On September 16, 2011, President Obama signed into law the Leahy-Smith America Invents Act of 2011 (AIA), which was approved by Congress on September 8, 2011. The AIA represents the most significant overhaul to the U.S. Patent System in nearly sixty years. The AIA: (i) changes the U.S. patent system from a first-to-invent to a first-inventor-to-file standard; (ii) provides new mechanisms to evaluate and challenge the validity of patents; (iii) provides greater latitude for third parties seeking to submit information to an examiner of a patent application; (iv) limits the ability for someone to bring a false patent marking lawsuit; (v) modifies defenses to patent infringement lawsuits; and (vi) creates exclusions to the definition of patentable subject matter. Several of the changes are discussed in more detail below:
First-to-Invent to First-Inventor-to-File Standard The change receiving the most attention is the U.S. patent system switching from a first-to-invent to a first-to-file system. Unlike current law, a first-to-file system generally provides that the first person to file a patent application for an invention that is not in the public domain will receive the patent rights regardless if someone else invented it first. While this brings the U.S. in harmony with most of the world, the AIA does have one distinguishing factor from most first-to-file systems, which has led to it being dubbed "the first-inventor-to-file" standard. Specifically, the AIA provides a one year grace period from time of disclosure of the invention by the inventor, or by someone who obtained the invention from the inventor, during which time the inventor has the ability to obtain patent protection. In effect, such a disclosure can act as a bar to anyone else filing for patent protection on the invention (even where someone else has independently invented it first) and provides a one year window for the disclosing inventor to obtain patent protection. In view of this change, the AIA replaces the "interference procedure" with a "derivation proceeding" that allows an inventor to seek to nullify a patent application filed by another on the basis that the applicant derived the invention from the inventor. These changes will take effect 18 months after enactment of the AIA and represents a major shift in U.S. patent law. Companies and prolific inventors will need to reevaluate their invention disclosure and patent filings procedures to emphasize prompt submissions of disclosures and filings of patent applications.
Evaluating the Validity of Patents The AIA gives interested parties a greater ability to challenge or re-evaluate the validity of a patent by maintaining the traditional ex parte re-examination process, replacing the inter partes re-examination process with inter partes review; and adding three other types of post grant review processes.
a) Post-Grant Review. Effective one year after enactment of the AIA, the AIA permits any third party to petition the U.S. Patent and Trademark Office to review the validity of an issued patent within nine months of its issuance. Under the post-grant review process, a patent may be challenged on any grounds of patentability and the petition will be granted if the petitioner demonstrates that "if such information is not rebutted, [it] would demonstrate that it is more likely than not that at least one of the claims challenged in the petition is unpatentable."
b) Inter Partes Review. After the nine month post grant review period, a third party will be able to institute an inter partes review of a patent. The inter partes review takes the place of inter partes re-examination and has the effect of changing the threshold requirement for challenging the patent at issue from a "substantial new question of patentability" to a "reasonable likelihood that the petitioner would prevail on at least one of the claims challenged in the petition."
c) Supplemental Examination. Effective one year after enactment of the Act, a patent owner has the ability to make pre-litigation submissions to the U.S. Patent and Trademark Office for the purposes of considering, reconsidering or correcting information believed to be relevant to the patent at issue. Once the supplemental examination proceeding has concluded, such evidence cannot later be used by a defendant to demonstrate inequitable conduct.
d) Transitional Business Method Review. Within one year of the enactment of the AIA, the act provides that the Director of the U.S. Patent and Trademark Office will issue rules to permit someone being accused of infringing a business method patent to petition the U.S. Patent and Trademark Office to review the validity of the patent. Such review will only apply to a business method 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." This review process will expire eight years after the U.S. Patent and Trademark Office issue the rules governing this review process.
Given the expanded options for challenging the validity of patents, companies may want to closely monitor the patent activities of its competitors in order to determine if it desires to challenge the validity of any patent that issues. Moreover, companies should evaluate their own methods of patent filings and give thought to emphasizing more thorough searches in order to mitigate the risks of having its patents challenged by others.
Third-party submissions Effective one year after the enactment of the AIA, the act expands the time period for when a third party can submit relevant references to an examiner during prosecution of a patent application. Under the AIA, a third party can submit prior art any time before the earlier of: (i) the issuance of a notice allowance; or (ii) the later of six months from the date of first publication or the date of the first rejection of any claim. The impact will be to provide a greater opportunity for third parties to influence the examination of a particular patent application and may prove useful for a company wanting to ensure that a competitor does not receive broad patent protection on a particular invention.
False Marking Claims Effective immediately, the AIA limits those that can bring an action under the false marking statute to: (i) for civil penalties, the United States; and (ii) for a civil action for damages, only someone who has suffered an actual competitive injury as result of the alleged false marking. The AIA will apply to all cases, including those pending as of the enactment date.
Defenses to Infringement The Act eliminates the failure to disclose the "best mode" for practicing a claimed invention as being grounds to invalidate a patent. The Act also broadens out the prior commercial use defense to apply to all patents, with a few limited exceptions. Prior to the AIA, the prior commercial use defense only applied to business method patents.
Unpatentable Subject Matter The AIA provides: (i) with limited exceptions, that claims directed to any strategy for reducing, avoiding or deferring tax liability are not patentable; and (ii) that claims "directed to or encompassing a human organism" are not patentable. Both of these exclusions are likely to be subject to further interpretation by the U.S. Patent and Trademark Office and federal courts.
Other Changes While the major changes encompassed by the AIA are summarized above, the AIA does include other notable changes, such as:
a) USPTO Fee Setting Authority For a period of seven years from enactment, the AIA authorizes the Director of the U.S. Patent and Trademark Office to set or adjust by rule any fee established, authorized, or charged. While this may seem like an insignificant change, the change likely signals the beginning of a more costly patent process. With the task of handling a backlog of patent applications, ever expanding hiring goals, setting up satellite offices, and implementing new post grant review procedures, it can be expected that the USPTO will be looking to its own filing fees to not only to provide the necessary funding but to also deter actions that will add to the backlog of applications (i.e., setting higher fees for extensions of time or for requests for continued examination).
b) Micro Entity Status The AIA maintains a 50 percent reduction in the U.S. Patent and Trademark Office's fees for entities that qualify as small entities and creates a new "micro entity status" that provides for a 75 percent reduction in such fees. Only certain inventors and institutions of higher education will be eligible for the 75 percent reduction in such fees.
c) Willful Infringement The Act codifies the common law doctrine that neither the failure of an accused infringer to obtain advice of counsel nor the failure to present such advice at trial may be used to prove the accused infringer willfully infringed a patent.
d) Prioritized Examination Upon the payment of increased fees, the AIA permits an applicant to expedite the prosecution of a patent application. The AIA also requires the U.S. Patent and Trademark Office to establish regulations that allow for the expedition of prosecution of applications that are important to the national economy or national competitiveness, without the payment of such increased fees.
e) Inventions Resulting from Federal Funding Under the AIA, nonprofit research institutions and small businesses who developed patented inventions at federally owned facilities may now keep up to 85 percent of the royalties and profits derived from such patent inventions as opposed to the 25 percent retention permitted under prior law.
Over the next year, the U.S. Patent and Trademark Office will promulgate rules that will further define the changes encompassed by the AIA. While subsequent case law and such regulations will define the true impact of the AIA, it is already clear that the AIA will substantially change the way patents are prosecuted and litigated. As a result, companies will need to adapt their patent strategies to maximize the value of their patent portfolios.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.