With the passage of legislation by the U.S. Senate in March and approval by the House Judiciary Committee in April to send a similar bill to the House for a vote, changes to patent law are likely later this year.

The pending legislation (S. 23 and H.R. 1249) would grant patent rights to the inventor who is first to file a patent application for an invention, whereas the present system grants a patent to the inventor who is first to invent. In switching to a first-to-file system, U.S. patent law would resemble that of Europe, Japan, and most other countries of the world.

Although revision of the patent laws has been on the legislative agenda for many years, the tone has changed. In prior years, organizations such as the Software Business Alliance (whose members include some of the nation’s biggest software companies) and major electronics manufacturers sought to file the teeth of the patent system. Their rhetoric emphasized the evils of “patent trolls” and the need for “patent reform.”

On trolls and reform

The story about patent trolls is itself a miniature replay of issues underlying patent reform. A “patent troll” — also referred to as a “non-practicing entity” — has been used pejoratively to refer to an entity, owning one or more patents, that, unlike the companies it sues, does not engage in manufacturing products covered by its patents.

The term was applied to companies like NTP, which sued the makers of BlackBerry, Research in Motion, and to Eolas, which sued Microsoft. (NTP, Inc. v. Research in Motion, Ltd., (Fed. Cir. 2005); Eolas Technologies Inc. v. Microsoft Corp. (Fed. Cir. 2005)).

Universities are also “non-practicing entities,” since they license technology that they develop rather than engage in manufacturing.

The term patent troll was coined by Peter Detkin when he was assistant general counsel at Intel, after Intel was sued for his labeling a plaintiff “a patent extortionist,” according to a July 2001 article in The Recorder.

Thereafter, Detkin co-founded and joined Intellectual Ventures, a patent aggregator and changed his definition to: “One who must own no more than a few patents of questionable merit and is not in any business related to the patents.”

As the patent reform movement grew, organizations sprang up with rhetorically pleasing names like Coalition for Patent Fairness, whose members include Cisco, Apple, Micron, Google, Dell, Intel, Oracle, etc. They wanted limits on patent damages and on recoveries by entities that do not engage in manufacturing.

Efforts on tap

A succession of events has changed the rhetoric. The U.S. Supreme Court engaged in its own patent reform efforts by raising the standard required to show that an invention would not have been obvious (KSR v. Teleflex), making it harder to get an injunction (eBay v. MercExchange), making it easier for a licensee and others to launch declaratory judgment proceedings to challenge a patent (MedImmune v. Genentech), and protecting a software company from U.S. patent liability for overseas sales of U.S.-developed software (Microsoft v. AT&T).

Meanwhile, many organizations, including organized labor, came out against patent reform as harmful to U.S. competitiveness. The pharmaceutical industry, which depends on the patent system, was always against the reforms proposed by the software and electronics industries. With the meltdown of the U.S. economy, and indeed the world economy, technological innovation is now viewed as important to spurring economic growth.

With these developments, some of the most controversial provisions, such as limits on damages in prior versions of patent reform legislation, have been excised. The legislation passed by the Senate is no longer labeled “patent reform,” but rather, the “America Invents Act.”

In addition to changing the patent system to one based on first inventor to file, perhaps the most important change the Senate bill would make is allowing the Patent and Trademark Office to retain and use all fees that it collects.

Fees collected by the PTO from applications for trademark registrations and patents have been subject to diversion by Congress, a circumstance that has caused the PTO, struggling under a huge backlog of patent applications, to be chronically underfunded.

Although the PTO, under the deft leadership of David Kappos, has implemented innovative procedures to get through the application backlog, the debilitating effect of underfunding is undeniable, so the Senate bill promises some welcome relief.

There are other changes in prospect. A new procedure, called “post-grant review,” would permit challenging the validity of a patent on any ground, but the challenge would have to be mounted within nine months (in H.R. 1249, the period is a year) after grant of the patent.

Inter partes reexamination of patents, which under present law can be commenced at any time to challenge a patent, would be permitted only nine months after grant of the patent and after any post-grant review. As in the past, the challenge can be based only on prior art patents and publications.

The first-to-file system

The most significant change ahead is the shift to a first-to-file system. If two inventors each file an application to patent the same invention, the patent would be awarded to the inventor who first filed the application. The date of the invention would be irrelevant. The only exception to this provision would be in the unusual case where the inventor who was second to file could prove, in a new special “derivation proceeding,” that the one who filed first derived (i.e., stole) the invention.

The birth of this first-to-file system would mark the death of the one-year grace period for most purposes. Under present U.S. law, an inventor is afforded a grace period of one year after the earliest of a public disclosure by anyone in any form, including in an article of the invention, an offer for sale of the invention, or its public use. 35 U.S.C. §102(b).

Under the S.23 bill, there is a narrow grace period of a year for a “disclosure” of the invention by or through the inventor. However, if a company makes a confidential offer to sell the invention before it has filed a patent application, it would forfeit its patent rights under S.23, unless a court decides that a confidential offer for sale is such a “disclosure.”

For a technology-based business to survive in this new environment, it will be more important than ever to turn innovations into patent applications quickly, because in the new environment rights can be lost immediately by a publication of the invention by someone other than the inventor and because proving that the invention was made before the application filing date has no impact whatsoever. Only the application filing date counts.

There is a subtle way in which the new regime would be stricter than in Europe. Under the laws of both the U.S. and Europe, patent applications typically are published 18 months after they are filed. Until an application is published, it is secret. So secret, in fact, prior art in the form of an unpublished patent application can be used to reject an application.

For example, if I file an invention application on April 15 and someone else filed an application for the same invention on April 13, the earlier application — which certainly would not have been published two days later when I filed — can be used to reject my application.

That is fair because I did not file first. In this respect, the new U.S. regime is the same as the European law.

But what if my invention is not the same as the April 13 filing? Should the PTO be able to argue that my invention is just an obvious variation of the invention in the April 13 filing?

Under S.23, the PTO can cite against me a patent application that was not published at the time I filed my application and argue that my invention would have been obvious. In Europe, it is not possible to use an unpublished patent application as the basis for an obviousness rejection. I have proposed specific language to amend the legislation to provide a one-year grace period for an offer to sell the invention made by or through the inventor. Under rules of the European Patent Office, a confidential offer of sale has no effect on patentability, so S.23 is in this respect stricter than the law in Europe.

Of course, the best thing for me to do would have been to get on file before the March 13 filing if at all possible. But what if my invention is not fully baked?

I can file a first provisional application for a current filing fee of $220 (half that for individual inventors, universities, and other small entities), and then file another provisional application with more detail when my invention is more fully developed. Or, I can file a series of provisional applications as my invention undergoes further development, making sure to file a regular application by the first anniversary of my first provisional filing.

To borrow from another context: file early, file often. That has always been a good idea, and it will be an even better idea with enactment of the new legislation.

Bruce D. Sunstein is founder of Sunstein, Kann, Murphy & Timbers in Boston and can be contacted at [email protected].