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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
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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.

* * * * * * * * * * * * * * * * * * * * * * * * *

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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Posted in: Congress, Gene Quinn, IP News, IPWatchdog.com Articles, Patent Reform, Patents, USPTO

About the Author

is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

 


15 comments
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  1. One can argue the merits of prior user rights, but it is naive to suggest that the draft bill’s exception for universities and federally funded research proves your point. The exception is in there simply because it’s the only way, politically, to get prior user rights in the bill. The university lobbyists matter, and they would kill the bill without this exception. Same thing for that ridiculous tax patenting provision — makes no sense from a legal standpoint to single out one particular “problem area”, but the accounting lobby got it in, and then the software companies get their exception.

    That’s the way these things work. If you want to end fee diversion, you’ve got to swallow hard and accept some of these other realities.

  2. Sorry, Mr. Quinn, but I disagree with your view that first-to-file should not carry with it a strong prior user right as it does in some foreign countries. There are many industrial manufacturing processes that involve patentable subject matter but whose patents are near impossible to police, particularly those of a chemical/materials nature, e.g. carbon and/or ceramic composites materials. I know this for fact because I spent many years working with such subject matters. Your argument overlooks what I think were among the the Constitutional fathers intent to protect private property rights. The proposed first-to-file legislation coupled with the earlier enacted rules governing publication of patent applications regardless of whether the applicant has been given any substantive examination report and any indication of what, if anything, may be determined by the government as patentable subject matter amounts to forcing patent filings on all potentially patentable subject matter of commercial interest, requiring the first person who invents whatever to file for patent at his own expense in order to attempt to preserve his property rights instead of allowing him to keep and use his property as a trade secret if he so chooses. What is fair about that? The proposed legislation amounts to government forcing defeasance of private property rights (trade secrets) by government actions without any compensation to the owner at the owner’s expense, and turning innovators of manufacturing process technologies into future infringers/defendants. How does that encourage investment in manufacturing process and equipment technologies or strengthen our nation’s businesses and economy? These improvements in manufacturing technology are the basis of USA remaining competitive against other countries. The proposed legislation will reduce incentives to create and invest in new process technology and equipment in USA, and accelerate transfer of USA created industrial manufacturing technology to other nations with zero or little return to the creators.

  3. Gene I think something worse lurks in both bills:

    The proposed new patent laws by both the House and the Senate eliminate interference practice and switch to a first inventor to file system. This new system in combination with how the Office treats Foreign priority can lead to situations which can best be described as a Super-interference.

    The future case can play out as follows: Two inventors independently invent Process ABCD. Inventor I files in the foreign country of France on 1/10/2012 with support for and claims process ABCD. Inventor II files a non-provisional application in the U.S. on 6/10/2012 claiming process ABCD. Later that month Inventor I files a non-provisional application on 6/30/2012 claiming Foreign Priority under 35 USC 119 and perfects said priority with a certified English Translation.

    After publication both applications end up on the docket of the same Examiner. The U.S. patent publication of Inventor II cannot be used as prior art under 102(e) against Inventor I despite filing in the U.S. before inventor I because Inventor I is shielded from the publication by the Foreign priority date.

    Likewise , the claims of Inventor II cannot be rejected under 102(e) as Foreign patent filings are not art under 102(e) (neither are PCT WIPO publications that are not in English). Under the old system the examiner could initiate an interference under 102(g) for the count of process ABCD.

    But with the new law 102(g) would not exist. Since the inventions were derived independently derivation proceeding of the future Patent Act cannot be used.

    The result if process ABCD is novel and non-obvious is that both applications will issue for the patent on the claim of Process ABCD, forming a ‘Super-Interference’. This means Inventor I can sue Inventor II, Inventor II and sue Inventor I and licensee A of Inventor I can be sued by Inventor II for the same process ABCD.

    -Examiner X2

  4. DaveR-

    The trouble I have is that this legislation says that which would have been prior art if public will provide a “get out of infringement free” card to those who kept the innovation as a secret hidden away from the public. The foundation for the entire patent system is built on rewarding disclosure. I see absolutely no justification for ever rewarding those who thwart that goal and keep secrets.

    As far as secrets adding to US competitiveness, so do patents. Patents foster innovation because they require disclosure that others can learn from and build upon. You cannot build upon the foundation of an unknown secret, so I fundamentally oppose prior user rights and always have.

    -Gene

  5. John-

    You say: “One can argue the merits of prior user rights, but it is naive to suggest that the draft bill’s exception for universities and federally funded research proves your point.”

    Of course it proves my point. If it is such a good idea then it should be a FANTASTIC idea for government funded innovation too! There shouldn’t be different rules for government and Universities and a separate set of rules for the private sector.

    I do agree with you though on the need for the provision. If federally funded innovation and University funded innovation wasn’t exempt this wouldn’t have any chance whatsoever. I am just terribly offended when the government picks winners and losers, which is exactly what they are doing here. A different set of rules for the private sector is unacceptable in my opinion.

    As far as an end to fee diversion… I would rather see the entire bill killed if the only way to get an end to fee diversion is to create an across the board prior user rights defense. I am tired of the chipping away at patent rights. The line needs to be drawn somewhere. We talk about quid pro quo all the time, but patent owners continue to get the short end of the stick in every instance.

    -Gene

  6. ExaminerX2-

    Yes, that does seem like a mess. I do believe if patent reform gets enacted Congress will be back at fixing it as they typically have to do.

    Thanks for bringing this issue to the forefront.

    -Gene

  7. Gene,
    Thanks for removing the obscurity from the Prior User Right (PUR) provisions in the House bill. I agree with your observations generally and particularly of the hypocrisy in the university carve-out exception. This is surpassed only by the hypocrisy of those who argue that the purpose of adopting first-to-file (FTF) is to eliminate the evidentiary complexity and costs of interference, while in the same breath also argue that PUR is an essential element of an FTF system. The PUR system, however, is nothing more than a recharacterization of interference practice; it will impose many of the same evidentiary burdens and complexities that are characteristic of interference practice, which the bill purports to eliminate. Can one really take seriously these FTF proponents’ rationale for adopting it?

    As you correctly point out, the problem with PUR lies in a perilous deviation from the basic exchange that takes place under the patent bargain — in exchange for making a new, novel invention public, the government grants the inventor a limited exclusivity over the invention for a fixed period of time. Upon invention, the inventor has three basic options to consider: 1) participate in the patent system’s quid pro quo, teaching and disclosing the invention to the public, 2) forgo patent rights, but simply publish the invention (“defensive publishing”) so that others will learn about the technology, thereby creating prior art so that others cannot patent the idea, or 3) keep the invention secret, but risk someone else patenting a similar invention.

    PUR would fundamentally alter this dynamic as it would allow an accused infringer, who contributed nothing to public knowledge, to avoid compensating the patentee who has. Foe any given patent, there would be no way of knowing how many parties adopted the secret technology – allowing all of them to assert prior use. It would transfer enormous risks to those who participate in the patent system from those who do not. It would fundamentally shift the reward from those who make their inventions public to those who keep their ideas secret. The patent bargain would be broken, as no *exclusivity* would be assured in exchange for disclosure by the patentee. Arguments of “fairness” to those who make substantial investments in secret are simply a non sequitur. Means for achieving fairness have already been established by society’s acceptance of the patent bargain. Substantial investments in new technologies can, and should be protected by participating in the patent system.

    In essence, PUR would make prior use akin to prior art — equating, illogically, a secret with a public good. Our Forefathers had some experience with the ills of hoarded secret technologies from the Guilds in Europe and wanted instead to encourage disclosure in order to promote the progress of the useful arts. PUR runs directly against this constitutional directive.

  8. Gene,

    The House version of S.23 is yet further reason why so-called “patent law reform” is a joke, and calling this the “America Invents Act” is oxymoronic. Prior user rights for all patented technologies? Including those practicing those patented technologies outside the U.S. (e.g., China)?

    In my view, prior user rights is offensive to the intent of the Patent Clause in our Consitution. Where’s the quid pro quo if someone can keep the technology “secret” and avoid the penalty of being barred by the one who pays the quid to get the quo? Be prepared for a constitutional challenge if this prior user right provision.

  9. Gene,

    The House version of S.23 is yet further reason why so-called “patent law reform” is a joke, and calling this the “America Invents Act” is oxymoronic. Prior user rights for all patented technologies? Including those practicing those patented technologies outside the U.S. (e.g., China)?

    I echo Ron K.’s view on prior user rights. Prior user rights is offensive to the intent of the Patent Clause in our Consitution. Where’s the quid pro quo if someone can keep the technology “secret” and avoid the penalty of being barred by the one who pays the quid to get the quo? Be prepared for a constitutional challenge if this prior user right provision survives.

  10. trade secret is NOT prior art because there is no public disclosure.

  11. Quoting the above statutory text, it may be seen that almost all of the present “prior user statute” limitiations are retained. Especially its applicability only “,,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.” and the requirement that this be proven by “clear and convincing evidence’ punished by paying attorney fees if unsuccessful. That is as tough a “prior invention” proof requirement as possible, and the remedy it provides is very limited. It does not take away any patents, destroy any patents or prevent anyone from suing anyone else for patent infringement. Not surprisingly, it has never being successfully used, even though already applying to tens of thousands of “business method’ patents. Furthermore, any prior commerial product that is analyzable or back-engineerable is already true fully prior art for the other statutory reasons. It would be foolish of the biotech industry or others to try to derail the entire patent reform bill over someting so limited, unused and inconsequential.

  12. Paul,
    If Prior User Rights (PUR) are “something so limited, unused and inconsequential,” why would their proponents push so hard for their enactment?

    Why do you even care to support such “inconsequential” change? You are aware, I trust, that the U.S. has had PUR in patent law between 1836 and 1952? Does the record of our innovation progress since 1952 compared to that of the rest of the world suggests that we made a mistake and should return to such an antiquated patent system that encourages hoarding technology secrets?

  13. [...] First to file can justifiably be challenged for at least several reasons.  First, and most importantly, once the Senate added first to file the tech giants that make up the Coalition for Patent Fairness started arguing that if we have first to file we need prior user rights.  That was never argued in the Senate, and it is just flat ridiculous.  The Constitutional purpose of the patent clause is to disseminate knowledge, not to reward those who affirmatively keep knowledge secret, which is exactly what a prior user rights regime does.  So if prior user rights is absolutely necessary in a first to file regime (which is not true) then we shouldn’t have first to file.  See Expanded Prior User Rights is a Bad Idea. [...]

  14. Has anyone made an “easy to read” statute including the newest amendments since the the Senate adopted H.R. 1249?

  15. [...] position on prior user rights has been made clear here, here and here. They are a bad idea and it is only a matter of time before large tech companies play this card to [...]

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