On 16 September 2011, President Obama signed the Leahy-Smith America Invents Act after its adoption by both chambers of Congress. Thus, the most extensive reform of American patent law for more than 50 years was carried through. The impact of the reform, among many other things, is that the right to an invention in the future will be granted to the first party to file an application with the U.S. Patent and Trademark Office (USPTO) rather than as until now, to the first inventor. Thus, after more than 200 years, the U.S. abandons the "first to invent" principle in favour of the "first to file" principle applied by most of the rest of the world.

The focus of this article is the American patent reform and its implications for Danish companies.

The U.S., the European, and the International Patent Laws

The federal U.S. Congress does not, as is the case with the Danish Parliament (Denmark being a unitary state), have a general power to legislate. It can only legislate within the powers enumerated in the Constitution.

Since 1791, the American Constitution in its Article 1, section 8 has contained a provision stipulating in part that:

"The congress shall have power ... to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries."

Through the authority of this provision, the U.S. has for more than 200 years maintained federal patent legislation.

The federal regulation of the patent area is exclusive and does not leave room for supplemental state patent laws.

Accordingly, a federal U.S. patent grants the owner the exclusive rights to the invention covered by the patent throughout all 50 U.S. states and throughout all U.S. territories.

In comparison, attempts in Europe have been on-going for the past 40 years to establish a corresponding uniform EC/EU patent creating exclusive rights to an invention throughout the entire EU.

Until a political agreement on the establishment of such a system is reached, patent cooperation in Europe takes place through the European Patent Convention (EPC).

The European Patent Convention is a standard international treaty and does not form part of the EU system.

Nonetheless, the cooperation which takes place through EPC is quite close.

Thus, the European Patent Office (EPO), the patent authority established through EPC, is authorised to issue patents which become valid in Denmark, if Denmark is among the member states designated in the application and provided that the owner of the patent subsequently files a translation of the patent with the Danish Patent and Trademark Office.

Regardless of the fact that the EPO can issue patents which are valid in Denmark, the patent will nonetheless be subject to Danish law. Thus, the Danish Patents Act will apply to the patent. Consequently, the patent can subsequently be contested under Danish law, including through proceedings before the Danish courts.

Denmark, the European countries in general, as well as the U.S. participate in an extensive international cooperation on patents. Thus, a number of global conventions exist within this field.

Some of these conventions govern the substantive laws of the member states, including by establishing minimum rules for the patent protection which the member states must provide.

Other conventions simplify and centralize the patent application case handling process or establish uniform classification rules.

Among the latter type of rules can be mentioned the so-called Patent Cooperation Treaty (PCT), establishing rules on a so-called international patent application. The main principle of the PCT Treaty is that a national patent authority in a member state must take into consideration an international patent application filed in another member state if such application complies with the convention requirements as to form and substance.

As an example of an important substantive rule we can mention that several of the existing conventions establish rules on convention priority, according to which an application for a patent on an invention must be deemed filed simultaneously with an application for a patent on the same invention previously filed in another convention country. However, the achievement of convention priority requires that the subsequent application is filed within the deadline established in the convention in question (counted as from the filing of the original application).

As an example, if a Danish company initially files an application for a patent on an invention in Denmark, and subsequently files for a patent on the invention in the U.S., the U.S. application is deemed filed simultaneously with the Danish application, provided that the subsequent U.S. application is filed within the deadline stipulated in the convention in question.

"The first to file" principle vs. "the first to invent" principle

For many years, Denmark and Europe as well as most of the rest of the world have applied the so-called "first to file" principle, which means that the party which is first to file a patent application achieves the patent rights to the invention described in the application.

Such principle (as it is implemented in Denmark), which at a first glance may seem harsh, is softened by two modifications.

First of all, the party first to file the patent application does not obtain the patent if it can be established that he unrightfully usurped the competitor's invention and accordingly is not the inventor himself (or gained rightful title to the invention from the inventor.)

Additionally, the Danish Patent Act establishes that an inventor who at the time where a competitor filed an application for a patent on an invention substantially similar to the one he made himself, who has already commenced using his own invention, or has taken steps towards such aim, may to a certain degree continue such use. This is provided that such use does not constitute an apparent abuse of the applicant competitor's rights or the rights of anyone from whom he derived his right.

In other words, the (limited) right to use the invention is subject to the inventor who came in second with his application having indeed made his invention independent from the applicant who was first to file.

According to the "first to invent" principle, as it has been applied in American patent law until the passing of the America Invents Act, the inventor who was first to file his application with the USPTO is not necessarily the one who obtains the patent rights. Thus, an inventor, who is able to establish that he made the invention earlier than the party first to file, will obtain the rights to the patent.

Given that the question on who wins the right to an invention made nearly simultaneously by two or more independent inventors is not settled merely by determining who was first to file the patent application, the USPTO has maintained a special proceeding (a so-called "interference proceeding") for purposes of settling disputes between inventors on the right to an invention. Decisions in interference proceedings are made by the Board of Patent Appeals and Interferences, a semi-judicial body. The latter's decisions can be appealed to the federal courts.

Through the passing of the America Invents Act, the U.S., effective 2013, endorses the "first to file" principle. On the same occasion the above-mentioned interference proceeding is substituted by a new administrative dispute resolution procedure designated "derivation proceeding", aiming at settling disputes on whether the applicant has rightful title to the invention. Accordingly, objections to a patent application can no longer be made merely by showing that the applicant who was first to file was not the one who was first to make the invention. In the future, as is the case in Denmark, objections can only be made if it can be established that the applicant did not make the invention himself or rightfully derives his rights from the one who made the invention. In order to emphasize that the one who unrightfully usurped the invention does not obtain the right even though he was first to file the patent application, the U.S. lawmakers have chosen to slightly rename the principle "first inventor to file".

The importance of the America Invents Act

The U.S. Congress motivates its endorsement of the "first to file" principle with the fact that it will 1) promote international uniformity by harmonising the U.S. patent system with systems commonly used in other countries with whom the U.S. conducts trade, and 2) provide inventors with greater certainty regarding the scope of protection.

The America Invents Act must also, seen with the eyes of Danish companies, be considered an important new creation.

It is in itself of great importance to Danish businesses that uniform rules, at least on basic patent law principles, apply among major industrial countries.

Thus, the "first to invent" principle, as applied by the U.S. until now, has had the impact that a Danish inventor who succeeded in being the first to file his patent application in all the countries in which he intends to do business,  including in the U.S. (typically through the above described rules on convention priority) has had to live with the uncertainty that he, despite this fact and unlike what is the case in any other major industrial nation, may not have ultimately achieved the rights to the patent in the important U.S. market.

This is due to the fact that there will always be a latent risk that a competitor emerges, who is able to document that he made a similar invention at an earlier stage.

This uncertainty is eliminated by the America Invents Act, and Danish companies are now able to plan their future business activities with the fact in mind that on this important issue, the world's most important industrial nation no longer applies rules which are in direct contrast to what applies in the rest of the industrialized world.

It is in itself of major importance for Danish companies with U.S. interests that the enhanced risk of becoming involved in legal disputes flowing from the "first to invent" principle is now eliminated.

It goes without saying that a system where it is possible to achieve patent rights to an invention made, even though a competing foregoing patent application has been filed, potentially generates a great number of legal disputes, which would not have arisen in a system with the clear rule that the one filing the patent application first obtains the rights to the invention (provided that the applicant did not wrongfully usurp the application from another).

The importance of having this dispute risk embedded in the "first to invent" principle eliminated is stressed by the fact that any involvement with the US legal system, or in U.S. legal matters, generally means a significantly larger financial exposure, compared to what had been the case in the instance of a similar involvement in Denmark or in most other countries.

This greater financial exposure is seen by the fact that there are generally significantly greater difficulties (and in consequence uncertainty and significantly higher legal costs) involved in having made an assessment of one's exact legal position in connection with a potential or pending legal dispute. Additionally, the US legal system is significantly more complex than what is the case in Denmark, resulting in substantially larger expenses involved in conducting legal proceedings. Finally, the level of the compensation which the company might be at risk of being ordered to pay, in the event of a judgement going against it, is generally significantly higher than what would be the case in Denmark.

Obviously, the roots of such traits are many. However, among the most significant must be mentioned 1) the legal culture arising out of the common-law tradition with its focus on case law and with its use of jury trials also in civil matters, as well as 2) the complexity arising out of the federal Constitution's careful balancing of powers between federal and state authorities, including the division of powers (jurisdiction) between the federal and state administrative authorities, the federal and state courts as well as the federal Congress and the state legislatures.

Also, even disregarding the fact that it generally means being subject to significantly greater financial exposure to become involved in U.S. legal proceedings than what is the case in Denmark, the mere fact that the process takes place abroad will often make the allocation of larger amounts of internal as well as external resources necessary, compared to what would be involved in the litigation of similar purely Danish matters.

Such larger amounts of resources spent, are obviously in part due to higher travel costs and larger amounts of time spent in connection with participation in meetings concerning the matter. However, the larger amount of resources likely to be spent is just as much due to the fact that the foreign legal proceedings (in this instance a U.S. proceeding) will be unknown to the typical Danish company and difficult to understand. This often necessitates also the involvement of the company's legal advisers at home in order to establish an effective communication as to how to conduct the matter, and in order to ascertain that the litigation is conducted with due consideration to the company's overall strategic interests.

Make sure that both the massive financial exposure arising out of an involvement in the US legal system and differences in substantive patent law form part of the company's strategic contemplations

Not least given that, as described above, it means significantly larger exposure to become involved in the U.S. legal system or in U.S. legal matters compared to what is the case in Denmark, it is obviously of great importance to Danish companies with patent interest in the U.S. that the U.S. Congress has now taken steps to eliminate the legal uncertainty imbedded in the "first to invent" principle.

However, the fact that the risk of getting involved in legal disputes has been reduced with regard to this specific issue should obviously not encourage Danish companies with patent interests in the U.S. to show less caution and diligence.

Contrarily, the major financial exposure incidental to getting involved in the U.S. legal system or in U.S. legal matters should also in the future be sought mitigated by acting diligently in all aspects related to the application for the patent, keeping the patent in force, as well as to the administration of the patent rights. As part thereof, carefully drafted contracts should be applied when entering into transactions involving the patent.

The fact that patent laws are extensively governed by treaties and the fact that the U.S. by endorsing the "first to file principle" has taken a major step towards the creation of international uniformity should not lead Danish companies to assume that substantive U.S. patent rules are generally similar to those applicable in Denmark – many substantive differences remain. Awareness hereof should ever form part of one's strategic contemplations.

Just as an example, it can be mentioned that in Denmark and in most of the rest of the industrialized world a very strong novelty requirement applies, meaning that even the inventor's own publication of the invention prior to the filing of the patent application has the effect that the invention is no longer patentable (it is no longer considered new, as it is now in the public domain).

In the US, even after the passing of the America Invents Act, a much more lenient novelty requirement applies, in that a one year grace period is provided. This means that the inventor can file the patent application up until one year after the first publication and still obtain the issuance of a patent.

Accordingly, if a company with research activities in the U.S. as well in Denmark has too much focus on the U.S. patent rules and for this reason publishes the invention prior to the filing of the patent application, assuming that a one year grace period applies, the patentability of the invention will be lost in most of the rest of the world outside the U.S.

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.