How the America Invents Act impacts your business Featured

8:01pm EDT October 31, 2011
How the America Invents Act impacts your business

The America Invents Act, passed on Sept. 16, 2011, will significantly impact the way companies do business in the United States, says David Cupar, member, McDonald Hopkins LLC.

“The act helps standardize U.S. rules with those that the rest of the world adheres to regarding patents,” says Cupar. “It will create consistency both for U.S. companies doing business internationally and for international companies and individuals seeking to do business in the U.S.”

Smart Business spoke with Cupar about how the rules have changed and what that means for U.S. companies protecting their technologies through patents.

How will the act change the way rightful patent owners are determined?

The act addresses one of the biggest discrepancies between U.S. patent law and that in other industrialized countries. The U.S. has always had a first-to-invent system: if you invent first, then you would be entitled to patent protection even if someone who invents second files a patent application before you. This is different from the law in the rest of the world where the first to file a patent application becomes the rightful patent owner.

The new act changes the U.S. rules from a first-to-invent to a first-to-file system like the rest of the world. From a business perspective, this will help remove unwanted inconsistency. For example, in the past, if a Dutch company invented second but first filed a patent application in Europe and in the U.S., a U.S. company that invented first could argue that it is entitled to the U.S. patent. That puts the Dutch company in the anomalous position of owning the patent right in Europe but not in the U.S. based on the different rule.

How will this change the way U.S. businesses operate?

Companies will need to become more dedicated to filing patent applications as quickly as possible to minimize the chance of a competitor filing first on a similar invention.

Determining who invented something first is time-consuming and costly. The first-to-file system has a date of application and a government document, so there is no ambiguity.

Does this system give an advantage to bigger companies?

Inventors argue that the first-to-file system gives big companies an advantage because they understand the patent system and how to protect their inventions. However, patents are so prevalent in business, it is almost impossible to imagine why individuals and smaller companies would be at a disadvantage.

How will patent infringement disputes change?

The act will change patent litigation strategies significantly. If a party is concerned it might be accused of infringing, it will have more tools to oppose an issued patent outside of the classic federal district court litigation model. In the past, if you believed that my product infringed your patent, you would sue me, and I would assert a defense and counterclaim of invalidity against your patent in federal court. The downside of this approach is the length of time, cost and uncertainty in the process. For example, it can cost $2 million to $3 million to defend yourself in federal court.

To help reduce litigation costs and timing, the act introduces a post-grant review and inter partes review of patents. With a post-grant review, a party can file a petition with the U.S. Patent and Trademark Office to reopen the patent to determine whether the subject matter is patentable. If the USPTO determines it is not, or requires the patent owner to narrow the patent scope, the accused infringer can obtain favorable dispute resolution in this manner. Also, nine months after the patent is issued, an accused infringer can request an inter partes review, challenging whether the patent should have been granted in the first place. Thus, inter partes and post-grant reviews will provide a mechanism for accused infringers to have claims heard regarding the validity of a patent without being involved in full-blown federal district court litigation.

Another advantage in seeking a post-grant review or inter partes review of the patent is that you can request the district court in which you were sued to stay that suit until the USPTO review is completed. If you have a strong basis to seek invalidation of the patent and you prevail, the lawsuit goes away, and that $2 million price might only be $200,000.

How will the act change (1) joinder and (2) false patent marking claims?

Previously, ‘patent trolls’ — nonpracticing entities that own patents — could sue a number of companies, or an entire industry, for infringement in one lawsuit. The act makes the joinder of multiple defendants in a patent suit more difficult. Under the new act, a patent owner can join two or more parties to accuse them of infringement in the same suit only if those defendants are involved in the same transaction. This new rule will stop the practice of the patent trolls suing a number of companies in a related industry in one suit because those companies typically are not involved in the same transaction (e.g., GM and Ford sell different cars in different transactions). Now, patent trolls must sue each company individually in separate lawsuits, making it more difficult to sue an entire industry.

The act also changes the way parties may litigate false patent marking claims. The prior false patent marking statute prohibited parties from falsely marking products with expired patents or patents that did not cover that product with the intent to deceive the public. The problem with the statute was that anyone could sue anyone else. People would set up LLCs for the sole purpose of filing false patent marking suits against large companies to force them to settle out of court for substantial amounts of money. These LLCs did not suffer any competitive injury but still sued under the statute to earn settlement money.

Under the new rules, only the government or a party who has suffered a competitive injury may sue for false marking. Moreover, expired patents marked on products no longer constitute false marking.

David Cupar is a member and co-chair, Intellectual Property practice with McDonald Hopkins LLC. Reach him at (216) 430-2036 or dcupar@mcdonaldhopkins.com.