Patent Reform Becomes Law: Overview of the Leahy-Smith America Invents Act Presented to the MSBA Computer & Technology Law Section September 13, 2011 By: Kenneth E. Levitt Dorsey & Whitney LLP Partner Ryan T. Fortin Dorsey & Whitney LLP Associate

2 Legislative History of H.R Bill proposed on January 25, 2011 Passed by the House on June 23, 2011 House version of the bill passed by the Senate on September 8, 2011 Awaiting the President’s signature this week

3 Effective Date of the Act Effective date is generally 1 year after the date of enactment Generally applies to patents filed on or after the effective date Notable exceptions: for false marking suits, applies retroactively; for first-to-file, applies 18 months after enactment; for expanded § 273 defense, applies immediately

4 Significant Provisions in the Bill First-to-invent becomes first-to-file Expands infringement defense beyond business methods Provides for “post-grant review” proceedings Revises inter partes reexamination Extends time period for third party submission of prior art Eliminates best mode as defense to infringement False marking and virtual marking Business method patent review program

5 First-to-file: Overview First inventor who files a patent application will generally be entitled to the patent Prior art dates to the filing of the patent application Prior art includes public use or sale in a foreign country “Swearing behind” prior art does not apply

6 First-to-file: Inventor’s grace period The inventor is allowed a one-year grace period in which the inventor’s “disclosure” is not prior art “Disclosure” not defined in bill: what does it include? Also applies to derived disclosures Incentive to disclose within grace period: subsequent disclosure by third-party not prior art

7 First-to-file: Effective Date 18 months after enactment Interference proceedings remain available to applications filed before effective date “Derivation” proceedings will determine inventorship subsequently

8 First-to-file New section 102: –(a) NOVELTY; PRIOR ART.—A person shall be entitled to a patent unless— (1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention; or (2) the claimed invention was described in a patent issued under section 151, or in an application for patent published or deemed published under section 122(b), in which the patent or application, as the case may be, names another inventor and was effectively filed before the effective filing date of the claimed invention.

9 First-to-file Section 102 continued: –(b) EXCEPTIONS.— (1) DISCLOSURES MADE 1 YEAR OR LESS BEFORE THE EFFECTIVE FILING DATE OF THE CLAIMED INVENTION.—A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if— (A) the disclosure was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or (B) the subject matter disclosed had, before such disclosure, been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor.

10 First-to-file Section 102 continued: –(2) DISCLOSURES APPEARING IN APPLICATIONS AND PATENTS.—A disclosure shall not be prior art to a claimed invention under subsection (a)(2) if— (A) the subject matter disclosed was obtained directly or indirectly from the inventor or a joint inventor; (B) the subject matter disclosed had, before such subject matter was effectively filed under subsection (a)(2), been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or (C) the subject matter disclosed and the claimed invention, not later than the effective filing date of the claimed invention, were owned by the same person or subject to an obligation of assignment to the same person.

11 First-to-file Example timeline Under current first-to-invent system: Inventor B wins CRTP File CRTP File Under new first-to-file system: Inventor A wins Inventor B Inventor A “C” = Conception of invention “RTP” = Reduction to practice of invention “File” = Application filed with PTO

12 First-to-file Example timeline Disclosure within grace period is not prior art Timeline: Inventor discloses invention Application filed 1 year

13 First-to-file Example timeline Third party disclosure is not prior art Timeline: Inventor discloses invention Application filed 1 year Third party discloses invention

14 First-to-file: Important results Conception, diligence, reduction to practice, and abandonment no longer relevant to inventor priority Interference proceedings eliminated Brings U.S. in line with rest of world Inventor incentivized to make pre-filing disclosure to prevent subsequent pre-filing third-party disclosure being prior art –Problems internationally with this strategy

15 Significant Provisions in the Bill First-to-invent becomes first-to-file Expands infringement defense beyond business methods Provides for “post-grant review” proceedings Revises inter partes reexamination Extends time period for third party submission of prior art Eliminates best mode as defense to infringement False marking and virtual marking Business method patent review program

16 Section 273 defense Current defense under 35 U.S.C. § 273 limits defense to business method patents –“It shall be a defense to an action for infringement [of] claims for a method... if such person had... actually reduced the subject matter to practice at least 1 year before the effective filing date of such patent, and commercially used the subject matter before the effective filing date of such patent.” –“The term ‘method’ means a method of doing or conducting business.”

17 Section 273 defense The bill expands this defense to any subject matter Limitations: –Prior user must have commercially used the subject matter in the U.S. at least one year before effective filing date of the issued patent and –Commercially used the subject matter in the U.S. at least one year before any inventor disclosure under the one year grace period

18 Significant Provisions in the Bill First-to-invent becomes first-to-file Expands infringement defense beyond business methods Provides for “post-grant review” proceedings Revises inter partes reexamination Extends time period for third party submission of prior art Eliminates best mode as defense to infringement False marking and virtual marking Business method patent review program

19 Post-grant review Bill implements a new post-grant review procedure to challenge the validity of an issued patent Supplemental to reexamination procedures Post-grant review must be initiated within nine months of issuance of patent

20 Post-grant review: Benefits Occurs before administrative patent judge (Patent Trial and Appeal Board), not an examiner as with ex parte reexamination proceedings Can include challenge to patentability on any ground, including those not allowed in reexamination: utility; patentable subject matter; enablement; written description; etc. Evidence not limited to prior patents and printed publications Standard of review for petitions for post-grant review: –“More likely than not” that at least 1 claim challenged is unpatentable; or –Important novel or unsettled legal question –Compare: ex parte reexamination – “substantial new question of patentability” Standard of review for proceedings: preponderance of the evidence

21 Post-grant review: limitations Not allowed where civil suit previously filed, and civil suit automatically stayed where subsequently filed (encourages administrative challenges as opposed to litigation) If post-grant review results in a final written decision, petitioner is estopped from requesting or maintaining another proceeding based on any ground that could have been raised in post-grant review (which, as discussed above, includes all grounds of patentability) –Applies to both administrative and judicial (Article III) proceedings

22 Post-grant review: timeline Decision must be rendered within 1 year from the institution of proceedings, with one 6 month extension of that term available only for good cause Timeline includes oral hearings and discovery Appeals go directly to Federal Circuit

23 Significant Provisions in the Bill First-to-invent becomes first-to-file Expands infringement defense beyond business methods Provides for “post-grant review” proceedings Revises inter partes reexamination Extends time period for third party submission of prior art Eliminates best mode as defense to infringement False marking and virtual marking Business method patent review program

24 Inter partes reexamination: what changes? Review procedure: patent judges (Patent Trial and Appeal Board), not examiner Review procedure: includes discovery and oral hearing Appeals go directly to Federal Circuit Timeline limitation: later of 9 months after issuance or after termination of post-grant review proceedings Prior proceedings: cannot by initiated if petitioner has filed civil action challenging the validity or if more than 1 year has passed since petitioner was served with a complaint

25 Inter partes reexamination: what stays the same? Grounds of invalidity remain limited to novelty and nonobviousness Evidence remains limited to prior patents or printed publications Standard of review for initiation of proceedings: “reasonable likelihood that petitioner would prevail with respect to at least one of the claims challenged in the petition”

26 Significant Provisions in the Bill First-to-invent becomes first-to-file Expands infringement defense beyond business methods Provides for “post-grant review” proceedings Revises inter partes reexamination Extends time period for third party submission of prior art Eliminates best mode as defense to infringement False marking and virtual marking Business method patent review program

27 Extended time period for third party submission of prior art Permits public to submit relevant prior art to patent office during examination of application Current MPEP rule limits time period to 2 months following publication of application (§ ) Bill extends time period to the earlier of: –The date a notice of allowance is given or mailed; or –The later of 6 months after publication or the date of the first rejection

28 Significant Provisions in the Bill First-to-invent becomes first-to-file Expands infringement defense beyond business methods Provides for “post-grant review” proceedings Revises inter partes reexamination Extends time period for third party submission of prior art Eliminates best mode as defense to infringement False marking and virtual marking Business method patent review program

29 Best mode Best mode still required, but is no longer a basis for invalidity What if inventor intentionally conceals best mode from public domain?

30 Significant Provisions in the Bill First-to-invent becomes first-to-file Expands infringement defense beyond business methods Provides for “post-grant review” proceedings Revises inter partes reexamination Extends time period for third party submission of prior art Eliminates best mode as defense to infringement False marking and virtual marking Business method patent review program

31 False marking Numerous false marking cases are pending Why now? Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (2009): –Knowledge that a product was falsely marked is sufficient to draw inference of deceptive intent; patentee’s mere assertion that it did not intend to deceive will not defeat liability

32 False marking The bill substantially changes the false marking statute: –Eliminates false marking lawsuits except for ones filed by the U.S. government or by a competitor who can prove competitive injury Applies retroactively to all suits pending at time of enactment

33 Virtual marking Allows markings that direct the public to a freely-accessible Internet address where a patented article is associated with its patent number to provide public notice that an article is patented Markings can include “Pat.” or “Patented” Easier to update website than tooling of a product when patent expires

34 Significant Provisions in the Bill First-to-invent becomes first-to-file Expands infringement defense beyond business methods Provides for “post-grant review” proceedings Revises inter partes reexamination Extends time period for third party submission of prior art Eliminates best mode as defense to infringement False marking and virtual marking Business method patent review program

35 Business method patent review program “Transitional Program for Covered Business Method Patents” –Defines “business method patents” as: “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.” The provision provides a post-grant review (as defined in the legislation) for covered patents that were issued prior to enactment This provision is of a limited time: 8 years It can only be used if actually sued or “charged with infringement” of a covered patent

36 Additional provisions Lack of defensive opinion cannot be asserted by patentee as evidence of willful infringement –Supplement to In re Seagate Technology (holding that patentee must prove that defendant infringed despite an “objectively high likelihood that his actions constituted infringement of a valid patent, and this objectively-defined risk was either known or so obvious that it should have been known.”) –Opinion still can be used by accused infringer as evidence against willful infringement PTO obtains fee-setting authority, but fee diversion still remains an issue –Coburn amendment defeated 50/48, which would have allowed PTO to keep all fees

37 Additional provisions Micro-entity status applies to: –For small entities that filed less than 4 applications in the prior year, and had a gross income of less than 3 times the median household income in the prior year; or –Applicants employed by, or obligated to assign/license to, institution of higher education Micro-entity applicants receive a 75% reduction in application costs –Compare current small entity status: 50% reduction

38 Additional provisions Supplemental Examination Process –Patentee may ask PTO to consider, reconsider, or correct information that may be relevant to the patent Prior art not previously cited –Substantial question of patentability standard applies –PTO to issue certificate within 3 months –Allows cure of potential inequitable conduct

39 Additional provisions Tax strategies: –Deemed within the prior art: “strategies for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of the invention or application for patent” Inventor’s oath or declaration: –Simplified procedure for uncooperative and unavailable inventors, and for inventors where obligation to assign exists: “Substitute Statement” –Filing by other than inventor

40 Questions?