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Supplier Global Resource Magazine March/April 2012 : Page 35

LEGAL BRIEFS The New AIA Patent Law: What You Need to Know By GIOIA MACEy O n September 16, 2011, President Barack Obama signed into law the Leahy-Smith America Invents Act (AIA). In an age of deadlocked Congress, the passage of this bill was a rare show of bipartisan support and is being touted as the most significant overhaul of the United States patent system since 1952. The AIA will change the patent system from a “first-to-invent” (FTI) to a “first-to-file” (FTF) system, consistent with most other industrialized nations. Additionally, the legislation is intended to streamline the patent process, curb costly and frivolous legal battles and encourage entrepreneurs to develop products more quickly. The overhaul will be gradually phased in over the next two years, with some of the most significant changes, such as the switch to a FTF system, becoming effective within 18 months. What Precipitated the Change The overhaul of the patent system is intended to address significant problems within the overburdened and underfunded FTI processing system. According to President Obama, the current length of time for a patent approval is approximately three years. The lack of resources dedicated to the United States Patent and Trademark Office (USPTO), as well as inefficiencies in the system, have created a backlog of nearly 700,000 patent applications. Under the FTI system, there are several pro-cedures within both the USPTO and the Federal Courts that allow an inventor to assert prior rights due to prior invention over patents that have an ear-lier filing date. Disputes for resolving priority con-tests among inventors are known as “interference proceedings.” These proceedings create uncertainty The lack of resources dedicated to the U.S. Patent and Trademark Office has created a backlog of nearly 700,000 patent applications. for patent-holders because they need to prove their “first inventor” standing, and they potentially face litigation/defense costs in maintaining patent-holder status. Currently, according to David Kappos, the director of the USPTO, interference proceedings can cost, at a minimum, $400,000 to $500,000. There has been an unprecedented increase in the number of patent lawsuits, particularly in the technology industry, which sought this legislation to protect themselves against infringement cases, especially those filed by non-practicing entities (NPEs) or patent asser-tion entities (PAEs) that use the threat of patent-infringement litigation as leverage to intimidate defendants (patent-hold-ers – these are the plain-tiffs) into settling cases in exchange for favorable licensing terms. Advantages of the AIA The central component of the AIA is that the U.S. patent system will switch from a FTI system to a FTF system for patent applications filed on or after March 16, 2013. This change will purportedly make it easier for companies to file for patents in numerous countries because it creates greater certainty regard-ing patent-holder status, and the U.S. system is now compatible with the systems of other countries, most of which operate on the first-to-file system. The FTF system provides a one-year grace period in which inventors can file a preliminary disclosure about an invention before filing for the actual patent. The inventor must file the final patent application within one year of the initial disclosure. The bill also gives the USPTO more resources to streamline the patent review process. President GIOIA MACEy is associate general counsel for Navi-gant Consulting Inc. (NySE: NCI), a global consulting company dedicated to assisting clients in creating and protecting value in the face of critical business risks and opportuni-ties, with expertise in energy, construction, financial services and health care. WWW.SUPPLIERGLOBALRESOURCE.COM MARCH/APRIL 2012 35

Legal Briefs: Advice To Keep Your Business On The Straight & Narrow

Gioia Macey

The New AIA Patent Law: What You Need to Know<br /> <br /> On September 16, 2011, President Barack Obama signed into law the Leahy-Smith America Invents Act (AIA). In an age of deadlocked Congress, the passage of this bill was a rare show of bipartisan support and is being touted as the most significant overhaul of the United States patent system since 1952. The AIA will change the patent system from a “first-to-invent” (FTI) to a “first-to-file” (FTF) system, consistent with most other industrialized nations. Additionally, the legislation is intended to streamline the patent process, curb costly and frivolous legal battles and encourage entrepreneurs to develop products more quickly. The overhaul will be gradually phased in over the next two years, with some of the most significant changes, such as the switch to a FTF system, becoming effective within 18 months. <br /> <br /> What Precipitated the Change <br /> <br /> The overhaul of the patent system is intended to address significant problems within the overburdened and underfunded FTI processing system. According to President Obama, the current length of time for a patent approval is approximately three years. The lack of resources dedicated to the United States Patent and Trademark Office (USPTO), as well as inefficiencies in the system, have created a backlog of nearly 700,000 patent applications.<br /> <br /> Under the FTI system, there are several procedures within both the USPTO and the Federal Courts that allow an inventor to assert prior rights due to prior invention over patents that have an earlier filing date. Disputes for resolving priority contests among inventors are known as “interference proceedings.” These proceedings create uncertainty for patent-holders because they need to prove their “first inventor” standing, and they potentially face litigation/defense costs in maintaining patent-holder status. Currently, according to David Kappos, the director of the USPTO, interference proceedings can cost, at a minimum, $400,000 to $500,000. <br /> <br /> There has been an unprecedented increase in the number of patent lawsuits, particularly in the technology industry, which sought this legislation to protect themselves against infringement cases, especially those filed by non-practicing entities (NPEs) or patent assertion entities (PAEs) that use the threat of patentinfringement litigation as leverage to intimidate defendants (patent-holders – these are the plaintiffs) into settling cases in exchange for favorable licensing terms.<br /> <br /> Advantages of the AIA <br /> <br /> The central component of the AIA is that the U.S. patent system will switch from a FTI system to a FTF system for patent applications filed on or after March 16, 2013. This change will purportedly make it easier for companies to file for patents in numerous countries because it creates greater certainty regarding patent-holder status, and the U.S. system is now compatible with the systems of other countries, most of which operate on the first-to-file system. <br /> <br /> The FTF system provides a one-year grace period in which inventors can file a preliminary disclosure about an invention before filing for the actual patent. The inventor must file the final patent application within one year of the initial disclosure. <br /> <br /> The bill also gives the USPTO more resources to streamline the patent review process. President Obama stated that the AIA “will help startups and small-business owners turn their ideas into products three times faster than they can today.” At the signing ceremony, Obama touted the AIA as a way to “improve patent quality and help give entrepreneurs the protection and the confidence they need to attract investment to grow their businesses and to hire more workers.” <br /> <br /> The AIA also provides the protections sought by the technology industry to protect themselves against infringement cases. Costly litigation and patent defense expenses will be greatly reduced because interference proceedings have been repealed, and priority will be based solely on the filing date. One portion of the new law places limits on who can be named as respondents in a single lawsuit, a measure aimed at lawsuits that name 50-100 defendants in a single case. <br /> <br /> “In theory, this looked like a serious blow to NPEs. However, in practice, we are seeing NPEs simply filing multiple suits. Overworked judges have little choice but to consolidate them, at least for discovery,” says John Ward, Partner at Ward & Zinna, LLC, a patent law firm based in New York City specializing in intellectual property. The new law also updates the supplemental examination process allowing the USPTO to “consider, reconsider or correct information believed to be relevant” at the request of a patent-holder. That examination can be used by a patent-holder to bolster the strength of their existing patent, protecting the patent from third-party attempts to declare the patent unenforceable.<br /> <br /> Several other cost-saving measures are included in the AIA. The new law reduces the filing fees charged to small entities applying for patents, and allows the director of the USPTO to set and adjust other fees. Importantly, the AIA decreases the percentage of inventionrelated royalties that must be given to the government, while increasing the percentage that goes to small-business firms. <br /> <br /> Post-Grant Opposition <br /> <br /> Although the AIA eliminates interference proceedings, it includes provisions for post-grant opposition. This opposition allows third parties to review newlygranted patents and, if applicable, provide the USPTO evidence in objection to the grant of the patent, including that the patent application was derived from another inventor. Third parties may also introduce evidence of “prior art” (e.g. proof the invention had already been invented) to block patents from being issued. <br /> <br /> “These changes provide new weapons for entities accused of patent infringement,” says Ward. The definition of prior art has also been expanded to include public use, sales, publications and other disclosures available to the public as of the filing date, other than publications by the inventor within one year of the patent filing. <br /> <br /> The AIA also includes provisions for prior user rights. For example, if an individual or corporation was already using an invention more than a year before a subsequent inventor files for a patent on the same invention, then such individual or corporation will have the right to continue using the invention in the same way after patent is granted to another inventor.<br /> <br /> “This is an important provision,” Ward says. “Previously, prior user rights only applied to business method patents. Now they apply broadly. So, for example, a manufacturer using a trade secret process to make a product will have a personal defense against a later patent. Prior user rights are, however, limited in scope and transferability, and manufacturers will need to document their prior uses.” <br /> <br /> Pros & Cons <br /> <br /> Opponents of the AIA argue that the FTF system will favor large corporations with vast resources over small business and individual inventors. Such small businesses and individuals are unlikely to have the financial wherewithal to quickly file new patent applications. Additionally, there are questions about the potential cost-savings claimed by proponents of the AIA. Many argue that the FTF system creates a race to the USPTO with every new idea – increasing the amount of applications filed and associated costs in connection with the preparation and filing of such applications.<br /> <br /> As a result of increased filings, there will be increased examinations at the USPTO and the attendant backlogs similar to those in the current system. Although interference proceedings are repealed, post-grant opposition reviews can be used similarly by deep-pocketed corporations to prevent the issuance of new patents and tie up small companies’ resources. “These are all legitimate concerns,” Ward says. “It will be years before we see whether the AIA benefits one group or another. In the short term, the only clear winners are patent attorneys.” <br /> <br /> In fact, the USPTO has planned a series of cross-country road shows to discuss the proposed rules that will implement the various provisions of the AIA (schedule can be found on USPTO website at www.uspto.gov). The USPTO will use these road shows to educate the public about the various provisions of the new legislation and provide a forum for public feedback and questions. <br /> <br /> Congress will fund a number of studies in connection with the implementation of the AIA. For example, Congress has required the Government Accountability Office to study the consequences of certain issues of concern raised by opponents of the AIA, including patent litigation by NPEs or PAEs in consultation with the USPTO. This patent litigation study will include the volume of litigation in the 20 years before enactment of the AIA; the volume of cases which are found to be without merit after judicial review; the impact of litigation on the time to resolve patent claims; the costs with such litigation; its economic impact on the U.S. economy and job creation; and any benefits created by NPEs or PAEs. Another Congressional study will require the Small Business Administration in consultation with the USPTO to study the effects of switching to a first-to-file patent system on small businesses. In particular, the study will examine how the change affects small businesses’ ability to obtain patents, any advantages or disadvantages the system creates for small businesses, and cost savings or other potential benefits. <br /> <br /> “Our new law in the U.S. is anchored in the desire to more effectively match the rate and pace of the patenting process to the rate and pace of invention, and the rate and pace of commercialization,” Kappos says. “But in saying this we realize that there is a difference between invention and innovation — the latter is the economically relevant version of the former. So, the goal of the new America Invents Act is to create not just the simplest possible patent system, or the most precise patent system, but rather the most innovation-friendly and inventorfriendly patent system that reduces costs, levels the playing field for businesses small and large, and spurs economic growth.”

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