Patent Reform: Expanded Prior Users Rights is a Bad Idea
|Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: March 28, 2011 @ 9:23 pm
On March 3, 2011, the amendment to remove the first to file provisions from the Senate patent reform bill — S. 23 — went down to a lopsided defeat by a vote of 87 – 13. This was known as the Feinstein Amendment because it was Senator Diane Feinstein (D-CA) that was the primary opponent of first to file in the Senate. A day earlier, on March 2, 2011, Senator Feinstein made the best argument anyone could make regarding why first to invent should be kept and first to file should be jettisoned from the bill. The Patent Docs have her remarks for your review.
In one particular part of Senator Feinstein’s remarks on the floor of the Senate on March 2, 2011, she said:
Many first to file countries allow more extensive use of prior art to defeat a patent application, and provide for greater prior user rights than this bill would provide.
And right she was, at least until the House of Representatives got into the act. The House patent reform bill, which was leaked to virtually everyone who wanted a copy, began circulating late in the afternoon on Thursday, March 24, 2011. The Senate and House bills are largely identical with the exception of prior user rights. The House bill would make us much like those many other first to file countries Senator Feinstein talked about on the floor of the Senate. Is she clairvoyant or did she know a game was afoot?
What are prior user rights? In a nutshell, a prior user rights defense prevents those who have previously used the patented invention from being infringers. In many parts of the world there are strong prior user rights, which allow those who keep innovation as a trade secret hidden away from the public to later use those trade secrets as a defense to a patent infringement lawsuit. You can’t sue me for patent infringement because I have been hiding, using that innovation you patented as a trade secret. So the party that disseminates the information for the benefit of the public loses in favor of the party that kept the innovation a closely guarded secret. This has never struck me as fair, a good idea or even in keeping with the Constitutional purpose for patents.
For about a decade the United States has had a very limited prior user right defense applicable only to business method patents. Pursuant to 35 U.S.C. § 273, if a person or entity actually reduced a method of doing or conducting business to practice at least 1 year before the effective filing date of the patent, and commercially used the method before the effective filing date of the patent, the prior using party could not be found to be an infringer.
The prior user right associated with business method patents actually made a lot of sense. Prior to the decision of the United States Court of Appeals for the Federal Circuit’s decision in State Street Bank it was widely believed by pretty much everyone that business methods were not patentable in the United States. The State Street decision changed all of that, making business methods patentable. So it would hardly seem fair to punish those as infringers if you kept your method of doing or conducting business secret and didn’t obtain a patent, because after all that was the only way you could protect your method because a patent wasn’t an option. So giving those who didn’t seek a patent a defense because they didn’t seek a patent because a patent couldn’t have been issued until after State Street made all the sense in the world.
Extending prior user rights, however, makes absolutely no sense and this will harm innovators who seek to share their knowledge and discoveries and reward those who choose to stay quite, keep innovation secret and who don’t contribute to the repository of scientific and innovative knowledge.
Don’t believe me? All you have to do to confirm that extending prior user rights is a bad idea is realize that the House bill would exempt patents that were obtained as a result of federally funded research, or by universities that developed the technology without obtaining funds from private enterprises. So answer me this oh great minds in the House of Representatives — if prior user rights are such a great idea why prevent the defense from being used against patents obtained through the use of federal funds or Universities? If prior user rights are such a great idea then they should apply across the board! Of course, they are not a good idea and I suspect those in the House know that Universities would go crazy at the prospect of making the patent rights they obtain much easier to ignore.
What follows is what 35 U.S.C. § 273 would be amended to if the language of the House bill were adopted. I thought that would be easier to make sure everyone was on the same page than reading the bill that says “strike” this and “substitute” that. The red text with strike-through is what would be deleted, and the bold/underlined text is what would be added.
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Proposed 35 U.S.C. § 273 – Defense to infringement based on earlier inventor.
(a) DEFINITIONS.- For purposes of this section-
(1) the terms “commercially used” and “commercial use” mean use of a method in use of the subject matter of a patent in or outside the United States, so long as such use is in connection with an internal commercial use or an actual arm’s-length sale or other arm’s-length commercial transfer of a useful end result, whether or not the subject matter at issue is accessible to or otherwise known to the public, except that the subject matter for which commercial marketing or use is subject to a premarketing regulatory review period during which the safety or efficacy of the subject matter is established, including any period specified in section 156(g), shall be deemed “commercially used” and in “commercial use” during such regulatory review period;
(2) in the case of activities performed by a nonprofit research laboratory, or nonprofit entity such as a university, research center, or hospital, a use for which the public is the intended beneficiary shall be considered to be a use described in paragraph (1), except that the use-
(A) may be asserted as a defense under this section only for continued use by and in the laboratory or nonprofit entity; and
(B) may not be asserted as a defense with respect to any subsequent commercialization or use outside such laboratory or nonprofit entity;
(3) the term “method” means a method of doing or conducting business; and
(4) (3) the “effective filing date” of a patent is the earlier of the actual filing date of the application for the patent or the filing date of any earlier United States, foreign, or international application to which the subject matter at issue is entitled under section 119, 120 or 365 of this title.
(b) DEFENSE TO INFRINGEMENT.-
(1) IN GENERAL.- It shall be a defense to an action for infringement under section 271 of this title with respect to any subject matter that would otherwise infringe one or more claims for a method in the patent being asserted against a person, if such person had, acting in good faith, actually reduced the subject matter to practice at least 1 year before the effective filing date of such patent, and commercially used the subject matter before the effective filing date of such patent.
(2) EXHAUSTION OF RIGHT.- The sale or other disposition of a useful end product produced by a patented method patented process, by a person entitled to assert a defense under this section with respect to that useful end result shall exhaust the patent owner’s rights under the patent to the extent such rights would have been exhausted had such sale or other disposition been made by the patent owner.
(3) LIMITATIONS AND QUALIFICATIONS OF DEFENSE.- The defense to infringement under this section is subject to the following:
(A) PATENT.- A person may not assert the defense under this section unless the invention for which the defense is asserted is for a method.
(B) DERIVATION.- A person may not assert the defense under this section if the subject matter on which the defense is based was derived from the patentee or persons in privity with the patentee.
(C) NOT A GENERAL LICENSE.- The defense asserted by a person under this section is not a general license under all claims of the patent at issue, but extends only to the specific subject matter claimed in the patent with respect to which the person can assert a defense under this chapter, except that the defense shall also extend to variations in the quantity or volume of use of the claimed subject matter, and to improvements in the claimed subject matter that do not infringe additional specifically claimed subject matter of the patent.
(D) FUNDING. –
(i) DEFENSE NOT AVAILABLE IN CERTAIN CASES. – A person may not assert the defense under this section if the subject matter of the patent on which the defense is based was developed pursuant to a funding agreement under chapter 18 of this title or by a nonprofit institution of higher education, or a technology transfer organization affiliated with such an institution, that did not receive funding from a private business enterprise in support of that development.
(ii) DEFINITIONS. – In this subparagraph –
(I) the term ‘institution of higher education’ has the meaning given that term in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a); and
(II) the term “technology transfer organization” means an organization the primary purpose of which is to facilitate the commercialization of technologies developed by one or more institutions of higher education.
(4) BURDEN OF PROOF.- A person asserting the defense under this section shall have the burden of establishing the defense by clear and convincing evidence.
(5) ABANDONMENT OF USE.- A person who has abandoned commercial use of subject matter may not rely on activities performed before the date of such abandonment in establishing a defense under this section with respect to actions taken after the date of such abandonment.
(6) PERSONAL DEFENSE.- The defense under this section may be asserted only by the person who performed the acts necessary to establish the defense and, except for any transfer to the patent owner, the right to assert the defense shall not be licensed or assigned or transferred to another person except as an ancillary and subordinate part of a good faith assignment or transfer for other reasons of the entire enterprise or line of business to which the defense relates.
(7) LIMITATION ON SITES.- A defense under this section, when acquired as part of a good faith assignment or transfer of an entire enterprise or line of business to which the defense relates, may only be asserted for uses at sites where the subject matter that would otherwise infringe one or more of the claims is in use before the later of the effective filing date of the patent or the date of the assignment or transfer of such enterprise or line of business.
(8) UNSUCCESSFUL ASSERTION OF DEFENSE.- If the defense under this section is pleaded by a person who is found to infringe the patent and who subsequently fails to demonstrate a reasonable basis for asserting the defense, the court shall find the case exceptional for the purpose of awarding attorney fees under section 285 of this title.
(9) INVALIDITY.- A patent shall not be deemed to be invalid under section 102 or 103 of this title solely because a defense is raised or established under this section.
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About the Author
Gene Quinn is a US Patent Attorney, law professor and the founder of IPWatchdog.com. He is also a principal lecturer in the top patent bar review course in the nation, which helps aspiring patent attorneys and patent agents prepare themselves to pass the patent bar exam. Gene started the widely popular intellectual property website IPWatchdog.com in 1999, and since that time the site has had many millions of unique visitors. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, USA Today, CNN Money, NPR and various other newspapers and magazines worldwide. He represents individuals, small businesses and start-up corporations. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.