How Does the Patent Reform Bill Impact You?

President Obama has signed the America Invents Act, which will modernize the way inventors protect their most lucrative ideas.

The last time U.S. patent law was significantly updated was in 1952, when three-speed phonographs were all the rage. A lot has changed since then in terms of the complexity, scope and speed of innovation. With patent review backlogs at the U.S. Patent and Trademark Office now exceeding two years, both Democrats and Republicans overwhelmingly agreed that it was time to modernize how inventors can protect their most lucrative ideas.

Recently, Congress approved the America Invents Act, which President Obama signed into law in September 2011. The primary purpose of the act is to harmonize U.S. patent law with that of other countries, most notably Europe and Japan.

Currently, U.S. patent law rewards inventors who are first to have an innovative lightbulb moment and document the novel invention by making it, using it or filing a patent application. Under the new law, patent rights will shift from a first-to-invent to a mad-dash, first-to-file system.

How significant is this change? Richard D. Kelly, managing director of intellectual property law firm Oblon, Spivak, McClelland, Maier & Neustadt, says that most large corporations and entrepreneurial high-tech organizations are already wired to file patents as quickly as possible.

Says Kelly, “Fundamentally, the U.S. is just one slice of major world markets. Active patent filers in the U.S. know not to risk the loss of patent rights in other countries or diminish the value of their patents by delaying U.S. filings. Further, in cases involving a dispute between two parties regarding who was first to invent, the party who was first to file usually wins anyway.”

Here are some other general highlights from the new legislation:

- First-to-file: There is no need for entrepreneurs who are preparing patent applications to panic. Different provisions of the new regulations take effect at different times. The first-to-file provision will take effect 18 months from legislative enactment.

- Post-grant review: The post-grant review is perhaps the more meaningful legislative change. This provision, which will take effect one year after enactment of the act, allows a third party to petition to cancel a patent claim within nine months after the issuance of the patent or broadening reissue patent. Under post-grant review, the patent can also be challenged on a number of grounds, which can create some uncertainty for new patent holders.

- Supplemental examination: Supplemental examination will allow a patent owner to request that the Patent Office reconsider or correct information relevant to the patent. This initiative can potentially help entrepreneurs increase the value, scope or licensing potential of their intellectual property.

- New fee structure: Inventors and small businesses that qualify as “micro” businesses will soon get a break in fees. This new fee structure for filing, searching, examining, issuing, appealing and maintaining patents and applications for micro entities will take effect immediately. To qualify as a micro entity, an applicant must meet certain household income tests and not have been named as an inventor on more than four previously filed patent applications.

Fortunately, there are several exceptions for applicants — including breaks for former employees of large companies — that can help more inventors qualify as micro entities. Micro entities may also include institutions of higher education and applicants who work for those institutions.

- Speed filings: Applicants can speed examination by paying an extra $4,800, provided that the filed application does not have more than four independent claims and 30 total claims. The Patent Office will only initially accept 10,000 priority examination requests a year.

- The party is over: In response to the rapid growth in litigation against largely high-volume consumer-product manufacturers that fail to adjust their product packaging for expired patents, the act will only allow individuals or entities that have suffered competitive injury to file suit against manufacturers.

Currently, anyone who identifies a “false marking” of a patent notice can participate in a false patent marking action. When a high-volume manufacturer of makeup products, electronics or other consumer products is involved, the per-unit monetary penalty can add up to a substantial “hijack” reward. Still, entrepreneurs have to be diligent about keeping all patent notices current to avoid fee payments from pesky claimants.

- Patent aggregators: During the last 20 years, various companies and law firms have gone into the business of buying or licensing patents from private individuals, small businesses, bankrupt corporations and other patent holders. Many lobbyist organizations pushed hard for limitations on patent ownership by entities that are just in the business of creating and owning patents.

I’m pleased that Congress did not try to restrict this type of commercial activity, because patent aggregators represent a viable way that resource-strapped entrepreneurs can monetize their inventions or protect them from infringement by larger multinational corporations.

The Patent Office is scheduled to release a study in 2012 regarding how it can best help small businesses with international patent protection.  Further, the new legislation requires the Patent Office to establish methods for studying the diversity of patent applicants, including those who are minorities, women and veterans.

Because the America Invents Act includes many other revisions to important legal concepts, such as “prior art,” “commercial use,” “best mode” and others, consult qualified legal specialists for guidance on how you can adapt your company’s intellectual property strategies to the new world order.