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America Invents: A Simple Guide to Patent Reform, Part 2

Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: Oct 13, 2011 @ 5:32 pm
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I have done quite a bit of writing about the America Invents Act, but I have been a bit derelict in providing the sequel to America Invents: A Simple Guide to Patent Reform, Part 1.  Part of the reason, if not the entirety of the reason, is that the major parts of the American Invents Act that remain are anything but simple.

I was speaking with John White via telephone yesterday about the America Invents Act.  Yes, John and I are thoroughly immersed in this legislation and coming up with wrinkle after wrinkle that you probably never thought about.  Fun I know, but that is what two wild, crazy and tremendously charismatic patent attorneys talk about!  In any event, I told him I was having difficulty and asked him — how do you describe prior user rights, post-grant review and supplemental examination simply?  His response: “You don’t.”  We went on to talk about how first to file isn’t all that simple either, although the name suggests otherwise.  This thing, the monstrosity that is the America Invents Act, will be a full employment act for lawyers!  But when is it ever good for clients when it is good for the attorneys?

In any event, on this note I embark upon Part 2, which will seek to make sense of prior user rights, post-grant review, preissuance submission and patentability changes. This will leave inter partes review, supplemental examination and derivation proceedings for the finale — Part 3.  I will endeavor to describe these in the most straight forward way possible, but I am going to completely punt on Section 18 as it pertains to business methods and post-grant review, at least for now.  I just see no way to explain that in a “simple” way.  Notwithstanding, look for an article on Section 18 soon (a relative term I know), along with an article about specific peculiarities and likely unintended consequences of the Act.

For more on the America Invents Act please see our Patent Reform page.

Prior User Rights

Prior user rights is a defense to patent infringement that 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 one who has prior user rights for patent infringement because they have been using that newly patented innovation 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.

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. This 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 accepted as universally true that business methods were not patentable in the United States, and in fact were not patented 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. See Kewanee v. Bicron, 416 U.S. 470 (1974)(“trade secret law protects items which would not be proper subjects for consideration for patent protection under 35 U. S. C. § 101.”).

Section 5 of the America Invents Act dramatically expands prior user rights.  The section titled “Defense to infringement based on prior commercial use,” pertains to all inventions except those that were at the time of invention owned or subject to an obligation of assignment to either an institution of higher education, or a technology transfer organization whose primary purpose is to facilitate the commercialization of technologies developed by one or more such institutions of higher education. The fact that there needs to be a “university exception” should raise eyebrows. If this is such a good idea why not have it apply across the board?

The prior use defense can be raised if (1) such person, acting in good faith, commercially used the subject matter in the United States and (2) such commercial use occurred at least 1 year before the earlier of either (A) the effective filing date of the claimed invention; or (B) the date on which the claimed invention was disclosed to the public. Further, the defense is a personal defense that cannot be conveyed to others, unless it is acquired through a bona fide transfer of the entire enterprise or line of business to which the defense relates. Still further, the defense will only apply to those sites where the commercial use was is in use before the later of the effective filing date of the claimed invention or the date of the assignment or transfer of such enterprise or line of business.

My 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 get away with infringement. This will also drive large tech companies who acquire patents purely for a defensive portfolio to drive their innovation underground. That frustrates the very purpose of the patent system and is antithetical to the policies underlying the Patent Clause in the U.S. Constitution.

Post-Grant Review

A petitioner in a post-grant review may seek the cancellation of 1 or more claims of an issued patent, and offers another avenue to challenge patents post issuance. However, the petition for a post-grant review must be filed not later than 9 months after the date of the grant of a patent or the issuance of a reissue patent.

A post-grant review may not be instituted, however, if before the petition for review is filed the petitioner filed a civil action challenging the validity of a claim of the patent. If the petitioner files a civil action challenging the validity of a claim of the patent on or after the date on which the petitioner files a petition for post-grant review of the patent, that civil action is automatically stayed until either the patent owner moves the court to lift the stay; the patent owner files a civil action or counterclaim alleging that the petitioner or real party in interest has infringed the patent; or the petitioner or real party in interest moves the court to dismiss the civil action. In other words, post-grant review does not provide the opportunity for concurrent challenges.

A post-grant review can be initiated in two different circumstances. First, a petition will be granted and post-grant review initiated when the information presented in the petition demonstrates that it is more likely than not that at least 1 of the claims challenged in the petition is unpatentable. Alternatively, post-grant review can be initiated by a showing that the petition raises a novel or unsettled legal question that is important to other patents or patent applications. The patent owner does have the right to file a preliminary response to the petition for post-grant review, setting forth the reasons why no post-grant review should be instituted.

Post-grant review also comes with some estoppel concerns and litigation issues. The petitioner (or privy) in a post-grant review may not request or maintain a proceeding before the Patent Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that post-grant review. Moreover, the petitioner in a post-grant review of a claim may not assert either in a patent infringement litigation before a Federal District Court the International Trade Commission that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that post-grant review.

The $64,000 question is whether it will be easier to initiate a post grant review or whether it will be easier to initiate an ex parte reexamination. Ex parte reexamination requires the presence of a substantial new question of patentability, while generally speaking post-grant review requires a likelihood of success on the merits. Whether there will be any discernible difference in how the Patent Office interprets the standards remains to be seen.  Since 1981 some 92% of ex parte reexamination requests have been granted.  See USPTO Reexamination Statistics.  Based on the different standards and the reality that an extraordinary number of ex parte reexaminations are granted, it seems reasonable to assume that the likelihood of success standard would make it more difficult to initiate a post-grant review.  That being said, no one seems to really anticipate much of a difference in the percentage of petitions granted and reviews commenced, owing at least in some part to the fact that virtually all reexaminations result in at least one claim being initially rejected.

Preissuance Submissions

Rule 99 gives anyone the right to submit prior art they know about, up to 10 references, if it is done within two months of the publication of an application.  A Rule 99 submission, however, must not include any explanation of the patents or publications, or any other information. If a Rule 99 submission does include explanation the Office will not enter such explanation or information.

Thanks to the America Invents Act that ability to submit relevant prior art is broader.  The new law, which will go into effect on September 16, 2012, allows any third party (i.e., anyone who is not the patentee) to submit any patent, published patent application, or other printed publication that may be potentially relevant to the examination of the application. This submission can be made up until the earliest of: (1) the date a notice of allowance is given or mailed; or (2) the later of 6 months after first publication of the patent application or the date of the first rejection of any claim by the examiner during prosecution. This timing rule might seem unnecessarily odd, referring to the earlier of and then the later of, but remember that in the situation where a continuation is filed publication will happen nearly immediately when the underlying parent has been pending for more than 18 months already. So in the situation where an application is quickly published for whatever reason you have until either the notice of allowance or until a rejection is made. Given that first office allowances are rather rare and the USPTO has a tremendous backlog, for practical purposes in most cases a third party submission will be able to be made up until a rejection is made.

Noteworthy in the new third-party preissuance submission law is that there is now a requirement that any submission must set forth a concise description of the asserted relevance of each submitted document.

Patentability Changes

I don’t particularly like referring to this section as “patentability changes,” but I’m not sure what else to call it.  It would be more descriptive probably to refer to it as “patent eligible subject matter changes,” but of course that would be misleading given the way Congress wrote the America Invents Act.

The first of two noteworthy changes relates to tax strategy patents.  They are still patent eligible subject matter, but for purposes of evaluating an invention under section 102 or 103 of title 35, any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of the invention or application for patent, is deemed insufficient to differentiate a claimed invention from the prior art. The deeming of tax strategies, known or unknown, as being within the prior art does not does not apply to that part of an invention that (1) is a method, apparatus, technology, computer program product, or system, that is used solely for preparing a tax or information return or other tax filing, including one that records, transmits, transfers, or organizes data related to such filing; or (2) is a method, apparatus, technology, computer program product, or system used solely for financial management, to the extent that it is severable from any tax strategy or does not limit the use of any tax strategy by any taxpayer or tax advisor. So you can still patent technologies, including software related innovations, that relate to the preparation of tax filings and the like.  This tax strategy “limitation” became effective on September 16, 2011.

The second noteworthy change no patent may issue on a claim directed to or encompassing a human organism.  There is no definition that I can see of “human organism,” so eventually we will have that case that will need to determine its meaning.  Nevertheless, this prohibition to patentability for human organisms became effective on September 16, 2011, and applies to any applications pending or filed after that date.  It does not, however, work to invalidate patent claims directed to or encompassing a human organism that were previously granted.

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  1. [...] Click here for Gene Quinn’s full article on IPWatchdog. [...]

  2. Gene-

    Thanks for the interesting overview. I don’t blame you a bit for wanting to scratch your head for a while before weighing in on it. I was/am having a hard time trying to decipher the language in the AIA, and this post helps as much as it can for the moment I suppose. I wonder why they were so vague about the Human organism portion? Are they talking about human cloning? Stem cells? Human genomics? Neither Kevin N or Donald Z has proffered any opinions on it that I am aware of, but maybe they might touch on it a bit during their Oct. 19 webinar about the AIA.

    Regards,
    Stan~

  3. Gene, you certainly nailed the “charismatic” part on the patent attorneys. The AIA will be a basis of robust discussion for the balance of our careers. By then, we will know more about how it turned out!

    In some respects I admire what the AIA is attempting, i.e., to recast the role of the PTO as validity control for patents past and present. It would be useful to remove that from the District Courts, and leave them with infringement and damages. On the other hand, the first-to-file could be more crisp and borrow more language, already defined, from past practice and case law. I mean, I know what it says, but is that what it means. The CAFC will have to wade in and point to where the past law applies in the new.

    Also, heads up to all on the initial effects of the law coming up March 16, 2012. I know everyone is thinking down the road, but disclosures next year after March 16, are going to have import. We just do not know what import, to cases filed on/after March 16, 2013. Will they be invalidating as to others, will they be insulative to you, and you alone, or will they they push off and insulate other 3rd party non-derived interim disclosures before your own filing.

    I am going with a personal only exception in the advice I am giving. Too risky to go any other way.

  4. John-

    I take that to mean a gone grace period for the most part? The rest of the world has no good reason to construe a personal disclosure as being somehow limiting of anything. I have heard that a few countries might consider adopting a grace period, but I don’t believe it for a second. China and East Indians are perhaps a bit perplexed about why the Congress of the US would give so much away, in the interest of harmonization? I find it to be pretty short-sighted, and perhaps driven by interests that in fact are not in our best interests.

    When the corporations get sold, or get obsolete, they will perhaps have driven out independent inventors, for how much money? An inventive mind and spirit is worth how much? Only the Shadow knows….

    Happy Halloween
    Stan~

  5. To those that still might be attending, Wolf-Greenfield will be presenting a webinar about the future of re-examination, as near as I can tell, and maybe a few other things. http://view.exacttarget.com/?j=fe4f16777d6105747c13&m=fefb1175776503&ls=fdb31571726203757c1c717d60&l=fe5c1577706c01787615&s=fe601171756207787012&jb=ffcf14&ju=fe331772746404797d1274

    Akso, the day before on the 19th of October, MBHB will be presenting another webinar about possible consequences of the AIA, either intended or perhaps maybe not considered until right about now.

    Best regards,
    Stan~