How Entrepreneurs Can Thrive Under the “First-Inventor-to-File” Patent System

In September 2011, President Obama signed the America Invents Act (AIA) into law. Under one of the most important provisions of the AIA, the longstanding first-to-invent patent system will be replaced with what is often called a first-inventor-to-file system for patent applications with an effective filing date of March 16, 2013 or later. In the run-up to next March, there is likely to be significant attention in the press – and plenty of misinformation – regarding how first-inventor-to-file works and how it will impact entrepreneurs.

Here are six things that entrepreneurs can do to not only survive but thrive as they navigate this important transition in the American patent system.

Understand how first-inventor-to-file works: Contrary to what is implied in many articles about the AIA in the popular press, first-inventor-to-file doesn’t mean that the winner of a race to the patent office will be guaranteed to get the patent. Under the first-inventor-to-file system, rights to a U.S. patent will involve the interplay between the dates of filings with the U.S. Patent and Trademark Office (PTO) and the dates of any pre-filing public disclosures regarding the invention. In fact, a company that files a patent application after a competitor will sometimes be able to prevail in obtaining the corresponding U.S. patent if it publicly disclosed the invention before a disclosure or filing by the competitor (and if the company’s application is filed within one year of the disclosure.)

However, while pre-filing public disclosures can play an important role in impeding the ability of competitors to later patent the invention, those same disclosures can also foreclose the company’s own ability to obtain a patent in jurisdictions outside the United States. Entrepreneurs should educate themselves and their employees regarding these tradeoffs. This can ensure that patent filings, product releases, discussions with potential partners and customers, and presentations at trade shows are all conducted with a full awareness of their intellectual property implications.

Proactively formulate and then execute a patent strategy: Critics of first-inventor-to-file often argue that it will favor larger companies over entrepreneurs who may be unfamiliar with the patent system. But this logic confuses two issues that don’t need to be correlated: company size, and the ability to engage with the patent process.

Entrepreneurs owe it to themselves – and to the investors supporting them – to proactively formulate a strategy for protecting their company’s intellectual property. This will typically include putting in place mechanisms to identify and document inventions, and engaging the services of a good patent attorney or patent agent to help navigate the patent application process.

Understand when first-inventor-to-file applies, and prepare accordingly: The first-inventor-to-file rules will be used for applications with an effective filing date of March 16, 2013 or later. The key word here is “effective.” Under certain conditions, patent applications filed well after March 2013 will nonetheless be subject the first-to-invent rules. This creates some interesting strategic opportunities for businesses of all sizes. But startup companies are particularly well positioned to capture these opportunities by filing patent applications between now and next March that could confer significant strategic value in an acquisition.

Be agile: Large companies have more money, but they also have more people creating inventions, and often have complex organizational structures that can impede internal information flow. This can make it more challenging to execute a cohesive, cost-efficient patent strategy.

By contrast, in a small company the information flows among employees can be much more efficient, and an entrepreneur can get both the 30,000-foot view as well as the detailed view. He or she can quickly spot patentable innovations and then act to make sure they are protected. In some respects, the first-inventor-to-file system will favor companies that are more agile and better able to allocate resources to their most promising inventions – thus providing an important potential advantage to entrepreneurs.

Consider the use of provisional applications: Provisional applications, which were originally introduced in 1995 and left in place by the AIA, can be a cost-effective way of obtaining a priority date without incurring the full expenses of preparing and filing a non-provisional application. Provisionals can sometimes be submitted relatively quickly, and unlike public disclosures of an invention that hasn’t been the subject of a previous patent application, can leave options for future foreign filings open.

However, provisionals involve their own obligations and risks. Once a provisional application is filed, the corresponding non-provisional application needs to be filed within one year. If that doesn’t occur, the opportunity to patent the invention with the benefit of the provisional filing date is lost. And, a provisional that fails to include a sufficiently detailed written description and drawings will not be accorded the early filing date that was a key goal of the making the filing in the first place. In sum, provisionals can be valuable options for entrepreneurs in a first-inventor-to-file system, but must be used properly.

Don’t be penny wise, pound foolish: In a startup company where every dollar counts, the costs associated with executing a comprehensive patent strategy might seem like a deterrent. But there’s some good news in the AIA for entrepreneurs on that front: The AIA introduced a new micro-entity status that will give qualifying companies a 75% discount on most patent fees. Of course, companies will still need to pay a patent attorney or agent to prepare applications, but even those costs are often very modest when compared to the value of the resulting patents. The fee discount for micro-entities will be available when the PTO completes rulemaking to adjust its fees as provided by the AIA.