United States: Patents

On November 29, 1999, President Clinton signed new legislation introducing some long-awaited patent reforms into US law¹. Far from being so radical as originally proposed, the new legislation is fairly well balanced, conferring advantages and disadvantages to US and non-US patent applicants and patentees, small and large. Of course, the full impact of this legislation cannot be assessed until implementing regulations are issued, and both the statutes and the regulations have been in application for some time. Therefore, this article only broadly outlines the significance of the new law. Furthermore, we have confined ourselves to those aspects of the new law that in our view will be of most relevance to biotechnology patents.

The mandatory publication of those non provisional, utility (and plant) US patent applications that are also filed outside the US (i.e., the vast majority of patent applications) may be the most subtle change to US patent practice². Publication is the quid pro quo for granting provisional exclusionary rights to the owners of pending US patent applications (see "Provisional patent rights"). It also paves the way for mandatory full-text publication of all patent applications, which would bring US patent law still closer to the laws of most other countries, and permit better assessment of the risk of infringement.

Until now, the US Patent and Trademark Office (PTO) was alone among the major patent offices in maintaining patent applications in secrecy until issuance of a patent³. Secrecy came to be considered as promoting uncertainty because it hindered evaluation of the business risk of patent infringement before issuance of a patent. Given that issuance of a patent could be delayed for years, competitors of a patentee were in the dark about the extent of patent protection that the patentee might be awarded. Other aspects of US patent law were also seen as fostering business uncertainty, as illustrated by the so-called "submarine patents," which "surface" only upon their issuance (usually many years after filing), taking the industry by surprise. Competitors of the submarine patentee suddenly face the prospect of having to pay damages or cease operations in the area covered by the submarine patent.

In part to avoid such surprises, patent systems outside the US have long published patent applications 18 months after their earliest asserted filing date. Although lawyers analysing these non-US publications were routinely able to make some determination as to whether a commercial activity would some day constitute patent infringement within the US, much was still left to guesswork, primarily for two reasons. First, because some patent applications (typically owned by the most cost-conscious entities such as individuals, small businesses, or universities) are not filed outside the US, a published non-US patent application was not available for analysis by counsel. Second, there was no requirement that the disclosure or claims of the application published outside the US be identical to the one pending under secrecy in the US PTO. Thus, by employing different patent strategies in the US than outside the US, patent applicants could create and maintain considerable uncertainty about their US patent position.

The first significant blow against uncertainty in US patents was the 1994 patent law revision that implemented the GATT Uruguay Round Agreements, instituting in the US a maximum patent term of 20 years from the date of filing⁴. This seriously curtailed the ability of patent applicants to delay issuance of a patent by protracting its pre-issuance proceedings before the PTO while eventually enjoying a full patent term of 17 years from issuance. Mandatory publication of US patent applications was expected to eliminate much of the residual uncertainty. The new law stops short of this, and uncertainty remains.

The new law simply requires that patent applications (except those for which counterpart applications are not filed elsewhere) are to be published "promptly after the expiration of a period of 18 months from the earliest filing date for which a benefit is sought...,"—that is, 18 months from the earliest asserted filing date⁵. The new law permits patent applications without non-US counterparts internationally to be withheld from publication. Naturally, an applicant may request early publication and need not wait out the full 18-month period⁶.

The new law permits a patent applicant who has not filed and will not be filing outside the US to avoid publication simply by filing an appropriate certification⁷. Moreover, if the US application contains different subject matter from the non-US application, the new law permits the subject matter unique to the US application to be redacted from its publication⁸.

This does not seem to be a big change: instead of looking to a non-US publication, the patent applicant's competitors and their advisors can look to a domestic publication which will at least always be in the English language. However, the US publication will have some powers that its non-US counterparts lack.

The new law provides that published applications will constitute prior art references that can be applied to deny a patent to another applicant under 35 USC §102(e), that is, effectively as prior inventions, and not as mere prior publications⁹. The effect of this provision is that, under US law, a patent application is effective as prior art not as of its publication date (like literature articles and published non-US patent applications), but as of its filing date (like US patents), which can be up to 18 months earlier. This means that a published US patent application can bar patentability of someone else's invention directed to the same or trivially different ("obvious") subject matter if the other person has filed a patent application subsequent to the filing date of the published reference application and cannot demonstrate an earlier date of invention.

Another reason that the publication statute is important is that it breaks the secrecy barrier and paves the way for full unconditional publication of all patent applications, i.e., without any redaction and irrespective of whether the applicant has sought patent protection outside the US. Eventually, the proceedings before the US PTO may also be laid open to inspection by the public. Such steps will further reduce unpredictability and bring the US patent law closer to the patent laws of most countries.

An important difference between the US patent laws and those of other jurisdictions, and one that generates considerable uncertainty, will persist, however: unless the US patent system is changed to a "first-to-file" from a "first-to-invent" basis, the business risk of infringement will always have a component that will elude analysis before the fact, i.e., before issuance of the patent, or worse, before a determination of who was the first to invent. Most US patent practitioners would agree, however, that such a change is not imminent.

Under the new law, a patentee may obtain limited compensation for infringement of a claim in a published patent application when the infringement took place before issuance of the patent. The patentee will be entitled to a "reasonable royalty" from any person who makes, uses, offers for sale, or sells in the US (or imports into the US) the invention as claimed in the published application. If the claimed invention is a process, the patentee is entitled to a reasonable royalty for the use, sale, or offer for sale (or importation into the US) of products made by the claimed process¹⁰. A prerequisite to recovery is that the infringer must have had "actual notice of the published application."¹¹ This means that the patentee can only recover a reasonable royalty for the period of time beginning on the earliest date for which the patentee can establish that the infringer had seen the patent application.

A second and probably more formidable prerequisite to recovery is that the invention as claimed in the patent must be "substantially identical" to the invention as claimed in the published patent application¹². Thus, if the published application does not contain a claim directed to the competitor's activity, there can be no recovery. Similarly, if during examination of the application by the Patent Office, the application claim is narrowed such that the issued claim is no longer infringed, there can be no recovery.

These two aspects of the new law are balanced: through publication, the patent applicant gives up some of the ability to surprise the competition in return for the right to recover some royalties through provisional patent protection from those who begin competitive operations relying in part on the fact that a patent will take years to issue. Patent applicants should draft claims of differing scope to cover all potentially patentable aspects of the invention, which will probably result in applications containing a greater number of patent claims. Patent applicants should also survey the competition, to identify potentially infringing activities, and bring the relevant patent application to the attention of the likely infringer. Both of these steps increase the up-front cost of patent procurement, which fledgling businesses and new ventures are often unable or barely able to afford. Thus, provisional protection will probably be of greater benefit to applicants with greater economic resources.

Patent applicants should give careful consideration to redacting from the US publication portions of an application text that are only present in the US but not in other applications (see "Publication of US patent applications"). The new statute deprives the patentee of provisional rights if the redacted text does not support ("enable") the relevant claims of the published application¹³. The potential penalty for non-compliance is thus considerable. As a result, most patent applicants will err on the side of publishing too much rather than too little information, in order to ensure that provisional rights can be obtained. We predict that uncertainty in assessing patent risk has been pushed back, if not dealt another blow.

Re-examination is a procedure by which the validity of the claims of an issued patent is considered by the PTO de novo in view of prior art. The new law establishes a new inter partes (i.e., contested) re-examination procedure, which allows third parties ample opportunity to participate substantively¹⁴.

Most of the provisions governing the present (not contested) re-examination procedure are also applicable to the new contested re-examination procedure. Thus, the new law has not enlarged the grounds based on which re-examination can be initiated. The patent owner or a third party ("third-party requester"), may request re-examination solely on the basis of "new" prior art (prior patents or publications not considered by the PTO during the original examination)¹⁵.

Under the present procedure, if the requester is a third party, the patentee has the option but not the obligation of responding to the request, and if the patentee does file a response, but only then, the requester can counter-respond. Within three months, the PTO decides whether to grant re-examination based on whether this prior art raises "a substantial new question of patentability" (i.e., one not considered during original examination of the patent application). The re-examination proceeding then goes on "ex parte," without any further input from the third-party requester. It is true that if the patentee prevails, as is most often the case, the requester is not finally bound by the outcome. As a practical matter, however, it is difficult for any third party to obtain a contrary outcome in a subsequent litigation in the absence of new information not considered by the US PTO during the re-examination proceeding. The reason for this is that re-examined patents are entitled to a presumption of validity, and a patent challenger has the burden of proving invalidity by adducing clear and convincing evidence¹⁶.

The inability of third parties to participate meaningfully in re-examinations either discouraged re-examination requests—placing more of the burden of adjudicating patent validity on the courts—or caused third-party requesters to resort to peculiar strategies. One such strategy involved filing multiple re-examination requests, each with a different argument or item of prior art, in the hopes that one of them would be successful in inflicting significant damage to the patent claims. Either way, resolution was not obtained in an efficient manner.

In the most significant departure from current practice, the new contested re-examination procedure permits the third-party requester to respond (within 30 days) to any document filed by the patent owner¹⁷. The patent owner no longer can proceed free of the vigilance of an adversary. Further, the third-party requester now has the right to appeal to the US PTO Board of Patent Appeals and Interference from an unfavourable decision of the examiner on re-examination¹⁸. Under the present procedure, only patent owners can appeal.

The new law also urges that patent litigation should be stayed pending the result on re-examination, "unless the court...determines that a stay would not serve the interests of justice."¹⁹ Currently, some courts grant stays while others do not, a situation that compounds the unpredictability of outcome.

The quid pro quo for permitting third parties substantive participation at every stage of the re-examination proceeding is that the third-party requester is bound by the outcome of the re-examination. Thus, if a re-examination is decided adversely to the third-party requester, he/she is precluded from contesting the validity of any claim of the patent in court based upon "any ground which the third-party requester raised or could have raised during the inter partes re-examination proceedings."²⁰ Thus, once a third party decides to participate in a re-examination proceeding, he/she had better not forget to raise any issues that can be raised. The potential penalty is very high: loss of a lawsuit, and exposure to damages and/or an injunction for infringing what may objectively be an invalid patent. This is hardly unfair, since the requester has a full opportunity to present its position to the US PTO.

The new law also contains a series of PTO "guarantees" with the goal of helping patentees effectively retain a patent term of 17 years from issuance²¹. These provisions list a series of PTO obligations: to act on an application by issuing a rejection or notice of allowance within 14 months from the filing date; to respond to an amendment within 4 months of the filing of the amendment; and to issue a patent within 4 months of payment of the issue fee, among others. If the PTO does not meet one of these deadlines, the patentee will be able to obtain a day of extension of the patent term for each day that the PTO exceeds its allotted time. However, since the extension period is reduced by any period of delay caused by the patentee (e.g., by requesting extensions of time), the patent term guarantee is no more than a conditional promise. In the biotechnology industry in particular, it is probable that the 17-year term guarantee will be the exception rather than the rule. Rebuttal of even unreasonable rejections by the Patent Office often requires declaratory evidence from experts in the field, which takes a long time to garner, requiring extensions of time to be obtained. Nevertheless, every day added to the end of the patent term is potentially valuable in biotechnology, and this, therefore, represents a pro-patentee measure.

Through its provisions on publication of patent applications, the new law will help reduce some uncertainty for persons assessing a competitor's patent protection in the US. The provisional rights section, though limited, is a fair counterpart to publication. The new contested re-examination proceeding may be attractive as a less expensive and more specialised forum to resolve issues of invalidity than a US federal court. Nevertheless, even after passage of these patent law reforms, US law will still lack some of the provisions commonly found in the major patent law jurisdictions, such as awarding a patent to the first applicant as opposed to the first inventor, unconditional publication of all patent applications, and an effective full opposition system. Until US law includes these provisions, patentees and their competitors must live with the fact that patent protection and patent strategies inside the US may be quite different from protection and strategies outside the US.

1. The new legislation was part of Senate Bill 1948, 106th Cong., 1st Sess., which was enacted as part of Public Law No. 106-113 (Nov. 29, 1999).
2. Under the new law, design applications and provisional applications will not be published.
3. Under the prior statute, 35 USC §122, patent applications were kept in confidence by the PTO unless the applicant authorised the release of information or the release was "necessary to carry out the provisions of any Act of Congress or in such special circumstances as may be determined by the Commissioner."
4. See 35 USC §154(a)(2).
5. S. 1948 §4502(a), codified at 35 USC §122(b)(1)(A).
6. Id.
7. The procedure states that an applicant may certify upon filing that the invention disclosed in the US application "has not and will not be the subject of an application filed in another country, or under a multilateral international agreement, that requires publication of applications 18 months after filing...." S. 1948 §4502(a), to be codified at 35 USC §122(b)(2)(B)(i). The certification can be rescinded "at any time." If the request is rescinded, the application will be published. S. 1948 §4502(a), codified at 35 USC §122(b)(2)(B)(iv). If an applicant certifies but then subsequently files a non-US application, the applicant will have 45 days to notify the US PTO of the filing, and failure to notify the US PTO "shall result in the application being regarded as abandoned, unless it is shown to the satisfaction of the Director that the delay in submitting the notice was unintentional." S. 1948 §4502(a), to be codified at 35 USC §122(b)(2)(B)(iii). An application is not published if it is "no longer pending." Patent applications which are subject to a secrecy order imposed by the US government under 35 USC §181 (on the grounds that publication or disclosure may "be detrimental to national security") will not be published. S. 1948 §4502(a), to be codified at 35 USC §122(b)(2)(A)(ii).
8. See S. 1948 §4502(a), codified at 35 USC §122(b)(2)(B)(v).
9. S. 1948, §4505, codified at 35 USC §102(e). The new law provides that a person will not be entitled to a patent if "(e) The invention was described in (1) an application for patent, published under section 122(b), by another filed in the United States before the invention by the applicant for patent, except that an international application filed under the treaty defined in section 351(a) shall have the effect under this subsection of a national application published under section 122(b) only if the international application designating the United States was published under Article 21(2)(a) of such treaty in the English language ...."
10. See S. 1948 §4504, codified at 35 USC §154(d)(1)(A).
11. S. 1948 §4504, codified at 35 USC §154(d)(1)(B).
12. S. 1948 §4504, codified at 35 USC §154(d)(2).
13. S. 1948 at §4502(a), codified at 35 USC §122(b)(2)(B)(v).
14. See generally S. 1948 §4604, to be codified at 35 USC §§311–318.
15. Under some circumstances, re-examination can be granted on the basis of prior art that was previously before the patent office, e.g., during prosecution of the application or in a prior re-examination. Re-examination may be possible if the significance of the prior art was not appreciated in the prior PTO proceeding. See generally "US Patent and Trademark Office, Guidelines for Re-examination of Cases in View of In Re Portola Packaging," 110 F.3d 786, 42 USPQ2d 1295 (Fed. Cir. 1997)," 64 Fed. Reg. 15, 346 (1999).
16. See, e.g., Custom Accessories, Inc. vs. Jeffrey-Allan Indus., Inc., 807 F.2d 955, 961, 1 USPQ2d 1196, 1200 (Fed. Cir. 1986) (suggesting that the burden of proving a patent is invalid is "made heavier" if the patent has survived re-examination).
17. S. 1948 §4604(a), codified at 35 USC. §314(b)(3).
18. S. 1948 §4604(a), codified at 35 USC §315(b).
19. S. 1948 §4604(a), codified at 35 USC §318.
20. S. 1948 §4604(a), codified at 35 USC §315(c).
21. S. 1948 §4402(a), codified at 35 USC §154(b).