Alternative Dispute Resolution and The America Invents Act

[Author: Michael A Mann]

A friend of mine, when confronted with a monumental task, would patiently state, “When you have to eat an elephant, you eat it a bite at a time.” I would add, dear reader, when you have to eat an elephant, you might first want to wash it thoroughly. His point, of course, is that you can tackle any job, no matter how big, if you break it down into individually manageable morsels. Patent infringement litigation is also a monumental task, and it lends itself to the same divide-and-conquer approach.

Furthermore, it is critical to look for ways to cut patent infringement litigation down to size. Not only is it a monumental task, but it is also a costly one.  Various estimates place that cost at $1,000,000 and up, with emphasis on the word “up.”  Moreover, this estimate fails to include the disruption to the business: lost executive time, lost productivity, diversion of resources, altered business plans and budgets, and contingency planning.  Furthermore, to further increase the patent litigation ante, some of the largest and most technology-dependent companies have acquired huge portfolios of patents for offensive and defensive use as part of “nuclear” patent warfare.

The usual alternatives to litigation are collectively referred to as “alternative dispute resolution” (ADR), which typically include negotiation, mediation, and arbitration. But of course, there are many ways short of litigation to resolve disputes: tossing a coin, drawing straws, dueling, and saying “honey, what was I thinking?”  In patent litigation in particular, determination by a neutral party of the issue of inventorship may be critical to the whole case, and cross-licensing by the two litigants may turn patent litigation into an ordinary commercial transaction.  However, the big issues of whether the defendant is infringing and whether the patent is valid remain for litigation in court.

Could the newly-passed Smith-Leahy AMERICA INVENTS ACT (AIA) help to trim other issues that tend to make patent infringement litigation such an ordeal?

In a word, yes.

Provisions of the AIA either eliminate, or all but eliminate, issues that arise in patent litigation, and by doing so, chip away at this monumental type of litigation.  Here are the major ones:

1. The AIA will eliminate the issue of who is the first-to-invent, replacing it with the more easily-addressed issue of first-to-file. The determination of who is the first-to-file can be settled by anyone who can figure out which of two patent application serial numbers is lower.  The lower number wins. A computer can do that! You can even do that with one lawyer!  Compare resolution of the first-to-file with the incredibly murky issue of deciding who is the first one to invent. Of course, there can still be issues as to whether a later filer beats an earlier filer when the later one is entitled to a grace period for having published a disclosure of her invention before she filed.  Still, the date of publication and the scope of what was published are much easier to deal with than “invention date” and “reduction to practice.”

2. Prior user rights have been expanded beyond business method patents to include any patented invention. Companies using the invention in their business for a year or more before the patentee filed his application or first publishes a description of the invention may now escape liability for infringing the patent by claiming their prior use. Accordingly, the defendant in a patent infringement suit can now add “prior use” to his defense strategy, which can be particularly useful if his non-infringement evidence is weak.

3. Finally, sanity has been brought to the issue of “false marking.” False marking can occur when a manufacturer falsely marks products with a phony patent number, but manufacturers have been stung by false marking suits for simply continuing to apply expired patent numbers to their products.  Private parties have filed civil suits for false marking to take advantage of the statutory $500 per offense. Now, however, the AIA allows private causes of action for false marking only when it causes competitive injury. Furthermore, the remedy for false marking in a private civil action is now limited to damages adequate to compensate for the injury.

4. The failure on the part of the applicant to disclose the best mode has been eliminated as a tool of the infringement defendant.  Best mode is often a subjective determination and one that has a time dimension to it, making it ripe for second guessing the patentee and her patent attorney years after the patent application was prepared and filed. Until now, failure to disclose the best mode can cause patent claims to be cancelled, held invalid or unenforceable. Now, under the AIA, the failure to disclose the best mode is no longer available to the defendant.

5.  A particularly sticky issue in patent litigation is whether the patent owner or his attorney deceptively intended to mislead the US Patent and Trademark Office, for example, in the identification of inventors or in seeking to broaden claims within two years after the patent issued.  The AIA allows mistakes in inventor- ship and claim prosecution to be fixed without question as to the intent of the applicant or her attorney.

6.  It is no longer possible under the AIA for patent trolls to file suit in one jurisdiction naming hundreds of purported infringers whose only connection with each other is the accusation that they infringe the same patent.  Now, accused infringers can only be joined if they are sued for joint and several liability arising out of the same transaction or series of transactions and there are questions of fact common to all the defendants.  In other words, now the trolls have to work for it, filing suits in the appropriate jurisdictions and taking on the alleged infringers one fact pattern at a time.

7. In the past, trebling patent infringement damages could occur if the defendant failed to obtain the advice of counsel.  The absence of such advice was considered to imply the defendant willfully infringed the patent. Now, however, the prospect of treble damages for lack of counsel’s advice is gone.  The AIA bars use of the failure of the defendant to obtain the advice of counsel in proving willfulness, which is especially beneficial to small companies.

8. Say!  Worried about infringing your competitor’s tax strategy patent once it issues? Worry no more. The AIA just sent the applicant a big and final rejection. Tax strategies for reducing, avoiding, or deferring tax liability are “deemed” to be insufficient to differentiate a claimed invention from the prior art.  Perhaps Congress went too far with this one.

9. When patent infringement litigation clouds are on the horizon, that second look at the subject patent may reveal a few soft spots that would be nice to be able to touch up, such as getting consideration of a reference that was somehow overlooked or the inventor that was overlooked or perhaps that claim that probably should not have been allowed.  Under the AIA, the owner of a patent can address any issue that might call into question the validity of his patent through supplemental examination. Supplemental examination allows the owner of the patent to eliminate these sideshow issues and clarify his claims so that the litigation is focused more efficiently on the central issues of infringement and validity.

10.  What if it’s your competitor’s patent that could stand that touch up (and what competitor’s patent can’t?), a potential patent infringement defendant can raise issues of validity via post grant review, which is filed within nine months of issuance of a new patent, or, after nine months, via inter partes review, although the scope of the issues that can be raised in inter partes review is narrower than in post grant review.  These review procedures can result in the claims being narrowed (or not) or being clarified in such a way that the issues of infringement and validity become much more sharply focused.

11. The AIA also denies state court jurisdiction over legal actions related to patents.  An action begun in state court can be removed to federal court, while unrelated matters, if any, remanded back to the state court.  Accordingly, more consistent and informed outcomes can be expected in all patent issues.

Patent infringement litigation will remain, but the AIA provides tools that can be used to resolve issues that might otherwise add layers of complexity and cost to the process. Through supplemental examination, post grant review, or inter partes review, many issues can be clarified or be reduced to minor procedural considerations.  Other provisions of the AIA simply take patent infringement issues off the table, which is certainly an effective, alternative way to resolve disputes. For some potential litigants, that will be all that is needed to achieve a reasonably efficient outcome and at greatly reduced cost. And that is saying quite a mouthful.

Wake-Up Start-Up:  A Start-Up and Small Business Patent Strategy for the Future

[Author: Amy Allen Hinson]

The American Invents Act (AIA) is not a complete overhaul of the patent system but its passing should certainly cause most businesses, especially small and start-up innovation businesses, to reconsider and overhaul their patent strategy. Because small and start-up businesses typically have limited capital for obtaining patent protection, their traditional strategy has been to file patent applications to secure protection for only those inventions they perceive to be the most profitable and important inventions, while delaying seeking patent protection on improvements and what they believe are less profitable inventions until the real value of the latter is fully understood.  Such a dilatory strategy, however, should not be the strategy for securing your company’s future.

On March 16, 2013, less than a year from now, the United States will change from a “first- to-invent” patent system to a “first-inventor-to- file” patent system. For those of you just learning about the AIA, this means, with a few caveats, that patent protection will be issued to the first inventor to file a patent application on an invention instead of the first inventor to conceive the invention. While this distinction may sound more like semantics than substance, it is not.

Under the current “first-to-invent” patent system, an inventor can challenge a filed patent application by initiating an interference proceeding to determine who was “first-to-invent” and there- fore who has the right to patent protection. While very few patent applications are actually involved in interference proceedings, the ability to initiate one, if needed, is currently crucial to the patent strategies of small and start-up businesses everywhere (whether they know it or not). Thus, the “first-to-invent” patent system, with its ability to initiate an interference proceeding, has at least created a semblance of a level playing field. Under the current system, small companies with limited funding for obtaining patent protection have the means to counter large companies with more substantial resources who can fund early filings to obtain patent protection on almost every potentially profitable invention.

The transition to a “first-inventor-to-file” patent system, however, eliminates the level playing field created by interference proceedings and thereby results in a significant advantage to large companies having large pools of capital and resources allowing them to sprint to the patent office every time they invent anything potentially profitable.  So how does a small or start-up busi- ness compete under the new patent system?

Small and start-up businesses have to take a hard look at their traditional patent strategy. For example, instead of focusing on patent protection for only the inventions they perceive to be the most profitable and important inventions, these companies need to consider protecting more of their inventions by filing provisional patent applications both quickly and consistently and by selectively and strategically timing the publication of their inventions.

Provisional patent applications are unexamined and, at least initially, unpublished applications that ultimately act as place holders to preserve priority of an invention for up to one year.  Before the one year anniversary of the date the provisional application was filed, the provisional application must be converted to a formal utility application or the priority date is lost.  One significant benefit of provisional filings is that, because of reduced filing requirements, they can be considerably less expensive than the formal utility patent applications.  Indeed, all that is required to file a provisional application is a form cover sheet, a written description that provides enough detail to allow someone of ordinary skill in the art to make and use the invention (including informal drawings, photographs, and/ or sketches), and the filing fee (currently only $125 for small entities).  Many law firms even offer inexpensive flat fees for consulting and filing provisional patent applications when the client provides the written description and drawings. Accordingly, the company will incur minimal legal expenses on the front end by shouldering most of the work while still protecting all of their inventions.

While most start-up and small businesses are familiar with provisional patent applications, the transition to a “first-inventor-to-file” patent system should make reliance on provisional applications and frequent communication with a patent attorney more important than ever. Indeed, taking advantage of provisional patent applications and basing a patent strategy around consistently and quickly filing these types of applications on all potential inventions is likely the best way to offset the advantages the AIA stands to afford larger companies.

Unfortunately, the cost of converting a provisional patent application to a formal utility application, together with the subsequent prosecution, can be very expensive and therefore small and start-up businesses may not have the funding to convert all provisional applications to formal utility applications. These businesses, however, could potentially benefit from publishing their inventive concepts at strategic times to decrease the likelihood that another company will seek protection for those inventions.

New section 102(b) of the Patent Act provides that an inventor’s public disclosure of the invention during the year preceding the filing of a patent application (provisional or utility) cannot be used as prior art against the application. That inventor’s public disclosure, however, can prevent another inventor from obtaining patent protection on the same invention.  Thus, it is in the best interest of a small or start-up business to consider quickly publishing their inventions to block others from obtaining patent protection and still obtain a year to decide whether patent protection is a worthwhile endeavor.

Solely relying on early publication of an invention, however, may best be reserved for inventions that are not considered lucrative.  For example, the patent process often takes several years and patents are not enforceable until they are issued.  By publishing an invention early, you are providing potential usurpers with all of the information and tools to make and use your invention with very little, if any, recourse to stop them until the patent issues several years later. Further, the examination by the United States Patent and Trademark Office is typically based upon patentability searches of issued patents and published patent applications.  It is a rare occasion that the patent office reaches beyond these documents to cite prior art against a patent applicant.  Thus, despite your prior art publication, a competitor may obtain a patent and seek to enforce it against you leaving you with the significant cost of defense through litigation or filing a reexamination proceeding with the Patent Office.  Finally, while the United States acknowledges a one-year publication grace period, most foreign countries do not.

Therefore, the safest overall strategy for small and start-up businesses is to file provisional applications on as many inventions as financially realistic and to strategically and selectively publish certain inventions.