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U.S. Patent Reform Legislation – The “Leahy-Smith America Invents Act”

Intellectual Property Law Update George E. Haas

On September 16, 2011, the U.S. government enacted the most sweeping changes to the patent system in 59 years. The revisions stem from several desires - harmonize U.S. law with that of foreign countries, make a U.S. patent more robust, and improve funding and efficiency of the U.S. Patent and Trademark Office. Another justification is to promote technological progress in the United States, which can have the side benefit of creating jobs.

The changes affect what may be patented, how patents can be challenged, patent office fees, and organization of the patent office. Of particular significance are changes that will alter how and when our clients select inventions for patenting.

The following is an overview of the most significant changes of the legislation.

Shift to a First to File Patent System

Historically the U.S. stood apart from other countries by awarding a patent to the first group of inventors that made the invention, even when another independent group filed the first patent application on the invention. The former law also granted a patent even though, up to one year before its filing date, the invention had been publicly disclosed somewhere or offered for sale or used in the U.S. Regardless of who performed these acts, a patent still could be granted.

Effective 18 months after enactment of the new law, the group of inventors that files the first patent application will be entitled to a patent, even though another group made the invention first. The invention, however, may not have been described in a printed publication, in public use, on sale, or otherwise available to the public anywhere in the world before the application was filed. The only exception is for disclosures of the invention made by an inventor, someone who learned about the invention from an inventor or someone else after a public disclosure by an inventor, and that occur no more than one year before filing.

Q&B Comment: The conversion to a first to file system is the part of the legislation that will have the greatest impact on day-to-day operations of companies. Clients should consider filing a patent application as soon as the fundamental concepts of the invention are known and not wait until a fully refined commercial version has been developed. Furthermore, the past practice of waiting to test acceptance of the invention in the marketplace - before filing a patent application - now will be more risky. This is especially true for crowded technical fields in which many competitors are working on the same problems. Clients will have to balance waiting until the invention is fully perfected or is accepted in the market against the risk that someone else may be the first to file an application or disclose the invention.

A Prior Inventor's Continued Use of the Invention

A patent that issues under the new law will not be infringed by another entity that used the patented subject matter in connection with:

  1. an internal commercial use, an arm's length sale, or arm's length commercial transfer of a useful end result of such commercial use that occurs in the United States (e.g. sale of a product produced by a patented method); and

  2. where that act occurred at least one year before the earlier of the filing date of the patent application or the date on which the claimed invention was disclosed to the public directly or indirectly by the inventor.

Use by a nonprofit entity, such as a research laboratory, university or hospital, is considered commercial use under this section of the law, but such use only protects continued use of the patented invention for noncommercial purposes.

The items acquired through an arm's length sale or transfer under item 1 above can be used and resold by others without infringing the patent.

If the commercial use is stopped, the entity loses the right to recommence using the invention in the future.

This right to use a patented invention only applies if you have commercialized the invention a year or more before the other entity filed the patent application. Merely having made the invention first is not enough.

Patent Office Fees

A. The new law immediately adds a third tier to the patent fee structure:

  1. Large businesses with 500 or more employees pay the full fee amount.

  2. Small businesses (not part of an enterprise with a total of 500 or more employees), individuals, and nonprofit organizations receive a 50 percent fee reduction.
  3. Micro entities (certain individuals, extremely small businesses, and "institutions of higher education" defined in 20 U.S.C. ยง1001(a)) receive a 75 percent fee reduction.

B. Fee Surcharges

  1. A permanent $400/$200 surcharge applies to utility patent applications not filed electronically. Quarles & Brady rarely files nonelectronically.

  2. The patent reform law tacks on a 15 percent surcharge on all patent fees. This surcharge takes effect 10 days after enactment and terminates the first time that the associated fee is adjusted. This surcharge likely will remain for a long time, as there is no incentive to adjust a fee by less than 15 percent.

Q&B Comment: You should consider advance payment of fees, such as maintenance fees, in the next few days to avoid the surcharge.

Marking Products with Patent Numbers

In addition to the traditional methods of placing the patent number on covered products, virtual marking can be accomplished by posting patent information on the Internet and marking the products with the word "Patent" followed by the freely accessible Internet address.

The new law allows only the U.S. government to sue to enforce the statutory $500 penalty per item marked with an expired or inappropriate patent number. Nevertheless, the new law allows persons who suffer a competitive injury due to a falsely marked product to file a civil suit to recover compensatory damages. This law revision largely ends the practice of "marking trolls" enforcing the false marking statute and splitting the penalty with the government.

Reviewing the Validity of a Patent

Presently the validity of a patent can be reviewed by the U.S. patent office in either ex parte or inter partes reexamination proceedings, as an alternative to litigation. Both types of proceedings can be initiated by a third party with the difference being that the third party actively participates in all stages of the inter partes reexamination.

The ex parte reexamination proceeding remains substantially unchanged.

The inter partes reexamination has been replaced by a "post-grant review" and an "inter partes review." Within nine months of the patent or reissue grant, a "post-grant review" may be requested based on a broad range of grounds that affect patent validity. The post-grant review gives patent challengers more opportunities to nullify issued patents than the present inter partes reexamination proceeding and could shift more disputes from the courts to the U.S. patent office. After nine months, only an "inter partes review" may be requested based on the invention not being novel or being obvious in light of only prior patents and printed publications. Thus after nine months, the grounds for challenging a patent's validity narrow significantly.

Both the post-grant and inter partes reviews will be conducted by an administrative patent judge on the Patent Office Trial and Appeal Board. These proceedings may not be initiated by an entity that previously filed a lawsuit challenging the patent's validity. Both types of review go into effect one year after the new law is enacted.

If you have questions about how the U.S. patent reform legislation affects your particular business, please contact George Haas at (414) 277-5751 / george.haas@quarles.com or your Quarles & Brady attorney.