On June 23, the United States House of Representatives passed an amended version of the Leahy-Smith America Invents Act (the “Act”), H.R. 1249, 112th Cong. (2011) (as passed by House, June 23, 2011), by a vote of 304-117. 157 Cong. Rec. H4505 (daily ed. June 23, 2011). The Senate passed a version of the Act on March 8, S. 23, 112th Cong. (2011) (as passed by Senate, March 8, 2011), by a vote of 95-5. 157 Cong. Rec. S1381 (daily ed. Mar. 8, 2011). The bill now goes back to the Senate for reconciliation. President Obama has indicated he would sign the Act into law. The Act would substantially overhaul the U.S. patent system and include numerous changes to Title 35, United States Code, including a transition to a “first-inventor-to-file” system. H.R. Rep. No. 112-98, at 73 (2011).

Background

Congress has not enacted comprehensive patent reform since the Patent Act of 1952, Pub. L. No. 82-593, 66 Stat. 792 (1952). H.R. Rep. No. 112-98, at 38. The House Judiciary Committee reported several motivations behind the new legislation including flaws in the current patent system, changes to the economy and to patent litigation practices, the tendency of recent Supreme Court decisions to move “in the direction of improving patent quality and making the determination more efficient,” the benefit to U.S. patent holders of “harmonizing our system” with the “best parts” of other major patent systems throughout the world, and ensuring “that the patent system in the 21st century reflects the constitutional imperative” embodied in U.S. Const. art. I, § 8. H.R. Rep. No. 112-98, at 40.

Summary Of Changes To Title 35

First Inventor to File

The United States currently operates on a “first-to-invent” system. H.R. Rep. No. 112-98, at 40. Under this system, the priority of a right to a patent is based on which applicant actually invented the claimed invention first. Id. Many other nations use a “first-to-file” system, which awards priority based on the date of filing a patent application. Id. Proponents of the Act promote the idea of basing priority on an objective date of filing rather than an often ambiguous date of invention, but are dissatisfied with other aspects of foreign first-to-file systems, such as not having a “grace period” wherein an inventor’s own public disclosure of his invention prior to filing could not be used as prior art to absolutely bar his application. Id. at 40-41.

As a compromise, the Act would create a “first-inventor-to-file” system. Id. at 42. The priority of a right to an invention would be based on the filing date, and interference proceedings (which are now used to determine which applicant has invented the claimed invention first) would be eliminated. Id. The Act would provide for a new administrative proceeding called a “derivation” proceeding to ensure the first person to file is actually a true inventor. Id. However, the one year grace period from the current system would be maintained. Id.

Also relevant to the change to a first-inventor-to-file system, the Act would modify the prior art sections of Title 35. Id. 35 U.S.C. § 102 would be amended such that all prior art would be measured against the filing date, and the distinctions between prior art documents and events based on where they were published or took place (i.e., inside or outside the United States) would be removed so that prior art “includes all art that publicly exists prior to the filing date” (and § 103 would also be amended to conform with the new § 102). Id. at 42-43. A new § 102(c) would also be included, which would encourage joint research agreements by setting out that subject matter disclosed in earlier filed applications and patents will not be prior art against later filed applications when the subject matter disclosed and the claimed invention were developed and made as part of a joint research agreement. Id. at 43; H.R. 1249 § 3.

Defense To Infringement Based On Earlier Inventor

Current U.S. law allows alleged infringers to employ a “prior-use” defense when the patent in question is a business method patent and the accused infringer can show that he had practiced the claimed method prior to its patenting. H.R. Rep. No. 112-98, at 43. Other countries have a much more expansive prior-use regime. Id. The Act would modify Title 35 such that: (1) a prior-use defense can be asserted against any type of patent so long as it is used in connection with manufacturing or some other “commercial process,” (2) the defense cannot be asserted if the subject matter was derived from the patentee or his privies and (3) the prior user must have reduced the invention to practice and commercially used it at least one year before the filing date of the patent. Id.; H.R. Rep. No. 112-111, at 8.

Post Grant Review Proceedings

The Act would also amend the ex parte and inter partes reexamination processes and establishes a new post-grant review procedure. H.R. Rep. No. 112-98, at 45.

Inter partes reexamination would be renamed “inter partes review,” and would be converted to an adjudicative proceeding rather than an examination proceeding. Id. at 46-47. Ex parte reexamination and inter partes review could still only be instituted on the basis of prior patents or printed publications, but a new category of documents – statements of a patent owner filed in a proceeding before a federal court or the PTO – could also be cited. Id.; H.R. 1249 § 6 (as passed by House, June 23, 2011). The new post-grant review procedure could be used only during the first twelve months after a patent is issued, but the patent could be challenged on any ground related to invalidity (including a challenge to the subject matter patentability of the claimed invention under 35 U.S.C. Section 101 and/or challenges based on the requirements of 35 U.S.C. Section 112). H.R. Rep. No. 112-98, at 47.

Further, under the proposed inter partes and post-grant review systems, petitioners in either of those proceedings would be estopped from challenging the validity of the patent involved in subsequent federal court or International Trade Commission proceedings on any grounds that were raised or reasonably could have been raised in the review proceedings. Id. at 76; H.R. 1249 § 6.

Patent Trial And Appeal Board

The Act would rename the Board of Patent Appeals and Interferences the “Patent Trial and Appeal Board.” H.R. Rep. No. 112-98, at 48. It would also expand the Board’s duties to cover the new post-grant review and derivation proceedings. Id.

Preissuance Submissions By Third Parties

Currently, third parties are permitted to submit patents and publications to the USPTO that are believed relevant to pending applications, but they are not permitted to explain why the information is relevant. Id. at 48-49. The Act would permit third parties to make statements concerning the relevance of the patents and publications that they submit. Id. at 49.

Supplemental Examination

Under the doctrine of inequitable conduct, a patent can be held unenforceable if it was obtained through fraud. H.R. Rep. No. 112-98, at 50. The doctrine has been criticized (and recently modified by the Federal Circuit’s en banc decision in Therasense, Inc. v. Becton, Dickinson & Co.) because defendants “reflexively” plead inequitable conduct as a defense, which requires courts and litigants to invest time and resources in determining the patentee’s subjective intent. Id. To address this problem, the Act would create a supplemental examination procedure so that information that was not considered (or perhaps was inadequately considered) by the USPTO could be submitted. Id. If the USPTO determined the information did not present a substantial new question of patentability or that the patent is valid, the information could not be used later to support a claim of inequitable conduct. Id.

Inventor’s Oath Or Declaration

Title 35 currently requires inventors to sign a declaration stating that they believe themselves to be the true inventor of the claimed invention. H.R. Rep. No. 112-98, at 43. The Act would modify § 115 and § 118 to make it easier to file an application without the inventor’s declaration for assignees of the invention or entities to whom the inventor is obligated to assign, but has not yet assigned, rights to the invention. Id. at 44.

Best Mode Requirement

35 U.S.C. § 112 requires that a patent applicant disclose, among other things, the best mode contemplated by the inventor of carrying out that invention. Id. at 52. 35 U.S.C. § 282 makes the defense of patent invalidity available if the applicant failed to comply with the best mode requirement. Id. While not eliminating the best mode requirement from § 112, the Act would amend § 282 so that failure to disclose the best mode could no longer be a basis for invalidity or unenforceability defenses in litigation. Id.

Virtual Marking

The Act would modify the patent marking requirement such that it would permit patentees to “virtually mark” their products by labeling the articles with an address of a publicly available website that associates the patented article with a patent number. H.R. Rep. No. 112-98, at 52.

False Marking

In order to quell a “recent surge” in qui tam false marking litigation, the Act would mandate that only the United States Government can seek the $500-per-article fine (which previously was split between the government and a party bringing a false marking claim). H.R. Rep. No. 112-98, at 53. Third party competitors could only recover in relation to the actual damages (if any can be proven) that they have suffered as a result of false marking. Id.

Advice Of Counsel

The Act includes a new provision, § 298, that would “bar[] courts and juries from drawing an adverse inference from an accused infringer’s failure to obtain opinion of counsel as to infringement or his failure to waive privilege and disclose such an opinion.” Id. This section would apply to findings of willfulness and intent to induce infringement.

Transitional Program For Covered Business Method Patents

The Act also includes proposed changes to address concerns regarding the large numbers of business method patents of possibly questionable merit issued in recent years, and would create a transitional program during which petitioners could initiate a post-grant review proceeding for business method patents. Id. The Act would require the USPTO to establish regulations for this transitional program and mandate that it last ten years after the regulations are issued. Id. Petitioners would not be able to initiate the post-grant review unless they have been accused of infringement. Id. The proposed program is meant to generally function the same way as other post-grant review proceedings pursuant to the Act. Id.

Tax Strategies Deemed Within The Prior Art

Patent filings relating to tax strategies have increased in recent years, and have drawn criticism that it is unfair to permit patents on techniques for satisfying government mandates. Id. The Act would deem tax strategies “insufficient to differentiate a claimed invention from the prior art.” Id. In other words, future tax strategies would be considered within the prior art (with a limited exception in some instances for tax software). Id.

Patent And Trademark Office Funding

Perhaps the most controversial portion of the Act is that affecting USPTO Funding. See generally Erin Coe, Patent Reform Bill Hinges On USPTO Fee Diversion, Law360 (June 24, 2011).

In the version of the Senate bill that passed on March 8, 2011, a revolving fund would have been created for the USPTO at the Treasury of the United States. S. 23 § 20 (as passed by Senate Mar. 8, 2011). Through this fund, the USPTO would be authorized to spend all of the fees that it collected without fiscal year limitation. Id. The version of the House bill that was recommended by the Committee on the Judiciary contained a provision similar to the Senate bill. H.R. 1249 § 22 (as reported by H.R. Comm. on the Judiciary June 1, 2011). However, there were concerns that the provision would violate the House’s “CutGo” rule, which requires any new spending costs to be offset by cuts to existing spending, H.R. Res. 5, 112th Cong. (2011), and that giving the USPTO complete control of the agency’s funding would violate the Constitution because “the power of the purse must stay in Congress.” 157 Cong. Rec. H4381-82 (daily ed. June 22, 2011) (statement of Rep. Richard Nugent).

A compromise was reached providing that the USPTO can only spend the amount appropriated to it in a given year, and any excess will be deposited in a Patent and Trademark Fee Reserve Fund at the Treasury. H.R. Rep. No. 112-111, at 15-16.

Fee Setting Authority

The USPTO currently has the ability to set certain fees by regulation, but most fees are set by Congress. Id. The Act would allow the USPTO to “set or adjust by rule any fee established, authorized, or charged under title 35, United State Code, or the Trademark Act.” H.R. 1249 § 10.

The Act would also define a new class of inventor: a “micro-entity.” Id. at 50. Micro-entities would be even smaller than “small entities”; the classification is meant to include only “truly independent inventors.” Id. Micro-entities must (1) qualify as a small entity, (2) have not been named as an inventor on more than four previously filed U.S. patent applications, (3) have a gross income less than three times the median household income and (4) have not assigned (or be obligated to assign) any license or ownership interest in the application to an entity that had a gross income higher than three times the median household income. H.R. 1249 § 10.

Funding Agreements

Universities and small businesses operating at Government facilities are currently allowed to retain the title to any invention made in connection made in connection to their Government contracts. Id. at 51. If the university or small business successfully licenses the patents that it has obtained on such inventions, it may retain the balance of any royalties or income for further research so long as that balance does not exceed 5 percent of the annual budget of the facility. Id. If the balance exceeds 5 percent of that budget, 75 percent of the excess is recouped by the Government. Id. To give universities and small businesses more incentive to commercialize their inventions, the Act would change this scheme so that the university or small business can retain 85 percent of the excess and the Government is only reimbursed 15 percent of the excess. Id.

Jurisdictional And Procedural Matters

The Federal Circuit is meant to have exclusive jurisdiction over patent claims, 28 U.S.C. 1295, but, in 2002, the Supreme Court held that patent counterclaims do not give the Federal Circuit appellate jurisdiction over a case. Id. (citing Holmes Group, Inc. v. Vornado Circulation Systems, Inc., 535 U.S. 826 (2002)). The Act would mandate that the Federal Circuit has appellate jurisdiction over compulsory counterclaims. Id. The Act would also clarify that the U.S. district courts have exclusive jurisdiction over patent and copyright claims. Id.; H.R. 1249 § 19.

The Act would also create a new joinder provision, § 299, that would allow accused infringers to be joined as defendants or counterclaim-defendants only if: (1) relief is asserted against the parties “jointly, severally or in the alternative, arising out of the same transaction,” and (2) questions of fact common to all of the defendants will arise in the action. H.R. Rep. No. 112-98, at 54-55.

Patent Ombudsman Program For Small Business Concerns

The Act would require the USPTO to create a Patent Ombudsman Program to provide support and services regarding patent filings to small business concerns. Id.

Priority Examination For Important Technologies

The Act would permit the USPTO to prioritize examination for inventions that are “important to the national economy or national competitiveness” without recovering the aggregate cost of providing the prioritization. Id.; H.R. 1249 § 25. The USPTO could promulgate regulations to implement this prioritization. H.R. Rep. No. 112-98, at 56.

Calculation Of The 60-day Period For Application For Patent Term Extension

In order to promote consistency in the USPTO’s “counting” rules and to conform with recent case law, § 156 would be amended so that if permission to apply for patent term extension is granted after 4:30 pm on a business day or on a non-business day, for “counting” purposes it shall be deemed to have been granted on the next business day. H.R. Rep. No. 112-111, at 21; H.R. Rep. No. 112-98, at 56.

Satellite Offices

The USPTO is already conducting a pilot program to create and operate a satellite office in Detroit. Id. The Act would require the USPTO to establish three more satellite offices within three years. Id.

Studies

The Act would require the USPTO to conduct studies on various topics, including:

  • a study regarding the implementation of the legislation and other patent policies, practices and issues that the USPTO deems relevant. Id.;
  • a study on patents for genetic diagnostic testing including the impact of the “current lack of independent second opinion testing,” the effect that providing an independent second opinion would have on patent holders, the impact that current patents have on the practice of medicine, and the role and cost of health insurance on access to genetic diagnostic tests. Id. at 16;
  • studies regarding the diversity of patent applicants, including applicants who are minorities, women or veterans. Id. at 19;
  • a study on international patent protections for small businesses. Id. at 20;
  • a study to be conducted by the Comptroller General of the United States about patent litigation, addressing items such as the annual volume of patent litigation, the proportion of patent cases that are meritless, the impacts of litigation on the time required to resolve patent claims, the costs associated with patent litigation to patentees and competitors, the impact of patent litigation on the economy and consumers, and any benefit to commerce by “non-practicing entities that prosecute [patent] litigation.” Id. at 17-18.

Sense Of Congress

The Act also includes a statement setting forth the “sense of Congress” that it is “important to protect the rights of small businesses and inventors from predatory behavior that could result in cutting off innovation and may provide an undue advantage to large financial institutions and high-tech firms.” H.R. Rep. No. 112-111, at 5.