Patent Reform Becomes Law

September 19, 2011

On September 16, the America Invents Act became law, enacting the most sweeping changes to United States patent law and practice in more than half a century. The new provisions are numerous and reach into nearly every substantive and procedural corner — from the way patent applications are judged to new limitations on enforcement. Some provisions take effect immediately while others are deferred. This alert summarizes some of the key features of the law and what inventors, technology companies and their investors should consider going forward.

First to invent becomes first to file. Under existing law, a patent may be awarded to the first to invent, even if a later inventor wins the race to the patent office. The new law will award patents to those inventors who are the first to file patent applications regardless of who made the inventions first, bringing the United States into line with the rest of the world.

  • When? Beginning 18 months after enactment.

  • What Does it Mean? Several things once effective. While incentives to obtain an early filing date have always existed, those incentives will dramatically increase. The use of “provisional” patent filings to preserve priority rights is expected to be more widespread. Also, because “first to invent” will no longer be the basis for a patent right, proceedings to determine priority among inventors will be eliminated in favor of “derivation” proceedings to decide whether an inventor derived sought-to-be-patented subject matter from another inventor. Finally, the one-year filing “grace period” following disclosure or sale of an invention has been modified, and there is some uncertainty about the activities it now covers. Given the uncertainty, a patent applicant should not assume he or she has the luxury of time; non-qualifying disclosures that occur before filing will bar patentability, so awareness and effective confidentiality practices are more important than ever.
Expansion of prior users’ rights. Technology companies often mistakenly believe that commercial activities undertaken in secret — such as manufacturing techniques — are somehow protected against infringement of later-filed patents. In fact, until now, rights based on prior use have been limited to business methods. The new law expands defenses to patent infringement based on prior use to include all processes, or machines, manufactures or compositions of matter used in a manufacturing or other commercial process. But there remain some significant limitations on prior use rights.
  • When? Upon enactment.
  • What Does it Mean? Those acting in good faith can avoid infringement liability if they used the patented subject matter in the United States at least one year before the effective filing date of the patent. But prior use must be demonstrated by “clear and convincing” evidence, and the defense cannot be used if the owner of the patent is an institution of higher education. As a result, relying on trade secrecy to protect technology still carries risks, and the practice of patenting or defensively publishing technologies remains a more certain way to prevent vulnerability to later-filed patents.

Expansion of post-grant review options. It has long been possible to challenge issued patents through the patent office by requesting “re-examination.” The new law expands both the procedural options as well as the types of challenges that may be advanced, but sets time limits on their availability.

  • When? Beginning 12 months after enactment.
  • What Does it Mean? Challenges to issued patents no longer need to be based solely on “prior art” — i.e., earlier patents and publications. Under the new procedures, all grounds of invalidity can be considered, including lack of written description and lack of enablement. But when the new law takes effect, post-grant review based on non-prior art grounds must be requested within nine months after a patent issues. Other procedures for challenging patents based exclusively on prior art may thereafter be filed. In addition, special transitional rules will apply to patents covering data processing or other operations used in a financial product or service.

Popular litigation tactics are curtailed. The new law limits the ability to file a single lawsuit against multiple defendants, and to seek damages for a seller’s failure to properly “mark” its product with relevant patent numbers.

  • When? Upon enactment.
  • What Does it Mean? The new law prohibits the joinder of multiple accused infringers of a patent unless special circumstances exist. This is expected to reduce the number of multi-defendant infringement actions commonly initiated by non-practicing patent-enforcement entities. Claims for “false marking” will require proof of competitive injury, and the appearance of expired patents will no longer be considered “false.” Also, a seller can “virtually” mark products by referring to an Internet posting.

Accelerated examination is now available for all applicants.

  • When? Within 10 days after enactment.
  • What Does it Mean? Patent applicants can pay $4,800 (half that for “small entities”) to prioritize a patent application for disposition within one year, instead of the usual turnaround time of three to four years. “Disposition” means allowance of the application or issuance of a final office action. Patent applicants will also face higher fees (a 15% increase) across the board.

Patentable subject matter. The new law clarifies that certain subject matter is not eligible for patenting.

  • When? Upon enactment.
  • What Does it Mean? There are two types of subject matter affected. First, the new law precludes patents directed to or encompassing a human organism. As case law develops around the definition of “human organism,” this provision may have implications for the biotechnology industries. Second, any strategy for reducing, avoiding or deferring tax liability is deemed unpatentable, except for subject matter used for preparing tax returns or used for financial management, to the extent severable from tax strategies.

There are many other provisions of the America Invents Act, the impact of which may vary among industries. Regardless of industry, however, the Act will have far-reaching implications in the way that most companies and innovators obtain, enforce and license their patent rights.

This article was originally published by Bingham McCutchen LLP.