Overview

After years of debate and false starts, a comprehensive patent reform bill has made it through Congress, and President Obama is expected to sign the “Leahy-Smith America Invents Act" into law on Friday, Sept. 16, 2011. This act, which represents the most comprehensive substantive reform to U.S. patent law since 1952, includes a wide range of changes to how the patent system operates.

Many of the more interesting provisions do not take effect right away, and of course it remains to be seen how the U.S. Patent and Trademark Office (USPTO) and courts will interpret these new provisions, but it is clear that the processes for obtaining and litigating patents have significantly changed. The following provisions of the act are most noteworthy:

First Inventor to File System

The most significant change, which will not take effect for 18 months, is that patents will be awarded to the first inventor to file instead of the first inventor. The U.S. Patent Office historically allowed a person who came up with an invention first, but did not immediately file, to obtain a patent over another inventor who filed an application first. “First to file" systems are widely used in other countries and across the world, so this change is an attempt to harmonize U.S. patent law with that of other countries. It will also eliminate the need for interference proceedings in the USPTO, which are used to determine the actual first inventor when conflicting applications are filed. The hope is that the new system will provide clarity and certainty to inventors moving forward. How inventors and companies approach filings will likely have to change, however, as inventors will need to file applications at the earliest possible date.

Other key changes are related to this new system. Since a patent will be awarded to the first inventor to file, the legislation establishes a new procedure for a subsequent filer to challenge an earlier filing that was derived from the subsequent filer. In addition, the scope of what will be considered to be prior art under the statute is being revised and expanded. The new act will still permit a grace period for pre-filing disclosures of an invention by the inventor, without it being held against the inventor.

Post-Review Processes

The new legislation also includes various new procedures in the USPTO in an effort to reduce the complexity of litigation or perhaps avoid litigation altogether. First, the Act creates a new “supplemental examination" process to permit a patent owner to affirmatively correct information in a patent prior to the initiation of litigation. This may eliminate or significantly reduce claims of inequitable conduct in patent litigation, as a patent owner may be able to “clean up the record" before a case is filed.

A new post-grant review process further permits a third party to contest a patent during a nine-month window after the patent issues. These challenges can be made on grounds that could not previously be considered during reexamination, such as indefiniteness and inventorship, and the USPTO will consider individual testimony. The act also provides a new way for interested parties to submit prior art to the Examiner, along with a concise explanation of the relevance of that art, to supplement the examination of another party’s application.

Prior User Rights

Under the current system, an alleged infringer can assert a “prior user" defense to a claim of infringement of a business method patent. The act significantly expands this defense to claims of infringement involving “subject matter consisting of a process, or consisting of a machine, manufacture, or composition of matter used in manufacturing or other commercial process." The defense applies so long as a person commercially used the subject matter in the United States at least one year before the earlier of the effective filing date of the claimed invention or the date on which the claimed invention was disclosed to the public. This provision, which will likely increase the value of trade secrets, applies to any patent issued on or after the date of enactment of the act.

Transitional Program for Covered Business Method Patents

A party sued for infringement of a covered business method patent may now challenge the validity of the patent under the new transitional post-grant review proceeding in the USPTO. A “covered business method patent" is broadly defined as “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions." The USPTO is responsible for issuing regulations for determining whether a patent qualifies as a technological invention. This program is set to only last for eight years, at which time validity challenges will have to be filed in other traditional ways, such as through reexamination proceedings or in the courts.

Virtual Marking and False Marking

Patent marking has been the source of significant issues in patent law in recent years. In order to recover damages for infringement of a patented product, that product had to be properly marked with the patent number. This created problems for products covered by multiple patents or products that were difficult to mark. In addition, if the marking was incorrect or if the patent expired but was still marked on the product, the law permitted anyone to sue for up to $500 per falsely marked product, with half the recovery going to the government. Recent court decisions led to a flood of false marking cases by “patent marking trolls."

The legislation addresses these problems in several ways. First, the law now permits “virtual marking," whereby products or packaging may simply include the word “patent" or the abbreviation, “pat," in conjunction with an Internet address, accessible at no charge to the public, which associates the patented article with the number of the patent. This change will eliminate the need to be constantly updating marking as new patents issue. Second, the marking of an expired patent number is no longer a violation of the statute. These changes take effect immediately.

Finally, the legislation limits standing for false marking claims only to competitors of the accused entity and the government. This provision applies to all cases pending on, or commenced on or after the date of enactment of the act, and is expected to initiate numerous motions to dismiss in pending false marking cases.

Best Mode

Prior law has always required an inventor to disclose the “best mode" of practicing the invention, and failure to do so could result in a finding that the patent is invalid. The revised law still requires this disclosure, but the failure to comply with the best mode requirement no longer can be raised as a defense to a charge of patent infringement. Since patent examiners in most cases have no way of knowing if an inventor has failed to comply with the best mode requirement, this change seems to severely weaken this requirement. This provision takes effect immediately.

Elimination of Tax Shelter Patents

Going forward, any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of invention or the filing of a patent application, will be insufficient to differentiate a claimed invention from the prior art. The provision excludes tax preparation inventions.