The Senate’s passage of the “America Invents Act” ushers in a major overhaul of United States patent law. Signing the bill into law on September 16, President Obama predicted it would promote innovation and speed the issuance of patents, resulting in new businesses and new jobs.

Yet, for many inventors and their lawyers, expedited patent prosecution is not the most striking change. The new law will bring the United States into line with patent systems of other countries by awarding a patent for an invention to the first to file an application instead of to the first to invent. The law introduces new procedures for challenging the validity of patents, both before and after issuance, including a special provision for post-grant review of any “covered business method patent.”

The law makes it easier for smaller inventors to file applications for patents, and defines a new “micro entity” for this purpose. And other provisions will change, in big ways and small, how patent owners, inventors, and patent practitioners interact with the Patent and Trademark Office.

First Inventor To File

Effective 18 months after signing of the legislation, our present first-to-invent system will be replaced by a first-to-file system. Subject to one narrow exception, the new system eliminates the one-year grace period, enjoyed by inventors under the present system, within which to get on file after a publication of the invention or an offer for sale of a product or process embodying the invention.

Thus, for example, an inventor who puts his invention into public use or on sale, anywhere in the world, without having filed a patent application, immediately loses his rights to obtain a patent in the United States (as well as in almost all foreign countries). A one-year grace period remains only for a publication of the invention by or through the inventor. The inventor has no grace period if a third party publishes the invention ahead of his filing date, unless the content of the publication is traceable to the inventor.

As between two inventors who develop the same technology and file applications to patent it, the one who files first will get the patent. It will no longer do any good for the second-to-file inventor to produce a notebook proving an earlier date of invention. The application filing date determines the rights.

Under the new regime, when a given patent application is filed, a previously filed application constitutes prior art for all purposes, even though the previously filed application was not published when the given application was filed. This rule is harsher than that of the European patent system, under which an application previously filed but unpublished as of the filing date of the given application can be cited as prior art for purposes of a rejection based on lack of novelty but not for a rejection based on lack of an inventive step (called “obviousness” in the United States).

On the other hand, another provision has the effect of shielding a company from a rejection of its patent application based on any previously filed applications of the company that were unpublished as of the date of filing of the given application. This provision suggests that companies might well consider filing successive applications with a view to the publication date of previously filed applications.

This new approach will make provisional applications even more important than under present law, because a provisional application enables obtaining a filing date for the invention with a minimum of formalities. Does this mean that inventors should rush to file the shortest imaginable applications without significant technical content? It does not, because other sections of the patent law, those requiring an enabling disclosure of the invention, remain intact. The application must still be well crafted.

The legislation retains the one-year grace period for inventor-created publications, which would seem to give the inventor the option of publishing his own invention and then taking up to a year within which to file a United States application to cover it. However, this is a risky strategy, because an independent third-party publication of the subject matter of the invention might occur over the one-year interval, and thereby ruin the opportunity for a U.S. patent. Moreover, the inventor’s publication will normally destroy the opportunity for coverage outside of the U.S.

Another trap for the unwary, of which Congress itself may have been unaware, is that a confidential offer of the invention for sale before it has been made the subject of a patent filing might constitute an instant bar to patenting the invention in the United States, even though the invention could possibly be patented elsewhere, for example, in the European Patent Office.

From now on, the earlier filing of provisional applications should figure prominently in patent strategies. Where provisionals have been filed relatively early in the development process, it may be productive to file a second, and even a third, provisional over the course of development—each time with more technical content—before the regular application is filed on or before the first anniversary of the initial provisional filing.

Validity Challenges and Other Proceedings

Validity challenges and patent maintenance must also be rethought. The Act establishes three new avenues to challenge the validity of a patent: pre-issuance proceedings, a regular post-grant review, and a transitional post-grant review for business method patents. Moreover, the legislation adds a new supplemental examination for patent owners to correct information missing in an existing patent, as a way of derailing attacks on the patent based on alleged inequitable conduct.

These new procedures join ex parte and inter partes reexamination and patent reissue proceedings, features of existing law that have been retained. Overall, by multiplying the types of challenges available, the new law will make it harder to obtain new patents, and to value existing patents.

Challenges before a patent is allowed

The Patent and Trademark Office will establish a new pre-issuance challenge procedure that applies to all published applications that have not yet been allowed. Third parties, such as members of the public, may ask the examiner to consider prior art publications before a first office action issues.

Prior art may be submitted even after a first office action, for up to six months after publication. Applicants should be on the lookout for these challenges, especially if their claims cover business methods or other controversial subject matter, or ubiquitous, high-value technologies like smartphones or certain drugs.

Challenges after a patent is allowed

As if that were not enough, a new procedure for challenging issued patents will go into effect a year after the legislation was signed. Post-Grant Review (PGR) allows any third party to challenge a patent on any invalidity ground for a period of up to nine months after its date of issue. PGR can be granted only on a determination that the information presented “would demonstrate that it is more likely than not that at least 1 of the claims challenged … is unpatentable” or “that the petition raises a novel or unsettled legal question that is important to other patents or patent applications.”

The well-established but more limited inter partes process, which permits challenges only to novelty and non-obviousness based solely on patents and printed publications, will now apply only after the expiration of the nine-month period (or any pending PGR). Under the new law, the inter partes process will involve a higher threshold than before. There must be “a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged” whereas before there was needed only a “substantial new question of patentability”.

The PGR and inter partes procedures involve three-way participation among the challenger, the patent owner, and the Patent and Trademark Office. (Another procedure, namely ex parte reexamination, which, once launched, is a two-way affair between the patent owner and the Patent and Trademark Office, is unaffected by the legislation.) This reordering of post-grant proceedings increases the opportunities for challenging patents, albeit with tougher standards than previously required. The nine-month PGR window will likely depress the value of issued patents somewhat while the challenge window remains open.

Patent trolls in the crosshairs

The legislation is harsher on business-method patent owners, apparently because Congress has come to look askance at the merit of many business-method patents and to associate their enforcement with non-practicing entities or “patent trolls.” These entities are known for tying up dozens, sometimes hundreds, of defendants at a time with litigation of such patents.

Hence, the new law makes a third, or transitional, post-grant review available specifically to those who are sued for allegedly infringing a “covered business method patent.” Prior art can be used to challenge it under provisions borrowed from the PGR process.

Those who disfavor business method patents will be able to challenge them either under the regular PGR process, or under the transitional program once they are sued. The transitional procedure comes into effect as soon as the PGR rulemaking process is finished, only 12 months after the law is signed, and it lasts for eight years.

On the other hand, the law applies only to a “covered business method patent,” and explicitly excludes “patents for technological inventions.” It may well be argued that almost all patents are for “technological inventions,” and, when courts inevitably turn to interpreting this turn of phrase, the exception may well swallow the rule.

This law makes it harder for patent applicants and patent owners to get and keep patents. Public participation, through the pre- and post-grant procedures, will introduce uncertainty into the process, making it harder to value patents. It will be harder to keep business method patents and to enforce them.

Some good news emerges: The patents that survive this grueling ordeal will likely be stronger, and more valuable. With all of these new rules in place, the presumption of validity will be greater, and it may become harder to challenge such patents in court. Litigation may be reduced if some otherwise assertable patents are knocked out by these proceedings.

In a striking departure from ordinary civil litigation practice, the new law prevents a patent-holder from suing multiple defendants in a single lawsuit if the only justification for doing so is that all the defendants have allegedly infringed the same patent. By the same token, a court cannot consolidate multiple lawsuits filed for the same purpose, without obtaining waivers from the multiple defendants.

Joinder of multiple defendants will be proper only if the plaintiff alleges related acts of infringement by the defendants. Just how related must those acts be? This is a question that is itself likely to be the subject of considerable litigation.

Again, Congress is plainly aiming to raise the litigation costs of alleged patent trolls who, notoriously, institute suit against a vast swath of corporate defendants for infringing their patents. At the same time, however, this provision will, in some foreseeable circumstances, hamstring ordinary patent owners from enforcing their rights efficiently.

Patent Marking

The new law significantly lightens the burden on patent owners with respect to patent marking. For a long time, the law has barred a patent owner from recovering infringement damages occurring before filing of suit, unless the owner marked the patent number on the product or the infringer had notice of the patent through other means. A related provision made it illegal, among other things, to mark an unpatented product as patented with an intent to deceive the public.

A penalty of up to $500 applies for each offense—with each item sold a potentially separate offense–and anybody may sue for the penalty, which is shared equally with the government. The existing provision explicitly enables whistle-blowers, who have no competitive injury, to sue patent owners. In recent years there has been an explosion of litigation in this area, to the detriment of patent owners.

The new law changes the rules. Now a party experiencing a competitive injury can sue for false marking, but whistle-blowers experiencing no competitive injury have no right of recovery. Placing an expired patent number on a product sold by the patent owner no longer amounts to false marking. Moreover, the new law also enables “virtual marking”—placing on a product the address of a web site where the patent number details may be listed.

Small Inventors

Small inventors should be pleased with the new law. For them, the biggest change is the creation of the micro entity. Micros are eligible for reductions of 75% on most fees. Micro status applies to the first five non-provisional applications filed by an inventor who already qualifies as a small entity, provided that the inventor’s gross income is not more than three times the median U.S. household income and the inventor has not assigned (and has no duty to assign) the invention to a non-micro. Researchers employed by universities also qualify as micros, under certain conditions.

In a curious twist, patent filings that are the subject of prior assignments and duties to assign to previous employers do not count against the five-application limit. This means that inventors who applied for patents while employed at a large R&D company still qualify as a micro entity if they strike out on their own. This provision assures small inventors lower costs if they choose to start a home business.

Small inventors get other benefits. For one, the Patent and Trademark Office will establish an ombudsman to assist small businesses and independent inventors file applications on their own. Congress has commissioned a study on helping small inventors obtain international protection. And the new law will call on the Patent and Trademark Office to support IP law associations in providing pro bonoassistance to small inventors.

Filing-Fee Changes

The new law establishes a 15% surcharge on nearly all fees charged by the Patent and Trademark Office. The provision goes into effect later this month, and the surcharge will remain until the Patent and Trademark Office changes the fees under its new fee-setting powers. This means that applicants can expect to see their non-attorney costs increase immediately. With the exception of certain rulemaking that must be done within 60 days, most other provisions of the new law will take effect in 12 months.

Fee Diversion

An earlier version of the bill would have barred Congress from redirecting the filing fees that the PTO collects each year, but that provision was squelched: Congress will keep control over Patent and Trademark Office appropriations, in that fees collected by the Patent and Trademark Office in excess of appropriations will be stored in a surplus account, for release only with congressional approval.

On the other hand, the legislation does grant fee-setting authority to the Patent and Trademark Office. Time will tell whether Congress will divert the PTO revenue stream for other purposes, as it has done in the past, and whether it will give the PTO fees collected that exceed appropriations. The legislation is in that respect at best only a work in progress.

Other Provisions

The new law includes an incentive to file applications and other paperwork electronically by way of a $400 surcharge for paper filings. It establishes a scheme for “prioritized examination” of an application for a fee of $4800 ($2400 for small entities), initially limited to 10,000 applications per year.

Tax strategies are now considered prior art and cannot be patented. Likewise, no patents will issue that encompass human organisms. If you were planning to file an application in these areas, you are out of luck.

The Patent and Trademark Office has been charged with establishing three new satellite offices, including one in Detroit, so it may become easier and less expensive to conduct examiner interviews.

Conclusion

The impetus for the new law came primarily from industrial giants in the financial and computer industries, which clamored for “patent reform” and sought to file the teeth of the patent system. Yet, over the years, the Federal Circuit, the court which hears all patent appeals, largely addressed these concerns, and some of the more aggressive positions urged by those sectors met vigorous opposition by the pharmaceutical industry and other sectors that depend on patents.

The new law that has emerged from this face-off represents serious tinkering but not too much teeth-filing. It will have a major impact on patent owners, inventors and practitioners for years to come. Inventors must give greater attention to their timetable for filing for patent protection, gird themselves for an array of possible challenges to their patent’s validity, and rethink their multiple-defendant enforcement strategies.

The America Invents Act recognizes that patents are a commodity of great potential value, as cornerstones of development and attractors of investment. Still, the legislation requires applicants and their attorneys to recalibrate their approach to prosecuting and enforcing patents.