Expert Commentary

Patent Reform 2011: The Implications of the Leahy-Smith America Invents Act

As the American patent system faces its most significant overhaul since 1952, inventors should recognize the impact of the Leahy-Smith America Invents Act (AIA). While the transition from a "first-to-invent" to a "first-inventor-to-file" system is the most notable change, learning the nuances of the new law will allow entities to seek patent protection and defend their products in a cost-effective manner.


Intellectual Property
October 2011

On September 16, 2011, President Barack Obama signed the AIA into law. The Act has several goals, including easing the current backlog at the U.S. Patent and Trademark Office (USPTO), improving patent quality going forward, and reducing the cost of patent litigation. The following article examines the impact of these goals on the existing patent system.

Transitioning to a First-Inventor-To-File System

The most publicized change in the AIA is the transition of the U.S. patent system from a first-to-invent to a first-inventor-to-file system. The current first-to-invent system grants priority based on the date of conception. The new system will grant priority to the first person to file an application. This new first-to-file system will replace the current system on March 16, 2013 (18 months after the AIA's enactment).

Proponents of the new system sought to harmonize the American patent system with the rest of the world by enacting a first-to-file system. Under this new first-to-file system, both foreign and domestic public disclosures can create statutory bars to patentability. For instance, under the new version of 35 U.S.C. § 102, a third-party public use can bar patentability even if it occurred outside the United States. By expanding the scope of § 102 in such a way, the AIA moved the U.S. patent system closer to foreign patent systems.

While provisions like the foreign public use harmonize the U.S. patent system with the rest of the world, the AIA is not a true first-to-file system. For example, in most first-to-file systems, there can be no prior disclosure. The AIA's provision does not require this. The Act gives the inventor a 1-year grace period from the date of the disclosure to file the patent application.

The grace period, however, only covers disclosures made by the inventor; disclosures made by third parties who independently arrived at the invention can act as a bar to patentability. On that basis, new inventors must be cognizant that there is no grace period associated with third-party disclosure. In light of the changes to § 102, entities should take steps to reduce the possibility of inadvertent foreign disclosures, as well as have discussions with their inventor on filing as early as possible.

Limitations on the Joinder of Defendants

The joinder provisions under 35 U.S.C. § 299 may significantly reduce the amount of lawsuits filed by nonpracticing entities (NPEs) by increasing their litigation costs. Under the old system, a patent owner could sue multiple defendants in a single patent infringement suit. This model saw plaintiffs, such as NPEs, bring infringement suits against large groups of defendants, typically in a plaintiff-friendly forum, such as the Eastern District of Texas.

The AIA limits the situations where multiple defendants may be joined in a single suit. Under the AIA, accused infringers may only be joined in one action if (1) a claim is made against parties jointly or severally, or a claim arises out of 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) questions of fact common to all defendants or counterclaim defendants will arise in the action. For that reason, a plaintiff may no longer join defendants solely on allegations that they each have infringed the patent or patents-in-suit.

The provision does however, contain two exceptions. First, § 299 does not cover an action involving the infringement of patented drugs or biological products that fall under § 271(e)(2), also known as Hatch-Waxman cases. Second, the section allows for a defendant to waive the limitations set forth in the section. Companies may find this useful when they wish to try the case as a collective in order to save on litigation costs or if they are indemnified together by a single party.

As a result of the new joinder rules, plaintiffs may be forced to change their litigation approach. The new joinder rules became effective to any action commenced on or after September 16, 2011.

The Act Curbs False Marking Suits

As we previously wrote, 35 U.S.C. § 292, as interpreted by Forest Grp., Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009), allowed anyone to bring a cause of action seeking damages for false marking. Under the AIA, all qui tam actions for false marking suits are eliminated, and only the United States may bring an action for statutory damages authorized by § 292(a). However, any person who has suffered a "competitive injury" from false marking can bring a civil action for damages but may only be awarded damages "adequate to compensate for the injury."

The new law also specifies that the marking of a product with a patent number that has expired is no longer a violation of § 292. The new law applies to all cases pending on or commenced on or after September 16, 2011. As a result, many false marking suits have been dismissed.

New Options for Post-Grant Challenges

Currently, there are two avenues to challenge a patent after it has been issued—by filing an ex parte or inter partes reexamination. The AIA still provides for ex parte reexaminations but now replaces inter partes reexaminations with a post-grant review (PGR) and an inter partes review (IPR).

Under 35 U.S.C. § 321, the PGR enables a third party to challenge a patent based on any ground of invalidity, including § 112 (aside from the failure to disclose best mode, which is no longer a basis for invalidity), as long as it is filed within 9 months of the patent's issuance. The standard for granting a PGR is not the "substantial new question of patentability" but is instead the theoretically higher burden of "more likely than not that at least one of the claims challenged in the petition is unpatentable." If the USPTO grants a PGR, the newly created Patent Trial and Appeal Board (PTAB) will adjudicate the PGR.

Before seeking a PGR, entities must recognize the risks associated with estoppel. For instance, a petitioner in a PGR of a claim that results in a final written decision by the PTAB may not request a proceeding before the USPTO with respect to that claim on any ground the petitioner raised or could have raised during that PGR. This estoppel also applies to subsequent civil actions and proceedings before the International Trade Commission.

If a third-party challenger misses the 9-month period for the PGR, it may still initiate an IPR. Under 35 U.S.C. § 311, a third party may file an IPR 9 months after patent issuance date or after completion of any previously initiated PGR. Unlike the PGR, patents may only be challenged under IPR on the basis of prior art in the form of patents and printed publications. The IPR will only be granted if the petitioner can show that there is a "reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition."

In addition to estoppel, there are limitations to IPR that will force parties to make a choice regarding the timing of IPR. For example, an IPR will not be granted if a party has already sought declaratory judgment (DJ) in district court, except where the DJ was filed as a compulsory counterclaim. On the other hand, if the IPR is filed before the DJ, the AIA specifies that the DJ will be stayed unless the patentee counterclaims for infringement.

The intended result of IPRs is to expedite the review process and provide for a more in-depth inquiry by assigning the review directly to the PTAB. Both the PGR and IPR will take effect on September 16, 2012.

Conclusion

The AIA presents many changes to the U.S. patent system, but the full effect of the changes will not be known for some time. While some provisions, like the false marking and joinder provisions, have already had an impact on patent litigation, other changes, like the first-to-file system and the new post-grant challenges, have not even gone into effect. Time will tell whether these provisions will help the AIA accomplish its goals to ease the current backlog at the USPTO, improve patent quality going forward, and reduce the cost of patent litigation.


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