On September 16, 2011, U.S. patent laws embarked upon the most significant overhaul of the patent laws ever; the America Invents Act was signed into law by President Barack Obama. The new patent law will be phased in over time, some coming on line immediately, still more coming on line shortly after enactment, more yet coming online on September 16, 2012, and the largest piece being phased in on March 16, 2013. Meanwhile, the United States Patent and Trademark Office will begin to implement rules associated with the AIA, but are already well underway with new substantive rules rules relating areas not impacted by the AIA, such as Appeals and Reexaminations, for example.
By the time we get to March 16, 2013 the day to day patent practice, the rules and litigation of patents will be quite different than what we have today. Thankfully we have at least a little while to figure things out, but not as long as you might expect, but save that topic for another day. One of the things that has been much talked about in many corners since the enactment of the AIA is the inclusion of prior user rights, which was done at the last minute without much of any debate or discussion. While there are numerous pitfalls for the unwary hidden within the AIA, one particularly thorny issue is the issue of prior user rights.
Supporters of prior user rights say that they make sense and the detractors (of which I am one) are making a mountain out of a mole hill. They say that prior user rights are likely never to come up and are quite limited in nature. For those that actually believe that prior user rights are insignificant and don’t deserve discussion you have permission to keep your head firmly planted in the granular silicon dioxide at your feet. Everyone else keep reading.
Prior user rights is a defense to patent infringement that will prevent those who have previously used the patented invention from being liable for patent infringement, assuming the defense can be successfully proved. Essentially, you cannot sue one who has prior user rights for patent infringement because they have been using the patented innovation as a trade secret prior to it being patented. What the means, however, is that the law now favors the party that kept the trade secret over the party that disseminates the information for the benefit of the public.
Enter section 5 of the America Invents Act, now codified at 35 U.S.C. 273. 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. Confused? Don’t be. Prior user rights are such a bad idea the only way that it could get through the intense lobbying to derail it was to include an exception relative to university technologies. Query: if prior user rights is so wonderful why was it necessary to carve out a university exception?
The prior use defense can be raised if a person, acting in good faith, commercially used the subject matter in the United States and the commercial use occurred at least 1 year before the earlier of either a patent application filing or disclosure 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.
Prior user rights only becomes an issue when the prior use is a secret use because if it were not a secret use it would be prior art and otherwise capable of invalidating the claim being used to establish patent infringement. Given that a prior user rights defense will need to establish that there was, in fact, infringing activity it seems likely that most patent litigators would advise clients against asserting the defense, admitting to activity commensurate with infringement (depending on timing) and basically going all-in with an untested defense. If it fails and the activity were continuing after the patent issued then the very establishing of prior use would be an admission to infringement. The thought of all eggs in one basket with the basket being dropped from the top of the Empire State Building comes to mind. Not a good idea. Thus, prior user rights will almost certainly only be asserted where there is a very good reason to believe that the use was, in fact, secret and an invalidity defense would not be useful.
But is anything ever really a “trade secret”? History, as well as human nature and corporate culture, suggests that companies typically want to argue they have a trade secret right up until they don’t want it to have really been a trade secret, at which point they point to all the things that were not done that could have reasonably been done to keep a secret. In other words, trade secret law has always been a delicate balance between protection and knowing that you can always do more, which has had its advantages from time to time in the cake and eat it too department.
Before I tie this all together allow me to also point out four more things. First and foremost, the person or entity asserting a prior user rights defense has the burden of establishing the defense by clear and convincing evidence. Second, the person or entity asserting the defense cannot have derived what was used from the patentee or persons in privity with the patentee. Third, if the commercial use were abandoned there is no prior user rights defense. Finally, unreasonable assertion of a prior user rights defense requires the finding that the case is “exceptional,” which almost certainly means the losing infringer will pay the legal fees for the victorious patentee.
Do you get the sense for the number of issues that will be interjected into a standard patent infringement litigation if and when the defendant raises a prior user rights defense? What is that going to mean for discovery? It seems to mean that the defendant that raises a prior user rights defense will be opening themselves up to all kinds of sensitive discovery requests that typically don’t arise during a typical patent infringement litigation, if there is such a thing.
In essence, every patent infringement litigation that raises a prior user rights defense will become a trade secret litigation within a patent infringement case. Think of all the things that the patentee will be able to ask about the internal protocols, who had access to what, where, when, why and how? Was it really a trade secret or not, which may be a double edge sword for the patentee — unless the Federal Circuit were to ultimately rule someday that it is possible for something not to be a trade secret because it was briefly disclosed but not prior art because it wasn’t reasonably findable, but let’s save that hornets nest of a law school essay exam for another day.
Think of all that will easily be fair game in discovery. The defendant has the burden of proof, and they will be the ones in control of all the evidence. This means Judges are going to have to allow for liberal discovery on such a critical issue, particularly where the evidence is uniquely held by the defendant and cannot otherwise be obtained by the patentee.
Think about all the questions and requests that will deal with derivation? If you thought you were going to get away with not having to document conception and reduction to practice in a first to file era think again! Even if you are not going to document conception and reduction to practice just in case you need it for a derivation proceeding at the USPTO or in responding to a 102(b) rejection, you had better have particularly detailed evidence if you are going to ever consider relying on prior user rights. And obviously you are going to have to turn over those pristine notes to the patentee so they can probe for themselves who had what when.
Then there is the question about whether what would have otherwise been a prior user was abandoned and whether the defense was raised unreasonably. Raised unreasonably? Have you read any Answers to patent infringement complaints lately? Not only is everything denied, or deferred because there is not sufficient information at the moment to confirm or deny, but every defense that can ever be conjured up is listed. Can’t you just see some of those, shall we say over zealous litigators, just throwing a prior user rights defense into every Answer? Of course you can and you know it is likely to happen, if not virtually guaranteed. After all, the overwhelming percentage of patent litigations settle anyway. See Patent Litigation Statistics: 1980 – 2010.
But why would any litigator raise prior user rights as a defense not knowing? Can you imagine the malpractice involved if you don’t raise it and it could have been raised? Well maybe I’ll raise it later after there is at least some reason to suspect it is possible after I’ve done my own due diligence. Will the Judge allow you to raise it after you have reason to raise it reasonably? Who knows? We can level guesses based on how district courts handle the Federal Civil Rules of Procedure, but we won’t know in the prior user rights scenario for quite a while. There have never been any prior user rights cases in the United States, and the defense is only available to be applied against any patent issued on or after September 16, 2011. So far we have about 10 weeks of patents issued that could have the defense raised. It will be a while before we have any law on this issue.
What are patent litigators to do? Clients aren’t going to be happy if you raise the defense and it is later determined to have been unreasonably raised, but clients aren’t going to be happy if you don’t raise it and could have. Let’s face it, if you lose clients won’t be happy. So you can, and should, make sure you have your malpractice policy paid up, but no malpractice policy covers the enormous damage that bad patent lawyering or bad patent litigating can cost these days. So my advice is to make sure that you get the client to sign off on the strategy. Explain the pros and cons of raising versus not raising the defense and the possibility that it might not be allowed to be added — no matter how unlikely you think that is. Then let the client decide.
The AIA is going to present numerous opportunities to consult strategically with clients, which also means that there are going to be a lot of pitfalls and a ton of possible Monday morning Quarterbacking. I have a suspicion that the prior user rights defense is going to be a trap that ensnares patent litigators because of the several catch-22 decisions that await unsuspecting clients.
So litigators, do yourself a favor. Make sure you thoroughly discuss what your clients need to be doing from a proactive position to make sure they have the evidence necessary to raise a prior user rights defense and then hope you never have to use it. If you do, set out all the unsavory details as if you are the patient and the pharmaceutical rep is listing out all the hideous things the drug you were just prescribed could do to you.
For goodness sakes, for your own good and the viability of your firm, make sure you have all those CYA communications signed, counter-signed, witnessed and stored in a climate controlled environment with a constant, reasonable temperature and humidity controls. Because we all know the stakes for making a mistake are only getting higher, we live in a world where no one accepts personal responsibility, and the things your clients are going to need to do to even reasonably make a prior user rights defense will be costly to implement on a widespread basis. That means when things go wrong it will be the lawyers who are at the short end of the pitch-fork. Don’t let that be you!