les Nouvelles October 2017 Article of the Month
Three Years After The America Invents Act: Practical Effects On University Tech Transfer
Executive Director
Technology Transfer Of University of Massachusetts
Amherst, MA
Abstract
The America Invents Act (AIA) has significantly changed the way university technology transfer offices operate. On the plus side, the first-inventor-to-file rule has allowed for simpler invention disclosures, since disclosures no longer have value as conception records. The AIA has also provided more relaxed procedural rules, avoiding the mad dash to get inventor signatures, and allowing universities to file in their own name from the outset. On the negative side, technology transfer offices have to make filing decisions faster, as the first-inventor-to-file rule makes it risky to wait for more data; another inventor could get to the Patent and Trademark Office (PTO) first, and there is no longer a one-year grace period for prior art. The AIA also created quasi-judicial proceedings known as Post-Grant Review (PGR) and Inter-Partes Review (IPR), in which claims are interpreted more broadly, and can be invalidated with less proof than if those same claims were reviewed by a federal court. Based on the rate that IPR proceedings are invalidating patents and patent claims, the AIA may make it more challenging and expensive for universities and their licensees to defend those patents that are most likely to succeed in bringing new products and services to the public.
The America Invents Act of 2011 (AIA) came into full effect March 13, 2013. More than three years later, university tech transfer programs have adapted to most of its changes. The biggest change, switching from a first-to-invent system to first-inventor- to-file, has been fully integrated and some procedural changes have made things easier. The wild-card is the creation of the quasi-judicial Post-Grant Review (PGR) and Inter-Partes Review (IPR) proceedings; some impact has been felt already, but it may take a decade before the full impact is known.
First-Inventor-to-File
Historically, one of the greatest traditions of the U.S. patent system was its recognition that a patent was a reward for that "spark of genius" that creates an inventive concept. Beginning with the first Patent Act in 1790, patents were to be awarded only to the "first and true inventor." Later changes to the law made it possible to invalidate a patent for naming the wrong inventor, and created "interference proceedings" to decide which person was first to conceive the invention and was thus entitled to the patent even if another inventor filed an application first. The 1953 Act, which the AIA amended, also provided for a dual grace period: an inventor could file a patent application for up to one year after they published their inventive concept, and no patent or printed publication dated less than one year before a patent filing date could be considered "prior art" by an examiner in determining patentability.
In essentially the rest of the world, however, patents have long been awarded to whoever files a patent application first, and there are no grace periods. For academic technology transfer offices (TTOs) wishing to retain foreign patent rights, they have long had to follow the rest of the world's first-to-file rules, and join the "race to the patent office." Faculty inventors in such cases had to defer publication because, in most of the world, a publication or oral presentation by an inventor is an absolute bar to patentability. And patents, publications or even oral presentations by others, even the day before filing, would be considered by foreign patent examiners in determining patentability.
The AIA was the culmination of efforts to switch the U.S. to the first-to-file system that began in the 1970s, in part in the interest of international patent law harmonization. However, the AIA didn't really go to first-to-file; by retaining the one-year from publication grace period for an inventor to file a patent application, the AIA created a "first-inventor-to-file" system. If an inventor publishes about his or her invention and another files a patent application on the same invention within the one-year grace period, the inventor can challenge the other patent on grounds that the person who filed first derived the invention from the publication by the first inventor.
Because foreign patent law is more demanding, the AIA caused no change in how TTOs handle inventions for which foreign filings are likely to be needed. And when an inventor publishes prior to disclosing to the TTO or prior to the TTO filing a patent application, a U.S. patent application can still be filed within one year of the publication date. However, the one-year "prior art" grace period is gone; publications and patents appearing even a day before the U.S. patent application filing date can be used by an examiner in determining patentability. Another change is that only printed publications and patents, public use or products on sale used to be "prior art" in the U.S.; oral presentations were not. But the AIA added information "otherwise available to the public" to the definition of the "prior art," which arguably brings in the entire internet as well as oral presentations that are "public" (e.g. , a talk about a chemical invention at a meeting of the American Chemical Society). So under the AIA, even when foreign filing isn't important, the race to the patent office is on—in fast paced fields and with the ease of publication on the internet, any delay risks having to face additional, and potentially deadly, prior art.
However, for those inventions where only U.S. patent protection will be sought, which is often the case for university inventions, this change places greater cost burdens on TTOs, and a need for urgency for TTOs and inventors alike. TTOs have to urge inventors to disclose inventions as early as possible, given both the need to be first to file and the need to limit the encroachment of the prior art. And TTOs need to file provisional patent applications as soon as possible; they can no longer wait for additional data to be collected. Where initial data is scant, the inventors need to get additional needed data quickly, and another provisional or early conversion to a regular patent application will be needed once the data is in-hand. And, unfortunately, in such cases the priority claim to the first provisional may be in doubt, due to its limited data. If the provisional turns out to be inadequate to support the priority claim, which may not be revealed until a later patent challenge, then the challenger will have the prior art published between the provisional filing date and the conversion date to attack the patent with. But the expense and effort to file the early provisional is unavoidable, given the need to race to the patent office.
There is, however, one small benefit from the new first-inventor-to-file system: it is no longer important to keep records of when an invention was conceived, so the time consuming disclosure forms used by universities in the past are no longer needed. Under the old rules, whoever conceived the invention first was awarded the patent, even if another inventor got to the patent office first; and the invention disclosure was often the only record of early conception. Now that filing and not conception is the key event, TTOs no longer have to use long, detailed invention disclosure forms, and no longer have to urge inventors to have their lab notebooks signed and witnessed (which few would do anyway). Simplifying the invention disclosure process may increase the number of disclosures, and ultimately the number of patent applications and licenses.
Procedural Changes that Benefit TTOs
No more race to get inventor signatures—Before the AIA, a "declaration or oath" signed by the inventors, attesting that they were the first and true inventors, was an essential part of a regular U.S. patent application. This often required a mad dash to track down the inventors for their signatures, which could be difficult for student inventors who no longer worked at the university and may even have left the country. If the declaration or oath could not be filed along with the application, the patent office would issue a "notice to file missing parts," which meant that there were two months' more time for the mad dash, but at the expense of some lawyer fees; and if more time was needed, it was necessary to pay extension fees to the patent office.
This mad dash was often repeated some time later, when inventor signatures were needed on an assignment to be filed in the patent office, officially conferring ownership to the university. (One might think these crises could have been combined, but since there was no urgent deadline for assignments, that often wasn't the case.)
The AIA solved both of these administrative challenges by allowing the declaration and oath to be filed up until the date the issue fee is paid, which is usually three or more years after the filing date; and by also allowing the declaration or oath to be combined with the assignment document, so you only need the inventor's signatures on a single document. Thus, the mad dash is no more—but beware of the graduating student inventor who disappears to places unknown if you take too long! (Even then, all is not lost; a substitute statement can be submitted by the patent owner if an inventor cannot be found or reached after diligent effort.)
Filing on behalf of the university, not the inventors— Before the AIA, lawyers usually filed initial patent applications on behalf of the inventors who, absent an assignment recorded in the patent office, were the de facto owners. This posed an ethical dilemma: by filing an application on behalf of the inventors, an attorney-client relationship was created. After the assignment of the patent application to the university, the university would be the new client; and what if the university had interests in conflict with the inventors personally, the former clients? This potential conflict could be avoided by filing an affidavit signed by the university requesting the university be recognized as the applicant; but this was rarely done when provisional applications were filed. The AIA eliminated this concern by allowing a patent application to be filed from the outset on behalf of a party to whom the inventors have an obligation to assign ownership, which is the usual case with university inventions.
Correcting Inventorship—Another benefit of the AIA is that correcting inventorship on a patent application used to require the erroneously included or erroneously excluded inventor to submit a signed affidavit that they were erroneously included or excluded "without deceptive intent" on his or her part. (This always seemed odd; an inventor erroneously left off a patent is unlikely to have had deceptive intent, but the other inventors who left him or her off might!) This affidavit requirement sometimes made correcting errors in inventorship difficult, especially if a miss-included inventor disagreed they weren't an inventor, or if an un-named inventor graduated and left for parts unknown. The AIA eliminated the requirement to prove lack of deceptive intent, so such affidavits are no longer needed. Better yet, since inventorship errors can now easily be corrected by a patent owner without need for cooperation by a potentially disgruntled unnamed inventor or one who is removed as an inventor, it is more difficult to invalidate a patent for having errors in inventorship.
"Curing" mistakes that might be alleged to be inequitable conduct—Lastly, the AIA created "supplemental examination," which was intended to allow patent owners to avoid allegations of "inequitable conduct" (aka "fraud on the patent office") which could lead to a patent being held unenforceable. At the time the AIA was being debated in Congress, allegations of inequitable conduct had become routine in patent litigation, and the courts entertained arguments that seemingly erroneous failure to disclose a reference to the patent office could, if the reference was highly relevant, infer an "intent to deceive" required for unenforceability.
Supplemental examination was the Congressional remedy, and this new process allows such errors or omissions to be corrected, subject to further examination by the PTO. Importantly for universities, this provision can also be used to correct an erroneous claim of small entity status, which can happen if the TTO doesn't recognize that a large entity has an option to license an invention under a sponsored research agreement. Such erroneous claims had previously been alleged to constitute inequitable conduct, sometimes successfully. But supplemental examination is not a passive cure; the request has to be sought before any litigation challenging the patents is filed.
Supplemental examination was a good idea, but the Court of Appeals for the Federal Circuit (CAFC), in its 2011 decision in Therasense, Inc. v. Becton, Dickinson & Co. (No. 208-1511), largely put an end to the inequitable conduct craze by requiring that a challenger show that "but-for" the alleged inequitable conduct the patent would not have issued, and separately prove, by clear and convincing evidence, that there was specific intent to deceive the patent office that was knowing and deliberate. The need to prove intent to deceive, and disallowing intent to be established by inference, has greatly reduced the number of cases in which inequitable conduct is alleged.
Into the Great Unknown—PGR and IPR
The AIA created two new quasi-judicial trial mechanisms to challenge patent validity, and it re-organized the old Board of Patent Appeals and Interferences to become the Patent Trial and Appeals Board (PTAB), which would decide such cases. One such mechanism is Post-Grant Review, which is entirely new, and the other is Inter-Partes Review, which is an expansion of the previous inter-partes reexamination process. Both of these mechanisms have most of the trappings of a court trial, but are designed to be much faster and cheaper.
Post-Grant Review—Post-Grant Review (PGR) provides a nine-month window after a patent issues during which anyone can challenge validity of the patent on any grounds—e.g., prior art (35 USC 102, 103), inadequate written description (112), and non-statutory subject matter (101). It is difficult to predict what the impact of PGR will be on universities since as of June 2016, only 30 PGR petitions had been filed. Since PGR only applies to patents issuing on applications filed on or after March 16, 2013, the day the first-inventorto- file rule went into effect, the small number of cases is probably because it can take years to get a patent issued, and relatively few patents filed after that date have been issued. Nevertheless, bearing in mind that university patents are generally more advanced and less incremental than most patents, their commercial value at the time they issue is often speculative at best, and a company may have little concern about issuance of patents on such early-stage inventions. So it seems likely that Inter-Partes Review (IPR), discussed below, will be a far more important concern for universities, as IPR challenges can be made after the commercial value of such patents and their preclusive effect on non-licensed competitors is more clearly demonstrated.
Inter-Partes Review—An Inter Partes Review (IPR) can be filed any time after nine months from the issue date of a patent, which is after the PGR window closes. Unlike PGRs, IPRs can only challenge patents on the basis of prior art, i.e., under 35 USC 102 and 103, and the prior art must consist of printed publications and patents.
By design, a patent challenger will often find IPR preferable to challenging a patent in court. Court challenges to patent validity can take 3-5 years and cost millions of dollars in legal fees and expert witness fees; in contrast, IPRs are completed in about 20 months and are said to be 10 times cheaper. In addition, IPR rules are more favorable to challengers than court rules: in IPRs, claim terms are given their "broadest reasonable interpretation," and only a preponderance of evidence for invalidity is needed; whereas in a declaratory judgement action brought in a Federal District Court, the court applies the "ordinary and customary meaning" of claim terms, and requires "clear and convincing evidence" of invalidity. With these lower costs and more favorable rules, there are significant incentives for companies to file IPRs on their competitors' patents, even on patents where there is no risk of infringement and the only goal is to stop the competitor from enjoying the market exclusivity a patent provides.
Because of the more favorable IPR rules, IPRs are frequently also filed when infringement litigation is brought (an IPR petition can be filed by an infringement suit defendant within one year after suit is brought); and infringement cases are not infrequently stayed by the court pending the outcome of the IPR. The AIA imposes a risk for IPR petitioners, as later declaratory judgment claims based on prior art that was raised or could have been raised by an IPR petitioner are estopped; however, in Shaw Industries Group, Inc. v. Automated Creel Systems Inc. (opinion 15-1116), the CAFC ruled that any art raised but excluded by the PTAB when instituting an IPR, including references considered redundant, are not estopped—so a wise infringer could possibly avoid estoppel by petitioning on the basis of multiple redundant references, thus preserving a "second bite at the apple" in district court.
Based on Patent and Trademark Office (PTO) reports, as of July 2015, since the AIA was passed there had been 1777 IPR petitions filed. Trials were instituted on 47 percent of them (827), and no trial was instituted on 950 of them—some for lack of grounds, and some because of settlement between the parties. Of the instituted trials, 54 percent (447) went to a written decision, and the remaining 380 were settled or dismissed. Of those that went to a written decision, 84 percent (376) had at least some of the claims invalidated, and only nine percent (71) of written decisions held all claims to be valid.
So what do these statistics tell us? Of all initial petitions filed, only 22 percent of them led to invalidated claims, which doesn't seem too bad. However, only four percent of initial petitions led to affirmation of all claims! Many of the petitions were settled between the parties before or during trial, and it is impossible to know how often a patent owner obtained a positive result in settlement.
For comparison, in 2014, 5,700 infringement/declaratory judgment cases were filed, nearly five times as many as the IPR petitions filed that year. It is estimated that 90 percent of infringement/DJ cases settle, and it is impossible to know how often a patent owner obtained a positive result in settlement. Of the estimated 10 percent of cases going to trial, patent owners prevailed about 33 percent of the time. Thus only about three percent of the infringement/DJ cases filed resulting in a district court win for the patent owner. And only half of these wins were fully affirmed if appealed.
Although comparison between IPR and litigation is difficult, it is likely that the broader claim construction, lower standard of proof and lower costs of IPR are considerable incentives for companies to challenge patents through the IPR process. And because of the lower costs, companies may be incentivized to challenge patents they might not have been willing to file declaratory judgments on. Although this raises risks for all patent owners, for universities with limited budgets the risks are considerable. Spending $300,000- $500,000 on an IPR is a major expense for most TTOs unless there is a licensee willing to cover those costs; and the incentives cited above may make IPRs against university patents much more frequent than declaratory judgement actions in the courts. Only time will tell what these risks really are.
Net Effects for Universities
The procedural improvements described above are mildly positive for universities, and it is good that the first-inventor-to-file rule retained the one-year grace period for an inventor's own publications. But for universities the negatives are more significant. The loss of the one-year grace period for prior art references is most immediately felt, as publications made yesterday are now prior art to a patent application filed today. This and the "race to the patent office" mean TTO budgets and human resources will be stretched as they are compelled to file provisional applications even though data is scant. And if data collected during the provisional year change the scope of the invention, the provisional date may not hold, meaning there will be even more prior art to worry about.
It will take time to measure the impact of PGR and IPRs on universities, since they are relatively new proceedings. However, in light of the PTAB's "broadest reasonable interpretation" of claim terms rather than the "ordinary and customary meaning" used when federal courts interpret patents, the lower "preponderance of the evidence" standard of the PTAB, rather than "clear and convincing evidence" required by courts, and the substantially lower cost of PGRs and IPRs compared to declaratory judgment actions, it is hard to avoid concluding that all patents, including university patents, are more susceptible to challenge and invalidation than ever before.
There may, however, be an exception for patents owned by state universities. The BTAB recently dismissed an IPR petition against the University of Florida on the grounds of sovereign immunity. The court held that IPRs are similar enough to federal litigation that the states should be immune under the 11th Amendment, which largely shields states from being sued in federal court without their consent. Covidien LP v. University of Florida Research Foundation Inc., Case Nos. IPR 2016-01274; -01275, and -01276 (PTAB January 25, 2017). Assuming that this finding is upheld on appeal, or is found to be un-appealable (as IPR institution decisions are), some commentators have suggested that the ability to avoid IPRs (and probably also PGRs) may make licenses to state university-owned patents more valuable. However, some state attorney generals and university general counsels are loathe to assert sovereign immunity, at least in part because it gives the public impression that the state sees itself as "above the law." So it may turn out that such immunity is only occasionally asserted.
There were many years of political jockeying for "patent reform" that led to passage of the AIA, which some analysts viewed as a battle between the information technology and telecommunications industry trying to weaken the patent system to limit infringement claims arising from the dense "patent thickets" in their fields, and the biotechnology and pharmaceutical industry trying to maintain the strength of the patent system to protect their product development investments and valuable drug market exclusivity. Fortunately, these industries flourish in many states, leading members of Congress to reject more harsh legislative proposals in one direction or the other; as a result, the AIA is far less onerous than it might have been, and even has some positive aspects. But the loss of the one-year grace period for prior art and the advent of PGRs and IPRs present new challenges for all patent owners, including universities. The full magnitude and impact of these challenges will be revealed in the years to come. ■
Available at Social Science Research Network (SSRN): https://ssrn.com/abstract=2961434.