One of the provisions of the America Invents Act was a newly expanded defense for prior use of an invention. This defense applies to any patent issued on or after the Act’s effective date, September 16, 2011.
The previous version of the Patent Act contained a prior user defense, but the defense was limited to infringement of claims to business methods. Now, the AIA has expanded the defense to all patents.
The New Statute (§ 273)
The defense applies to good faith commercial uses and arm’s length sales and commercial transfers that occurred at least one year before the earlier of (1) the effective filing date of the patent application, or (2) the inventor’s public disclosure that is an exception to prior art under the AIA’s limited grace period. The party asserting the defense must prove the facts to establish the defense by clear and convincing evidence.
What is commercial use for purposes of the defense? The statute does not specifically define commercial use so we won’t know exactly until the defense is tested in the courts. The statute does provide several specific instances that would qualify as commercial use. First, subject matter for which regulatory approval is required prior to commercial use would qualify during that period. For example, FDA filings for drugs and medical devices would qualify as commercial uses even though not yet technically in the marketplace.
Second, use by a nonprofit research laboratory or other nonprofit entity, such as a university or hospital if the public is the intended beneficiary of the use would qualify as a commercial use. The defense only applies to continued an noncommercial use by and in the laboratory or other nonprofit entity. Thus, a university or hospital could not transfer the product or process to another entity that would commercially exploit the subject matter outside of the nonprofit entity.
The statute does restrict this defense to the first entity who is entitled to it. This means the defense may not be transferred, assigned, or licensed to another entity, except as part of the good faith transfer of the entire entity or business line of the entity. In such a case, the acquiring party may not expand use of the subject matter entitled to the defense beyond its original site.
The defense is limited to the specific claims that cover the subject matter to which it applies and not generally to the entire patent, except that changes may be made to quantity or volume, and improvements may be made to the subject matter provided that they are not specifically covered by other claims of the patent.
If the commercial activity that qualifies for the defense is abandoned, those activities that would otherwise qualify for the defense prior to the abandonment may no longer be relied upon for the defense.
Unless development of the subject matter of the patent utilized federal funding, the defense does not apply to patents that were made by, owned by, or subject to an obligation of assignment to a university or other entity of high education.
Finally, a patent may not be invalidated based on this defense and the unreasonable assertion of the defense would subject the entity raising the defense to a finding that the case was exceptional and an award of attorney’s fees to the patent owner.
I previously covered the issues surrounding this defense, but they deserve to be reiterated here. This defense is contrary to the purpose of the patent laws of “promoting the progress of science and the useful arts.” The patent system promotes this progress by encouraging public disclosure of new inventions. In exchange, the government grants the disclosing party a limited monopoly over the disclosed subject matter. Once the patent expires, that knowledge and subject matter becomes a part of the public domain.
This defense rewards entities that keep innovations secret. There is no longer a risk to keeping developments secret because you can always assert the prior use defense. To be sure, trade secrets have their place, but the owner of a trade secret holds the technology in secret with the risk that it could be patented by someone else. An expanded prior user rights defense would provide an incentive to keep new inventions secret. Why bother with the patent system when you can simply practice your technology in secret and be shielded from liability for infringement of other parties’ patents?
I was wrong in my previous assertion that there would be a fight over this issue. The statute does require a report on the issue, but it seems unlikely to go away. This is another example of Congress whittling away the power of patents and the incentive to disclose new inventions to the public.