Latham & Watkins Litigation Department

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1 Number 1241 September 28, 2011 Client Alert Latham & Watkins Litigation Department Practical Implications of the America Invents Act on United States Patent Litigation This Client Alert addresses the key provisions of the America Invents Act of 2011, and implications of the Act on existing and future patent litigation in the United States. In particular, this Alert discusses how the America Invents Act may have a significant impact on the number of separate patent suits filed each year, venue transfer considerations, joint defense strategies and coordination, and the interplay between inter partes reexamination proceedings and co-pending litigation involving the same patent-in-suit. On September 16, 2011, after several years of legislative negotiations, President Barack Obama signed the Leahy-Smith America Invents Act ( Act ) into law. Leahy-Smith America Invents Act, Pub. L , 125 Stat. 284 (2011). The Act represents the most significant reform of United States patent law since While most press and political commentary acknowledge that the Act s greatest impact will be to transition the United States from a first-to-invent to a first-to-file patent system, the Act also adopts a number of changes to the way patent litigation is handled in the United States. This client alert analyzes the key provisions of the America Invents Act of 2011, and implications of the Act on existing and future patent litigation in the United States. In particular, this alert discusses the Act s likely impact on the number of separate patent suits filed each year, venue transfer considerations, joint defense strategies and coordination, and the interplay between inter partes reexamination proceedings and co-pending litigation involving the same patent-in-suit. 1 The Act Significantly Restricts a Plaintiff s Ability to Join Defendants in the Same Suit The reform that is likely to have the most immediate, practical impact upon the conduct of patent litigation is that relating to joinder. Section 19 of the Act amends 35 U.S.C. 299 to provide that plaintiffs can join multiple defendants in the same lawsuit only where (1) the infringement allegations stem from the same transaction, occurrence, or series of transactions or occurrences relating to the making, using, importing into the United States, offering for sale, or selling of the same accused product or process and (2) the claims arise out of questions of fact common to all defendants or counterclaim defendants. In other words, defendants alleged infringement must have arisen out of common facts (i.e., defendants were involved in the same infringing conduct). This provision is effective immediately. Prior to the Act, plaintiffs could, and often did, sue multiple defendants in the same suit simply on the basis that they all were accused of infringing the same patent or related patents. The law required no additional commonality between the defendants. By contrast, under the Act, infringement of a common patent alone is insufficient to satisfy the joinder requirement. Under the new provision, defendants with distinct accused products will likely be able to establish that the allegations of infringement do not present questions of fact common to all defendants. Thus, joinder under such circumstances would be inappropriate. Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in the United Kingdom, France, Italy and Singapore and an affiliated partnership conducting the practice in Hong Kong and Japan. Latham & Watkins practices in Saudi Arabia in association with the Law Office of Mohammed A. Al-Sheikh. Under New York s Code of Professional Responsibility, portions of this communication contain attorney advertising. Prior results do not guarantee a similar outcome. Results depend upon a variety of factors unique to each representation. Please direct all inquiries regarding our conduct under New York s Disciplinary Rules to Latham & Watkins LLP, 885 Third Avenue, New York, NY , Phone: Copyright 2011 Latham & Watkins. All Rights Reserved.

2 The implications of the new joinder provision will be significant for both plaintiffs and defendants. For plaintiffs, the change will mean that they will have to file multiple separate cases against accused infringers, increasing their costs of litigation and the potential for inconsistent claim constructions, and allowing for multiple, separate invalidity determinations, each of which could be preclusive if unfavorable to the plaintiff. While judges may still consolidate multiple cases for certain purposes (such as discovery), plaintiffs will likely not be able to take advantage of certain economies of scale that were previously taken for granted. This change may also deter plaintiffs from filing more questionable suits that may have previously been filed primarily because a multi-defendant case made economic sense based upon the expectation that large numbers of defendants would write small settlement checks. As to cases that are strong or present closer questions on the merits, the change will likely result in a significant rise in the number of patent cases filed. This shift has already been observed in the days since the Act was signed into law, and may well have an impact on the speed to trial in patent heavy dockets. In addition, this change in law relating to joinder will make it more challenging for plaintiffs to keep all defendants in a single venue, as the transfer considerations may be unique to each specific case. Conversely, defendants will now find it easier to sever and transfer cases, which may reduce the plaintiff s ability to forum shop, particularly where there is a clearly more convenient venue that is not the venue in which the plaintiff filed suit. 2 Logistically, to the extent that defendants do not exercise the right to waive the limitations on joinder, defendants may now find it more challenging to coordinate defense efforts and joint defense strategies, especially to the extent that protective orders may restrict the information they are able to share with defendants in concurrent litigation involving the same patent(s)- in-suit. The Act Significantly Changes the Procedures for Inter Partes Review Section 6 of the Act significantly changes the inter partes patent reexamination process, now referring to it as the inter partes review ( IPR ) process. Pursuant to the Act, IPRs will be conducted by the Patent Trial and Appeal Board ( Board ), rather than the Patent and Trademark Office ( PTO ) examining corps. The Act also changes the standard for when the Board will open an IPR. Previously, a reexamination would be opened where there was a substantial new question of patentability. But, now, Section 6 of the Act amends 35 U.S.C. 314 to provide that the Board will open an IPR only where there is reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged. Common wisdom is that this is a heightening of the standard applicable to inter partes reexamination proceedings, and thus it will be more difficult to convince the Board to commence such proceedings. Time will tell how that plays out in practice. The change in the standard is effective immediately, and is applicable to currently pending inter partes reexamination proceedings. However, the changes to the inter partes review process will not be in effect until September 16, The Act also includes a number of important procedural changes to the review process. To allow time for a post-grant review, an IPR will only be granted the later of nine months after a patent was issued or following the conclusion of a post-grant review. Moreover, a party will not be able to seek an IPR if it has already sought a declaratory judgment ( DJ ) in district court, except where that DJ claim was 2 Number 1241 September 28, 2011

3 filed as a compulsory counterclaim. The Act provides that DJ actions filed after a party has filed an IPR will be stayed, unless a patentee counterclaims for infringement. Where a plaintiff first files an infringement suit against a defendant in district court, and the defendant then files a DJ counterclaim, the PTO will still consider an inter partes reexamination. Under those circumstances, the defendant will still have the right to seek a district court stay pending the inter partes reexamination. In addition, a defendant will have only one year from the commencement of the litigation to file a petition for inter partes review. Additionally, under Section 6 of the Act, the PTO now retains jurisdiction over fees, and the review process now must be completed within one year, or eighteen months if good cause is demonstrated. The Act also includes a provision allowing the parties to settle the matter and conclude the proceedings prior to a final ruling. Finally, the Board s refusal to open a proceeding will not be appealable. The primary implications of these changes will be that the review process will be significantly expedited and, because the Board now oversees inter partes reviews, the expectation is that parties can expect the review process to be more thorough and to receive closer scrutiny. The revised standard may also have an impact on the likelihood of an IPR being granted. The desired goal is to increase the quality of IPR judgments. The bottom line is that if you are a prospective accused infringer contemplating a choice between filing a DJ action of invalidity versus filing an inter partes reexamination and you have not been sued yet, choose wisely. Your election will affect your rights. Specifically, if you file a DJ action first, an inter partes reexamination will not be accepted. Conversely, if you elect to file an inter partes reexamination first, any subsequent DJ action may be stayed unless the patentee counterclaims for infringement. This change appears to reflect Congress desire to avoid co-pending proceedings in district court and the PTO regarding invalidity and a preference to have the PTO address invalidity issues in the first instance, e.g., where the party challenging validity has elected to file the invalidity challenge through the IPR process. The estoppel effect of inter partes proceedings are not changed under the Act. In short, if an inter partes proceeding is commenced by a party challenging the patent, and the proceeding results in a final determination that the patent is valid, that party will be estopped from relying, in subsequent litigation, on any prior art that was or could have been relied upon in the inter partes proceeding. The Lack of Opinions of Counsel Cannot Be Used as Evidence of Alleged Willful Infringement or Inducement of Infringement Effective one year after the enactment of the statute, i.e., on September 16, 2012, Section 17 of the Act amends 35 U.S.C. 298 to eliminate a plaintiff s ability to demonstrate willful infringement or inducement by showing that the defendant failed to obtain an opinion of counsel. This provision should not significantly affect litigation regarding willfulness, because many United States courts have already established that a defendant s failure to obtain an opinion of counsel is not to be considered when adjudicating willful infringement. In re Seagate Technology, LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007). The Act merely codifies this now well-settled rule. However, even after Seagate, some plaintiffs had argued, with the trial judge s blessing, that evidence of the lack of an opinion (or the failure to produce an existing opinion) may be introduced as evidence relating to willfulness. This change should 3 Number 1241 September 28, 2011

4 end that practice. Similarly, the Act should prevent the introduction of such evidence in support of an inducement claim, thus effectively overturning the Federal Circuit s decision in Broadcom Corp. v. Qualcomm, Inc., 543 F.3d 683 (Fed. Cir. 2008), to the contrary. This provision of the Act should be helpful to defendants to the extent: (1) it obviates unnecessary discovery and motions in limine pertaining to the lack of the existence of, or reliance upon, opinions of counsel; and (2) it deters rogue plaintiffs attorneys from arguing otherwise. The Act Will Dramatically Reduce the Recent Surge of False Marking Cases Section 16 of the Act amends 35 U.S.C. 292 to prohibit any person other than the United States from bringing a claim for false marking unless that person suffered a competitive injury as a result of the false marking. In the past, any person had the ability to bring false marking claims and sue on behalf of the United States. If the plaintiff prevailed, the offender would face a penalty of $500 for each offense; the competitor could then collect half of the penalty, and the United States would recover the other half. Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295, 1303 (Fed. Cir. 2009) (citing 35 U.S.C. 292(b)). Section 16 of the Act essentially abolishes this practice, allowing only the United States to bring suit and collect the prospective $500 penalty. Other persons may only bring suit where they suffer a competitive injury, but they may now only recover actual damages. Additionally, the Act amends 35 U.S.C. 292(c) to allow for the marking of products with an expired patent. All amendments related to false marking are effective immediately and apply to cases currently pending. The practical effect of this provision will be to quell the recent surge of false marking cases and dramatically reduce the number of these cases from the hundreds currently on file to likely less than a dozen. Indeed, the past week has already seen at least one district judge with a patent-heavy docket taking advantage of this reform by sua sponte dismissing false marking claims without prejudice should the plaintiff(s) be able to show competitive injury. Kilts Resources LLC v. Uniden Direct in USA, No. 2:10-cv-517-TJW, Dkt. 9 (E.D. Tex. Sep. 19, 2011). The Act Eliminates the Best Mode Defense Section 15 of the Act amends 35 U.S.C. 282 to preclude the best mode defense as a ground for invalidity or unenforceability for patent infringement actions commenced on or after September 16, U.S.C. 112 ( Section 112 ) provides that a patent applicant must disclose the preferred means (best mode) of implementing his or her invention. Prior to the Act, an alleged infringer could raise the fact that a patent applicant failed to comply with the best mode requirement as a ground for patent invalidity or unenforceability. The Act abolishes this defense but does not amend the requirement in Section 112. As such, while defendants may not raise the best mode defense in litigation, the PTO could still presumably enforce compliance with the requirement as part of the PTO s examination process. The Act s abolition of this defense is not likely to materially change patent litigation practices. This defense was not typically relied upon as a primary invalidity defense, and was rarely successful. Moreover, the PTO does not have a history of enforcing the requirement and shows no indication of doing so in the future. 4 Number 1241 September 28, 2011

5 The Act Extends Prior Use Rights Section 5 of the Act expands the prior use defense to patents issued after September 16, This defense, now codified under 35 U.S.C. 273(a), provides that a person is not liable for infringement if such person, acting in good faith, commercially used the subject matter in the United States, either 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 of such commercial use; and [] such commercial use occurred at least 1 year before the earlier of either [] the effective filing date of the claimed invention; or [] the date on which the claimed invention was disclosed to the public in a manner that qualified for the exception from prior art under section 102(b). Traditionally, this defense was only available in business method patent cases. The Act broadens the defense, making prior use applicable to a process, or a machine, manufacture, or composition of matter used in a manufacturing or other commercial process. It is currently unclear how far courts will apply this language, but it is likely that the defense will encompass a significantly wider range of patent claims, including process claims and trade secrets that form part of an internal manufacturing process. The Act Expands the Definition of Prior Art Section 3 of the Act amends 35 U.S.C. 102 to considerably alter what constitutes prior art. The Act generally removes the one-year grace period for third-party prior art by providing that such references will qualify as prior art if they are dated prior to the filing of the application leading to the patent (and thus eliminating the requirement that they be dated more than a year before the application was filed). 3 The Act also eliminates the swear behind provision, which allowed a patentee to swear behind an earlier prior art reference to demonstrate that the invention was conceived before the prior art reference and was reduced to practice with reasonable diligence. In short, the patentee will be stuck with its initial filing date as the date against which prior art will be measured. The result of these changes will be to broaden the scope of potential prior art and essentially raise the bar to obtain and preserve patent protection. The Act also eliminates the distinction between a public use or sale that occurred in the United States and a public use or sale that occurred in the rest of the world. Any public use or sale occurring anywhere in the world will now qualify as prior art. The Act further eliminates two sources of prior art. Section 102(g), which relates to prior invention by another who had not abandoned, suppressed, or concealed his invention, and art that was known or used by others, are no longer sources of prior art. On the other hand, the Act identifies a new source of prior art inventions that are otherwise available to the public. These new modifications will apply to applications with effective filing dates eighteen months after enactment, on March 16, The elimination of the one-year grace period, the swear behind provision, and the distinction between United States and worldwide public use or sale are favorable for defendants because more references will qualify as prior art. It is unclear how the Act s elimination of two sources of prior art will balance with the inclusion of the new otherwise available to the public source. Ultimately, what falls under the new otherwise available to the public category of prior art will require clarification from the courts. 5 Number 1241 September 28, 2011

6 The Act Modifies the Standard of Obviousness Section 3 of the Act amends 35 U.S.C. 103 to provide that obviousness will be determined before the effective filing date of the claimed invention rather than the date of invention. As a general matter, considering obviousness as of the effective filing date of the patent claims being considered rather than at the time the invention was made will mean taking a snapshot of the person of ordinary skill in the art ( POSITA ), and of the state of the art itself, at the time the application was filed, and will eliminate any attempt by a patentee to secure an earlier priority date and thereby to change the time at which such a determination would be made. This change, which will take effect on applications filed after March 16, 2013, could result in a slightly higher probability of a finding of obviousness, as the POSITA later in time may have the benefit of additional prior art references, teachings, materials, resources, etc. The Act Eliminates the Phrase Deceptive Intent Relating to Inventorship Prior to the Act, a patent could be deemed invalid or unenforceable where a company failed to name an inventor of the patent and where the court found that the patentee withheld the name of such inventor with deceptive intent. Section 20 of the Act eliminates the phrase deceptive intent relating to inventorship, now allowing a company to correct the inventorship of a patent without any inquiry into why the inventor was omitted. Essentially, this modification eliminates inventorship as a ground of invalidity or unenforceability and allows companies to amend inventorship errors with impunity. This change, which applies to proceedings commenced after September 16, 2012, will have little material impact on patent litigation practices, because deceptive intent was already exceedingly difficult to prove, the patentee could readily amend and cure inventorship issues in the absence of deceptive intent, and defendants rarely prevailed on the basis of such arguments. Endnotes 1 Beyond the provisions discussed here, the Act introduces a number of important additional patent reforms that are beyond the scope of this client alert. Key additional reforms which will not be effective until September 16, 2012 or later include: (1) the adoption of a first-to-file system (now, the first inventor to file a patent application will be granted the patent rather than the first person to make the invention, unless the claimed subject matter was derived from the first inventor); (2) the adoption of a new pregrant prior art submission procedure; (3) the creation of new post-grant review procedures; and (4) replacing interference proceedings with derivation proceedings. Additional reforms that take effect immediately include: (1) an attempt to render tax evasion strategies unpatentable; and (2) prohibiting patents directed to or encompassing a human organism. 2 The enacted version of the Act does not include any explicit limitations on a plaintiff s ability to forum shop, which Congress originally included in earlier drafts of the legislation. 3 Section 3 of the Act amends 35 U.S.C. 102(b) to provide for an exception for when the thirdparty art was derived from the patentee or the patentee made an earlier disclosure. 6 Number 1241 September 28, 2011

7 If you have any questions about this Client Alert, please contact one of the authors listed below or the Latham attorney with whom you normally consult: Mark A. Flagel Richard G. Frenkel Silicon Valley Charles Courtenay Victor Leung Franklin D. Kang Client Alert is published by Latham & Watkins as a news reporting service to clients and other friends. The information contained in this publication should not be construed as legal advice. Should further analysis or explanation of the subject matter be required, please contact the attorney with whom you normally consult. A complete list of our Client Alerts can be found on our website at If you wish to update your contact details or customize the information you receive from Latham & Watkins, please visit to subscribe to our global client mailings program. Abu Dhabi Barcelona Beijing Boston Brussels Chicago Doha Dubai Frankfurt Hamburg Hong Kong Houston London Madrid Milan Moscow Munich New Jersey New York Orange County Paris Riyadh* Rome San Diego San Francisco Shanghai Silicon Valley Singapore Tokyo Washington, D.C. * In association with the Law Office of Mohammed A. Al-Sheikh 7 Number 1241 September 28, 2011