“I am pleased to sign the America Invents Act. This much-needed reform will speed up the patent process so that innovators and entrepreneurs can turn a new invention into a business as quickly as possible.”

With those words, President Obama signed the Leahy-Smith America Invents Act (AIA) this past fall, the first significant reform to the United States patent code in almost 60 years. As reflected by the President’s comments, the goals of the AIA include speeding up the patent process, increasing patent quality, reducing the costs of patent litigation and harmonizing the U.S. patent process with the patent processes of most of the world’s other developed countries.

One of the major changes includes transforming the U.S. patent system to a first-inventor-to-file system. Given the magnitude and complexity of this transition, the first-inventor-to-file system will not go into effect until March 16, 2013.

However, several in-effect provisions of the AIA that focus on patent litigation are already having a great impact. These provisions run the gamut of patent litigation, from eliminating certain forms of civil patent litigation to reducing the number of accused infringers per suit, as well as expanding, and eliminating, some defenses.

Misjoinder of Defendants

Arguably the most significant patent litigation change by the AIA is its reform of the rules of joinder of parties in a patent infringement suit. Before the AIA, plaintiffs could sue multiple defendants in the same action based solely on allegations that the defendants had infringed the same patent(s)-in-suit, as long as some of the infringing activities, which include the sale or offer for sale of an infringing item, occurred in that district.

Grouping multiple defendants — many times direct competitors — in a single suit allowed plaintiffs to avoid the costs of suing individual infringers in separate suits in multiple districts. In addition, lumping competitors together as co-defendants forced these competitors either to share confidential information and costs between themselves, or to spend even more money and resources defending the case individually.

A particular type of plaintiff, a non-practicing entity (NPE), sometimes referred to as a “patent troll,” has effectively adopted this strategy as its litigation method of choice. While NPEs do not have the capabilities to design, manufacture or distribute products covered by their patents, they have used this litigation strategy to nearly triple their median damages awards from $3.9 million in 2002 to $12.9 million in 2009, causing great concern among manufacturing companies. 1

With the enactment of the AIA, simply infringing the same patent is not enough to be co-defendants in a single suit. Accused infringers can now only be joined in a single action for patent infringement if the right to relief arises out of the same transaction, occurrence or series of transactions or occurrences relating to the infringement, and the right is based on common questions of fact. This provision was aimed at curtailing the previous practices of NPEs by eliminating the economies of scale they enjoyed with multiple defendants in one suit, thereby reducing the overall number of suits filed. In addition to an increase in costs, plaintiffs who seek to file multiple suits against individual defendants now face an increased risk of experiencing inconsistent invalidity determinations from suit to suit, which could effectively terminate their enforcement activities if any determination were unfavorable. The potential increases in costs and risks explain the massive rush to file infringement suits before the enactment of the AIA. At least 54 new patent cases, with a total of 804 defendants, were filed in federal court nationwide on September 15, 2011, the day before the AIA was signed. 2

After the AIA’s enactment, it may be common to see more dismissals of defendants improperly attached to a suit, as recently occurred in Optimum Power Solutions LLC v. Apple Inc. 3 Optimum Power Solutions, the plaintiff who initiated the suit in February 2010, sought to amend its complaint, which listed five defendants, to include five additional defendants. The original defendants moved to dismiss the case on the theory that they were misjoined. The district court for the Northern District of California agreed, dismissing four of the five original defendants and denying the plaintiff’s motion for leave to amend its complaint.

The recent actions of Beacon Navigation GmbH are in complete contrast to those of Optimum Power Solutions, but could be a precursor of things to come. On October 11, 2011, Beacon filed separate patent infringement suits in the U.S. District Court of Delaware against 19 defendants that Beacon alleged had infringed each of two patents, for a total of 38 different lawsuits. 4

False Marking

In addition, the AIA greatly changed the provisions of U.S. patent law on “false marking.” Damages for patent infringement can only be collected from the time an infringer is on notice of another’s patent. Marking a patented product and/or service with the corresponding patent number puts the public on notice. However, the listed patent must legitimately cover the product or service; otherwise, the marker has falsely marked his product and has violated U.S. patent law. Before the AIA, any individual could file a civil suit against a patent holder to enforce a $500 penalty per false-marking incident, half of which the individual collected. But this cause of action was seldom used by citizens until the Federal Circuit’s decision in Forest Group, Inc. v. Bon Tool Co. 5 In that case, the Federal Circuit determined that the fine should be applied on a per-article basis, as opposed to a per-decision basis. Following this ruling, a false-marking cottage industry quickly developed, with hundreds of false-marking suits filed across the nation.

The AIA effectively shuts down the false-marking industry by eliminating the whistleblower provision of the patent false-marking law. Now, only the U.S. government is allowed to collect any portion of a false-marking penalty. The amendment applies “to all cases, without exception, that are pending on, or commenced on or after, the date of the enactment of this Act.” As a result, federal courts, including the Federal Circuit, have begun to dismiss these actions. In fact, in a few instances, courts have dismissed some actions without any prompting from accused false markers. While there have been some questions as to whether the retroactive application of the amendment to pending cases violates the due process clause of the U.S. Constitution, at least one court has concluded the amendment does not create a violation because Congress had a legitimate purpose in making the act retroactive. 6

The AIA did not eliminate all false-marking remedies available to the public. Competitors who can show “competitive injury” resulting from a false-marking incident can pursue claims under the current false-marking provisions; however, the competitor is limited to damages that adequately compensate the injury.

Prior Commercial Use Defense

The AIA has also changed the availability of certain patent infringement defenses, including the “prior commercial use” defense. This defense is primarily used when an accused infringer has effectively treated a method or process as a trade secret and its use would not qualify as a previous public use to invalidate the patent.

Before the AIA was enacted, accused infringers could use this defense to avoid a finding of infringement of only business method patents by showing they commercially used the subject matter at issue more than one year before the effective filing date of the patent. The AIA expands the defense beyond business methods to “subject matter consisting of a process, or consisting of a machine, manufacture, or composition of matter used in a manufacturing or other commercial process.” This includes premarketing regulatory review and nonprofit laboratory use. The accused infringers must show by clear and convincing evidence that their use occurred at least one year before the earlier of the effective filing date of the patent or the date on which the invention was publicly disclosed by the inventor.

While the prior commercial use defense has been expanded, there are still limitations. First, it is a personal defense, and, therefore, cannot be transferred to another. 7 Additionally, the prior commercial use is not a general license to practice all the claims of a patent, but only to the specific subject matter that is established as a commercial use. Nor does a prior commercial use that has been practiced in secret render a patent invalid. And the prior commercial use defense cannot be used by an individual against a university or if the individual derived the subject matter from the patentee. Since the expanded commercial use defense is only applicable to any patent issued on or after September 16, 2011, it will be some time before its impact can be fully evaluated.

Elimination of Defenses

The AIA eliminates some previously available infringement defenses. In order for a patent application to issue, the application must meet certain disclosure requirements under 35 U.S.C. § 112, which includes the “best mode” requirement. This provision requires the patent application to “set forth the best mode contemplated by the inventor of carrying out his invention” known at the time of application’s filing. Previously, an accused infringer in a patent infringement suit could assert an invalidity defense by showing that the patent failed to disclose the best mode of practicing or making the invention. However, the AIA has eliminated the best mode defense. Specifically, a defense to infringement based upon the invalidity of a patent is available for any patent that fails to comply with “any requirement of section 112, except that the failure to disclose the best mode shall not be a basis on which any claim of a patent may be canceled or held invalid or otherwise unenforceable. …” The AIA does not eliminate the best mode requirement entirely; an examiner can still reject claims if the inventor fails to disclose the best mode during the prosecution of the application. In addition, there are still questions as to whether invalidity can be found based on the failure to satisfy the best mode requirement in post-grant review procedures.

The AIA eliminates the requirement that an error in inventorship be made without any deceptive intent before a correction can be made, which indirectly eliminates an invalidity defense. A patent can be declared invalid if it lists a false inventor or omits a true inventor. A patent holder can avoid an invalidity finding by correcting this error and identifying the proper inventors.

However, under the current patent code, these corrections can only be made if the error was made without any deceptive intent. If a defendant can show any deceptive intent behind the misidentification of the proper inventors of a patent, the patent owner is precluded from correcting the error, and the patent remains invalid. The AIA eliminates the absence of deceptive intent requirement, allowing patent holders to correct their inventorship error regardless of their previous actions. This provision becomes effective September 16, 2012.

Patent Law in the Future

The AIA will continue to change the patent landscape as we know it. As more of the AIA’s provisions are implemented, SGR will be here to provide the guidance needed to navigate through the unknown future.

Footnotes

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1. Patent Litigation Study, pwc.com/us/en/forensic-services/publications/2010-patent-litigationstudy.jhtml, download PDF, pp. 7, 26.  back
2. Crouch, Dennis and Rantanen, “Rush to Judgment: New Dis-Joinder Rules and Non-Practicing Entities,” patentlyo.com/patent/2011/09/rush-to-judgment-newdis-joinder-rules-and-non-practicing-entities.html (further stating that this total is the largest number of patent suits filed in a single day since the statistic has been tracked).  back
3. No. C-11-1509 (N.D. Cal., Sept. 20, 2011).  back
4. Beacon Navigation GmbH v. Chrysler Group LLC, 1:11-cv-00921.  back
5. 590 F.3d 1295 (Fed. Cir. 2009).  back
6. Seirus Innovative Accessories, Inc. v. Cabela’s Inc., No. 09-cv-102 (S.D. Cal., Oct. 19, 2011).  back
7. The commercial use defense can be transferred if it is an ancillary part of a good-faith transfer.  back