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 several 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.

Last Thursday, April 14, the House Judiciary Committee worked through mark ups to its version of the "America Invents Act," which was introduced in the House on March 30 as H.R. 1249. The Manager's Amendment circulated by House Judiciary Chairman Lamar Smith (R) on April 12, 2011, as well as other amendments proposed by members of that committee, were the focus of the April 14 committee mark up and are reflected in this alert. Given the current focus on budget, spending, and deficit reduction in the House, it is unclear when the full Chamber will vote on H.R. 1249.

Earlier in March, the US Senate passed S. 23, its version of patent reform, by a vote of 95-5. 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 and, despite its halting advance 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 the current House bill.

'First to Invent' Gives Way to 'First to File'

The existing 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 different 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 to support a challenge to a patent or patent application. Currently, certain of these disclosures or uses are only available to be cited against an applicant or patent holder if they occur more than one year before the date of application. Under the current versions of the 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 bills 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 (or someone who obtained the subject matter from the inventor) publicly discloses the invention.

Proposed provisions in the Manager's Amendment which would have excluded non-disclosing "on sale" or "public use" activities from the prior art were removed in the Judiciary Committee with the support of Chairman Smith because, among other things, they did not reflect legislative intent as drafted. Efforts at amending Section 102 are expected to continue between now and when H.R. 1249 reaches the House floor.

Both bills would also 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.

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.

The bills also provide several protections designed to benefit small inventors. They allow creation of an ombudsman program to provide 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.

'Prior User' Rights and Defense to Infringement Claims

Prior User Rights

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, the bills 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. In contrast, H.R. 1249 would expand 'prior user' rights to all patents and would provide the defense to persons engaging in commercial activities inside the United States assuming other prerequisites are satisfied (e.g., reduction to practice and commercial use more than 1 year prior to effective filing date). A further amendment is expected to be offered which would limit the defense to use only with respect to process patents.

H.R. 1249, following passage of the Manager's Amendment on April 14, also prohibits use of the 'prior user' defense where the subject claimed invention was disclosed in a patent or application which qualifies for the prior art exception of its new Section 102(b) (relating generally to disclosures which originate with the inventor or which post-date inventor disclosures), and where the defendant's commercialization date is less than 1 year from the disclosure of that patent or application.

Another important and controversial exception found in the current versions of both S. 23 and H.R. 1249 limits the 'prior user' 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 the bills are expected to be a source of much debate as the bills proceed through the legislative process in the coming months.

Defenses - Willful Infringement

An additional provision proposed in both of the current bills would further strengthen an accused infringer's legal position by prohibiting a failure to seek advice of counsel from being used as evidence to prove willful infringement or intent to induce infringement. This amendment is regarded by some as necessary to remedy unduly harsh treble damage awards resulting from presumptions which may arise when an accused infringer fails to seek legal advice regarding known patents.

Defenses - Best Mode

The bills would also amend Section 282, which deals with certain defenses based on patent invalidity, in favor of patentees by limiting the defenses available to an alleged infringer. 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.

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.

Post Grant Review

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 applications. The Director's decision regarding whether to grant such a petition is final and may not be appealed.

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. 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 challenging claim validity instituted after filing of a post-grant review petition.

Inter Partes Review

The bills also allow a third party, after the 9 or 12 month post-grant windows referenced above lapse, to challenge a patent using revised inter partes review proceedings upon more limited grounds - only novelty and nonobviousness may be challenged under the procedure. Current versions of both H.R. 1249 and S. 23 require a more demanding showing than what is required under current law for institution of an inter partes proceeding in that they would require "a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition." The Director's decision regarding whether to grant such a petition is final and may not be appealed.

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 6 or 12 months (S. 23 and H.R. 1249, respectively) before the petition for review was filed. H.R. 1249 proposes an automatic stay of civil litigation challenging claim validity 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. If the proceeding is terminated by joint agreement of the parties prior to a decision on its merits, any associated written settlement filed with the USPTO may, upon request by a party, be treated as confidential information and access may be restricted to federal agencies by request, or to other persons upon a showing of good cause.

Prioritized Examination, Application by Assignees, Lowering Exposure to Inequitable Conduct Allegations, Marking

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.

Another proposed amendment to existing law appearing in both bills relates to the required contents of an inventor's oath or declaration and would allow a person or company 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 using a substitute statement.

The bills would 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 could result in unenforceability of the patent based on failure to disclose such information during the original prosecution of the application. 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.). H.R. 1249 would also require the USPTO to terminate or not initiate these supplemental examination where fraud is involved - a provision which is expected to draw criticism and further debate.

Of further benefit to patentees, 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. Under H.R. 1249, false marking liability would be limited for a former patentee's marking activities occurring less than three years after the patent at issue expired.

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. H.R. 1249 further requires a report from the Director to Congress within 3 years of enactment showing an analysis of whether this "virtual marking" is effective.

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 program is aimed at least partly at addressing concerns relating to non-practicing entities' (NPE's) enforcement of low quality patents. H.R. 1249 further requires the Comptroller General to conduct a study generally relating to litigation instituted by NPE's, the adjudicated merit of those lawsuits and their impact on the economy.

The pilot program review proceedings would largely follow 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 pilot program 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 decision on whether to grant the stay would be based, in both bills, on a number of statutory factors including whether granting the stay would provide the moving party with a "clear tactical advantage." Review by the Federal Circuit of a decision on whether to grant the stay "may be de novo" under both current bills.

The pilot program is set to expire 4 or 10 years (S. 23 and H.R. 1249, respectively) 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 some of its fee-generated revenue diverted by Congress to 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. Following passage of the Manager's Amendment, H.R. 1249 includes a sunset provision eliminating this fee setting authority 6 years after enactment.

Notwithstanding this discretion, S. 23 and H.R. 1249 establish a fee of $400 for original patent applications filed non-electronically (excluding design, plant and provisional applications), and H.R. 1249 further increases pre-defined fees set forth in Section 41.

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.

State and Federal Courts Provisions

  • 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.
  • 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.
  • H.R. 1249, following passage of the Manager's Amendment, proposes to codify elements for joining defendants in one patent infringement action. Prior versions of the Manager's Amendment had also defined circumstances under which a court must grant motions to join by manufacturers of allegedly infringing products and had included provisions relating to stays of civil litigation involving non-manufacturing parties; however, these latter provisions were removed in the Judiciary Committee.

SNR Denton will continue to monitor developments on patent reform legislation and provide additional updates as events warrant.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.