Before the enactment of the American Invents Act (“AIA”), I identified four key provisions of the new law that will impact retailers.  I have asked my colleague Daniel Farris to provide details regarding what retailers need to know about the rest of the AIA.  Daniel is a part of my retail patent litigation team with a particular focus on internet and computer technologies.

The following is the first in a three part series providing greater depth and analysis of the new provisions of the AIA.  This post focuses on patent prosecution and the changes in the way patent rights are created by the AIA.

First-To-File System

Perhaps the most notable change made to the U.S. patent system by the AIA was the change from the first-to-invent to the first-to-file system. The switch brings the U.S. system more in line with the way the rest of the world’s patent systems work.  Unlike most of the rest of the terms of the AIA, the changes made to 35 U.S.C. § 102(a) will not go into effect until March 13, 2013.

The impact of the first-to-file system has been widely debated.  While it creates greater uniformity amongst the major patent systems of the world, some speculate that the quality and completeness of applications and claim language will suffer as inventors race to the Patent Office to file first.  One reality of the AIA will be increased pressure on inventors to file applications earlier in the development process, much closer to conception and before commercial use or public reduction to practice.  This pressure to file, as well as pressure to publicly disclose the invention near conception, will likely be greater at corporations with large patent portfolios and substantial research and development budgets, particularly given the amendments that allow assignees to file on behalf of inventors and the limitations on prior art.  Some worry that the result of all of this pressure may be to create an even more overburdened Patent Office, which will be forced to deal with less specific patents, making for murkier patent claims.  While the first-to-file system creates clarity with regard to priority date, and eliminates some uncertainty surrounding “conception” of patentable subject matter, that clarity may come at the cost of quality in patent applications and ultimately patent claims.  The fear for retailers is that the murkier claims that may result give patent trolls another series of broad claims with fuzzy boundaries that we saw coming out of the Patent Office in the 1990’s in the internet space.  They increase uncertainty and cost of patent troll litigation.  The Patent Office had resolved many of these cases, but first-to-file could bring them back. 

New Definition of Prior Art

There are three notable changes to the definition of prior art under the AIA.

1. Prior art will now be judged by reference to the “effective filing date” of the invention, not the date of “invention by the applicant.” 35 U.S.C. § 102(a)(2). This change is consistent with the change to the First-to-File system, as the filing date becomes the relevant priority date, and “invention” or “conception” becomes largely irrelevant.
2. 35 U.S.C. § 102(b) now creates an exception to prior art for public disclosures made by the inventor one year or less before the effective filing date of the patent.  This means that any publication or application by a third party that comes within one year of the inventor’s application, and after the inventor has published or publicly disclosed his invention, will not be considered invalidating prior art.  While early publication or disclosure may impact patentability abroad, inventors or companies that intend to primarily pursue U.S. patent protection may push to publish early so as to obtain the earliest possible priority date for the invention.
3. A change in the definition of invalidating prior art that may cause some confusion in the near term, until the courts have time to flesh out the issue, is the new standard including the phrase “otherwise available to the public.”  Under the old standard, prior art was invalidating if it was “known,” “used,” “patented,” “described in a printed publication,” “in public use” or “on sale.”  This additional “catch all” language of “otherwise available to the public” is likely to create uncertainty and some inconsistent decisions until the Federal Circuit or Supreme Court settles the issue.

New Rights For Entities

The AIA also provides for new prosecution rights to entities, rather than individual inventors.

1. Under the revised Sections 115 and 118, 35 U.S.C. §§ 115 and 118, an assignee of an invention, or an entity that has obligated an inventor to assign an invention, may file an application without obtaining an oath or declaration  of the inventor.  In fact, the law does not even require permission or knowledge by the inventor in advance of the filing.  Whereas applications under the old system requires an oath or declaration by the inventor claiming to be the original inventor, the new system will allow a statement by the assignee where the inventor cannot be found after “diligent effort,” or where the inventor under a legal obligation to assign the invention refuses to do so.  These provisions may further accelerate new applications, though it may shift prosecution to larger companies and away from individuals.
2. The AIA creates a new “micro entity” status that reduces filing fees by 75% for certain applicants.  35 U.S.C. § 123.  Generally, to qualify as a “micro entity” an applicant must: (a) be an individual inventor or university (individuals must have annual gross income in the prior year of less than three times the national median household income); and (b) not have previously filed more than four non-provisional patent applications, not including those the inventor was obligated to assign to an employer; and (c) not be under an obligation to assign the patent to any entity which does not qualify as a “micro entity.” These provisions, contrary to those listed above, inure to the benefit of small/individual inventors, who may be more likely to initiate litigation against retailers as they seek to enforce rights they believe to own.

Constitutional Concerns

Opponents of the AIA have raised constitutional concerns over some of the AIA’s most prominent changes.  For example, Article I, Section 8 of the Constitution grants congress the power:

To promote the Progress and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

Opponents of the first-to-file system have argued that Article I, Section 8 requires that the patent system be administered under the old first-to-invent system because it expressly grants exclusive rights to “Inventors.”  The same argument calls into question the rights in Sections 115 and 118, allowing entities other than the inventor to file an application without an inventor declaration.  Other constitutional challenges have been levied against the False Markings sections of the Patent Act on both sides of the fence.  While it is unlikely that a constitutional challenge to the AIA will prevail, if any did it could create greater uncertainty and throw the system into disarray.