USPTO Reports On Defending Prior User Rights, Small Business Patents

by Glen Shapiro, LawAndTax-News.com, New York

23 January 2012

As required by the America Invents Act (AIA), the United States Patent and Trademark Office (USPTO) has submitted reports for two intellectual property law studies to Congress – the first report addresses the scope of ‘prior user rights’ defence in industrialized countries, while the second is concerned with international patent protection for small businesses.

The AIA, signed into law on September 16, 2011, has been heralded as the most substantial overhaul of US patent law in generations. Among the fundamental changes the AIA makes to the US patent system is the transition from a first-to-invent to a first-to-file system of awarding patents.

The legislation also expands the new limited prior user rights defence and broadens the classes of patents that are eligible for it. Appropriate de-limited prior user rights protect third parties who can demonstrate that they were commercially using the an invention for at least one year prior to the filing date of a patent application relative to such invention.

US law already provided a prior user rights defence that was limited to patents directed to methods of conducting business. The AIA, by contrast, extends the defence to patents covering all technologies, not just business methods. At the same time, the AIA includes several limitations and exceptions to the defence, including a prohibition against the licensing, assignment or transfer of the defence, other than in connection with an assignment or transfer of the entire business to which the defence relates.

As per the mandate to the USPTO from Congress, the Prior User Rights Defence Report includes a comparison of prior user rights in industrialized countries; the impact of prior user rights on innovation, start-up enterprises, small businesses, individual inventors, and universities; an analysis of the legal and constitutional issues with placing trade secret law in patent law; and an analysis of whether a first-to-file system creates a need for prior user rights.

Pursuant to its mandate, the USPTO held a public hearing and solicited comments from interested parties to complement its own independent research on the issue of prior user rights. Most of the comments supported the view that a limited prior user right defence is an appropriate complement to a first-to-file system, although several expressed concerns about the effect such a defence could have on, for example, patent valuation and the prompt disclosure of new innovations.

Accordingly, in the Report, the USPTO recommends the prior user rights defence provisions in the AIA are generally consistent with those of major trading partners and need not be altered at this time; and that that there is no substantial evidence that it will have a negative impact on innovation, venture funding, small businesses, universities or independent inventors.

However, the USPTO will re-evaluate the economic impacts of prior user rights as part of its 2015 report to Congress on the implementation of the AIA, when better evidence as to these impacts should be available.

On the other hand, it has been pointed out that small companies face significant financial challenges in acquiring, maintaining, and enforcing patents outside the US, and the USPTO’s International Patent Protection for Small Business Report considers how to best help small businesses in that respect, including whether a loan or grant programme should be established to help small businesses cover the costs of application, maintenance, and enforcement fees or related technical assistance.

Available information, including the comments and testimony that the USPTO received, indicates that while patenting appears relatively uncommon among US small businesses, it tends to be concentrated in high technology companies and can aid in securing for them a competitive advantage. Evidence also suggests that US small businesses face high costs in pursuing international patent protection, and that these high patenting costs often occur early in the life of these companies, when funding and cash flows are generally limited.

Commentary and evidence recognized that other governments around the world are subsidizing patenting by their businesses, but that there was considerable skepticism as to whether the US government ought to provide public funding to small businesses for international patenting, instead generally favouring a move towards patent-system harmonization to help reduce the costs associated with filing foreign patent applications.

Rather than using US government funds, The USPTO therefore recommends building upon several existing and successful current intellectual property education and training programs, and increasing engagement with industry to investigate useful approaches to solving the issues raised in this report, including possibly public-private partnerships or other means of helping small businesses.

Congress has required the USPTO to conduct five additional studies in the upcoming months. The next study will cover secondary genetic testing, and will follow the same protocol of hosting public hearings and seeking written public comments.

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