September 22, 2011
After more than six years of negotiation, patent reform is here. The Leahy-Smith America Invents Act, which President Obama signed into law on September 16, 2011, is nearly 60 pages long and revises a broad swath of patent law. Summaries, reviews, and commentaries abound on the web, and patent law practitioners have a plethora of resources describing technical amendments and effective dates. This short overview is not for them; it is instead intended to capture some of the highlights for business leaders and general counsel who are wondering how the changes may affect their IP strategy and their patent litigation portfolios. One caveat: Some provisions of the new law go into effect immediately, while others will be implemented over a longer period.
Subject Matter of Patents: For the first time, the Code will specify that certain subject matter is not eligible for patent protection: Methods for reducing tax liability cannot be patented, nor can human beings. Business-method patents are safe for now, but the Federal Circuit (and perhaps the Supreme Court) will continue to wrestle with them, and the PTO has been directed to undertake studies of business-method patents.
Prior Commercial Use as a Defense to Infringement: Industry leaders often complain that it is unfair to invest in developing processes and building manufacturing plants only to be hit with an infringement suit when a patent issues long after they made their investment. The Act should address some of these concerns through its dramatic expansion of the prior commercial use defense. The expanded defense, which was previously available only for business methods, requires an accused infringer to prove, by clear and convincing evidence, that it used the patented process, machine, manufacture, or composition of matter in a manufacturing or other commercial process at least one year before the relevant date. The availability of the expanded defense should be significant to companies deciding whether to seek patent protection for methods and processes or maintain them as trade secrets. There are exceptions for patents owned by universities and their technology-licensing arms. And, of interest to the pharmaceutical industry, commercial use includes premarketing regulatory review, as well as use by a nonprofit lab.
"Disjoinder" — Curbing Lawsuits by Non-practicing Entities: Many companies have been hit by lawsuits brought by patent trolls — non-practicing entities that buy up portfolios of patents and then name dozens of companies in the same patent infringement lawsuit, subjecting them to the expense of defending what may be a frivolous lawsuit and giving the plaintiff multiple advantages in the choice of forum and in discovery. Under the new law, patent owners will not be able to name multiple defendants in the same patent infringement lawsuit without alleging joint or several infringement, or that the infringement arises out of the same transaction. It is not clear that the disjoinder provision will have any meaningful impact on troll suits, though, if Courts opt to consolidate lawsuits within a District concerning the same patent, or have cases transferred for consolidated and coordinated pretrial proceedings.
First to File: The United States has long been alone as a "first-to-invent" country: Patent rights inure to the first to invent rather than the inventor who won the race to file a patent application. That will now change, for at least nominally, the Act brings the United States in line with the rest of the world by adopting a "first-to-file" scheme. If the first inventor to file "derived" his or her invention from someone else, however, that earlier inventor may be the one who is entitled to patent rights — and the Act provides for proceedings to resolve issues of derivation.
Prior Art: The Act revamps the provisions of the Patent Code that concern prior art, anticipation, statutory bars, and the novelty requirement for patentability. Section 102 prior art is expanded to include offers, sales, and public uses anywhere in the world, rather than just the United States. Prior art also includes patents and published applications "effectively filed" anywhere in the world before the patent’s filing date.
Best Mode: Although the Code still requires inventors to disclose the best mode for carrying out their inventions, the failure to satisfy the best-mode requirement is no longer a defense in litigation or a ground for canceling a claim or "otherwise [rendering it] unenforceable." This would seem to foreclose any arguments that the failure to disclose the best mode constitutes inequitable conduct.
Virtual Marking: Patent information may be posted on the Internet rather than physically marked on the product. Qui Tam false marking suits are also eliminated — only the United States and persons suffering a competitive injury may sue.
The Act seeks to improve the quality of patents and make challenges to patent validity less costly by shifting challenges away from the courtroom and into the Patent Office. There are at least four different mechanisms under the Act; they may also spur companies to closely monitor the patent dockets for patent activity in their field.
Part I: Pre-Issuance Submissions of Prior Art: Third parties may submit patents, published patent applications or publications to the PTO along with a "concise statement of [their] asserted relevance" for the examiner’s "consideration." Although there are many exceptions, the submission must ordinarily be made within six months after the patent application is first published and will become part of the file history.
Part II: Supplemental Examinations: A patent owner may request supplemental examination of a patent to consider, reconsider or correct possibly relevant information — and in so doing, may immunize the patent from charges that it was procured by inequitable conduct involving that information. If a "substantial new question of patentability" is raised , ex parte reexamination is required, and if material fraud is uncovered, the matter must be referred to the Attorney General.
Part III: Post-Grant Review: Within nine months after a patent is issued (unless there is litigation), anyone may file a petition seeking cancellation of the claims as invalid for any reason. The petitioner must prove invalidity by a preponderance of the evidence, and the PTO must generally make its final determination on the challenge within one year. The Act also provides for an automatic stay of litigation in certain circumstances. The patent owner may move to amend its claims, and the petitioner will have some opportunity to submit argument. Anyone who has been sued for, or charged with, infringement of a business-method patent may seek special post-grant review of that patent. A "business-method patent" is defined as one that claims methods or apparatus for "performing data processing" used in connection with "a financial product or service," but excluding any "technological inventions."
Part IV: Revised Inter Partes Reexamination: As before, third parties may seek inter partes review by submitting patents or printed publications that purportedly invalidate the patent claims. The Act speeds up the process, generally requiring a final determination within one year. It also strengthens the standard for reexamination: Previously, reexamination was granted if the petitioner merely showed the existence of a "substantial new question of patentability." The petitioner must now show a "reasonable likelihood" that it will prevail, and in some circumstances, concomitant civil infringement actions will automatically be stayed. The proceeding is unavailable if filed more than one year after an infringement complaint was served or, to prevent multiple assaults, if the petitioner previously filed a declaratory judgment action alleging invalidity.
Fees, Prioritized Exams, and the PTO: Patent fees are reduced for Institutes of Higher Education and micro-entities, and there is a new "Patent Trial and Appeal Board" to handle appeals, derivation proceedings, post-grant reviews, and inter partes reviews. Instead of allowing the PTO to use all patent fees to run the office, as some had hoped, portions of collected fees over a certain amount will be stored in a special "Reserve Fund" which may only be used by the PTO — but only to the extent appropriated to the PTO. The PTO will establish at least three satellite offices (including one in Detroit) for patent examination. Patent examination can also be expedited ("prioritized") for certain technologies that are "important" to the nation’s economy or competitiveness.
Gibson, Dunn & Crutcher’s lawyers are available to assist with any questions you may have regarding these issues. For further information, please contact the Gibson Dunn lawyer with whom you work, the author of this alert, Joseph Evall (212-351-3902, [email protected]), or any of the following co-chairs of the Intellectual Property Practice Group:
Denis R. Salmon – Palo Alto (650-849-5301, [email protected])
Wayne Barsky – Los Angeles (310-557-8183, [email protected])
Mark Reiter – Dallas (214-698-3360, [email protected])
Josh Krevitt – New York (212-351-2490, [email protected])
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