America Invents Act: helping or hurting entrepreneurs?

William MitchellThe key question behind the seismic changes coming in US patent law as a result of the America Invents Act (AIA) is whether these are good changes for stimulating entrepreneurship? The key objectives that drove the AIA are: to provide inventors with greater certainty regarding the scope of patent rights, harmonize the U.S. patent system with those of the rest of the world, and grow the economy and create jobs. However, unintended consequences of the AIA negatively affect startups and the disadvantages might outweigh the advantages.

William Mitchell, Vice President and General Counsel for NOVA Chemicals, outlines below some of these unintended consequences and suggests strategies to deal with the AIA’s negative affects so that startups can benefit by strong IP portfolios.

Unintended Consequences:  These include:

  • increased patenting costs;
  • more difficult prosecutions;
  • strain on the USPTO as it drafts and implements rules in accordance with the Act;
  • strain on the federal court system as district judges are forced to interpret the vagaries of the Act; and
  • substantial increase in filings prior to March 16, 2013, which is likely to worsen the current PTO examination backlog (the PTO dashboard shows a backlog of between 600,000 and 700,000 patent applications).

Aside from requiring technology start-ups to plan for and adapt to a first-to-file system, it is also clear that AIA will provide competitive advantages to large, resource-intense technology companies with the financial resources to win the race to the USPTO. These factors may ultimately stifle growth in the high tech sector as the VC and funding community assimilates the negative impacts of the AIA on start-up IP portfolios.

On the positive side, startups will benefit from the Act’s prior use rights defense, which will enable them to inexpensively protect inventive concepts via trade secrets while enjoying a new defense to patent infringement. If an inventive concept is properly documented and placed into commercial use at least one year before the priority date of an asserted patent, that commercial use will in all likelihood constitute a defense against infringement, thereby providing a startup with both freedom to operate and an enforceable IP right. This means that trade secrets will become essential components of start-up IP portfolios.

First-to-Invent:  The most significant change of the AIA is that the US patent system will move from a first-to-invent to a first-to-file system on March 16, 2013. This means that US patents will be awarded to the applicant who wins the race to the patent office instead of the inventive entity conceiving and reducing an invention to practice.

Another consequence of first-to-file is that patents will be harder to obtain due to the expanded scope of prior art that will be available to examiners. For example, under current law, a claimed invention is not patentable if it “would have been obvious at the time the invention was made…” Under the AIA, a claimed invention is not patentable if it “would have been obvious before the effective filing date…” Also, applicants can currently disqualify prior art references dated before the filing date, but after the conception date, by “swearing behind” such references. Under the new law, all art dated before the effective filing date is relevant unless it is dated after a public disclosure made by the inventor.

These changes will force startups to file applications as quickly as possible, perhaps even before the full scope of an invention is fully known. This means that what once could be accomplished by filing a single comprehensive application may have to be achieved via a series of applications as research evolves. Each additional filing represents a significant new expense. NOVA Chemicals estimates that the total out of pocket cost to file one inventive concept globally is approximately $238,000. Start-ups will also face more difficult prosecutions, as examiners will have expanded temporal fields of prior art to support rejections.

In response, start-ups should review existing invention capture, management and filing protocols, and develop separate pre- and post-effective date (March 16, 2013) IP strategies. In particular, prior to the 2013 deadline, all inventive concepts should be harvested and thoroughly documented through the use of invention disclosures and sound record keeping/laboratory notebook protocols. These invention disclosures should then be classified and managed as trade secrets or patentable inventions, and applications on all critical patentable inventions should be filed before the 2013 deadline. Corresponding adjustments should be made to preparation/prosecution budgets. These steps will ensure that as many applications as possible are prosecuted under current prior art and interference rules. Additionally, properly managed inventive concepts held as trade secrets and placed into commercial use will enable startups to immediately benefit from the new AIA prior user rights defense, which is now available against any patent issued on or after September 16, 2011.

After first-to-file becomes law, technology companies should continue to diligently capture and document inventive concepts. Where appropriate, applications should be filed promptly to establish the earliest possible priority date. The use of provisional applications may assist startups in achieving this objective. Trade secrets should continue to be carefully managed to avail startups of the prior user rights infringement defense and reduce filing costs.

Prior User Rights:  Aside from patent filing considerations, the AIA’s new prior user rights defense should be factored into a startup’s IP strategy. Key considerations for any startup are freedom to operate (FTO) and controlling IP costs. By commercializing properly documented trade secrets, i.e. trade secrets that enable a startup to establish by clear and convincing evidence that they were in commercial use at least one year before the priority date of an asserted third party patent, a startup can inexpensively secure FTO, thereby partially off-setting increased filing costs. Such trade secrets comprise valuable components of a start-up’s IP portfolio which, like patents, can be enforced if misappropriated by a third party.

The prior user defense is available to a parent, subsidiary or affiliate under common control of the entity actually performing the prior commercial use, but is restricted to the site where the trade secret is practiced. This is why careful consideration must be given to both deployment and documentation of trade secrets; how and where they are utilized commercially is critical. Startups should conduct trade secret audits and also should review documentation and control protocols to assure that effective trade secret programs are in place.

Conclusion:  Under the AIA, startups will surely face higher filing and prosecution costs. While filing as many applications as possible before implementation of first-to-file is clearly recommended, post implementation filing costs can be offset to some extent by prudent use of trade secrets to protect inventive concepts. This means that startup IP portfolios may look much different after the AIA is fully operational, with an increased percentage of inventive concepts protected by trade secret. It is recommended that startups review filing strategies and trade secret protocols to assure that IP protection is maximized under the AIA. A properly balanced IP estate will assure FTO, help control costs, and create IP value in the startup technology entity.

About the author:  William Mitchell serves as vice president and general counsel for NOVA Chemicals Inc. following stints at Merck & Co. Inc. and Oakwood Laboratories, LLC. Bill has more than 25 years of intellectual property and general legal experience in the chemical and pharmaceutical industries. He sits on the board of directors for LaunchCyte, the company co-founded by NewVenturist publisher, Babs Carryer. Bill has a BS in chemical engineering and an MBA from the University of Pittsburgh and earned his JD at Duquesne University School of Law.

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