Patent Reform Act Passes Senate, on to President to Sign

Patent Reform Act Passes Senate, on to President to Sign

SENATE PASSES PATENT REFORM BILL (H.R. 1249)
Legal News: Intellectual Property

Last week, the Senate approved the House version of the Leahy-Smith America Invents Act (H.R. 1249).  President Obama is expected to sign the bill, as he has stated that he would sign it before reading it.  Once this bill becomes law, many sweeping changes will take effect immediately and will effect both current pending applications and also future applications for patents.  We at Stevens Law Group have been following the developments of the Act as it was driven through the legislative process with limited debate, and we look forward to counseling clients through the new challenges that the law will present. 

The Leahy-Smith America Invents Act was heavily lobbied by special interests on both sides of the isle, producing extensive changes to current patent law that will affect the rights of patent holders in every industry for many years to come.  Among many foundational changes, the U.S. system will now be a first-to-file system, greatly favoring applicants having resources to file early with more robust disclosures.  For companies that depend on patent protection to remain competitive, and those who generate revenue based on technology licensing to individual companies and standards based consortia, these changes will require them to recalibrate their IP protection processes and policies to secure their rights.  For companies developing new technology that will likely become benchmarks for future products and industry advances, it will mean substantially more investment and attention directed toward protecting their R&D investments.

Advocates who drove the bill’s language praise the Leahy-Smith Act as a welcomed change to a patent system that has been manipulated by certain patent holders, and they hope that it will produce higher quality patents from a system mired in bureaucratic backlog and inefficient granting processes.  The list of large tech companies who signed letters advocating the bill as far back as 2008 is long and the congressional champions accordingly well funded.  Large companies that are often burdened by numerous patent based lawsuits expect to benefit from more opportunities to invalidate patents asserted or threatened to be asserted against them.  Time will tell whether the Act’s provisions will have any effect on the stated purpose of eliminating low quality patents, or on the less often stated purpose of eliminating patents of any quality that threaten an infringer’s interests. 

Opponents of the Act see it as a threat to the interests of entrepreneurs, technology based start-up companies, and inventors, all of whom depend on patents for their well being in highly competitive and litigious industries.  One opponent is the Institute of Electrical and Electronic Engineers (IEEE), one of the largest professional industry groups whose membership of inventors and entrepreneurs fortify the start-up cultures of technology centers around the world.  The Act’s provisions are seen as financially burdensome to companies and individuals who lack the financial resources to adequately protect their rights in the early stages of product and company development.

Both groups will undoubtedly face challenges in revising old beliefs and policies around individual and company owned IP rights, and will likely face unexpected consequences of the act that were procured by the special interests.  Either way, as recent events have indicated in the patent purchasing market, the patent system will continue to be a pivotal battleground for monetizing valuable assets as well as competing with or otherwise doing business with industry giants that have invested extensively in such assets. 

The act provides for expansive prior user rights as a defense to infringement, likely a reaction to the recent i4i v. Microsoft case, where defendant Microsoft and various amicus supporters tried to change the standards for prior art submissions in a litigation matter by confusing standards of prior art challenges and statutory bars on prior use of a technology.  The initiative was rejected by the Supreme Court, who upheld the lower court’s ruling of infringement against Microsoft without changing the decades old and well established law.

Interference proceedings are also eliminated, and would be replaced by USPTO proceedings to be established for post-grant review.  Most provisions of the law would take effect one year after the date of enactment.  However, some of the Act’s provisions would have an immediate effect, and many provisions will have a retroactive effect on current patents and pending applications after the provisions have been phased in.

Immediate Provisions of the New Patent Reform Act

Assuming President Obama signs the bill into law, the following provisions will take immediate effect:

Litigation-Related Provisions:

Effective immediately and applicable to pending proceedings, changes to 35 U.S.C. § 292 will eliminate qui tam actions for false markingsuits. Under the new law, only the U.S. government can sue for statutory damages, although persons who have suffered a "competitive injury" from false marking can bring a civil action for damages "adequate to compensate for the injury." The new law also provides that marking with an expired patent is not a violation of the statute. This means that virtually all pending false marking suits will need to be dismissed once the law is enacted.

35 U.S.C. § 299 would limit the ability for plaintiffs to join defendants in infringement cases.

Former defenses of failing to disclose the “best mode” of practicing an invention would not be a basis for invalidating a patent.

Effective immediately and applicable to new patents, changes to 35 U.S.C. § 273 will create a somewhat expanded but "personal" prior commercial use defense.

One litigation-related provision that takes effect in one year and applies only to patents granted after that date is the creation of new 35 U.S.C. § 298, which provides that the failure of an accused infringer to obtain an opinion from counsel, or to produce such an opinion during litigation, cannot be used to prove willful infringement or intent to induce infringement.  Thus, the need for legal opinions of non-infringement is all but eliminated, but may be advisable in certain circumstances. 

Reexaminations:

The standard for the USPTO to allow for a reexamination proceeding would change from "a substantial new question of patentability" to "a reasonable likelihood that the requestor would prevail" with respect to at least one of the challenged claims.  This greatly improves the chances for a defendant to challenge the validity of a patent.

In any Board appeal in an ex parte reexamination proceeding, Board decisions may be appealed only to the Federal Circuit, not a district court, greatly limiting options for challenging the results of a reexam proceeding.

Patent Prosecution Related Provisions:

Patents would not be granted to "tax strategy patents" or to claims encompassing human organisms.

Effective in 10 days, a 15-percent surcharge will be added to all patent-related fees, including patent maintenance fees.

Effective in 10 days, the USPTO will be authorized to proceed with its "Track I" program for fee-based prioritized examination, and to charge a $4,800 fee for large entities ($2,400 for small entities).

New Post-Grant Review Procedures

The Act creates two different procedures for third-party initiated post-grant review:

Post-Grant Review: Under a new Chapter 32 (35 U.S.C. § 32x), there will be a nine-month window for challenging a patent on any ground, including 35 U.S.C. § 112. Chapter 32 takes effect in one year for certain business method patents (under specific transitional procedures noted below), but otherwise will apply only to applications with priority claims that fall 18 months after the date of enactment. Review may be granted upon a showing that it is more likely than not that at least one of the challenged claims is unpatentable. Post-grant review under chapter 32 may also be granted on the additional ground that the petition raises a novel or unsettled legal question that is important to other patents/applications.

Inter Partes Review: Under a new Chapter 31 (35 U.S.C. § 31x), patents can be challenged on the basis of patents or printed publications only, after the window for post-grant review has passed (or after a given post-grant review proceeding is completed). Chapter 31 takes effect in one year, but will be available to challenge patents issued before its effective date. Review may be granted upon a showing that the petitioner has a reasonable likelihood in prevailing that at least one of the challenged claims is patentable.

The burden of proof for the petitioner will be a preponderance of the evidence for both types of proceedings. Board decisions will be appealable to the Federal Circuit only.

Both chapters include procedural limitations intended to safeguard patentees from improper use of the review procedures, such as barring a petitioner from seeking review if it already has filed a district court action challenging validity and mandating a stay of subsequently filed district court actions until the patentee moves to lift the stay or makes an infringement counterclaim. The inter partes review procedure also imposes procedural limitations if an infringement action already has been filed by the patentee. Additionally, estoppel provisions will bar the petitioner from raising, in any subsequent USPTO proceeding, district court action, or ITC proceeding, any ground of invalidity that actually was raised or reasonably could have been raised during the review proceeding.

Certain business method patents will be subject to transitional post-grant review procedures. The procedures will be available one year after the date of enactment, and will apply to any covered business method patent, but can be brought only by parties who have been sued for or "charged with" infringement of the patent at issue. Covered business method patents are defined as those that claim a method or apparatus for "performing data processing or other operations used in the practice, administration, or management of a financial product or service." The definition expressly excludes patents for "technological inventions."

First-to-File Provisions

Changes to 35 U.S.C. § 102 would move the United States closer to a first-to-file system, eliminating the coveted grace period in many circumstances.  However, the law would retain a limited one-year grace period for filing an application after a public disclosure made by the inventor, made by another who obtained the disclosed information from the inventor, or made after such an inventor-derived public disclosure. The new version of § 102 will apply to applications with priority claims that fall 18 months after the date of enactment.

Changes to 35 U.S.C. § 135 will replace current interference proceedings with derivation proceedings to determine whether the inventor named in an earlier-filed application derived the claimed subject matter from the inventor of a later-filed application, sort of an innovation by observation claim.  Derivation proceedings will apply to applications with priority claims that fall 18 months after the date of enactment. Interference proceedings will continue to be available to earlier applications under the "old" version of § 135.

USPTO Fee Setting Authority — Fee Diversion Still Possible

Effective immediately, the USPTO is given fee setting authority to set the level of fees already permitted by statute on a cost recovery basis, including the authority to offer a 50-percent fee reduction to small entities and a 75-percent fee reduction to newly defined "micro" entities.

Effective immediately, there would be established in the Treasury a "Patent and Trademark Fee Reserve Fund" (which would be separate from the Patent and Trademark Appropriation Account). Fees collected by the USPTO in excess of its appropriations for that year would be deposited into the Reserve Fund, but appropriation acts would be required before the USPTO can spend these funds.

As noted above, effective in 10 days, a 15-percent surcharge would be added to all patent-related fees, including patent maintenance fees. Funds collected by this surcharge would be deposited in the Patent and Trademark Appropriation Account and would be immediately available for spending for patent-related purposes.

Effective in 60 days, the USPTO is to charge a $400 surcharge for applications that are not filed electronically ($200 for small entities), taxing old school inventors for not investing in modern computers.

Conclusion

This brief overview highlights changes and challenges brought on to the U.S. patent system by this extensive act, and we look forward to guiding our clients understand, adapt to, and benefit from the new patent laws as they develop.  We expect the USPTO to chime in soon with changes in regulations and rules, and we will update our clients when they do.

Back to News »

/copy.jpg

Your source for news and views on patent reform.