Leahy–Smith America Invents Act

Leahy-Smith America Invents Act

Long title	To amend title 35, United States Code, to provide for patent reform.
Acronyms (colloquial)	AIA
Nicknames	Patent Reform
Enacted by	the 112th United States Congress
Effective	September 16, 2011
Citations
Public law	112–29
Statutes at Large	125 Stat. 284 through 125 Stat. 341 (57 pages)
Legislative history
Introduced in the Senate as "America Invents Act" (S. 23) by Patrick Leahy (D–VT) on January 25, 2011 Committee consideration by Judiciary Committee Passed the Senate on March 8, 2011 (95–5) Passed the House on June 23, 2011 (304-117) with amendment Senate agreed to House amendment on September 8, 2011 (89-9) Signed into law by President Barack Obama on September 16, 2011

The Leahy-Smith America Invents Act (AIA) is a United States federal statute that was passed by Congress and was signed into law by President Barack Obama on September 16, 2011. The law represents the most significant change to the U.S. patent system since 1952, and closely resembles previously proposed legislation in the Senate in its previous session (Patent Reform Act of 2009).

The Act switches the U.S. patent system from a "first to invent" to a "first to file" system, eliminates interference proceedings, and develops post-grant opposition.

Legislative response and history

Senator Patrick Leahy (D-VT) introduced similar bill S. 23 in the United States Senate on January 25, 2011, with seven co-sponsors (also members of the Judiciary Committee) that include Senators Coons (D-DE), Grassley (R-IA), Hatch (R-UT), Klobuchar (D-MN), Kyl (R-AZ), Lieberman (I-CT), and Sessions (R-AL). The Judiciary Committee unanimously approved the bill, and the United States Senate passed it March 8, 2011, by a vote of 95–5. H.R. 1249: was passed by the House Judiciary Committee on April 14, 2011, by a vote of 32-3.

The House of Representatives passed their version of the Act (H.R. 1249) on June 23, 2011 by a vote of 304-117, with sixty-seven Republicans and fifty Democrats voting against the bill. On September 8, 2011, the Senate approved the House version by an 89-9 bipartisan vote. On September 16, 2011, President Barack Obama signed the bill into law at a ceremony at Thomas Jefferson High School for Science and Technology in Northern Virginia.

Provisions

First to file and grace period

U.S. patent

The law will switch U.S. rights to the patent from the present "first-to-invent" system to a "first-to-file" system for patent applications filed on or after March 16, 2013 The law also expands the definition of prior art used in determining patentability. Actions and prior art that bar patent will include public use, sales, publications, and other disclosures available to the public as of the filing date, other than publications by the inventor within one year of filing (inventor's "publication-conditioned grace period"), whether or not a third party also files a patent application. The law also notably expands prior art to include foreign offers for sale and public uses. Applicants that do not publish their inventions prior to filing will receive no grace period. The proceedings at the U.S. Patent Office for resolving priority contests among near-simultaneous inventors who both file applications for the same invention ("interference proceedings") are repealed, because priority will be determined based on filing date. An administrative proceeding—called a “derivation” proceeding, similar to that currently used within some interference proceedings is provided to ensure that the first person to file the application is actually an original inventor and that the application was not derived from another inventor.

The AIA refers to the new regime as "First-Inventor-to-File (FITF)." This new regime operates differently than the "First-to-Invent" (FTI) regime in the US and the various "First-to-File" (FTF) regimes in place in the rest of the world. An analysis of the differences between FTI, FTF, the original FITF, and the regime in the current bill was performed for some 200 different typical fact patterns involving the actions and timing of two different inventors in terms of whether and how each would publish or file patent applications. The comparison demonstrates the different outcomes that can occur under each of the four different regimes.

Opposition procedures

The Act revises and expands opposition procedures. The Act retains existing ex parte reexamination, adds preissuance submissions by third parties, expands inter partes reexamination and renames it inter partes review, and adds post-grant review.

Additional changes

The America Invents Act included the following changes:

• Tax strategy inventions. Provides that any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of the invention or application for patent, shall be deemed insufficient to differentiate a claimed invention from the prior art.
• False marking. Eliminates false marking lawsuits except for ones filed by the U.S. government or filed by a competitor who can prove competitive injury. In addition, marking a product with a patent that formerly covered the product, but has since expired, is no longer a violation.
• Filing by other than inventor. An entity can file an application on behalf of an inventor who assigned or is under an obligation to assign the invention rights to the entity (or if the entity otherwise has financial interest in the invention), without seeking the inventor's execution of the application. Any patent that issues belongs to the inventor absent a written assignment from the inventor or inventor's estate to the entity.
• Best mode. While an inventor is still required to “set forth” the best mode for accomplishing the invention, failure to disclose a best mode is not a basis for invalidating or rendering unenforceable an issued patent. By formally keeping the best mode requirement in the patent law, but by eliminating it as a defense to patent infringement and by therefore making it unenforceable in court, the America Invents Act has left many patent lawyers to wonder why having the requirement at all.
• Prior user rights defense. If an individual/entity begins using an invention ('user') more than a year before a subsequent inventor files for a patent on the same invention, then the user will have the right to continue using the invention in the same way after the subsequent inventor is granted a patent as long as the user did not derive the invention from the subsequent inventor. These prior user rights are limited in scope and transferability, and they also have limited applicability to patents held by universities.
• Micro-entity. The AIA added a micro-entity status. A micro-entity includes an independent inventor with a previous calendar year gross income of less than 3 times the national median household income who has previously filed no more than four non-provisional patent applications, not including those the inventor was obligated to assign to an employer. A micro-entity also includes a university or an inventor under an obligation to assign the invention to a university. A micro-entity is entitled to a 75% reduction in many of the patent fees payable to the US Patent Office during prosecution of a US patent application. The patent office is expected to develop regulations to identify which fees will be eligible for the reduction and how joint inventors may qualify as a micro-entity.
• Confidential Sale. Provides that confidential sales of products containing the patented technology will no longer mark the beginning of the 1 year period to file the patent.

Savings from small entity (prior to act, based on small entity fees & includes 15% surcharge), to micro entity (post act):

USPTO Fee Type*	Before	After	Difference
Basic Utility Fee	$165	$95	$70
Utility Search Fee	$270	$155	$115
Utility Exam Fee	$110	$63	$48
Issue Fee	$755	$435	$320
3.5 Year Fee	$490	$283	$208
7.5 Year Fee	$1240	$713	$528
11.5 Year Fee	$2,055	$1,183	$873
*****	*****	*****	*****
TOTALS	$5,085	$2,925	$2,160

% Net Savings for the new Micro Entity over Prior Small Entity Inventor = 42%

USPTO practice changes

• Fee Setting Authority. The USPTO would be given authority to adjust its fees in a way that "in the aggregate" recover the estimated costs of its activities.
• Review of inter partes reexamination. Direct appeal to the Federal Circuit is the only option for judicial review in inter partes reexamination cases.
• Additional USPTO facilities. Establishes additional USPTO satellite offices, the first of which will be located in Detroit, Michigan.
• Third-party submission of prior art. Third-parties may submit prior art in published application if submitted prior to the later of: the mailing date of the first office action, or six months after publication.

Reactions during bill's pendency

Proponents of the bill argue that it may even the playing field by removing the tricks a well-funded infringer can currently use against a startup owning patented technology.

Proponents of the bill suggest that technology companies are subject to an unprecedented wave of patent lawsuits, stifling innovation and creating an overburdened and lethargic patent system. Advocates for the America Invents Act argue that it will create jobs, bolster innovation, streamline the patent system, reduce patent litigation, and keep the U.S. competitive globally.

Opponents of the Bill contend that it will lead to results similar to other nations' patent systems on which the bill is modeled — market incumbents will become further entrenched, the rate of startup formation will fall to levels in other countries, and access to angel and venture capital will fall to the levels of other countries, as described in the Impact of the Changes section below. A startup which relies on patents for protection from competitive risk, will, under the Bill, lose the protections of today's law to assemble the capital, strategic partners, and time for R&D and testing. The startup, exposed to the risk of copying by an established player in the marketplace, will be unable to attract venture capital, and so will lack the financial resources necessary to commercialize the startup’s invention and grow the company. The weakening of patent protection diminishes incentives for investments and development.

In addition, opponents of the bill point out that the proposed revisions create greater options for accused infringers, and weaken the rights of patentees, and that patent reform should remain in the hands of the court system. Opponents argue that patent reform should be confined to administrative reforms at the USPTO. The time, effort and money that will be spent after issuance under the Bill on inter partes review and post-grant review would be better spent improving initial examination. According to patent attorney and reexamination specialist Taraneh Maghame, “the root of the problem trying to be addressed by the reexamination process could be better solved if quality patents are issued in the first instance.”

First to file and grace period

Proponents of the AIA submit that it would simplify the application process and bring U.S. patent law into better harmony with the patent law of other countries, most of which operate on the "first-to-file" system. Proponents also claim that it would eliminate costly interference proceedings at the USPTO and reduce U.S. applicants’ costs in seeking patent rights outside of the United States.

Opponents contend that a "first-to-file" system favors larger firms with well-established internal patenting procedures, patent committees and in-house attorneys over small business inventors. They claim that, in a novel and perverse way found in no other country, the Act would weaken patent protection only in America. Opponents also submit that it will (i) cause loss of patent rights due to new prior art published after the invention date but before the filing date, (ii) weaken the current grace period so it cannot be relied on, compelling inventors to behave as if there were no grace period, (iii) replace "interferences" with costly derivation proceedings, which are generally even more expensive than interferences, (iv) create a “race to the Patent Office” with every new idea, increasing the number of patent applications filed, with the attendant costs in attorney fees and diversion of company personnel to patent application preparation, (v) increase examination backlogs at the USPTO, (vi) do nothing to reduce U.S. applicants’ costs of acquiring patents outside of the U.S., and (vii) decrease average patent quality.

It was found that the proposed new regime behaves more like a new and unique kind of patent system with characteristics of both the FTI and FTF regimes, rather than a harmonized system sharing characteristics of both.

Opponents point out that under First-to-Invent, a company with extensive resources can choose to practice First-to-File, by simply racing to the patent office as soon as every invention is conceived, eliminating any need to keep records of invention conception. Meanwhile, a company with limited resources can take still utilize First-to-Invent, only filing patents that matter after funding is obtained. Under First-(Inventor)-to-File, the reverse is not true: all parties, regardless of their resources, must adhere to “race to the patent office”. This places small entities at an enormous disadvantage to large entities.

There is a question of whether changing to FTF would be constitutional. Article I, Section 8 of the Constitution states: “To promote the Progress of ... useful Arts, by securing for limited Times to ... Inventors the exclusive Right to their respective ... Discoveries.” The term "inventor" means "the first to invent." "To invent" means "to create something that has not existed before." Therefore, by the standard definitions of our language, adoption of FTF would require amending the constitution. All peer-reviewed papers published in scholarly journals have found this or similar problems.

Canada changed from FTI to FTF in 1989 and experienced a measurable "adverse effect on domestic-oriented industries and skewed the ownership structure of patented inventions towards large corporations, away from independent inventors and small businesses."

Judicial review of reexamination decisions

Opponents note that the bill contains a provision that would deny the right of patent owners to obtain judicial review of adverse USPTO decisions in ex parte patent reexaminations by civil action in district court – a right that has existed under 35 U.S.C. § 306/ § 145 since the inception of reexamination in 1980. They contend that abolishing this right will leave direct appeal to the Federal Circuit as the only judicial recourse – an intolerable scenario for patent owners who need to rely on evidence that was unavailable during the administrative appeal stage. Opponents contend that this provision will exacerbate ex parte reexamination abuses by creating an unprecedented end-run around Federal District Courts in potentially all patent disputes. They warn that alleged infringers would simply file ex parte reexamination requests with USPTO, receive a final agency decision subject only to Federal Circuit review, essentially bypassing Federal courts. Opponents fear that given the deference the Federal Circuit must accord the agency (Zurko), large number of prospective/alleged infringers would choose this new favorable path to challenge a patent, overwhelming the USPTO, causing much lengthier delays in reexamination and holding up patentees' patent rights for years.

Post-grant opposition

Advocates argue that allowing a challenge of a patent in the first year after the issuance or reissuance of a patent will improve patent quality by allowing third party inputs. Opponents note that: (a) inter partes review under the Bill allows a third party to challenge the validity of any claim(s) in a patent *after* the first year; (b) re-exams are in fact used, not as an alternative to litigation, but rather as a supplement to litigation. In FY2008, 62% of current inter partes re-exams and 30% of ex parte re-exams were simultaneously in litigation; (c) predatory corporations can and do file multiple post-grant oppositions against startup companies for the purpose of inflicting financial pain and through this practice have successfully extracted patent licensing and purchase agreements on favorable terms; (d) the existing inter partes process in a contested case now takes 34 to 53 months for an un-appealed reexam (assuming no “rework” by the patent office and no secondary appeals to the BPAI, the Federal Circuit, or the Supreme Court), and 5 to 8 years for appealed cases. When Congress created inter partes reexamination, it directed the USPTO to conduct these reexaminations with "special dispatch." The Bill expands the existing inter partes procedure, adding discovery and a hearing in the Patent Trial and Appeal Board. Consequently, under the Bill, pendency of the inter partes procedure will likely increase, despite the legislative fiat requiring 18 month disposition; and (e) the Bill all but requires a federal district court to stay a patent infringement suit copending with an inter partes review. Because of the enormous costs and long pendency of inter partes review, the grant of a stay in a copending infringement suit can effectively be "game over" for the patent owner.

Impact of the changes

Opponents of the Bill assert that the impact of the changes to the current law will be to effectively neuter the U.S. patent system. Patents owned by startup companies, research institutions, and independent inventors ("startups") will be unenforceable against large corporations.

The use of reexamination, or the threat of its use, in licensing negotiations or in patent infringement litigation is common. “[G]amesmanship of the reexamination process has, in the view of some, become more the rule than the exception. Reportedly it has become ‘standard procedure’ that a defendant in patent litigation ‘take an aggressive stance by saying it plans to request a re-exam on the patent-in-suit or even all’ of the plaintiffs patents. The threat of reexamination is then used as leverage in licensing negotiations, intimidating patent-holders into settling out of court for lower amounts than those to which the value of their patents might entitle them.” The practice is widespread and growing. Reexamination requests from companies accused of patent infringement have recently more than tripled. “Ironically, Congress intended that the reexamination process should have just the opposite effect: "Patent office reexamination will greatly reduce, if not end, the threat of legal costs being used to 'blackmail' such [patent-] holders into allowing patent infringements or being forced to license their patents for nominal fees."

Critics argue that the Act will accelerate the decline of the U.S. as an industrial power because it will prevent startups from raising capital. To understand why this is so, one needs to understand the basic life cycle of a startup. In the first step of this life cycle, an inventor or group of inventors conceives the invention. Second, the inventors undertake limited prototyping and testing sufficient to convince themselves and potential investors that the invention will work, not just in the lab, but in practice. Third, the inventors research the market and write a business plan estimating (a) a revenue stream based on forecast demand for the envisioned product at a specific target price, and (b) the capital needed to reach the break-even point, i.e. the point in time when revenues will equal expenses so that the startup will be self-funding. Fourth, potential investors scrutinize the business plan including evaluating competitive risk. By definition, a startup is a new entrant to the marketplace. The startup has no established brand, and no established sales, distribution, or service channels. It is only after this point that an investor typically invests, and thus this is the point at which a typical inventor has a sufficient conception of the invention and funding to be able to file a patent application.

Proponents argue that the Act provides numerous benefits to small businesses.

In contrast, in Europe, the practice is that investors will not talk to inventors until before the "Fourth" step of the preceding paragraph, that is, before funding exists to pay a patent attorney.

Opponents of the Bill contend that, if the bill becomes law, venture funding will be diverted to less risky investments. Therefore startups, the primary source of inventions, will be unable to raise funding to commercialize their inventions. Over time, and compounding year on year, the decrease in economic growth and the failure to commercialize innovative, disruptive technologies will accelerate the economic decline of the United States relative to competing nations.

Proponents of the Bill argue that revision of both post grant opposition and interference will help US inventors. They point out that a patent that has survived a post-grant review will be stronger than one without. Neither side has put forward a cost-benefit balance showing that the added strength of these patents will compensate for the loss of access to venture capital, though the venture capitalists that have opined on the likely balance have concluded that the post-grant review will reduce access to capital more than it increases patent strength.

Other issues

Critics of the bill have expressed concern that the administration has been guided by the same people who previously lobbied for patent reform on behalf of IBM and Microsoft. USPTO Director David Kappos represented IBM, and Marc Berejka (Senior Policy Advisor, Office of the Secretary, U.S. Department of Commerce) lobbied on behalf of Microsoft on these very issues, and that their appointments were a violation of the Obama Administration's "Revolving Door Ban". Secretary of Commerce Gary Locke, to whom the USPTO reported until Locke was made Ambassador to China on August 1, 2011, also has extensive ties to Microsoft.

Opponents have raised the concern that the Law of Unintended Consequences could result in outcomes that cause the USA to lose its leadership position in innovation, particularly as a result of the adverse impact on small companies, who have not been represented in the negotiations leading up to this bill. Also, critics complain that this bill will not do enough to curb “non-practising entities” from engaging in Patent Trolls behaviors.

Critics have pointed out that the new bill fails to address a glaring issue that will seemingly continue to exist under the new system, the extensive backlog of existing patent applications. Instead of hiring more examiners to process this backlog, "...Congress chose to multiply the alternative dispute-resolution procedures at the PTO, giving the office more work to do without a guarantee of more money. The result is a muddle as well as a missed opportunity."