Across the Internet can be heard the shrill cry of opponents to the “First to File” patent registration system which will take effect, pursuant to the America Invents Act, in approximately 18 months. The “First to File” system, they say, will disfavor the individual inventor working in his garage and award big corporations with the resources to win the race to the Patent & Trademark Office.
This is a very romantic idea which based on certain populist notions regarding the American Dream, but not rooted in historical or legal reality. It is the purpose of this article to describe the “First to Invent” system as it worked in the real world.
Contrary to popular (and populist) belief, the “First to Invent” system was not a system in which patents were awarded to the first person to conceive of an idea. Hacker News provides these helpful examples to show how it worked. (We have taken the liberty of clarifying their examples):
X comes up with an idea at time 0. X starts working to reduce the idea to practice.
At Time 4, Y comes up with a similar idea, and also starts reducing to practice.
At Time 10, Y gets it all working, writes up and files a patent application.
At Time 15, X gets it all working (poorly), writes up and files a patent application.
Under a “First to File” system, Y will be awarded the patent. Under a “First to Invent” system, Y is presumed to be the one entitled to the patent, but X can initiate an “interference” action. (That’s an administrative procedure in the patent office to determine who “invented” first.) To win the interference action, X must show that he conceived of the invention prior to Time 4 and worked continuously and diligently to reduce it to practice until Time 15. Proving this can be difficult — it requires extensive and objectively verifiable record-keeping. It is also expensive. An interference action may be as little as $50,000 but is typically much more and can exceed three quarters of a million dollars. Fortunately, interference actions are rare: less than one percent of all patent applications become involved in an interference action. This means that in over 99% of patent filings, the patent is effectively awarded to the first (and only) to file.
In those cases where there is a dispute by two or more inventors (or teams of inventors), you only need to ask yourself who has the money to mount an interference action and you’ll know that the answer is “not the small inventor.” An empirical study cited on Bill Heinze’s blog, ip-updates confirms this point. In “Competition, Innovation and Racing for Priority at the U.S. Patent and Trademark Office,” Linda R. Cohen and Jun Ishii from the Department of Economics at UC Irvine analyzed a random sample of 662 patent interference actions and concluded as follows:
“we do not find evidence that the system works to the benefit of small inventors or firms. Small firms rarely avail themselves of the interference process. But if we assume that the winner of an interference is the first-to-invent,* the results suggest that small inventors do not suffer from a filing disability. Alternatively, there is some indication that other groups do have such problems – both the U.S. government and U.S. universities, for example, are far more likely to enter our sample as junior parties, yet they win a reasonable share of cases, which suggests that both institutions systematically take longer to file patent applications than do private firms and individuals. However, we need more data to establish the trend statistically.”
Cohen and Ishii found that in 390 out of 662 cases, or 58.91% of the time, the patent went to the senior filer (i.e., the first to file), while 27.64% went to the junior party, 7.85% went to both parties, and 5.59% went to neither party. (Cohen and Ishii presumed that the party awarded the patent was actually the first to invent, but that probably isn’t true in every case.) In most cases, the winners were large corporations.
Let us continue with the examples comparing the two systems.
X conceives of the idea at Time 0 and begins working on reduction to practice.
Y conceives of the idea at Time 4 and begins working on reduction to practice.
At time 6, X takes time off to work on something else — perhaps he took another job or started working on a different invention — and he only resumes working on the invention at Time 8.
Y files his patent application at Time 10. X files at Time 15.
Here, Y wins under both the “first to file” system and “first to invent” system, because X lost his priority date of Time 0 when he interrupted his work. His new priority date is Time 8. Since Y was working diligently from time 4 to his filing date, Y’s priority date is Time 4.
Same as Example 2, except X files at time 10, Y files at time 15.
X, who was the first to conceive of the invention, wins under the “first to file” system, but loses to Y (after an interference action) under “first to invent” system.
In sum, under the “first to invent” system, the patent wasn’t necessarily awarded to the one who first conceived the idea or first reduced it to practice. The situation was far more complicated.
Walter Hunt and Elias Howe
Moving from the abstract to the concrete, here is a real world example of the “first to invent” system in action in one of the most important patents in the history of American industrialization: the sewing machine.
Walter Hunt built the first American sewing machine in 1834, but decided not to seek a patent because he thought his invention would cause unemployment. His machine sewed only straight seams, but used a lockstitch mechanism characterized by a needle with an eye at the point which passed through the cloth, creating a loop on the other side through which a second thread passed via a shuttle. In 1846, Elias Howe obtained the first American patent for what Hunt was the first to invent: “a process that used thread from two different sources.” Howe’s sewing machine, however, failed commercially.
When Isaac Singer, with the help of Walter Hunt, made design improvements, thereby creating the first commercially viable sewing machine, Howe sued Singer for patent infringement. (In Singer’s machine, the needle moved up and down and the mechanism was powered by a foot treadle.) Belatedly, Hunt tried to file for a patent for his earlier invention, but his claim was rejected by the Patent Office. Had Hunt been successful, Howe would never have prevailed against Singer.
What follows are excerpts from the 1854 decision of Judge Charles Mason, Commissioner of Patents, on Hunt’s application. (Thanks to sewalot.com, where we found this text.)
Hunt claims priority upon the ground that he invented the Sewing Machine previous to the invention of Howe. He proves that in 1834 or 1835 he contrived a machine by which he actually effected his purpose of sewing cloth with considerable success. Upon a careful consideration of the testimony, I am disposed to think that he had then carried his invention to the point of patentability. I understand from the evidence that Hunt actually made a working machine in 1834 or 1835. The papers in this case show that Howe obtained a patent for substantially this same invention in 1846.
Notwithstanding this, the Commissioner was forced to refuse Hunt’s belated application, for the reason that an Act of Congress in 1839 had provided that inventors could not pursue their claims to priority in patents unless application was made within two years from the date when the first sale of the invention was made [one year under current law]. Hunt had sold a machine in 1834, and had neglected to make application for his patent till 1853.
Thus it was that one of the grandest opportunities of the century was missed by the man who should rightfully have enjoyed it; the honors and emoluments of the great sewing machine invention passed to a man who neither had invented a single principle of action, nor applied a practical improvement to principles already recognized
* * *
Elias Howe, Jr., acquired the power, by simply patenting another man’s invention, to obstruct every subsequent inventor, and finally to dictate the terms which gave rise to the great Sewing Machine Combination about which the world has heard—and scolded—so much. Howe’s machine was not, even in 1851, of practical utility. From 1846 to 1851 he had the field to himself, but the invention lay dormant in his hands. He held control of the cardinal principles upon which the coming machines must needs be built, and planted himself squarely across the path of improvement—an obstructionist, not an inventor—
and when, in 1851, Isaac M. Singer perfected the improvements necessary to make Hunt’s principles of real utility to the world Howe continued to obstruct and pursue litigation.”
It was no secret that Howe was not the first inventor of the lockstitch sewing machine — according to Hunt, Howe admitted that to him personally. However, Howe was the first to file.
“First to File” under the America Invents Act Doesn’t Mean First to Steal
For those who have been confused into thinking that “first to file” means that someone can simply steal an invention and run to the patent office to file it, the America Invents Act makes it perfectly clear that it is only inventors (or the owners to whom they assign their patents in writing) can file at all. Moreover, where the first party to file “derived” its invention from another, the prior inventor may bring a derivation proceeding. In many respects this will resemble the interference action, but such actions should arise on far fewer occasions.
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.
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.
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.
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.
 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
 “Patents, Reform and the Little Guy,” New York Times, March 7, 2011, http://www.nytimes.com/2011/03/08/opinion/08tue3.html