Patent Reform's 'Brave New World'
By W. Edward Ramage and Claire Cowart Haltom
September 19, 2011 | Expert Commentary | On Friday—after several years of seemingly dead-end discussions about reforming the patent system in the U.S.—President Obama signed the America Invents Act. The law generally is considered the most significant reform in U.S. patent law in the last 60 years, although many parties do not think it goes far enough.
The legislation has several components. Significant reforms include the following:
First-to-File. The U.S. joins the rest of the world in adopting a first-to-file patent system, moving away from a first-to-invent system. First-to-file benefits whichever inventor or company is first to get their application in to the USPTO and would greatly reduce the time-consuming and expensive litigation needed to resolve who was first to develop the invention. However, the reality of first-to-file is that someone could miss out on a patent for his invention, simply because he took an extra day to draft an application. As a result, the new system will require a more proactive patent filing strategy, likely based around the frequent use of provisional patents to capture the initial inventive concept and significant changes as it is developed. The general rule will be "File Early, File Often."
Adoption of the first-to-file system will be delayed for 18 months to allow two studies on prior user rights and the impact of the new system on small businesses to be completed. There is an exception for inventions that have been derived from the later-filed inventor's public disclosure. The first-to-file system is expected to go into effect in the Spring of 2013.
The transition to first-to-file generally is considered to favor "big business" at the expense of small entities and individual inventors. Large pharmaceutical and biotechnology companies can afford to keep a stocked stable of patent attorneys skilled in rush patent applications, while smaller startups simply don’t have the funds. However, the interference process for resolving "first-to-invent" disputes under the current system is costly and complex, and also worked to the disadvantage of small businesses, so the net effect probably will be to the small companies’ advantage.
Prior Art Redefined. To go along with the first-to-file system, the one-year "grace period" to avoid the statutory bar in the United States becomes more limited. Under the current system, an inventor has up to one year after a sale, offer to sell, or public use or disclosure of an invention to file a patent application. Years of case law have defined what was necessary for prior art to be invalidating because it was “known,” “used,” “patented,” “described in a printed publication,” “in public use” or “on sale.” However, the new law has introduced a new standard of “otherwise available to the public”—a standard that is not defined in the statute and one that will likely take years of litigation to articulate.
In addition, the prior art sale/offer to sell bar has been expanded to include sales and offers anywhere in the world, not just in the U.S. Further, all patents or published patent applications will now be considered prior art as of the filing date of the first application filed anywhere in the world to which priority is claimed.
Additional Review. The law provides for three new procedures for reviewing a patent after it issues which are expected to improve the transparency and quality of patent review. A Post Grant Review allows a third party to challenge the validity of a patent on any statutory grounds within nine months of issuance. This is, in essence, an "opposition" proceeding, although the term is not used. Inter Partes Review takes the place of the current Inter Partes Reexamination process, but with changes to the standard for granting review and the reviewing entity. And finally, Supplemental Examination allows the patent owner or assignee the chance to open the issued patent for additional examination to address issues that raise a substantial new question of patentability. These new review procedures are intended to speed up the patent review process and may help create more efficiency for life sciences companies by shifting the focus from courtroom litigation to USPTO review.
Prior Commercial Use Defense. The prior commercial use defense in patent litigation, which has been limited to business methods, is being expanded to include other categories of patentable subject matter. Under current law, inventors must choose between keeping an invention a trade secret or disclosing it to the public in exchange for patent protection. Keeping an invention a secret means that if another party gains patent protection for that invention, the prior user could be sued for patent infringement. However, the new law addresses seeks to reconcile this—the prior user can rely on his or her prior use of the invention as a defense to infringement. The entities covered also have been expanded to include affiliated entities or companies. Commercial use of technology by a university does not qualify for the defense, however, where the prior use was in a laboratory for research.
False Marking Suits. The law eliminates qui tam cases based on false marking. The United States may pursue false marking actions, but private citizens may only bring a false marking action when they have suffered actual economic harm from the false marking, and damages then are limited to the economic harm. Further, a product marked with an expired patent number that covered the product at one time is no longer considered to be false marking. Since this provision is effective September 16, 2011 and applies to existing cases, many anticipate this change will clear out the backlog of false marking suits that are currently pending.
Patent Filing Fees. The law also makes it more expensive to apply for and obtain a patent. Effective September 26, 2011, a 15% surcharge on all patent fees charged by the USPTO which go into effect until the USPTO decides on a new fee schedule. The law will also institute a $400 filing fee for all patents filed the traditional, non-electronic way beginning November 15, 2011.
Prioritized Examination. For those seeking an expedited patent review, the law creates a new method to have an application examined on a fast-track schedule (i.e., moving it ahead of other applications in the queue). With the pendency period of a typical application now approximately three years, this process will accelerate the application process for certain applicants, albeit at a cost. The proposed fee for this is $4,800 (half that for small entities). Initially, only 10,000 applications will be accepted for the expedited process in any fiscal year. Since space in this program may be limited, life sciences companies should consider applying for this program earlier in the fiscal year.
Micro-Entity Fees. The current system recognizes large entities, which pay full fees, and small entities, which pay half fees for most actions. The law now adds micro-entities, for which fees will be halved again. This is good news for universities, individual inventors, and small businesses, especially as patent fees in general will increase by 15% on September 26, 2011.
The America Invents Act makes strides to cut away the red tape that slows down inventors and entrepreneurs and to promote further scientific and technological development. The biotechnology industry could benefit greatly from the increased protection and efficiency of the new law’s provisions. As is typical with legislation, however, the law merely establishes a new framework that will have to be fleshed-out over time. Only through the law’s implementation, will we see whether this truly is the most significant patent reform in 60 years.
Ed Ramage is chair of the Intellectual Property Group and Claire Haltom is an attorney in the Health Law Group, both with Baker Donelson Bearman Caldwell & Berkowitz. They can be reached at eramage@bakerdonelson.com and chaltom@bakerdonelson.com.
This article also appeared in the 2011 September-October issue of Bio-IT World magazine.