Q&A: A Patent Attorney Explains How the 'America Invents Act' Will Affect Tech
Microsoft is among several larger tech companies who pushed for the change to "first to file" -- but what will the Act's passage really mean for the tech industry (and patents in general)? Patent attorney Carlos A. Fisher walks through the potential impact.
On Friday, President Obama signed into law the "America Invents Act," which changes the U.S. patent system to a "first to file" system, among other changes. Microsoft is one of many supporters of the change, arguing that it would speed up the patent process, among other benefits.
But what will the new Act really mean for technology patents, innovation and inventors? We asked Carlos A. Fisher, a patent and trademark attorney with Stout, Uxa Buyan & Mullins, LLP in Irvine, Calif., to break down the changes and share his opinion on its real impact -- which, in some cases, he predicts, won't be exactly what advocates of the act have been stating.
Redmondmag.com: Under the "America Invents Act," will certain patent holders and applicants benefit over others?
Patent, trademark and copyright attorney Carlos A. Fisher of Stout, Uxa, Buyan & Mullins in Irvine, Calif..
Fisher: Yes; while the Act contains some provisions that affect everyone relatively equally, the Act clearly favors large corporations, particularly those in the financial services, software and pharmaceutical industries, over smaller companies and start-ups.
As one example, the Act expands the Prior Use defense to patent infringement to apply to all inventions (it was previously limited to business method patent claims) in a manner that encourages those with sufficient R & D resources -- generally, large companies -- to discover, document, use in an "internal commercial use," and maintain as a trade secret new methods and/or materials producing a "useful end result" which can then be sold or transferred with impunity. If a patent application claiming the new methods and/or materials is filed a more than a year later by another entity, and issues as a patent, this prior internal commercialization, or the transfer or sale of the end result, is immune from patent infringement, and is protected thereafter so long as it is continuously performed.
Many provisions of the Act also directly or indirectly result in additional costs which can disproportionately affect smaller companies or individuals with smaller patenting budgets; for example, there is an immediate 15 percent increase in patent office fees; the new statute requires even greater diligence (and resultant additional surveillance cost) within relatively short deadlines after publication and/or patenting in order to uncover and protect the company against patenting and derivation activity by competitors and business partners. It seems obvious that larger companies (for example, those in the software and pharmaceutical/biotechnology areas) are in a better position to expend additional resources on these activities than are smaller companies or start-ups.
The "America Invents Act" changes include a "first inventor to file" rule, replacing the "first to invent" rule. How will this affect inventors filing preliminary patent applications in the United States?
Carlos A. Fisher: Basically, the Act instigates a "first to file" rule -- with the caveat that if the person(s) filing the application derived the claimed invention from one or more other persons who later file a patent application containing the same or substantially the same claim, the inventorship of the first application can be contested through a newly enacted Derivation Proceeding, if it is brought by the second applicant within one year following the first publication of the patent or application containing the derived claim.
However, in the majority of cases (e.g., if there is no derivation issue), the America Invents Act implements a "first to file" rule, and I would strongly advise clients to regard the Act in that manner, and to promptly perform a prior art search and, if the invention appears to be patentable, file a patent application before taking any other action, particularly before using, disclosing, selling or offering the invention for sale. Thus, the rule should be "file first" as well as "first to file."
Microsoft is one of the backers of the current "America Invents Act" legislation. What's the legal industry/corporate perception about the need for U.S. patent reforms? Is the impetus coming from specific industries? Why is Congress amending the law?
Fisher: Patent lawyers were somewhat divided on whether U.S. patent laws should be made more in harmony with the "first to file" procedure used by almost every other country in the world, although in principle I suspect most support this change. The Act has not accomplished this harmonization in a straightforward or unambiguous way. For example, it is not clear whether a prior use or offer for sale of an invention by an inventor or joint inventor within a year of the date of filing would be render the invention unpatentable. This practice, under which inventors may test, fine-tune, and improve their inventions prior to investing in filing a patent application, is often used by smaller entities under the old law. Under the literal language of the new law, the former grace period is no longer available, although courts will need to address and clarify this issue.
The Act has been the subject of major lobbying efforts in the House and Senate, particularly by large corporations. Those in support of the Act include organizations representing large financial institutions, pharmaceutical companies and large companies in the software and IS community (a partial list of company members of lobbying organizations supporting the Act includes the Financial Services Roundtable (a group that represents 100 of the biggest U.S. banks, insurance companies and other financial institutions); General Electric, Caterpillar, IBM, BP, Dow Chemical, Motorola, PepsiCo and Procter & Gamble). The Actwas opposed by the National Small Business Association, which called it "strongly titled in favor of large incumbent corporations."
The Act was not supported by a collation of younger large companies including companies such as Apple, Dell, eBay, Google, Oracle and Yahoo; although they supported the Act's change to "first to file" they were under the impression that the Act's changes to the patent dispute process would "increase the time and money spent on lawsuits that could be spent on the development of new technology."
Certain provisions of the Act clearly favor particular industries. For example, Section 18 of the Act provides an invalidation procedure for certain "financial products or services" business method patents that are otherwise valid (and which may have been otherwise litigated) by creating special categories of prior art and review procedures, applicable only to these patents.
Among intellectual property attorneys (and most clients) the greatest issue requiring Congressional action has been the delay in obtaining a patent due to a backlog of pending patent applications. IP attorneys have long been concerned that the United States Patent and Trademark Office (USPTO) backlog -- now at an average of 34 months across all technologies (and longer for certain technologies) -- only appears to be increasing. Although the Act sets up a reserve fund of patent office fees collected in excess of its budget that the USPTO may access, under the Act the USPTO will have to specifically ask Congress before it can spend the money.
Unfortunately, traditionally much of the money generated by the USPTO (which is self-supporting) is funneled by Congress to other projects, and Congress defeated amendments to the Act that would have prevented such "fee diversion." The Act creates new bureaucracies within the Office, burdens already overworked existing Office personnel (e.g., Administrative Patent Judges) with additional duties and creates for the foreseeable future a dual system using the old patent laws for some patent applications under certain circumstances and the new patent laws for other patent applications under other circumstances. I do not foresee that the Act will serve the goal of accelerating the patenting process for the average applicant in the near future, if at all, without addressing fee diversion.
How much did it cost to file a preliminary patent application under the previous system, and how much for a formal application? How have those costs shifted with the new act?
Fisher: Under the old law, there was a two-tier system for USPTO fees; one for "large entities" and one for "small entities." Generally, small entities are universities, non-profits, and those companies or organizations with less than 500 employees. The small entity fee is 50 percent of the large entity fee.
Therefore, the previous fee for filing a provisional application under 100 pages was $220 for a large entity and $110 for a small entity; the fee for filing a non-provisional ("regular") application containing up to 100 pages, up to 20 claims and no more than three independent claims was $1090 for a large entity and $545 for a small entity.
Under the Act there is an immediate 15 percent increase in all fees, including these. Also, a third category of "micro-entities" has been created (receiving a 75 percent reduction in fees) for applicants employed by or under an obligation of assignment to an institution of higher learning.
Furthermore, the USPTO is granted "fee-setting" authority under the Act, and these basic fees may very well change (they usually increase) in the near future.
How long does it currently take for a formal patent application to get approval from the United States Patent and Trademark Office? Do you foresee this process speeding up, as Act proponents say?
Fisher: As indicated above, today the average patent is granted about 34 months after a non-provisional patent application is filed. However, for some technologies the wait is much longer.
The backlog is largely caused by a shortage of qualified patent examiners in view of the number of patent applications filed annually. Moreover, as stated previously, the problem is exacerbated by Congress' appropriation and diversion of patent fees collected by the USPTO; over $750 million since 1992. This fee diversion has crippled the USPTO's efforts to hire new examiners and to grow the patent examining corps, leading to the over 1.2 million patent applications currently filed and awaiting grant.
The Act does contain mechanisms that are supposed to accelerate patent application examination and grant. For example, under the Act, an applicant can obtain Prioritized Examination (already available as a limited pilot program) in which grant could occur within a year or so after filing. The initial cost of requesting Prioritized Examination is $4,800 in addition to the regular filing fees for a small or large entity – to date the Office indicates that a small entity discount is not available for this procedure. I believe large corporations are more likely to regularly use this procedure than small entities or start-ups.
Also, without the USPTO's ability to keep the revenues it generates to hire new examiners I do not anticipate that the patent backlog will be appreciably reduced in the near future without further legislation. This appears to be particularly true in light both of the anticipated "bubble" of new patent applications to be filed between the date of enactment and the first effective date of the "first inventor to file" provisions 18 months thereafter, and the new post-grant review procedures which will strain the Office's manpower resources even further.
Some have argued that software patents should be disallowed entirely because they are mental processes or business processes, and not true inventions. The U.S. Supreme Court spoke on this issue in its June 2010 Bilski v. Kappos decision. Did the court's Bilski decision clarify the matter?
Fisher: Not much. The Bilski Court ruled that, at least in principle, business method patents are patentable subject matter under the definitions of "processes" and "methods" found in 35 U.S.C. §100, and that under 35 USC §273 "federal law explicitly contemplates the existence of at least some business method patents."
However, the Court rejected as the "sole test" of patentability the previously used "machine-or-transformation" test, under which the claimed invention is tested for patentability by determining if the process can either be tied to a tangible machine or apparatus or whether it involves a transformation of a particular article into a different state or thing. At the same time, though, the Supreme Court found that the machine-or-transformation test remains "a useful and important clue...for determining whether some claimed inventions are processes under § 101." This ambiguity is singularly unhelpful to practitioners, applicants and competitors alike. The Court did not propose other tests by which patentable subject matter of business method patents can be determined; these will have to be developed by the Court of Appeals for the Federal Circuit (or the Supreme Court) in subsequent appeals.
Finally, the Supreme Court already upheld three previously existing judicially created exceptions to patentability: laws of nature, physical phenomena and abstract ideas. Thus "abstract ideas" alone, without more, are already and have been unpatentable for some time. Indeed, in the issue before the court, the Court ruled that Bilski's claims were not patentable because they were an "abstract idea."
Thus the waters for business method patents are somewhat murky. However, a skilled patent attorney can endeavor to ensure at the patent application and claim preparation stage that the claimed invention is not presented to the USPTO as an abstract idea.
What is the post-grant review procedure as proposed under the Act? Why should patents be reviewed if the USPTO approved them? Are there such things as "bad patents"?
Fisher: Taking your last question first, even after a patent issues it may be found to be either unenforceable or invalid. This can occur for various reasons; for example, if a patent attorney or applicant intentionally deceived the USPTO when procuring the patent (e.g., by failing to identify material prior art), or if the examiner misapplied the law. It can also occur if an item of material prior art, not previously known to the applicant or patent attorney, is found after the patent is granted.
Prior art may be in any language and published or otherwise disclosed in any country of the world, and a thorough prior art search can cost many thousands (or even tens of thousands) of dollars. For this reason, a patent applicant (particularly an individual or small company) will therefore generally perform a limited patentability search -- for example a search of U.S. patents and published U.S. and/or International patent applications. This type of search is often sufficient, depending on the publishing customs and practices of the technology area at issue; this search is unlikely to uncover foreign language scientific or technical papers concerning the subject matter of the patent application that, if they exist, could be material prior art.
By contrast, an entity having a business or large business sector at stake if or when a patent infringement lawsuit was filed, particularly a large company, has an incentive to expend the necessary funds to perform a more thorough prior art search in the hopes of uncovering material prior art to use against the patent.
Patents are already commonly reviewed for invalidity -- and sometimes actually invalidated -- in litigation; there is clearly a public interest in preventing invalid patents from stifling innovation. There is also currently an administrative post-grant procedure within the USPTO (inter partes reexamination) that allows a third party to challenge a patent by alleging that there is a "substantial new question of patentability" pertaining to at least one claim of the patent. However in a reexamination, the petition may only be granted on the basis of 35 U.S.C. §§102 or 103, that is, due to prior art.
The new post grant review (PGR) provisions of the Act permit a challenger to file a petition for PRG within nine months after the issue of the patent. Unlike inter partes reexamination, the PGR is conducted with depositions and discovery and is like a mini-trial. The challenger must provide evidence showing that "is more likely than not that at least one challenged claim is unpatentable." Any ground for patent invalidity may be used; e.g., prior art, lack of written description or lack of enablement, but not failure to comply with the best mode requirement, which is no longer a ground for defeating a patent under the Act. The Act contains sanctions against filing a frivolous petition for PGR, and the patentee may have their attorneys' fees paid by the challenger if a frivolous in such a case. Also, the Act contains incentives for the parties to reach a settlement. A decision on a Post Grant Review is to be rendered within 18 months after a petition is granted.
Personally, I would have favored a post-grant opposition similar to that used by the European Patent Office rather than the PGR process of the Act. Oppositions are somewhat less formal, costly and complex, and more than one opposing party may participate in and make arguments at an oral opposition hearing.
What is false patent marking and how pervasive is the problem? Would the Act reduce qui tam lawsuits?
Fisher: False patent marking refers to the requirements of 35 U.S.C. §292. This statute prohibits anyone from marking a product as patented with the intent to deceive the public and "and inducing them to believe that the thing was made, offered for sale, sold, or imported into the United States by or with the consent of the patentee." This provision prevents a competitor from palming off their product as having been authorized by the patentee when it has not.
However, Section 292 also prevents the use of the words "patent" or a word or number indicating that an article is patented on an unpatented article, or the use of the words "patent pending" or the like when a patent application is not pending, for the purpose of deceiving the public.
The problem arises when either: a patent expires and the patentee fails through oversight to promptly remove the "patented" label from the previously patented article; or, similarly, when a patent application was filed and is later abandoned while the article continues to be labeled "patent pending." A "purpose of deceiving the public" must usually be inferred, since there is rarely direct evidence of intent. However, a recent Federal Circuit decision indicated that a rebuttable presumption of intent to deceive is created when a manufacturer prints expired patent numbers on its products with knowledge that the patents are expired. If the manufacturer cannot rebut this presumption with evidence, it is possible that intent will be found to be present.
Section 292 levies a fine of up to $500 for "every such offense." Recent court decisions have interpreted this latter phrase to mean "for each mislabeled product." Since §292 permits any person to file a qui tam action -- to sue on behalf of the U.S. Government for the penalty and to keep 50 percent of any award, with the U.S. Government obtaining the other 50 percent-- this provided a powerful incentive for individuals to potentially obtain a substantial award.
The Act has solved this problem by providing that:
- Marking a patented product with a label or other marking stating that it is patented is not in violation of the Act after the patent expires;
- Qui tam actions by individuals are not permitted under this section; and,
- A party who has suffered damage from false marking may file a lawsuit for compensatory damages due to the false marking.
The Act also addresses the expiration of patents and the labeling of products sold after such expiration by permitting a product or label to contain a URL to a Web site on which the marking is provided; this has the advantage of being instantly updatable and effective for products already in the market as well as ones under production.
The U.S. Constitution specifically described patent rights for inventors. What was the intent then, and has it shifted over the years?
Fisher: The U.S. Constitution's Patent/Copyright Clause Art. 1, Section 8 states:
The Congress shall have power...[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.
Thus, the Constitutional intent is stated in the clause: "[t]o promote the Progress of Science and useful Arts." It was thought by the Founding Fathers that patents provide an incentive to innovate, and that the publication of patents (at least following their grant) provides scientific and technological fodder for other inventors to build upon.
I believe this Constitutional intent remains the intent of Congress. I also think that Congress believes that the innovation leading to patents will stimulate the national economy. However, as with many other things, the devil is in the details, including such mundane but important considerations as adequate funding of the USPTO, and balancing the interests of the various stakeholders involved to be consistent with this intent.
I believe the Act provides additional incentives for already well established companies to carefully develop a patenting strategy and to avail themselves of the full spectrum of tools available in the U.S. patent system. However, I do fear that there may not be sufficient incentive in the Act (without further Congressional action) to permit entrepreneurs, small businesses, and venture capitalists to fully exploit the patent system while growing a business in the current financial climate. Unfortunately, the present economic climate is exactly one in which innovation is most needed, and this business sector depends more upon patents for its capitalization than any other. I therefore hope that Congress sees the passage of the Act as only a first step towards necessary patent reform, and continues to take action to fund the USPTO adequately so as to promote the progress of science and increase the economic value of inventions as a whole.
(NOTE: The opinions contained in this interview are those of Mr. Fisher alone and don't necessarily represent those of Stout, Uxa Buyan & Mullins, LLP..)