Changes in the U.S. Patent System

1. Changes in the U.S. Patent System ACC- Charlotte, NC OCTOBER 17, 2012 Smith Moore Leatherwood LLP 525 N. Tryon St., Suite 1400, Charlotte, NC 28202 T: 704.384.2658 F: 704.384.2903 clint.wimbish@smithmoorelaw.com

2. Notable Changes • First to File • Best Mode • Preissuance Submissions • Inventor Declarations • Deceptive Intent • Inter Partes Review • Post Grant Review • Prior User Rights • Joint Infringement and Inducement

3. Summary of AIA Effective Dates • 16 September 2011: • Best Mode • Prior User Rights • 16 September 2012: • Inventor Declaration • Deceptive Intent • Preissuance Submissions • Inter Partes Review • Post Grant Review (covered business methods) • 16 March 2013: • First to File • Derivation • Post Grant Review (non-covered business methods)

4. First to File • Change to a First to File (FTF) system affects: • Novelty rules. • Impact of pre-filing activities of the applicant or a third party. • Priority contests. • Effective Date: Applies to all patent applications with at least one claim having an effective priority date on or after 16 March 2013.

5. First to File • Priority Contests • First applicant to file now wins, usually. • Exceptions include: • (i) when the second filer was the first to publicly disclose the invention within the 1-year pre-filing grace period; or • (ii) when the first filer derived the invention from the second filer. • Application of exception (ii) is determined by a “derivation proceeding,” which replaces prior “interference” proceedings.

6. FTF - Impact on Company Policy • Pros • Larger Companies Already File Promptly • Filing Behavior (Provisional or Utility?) • FTF Increases Predictability • Simplified Filing Requirements - Global Harmonization • Large Foreign Portfolios Require Systems That Force Promptness

7. FTF – Impact on Company Policy • Cons • Unknown Prior Disclosure and Subsequent Filing Can Trump Your Filing • Inherent Lack of True Predictability • New FTF System Injects Prior User Rights (Less Predictability relative to market dominance) • Need to Consider Trade Secret – Stay Outside of Patent System?

8. Pre-Issuance Submissions • Third parties may submit (1) patents, (2) published applications, or (3) printed publications to be included in file history of a pending application. • Submission must include “concise description” of submission’s relevance. • Submission must be submitted before the earlier of: • (1) date of allowance; or • (2) the later of: • (a) 6 months after publication; or • (b) first substantive Office Action. • Submissions can be made anonymously and electronically. • Submitting references has no estoppel effect. • Effective date: 16 September 2012.

9. Pre-Issuance Submissions – Impact on Company • Pros • Monitor Competitors and “Throw Tacks on the Road” During Prosecution of Their Patents • Pre-empts Need for Expensive Litigation • Facilitates Close Monitoring of Portfolio – Competitive Surveillance • Submissions are Anonymous Through Outside Counsel • No Estoppel Effect

10. Pre-Issuance Submissions – Impact on Company • Cons • What’s Good for the Goose . . .Expect Competitors to do the Same Thing to You • Requires Effort for You or Your Outside Counsel on Your Behalf to Monitor Publications • Prudent to Engage “new” Counsel to Submit on Your Behalf • Not Inter partes – No Opportunity to Counter Arguments

11. Post Grant Review • PGR is a new proceeding in US patent law. • Similar to opposition proceedings in Europe. • Conducted before Patent Trial & Appeal Board (PTAB). • PGR must be initiated within 9 months of issuance. • Any grounds of invalidity may be asserted. • Broad estoppel effect. • Effective date: Effectively applies to patents filed on or after 16 March 2013 (or 16 September 2012 for covered business methods). • PTO fees: About $30k.

12. Post Grant Review – Impact on Company • Pros • Faster Than Litigation • Much Less Expensive Than Litigation • Facilitates Close Monitoring of Your Portfolio and Competitors’ Efforts • Forces Competitors to Defend Their Portfolio

13. Post Grant Review – Impact on Company • Cons • Expensive by USPTO Standards ($30K) • Requires Effort and Expense by You or Your Outside Counsel • Estoppel Created • “New” USPTO System – No Track Record

14. Prior User Rights • Most countries recognize PUR. • US recognized limited PUR prior to the AIA. • PUR were expanded due to the transition to a first-to-file system. • AIA extends PUR defense previously applicable only to business methods. • Available with respect to “…subject matter consisting of a process, or consisting of a machine, manufacture, or composition of matter used in a manufacturing or other commercial process.”

15. Prior User Rights • PUR Defense Defined: a limited defense to patent infringement afforded to a party that was commercially using, or engaged in substantial preparations for commercial use, of an invention that was patented by another party. • Rule: Prior use of a patented invention can be a defenseto infringement. 35 U.S.C. § 273. • Asserting prior use does not invalidate the patent. • If A sues B for infringement, and B successfully defends by showing prior use, A’s patent is still valid against C, D, and others. • Effective date: Applies to all patents issued on or after 16 September 2011.

16. Prior User Rights • Major requirements for asserting PUR: • Prior commercial use of a claimed invention. • “Prior” use means more than 1 year before patentee’s application was filed. • Unclear what “commercial use” requires, including whether the use must be continuous. • Party asserting the defense must establish it by clear and convincing evidence.

17. Prior User Rights • Limitations of PUR: • Defense is personal to the prior user or user’s company. • Non-transferable, except with the business. • Prior use cannot be expanded– defense applies only to sites where prior use occurred. • Defense cannot be asserted against university inventions. • Invention when made must be effectively owned by university. • University exception based on increased uncertainty and thus decreased patent value. • May have limited use against non-practicing entities (NPEs or “patent trolls”) because new PUR apply only to patents issued on or after 16 September 2011, and NPEs usually assert older patents.

18. Prior User Rights – Impact on Company • Pros • Infringement Defense Lends Predictability to Capital Expenditures • Your Operations Can’t be Shut Down by the Issuance of a Competitor’s Patent • May Allow You to Maintain Invention as a Trade Secret and Avoid Expense of Patenting Processes

19. Prior User Rights – Impact on Company • Cons • Expansion Impossible Once Infringement Asserted • Defense is Personal – Can’t be transferred apart from transferring the business - Won’t help Licensee’s • Defense Not Effective Against University Patents • No Litigation Track Record

20. Thank you! Clint Wimbish Smith Moore Leatherwood LLP 525 N. Tryon St., Suite 1400, Charlotte, NC 28202 T: 704.384.2658 F: 704.384.2903 clint.wimbish@smithmoorelaw.com *Thanks to John Zimmer, J.D., PhD. For assistance with this presentation

22. Changes in the U.S. Patent System ACC- Charlotte, NC OCTOBER 17, 2012 Smith Moore Leatherwood LLP 525 N. Tryon St., Suite 1400, Charlotte, NC 28202 T: 704.384.2658 F: 704.384.2903 clint.wimbish@smithmoorelaw.com

23. Notable Changes • First to File • Best Mode • Preissuance Submissions • Inventor Declarations • Deceptive Intent • Inter Partes Review • Post Grant Review • Prior User Rights • Joint Infringement and Inducement

24. First to File • Change to a First to File (FTF) system affects: • Novelty rules. • Impact of pre-filing activities of the applicant or a third party. • Priority contests. • Effective Date: Applies to all patent applications with at least one claim having an effective priority date on or after 16 March 2013.

25. First to File • Novelty • Prior art now consists of all publicly available material, without geographic restriction, dated earlier than the patent filing date. • Previously, printed publications were geographically unrestricted but public use, knowledge, and sales were limited to the U.S. • No more “swearing behind” prior art based on applicant’s inventive activities.

26. First to File • New § 102(a) – Basic Rule (a) A person shall be entitled to a patent unless— (1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention; (2) [invention described in prior-filed patent applications that result in issued patents or published applications – analogous to old 102(e)].

27. First to File • New § 102(b) - Exceptions (1) A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if— (A) the disclosure was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or (B) the subject matter disclosed had, before such disclosure, been publicly disclosed by the inventor or a joint inventor or another who [derived from the inventor].

28. First to File • New § 102(b) - Exceptions • Thus, an inventor can remove prior art created by a third party if the inventor disclosed earlier than the third party disclosed. • Arguably, any disclosure by an inventor, including publications, on-sale activities (public or confidential), and non-informing public uses, initiates a 1-year grace period during which the inventor can file.

29. First to File • If A begins confidential on-sale or non-informing public use activity (i.e., A does not publicly disclose), A has 1 year in which to file under the Section 102(b) grace period. • But if B publicly discloses after A’s non-public use or sale but before A files, then A’s patent is barred. • Prior “public disclosure” (not just any disclosure) by A is required to protect A against B’s subsequent public disclosure.

30. First to File • Hypothetical 1 • 1 June 2013: A enters into a confidential sales agreement with Company X to sell units of A’s invention. • Without more, A has until 1 June 2014 to file a patent application on the invention.

31. First to File • Hypothetical 2 • 1 June 2013: A enters into a confidential sales agreement with Company X to sell units of A’s invention. • 1 July 2013: B publishes in Science magazine a full description of the invention sold in confidence by A on 1 June 2013. • If A files a patent application on or after 1 July 2013, A’s invention will be invalid for lack of novelty due to B’s publication.

32. First to File • Hypothetical 3 • 1 June 2013: B sells in confidence units of B’s invention. • 30 June 2014: A files a patent application on the same invention (more than 1 year after B’s confidential sale). • B’s sale does not destroy the novelty of A’s application because B’s sale does not fall within any prior art category in Section 102(a)(1).

33. First to File • Priority Contests • First applicant to file now wins, usually. • Exceptions include: • (i) when the second filer was the first to publicly disclose the invention within the 1-year pre-filing grace period; or • (ii) when the first filer derived the invention from the second filer. • Application of exception (ii) is determined by a “derivation proceeding,” which replaces prior “interference” proceedings.

34. Best Mode • Rule: Best mode must be disclosed in the application. • This is the same rule as before. • But failure to disclose best mode is no longer a basis for cancellation, invalidity, or unenforceability of a claim. • Priority rights under Sections 119 and 120 are no longer contingent on compliance with the best mode requirement. • Effective Date: Immediately– applies to all proceedings commenced on or after the enactment date of 16 September 2011.

35. Best Mode • Former statutory language: “The following shall be defenses in any action involving the validity or infringement of a patent and shall be pleaded: (3) Invalidity of the patent or any claim in suit for failure to comply with any requirement of sections 112 or 251 of this title.”

36. Best Mode • New statutory language: “The following shall be defenses in any action involving the validity or infringement of a patent and shall be pleaded: (3) Invalidity of the patent or any claim in suit for failure to comply with— (A) any requirement of section 112, except that the failure to disclose the best mode shall not be a basis on which any claim of a patent may be canceled or held invalid or otherwise unenforceable; or (B) any requirement of section 251.’’

37. Best Mode • Congress intentionally separated the best mode requirement during patent drafting from the question of patent validity during litigation. • Goal is to achieve a balance between requiring full disclosure from the applicant while reducing the litigation burden. • But the effect may be to effectively eliminate the best mode requirement in practice.

38. Best Mode • However, it is possible that inequitable conduct may provide a “back door” for a defendant to assert unenforceability due to the applicant’s failure to disclose the best mode. • Case law has not decided this question yet. • Also, other changes in the AIA regarding deceptive intent may suggest that this back door is closed.

39. Best Mode • In addition, fines and/or criminal penalties could possibly also be imposed under 18 U.S.C. § 1001. • Not a new law and not specific to the patent system. • Imprisonment can be up to 5 years for ordinary offenses and up to 8 years if the offense involves international or domestic terrorism. • If a fraud against the PTO is discovered during a supplemental examination or reexamination proceeding, then 35 U.S.C. § 257(e) provides that the fraud will be reported to the Attorney General for possible prosecution under 18 U.S.C. § 1001.

40. Preissuance Submissions • Third parties may submit (1) patents, (2) published applications, or (3) printed publications to be included in file history of a pending application. • Submission must include “concise description” of submission’s relevance. • Submission must be submitted before the earlier of: • (1) date of allowance; or • (2) the later of: • (a) 6 months after publication; or • (b) first substantive Office Action. • Submissions can be made anonymously and electronically. • Submitting references has no estoppel effect. • Effective date: 16 September 2012.

41. Inventor Declarations • Inventor declarations are now a little simpler under new PTO rules. • Some information no longer required. • Applicants can wait to file declarations until after allowance. • More important, applications can now be filed by owners, not only inventors. • Applications can be filed by the following: • Inventor. • Person to whom the inventor has assigned or is under an obligation to assign the invention. • Person who otherwise shows sufficient proprietary interest in the invention.

42. Deceptive Intent • Prior to the AIA, the correction of various defects in a patent application required the absence of deceptive intent on the part of the applicant. • Under the AIA, seven occurrences of “without deceptive intent” were removed. • Result is friendly to applicants and patent owners: • Easier to correct prosecution errors. • Reduced litigation burden. • Effective Date: Applies only to proceedings commenced on or after 16 September 2012.

43. Deceptive Intent • Inventorship Errors • Former statutory language: “Whenever through error a person is named in an application for patent as the inventor, or through error an inventor is not named in an application, and such error arose without any deceptive intention on his part. . .” 35 U.S.C. § 116 • Former statutory language: “Whenever through error a person is named in an issued patent as the inventor, or through error an inventor is not named in an issued patent and such error arose without deceptive intention on his part . . .” 35 U.S.C. § 256

44. Deceptive Intent • Inventorship Errors • New statutory language: “Whenever through error a person is named in an application for patent as the inventor, or through error an inventor is not named in an application, [[andsuch error arose without any deceptive intention on his part]]. . .” 35 U.S.C. § 116 • New statutory language: “Whenever through error a person is named in an issued patent as the inventor, or through error an inventor is not named in an issued patent [[andsuch error arose without deceptive intention on his part]]. . .” 35 U.S.C. § 256

45. Deceptive Intent • Filing of Application in Foreign Country (Section 184): “The license may be granted retroactively where an application has been filed abroad through error [[and without deceptive intent]] and the application does not disclose an invention within the scope of section 181 of this title.” • Filing Without Foreign License (Section 185): “A United States patent issued to such person, his successors, assigns, or legal representatives shall be invalid, unless the failure to procure such license was through error [[and without deceptive intent]], and the patent does not disclose subject matter within the scope of section 181 of this title.”

46. Deceptive Intent • Reissue of Defective Patents (Section 251): “Whenever any patent is, through error [[without any deceptive intention]], deemed wholly or partly inoperative or invalid, by reason of a defective specification or drawing, or by reason of the patentee claiming more or less than he had a right to claim in the patent, the Director shall, on the surrender of such patent and the payment of the fee required by law, reissue the patent for the invention disclosed in the original patent . . .”

47. Deceptive Intent • Disclaimer (Section 253): “Whenever [[, without any deceptive intention,]] a claim of a patent is invalid the remaining claims shall not thereby be rendered invalid.” • Action for Infringement of a Patent Containing an Invalid Claim (Section 288): “Whenever [[, without any deceptive intention,]] a claim of a patent is invalid, an action may be maintained for the infringement of a claim of the patent which may be valid.”

48. Inter Partes Review • New standard for initiating reexam: “there is a reasonable likelihood that the requester would prevail with respect to at least 1 of the claims challenged in the request.” • Old standard required a “substantial new question of patentability.” • Invalidity can be based only on prior art patents and publications. • Broad estoppel effect. • PTO fees: About $23k.

49. Post Grant Review • PGR is a new proceeding in US patent law. • Similar to opposition proceedings in Europe. • Conducted before Patent Trial & Appeal Board (PTAB). • PGR must be initiated within 9 months of issuance. • Any grounds of invalidity may be asserted. • Broad estoppel effect. • Effective date: Effectively applies to patents filed on or after 16 March 2013 (or 16 September 2012 for covered business methods). • PTO fees: About $30k.

50. Prior User Rights • PUR Defense Defined: a limited defense to patent infringement afforded to a party that was commercially using, or engaged in substantial preparations for commercial use, of an invention that was patented by another party. • Rule: Prior use of a patented invention can be a defenseto infringement. 35 U.S.C. § 273. • Asserting prior use does not invalidate the patent. • If A sues B for infringement, and B successfully defends by showing prior use, A’s patent is still valid against C, D, and others. • Effective date: Applies to all patents issued on or after 16 September 2011.