Did University Patents Become
the World’s Most Valuable
Patents Following Enactment
of the America Invents Act?
By Robert Barrett, Margaux Birdsall & Rachal Winger, K&L Gates LLP
transfer organization whose primary purpose is to facilitate the commercialization
of technologies developed by one or more
such institutions of higher education”.2 See,
35 U.S.C. § 273(e)(5)(a) (2010). Patents
claiming such inventions are referred to as
“University Patents” herein.
Whereas University Patents used to be
no different from other patents in the
enforcement context, their newly created
carve out to the assertion of any form of
prior user defenses gives them distinct
characteristics that should significantly
affect how they are licensed and enforced.
Prior User Rights Defenses
Robert M. Barrett
Margaux Birdsall
Robert M. Barrett, a partner in K&L
Gates’ Chicago office, concentrates his practice in intellectual property law and patent
related issues, including litigation, prosecution, licensing, due diligence, and counseling. He is a practice area leader of K&L
Gates’ intellectual property practice.
Margaux Birdsall, an associate in K&L
Gates’ Chicago office, focuses her practice
on intellectual property matters and has
experience in the prosecution of applications
for a wide range of technologies.
Rachal Winger
that no American patent has ever had. It
is too early to fully appreciate the impact
these powerful patents will have in the
market. We propose that early movers
in securing patent assignments, licensing
rights and collaborative relationships with
Universities may well find themselves in
strong competitive positions compared to
those who do not capitalize on the newfound status of University patents.
Introduction
or at least two generations, and
most likely throughout the history of
American jurisprudence, a true first
inventor could defeat a patent infringement
claim by a second inventor through a “prior
user” rights defense. Following enactment
of the America Invents Act, prior user
defenses have expanded significantly with
one notable exception. Patented inventions
made, owned or subject to transfer to an
institution of higher education are immune
from all forms of prior user defenses. These
patents thus have a level of enforceability
The America Invents Act (AIA) brings
major changes to the United States (US)
Patent System. Some of these changes
include transition to a first inventor to file
system, availability of post-grant opposition proceedings, and the creation of a
new microentity status. Also among these
changes is the expansion of prior user rights
defenses. Following enactment of AIA on
September 16, 2011,1 prior user rights
became a personal affirmative defense to
charges of patent infringement for entities that can demonstrate commercial use
of a “machine, manufacture or composition of matter used in a manufacturing or
other commercial process” at least one
year before the filing date of the asserted
patent. 35 U.S.C. § 273(a)(1) (2010).
However, there is one notable exception
to the defense. It is not available “if the
claimed invention … was, at the time the
invention was made, owned or subject to an
obligation of assignment to either an institution of higher education, or a technology
32
Intellectual Property Today JULY, 2012
Rachal Winger, a partner in K&L Gates’
Seattle and Orange County offices, focuses
her practice on intellectual property law with
an emphasis in life sciences patent-related
matters. She counsels clients in the creation
and commercialization of intellectual property and in the assessment of intellectual
property in corporate transactions and competitive analyses.
F
Prior user rights are designed to provide
a first inventor with a limited, personal
defense against charges of patent infringement by a second inventor while not affecting the validity of the second inventor’s
patent. This approach is intended to protect
the true first inventor while maintaining the
second inventor’s rights in the invention
against other third parties. This outcome
ensures that the second inventor is not
unduly penalized for coming forward with
the invention and disclosing the knowledge
to the public – a goal of US Patent Law. It
also prevents a second inventor from enforcing its rights against a true first inventor.
Prior User Rights Defenses Before AIA
Two types of “prior user rights” defenses
existed in the US before the enactment of
AIA.
1. Quasi-Prior User Rights Defenses
before AIA
Prior user defenses are not new to
American patent law. Since at least 1952,
35 U.S.C. § 102(g) created a “quasi” prior
user rights defense. Under this section,
a person was entitled to a patent unless
another had made the invention before
the patent application in the US and had
not abandoned, suppressed, or concealed
it. See 35 U.S.C. § 102(g) (2010). This
defense is called a “quasi” prior user
defense here because while it protected
the first true inventor, it also rendered the
second inventor’s patent invalid. 3
2. True Prior User Rights Defenses
before AIA
True prior user defenses also were found
in the US Patent Law before AIA, albeit in a
very limited context. Before AIA, and since
1999, true prior user rights have been available as a personal defense against patents
claiming a method of doing or conducting
business. See American Inventors Protection
Act of 1999, Pub. L. 106-113, §§ 273(a)
(3) & (b)(1). Particularly, the defense was
available for those who, acting in good faith,
actually reduced the claimed invention to
practice and commercially used it at least
one year before the effective filing date of the
patent. See 35 U.S.C. 273 § (b)(1).
The Debate Surrounding Prior User Rights
Defenses in the Passage of AIA
US Patent Law before AIA awarded patent rights to the first inventor, regardless
of whether that inventor was the first to
file a patent application. Following AIA,
however, and subject to particular exceptions,4 patent rights will be granted to the
first inventor to file a patent application.
In making this change, many industry
groups viewed expanded prior user rights
as essential.5 Industry groups strongly supported expanded prior user rights because
of their view that it would not be feasible to
file patent applications on every invention.
Id. Whereas in the prior system, second
inventors could not have had a patent
because they were not first to invent, in
the first inventor to file system, a second
inventor could assert rights against a true
first inventor if prior user rights were not
available. Businesses would be forced to
massively increase the number of patent filings solely for defensive purposes, a questionable use of industry and U.S. Patent
Office resources. Id.
Under Secretary of Commerce for
Intellectual Property and Director of the US
Patent & Trademark Office, the Honorable
David J. Kappos, also favored the inclusion of expanded prior user rights in AIA.
According to his testimony at the Hearing
before the Subcommittee on Intellectual
Property, Competition and the Internet,
prior user rights [are] pro-manufacturer, pro-small business, and, on
balance, good policy. Prior user rights
allow manufacturers to invest in technology with confidence and continue
making products that predate a patent application filed later by another
party. These rights will also protect
small businesses, which may not be
able to bear the cost of procuring a
patent on every technical improvement they make, from large competitors with extensive portfolios of
patents issued from later applications.
These rights promote fairness, protect
investments, encourage investment
in the U.S., level the playing field
against foreign competition, protect
small businesses and more.6
Not all were in favor of expanded prior
user rights, however. Congressman Jim
Sensenbrenner testified that expanding
prior user rights would harm inventors who
share their knowledge in favor of those who
keep their innovations secret, effectively
inserting trade secrecy into the patent law
with a powerful incentive – a royalty-free
statutory license.7
Universities also largely disfavored
the expansion of prior user rights. John
C. Vaughn, Executive Vice President,
Association of American Universities
argued that expanding prior user rights
would reduce patent certainty thus impairing University technology transfer.8 Further,
Mr. Vaughn testified that available grace
periods for patent filings following a public
disclosure, such as academic publishing,
would permit others to prepare a competing
product immune from a charge of infringement of a patent emerging from the public
disclosure. Id. at 92-93, 12.
After extensive negotiation and compromise between the conflicting views, in final
form, AIA provides that prior user rights
will not apply “if the claimed invention with
respect to which the [prior user] defense is
asserted was, at the time the invention was
made, owned or subject to an obligation of
assignment to either an institution of higher
education, or a technology transfer organization whose primary purpose is to facilitate the commercialization of technologies
developed by one or more such institutions
of higher education.” As provided by Mr.
Smith, co-sponsor of AIA and Chairman of
the Judiciary Committee, “It is a good deal
for many in the university community.”9
Prior User Rights Following AIA
Industry Would be Well-Advised
to take a Hard Look at University
Patents and Their Increased
Strategic Importance
The carve out to prior user rights gives
University Patents special status in the
enforcement context. University Patents are
substantially more powerful than other patents because they can be asserted against
all parties - including true first inventors
– without the risk of a successful prior user
defense. This increased power should affect
both how industry views the importance
of University Patents in a strategic patent
portfolio and how Universities view and
license their own patents. The following
discussion should be viewed as especially
related to process and manufacturing patents which are more likely to be maintained
as internal trade secrets, generating prior
user rights.
Start-Up Companies Emerging from
Universities
Numerous start-up companies emerge
from Universities with licenses to University
Patents – especially since the passage of
the Bayh-Dole Act which confirmed that
Universities retain title to patents arising from
federally-funded research. Since the passage
of Bayh-Dole, over 7,000 new companies
have been formed based on the licensing of
an invention from an academic institution.10
Start-up companies should now consider whether a University technology they
are considering commercializing includes
University Patents directed to methods
or processes. Such technologies could
be especially attractive following enactment of AIA, providing increased leverage with established players in a market.
Particularly, established players may be
more inclined to fund or partner with a
start-up holding University Patents when
the University Patents could be used to stop
the established player’s use of a valuable
process. This increased leverage could also
lead to more favorable agreement terms for
start-up companies partnering with established players in a market.
Following the passage of AIA – and
according to its enactment schedule –
“quasi-prior user rights” will no longer
strip second inventors of important patent
rights following assertion against a true first
inventor who meets the requirements of the
statute. Moreover, prior user rights have
been significantly expanded. The defense
is now be available to claims directed to
any “machine, manufacture or composition of matter used in a manufacturing
or other commercial process.” The one
notable exception is that the defense will
not be available to true first inventors if, at
the time the claimed invention was made by
a second inventor, there was an assignment
or an obligation of assignment to either an
institution of higher education, or a technology transfer organization whose primary
purpose is to facilitate the commercialization of technologies developed by one or
more such institutions of higher education.
See Leahy-Smith America Invents Act, § 5,
125 Stat. at 299.
Established players in a market would
also be well-advised to re-evaluate the
importance of University Patents in strategic patent portfolios. Established players in
a market often have known and similarlyestablished competitors. To the extent such
competitors are pursuing similar market
objectives, they may find themselves using
similar processes. Standing alone, each
would be subject to a defense of prior user
rights in a patent enforcement proceeding.
Intellectual Property Today JULY, 2012
33
Established Players in a Market
The competitor with in-licensed University
Patents, however, could avoid this defense
and prevail in maintaining exclusivity.
Accordingly, established players should
look for University Patents to license covering their own market objectives as well as
those of their competitors to take advantage
of this new “silver bullet.” Beyond looking
for existing University Patents to license,
established players should also consider
funding University research with the return
of a first option to gain ownership or license.
Effects in Mature Industries
Mature industries should also consider the importance of the new University
Patents carve out to prior user rights.
As industries mature, trade secrets often
become a preferred vehicle for intellectual
property protection. As the public knowledge base increases, innovations often
become increasingly incremental. Patent
claims issued to incremental innovations
in an advanced field can be narrow in
scope, allowing design-around possibilities
for competitors. Further, when many in an
industry are relying on trade secret protection, asserting a patent under the previous
US Patent Laws was especially risky due to
the potential of losing rights under the previous “quasi prior user rights” approach.
Here again, players in mature industries should consider funding University
research with the return of a first option to
gain ownership or license. Absent a true
break-through advance, patent claims may
remain relatively narrow in scope compared
to less mature industries. Such patents may
serve as an effective tool to repel competition when design around avenues would not
yield comparable results and there is no
prior user defense to protect those previously practicing the invention using trade
secret protection.
Universities Should Similarly
Explore the New Status of
University Patents
As discussed above, many industry players would be well-advised to re-examine the
value of University Patents in their various competitive environments. In light of
this, Universities would similarly be welladvised to court new industry collaboration
and investment and reconsider out-bound
licensing strategies.
Regarding industry collaboration and
investment, it is likely that a number of
industry players will have new or renewed
interest in funding collaborative research with
Universities. Strategically, Universities may
want to identify particular areas of perceived
34
research strength and increase attendance
at industry events to foster the development
of such collaborative efforts. Encouraging
research professors and associates to attend
industry events with knowledge of the benefits of University Patents may serve to attract
additional research dollars.
Regarding out-bound licensing strategies, Universities should consider whether
the new-found status of University Patents
warrants increased royalty rates in particular cases. Beyond royalty rates, other provisions should similarly be considered. For
example, it may be advisable for out-bound
licenses of University Patents to include
bonus provisions for the successful defeat
of a prior user defense. Such increased
royalty rates or bonus provisions could be
tailored based on whether industry collaborators invest in University research up
front or take licenses to University Patents
after University researchers have secured
other funding and performed the relevant
research.
Finally, Universities should consider
strategically increasing the number of patent applications filed in areas where the use
of trade secrets in an industry is high.
Benefits for Universities
Following AIA Flow Back to the
Public
To the extent Universities are able to
attract additional research investment dollars from industry or are able to garner
higher royalty or other payment considerations in light of the prior user defense
carve-out that they enjoy, the benefit will
ultimately be returned to the public. Under
Bayh-Dole, Universities are obligated to
actively promote and attempt to commercialize inventions, to attempt to license
them to support small business, and to use
the balance of royalties after expenses to
promote scientific research and education. Bayh-Dole Act, 35 U.S.C. § 202 (c)
(7)(C)-(E)(2010). These benefits will only
be compounded following the enactment of
AIA which increases the amount of royalties Universities retain. See Leahy-Smith
America Invents Act, § 13, 125 Stat. at
327. As such, and returning to Mr. Smith’s
sentiment, the newly-created carve out to
prior user rights for University Patents may
be a good deal for many.
Conclusion
As is now apparent, University Patents
provide numerous potential benefits to varied players in a market. These benefits
make University Patents particularly valuable. Now is the time to ascertain how
Intellectual Property Today JULY, 2012
University Patents can best help your business in its endeavors. IPT
Endnotes
1. Leahy-Smith America Invents Act, Pub.L.112-29,
§ 5(c), 125 Stat. 284, 299 (2011) (“The amendments made by this section shall apply to any
patent issued on or after the date of enactment of
this Act”).
2. Higher Education Act of 1965, 20 U.S.C. §1001(a)
(2010).
3 Gary L. Griswold & F. Andrew Ubel, Prior User
Right—A Necessary Part of a First-to-File System,
26 J.MARSHALL L. REV. 567, 572 n.20 (1993).
(As explained by Judge Newman of the Court of
Appeals for the Federal Circuit, “I have not seen
anyone who was a prior user who has been stopped
upon raising the 102(g) defense …. Because
someone has kept [the invention] as a trade secret
has not succeeded, as far as I can tell, in avoiding
the defense, because if it has been in commercial
use, even if the process has been kept secret, it is
considered a bar.”)
4. Leahy-Smith America Invents Act, § 5(c), 125
Stat. at 285 (Under the Act, a party has one year
from a public disclosure to file a patent application claiming the disclosed invention. If a second
inventor files an application during this one year
grace period before the publicly disclosing first
inventor, the patent will be issued to the first
disclosing inventor even though that first inventor
was second to file).
5. Leahy-Smith America Invents Act: Hearing on
H.R. 1249 Before the Subcomm. On Intellectual
Property, Competition, and the Internet, 112,
Cong. 79 (2011) (statement of Mark Chandler,
Senior Vice President and General Counsel of
Cisco Systems, speaking for The Coalition for
Patent Fairness, representing hundreds of members, including Apple, Autodesk, Dell, Google,
Intel, Micron, Oracle, RIM, SAP, and Symantec.).
6. Leahy-Smith America Invents Act: Hearing on
H.R. 1249 Before the Subcomm. On Intellectual
Property, Competition, and the Internet, 112
Cong. 129 (2011) (statement of Honorable David
J. Kappos, Under Secretary of Commerce for
Intellectual Property, and Director, the US Patent
Office).
7. Leahy-Smith America Invents Act: Hearing on
H.R. 1249 Before the Subcomm. On Intellectual
Property, Competition, and the Internet, 112,
Cong. 50 (2011) (statement of Rep. F. James
Sensenbrenner).
8. Leahy-Smith America Invents Act: Hearing on
H.R. 1249 Before the Subcomm. On Intellectual
Property, Competition, and the Internet, 112,
Cong. 92 (2011) (statement of John C. Vaughn,
Executive Vice President, Association of American
Universities).
9 Leahy-Smith America Invents Act: Hearing on
H.R. 1249 Before the Subcomm. On Intellectual
Property, Competition, and the Internet, 112,
Cong. 43 (2011) (statement of Rep. Lamar Smith,
Chairman, Committee on the Judiciary).
10. Public Sector Research Responsible for Many
New Drug Discoveries, Says AUTM President,
http://www.newswise.com/articles/public-sectorresearch-responsible-for-many-new-drug-discoveries-says-autm-president, February 10, 2011
(“Since the enactment of Bayh-Dole, more than
7,000 new companies have formed around university research”).