America Invents: A Simple Guide to Patent Reform, Part 1
|Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: September 26, 2011 @ 9:43 pm
UPDATED: 11:50 am ET on 9/28/2011
Earlier today I spoke at the Practising Law Institute program on the America Invents Act. We had a good turnout in the room and an excellent turnout via webcast. The program was 4 hours long, and truthfully we could have gone on for at least several more hours without running out of material. For those who stayed online we ran long by about 20 minutes, and stayed talking with attendees and answering questions of live attendees for another 20 minutes. We are already talking about reprising the presentation for an audience at PLI’s New York City location on Seventh Avenue, so stay tuned.
There will be plenty of time to drill down on the particulars of the America Invents Act. The Act is dense, language choices from section to section in some places change and in other places remains the same, making you suspect that different terms must mean different things but the same term in different places has to mean the same thing, right? Our moderator, Denise Kettelberger (Faegre & Benson) said that patent attorneys should really read the Act about 10 times, which is really good advice. Every time you read it you notice something a little different, and during the presentation of others today I found myself taking notes and looking up things in the Act with new understandings. This is a major re-write of patent laws and not one that is at all simple.
That being said, I thought I might take this opportunity to provide a high level overview of the America Invents Act. What follows is discussion of 5 provisions contained in the Act. Look for an overview breakdown of additional provisions (prior user rights, supplemental examination, post-grant review, etc.) coming soon.
First to File
The biggest change to US patent laws, and certainly the most discussed, is the fact that the United States has now converted from a first to invent system to a first to file system. Saying that we have a first to file system, however, might be a little misleading given that the term “first to file” has certain international meanings that will not apply.
A traditional first to file system is one that demands absolute novelty in order to obtain a patent. A traditional first to file system means that if there is a prior use or publication of information relating to the invention no patent can be obtained. That, however, is not what the US first to file system mandates.
Under the US first to file system the inventor will still have a personal grace-period, which is not available to inventors outside the US. This personal grace-period says that the inventor’s own disclosures, or the disclosures of others who have derived from the inventor, are not used as prior art as long as they occurred within 12 months of the filing date of a patent application relating to the invention. However, and this is a very big however, disclosures of third-parties who independently arrived at the invention information will be used against the inventor. Said another way, there is no grace-period relative to third party, independently created disclosures. This is an enormous difference between the old law and the new law.
It is important to understand that under the new law an inventor is always better off filing sooner rather than later. File early and often. Nevertheless, there is not a true race to the Patent Office set up by the new law. In order to be awarded a patent one must still be an inventor. Those who learn of an invention cannot now, nor can then under the new law, beat the inventor to the Patent Office and obtain a patent. Inventors must contribute conception and stealing from another provides no conception that will support the awarding of a patent.
The first to file provisions go into effect on March 16, 2013.
False marking cases arise from 35 USC § 292, and were given new life thanks to a Federal Circuit decision from December of 2009 — The Forest Group Inc. v. Bon Tool Co. — which quite correctly and quite literally interpreted § 292. Prior to the enactment of the AIA anyone could bring a legal action in court to seek damages when someone affixed a patent number on a product when the product was either not patented or the patent had already expired. The the damages that could be recovered by the person bring the lawsuit was $500 for each case of mis-marking, regardless whether there was any damage to anyone, including the party bringing the lawsuit.
Judge Moore recognized the argument that interpreting § 292 to apply on a per article basis would encourage “a new cottage industry” of false marking litigation by plaintiffs who had not suffered any direct harm. That is, however, what the clear language of the statute allows. The Federal Circuit held: “the plain language of 35 U.S.C. § 292 requires courts to impose penalties for false marking on a per article basis.” And a cottage industry was borne, with large corporations being sued for many tens of billions of dollars.
With the passage of the AIA only the United States may sue for the civil penalty authorized by 35 USC 292(a). Nevertheless, a person who has suffered a competitive injury as a result of marking a product in violation of § 292 may file a civil action in a district court of the United States for recovery of damages adequate to compensate for the injury. However, the marking of a product with a patent that covered that product but has expired is no longer a violation.
These new marking provisions apply to all cases, without exception, that are pending on, or commenced on or after, the date of the enactment – September 16, 2011.
Joinder & Consolidation
Perhaps the best thing done by the America Invents Act is the curtailing of patent troll litigations. How does the Act do this? By making it impossible for patent trolls to bring a patent infringement litigation against dozens of defendants, sometimes well over 100 defendants, in a single infringement action. Courts that allowed this would keep defendants today, limit the ability of each to fully defend themselves and facilitating in what can best be characterized as a shakedown.
Before the AIA a patent owner could sue any number of defendants who were geographically scattered across the country, who offered different products and/or services, selecting a district court that was perceived to offer a friendly environment for a patentee. That district court was overwhelmingly the United States District Court for the Eastern District of Texas. This would allow a patent owner to economically sue a large number of defendants and then proceed to seek to settle the case for nuisance value, which several federal courts have referred to as characteristic of extortion.
The anatomy of a shakedown is best shown by Eon-Net and its related entities, who filed over 100 nearly identical lawsuits against a number of diverse defendants alleging infringement of one or more patents. In each case, after the complaint was filed there was a quick follow-up with a demand for a quick settlement at a price far lower than the cost of litigation.
In this case Eon-Net offered to settle using a license fee schedule based on the defendant’s annual sales: $25,000 for sales less than $3,000,000; $50,000 for sales between $3,000,000 and $20,000,000; and $75,000 for sales between $20,000,000 and $100,000,000. Talk about a shakedown! This patent litigation made its way to the Federal Circuit after an abbreviated litigation in the district court. The district court seeing through the sham disposed of the case in summary fashion. Flagstar, the defendant, was still forced to spend $600,000 to defend, or 8 times the cost of the most expensive license offered by Eon-Net. Had the district court allowed full discovery and not ended the case early Flagstar would have had to spend far more.
Under the AIA accused infringers may be joined in one action or have their actions consolidated for trial only if: (1) A claim is made against parties jointly or severally, or a claim arises out of the same transaction, occurrence, or series of transactions or occurrences; and (2) questions of fact common to all defendants or counterclaim defendants will arise in the action. Thus, under the AIA patent owners will no longer be able to sue dozens, or hundreds, of defendants in the same case alleging that the commonality is that they all infringe the same patent.
The joinder and consolidation provisions of the AIA should substantially curb patent trolling, which is a good thing. Increasingly small businesses are being subjected to extortion-like shakedowns, and that should be less commonplace moving forward. These joinder and consolidation changes became effective on September 16, 2011.
The best mode requirement historically created a statutory bargained-for-exchange by which a patentee obtains the right to exclude others from practicing the claimed invention for a certain time period, and the public receives knowledge of the preferred embodiments for practicing the claimed invention. The best mode requirement was a safeguard against the desire on the part of some people to obtain patent protection without making a full disclosure as required by the statute. Failure to disclose the best mode of the claimed invention was grounds for finding the claim at issue invalid.
With the enactment of the AIA the best mode requirement has largely been gutted. The failure to disclose the best mode is no longer a basis on which any claim of a patent may be canceled or held invalid or otherwise unenforceable. This applies to all litigation proceedings commenced on or after September 16, 2011. However, 35 USC 112 still requires the disclosure of the best mode known to the inventor, so legally applicants are still required to disclose the best mode even though failure to do so will not invalidate an otherwise valid claim.
ADDED 11:50 am ET 9/28/2011 — Sec. 15(b) of the AIA also provides:
Sections 119(e)(1) 20 and 120 of title 35, United States Code, are each amended by striking “the first paragraph of section 112 of this title” and inserting “section 112(a) (other than the requirement to disclose the best mode)”.
This means that no longer will a previously filed application need to disclose the best mode in order to be entitled to claim priority. So the question is this — why would Congress keep the best mode requirement if they were going to completely gut it? Why not just eliminate the best mode requirement from 35 USC 112?
After the enactment of the AIA the failure of an infringer to obtain the advice of counsel with respect to any allegedly infringed patent, or the failure of the infringer to present such advice to the court or jury, may no longer be used to prove that the accused infringer willfully infringed the patent or that the infringer intended to induce infringement of the patent. This new law picks up on the Federal Circuit’s decision in Seagate, where the Court said that there was no affirmative obligation to obtain a non-infringement opinion.
Those doing opinion work no doubt saw a steep decline in their workload after Seagate. To the extent that there is still opinion work circulating there will likely be another decline as a result of the AIA.
There are, however several remaining questions. Will courts interpret 35 USC 298 to preclude consideration of the lack of an opinion of counsel in the determination of whether to enhance damages? Will courts interpret 35 USC 298 to preclude consideration of the lack of an opinion of counsel relative to sanctions motions and awarding of attorneys fees when there is little or no due diligence prior to bringing an action?
With respect to the second question above, with opinions have any relevance in sanction motions? 35 USC 298 could actually have the unintended consequence, and unfortunate intent, of giving those bad actors who already do little or no due diligence a reason to do even less due diligence prior to bringing a cause of action for patent infringement. Thus, it will be up to the courts to police the ever increasing practice of bringing extortion-like litigation without any due diligence in an attempt to shakedown defendants, many of whom hardly come close to infringing.
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Posted in: America Invents Act, Congress, Gene Quinn, IP News, IPWatchdog.com Articles, Patent Fools™, Patent Litigation, Patent Reform
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.