F charges of patent infringement for enti- or at least two - - PDF document

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Intellectual ProPerty today July, 2012

Robert M. Barrett, a partner in K&L Gates’ Chicago office, concentrates his prac- tice in intellectual property law and patent related issues, including litigation, prosecu- tion, licensing, due diligence, and counsel-

• ing. He is a practice area leader of K&L

Gates’ intellectual property practice. Margaux Birdsall, an associate in K&L Gates’ Chicago office, focuses her practice

• n intellectual property matters and has

experience in the prosecution of applications for a wide range of technologies. Rachal Winger, a partner in K&L Gates’ Seattle and Orange County offices, focuses her practice on intellectual property law with an emphasis in life sciences patent-related

• matters. She counsels clients in the creation

and commercialization of intellectual prop- erty and in the assessment of intellectual property in corporate transactions and com- petitive analyses.

F

• r at least two generations, and

most likely throughout the history of american jurisprudence, a true first inventor could defeat a patent infringement claim by a second inventor through a “prior user” rights defense. Following enactment

• f the america Invents act, prior user

defenses have expanded significantly with

• ne notable exception. Patented inventions

made, owned or subject to transfer to an institution of higher education are immune from all forms of prior user defenses. these patents thus have a level of enforceability that no american patent has ever had. It is too early to fully appreciate the impact these powerful patents will have in the

• market. We propose that early movers

in securing patent assignments, licensing rights and collaborative relationships with universities may well find themselves in strong competitive positions compared to those who do not capitalize on the new- found status of university patents.

IntroductIon

the america Invents act (aIa) brings major changes to the united States (uS) Patent System. Some of these changes include transition to a first inventor to file system, availability of post-grant opposi- tion proceedings, and the creation of a new microentity status. also among these changes is the expansion of prior user rights

• defenses. Following enactment of aIa on

September 16, 2011,1 prior user rights became a personal affirmative defense to charges of patent infringement for enti- ties that can demonstrate commercial use

• f a “machine, manufacture or composi-

tion of matter used in a manufacturing or

• ther commercial process” at least one

year before the filing date of the asserted

• patent. 35 u.S.c. § 273(a)(1) (2010).

However, there is one notable exception to the defense. It is not available “if the claimed invention … was, at the time the invention was made, owned or subject to an

• bligation of assignment to either an insti-

tution of higher education, or a technology transfer organization whose primary pur- pose is to facilitate the commercialization

• f technologies developed by one or more

such institutions of higher education”.2 See, 35 u.S.c. § 273(e)(5)(a) (2010). Patents claiming such inventions are referred to as “university Patents” herein. Whereas university Patents used to be no different from other patents in the enforcement context, their newly created carve out to the assertion of any form of prior user defenses gives them distinct characteristics that should significantly affect how they are licensed and enforced.

PrIor user rIghts deFenses

Prior user rights are designed to provide a first inventor with a limited, personal defense against charges of patent infringe- ment by a second inventor while not affect- ing the validity of the second inventor’s

• patent. this approach is intended to protect

the true first inventor while maintaining the second inventor’s rights in the invention against other third parties. this outcome ensures that the second inventor is not unduly penalized for coming forward with the invention and disclosing the knowledge to the public – a goal of uS Patent law. It also prevents a second inventor from enforc- ing its rights against a true first inventor.

Prior User Rights Defenses Before AIA

two types of “prior user rights” defenses existed in the uS before the enactment of aIa.

• 1. Quasi-Prior User Rights Defenses

before AIA Prior user defenses are not new to american patent law. Since at least 1952, 35 u.S.c. § 102(g) created a “quasi” prior user rights defense. under this section, a person was entitled to a patent unless another had made the invention before the patent application in the uS and had not abandoned, suppressed, or concealed

• it. See 35 u.S.c. § 102(g) (2010). this

defense is called a “quasi” prior user defense here because while it protected the first true inventor, it also rendered the second inventor’s patent invalid. 3

• 2. True Prior User Rights Defenses

before AIA true prior user defenses also were found in the uS Patent law before aIa, albeit in a very limited context. Before aIa, and since 1999, true prior user rights have been avail- able as a personal defense against patents claiming a method of doing or conducting

• business. See american Inventors Protection

act of 1999, Pub. l. 106-113, §§ 273(a)

did university Patents Become the World’s Most Valuable Patents Following enactment

• f the America Invents Act?

BY ROBERT BARRETT, MARGAUX BIRDSALL & RACHAL WINGER, K&L GATES LLP

Robert M. Barrett Margaux Birdsall Rachal Winger

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Intellectual ProPerty today July, 2012

33 (3) & (b)(1). Particularly, the defense was available for those who, acting in good faith, actually reduced the claimed invention to practice and commercially used it at least

• ne year before the effective filing date of the
• patent. See 35 u.S.c. 273 § (b)(1).

The Debate Surrounding Prior User Rights Defenses in the Passage of AIA

uS Patent law before aIa awarded pat- ent rights to the first inventor, regardless

• f whether that inventor was the first to

file a patent application. Following aIa, however, and subject to particular excep- tions,4 patent rights will be granted to the first inventor to file a patent application. In making this change, many industry groups viewed expanded prior user rights as essential.5 Industry groups strongly sup- ported expanded prior user rights because

• f their view that it would not be feasible to

file patent applications on every invention.

• Id. Whereas in the prior system, second

inventors could not have had a patent because they were not first to invent, in the first inventor to file system, a second inventor could assert rights against a true first inventor if prior user rights were not

• available. Businesses would be forced to

massively increase the number of patent fil- ings solely for defensive purposes, a ques- tionable use of industry and u.S. Patent

• ffice resources. Id.

under Secretary of commerce for Intellectual Property and director of the uS Patent & trademark office, the Honorable david J. Kappos, also favored the inclu- sion of expanded prior user rights in aIa. according to his testimony at the Hearing before the Subcommittee on Intellectual Property, competition and the Internet, prior user rights [are] pro-manufac- turer, pro-small business, and, on balance, good policy. Prior user rights allow manufacturers to invest in tech- nology with confidence and continue making products that predate a pat- ent application filed later by another

• party. these rights will also protect

small businesses, which may not be able to bear the cost of procuring a patent on every technical improve- ment they make, from large com- petitors with extensive portfolios of patents issued from later applications. these rights promote fairness, protect investments, encourage investment in the u.S., level the playing field against foreign competition, protect small businesses and more.6 not all were in favor of expanded prior user rights, however. congressman Jim Sensenbrenner testified that expanding prior user rights would harm inventors who share their knowledge in favor of those who keep their innovations secret, effectively inserting trade secrecy into the patent law with a powerful incentive – a royalty-free statutory license.7 universities also largely disfavored the expansion of prior user rights. John

• c. Vaughn, executive Vice President,

association of american universities argued that expanding prior user rights would reduce patent certainty thus impair- ing university technology transfer.8 Further,

• Mr. Vaughn testified that available grace

periods for patent filings following a public disclosure, such as academic publishing, would permit others to prepare a competing product immune from a charge of infringe- ment of a patent emerging from the public

• disclosure. Id. at 92-93, 12.

after extensive negotiation and compro- mise between the conflicting views, in final form, aIa provides that prior user rights will not apply “if the claimed invention with respect to which the [prior user] defense is asserted was, at the time the invention was made, owned or subject to an obligation of assignment to either an institution of higher education, or a technology transfer organi- zation whose primary purpose is to facili- tate the commercialization of technologies developed by one or more such institutions

• f higher education.” as provided by Mr.

Smith, co-sponsor of aIa and chairman of the Judiciary committee, “It is a good deal for many in the university community.”9

Prior User Rights Following AIA

Following the passage of aIa – and according to its enactment schedule – “quasi-prior user rights” will no longer strip second inventors of important patent rights following assertion against a true first inventor who meets the requirements of the

• statute. Moreover, prior user rights have

been significantly expanded. the defense is now be available to claims directed to any “machine, manufacture or composi- tion of matter used in a manufacturing

• r other commercial process.” the one

notable exception is that the defense will not be available to true first inventors if, at the time the claimed invention was made by a second inventor, there was an assignment

• r an obligation of assignment to either an

institution of higher education, or a tech- nology transfer organization whose primary purpose is to facilitate the commercializa- tion of technologies developed by one or more such institutions of higher education. See leahy-Smith america Invents act, § 5, 125 Stat. at 299.

IndustrY WouLd Be WeLL-AdVIsed to tAKe A hArd LooK At unIVersItY PAtents And theIr IncreAsed strAtegIc IMPortAnce

the carve out to prior user rights gives university Patents special status in the enforcement context. university Patents are substantially more powerful than other pat- ents because they can be asserted against all parties - including true first inventors – without the risk of a successful prior user

• defense. this increased power should affect

both how industry views the importance

• f university Patents in a strategic patent

portfolio and how universities view and license their own patents. the following discussion should be viewed as especially related to process and manufacturing pat- ents which are more likely to be maintained as internal trade secrets, generating prior user rights.

Start-Up Companies Emerging from Universities

numerous start-up companies emerge from universities with licenses to university Patents – especially since the passage of the Bayh-dole act which confirmed that universities retain title to patents arising from federally-funded research. Since the passage

• f Bayh-dole, over 7,000 new companies

have been formed based on the licensing of an invention from an academic institution.10 Start-up companies should now con- sider whether a university technology they are considering commercializing includes university Patents directed to methods

• r processes. Such technologies could

be especially attractive following enact- ment of aIa, providing increased lever- age with established players in a market. Particularly, established players may be more inclined to fund or partner with a start-up holding university Patents when the university Patents could be used to stop the established player’s use of a valuable

• process. this increased leverage could also

lead to more favorable agreement terms for start-up companies partnering with estab- lished players in a market.

Established Players in a Market

established players in a market would also be well-advised to re-evaluate the importance of university Patents in strate- gic patent portfolios. established players in a market often have known and similarly- established competitors. to the extent such competitors are pursuing similar market

• bjectives, they may find themselves using

similar processes. Standing alone, each would be subject to a defense of prior user rights in a patent enforcement proceeding.

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Intellectual ProPerty today July, 2012

the competitor with in-licensed university Patents, however, could avoid this defense and prevail in maintaining exclusivity. accordingly, established players should look for university Patents to license cover- ing their own market objectives as well as those of their competitors to take advantage

• f this new “silver bullet.” Beyond looking

for existing university Patents to license, established players should also consider funding university research with the return

• f a first option to gain ownership or license.

Effects in Mature Industries

Mature industries should also con- sider the importance of the new university Patents carve out to prior user rights. as industries mature, trade secrets often become a preferred vehicle for intellectual property protection. as the public knowl- edge base increases, innovations often become increasingly incremental. Patent claims issued to incremental innovations in an advanced field can be narrow in scope, allowing design-around possibilities for competitors. Further, when many in an industry are relying on trade secret protec- tion, asserting a patent under the previous uS Patent laws was especially risky due to the potential of losing rights under the pre- vious “quasi prior user rights” approach. Here again, players in mature indus- tries should consider funding university research with the return of a first option to gain ownership or license. absent a true break-through advance, patent claims may remain relatively narrow in scope compared to less mature industries. Such patents may serve as an effective tool to repel competi- tion when design around avenues would not yield comparable results and there is no prior user defense to protect those previ-

• usly practicing the invention using trade

secret protection.

unIVersItIes shouLd sIMILArLY eXPLore the neW stAtus oF unIVersItY PAtents

as discussed above, many industry play- ers would be well-advised to re-examine the value of university Patents in their vari-

• us competitive environments. In light of

this, universities would similarly be well- advised to court new industry collaboration and investment and reconsider out-bound licensing strategies. regarding industry collaboration and investment, it is likely that a number of industry players will have new or renewed interest in funding collaborative research with

• universities. Strategically, universities may

want to identify particular areas of perceived research strength and increase attendance at industry events to foster the development

• f such collaborative efforts. encouraging

research professors and associates to attend industry events with knowledge of the ben- efits of university Patents may serve to attract additional research dollars. regarding out-bound licensing strate- gies, universities should consider whether the new-found status of university Patents warrants increased royalty rates in particu- lar cases. Beyond royalty rates, other provi- sions should similarly be considered. For example, it may be advisable for out-bound licenses of university Patents to include bonus provisions for the successful defeat

• f a prior user defense. Such increased

royalty rates or bonus provisions could be tailored based on whether industry col- laborators invest in university research up front or take licenses to university Patents after university researchers have secured

• ther funding and performed the relevant

research. Finally, universities should consider strategically increasing the number of pat- ent applications filed in areas where the use

• f trade secrets in an industry is high.

BeneFIts For unIVersItIes FoLLoWIng AIA FLoW BAcK to the PuBLIc

to the extent universities are able to attract additional research investment dol- lars from industry or are able to garner higher royalty or other payment consid- erations in light of the prior user defense carve-out that they enjoy, the benefit will ultimately be returned to the public. under Bayh-dole, universities are obligated to actively promote and attempt to commer- cialize inventions, to attempt to license them to support small business, and to use the balance of royalties after expenses to promote scientific research and educa-

• tion. Bayh-dole act, 35 u.S.c. § 202 (c)

(7)(c)-(e)(2010). these benefits will only be compounded following the enactment of aIa which increases the amount of royal- ties universities retain. See leahy-Smith america Invents act, § 13, 125 Stat. at

• 327. as such, and returning to Mr. Smith’s

sentiment, the newly-created carve out to prior user rights for university Patents may be a good deal for many.

concLusIon

as is now apparent, university Patents provide numerous potential benefits to var- ied players in a market. these benefits make university Patents particularly valu-

• able. now is the time to ascertain how

university Patents can best help your busi- ness in its endeavors. IPT

endnotes

• 1. leahy-Smith america Invents act, Pub.l.112-29,

§ 5(c), 125 Stat. 284, 299 (2011) (“the amend- ments made by this section shall apply to any patent issued on or after the date of enactment of this act”).

• 2. Higher education act of 1965, 20 u.S.c. §1001(a)

(2010). 3 Gary l. Griswold & F. andrew ubel, Prior User Right—A Necessary Part of a First-to-File System, 26 J.MarSHall l. reV. 567, 572 n.20 (1993). (as explained by Judge newman of the court of appeals for the Federal circuit, “I have not seen anyone who was a prior user who has been stopped upon raising the 102(g) defense …. Because someone has kept [the invention] as a trade secret has not succeeded, as far as I can tell, in avoiding the defense, because if it has been in commercial use, even if the process has been kept secret, it is considered a bar.”)

• 4. leahy-Smith america Invents act, § 5(c), 125
• Stat. at 285 (under the act, a party has one year

from a public disclosure to file a patent applica- tion claiming the disclosed invention. If a second inventor files an application during this one year grace period before the publicly disclosing first inventor, the patent will be issued to the first disclosing inventor even though that first inventor was second to file).

• 5. Leahy-Smith America Invents Act: Hearing on

H.R. 1249 Before the Subcomm. On Intellectual Property, Competition, and the Internet, 112,

• cong. 79 (2011) (statement of Mark chandler,

Senior Vice President and General counsel of cisco Systems, speaking for the coalition for Patent Fairness, representing hundreds of mem- bers, including apple, autodesk, dell, Google, Intel, Micron, oracle, rIM, SaP, and Symantec.).

• 6. Leahy-Smith America Invents Act: Hearing on

H.R. 1249 Before the Subcomm. On Intellectual Property, Competition, and the Internet, 112

• cong. 129 (2011) (statement of Honorable david
• J. Kappos, under Secretary of commerce for

Intellectual Property, and director, the uS Patent

• ffice).
• 7. Leahy-Smith America Invents Act: Hearing on

H.R. 1249 Before the Subcomm. On Intellectual Property, Competition, and the Internet, 112,

• cong. 50 (2011) (statement of rep. F. James

Sensenbrenner).

• 8. Leahy-Smith America Invents Act: Hearing on

H.R. 1249 Before the Subcomm. On Intellectual Property, Competition, and the Internet, 112,

• cong. 92 (2011) (statement of John c. Vaughn,

executive Vice President, association of american universities). 9 Leahy-Smith America Invents Act: Hearing on H.R. 1249 Before the Subcomm. On Intellectual Property, Competition, and the Internet, 112,

• cong. 43 (2011) (statement of rep. lamar Smith,

chairman, committee on the Judiciary).

• 10. Public Sector research responsible for Many

new drug discoveries, Says autM President, http://www.newswise.com/articles/public-sector- research-responsible-for-many-new-drug-discov- eries-says-autm-president, February 10, 2011 (“Since the enactment of Bayh-dole, more than 7,000 new companies have formed around univer- sity research”).