America Invents Act Makes Significant Changes to U.S. Patent Law

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March 16, 2013, marked the beginning of “first-inventor-to-file,” the backbone of the new U.S. patent system under the Leahy-Smith America Invents Act (AIA).  The AIA is the most comprehensive review of American patent law since the 1950s, and was passed into law in September 2011. The significant changes include switching from a “first-to-invent” to a “first-inventor-to-file” system, increased recognition of prior art from outside the United States, and the introduction of “prior user rights.”

 

New Risk

 

Under the old system, if you kept lab notebooks, you could prove you were the first inventor even if you were not the first to file, so you did not necessarily have to be the first to get to the patent office. Now, with a few exceptions, you need to be the first. If two people come up with the same invention, and they often do, it is not going to matter if you can prove you were the first inventor if you were not the first to file.

 

Before the new law, if you filed a patent, someone could have come along and told you he or she had that idea first, and with much documentation and legal wrangling, defeat your right to hold that patent.  With the new law, nobody will care who came up with the idea first — only who filed it first. There has been a paradigm shift of the system’s emphasis from the date it was invented to the date its inventor filed an application with the patent office. (It does preclude stolen ideas; it’s been more accurately termed “first-inventor-to-file.”)

 

Importance of Nondisclosure Agreements

 

The shift from a "first-to-invent" to a "first-to-file" patent system is probably the most significant reason for utilizing a nondisclosure agreement (NDA) for any sensitive disclosures. Under the old system, so long as an inventor could demonstrate that he or she was the first inventor of patentable subject matter, the fact that another filed an application for a patent first was not determinative of who was

entitled to the patent.

 

Under the first-to-file system, an inventor has to be doubly careful because if he or she discloses that invention to someone else before the filing an application, then the inventor could face a real battle as to who is entitled to a patent if that party files an application first. Some are concerned that the AIA is unclear on exactly how protective its provisions will be in practice, particularly in cases where an applicant modifies another’s original invention in some way.

 

Companies may need to be even more careful to keep their secrets close, even when it comes to employees, consultants and suppliers that have agreed to NDAs. It is always a good idea for company to use strong language in the NDA to ensure that any modifications or improvements of the disclosed information remain the inventor’s property. Accordingly, it is becoming increasingly clear that NDAs and confidentiality agreements are not just for trade secrets anymore but may be critical to protecting potential patents.

 

Trade Secret Protection

 

The AIA's expansion of what is known as the "prior commercial use" defense (a.k.a. the "prior use" defense) is going to likely lead to greater reliance on trade secret protections for many commercial activities. A trade secret owner who thoroughly documents the commercial activity at issue should be able to withstand a claim of patent infringement if he or she meets the criteria below.

 

Amendments to 35 U.S.C. § 273 provide for prior user rights, which protect trade secret owners against patent infringement lawsuits.

 

Therefore, let’s say a company makes an innovation but decides not to seek patent protection for the innovation and instead elects to protect the invention as a trade secret. In such a case, if another company independently invents the same innovation and elects to file and prosecute a patent application, then the second to invent party cannot sue the first company for infringement, even though the second company holds a valid patent.

 

The AIA provides trade secret owners and other alleged infringers with a prior user defense against patent infringement claims for all inventions if they can demonstrate internal commercial use (or other commercial uses) of the patented invention at least one year before the effective filing date of the patent. Prior user rights are a personal right. The patent remains valid and enforceable against other companies.

 

There is an exception to the requirement that a prior user right be based on commercial use of the subject matter since “activities performed by a nonprofit research laboratory, or nonprofit entity such as a university, research center, or hospital,” if, and only if, “the public is the intended beneficiary of the use,” are statutorily deemed to be commercial uses in this context. The defense is not available to a university or a technology transfer organization whose primary purpose is to facilitate the commercialization of technologies developed by a related university unless “the activities required to reduce to practice the subject matter of the claimed invention could not have been undertaken using funds provided by the Federal Government.”

 

The prior user right is also limited to a commercial process. The defense is limited to a person who, “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 of a commercial transfer of a useful end result of such commercial use.” In addition, “subject matter for which commercial marketing or use is subject to a premarketing regulatory review period during which the safety or efficacy of the subject matter is established … shall be deemed to be commercially used … during such regulatory review period.” Such regulatory review is normally either completely or substantially secret.

 

Before the AIA’s enactment, 35 U.S.C. § 273 limited the prior use defense to business methods patent infringement claims. Under that defense, a defendant could avoid liability if, acting in good faith, he or she "actually reduced the subject matter to practice at least one year before the effective filing date of such patent, and commercially used the subject matter before the effective filing date of such patent."

 

When this defense was codified in 1992 to address concerns in the financial industry about the scope of business method patents, it was greeted with skepticism by many in the patent community.

 

The AIA now will extend the prior commercial use defense from business method patents to patents for processes, machines, manufactures and compositions of matter issued after Sept. 16, 2011. The prior commercial use must take place between the earlier of one year before the effective filing date of the patent application or public disclosure by the patentee. Assuming that it can meet that temporal standard, the defendant must also show that the invention or process was, in good faith, commercially used in the U.S. in an internal commercial use, in an actual arm's length sale, or other transfer that resulted in a commercial use.

 

This is a significant expansion of this defense, but it is important to remember this is simply a defense, not a right. It is a safe harbor that protects the inventor or company that wishes to use the invention or process in private — not a means for challenging a patent.

 

A company will bear the burden of demonstrating its prior commercial use by clear and convincing evidence. Therefore, there will be a premium on assembling and maintaining reports, logs, laboratory notebooks and emails documenting that commercial activity.

 

While a user does not need to prove first-to-invent, there are still plenty of reasons to document inventions. In order to get prior user rights, the user must prove by a high level of proof amounting to clear and convincing evidence that it commercially used a process or a composition, manufacture or machine used in a manufacturing or commercial process at least one year before the effective filing date of a patent. If the patent holder disclosed the invention prior to patent filing but filed the patent application within the one-year grace period for U.S. patent filing, then the prior user must establish the prior commercial use at least one year before the patentee’s public disclosure.

 

For many manufacturers, the patent system presents a Catch-22. If they patent a process, they disclose it to the world. The patents issued on manufacturing processes are very difficult to police, and oftentimes patenting the idea simply means giving the invention away to foreign competitors. On the other hand, if the U.S. manufacturer doesn’t patent the process, then under the current system, a later party can get a patent and force the manufacturer to stop using a process that it independently invented and used. Accordingly, the expanded prior commercial use defense likewise has — and was expressly intended to have — trade secret inducing effects.

 

Potential Impacts on Patent and Trade Secret Strategies

 

Indeed, in most instances, the strength and value of patent protection will remain the norm. However, in some instances, and to the extent that companies abroad have been capitalizing on U.S.-based innovation and then implementing at less cost the same inventive technologies published in U.S. patents, certain industries and fact patterns may now favor trade secret law. Oddly enough — and despite the tension between the secret nature of trade secret law and the strong policy motivation of disclosure in our patent system — the extra incentive to forego patent protection may have come in the guise of legislation intended to strengthen our patent system.

Topics:  America Invents Act, First-to-Invent, Non-Disclosure Agreement, Patent Reform, Patents, Prior User, Trade Secrets

Published In: General Business Updates, Intellectual Property Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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