Pardon Our Dust: US Patent Law Under Renovation

May 2001Managing Intellectual Property, Issue 109, page 23

Pardon our dust: US patent law under renovation

Recent changes to patent law and PTO prosecution in the US make prosecution
a much more complex matter. Gregory J Maier and Philippe Signore
take a close look at the reforms.

© 2001 Oblon, Spivak, McClelland, Maier & Neustadt, PC in Arlington, VA.
Gregory J Maier is a managing partner and Philippe Signore is a patent agent with the firm. The opinions expressed in this article are those of the authors and do not represent those of Oblon, Spivak, McClelland, Maier & Neustadt, PC.

Intellectual property is a world commodity which ideally should be governed by uniform law throughout the world. Thus, it should be no surprise that harmonization of US and world patent law has long been the Holy Grail sought by all major US intellectual property law organizations. The goal of patent law harmonization was the principle motivation for the American Inventors Protection Act of 1999 (hereafter the Act), the most comprehensive revision of US patent law since it was last codified in 1952. Unfortunately for patent practitioners, during the five year period in which the US Congress struggled with the Act, patent law became a political issue for the first time, and the direct road to harmonization evolved into a twisting trail of political compromise. The Act, and the rules crafted by the USPTO to implement its provisions, have created a patent practice that is far more complex than could have been imagined a few years ago. The Act adds numerous new provisions such as the publication of pending patent applications, inter-partes re-examinations, patent term guarantees, and a new prior use defence.

In addition, the Court of Appeals for the Federal Circuit (CAFC), has recently rendered landmark decisions that have changed the face of patent law in ways that impact everything from application drafting through court enforcement of patents. The now famous State Street Bankdecision (State St Bank & Trust Co v Signature Fin Group, Inc, 149 F3d 1368, 47 USPQ2d 1596 (Fed Cir 1998), cert denied, 119 S Ct 851 (1999)) by the US Court of Appeals for the Federal Circuit (CAFC) triggered an explosion of business method patent applications being filed. Last November, the Festo decision (Festo Corp v Shoketsu Kinsoku Kogyo Kabushiki Co, 234 F3d 558, 56 USPQ2d 1865, (Fed Cir 2000) (en banc)) created stringent rules significantly affecting the application of the doctrine of equivalents.

In view of these many developments of unprecedented importance, it is essential that those wishing to understand US practice now take a close look at the fully renovated US law. Whether or not we have moved closer to the Holy Grail of harmonization is a matter that will be left to the thoughtful consideration of the readers.

Publication of pending US applications
Mechanics of publication

Prior to the new laws, pending US applications were generally "kept in confidence" by the USPTO until the application issued. Today, the USPTO publishes pending US applications 18 months after their earliest claimed priority date, thereby matching European, Japanese and PCT publication practices. Five categories of applications are not published:

(1) Abandoned applications. The USPTO warns applicants who seek to abandon an application for the purpose of avoiding publication that [t]he Office simply cannot ensure that it can remove an application from publication or avoid publication of application information any time after the publication process for the application is initiated. The USPTO recommends requesting an express abandonment at least four weeks prior to the projected date of publication.

(2) Applications subject to a secrecy order.

(3) Provisional applications.

(4) Design patent applications.

(5) Most importantly, applications not filed abroad and requested not to be published.

The USPTO publishes patent applications every Thursday (patents are issued every Tuesday) by placing both image and text-searchable versions on its web site. The publication includes a front page containing information similar to that contained on the front page of a patent, the drawings, the specification and the claims. The publication does not include any amendments, including preliminary amendments, unless the applicant supplies a copy of the application containing the amendment in compliance with the USPTO's new electronic filing system (EFS) requirements.

The new EFS is an electronic submission procedure available to applicants (or their representatives), which involves (1) obtaining a digital certificate from the USPTO to enable secure communication between applicants and the USPTO; (2) obtaining specific EFS software from the USPTO; (3) converting the patent application into a specialized format; and (4) assembling the parts of the application, validating, digitally signing, and submitting the application. Applicants and their representatives can sign up for the EFS programme and receive a package that includes the digital certificate and the necessary tools to complete the electronic submission. (More information on EFS is available on the USPTO's website.)

Applicants must also use EFS to (1) voluntarily publish an application filed prior to November 29 2000; (2) re-published an application, for example because it was amended; and (3) publish only a redacted copy of an application. Under Rule 1.217, an applicant, whose foreign application is less extensive than the US application, may request that the USPTO only publish a redacted version of the application, eliminating any part or description of the invention that is not also contained in the corresponding foreign application.

Under the new laws, an applicant may request a publication before 18 months. Alternatively, an applicant may request not to publish, but only if the applicant certifies upon filing that the invention disclosed in the application has not and will not be the subject of an application filed in another country, or a PCT application, that requires publication of applications 18 months after filing. Upon subsequently filing a PCT application, or a foreign application, which requires publication of applications 18 months after filing, the applicant will have 45 days to notify the USPTO of such subsequent filing. A failure of the applicant to provide such notice will result in the application being regarded as abandoned, unless the delay can be shown to be unintentional.

Effects on the public

In addition to publishing pending US applications, the USPTO permits any member of the public to obtain (for a fee) a copy of the complete file wrapper and contents thereof, or a copy of a specific paper in, any published application. The USPTO also permits any member of the public to physically inspect the file of any abandoned published application.

In order to prevent a slowing down of issuance of applications due to their publications, the new laws forbid protests or oppositions to the grant of a patent on an application after publication. Prior to the Act, a member of the public could file a public protest under Rule 1.291, which is permitted to present relevant patents, publications, or other information and a concise explanation of the relevance of each item listed. A protest under Rule 1.291 therefore permits a member of the public to provide arguments for rejecting the pending claims of the application. However, because applications were kept in confidence, public protests under Rule 1.291 were usually filed in applications involved in an interference and in reissue applications which are open to the public. Under the Act, it appears that protests under Rule 1.291 are still permitted, but only if filed before the publication of an application. The number of protests under this rule is thus not expected to increase as a result of the new publication provisions.

On the other hand, under new Rule 1.99, a member of the public may submit a request (for a fee) for up to 10 patents or publications (in English or with an English translation) relevant to a pending published application within two months of the application publication. Such submission will be served upon the applicant, but cannot include any explanation of the patents or publication, or any other information, such as non-patentability arguments. Any explanation or information will be disposed of by the USPTO.

A submission under Rule 1.99 may thus provide a quick and inexpensive way to inform an examiner of relevant prior art before a patent issues. However, persons submitting references under Rule 1.99 should carefully consider the effect of not being allowed to argue the relevance of the references. In the event that the applicant is successful at convincing the examiner that the claims are allowable over the references, a request for a re-examination of the patent based on these references would probably be denied, and the presumption of validity of the claims with respect to these references would probably be strong.

The publication of US pending patent applications has at least four effects:

(1) English translations of foreign applications being prosecuted in the US are available to the public sooner.

(2) Published US applications are prior art under 35 USC 102(e), which is easily searchable by USPTO examiners.

(3) Published US applications facilitate USPTO examiners' interference searches.

(4) Published US applications put inventors and assignees on notice of another's application containing interfering claims.

The last two effects should combine to increase the number of interferences declared in the USPTO.

Provisional rights

Prior to the Act, a US patentee could only be compensated for the infringement of his claimed invention by damages calculated back to the issue date of the patent. However, the new laws now provide "provisional rights" to a reasonable royalty from any person who makes, uses, offers to sell, sells, or imports in the United States the invention as claimed in the published application (either US national or PCT application), during the period beginning on the date of publication of the application and ending on the date the patent is issued.

The new provisional rights statute imposes a number of requirements that must be met in order for the patentee to be entitled to the reasonable royalty. Unfortunately, the wording of these requirements raises several questions that must await clarification from the courts. More specifically, the accused infringer must have had "actual notice" of the published patent application. It is unclear whether actual notice means a simple notice of publication, or whether the notice must also include an identification of the alleged infringing products, with an explanation of how these products read on the published claims. The expression actual notice is already used in the context of limitation on damages, where damages for unmarked products are calculated back to the date the infringer was given actual notice. The CAFC has interpreted actual notice in this context as requiring that the recipient is informed [by the patentee] of the identity of the patent and the activity that is believed to be an infringement, accompanied by a proposal to abate the infringement, whether by licence or otherwise" (SRI International Inc v Advanced Technological, 127 F3d 1462, 1470, 44 USPQ2d 1422, 1428 (Fed Cir 1997)). It is therefore likely that the actual notice for provisional rights be interpreted as including similar requirements.

Furthermore, when a PCT application, filed in a language other than English, is the basis for the provisional rights, the new laws require that the accused infringer must have had an English translation of the PCT application. However, the new laws do not specify whether the period of royalties depends on the date at which the alleged infringer has the translation, nor whether the translation must be supplied by the patentee.

In addition, the invention as claimed in the patent must be "substantially identical" to the invention as claimed in the published patent application. Based on the legislative history of the Act, the criteria used to determine whether claims are substantially identical should be the same as those used in determining whether reissued, or re-examined, claims are substantially identical to originally issued claims when addressing the question of intervening right. (An accused infringer may be entitled to intervening rights that limit the patentee's right to exclude others from performing certain activities that did not infringe the original claims, but that do infringe the reissued, or re-examined claims.)

Specifically, the CAFC has held that "[t]o determine whether a claim change is substantive it is necessary to analyze the claims of the original and the re-examined patents in light of the particular facts, including the prior art, the prosecution history, other claims, and any other pertinent information" (Laitram Corp v NEC Corp, 952 F2d 1357, 1362-3, 21 USPQ2d 1276, 1280 (Fed Cir 1991)). In general, a claim change made in order to clarify the claim is less likely to be held substantial compared to a change made in order to overcome a rejection based on prior art. However, there is no per se rule and the courts perform a case by case analysis of what constitutes a substantial change.

Because provisional rights will be lost if the claims are substantially amended between the publication of the application and the issuance of the patent, applicants should consider either (1) filing claims already complying with US claim drafting practice and having a wide range of scope, or (2) requesting a re-publication of the application every time the claims are substantially amended. In particular, foreign applicants who file translations of foreign applications should consider revising their claims according to US claim drafting practice before filing in the USPTO so as to avoid having to re-publish the application. By waiting until prosecution is started to revise the claims, applicants take a chance that a court will later find the issued claims substantially different from the published claims. More importantly, a claim revision prior to filing may avoid losing the scope of equivalents due to prosecution history estoppel under the new rules created by the Festo decision (discussed below).

The new provisional rights provision may motivate certain applicants to publish as soon as possible, before the 18 month date of the earliest filing date, as provided by the new laws. For example, it may be beneficial to file a request to publish at the earliest possible time for rapidly evolving technology. When an invention would become popular upon disclosure but obsolete shortly after a patent issues, it may be beneficial to publish early so as to potentially increase the amount of royalty to which the patent holder is entitled.

Claiming priority

Prior to the publication of US patent applications, claiming priority to a corresponding foreign application could be performed at any time during pendency of the application. However, under the new laws, since the priority date must be known in advance for the date of publication to be set, the USPTO now requires that the claim for priority must be presented within four months from the actual filing date or 16 months from the filing date of the prior foreign application, whichever comes last. This time period is not extendable. The new rules also state that if the claim of priority is not presented during this period, the claim of priority is waived. However, the USPTO rules provide that if the claim for priority is presented after the above period, a claim of foreign priority may be accepted if the delay was unintentional and if presented with a surcharge and a petition stating that the delay was unintentional. The USPTO may require additional information supporting the unintentionality of the delay. In order to avoid any waiver of the right to claim foreign priority, priority should preferably be claimed upon filing the application in the USPTO. Similar timing requirements apply to claiming priority to provisional applications, regular US applications, and PCT applications.

The USPTO's new rules still require that a certified copy of the original foreign application be filed before the patent is granted. With respect to English translations, the USPTO's new rules leave unchanged the prior practice of not requiring an English language translation of a non- English language foreign priority document except (1) when the application is involved in an interference, (2) when necessary to overcome the date of a reference relied upon by the examiner, or (3) when specifically required by the examiner.

Changes to the definitions of prior art
Changes to 35 USC 102(e)

The new laws amended 35 USC 102(e) to provide prior art effect both to published US applications (35 USC 102(e)(1)) and US patents (35 USC 102(e)(2)).

Before further discussing the new 35 USC 102(e), the reader should keep in mind that a first version of amended 35 USC 102(e) was signed into law with the Act on November 29 1999. However, because various USPTO officials and members of the patent bar complained that the first version was flawed and unworkable, a second version is being considered by the Congress. Today, members of the patent bar are complaining about the second version, so that it is possible that a third version will be passed. However, it is believed that the gist of the section was settled with the second version, even though some details may still need to be ironed out. This article thus limits itself to what is believed to be the gist of new 35 USC 102(e).

New 35 USC 102(e)(1) defines the effective date as prior art (the "102(e) date") of a published US application as the earliest US filing date, except for published PCT applications which are discussed in detail below.

New 35 USC 102(e)(2) does not change the 102(e) date of a patent issued from a regular (non- PCT) US application. In other words, the effective date as prior art for a US patent issued from a regular US application is still the earliest US filing date. However, this may not be true for US patents issued from PCT applications, as discussed next.

102(e) Date of published PCT applications

New 35 USC 102(e)(1) provides that the US publication of a PCT application that was published in the English language under PCT Article 21(2) is assigned a 102(e) date as of the PCT application's filing date. This is a significant change, which permits US and foreign PCT applicants (filing PCT applications in English) to benefit from their early PCT filing dates for purposes of establishing effective US prior art.

However, the new 35 USC 102(e)(1) appears to preclude assignment of a 102(e) date to a US publication of a PCT application published in a non-English language. Of course, the non- English publication of the PCT application will still be 35 USC 102(a) and (b) prior art as of the PCT publication date. However, the PCT publication date is always later than the PCT application's filing date. Furthermore, the document being in a non-English language might not be properly considered by a US examiner examining another's patent application. Therefore, it appears to be beneficial under the new law, for the purposes of establishing effective US prior art, to file all PCT applications in English so as to obtain an early 102(e) date.

Date of patents issued from PCT applications

New 35 USC 102(e)(2) provides that a US patent granted on a PCT application that was published in the English language under PCT Article 21(2) is assigned a 102(e) date as of the PCT application's filing date. Again, this change permits US and foreign PCT applicants (filing PCT applications in English) to benefit from their early PCT filing dates for purposes of establishing effective US prior art.

However, new 35 USC 102(e)(2) appears to preclude assignment of a 102(e) date to a US patent granted on a PCT application published in a non-English language.

Unresolved issues

An applicant can by-pass the US national stage by filing a by-pass application, which is a regular (filed under 35 USC 111(a)) continuation application filed in the US claiming domestic priority (under 35 USC 120) to a PCT application. In other words, a by-pass application is not a PCT application in the US national stage. Therefore, a patent granted on a by-pass application is technically not a patent granted on a PCT application. Under the new 35 USC 102(e), a patent issued from, or the publication of, a by-pass application should thus be assigned a 102(e) date as of the US filing date of the by-pass application.

However, the USPTO has struggled in the past with the issue of assigning a 102(e) date to by- pass applications. In an earlier version (July 1998) of the MPEP, the USPTO assigned the international filing date as the 102(e) date of a by-pass application. However, in the latest version (February 2000), the USPTO assigned the US filing date of the by-pass application as the 102(e) date. It is therefore unpredictable how the USPTO will handle the 102(e) date of by-pass applications under the new statute at this time. In any event, the ultimate decision as to the correct 102(e) assignment of by-pass applications will be in the hands of the CAFC, or the US Supreme Court.

Changes to 35 USC 103(c)

The amendment of 35 USC 103(c) is significant. The new 35 USC 103(c) explicitly excludes obvious variations of 35 USC 102(e) prior art for purposes of obviousness determinations, when the 35 USC 102(e) prior art is owned by, or under an obligation to be assigned to, the same person as the claimed invention. In other words, claims of an application may no longer be rejected as being obvious over a 35 USC 102(e) reference assigned to the same person/company to which the application is assigned. New 35 USC 103(c) should favour large companies and research teams that often see their own patents applied as prior art against their pending applications. It is important to keep in mind that commonly assigned/owned 35 USC 102(e) prior art still applies for lack of novelty purposes, ie for rejections under 35 USC 102(e).

The new 35 USC 103(c) provision applies to any application filed on or after November 29 1999. Consequently, it may be advantageous to re-file pending applications that were filed prior to that date, eg, by filing a Continued Prosecution Application (CPA), so as to benefit from new 35 USC 103(c). If a patent has already issued, but a descendant application is still pending, a new continuation application may be filed with slightly different claims to avoid a 35 USC 101 (same invention type) double patenting rejection. An obviousness type double patenting rejection may apply, however such a rejection can easily be overcome by filing a terminal disclaimer.) The new continuation application will benefit from the new law and the patent issued from the continuation should be safe from an invalidity finding based on an obviousness argument relying on commonly owned/assigned 102(e) prior art.

Before re-filing an application, one should always take into consideration the patent term, which may be significantly affected by the re-filing. For example, if the application was filed before June 8 1995, filing a CPA would set the end of the patent term 20 years from the earliest US priority filing date, instead of 17 years from issue.

Optional inter partes re-examinations

A re-examination is a procedure in the USPTO requested either by a patent owner, a third party or the USPTO, that provides for the re-examination of an issued patent. Re-examinations are reserved for cases where one or more patents or printed publications raise a substantial new question of patentability. In other words, only new issues of novelty under 35 USC 102 and obviousness under 35 USC 103, raised by prior art patents and publications, may be re-examined in a re-examination. A request for re-examination is not granted to resolve issues not raised by printed references, for example on sale or public use bars, inequitable conduct, or typographical errors in the patent.

For example, a patent owner can request a re-examination when he/she becomes aware of a prior art printed reference, not considered during the prosecution of the patent and that raises a substantial new question of patentability of the claims. Before launching into an expensive litigation against an infringer with patent claims potentially invalid by the newly-discovered reference, the patent owner decides to let the USPTO re-examine the claims and hopefully issue a certificate confirming patentability. A patent that successfully survives a re-examination can carry an increased presumption of validity during litigation because the examiners of the USPTO, experts in the field, determined that the claims were patentable, despite consideration of the new prior art.

On the other hand, a third party may also be interested in having a patent re-examined based on a newly discovered prior art reference. Again, the idea is that resolving issues through a re- examination procedure costs a lot less than resolving them through litigation. Furthermore, if the argument for invalidity based on the new reference is rather technical, then it may be better to have the technically trained examiners of the USPTO review the case, instead of a judge or jury.

Prior to the new laws, however, third parties were effectively discouraged from filing re- examinations because the re-examinations were conducted ex parte, ie the third party is excluded from the procedure taking place between the USPTO and the patentee. After the initial request for re-examination, the third party in an ex parte re-examination has almost no opportunity to reply to the patentee's arguments in support of patentability of his/her claims in view of the new printed reference.

The new laws give the third party requester the option to either request an ex parte re- examination or request an inter partes re-examination in which the third party can participate in the re-examination procedure. Like ex parte re-examinations, inter partes re-examinations are limited to cases where one or more patents or printed publications raise a substantial new question of patentability. This new procedure was added to reduce the amount of litigation in the US courts and to make the re-examination procedure a more viable alternative to litigation. The new procedure also brings US law a step closer to European patent practice, as inter-partes re- examination resembles the European opposition procedure, although with some important differences, as discussed next.

Third party participation

Any person can file a request for inter partes re-examination. Inter partes re-examinations are only available for patents issued on original (non-reissue) applications filed on or after November 29 1999. In an inter partes re-examination, the third-party requester stays informed of the status of the procedure. Indeed, the patentee and the third party requestor must serve a copy on the other party of every paper each files in the re-examination. Furthermore, the USPTO must send a copy of every communication with the patentee to the third party requestor. The third- party's participation is increased because for each response filed by the patent owner, the third- party requester has one opportunity to file written comments addressing issues raised by the office action or the patent owner's response thereto. However, the third party requester must file the written comments within 30 days. In other words, the third party requester must be ready to respond quickly to the patent owner's arguments and amendments. Before filing the request, the third party should therefore try to anticipate the patent owner's future response and prepare any evidence, such as a technical expert's affidavit, or at least brief the expert so that he may draft an affidavit within a short time.

The USPTO has indicated that the re-examination will be assigned to an examiner other than the one involved in the examination and issuance of the patent undergoing re-examination. This policy was adopted in order to eliminate public perception of bias by the original examiner who handled the patent. No interviews on the merits of the proceedings are available in an inter partes re-examination. This rule was adopted in order to simplify and expedite the inter partes re- examination proceedings. As noted by the USPTO, inter partes interviews would be difficult to arrange, control, conduct, and record.

Contrary to the situation in ex parte re-examinations, the third party requester in an inter partes re-examination has the option of appealing the case to the Board of Patent Appeals and Interferences. However, the third party requester may not appeal the Board's decision. On the other hand, the patentee may appeal the Examiner's decision to the Board and the Board's decision to the CAFC. If the patentee appeals to the Board, the third party requester may participate in the appeal. However, if the patentee appeals to the CAFC, the new laws do not permit the third party to participate.

Patent term guarantees

The Act provides for a number of patent term guarantees by providing patent terms extensions to make up for delays created by the USPTO. For patents filed on or after May 29 2000, the new laws provide three patent terms guarantees: (1) the prompt response guarantee, (2) the guarantee of no more than a three year pendency of patent applications, and (3) the guarantee of adjustment for delays resulting from interferences, secrecy orders and successful appellate review.

(1) The prompt response provision guarantees the following:

(a) The USPTO will mail a rejection, objection, restriction or an allowance within 14 months from the US filing date, ie the filing date under 111(a) or the date of entry in the US national stage.

(b) The USPTO will respond to an applicant's reply to an office action within four months.

(c) The USPTO will act within four months after a decision from the Board or from a federal court in cases in which allowable claims remain in the application.

(d) The USPTO will issue a patent within four months of the date on which the issue fee was paid.

(2) The three year pendency provision guarantees that the issuance of an original patent (ie not a reissue patent) will not be delayed more than three years from the actual filing in the United States. However, time consumed by a continued examination of the application will not be included in the three year calculation. (The new rules provide for a new Request for Continued Examination (RCE) that is intended to replace Continued Prosecution Applications (CPA) as of May 29 2000, except for applications filed before that date, for which both options are available). Furthermore, the three year calculation does not include time occurring during interferences, secrecy orders, or time on appeal to the Board. Finally, and most importantly, the three years will not include any delay in the processing of the application requested by the applicant, unless the applicant can show that, in spite of all due care, the applicant was unable to respond within the non-extended period set by the USPTO. For example, the three year calculation will not include extensions of time obtained by the applicant in order to respond to an office action, which usually sets a three-month non-extended period to respond. Any extension beyond the first three months will thus not be included in the three year calculation. Consequently, most extensions of time obtained to respond to an Office Action will result in a non-recoverable loss of extended patent term. Extensions of time may be included in the three year calculation by a showing that, in spite of all due care, the applicant was unable to respond within the three-month period. As noted above, this may be remedied with "a showing that, in spite of all due care, the applicant was unable to respond within the three-month period." Furthermore, formal drawings will be required in order to publish the application. If the application as filed does not include such formal drawings, the USPTO will mail a notice requiring corrections of drawings within three months. Delays in complying with filing formal drawings will result in a non-recoverable loss of extended patent term.

(3) The last guarantee, the "guarantee of adjustments for delays due to interferences, secrecy orders, and appeals" is not new and continues to provide a patent term extension for delays due to (1) interferences and secrecy orders, and (2) successful appeals to the Board of Appeals and interferences.

The total number of days extended under the new laws cannot, due to overlap of the extension provisions, exceed the actual number of days the issuance of the patent was delayed. The USPTO is in charge of calculating the term extension for each issued patent and of indicating the calculated term extension on the notice of allowance. The applicant then has the opportunity to challenge the calculation by filing an application for patent term extension, which must be filed no later than the payment of the issue fee but may not be filed earlier than the date of mailing of the notice of allowance.

If still not satisfied with the patent term adjustment provided by the USPTO, the applicant can file a civil action against the USPTO in the district court of the District of Columbia within 180 days after the grant of the patent. A third party may not challenge the term extension calculations, except to a court during a patent infringement action. Finally, no patent shall be extended beyond the expiration date specified in a terminal disclaimer.

Recapitulating, the new laws now provide for reasonable adjustments of patent terms due to delays created by the USPTO. However, a patent term extension will generally not be granted for delays created by the applicant. Consequently, it is important to avoid, whenever possible, relying on extension of times when responding to office actions. Finally, it is important to review notices of allowance carefully to ensure that the patent term extension calculated by the USPTO is accurate. If the term extension is significantly less than the extension to which the applicant is entitled, then it may be beneficial to request a reconsideration of the extension calculation, and if necessary to appeal the USPTO calculation to the US District Court for the District of Columbia.

Business method patents and the new first inventor's defence
Business method patents

The State Street Bank decision confirmed unequivocally that inventions related to methods of doing business were eligible subject matter for patent protection (State Street Bank & Trust Co v Signature Financial Group, Inc, 149 F3d 1368, 47 USPQ2d 1596 (Fed Cir 1998), cert denied, 119 S Ct 851 (1999)). The State Street Bank decision and various publicized e-commerce patent litigations, such as the versus Barnes & Noble battle over the "one-click" technology (in December 1999, the US District Court for the Western District of Washington issued a preliminary injunction to keep Barnes & Noble from using the on-line shopping "one- Click" technology protected by US Patent No 5,960,411 issued to appear to have sparked an explosion of business method patent applications. According to the USPTO, business method application filings were about 1,000 in 1998, over 2,500 in 1999 and approximately 7,800 in 2000, or 2.6% of all applications filed that year. About 900 business method patents were granted in 2000, or about 0.5% of all patent grants for that year. Some members of the public have criticized the USPTO for issuing certain business method patents. In response to these public attacks and the sharp increase in filings, the USPTO is implementing a number of measures, as discussed next.

Business method patents are handled by the USPTO's Group 2160 and are classified in Class 705. Today, about 80 examiners work in Class 705, about a third of whom hold advanced degrees (PhD, masters, law degrees). Most of these examiners are computer scientists and many have business-related degrees and/or experience.

All examinations of business method applications must include searches of (1) US patents, (2) foreign patents, and (3) non-patent literature (NPL) databases. Other optional searches are encouraged. With respect to NPL searches, the USPTO is developing a web access research tool that will allow the examiners to access a variety of business method-related databases from their desktops and to add references to these databases. All business method applications files must identify the databases searched and all references considered.

The examiners of business method applications are encouraged to use rule 37 CFR 1.105 which gives examiners the authority to request information from the applicant (or any individual substantially involved in the preparation of the application). The requested information must be "reasonably necessary to properly examine or treat" a matter with regard to the examination of a patent application. For example, examiners may ask whether the invention is in use, whether a search was performed by the applicant and what the content of the search results are. The examiner may request information used to draft the application, to explain technical material, or to clarify the publication date of an undated reference mentioned by applicant.

Every allowed business method application must include reasons for allowance. If several independent claims are allowed, separate reasons must be given. The closest prior art must be compared to the claimed subject matter.
Every allowed business method must be reviewed by a supervisory examiner who ensures that (1) the search requirements are met, (2) the reasons for allowance are included, and (3) the scope of the claims is appropriate.

Finally, the USPTO is creating a search advisory panel that examiners of business method applications can consult to obtain assistance with searches. The search strategy panel consists of senior examiners and search experts.

Some have argued that three of the Act's new provisions address the concerns of the critics of business-method patents:

The publication of pending business method applications gives the public an opportunity to search for relevant prior art. Any entity having a financial interest in the non-issuance of the patent can spend its resources on extensive searches and provide the examiner with any relevant prior art via a submission under Rule 1.99 (discussed above).

The new inter partes re-examination procedure (discussed above) permits the public to actively challenge the patentability of business-method patents.

The new "first inventor defence" (discussed below) can shield certain infringers against business-method patents.

The new first inventor's defence

Prior to the State Street Bank decision, companies often kept methods of doing business as trade secrets. In view of the liability from the increase in business method patents, a number of companies, especially in the financial services industry, lobbied the US Congress to pass legislation protecting them from expected patent infringement law suits brought against them on the basis that they infringe a newly patented business method. In effect, these companies were asking for a prior user right, well known in other countries. Under prior US law, such prior user rights were unavailable based on the public policy that society benefits more from an invention disclosed in a patent, than from an undisclosed trade secret. A first inventor choosing trade secret protection took the risk that a second inventor might independently develop the same invention, patent it, and then sue the first inventor for infringement.

In any event, Congress acquiesced and created a new defence to an action for infringement of claims for "a method of doing or conducting business," called the "first inventor defence". It is not clear how broadly the definition of "method of doing or conducting business" will be interpreted by US courts. The legislative history for this section indicates the expression relates to the production of a useful end-product or service and is or could have been claimed in form of a business process or method in a patent. A possible interpretation of a method under this section is any process that can be implemented by computer software. At this time, the meaning of method is open for debate. In particular, it is not clear whether the defence can only be used for a method claim infringement, or can it also be used for a system claim directed to a system for performing a method of doing business. It is interesting to note that the patent to Signature Financial Group Inc, at issue in the State Street Bank case, included only system claims. Until judicial decisions clarifying this issue are published, applicants should thus include in their applications for protecting methods of doing business both method claims and system claims.

In addition to being limited to "methods of doing or conducting business," the new defence has several other limitations, which may render it difficult to use. In particular, the accused infringer must have actually reduced to practice the claimed method at least one year before the effective filing date of such patent. This date is believed to be the earlier of the actual filing date of the patent's underlying application, or the filing date of any earlier US, foreign, or international application to which the method at issue is entitled under 35 USC 119, 120, or 365.

Furthermore, the accused must have commercially used the claimed method before the effective filing date of such patent. The expression commercial use probably means a commercial use in the United States, which may be either completely internal to a commercial entity (for example, a method of generating pay cheques for employees of a pharmaceutical company) or directly related to the end product/service being commercially available (eg, a method of finding the cheapest airfares on the internet used by a travel agency when selling plane tickets to travelling customers). Importantly, public knowledge is neither a requirement, nor a bar for the defence. As is the case for a number of expressions used in the Act, a more defined meaning of commercial use will have to wait for court decisions on the issue.

In addition, a successful defence with respect to some claims of the patent does not create a general licence under all claims of the patent. Furthermore, the defence is a personal defence, which may be asserted only by the person who performed the acts necessary to establish the defence. In other words, the defence may not be licensed or assigned or transferred "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 defence relates." Finally, if a court finds that the defence was asserted without a reasonable basis, the infringer may be held liable for the patent owner's attorney's fees.

As a drafting strategy, it is probably wiser to avoid labelling an invention as a method of doing business in patent applications. First, such labelling would be evidence that the new prior inventor defence is available to an accused infringer. Second, the application may also disclose a system, which is not a method of doing business. Third, such labelling might be evidence against the patentability of an invention, or the validity of a corresponding patent, in a country where methods of doing business are not patentable. Fourth, controversy still exists in the US regarding the patentability of these inventions, so that pressures might lead to another change in the law affecting that patentability.

The new first Inventor defence will be an interesting issue to follow over the next few years. Will the courts construe this new defence narrowly and view it as an ad hoc solution to a temporary problem, which was politically motivated, and which is inconsistent with the overall US patent system; or will the courts use this new limited defence as a seed to expend the prior usage rights doctrine?

Published in Managing Intellectual Property, May 2001, Issue 109, page 23.