Reproduced with permission from BNA s Patent, Trademark & Copyright Journal, 82 PTCJ 789, 10/07/2011. Copyright 2011 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com PATENT REFORM The author suggests that the recently enacted America Invents Act has left foreign entities better off than they were under previous U.S. law. Did Patent Reform Level the Playing Field for Foreign Entities? BY MICHAEL M. MURRAY T he America Invents Act was signed into law by President Obama on Sept. 16, ushering in the most substantive changes to U.S. patent law in decades (82 PTCJ 681, 9/23/11). Many of the changes are particularly important to foreign entities, who have often viewed U.S. patent law as favoring U.S.-based entities. The AIA seems to eliminate many of these perceived inequities while at the same time potentially creating new ones. This article looks at the impact of the AIA on foreign entities. First Inventor to File The most widely reported change in the AIA is the change from a first to invent system to a first inventor to file system. 1 This change has several significant benefits for foreign inventors, including the elimination of interference proceedings and a simplification of the required recordkeeping associated with new inventions. An interference is a proceeding instituted by the Patent and Trademark Office when a patent application claims essentially the same invention as another patent application or a recently issued patent. 2 Interference proceedings are notoriously complex, costly, and time consuming. 3 Furthermore, because the U.S. has always been a first to invent country, U.S. entities have generally done a good job of training inventors to keep detailed inventor s notebooks, documenting the conception of new inventions and the various reduction to practice steps in the process as those inventions are implemented. Michael M. Murray is a partner with Winston & Strawn, New York. He focuses his practice on patent litigation. 1 Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011). 2 See 35 U.S.C. 135. 3 Average interference costs are $732,000 according to the AIPLA Report of the Economic Survey, 2009. COPYRIGHT 2011 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 0148-7965
2 On the other hand, foreign entities typically do not keep such records, as they are not necessary in the first to file systems of their home countries. Accordingly, the better record keeping of the U.S. entities gives them an advantage in interferences, as they are more often able to establish an invention date before their application filing date. The better invention recordkeeping of U.S. entities also gives those entities an advantage during prosecution. Certain types of rejections can be overcome by swearing behind the prior art used in the rejection. 4 Again, U.S. entities can more easily take advantage of these opportunities because of their generally better invention record keeping. The move to a first inventor to file system will erase these advantages for U.S. entities. The result could be an increase in the number of patents awarded to foreign entities. Furthermore, to the extent foreign entities are struggling to create the kind of records that will help them in the PTO proceedings, there will be a reduced need for such records. However, invention records may still be helpful in derivation proceedings, discussed below. Derivation Proceedings The change to a first inventor to file system does not mean that an applicant can take the invention from the first inventor and gain rights to the invention by winning a race to the PTO and filing first. The new U.S. system is called a first inventor to file system instead of merely a first to file system to emphasize that only a true inventor should be awarded rights to a U.S. patent. Section 3 of the AIA establishes a derivation proceeding to give an inventor who was not the first to file an opportunity to establish that the first filer derived the invention from the later filer. 5 The Patent Trial and Appeal Board (formerly, the Board of Patent Appeals and Interferences) will conduct derivation proceedings. 6 There are substantial restrictions on derivation proceedings that will likely make them rare. First, such proceedings must be instituted by the later filer within one year after the date of publication of the first filer s patent claim. An application in the United States is published 18 months after its effective filing date. 7 Thus, a patent applicant will have to closely monitor all published applications in the field of his invention to look for claims that may have been derived, a difficult task to say the least. By the time a rejection is made by the PTO based on an earlier filed application it will usually be too late to petition for derivation. In addition, a petition for derivation must be supported by substantial evidence. 8 It remains to be seen what the PTO will consider to be substantial evidence, but it certainly will not be enough to merely point out the similarity between the claims. Thus, even if a later filer is diligent enough to identify a similar claim in an earlier filed application within one year of publication, a petition cannot be filed unless the second filer has substantial evidence to support the derivation claim. These timing and evidence hurdles 4 See 37 C.F.R. 131. 5 See AIA at 3(i). 6 Id. 7 See 35 U.S.C. 122(b) 8 See AIA at 3(i); amended 35 U.S.C. 135(a). will thus likely minimize the number of derivation petitions. While the new derivation proceedings are therefore not likely to impact a large number of applications, the derivation rules do seem to favor U.S. based entities. At a minimum, the substantial evidence needed to bring a derivation claim is likely to include two things: (1) evidence that the later filer made a disclosure of his invention before the filing date of the first filer; and (2) evidence that the first filer had access to that disclosure. The United States is essentially alone in allowing inventors to disclose their invention before filing for a patent. 9 Accordingly, foreign entities are less likely than U.S.-based entities to have made a disclosure before their effective filing date that could form the basis of an alleged derivation claim. For this reason, the majority of derivation proceedings will undoubtedly be filed by U.S.-based entities. Elimination of the Hilmer Rule The effective date for a prior art reference in the United States has historically been the date that the reference was filed in the United States. This Hilmer Rule was established by the In re Hilmer case from 1966 and has long been viewed by foreign entities as unfairly giving an advantage to those who file first in the United States, which tend to be U.S. entities. 10 For example, consider a Japanese company, JapanCo, that filed a patent application in Japan on Feb. 1, 2008. JapanCo followed up with a U.S. patent application on Jan. 1, 2009, properly claiming the benefit of its earlier Japanese filing date. 11 JapanCo then obtained a U.S. patent in February 2011. Meanwhile, a U.S. company, USCo, filed a patent application in the United States on Aug. 1, 2008, claiming subject matter that was clearly disclosed in the original JapanCo. application filed six months earlier. Under the Hilmer Rule, JapanCo s U.S. patent is not prior art against USCo s August 2008 patent application because the effective date of JapanCo s U.S. patent for prior art purposes is its U.S. filing date, i.e., Jan. 1, 2009, and not its earlier Japanese filing date. Thus, under current U.S. law, USCo could receive a patent on subject matter that was contained in the earlier Japanese application. Such a result clearly favors U.S. based entities that file first in the U.S. However, once the relevant provisions of the AIA go into effect in 2013, 12 the prior art date for JapanCo s patent would be the date that it was effectively filed, which would be the Japanese filing date. 13 Thus, the AIA eliminates the Hilmer Rule, giving patent applications that originate overseas more impact as prior art in the United States. This should reduce the number of patents awarded to U.S.-based entities. 9 See AIA 3(b), amended 35 U.S.C. 102(b). 10 In re Hilmer, 359 F.2d 859, 149 USPQ 480 (C.C.P.A. 1966) 11 See 35 U.S.C. 119. 12 The relevant provisions begin to take effect on March 16, 2013. See AIA at 3(n). 13 See AIA 3(b), amended 35 U.S.C. 102(a)(2). 10-7-11 COPYRIGHT 2011 BY THE BUREAU OF NATIONAL AFFAIRS, INC. PTCJ ISSN 0148-7965
3 Post-Grant Review The AIA will create a post-grant review process that brings the United States closer to most foreign jurisdictions that have long had such procedures. 14 Historically, when a patent issued in the United States, a concerned potential infringer had only the reexamination process available to attack the patent in the PTO. That process suffers from a number of drawbacks, including that only certain challenges to validity are available, namely a challenge using printed prior art that raises a substantial new question of patentability. 15 In the new post-grant review, the challenger will be able to attack the patent on any ground, such as failure to claim statutory subject matter under 35 U.S.C. 101, or invalidity in view of an earlier public use. 16 There are important limitations on post-grant review, including that a request must be filed within nine months of a patent s issuance. 17 Furthermore, the AIA contains an estoppel provision such that one who unsuccessfully challenges an issued patent under this provision of the AIA may be prevented from later raising the same defenses in court. 18 Thus, the post-grant review process will give foreign entities a similar right in the PTO to challenge a U.S. patent that U.S. entities have enjoyed in certain foreign patent offices for many years. 19 14 Id. at 6. 15 35 U.S.C. 303. 16 See AIA at 6(d). 17 Id., amended 35 U.S.C. 321(c). 18 Id., amended 35 U.S.C. 325(e). 19 See, e.g., European Patent Convention, Article 99 et seq. 20 Id. at Article 52 (2)(c). 21 See, e.g., Japanese Patent Office Examination Guidelines, Part II, Chapter 1, at 1-3. 22 AIA at 18. 23 Id. at 18(a)(1)(A). Business Method Patents In general, the United States has been more liberal in granting patents to so-called business methods than most foreign jurisdictions. For example, such patents are not available in Europe 20 and are available in Japan only if tied to a law of nature as opposed to being tied to other laws, e.g., economic laws, mathematical methods or methods for doing business as such. 21 Accordingly, foreign entities have typically not filed as many business method patents as their U.S. competitors and thus are more likely to be defending against such patents than asserting them. The AIA provides tools designed specifically to make it easier to attack such patents, potentially giving an edge to foreign entities. Specifically, the AIA includes a Transitional Program for Covered Business Method Patents that will generally follow the provisions of the post-grant review process, but with substantial incentives for attacks on business method patents. 22 First, challenges to business method patents need not be brought within nine months of issuance of the patent, a requirement for all other types of patents. 23 This allows post-grant review for potentially every business method patent ever issued. Furthermore, the estoppel provision does not apply to challenges to business method patents in post-grant review. 24 This means that a challenger can try a particular attack in the PTO and then, if it does not work, try the exact same attack later in district court, giving business method patent challengers two bites at the apple on every defense. These special provisions of the AIA for business method patents are clearly intended to provide relief to those who have been repeatedly threatened and sued on these patents. It is expected that many will take advantage of the transitional provisions when they go into effect next year. The opportunity will expire, however, as the AIA includes a sunset provision that automatically repeals the transitional program eight years after the provision takes effect. 25 Joinder Both U.S. and foreign entities have seen an increase in the number of lawsuits that are targeted against increasingly larger groups of unrelated defendants. In particular, so-called patent trolls have a habit of suing as many companies as they can round up in one case because it reduces out-of pocket expenses such as filing fees and expert witness fees. Defendants also may have less confidence in their ability to get a fair trial when they have to share court and deposition time with many other defendants. It is not unusual for a judge to force defendants to cooperate on depositions of key witnesses such as the inventor. As a result, a particular defendant may literally not even have an opportunity to question the inventor of a patent being asserted against it, forced to rely instead on a co-defendant to ask the questions. Trial can be even more challenging, with multiple defendants often having to share experts and being forced to divide up courtroom time. Faced with a trial in which it may have only a few hours to make its case to a jury, a defendant in such a case often opts for a settlement higher than it would normally be willing to pay. Of course, this is exactly what the trolls are counting on. The AIA should reduce the number of such cases as it prohibits joinder of parties in the same action unless one of two conditions is satisfied: (1) the action is asserted against the multiple parties jointly, severally, or in the alternative with respect to or arising out of the same transaction [or] occurrence...; or (2) questions of fact common to all defendants... will arise in the action. 26 The first of these conditions should be satisfied only if the accused parties are involved with each other in some way to do the alleged infringing act, such as a supplier of an accused device and the customer of that device who resells it or uses it. The second condition is potentially broader and may be used to try and justify multi-defendant cases where the theory of infringement is the same for all defendants. For example, this may be used where the accused infringements stem from a similar set of facts across defendants, such as an industry standard followed by all defendants. 24 Id. 25 Id. at 18(a)(3). 26 AIA at 19(d), adding 35 U.SC. 299. PATENT, TRADEMARK & COPYRIGHT JOURNAL ISSN 0148-7965 BNA 10-7-11
4 However, the new law will not be satisfied based solely on allegations that [the defendants]... have each infringed the patent or patents in suit. 27 A plaintiff seeking to add multiple unrelated defendants must show more than just alleged infringement by all defendants. Prior Use Defense The AIA expands on a prior use defense that previously existed only in connection with business method patents. 28 Sec. 5(a) of the AIA amends 35 U.S.C. 273 to provide a defense to a claim of patent infringement based on a commercial use in the United States that occurred more than a year before either the effective filing date of the asserted patent or a qualifying public disclosure by the inventor of the invention. 29 While 35 U.S.C. 273 was previously explicitly limited to business methods, the revised statute covers any process as well as any machine, manufacture, or composition of matter used in a manufacturing or other commercial process. 30 This change potentially opens up additional prior art that can be used against any patent that issues on or after the enactment of the AIA, i.e., on or after Sept. 16, 2011. While this change may be good news for defendants in future litigations, it nevertheless seems to favor U.S.- based entities, as it only applies to prior commercial uses in the United States. 31 Of course, U.S.-based entities are more likely to have prior uses that fall into this category and are thus more likely to take advantage of this defense. Elimination of the Best Mode Defense The U.S. patent laws require that the best mode of practicing an invention be disclosed in an application for patent. 32 This requirement is unique to U.S. patent law. So, for example, when a Japanese patent attorney is preparing an application for filing in Japan, he need not concern himself with the best mode requirement. However, when that Japanese application is translated and filed in the United States, the best mode must be disclosed. U.S. attorneys generally rely on the translation of the original foreign patent application for the U.S. filing. While good attorneys will remind their foreign clients about the best mode requirement and double check to make sure it has been included in the U.S. patent specification before filing, there is certainly a greater likelihood of best mode problems for foreign origination applications. Accordingly, U.S. applications that were filed first overseas are more vulnerable to attack on best mode grounds. The AIA, while not eliminating the best mode requirement, will prevent an attack on an issued patent on the basis of failure to disclose the best mode. 33 Foreign entities therefore will no longer have to worry that they will be accused later of missing the best mode when preparing their original patent applications or converting those applications into U.S. applications. Eliminating best mode attacks in litigations also simplifies litigations, saving time and money. Inequitable Conduct In 1988, the Federal Circuit famously referred to the routine assertion of inequitable conduct in patent cases as a plague. 34 The AIA takes aim at inequitable conduct attacks on patents, giving patentees a mechanism for curing inequitable conduct through a post-grant examination. 35 Section 12 of the AIA adds new Section 257 to 35 U.S.C., entitled Supplemental examination to consider, reconsider, or correct information. 36 A patent owner can request a supplemental examination to address information believed to be relevant to the patent. 37 Following such a supplemental examination, a patent shall not be held unenforceable on the basis of conduct relating to information that had not been considered, was inadequately considered, or was incorrect in a prior examination of the patent if the information was considered, reconsidered, or corrected during a supplemental examination of the patent. 38 Thus, it appears that supplemental examination can cure even clear cases of inequitable conduct. For example, even if an applicant deliberately withheld material information from the PTO with an intent to deceive the examiner (i.e., a clear act of inequitable conduct), the patent will still be enforceable if the information is presented and considered in a supplemental examination. This new law will enable patent owners to fix patents with inequitable conduct issues, and should reduce the number of allegations of inequitable conduct in litigations. These changes are useful to both U.S. and foreign entities, and do not seem to favor either. False Marking Both U.S. and foreign entities have recently been plagued by large numbers of patent marking suits seeking damages for alleged false marking, often based on a product being marked with an expired patent. Plaintiffs in these cases usually had no relationship to the defendants and no competitive position in the market. Typically, these marking trolls would scour the shelves in retail stores looking for items marked with patent numbers of expired patents. They would then file a false marking action, seeking damages for every allegedly falsely marked product. These cases would usually settle for a relatively small amount. However, given that more than a thousand such cases have been filed in the last two years, the total payouts by all plaintiffs have been substantial. Section 16 of the AIA will eliminate the vast majority of these cases by amending the law in three important respects: (1) only the United States may now bring an action to collect the civil penalty for false marking; 39 (2) 27 Id. at 35 U.S.C. 299(a)(1) and (2). 28 See 35 U.S.C. 273. 29 AIA at Sec. 5(a). 30 Id., amended 35 U.S.C. 273(a). 31 Id. 32 See 35 U.S.C. 112. 33 See AIA at 15, amended 35 U.S.C. 282(3)(A). 34 Burlington Industries Inc. v Dayco Corp., 849 F.2d 1418, 1422, 7 USPQ2d 1158 (Fed. Cir. 1988). 35 See AIA, 12. 36 Id. 37 Id., 35 U.S.C. 257(a). 38 Id., 35 U.S.C. 257(c). 39 See AIA at 16(b)(1), 35 U.S.C. 292(a). 10-7-11 COPYRIGHT 2011 BY THE BUREAU OF NATIONAL AFFAIRS, INC. PTCJ ISSN 0148-7965
5 only a party who has suffered a competitive injury may now bring a civil action for damages resulting from false marking; 40 and (3) it is no longer a false marking violation to mark a product with an expired patent as long as the patent covered the product. 41 Most of the pending false marking cases will likely be dismissed now that the AIA has been enacted. In fact, at least one court has already begun dismissing false marking cases due to the AIA, not even waiting for defendants to file a motion to dismiss. 42 40 See AIA at 16(b)(1), 35 U.S.C. 292(b). 41 See AIA at 16(b)(1), 35 U.S.C. 292(c). 42 Kilts Resources LLC v. Uniden Direct in USA Inc., Civ. Act. No. 2:10-cv-517 (E.D. Tex. Sept. 19, 2011) Conclusion The following changes made by AIA seem to help foreign entities: first inventor to file; elimination of the Hilmer rule; post-grant review; transitional proceedings for business method patents; and elimination of the best mode defense. Changes to the AIA that seem to equally benefit U.S. and foreign entities include: the new joinder rules, postgrant examination; and changes to false marking. Foreign entities may find that they are disadvantaged by the AIA s derivation proceedings and prior use defense provisions. On balance, however, the AIA seems to have left foreign entities better off than they were under the previous U.S. law. PATENT, TRADEMARK & COPYRIGHT JOURNAL ISSN 0148-7965 BNA 10-7-11