Patent Reform is On the Way…Maybe

For the past several years, Congress has debated several bills that would change the way that patent laws are currently written. The amendments that have been discussed would have significantly changed the way companies, both big and small, do business. The major stumbling block for all past failed bills was the proposed move by the U.S. from a “first to invent” (FTI) system to a “first to file” (FTF) system. As of today, the U.S. is the only country in the world to still use a FTI system. Canada and the Philippines had similar FTI systems, but changed to FTF systems in 1989 and 1999, respectively.

On March 8, 2011, the Senate passed the American Invents Act (“Act”) by a 95 to 5 vote. The Act aims to reform the patent laws as we currently know them. Primary changes in the legislation include adoption of the FTF system, expansion of the post-grant review opportunities, addressing the current lawsuit epidemic with the patent marking law, and fully funding the Patent Office.

Of all of the changes contained in the Act, the most significant is the implementation of the FTF system. Moving from an FTI to FTF system will impact everyone who seeks patent protection for an invention. This move will cause both individual inventors and companies to look more closely at their intellectual property (IP) strategies and, more specifically, at how they use provisional applications to protect inventions. The FTI system was designed so that the first party to invent was the one entitled to a patent on that invention, so long as all other patentability requirements were met. This was the case even though the first party may not have been the first to file a patent application for the invention.

The passed Senate bill replaces the current FTI system with the FTF system although, not surprisingly, it has a twist that is unique only to the U.S. Generally, the FTF system sets up a race: the first person to file an application on an invention gets the patent rights to that invention. However, the Senate bill provides that, when the first party to file “derived” the invention from the second party to file, a derivation proceeding may be brought by the second party. This derivation proceeding essentially replaces the current interference proceedings administered by the United States Patent and Trademark Office (USPTO). The derivation proceedings will be used by the USPTO to determine whether the first party “derived” its invention from the second party. If it is found that the second party is the true inventor of the invention, then the second party will be entitled to the patent rights, even though it had the later filing date. As is typical with new laws, the Senate did not define the key term “derived” in the bill, so the Courts will be charged with clarifying how to interpret this word and what will need to be established in order to qualify as being “derived.”

The Senate bill also changed the prior art definitions of the current Patent law found in Sections 102(a) and 102(b), which partially address the novelty requirement for an invention. Under the current §102(a), a person is entitled to a patent unless the invention was “known or used” by anyone other than the applicant, or described in printed publication in the U.S. or any foreign country, before the date of the invention. Typically, applicants were able to get over a §102(a) type of rejection by “swearing behind” the cited prior art to show that an applicant’s date of invention occurred before the date of the cited prior art.

The Senate bill does not include an equivalent section to §102(a) because under the FTF system, the date of the invention no longer matters. All that is important is who files first. Under the Act, prior art is only relevant if it occurs before the effective filing date, therefore no opportunity is provided to the inventor to “swear behind” the cited prior art. Possible fallout from the switch to the FTF system may include the demise of the laboratory note book, because the invention date is no longer significant.

The new law would also substantially narrow the current one-year grace period provided in §102(b). Currently, an applicant has one year to file a patent application from the date that his invention was described in a publication (by anyone anywhere in the world) or was used publically or on sale in the U.S. Under the proposed Senate bill, the one-year grace period would only be applicable to a disclosure made by the inventor or another person who had derived the information directly or indirectly from the inventor. The proposed law would allow for the invention to be patented in the situation wherein the applicant (or someone who obtained the invention information from the applicant) publically disclosed the invention less than one year before the applicant files an application. However, if the invention is disclosed publically by anyone else before an application is filed, the applicant will not be able to obtain a patent unless such public disclosure occurs after the public disclosure by the applicant or a person who obtained the invention information from the applicant. Again, the Senate neglected to define or explain what qualifies as a “disclosure,” so this will likely be left up to the Courts to flush out.

Section 103 of the Patent law regarding “non-obvious subject matter” was also changed. The proposed law rewrote §103(a) to codify recent Courts’ decisions to focus on the “claimed invention” (i.e., the claims) rather than the “subject matter sought to be patented” when determining if an invention is non-obvious to one skilled in the art. As a result of the move to the FTF system, a second important change to this section of the patent law has been made. The Act changes the date from which a reference qualifies as relevant prior art that may be cited against the invention. More specifically, the USPTO and the Courts will no longer look at prior art “at the time the invention was made,” but rather must now look at obviousness references only as of the “effective filing date” of the application. This will change how the USPTO performs its prior art searches and what references the Courts will now review when hearing an invalidity challenge based on non-obviousness.

The Act also includes three different procedures for third parties to challenge a pending application or a patent. Regarding the pending application challenge, the Senate bill provides for third parties to submit prior art directly to the USPTO for consideration as to the pending application with regards to novelty and non-obviousness. If the raised prior art is explained by an accompanying submission, the cited art and the explanation may also become part of the application file history.

Two different procedures for post-grant review of an issued patent were also created by the bill. The two procedures cover different time periods. Patents could be challenged by a petition filed within nine months of the issue date or re-issuance of the patent. The petition can challenge the grant on any grounds, including under §112 (lack of enablement, description etc.) of the patent law. The petitioner may participate in the review, but will bear the burden to present evidence of unpatentability. Following the conclusion of such a review, the petitioner is prohibited from later asserting invalidity or any other grounds raised during the first review as a basis for challenging the patent in any other subsequent administrative proceeding, civil action or International Trade Commission hearing.

The second procedure set forth in the Act for challenging an issued patent is an inter-parties review that allows patents to be challenged on the basis of prior issued patents or printed publications only as to novelty or obviousness standards. This review can only be taken after the nine-month window for the first post-grant review has closed, or at least nine months after the grant or re-issuance of the subject patent, which even occurs later.

The Act further directs the USPTO to create and establish a transitional post-grant review procedure for business-method patents only. Once these proceedings are established they will stay in place for only four years, unlike the other post-grant reviews discussed above. Under the bill, a review of a business-method patent can be initiated more than nine months after issuance.

Another important change to the existing patent law made by the Act was the limiting of who could bring a claim under the false marketing statute. This change comes as a direct result of the recent rash of false patent marking lawsuits that have been filed by treasure hunters. The bill states that only: (i) the United States; or (ii) parties who have suffered a “competitive injury” as a result of the violation may file an action. Further, the Senate bill provides that any recovery would be limited to actual damages incurred due to the false patent marking.

Finally, the Act addresses what could be beneficial to all parties that have interactions with the USPTO. The Bill delegates fee setting authority to the USPTO and provides that the fees collected by the USPTO are to be kept by the USPTO. In the past, another agency actually set the fees charged by the USPTO and then all of the collected fees were diverted to the U.S. Treasury’s general fund. By being able to set their own fees and to keep these monies, the USPTO may be in a more favorable position to reduce the current administrative inefficiencies and application backlog.

Other changes of which you may need to be aware in the Act include the addition of a section that provides that the failure of an accused infringer to obtain a non-infringement opinion or produce a non-infringement opinion during litigation cannot be used as evidence of willful infringement on the part of the accused infringer. The Senate bill has also excluded from patent-eligible subject matter any “tax strategy” patents that would claim a strategy for “reducing, avoiding, or deferring tax liability.” Finally, the bill removes the use of the best mode requirement to invalidate a patent. However, the best mode element remains and is still required in order to obtain a patent.

Even though the Senate bill has passed, it remains to be seen what the House bill will look like and how much compromise will have to occur between the two to finally get the legislation into law. At this point, the House patent reform bill is almost identical to the Senate bill. Both include the switch to the FTF system, a post-grant opposition procedure, a modified inter-parties re-examination process, changing who can sue under the false marking statute and allowing the USPTO to set fees and keep all revenue. The key differences between the House and Senate bills include the specific details on how the post-grant opposition system will work, the expansion of prior use rights (this is critical when an inventor has used the invention as a trade secret before anyone else invented and patented the invention), special business method patent proceedings, elimination of tax strategy patents and the exclusion of failure to present advise of IP counsel at trial being used as evidence of willful infringement.

Given the fact that both the Senate and House have worked on patent reform legislation for over six years, the leaders of both houses are optimistic that significant changes to the current Patent laws will soon become a reality. If reform does finally come, the landscape for protecting one’s inventions changes dramatically with the institution of a FTF system. Similarly, the establishment of post-grant opposition proceedings will require patentees to re-evaluate their respective enforcement policies. One needs to keep a keen eye on what occurs with the House bill, because it is clear that the rules of the patent protection game are going to change and one doesn’t want to be left behind in the race to file at the Patent Office.


The contents of this article are informational only and should not to be interpreted as legal advice.

John W. Boger is a Partner with the Intellectual Property Law Firm of Heslin Rothenberg Farley & Mesiti P.C. He is a senior member of the firm’s Medical Products and Technology Practice Group, University Practice Group and Due Diligence Practice Group. Mr. Boger is uniquely qualified to assist you with your IP issues as he worked for over eight years with a large orthopaedic device manufacturer in various engineering and marketing positions before attending law school. He can be reached at 518-452-5600 or by email.

Heslin Rothenberg Farley & Mesiti P.C.
www.hrfmlaw.com

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