By J. Wendy Davis and Steven M.
Ritchey
In 1999, Congress
created the Prior Commercial Use defense (35 U.S.C. §273) in response to
State Street Bank & Trust Co. v. Signature Financial Group Inc., in
which the U.S. Court of Appeals for the Federal Circuit held methods of doing
business were patent eligible subject matter. The State Street decision
meant that a company that had been secretly using an internally developed
business method could now infringe a patent covering that business method that
was issued to later inventor. Section 273 offered such prior users of a patented
business method a defense so that they could continue to use the business
method.
The Leahy-Smith America Invents Act (the “AIA”) was enacted in
early 2011, and it substantially changed the prior use defense by, among other
things, expanding the defense to all technologies, not
just business methods. Importantly, this expansion is limited to those patents
that issue on or after September 16, 2011. So, if the patent being asserted
issued before September 16, 2011, and it is directed to a technology other than
a business method, the prior use defense is not available. The prior use defense
is still available for business method patents issued before that date.
For a person to take
advantage of the defense, the person must have commercially used the technology,
in good faith, for at least one year before the earlier of (a) the effective
filing date of the claimed invention or (b) the date on which the claimed
invention was publicly disclosed by the inventor. The AIA expands the category
of persons that may take advantage of the defense to include not only the person
that commercially used the technology but also “any entity that controls, is
controlled by, or is under common control with such person.” Although the AIA
expanded the applicable persons, it did not change the personal nature of the
prior use defense and, as such, it still may not be licensed, assigned, or
transferred except in connection with the sale of “the entire enterprise or line
of business to which the defense relates” and is limited to the existing sites
of use.
Another significant
AIA change to the prior use defense is the creation of a so-called “University
exception,” wherein the defense may not be asserted if the claimed invention was
(at the time the invention was made) owned or subject to an obligation of
assignment to either an institution of higher education or a technology transfer
organization affiliated with such an educational institution. Congress created
an exception to the University exception resulting in the prior use defense
being available against a university-owned patent if any of the activities
required to reduce the subject matter of the claimed invention to practice could
not have been undertaken using funds provided by the Federal Government
(e.g., research activities that involve the destruction of human
embryos). Unlike the prior use defense, the University exception is not personal
to an institute of higher eduction or its technology transfer organization.
Instead, the University exception inures to the patent itself and may be
licensed or assigned. Thus, by eliminating prior use defense for nearly all
types of patented inventions developed at education institutions, the value of
such a patent to an educational institutional and its licensee(s) may be
enhanced.
In response to
concerns expressed during the legislative debate about the impact of an expanded
prior use defense on the patent system and innovation more generally, Congress
mandated that the U.S. Patent and Trademark Office produce a report on several
issues, including an analysis of the effect of prior user rights in other
countries, an analysis of the correlation, if any, between prior user rights and
the ability of start-up companies to attract venture capital, and analysis of
the effect of prior user rights on universities, small businesses, and
individual inventors. In its January 2012 Report to Congress, the USPTO found,
among other things, that the AIA prior user defense is generally consistent with
our major trading partners and there is no substantial evidence that it will
have a negative impact on innovation, venture funding, small businesses,
universities, or independent inventors. That said, the USPTO recommended
reevaluating the impacts of prior user rights as part of its 2015 report to
Congress on the implementation of the AIA, when better evidence might be
available.
In general, the AIA significantly expanded prior user defense
and as a result it is likely to be a viable option for many more patent
infringement defendants. That said, one should keep in mind several factors
before asserting the defense. For example, if the commercial activities
necessary for the defense were stopped and restarted, one cannot rely on the
activities that occurred before the restart. Additionally, a prior use defense
must be established by clear and convincing evidence, which is a higher standard
than the preponderance of the evidence standard for proving patent infringement.
Still further, if a person is found to have infringed a patent and “fails to
demonstrate a reasonable basis for asserting the defense, the court shall find
the case exceptional for the purpose of awarding attorney fees” to the patent
owner.