Patent Reform: File First, Announce Second
The America Invents Act (AIA), passed by Congress in 2011 and activated in stages since then, is the first major overhaul of the U.S. patent system since 1952 and arguably the biggest change since 1836. The AIA has three major provisions, among a number of more minor ones. Which of the three ultimately will prove most significant to inventors and businesses is open to debate.
But the change that most demands attention from companies—the one that signals innovators to behave differently—is a provision that took effect March 16. It switches the United States from its historic first-to-invent patent system, adopted in 1836, to a first-inventor-to-file system. The new regime aligns more closely with patent-granting practices in the rest of the world.
In the simplest terms, the U.S. Patent and Trademark Office (PTO) now awards patents not to the first claimant who devises an innovation but to the first who files a patent application for it.
What is it that inventors and businesses should do in response to that change? In a nutshell, IP attorneys say, the message is this: If you have an idea for something that might be patentable, shut up about it until you file a patent application.
That has always been a wise and prudent policy for companies that want to protect their intellectual property, attorneys say, but now it is more important than ever. File an application before you publish a paper describing your innovation, or sell any version of it, or talk about it at a trade show, “or put it on YouTube,” says IP attorney Brad Pedersen, a partner with the Patterson Thuente Pedersen law firm in Minneapolis.
Think of this part of the America Invents Act as “a wake-up call that patents aren’t an afterthought,” urges IP attorney Mark Privratsky, a partner with Lindquist & Vennum, a law firm in Minneapolis. If you come up with an innovation, he says, “a patent isn’t something you can think about later.”
More on this in a moment. First let’s look briefly at the other two major changes introduced by the AIA.
Money and Quality
The conversion to a first-inventor-to-file system will make little difference to most major organizations that are used to applying for patents all over the globe. Kevin Rhodes, chief intellectual property counsel for 3M Corporation, says that the Oakdale-based giant holds patents in 79 countries. Of the company’s current 40,000 or so issued and pending patents, only about 10,000 are in the United States. Since the rest of the world operates on a first-to-file basis, Rhodes says, 3M and other big U.S. companies already have policies and procedures in place to ensure that applications get filed before engineers or other employees make innovations public.
Inventors tripped up by the change to the U.S. system are more likely to come from smaller organizations that have given little or no thought to obtaining foreign patents, attorneys say.
From 3M’s perspective, the most significant provision in the America Invents Act is one that gives the patent office the authority to set its own fees for its services and to establish a reserve fund, Rhodes says. He was in the thick of U.S. industry’s fight to craft, shape, and shepherd AIA through Congress from 2005, when the initial legislation was introduced, until 2011, when the final bill passed. “The thing we were most interested in making sure to nail in the act was giving the PTO the resources it needs to cut down the years-long backlog [of patent applications and reexaminations] and issue higher-quality patents more quickly,” he says.
As of June, Rhodes’ biggest concern about the AIA was that the federal “sequester” brought on by the congressional budget stalemate was threatening the patent office’s hard-won new resources, including its reserve fund.
By “higher-quality patents,” Rhodes means patents that genuinely deserve to be issued as written, which is the concern of the third major new provision of the AIA. The act establishes a new post-grant review process that promises to speed up the PTO’s rulings in cases where someone challenges the validity of an existing patent.
The old patent-reexamination process routinely took three years or more, attorneys say. Once a challenge to a patent is accepted for the new post-grant process, the PTO is obligated to rule on the case within 12 months.
IP attorneys who specialize in litigating patent-infringement cases tend to see post-grant review (PGR) as the most significant part of the law. They hope that once the PGR process kicks in, its accelerated timetable will provide a realistic way to take more patent challenges out of the U.S. District Court system and put them in the hands of highly trained patent examiners.
Some observers see PGR as a new weapon against so-called patent trolls, those “non-practicing entities” whose business model is not to produce any products but rather to make money by suing productive companies for patent infringement. No attorney we spoke with quite saw it that way, but some allowed that PGR might sometimes help ward off a troll attack.
For one thing, remember the provision allowing the patent office to set its own fees? “PGR isn’t cheap, and the costs are front-loaded. That might discourage a troll,” observes Dorothy Whelan, a principal with the Fish and Richardson law firm in Minneapolis who specializes in post-grant practice.
Both first-inventor-to-file and post-grant review are more complicated than they sound. Let’s look a bit deeper.
It’s All About the Grace Period
To receive a patent, an invention must be novel. If you make an innovation publicly available—by selling it, demonstrating it, or publishing descriptions of it, say—it loses its novelty. That is a basic reason why, in the United States or anywhere else, it has always been a bad idea to release an innovation into the world before filing a patent application.
Pedersen explains that the difference between the old first-to-invent system and the new first-inventor-to-file system “is really about the grace period.” Under the old system, an inventor had a protected grace period of up to one year to file for a patent after making an innovation publicly available. If you published a paper on the innovation in January and filed a patent application within 12 months, the PTO acknowledged that you were the inventor and that January was the date of your invention. If someone else published a paper or filed an application for a patent on a virtually identical invention in February, your January paper would trump your competitor’s application. The patent would be awarded to you.
Under the new system, you still have a one-year grace period in the sense that your own disclosure of the innovation probably won’t count against your claim of novelty, Pedersen says. But the protection you formerly enjoyed for that year is now gone. Under first-inventor-to-file, if a competitor either publishes a description of the thing or files a patent application in the months following your January paper, that may count as “prior art” when you file your application later in the year. It probably will prevent you from receiving patent protection.
The competitor may not get a patent either, because your January paper still will count as prior art against his February claim, notes IP attorney Timothy Bianchi, a shareholder with the Schwegman Lundberg Woessner law firm in Minneapolis. “In a pure first-to-file system, your earlier paper wouldn’t matter,” and the February first filer would get the patent, Bianchi says. “But no country has a pure first-to-file system.”
Who wins and who loses under the new U.S. system? The biggest opponents of the change to first-inventor-to-file were universities, small companies, and individual inventors, Pedersen says. College professors in publish-or-perish environments are under pressure to publicize their ideas as soon as possible. Small companies and garage inventors are reluctant to spend $10,000 to $20,000 or more to pursue patent applications before they are confident that they can actually make money on an innovation.
Attorneys agree that for big multinational companies—and major educational institutions such as the University of Minnesota, which are used to filing for patents in a number of countries—the change won’t have much effect.
Pedersen lays it out this way: Half of all patent filings in the United States are by applicants from other countries, he says. Since all other countries have first-to-file systems, those foreign applicants already operate under first-to-file assumptions.
Of the domestic half of U.S. patent filings, Pedersen says, two-thirds come from major U.S. organizations which, like 3M, also already operate on first-to-file assumptions. Therefore, the small-business and collegiate inventors opposed to the switch—the ones upon whom it will have the greatest impact—represent no more than about 15 percent of all U.S. patent applicants.
Even for those little guys, attorneys question how big an effect the change actually will have. The PTO’s old method to settle disputes between rival patent applicants arguing over who was first to invent something was with “interference proceedings.” The America Invents Act replaces interference proceedings with new derivation proceedings, which are supposed to determine if the person who filed for the patent derived their information from the rightful first inventor.
But interference proceedings were rare in the first place. Rhodes cites figures to demonstrate: In the five years prior to the AIA’s enactment in 2011, he says, 2.7 million U.S. patent applications were filed and 1.1 million patents were issued. Out of all that activity, only 485 interferences were decided. Of those decisions, the second filer won in only 110 cases. Only 24 of the second-filer winners were small companies. And only one second-filer winner was an independent inventor.
Interferences are indeed rare, but the switch to a first-to-file system only sounds as if its aim is to settle disputes between two applicants for a patent, observes Bianchi. A far more common problem arises after one party has been awarded a patent. “When you go to enforce it down the road, someone may challenge your patent on grounds that they were first to invent the thing,” Bianchi says. Under the old system, those disputes could become quite thorny “because of uncertainty about who really was the first to invent. That’s what first-inventor-to-file is really trying to solve.”
Regardless of the intent, the message to companies is the same: File for patent protection before you publicize your innovation. “You’ve got to be more diligent than you used to about protecting your inventions,” Privratsky says. “People will be watching the marketplace to spot ways to solve problems in your industry. If you’re dumb enough to show an invention at a trade show before you file, [competitors will have] people on standby ready to file applications.”
Critics of the PTO have long complained that it awards too many patents that should not be issued, says IP attorney Michael Lafeber, a shareholder with Minneapolis law firm Briggs and Morgan. For years, companies that have been sued for infringement in U.S. District Court could ask a judge to stay the litigation while the PTO conducted a reexamination of a patent’s validity, Lafeber explains. The trouble has been that on average, it takes more than three years for the PTO to come back with an initial decision on a reexamination.
Eventually judges became very reluctant to issue stays. As Whelan puts it, “The district courts wised up and said, ‘This is ridiculous. It takes too long. You’re clogging up my docket.’”
In theory, district courts should be quicker to issue stays if the PTO accepts a case for the new, expedited post-grant review process. PGR will be available only for patents whose applications were filed after March 16, 2013. As of June, very few such patents had been awarded, let alone challenged. Nobody expects to see an actual PGR before next year.
By regulation, however, the patent office will have no more than six months from the initial petition for PGR to decide whether to accept the case for review. From the time of acceptance, the patent office must issue a decision within 12 months. Attorneys agree that examiners used in PGR will be far better equipped than the district courts to make good rulings on the validity of patents. And district court judges are more likely to let the PTO make those rulings if they can be assured of a firm 12-month deadline.
A drawback is that PGR will be far pricier than the old reexamination process. The cost will be based on the number of claims in a patent under review, Lafeber says. The PTO’s fee schedule shows that the price for 20 or fewer claims is $35,800. Above that is a sliding scale showing that the price for 51 to 60 claims, for instance, is $89,500. For 200 claims—which is “not out of the question,” Lafeber says—the cost would be $590,000. “That’s before you pay your attorney,” he notes. “For a small company being threatened by a non-practicing entity, that could be cost-prohibitive.”
On the other hand, PGR usually should be much cheaper than litigating an infringement case in court.
3M’s Rhodes is encouraged by the prospect that the PTO will be able to charge what it takes to do things like complete a patent review within a year. He rates the America Invents Act overall as “good to very good” legislation, with “a package of much-needed reforms that are long overdue.”
A system that awards high-quality patents in an efficient way is vital to 3M, Rhodes says. “We were founded on innovation. It’s hugely important for us to be able to protect our intellectual property and build upon our inventions.”
3M spent more than $1.6 billion on research and development in 2012, and more than $7.3 billion in the past five years, Rhodes says. “If we can’t enjoy legal protection for R&D that leads to new products, we can’t continue to invest like that.”