How the America Invents Act impacts your business: changes in patent strategies

June 2013 | PROFESSIONAL INSIGHT | INTELLECTUAL PROPERTY

Financier Worldwide Magazine

On 16 September 2011, President Obama signed into law the Leahy-Smith America Invents Act (AIA), the most significant piece of patent legislation since the Patent Act of 1952. Over the past year and a half, the United States Patent and Trademark Office (PTO) has implemented the provisions of the AIA on a rolling basis, the most recent being in March when the United States transitioned to a first-to-file patent system. Now that the substantive AIA provisions have come into effect, businesses should reevaluate their patent application and litigation strategies, as well as take note of the alternatives to litigation the AIA provides. Here we present some key AIA changes and the reasons why they matter to your business.

Patent application strategies – the first-to-file system

Historically, the United States has had a first-to-invent patent system in which the first true inventor is generally entitled to a patent even if a different person filed the first patent application for the same invention. As of 16 March 2013, the United States aligned its patent system more closely with the rest of the world and transitioned to a first-to-file system. This means a patent will now generally be awarded to the person who makes it to the patent office first, regardless of who was the first inventor. Also, the new system brings with it significant changes to what is considered prior art – i.e., prior references or activities that may preclude the issuance of a patent – with public uses, sales and offers for sale in foreign countries being the most notable additions.

In light of this fundamental change to the US patent system, businesses will need to file early and file often to stay ahead of their competitors. Indeed, it may be advisable to file applications for individual inventions on a rolling basis during product development rather than waiting for the entire project to be completed. Provisional applications, because of their lower cost and less formal filing requirements, are a great tool in implementing this type of strategy. Once on file with a provisional application, the inventor has one year to file a non-provisional application for the subject invention. By filing several provisional applications on individual inventions within that one year timeframe, an applicant can consolidate those provisionals into one or more non-provisional applications while still securing the earliest possible priority date for each invention.

Another issue to be carefully considered under the new law is the desirability of publishing or disclosing an invention before filing a patent application. The desire to publish or publicise an invention can be especially strong for start-ups, where there is constant pressure to attract additional investors. While the new law does allow a one-year grace period for filing an application after disclosure or publication, the protection afforded by the grace period is limited. First, the grace period only applies to US applications; any publication before filing an application will count as prior art against foreign patent applications for the same invention. Second, the grace period protection applies only to inventions with the same scope as the publication. This means a competitor could read the publication of an invention and then disclose an obvious variant of the invention during the grace period. When a patent application is later filed, the competitor’s variant would be considered prior art and may lead to a rejection of the patent application.

While public sales prior to filing a patent application are clearly prior art, the new law is somewhat ambiguous with regard to private or secret sales. The law states that a bar to patentability arises if the invention was “in public use, on sale, or otherwise available to the public before the effective filing date”. The PTO, in its final examination guidelines, has interpreted the amended statute as excluding secret sales from the list of bar triggering activities. However, pre-AIA case law held that a secret commercial use was a bar to patentability. It remains to be seen how the courts will interpret the amended statute. In the interim, the safest strategy is to file an application before any sales, secret or otherwise.

Alternatives to litigation

The AIA introduces two litigation alternatives that businesses should consider in challenging the patent rights of another. The first of these is Post Grant Review (PGR). PGR is a new type of proceeding that may be instituted against newly issued patents during the first nine months after issuance. PGRs are heard by a three-member panel of administrative patent judges from the Patent Trial and Appeals Board (PTAB). In a PGR, a challenger may raise most patent validity issues and the proceeding is required by statute to conclude within 12-18 months from when it is instituted. Costs for PGRs are expected to be significantly less than court litigation and, like litigation, a PGR may be settled.

Because PGRs offer a faster, lower-cost litigation alternative to challenge a competitor’s patent right, one strategy might be to proactively monitor your competitor’s patent filings and challenge them once they issue. This provides a mechanism to challenge a competitor’s patents without first infringing the patent or having to meet the various requirements for a patent challenger to initiate court litigation. PGRs also present a new avenue for patent licensees to gain leverage in licensing negotiations.

The second new litigation alternative, Inter Partes Review (IPR), replaces the old inter partes re-examination proceedings. IPR challenges are limited to prior art validity challenges and can be initiated any time after the nine-month PGR window. However, if the patentee has asserted the patent in litigation, a defendant in that litigation has until one year after the filing of the complaint to commence IPR. Like PGRs, an IPR is statutorily required to conclude 12-18 months from when it is instituted and is heard by a three-member PTAB panel. IPRs may also be settled and costs are expected to be significantly less than litigation.

IPRs can be a valuable tool in a businesses’ litigation strategy, particularly where a business finds itself to be the defendant in a patent infringement action. In such cases, district court judges have been inclined to grant litigation stays pending the outcome of an IPR. Key factors in granting the stay are the relatively short timeframe for resolving the IPR (compared to the six year average of the predecessor inter partes reexam), the estoppel effect of an IPR decision that prevents a filer from later raising the same issues in litigation and the technical expertise of the PTAB. In addition to the reduced expense, IPR is expected to produce more predictable results than a traditional jury trial, particularly for highly technical prior art issues.

Conclusion

The AIA is a paradigm shift for US patent practitioners. It requires companies to rethink their patent prosecution strategies and become more aware of activities in foreign countries. It also presents organisations with lower-cost, more-efficient litigation alternatives that should be considered in most patent challenges.

Marc J. Pensabene is a partner and Jason E. O’Leary is an associate at Fitzpatrick, Cella, Harper & Scinto. Mr Pensabene can be contacted on +1 (212) 218 2291 or by email: mpensabene@fchs.com. Mr O’Leary can be contacted on +1 (212) 218 2578 or by email: joleary@fchs.com.

Marc J. Pensabene and Jason E. O’Leary

Fitzpatrick, Cella, Harper & Scinto