Private equity funds should familiarize themselves with recent changes to U.S. patent law that affect patent protection strategies for their portfolio companies. In September 2011, the U.S. Congress enacted the America Invents Act (AIA) patent reform bill, which significantly overhauled U.S. patent law. This article summarizes practical considerations that private equity funds should bear in mind when evaluating and managing the patent portfolio of their investments.

First Inventor to File

In the broadest sense, the AIA converts U.S. patent law into a “first-inventor-to-file” system from a “first-to-invent” system. This conversion harmonizes U.S. patent law with the rest of the world’s patent laws. In practice, it means that businesses should not delay filing patent applications, as they can no longer antedate patent-defeating prior art with an earlier invention date.

Challenges to Patent Rights

Effective September 12, 2012, the AIA provided businesses new post-issuance patent validity challenge options that may be exercised before the U.S. Patent and Trademark Office (USPTO). The new post-issuance challenges provide businesses new and predictable avenues to test the validity of a competitor’s patent that is, or may in the future be, an impediment to commercialization. These post-issuance challenges include post-grant review, inter partes review and the Transitional Program for Covered Business Methods. Each of the three post-issuance challenges is defined briefly here.

Post-Grant Review

Someone other than the patent owner may file a petition for post-grant review challenging the validity of a patent within nine months of the patent’s date of issue or reissue on any statutory grounds for invalidity. Thus, even if a patent has been grated to a portfolio company, it may be subject to challenge by third parties in the time period immediately following issuance. Similarly, a portfolio company could elect to challenge a competitor’s rights, even after a patent has been issued.

Inter Partes Review

Someone other than the patent owner may file a petition for inter partes review challenging the validity of the patent nine months after the date of issue or reissue on limited invalidity grounds. Inter partes review may only be instituted after the time period for post-grant review has expired and offers only a subset of the challenges available in post-grant review. This means that throughout the entire life of an issued patent, generally 20 years from the filing date of the earliest priority document, it may be subject to challenge and invalidation. Private equity funds should closely consider any potential challenges that could be lodged against a portfolio company and should evaluate potential risk before investing.

Transitional Program for Covered Business Methods

With regard to business method patents, someone other than the patent owner may file a petition for covered business method review challenging the validity of a patent if (1) the petitioner has been sued for infringement or threatened with an infringement suit, and (2) the patent claims a financial product or service. Practically speaking, this scope is broader than mere financial products or services, such that any patent claiming anything related to money may potentially be challenged using a covered business method review. Versata Development Group Inc. recently filed suit against the USPTO in the Eastern District of Virginia alleging that such a scope is impermissibly broad. Until the result of that case or guidance is issued by the USPTO, private equity funds should proceed under the broad definition of “financial product or service” when evaluating a portfolio company with patents that may be challenged under the covered business method review.


Whether used against competitors’ patents or in defense of a business’ own interests, the new post-issuance challenges available under the AIA are powerful new tools in a portfolio company’s strategic toolbox.