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Tuesday, September 27, 2011

What Startups Need to Know About Patent Reform

from Vic Lin





Congress recently passed some major changes to federal patent law. To address what has changed, and how it might affect startups, Vic Lin of Innovation Law Group, contributed this article

No industry will be untouched by patent reform.  Here’s what you need to know.

The New First-Inventor-To-File Rule

Up until now, the American patent system differed from the rest of the world in that U.S. patents were generally granted to those who invented first.  The patent overhaul will change the U.S. system to a first‑to‑file system awarding patents to those who apply first, as opposed to those who invent first.  What does this mean for startups? The obvious answer is to apply for patents as soon as possible.  What is not-so-obvious is how to accomplish this, particularly when the costs of patenting exceed your budget. 

Consider filing provisional patent applications.  You can file a provisional application for a fraction of the cost of the regular non-provisional application, which must be filed within 1 year of the provisional filing date.  The non-provisional application is typically more expensive since it should be done with the professional assistance of a registered patent attorney or agent whereas the provisional application can be prepared by the inventor so long as all the significant details of the invention are included.  This approach buys you some time to raise capital and/or earnings in order to finance the more expensive non-provisional application.  Consider working with smaller IP law firms which can offer discounted or deferred fees, sometimes in exchange for equity or other consideration.  Large law firms with higher expenses typically do not have this flexibility. 

Applying for Patents: More Prior Art Will Be Used to Reject Applications

The effective filing date of a patent application, as opposed to the date of invention, will become more critical than ever in determining the scope of potential prior art that can be used to reject a patent application.  Generally, this broadened scope of prior art will make it more difficult to obtain a patent.  Furthermore, prior use and sale activities which may qualify as prior art are no longer limited to the U.S.   

Once again, the key is to  file your patent application as soon as possible.  Since inventors will no longer have the benefit of using an earlier date of invention, making the effective filing date as early as possible is key.

Challenges to Patent Applications Are Now Easier

The new system will make it easier for third parties to submit to the U.S. Patent and Trademark Office (PTO) information relevant to a pending patent application.  Under the old rule, third parties had limited opportunities to get involved in the prosecution of a pending application.  The new rules lengthen the timeframe for third parties to challenge a pending application and broaden the types of information which may be submitted. So how do you challenge a pending patent applicatoin?  Prior to the issuance of a pending patent application,  you may submit to the PTO prior art and any prior statements regarding the patent claims made by the applicant before federal court or the PTO.

Challenging an Issued Patent

The overhaul will create procedures for patent owners and third parties to seek additional review of issued patents.  For patent owners, a new procedure called Supplemental Examination will allow a patentee to submit to the PTO new prior art which was not previously considered by the examiner.   A new procedure called Supplemental Examination will allow patent owners to submit to the USPTO new prior art relevant to their own patents.  One significant advantage of doing so is that patent owners will be able to remove the defense of inequitable conduct commonly raised by accused infringers in patent litigation.  This is an opportunity for patent owners to strengthen the validity of a patent before commencing litigation.

How can third parties submit new prior art relating to an issued patent?  Two new procedures will be established for third parties to oppose an issued patent, with the key difference between the two based on the timing of the third party’s request.  If a third party requests review of an issued patent within 9 months of the grant of a patent, greater scope is allowed in submitting various kinds of prior art which may invalidate the patent.  If a third party requests review after 9 months of the patent grant, only patents and printed publications may be submitted.

Patent Litigation Change: Good and Bad

Both patent owners and accused infringers have something to like and dislike regarding changes to patent litigation.  What will plaintiffs/patent owners like about changes to patent litigation (what will accused infringers dislike)? The best mode defense will no longer be available in infringement lawsuits.  Patent owners who take advantage of Supplemental Examination (discussed above) will remove the defense of inequitable conduct. 

What will defendants/accused infringers like about the changes to patent litigation (what will patent owners dislike)? Accused infringers can now defend an infringement action based on prior commercial use, a defense which up to now had been limited to method patents.  Failure to obtain advice of counsel cannot be used to prove willfulness or induced infringement.  Accused infringers might also take advantage of the broadened application of the legal doctrine of estoppel, where prior reviews and decisions by the PTO may prevent certain issues from being raised in litigation or other PTO.  Since startups are less likely to sue others for infringement given that it takes years to obtain a patent, such litigation reforms affecting the defense of an infringement suit will matter more to startups.

Good news, for many companies, is the patent reform will affect patent litigation brought by non-practicing entities (NPE, aka "trolls").  Patent reform will limit a patent owner’s ability to sue several unrelated companies in a single infringement action, thereby removing associated economies of scale. 

Right Strategies for Startups

Startups are more likely to be impacted by reforms to prosecution, as opposed to litigation, particularly since it takes several years for a startup to obtain an issued patent which can then be enforced.  Accordingly, startups should develop strategies for protecting their IP that account for the new laws relating to invention disclosures, prior art, potential challenges to pending applications and standards of patentability. 

Vic Lin is a Patent Attorney and Partner at Innovation Capital Law Group (www.innovationcaplaw.com), in Irvine.


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