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SPIE Professional January 2013

Impact of U.S. patent reform

Untangling the Gordian Knot of the new “first-to-file” patent rules

By Rosemarie Szostak and Scott Lloyd

U.S. President Barack Obama signed the Leahy-Smith America Invents Act (AIA) into law on 16 September 2011. The AIA, after years of debate, transformed U.S. patent law from a first-to-invent system to a first-to-file system, and the shift will be completed on 16 March 2013.

What do these changes mean for inventors and technology businesses?

A little history: U.S. patent law has long provided that a patent may be granted to the first inventor of the claimed invention. This requirement was meant to level the playing field for small companies who were competing with “the big dogs” in advancing technology.

The rationale was that these small, sometimes one-person operations did not have the legal machinery needed to quickly prepare and file patent applications. Unfortunately, the expenses associated with proving inventorship before the U.S. Patent and Trademark Office (USPTO) or federal judges may have offset the desired benefits of the first-to-invent scheme. Inventors of competing technologies ended up having to enter the tangle of regulations and requirements of proving their cases in one forum or another. For many small entities, these proceedings were cost prohibitive and achieved the opposite result from what was intended.

AIA rewards first to file or disclose

First-to-file is not a unique concept. It is accepted practice for the rest of the world. Conversion to first-to-file puts the United States in step with the patent processes of other industrialized countries. But it is not an exact copy, and that is one rub.

The AIA allows early disclosure during a one-year “grace period” before the application actually hits the patent office to trigger the first-to-file finish line.

What this means is an inventor or company that makes a public disclosure about the invention before filing a patent application could receive a U.S. patent even though another company with the same invention might apply for a patent earlier.

Here’s an example: Optics Company A conceives an invention in April and withholds public discussion about it until it files a patent application in September. Optics Company B invents the same technology in May, discloses the invention in a white paper or at a technical conference in August, and files for a patent in December.

Under a true first-to-file system, Optics Company A would win the patent because it was the first to file (in September). But because the AIA provides a one-year grace period after disclosing an invention, Optics Company B would be awarded the patent because its public disclosure of the invention in August would operate as “prior art,” barring the patent sought by Company A. Optics Company B must apply for a patent by the following August to preserve its patent rights.

The grace period for public disclosure will necessitate up-front strategic planning in high-reward, high-competition technology areas if international filing is considered.

“The first-inventor-to-file provision of the America Invents Act, one of its hallmarks, brings greater transparency, objectivity, predictability, and simplicity in patentability determinations,” according to USPTO Director David Kappos.

At the same time, the USPTO is encouraging its counterparts around the world, especially in Europe, to adopt the grace-period provision. “The grace period has been adopted in many patent systems throughout the world and is recognized as a global best practice,” Kappos told a U.S. Congressional Committee in May 2012.

Prior users have rights, with conditions

Another less publicized element of the AIA is the expanded application of “prior user rights” from business process patents to all utility patents. This will protect companies who have already commercialized or are in the process of commercializing a technology claimed in another party’s patent application if they prove that they have been practicing this technology at least a year prior to the filing date.

There are two caveats. Though the company is protected against infringement claims by the entity patenting the technology, it cannot profit through the license or transfer the commercialized technology unless it is part of the sale of the whole company.

Second, in the case of such a sale, the prior-user defense only protects a buyer against infringing activities taking place prior to the filing date or the sale, whichever is later, and only in those locations where the activities were taking place at that time.

Time will tell whether changes are beneficial for innovators

Concerns over these changes include their impact on promoting innovation, startup company success, flow of venture capital, university technology development, and trade secrets protection. The U.S. Congress asked the USPTO, as well as the Departments of Justice and State, to address these concerns and report to Congress in 2012.

In his testimony before the Judiciary Committee in May, Kappos concluded that, overall, the move to first-to-file was a positive one. He also concluded that limiting prior use to commercialized technology represents a balanced approach to fair use of new technology and is expected to promote manufacturing and jobs.

However, the AIA includes a provision to immunize universities against the prior-user-rights defense in order to allow universities a wider avenue for technology commercialization, an exemption that represents untested waters.

Are these changes in the patent law a good thing or a bad thing for inventors and companies? Sadly, any new kinks and knots introduced into the U.S. patent system by the AIA will not be completely known until they are tested in the federal courts.

Companies, both in the United States and abroad, would be well advised to learn all they can about U.S. patent reform and strategically manage their intellectual property to derive the most benefit from this historic legislation.

Rosemarie Szostak and Scott Lloyd are senior analysts with Nerac, Inc., advising clients on technical and intellectual property matters. Szostak has a PhD in chemistry from UCLA and advises companies on energy, materials, and sustainable design. Lloyd is a USPTO registered patent attorney with experience in the biotechnology and pharmaceutical sectors. His JD is from the University of Maryland.

Patents: a way to innovation

Some companies and innovators have viewed the old U.S. patent system as an actual obstacle to innovation because of the proliferation of patent infringement lawsuits, a huge backlog of pending cases, and the limited time an examiner has to prosecute a patent application.

By converting to a first-to-file system, which aligns with other industrialized nations, the United States Patent and Trademark Office anticipates that challenges associated with bringing new technology forward will be minimized.

China provides attractive incentives for Chinese companies to file patent applications. As a result, China overtook the United States and Japan in number of patents filed in 2011, according to Thomson Reuters, becoming the world’s number one patent publisher.

  • Patent attorney Charles Szmanda will discuss the new U.S. patent law in a plenary talk at SPIE Advanced Lithography, 25 February in San Jose, CA (USA).
Special challenges for medical patents

SPIE Fellow Dennis Matthews, affiliated with the U.S. National Science Foundation, the University of California, Davis, and Lawrence Livermore National Laboratory, discusses patents and the path to commercialization for medical devices in an SPIE Newsroom video.

Medical technologies and devices are particularly time-consuming to commercialize because of the five to seven years it typically takes to get approval from the U.S. Food and Drug Administration, he says. And startups with an idea for a non-invasive glucose monitor for the growing population of people with diabetes also face stiff competition at the patent office.

Matthews speculates that there must be 10,000 ideas for a non-invasive glucose monitor, “most of which have been patented.” He says that an inventor would have to “break the bank” to license all the competing patents and be the one to successfully commercialize such a monitor.

Learn more about why university and government labs face many hurdles before their biophotonics breakthroughs can be made widely available: spie.org/news-matthews.

DOI: 10.1117/2.4201301.05

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