On September 8, 2011, the U.S. Congress finally approved comprehensive patent reform legislation and sent it to President Obama for signature. 

Among the many changes, this long-awaited legislation:

• Converts the U.S. patent system from a “first to invent” to a "first inventor to file" standard of determining priority;
• Establishes a post-grant review procedure that permits challenges to patents within nine months of issue or reissue;
• Allows third parties to submit prior art documents together with a statement of relevance  during prosecution of a patent application;
• Permits the USPTO to set its own fees, which will cause a 15% fee increase 10 days after enactment of the law;
• Allows the USPTO to offer prioritized examination for a $4800 fee; to charge an additional $400 for applications not filed electronically; and to offer a “micro entity” discount of 75%;
• Allows an assignee to sign the inventor’s oath or declaration as an agent of the inventor;
• Establishes a higher threshold for instituting inter partes reexaminations of patents by requiring that “there is a substantial likelihood that the requestor would prevail with respect to at least 1 of the claims challenged in the request” and adds discovery to the procedure;
• Directs the USPTO to establish three satellite patent offices within the U.S.

Many of the new provisions will be implemented one year after the President signs the legislation. However, these provisions will go into effect on the date of enactment: 

Best Mode: Failure to disclose the best mode contemplated by the inventor is no longer available as a defense to patent infringement. This provision will apply to proceedings commenced on or after the date of enactment. At the same time, this provision does not eliminate the requirement that the inventor discloses the best mode in the specification.

False Marking: Only false marking suits brought by the U.S. Government or by a competitor who can establish competitive injury are allowed. Therefore, the present qui tam provision is eliminated.

Virtual Marking: Patent holders may use virtual marking by fixing the word ‘patent’ or ‘pat.’ on the product together with an address of a web site that associates the patented article with the number of the patent.

Patent Term Extension: The date of receipt of FDA permission for commercial marketing or use of a product, which is based on the submission of an application for patent term extension, will be considered the next business day if transmitted after 4:30 PM Eastern Time or on a non-business.

Tax Strategies: Any strategies for reducing, avoiding, or deferring tax liability will be considered to be in the prior art and, accordingly, will not be patentable.

Human Organisms: Section 33 of the legislation states that no patent may issue on a claim directed to or encompassing a human organism.

Themis Law will continue to follow the implementation of patent reform and will provide analysis on the changes to patent practice generated by the new legislation.

Not necessarily. According to U.S. law, inventors are presumed to be the original owners of a patent. As a consequence, employers generally require their employees and contractors to assign all ownership rights in their inventions, and in the related patents, to the employers.

Assignments of patents are regulated by 35 U.S.C. 261. However, the language of an assignment must be chosen very carefully in order to be enforceable, as the Court of Appeals for the Federal Circuit (CAFC) reminded us in Stanford v. Roche, 2009 WL 310809 (Fed. Cir. 2009).

The facts of Stanford begin in 1988, when Mark Holodniy joined the Department of Infectious Disease of Stanford University as a Research Fellow working on a HIV research project, which was funded by the National Institute of Health (NIH). Holodniy signed a Copyright and Patent Agreement (CPA) with Stanford, where he engaged to “agree to assign or confirm in writing” to Stanford and/or the NIH all “right, title and interest” in inventions that he would develop as a consequence of his employment.

As part of his research, in 1989 Holodniy began regular visits to Cetus. That company had developed polymerase chain reaction (PCR) techniques to measure RNA.  Cetus required Holodniy to sign a Visitor’s Confidentiality Agreement (VCA) stating that he “will assign and do[es] hereby assign to CETUS, my right, title, and interest in each of the ideas, inventions and improvements” devised “as a consequence” of his work at Cetus. The PCR business of Cetus was acquired by Roche in 1991.

Holodniy’s research produced a method that used PCR to measure RNA from HIV in the blood plasma of infected humans taking certain drugs. In 1992, Stanford filed a patent application related to that invention, which became the priority for three later patents, all assigned by Holodniy to Stanford in 1995.

Stanford also filed an invention disclosure statement with the NIH and in 1995 formally notified the Government that it elected to retain title to the inventions in the three patents under the Bayh-Dole Act, 35 U.S.C. 200-212. After unsuccessfully trying to negotiate licenses to the three patents with Roche, Stanford filed suit alleging that HIV detection kits produced by Roche infringed its patents.

One of the defenses raised by Roche was that Roche was the true owner of the three patents. The CAFC found that the contract language “agree to assign” in the CPA of 1988 was only a mere promise by Holodniy to assign future rights to Stanford and not an immediate transfer of rights. Therefore, Stanford had not immediately gained title to Holodniy’s inventions as a result of the CPA.

Instead, the CAFC found that the language in the VCA of 1989 between Holodniy and Cetus: “I will assign and do hereby assign to CETUS, my right, title, and interest in each of the ideas, inventions, and improvements” immediately provided Cetus with title to Holodniy’s inventions.

Stanford countered that 35 U.S.C. 261 makes an assignment void against a later bona fide (good faith) purchaser for valuable consideration unless that assignment is recorded with the United States Patent and Trademark Office within three months from its date or anyway before the later purchase. Therefore, Stanford argued, even if Roche had gained title to Holodniy’s inventions through the VCA, Roche had failed to record the VCA before the 1995 assignments of the three patents to Stanford, giving Stanford superior rights in the three patents. The CAFC disagreed and held that, even if Stanford had not been informed of the VCA, knowledge of the VCA was to be imputed to Stanford. The CAFC reasoned that Holdniy was an employee of Stanford when he signed the VCA and that Stanford could be charged with notice of Holodniy’s assignments because employees are agents of their employers. It was not relevant that Holodniy had no authority to assign Stanford’s patent rights because the issue was whether Stanford had knowledge.

The CAFC also found that the Bayh-Dole Act did not void the assignment to Roche because the Act leaves title with the inventor or assignee unless the Government exercises its rights under the Act, which the Government did not do.

The Court of Appeals for the Federal Circuit (CAFC) has significantly restricted the standard used by the Trademark Trial and Appeal Board (TTAB) to cancel trademark registrations based on fraud. In In re Bose Corporation, No. 2008-1448 (CAFC 2009), the CAFC has held that a trademark is obtained fraudulently only when the registrant knowingly makes a false, material representation with intent to deceive the Trademark Office, instead of when the applicant knows or should know that his representation is false or misleading.

Bose Corporation had opposed registration of the trademark HEXAWAVE of Hexawave, Inc. alleging likelihood of confusion with, among other things, the trademark WAVE of Bose. During the opposition proceedings, Hexawave had counterclaimed that Bose had committed fraud during the registration renewal of WAVE because of a false declaration by Bose’s general counsel Mark Sullivan that WAVE was still in use for audio tape recorders and players while those products had been discontinued for years.

The fraud standard employed by the TTAB had been first articulated in Medinol v. Neuro Vasx, Inc., 67 USPQ2d 1205 (TTAB 2003), where the TTAB had held that a “trademark applicant commits fraud in procuring a registration when it makes material representations of fact in its declaration which it knows or should know to be false and misleading.” After Medinol, the TTAB had used the “knows or should know” standard to cancel several registered trademarks based on fraud. See, for example, Herbaceuticals, Inc. v. Xel Herbaceuticals, Inc., 86 USPQ2d 1572 (TTAB 2008); Hurley Int’l v. Volta, 82 USPQ2d 1339 (TTAB 2007).

In Bose, Mr. Sullivan had testified that WAVE was still in use for audio tape recorders and players because Bose still repaired those products and, after repair, shipped them back to customers. The TTAB had found that repairing and shipping back products was not sufficient use in commerce, that Mr. Sullivan’s belief was not reasonable, and that the misrepresentation made by Mr. Sullivan to the Trademark Office was material. The TTAB then applied the Medinol fraud standard and canceled the WAVE registration.

Instead, the CAFC distinguished between a “false” and a “fraudulent” representation and held that a trademark is obtained fraudulently only if the applicant or registrant knowingly makes a false, material representation with the intent to deceive the Trademark Office. The CAFC added that fraud must be proven “to the hilt” with clear and convincing evidence without speculation, inference or surmise.

The CAFC then observed that Medinol had erroneously lowered the fraud standard to a simple negligence standard by equating “should have known” with the subjective intent requirement of fraud. In particular, a false misrepresentation due to an honest misunderstanding or inadvertence without a willful intent to deceive cannot be considered fraud. The CAFC acknowledged that a subjective intent to deceive may be difficult to prove and may be inferred from the circumstances and related statements made.

The CAFC then found that the intent of Mr. Sullivan to deceive had not been proven by clear and convincing evidence and reversed the cancellation of WAVE, ordering instead that the registration of WAVE be restricted to reflect commercial reality.

In Bose, the CAFC did not discuss whether a “reckless disregard” of the truth or falsity of a statement would satisfy the intent to deceive requirement. Consequently, it is still important that trademark owners and practitioners investigate thoroughly that the goods and services listed in a trademark application or registration are accurate before signing any submissions to the Trademark Office. If possible, steps should be taken to correct any false statements in a trademark application or registration before a challenge by an opposer or infringer.

On October 30, 2008, the Court of Appeals for the Federal Circuit (CAFC) issued an en banc opinion on the patentability of business methods. In the case of In re Bilski, Case No. 2007-1130 (Fed. Cir. 2008), the CAFC overruled earlier decisions regarding patent-eligible processes and held that a process is eligible for patent protection only if (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.

Bilski had filed a patent application directed to a method of hedging risk in the field of commodities trading, which had been rejected by the U.S. Patent and Trademark Office as directed to a non-patentable process.

The CAFC first noted that the Patent Act defines patent-eligible inventions as “any new or useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” 35 U.S.C. 101. The CAFC also noted that the Supreme Court had narrowed the meaning of “process” to exclude “laws of nature, natural phenomena, [or] abstract ideas.” Diamond v. Diehr, 450 U.S. 175 (1981).

The CAFC then explained that the machine or transformation required by the new test must impose meaningful limits on the scope of a claim, such that the machine or apparatus, or the transformation of a particular article, prevents the patent applicant from claiming the underlying principle instead of a specific application. In particular, mere field-of-use limitations or “insignificant post-solution activity” would not transform an unpatentable principle into a patentable process. For example, an algorithm combined only with a data-gathering step would not be patentable.

The new “machine-or-transformation” test replaces prior tests on patent eligibility of a process, such as the Freeman-Walter-Abele, Alappat, State Street, and “technological arts” tests. The CAFC recognized that future developments in science and technology may present challenges in the application of the new “machine-or-transformation” test and that future cases may refine or augment how it is applied. However, the CAFC declined to hold that the “machine-or-transformation” test is equivalent to a categorical exclusion of business method claims. In particular, the CAFC explicitly declined to adopt a broad exclusion over software, algorithms or any similar subject matter.

The holding of Bilski extends beyond claims directed to financial services, software or other business methods and affects patent applications and issued patents in different fields such as clinical tests and biotechnology. Cases presently pending before the CAFC, such as Ariad v. Lilly (related to a method of altering the activity of a regulatory protein in a cell), Classen v. Biogen (related to a method of determining an optimal immunization schedule) and Prometheus v. Mayo (related to a method of observing the level of a drug metabolite in a patient) may provide additional guidance on the patentability of clinical and biotechnology methods.

This holding of Bilski drew dissents from three members of the CAFC panel. Judge Rader remarked that the “machine-or-transformation” test “links patent eligibility to the age of iron and steel at a time of subatomic particles and terabytes.” If Bilski asks the Supreme Court to hear the case, that Court will probably decide whether or not to grant certiorari by next spring.