New “prior user rights” lead companies to weigh advantages/disadvantages of patents vs. trade secrets

In January 2012, the USPTO is scheduled to publish a report on the new “prior user rights” provision of the America Invents Act  (AIA).  The AIA revised Section 273 of the Patent Act to create a defense to infringement for any person who commercially used the invention in the United States in connection with:

  • an internal commercial use,
  • an actual arm’s length sale, or
  • another arm’s length commercial transfer of a useful end result of the commercial use.
The prior use must have occurred more than one year before the earlier of (1) the date of filing of the application, or (2) disclosure of the invention in a manner that qualified for an exception from prior art under the newly revised Section 102(b) of the Patent Act.
The defense includes several significant limitations.  These include:
  • the defense may not be licensed or transferred, other than in connection with an assignment of the entire enterprise or line of business to which the defense relates;
  • the defense cannot be expanded to sites beyond those that used the invention before the critical date;
  • the defense is not a general license to all claims of a patent at issue; and
  • the defense is only available for patents issued after September 16, 2011.

The USPTO conducted a series of town hall meetings and solicited comments on the prior user rights defense.  Pros and cons of the new defense that were raised by the comments include:

  • the defense instills some fairness into the patent system by not punishing early inventors simply because they chose to not patent the invention (Pro);
  • the defense conflicts with a fundamental purpose of U.S. patent law, which is to encourage disclosure of innovation (Con);
  • the defense can help companies reduce patent costs by choosing to keep more patents trade secret (Pro or Con, depending on your point of view)
The upcoming report, which Congress mandated in the AIA, requires the USPTO to:
  • compare the AIA’s prior user rights defense with similar laws of other industrialized countries;
  • analyze the effects of prior user rights on innovation in those other countries;
  • analyze the effects of prior user rights on start-ups, venture capital funding, small businesses, universities and individual inventors;
  • address constitutional issues, if any; and
  • address whether the upcoming change to a “first to file” system creates a need for prior user rights.

Whether or not the new defense has any significant effect is a question that will be addressed when and if parties begin to raise it in litigation.  Until then the defense will likely continue to be debated by inventors and non-inventors alike.

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