Feature Comment: An Overview of the Patent Reform Act of 2011

By Grant Gildehaus[1] and James G. McEwen[2]

Ever since June 8, 2005, Representative Lamar Smith, then Chairman of the House Subcommittee on Courts, the Internet, and Intellectual Property, along with several co-sponsors, have attempted to change the U.S. patent system.  In 2005, this was through introduction of H.R. 2795.  Popularly known as the “Patent Reform Act of 2005 ,” the Patent Reform Act was an omnibus bill which overhauled multiple aspects of patent practice.[3]  While this act aroused a significant amount of interest, it ultimately failed as lawmakers were unable to reconcile numerous competing interests.  Similar efforts failed in each successive legislative session.  However, with the Patent Reform Act of 2011, (H.R.1249) as introduced by Rep. Smith (R-TX) on March 30, 2011, there is a very real chance that these changes could be implemented in the near future. .

As such, this article provides an overview of the significant provisions of the Patent Reform Act.

Background on Act

The Patent Reform Act is a result of pressures from diverse industries and groups.  As a result, the Patent Reform Act as a whole will not please any of the groups entirely, but is a compromise bill designed to please enough to ensure passage while invigorating the United States patent system.  The impetuses for this bill are many.  In regards to certain procedural aspects of patent prosecution, the Patent Reform Act of 2011 reflects pressure to conform to international standards, which generally require absolute novelty to obtain a patent using a first to-file system.  Further, in view of the high costs of litigation, the Patent Reform Act reflects pressure to reduce the uncertainties of litigation by allowing more participation by the public prior to issuance of the patent, as well as eliminating “secret” prior art while retaining a prior user defense. Lastly, there has been a desire to ensure that funds provided by applicants to ensure timely examination are actually used by the United States Patent and Trademark Office (USPTO) for examination as opposed to being diverted by Congress for other purposes.

These pressures and issues have been at the forefront of the patent community since the American Inventors Protection Act was enacted November 29, 1999 (Public Law 106-113) and amended by the Intellectual Property and High Technology Technical Amendments Act of 2002 (Public Law 107-273) enacted November 2, 2002.  More recently, these issues have been revisited with an expanded emphasis on patent quality and enforceability in two major reports.  The first report was issued by the National Academies Board on Science, Technology, and Economic Policy and is entitled A Patent System for the 21st Century (2004).   The second report was issued by the Federal Trade Commission and is entitled To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy (October 2003).   Upon issuance of these reports, National Academies Board on Science, Technology, and Economic Policy and the American Intellectual Property Law Association (AIPLA) promoted the need for change in a series of Conferences on Patent Reform in 2005.  Major recommendations of the report and the conferences relate to changing the novelty requirement to comport to a first-to-file system, emphasizing the need for a reinvigorated obviousness standard, and to various recommendations for reducing litigation risks and costs.   In light of these reports, as well as subsequent hearings at the House of Representatives and the Senate, the Patent Reform Act of 2005 was created.   However, since 2005, many of the issues addressed in these reports have been resolved in court cases, such as by the Supreme Court in KSR International v. Teleflex[4] in clarifying the obviousness standard.  Below is a highlight of the major provisions of this bill as it currently stands.

Patent Reform in 2011

The Patent Reform Act of 2011, (H.R.1249) was introduced by Rep. Smith (R-TX) on March 30, 2011. After passing through the House Committee on the Judiciary and the Intellectual Property Subcommittee, the bill was reported to the house on June 1, 2011. The bill passed in the House with less than two days debate, on June 23, 2011. The bill is currently on the floor of the Senate, actively supported by Senator Leahy (D-VT), who sponsored the equivalent bill (S. 23) in the Senate earlier this year, and has been renamed The Leahy-Smith America Invents Act.

First-to-File

The most fundamental change in the Patent Reform Act falls under section 3, shifting the first-to-invent system with the first-to-file system, in an attempt to promote international uniformity by harmonizing the U.S. patent registration systems with systems commonly used in Europe. Under 35 USC 102, the effective filing date would be the actual date of filing, novelty and non-obvious subject matter would be judged on the prior art available before that filing date.  Moreover, this filing date would extend back to any foreign priority date, effectively overruling In re Hilmer.[5]

As in current practice under 35 U.S.C. §102(b), there is a one year grace period for disclosures by the inventor.  The one year grace period would be limited to the inventors work or from another inventor from whom the subject matter was derived consistent with existing practice.  There is some concern, however, that the disclosures by the inventor falling within the one year grace period are narrower than the disclosures which defeat novelty.[6]  As such, it remains to be seen whether such problems are fixed in the final version or through court interpretation.

Provisions relating to inventions made aboard and statutory invention registration are repealed due to inapplicability. Interference proceedings of 35 U.S.C. §135 will be replaced with derivation proceedings, used only where an original inventor alleges that a patent applicant derived the invention from the original inventor’s work. This will do away with swearing behind prior art work and establishing priority in such proceedings.

Oath

Under section 4, the requirements for a substitute declaration or oath of 35 U.S.C. § 115, will relax in allowance of assignee’s, i.e. corporation’s submission of substitute oaths. If the inventor has “under an obligation to assign the invention, but has refused to make such the oath or declaration,” the assignee may submit a substitute statement. The statement must include only the name of the individual that the statement applies and the basis for submitting the substitute.

Defense to Infringement Based on Prior Commercial use

Section 5 Modifies 35 U.S.C. §273 by eliminating provisions limiting the defense to business methods and specifying that the subject must be reduced to practice and commercially used at least one year before the effective filing date. Further, the defense of certain derived patents or disclosed inventions excepted from the prior art when the commercialization date is less than one year prior to disclosure will be prohibited.  Lastly, there is a provision which appears to uniquely affect this defense when relating to university-derived subject matter.

Third Party Challenges

Sections 6 and 8 will create new and expanded methods that a third party can use the USPTO to challenge a patent: Pre-Issuance Third-Party Submissions; Third-Party Requested Post-Grant Review; and Inter Partes Post Grant Review.

1)      Pre-Issuance Third-Party Submissions, 35 U.S.C. §122: Any third party may submit any publication or patent with a statement of relevance for consideration by the examiner of any pending patent application.

2)      Third-Party Requested Post-Grant Review (Similar to current reexamination), 35 U.S.C. Chapter 31: Any third party may request to cancel as unpatentable one or more claims of a patent by filing a petition. The review is limited by a filing deadline, prohibiting petition greater than one year from grant of the patent.

3)      Inter Partes Post-Grant Review, 35 U.S.C. Chapter 32: After the termination of a third party requested post-grant review or the one year filing window, a party may petition for inter partes review. This review replaces the inter partes reexamination, but the review is limited to novelty and obviousness issues based prior art in printed publication or patents.

Appeals

In section 7, the Board of Patent Appeals and Interferences of 35 U.S.C. §6 will be replaced by the Patent Trial and Appeal Board. The Board will have substantially the same duties but accommodates the new and expanded procedures incorporated in the bill. The bill also specifies appeals directly to the U.S. Court of Appeals for the Federal Circuit under 35 U.S.C. §141, including examinations, reexaminations, post-grant and inter partes reviews, and derivation proceedings.

Fees and Fee Setting

Sections 11 and 10 respectively, set forth a schedule of fees and gives authority in the USPTO to set and adjust fees by rule. The authority to adjust fees is limited to aggregation of the estimated costs of the USPTO activities. The bill also includes an incentive to file electronically, imposing a $400 fee on new applications that are not filed electronically. Additionally, a new classification “micro entity” would be entitled to a 75% reduction in specific fees, similar to small entities, under 35 USC 123.

A micro entity is a certified applicant who: 1) qualifies as a small entity, 2) has not been named as the inventor in more than four previous patent applications, and 3) has a gross income below the designated level without having transferred ownership interest in the application to an entity with a gross income exceeding such limit. Public institutions of higher learning and applicants employed by such are also considered micro entities.

Supplemental Reexamination

In section 12, a supplemental reexamination will be created, 35 U.S.C. §257, and at the patent owner’s request the USPTO may consider, reconsider, and correct information believed to be relevant to the patent. The supplemental reexamination concludes with certification of whether or not the information presented raises a substantial new question of patentability. If there is a new question of patentability a reexamination is ordered to address each new issue of patentability.

Best Mode

Section 15 maintains the requirement for the inventor to disclose the best mode for accomplishing the invention under 35 U.S.C. §112; however under 35 U.S.C. §282, the failure to disclose will no longer be a basis for a patent claim to be canceled, held invalid or otherwise unenforceable. The USPTO will continue to have a duty to issue patents only where the best mode requirements have been satisfied.

Markings

Section 16 allows for “virtual markings” and addresses actions involving false markings. Virtual markings, 35 U.S.C. §287, are markings that direct the public to a freely-accessible internet address where the patented article is associated with its patent number. These markings will be allowed to provide public notice that the article is patented.

In an effort to correct a perceived problem with Patent Marking Trolls, the ability to bring qui tam lawsuits against a patent owner who has improperly marked an object as covered by a patent will be severely limited.  False markings lawsuits, under 35 U.S.C. §292, will only be allowed if filed by theU.S. government or individual that has suffered a competitive injury. The injured individual may recover adequate compensation for the injury, but only the U.S. government may collect the statutory penalty.

Advice of Counsel – Infringement

Section 17 addresses the failure of an accused infringer to obtain the advice of counsel with respect to the infringed patent. Under 35 U.S.C. §298, such a failure to obtain counsel may not be used to prove that any infringement was willful or induced.

Jurisdiction and Procedure

Section 19 makes changes to several Federal rules and procedures. 28 U.S.C. §1338 will be amended to deny state courts jurisdiction over legal actions relating to patents, plant variety protection, and copyrights. Under 28 U.S.C. §1295, the Court of Appeals for the Federal Circuit is granted exclusive jurisdiction of appeals relating to patents or plant variety protection.

The amendment to 28 U.S.C. §1454, allows for the removal toU.S.district court any legal actions involving patents, plant variety, or copyrights, and remand of unrelated matters. Under 28 U.S.C. §1632, the Court of Appeals for the Federal Circuit will be required to transfer any appeal concerning designs or unfair competition to the court of appeals for the regional circuit including district from which the appeal was taken.

35 U.S.C. §299 allows for accused infringers to be joined into one action as defendants if the right to relief arises to the same offending transaction or series of transactions.

Conclusion: Passage is Likely

While there has been a great deal of interest and support for individual elements of the Patent Reform Act, in the past, the breadth of the changes being proposed made passage impossible. Specifically, large corporations and many of legal associations such as the American Bar Association, the American Intellectual Property Law Association, the Intellectual Property Owners, the Association of American Universities, and the U.S. Patent and Trademark Office are generally for at least changes to novelty to obtain a first-to-file system as well as to implement an opposition system.  However, these entities are generally against changes that affect the ability to obtain injunctions and damages and would prefer to see the Patent Reform Act not pass if these provisions are not removed.  As many of these changes have already occurred through subsequent court cases, these concerns have generally been ameliorated and thus removed these prior barriers to passage.

Moreover, while various other groups, especially those connected to small businesses such as the National Association of Patent Practitioners (NAPP) and the Professional Inventors Alliance USA are against the provisions which implement the first-to-file system as well as the requirements for mandatory application publication, it appears that Congress has considered and dismissed these concerns in favor of ensuring harmonization. Thus, while not perfect, given the number of elements of the Patent Reform Act that are indeed beneficial, the Patent Reform Act appears to have overcome past defects which led to its defeat and is expected to be implemented in 2011.


[1] Grant Gildehaus is a summer associate at Stein McEwen, LLP.

[2] James G. McEwen is a partner at Stein McEwen, LLP.  The opinions in this article do not represent the official positions of Stein McEwen, LLP.

[3] An overview of this initial effort can be found at James G. McEwen, Is the Cure Worse Than the Disease? An Overview of the Patent Reform Act of 2005, 5 J. MARSHALL REV. INTELL. PROP. L. 55 (2005)

[4] 550U.S. 398 (2007).

[5] 149 USPQ 480 (CCPA 1966).  See also MPEP 2163.03.

[6] Ted Sichelman, Fixing the “First Inventor to File” One-Year Grace-Period Provision of the Patent Reform Bills, Patently-0 (April 12, 2011) available at http://www.patentlyo.com/patent/2011/04/fixing-the-first-inventor-to-file-one-year-grace-period-provision-of-the-patent-reform-bills.html (last visited July 5, 2011).

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7 thoughts on “Feature Comment: An Overview of the Patent Reform Act of 2011

  1. Pingback: America Invents Act Signed Into Law | Stein McEwen Blawg

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