House Introduces Its Version of "America Invents Act" -- Updated

By Kevin E. Noonan  --

Today, the Chairman of the Judiciary Committee in the House of Representatives, Lamar Smith (R-TX) (at right), introduced a version of the America Invents Act (passed by the Senate as S. 23).  While identical in most respects, the bill has come provisions that differ from the Senate bill.  (Update: the House bill has been assigned bill number H.R. 1249).

The House bill as set forth on Representative Smith's website has the following sections (sections that are unique to the House bill are indicated in italics; where the numbering of sections differs, the Senate section number is indicated in brackets):

Sec. 1.  Short title; table of contents
Sec. 2.  First inventor to file
Sec. 3.  Inventor's oath or declaration
Sec. 4.  Defense to Infringement Based on Earlier Inventor
Sec. 5.  Post-grant review proceedings
Sec. 6.  Patent Trial and Appeal Board
Sec. 7.  Preissuance submissions by third parties
Sec. 8.  Venue
Sec. 9.  Fee setting authority
Sec. 10.  Fees for patent services
Sec. 11.  Supplemental examination [Sec. 10, S. 23]
Sec. 12.  Funding agreements [Sec. 13, S. 23]
Sec. 13.  Tax strategies deemed within the prior art [Sec. 14, S. 23]
Sec. 14.  Best mode requirement [Sec. 15, S. 23]
Sec. 15.  Marking [Sec. 4, S. 23]
Sec. 16.  Advice of counsel [Sec. 4, S. 23]
Sec. 17.  Ownership; assignment
Sec. 18.  Transitional program for covered business method patents
Sec. 19.  Clarification of jurisdiction [Sec. 17, S. 23]
Sec. 20.  Technical amendments [Sec. 16, S. 23]
Sec. 21.  Travel expenses and payment of administrative judges [Sec. 19, S. 23]
Sec. 22.  Patent and Trademark Office funding [Sec. 20, S. 23]
Sec. 23.  Satellite offices [Sec. 21, S. 23]
Sec. 24.  Patent Ombudsman Program for small business concerns [Sec. 22, S. 23]
Sec. 25.  Priority examination for technologies important to American competitiveness [Sec. 23, S. 23]
Sec. 26.  Designation of Detroit satellite Office [Sec. 24, S. 23]
Sec. 27.  Effective date [Sec. 25, S. 23]
Sec. 28.  Budgetary effects [Sec. 26, S. 23]

Sec. 11 (Residency of Federal Circuit Judges) and Sec. 12 (Microentity defined) from S. 23 are not included in the House version of the bill.

Section 4 of the House bill, contains a more extensive revision to 35 U.S.C. § 273 than S. 23, as follows (with differences indicated by strikethrough or underlining):

35 U.S.C. 273 Defense to infringement based on earlier inventor.

(a) DEFINITIONS.- For purposes of this section-

(1) the terms "commercially used" and "commercial use" mean use of a method in use of the subject matter of a patent inside or outside the United States, so long as such use is in connection with an internal commercial use or an actual arm's-length sale or other arm's-length commercial transfer of a useful end result, whether or not the subject matter at issue is accessible to or otherwise known to the public, except that the subject matter for which commercial marketing or use is subject to a premarketing regulatory review period during which the safety or efficacy of the subject matter is established, including any period specified in section 156(g), shall be deemed "commercially used" and in "commercial use" during such regulatory review period;

(2) in the case of activities performed by a nonprofit research laboratory, or nonprofit entity such as a university, research center, or hospital, a use for which the public is the intended beneficiary shall be considered to be a use described in paragraph (1), except that the use-

(A) may be asserted as a defense under this section only for continued use by and in the laboratory or nonprofit entity; and

(B) may not be asserted as a defense with respect to any subsequent commercialization or use outside such laboratory or nonprofit entity;

(3) the term "method" means a method of doing or conducting business; and

(4) (3) the "effective filing date" of a patent is the earlier of the actual filing date of the application for the patent or the filing date of any earlier United States, foreign, or international application to which the subject matter at issue is entitled under section 119, 120, or 365 of this title.

(b) DEFENSE TO INFRINGEMENT.-

(1) IN GENERAL.- It shall be a defense to an action for infringement under section 271 of this title with respect to any subject matter that would otherwise infringe one or more claims for a method in the patent being asserted against a person, if such person had, acting in good faith, actually reduced the subject matter to practice at least 1 year before the effective filing date of such patent, and commercially used the subject matter before the effective filing date of such patent.

(2) EXHAUSTION OF RIGHT.- The sale or other disposition of a useful end product produced by a patented process method, by a person entitled to assert a defense under this section with respect to that useful end result shall exhaust the patent owner's rights under the patent to the extent such rights would have been exhausted had such sale or other disposition been made by the patent owner.

(3) LIMITATIONS AND QUALIFICATIONS OF DEFENSE.- The defense to infringement under this section is subject to the following:

(A) PATENT.- A person may not assert the defense under this section unless the invention for which the defense is asserted is for a method.

(B) (A) DERIVATION.- A person may not assert the defense under this section if the subject matter on which the defense is based was derived from the patentee or persons in privity with the patentee.

(C) NOT A GENERAL LICENSE.- The defense asserted by a person under this section is not a general license under all claims of the patent at issue, but extends only to the specific subject matter claimed in the patent with respect to which the person can assert a defense under this chapter, except that the defense shall also extend to variations in the quantity or volume of use of the claimed subject matter, and to improvements in the claimed subject matter that do not infringe additional specifically claimed subject matter of the patent.

(D) FUNDING. –

(i) DEFENSE NOT AVAILANLE IN CERTAIN CASES. -  A person may not assert the defense under this section if the subject matter of the patent in which the defense is based was developer pursuant to a funding agreement under chapter 18 of this title of be a nonprofit institution of higher education, or a technology transfer organization affiliated with such an institution, that did not receive funding from a private business enterprise in support of that development.

(ii) DEFINITIONS. – In this subparagraph –

(I)  the term "institution of higher education" has the meaning given that term in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a); and

(II)  the term "technology transfer organization" means an organization the primary purpose of which is to facilitate the commercialization of technologies developed by one or more institutions of higher education.

(4) BURDEN OF PROOF.- A person asserting the defense under this section shall have the burden of establishing the defense by clear and convincing evidence.

(5) ABANDONMENT OF USE.- A person who has abandoned commercial use of subject matter may not rely on activities performed before the date of such abandonment in establishing a defense under this section with respect to actions taken after the date of such abandonment.

(6) PERSONAL DEFENSE.-

(A) IN GENERAL: The defense under this section may be asserted only by the person who performed or caused the performance of the acts necessary to establish the defense, as well as any other entity that controls, is controlled by, or is under common control with such person, and, except for any transfer to the patent owner, the right to assert the defense shall not be licensed or assigned or transferred to another person except as an ancillary and subordinate part of a good faith assignment or transfer for other reasons of the entire enterprise or line of business to which the defense relates.

(B) EXCEPTION. – Notwithstanding subparagraph (A), any person may, ion the person's own behalf, assert a defense based on the exhaustion of rights provided under paragraph (2), including any necessary elements thereof.

(7) LIMITATION ON SITES.- A defense under this section, when acquired as part of a good faith assignment or transfer of an entire enterprise or line of business to which the defense relates, may only be asserted for uses at sites where the subject matter that would otherwise infringe one or more of the claims is in use before the later of the effective filing date of the patent or the date of the assignment or transfer of such enterprise or line of business.

(8) UNSUCCESSFUL ASSERTION OF DEFENSE.- If the defense under this section is pleaded by a person who is found to infringe the patent and who subsequently fails to demonstrate a reasonable basis for asserting the defense, the court shall find the case exceptional for the purpose of awarding attorney fees under section 285 of this title.

(9) INVALIDITY.- A patent shall not be deemed to be invalid under section 102 or 103 of this title solely because a defense is raised or established under this section.

In addition, Section 2 lacks the provisions of S. 23 relating to amending the False Marking statute (35 U.S.C. § 291) to restrict actions under subsection (a) to the U.S., and to restrict private plaintiffs to those that can allege a competitive injury under subsection (b).

Regarding Section 5, the post-grant review provisions, the House amendments to the inter partes reexamination provisions differ from the Senate version by maintaining the current standard for granting inter partes reexamination, i.e., raising a substantial new question of patentability (rather than showing a "reasonable likelihood that the petition would prevail with respect to at least one of the claims challenged in the petition" in S. 23).  The House version also gives the Director less time to initiate an inter partes reexamination where the patentee does not respond to the petition (§ 314(b)).  The House version also contains provisions in § 315 requiring an automatic stay of "civil proceedings" if an inter partes reexamination request is filed (and exempt counterclaims of invalidity from these provisions (§ 315(a)(2) and (a)(3)).  The House bill also includes a new section not in the Senate version, § 320, providing that, when a party seeks a stay in a "civil action" (including patent infringement litigation as well as actions before the International Trade Commission), the court "shall decide" whether to grant the stay based on "whether the stay, or denial thereof, will simplify the issues . . . and streamline the trial" (§ 320(1)); "whether discovery is complete and whether a trial date has been set" (§ 320(2)); "whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party" (§ 320(3)); or "whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court" (§ 320(4)).  (These provisions are in both the Senate and House versions of the section relating to expedited Patent Office review of business method patents; Sec. 18(c).)  Moreover, the House bill does not contain the exception in S. 23, that the provisions as amended do not apply to an inter partes reexamination request filed prior to the date of enactment.

With regard to the new post-grant review provisions relating to review after a patent grants, there are some important differences between the House and Senate bills (in addition to formatting changes in some of the provisions).  These differences include expanding the time for filing a petition from 9 months to 12 months from grant (Sec. 321(c)), permitting as the basis of review an assertion of "a novel legal question that is important to other patents or patent applications" (Sec. 324(b)), and outlining the considerations courts should make regarding whether to grant a stay in a civil action (§ 330).

There are also some minor differences in where certain provisions can be found in the two bills.  For example, the definition of "micro-entity" is set forth in a separate section in S. 23 (Sec. 12) and is contained in Section 9 on Fee Setting Authority in the House bill; the only substantive difference in the definition is that the House bill requires an applicant claiming the benefits of micro-entity status not to have been named on 4 or more previously filed application, while in the Senate bill the requirement is 5 or fewer.  The Fees for Patent Services provisions in Section 9 of S. 23 are set forth in a separate section (Sec. 10) in the House bill, which contains a specified amount for Patent Office services (which will be presumably subject to adjustment by the Director under the provisions of Section 9).  The virtual marking and changes to the False Marking provisions found in S. 23 in Sec. 4 and Sec. 4 are together in Sec. 15 of the House bill, and the advice of counsel provisions in Sec. 4 of S. 23 are separately set forth in Sec. 16 of the House version of the bill.

The provisions regarding tax strategy patents being considered to be within the prior art is slightly more precisely worded in the House bill, exempting not only computer programs for tax filing but also any "method, apparatus, technology, computer program product or system used solely for financial management, to the extent that it is severable from any tax strategy or does not limit the use of any tax strategy by any taxpayer of tax advisor" (Sec. 13(e)(2)).

Section 17 of the House bill uniquely amends 35 U.S.C. § 261 by adding the following provision:

35 U.S.C. 261 Ownership; assignment.

Subject to the provisions of this title, patents shall have the attributes of personal property.

Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing. The applicant, patentee, or his assigns or legal representatives may in like manner grant and convey an exclusive right under his application for patent, or patents, to the whole or any specified part of the United States.

A certificate of acknowledgment under the hand and official seal of a person authorized to administer oaths within the United States, or, in a foreign country, of a diplomatic or consular officer of the United States or an officer authorized to administer oaths whose authority is proved by a certificate of a diplomatic or consular officer of the United States, or apostille of an official designated by a foreign country which, by treaty or convention, accords like effect to apostilles of designated officials in the United States, shall be prima facie evidence of the execution of an assignment, grant, or conveyance of a patent or application for patent.

An assignment, grant, or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage and identifies all real parties in interest and those entities that control, directly or indirectly, such real parties in interest.

The provisions for institution of a transitional program for covered business-method patents (Sec. 18 in both bills) differ only in that the House bill has an extensive section on venue, limiting venue for business method patent infringement to be brought "only in a judicial district . . . (1) where the defendant has its principal place of business or is incorporated" [or] "(2) has committed acts of infringement and has a regular and established place of business" [or] "(3) where the defendant has agreed or consented to be sued" [or] "(4) for foreign defendants [that do not meet the requirements of (1) or (2)] in accordance with [28 U.S.C. § 1391(d)." (Sec. 18(d)).  The House bill also contains provisions of recovery of attorney's fees for the prevailing party (Sec. 18(e)) and exempts automated teller machines from the definition of a "physical facility" for venue purposes (Sec. 18(f)).

The House bill does not contain provisions relating to the residency requirements for Federal Circuit judges (Sec. 11 of S. 23).

The House held a hearing before the Subcommittee on Intellectual Property, Competition and the Internet on its version of the America Invents Act today; there has been no announcement by Rep. Smith regarding any additional hearings or timing of bringing the bill to a vote by the full Judiciary Committee.

Comments

[anonomous]

I'm in Asia, will post anonomously of course, but my concern is that by commoditization of the whole patent process we are making the problem of bad patents worse. Where I am we have around 140 engineers, and up until two years ago only two US patent agents (now 3). We vacillate in the ranking between 25th and 15th in top filers for US patents. Imagine China, where it's going to be 1 US patent agent signing for 1000 engineers translating Chinese apps and flooding the USPTO. Just sayin'

[EG]

Kevin,

The House version of S.23 is yet further reason why so-called "patent law reform" is a joke, and calling this the "America Invents Act" is oxymoronic. Prior user rights for all patented technologies? Including those practicing those patented technologies outside the U.S. (e.g., China)?

In my view, prior user rights is offensive to the intent of the Patent Clause in our Consitution. Where's the quid pro quo if someone can keep the technology "secret" and avoid the penalty of being barred by the one who pays the quid to get the quo? Be prepared for a constitutional challenge if this prior user right provision survives.

[6]

"In my view, prior user rights is offensive to the intent of the Patent Clause in our Consitution. Where's the quid pro quo if someone can keep the technology "secret" and avoid the penalty of being barred by the one who pays the quid to get the quo? Be prepared for a constitutional challenge if this prior user right provision survives. "

Not that I believe prior user rights to necessarily be the correct thing to put in our lawl, but I look forward to loling at your constitutional challenge to such a provision.

[staff]

"Smith (R-TX) (at right), introduced a version of the America Invents Act "

Just because they call it “reform” doesn’t mean it is. Patent reform is a fraud on America. This bill will not do what they claim it will. What it will do is help large corporations maintain their monopolies by robbing and killing their small entity and startup competitors (so it will do exactly what they paid for) and with them the jobs they would have created. According to recent studies by the Kauffman Foundation and economists at the U.S. Census Bureau, “startups aren’t everything when it comes to job growth. They’re the only thing.” This bill is a wholesale slaughter of US jobs. Those wishing to help in the fight to defeat this bill should contact us as below.

Small entities have been given far too little voice on this bill when one considers that they rely far more heavily on the patent system than do large firms who can control their markets by their size alone. The smaller the firm, the more they rely on patents -especially startups and individual inventors. Yet small entities create the lion's share of new jobs.

Please see http://truereform.piausa.org/ for a different/opposing view on patent reform.
http://docs.piausa.org/