Patent Reform: Five Things Technology Companies Need to Know

Intellectual property (IP), which includes not only patents, but also trademarks, copyrights, and trade secrets, can be a critical asset for companies of all sizes, and is almost always a major focus in acquisition and licensing discussions. The American patent system is undergoing a major shift thanks to the America Invents Act (AIA), which was signed into law by President Obama last September.

Here are five key aspects of the AIA that technology companies need to know.

1. Say goodbye to the “first to invent” patent system

The American patent system has traditionally been structured to award a patent to the earlier inventor – even if he or she files a patent application after a later-inventing competitor. However, in many other countries, the patent is awarded to the inventor who files the first patent application.

In part to bring the United States into closer alignment with the rest of the world, the AIA eliminates the first-to-invent system for U.S. patent applications with an effective filing date of March 16, 2013 or later. In its place will be a new system that is called “first-to-file,” though that is only a partially accurate description of the way things will actually work. The full explanation is more complicated, with public “disclosures” of an invention also playing an important new role with respect to patentability.

March 16, 2013 may seem like a long way in the future. However, technology companies need to be thinking about this change now. Patent applications filed before that date can still realize the benefits of the first-to-invent system. In addition, it will take time to ensure that everyone who communicates with the outside world about company technology–including executives, managers, marketers, developers, and salespeople–is fully aware of the new impact that disclosures will have with respect to patentability.

2. Tell us the best way to practice the invention. Or else . . .

An inventor filing for a patent is required to disclose the “best mode” that he or she knows of practicing the invention. This is part of the contract that forms the basis for the patent system: in exchange for teaching the public how to practice the invention, a patent holder is granted a time-limited right to exclude others from doing so.

Under pre-AIA patent law, an inventor’s failure to disclose the best mode during the patent application process was grounds for having the resulting patent declared invalid when it was later asserted in litigation. Under the AIA, however, that sanction has been removed. It’s a bit like posting a speed limit of 60 mph, but then adding a footnote saying “those who drive faster will not be cited.”

This apparent inconsistency has been the subject of spirited debate in the patent law community, with some people claiming, not at all unreasonably, that the best mode requirement is effectively gone. The U.S. Patent and Trademark Office (PTO) has [pdf] reiterated that the best mode requirement is still alive and well to obtain a patent – but with a key sanction for failure to do so off the table, the incentives have clearly changed.

So what should companies do? They should do the right thing and continue to disclose the best mode when applying for patents. Not only is it still the law (though perhaps not particularly enforceable), but future legislation may close this loophole. If that happens, companies that played by the rules will have patents more likely to withstand validity challenges in future litigation.

3.  A faster way to get patents

According to a recent analysis posted on patent law blog Patently-O, it takes an average of nearly five years to get a U.S. patent (assuming that the clock starts ticking with the very first filing associated with a patent). Some of these delays are due to the backlog in the PTO, but inventors themselves often share some of the blame. However, even when inventors do everything right, the patent examination process can take years. This can be frustrating in the technology world, where product life cycles can be far shorter.

Following the enactment of the AIA, the PTO instituted a new (but [pdf] previously planned) prioritized patent examination program called Track One. By paying an additional fee, inventors can have their patent applications “processed to completion” in one year. Track One can be a very valuable option, particular for technology startups wanting to rapidly build a portfolio of issued (as opposed to pending) patents. The PTO currently limits the number of Track One patent applications to 10,000 per fiscal year.

4. How can I attack a patent? Let me count the ways . . .

The AIA substantially expands the mechanisms available to attack a patent  – or even a pending patent – held by a competitor. For example, the AIA introduces a “post-grant review” that will enable third parties to challenge a patent issued within the previous nine months. In addition, as of September 2012, there will be a “pre-issuance submission” option that companies can use to explain to the PTO why a competitor’s pending patent application shouldn’t be granted. As if that weren’t enough, there are also two other reexamination and review procedures that third parties can use to challenge a patent through the PTO. And, patents can still be challenged in federal court and in the International Trade Commission.

What does this mean for technology companies? The answer depends on whether you’re on defense or offense. When filing patent applications, it’s more important than ever to do proper diligence to ensure a strong application that will be more robust to third-party attacks. Companies wishing to challenge issued or pending patents held by a competitor should get up to speed on the new procedures.

5. Trade secrets got a promotion!

The AIA includes a new defense to infringement based on [pdf] prior user rights. In English, here’s how this works: Suppose that your company comes up with an invention that it decides to retain as a trade secret. Now suppose that a competitor independently replicates the same invention and decides to patent it. If the competitor then sues your company for patent infringement, what happens? If your company was commercially using the competitor’s patented invention by a sufficiently early date, that commercial use can inoculate your company against an infringement finding.

Trade secrets retain the same advantages as before in terms of offering a competitive edge. However, thanks to the AIA, one of their risks–the possibility of being held liable for practicing your own trade secret–has been lowered.

The details of the above provisions, and the AIA generally, are complex. In addition, there is much about the AIA that remains uncertain, and will be clarified through PTO actions and the inevitable court tests. It’s important for companies wishing to successfully navigate this rapidly changing landscape to work with a good patent attorney or patent agent. Up-front investments in a good IP strategy are often returned many times over when a company is acquired or enters into patent licensing agreements.

In addition, while there’s certainly no need to turn everyone in the company into an expert on the ins and outs of patent reform, it would also be a mistake to assume that only the patent specialists need to care. Companies that proactively update their internal procedures and employee training to adapt to the AIA will be much better positioned to maximize the value of their IP portfolios.