisions more quickly on when an invention is ready for patenting timing.

Whether and when to publish details of an invention will likely involve a balancing of interests. For inventions that will definitely not be patented and cannot be kept secret, an early publication seems to be a logical choice. If the client is considering only domestic protection, publication might still be an attractive option, but the benefits need to be balanced against the disadvantages mentioned above and the loss of trade secret protection.

Clients with international filing strategies already in place will probably not make significant changes to their existing strategies, unless they were engaging in secret commercial use or making secret offers for sale before filing a priority application, or unless they want to incorporate pre-filing publication into their strategy for categories of inventions not meriting patent protection outside the United States or any patent protection at all.

• The claimed invention cannot have been made available to the public in any way, including by patenting or printed publication, or by being in public use or on sale.

• All patents and applications that have been published or deemed published under Section 122, and that have an earlier effective filing date than the claimed invention, constitute prior art.

The Two Parts to the New Novelty Standard Under

35 U.S.C. § 102(a)

Marc Hubbard, a partner in the Intellectual Property practice group in the Dallas office of Gardere Wynne Sewell LLP, counsels businesses of all sizes on IP issues and strategies. His practice focuses on patent-related counseling, opinions, portfolio management, prosecution, post-grant proceedings, and litigation, primarily in the electronics, mechanical, computer software, and business method fields. He is currently the vice-chair of the American Intellectual Property Law Association’s Patent Law committee. His email address is [email protected].

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COMMENTARY

United States Converts to First-to-File Patent SystemBy Edward Fan, Esq., and Karen Townsend, Esq. Torys LLP

On Sept. 16, the Leahy-Smith America Invents Act was signed into law, implementing the most significant changes to U.S. patent law in more than half a century. These changes affect many aspects of U.S. patents, including the registration process for patents, the post-grant review of patents and patent litigation. Although many of the provisions under the AIA will take effect a year or more from now, some took effect as soon as the legislation was signed into law and others will go into effect soon. Below we highlight some of the more significant features of the AIA.

PRE-GRANT CHANGES

First to Invent

The AIA changes the U.S. patent system from a first-to-invent system to a first-to-file system, which is consistent with patent laws of most other countries, including Canada. Until now, an inventor who was not the first to file for a patent in the United States could nonetheless challenge a patent application previously made by others for the same invention through an interference proceeding, on the basis that the inventor was the first to invent the invention.

Under the AIA, interference proceedings will eventually be phased out and will be replaced with derivation proceedings. In derivation proceedings, the later inventor to file a patent application on the same invention can challenge an earlier-filed application only on the basis that the first inventor “derived” the invention from the second inventor.

These changes will become effective March 16, 2012, and will relate to applications with an effective filing date on or after Sept. 16, 2011.

Prior Art

Along with the change from a first-to-invent to a first-to-file system come changes to the way prior art is assessed. Under the AIA, assessment of both novelty and obviousness of a patent claim will be based on the effective filing date of a claimed invention, rather than the previously used date of invention.

In addition, the AIA eliminates the ability to “swear behind” independently derived

third-party patents and publications based on an inventor’s earlier invention date. The AIA also removes territorial limitations that used to be applicable to public uses and sales as bars to patentability.

However, the new law continues to provide a one-year grace period, allowing for exclusion as prior art any disclosure made one year or less before the effective filing date by the inventor (or someone who obtained the information directly or indirectly from the inventor).

These changes will become effective on March 16, 2012, and will relate to applications with an effective filing date on or after Sept. 16, 2011.

Prioritized Examination

As of Sept. 26, 2011, it was possible to request prioritized examination of a patent application. This program of prioritized examination will allow accelerated examination without requiring the applicant to submit additional search or support documentation. A patent undergoing prioritized examination must have a limited number of claims, and the additional fee for large-entity applicants is currently set at $4,800.

Ineligible Subject Matter

The AIA stipulates that as of Sept. 16, 2011, tax strategies are deemed insufficient to distinguish pending patent claims from the prior art (that is, tax strategies are deemed to be the prior art). Therefore, all pending and future applications directed solely to tax strategies will not be patentable. In addition, the AIA states that “no patent may issue on a claim directed to or encompassing a human organism.”

POST-GRANT CHANGES

Supplemental Examination

Beginning Sept. 16, 2012, a new post-issuance proceeding called “supplemental examination” will allow a patentee to correct errors or omissions made during

the registration process of its own patent application. The supplemental examination proceeding will allow the patentee to present information that was inadequately considered, was not considered at all or is incorrect and might otherwise lead to an allegation of inequitable conduct.

Post-Grant Review Process

The AIA establishes a new post-grant review process. An interested third party may request such a review within nine months of the issuance or reissuance of a patent by demonstrating that it is more likely than not that one or more patent claims are unpatentable. Unlike current re-examination proceedings, the post-grant review is not limited to questions of novelty and obviousness, but can be based on other grounds for invalidating a patent.

Inter Partes Review

The AIA also replaces the current inter partes re-examination procedure with a new “inter partes review” process. This process can only be requested nine months after the issuance or reissuance of a patent or after the conclusion of any post-grant review that may have been instituted. As with the old inter partes re-examination process, the inter partes review can be brought only on grounds of lack of novelty or obviousness based on patents or printed publications.

The standard for being granted an inter partes review has also changed from requiring a substantial new question of patentability to a showing of reasonable likelihood of success that the requestor will prevail on at least one of the challenged claims. The inter partes review proceedings will not begin until Sept. 16, 2012, but the new standard for granting an inter partes review takes effect immediately with respect to inter partes re-examination.

Transitional Post-Grant Review of Business-Method Patents

The AIA creates a special post-grant review procedure for persons who have been accused of infringing a patent directed to the


practice, administration or management of a financial product or service. Such a person can challenge the asserted patent at the U.S. Patent and Trademark Office in a post-grant review, which can be used as a ground to stay a civil action. This provision of the AIA will expire eight years after Sept. 16, 2012, unless renewed by Congress.

Virtual Marking

To comply with marking requirements under the AIA, a patentee may now mark an article with the word “Patent” or the abbreviation “pat.,” together with an Internet address accessible to the public free of charge that associates the patented article with the number of the patent.

LITIGATION MATTERS

Prior-Commercial-Use Defense to Infringement

The AIA broadens the prior-commercial-use defense, which previously applied only to patented business methods, to now include continued commercial use of subject matter used in a manufacturing or other commercial process at least one year before the filing or public disclosure of a claimed invention.

The new defense can be used against any patent issued on or after Sept. 16, 2011. However, some exceptions for the use of this defense may apply to nonprofit research laboratories and other nonprofit entities such as hospitals and universities.

Edward Fan (left) of Torys LLP focuses on the acquisition, enforcement and exploitation of intellectual property in patents, trademarks, copyrights and industrial designs. In addition to advising on issues relating to information management, he is also involved in negotiating and drafting intellectual property and other technology-related licenses and agreements. His work includes evaluating, procuring and protecting rights in the electronics, telecommunications, medical devices, computer technology and manufacturing industries. Fan is a registered patent agent in Canada and the United States. Karen Townsend (right) focuses on intellectual property matters. She has substantial experience in drafting, filing and prosecuting U.S. and foreign patent applications in the areas of biotechnology, pharmaceuticals and chemistry. Townsend also has significant expertise in drafting patentability, validity, infringement and freedom-to-operate opinions, as well as advising clients on establishing and improving their patent portfolios. She is a registered patent agent in the United States. Torys LLP is an international business law firm with offices in New York, Toronto and Calgary.

Interference proceedings will eventually be phased out and will be replaced with derivation proceedings.

Best Mode

The AIA also eliminates the failure to disclose the best mode of practicing an invention as grounds for canceling a patent or holding a patent invalid or unenforceable. This new provision applies only to proceedings filed on or after Sept. 16, 2011. For the invention to be patented, however, the patent application must still disclose the best mode contemplated by the inventor for practicing the invention.

Joinder

The AIA also prevents a plaintiff from suing multiple defendants in a single lawsuit if the only justification for the joinder is that all defendants are alleged to have infringed the same patent. This law applies to all proceedings filed on or after Sept. 16, 2011.


COMMENTARY

Post-Grant Review: A PreviewBy Robert G. McMorrow Jr., Esq. Connolly Bove Lodge & Hutz LLP

The America Invents Act has now been signed into law. Among the changes enacted to the U.S. patent laws is the introduction of a “post-grant review” of issued U.S. patents, pursuant to which an interested party may seek to cancel one or more claims of a granted U.S. patent.

Congress expressed the view, contained in the act’s legislative history, that post-grant review procedures will improve the quality of issued patents and make the presumption of validity that applies in patent infringement actions more meaningful.

The post-grant review procedure described below takes effect on Sept. 16, 2012. Before that date, the U.S. Patent and Trademark Office will promulgate the implementing regulations.

BASICS OF POST-GRANT REVIEW

Post-grant review is an administrative procedure in the PTO through which any person or entity other than the owner of the patent may challenge the patentability of any one or more claims of a granted U.S. patent.

Review is sought by filing a petition in the PTO within nine months after grant of the patent.

requirement or the enablement requirement of 35 U.S.C. § 112, or lack of utility under 35 U.S.C. § 101.

For a petition to be granted, the PTO must determine that the petition establishes “that it is more likely than not that at least one of the claims challenged in the petition is unpatentable.”

Upon initiation, the review will be conducted and decided by the (re-named) Patent Trial and Appeal Board. This is a distinction from current re-examination, which takes place initially before a single examiner and before the board only if the examiner’s decision is appealed.

In post-grant review, the petitioner bears the burden to prove unpatentability of the challenged claims by a preponderance of the evidence. The parties are entitled to oral argument before the board. The board is required to issue a written decision that addresses patentability of all challenged claims and all claims added by the patent owner during the review proceeding. The entire review procedure in the PTO must, according to statute, be concluded within one year.

At the conclusion of the review, the PTO will issue a certificate indicating whether or

The grounds of unpatentability must be explained “with particularity.”

The evidence supporting the petition may include prior art (e.g., patents or publications), factual declarations and expert declarations. In determining whether to grant the petition, the PTO will consider the sufficiency of the allegations and the sufficiency of the evidentiary support for the allegations.

The PTO will also consider whether the same or substantially similar grounds of unpatentability, or substantially the same prior art, were previously presented to the PTO.

While the PTO is entitled to consider whether the alleged prior art is new or previously of record, experience with re-examination would suggest that even “old art” can be a proper basis for post-grant review, where the “old art” was not correctly or fully considered in prior PTO proceedings.

Alternatively, or in addition, the petition may demonstrate that the issue to be decided in post-grant review raises “a novel or unsettled legal question that is important to other patents or patent applications.”

The law provides for a “preliminary response” by the patent owner, which must be filed before the PTO reaches a decision whether to grant the petition. In that preliminary response, the patent owner may assert that the petition is somehow deficient and does not justify the initiation of a post-grant review.

The forthcoming rules may provide that acceptance of the patent owner’s preliminary arguments could end the review peremptorily, without the merits of patentability being addressed.

For example, if the patent owner’s preliminary response correctly points out a procedural deficiency in the petition, or that the petition lacks the required particularity of pleading, the petition will likely be dismissed.

TIMING

The PTO must decide whether a post-grant review proceeding will be initiated within three months of the filing of a preliminary

Unlike current re-examination, the post-grant review procedure is not limited to challenges based on

prior-art patents or printed publications.

Unlike current re-examination, the post-grant review procedure is not limited to challenges based on prior-art patents or printed publications. The petition may allege as grounds of unpatentability one or more of the grounds specified as defenses in Section 282 of the U.S. Patent Act.

For example, under the new law, the grounds asserted in the petition could include public use, sale or other public knowledge of the invention that occurred prior to the effective filing date of the challenged patent. Challenges can also be made asserting that the claims are unpatentable for failure to comply with the written description

how the patent claims have been changed by cancellation or amendment as a result of the review. Intervening rights will apply to amended claims of the patent.

Any party to the review that is dissatisfied with the board’s decision may appeal from the decision to the U.S. Court of Appeals for the Federal Circuit.

PROCEDURE

A post-grant review is initiated by filing a petition in the PTO, which must be accompanied by the evidence that establishes the alleged grounds of unpatentability.


response to the petition, or three months after its due date if no preliminary response is filed.

If the petition is granted, a review proceeding will be initiated and the petitioner and patent owner will be notified accordingly. The determination by the PTO of whether or not to grant the petition is final and cannot be appealed.

The patent owner will be provided with an opportunity to respond to the merits (to defend patentability of the claims), including one opportunity to cancel or amend the patent claims. The statutory language limits the patent owner to offering a “reasonable number” of substitute claims. The claim scope cannot be enlarged in relation to the original patent claims, and introduction of new matter into the patent is prohibited. Only one opportunity to amend or add claims is provided to the patent owner as of right.

Additional amendments are permitted only upon consent of all parties in connection with settlement, or upon a showing of “good cause” by the patent owner.

The petitioner is given at least one further opportunity to respond in writing to the patent owner’s arguments.

Presumably the regulations will fix the time for petitioners to reply and comment on the patentability of amended or substitute claims proposed by the patent owner.

Since the opening petition and the patent owner’s response can include declaration testimony, the implementing rules will provide

opportunity for live cross-examination of any witness whose declaration is offered into the record.

This implies a substantial time period between each responsive paper filed by the parties to allow adequate time for the cross-examinations and for use of the cross-examination results in the subsequently filed response.

As is currently the case in interferences, it is expected that live cross-examination will take place only within the United States, absent exceptional circumstances.

The law expressly contemplates consolidated post-grant review proceedings involving multiple petitioners. It is not difficult to foresee a one-year schedule being very constrained in a case involving multiple petitioners, each of which presents a complex evidentiary record and testimony of multiple witnesses. The board is given the discretion to extend the one-year period by a single six-month period.

The statute also allows for joinder of additional parties into an already-initiated review proceeding. Addition of a new party into a review that has already significantly progressed could be complicated, and the right of a later entrant to participate may not be unlimited.

COST/BENEFIT ASSOCIATED WITH POST-GRANT REVIEW

As the U.S. Supreme Court recently reaffirmed, a claim of an issued U.S. patent, when challenged in a U.S. district court, must be proven to be invalid by “clear and convincing” evidence.

By contrast, in a post-grant review, a preponderance-of-evidence burden of proof applies. The absence of any presumption of validity, and the differing burden of proof, means that the burden of proving unpatentability may be more easily carried in a post-grant review than in district court litigation.

The differing burden of proof could be particularly important in dealing with specific types of patent claims, such as claims that recite a functional limitation and present an issue as to whether the recited functional limitation is inherent in the prior art.

In addition, in proceedings before the PTO, the claims under review are given their broadest reasonable interpretation in view of the specification. In addition to the possibility of forcing the patent owner to cancel or amend the claims, the review process can also lead to clarification or limitation of the meaning of the claims on the public record.

Post-grant review will allow a party to challenge the claims of a granted patent without being subjected to the costs and rigors associated with patent infringement litigation in a district court. Discovery during a review is limited by the statutory language to discovery of evidence directly related to factual assertions advanced by either party in the proceeding. Since the factual assertions will be limited to assertions that are ancillary to patentability issues, the scope of any permissible discovery will be narrow.

Past experience with interferences suggests that the board will be reluctant to allow additional discovery, and the administrative record will normally consist only of the evidence the parties choose to present and the associated cross-examination evidence.

ESTOPPEL

Cautioning against indiscriminate use of the post-grant review procedure is the estoppel provision associated with the conclusion of a post-grant review.

The grounds of unpatentability must be explained “with particularity.”

Given the statutory one-year limit to complete post-grant reviews, the scheduling order in a review proceeding may look something like this:

Owner response/amendment ...............................................................4 months(including cross of petitioner’s declarants)

Petitioner reply .......................................................................................7 months(including cross of owner’s declarants)

Patent owner observations ................................................................... 8 months(including cross of reply declarants)

Filing the record .....................................................................................9 monthsOral hearing ......................................................................................... 10 monthsDecision ................................................................................................ 12 months


An unsuccessful review can limit the petitioner’s right to plead patent invalidity both in later PTO proceedings and in later district court litigation. Specifically, the petitioner and its privies are estopped by a final written review decision from later challenging the patent on any grounds that were “raised or which reasonably could have been raised in the post-grant review.”

It is troublesome to contemplate the scope of what grounds “reasonably could have been raised.” The analogous language addressing the estoppel created by inter partes re-examination, found in 35 U.S.C. § 315(c), expressly exempts newly discovered prior art from the scope of the estoppel, whereas the language of Section 325(e) of the America Invents Act contains no such exemption. The difference between these statutory provisions creates an implication that, in the case of post-grant review, there is an even higher burden to identify all relevant prior art grounds before filing the petition.

The act as passed includes the estoppel provision as contained in the bill passed by the U.S. House of Representatives, H.R. 1249. The earlier Senate bill, S. 23, contained a less expansive estoppel provision, which provided that a petitioner would be estopped in later civil litigation only as to issues actually raised and actually decided during the review.

Since the House version of the estoppel provision is contained in the law as enacted, it will be strategically important to identify all of the relevant and applicable grounds upon which to challenge the patent at the time the petition is filed. The due diligence associated with a well-presented petition could be considerable.

It will also be important to carefully prepare the initial petition and accompanying evidence to provide full support for the unpatentability contentions. As many practitioners have learned, the board does not credit argument with having the force of evidence. Again by analogy to interference trial practice, the board is not likely to allow supplementation of the evidence presented in the initial petition in any reply paper filed by the petitioner.

Rebuttal evidence with the petitioner’s reply will probably be limited to addressing the patent owner’s evidence and claim amendments. New arguments in reply, or presentation of additional evidence needed to fully make out the grounds alleged in the opening petition, will probably not be permitted. For these reasons, a thorough understanding and investigation of

the issues raised in the petition, at the time the petition is filed, will be an advantage.

It should also be kept in mind that the Federal U.S. Circuit Court of Appeals reviews the factual findings of the board under a deferential “substantial evidence” standard. It is therefore important to win on disputed issues of fact at the board level. This consideration likewise favors thorough consideration and preparation of the opening petition.

While both benefits and risks will be associated with post-grant review, the low cost in relation to patent litigation should be an important factor driving utilization of the review procedure. The one-year time frame, while compressing the activity and cost into a tight schedule, will prevent the review from becoming drawn-out. The review will be focused on patentability as the sole relevant issue, which will further reduce cost in relation to litigation. Due the availability of live cross-examination of witnesses by deposition, which tends to add cost, a review proceeding may be more costly than a comparable European opposition.

OTHER POINTS

The parties to a review can terminate the proceeding by settlement at any point prior to the board’s decision on the merits, in which event no estoppel arises against the petitioner. The parties are required to file settlement agreements with the PTO, optionally under seal. However, unlike 35 U.S.C. § 135(c) relating to interference settlement agreements, the act provides no express penalty against the patent owner if a settlement agreement is not filed in the PTO.

All information submitted in the review will be made publicly available. A mechanism will exist for a party to move the board to seal confidential information from public disclosure. Protective orders will be available to restrict use of confidential information exchanged between parties.

A petition cannot be filed by a party who has previously filed a civil action challenging the validity of a claim of the same patent, although this prohibition does not apply to a party filing a counterclaim asserting invalidity. A later or concurrently filed civil action filed by the petitioner asserting invalidity of a claim of the patent will be stayed automatically in favor of the post-grant review proceeding.

The post-grant review proceeding is overall very similar to the new “inter partes review” proceeding that is also being created.

The proceedings differ primarily in terms of the scope of grounds permitted to be raised, and when the proceeding may be initiated. The inter partes review proceeding, like current re-examination, will be limited to consideration of unpatentability over patents and printed publications. An inter partes review proceeding may not be initiated until after nine months after patent grant, or the conclusion of any post-grant review proceedings, whichever is later, but thereafter may be filed any time during the life of the patent.

The current ex parte re-examination procedure will remain available. Current inter partes re-examination is being phased out in one year, being replaced by inter partes review.

CONCLUSION

How extensively the post-grant review will be utilized remains to be seen when the procedure goes into effect in one year. Many of us remember the expectations surrounding the introduction of inter partes re-examination, which went largely unrealized, primarily due to concern over the estoppel provisions. The post-grant review legislation itself anticipates enthusiastic utilization, since the PTO is authorized to limit the number of reviews during the first four years following enactment.

Robert G. McMorrow Jr. is a partner in the Intellectual Property Group of Connolly Bove Lodge & Hutz LLP. He represents clients in patent counseling and opinions, interferences, and patent prosecution including reissues and re-examinations, in the pharmaceutical, chemical and biotechnology arts. He can be reached at [email protected]. The views expressed are those of the author and not necessarily those of Connolly Bove Lodge & Hutz.


COMMENTARY

Challenging a Patent: Before and After the America Invents ActBy Ed Walsh, Esq., and Janice Vatland, Esq. Wolf, Greenfield & Sacks

reply. Thereafter, the third party does not participate.

The remainder of the proceeding is between the examiner and patent owner with only the patent owner being able to appeal the examiner’s final decision to the Board of Patent Appeals and Interferences. In inter partes re-examination, however, a third party actively participates and may respond each time the patent owner files a response.

Once the examiner makes a decision in inter partes examination, either the patent owner or the third party may appeal. However, a third party is estopped from later asserting in district court that a claim is invalid based on grounds that were “raised or could have been raised” during the re-examination.

Intervening rights can limit or prevent liability for infringing a claim added or amended during re-examination, where actions that might otherwise give rise to infringement are initiated before a certificate concluding the re-examination is issued. Thus, it is important for patent holders in re-examination to consider the consequences and avoid amendments so that at least some strategic claims may be maintained unamended.

RE-EXAMINATION AFTER THE AMERICA INVENTS ACT

Under the AIA, there are numerous changes to post-grant challenges that are intended to streamline the process and increase the desirability of challenging a patent through the PTO. Below is a description of how re-examination will differ under the act.

INTER PARTES RE-EXAMINATION

Inter partes re-examination, used in many of the most hotly contested patent cases, will be replaced by inter partes review and post-grant review in September 2012. These procedures are conceptually similar to each

Patent re-examination continues to gain momentum as a strategic way for businesses to avoid liability for patent infringement. The America Invents Act, signed into law by President Obama Sept. 16, makes extensive changes to portions of the U.S. Patent Act relating to post-grant challenges of issued patents.

These changes are intended to streamline and reduce the costs of resolving disputes over the validity of a patent. The fundamental goal of re-examination will remain: to provide a mechanism to have someone who is technically skilled and versed in the nuances of patent law take an objective second look at an issued patent.

RE-EXAMINATION BEFORE THE AMERICA INVENTS ACT

Re-examination is a proceeding within the U.S. Patent and Trademark Office in which an issued patent is examined to determine whether one, some or all of the claims of the patent are invalid in view of prior art that raises a substantial new question of patentability. A request for re-examination may be initiated by the PTO or requested by the patent owner or a third party.

Re-examination can be either ex parte or inter partes. Unless initiated by the PTO, both proceedings begin in the same manner with the filing of a request for re-examination in response to which the PTO determines whether a substantial new question of patentability exists. If it does, the request is granted, and a proceeding occurs where a patent examiner, who understands patentability and likely the technology underlying the invention of the claims, reassesses validity of challenged claims of the patent.

In ex parte re-examination, the patent owner has an opportunity to respond to the request to dispute that there is a new question of patentability. If the patent owner responds, the third party is given two months to file a

The fundamental goal of re-examination will remain: to provide a mechanism to have someone technically

skilled and versed in the nuances of patent law take an objective second look at an issued patent.

The PTO conducts re-examination proceedings with “special dispatch” with an interest in closing prosecution as quickly as possible. In fact, by statute, once a re-examination is requested, the request must be granted or denied within three months, and in inter partes re-examinations, the first office action typically accompanies the notice that the request has been granted. Thereafter, rigid timelines are imposed for responding to office actions and submitting evidence, with extensions of time not permitted without sufficient cause.

Re-examination currently allows a patent owner to amend or add new claims, provided that the claim scope is not broadened. This can provide an opportunity for a patent owner to obtain claims that overcome the prior art while still capturing infringing acts. However, intervening rights can be created by such amendments.

other in that both are initiated by a third party challenging the validity of an issued patent.

However, post-grant review must be requested within nine months of issuance and expands the types of defects in a patent that may be challenged to include failures to meet any statutory requirement of patentability, as well as novel legal questions affecting patentability. Challenges under post-grant review need not be based on prior art or documents.

Inter partes review, on the other hand, will be limited to challenges based on prior art documents as in current re-examination practice.

For a request to be granted under the new regime, it must establish a prima facie case that at least one claim is invalid by a preponderance of the evidence. In the past, a “new” question — one not considered


before the patent was granted — had to be shown. This change in the threshold showing required applies immediately. Though the effect of this change was much debated, the difference is illusory.

Proving that a claim is likely invalid, though seemingly harder than merely raising a question of validity, in practice is not likely to matter. It has always been ill-advised to merely question the validity of a patent without being able to offer proof of invalidity. In fact, statistics of inter partes re-examinations, in which at least one claim was canceled or amended, suggest the new standard would have been met at least 87 percent of the time.

Of potentially more significance, under the new law the basis of invalidity does not have to be “new.” Re-examination is now appropriate, even in scenarios in which the “best” prior art was before the examiner, but the examiner failed to appreciate it. Abolishing the need for a new question may have ramifications, even before issuance of a patent, for those concerned about a competitive patent.

In addition to expanding challenges available post-grant, the new law expands a challenger’s ability to notify a patent examiner about prior art to a pending application — and to provide an explanation of why it should block issuance of the application. By removing the requirement that a post-grant challenge be based on a “new” question, challengers may feel more comfortable submitting prior art in an attempt to persuade a patent examiner to reject or limit a patent application before it is issued. If unsuccessful, challengers will retain the ability to challenge the patent on the same basis after grant.

Other departures from current practice will be apparent if the PTO grants a request for a post-grant challenge. Both of the new proceedings will be streamlined, with a mandate to be completed within one year from the PTO decision granting a request for review. The patent owner will be given time to respond to the request, the PTO will have time to consider the request and the process could be extended for six months for good cause. Nevertheless, the full proceeding is likely to be over in 15 to 24 months from the date on which a proper request for review is submitted. That time is faster than most district courts take to resolve issues of patent validity.

In order to achieve a streamlined process, the requester is expected to submit a complete case, including evidence, such as declarations, with the request. Additionally, the patent owner normally will get only one opportunity to amend the claims by canceling or replacing claims with “a reasonable number of substitute claims.”

While all of the details of the process are not yet known, as the PTO is tasked with developing rules over the next year, it is likely that there will be limited opportunities for a challenger to submit evidence or new grounds for invalidity once the process is under way. Further streamlining the process, there will be no possibility of appeal within the PTO or to a district court (which generally affords an opportunity to further develop evidence). Any appeal will go directly to the Federal U.S. Circuit Court of Appeals.

Another significant change is that the proceedings will be conducted before a new Patent Trial and Appeal Board. There will be no examiner. Either party can request an oral hearing. Additionally, discovery will be allowed, but limited, consistent with the nature of the proceeding, to the factual assertions made by either party.

In inter partes review, discovery is largely limited to depositions of declarants, if declarations are submitted. In post-grant review, however, where challenges are permitted on a wide range of grounds, discovery may be much broader. Protective orders and sanctions will even be available.

But, be warned. Despite these litigation-like characteristics, those contemplating or facing a post-grant challenge should not cavalierly assume that these proceedings are just like litigation. The PTO is likely to enact rules that put its distinctly patent-like spin on these proceedings. The rules of practice before the Patent Trial and Appeal Board are expected to

• The streamlined process will require much more advanced preparation and tough tactical decisions.

• Deciding between post-grant challenge and litigation will become more of an either/or choice.

• Settlement of post-grant challenges will now be permitted, thus placing a premium on a patent practitioner’s ability to project how the PTO will decide a re-examination.

• The risks and benefits of taking action now under the current rules, or waiting for the new procedures to roll out over time, must be carefully considered.

Strategic Considerations Brought About by Changes

in Post-Grant Challenge Procedures

Of potentially more significance, under the

new law the basis of invalidity does not have

to be “new.”

be modeled after rules currently in place for interference proceedings, which are known to require special skills to navigate.

In addition, the interplay between re-examination and litigation is modified. Post-grant challenge and litigation will become more of an either/or choice. Re-examination must be requested within one year of a suit enforcing the patent. Also, a requester is not allowed to maintain a declaratory judgment action in court while making a post-grant challenge but can pursue a counter claim for invalidity if sued. However, the existence of a post-grant review will not be a basis for denying a preliminary injunction if an infringement action is filed within three months of patent grant. Furthermore, a decision on validity in litigation does not automatically end a re-examination proceeding.

A new strategic consideration enabled by the AIA is that settlement of post-grant challenges is now permitted. Any settlement agreement must be in writing and recorded with the PTO, but can remain confidential.

The possibility that a re-examination can be privately settled after being declared by the PTO may make re-examination an attractive option for disputes when a business resolution, rather than complete victory, is the goal. In addition to expanding the role of re-examination, this new dynamic of settlement will place a premium on a patent


practitioner’s ability to project how the PTO will decide a re-examination in order to guide clients in strategizing settlement. This skill may be particularly important if there should be a judgment in a parallel proceeding in district court, which doubtlessly will leave one party dissatisfied, but under the new regime does not automatically terminate the re-examination.

Of course, many elements of inter partes re-examination remain. Estoppel still applies, if the proceeding goes to a final decision on a challenged claim, and includes the same standard, precluding litigation of

anonymously — which can be important for those worried about a patent before their business is known to the patent holder.

IMPLICATIONS

Other than the immediate effect of the threshold showing required to institute re-examination, these procedures will roll out over time. Inter partes review will replace inter partes re-examination in September 2012. Post-grant review will nominally be available six months later, but will apply only to patents that have an earliest priority date after that time, such that it may be several

Even more so than under the current re-examination system, advanced preparation will be crucial for both patent owners and challengers. The streamlined process will require much more forethought and tough tactical decisions on the part of both patent owners and challengers. Even actions that are seemingly as simple as lining up counsel who can field a team experienced in the myriad skills needed to successfully navigate the new regime of patent challenges can pay huge dividends. Once an expedited post-grant challenge takes off, there will be little time and few opportunities to correct its course.

Setting a course from the outset, guided by the strategic interplay of litigation and post-grant challenge, as well as a company’s commercial objectives and its technology, will be a key to navigating the new realities of patent challenges under the AIA.

Ed Walsh (top) is a shareholder at Wolf, Greenfield & Sacks and co-chair of the firm’s re-examination practice group. Janice Vatland, (bottom) an associate at the firm, is a member of its biotechnology, pharmaceutical and cleantech practice groups.

The rules of practice before the Patent Trial and Appeal Board are expected to be modeled after rules currently in

place for interference proceedings, which are known to require special skills to navigate.

issues raised or that could have been raised. Intervening rights also will continue to apply, as will the special care needed by patent owners to mitigate their impact.

EX PARTE RE-EXAMINATION

Ex parte re-examination will be substantially unchanged. It will remain a useful option both for patent owners and for challengers. Patent owners have found ex parte re-examination a useful tool to dispel doubts blocking their efforts to license a patent or stop infringement by those who deny the patent’s validity. In fact, about half of all ex parte re-examinations today are requested by patent owners.

Even so, a new “supplemental examination” proceeding may better fit the bill in some circumstances. However, the desirability of ex parte re-examination will remain in many cases, providing an opportunity to add claims to or amend claims of a patent and to work with an examiner, such as through ex parte interviews. These characteristics may make proactively initiating ex parte re-examination an even more desirable option if a post-grant challenge is expected.

For challengers, ex parte re-examination, though it will move at a slower pace than the new post-grant review proceedings, will still have characteristics that will be desirable in some circumstances. It avoids the risks associated with estoppel, likely entails a lower cost and can be requested

years before the PTO conducts its first post-grant review.

Though this roll out may seem too far in the future to warrant attention now, the new mechanisms for challenging patents under the AIA provide strategic opportunities for companies to manage risks from competitive patents.

Companies should use that time to consider whether and how to monitor competitive patent applications to be ready to challenge them — either before or after grant. In this regard, the parallels between post-grant review and European-style oppositions should not be overlooked. The benefits that many companies gain from oppositions — even if only to clarify the scope of competitive patent rights — should be expected in the United States. Moreover, for any active or looming disputes, the risks and benefits of taking action now under the current rules — or waiting for these new procedures — must be carefully considered.

Patent owners, too, should be proactive. Claims in pending applications should be crafted to be more defensible, even under the strict process for amending and adding claims in a post-grant challenge. Moreover, the changes brought by the AIA are not all in favor of challengers. Supplemental examination and the continued availability of ex parte re-examination are likely to be crucial tools for increasing patent value, by removing issues that might otherwise be used as an excuse to ignore a patent.


COMMENTARY

How The America Invents Act Will Change Patent Litigation By Matthew I. Kreeger, Esq., Eric S. Walters, Esq., and Zahra Hayat, Esq. Morrison & Foerster

President Obama signed the Leahy-Smith America Invents Act Sept. 16, enacting it into law. The act — the first significant overhaul of the U.S. patent system in nearly 60 years — was preceded by months of debate and speculation about which proposed reforms would finally become law.

The act will have significant, immediate impacts on patent litigation. Many of its litigation-related provisions will go into effect on the date of enactment, and a few will apply retroactively.

FALSE-MARKING CLAIMS EVISCERATED

The America Invents Act will likely deal the final blow to the “false marking” boom.

Prior to patent reform, under 35 U.S.C. § 292(a) any individual could bring a qui tam action based on products that are mismarked as covered by a patent. The statute provided for substantial statutory fines of $500 “per offense,” which could add up to hundreds of millions of dollars for popular consumer products.

Under the reform law, only the United States will be able to sue for statutory damages for false marking. Private parties will be entitled only to compensatory damages based on “competitive injury” flowing from the false marking.

This transformation of false marking from a qui tam action to an ordinary civil action for damages will apply to all cases pending on, or commenced on or after, the enactment of the America Invents Act. It will, therefore, have a retroactive effect and will likely lead to a spate of motions to dismiss filed by those accused of false marking. Future false-marking actions are likely to be rare.

’BEST MODE’ NO LONGER A BASIS FOR INVALIDITY

Pre-reform law statutes provided for several defenses to a claim of patent infringement, including the defense that the patent is invalid because the patentee failed to

one action only if “(A) any right to relief is asserted against them jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences; and (B) any question of law or fact common to all defendants will arise in the action.”

The America Invents Act codifies this standard into law and adds that “accused infringers may not be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial, based solely on allegations that they each have infringed the patent or patents in suit.”

In raising the joinder and consolidation bar in this manner, the new law crystallizes a recent trend among federal courts of taking a stricter approach to joinder and consolidation and refusing to relate cases asserting the same patents, or even dismissing for misjoinder.

disclose the best mode of practicing the invention.

The America Invents Act eliminates the best mode invalidity defense, amending the list of defenses to patent infringement to exclude “failure to disclose the best mode.” Section 112 continues to require that patentees comply with the best mode requirement; the new law simply prevents one accused of infringing a patent from mounting a defense based on the failure to disclose best mode.

Patent examiners will retain the right (rarely exercised) to reject claims under examination for failure to disclose the best mode.

This inventor-friendly amendment went into effect the day the America Invents Act was enacted and applies to proceedings commenced on and after that date. Companies facing imminent patent

Under the America Invents Act, only the United States will be able to sue for statutory damages for false marking.

infringement actions must, therefore, immediately begin recalibrating their defense strategy to account for the loss of this potential invalidity defense.

STRICTER JOINDER, CONSOLIDATION REQUIREMENTS

The America Invents Act imposes new requirements that must be fulfilled before accused infringers may be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial.

Previously, patentees (particularly non-practicing entities) frequently filed a single lawsuit against many different defendants, whose only connection is that they are all accused of infringing the same patent. The America Invents Act makes explicit that such actions are improper.

Under Federal Rule of Civil Procedure 20(a)(2), multiple defendants can be joined in

Plaintiffs unable to meet the new requirements of the America Invents Act will now have to file separate lawsuits alleging infringement of the same patents and will lose the economies of scale joinder and consolidation currently allow for. This provision is, therefore, likely to temper the increasingly common trend in patent litigation for one plaintiff to sue several unrelated defendants on the same patent, often in a single action.

As these provisions will apply to any civil action commenced on or after the date of enactment of the statute, their effects will be felt immediately. Indeed, many courts saw a flurry of last-minute complaints filed shortly before the America Invents Act was expected to be signed into law.

Whether a case arises from the “same transaction or occurrence” will, however, be the subject of litigation in the future.


For example, courts will have to consider whether a patent holder can sue in a single case a component manufacturer along with the companies that used the component in their products.

Also unclear is how a court faced with multiple cases involving the same patent will address motions to transfer. In exercising its discretion on a motion to transfer, can a court take into account the efficiencies that may result from keeping the multiple cases in a single court for claim construction and invalidity summary judgment motions? The America Invents Act does not provide any explicit guidance on this and many other pragmatic considerations that will arise.

NEW SUPPLEMENTAL EXAMINATION PROCEDURE

The America Invents Act creates a new procedure allowing a patent owner to request the U.S. Patent and Trademark Office to carry out a supplemental examination of a patent to “consider, reconsider or correct information believed to be relevant to the patent.” This provides patent owners an opportunity to disclose previously undisclosed information or to correct incorrect information. If the

action or a Section 337(a) investigation by the International Trade Commission before completion of the supplemental examination or ensuing re-examination.

This new procedure will not be implemented until a year after the enactment of the America Invents Act, but at that time will apply to any patent, whether issued before or after the effective date. It therefore will apply retroactively to all patents, regardless of when they issued.

REVAMPED RE-EXAMINATION/REVIEW PROCEDURES

The former law provided for ex parte re-examination and inter partes re-examination, procedures that accused infringers frequently employed to challenge the validity of patents and potentially obtain a stay of litigation.

The America Invents Act makes major revisions to the procedures available for post-grant review of patents.

In the near term, the litigation impact of these new procedures will be limited. The new inter partes review will not be available until one year after the America Invents Act

INVALIDITY CHALLENGES TO FINANCIAL BUSINESS METHOD PATENTS

The America Invents Act creates a special procedure for challenging the validity of a certain category of patents: “covered business method patents,” defined as patents claiming “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 innovations.”

This special procedure is called the “Transitional Program for Covered Business Method Patents,” and it permits those accused of infringing business method patents to bring a post-grant review proceeding without some of the restrictions generally applicable to such proceedings.

The transitional program for covered business method patents is essentially a more expansive version of the post-grant review. There is, for example, no nine-month deadline, and the petitioner can challenge the validity of a covered business method patent regardless of the patent’s age. The petitioner must, however, have been sued for or charged with infringement of the patent.

Of particular interest are the stay provisions of the transitional program. The America Invents Act lists four factors the court must consider when deciding whether to stay the infringement case pending the transitional proceeding:

• Whether a stay will simplify issues for trial.

• Whether discovery is complete and a trial date set.

• Whether a stay would present a clear tactical advantage for the movant and prejudice the nonmoving party.

Stricter joinder and consolidation requirements are likely to temper the increasingly common trend in patent litigation for one plaintiff to sue

several unrelated defendants on the same patent.

new information is deemed to raise a substantial new question of patentability, a re-examination will be ordered.

The primary benefit to patent owners of this “cleansing” procedure is that a patent cannot be held unenforceable on the basis of conduct relating to information that was not considered or was incorrect in a previous examination, as long as the deficiencies are rectified during supplemental examination.

But there are some important caveats.

A patent is not shielded from a finding of unenforceability if the unenforceability allegation is pleaded with particularity in a lawsuit or ANDA paragraph IV certification notice before the date of the supplemental examination request. Nor can a patentee rely on a pending supplemental examination to defeat any defenses raised in an infringement

becomes effective. With the exception of certain business method patents (described below), post-grant review will be possible only for patents issued from applications with an effective filing date more than 18 months after the law goes into effect. Thus, post-grant review will likely not become significant for several years.

• No change to provision under 35 U.S.C. § 112 requiring patentees to disclose “the best mode contemplated by the inventor of carrying out” the invention.

• However, failure to disclose best mode is no longer among the defenses listed in 35 U.S.C. § 282 to a claim of patent infringement.

• Elimination of best-mode invalidity defense went into effect Sept. 16, 2011.

‘Best mode’ requirement


• Whether a stay or denial thereof would reduce the burden of litigation on the parties and the court.

These are the factors many federal courts already consider when deciding motions to stay, pending parallel proceedings. Their crystallization in statutory form, however, increases the likelihood that courts will stay infringement actions pending transitional proceedings. Immediate interlocutory appeal of the court’s stay decision is available to the Federal U.S. Circuit Court of Appeals.

FOREIGN PRIOR ART

The America Invents Act expands the scope of materials that may be considered prior art. It amends 35 U.S.C. § 102 to eliminate the “in this country” limit on prior art. In a

significant, pro-defendant development that is also an acknowledgement of the globally interconnected nature of innovation, patent claims will now be subject to attack by evidence of prior public use of the invention anywhere in the world. The scope of prior art searches that must be conducted by patentees and accused infringers will widen drastically as a result of this change, but its effects will not be felt until 18 months after the enactment of the law.

FAILURE TO OBTAIN OPINION OF COUNSEL

The America Invents Act also provides that the failure of an infringer to obtain the advice of counsel or present such advice to the court or jury “may not be used to prove that the accused infringer willfully infringed

Matthew I. Kreeger (left) and Eric S. Walters (center) are intellectual property partners with Morrison & Foerster LLP. Kreeger specializes in helping clients find efficient, creative, business-oriented solutions to high stakes intellectual property disputes, and helps develop patent prosecution and reexamination strategies that protect his clients’ patents and minimize the clients’ risks. He is in Morrison & Foerster’s San Francisco office and can be reached at [email protected]. Walters focuses his practice on intellectual property and complex business litigation for high-technology companies and entrepreneurs, and has worked on cases involving all aspects of IP including patents, trade secrets, copyrights, trademarks and unfair competition. He is located in the firm’s Palo Alto office and can be reached at [email protected]. Zahra Hayat (right) is a litigation associate in the firm’s Palo Alto office. She can be reached at [email protected].

the patent or that the infringer intended to induce infringement of the patent.’’

An open question is whether courts will interpret the law to preclude consideration of the lack of an opinion of counsel in the determination of whether to enhance damages.

PATENT LITIGATION GOING FORWARD

The signing into law of the America Invents Act marks a new era of patent litigation. The statute presents a host of opportunities for companies, especially those defending against patent infringement actions, provided they act quickly — given that several of the above provisions have immediate prospective and in some cases even retroactive effect.


COMMENTARY

Practice Implications of the Leahy-Smith America Invents Act1

By Philippe Signore, Esq., Steve Kunin, Esq., and Jonathan Parthum, Esq. Oblon, Spivak, McClelland, Maier & Neustadt LLP

The patent world changed significantly Sept. 16, 2011, when President Obama signed into law the Leahy-Smith America Invents Act, thereby implementing the most comprehensive reform to U.S. patent law since 1952.

Written with an interest in moving toward global harmony with other patent systems and based on a recognition of the economic importance of patents, the AIA introduces a variety of changes ranging from replacing the longstanding first-to-invent system in the United States to establishing additional post-grant procedures for challenging the validity of patents.

What follows is a brief explanation of some of the changes instituted by the AIA and an overview of the practical implications of these changes.

FIRST INVENTOR TO FILE

One of the most significant changes made by the AIA is the shifting of the U.S. patent system from a system that grants a patent to the inventor who is first to invent the claimed invention, known as the “first to invent” system, to a system that grants a patent to the inventor who is first to file a patent application at the U.S. Patent and Trademark Office, known as the “first inventor to file” system.

The first-inventor-to-file system is different from other known first-to-file systems in that it includes a unique, one-year international grace period for disclosures by the inventor, or another who obtained the subject matter from the inventor, if made within one year of the effective filing date of the claimed invention and prior to a disclosure by a third party of the same subject matter. Therefore, under the first-inventor-to-file system, the absolute grace period previously afforded an inventor under the first-to-invent system no longer applies if a third party discloses the subject matter of the invention before the inventor within the one-year grace period.

adequately protects against any future disclosure from a third party that may later qualify as prior art to the claimed invention.

On the other hand, practitioners should also scrutinize third-party disclosures made prior to the inventor’s disclosure to determine the similarities as there is currently no way of knowing how courts will compare one disclosure to another disclosure in assessing issues of derivation and antedating of the third-party disclosure content in relation to the claimed invention.

The grace period afforded the inventor via the new first-inventor-to-file system makes it extremely important for clients to communicate to their attorney any disclosure by the inventor, or another who obtained the subject matter from the inventor, so that the attorney can inform the PTO of this information in order to perfect the grace-period right. Informing the PTO will establish the applicant’s grace-period disclosure date, thus lowering the chances that a third-party disclosure in the grace period will qualify as prior art.

Informing the PTO of any disclosure will establish the applicant’s grace-period disclosure date, thus lowering the

chances that a third-party disclosure in the grace period will qualify as prior art.

Further, receiving any grace-period disclosure dates from the client as soon as possible is especially important because the new grace period will be measured from the earliest priority date in a World Trade Organization member country rather than the earliest actual U.S. filing date.

Practitioners should also counsel their clients that the AIA changes the definition of the prior art to be considered when taking into account the novelty and non-obviousness of the claimed invention. The new definition provides that an inventor shall be entitled to a patent unless the claimed invention was “patented, described in a printed publication, or in public use, on sale or otherwise available to the public anywhere in the world before the effective filing date of the claimed invention.”2

It is equally important that clients describe and provide evidence of the “quality” of the content of their grace-period disclosure so that their attorney can assess whether the grace-period disclosure is one that

Although a grace-period disclosure by the inventor can provide a one-year grace period that will shield the inventor from any subsequent disclosures by third parties in the United States, the applicant’s grace-period disclosure can cause patentability issues elsewhere in the world if the inventor plans on filing in countries outside of the United States that are absolute-novelty countries. In absolute-novelty countries, a public disclosure by the inventor prior to filing will act as prior art to the claimed invention.

Due to the changes discussed above, the need to quickly file at the PTO has never been greater and clients must weigh the benefits of obtaining a one-year grace period versus the patent-rights-forfeiture effect of the absolute-novelty requirements if a patent is sought in other countries.

Once filed, however, foreign applicants can take solace in the AIA’s elimination of the Hilmer doctrine.3 This will allow foreign applicants to obtain a prior effect of their published U.S. patent applications,


their published Patent Cooperation Treaty applications that designate the United States, and their granted patents, as of the foreign priority date of their U.S. patent applications without having to file a U.S. provisional application or a PCT application in English.

On the other hand, the elimination of the Hilmer doctrine will make foreign-origin U.S. applications available as prior art one year earlier than under old U.S. patent law. This will make it more difficult to obtain U.S. patents, because more prior art will be available for both 35 U.S.C. §§ 102 and 103 purposes.

ASSIGNEE FILING

The AIA also provides changes to the requirements for filing an inventor’s declaration and assignment. Currently, an assignment and inventor’s declaration must be submitted separately when filing an application. However, issues often arise when an inventor’s declaration or assignment needs to be signed and the inventor cannot be located or refuses to sign the declaration, as it can be difficult under 37 C.F.R. § 1.47 to convince the PTO to allow the assignee to sign on behalf of the missing or nonsigning inventor.

The AIA provides that the required statements of an inventor’s declaration can be made in a combined declaration and assignment. Therefore, practitioners should urge clients to have the inventor sign the assignment and the declaration in a single form as early as possible after the U.S. or PCT application is drafted. This will reduce inadvertent paperwork errors and the number of missing-inventor issues, while also expediting prosecution and lowering the cost for clients. Moreover, under the new law the inventor’s declaration need not be filed until the application is allowed.

BEST MODE

The AIA also implements a variety of changes relating to the best-mode requirement in the United States. Under the AIA, the failure to disclose the best mode contemplated by the inventor of carrying out the invention will no longer be a basis for which any claim of a patent may be canceled in post-grant review proceedings or held invalid or otherwise unenforceable in litigation.

However, while the new law may appear to provide some relief to litigants, practitioners

should be wary that foreign priority could still be challenged during litigation if the priority document does not disclose the best mode of carrying out the invention.

With respect to patent prosecution, the enacted law modifies provisions for claiming domestic priority such that the disclosure in an earlier-filed U.S. application must be made in the manner provided by 35 U.S.C. § 112, first paragraph, “other than the requirement to disclose the best mode.”4 However, a Sept. 20, 2011, internal memo to the Patent Examining Corps vaguely stated, “Examiners should consult with their supervisors if it appears that an earlier-filed application does not disclose the best mode … and the filing date of the earlier-filed application is actually necessary.”5

As the application of these changes to best mode is at best unclear, practitioners should inform clients that the best mode should still be described in all applications, and particularly in foreign applications. This will prevent prosecution issues from arising as well as a third party from challenging the validity of a patent based on intervening prior art having an effective date between the foreign priority date and the U.S. filing date.

PRE-ISSUANCE SUBMISSION BY THIRD PARTIES

Under current 37 C.F.R. § 1.99, third parties are allowed to submit patents or printed publications to the PTO within two months from the date of publication of an application or prior to the mailing of a notice of allowance, whichever is earlier. However, this procedure is rarely used as 35 U.S.C. § 122(c) precluded the third party from explaining the relevancy of the prior art with respect to a pending application.

The AIA broadens the scope of prior-art submissions to include patents, published patent applications or other printed publications of potential relevance to the examination, and also allows for the third party to set forth a concise description of the asserted relevance of each submitted document. The AIA also modifies the submission timing to allow submissions within six months of post-publication (unless the application is already allowed), thus providing a longer window of opportunity to submit references.

While the attention afforded this area of law by the AIA may make it appear a more attractive option, practitioners should remain

wary of submitting references under this scheme for a variety of reasons.

First, applicants are free to address the submitted references or can wait and see if the examiner will rely on them. If the examiner relies on the submitted references, the applicant can respond in writing or via a personal interview, thereby allowing the applicant to fully amend the claims or add broader claims based on the submitted references.

The applicant’s grace-period disclosure can

cause patentability issues elsewhere in the world.

Further, as the party submitting references has no opportunity to intervene in the discussion between the examiner and applicant during examination, the pre-issuance submission scheme can result in a patent that has a strong presumption of validity relative to the submitted references.

It, therefore, appears that the only potentially viable use of this refined procedure arises out of the disclosure of information to the examiner in a way that demonstrates that a pending application fails to disclose the best mode for carrying out the invention, as this type of argument cannot be made in any other type of PTO or litigation proceeding. However, the availability of such information to third parties may prove to be rare.

While submitting references under this scheme does not create a formal estoppel, it appears that pre-issuance submissions will still be rarely used due to the likelihood of hurting a third party’s chances in a possible future litigation of invalidating patent claims. A better way for a third party to be involved in challenging an inventor by submitting references is to initiate a post-grant proceeding after the patent is issued by the PTO.

POST-GRANT REVIEW, INTER PARTES REVIEW

The AIA provides for the creation of a new post-grant proceeding beginning Sept. 16, 2012, titled “post-grant review,” or PGR, which will provide an additional avenue of challenging the validity of a patent in addition to ex parte and inter partes re-examination.


The AIA also provides that a new, albeit similar, proceeding titled “inter partes review,” or IPR, will replace the current inter partes re-examination proceeding beginning Sept. 16, 2012.

While both the PGR and IPR proceedings will allow parties to challenge the validity of a patent, they also have an estoppel effect such that anything that was raised or reasonably could have been raised during the proceeding cannot be raised in a future litigation by the challenger if the challenger loses in the IPR or PGR. Of course, other defendants will not be estopped, unless they themselves requested an IPR or PGR. As IPR proceedings allow a requester to challenge the validity of a patent as only being anticipated or obvious over patents and printed publications, the estoppel effect is not too encompassing and, therefore, not as worrisome for future proceedings.

difference as estoppel is attainable within 12 to 18 months, rather than the roughly six-year time frame an appeal takes to navigate the PTO and get a final decision from the Federal U.S. Circuit Court of Appeals.

In spite of these estoppel concerns, parties facing patent litigation are expected to rely on the new PGR and IPR provisions. A PGR and IPR may be strategically preferred over an expensive litigation, which can be stayed pending the PGR and IPR. The chances of success for invalidating an asserted patent may be greater in front of the administrative judges of the Patent Trial and Appeal Board handling the PGR and IPR, as compared to a jury in a district selected by the patent holder. The Patent Trial and Appeal Board judges are experts in patent law and have technical backgrounds, and are thus perfectly positioned to make a fair assessment of the validity of a patent relatively quickly and

that occur during the original prosecution of the patent. This proceeding also provides an added statutory protection in that the patent can no longer be held unenforceable if it has survived a supplemental examination proceeding, as opposed to the standard recently set forth in Therasense v. Becton6 for determining the enforceability of the patent.

Practitioners should be warned, however, that while the statutory protection provided via supplemental examination does prevent a patent from being held unenforceable based on inequitable conduct relative to the information submitted in requesting the supplemental examination, it does not prevent anyone involved in the prosecution of the patent from being charged with inequitable conduct and being investigated for possible disciplinary action.

Another benefit arising out of supplemental examinations is the ability to let one’s application go to issue despite receiving material information after payment of the issue fee. In other words, if known material information is received after payment of the issue fee, an applicant can allow the patent to be issued without submitting the material information in an information disclosure statement and having to pay for a request for continued examination. The material information can then be used to establish a substantial new question of patentability required under supplemental examination to initiate a re-examination that will ultimately cure the failure to submit the material information before patent issuance.

Further, the recently instituted PTO docketing rules move cases in which a request for continued examination was filed to the end of the line in their docketing system. Consequently, although the price structure of supplemental examination is unknown, supplemental examination could prove to be quicker than withdrawing from issue and paying for a request for continued examination.

CONCLUSION

The examples discussed above represent only a few of the changes resulting from the AIA that will greatly affect the practice of U.S. patent law.

Many aspects of the AIA will remain in question until the PTO issues regulations and guidelines to implement the variety of the legislative initiatives introduced by the

Practitioners should be wary that foreign priority could still be challenged during litigation if the priority

document does not disclose the best mode of carrying out the invention.

However, PGR proceedings allow a requester to challenge the validity of a patent using all grounds of invalidity except for best mode. Therefore, a requester needs to be extremely careful and prepare a well-laid-out case, including the hiring of technical experts, as the estoppel arising out of the PGR proceeding could effectively eliminate any chance of an invalidity defense on issues that were raised or that reasonably could have been raised during the PGR.

Further, practitioners should inform clients that there is potential rebuttal evidence that can be raised during these proceedings and that they should weigh the likelihood of success of the rebuttal evidence defeating the invalidity challenge creating the estoppel effect arising out of the PGR and IPR.

Another important change with respect to the post-grant proceedings that practitioners should take note of is that PGR and IPR estoppel attaches upon a final written determination of the newly formed PTO Patent Trial and Appeal Board, rather than at the exhaustion of all appeals as was previously the case in inter partes re-examination. This is a significant

without requiring the millions of dollars typically spent on litigation.

These estoppel concerns may be mooted by the action of the patent owner, however, as the AIA provides that patent owners in a PGR or IPR can file a preliminary response challenging the validity of a third party’s request for PGR or IPR. In such case no estoppel would arise. Patent owners will be able to bolster their chances that the Patent Trial and Appeal Board will not initiate a post-grant proceeding at a third party’s request by presenting reasons why the proceeding fails to meet PTO requirements. Of course, in such circumstances the third party would have to petition for the denial of the order or forego the post-grant challenge.

SUPPLEMENTAL EXAMINATION

Supplemental examination is a new proceeding created by the AIA that allows the patent owner to avoid unenforceability of a patent by consideration, reconsideration or correcting known information material to the patent via re-examination. Under this new proceeding, patent owners have the ability to cure false statements or misrepresentations


AIA. In addition, the Federal Circuit will be busy interpreting the controverted language of such a comprehensive reform. Therefore, patent practitioners should be more vigilant than ever when giving clients advice in the years to come.

NOTES1 The opinions expressed in this article are those of the authors and do not necessarily reflect those of Oblon, Spivak, McClelland, Maier & Neustadt LLP. This article does not constitute legal advice to any particular person or entity and should not be treated as such by readers. Reliance on this article does not create an attorney-client relationship with Oblon Spivak or any individual attorney in the firm.

2 H.R. 1249 § 3(a)(1) (2011) (emphasis added).

3 See In re Hilmer, 424 F.2d 1108 (C.C.P.A. 1970) (Rich, C.J., delivering the opinion of the court).

4 H.R. 1249 §15(b) (2011).

5 Memorandum from Robert W. Bahr, PTO Senior Patent Counsel, to Patent Examining Corps (Sept. 20, 2011) (on file with authors), available at http://www.uspto.gov/aia_implementation/best-mode-memo.pdf.

6 Therasense Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed. Cir. 2011) (en banc).

Jonathan Parthum is an associate with the firm and has been actively involved in following patent reform efforts over the past several years. He can be reached at [email protected].

Philippe Signore is a partner at the intellectual property law firm of Oblon, Spivak, McClelland, Maier & Neustadt LLP in Alexandria, Va. He is the chair of the firm’s mechanical patent prosecution practice group and co-chair of the opinion and counsel practice group. He can be reached at [email protected].

Stephen Kunin is a partner, general counsel and management committee member at the firm. He is the former deputy commissioner for patent examination policy at the U.S. Patent and Trademark Office and the current director of intellectual property law at George Mason University Law School. He can be reached at [email protected].


COMMENTARY

Obtaining Commercial Advantage Through Understanding the Post-Issuance Review System of the America Invents ActBy James Mullen, Esq. Morrison & Foerster

The America Invents Act creates a number of new administrative procedures that allow the public to challenge issued patent claims without having to resort to time- and resource-intensive patent litigation. Understanding the features of these post-issuance review procedures is an important first step to leveraging the new features of the AIA to obtain a commercial edge in the marketplace.

CHANGES TO THE SYSTEM: WHAT’S IN, WHAT’S OUT AND WHY YOU SHOULD CARE

Prior to passage of the AIA, a party seeking to challenge an issued patent had limited options. The issued patent could be challenged through costly patent litigation in court or through an ex parte or inter partes re-examination proceeding conducted by the U.S. Patent and Trademark Office. The AIA expands this menu of options.

Passage of the AIA phases out inter partes re-examination, replacing it with the new inter partes review proceeding. The AIA also creates the new post-grant review proceeding. The new law leaves ex parte re-examination proceedings largely unmodified. All patent owners should be aware of these new procedures, regardless of whether they intend to use them, because at a minimum their competitors will be considering the new options.

EX PARTE RE-EXAMINATION

The AIA made few changes to ex parte re-examination practice, the oldest procedure available to challenge an issued patent outside of court. Any person — patent owner, third party or the PTO itself — may use ex parte re-examination at any time during the period of enforceability of a patent to challenge a patent claim.1 As such, there is essentially no time limit to bringing an ex parte re-examination against an enforceable patent. In fact, an ex parte re-examination

Patent owners will most likely continue to use ex parte re-examinations to address damaging prior art that comes to light after issuance of a patent, in part because the procedure allows the patent owner to control prosecution. It also seems likely that, in light of the new procedures created by the AIA, this procedure will be used less frequently by third parties when the alternative inter partes re-examination, inter partes review and post-grant review post-issuance procedures are available.

INTER PARTES RE-EXAMINATION

The original inter partes re-examination procedure provided a powerful alternative to ex parte re-examination. The procedure has become a popular tool to challenge issued patents issued from patent applications filed on or after Nov. 29, 1999. Enactment of the AIA is producing big changes for inter partes re-examination challenges to patents.

Before the AIA, the standard for an inter partes re-examination was the same as that for ex parte re-examination: A petitioner had to show a substantial new question of patentability based on prior art references. The AIA has changed the standard to a “reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition” test. This change was effective as of the day of enactment of the AIA.4

can even be used in the period immediately after a patent has expired.

Ex parte re-examinations are relatively limited in scope. To initiate the procedure, a petitioner must rely upon prior-art references limited to patents or printed publications that undermine the validity of an issued claim.2 These references must raise a substantial new question of patentability based on an allegation of anticipation, obviousness or double patenting to initiate an ex parte re-examination proceeding.3 This standard remains unchanged under the AIA.

The ex parte nature of this type of re-examination also limits the ability of third-party requesters to participate in the process once initiated. This feature tends to favor patent owners, giving them control over the direction patent prosecution takes during the course of the re-examination. The limit on third-party participation is especially apparent when it comes to examiner

There is essentially no time limit to bringing an ex parte re-examination against an enforceable patent.

interviews. Patent owners involved in ex parte re-examination can and frequently do use examiner interviews to advance their cases. The third-party requestor does not get to participate in this exchange and can only read about it later on the record when notes from the interview are entered into the file.

There are other features of the ex parte re-examination procedure that favor third-party requestors. For example, this type of re-examination does not require identification of the real parties in interest. Perhaps the greatest advantage of the procedure to the requestor is that, unlike other post-issuance proceedings, no estoppel effect attaches to the use of the ex parte re-examination procedure.

Perhaps its most attractive feature, inter partes re-examination allows for the third-party requestor to participate actively in the re-examination process. This heightened level of control comes with a price. Unlike ex parte re-examination, inter partes re-examination requests require the real parties in interest to be identified.5 This requirement is tied to the estoppel effects that attach to inter partes re-examinations after a “final decision” is reached.6

Beyond altering the threshold test to institute an inter partes re-examination, the AIA ends the availability of the inter partes re-examination in September 2012 and substitutes inter partes review in its place. Given the effective date for the new procedures, it is likely that third-party


petitioners will continue to use inter parte review until its expiration.

INTER PARTES REVIEW

The AIA replaces inter partes re-examination with the new inter partes review procedure. The new procedure becomes available for use one year from the enactment of AIA for any patents issued before, on or after the effective date this AIA provision.

There are a number of timing elements that will be important to the future inter partes review practice. For example, a petition for inter parties review can be filed only nine months after the issue date of a target patent or after the termination of a post-grant review proceeding. Another interesting limitation on inter partes review proceedings is that they must be filed within one year of service of an infringement action.

There was a spate of district court actions filed prior to the enactment date of the AIA. These actions were likely filed so that the patents underlying the actions would be immune from the new inter partes review procedures, which will not be available for more than one year after those filings.

Both inter partes review and re-examination procedures share many of the same features. For example, both proceedings require that a challenge be based on prior-art patents or printed publications. Both proceedings allow the petitioner to participate actively in the exchange that occurs between the patentee and the PTO, and both of the proceedings share an estoppel effect. The AIA adds the feature of limited discovery to the inter partes

review procedure, which may serve to make this an attractive option for parties who wish to know more about their competitors’ intellectual property but do not wish to incur the full costs of litigation.

Like inter partes re-examination, petitioners seeking inter partes review must show a reasonable likelihood that they will prevail against at least one of the claims challenged in the petition. This new standard may be interpreted to be higher than the former “substantial new question of patentability” requirement. Legislative history indicates that Congress intended this language to present a higher standard, in part to assuage critics of post-issuance review procedure seen to impose an undue burden on patentees. Whether the new standard actually imposes a higher threshold to petitions for post-issuance review become apparent until the PTO implements rules that govern the new procedure and those rules are actually tested.

POST-GRANT REVIEW

The post-grant review procedure is a new tool added by the AIA to challenge newly issued patents. The procedure will be available one year after the enactment date of the statute, and petitions must be filed within nine months after patent issuance.

The new procedure expands the scope of

post-issuance review. A person other than the patent owner may seek post-grant review by alleging invalidity under 35 U.S.C. §§ 101, 102, 103, 112 and 251 (for reissue patents). As such, the public will be able to challenge patent claims even if they do not possess a prior art reference.

The standard to initiate a post-grant review proceeding is lower and more flexible than that for inter partes review. To initiate a post-grant review the petition must “demonstrate that it is more likely than not that at least one of the claims challenged in the petition is unpatentable.” This standard appears to be lower than the reasonable likelihood of success standard applied to inter partes review petitions.

This new procedure provides another threshold standard with which to initiate post-grant review. Specifically, post-grant review can be also initiated by raising “a novel or unsettled legal question that is important to other patents or patent applications.” This additional avenue for review potentially represents a significant expansion in the grounds for review, making post-grant review more like the post-grant opposition procedures of Europe and Japan.

Parties who intend to use post-grant review will be well-served to be stay abreast of their competitors’ intellectual property as it works its way through the PTO. Given the relatively short nine-month time period within which to initiate a post-grant review, parties who wait until a competitor’s patent issues to realize the existence of a threat may be caught flat-footed in the face of a potentially crippling patent claim. Far better to plan ahead, gather prior art if available and prepare strong arguments to force the threatening patent into post-grant review immediately upon issuance. Adequate planning will be a must, particularly in view of the estoppel provisions imposed by the statute that apply to any ground raised or that reasonably could have been raised with the petition.

The new post-grant review has the potential to be a powerful business tool. In theory it can be used to keep issued patents from being enforced, invalidate or alter the scope

Ex Parte Re-examinationAn existing procedure, relatively unchanged under the new act, that can be used by any person, including the patent owner, to challenge a patent claim.

Inter Partes Re-examinationWill be replaced by inter partes review in September 2012.

Inter Partes ReviewNew procedure limited to challenges based on prior-art patents or printed publications.

Post-Grant ReviewNew procedure allowing a person other than the patent owner to challenge newly issued patents. It expands the grounds for challenging patent claims and applies a lower standard than that applied to inter partes review petitions.

Post-Issuance Review Procedures

Inter partes re-examination allows for the third-party requestor to participate actively in the re-examination process.


of a competitor’s claims after they issue and avoid litigation or at least delay it by injunction. As such, the procedure has great potential to provide an important competitive advantage.

BE PREPARED FOR POST-ISSUANCE REVIEW

The AIA ushers in some of the most important and expansive changes to patent law in recent decades. The law alters and expands the avenues by which issued patent claims can be challenged without having to go to court. With a solid understanding of the procedures and diligent monitoring of the competition’s

James Mullen is a partner in the San Diego office of Morrison & Foerster where his practice focuses on patent counseling and prosecution, intellectual property due diligence, and venture intellectual property. He counsels clients pursuing innovation in areas including cancer therapeutics and diagnostics, cleantech, infectious-disease therapeutics and small-molecule screening protocols. He can be reached at [email protected].

intellectual property, careful use of the new post-issuance review provisions of the AIA can help companies secure a commercial advantage in the marketplace.

NOTES1 37 C.F.R. §§ 1.501(a) and 1.520.

2 37 C.F.R. § 1.510(a), citing 37 C.F.R. § 1.501.

3 37 C.F.R. § 1.515(a).

4 America Invents Act of 2011, Section 6, 35 U.S.C. § 311 (2011).

5 35 U.S.C. § 311(b)(1).

6 35 U.S.C. § 317(b).

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COMMENTARY

Patent Reform Bill Hurts Small BusinessBy Todd McCracken National Small Business Administration

The National Small Business Association, the nation’s longest-running small-business advocacy organization, opposed the patent reform bill, the America Invents Act of 2011, due to its potential to harm America’s small businesses.

The new law, signed by President Obama Sept. 16, offers nothing to benefit small businesses, startups, individual inventors or university innovators, and fails to improve the way the patent system serves the NSBA’s small-business members.

Instead, the AIA takes away the key legal provisions that small businesses and startups have used for decades, adds risk and promises to increase the cost of obtaining, maintaining and enforcing patents.

Where the 1952 patent law allowed startups, small business and disruptive innovation to flourish, the AIA repealed the most important provisions and replaces them with features that favor large businesses and multinational firms. This new law will lead to large, lumbering, entrenched market incumbents, much as we see in Europe to the detriment of America’s entrepreneurial business community.

The patent reform law reduces the incentive for risk investments in new inventions — it tips the balance in favor of big business over early-stage innovators, and that will ultimately reduce innovation.

The AIA casts heavy clouds of legal uncertainty over patent rights for decades to come because of ambiguous drafting and dubious constitutionality. The reform under the AIA includes the most significant changes to the U.S. patent law in over a century — and they are not good changes. The NSBA is concerned with five major changes.

First, the AIA moves the U.S. patent system from a first-to-invent system to a first-inventor-to-file system. Moving to a first-to-file system favors large businesses, foreign corporations and well-financed multinational market incumbents over small-business innovators. In patent parlance, this transition is more accurately described as moving from

test and perfect an invention, to show that it is technically feasible and marketable, before being forced to pay $10,000 or more to a patent attorney.

Under the patent law before the AIA, all these business activities were possible, and available at low cost, because patent rights were reasonably secure (subject to small but manageable risks) simply because the inventor invented.

Under the new law, an inventor faces the same difficulties that have prevented a vibrant startup or venture-capital ecosystem from arising in Europe. The AIA gives an inventor a Hobson’s choice: either file a patent application before beginning outside discussions, or publish all details of an invention before beginning to discuss with outsiders. But publishing a full roadmap to an invention just as a project begins is commercial suicide, and several prematurely filed patent applications are prohibitively expensive.

The new law creates a catch-22 for startups: An inventor cannot start discussions with an investor before filing a patent application, but usually does not have the money to file a patent application before landing an investor. The old law permitted the discussions that allowed entrepreneurs and investors to find each other; the new law suppresses them.

The old law created an even playing field that treated small companies and large companies alike. The new statute gives a huge preference to large companies, by strengthening the advantages to companies that can do all of their financing, research and development, testing, manufacturing and marketing in-house. In contrast, the AIA takes away the legal provisions that allowed easy consultation with third parties and cross-company collaboration.

Similarly, the new law strengthens rights for companies that invent the same things twice, allowing them to extend patent rights far beyond the normal 20-year patent term, while providing no analogous advantage that has any meaningful value to small

a “first to conceive” system to the “first to reduce to practice” system.

For a patent application to be effective in protecting a new invention, it can only be written after the invention has been fully vetted, reduced to practice and tested.

Unlike the American first-to-conceive system, a first-to-file system awards patents to those who are better equipped with resources to achieve the latter reduction to practice steps after conception, or to those who can afford to file many applications at every stage of development. Hence, favored under this first-to-file system are entities having financial and staffing resources that are generally not available to startups, individual inventors or small-business innovators.

The patent reform law reduces the incentive for risk investments in new inventions.

Second, the AIA weakens the grace period that has been an important and valuable right for U.S. inventors since 1839. That is, it shortens the deadlines for how early a patent application must be filed, and reduces the options that inventors have to develop an invention before filing an application. The old patent law granted patent rights based on who invented an invention first — the mere fact that an inventor was first to conceive an idea was sufficient to lock down patent rights, without the expense and delay of consulting with lawyers.

The American grace period has been particularly important for small-business inventors. This feature of the old law permitted startup companies, small companies, university inventors and the like to initiate discussions with third parties such as outside investors, outside subcontractors or potential outside strategic partners for manufacturing or marketing. This same feature of the old law allowed an inventor to


companies. The law was designed by big companies for the benefit of big companies, to protect themselves from the next generation of innovators that might displace them. It does that quite effectively.

Moreover, if the purpose of the AIA is harmonization with the rest of the world, then the disclosure grace period is effectively non-existent. A disclosure before filing acts as an absolute bar in jurisdictions outside the U.S. and the inventor would have to forfeit any foreign patent rights to benefit from the weakened grace period of the AIA. This makes obtaining foreign patents more difficult for small business inventors — not easier, as proponents of the AIA contend.

Third, the AIA effectively shifts the constitutional balance between trade secrets and patents to favor those who hoard secrets. For more than 170 years, U.S. law held that if

the inventor chooses to use an invention in secret, the inventor abandons the right to obtain a patent after a year. The AIA does away with these provisions, and now provides that companies can use an invention for many years, and seek a patent years later. This effectively extends their competitive advantage by an additional 20 years.

This provision is retroactive, enabling incumbent companies to “evergreen” or extend a soon-to-expire patent, or patent trade secrets for which they have previously forfeited the right to a patent under the old law. It favors established older firms over startups and early-stage small businesses that have no trade-secret accumulation history.

Fourth, the AIA further shifts the constitutional balance in favor of trade secrets by expanding prior-user rights. Prior to the AIA, the first inventor that provides a full written description of an invention receives in return a patent that allows that first inventor to exclude others, or obtain a royalty, from all others that use the invention. Under the AIA, the motivation to disclose is sharply reduced: One who uses an invention in secret obtains a right to circumvent the patents of others who do disclose. In essence, the trade-secret holder receives a free ride on the rights of the patent owner.

The “exclusive right” required by the Constitution becomes a right that has to be shared. This favors large companies, which often can rely on factors other than patents to protect their markets from competitors, but will be fatal to many small companies that live or die by the patent system. This AIA provision shifts risks onto those who participate in the patent system, and favors those who keep trade secrets. This disadvantages small-business innovators that must rely on the patent system for their survival in the market.

Fifth, the AIA adds more opportunities to challenge the validity of patents. Strong patents are critical to start-up companies trying to obtain investments. The AIA, however, adds several new paths by which an infringer can tie up a patent in legal proceedings in the U.S. Patent and Trademark Office, even if the patent owner had no intent to enforce the patent.

The new law shifts much of the economic decision making to the infringer — and given the dynamics of the market, this generally

means a shift of legal and market power from small companies and startups to large firms and market incumbents. The net result is that valuable patents will be more subject to challenge, which increases costs for the patent owner, weakens the value of the patent and makes it more difficult to license or raise capital necessary to starting a company and creating jobs. NSBA members repeatedly attempted to be heard on these matters.

However, the Senate spent six years avoiding testimony from any person from a startup, an early-stage small business, an individual inventor, or venture capital. The infirmity of the AIA and its legislative process is manifested by its provisions that call for studies of the very issues on which Congress should have been informed prior to enacting the provisions of the AIA at which the studies are to be directed.

For example, the AIA requires a U.S. Small Business Administration study regarding alternatives to the first-to-file system and its likely effect on small-business patent applicants. But these first-to-file and weak grace-period provisions in the AIA go into effect regardless of the results of the study.

• Switching from a first-to-invent system to a first-inventor-to-file system.

• Weakening the one-year grace period that had benefited small companies, startups and university inventors.

• Eliminating the longstanding law under which an inventor who chose to use an invention in secret forfeited the right to obtain a patent after a year.

• Expanding prior-user rights, thus favoring trade-secret holders.

• Adding more opportunities to challenge the validity of patents.

The National Small Business Association is concerned

that the following five changes under the America

Invents Act will harm small businesses:

The new law strengthens rights for companies that

invent the same things twice, allowing them to extend patent rights far

beyond the normal 20-year patent term.

Similarly, the AIA directs the PTO to study and report to Congress on international patent protection for U.S. small businesses — while the relevant provisions that harm small business’s ability to obtain international patent protection go into effect regardless of the results of that study. The AIA also directs the PTO to study, report and make recommendations to Congress on the operation of prior-user rights.

This includes the effects of prior-user rights on small businesses, universities and individual inventors, as well as its effects on innovation rates in selected countries, and an analysis of legal and constitutional issues that may arise


from placing trade-secret law in patent law. Regardless of the results that obtain from this study and recommendations, the related AIA provisions went into effect on the day of its enactment.

The new patent law is the perfect example of legislating first and asking questions later.

Each of the changes described above acts to weaken our patent system to the disadvantage of small-business innovators. Taken together, these changes strike a terrible blow to innovation in the United States and will saddle our patent system with unprecedented legal uncertainty.

This uncertainty is enhanced by legitimate questions of the constitutionality of the AIA. In shifting the constitutional balance away from the patent system’s disclosure purposes, in promoting the hoarding and evergreening of trade secrets and the broad expansion of prior-user rights, the AIA runs

counter to the constitutional purpose of our patent law — to promote the progress of the useful arts by securing for a limited time exclusive rights to the inventor in return for disclosure of the invention.

Any patent reform that runs counter to the constitutional text and underlying purpose surely will face legal challenges that will call into question the validity of any patents granted under that legislation. These concerns decrease the value of patents, make it more difficult to license and increase the cost of enforcement, which impacts small-business innovators disproportionately more than large companies.

Enactment of the AIA has, at every turn, put small-business innovators at a disadvantage, and to describe it as anything other than a massive blow to entrepreneurial innovation is simply untrue.

Todd McCracken is president and CEO of the National Small Business Administration.

Dr. Ron Katznelson, NSBA member and president of Bi-Level Technologies, contributed to this commentary.

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CONTRIBUTING AUTHORS


COMMENTARY

Why the America Invents Act is Bad for Entrepreneurs, Startups and for AmericaBy David Boundy, Esq. Cantor Fitzgerald

As a patent attorney, I have helped many early-stage inventors, entrepreneurs and investors build successful American companies that offer good jobs. While the 2011 Leahy-Smith America Invents Act was pending, I discussed the needs of startups and investors with many knowledgeable and influential proponents of the act, including key legislative staffers and members of the relevant committees of the American Bar Association and American Intellectual Property Law Association.

After I laid out two typical startup scenarios, every proponent of the 2011 act that I spoke with conceded, “Oops, we didn’t think about those; the bill doesn’t work in those two scenarios.” My two scenarios are very common — almost every startup goes through one of them and many endure both. If the 2011 act does not allow companies to get through these two scenarios, it will not work for America, American innovation or American jobs.

SCENARIO NO. 1: SEEKING VENTURE CAPITAL, BUSINESS PARTNERS

An entrepreneur with a great idea almost always needs to find an investor, and usually also needs one or more partners for manufacturing, marketing or some other function. Almost all entrepreneurs have to present their idea to several dozen investors and potential partners before a new company can form.

Often new companies begin when an inventor makes a presentation in an open “inventor’s forum” meeting, where many potential investors not bound by confidentiality agreements hear from many inventors. In these settings, the inventor has to disclose confidential information to many people with only a “handshake” level of confidentiality. Even though there is some risk of a leak, these meetings happen often anyway because past law gave adequate protection to both sides.

Prior Section 102(a) allowed inventors to wait until they had quality inventions to file quality patent applications. Quality patents only emerge after iterative design and testing, and valuable patents emerge only after enough information exists to sort good ideas from bad. America’s unique and strong right to file in the future, after the inventor and investor knew whether the invention was valuable, made business easy, prevented wasted costs for inventions that proved worthless, and gave inventors and attorneys time to put care and quality into patent applications.

In contrast, the 2011 act eliminates the Section 102(a) part of the grace period. Activities undertaken in the ordinary course of business are no longer legally relevant. Instead, rights turn solely on legal technicalities controlled by corporate and government patent bureaucrats — the interests and efficiency of business have been sacrificed for the convenience of in-house patent counsel at Fortune 150 companies and the U.S. Patent and Trademark Office.

Under the 2011 act, scenarios 1 and 2 are death marches for new companies.

First, entrepreneurs and investors can no longer speak freely — in scenario 1 conversations are too risky. Inventors will have to file patent applications before beginning to talk to investors and potential partners. Investors will have to insist that patent applications be filed before opening discussions, let alone investing. But many inventors cannott afford to file

SCENARIO NO. 2: THE TRIAL-AND-ERROR OF REAL-WORLD R&D

Once the company is formed, the hard work of research and development (R&D) begins. Many high-tech products require extensive trial-and-error: the inventors conceive and discard dozens of ideas before hitting the magic combination that works technologically and commercially.

The work-and-rework R&D often takes many years. Dozens of approaches are considered. Sometimes a hundred iterations of an invention are tried, explored and discarded. A company may pursue one for a year or more before finding that it does not work, then go back and retry one of the discarded approaches based on an insight from other work. The final product may embody only a tiny fraction of all the inventions.

PRIOR LAW ACCOMMODATED BOTH SCENARIOS; 2011 ACT DOES NOT

For 180 years, U.S. patent law provided a grace period with several prongs. The most relevant prong, Section 102(a), allowed inventors talk to potential investors and strategic partners; conduct trial-and-error innovation; deal with departing employees, leaks (both benign and malicious) and secrets that aren’t kept, trash that isn’t shredded and students’ needs to publish; and to discuss their research at job interviews and the like.

Under prior Section 102(a), commercially important patent rights were determined based on ordinary, non-burdensome business activities (the legal jargon was “conception” and “diligence”). That is, a company’s pursuit of an invention with normal business diligence gave a reasonable-risk course for the company to conduct ordinary business for a reasonable period of time before bearing the costs of patent filings. The previous Section 102(a) gave everyone time to talk, think and perfect the invention before the patent system started to levy costs.

Inventors turn useful ideas into patented products that boost the economy.


patent applications until they already have investment in hand. Prior Section 102(a) gave options for evading this catch-22: everyone could talk to each other and get new companies going. The 2011 act takes these options away; scenario 1 will prevent people from finding each other to start new companies.

The 2011 act imposes huge costs on scenario 2: a company must protect its invention by filing premature, hasty and expensive patent applications on every baby-step idea along the way, because no one can know in advance which baby step will turn out to be critical. Companies that face multi-year trial-and-error have formed and thrived in the U.S. under the previous law but will face ruinous patenting costs under the 2011 act.

Ironically, the Patent Office also will face huge new costs, because the number of applications filed will go up, while the average preparation quality will go down.

SCENARIO NO. 3: THE COMMERCIAL IMPRACTICALITY OF THE 2011 ACT

A third scenario shows that the remnant of the grace period in the 2011 act is too tenuous to be useful to a company. Suppose

a company invents something in January 2013, gets a prototype working in July 2013 and intends to rely on the grace period to delay patent expenses during R&D and testing. Suppose someone else invents something similar, but not identical, and publishes an article in early 2014 describing a similar idea. (Identical reinvention is rare, while reinvention with slight difference is common enough to present commercially unacceptable risks.) The first inventor files a patent application covering a fully tested invention in June 2014 as planned.

Under the old law, this all works. The first inventor’s patent rights and investment in R&D are safe. Companies — especially startups — used the grace period in the previous Section 102(a) for this purpose all the time, and the relatively low risks and low costs in a test-first, patent-later plan were crucial to the company’s ability to obtain R&D capital, both initial rounds and further rounds as the company matured.

However, under the 2011 act, the company will only be able to obtain a patent so narrow that it covers only the company’s exact prototype, not the subsequent product, and not the second inventor’s reinvention. That

patent has little or no commercial value, and the company will find it all but impossible to secure later funding rounds. Many companies and first investors will be wiped out.

Once a few examples become generally known to the investment community, venture capital will flee the U.S. startup market, just as it has in Canada. It will take only a few years for today’s startup ecosystem to collapse and decades to rebuild it — unless Congress passes corrective legislation by spring 2013.

EMPIRICAL DATA SHOWS HOW 2011 ACT WILL DETER INNOVATIONWe know that these consequences will follow from repeal of the prior Section 102(a) grace period, because that is the system Europe has had for decades. European patent attorneys counsel their inventor and investor clients not to talk to each other until after applications are filed. Of course that means that most meetings never happen. “Inventor’s forums” are scheduled monthly in many American cities but are essentially unknown in Europe.

Similarly, in Europe, applications have to be filed shortly after an idea is conceived

Losers (better off pre-2011 law) Winners (better off under 2011 Act)

Inventions that take time to develop, test, perfect and require bigger patent applications

Inventions that can be conceived, tested, perfected and prepared for filing in very little time

Foundational discoveries that open new fields, e.g., universities or startups

Specific products based on the foundational discovery (“downstream innovators”), e.g., drug companies’ specific molecule or slow-release formulation

Startups that need to team with outsiders to obtain financing, manufacturing and marketing

Large companies that integrate financing, R&D, manufacturing and marketing in-house

New market entrants Market incumbents

Inventors Aggregators that use others’ technology; re-examination and post-grant review specialists; litigators

American inventors Foreign inventors

Companies that use their patents to secure investment — generally higher tech

Companies that have other pools of capital — generally lower tech

Companies that build themselves around their patented technologies

Companies whose markets are protected by economic factors other than patents

Patents and open disclosure of inventions Trade secrets


— before full vetting — before testing outside a company’s four walls. The expected consequence is confirmed by the empirical data: Europe has R&D investment and new business formation that are half of American rates.

I know of three empirical economic analyses of economic data relating to patent systems. All three found that the 2011 act would adversely affect the American economy. In 2009, economists at McGill University, Canada’s premier university, studied Canada’s change in law in 1987, the year Canada switched from a system very much like the previous U.S. law to a system very much like the 2011 act. The McGill study found that the change had “virtually no positive effect” but that benefits were reallocated from small firms to large, a change that will likely harm the U.S. because of the different mix of businesses.1

A second study, by Dr. Ron Katznelson, showed how the earlier deadlines of the 2011 act would force inefficient behavior, and that the costs would fall selectively on U.S. inventors to the benefit of non-U.S. inventors.2

A third study, by a Canadian colleague and myself,3 analyzed data from the U.S. and Canadian patent offices, and we showed that if data from the Canadian transition in the late 1980s and early 1990s extrapolates to the U.S. in the early 2010s, the costs to U.S business will be about $1 billion per year.

I know of no similar empirically based analysis that supports the 2011 act.

A patent system that fosters European and Canadian levels of entrepreneurship, innovation and business formation cannot be good for America, but that is what the 2011 act is modeled on.

CLAIMS IN SUPPORT OF 2011 ACT DON’T SURVIVE SCRUTINY

First, the 2011 act is supposed to do away with complex and costly challenges to patents, called interferences. While the claim is true, it is irrelevant. Only about 200 patent applications per year — out of nearly 450,000 — are the subject of interferences, so eliminating them will save only tens of millions of dollars per year. In contrast, the repeal of the previous Section 102(a) grace period affects commercial decisions for hundreds of thousands of inventions per year, and will cost startups and small business $1 billion

annually. Spending a billion dollars to save a few tens of millions is obviously a bad investment..

Moreover, the 2011 act will increase the number of “derivation proceedings” from about five per year under the prior law to many dozen. Whether it arises during the application process or during litigation, derivation is the most costly issue in patent law. Another feature added by the 2011 act, “prior user rights,” is comparable in complexity to an interference and will be roughly as frequent as interferences were. To my knowledge, these new costs were never acknowledged during the debate over the 2011 act.

Second, the 2011 act neglects several amendments to procedural law that are necessary to implement the minimal rights for small inventors that purportedly exist in the 2011 act. Rights with no remedy are no rights at all.

Third, proponents told Congress that the harms of the 2011 act would be ameliorated because inventors would be able to file provisional applications for only $110. Under old law, inexpensively prepared provisional applications had business value because they documented the ordinary-course business activities discussed above. But under the 2011 act, business activities are irrelevant, so the legal relevance of provisional applications changes entirely.

Under the 2011 act, a provisional application only has value if it is prepared with care and expense comparable to a full-blown formal application. Under the 2011 act, a startup’s typical “provisional” application will average $10,000 or more in attorney fees and inventor time — a formidable barrier to an entrepreneur’s first conversation with an investor. The $110 provisional is a thing of the past, a meaningless right.

Fourth, proponents argued that a company can preserve patent rights by publishing a full description of the invention. But no business publishes its future business plans at the very outset of a project — that’s suicide! Further, this technique would cause a company to forfeit patent rights in almost every other country — a meaningless right.

Fifth, proponents justified the 2011 act to Congress because it preserves one small piece of the grace period, a sliver of the prior law’s Section 102(b). But Section 102(b) was not the concern of the startup community; the

concern was Section 102(a). The remaining sliver of grace period is a meaningless right because the risks are so much greater than under old law and impossible to hedge.

Sixth, the 2011 act discriminates against startups by adding several new provisions that favor companies with old technology that they held as trade secrets companies that are so large that the same invention is rediscovered multiple times and companies that can obtain all of their financing, R&D, testing, manufacturing and marketing internally. These provisions transfer immense wealth to big companies and market incumbents but offer no benefit at all to startups and small companies.

Seventh, the 2011 act repeals several features of American law that favor U.S. inventors and replaces them with asymmetries that discriminate against U.S. innovation in favor of foreign inventors. For example, the prior statute gave American inventors several filing date advantages vis-à-vis foreign inventors. The rules in the two In re Hilmer cases, 149 U.S.P.Q. 480 (C.C.P.A. 1966), and 165 U.S.P.Q. 255 (C.C.P.A. 1970), gave American inventors a “head start” in their filing dates vis-à-vis non-Americans, typically by a year. These asymmetries and benefits to American inventors are repealed.

Eighth, the previous law required that patent applicants present their cases to the Patent Office “without deceptive intention” and without perjury. The 2011 act repeals requirements for honesty and thereby creates options that are very attractive to non-U.S. parties who are exempt from U.S. attorney ethics rules and practitioners of state-sponsored industrial espionage.

Ninth, the 2011 act will create immense legal costs and commercial uncertainty. The 2011 act disrupts definitions of legal terms “public use” and “on sale” that have been stable for 180 years — two legal terms that affect the vast majority of all patents. The replacement in the 2011 act is painfully ambiguous. The ambiguity will take decades and tens of millions of litigation dollars to sort out, creating many billions of dollars of commercial uncertainty.

Further, where old law decided these issues on black-and-white facts, the 2011 act introduces new legal tests that can only be resolved through dueling expert testimony, which will make litigation settlement far more difficult.


THE ILLUSORY BENEFITS OF ‘HARMONIZATION’

There is nothing inherently wrong with “harmonization” as a rationale for the 2011 act but only if the benefits exceed the costs. Partial harmonization creates almost no benefit: as long as there are even small differences between the laws of two countries, an attorney in one country cannot opine on a patent from the other and there are no meaningful savings to be had. The 2011 act’s partial harmonization does not move U.S. law close enough to any other jurisdiction to create any significant savings.

The transition costs from old law to new will be immense — and will probably never be recovered by “harmonization” benefits — if time value of money is included in the calculation.

Further, the 2011 act departs from international norms for obviousness, a “disharmonization” that affects about 20 percent of patents. Further, the anomalous definition of obviousness in the 2011 act discriminates against U.S. inventors in a way that no other country discriminates against its own inventors.

2011 ACT WILL HARM AMERICAN JOBS, REDISTRIBUTE WEALTH, REDUCE AMERICAN INNOVATION

In 2010, the Kauffman Foundation and U.S. Census Bureau released two studies on job creation. Both found that net job growth in the U.S. occurs only through startup firms. In many conversations, the proponents of patent reform have admitted that they

“didn’t think about” the needs of startups, small companies and investors that create jobs.

In the 109th, 110th and 111th Congresses, the Senate Judiciary Committee did not invite a single inventor, small business owner or investor organization to testify. The major financial, human resource and administrative problems that are paralyzing the U.S. patent system are well known — and the 2011 act did nothing to address them.

Instead, the 2011 act is tailored to benefit multinational firms that have been exporting jobs overseas, market incumbents that rely on stability instead of innovation and government bureaucrats. The 2011 act is based on illusory promises and poor analysis by its proponents. The unintended consequences will harm startups and small business, and the jobs they create. The 2011 act urgently needs corrective legislation.

NOTES1 shIh-tse Lo & dhanoos sutthIPhIsaL, does It Matter Who has the rIght to Patent, FIrst-to-Invent or FIrst-to-FILe? Lessons FroM canada (National Bureau of Econ. Research Working Paper No. 14926, Apr. 2009), available at http://www.nber.org/papers/w14926.

2 Ron D. Katznelson, The Perfect Storm of Patent Reform?, Fenwick & West Lecture Series Symposium, UC Davis School of Law (Nov. 7, 2008), available at http://works.bepress.com/rkatznelson/54/.

3 David Boundy & Matthew Marquardt, Patent Reform’s Weakened Grace Period: Its Effects On Startups, Small Companies, University Spin-Offs And Medical Innovators, Med. InnovatIon & Bus. 2:2 27-37 (Summer 2010)

David Boundy is vice president for intellectual property and assistant general counsel for Cantor Fitzgerald in New York. The views expressed in this article are Boundy’s and not those of Cantor Fitzgerald. He can be reached at [email protected].

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