On September 16, 2011, President Obama signed into law a sweeping patent reform bill resulting in dramatic changes to United States patent law (title 35, U.S.C.). More changes are to come as various sections of the Leahy-Smith America Invents Act (the Act) go into effect. This article will identify and briefly discuss the most significant changes. Perhaps most notably, the Act will replace our first-to-invent patent system with a first-to-file a patent application system, and it will introduce new post-grant proceedings for challenging patents before a newly-created administrative Patent Trial and Appeal Board (PTAB) of the United States Patent and Trademark Office (USPTO).

Objectives of the New Law

A primary stated goal of the Act is global patent harmonization. Key to this harmonization was changing to a first-to-file system (effective 18 months from enactment) and making certain foreign activities prior art to U.S. patent applications.

Another stated goal is improvement in patent quality. Thus, pre-grant third-party submissions to the USPTO are encouraged, an entirely new post-grant review process is instituted, and new inter partes review procedures are established. These procedures provide new avenues for challenging patent applications and the validity of issued patents.

First-to-File Replaces First-to-Invent

Under the new law, filing a patent application determines priority (i.e., the first inventor entitled to a patent), not whether a person was in fact the first to conceive of the invention. However, if the first-application filer derived the invention from a second-application filer, priority can still be awarded to the first true inventor. These changes will take effect 18 months after enactment of the Act or March 15, 2013.

Under the first-to-file system, inventors will generally no longer be able to “swear behind” the prior art (i.e., establish an actual date of invention earlier than the date of filing a corresponding patent application), and instead will be awarded priority as of the effective filing date of their application. A procedure similar to “swearing behind” may still be available in appropriate cases, such as under new subsections 102(b) and (c), which remove from prior art public disclosures in patents and applications that were owned by or subject to a duty to assign to the same party.

Public Disclosures and One Year Grace Period

Inventors will no longer have a general one year grace period to file a patent application after a public disclosure of an invention. Instead, they will only have a personal, one year grace period with respect to their own public disclosures. 35 U.S.C. § 102(b)(1)(A).

Public disclosures will not be prior art with respect to a claimed invention if the public disclosure was made by a named inventor (including any joint inventors) within the one year grace period, or resulted from an inventor disclosing (directly or indirectly) the invention to a non-inventor who made the public disclosure. 35 U.S.C. § 102(b)(1)(B).

In addition, disclosures appearing in patent applications and patents are not prior art to a claimed invention if (1) the disclosure was derived from the inventor or a joint inventor, (2) the subject matter had previously been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter from the inventor or joint inventor, or (3) the subject matter disclosed and the claimed invention were owned by the same entity, or were subject to an obligation of assignment to the same entity no later than the effective filing date of the claimed invention. 35 U.S.C. § 102(b)(2)(A) – (C).

Once an invention has been disclosed, it is prior art against subsequent U.S. patent applications, except that the inventor or joint inventor can “swear behind” their own prior disclosure for up to one year. In addition, a prior patent or published patent application is not prior art against a claimed invention if the inventor or joint inventor of the claimed invention published the subject matter before the effective filing date of the prior patent or published patent application. Thus, publication of an invention may become a more valuable tool in an overall patent strategy to ward off competitor’s patents, while preserving the right to pursue U.S. patent protection. An important consideration in this strategy, however, is the lack of a similar one year grace period in most foreign countries.

A “prior commercial use” defense is also available under the new law, if a good faith prior commercial use of the subject matter took place in the United States before the earlier of the effective filing date of the claimed invention or the date on which the claimed invention was disclosed to the public in a manner that qualifies as an exception under 35 U.S.C. § 102(b) discussed above. See 35 U.S.C. § 273(a). The burden is on the party asserting the “prior use” defense to establish the defense by clear and convincing evidence. 35 U.S.C. § 273(b).

Defensive public disclosure and prior commercial use thus gain new prominence as factors to consider as part of overall patent strategy.

Expansion of Prior Art

The scope of prior art available to defeat patentability or validity of patent claims is expanded under the new law. Specifically, U.S. patents and published U.S. patent applications claiming priority to foreign-filed patent applications will now be considered prior art if “effectively filed” before the effective filing date of a claimed invention. 35 U.S.C. § 102(b). Consequently, a published U.S. patent document claiming priority to a foreign filed patent application may be considered prior art as of its earlier foreign filing date (i.e., effective filing date) rather than its U.S. filing date. Under prior U.S. practice, the effective date of a U.S. patent document as prior art was the date of its filing as a U.S. national application.

Derivation Proceedings

The new first-to-file provisions essentially eliminate patent interference practice—the first actual inventor will no longer have priority over the first-to-file a patent application. See 35 U.S.C. § 135(j). However, if the invention was derived from a prior inventor, priority can be stripped from the first filer under the new “derivation” procedures.

A derivation proceeding can be brought before the PTAB within one year of the date of first publication of an application. In addition, a civil derivation action may be brought within one year from the issue date of the patent that allegedly claims the invention derived and claimed in a patent. 35 U.S.C. § 135(a) and 35 U.S.C. § 291.

A derivation petition must be filed in the PTO within one year from the first publication of an application that meets two criteria: (1) the application must contain a claim to an invention that is allegedly the same or substantially the same as the earlier application’s claim to the invention and (2) the application must name as an inventor an individual alleged to have improperly derived the invention. 35 U.S.C. § 135(a).

The petition must be supported by “substantial evidence” as decided by the new PTAB. 35 U.S.C. § 135(a)-(b). While the parties can settle the derivation claim, the settlement agreement must be filed with the Director of the USPTO and can be kept confidential at the request of a party to the proceeding. 35 U.S.C. § 135(e). The PTAB is to take action consistent with the agreement, unless it finds that the agreement is inconsistent with the evidence. Id.

Arbitrations are treated similarly, but the arbitration award is unenforceable until notice to the PTO Director is provided. 35 U.S.C. § 135(f). The Director is not precluded from determining the patentability of the claimed inventions involved in the proceedings. Id.

Civil derivation actions must be filed within one year from the issuance of the patent that (1) contains a claim to the allegedly derived invention and (2) names as an inventor an individual alleged to have derived the invention. 35 U.S.C. § 291(a)-(b).

Third-Party Submissions, Inter Partes Review, and Post-Grant Proceedings

Under 35 U.S.C. § 301 et seq., third parties are now encouraged to submit prior art to the USPTO before the commencement of prosecution of an application for patent. The new law permits a third party to submit for examiner review prior art patents and publications up to the later of six months from publication of the patent application or before the first office action or notice of allowance. The rule also requires the submitting party to explain the relevance of the submitted prior art.

1. Reexamination

The new law amends the procedures for ex parte reexamination (now simply called “reexamination”) and inter partes reexamination (now called “inter partes review”), and also establishes a new procedure called “post-grant review.”

Reexamination is still predicated on prior art publications and patents. The basis for provoking reexamination is still by showing that there is a substantial new question of patentability. However, a patent owner’s recourse from an adverse decision of the PTAB is direct appeal to the Federal Circuit; no longer will patent owners be able to seek adjudication of reexamination decisions in district court.

2. Inter Partes Review

Under 35 U.S.C. § 311 et seq., an inter partes review can be provoked by the petition of a non-patent-owner filed after either nine months post-patent-grant, or after the termination of a post-grant review. Inter partes review must be based on prior art patents and publications and thus does not extend to all potential bases for patent invalidity.

The inter partes review is an administrative adjudication proceeding initiated directly before the PTAB. As with reexaminations, the only judicial recourse from the PTAB decision is direct appeal to the Federal Circuit.

Petitioners for inter partes review cannot have previously challenged the validity of the patent in court and cannot have been served with a complaint alleging infringement of the patent more than a year prior. In addition, the inter partes petitioner will be estopped in court from raising issues that were or could have been raised before the PTAB.

3. Post-Grant Review

Under 35 U.S.C. § 321 et seq., persons other than the patent owner also can petition for review of a patent within nine months of the patent’s grant. Such review is to be granted, if it is “more likely than not” that the challenged claims are unpatentable or if the petition raises a “novel or unsettled legal question.”

Post-grant review may be instituted directly before the PTAB by any party other than the patent owner during the first nine months after the grant of a patent (original or reissue patent) having a priority date that is later than March 15, 2013. Unlike reexamination and inter partes review, which provide only a limited basis for reexamination (i.e., patents or other printed publications), post-grant review will permit a challenger to rely on any ground of invalidity that could be asserted in an infringement litigation in district court. A petitioner cannot have previously challenged the patent’s validity in court and, similar to inter partes review, an instituted post-grant review estopps the petitioner in court on all issues that were or could have been raised before the PTAB. A one-year time limit is generally imposed on the PTAB to complete post-grant review.

The new inter partes review and post-grant review procedures have the following features:

Identification of petitioner. The identity of the real party in interest must be disclosed in the petition to institute the proceeding.

“Reasonable likelihood of success.” The threshold for initiating an inter partes review or post-grant review requires petitioners to show a reasonable likelihood that the petitioner will prevail as to at least one claim of the patent.

Repeal of the 1999 limit. The limit on challenging patents issued before 1999 in inter partes reexamination is eliminated; post-grant review proceedings can be instituted against patents having a priority date that is 18 months after the September 16, 2011 enactment of the new law.

Evidentiary burden. The petitioner bears the burden of establishing that a patent is invalid under a preponderance-of-the-evidence standard of proof.

Time limits during litigation. Parties who want to use inter partes review during litigation are required to do so within 12 months of being served with a complaint alleging infringement of the patent and are barred from seeking or maintaining a post-grant review if they file an action for a declaratory judgment that the patent is invalid.

Discovery. Parties may depose witnesses who have submitted affidavits or declarations and seek such discovery as the USPTO determines is necessary in the interest of justice.

12- to 18-month deadline. Inter partes and post-grant reviews must be completed within one year after the proceeding is instituted, however the USPTO can extend the deadline by six months “for good cause.”

Hearing. Each party has the right to present oral argument at a hearing before the PTAB.

Three-judge panels. Inter partes reviews and post-grant reviews will be conducted before a panel of three “administrative patent judges” of the PTAB.

Right of Judicial Recourse. PTAB decisions (as is the case with decisions in reexaminations) can only be appealed directly to the Federal Circuit, which reviews them on the basis of whether there is “substantial evidence” in the administrative record that supports the PTAB’s fact-finding, and de novo on the PTAB’s conclusions of law (e.g., claim construction).

Estoppel in subsequent proceedings. A party that uses inter partes review or post-grant review will be estopped in a subsequent proceeding from asserting the same grounds that it raised or reasonably could have raised in the earlier proceeding.

Impact on Patent Litigation

The new law impacts many patent litigation strategies, including at least the following: (1) joinder of parties, (2) prior user rights, (3) patent marking, (4) best mode, (5) advice of counsel, and (6) litigation against the USPTO.

1. Joinder

Filing a lawsuit against multiple parties may now be more complex and expensive. The new joinder rules require that the defendants relate to the same accused product or process and that common issues of fact will arise for all the defendants. An allegation that the defendants all infringe the same patent is generally not sufficient, although the joinder provisions can be waived by an accused infringer. See 35 U.S.C. § 299(b) – (c).

While it is still possible to file suit against multiple parties selling the same product or in the same supply chain, it may now be easier for defendants to sever their cases and seek different venues. It remains to be seen how the courts will apply the new law. However, defendants now have a new arrow in their quiver to defend patent suits brought against multiple parties.

2. Prior User Rights

The prior user rights defense under 35 U.S.C. § 273 is now expanded to include all patents, not only patents directed to business methods. Defendants must prove by clear and convincing evidence that they commercially used the claimed invention in the United States at least one year before the earliest claimed priority date for the patent in question or the earliest public disclosure of the claimed invention that qualifies for the prior art “grace period” under 35 U.S.C. § 102(b). 35 U.S.C. § 273(a).

Seeking premarket approval by establishing safety and efficacy qualifies as a “commercial use,” as does use for research in a “non-profit” laboratory or entity. 35 U.S.C. § 273(c). Perhaps somewhat ironically, to maintain status as a “commercial use,” use in a non-profit laboratory or entity must be for “continued and non-commercial use.”

The prior user right is personal and non-transferable, except with the transfer of an entire business. 35 U.S.C. § 273(e)(1)(B). Notably, the prior user defense cannot be asserted by an individual against a university if the university files an action against the individual, unless there are federal grant monies involved in the reduction to practice of the patent being asserted. See § 273(e)(5)(A). The defense also is not available if the use was derived from the patent owner, or if the commercial use was abandoned. 35 U.S.C. § 273(e)(5)(B).

Prior user rights are potentially broader than the safe harbor provisions under 35 U.S.C. § 271(e)(1), but contain a number of exceptions that should be carefully considered. It remains to be seen whether expansion of prior user rights will have a practical impact in the area of life sciences patents given the availability of broad “safe harbor” provisions.

3. Marking and False Marking

The new law addresses the recent uptick in litigation surrounding false patent marking of products. The new law eliminates qui tam lawsuits with respect to patents. H.R. 1249-46 (Section 16 (b)(1)) amending 35 U.S.C. § 292(a). Thus, plaintiffs cannot enforce false marking violations on behalf of the Government. Private parties can sue for damages upon proof of competitive injury. False marking, however, does not include labeling a product with a now-expired patent. H.R. 1249-46 (Section 16 (b)(3)) amending 35 U.S.C. § 292(c).

4. Best Mode

Failure to disclose the best mode known to the inventor for practicing a claimed invention is no longer available as an argument to invalidate a patent claim. H.R. 1249-44 (Section 15 (a) amending 35 U.S.C. § 282).

5. Advice of Counsel

Under 35 U.S.C. § 298, the lack of evidence of advice of counsel cannot be used in attempts to establish willful infringement or intent to induce infringement.

6. Litigation Against the USPTO

Litigation against the USPTO must be filed in the U.S. District Court for the Eastern District of Virginia, rather than the U.S. District Court for the District of Columbia. H.R. 1249-33 (Section 9). In addition, as indicated above, appeal for review of USPTO reexamination decisions is directly to the Federal Circuit, rather than U.S. District Court. 35 U.S.C. § 141(b).

Some Other Notable Changes

1. USPTO Fees

The USPTO Director now has fee-setting authority for any fee charged under title 35, U.S.C. There will be a 15 percent surcharge on almost all fees, including maintenance fees, effective 10 days after Act enactment, i.e., September 26. There will be a $400 fee for non-electronic filings (effective 60 days after enactment). A new small entity status is created, called a micro-entity, which is entitled to a 75 percent discount on many USPTO fees (small entities still receive a 50 percent discount). Under 35 U.S.C. § 123, a micro-entity is a person, generally employed by an academic institution or not named in 5 or more prior applications, who meets certain income requirements under 26 U.S.C. § 61(a) (Int. Rev. Code).

2. Barred Subject Matter

As of September 16, patent claims covering any strategy for reducing, avoiding, or deferring tax liability is deemed prior art. However, this does not apply to systems and methods for preparing a tax filing or organizing tax data and does not apply to methods and systems for financial management. Similarly, certain patent claims directed to or encompassing a human organism are not permitted.

3. Priority Examination for “Important Technologies”

Twelve months after the signing of the Act into law, i.e., September 16, 2012, applications for inventions in important technologies will be given priority examination in the USPTO. Important technologies involve, for example, the national economy or national competitiveness. There is an additional $4,800 fee for priority examination. The stated goal is to provide a first substantive action on the proposed claims of these patent applications within 12 months of filing.

4. Special Review for Business Method Patents

A special post-grant review proceeding is to be established by the USPTO for business method patents, i.e., claims to a method or apparatus for performing data processing or operations used in the practice, administration, or management of financial products or services (not including “technological inventions” to be defined by the USPTO). The review is initiated by a petitioner who must be the real party in interest, i.e., a defendant charged with infringement. The proceedings are similar to post-grant review and are conducted by the PTAB.

5. Supplemental Examination

A new “supplemental examination proceeding” is created whereby “[a] patent owner may request supplemental examination of a patent in the office to consider, reconsider, or correct information believed to be relevant to the patent, in accordance with such requirements as the Director may establish.” Supplemental Examination is intended to deal with issues relating to inequitable conduct prior to Therasense, Inc. v. Becton, Dickinson and Co., __ F.3d __, 2011 WL 2028255, 99 U.S.P.Q.2d 1065 (Fed. Cir. May, 25 2011)(en banc).

After a patent is granted, the patent owner can initiate a procedure for further examination of the claims on any grounds that raise a substantial question of patentability (35 U.S.C. § 257). This can be used to purge possible inequitable conduct, unless pending litigation claims of inequitable conduct have already been made. If during the course of the Supplemental Examination or a reexamination, if the USPTO becomes aware of possible fraud in the procurement of the patent under which examination was ordered under this section, the matter may be referred (confidentially) to the Attorney General for possible criminal charges.

6. Satellite USPTO Offices

The USPTO is authorized to establish three or more satellite offices in the United States to better connect with inventors, enhance patent examiner retention, expedite examination, and improve patent quality. The Act specifically mentions Detroit, Michigan as a likely location for the first satellite office.

Intellectual Property