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October 19, 2011


Thanks for the post. I am afraid that I do not understand (e)(5)(B) (the exception to the university exception). What does it mean, "could not have been undertaken using funds provided by the Federal Government"? Does that address subject matter that is banned from federal funding, like certain stem cell research? Or does it address a situation where the research leading to the patent was unequivocally not covered by federal funding at the time? Does anyone happen to know if there is any clarification anywhere?

"Even this exemption has an exception, however, wherein the exemption does not apply if 'the subject matter of the claimed invention could not have been undertaken using funds provided by the Federal government.'"


I've pondered this exception to the university exception. I'm puzzled.What does it mean in "real terms"?

Another question raised by the language of the (e)(5)(B) exception--what if the research was funded in part by the federal government and in part by, say, a private company? Many labs receive funding from more than one source. Shouldn't the public be entitled to notice, for example, by the presence (or absence) of the paragraph that is supposed to be included in a patent application under 37 CFR 401.14(f)(4) where work is performed under a government contract?

I'm glad I'm not the only one confused by (e)(5)(B), Salton. And nice astute point about the "partial funding" issue. The AIA is truly the Abominable Inane Act (how I hate the AIA!).

It seems to me that the exception for universities does not apply if the university reduced the invention to practice using Federal Government funds. Thus, so long as a university reduces a claimed invention to practice without federal funding, a person cannot assert the section 273 defense against the university when the university sues the person for patent infringement. But if the university does use federal funding in reducing the invention to practice, then a person can assert the section 273 defense against the university when the university sues the person for infringement.

The following sentence from above seems incorrect:

"These rights do not transfer upon the "sale or other disposition of a useful end result" to a third party, the defense being exhausted by the sale (Section 5(d))."

The defense is not exhausted by the sale, as the above states. Rather, the patent owner's right to assert infringement with respect to the "useful end result" is exhausted just as though the patent owner itself sold the "useful end result". In other words, even though a person other than the patent owner sold the "useful end result" (i.e. the person asserting the prior commercial use defense against the patent owner), the exhaustion doctrine still applies to the patent owner as though the patent owner itself sold the "useful end result".

It remains unclear what a "useful end result" (carried over from pre-AIA 273) means, although my guestimate is that it is the product made by the process or the output generated by the business method, etc.

Dear Confused:

The provisions of the exception are:

(5)(A) A person commercially using subject matter to which subsection (a) applies may not assert a defense under this section if the claimed invention with respect to which the 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 (as defined in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a)), or a technology transfer organization whose primary purpose is to facilitate the commercialization of technologies developed by one or more such institutions of higher education.

(B) EXCEPTION.—Subparagraph (A) shall not apply if any of the activities required to reduce to practice the subject matter of the claimed invention could not have been undertaken using funds provided by the Federal Government.

So I think that a university benefits from the exemption whether Federal funds were used or not. The exception to the exemption comes into play only if Federal funds "could not have been used" to reduce the invention to practice; whether Federal funds were actually used does not seem to be a requirement.

Thanks for the comment.

Dear Salton:

The question of joint invention/funding is a god one. I read the statute as saying that the presence of a university or tech transfer office as an assignee is enough; whether another entity is a co-assignee wouldn't vitiate the exception (because the statute doesn't say "sole assignee" or language to that effect).

Thanks for the comment.

Dear Confused:

The exhaustion argument you make is no different than current law - the exhaustion in this statute relates to whether the defense can be asserted against the patentee, not whether a sale exhausts the patent owner's right to sue for infringement. But I agree this isn't a crystal-clear statute, and this is one example.

Thanks for the comment.

Dr. Noonan,

I noticed your log in to the Public Hearing on the Study of PRior User Rights at the USPTO this morning, and would love to see a write up of your view on this public hearing, as I unfortunately missed the first half hour or so.

Your write-ups are typically precise, exacting and even-handed, and I really am trying to understand the entire prior user rights (or as emphasized, Priot User Defense).



Thank you for your reply. I think you are right in saying that the exception to the University Exception is not based on whether Federal Government funds were actually used.

Here is my understanding of the exception to the University Exception.

If the patent's invention could have been reduced to practice using Federal Government funds, then the University Exception applies.

If the patent's invention could not have been reduced to practice using Federal Government funds, then the University Exception does not apply.

I think the reason this "Federal Government funds" language is used is because patent law is federal law and therefore federal requirements for funding should be the basis for determining whether a patent's invention qualified for funding for reduction to practice. Thus, even though a patent's invention may be owned by a university, and reduced to practice using state government funds (approval under state funding requirements), this does not necessarily mean the patent's invention could have been reduced to practice using Federal Government funds (approval under Federal Government funding requirements).

I suspect we will see a technical amendment to the exception to the University Exception, as the present language is unclear.

Dear Confused:

It will be interesting to see what criteria are used to establish whether an invention "could not have been reduced to practice." The obvious one is a policy-based prohibition, such as stem cells. But can it be extended to inventions that the government does not support (e.g., does not have a funding agency that was empowered to give grants for study in the area)? Could it be year-to-year, as in "at the time the invention was made in technology X, the government was not giving/did not give any grants?" Worse, could it be that evidence that a funding proposal was denied would be enough to defeat the exception? No way to predict.

I hope your idea of a technical amendment is a good one.

Thanks for the comment.

Dr. Noonan,

Above you state "The exhaustion argument you make is no different than current law," but this is only true to the extent of the final outcome.

What is missing and what is very much different is the lack of ANY benefit accruing to the patentee from any such "exhaustion event" (i.e. sale). The patentee thus effectively has suffered a taking because someone else has benefited where previously a patent right had provided an exclusive nature to the item in question.

The third party that has not undergone ANY effort to join in the patent system enjoys Freerider effects from someone else's efforts, including the knocking out of other competitors. It is true that the defense does not provide a right to sue (and the downside concomittant cost), but the ability to sell free and clear - and the indemity afforded to those purchasing the item, materially can cut into the patentee's expected market.

Not only that, but there are additional negative effects to the patentee. The patentee simply will not know if anyone out there actually has the ability to support a prior user line of defense, thus materially increasing the risk that there may not be ANY market that can be gained by "exclusive" patent rights. There will now be this massive wildcard as to not only a direct infringer possibly having prior user rights, but the possibility now exists of a Huge Corporation having such hidden prior user rights and the umbrella of exhaustion protection shielding a target from an enforcement action.

A worst case scenario: No luck on the enforcement, no luck on the market protection, no luck on the exclusive nature of the patent (there goes licensing, if the Huge Corporation can undercut your license rate), very mixed luck against enforcing against other competitors outside the shield - as "lucky you" get to bear the costs and the competitor with prior user rights enjoys the fruits of your labors (perhaps a mandatory shared legal expense requirement can be made by technical amendment, but even this may be prone to abuse by deep pocket companies).

As this is the law, I am at a loss for a practical solution or even an approach to appraise my small start-up clients of this devaluation of patent worth (both intrinsic patent devaluation and business risk devaluation).


Dear Anon:

I don't disagree. The expansion of prior user rights has the potential to effect the most pernicious effects on the patent system and innovation. But it was sold as a "fairness" issue.

I cannot see how even technical amendments can fix this portion of the new law. But we will all need to be creative to protect small clients under this law (and hope that vigorous discovery will keep infringers from asserting the defense improperly).

Thanks for the comment.

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