Part I: What Companies Need to Know about the Leahy–Smith America Invents Act (AIA) Patent Reform Legislation

The America Invents Act, the most significant change to the U.S. patent system since 1952, was signed into law on September 16, 2011. This series of articles will focus on selected provisions of the AIA that are likely to be the most relevant to companies in the display industry. Part I of this series of articles will focus mainly on key litigation-related provisions that are effective now.

by Clark A. Jablon

THERE are basically three different sets of provisions for the America Invents Act (AIA). The first set became effective immediately upon enactment, and thus are effective now. A second set becomes effective 1 year after enactment (September 16, 2012), and a third set becomes effective 18 months after enactment (March 16, 2013).

This article will focus mainly on key litigation-related provisions in the first set, which are effective now. One key provision in the third set, effective March 16, 2013, has been the most heavily discussed provision of the legislation in mainstream media; namely, the changeover in the U.S. patent system from a "first to invent" to a "first to file" system (see sidebar "First to File").

Provisions of the AIA that are effective immediately include a prior-use defense, tougher standards for asserting a "false marking" claim, and new joinder rules that severely limit the ability of a plaintiff to sue multiple defendants in a single patent lawsuit.

One provision of the AIA that becomes effective in September 2012 relates to new rules regarding advice of counsel presumptions in litigation. This provision is also discussed below because its impact may be relevant now, due to the typical delay time between preemptive opinion work and the filing of a patent lawsuit.

Prior User Defense

Prior to enactment of the AIA, a company that was commercially using an unpatented invention in secret, such as by treating the invention as a trade secret or simply practicing the invention in a manner that did not reveal how it worked, could be liable for patent infringement if another party subsequently invented the same invention without deriving the invention from the company and obtained a patent. Thus, the patent rights of the second inventor in time trumped the "prior use" rights of the first inventor. (If the company's use of the invention was not secret and revealed how it worked, then the second inventor's patent would be invalid and unenforceable.) Prior to enactment of the AIA, there was a limited exception to this rule for business method patents, wherein a company charged with patent infringement of a business method patent was entitled to assert a defense to the infringement by showing that it commercially used the invention in secret more than 1 year prior to the filing date of the business method patent. Very few technology companies were able to rely upon this provision since the vast majority of patent infringement lawsuits do not involve business method patents.

The AIA now expands the "prior user defense" to all technology areas. This provision is welcome relief for companies that wish to rely upon trade-secret protection for their inventions, as opposed to seeking patent protection for their inventions. There are limitations to this defense that must be considered before a company makes a deliberate decision not to seek patent protection on an invention, and to instead rely upon the prior-user defense if the company is sued for patent infringement.

For example, to rely upon this defense, the accused infringer must provide "clear and convincing evidence" of the prior commercial use. Difficulties may arise in collecting and presenting the necessary proof to a court or jury. Also, if the accused infringer is found to have asserted the defense without a reasonable basis, and is found to be an infringer, the case shall be declared "exceptional," which means that the accused infringer will likely have to pay the legal fees incurred by the patent holder.

The prior-user defense has certain limitations that may prevent its use. For example, the prior commercial use must have occurred "continuously" during the infringement period. The defense also cannot be assigned or licensed to third parties, unless there is a sale of the business that uses the patented invention. There are also limitations that may prevent a company from expanding its use of the patented invention. Also, the defense is not available if the infringed patent was developed under a federally funded agreement or by universities without the use of private funds. Furthermore, the defense only applies to patents issued on or after the effective date of the AIA, namely, September 16, 2011.

"False Marking" Claims and the New "Virtual Marking" Provision

Prior to enactment of the AIA, any entity was allowed to file a lawsuit accusing a company of violating the patent marking statute, and if successful, collect 50% of the damages, with the remaining 50% collected by the U.S. government. The entity bringing the lawsuit did not have to prove that it was personally harmed in any manner by the false marking. There are many ways that a company could inadvertently violate the patent marking statute, such as by failing to remove a patent number from a marked product when it expired, or by inadvertently continuing to mark products with patents that no longer cover the product. In recent years, hundreds of such lawsuits have been filed by dozens of opportunistic law firms. Companies would often settle such lawsuits for nuisance value amounts.

The AIA changed the law so that a false-marking lawsuit may only be filed by the U.S. government or by a competitor who can prove that it suffered a "competitive injury." Furthermore, it is no longer a violation to mark a product with an expired patent number that formerly covered the product.

This provision of the AIA was not only made effective upon enactment, but was made effective to all pending false-marking lawsuits. The U.S. Courts are currently in the process of dismissing virtually all of the pending false-marking lawsuits since the vast majority of such suits were not filed by the U.S. government or by a competitor of the asserted falsely marked product. While this law change is a welcome relief to companies, product marking should still be carefully monitored for accuracy because competitors can still file such lawsuits. Also, the failure to properly mark a product covered by a patent will prevent the patent owner from collecting damages for any infringements that occurred prior to the filing of a patent infringement lawsuit.

Also, new rules were provided to allow for "virtual marking" so that a product can be marked with a web site address that provides a listing of covered patent(s), thereby making it much easier for a company to manage the product marking process (e.g., Patents:www.rim.net/patents).

New Joinder Rules

Prior to enactment of the AIA, a patent owner could file a single lawsuit against multiple defendants who are alleged to infringe the same patent, even if the infringing activity of the multiple defendants was completely different. For example, if a patent covering a smartphone power-saving feature is believed to be infringed by a Blackberry^® and an iPhone^®, the patent owner could file one lawsuit against both Research in Motion, Ltd., and Apple, Inc., even if completely different chipsets are used to implement the power-savings feature.

The AIA changed the law to prevent a patent owner from suing multiple defendants in a single lawsuit if the only justification for the joinder is that all defendants are alleged to have infringed the same patent. Furthermore, a court can no longer consolidate multiple patent lawsuits related to the same patent unless the defendants agree to allow for the consolidation. In the example above, the patent owner would have to file two separate lawsuits, one against Research in Motion, Ltd., and another against Apple, Inc. Depending upon jurisdiction and venue issues, the lawsuits may even have to be filed in different courts.

This provision increases the litigation costs of non-practicing entities (NPEs) who assert that their patents are being infringed by a large number of companies. The companies that lobbied for passage of this provision are hoping that it will reduce the number of such litigations by raising the costs. It remains to be seen whether this goal will be achieved. This provision may also have the effect of raising litigation costs on the accused infringers because it will be more difficult for the accused infringers to enter into joint defense agreements to share litigation costs now that lawsuits must be separately filed.

New Rules Regarding Treatment of "Advice of Counsel" in Patent Litigation

For any patent litigation filed on or after September 16, 2012, the following provision of the AIA applies:

The failure of an infringer to obtain the advice of counsel with respect to any allegedly infringed patent, or the failure of the infringer to present such advice to the court or jury, may not be used to prove that the accused infringer willfully infringed the patent or that the infringer intended to induce infringement of the patent.

Stated simply, the patent owner will no longer be able to attempt to sway a court or jury's views of the case by pointing out that the accused defendant did not obtain an opinion of non-infringement or that the defendant obtained an opinion but has decided not to present it as a defense to the charges of infringement. This provision may make it harder for a patent owner to prove that the infringement was "willfulness," which may result in enhanced damages and/or awarding of legal fees to the patent owner.

In view of this provision, can companies now forego the time and expense of obtaining opinions regarding whether their products or services infringe any patents since the failure to do so can no longer be used against them in a patent litigation?

The short answer is "no," since such opinions have many benefits that may far outweigh the costs. For example, a company may use the results of the opinion process to avoid infringing an identified troublesome patent by not proceeding with a proposed product or service, or to figure out how to invent around the identified troublesome patent, thereby potentially avoiding a lawsuit in the first place. A company may also be able to use the opinion to thwart an attempt by the patent owner to prove that the infringement was willful, thereby avoiding the possibility of having to pay enhanced damages and/or legal fees of the patent owner if the company ultimately loses the lawsuit.

Upcoming Articles

Part II of this series of articles will focus on key provisions of the AIA that are effective now and that relate to United States Patent and Trademark Office (USPTO) and patent examination provisions, including a new prioritized examination process, fee surcharges, and a new "micro entity" designation for patent applications that allow for significantly reduced government fees. Part II will also focus on new USPTO validity review proceedings, including a new post-grant review process (opposition proceeding). Part III will focus more thoroughly on the changeover in the U.S. patent system from a "first to invent" to a "first to file" system.

The U.S. Patent & Trademark Office (USPTO) has an information web page regarding the AIA at:http://www.uspto.gov/aia_implementation/index.jsp that provides links to specific details of the AIA. •