Later today I will be testifying in Congress at a hearing on Prior User Rights being held by the House of Representatives Subcommittee on Intellectual Property, Competition and the Internet chaired by Republican Representatives Bob Goodlatte of Virginia and Ben Quayle of Arizona along with Congressman Mel Watt as the ranking member of the Subcommittee. The hearing comes in the wake of the USPTO's recent Report on Prior User Rights. The primary focus of my testimony is my estimation that prior user rights as circumscribed in the Leahy-Smith America Invents Act are unlikely to have any real or measurable impact on the market for US patents, demand for innovation, or process of patent litigation. I explain this as follows:
There are host of conditions that must be met before the prior user defense can be exerted. Most notably, an accused infringer must be able to show that it (or its predecessor in title based upon limited transfer rights) began to commercially use the invention at least one year before the patentee's filing date (and even further in advance if the patentee publicly disclosed the invention before filing). In the new statute, the defense only applies if the prior user's version of the invention was created independently and without derivation from the patentee's version and the prior user acted in good faith. When formed together, these requirements look something like the eye of the needle and are difficult to pass through.
Further marginalizing the impact of prior user rights is the reality that the defense only adds actual value when the patent being asserted is valid. I.e., if the patent is invalid then there is no need for a prior user defense. The setup of a prior user situation suggests two likely scenarios that would lead to a decision of unpatentability. First, the existence of multiple independent creators of the same invention tends to suggest that the invention itself was obvious and therefore unpatentable. This is even more so in the prior use context because the later filed patent by definition will have a priority date of at least one year later than the user's first date of commercial use. Using the language of the Supreme Court in its KSR decision: "market forces" likely prompted researchers to take the next step. In addition, the requirement that the prior user commercially used the invention is an indicator, albeit inconclusive, that anticipating prior art may be available to invalidate the patent. Conversely, if the prior user is successful in maintaining the secrecy of its commercial use for that time period, we're left with the suggestion that the prior user may able to continue to operate in secrecy without being uncovered and thus without being charged with infringement.
My conclusion that prior user rights will have very little impact on innovation and access is also supported by comparative analysis of the impact of prior user rights in various trading partner nations and the already existing US prior user right for business method patents. The USPTO Report correctly indicates that these defenses have seen little to no successful assertion. In the US, prior user rights have been available since 1999 for the limited class of business method patents. During that time, there have been no reported cases where the defense was successfully asserted. During this time, the Court of Appeals for the Federal Circuit decided thousands of patent appeals on almost every imaginable patent doctrine – however the court did not address prior user rights. There was no need because the impact of that defense is so limited.
Two final concepts – lack of assurances and delay in patenting – push me to the same conclusion of little impact. First, I suggest that prior user rights will be given little ex ante consideration by would-be defendants because the defense does not offer any real assurances or any vested right until years after the first commercial use. As discussed in the previous paragraphs, prior user rights only come into play under a cone of secrecy. At that time, the prior user has no assurances that it made commercial use of the invention more than a year before someone else filed a patent application on the same subject matter. The expense of searching PTO records makes the task of discovering prior patent applications quite difficult. The delay in publication of applications and later-filing of applications based on foreign priority makes this task literally impossible to complete. And, the ability of patent applicants to radically amend claims during the patent prosecution process means that any assurances identified cannot not be considered vested.
The final point on this topic – based on delay in patenting – is that most qualifying prior uses may be irrelevant and out-of-use by the time that the USPTO issues the covering patent. Most recently issued US patents have an effective original filing date of more than four years ago. This provides a window of at least five years for most prior users to legally practice the invention without recourse even in the absence of the prior user defense. In many areas of technology, the original prior use will have become obsolete by the end of that five-year timeline – allowing the prior user to move to a new technology without ever needing to obtain a license or permission from the patent holder.
In the testimony, I then identify a number of particular ways that the defense could be expanded of Congress desired a more robust system of prior user right. My darling of the list is the establishment of a vested prior user right through a registration system. Although interesting, I do not at this point have real cause to call for this type of expansion.
My testimony also includes some consideration of the relative impact of prior user rights on US and non-US entities. The table below summarizes some of my thoughts.
Help or Hurt by US Prior User Rights
Help: University derived inventions become relatively more valuable because their patents are excluded from the prior user defense.
US Manufacturers and Technology Companies
Help and Hurt: US patents belonging to US manufacturers become less valuable because they are subject to prior user rights. However, US manufacturers have the potential of avoiding infringement charges based upon their own prior use.
US Non Practicing Entities (NPEs)
Hurt: NPEs US patents become less valuable for NPEs because they are subject to prior user rights. By definition, NPEs do not practice the invention and therefore do not benefit from the prior user right defense.
Foreign Manufacturers and Technology Companies
Hurt: Foreign entities US patents become less valuable because they are subject to prior user rights. Further, the foreign entities cannot assert prior user rights based upon activities in their home countries. However, foreign entities could benefit from the prior user rights if their prior commercial use of an invention was in the US.
Of course, my perception of the scope of prior user rights would change dramatically if the courts determine that (1) a prior user need only prove prior commercial use using a more-likely-than-not standard that (2) allowed oral testimony alone to prove the case and (3) ruled that neither secret sales nor secret uses constitute prior art under the new 35 U.S.C. § 102(a).
PTO Director Dave Kappos will also be testifying as well as Bob Armitage (Lilly), Dan Lang (Cisco), and John Vaughn (AAU).