Intellectual Property

America Invents Act: Impact On Patent Processing And Litigation Strategies

Editor: Please tell us about your background and experience.

Moore: I have been a patent attorney for over 20 years, focusing predominantly on litigation in the Hatch-Waxman area, pharmaceutical and electrical/mechanical areas. I also have considerable experience in patent prosecution. I formerly worked in-house as the director of intellectual property at a joint venture between Hoechst and Rhone-Poulenc Rorer (now Sanofi-Aventis).

Editor: The America Invents Act (the “Act”) was signed into law on September 16, 2011. What provisions will most affect your practice?

Moore: The timetable will have a significant impact on the legal profession because provisions will not be implemented simultaneously. The new inter partes review procedures will weaken the rights of patent owners by providing the patent owner only one time as of right to amend its claims. Overall, the Act favors large-company defendants in that it empowers them to continually challenge through post-grant review, inter partes review and ex parte reexamination of a party's patent, particularly given that ex parte reexamination remains a procedure wherein the petitioner need not identify itself. We may see that certain patent holders will be faced with more costly administrative proceedings.

Editor: Will the inter partes provision reduce patent litigation?

Moore: Interestingly, when I worked in-house, we spent as much money on oppositions in Europe as on litigation in America; thus, the migration of patent litigation processes to the Act’s post-grant review (PGR) procedures in my estimation will likely represent a zero sum game. Moreover, with multiple parties able to file in succession, a patent holder could spend the entire 20-year term wrapped up with administrative proceedings, something we all have seen in Europe. Companies will need deep pockets to manage what likely will become the easiest system in the world in which to challenge patents.

Editor: Are burdens imposed by PGR offset by the first-to-file provision?

Moore: Certainly, patent application filings will increase due to the first-to-file provision. The Act is not well written, particularly with respect to § 102 addressing whether its grace period applies to commercialization activities or public use. Thus, patent filers will take the most conservative view, opting for successive provisional filings and defensive publications. While much was made of the first-to-file provision, patent challenge processes – such as inter partes review and application of the more lenient “preponderance of the evidence” standard by the U.S. Patent and Trademark Office (PTO) – will have greater impact on the profession. There will be more filings overall. It will be interesting to watch whether the first-to-file provision, as well as certain other provisions of the Act, will be challenged on constitutional grounds.

Editor: To what extent does the Act affect your due diligence process on behalf of your clients?

Moore: Due diligence will be more intensive under the Act because the provisions do not take effect at the same time, and proper diligence will require knowing under which provision, old or newly implemented, a given application was filed. If there were sales or offers to sell, it would make a big difference to know if the Act currently applies or if the old law is still in effect, and the entire analysis will need to evolve if new provisions take effect during the process.

First-to-file will go into effect March 16, 2013; post-grant review is effective September 16, 2012; and some provisions are effective right now, such as the prioritized exam, which allows expedited file processing for a fee. The latter is a positive development versus the former accelerated exam process that attorneys hesitated to use because of possible file wrapper estoppel issues.

Editor: Does the Act encourage the continuous filing of patent applications, particularly for product updates?

Moore: Product updates will require continuous filing of provisional applications to protect against prior user rights, and publication of the same ideas by others. As valuable patents are particularly at risk for administrative challenge, companies may opt to file continuation applications to mitigate the risk of inter partes review, which allows for amendment of claims as of right only one time.

Former Federal Circuit Chief Judge Michel has opined that the Act is not a positive development for emerging companies and independent inventors because it may impose potentially long timelines on patent holders before they can consider their patents "gold plated." While recognizing that the Act may be good for large corporations, he has expressed his concern that small companies and independent inventors may not have the resources to fight all the administrative challenges possible within the new procedures.

My own view is that the Act imposes great uncertainty, but the ultimate outcome will depend on how the PTO responds in its rulemaking. I have a client, Dr. Tafas, who filed an amicus in the Lockwood and PanIP v. Sheppard, Mullin case on behalf of Lockwood, which was recently denied cert by the U.S. Supreme Court. This case involves a ruling by the federal circuit that preemption disallows a party from bringing a state court action for damages arising from the alleged filing of frivolous reexams. While the Act has estoppel provisions in inter partes review, as it does in inter partes reexamination, the federal circuit has found such provisions not to be effective until after completion of the appeal process. Thus at this point in time, it can be said that the Act allows people to file administrative challenges carte blanche even on the most spurious grounds without fear of any real repercussions. It will be interesting to see if the PTO tries to rectify this problem in some manner.

Editor: Please talk about the administrative process in general.

Moore: I have some doubts that the administrative processes set forth in the Act will reduce the costs on companies as compared to litigation. Let's face it, the administrative procedures that grew around interference disputes were insane, when one probably could have resolved the dispute quicker in a court of law by having the judge look at the competing proof each provided of an earlier invention date. It is possible that we may be entering a period of administrative nightmares, wherein large competitors will overburden one another with patent challenges and the small guy stands no chance at all, given the inability to raise funds on patents in administrative challenge.

No doubt the Act, in large part, was designed to control patent trolls or so-called non-practicing entities. For example, the provision limiting the available circumstances under which multiple parties can be joined in a lawsuit will definitely reign in the patent troll. The question, however, is whether the concept of non-practicing entity will one day apply to companies that obtain patents unrelated to products that they are actually producing. Certainly, there were frivolous lawsuits under the old law, but the Act may have gone too far in addressing this issue, resulting in a devaluation of the patents themselves – we will see. In general, the legislative process involves massive swings in public perception, and the Act is no exception. People thought there were too many “bad patents” coming out.

Editor: What aspects of the Act most affect pharmaceutical, chemical and biotechnology companies? What about nonprofit research institutions?

Moore: The Act protects prior user rights but curiously exempts institutions of learning, which, along with tremendous fee cuts, may have been a strategy to garner their support for the legislation. Pharma got its incentive by the perceived elimination of the “best mode defense,” though this issue remains unclear as the Act was actually promulgated. My guess is that the Act will have minimal effect on pharmaceutical litigation as the Hatch-Waxman provisions related to the 30-month stay do not provide generic companies with much incentive to challenge pharmaceutical patents via inter partes administrative proceedings, which may drag on for many years until final adjudication.

The same cannot be said for the mechanical/electrical industry. I believe the Act will make their patents much more prone to post-grant challenge as it is all too easy to make an obviousness argument since the Supreme Court decision in KSR v. Teleflex. My favorite example is the idea of putting wheels on the bottom of luggage, which seems like an obvious development from one angle but also fails to recognize how long it took for people to actually put the wheels there.

A positive development within the Act allows for supplemental procedures in the event of an honest filing error, which, in conjunction with recent federal circuit rulings, should help reduce allegations of inequitable conduct. Let’s face it, people make mistakes. It does not make sense, when dealing with a large patent estate, that someone who mistakenly fails to list a reference on an information disclosure should be facing a career-ending inequitable conduct charge.

Editor: Does the Act discourage discussions with financiers about an invention?

Moore: The Act will likely discourage discussions with financiers until an actual application is filed because the discloser will want to avoid any possibility of a public disclosure or some sort of sale or offer to sell. Though discussions with financiers are inevitable, prior assessment of the probability that a patent will be sent for reexam is critical. High probability of reexam under the Act generally will devalue patents in the eyes of financiers; moreover, as key assets within a company’s overall portfolio, devalued patents will negatively affect how investors look at companies as a whole.

While studies are mandated regarding the Act’s effect on small business, the results are to be reported much earlier than any effect will ever be seen. That is, the effect of the Act on emerging companies will take many years to assess, particularly since much of the effect will be hidden by all the patents that will be handled under the prior law. It may take years to cycle through patents processed under the old system to get a true picture of the impact on investments post full implementation of the Act.

My own suspicion is that patents will be weaker, but confirmation will depend on how the patent office deals with challenges. If, as an extreme example, 98 percent of patents can be thrown into reexam, then one may question the need for an examination patent office at all. That is, if litigated patents account for the most valuable patents, and nearly all of PTO-handled patents have a claim that is likely not patentable, maybe the patent office is tasked with the wrong job. In some European countries, the patent office only checks for formalities of the application, and the patent is registered without examination. An entity that asserts an unexamined patent is then on the hook for attorney fees if they unsuccessfully assert the registered patent.

Editor: How will the Act affect litigation strategies?

Moore: Bringing a lawsuit in the first place will become much more complicated because the ultimate determination of damages may have to wait many years for administrative reexamination procedures to be completed. The sheer volume of potential challenges available under the Act also will make it impossible to depend on the status of a patent at any given moment. There will be fewer contingency cases because of this increased uncertainty.

Editor: Are companies generally prepared for implementation of the Act?

Moore: Yes. In fact, much of the filing process already is well known to large companies accustomed to dealing with Europe and the rest of the world. The bigger question involves how many administrative procedures a company will have to face, because these actions can deplete budgets – particularly for companies in competitive businesses. While it is clear that there will be some impact, it cannot be defined and quantified until the Act is implemented and the rules are set.

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