AIA and IP investment: how will things change?

The IP Finance weblog is pleased to host the following piece which it commissioned from Monica Winghart (Executive Vice President and General Counsel for Article One Partners, Palo Alto, and a former Senior Corporate Counsel for The Clorox Company). 

As usual, readers' comments and responses are invited.  If features of this nature are found to be helpful, the IP Finance weblog will endeavour to commission similar pieces addressing the IP investment consequences of other major items of national legislative reform of the IP infrastructure.

Monica writes

How the AIA Will Change the IP Investment Environment: 
As Companies Adapt, Investors Can React 

The Leahy-Smith America Invents Act (AIA), arguably the biggest change in the U.S. patent system in 60 years, brings important changes in the way businesses secure patents and how IP investors vet and research patent portfolios. As businesses revamp their IP policies to retain competitive advantage in the patent space, investors will consider how these changes also affect the financial environment: 

First to Invent Becomes First to File  

What changed: Before AIA, companies could prove they were the first to invent a product by submitting internal data such as lab notebooks, prototype sketches and e-mails that show the date of an invention. Beginning next March, those who are quickest to file a patent application – not necessarily the first to invent – will become the patent holders as a result of the US shifting to a first to file (FTF) system. 

How businesses will adapt: “File often and early” is now the name of the game. Companies that can move most quickly from concept to invention disclosure to filed patent application will win; devoting years to perfecting a product before filing a patent is no longer a viable strategy.  Companies with specialized IP legal teams and larger patent budgets who can file frequently also have an innate advantage. Provisional patent application filings, which act as placeholders until a regular patent application is filed, will likely see greater use under the FTF regime and will enable companies to stay ahead of the competition. 

Information relevant to investors: Companies that use provisional filings, file patents often and early in the innovation process, and have IP legal teams who can quickly file on innovations will be well-equipped to retain a competitive advantage in the IP space. 

Patent Quality Will Increase 

What changed: Increasing the quality of patents was a significant driver behind the implementation of AIA. Recent changes increase the level of review and scrutiny that patents undergo, both during the application review process and after a patent has been granted. For example, the AIA codifies administrative review alternatives such as post grant review and inter partes review to assess patent validity.  While a patent is under administrative review with the USPTO, AIA now provides definitive guidelines to courts on when to stay any related litigation on the patents. These administrative review alternatives allow the USPTO to assess patent quality while offering ways for any litigation on the patents to be stayed by the courts.  AIA further provides for a supplemental examination procedure that enables a patent owner to present previously undisclosed information to the USPTO for consideration to correct a patent and to forestall inequitable conduct challenges that might be raised in subsequent litigation. 

How businesses will adapt:  Offering an administrative review and the staying of litigation may be disruptive to many NPE assertion models.  Allowing a patent owner to thoroughly vet patent assets with the experts of the USPTO will increase the value of the assets and the confidence of companies that their IP portfolios are of a higher quality standard. 

Information relevant to investors: Investors can gain confidence in buying assets which have been vetted and rely on administrative review techniques to modulate risk for companies which are heavily reliant on IP and often the target of NPEs.  Investors may also increase the traditional level of due diligence to include administrative reviews when IP rights are fundamental to the value of a deal. Over time, the increased level of review offered by these AIA changes will increase the level of confidence investors have in the validity of the patent assets they are purchasing. 

Expanded Definition of Prior Art  

What changed: Jurisdictional boundaries, which precluded some disclosures from being considered prior art, will disappear with AIA. The definition of prior art no longer relies on where a prior disclosure or sale may have occurred and any public knowledge or use, including foreign applications, can be considered for prior art. 

 AIA also brings U.S. patent law in line with other countries by allowing pre-grant oppositions by third parties. The timeframe for third parties to challenge a patent application, as well as the types of information contestants can use, are now extended.  

How businesses will adapt: With FTF, it becomes key to disclose all information, including global prior art, before filing. Companies can build a wall against the threat of third-party challenges by performing the most thorough possible prior art searches before filing and proactively disclosing all information to the US Patent and Trade Office (USPTO). 

 Information relevant to investors: Companies that have conducted thorough prior art searches, prepared their patent applications and disclosed the relevant art to the USPTO during prosecution are hedging against the risk of future litigation and later invalidation of key assets through third party oppositions or review proceedings. 

NPEs and Portfolio Monetization 

What changed: The new AIA rules affect both non-practicing entities (NPEs) and how companies monetize their patent portfolios. Multiple unrelated defendants can no longer be joined into a single complaint simply on the allegation that all defendants infringe the same patent. In order to permit joinder in a single case, there must be additional overlap between all of the defendants, for example in technologies or business practices. 

How businesses will adapt: NPEs, which profit almost solely by enforcing patents, now face multiple instances of litigation and trials rather than a single combined suit, increasing costs and complexity and potentially disrupting the NPE business model. 

Information relevant to investors: Companies that have strategies in place for coordinating litigation with other entities and for dealing with NPEs in general will be better equipped to effectively manage their patent infringement risks and costs. 

 Changes in IP Budget 

What changed: The USPTO has revised a number of its fees. The AIA provides for many filing fee increases across the board.  However, AIA includes pricing features that favor small players, such as a 75 percent decrease in many patent fees for micro entities including solopreneurs and small entrepreneurial ventures.  

How businesses will adapt: Companies will revisit their IP budget projections in accordance with the new fee schedule and adopt processes designed to best match desired patent prosecution techniques with budget constraints. 

Information relevant to investors: As enterprises re-tool their IP budgets, investors can take into account how these projections may impact the timing and scope of patent assets. 

 Updated Rules, Updated Portfolio  

In summary, the AIA offers a number of changes which impact the way companies execute their IP strategies. By taking measures to ensure that companies are proactively addressing these changes, investors can ensure that asset portfolios contain quality assets and are appropriately valued.

Big laws, small businesses: what will be the AIA's impact

Child's play: patents have never
been easy for small businesses to
deal with -- but are things changing?

While there are commentaries a-plenty on the detailed legal ramifications of the recent United States overhaul of its patent system , not so much has been written about the impact of this legislative shift on the business community. For this reason, IP Finance is pleased to host this short note by Deborah Sweeney, CEO of MyCorporation.com:

"The Leahy-Smith “America Invents” Act: How will it affect Small Businesses and Startups?

The United States was one of the last countries in the world to have a first-to-invent system for issuing patents. If two inventors were competing for patent rights, they would have to prove they conceived of the idea and turned it into a product in a reasonable time frame before the other party. This meant that it could take years and a significant investment of time and money before an inventor secured the rights to their product, making the United States fairly unattractive when it came to filing patents. 

In an attempt to make the United States more attractive to entrepreneurs and inventors, the America Invents Act was passed and the country moved to a “first-to-file” system. This empowers inventors, and the businesses that invest in them, to a level never before seen in the country. However, there is still quite a bit of confusion as to how this is going to impact small businesses, start-ups, and inventors. In the hopes of clearing some of the confusion, here are what I believe are the biggest impacts the passage of this act will end up having on smaller companies and the creators of the products they are built around. 

Legal Issues are less of a Deterrent for Investment 

Investing in something new is always a gamble, but hopefully the America Invents Act will reduce that gamble by curtailing the amount of litigation typically involved with pursuing a patent. This is great for smaller business that simply don’t have the capital to keep a team of lawyers on call, and also means that bigger corporations, which are often seen as some of the worst offenders in frivolous patent lawsuits, will find it very difficult to move into the court system. 

This Act, in an attempt to get America on par with the rest of the world, also ensures that an equivalent patent filed first anywhere in the world will qualify as grounds for patent refusal. Small businesses everywhere no longer have to worry that a foreign company is going to come after them for patent infringement as it is now the patent office’s job to check any for any conflicts, domestic or international. 

Smaller Companies have a Cheaper Fast-Track Option 

A small business is almost always able to move faster than a major corporation, so the first-to-file system greatly benefits an entity that doesn’t have to involve multiple departments and corporate bureaucracies before pursuing a patent. This legislation has established an expedited option to help get applications reviewed quicker (typically within twelve months), but this course does mean the applicant has to pay an extra fee. However, if your business qualifies as a small entity or if you are an independent inventor, you get fifty percent off that fee. If your business qualifies as a micro-entity, you can get up to seventy-five percent off. This creates a substantial incentive for small businesses and entrepreneurs to invent, invest and operate in America, when combined with the fifty-percent off of filing fees that small entities receive by only having to pay $200 per application 

Everyone who uses the patent office can also rest assured that the lengthy process will be shortened thanks to an increase in funding that will allow the USPTO to hire additional examiners and other direly needed personnel. 

Non-Inventors are Allowed to File without the Inventor 

This portion of the legislation is a little controversial as it creates a path for an investor to cut out the inventor if they do not uphold their legal obligations to their investors. Some feel that, as the inventor is the one who thought up the product, they shouldn’t be so easily removed. However, not having this option open does create a little bit of apprehension in investors. If an inventor chooses to terminate their relationship illegally with whatever entity is backing them, that entity would end up having to navigate the court system being able to make a single cent. 

This is a major concern for investors as they are going to be involved in this process for at least a year, so creating this rule means more sources of capital will be open to the sole inventor since the investor is guaranteed some right to the finished product. 

The belief behind the crafters of this law is that it will increase American competiveness, small business and total number of patents. It is supposed to help small businesses, investors and inventors to create a profitable product, which it hopefully will by giving them incentives and a bit more competitive advantage against major corporate entities. It will take years to judge if this legislation is successful or not, but it is a step in the right direction to maintaining America’s competitive edge".

Readers' thoughts on what countries outside the US can learn from this exercise are appreciated. One point of interest is that, in the sphere of invention-to-investment-to-market, there are two quite separate ways of measuring and encouraging (or discouraging) competition: one is in the battle between small US entities and the mega-corporations which so famously stalk the North American continent, while the other is the competition between US industry large and small and its rivals in lively and innovative markets outside the United States. Has Congress struck the right balance in each of these spheres of commercial competition? Thoughts, please ...