“America Invents Act” Brings Substantial Changes to Patent Practice

The rules for filing and challenging patents are about to change with the passage of the Leahy-Smith-sponsored “America Invents Act.” A lot of claims have been made about the law, for example, that it will end American dominance of inventions, favor big corporations or even favor foreign inventors. Such claims seem unlikely, but the real world effects of the new law may not be known for at least several years. In the meantime, inventors, both corporate and individual, and their attorneys will have to understand how to use the law to their advantage.

Provisions of the new law include the following:

I. A Switch to a “First to File” System (with Exceptions)

The PTO will grant patents based on who was “first to file” rather than who was “first to invent.” Thus, where two (or more) inventors file for the same patent, the person who files for it first will be the one who gets it, even if that person’s invention came after that of a competitor. However — and this is a big however — if, prior to filing, the first inventor (or, more likely, the company for which s/he works) makes public disclosures about the invention, that first inventor may defeat the patent application of the first filer provided that such disclosure was made within one year of the first filer’s application to the PTO. In other words, while “first to file” is the general rule, “first to disclose” within the one year grace period may preempt it. Missing here is what exactly will be deemed to constitute “disclosure.” The criteria have yet to be promulgated by the PTO.

Pre-filing disclosures may therefore become crucial under the new law. If an inventor or company keeps its invention secret while deciding whether to file for patent protection and a competitor publicly discloses or files for the patent first, the inventor or company which was actually the first to invent will lose out. Consequently, inventors and companies will have to decide not only when (because they must file for the patent within one year of disclosure) but what to disclose. As the Brookings Institution has noted,

[s]ome companies may find themselves targeted by competitors’ disclosures engineered specifically to foreclose patent opportunities.[1]

For this reason, companies may need to make “preemptive ‘defensive’ disclosures,” taking into consideration their own filing deadlines.

II. Changes in Who May File a Patent Application

Patent applications may now be filed by an inventor’s employer and the employer may also execute any required documents on the inventor’s behalf should the inventor fail or refuse to do so.

III. The Right to Make Supplement Filings

The new law will permit patent owners to request that the PTO initiate a supplemental examination to allow the owner to correct or reconsider information relevant to the patent. This change is intended to limit the extent to which patent infringers can defend against an infringement suit by bringing up what was considered “inequitable conduct” of the patent applicant (e.g., failure to submit to the PTO material *prior art* known by the applicant; failure to explain and translate references in a foreign language; material misstatements of fact in the application or supporting affidavits; or a misdescription of inventorship). The patent owner who invokes the Supplemental Filing provision, may effectively innoculate itself against such “inequitable conduct” claims by third parties.

This provision does not come into effect, however, until one year following enactment of the law.

(*Prior art* means any and all publicly available information that might be relevant to a claim of originality of a patent. Generally speaking, if an invention has been described in prior art, a patent on that invention is not valid. Applicants are required to disclose material prior art in their applications and PTO examiners are bound to consider it.)

IV. Submissions of Prior Art by Third Parties

Third parties seeking to prevent the issuance of a patent for whatever reason will be able to submit to the PTO prior art not disclosed by the applicant, together with “a concise description of the asserted relevance of such submitted document.” However, this is a double-edged sword: while the PTO may find that such prior art prevents issuance of the patent, the PTO may also grant the patent, thereby strengthening it. (The patent is strengthened because, in granting it, the PTO examiner will have considered the disclosed prior art, thereby reducing opportunities for post-grant attacks.

This provision also does not come into effect until one year following enactment of the law.

V. Post-Grant Review Proceedings

Under prior law, there were two patent re-examination procedures which could be brought to challenge the validity of a patent: ex parte and inter partes. In the ex parte proceeding, a third party requests a re-examination of the patent but participates in the proceeding only to the extent that the patent owner responds. In such event, the third party is limited to responding to the patent owner’s statement and has no right of appeal. In an inter partes proceeding, the third party may not only files a submission with the PTO every time the patent owner responds to a PTO office action, but it may also appeal the PTO’s decision. The essential difference between these two proceedings from the standpoint of third parties is that the inter partes proceedings potentially limits the third party’s remedies in federal court should the third party be sued by the patent owner for infringement. For example, the third party cannot assert an invalidity defense based on any prior art which was or could have been raised in the inter partes proceeding.

Under the new law, the ex parte re-examination is left intact, but the inter partes reexamination will be, one year following enactment of the law, replaced by an “inter partes review” to be conducted by the (newly named) Patent Trial and Appeal Board. The burden of proof will also change. Under the old law, the would-be opposer in an inter partes reexamination was required to provide the PTO with information about prior art sufficient to raise a “substantial new question of patentability.” Under the new law, and this provision takes place immediately, the would-be opposer will have to demonstrate “reasonable likelihood that the petitioner woud prevail with respect to at least one of the claims challenged in the petition.” The inter partes review may be brought only nine months (but sometimes longer) following the issuance of a patent.

For challenges within nine months of issuance, there will a “post grant review” procedure. This will be an entirely new way to challenge a patent short of going into federal court. With this procedure, the PTO may grant review if the opposer presents information which, “if not rebutted, would demonstrate that it is more likely than not that at least one of the claims challenged in the petition is unpatentable.” This standard includes not just the assertion of well-established legal arguments of invalidity, but also “a novel or unsettled legal question that is important to other patents or patent applications.”

VI. Elimination of “Best Mode” Disclosure As A Ground for Invalidity

Under both the prior and new law, patent applicants must disclose to the PTO “the best mode contemplated by the inventor of carrying out” the invention. This requirement is based on the traditional view (rooted in Article I, §8, clause. 8 of the U.S. Constitution) that the grant of a patent is conditioned upon the inventor providing enough information to the public to know how the invention is best carried out, or, in patent jargon, “practiced.” Failure to disclose the “best mode” of practice could prevent anyone from later practicing the patent (e.g., when the patent expired after twenty years) or making new inventions based on the information disclosed, and for this reason such failure has been considered by courts as grounds for invalidation.

Under the new law, failure to disclose “best mode” will not be a ground for asserting invalidity. As various commentators have noted, this new provision of the law will likely promote greater secrecy. With no danger of losing a patent for failure to disclose, inventors and companies will disclose only so much of the “best mode” as is necessary to satisfy the particular PTO examiner, keeping the most crucial information for itself.

For an example how the “Best Mode” principle used to be applied, see Wellman, Inc. v. Eastman Chemical Company at Google Scholar.

VII. Expansion of Prior Commercial Use Defense to Infringement

Alleged infringers have, since 1999, been able to avail themselves of the defense of prior commercial use under certain conditions. Under the new law, the defense will be extended to include any subject matter “consisting of a process, or consisting of a machine, manufacture, or composition of matter used in a manufacturing or other commercial process.” The prior commercial use defense may be asserted where the commercial use occurred at least one year prior to the filing of the patent application. This provision will apply only to new patents.

VIII. Fund Diversion

The PTO is one of the few government institutions which takes in more money than it expends. Over the past two decades, Congress has “diverted” about $900 million dollars of the PTO’s revenues to cover non-IP-related expenditures. This practice will continue to some as-yet-unknown degree. On the one hand, the new law provides for the establishment of a Patent and Trademark Fee Reserve Fund which will accumulate all fees in excess of the sums officially appropriated to the PTO for each year. Use of the Fund by the PTO will be a matter of Congressional discretion. On the other hand, the PTO is authorized immediately to add a 15% surcharge to all patent-related fees and the funds collected will be available to the PTO for patent-related purposes. Hopefully, it will be enough to allow the PTO to clear a backlog of cases.

IX. Reduced Filing Fees for the Small and Micro Inventor

The PTO will have the continuing authority to offer a 50% fee reduction to small entities and establish a 75% reduction for a new category of “micro” entities, although when the latter will happen is unclear.

Conclusion

The America Invents Act encourages early filing with the added incentive that filings may be supplemented to correct errors, omissions and new information. There is no reason why this should disfavor the small inventor. The Act leaves intact provisional patents which give inventors twelve months within which to explore the viability of their invention in the marketplace before embarking on a formal patent filing. (The provisional patent is inexpensive and allows filing without a formal patent claim, oath or declaration, or any disclosure of prior art.) And the one year grace period ensures that disclosure within a year of filing a patent will not result in a loss of patent rights. Moreover, by strengthening administrative remedies and raising a patent opposer’s burden of proof, the law may well make post-grant challenges more friendly and accessible to the small inventor. Finally, establishing a lower fee for a new category of “micro inventors” is specifically aimed to help the small inventor. Senator Leahy should be commended for a job well done.

Much of the opposition to the new law was based on the theory that America out-invents the rest of the world because it had a first-to-invent rather than a first-to-file system. The first-to-invent system, some commentators have claimed, favored small inventors. There is little or no evidence to support this. As the New York Times pointed out in an editorial in March of this year, the first-to-invent system already favored

whoever files first for a patent. Of the last three million applications filed, only 113 were granted to entities who filed second but proved they had invented first. In 88 of these cases, the winners were large corporations.[2]

Furthermore, proving who invented first was no easy task. Again, the Times editorial:

According to the patent office, it costs $400,000 to $500,000 to challenge a patent on the grounds of a prior invention.

So much for the small inventor.

The new law will require vigilance on the part of inventors, as well as new strategies for patent filing and litigation for companies large and small. These strategies will need to be developed gradually by closely watching activity in the PTO, the courts and the marketplace. Inventors and companies whose assets include patentable intellectual property must take heed.

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Endnotes

[1] Brookings Policy Brief Series, # 184: “The Comprehensive Patent Reform of 2011: Navigating the Leahy-Smith America Invents Act,” September 2011, http://www.brookings.edu/papers/2011/09_patents_villasenor.aspx

[2] “Patents, Reform and the Little Guy,” New York Times, March 7, 2011, http://www.nytimes.com/2011/03/08/opinion/08tue3.html