and Robert C. Scheinfeld*
Originally published in New York Law Journal, Monday, September 19, 2011
After years of debate, Congress finally passed, and the President signed, the "Leahy-Smith America Invents Act," the most comprehensive overhaul of the patent statute since it was enacted in 1952. Set forth below is a summary of its key provisions, including the statute's new "first to file" system, derivation, post-grant review and supplemental examination procedures, and new rules affecting litigation tactics and strategy.
First-to-File
Section 3 of the act covers the new first-to-file rule. No longer will patents be awarded to the "first-to-invent" or to an inventor who first conceived and reduced his or her invention to practice. Rather, patents will be awarded to those who are first to file an application, assuming of course that the first to file did not derive his or her invention from another. Section 102(a) will now read as follows:
(a) NOVELTY; PRIOR ART—A person shall be entitled to a patent unless—
(1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention; or
(2) the claimed invention was described in a patent issued under section 151, or in an application for patent published or deemed published under section 122(b), in which the patent or application, as the case may be, names another inventor and was effectively filed before the effective filing date of the claimed invention.
Note these very important conditions: The applicant cannot, before he or she files the application, place the invention on sale or in public use, or describe it in a printed publication or otherwise make it available to the public. The applicant may, however, within one year or less before the filing date, make a limited disclosure, which disclosure would not bar the applicant's application. Thus, the act provides for a very restricted one-year grace period.
Whether the claimed invention is patentable is still based on novelty and non-obviousness—the invention will be measured against prior patents and publications of another inventor, both of which will be afforded their earliest actual filing date, even going back to a U.S. patent's earliest foreign filing date, another change from past practice.
Derivation
Section 3 of the act allows for "derivation" attacks. Because of the grave concern that applicants may file applications claiming inventions derived from another, the new act (1) allows a second patentee to challenge the propriety of the first issued patent within one year of issuance of the earlier patent; and (2) establishes "derivation proceedings" in the U.S. Patent and Trademark Office (PTO) which can be initiated within one year of publication by filing a petition setting forth "with particularity the basis for finding" derivation.
If the director determines that the petition is sufficient he or she may institute a derivation proceeding to be heard by the new "Patent Trial and Appeal Board." §135. The director is to prescribe regulations setting forth standards for the conduct of the proceedings. No longer (18 months after enactment) will there be interference proceedings or a Board of Patent Appeals and Interferences.
Sense of Congress
Congress also made explicit its reasoning for moving to a "first to file" system, taking language from the Constitution itself, and bowing to the benefits of international harmonization:
(o) SENSE OF CONGRESS—It is the sense of the Congress that converting the United States patent system from "first to invent" to a system of "first inventor to file" will [(1)] promote the progress of science and the useful arts by securing for limited times to inventors the exclusive rights to their discoveries and provide inventors with greater certainty regarding the scope of protection provided by the grant of exclusive rights to their discoveries [and (2)] improve the United States patent system and promote harmonization of the United States patent system with the patent systems commonly used in nearly all other countries throughout the world with whom the United States conducts trade and thereby promote greater international uniformity and certainty in the procedures used for securing the exclusive rights of inventors to their discoveries.
Defense to Infringement
Section 5 of the act, at §273, broadens the defense to infringement (except against universities) by expanding the subject matter upon which one may rely to avoid liability if: (1) the accused infringer more than one year before the filing date or disclosure; (2) commercially used the invention (even those not related to "business methods") in the United States; (3) by clear and convincing evidence; (4) provided the assertion is made by the person who commercially used (i.e., the defense is not assignable/ transferable except as part of a transfer of "the entire enterprise or line of business"); (5) is limited to the actually commercial use (i.e., the defense is not a general license to all claims); and (6) provided such use is not abandoned.
Beware, however, of the consequences flowing from a failed effort to "demonstrate a reasonable basis for asserting the defense." The court, in such an instance, "shall find the case exceptional for the purpose of awarding attorney fees."
Post-Grant Review
There are at least three new types of post-grant review procedures: inter partes review (Chapter 31), post-grant review (Chapter 32), and supplemental examination (Chapter 25).
Inter Partes Review by Non-Owners (§311). A person who is not the owner of a patent may file a petition under this section to cancel as unpatentable any claim but (1) only on novelty or obviousness grounds and only on the basis of prior art consisting of patents or printed publications; and (2) only AFTER the later of nine months after the patent's grant or AFTER the termination of a post-grant review under Chapter 32 (described below). After the filing of the petition, the patent owner "shall have the right to file a preliminary response to the petition," and the director shall (within three months thereafter) then determine whether "there is a reasonable likelihood that the petitioner would prevail," which determination shall be final and nonappealable.
There are additional restrictions affecting or resulting from litigation practice: (1) no petition may be filed by someone who first files a civil action challenging a patent's validity (as opposed to merely filing a counterclaim challenging validity); (2) any petition filed after such an action shall automatically stay that action until the patent owner moves to lift the stay or alleges infringement, or the petitioner dismisses its action; (3) no petition may be filed more than one year after that petitioner has been sued for infringement; and (4) upon "a final written decision," the petitioner shall be estopped from arguing in court "any ground that the petitioner raised or reasonably could have raised during that inter partes review."
The director is required to establish procedures for conducing the inter partes proceeding, including rules governing the filing of affidavits by fact and expert witnesses, the taking of depositions, the amendment of claims (which would be subject to intervening rights under §252 and which cannot "enlarge" their scope), and the provision of oral hearings, leading to a "final determination" or "final written decision" within one year from the date the director grants the petition seeking review.
The director is to consider: the effect of any such regulation on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to timely complete proceedings instituted under this chapter.
Any party to the inter partes review can appeal an adverse decision directly to the U.S. Court of Appeals for the Federal Circuit, and any party can file a petition to initiate an inter partes proceeding, starting one year after enactment of the act, regarding any patent issued before, on, or after that effective date.
Post-Grant Review—Within Nine Months. Unlike inter partes review, which is limited to certain types of prior art and which can only be initiated at least nine months after a patent's issuance, post-grant review (governed by new Chapter 32) covers petitions filed WITHIN nine months after a patent's issuance, and any invalidity defense may be raised. Like inter partes review, if a post-grant review petition is filed, the patent owner shall have the right to file a preliminary response to the petition, and the director shall, within three months, then (unlike inter partes) determine (1) whether the presented information (if not rebutted) "demonstrate[s] that it is more likely than not that at least one of the claims challenged in the petition is unpatentable," or (2) whether the "petition raises a novel or unsettled legal question that is important to other patents or patent applications." This decision, too, is final and nonappealable.
As with inter partes review, post-grant review under this chapter affects or is affected by litigation decisions: No petition may be filed by someone who first files a civil action challenging a patent's validity and, duplicating inter partes, the same automatic stay provisions kick in if a petition is filed after a declaratory action is initiated, and the same estoppel rule shall apply. The court, however, shall not stay its consideration of a patent owner's motion for preliminary injunction if the action were brought within three months of the patent's issuance.
Further, as with inter partes, the director is to establish procedures for conducting post-grant review, covering the same issues. Unlike inter partes, which restricts discovery to "the depositions of witnesses submitting affidavits or declarations [and] what is otherwise necessary in the interest of justice," post-grant review discovery is "limited to evidence directly related to factual assertions advanced by either party." In both reviews, the petitioner shall have the "burden of proving a proposition of unpatentability by a preponderance of the evidence." Lastly, whereas inter partes may invoke any patent (issued at anytime), post-grant review only applies to patents filed at least 18 months after enactment of the act.
Requests for Supplemental Examinations by Patent Owner. Under the act, a patent owner may request a supplemental examination of its patent for the office to "consider, re-consider, or correct information believed to be relevant to the patent." (§257). The director shall, within three months, issue a certificate indicating whether "the information presented...raises a substantial new question of patentability." If so, the Director shall order reexamination to proceed as in the past, in accordance with Chapter 30, except that the petitioner shall not be entitled to file a statement regarding such question. Further, the petition's submission of new art shall not be used against him or her in connection with a charge of inequitable conduct, unless the allegation was pled with particularity beforehand, in which case the art can be used.
Business Method Patents
The act also provides for a "transitional [eight-year only] program for covered business method patents," whereby the director shall issue, within one year from enactment, regulations establishing and implementing a transitional post-grant review proceeding for review of the validity of covered business method patents. For this purpose, "covered business method patent" is defined as:
[A] 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, except that the term does not include patents for technological inventions [to be defined by the director].
Only parties sued or charged with infringement may petition for this review, and they can only rely upon prior art identified in new section 102(a) quoted above; and then excluding patents issued after the enactment date for which post-grant review is available. If a petition is filed, then the petitioner will be estopped from asserting in litigation "any ground" raised during the transitional proceeding. A stay of the pending litigation may also be sought, and an interlocutory appeal to the Federal Circuit may immediately be made.
Joining Accused Infringers
Effective immediately upon enactment, and addressing the recent prevalent trend of naming dozens of unrelated defendants in the same lawsuit, the act prohibits the joining of accused infringers in one action or consolidated for trial "based solely on allegations that they each have infringed the patent or patents in suit."
Rather, parties may be joined if (1) any right to relief is asserted jointly or severally, or arises from the same transaction relating to making or selling "the same accused product or process"; and (2) "questions of fact common to all defendants" will arise in the action.
Miscellaneous Sections
The act also addresses (1) changes to the oath and declaration provision (i.e., a substitute oath may be filed if the inventor who, although having an obligation to assign, refuses to do so) (§115-118); (2) citation by anyone to the PTO at any time of patents, publications and/or written statements filed by the applicant in court (§301); (3) preissuance submissions by third parties of patent applications, patents and publications "of potential relevance to the examination" (§122); (4) fees, and the power of the director to set and adjust fees to recover aggregate estimated costs to the office, and creation of a new "micro-entity" which would qualify for a 75 percent reduction in fees; (5) tax strategies, which are not patentable, but methods or systems used for preparing a tax or information return may be; (6) best mode, and that the failure to disclose the best mode shall not be a basis to invalidate; (7) marking, by allowing marking to be satisfied by "[f] ixing thereon the word 'patent'...together with an address of a posting on the Internet...that associates the patented article with the [patent] number"; (8) false marking, by limiting the availability of recovery for this violation to those who have "suffered a competitive injury"; (9) the Federal Circuit's en banc Seagate decision1 by providing that the failure to obtain the advice of counsel cannot be used to prove willful or induced infringement; (10) the location of the PTO requiring it, subject to resources, to establish at least three satellite offices in the United States; and (11) patentable subject matter, by prohibiting any patents directed or encompassing a human organism.
Conclusion
After much work by many people looking to improve our patent system, albeit with many companies and parties urging changes to benefit themselves or their space, significant improvements have been made—the progress of science will surely continue, buttressed with the passage of this act. Regarding patent prosecution, procedures are now in place to minimize the risk of unworthy applications issuing into patents. And recognizing the soaring costs of litigation, the PTO will take greater responsibility, and become more accessible, to resolve invalidity disputes before they get to court.
The first-to-file rule will provide greater predictability and harmonization with world-wide systems, hopefully not at the expense of individual or small entity inventors who some argue will be placed at a disadvantage by not having the resources to win the race to the PTO. Overall, however, Congress has done well and the future of our patent system, and the innovation it spurs, remains bright.
Footnotes
* Robert C. Scheinfeld is a partner and the head of the intellectual property group in the New York office of Baker Botts. Parker H. Bagley is a partner at Goodwin Procter in its intellectual property and litigation practice.
1. In re Seagate Technology LLC, 497 F3d 1360, 2007 U.S. App. LEXIS 19768 (Fed. Cir. 2007) (en banc).
Goodwin Procter LLP is one of the nation's leading law firms, with a team of 700 attorneys and offices in Boston, Los Angeles, New York, San Diego, San Francisco and Washington, D.C. The firm combines in-depth legal knowledge with practical business experience to deliver innovative solutions to complex legal problems. We provide litigation, corporate law and real estate services to clients ranging from start-up companies to Fortune 500 multinationals, with a focus on matters involving private equity, technology companies, real estate capital markets, financial services, intellectual property and products liability.
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