A culmination of many years of efforts to update the patent system in the United States, the Leahy-Smith America Invents Act was finally signed into law on September 16, 2011. 

The genesis of the legislation are a 2003 report by the Federal Trade Commission and a 2004 report by the National Academy of Science, each recommending substantial updates to the patent system to meet the needs of a modern, technologically driven, U.S. economy that must compete globally. 

The Act makes substantial amendments to the patent laws to implement some of the recommend changes and to address, at least partially, concerns that have been raised by other stakeholders. Ultimately, it represents a compromise. It adopts attributes of patent systems found in Europe and Asia, which are intended to simplify issues of patentability, and yet maintains several peculiarly American features found in the current U.S. patent system. In an effort to address patent quality, it expands the opportunities for third parties to be involved with the patenting process and to challenge patents through administrative proceedings at the Patent and Trademark Office (PTO) rather than in court. 

Supporters of the legislation argue that it combines the best of the non-U.S. systems and the current U.S. system, and that new system is a model for a modern patenting process.  However, not everyone is completely happy with the changes. Several changes urged by some stakeholders did not make it into the final legislation. Others feel like it unfairly burdens small businesses. Regardless of one feels about them, no more profound changes to the U.S. patent system have been made in well over a century.

The New "First Inventor to File" System

The most significant change, a switch from a "first to invent" to a "first inventor to file" system, will not occur until March 16, 2013. Under current law the first person to invent is the rightful patentee, even if that person was not the "first to file." The patent will go to the "first inventor to file" if there are two or more inventors trying to patent the same invention. The change generally conforms U.S. law to "first to file" systems abroad. However, unlike most foreign patent systems, the new law allows the inventor to disclose his invention up to one year prior to filing an application for patent without losing rights to the patent. A similar system has been in effect in Canada. Those who derive the invention from the true inventor cannot apply for a patent. A derivation proceeding can be brought in the PTO should an inventor believe that has occurred.

Changes Having Immediate Effect

A number of amendments made by the Act to the patent law took place up on signing. They include —

  • Fee Surcharge. It will cost more to apply for a patent. The Act authorizes the PTO to levy a 15% surcharge on existing patent-related fees starting 10 days from the date of enactment and continuing until the applicable fee is reset under the PTO's new fee setting authority. Starting November 15, 2011, it will also cost an additional $400 to file an application if it is not done using the PTO's electronic filing system.
  • Prioritized Examination. Prioritized examination, which was to have taken effect in May but was postponed due to budget cuts, is now available. Requesting prioritized examination costs $4,800.
  • Patents on Tax Strategies Likely Foreclosed. Tax avoidance strategies are, as of the date of enactment, deemed part of the "prior art." This change effectively means that obtaining patents on tax avoidance strategies, even if they are implemented on a computer, will be difficult, if not impossible. This change does not impact patents that have already been issued, but will apply to pending applications.
  • New Standard for Reexamination. It may be more difficult to initiate a new inter partes reexamination. Requesters will need to demonstrate in the request that at least one claim is likely not patentable. The prior standard required only a showing that a "substantial new question of patentability" exists. Although Congress expects this to make it harder for third parties to request inter partes reexamination, we do not expect it to substantially lower the 95% grant rate.
  • Limits on Joinder of Defendants in Infringement Action. It will be harder to join a large number of defendants in a single patent infringement action in district court. Relief requested in any new actions must now relate to infringement arising from the same transaction, occurrence, or series of transactions or occurrences relating to the same accused product or process. This change will likely significantly curtail the common practice of so-called "non-practicing entities" filing a single suit naming numerous, unrelated defendants.
  • Virtual Marking. Marking of products with patent numbers is still a prerequisite for damages for infringement in the absence of notice to the infringer. However it may now be satisfied by posting an association of the patent number with the patented article on the Internet at an address that is freely accessible by the public without charge, and marking the articles with the word "patent" or the abbreviation "pat." and the address for the posting. Products for which marking was impractical or difficult should now be able to comply more easily.
  • Damages for False Patent Marking Limited. False patent marking cases under §292 may now only be filed by those who have "suffered a competitive injury." This will put an end to false marking suits brought by "false marking trolls," i.e. those not engaged in business affected by the alleged false marking.
  • Expansion of Prior User Rights. Although a use of an invention prior to patenting of the invention by a third party sometimes means that the patent is invalid, it does not always. The Act's prior user right had been limited as a defense to a claim of infringement of so-called "business method" patents. The Act immediately expands rights of users who have commercially used an invention claimed in any patent granted on or after September 16, 2011. However, there are a number of limits on the right and carve outs. How useful the prior user right will be remains to be seen.
  • Supplemental Examination. Available for all patents, this new proceeding is intended to allow patent owners to purge the patents of situations that could give rise to a claim of "inequitable conduct." A patent owner presents the additional or corrected information to the PTO. If the PTO determines that the new or corrected information raises a substantial new question of patentability, it may order an ex parte reexamination. Under new Subsection (c) of §257, which also comes into effect immediately, a patent cannot be held unenforceable, except in certain situations, on the basis of conduct relating to information considered, reconsidered or corrected during the supplemental examination.

Changes Effective September 16, 2012

Inter partes reexamination will no longer be available after September 16, 2012, though reexaminations of patents initiated before that date will continue under the existing reexamination rules. Three new trial proceedings at the Patent Trial and Appeal Board in the PTO will come into play at that point.

  • Inter Partes Review. A new inter partes review proceeding will replace the current reexamination process. A panel of administrative patent judges at the PTO will preside over the review and there is no internal appeal. All patents, whenever issued, are subject to review upon petition of a third party. Cancellation of a claim in a patent can only be sought on grounds that one or more printed publications and patents anticipate or render obvious the claim. The law requires a final decision by the panel within one year of filing.
  • Post-Grant Review. Post-grant review is similar to the new inter partes proceeding except that it is only available for a period of nine months from patent issuance, and it is not limited to challenges for novelty and obviousness. It will be available for patents granted on applications having earliest effective filing dates on or after March 16, 2013. The first post-grant reviews, other than those for certain "business methods," are not expected to take place until 2014.
  • Special Post-Grant Review for Covered Business Methods. Anyone being sued for infringement of a "business method" patent, regardless of when the patent was issued, may petition the PTO for review of the patent under the post-grant review proceeding. A business method patent is one 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."

Funding for the PTO; Fee Overhaul

The Act includes several measures designed to ensure adequate funding of the PTO. These measures include the authorization for the PTO to set its fees at levels necessary to recover cost. The PTO keeps the 15% surcharge and the prioritized examination fees. All other fees collected by the PTO are paid into a special fund that cannot be used for any purpose other than to fund the PTO. Congress is expected to appropriate to the PTO any fees collected that are in excess of the PTO's budget. This falls short of ensuring that the PTO will receive all of the money it collects, but it should allow the PTO to hire more examiners and personnel to address the backlog of patent applications and administer the new proceedings that are established by the Act. In fact, the PTO has begun the process of hiring 1,500 new patent examiners.

The current fees will remain in place for the foreseeable future, however. The PTO must first determine how it will conduct the new administrative procedures called for under the Act before it can figure out how much they will cost. Once costs are determined, they will be able to begin the rulemaking process to reset the fees. It will likely be between one to two years before the new fees become effective.

PTO Rulemaking

The Act mandates extensive rulemaking by the PTO, and gives the PTO quite a bit of discretion and authority to develop appropriate rules for implementing the legislation. Whether the Act succeeds will depend in large part on whether the rules properly balance the interests of patent owners and the public to achieve a strong patent system that promotes new business formation and growth.

The PTO will be publishing 10 notices of proposed rulemaking in January, 2012 relating to provisions that will take effect on or after September 16, 2012. This group of notices will include rules that will implement changes for the inventor declarations, the three new inter partes proceedings, the derivation proceeding, supplemental examination and a number of other items. The final rules are expected to be published in July, 2012. Additional notices of proposed rulemaking and final rules are expected for implementation of the "first inventor to file" system. No timetable has yet been announced for publishing the notice and final rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.