PTO Report Supports Expansion of Prior User Rights Created by America Invents Act

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Summary: The PTO submitted a report to Congress supporting the expansion of the prior user rights defense in light of the America Invents Act's adoption of a first-inventor-to-file system.

By Tony Dutra  


Summary: The PTO submitted a report to Congress supporting the expansion of the prior user rights defense in light of the America Invents Act's adoption of a first-inventor-to-file system.

The America Invents Act “strikes the right balance” in the parameters of its prior user rights provision, according to a report to Congress submitted by the Patent and Trademark Office Jan. 13.

Section 5 of the AIA grants prior user rights to those who, more than one year before the invention is first publicly disclosed or applied for, used the invention as part of a manufacturing or other commercial process. The provision was added to counter concerns by legislators that the move to a first-inventor-to-file system eliminated the invention priority defense under current law.

The provision, in turn, prompted claims that prior user rights stifles innovation. The PTO's report was required under the AIA to address those concerns.

The agency, however, cited a difference of opinion in the patent community and a lack of economic analysis, and concluded that there is no substantial evidence that prior user rights as established in the AIA will have the negative impact presumed by detractors. It thus deferred until 2015 its opinion on the effects of the provision, under the assumption that more data will be available then.

AIA Expands Prior User Rights.

Section 3 of the AIA (H.R. 1249, Pub. L. No. 112-29) primarily laid out the statutory changes moving the United States to a first-inventor-to-file system. Some stakeholders were concerned that a FITF system could lead to a potential infringement liability for first inventors of a process—that is, a use not readily discernible as a later patent-defeating public disclosure—who might have reasons not to file a patent application but who have already commercialized their inventions.

Congress thus added Section 5, titled “Defense to infringement based on prior commercial use.” The prior user rights provision, 35 U.S.C. §273, previously applied only to prior commercializations of business method patents. The AIA language eliminated the technology limitation and granted prior user rights to those who, more than one year before the invention is first publicly disclosed or applied for:

• “with respect to subject matter consisting of a process, or consisting of a machine, manufacture, or composition of matter used in a manufacturing or other commercial process …”

• “commercially used the subject matter in the United States, either in connection with an internal commercial use or an actual arm's length sale or other arm's length commercial transfer of a useful end result of such commercial use.”

“Commercial use” is further extended to include pre-marketing regulatory approval of drugs and nonprofit laboratory use. An exception is given to patents owned by institutions of higher education and their technology transfer offices—the prior user rights defense is not available against those patents.

The expanded Section 273 received some constitutional scrutiny during the patent reform debate. Opponents argued, among other things, that allowing a prior user to avoid patent infringement violated the takings clause of the Fifth Amendment, and that Congress was exceeding its constitutional authority by eliminating the exclusivity of patent protection in favor of trade secret protection.

PTO Conducts Hearing.

Section 3(m) of the AIA also provided for a “Report on Prior User Rights”—more specifically, “on the operation of prior user rights in selected countries in the industrialized world”—to be written by the PTO and delivered to the judiciary committees of each branch of Congress, due Jan. 16.

The PTO announced a public hearing and made a request for stakeholder comments in an Oct. 7 Federal Register notice. 76 Fed. Reg. 62,388. The hearing was held Oct. 25.

Five patent community stakeholders gave full support for the AIA's prior user rights changes at the hearing, with none expressing any concerns either about the constitutional issues or innovation impact.

Congress requested, but none of the presenters provided, data tying the availability of prior user rights in other countries to innovation, the prevalence of trade secrets, or any other correlation for that matter. The speakers identified several countries that provide for prior user rights, but discussed them primarily in the context of how having rights overseas but not in the United States plays out competitively.

Report Addresses Congress's Concerns.

The PTO's Jan. 13 paper addressed the input from the hearing as well as 29 comments received from patent community stakeholders. Though acknowledging that some of the comments predicted negative consequences from the expansion of prior user rights, the agency concluded that “there is no substantial evidence that it will have a negative impact on innovation, venture funding, small businesses, universities, or independent inventors.”

The paper broke the discussion of the provision's impact into four issues:

Comparison of Prior Use Provisions in Industrialized Countries. The report looked at the contours of prior user rights in a “sample set” of four European Union countries and eight other countries. “On balance, the public comments suggest that prior user rights are not problematic in other jurisdictions, and in fact, are a well-accepted practice,” according to the report. “Moreover, several of the comments specifically noted that there has been little or no litigation of prior user rights in other countries, which suggests they are not creating any systemic issues.”

The report first compared the what, who, when, and where of country laws related to prior user rights: qualifying prior use activities, qualifying prior user definition, qualifying time period, and qualifying locations of use. It noted different characterizations of the scope of the right—a defense, a non-exclusive license, or an exemption from liability—but said “the practical effect is mostly uniform throughout the jurisdictions studied.”

However, the report added, the AIA version of prior user rights “is rather unique in including a provision benefiting the academic sector.”

Though the country comparison highlights some other differences among the countries, the PTO determined that the U.S. version would be “generally consistent” with other jurisdictions, and the report concluded: “The AIA strikes the right balance by limiting the prior user rights defense to those parties that can prove commercial use at least one year prior to the filing date of the patent application by clear and convincing evidence.”

Impact of Prior User Rights on Innovation, Start-up Enterprises, Small Businesses, Individual Inventors and Universities. Congress asked the PTO to consider the relationships between prior user rights and innovation rates; the ability to attract venture capital; and small businesses, universities, and independent inventors.

The report acknowledged that there was “very limited economic research” as to each relationship. Further, each analysis of the comments submitted to the PTO described predictions both positive and negative, with little in the way of reliable data on cause and effect.

Accordingly, the PTO recommended: “The USPTO should reevaluate the economic impacts of prior user rights as part of its 2015 report to Congress on the implementation of the AIA, when better evidence as to these impacts might be available.”

Analysis of Legal and Constitutional Issues with Placing Trade Secret Law in Patent Law. “Prior user rights are not unconstitutional,” the PTO said. “Instead, they comport with the Patent Clause of the Constitution, are consistent with the Patent Statute, and are supported by public policy considerations.”

The report noted that prior user rights were in effect between 1839 and 1952 and then reinstated—at least as to business method patents—in 1999. The report further explained that prior user rights are one of many limitations on patent rights, including the term limit, “the power of eminent domain over patents,” and restrictions on the scope of reissued patents.

As to policy considerations, the PTO said, “Record suggests that the prior use defense was intended to protect jobs by allowing companies who invented a manufacturing process to continue using that process. Additionally, there is testimony that the prior use defense would relieve manufacturers of the burden of seeking patent protection for every manufacturing process they use, which could number in the hundreds or thousands.”

The provision's detractors decried the likelihood that the prior use defense would promote use of trade secrets at the expense of the invention disclosure encouraged by Art. III, sec. 8, cl. 8 of the Constitution. But the report recognized the “considerable value” of trade secret protection, and phrased the question as “whether a prior use defense to patent litigation strikes the appropriate balance between the two forms of intellectual property protection.”

Again, the PTO concluded that the AIA provision provided that balance, relying in part on the U.S. Supreme Court's decision in Kewanee Oil v. Bicorn Corp.,416 U.S. 470, 181 USPQ 673 (U.S. 1974). According to the report, the court in that case “recognized that trade secrets and patents can legally co-exist and that both trade secrets and patents have value.”

Analysis of Whether a First-to-File Patent System Creates a Need for Prior User Rights. The PTO extended its “balancing” conclusion with respect to the interests of the inventors compared to the interests of prior users, this time as it would be affected by the change to a first-inventor-to-file system, scheduled to take effect March 16, 2013.

The agency said that the change to FITF creates an “inherent inequity … between an earlier commercial user of [certain] subject matter and a later patentee.” It explained that the elimination under the AIA of 35 U.S.C. §102(g)(2), “the basis for the first-to-invent principle in current law” allowing a priority of invention defense, “creates a need for a similar defense applicable in a first-inventor-to-file environment to ensure a continued and similar balancing of interests under the new law.”

Finally, the PTO described the comments it received supporting the need for prior user rights to maintain American competitiveness. Without the rights in this country, the report said, “this disharmony could disadvantage United States enterprises by making them liable for infringement in the United States as against a foreign-based United States patent holder, but unable to assert a foreign patent against a foreign entity in a jurisdiction that provides prior user rights.”

By Tony Dutra  

Report at