1. ROPES & GRAY LLP Understanding The Leahy-Smith America Invents Act Denise L. Loring Practising Law Institute November 14, 2011

2. ROPES & GRAY Historical Overview 2

3. ROPES & GRAY Historical Overview June 8, 2005 –109 th Congress began to consider patent reform –110 th and 111 th Congresses followed suit, but no legislation was passed January 25, 2011 – Senate introduced S. 23, the Patent Reform Act of 2011 (later renamed, the “America Invents Act”) –Main goals: 1.Improve the patent application process by adopting a first- to-file system 2.Improve the quality of patents issued by the USPTO by adopting broader post-grant review procedures 3.Increase certainty in litigation 3

4. ROPES & GRAY Historical Overview March 7, 2011 – FTC published The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition –Recognized: Importance of innovation Vital role of well-defined patents in promoting innovation Harmful effect of “patent market” Role of non-practicing entities (NPE’s) in increasing litigation –Two Main Foci: Notice function of patents Remedies for patent infringement 27989303

5. ROPES & GRAY Historical Overview –FTC recommendations: 27989303 Notice Function of Patents Remedies for Patent Infringement Stricter enforcement of 35 U.S.C. § 112 ¶ 2 Increase level of detail in prosecution history record Publish patent applications after 18 months Shorten review period Improve patent searches (especially in high-tech sector) Align lost profit and reasonable royalty awards with patent value “Entire market value” rule: hypothetical negotiation focusing on the time alleged infringement began to calculate reasonable royalty damages Discourage use of reasonable royalties to deter infringement Discourage use of unproven lost profit claims to increase reasonably royalty awards

6. ROPES & GRAY Historical Overview March 8, 2011 – Senate passed S. 23 June 23, 2011 – House of Representatives passed H.R. 1249, the “Leahy-Smith America Invents Act” September 8, 2011 – Senate adopted H.R. 1249 without amendment September 16, 2011 – President Obama signed the Act into law 6

7. ROPES & GRAY Overview First-inventor-to-file Inventor declarations and non-inventor application filings Validity and infringement defenses Third-party intervention Supplemental examination Federal court jurisdiction Impact on patent infringement litigation 7

8. ROPES & GRAY First-Inventor-To-File 8

9. ROPES & GRAY Section 102 – First-Inventor-to-File 35 U.S.C. §102 wholly rewritten Two classes of prior art: –Patents and published patent applications, and –all other public disclosures Prior art inquiry now keyed to effective filing date, rather than date of invention –First to file, not first to invent 9

10. ROPES & GRAY Section 102(a) – Novelty, Prior Art Removes territoriality – no “in this country” restriction on prior art Foreign applicants no longer need to rely upon a “section 102(e)” date – foreign priority dates treated on a par with U.S. filings 10

11. ROPES & GRAY Section 102(b) – Grace Period Provides two exceptions to prior art –One-year grace period for filing if inventor or assignee makes public disclosure –A company’s own applications are not prior art against its later applications Applications filed pursuant to joint research agreements are not prior art against each other Similar to current system, but protects only against inventor’s own disclosures or patent applications 11

12. ROPES & GRAY Section 102(b) – Grace Period Once an inventor discloses invention, that disclosure may be used as a shield against later disclosures and patent filings –Open question: do “public disclosures” encompass sales, public use? Potential strategy: disclose early as a sword against others’ filings, a shield against others’ disclosures –But only if foreign rights are not important 12

13. ROPES & GRAY Section 102(b) – Derivation Also provides protection from earlier disclosures and patent filings if the information was obtained directly or indirectly from the actual inventors –Grace period only one year for public disclosures, but unlimited for patent filings 13

14. ROPES & GRAY Section 102(d) – Prior Art Dates Affirms that any priority date is the effective filing date of a U.S. patent or application cited as prior art –whether prior art is a provisional application, a utility application, or even a PCT or foreign patent application –Still requires adequate disclosure in the priority document 14

15. ROPES & GRAY Section 102 – Timing Provisions generally take effect 18 months after enactment –Applies to applications filed on or after effective date –Later-filed applications claiming priority to earlier applications are governed by first-to-invent system 15

16. ROPES & GRAY Section 103 – Obviousness Essentially unchanged, except that prior art status based on filing date instead of invention date 16

17. ROPES & GRAY Section 135 – Derivation Proceedings in the PTO A later applicant may assert that an earlier applicant derived the claimed invention and filed without authorization Effectively replaces interference proceedings –Question now revolves around single act of invention, rather than competing acts of invention Remedy is cancellation/refusal of derived claims 17

18. ROPES & GRAY Section 135 – Derivation Proceedings Timing: petition must be filed within one year of publication of a competitor’s application Pays to monitor competitors’ applications early in the filing process 18

19. ROPES & GRAY Section 291 – Derivation Actions Similar provision for patent owners to sue in court, alleging that a third-party patent was derived from the inventors’ work Must sue within a year of patent issuance 19

20. ROPES & GRAY Inventor Declarations And Non- Inventor Application Filings 20

21. ROPES & GRAY Section 115 – Inventor Declarations Requires statement that inventor authorized filing –Companies may want to obtain blanket authorizations from potential inventors to avoid problems All required statements can be included in assignment document – no need for separate declaration Effective one year from date of enactment 21

22. ROPES & GRAY Section 118 – Assignee Filing of Patent Applications Non-inventors may apply for patents: –Persons to whom the inventor has assigned or is under an obligation to assign the invention –Persons who show “sufficient proprietary interest” in the subject matter “on behalf of and as agent for” the inventors Patents granted to “real party in interest”, upon notice to inventor Effective one year after date of enactment Applies to any patent application filed on or after the effective date 22

23. ROPES & GRAY Validity And Infringement Defenses 23

24. ROPES & GRAY Section 282 – Best Mode Best mode is no longer available as basis for invalidity or unenforceability of an issued patent Obligation to disclose best mode in application remains Effective upon date of enactment Applies to all proceedings filed on or after enactment 24

25. ROPES & GRAY Patent Marking False patent marking greatly curtailed –Response to recent surge in qui tam litigation –No statutory damages for private litigants; can only obtain actual damages –Marking a product with expired patent number that once covered the product is not a violation Virtual marking permitted –Marking may be achieved by posting patent information online Effective upon date of enactment –Applies to any case pending or commenced on or after date of enactment 25

26. ROPES & GRAY Section 273 – Prior User Rights Defense to infringement if: –defendant had been commercially using a patented process, or machine, manufacture, or composition useful in that process, –at least one year before patentee’s effective filing date or earlier publication (i.e., grace period) No longer just for business methods Burden on prior user to prove use by clear and convincing evidence 26

27. ROPES & GRAY Section 273 – Prior User Rights Regulatory review periods and non-profit laboratory use count as commercial use Defense is personal, and can be transferred only with transfer of entire enterprise or line of business protected by defense –Scope of defense is limited after transfer Downstream purchasers of accused product protected by patent exhaustion

28. ROPES & GRAY Section 298 – Willful Infringement Failure to obtain advice of counsel with respect to an asserted patent does not create an inference of willful patent infringement –Codifies Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1336 (Fed. Cir. 2004) Effective one year after date of enactment Applies to any patent issued on or after the effective date 28

29. ROPES & GRAY Third Party Intervention 29

30. ROPES & GRAY Third Party Intervention Preissuance submission Post-grant review Inter partes review Post-grant submission 30

31. ROPES & GRAY Section 122(e) – Preissuance Submission Any person may submit patents and printed publications for review before the earlier of: –date of allowance; or –later of: six months after the patent application publishes, or first rejection of any claim Effective one year after date of enactment 31

32. ROPES & GRAY Sections 321-29 – Post-Grant Review A third party may petition the USPTO to institute post-grant review of a patent –Petition must name real party in interest Petitioner may request cancellation claims as unpatentable on virtually any ground: –E.g., prior art, written description, enablement, utility, or patentable subject matter Heard by Patent Trial and Appeal Board 32

33. ROPES & GRAY Sections 321-29 – Post-Grant Review Petition must be filed within nine months of patent grant –Or within nine months of reissue, if claims were broadened Review standard: –Petition, taken alone, would make it more likely than not that at least one claim is unpatentable; or –Petition raises novel or unsettled legal question that would be important to other patents or applications 33

34. ROPES & GRAY Sections 321-29 – Post-Grant Review Effective one year after date of enactment Applies only to patents subject to first-to- file rules 34

35. ROPES & GRAY Transitional Post-Grant Review for Business Method Patents Special program creates eight-year period during which a person charged with infringement of a business method patent may file a petition for post-grant review –Applies to any business method patent, regardless of its filing date Effective one year after date of enactment 35

36. ROPES & GRAY Sections 311-15 – Inter partes Review Challenges to validity based on patents or printed publications only Replaces inter partes reexamination Review standard –There is a reasonable likelihood that petitioner would prevail with respect to at least one claim Heard by Patent Trial and Appeal Board (not examiner) 36

37. ROPES & GRAY Sections 311-15 – Inter partes Review Post-grant review and litigation affect availability of inter partes review –May not be filed before the deadline to file a post- grant review petition or during a post-grant review proceeding –Not available if petitioner previously filed a lawsuit challenging the validity of the patent –Not available if the petition is filed more than 12 months after the petitioner is sued for infringement of the patent 37

38. ROPES & GRAY Sections 311-15 – Inter partes Review Effective one year after date of enactment In the interim, standard for instituting inter partes reexamination is changed to new, inter partes review standard Applies to all existing patents, subject to timing restrictions 38

39. ROPES & GRAY Post-Grant and Inter Partes Review Common provisions –USPTO required to make final determination within one year, with six-month extension for good cause –Estoppels bar any defense that was or reasonably could have been raised during review –No review may be filed if petitioner files an action challenging patent validity –Any declaratory judgment action challenging validity filed after the petition is automatically stayed, unless patentee moves to lift the stay or files its own action 39

40. ROPES & GRAY Section 301 – Post-Grant Submission Any person may submit to USPTO at any time patents or printed publications believed relevant to patentability of any patent claim Optional statement of relevance –Becomes part of official public file if it explains how the prior art is applicable to at least one patent claim Optional request for confidentiality Does not trigger any proceeding 40

41. ROPES & GRAY Supplemental Examination 41

42. ROPES & GRAY Section 257 – Supplemental Examination New procedure for patentees Patentees may request examination to consider, reconsider, or correct information relevant to patentability USPTO must conduct examination within three months to determine whether substantial new question of patentability is raised –If so, reexamination is ordered Newly disclosed information may not be used as a basis for asserting inequitable conduct 42

43. ROPES & GRAY Section 257 – Supplemental Examination Protection from inequitable conduct claim does not apply: –To allegations pleaded with particularity in litigation before examination request is filed –If patentee files patent infringement suit before supplemental examination is concluded Effective one year after date of enactment Can be applied retroactively to existing patents 43

44. ROPES & GRAY Effective Dates of AIA Provisions Immediate – 9/16/2011One Year – 9/16/201218 Months – 3/16/2013 Joinder restrictions Change in standard for initiating inter partes reexamination Limits on false marking suits Virtual marking Prior user rights No best mode defense Post-grant review Except for business method patents and pending interferences; only for patents subject to first-to-file rules New inter partes review Preissuance submissions Supplemental examination Willful infringement First-to-file New §102; changes in prior art status

45. ROPES & GRAY Federal Court Jurisdiction 45

46. ROPES & GRAY Section 299 – Joinder of Parties A patent owner may only join multiple defendants in one action if: –the right to relief arises out of the same events relating to the infringement; and –there are questions of fact common to all of the defendants Effective upon date of enactment Applies to any court action filed on or after enactment Exception for ANDA litigation 46

47. ROPES & GRAY Impact Of AIA On Patent Infringement Litigation 47

48. ROPES & GRAY Impact on Patent Quality Hasty filing of applications may result in inadequate disclosures Adverse effects on small businesses and sole inventors Burden on patent examiners to review more and greater variety prior art Strain on USPTO resources resulting from new post-grant proceedings 27989303

49. ROPES & GRAY Impact on Litigation – First-to-File Expands prior art available to invalidate patent claims –Patentees may no longer antedate third party prior art before a patent’s effective filing date Patents, printed publications, prior public use, prior sale or offer for sale –Public use and sales outside of the U.S. are now available as prior art This could lead to increased litigation costs as defendants engage in third party discovery to prove up prior art 49

50. ROPES & GRAY Impact on Litigation – Validity Eliminates some invalidity defenses in litigation –Prior invention (old Section 102(g)) –Failure to disclose the best mode –False marking defense reserved for those suffering actual injury 50

51. ROPES & GRAY Impact on Litigation – Infringement Expansion of prior user defense to all patents, not just business method patents –Effectively replaces prior invention invalidity defense with personal non-infringement defense Codifies existing restrictions on availability of willful infringement claim 51

52. ROPES & GRAY Impact on Litigation – Inequitable Conduct Attempts to curtail inequitable conduct in prior bills were eliminated from Act –Recent Federal Circuit decision in Therasense may eliminate need for statutory reform Supplemental examination may provide limited means to cure alleged inequitable conduct –But only if examination is sought before the defense is raised in litigation 52

53. ROPES & GRAY Impact on Patent Infringement Litigation – Damages No changes to damages calculation –Once a hot issue, now widely considered to have been resolved by the courts 53

54. ROPES & GRAY Impact on Patent Infringement Litigation –Post-Grant Reviews Expansion of grounds for invalidity that USPTO may consider in post-grant review –Absence of live testimony before USPTO limits nature of evidence to be considered Reduction in ability to use reviews as tactic to delay district court litigation –Reviews must be completed within one year, vs. three years for inter partes reexamination –Ban against filing petition for inter partes review 12 months after commencement of litigation May further strain already limited resources of the USPTO 54

55. ROPES & GRAY Impact on Litigation – District Court vs. USPTO Proceedings Post-grant and inter partes reviews may shift validity challenges to USPTO –Estoppels barring litigation in court of questions that could have been raised during post-grant or inter partes reviews –Transitional post-grant review of business method patents, regardless of date of issuance Restrictions on joinder of unrelated parties in a single litigation aimed at curtailing non-practicing entity litigation –Federal courts still have discretion under Federal Rules to join parties for efficiency 55

56. ROPES & GRAY Thank You Denise L. Loring Ropes & Gray LLP 1211 Avenue of the Americas New York, NY 10036 212-596-9069 denise.loring@ropesgray.com 56