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America Invents Act: Greater Investment Certainty and a Low Cost Option to Court Litigation, Contributed by Wayne C. Jaeschke, Scott Watkins and Paul Crawford, Connolly Bove Lodge & Hutz LLP

Thursday, August 18, 2011
After many years of false starts, patent reform legislation is at the cusp of becoming law. After being branded the "third stimulus," a bill in support of job creation, both the House and Senate overwhelmingly approved similar versions of the legislation, with ultimate passage expected in September. The new legislation introduces "first inventor to file" ("First to File") and Post Grant Review ("PGR") in the United States. While there has been no shortage of debate on the merits of both, these changes should provide greater certainty as to the ownership of patent rights and an intriguing, and potentially potent, procedure for narrowing or canceling invalid patents soon after issuance. Both features should inspire greater investor confidence and permit an early resolution of the scope of granted patent claims.

First to File

The First to File rule — which seems to get most of the press on patent reform bills — will replace the "first to invent" provisions of existing law. Currently, a patent applicant can attempt to prove a pre-filing invention date to get around someone else's patent or patent application via an interference proceeding. The First to File reform will eliminate new interferences. While this has drawn the ire of many (including small businesses who argue that they cannot file their patents as early as the big players), very little actually changes. The use of interferences to resolve competing claims of inventorship has already substantially waned. More specifically, the number of interferences declared has dropped from a peak of near 1000 in 1964 (roughly one interference per one hundred patent applications) to 52 in 2010 (roughly one interference per 10,000 patent applications). Of the few interferences declared, about 90 percent are resolved in favor of the First to File party. Thus the change in law results in a change in inventorship in less than 10 cases per year. Consequently, First to File gives a considerable upside in certainty, with relatively minimal impact on the ultimate result.

Post Grant Review (PGR)

The new Post Grant Review is quite similar to Opposition procedures in the European Patent ("EP") system. Both enable contesting the scope and validity of a granted patent within nine months of grant. The grounds of review in PGR are based on prior patents and literature as well as prior public use and sale anywhere in the world. (Secret prior use is still not protected under US law). Patents can be revoked entirely or the claims narrowed and revised in view of prior art or arguments that were missed in the initial USPTO examination. In the EP system, about 6 percent of all granted patents are opposed. About one-third of the opposed patents are revoked entirely, while another one-third are maintained unchanged, that is, the opposition is rejected. Interestingly, the patent claims in the remaining one-third are modified or trimmed down in scope in view of the cited prior art. Despite the similarity of the EP and the proposed United States PGR procedures, the United States is unlikely to see the EP rate of 6 percent. One reason is that the U.S. Patent and Trademark Office grants many times more patents than the EP. A 6 percent review rate of U.S. patents would result in about 12,000 petitions for review annually. This would overwhelm the new quasi-judicial body assigned to handle PGR, the Patent Trial and Appeal Board. Another reason for possible lower utilization of PGR is the inclusion of estoppel provisions in the America Invents Act, i.e., a ban in subsequent litigation of asserting defenses that were, or could have been, raised during PGR. There is no corresponding provision in Europe. Oppositions in the EP can thus be filed with impunity, while in the US there may be adverse estoppel consequences. Between the potential logjam and estoppel consequences, the U.S. can expect a much smaller challenge rate than in the EP. It should be noted, however, that recent experience with inter parte reexamination ("IPR") suggests that estoppel has been a declining deterrent to using the USPTO's IPR reexamination options for resolution of patent disputes. Although the IPR procedure was initially shunned, the number of granted IPR requests has increased six fold in the last four years. While the overall numbers are still small, this suggests a growing comfort level with both estoppel and using the Patent Office as an arbiter. Post Grant Review may well piggyback on this sentiment. Still, many attorneys may advise against filing petitions for Post Grant Review. In certain cases, some will argue that it is more prudent to pass up a petition for immediate relief and wait until the patentee notifies the potential infringer of the patent in question. After the PGR period, any party can still file for either inter parties reexamination or ex parte reexamination if its defense is based solely on published prior art. The defense of prior public use or sale is only available in PGR. An accused infringer remains free to employ all defenses if sued for infringement in a federal district court provided that no estoppel has been created as a result of defenses raised in PGR. Another uncertainty about PGR is whether district courts will be receptive to issuance of a stay pending resolution of PGR. The record of stay grants pending the outcome of existing ex parte and inter parte reexaminations is mixed at best with a national average of 60 percent but with substantial variation from that mean among district courts. A lower percentage of stays pending the outcome of PGR could lessen its attractiveness as a litigation alternative. On the positive side, PGR decisions are subject to appeal to the U.S. Court of Appeals for the Federal Circuit. Assuming that PGR proves to be quicker and less expensive, while providing a more reasoned resolution (experienced patent judiciary versus lay jury) than district court litigation, it would be an attractive vehicle for resolving patent disputes. Another positive of PGR is the potential for limiting claims that might block a client's proposed activity. Thus, patent counsel should consider whether simply trimming the scope of some, but not all, claims is worthwhile. If so, PGR offers a better option than litigation for removing claims which block the client's proposed activities. European Oppositions often trigger early licensing or settlement discussions and the Post Grant process will certainly do the same. It is always advantageous to know at an early stage whether an affordable license will be available or whether to avoid investment in the potentially infringing activity. One additional advantage of PGR — and reexamination — is the standard of evidence required to hold a patent invalid is a mere preponderance of the evidence. In litigation, clear and convincing evidence, a higher standard, is needed for a holding of invalidity. Another positive for PGR is that it will likely be less costly than litigation, but it remains to be seen how much. Certainly PGR would be a more complicated process than IPR, but less complicated than a full, fact driven arbitration or litigation proceeding. Using typical ranges for these options, it would not be surprising to see fees in the range of $250,000 to $750,000 for PGR versus in the millions for a typical litigation or arbitration. These factors suggests that the Post Grant process should be a cost effective tool where the main issue is one of validity of one or more claims of a granted patent. On the flip side, PGR presents a dilemma to the patentee as to whether to allege infringement during the nine-month PGR window. Revealing oneself early gives the accused infringer a potentially powerful tool in PGR to either kill the patent or tie it up for years. However, a delay of nine-months takes that arrow out of the quiver. The ups and downs may largely rest on market conditions favoring early action when a product or process is quite valuable and might be within the scope of newly granted patent. Procedurally, Post Grant Review will be supervised initially by judges transferred from the ranks of those experienced judges who decided interferences. It is expected that rules of procedure will be adopted emulating those presently governing interference and reexamination practice, with appropriate modifications. Motion practice, discovery, briefing, and other procedural rules must be promulgated, and it will be important for attorneys with expertise in interferences, reexaminations, and patent litigation to weigh in when proposed PGR rules are published for comment. While there will likely be some "growing pains" as procedures are resolved and tested, the existing body of well trained patent judges, procedures, and experts in the patent bar should produce high quality validity decisions from the outset. Looking ahead, the establishment of Post Grant watch procedures within companies or through outside counsel will be essential to assure that granted US patents in technologies of interest are communicated to counsel in time (nine months after issuance) for an informed determination whether to file a petition for Post Grant Review. Some European companies assign this function to their internal company patent agents who are most familiar with their various technologies. In some cases the agents are authorized to initiate an opposition prior to reporting to management. Others employ patent firms to watch for patents in designated areas and provide a recommendation whether to proceed. In summary, once the America Invents Act is enacted into law, first to file clearly will improve the level of certainty as to ownership of granted patents. On the other hand, whether PGR will have a strong positive impact will be a challenge to the Patent Bar, USPTO, and users in the business community. The case has been made that improving the patenting process and strength of patents will result in greater job creation but only time will tell whether the provisions of the America Invents Act will achieve that laudable objective. Wayne C. Jaeschke is Of Counsel in the Wilmington, DE office of Connolly Bove Lodge & Hutz LLP. He can be reached at wjaeschke@cblh.com or (302) 888-6409.Scott Watkins is Of Counsel in the Washington D.C. office of Connolly Bove Lodge & Hutz LLP. He can be reached at swatkins@cblh.com or (202) 572-9687.Paul Crawford is a Partner in the Wilmington, DE office of Connolly Bove Lodge & Hutz LLP. He can be reached at pcrawford@cblh.com or (302) 888-6262. Disclaimer This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy. ©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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