The House of Representatives voted 304-117 to pass the “Leahy-Smith America Invents Act” patent reform bill on June 23. A similar bill passed the Senate on March 8 by a vote of 95-5. The next step is reconciliation, where the differences between the two bills will likely be resolved.

This bill H.R. 1249, and its counterpart, S. 23, are the biggest change in U.S. patent law in over a century. The bill affects most areas of the patent system, including the definitions of patentable subject matter and novelty; administrative procedures involving patentability and patent validity; litigation and remedies; and funding authority. Some of the features of the legislation are that:

  • Patents will be awarded on essentially a First-to-File basis, versus the current First-to-Invent basis. The grace periods currently in existence under 35 U.S.C. 102 for determining novelty and prior art have been restructured and almost eliminated.
  • Interference proceedings, where the first person to invent is determined, will be rfeplaced with derivation proceedings, where a claim of inventorship by a first person to file can be challenged by those claiming that the subject matter of the invention was derived from their work. Derivation proceedings must be started within 12 months of publication of the application that contains the disclosure of the derived invention, and be supported by substantial evidence – despite the evidence typically being in the hands of the deriving party. The new derivation proceedings can apparently be circumvented with either accelerated examination or a filing of a request for non-publication of the allegedly derived application.
  • Inventors will now be able to replace their oath of inventorship with a declaration. This reduces the penalties for falsely claiming inventorship and virtually eliminates them for foreign companies inducing false claiming. Also, companies and individuals claiming legal ownership of an invention can sign an unsworn Substitute Statement asserting their ownership of the invention and resulting application, if they can show unavailability of the claimed inventors. Finally, under existing law, inventorship must be shown before examination can be commenced. This will be changed to require it before a patent issues. The result of these changes will be that the criminal penalties for falsely claiming inventorship will be reduced, penalties for inducing false claiming of inventorship may be effectively eliminated, and the likelihood of actual inventors claiming inventorship will be reduced.
  • Third parties can submit prior art during examination of a patent application. The submission should include a statement as to its relevance. This may make it more difficult for some applicants to receive a patent.
  • New post-grant review proceedings will be instituted for newly issued patents. This introduces a new way to invalidate patents and will most likely be used by competitors. The proceedings are oppositional before Administrative Patent Judges, with decisions directly appealable to the Federal Circuit. In order to institute a challenge to an existing patent, the challenger must show a reasonable likelihood of prevailing in invalidating at least one claim based on published prior art or statements by inventors or owners of the patent during prosecution or in court. A petition must be filed within 9 months of the grant of a patent, and cannot be made if the petitioner has filed a civil action challenging the validity of any claim of the patent or after 6 months after the date that the petitioner is served with a complaint alleging infringement of the patent. Inter-partes reexamination remains available as an option for post-grant review of a patent.
  • Supplemental examination can be requested by a patent owner in order to provide corrected or new information to the USPTO. If the agency concludes a supplemental examination, the patent cannot be held unenforceable on the basis of any information considered during that examination.
  • A transition post-grant review program for determining what constitutes a covered business method patent will be instituted. The Director will issue regulations regarding the new procedure within one year of enactment. A petition for a transitional proceeding cannot be filed unless the petitioner has been sued for or charged with infringement of the business-method patent.
  • Failure to disclose best mode under 35 U.S.C. 112 ¶ 1 has been removed as a justification for invalidation.
  • Damage provisions have been revised. Either party can ask that a judge act as a gatekeeper to determine factors used in assessing damages. Moreover, either party can request that an infringement trial be sequenced to determine infringement prior to damages.
  • Prior use rights, which give nonpatentees the right to continue using an invention that they were using prior to the filing of a patent application, will be extended to affiliates. Virtual marking is authorized in recognition that it is often infeasible for companies with numerous products and patents to comply with the current marking law. Instead of having to physically mark each item covered by a patent with its patent numbers, companies will now be able to just provide a web site link to a list of products covered by their patents. Also, failure of an infringer to get advice of counsel will no longer be used as evidence of willful infringement.
  • Fee setting authority will be granted to the USPTO director. Included in this is a reduction of fees by 50% for small entities and 75% for a newly created class of micro-entities. Micro-entities must qualify as small entities, inventors must not have been named on 4 (House) or 5 (Senate) or more previously filed patent applications, and have a gross income that exceeds 3 times the most recently reported median household income.
  • The Director of the USPTO will be able to prioritize examination of applications that he considers important to the national economy or national competitiveness, without recovering the additional cost of providing that prioritization.

There are some minor differences between the House and Senate versions of the bill. But the difference between the two bills that will most likely lead to problems during the reconciliation process concerns fee diversion. The USPTO is essentially self-funding. It typically takes in at least as much money in fees as it expends in examination. On and off for the last decade Congress has diverted some of these fees to the general revenue fund used to fund other government services. The Senate bill would prevent this diversion from happening in the future. This was removed from the House version of the bill, when the Budget and Appropriations committee chairs opposed it on the grounds that this would weaken Congressional oversight of the agency. The Republican majority in the House seemed fairly strong in their opposition, and consideration of the bill on the House floor was delayed for a week until it was removed. The Senate appears to be strongly behind this element, and so there is a potential that the bill will still fail, despite overwhelming passage in both Houses of Congress over this issue.