With mounting patent application backlogs, currently numbering over 700,000, and numerous government agencies consistently reporting on the need for reform, overhaul of the patent system has been a bipartisan priority in Congress and a key area of focus for various sectors of American industry over the last several years. The 112th Congress is no different, and it appears momentum may be building to enact patent reform in 2011.
On March 30, H.R. 1249 was introduced in the House as the "America Invents Act." Earlier in March the US Senate passed S. 23, its version of patent reform, by a vote of 95-5.
Patent reform continues to be a major priority for public and private sector participants in the intellectual property system, and passage of comprehensive reform legislation has been a long time goal of Congress. S. 23 is the product of several years of bipartisan negotiation in the Senate. The overwhelming passage of the legislation in that chamber indicates both the desire for reform and the existence of consensus in the Senate.
With the Senate having passed a patent bill, attention now turns to the House of Representatives where House Judiciary Committee Chairman Lamar Smith (R-TX) has introduced and begun consideration of H.R. 1249. It is unclear when the House will ultimately consider patent reform legislation, but Chairman Smith has set the table for action on legislation this year. With both leadership and rank-and-file members focused on pending budget issues, it could take some time for House action.
Though patent reform remains a controversial and complex issue, Senate passage of legislation by such a broad margin and the early introduction of legislation in the House provide momentum for continued progress on the issue. Though this issue has advanced only haltingly over the past four years, there exists a possibility that patent reform could ultimately be enacted by the 112th Congress.
This alert lays out the major provisions of the America Invents Act as well as differences between the legislation passed by the Senate and that introduced in the House of Representatives.
‘First to Invent’ Gives Way to ‘First to File’
The current American patent system recognizes superior rights of the ‘first to invent’ based in most circumstances on the date the inventor first conceives of his or her invention. This system is often said to provide greater protection to smaller and less sophisticated inventors. Other countries utilize a simpler method: the ‘first to file’ an application will have superior rights to an invention, even where another conceived of it first but was slow to file an application. Key and hotly debated provisions of the bills propose adoption of a ‘first to file’ model in the United States. Proponents argue that this change will bring the United States in line with the patent systems of other industrialized nations, lower administrative costs for an already overworked and understaffed US Patent and Trademark Office (USPTO), and reduce litigation expenditures.
The ‘first to file’ model proposed in the bills however is not without its detractors. Opponents of the legislation are wary of such a fundamental change, citing the global preeminence of United States technological development under the existing system as one reason for retaining a ‘first to invent’ system, despite potentially higher administrative and litigation costs.
One related concern surrounding the bills’ provisions is the expansion of the scope of prior disclosures or uses which are available for use in supporting a challenge to a patent or patent application. Currently, certain of these disclosures or uses are available to be cited against an applicant or patent holder if they occur more than one year before the date of application. Under the proposed bills, this one year "grace period" is narrowed so that many of these disclosures or uses would be available to be cited against an applicant or patent holder if they occur prior to the effective filing date. The bill would further change current law by barring patent rights where an invention was in public use, on sale or "otherwise available to the public" anywhere in the world prior to the effective filing date. The one year grace period is, however, retained for direct or indirect disclosures made by the inventor or disclosures made after the inventor publicly discloses the invention.
Similarly, both bills would require USPTO examiners to determine whether a claimed invention is "obvious" (and thus not entitled to patent protection) as of the application filing date rather than the date of invention.
The bills do provide several protections designed to benefit small inventors. They allow creation of an "ombudsman program" to "provid[e] support and services relating to patent filings to small business concerns" and require the Small Business Administration to report on the effects of switching to a ‘first to file’ system with particular emphasis on effects on small businesses. They further extend the 50 percent small entity "discount" to include application and search fees associated with fast track applications. Additionally, the proposed legislation defines the requirements for "micro entities" to qualify for an even greater discount of 75 percent. Qualified applicants must, among other things, meet an earning threshold or be a university participating in the National Science Foundation’s Experimental Program to Stimulate Competitive Research program.
Requirements for funding agreements (those that govern government-funded experimental, development or research work) with non-profit organizations are also altered by decreasing payments to the federal government on excess invention-related royalties and income, and increasing by the same amount expenditures benefiting small businesses.
Exceptions to the New ‘First to File’ Focus
Despite the broader transition to a ‘first to file’ system, both bills allow for a first inventor (but later-filer) to bring an action in civil court or before the USPTO, within one year of certain specified events, claiming rights to a patent where the first filer "derived" the invention from the first inventor - thus providing some limited relief to those who do not have the resources or are otherwise unable to make a prompt filing.
One major distinction between the House and Senate legislation arises in the arena of "prior user rights." Other countries more liberally allow non-patentees the right to continue using a patented invention where those non-patentees reduced the invention to practice and/or began use of the invention before the date the patentee filed a patent application according to a variety of rules. While both chambers have thoroughly considered the role of these prior user rights in the United States patent system, H.R. 1249 and S. 23 use very different approaches to address the issue.
S. 23 makes no change to existing prior user rights which persist only in relation to the narrow category of business method patents, but requires the United States Patent and Trademark Office (USPTO) to report to Congress on the operation and effects of broader prior user rights in certain industrialized countries. Specifically, the report is intended to focus on differences in law between the United States and other countries which more extensively allow prior user rights, the effects of prior user rights on innovation, small business operation and acquisition of venture capital, related economic growth factors, as well as whether a ‘first to file’ system strengthens the need for broader prior user rights.
In contrast, H.R. 1249 would expand prior user rights to all categories of patents, and would extend the defense to persons engaging in commercial activities inside or outside the United States assuming other prerequisites are satisfied (e.g. reduction to practice more than 1 year prior to effective filing date and commercial use before the effective filing date). An important and controversial exception, however, limits the defense from being used where the implicated patented subject matter was developed under a government funding agreement or by a nonprofit institution of higher education.
These significant differences in stance toward prior user rights between H.R. 1249 and S. 23 are expected to be a source of much debate as the bills proceed through the legislative process in the coming months.
Addressing Business Method Patents
H.R. 1249 and S. 23 also create a pilot program for post-grant review proceedings available exclusively to challenge the validity of business method patents. The proceedings would generally follow other Chapter 32 post-grant review guidelines, with the exceptions noted in the bill - the most notable of which are that the petition need not be filed within 9 or 12 months of patent grant and that a petitioner must have been charged with infringement before petitioning.
Persons accused of infringement of a business method patent may request a review by citing certain limited types of prior Art, and may also request a stay of any pending litigation pending the outcome of the proceeding. The pilot program is set to expire 4 years from its creation. Petitioners under the pilot program may not later challenge, in a civil action under 35 USC 1338 or a proceeding before the International Trade Commission, claims on the same grounds as those raised in a post-grant review which resulted in issuance of a final decision.
Funding for the USPTO
The USPTO has in recent years been susceptible to having its fee-generated revenue expended by Congress in non-patent areas. The bills establish a revolving fund for use by the USPTO into which its fees could be deposited and which would, according to proponents, help put an end to fee diversion. Similarly, application and maintenance fees which were previously set by Congress would, under the bills, be set by the Director - a measure aimed at helping the Director modernize USPTO operations while hopefully reducing the serious backlog of applications. Notwithstanding this discretion, S. 23 establishes a fee of $400 for original patent applications filed non-electronically (excluding design, plant and provisional applications), and H.R. 1249 further includes a section which pre-defines a host of additional fees.
The bills also require the Director to submit annual reports to Congress regarding its operating plan, expenses and staff levels; plans and progress relating to modernization; and the results of independently-conducted annual audits of financial statements. The Director must also present annually to the President a business-type budget.
Challenges to and Utilization of Issued Patents and Patent Applications
The bills expand the rights of third parties to challenge patents or patent applications. Third parties may, under the proposed provisions of both bills, submit a wider range of publications or statements for consideration by the USPTO during or after the examination process, to include statements made by the patent owner in federal court or before the USPTO regarding claim scope.
The bills also add a new time-sensitive post-grant window of either 9 months (S. 23) or 12 months (H.R. 1249) during which a third party may challenge the validity of a patent’s claim(s) based on nearly any legal grounds available for a defense of invalidity to an infringement suit. A post-grant review may only be authorized by the Director where information in the petition, if unrebutted, would demonstrate that it is more likely than not that at least one of the challenged claims is unpatentable OR if the petition raises a novel or unsettled legal question important to other patents or application.
Further, a post-grant review may not be requested or maintained if a petitioner or a real party in interest has filed a related civil action. Any potential petitioner should also be aware of proposed amendments which govern petitioner estoppel. A petitioner may not later challenge the same claim before the USPTO on grounds which were or could have been raised in the post-grant proceeding if a final decision was issued in the proceeding. Similarly, a petitioner may not later assert, either in a civil action under 35 USC 1338 or an International Trade Commission Proceeding, that a claim is invalid on grounds which were raised in a post-grant proceeding if a final decision was issued in the proceeding. H.R. 1249 further proposes an automatic stay of civil litigation instituted after filing of a post-grant review petition.
The bill also allows a third party, after the 9 or 12 month post-grant windows referenced above lapse, to challenge the patent using revised inter partes review proceedings upon more limited grounds - only novelty and nonobviousness may be challenged under the procedure. While H.R. 1249 retains the "substantial new question of patentability" threshold from existing inter partes reexaminations for institution of such reviews, S. 23 requires a more demanding showing of "a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition."
An inter partes review may not be requested or maintained if a petitioner or a real party in interest has filed a related civil action; nor may one be requested where a petitioner or a real party in interest was served with a complaint alleging related infringement more than six or nine months (S. 23 and H.R. 1249, respectively) before the petition for review was filed. H.R. 1249 further proposes an automatic stay of civil litigation instituted after filing of a petition for inter partes review.
Further, a petitioner may not later challenge the same claim before the USPTO on grounds which were or could have been raised in the inter partes proceeding if a final decision was issued in the proceeding. Similarly, a petitioner may not later assert, either in a civil action under 35 USC 1338 or an International Trade Commission Proceeding, that a claim is invalid on grounds which were raised or reasonably could have been raised in an inter partes proceeding if a final decision was issued in the proceeding.
In contrast to these generally expanded challenge procedures, the bills make several changes which should benefit a patent holder. Currently, the validity or enforceability of a patent may be challenged based on the allegation that the patent fails to disclose the "best mode" for practicing the invention. Under the bills, though the patentee still has the duty to disclose a "best mode," issued claims will not be held invalid or unenforceable because of a failure to do so.
Also under the bills, the Director is authorized to accept requests for prioritized examination for applications which are important to the national economy or competitiveness without recovering the extra costs of providing such prioritization.
The bills also allow a patent holder to, of its own accord, initiate a "supplemental examination" of an issued patent on the basis of new information considered to be relevant to patentability. A patent holder may utilize this procedure to avoid future claims of inequitable conduct by infringers which are based on failure to disclose such information during the original prosecution of the application and which could result in unenforceability of the patent. If, in the course of a supplemental examination, the Director determines that a substantial new question of patentability has been raised by at least one item of information in the request, a reexamination must be carried out under existing reexamination procedures (See 35 USC 301 et al.).
The bills would also bar certain uninterested parties from claiming another has used false patent markings by, for example, claiming an article is patented when it is not. Those who have suffered "competitive injury" as a result of such false marking, such as competitors which were falsely led to believe an article was patented when it was not, would retain the right to sue based on such claims.
Finally, the bills allow a patent holder to give notice of its patent rights to the public by directing the public’s attention to a freely-accessible Internet address which displays patented articles in association with patent numbers. Current practice requires notice to be given by marking an article or its packaging with a patent number.
State and Federal Courts Provisions:
- (S. 23 only) repeals the requirement that Federal Circuit judges reside within 50 miles of the District of Columbia.
- Deny state courts jurisdiction over legal actions relating to patents, plant variety protection, or copyrights.
- Grant the Federal Circuit exclusive jurisdiction over appeals from federal and related district courts in cases arising under or in which a party has asserted a compulsory counterclaim under any Act of Congress relating to patents or plant variety protection.
- Allow for removal to a United States district court of civil actions in which a party has asserted a claim for relief under any Act of Congress relating to patents, plant variety protection or copyrights. The district court would then be required to remand certain unrelated claims.
- Require the Federal Circuit to transfer appeals dealing with designs and unfair competition to the court of appeals for the regional circuit embracing the district from which the appeal was taken.
- Disallow tax liability strategies from distinguishing a patent application’s claims from the prior art. H.R. 1249 further clarifies that this exclusion from patentability does not extend to certain tax return preparation or financial management claims.
- Repeal 35 USC 104, which defines the geographic locations other than the United States in which a date of invention may be established using evidence of knowledge, use or other activities in those locations.
- Repeal 35 USC 157, which allows patent applicants to request publication of their applications if certain requirements were met. This has become largely an obsolete practice given that most applications are automatically published 18 months from filing anyway.
- Replace the Board of Patent Appeals and Interferences with the Patent Trial and Appeal Board and sets forth its required composition and duties. They also allow applicants to appeal certain decisions of the Patent Trial and Appeal Board to the Federal Circuit.
- Amend the required contents of an inventor’s oath or declaration, and allow a person to which an inventor has assigned rights in an invention (or to which an inventor is obligated to make such an assignment) to apply for a patent on the invention.
- Prohibit an alleged infringer’s failure to seek advice of counsel from being used as evidence to prove willful infringement or intent to induce infringement.
- Require the USPTO to make data available to the public regarding the length of time which elapses between commencement and conclusion of each post-grant and inter-partes review.
- Allow the USPTO to pay for certain employee costs of attending intellectual property programs conducted by the USPTO, and authorize the Director to fix pay rates for certain administrative patent and trademark judges up to a maximum.