The sweeping patent reform law enacted last month is expected to create new classes of intellectual property winners and losers as game-changing provisions kick in during the next 18 months.

Lawyers expect radical shifts in application-filing rules to raise malpractice risks for patent prosecutors, kill a specialty based on determining who’s the first inventor and spawn a new specialty around the post-grant review system allowing third parties to challenge patents. Litigators anticipate more hurdles for plaintiffs and the demise of contingency patent litigation.

President Barack Obama signed the Leahy-Smith America Invents Act into law on Sept. 16. The House of Representatives passed it on June 23 by a vote of 304-117, and the Senate passed it on Sept. 8 with an 89-9 vote.

Lawyers are going to have to relearn many legal structures that were very ingrained, said Michael Sacksteder, a patent litigation partner in the San Francisco office of Fenwick & West. “The bottom line is everybody who litigates patent is really going to have to go to school on how this impacts what they do,” Sacksteder said. “We’re going to have to pay very close attention to when provisions take effect, which patents they apply to and how the courts interpret them.”

The law is the most sweeping revision of patent law in decades. The most fundamental, and one of the most controversial, changes will shift the nation’s patent system to a first-to-file system from a first-to-invent system in March 2013.

A 15% surcharge on a wide range of patent fees took effect last month, but most of the substantive U.S. Patent and Trademark Office (PTO) procedures are scheduled to take effect next September.

A new post-grant review process, in particular, will give third parties more tools to tear down others’ patents. Post-­grant review will allow for challenges within nine months after a patent is issued or reissued.

The first-to-file system will also broaden the scope of prior art — published information about the subject matter of the claimed invention, including issued patents, that could torpedo a patent application. Current law restricts prior art to inventions that are either “known or used by others” in the United States or patented or described in a printed publication worldwide at least one year before the U.S. patent application being reviewed.

After the change, any public use, sales, knowledge of or printed publication describing the technology worldwide at any time, except for certain disclosures by the inventor, could be prior art, which will necessitate more extensive global prior-art searches.

“Once the PTO issues regulations for the law, practitioners will need to catch up,” said Michele Bosch, a partner at Washington-based Finnegan, Henderson, Farabow, Garrett & Dunner who chairs the firm’s chemical and metallurgical practice group. Lawyers will need to understand and comply with two legal systems for prior art, Bosch said.

HIGHER HURDLES FOR PLAINTIFFS

In addition, several litigation reforms, which took effect immediately, raise the bar for plaintiffs seeking to prove infringement.

One provision effectively kills whistleblower lawsuits against companies that falsely label products as patented, known as false-marking cases. Hundreds of cases followed a December 2009 ruling by the U.S. Court of Appeals for the Federal Circuit concerning false-marking damages, and subsequent Federal Circuit rulings on various legal questions raised by the flood of lawsuits failed to fully stem the tide.

Another provision sharply limits lawsuits against multiple defendants, a tactic known as joinder of parties. Non­practicing entities, often referred to as patent trolls, use patents solely to file lawsuits and demand licensing fees. They have favored multidefendant suits and filed them in droves during the days between the law’s passage and Obama’s signing ceremony.

Two other less dramatic reforms will also reshape litigation. The prior commercial use defense, previously available only for business-method patents, allows defendants to claim they used certain technology before another party filed a patent for the technology or revealed it to the general public. The defense now extends beyond business methods to cover a process or “a machine, manufacture, or composition of matter used in a manufacturing or other commercial process.”

But the end of what is known as the best-mode defense, the claim that a patent is invalid or unenforceable because the application didn’t state a preferred embodiment of the invention, is more likely to help plaintiffs. “Defendants can be very creative in their uses of it,” said Peter Toren, an attorney at Shulman Rogers Gandal Pordy & Ecker in Potomac, Md.

Once first-to-file takes effect, patent prosecutors must respond immediately when an inventor-client wants to file a patent application, said Bernard Codd, a partner in the Washington office of McDermott Will & Emery. “It raises liability concerns,” Codd said. “If you get something on file just one day after your competitor, your client’s not going to be very happy. It could lead to malpractice suits.”

Codd expects more practitioners to stake their claims on invention dates with “provisional applications,” which summarize inventions and cost roughly one-tenth the fees of a patent application. Provisional applications can be turned into full applications within a year. “It’s relatively cheap, but if you do not file a nonprovisional application within a year, you lose that filing date,” Codd said.

The patent-interference specialty, which helps clients with the adversarial process of proving who is the first inventor, “will largely disappear,” Codd said. Only a small subset of the practice known as derivation, whereby a party tries to prove an applicant derived his or her invention from another invention, will survive, Codd said. Derivation is codified in the patent reform law as a way to deal with claims of invention theft, he said.

A ‘BOOMING BUSINESS’

The law is likely to spawn specialization in challenges under the new post-grant regime, partly because it’s expected to cost less than the current re-examination process, Codd said. “It could be quite a booming business for lawyers to get involved in preparing post-grant oppositions.”

Re-examinations are PTO processes for reviewing issued patents. Anyone can launch an ex parte re-examination based on prior patents or printed publications.

Inter partes re-examinations, which could be initiated by anyone except the patent owner, were discontinued on Sept. 16. Besides the new post-grant review, the PTO is ramping up a more streamlined inter partes review process, which must be initiated nine months after a patent is issued or reissued or by the end of post-grant review

The PTO has one-year deadlines for both the post-grant and inter partes review systems, with six months extensions only for exceptional cases. The law also outlines restrictions for lawsuits and either type of review on the same patent.

The rise of post-grant proceedings is likely to kill contingency patent infringement cases, which are typically filed on behalf of individual or small-company inventors, said reform law critic Steven Moore, a partner in the Stamford, Conn., office of Kelley Drye & Warren. “They’re going to be much a thing of the past because defendants can keep knocking [the dispute] into administrative reviews.”

Recent Federal Circuit rulings on damages and where patent cases can be filed have already made patent contingency cases harder to bring, and the patent reform law is going to create even more hurdles, said Tara Williams, a partner at Law Offices of James Scott Farrin in Durham, N.C., who focuses her practice on contingency patent cases. “It may be close to making it impossible,” she said.

Moore said he’ll have to warn independent inventors that “getting a patent is buying yourself hundreds of thousands of dollars’ worth of problems because anyone can challenge you and they can challenge you over and over and over.”

But Bosch believes post-grant review could offer an alternative for “smaller companies who don’t have the budget nor the stomach for litigation.”

“There’s a potential for the PTO to become a very well-respected forum for validity challenge at a smaller budget than litigation,” Bosch said.

DEFENSE FRIENDLY

A broader range of companies will now be able to claim internal use of a technology that’s the subject of another party’s patent application, giving them a potential avenue to escape infringement litigation, said David Segal, a partner in the Irvine, Calif., office of Gibson, Dunn & Crutcher.

“There are companies that could be using [innovative] processes to manufacture products and keeping that as a trade secret,” Segal said. “Under current case law, private use was not a defense to infringement charges.”

The prior-commercial-use argument will also help potential defendants deflect demands that they take a license from a patent owner who asserts that they’re infringing, said Chinh Pham, a partner in the Boston office of Greenberg Traurig who heads the firm’s nanotechnology practice. “That could reduce the amount of licensing opportunities,” Pham said. If a lawsuit does erupt, the defense argument could defeat some nonpracticing-entity (NPE) cases, Pham said. “To the extent that you have this defense that you’ve been using this internally, that could deter some of these NPEs.”

The defense-friendly provision that curtails joinder of parties may hamper so-called trolls, but it also harms small companies, Moore said. “It has reduced the value of the patent and it’s going to be very expensive for small companies,” Moore said.

Multiple lawsuits are also risky for any patent holder, Moore said. “The chances of getting an order that the patent is invalid is very high because there’s no real standard for obviousness.”

Although the joinder change and the prior-use defense are roadblocks for nonpracticing entities, Sacksteder doesn’t think the law sounds their death knell.

“I do not doubt that NPEs and their lawyers are coming up with out-of-the-box creative ideas for keeping their activity going,” Sacksteder said.

Sheri Qualters can be contacted at squalters@alm.com.

 
KEY PROVISIONS OF THE AMERICA INVENTS ACT
Provision Description Effective date
Joinder of parties Multidefendant infringement cases must involve the same product or process and common fact questions. Sept. 16, 2011
False marking Plaintiffs must have a competitive injury from another’s false marking of products in order to file a lawsuit; compensatory damages only. Sept. 16, 2011
Best-mode defense A patent applicant’s failure to disclose a preferred embodiment of the invention on the application can no longer be used to challenge the patent’s validity. Sept. 16, 2011
Prior-commercial-use defense A party’s commercial use of some process, machine or manufacturing technology before a patent infringement lawsuit is filed can be a defense to the lawsuit. Sept. 16, 2011
Prioritized examination Similar to a PTO accelerated processing program postponed due to budget cuts: $4,800 for utility and plant applications, $2,400 for small entities. Sept. 26, 2011
Willful infringement Failure to obtain advice of counsel cannot prove willful infringement or intention to induce infringement; codifies Federal Circuit case law. Sept. 16, 2012
Post-grant review Anyone except the applicant can initiate this procedure within nine months of the patent’s issue or reissue; restricts litigation about the same patent; PTO must resolve nonexceptional cases within one year. Sept. 16, 2012
Inter partes review Anyone except the applicant can initiate this procedure within nine months of the patent’s issue or reissue or by the end of the post-grant review; restricts litigation about the same patent; PTO must finish review in one year in nonexceptional cases; transition started at enactment. Sept. 16, 2012
First inventor to file Patent rights go to the first inventor to file a patent application instead of the first to invent. March 16, 2013
Prior art changes Broadens possible proof that a patent isn’t novel; includes any public use, sales, knowledge of or publication describing the technology worldwide, except for certain disclosures by the inventor. March 16, 2013
Sources: the Leahy-Smith America Invents Act and the U.S. Patent and Trademark Office.