On September 8, 2011, the Senate approved House bill H.R. 1249, Senator Patrick Leahy (D-VT) and Congressman Lamar Smith's (RTX) patent reform bill, the "Leahy-Smith America Invents Act." The President has stated that he will sign the Act into law. The Act makes major changes to the U.S. patent system. Among the changes, the U.S. would no longer award a patent right - the right to exclude others from making, using, or selling an invention - to the entity that first invents. Instead, the U.S. will award patent rights to the first entity to file for a patent. This first to file system will begin 18 months after the Act's passage.
Complementing this change to a first to file system, the U.S. will allow "prior user rights" for entities that do not seek patents. Ideally, prior user rights are meant to allow innovators to continue to use inventions that are later patented by competitors. These prior user rights will be effective with the Act's passage.
The first to file system, with prior user rights, will likely burden small businesses and individual inventors. These smaller entities will likely end up with increased costs from having to compress the timeline in which they innovate, identify patentable innovations, and then thereafter seek a patent. If the smaller entity does not adopt a compressed timeline, the entity will either lose patent rights forever, or be subject to threats from a competitor's patent, including the litigation costs associated with proving prior use. Larger, established businesses will probably be able to incorporate the innovation costs, investment costs, and legal costs of a first to file system more easily, giving them the advantage.
The First to File System Replaces the Current Grace Period with Weak Prior User Rights
Currently, patent applicants have a grace period of one year after disclosing an invention to file for a patent. Many smaller businesses use the grace period to identify an invention's marketable uses, obtain funding, and then file for a patent that identifies all promising uses. A first to file system will probably not allow inventors to follow such a timeline because if the inventor takes too much time marketing, finding funding, and then filing for a patent that covers all critical points, they may not be the first to file. If an innovating entity loses the race to the patent office, the innovator can, at best, obtain prior user rights. But prior user rights provide much less reward, and proving prior use is no small task.
Prior Users Cannot Exclude Others and Cannot Eliminate Patents
The benefit associated with these burdens upon the small inventor is that the first to file system will clarify who owns a patent. U.S.P.T.O. Director David Kappos testified that the expensive battle over which inventor was first to invent can cost as much as $500,000, and is virtually eliminated using a first to file system. Thus, in a sense, a first to file system does seem to provide a benefit in the form of reducing litigation costs and clarifying patent ownership.
The first to file system does not eliminate the fight over who invented something first, however. The new system limits the rights of the first inventor. If an entity proves that it, and not a patent holder, was actually the first to invent an innovation, the entity (a) will not retroactively receive the prize of a right to block others from making, using, or selling that invention, and (b) cannot necessarily use that information to cancel a competitor's patent with an argument that the competitor did not "invent" the patent holder's innovation.1 The prior user's reward is merely that the prior user may continue to use the innovation despite the competitor's patent.
Proving Prior Use Will Be Costly
A prior user may continue to make, use, or sell an innovation, despite a competitor's patent, if it proves certain elements. The prior user must show that it used the invention at least one year before its competitor (a) filed the patent application, or (b) disclosed the invention to the public (such as in a scientific journal or through a public sale). The prior user's burden is to show its earlier use occurred by a "clear and convincing evidence" standard, the heaviest burden in civil litigation.
The heavy evidentiary burden, and the reduced reward, may affect smaller businesses' investments in research and development more drastically than larger businesses, which may have in-house innovation and patent filing capacities, along with the benefit of economies of scale from having multiple projects, more legal expertise, and more information on competitors. Also, the cost of litigating prior user rights will arise only when an entity is defending itself against a patent holder. In that situation, smaller entities are disadvantaged due to litigation costs. If Director Kappos' $500,000 figure is correct, a patent holder can probably force the prior user to capitulate due to the threat of litigation costs alone, irrespective of legitimate prior use. Larger, entrenched entities may use these advantages to force prior users to purchase licenses or give up making, using, or selling innovations that are today protected by the trade secret regime.
Supporters of the Act have Competitive Advantages
Supporters of the Leahy-Smith America Invents Act include dozens of technology and investment companies found on the Fortune 500 list. Opponents are predominantly comprised of organizations representing small businesses and individual innovators. As expected, the Act's opponents argue that only large, established competitors will be able to develop innovations inhouse, and then quickly use their resources to file patent applications, thus winning the race to the patent office. Without the current grace period that exists under current law, opponents argue, smaller organizations will have insufficient time to publish or sell inventions and then indentify the best uses of innovations before applying for patents.
To Succeed, Smaller Entities Must File Provisional Patent Applications
Larger technology companies, perhaps through economies of scale, will probably be better able to incorporate the compressed timeline of innovating, determining marketability, and applying for patents that cover as many critical areas as possible. If successful, these patent holders will probably be able to leverage the litigation costs of proving prior use over even legitimate first inventors. To compete for patents, and to better defend themselves, small businesses and individual innovators need to win the race to the patent office. To win the race, small business innovators must begin to prepare and file provisional patent applications.
A provisional patent application is a less formal, less expensive, but legally sufficient way to obtain an early filing date for an invention. Provisional patent applications, while relatively informal, still require the involvement of patent counsel because even a provisional application requires the inclusion of certain elements that will permit an inventor to later file a nonprovisional, full-blown patent application that could ultimately be allowed as a patent. Even the inadvertent use of the phrase "consisting of" rather than "comprising," or uses of "or" instead of "and" in a series of claim-able elements, or simply - and unintentionally - drafting a provisional patent application too broadly could lead to a patent office examiner barring an inventor from later pursuing a patent based on the provisional patent application's filing date, despite identifying most of a legitimate, game-changing innovation. For these reasons, small business innovators should seek legal counsel to prepare their provisional patent applications and include the language requisite to achieve the inventors' aims. When done correctly, small businesses can use provisional patents to bear the innovation costs, investment costs, and legal costs of the new first to file system and its weak prior user rights. Limiting these costs will enable small businesses to compete.