The America Invents Act: Implementation and Corporate Strategy Considerations

Abstract

The America Invents Act (AIA) that was commonly referred to as the “patent reform bill” was signed into law late last year, and business owners are still wondering what, if anything, it means to them. As discussed in this publication, the AIA is being implemented over an 18-month period with some provisions that took effect immediately and others in 2012 or 2013. The First-to-File provision, for example, does not take effect until March 2013. This article reviews two provisions of the AIA that are being implemented in the second half of 2012—the Microentity status and the Post-grant Review process. It is important to review any questions or concerns about whether aspects of the AIA apply to your business, patents, or patent applications before considering amending your company's best practices or implementing new policies.

Microentity Status

One interesting fee-related provision relates to the creation of a “Microentity” designation. Currently, patent applicants are either designated large entities or small entities, with the latter getting a 50% decrease on most United States Patent and Trademark Office (USPTO) patent fees. The Microentity designation would mean a 75% decrease on most USPTO patent fees, and would be generally reserved for institutions of higher education or those small entities with four or fewer previously filed patent applications and gross income less than 3 times the median household income for the calendar year most recently reported by the Bureau of the Census.

The USPTO has published the proposed rules for Microentity status and is asking for comments from the public until July 30. It is expected that once the Microentity status procedures are finalized, the USPTO will publish training materials designed to help the public understand the process for claiming Microentity status. The USPTO has also stated that it will treat the claiming of Microentity status in a similar fashion as the claiming of “small entity” status, in that all of the supporting documentation regarding the status is not required to be initially submitted, but could be requested by the Office at a later date.

A company can also qualify for Microentity status if the applicant's employer, from which the applicant obtains the majority of the applicant's income, is an institution of higher education as defined in section 101(a) of the Higher Education Act of 1965, or the applicant has assigned, granted, conveyed, or is under an obligation by contract or law to assign, grant, convey a license or other ownership interest in the particular applications to such an institution of higher education (37 CFR Part 1, Docket No.: PTO-P-2011-0016, “Changes to Implement Micro Entity Status for Paying Patent Fees”). In each of these cases, the company must initially be a small entity. As the USPTO states, the purpose of setting the Microentity status is to provide assistance to those with very little capital and/or just a few inventions; therefore, to allow a large entity to claim Microentity status through licensing or assigning some interest to an institution of higher education would be “inconsistent with the purposes of micro entity status.” Another consideration is the fact that a “small entity” is defined within the field of business and is not necessarily consistent across all fields of business. So, while a pharmaceutical company that makes $10 million a year may be a small entity in the pharmaceutical business, a chain of autoparts stores making $2 million a year may be a large entity in the aftermarket auto space.

There are a couple of things to consider if a company is attempting to claim Microentity status for a patent application. First, the Office has made it clear that if the patent application names more than one applicant, each applicant must individually meet the Microentity requirements. In addition, if an applicant assigns or is obligated to assign the invention to more than one assignee (such as a university and a company), each of the assignees must meet the requirements of Microentity status. Second, the income consideration is not the same as the small entity status consideration. For small entity status, you can initially claim it when the patent application is filed, but according to the USPTO, the applicant “need only determine continued eligibility to small entity status for issue and maintenance fee payments, but can pay intervening fees at small entity rate without determining whether still entitled to small entity status.” For the Microentity status, one must determine whether Microentity status applies at each stage of the process and with each fee payment. The USPTO has stated that the certification forms will not have to be submitted with each fee.

For start-ups and very small companies, it may be feasible to claim Microentity status for the first few patent applications filed as long as the applicant: A) qualifies as a small entity; B) has not been named as an inventor on more than four previously filed patent applications; C) does not meet the income requirements, as stated earlier, and; D) has not assigned, granted, or conveyed, and is not under an obligation by contract or law to assign, grant, or convey a license or other ownership interest in the application concerned to an entity that is not a Microentity.

It is important in these cases to note that an applicant is not considered to meet (B) above if the applicant has assigned or is under an obligation to by contract or law to assign, all ownership rights in the application as the result of the applicant's previous employment. Therefore, it is important for inventors who are starting new businesses or are working at businesses considered to be microentities to review, understand, and keep copies of previously signed employment agreements and contracts where intellectual property ownership was documented.

Business Practice Point

Biotech businesses that routinely include patent filings in their annual budgets should consider doing several things. First, break out the budget into legal fees and government fees. In this instance, the “government fees” portion should be determined annually and then a 10% buffer applied. Patent offices throughout the world are shortening the timeline between patent fee increases, and therefore, it is smart to be proactive on this point in budgets. Second, if a particular biotech company files more than 10 US patent applications a year, it may be wise to negotiate a cap on legal fees per application with the company's patent professional. Third, review quarterly whether Microentity status is something that the company should consider in order to reduce government fees. Finally, if you are starting a new biotech-based business or have a small business and are considering filing patent applications, review previously executed employment agreements and independent contractor agreements to ensure that you do not fall under the “more than four patent applications” provision in this section.

Post-grant Review

Any party will be able to petition the USPTO for a post-grant review of any issued US patent within 9 months of its issue. The standard for granting review is “reasonable likelihood that at least one of the claims challenged is unpatentable,” which is different than the current standard for reexamination (“substantial new question of patentability”). It was initially expected that this process in the US would be similar to the one in Europe, but it appears as though the threshold is going to be higher in the US than Europe and the fees are going to be significantly higher.

The USPTO is putting together the framework for this process, but it is expected that the process will not be fully implemented until later in 2013 and in 2014. These dates are based on the fact that review will only be available on those patents with a priority date on or after March 2013. Post-grant review will go online with respect to business methods patents starting in September.

Business Practice Point

Businesses must do three things under this new Review petition: A) track and monitor patent applications on significant inventions; B) collect and document any information that can be used to show that any of the claims are unpatentable; and C) be prepared to file a petition quickly when one of these patents issues. A company intellectual property committee that includes a member of management, technical, sales, and legal teams and meets on a regular basis can help with this process.

Prior Use Defense, Effective Immediately

Before the AIA, the “prior use defense” was available to those defendants being sued for patent infringement of a business method patent, if the defendant could prove that he/she reduced the subject matter to practice at least one year before the effective filing date of the patent and commercially used the subject matter before the effective filing date of the patent.

The AIA opens the prior use defense up to all patents issued on or after September 2011 and requires clear and convincing evidence of commercial use in the US at least 1 year before the earlier of the filing date of the patent application or the date the invention was disclosed to the public. This provision now puts a company's trade secrets and trade secret protection policy back into play. In the past, a company may have disclosed a trade secret or filed a patent application for it in order to keep a competitor from obtaining a patent on the same technology and blocking them from using it. Now, as long as the company can provide clear and convincing evidence as to the commercial use and timeline, the company may be able to use the prior use defense in patent infringement cases.

Business Practice Point

Biotech companies are especially susceptible to having trade secrets within the company and to employees leaving the company. It is always important to document and put standard operating procedures in place to protect trade secrets, but biotech companies must not fall into the trap of believing that trade secrets are now an attractive, low-cost option for them in view of the AIA. Employee turnover should be the primary consideration for a biotech company. If it is moderate-to-high, then the company should consider weighting the intellectual property portfolio toward patent applications. If employee turnover is small, then the company should consider incorporating trade secrets into their intellectual property portfolio.

It is important to remember that once a trade secret is disclosed, it is lost. So, core technologies and inventions should always be filed as patent applications. This consideration is the type of discussion that should be regularly docketed for an intellectual property committee meeting, described earlier, including reviewing recent, pending, or upcoming layoffs and employee terminations, what trade secrets are at risk, what invention disclosures have not yet been acted on by the company, and whether all of the employee documentation is in place (employment agreements with IP provisions, laboratory notebooks, e-mail backups, etc.).

Patent Marking, Effective Immediately

Patent marking is essentially a required listing of the applicable company or entity patents on each related product or system literature. In the past, if new patents issued, the product or system literature had to be updated. Improper patent marking is often cited in litigation as a defense, in that proper notice was not provided by the company or entity.

Section 16 of AIA relates to patent marking. This section favors businesses by allowing patent owners to satisfy the marking requirement by referencing a publicly available Internet address or website, as opposed to listing all applicable patents on each product leaflet or packaging. This concept is something that new, small-, and mid-size businesses should pay close attention to, because products and services must be marked with your patent numbers. In addition, the AIA states that only the US or a person suffering competitive injury can sue for false marking. These sections apply to currently pending cases.

Business Practice Point

Biotech companies should ask their intellectual property committees to review regularly what is being marked and whether the marking is proper. In addition, companies should have or develop a marking tracking database.

Conclusions

There will continue to be a significant amount of commentary and information coming out over the next 24 months on the provisions and implementation of AIA; therefore, businesses should stay in touch with intellectual property counsel and ensure that technical teams, sales teams, and management have an understanding of how new patent laws apply to them. Biotech companies should also be working with their outside legal team to institute a regular employee training program on intellectual property issues and initiatives, along with monthly alerts and articles.