Reshaping U.S. Patent Law. Who are the Winners & Losers?

Senator Leahy (left) and Congressman Smith (left) at AIA signing.

The America Invents Act reshapes U.S. patent law in fairly profound ways with established major industries benefitting, but providing unwanted challenges for some. The final bill changes the US system to a first-inventor-to-file system. It creates several post-grant review mechanisms whereby 3rd parties can challenge another’s patent application, including the allowance of submission of prior art by 3rd parties and the creation of a new, post-grant administrative review proceeding. The financial sector will get additional tools to address long-held concerns over “business method” patents such as those at that heart of litigation involving several large banks and a company which holds patents on processes for securing checks electronically. The AIA also effectively bans the practice of patenting tax strategies. The bill also restricts the practice of plaintiffs in infringement cases joining together large groups of defendants who may have no business relation to each other.

The legislation also contains a prior-user rights provision that will allow companies to address infringement claims by demonstrating that they have commercially used an invention prior to the grant of its patent. This provision is troubling to many universities and innovators while it, is particularly attractive to U.S. manufacturers who may not patent every new device or manufacturing process, preferring to consider these trade secrets. This provision – combined with the fact there is no legislative guarantee to prevent future fee diversion – may prove to be the gravest features of the AIA. Sen. Leahy has made clear his intention move legislation to revisit prior user rights. So critics of the AIA –assuming the new law proves problematic to their interests– should plan to be positioned to engage and work to defeat Leahy’s bill and/or scale back the AIA’s measure.

Finally, a serious practical challenge going forward will be implementation of the AIA. It will be up to all of the bill’s stakeholders to remain engaged to insure that the bill’s:new PGR process is implemented as envisioned; the studies are fair and balanced; that the patent field offices are established are implemented, and most importantly, that the agency is able to spend the fees it collects. The law of patentability will be more complicated and unstable for the next decade as we go through the AIA’s implementation and transition.

Troubling Provisions That Were Removed/Defeated

It is fair to say that enactment of the AIA is not what most stakeholders championed early on. Many small inventors and innovation companies feel that some of the provisions are not in their best interest. IT would have preferred a bill that did more to change how patents are valued and enforced. Nevertheless, to most stakeholder, the final version of the bill is an improvement over previous versions of patent legislation. When patent reform legislation was first introduced in 2005, its primary objective was to reduce the infringement liability of large technology aggregators by significantly limiting equitable and monetary remedies, restrict venue, and make issued patents far easier to invalidate through post-grant review. In addition, earlier versions of the bill would have given the USPTO unprecedented substantive rulemaking authority and increased the cost and burden of filing a patent application. In combination, these measures would have significantly undermined the enforceability and value of patent rights, while increasing the cost, complexity, and uncertainty of obtaining patents. All of these reforms were advanced by a IT interests set on weakening the ability of small innovators to obtain and enforce patents.

Stakeholders ranging from the IA, 21C, IPO and others worked together to substantially improve other aspects of the legislation and achieved the following improvements to the AIA:

  • Eliminated provisions that would have mandated “apportionment” of reasonable royalty damages in all or most cases.
  • Eliminated a provision that would have required courts to stay infringement actions against non-manufacturing entities pending litigation against manufacturers.
  • Eliminated a provision that would have given the USPTO expansive and unprecedented substantive rulemaking authority.
  • Eliminated a provision that would have restricted injunctive relief in patent infringement cases.
  • Eliminated a provision that would have significantly heightened the standard for proving willful infringement.
  • Eliminated a provision that would have significantly restricted venue in patent infringement cases.
  • Eliminated a provision that would have required patent applicants to submit to the USPTO a prior art search report and patentability analysis.
  • Eliminated a provision that would have compelled the Federal Circuit to accept interlocutory appeals of claim construction rulings.

So Who “Won”?

Politically, few would dispute that both Senator Leahy and Rep. Smith and their staffs demonstrated great leadership in the long-drawn-out campaign to pass the AIA. PTO Director David Kappos has shown himself to be a superb advocate for his agency and its mission. The AIA probably would not have passed were it not for his evenhanded approach to the stakeholders with diverse opinions on the legislation.

For the various groups, it is difficult to measure the relative impact each stakeholder had on the debate over patent reform, but it is clear that a few groups had a significant impact. Many of the final bill’s provisions have been cornerstones of IPO and AIPLA patent agenda for years. Cleary 21C and its member companies, which started out years ago championing the FTC and NAS Reports, wound up with a bill they could only have dreamed about at the height of IT’s drive for a tech-friendly product. The banking industry and its trade association, the ABA, was able to deliver industry-specific relief. MedCo certainly overcame significant odds to deliver a provision few would have thought could remain in the bill.

The Innovation Alliance – in coordination with a cross-coalition of companies, despite long political odds, and much better-funded opponents – was able to eliminate anti-licensing and open-ended IPR elements in the AIA and brought significant attention and commitment to the important issues associated with PTO funding. Persistence, talented members and advocates, and a willingness to work collectively helped all of these organizations achieve a measure of success.

Some of the IT industry’s advocates voiced criticism of the AIA for not going far enough, saying the bill is “not a game changer.” Perhaps a reform bill that does not contain venue reform, mandatory stays, apportionment of damages, or an open-ended post grant review system is not the bill IT initially sought to achieve. But the AIA contains important, significant reforms that will benefit IT including IPR, prior user rights, and first-inventor-to-file.

In the end, it was the absolutists who may feel they have come out on the losing end of this legislative process. Of course, if Congress retreats on the pledge to fully fund the USPTO the big loser would be not only the agency but all stakeholders. A continuing resolution to fund the government past September 30, 2011 was defeated in the House of Representatives yesterday by a vote of 195-230, but the AIA isn’t even a week old and Congress is already contemplating diverting funding in a CR, which isn’t exactly inspiring.


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Join the Discussion

5 comments so far.

  • [Avatar for Paul F. Morgan]
    Paul F. Morgan
    September 23, 2011 11:12 am

    Three clearly pro-patent-owner provisions of the AIA that must also be noted are elimination of “best mode” attacks on patents, making inter partes reexaminations harder to inititiate, and an ex parte “Supplimental” reexamination for patent owners to remove any and all inquitable conduct defenses againt their patent before suing on it with no opportunity for input from anyone but the patent owner.

    P.S. I agree with the above. The time for “foaming at the mouth with no facts” and conspiracy theory comments on the AIA is now over. That is just wasting everyone’s time. It is time to actually read and discuss the proper interpretation and scope of what has been enacted. There is ample opportunity for realistic analysis of its ambiguities.

  • [Avatar for Mark Nowotarski]
    Mark Nowotarski
    September 22, 2011 08:46 pm

    A more productive approach will be to study AIA and see how it can be used to promote the interests of inventors irrespective of what anyone “intended” it to be. There’s a lot here.

  • [Avatar for EG]
    September 22, 2011 08:05 pm


    Sorry for the outburst, as well as misinterpreting your position on the AIA. The AIA and especially calling it “reform” touches a very “raw nerve” in me. Peace.

  • [Avatar for Manus Cooney]
    Manus Cooney
    September 22, 2011 06:05 pm

    EG – I do not quarrel with much of what you conclude about the long-term effects of the AIA on smaller companies. My aim with the piece was to simply outline where certain interests prevailed and where others fell short. I agree with you – the AIA does contain changes to law that beneift large IT interests in several areas. Those changes in law (which i labeled “reforms”) may well prove hamrful to your Davids. I erred in using the term “reform”. In using the word “reform”, the reader may well conclude that I believe the changes in law are for the better. That was not my aim. Thanks for the feedback. Manus.

  • [Avatar for EG]
    September 22, 2011 01:50 pm

    “But the AIA contains important, significant reforms that will benefit IT including IPR, prior user rights, and first-inventor-to-file.”

    Sorry Manus, but I COMPLETELY DISAGREE with you for many reasons I’ve stated on this blog and others. In sum, the AIA is an utter “sham,” tainted and corrupt from beginning to end. How can you call this “reform” when the only significant “reform” (the end of fee diversion) got “watered-down” to a meaningless promise from Congress not to continue this despicable practice? How does the AIA benefit innovative AMERICAN small businesses/entrepreneurs? What about the “private bill” that was appended to the AIA in favor of a very large GP law firm that was potentially at liability risk for over $200 million?

    Let’s face it, the AIA once again “tilted” the playiing field in favor of the large multi-national corporations (the “Goliaths,” many of which are “American” in name only, somewhat analogous to “runaway” non-U.S. flag ships) against the innovative American Davids. And don’t try to hide this abomination behind the “fig leaf” of “harmonization” (as others have) with the ROW as it’s no such thing. The AIA was “bought and paid for” by special interest money, plain and simple. You’re entitled to your opinion about the AIA, but I’m also entitled to mine, and in my opinion (shared by many others), the AIA “stinks to the high heavens.”

    I’ll also tell you I intend to fight against the impact of the AIA on the American Davids “tooth and nail.” And I’ll frankly be delighted if I can find ways to turn this utter nonsense against the Goliaths who pushed for its passage (and given that their Congressional lackeys drafted the AIA so poorly, the odds I and others will).