©2015. Published in Landslide, Vol. 7, No. 5, May/June 2015, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.
The Leahy-Smith America Invents Act (AIA) is the single most significant U.S. patent law reform effort since 1952. Key among its provisions was a basic philosophical change in the right to obtain a patent. The right to a patent on a given invention now goes to the first inventor to file (FITF) as opposed to the first inventor to make the invention (FTI). This change, which became effective for patent applications filed on or after March 16, 2013, has profound effects not only on priority between rival inventors but also on the nature of the prior art applicable to a given patent application. The drafters of the law sought to make the law clearer by limiting prior art (or patent validity defeating events) to publicly ascertainable events. Among other things, it eliminated prior invention in the United States as a prior art event. Less clear was how the law was to deal with commercial activity that was shielded from public view.1
Assumptions should not be made about the law governing the impact of secret commercial use on patentability without some careful and diligent investigation. The law governing patent applications filed before March 16, 2013, and other patent applications not subject to the AIA FITF provisions is well set out by D.L. Auld2 and W.L. Gore.3 Secret commercial use in the United States for more than one year before a patent application is filed bars the trade secret user and those in privity with the user from obtaining a patent on a process. However, it has no impact on the ability of unassociated third parties to obtain patent coverage on the process. Previously, under pre-FITF law, the unassociated third parties may have had a 35 U.S.C. § 102(g) concern, but that would have arisen from the reduction to practice of the process, not its commercial exploitation. It cannot be assumed that this has been overruled by the FITF provision or that forfeitures caused by secret commercial uses no longer exist. The analysis presented in this article can be applied to any trade secret outside the purview of “on sale” or “in public use,” such as any process that others, without additional knowledge of the original production procedures, cannot uncover by acts of reverse engineering. Two good examples are the making of an automotive emblem4 and a process of stretching PTFE (Teflon) film.5 Certainly, there are products that require more complex and sophisticated analysis, analysis beyond what is being presented in this article. Also, depending on how “or otherwise available to the public” is interpreted by the courts, a private sale with confidentiality obligations on both the seller and the buyer may not be prior art under the AIA.
The continued viability of the forfeiture doctrine has been a hotly contested issue in the public discussions6 and comments7 addressing the adoption of United States Patent and Trademark Office (USPTO) Examination Guidelines to implement the FITF provisions of the AIA. On the topic of the forfeiture doctrine, while the 1946 Second Circuit case of Metallizing Engineering8 influenced the Federal Circuit to adopt the forfeiture doctrine, this Second Circuit case is not binding precedent and does not clearly enunciate a forfeiture doctrine, which is a judicial analogy to the pre-AIA 35 U.S.C. § 102(b) on-sale bar. Arguments can be made that it is simply interpreting the statute.
Meanwhile, D.L. Auld is binding precedent,9 and the court in D.L. Auld clearly invokes a judicial doctrine, i.e., a doctrine like obviousness double patenting and inequitable conduct that is not spelled out in the statute but furthers the goals of the patent system.
The forfeiture doctrine is an important issue to inventors who have yet to file for patent protection on manufacturing processes and will be of considerable importance to litigants and others concerned with the validity of patents on manufacturing processes filed for on or after the effective date of the FITF provisions of the AIA (March 16, 2013).
The USPTO took a position that the secret commercial use forfeiture doctrine was vitiated by the FITF provisions of the AIA. In adopting its FITF Examination Guidelines, the USPTO made reference to certain legislative history.10 The comments of Senator Leahy quoted in note 8 of the promulgation of the Guidelines made no reference to forfeiture or to the case precedents, Metallizing Engineering and D.L. Auld. The comments addressed the impact on third parties as governed by W.L. Gore, as opposed to the impact on the inventor governed by D.L. Auld. In this regard, the USPTO may have erroneously characterized D.L. Auld as being “pre-AIA case law holding that an inventor’s non-public sale before the critical date is a patent-baring ‘on sale’ activity as to that inventor.”11 However, in D.L. Auld, Judge Markey articulated that he was not interpreting the on-sale provision of 35 U.S.C. § 102(b), but he was adopting a judicial analogy: “The ‘forfeiture’ theory expressed in Metallizing parallels the statutory scheme of 35 U.S.C. § 102(b), the intent of which is to preclude attempts by the inventor or his assignee to profit from commercial use of an invention for more than a year before an application for patent is filed.”12
The USPTO also supported its position on secret commercial use of a process by a mistaken concern that an inventor not be denied the benefit of the grace period provided by the AIA version of 35 U.S.C. § 102(b)(1) for such use.13 The reasoning was that § 102(a)(1) prior art must be available to the public in order to fall within the § 102(b)(1) grace period exceptions, which speak to “disclosure” by the inventor or those who source their information from the inventor. The forfeiture doctrine does not find its basis in the statute, and because secret commercial use for more than one year is an integral part of this forfeiture doctrine, the grace period provisions of § 102(b)(1) would never apply.
Whether D.L. Auld continues to be viable is an issue that will only be resolved by a court decision or explicit statutory language. In the meantime, inventors and others who are financially interested in patentable processes that can be practiced in secret may choose to take or leave out certain actions on the assumption that D.L. Auld was vitiated by the FITF provisions of the AIA. The assumption induced action or inaction may lead to important rights being substantially prejudiced or lost.
The prudent course for inventors and others who are financially interested in patentable processes that can be practiced in secret is to assume that D.L. Auld is still the governing law and to file within one year of any commercial exploitation. But investors or licensees should at least seek a discount on the cost of rights under a patent filed more than a year after commercial exploitation, given that one of the factors that should go into the setting of the cost for a patent license is the apparent strength of that patent. A patent on a process that has been commercially practiced for more than a year before the earliest priority date to which the patent is entitled has an ambiguity with regard to its validity. If the earliest priority date is before March 16, 2013, it is likely invalid under the law of D.L. Auld. If it is a post-AIA application, first filed on or after March 16, 2013, there is a reasonable probability that D.L. Auld is still good law and the patent is invalid. Thus, a license under a patent for which a reasonable argument of invalidity can be made should be worth less than a license under a patent for which there is no known validity issue.
In a limited scope, the rest of this article will consider a few important questions inventors may face.
Does one advise an inventor who has begun commercial use of a manufacturing process that he or she must file within a year of beginning commercial exploitation?
One should advise an inventor to first carefully consider whether he or she wishes to pursue patent protection at all. Even before the passage of FITF provisions of the AIA, this was an important starting point. Some inventors will be quite clear that they have no interest in acquiring patent protection, perhaps because they feel that the better course is to maintain their technologies as trade secrets. But if the inventor has any interest in someday obtaining patent protection, he or she should be advised of steps that would best preserve the ability to obtain valid patent protection and yet preserve his or her trade secret for as long as possible.
The first step should be the filing of a patent application before the expiration of the first year of commercial exploitation. Care should be taken to be quite conservative in setting the start of this period to minimize the risk that some decision maker (administrative agency or court) will give an earlier date to the start of commercial exploitation.
The second step should be to delay the publication of the patent application for as long as possible. The filing of a provisional would provide a one-year period of confidentiality without negatively impacting the term of any patent.14 At the end of this one-year period, a decision must be made whether to seek foreign patent protection with a priority date reaching back to the filing date of the provisional. If such foreign protection is to be sought, it will necessarily result in a trade secret–destroying publication in another six months. The final commitment can be delayed by another five months or so by carefully monitoring the projected 18-month publication date and withdrawing the applications (U.S. and foreign) with a safety margin. Foreign patent applications could be filed at a later date without a priority claim because foreign patent jurisdictions never had a D.L. Auld forfeiture rule. However, such a delay creates the risk that prior art recognized in such jurisdictions will arise in this period.
If foreign filing with a claim to early priority is not pursued, a request for nonpublication can be made with the conversion of the provisional to a nonprovisional. Then the prosecution of this new case can be extended while further developments in the technology are monitored. It may well be that advances in the technology including but not limited to the ability to back engineer production processes may indicate that trade secret protection is likely to end soon. Or it may become apparent that the trade secret has been or will soon be publicly disclosed by violation of a confidentiality obligation or a lapse in security procedures.15
The prosecution of an application can be extended at some expense, which may be justified by the value of maintaining the option of making a later decision. This is likely to be the case if the commercial practice of the trade secret is returning substantial revenues. Of course, extensions of time can be taken for each response due in the prosecution. Also, quite broad claims can be sought and fought for even if they extend beyond a breadth that provides the commercial coverage needed. For instance, some claim limitations that just are an inherent part of any practical application of the technology can be withheld to extend the prosecution, perhaps even to the point of appeal to the Patent Trial and Appeal Board (PTAB). Appeal beyond that point, however, would be problematic because courts are typically loath to have sealed records. In addition, prosecution can be extended by the filing of continuation applications at any point in the prosecution.16 The maximum time extension would be achieved by filing after a notice of allowance was received, but one must be mindful of the rationale of Symbol Technologies,17 which held that too many continuations can result in rendering a patent unenforceable.
Pursuing such a course of extended patent prosecution does carry with it the possibility that foreign patent coverage may become unavailable due to the inability to make a priority claim. Once prior art comes into existence, for instance as a result of a third-party publication, it cannot be avoided by reference to an earlier priority date. This may be of less concern if the inventor’s real interest is the U.S. market. The inventor could then obtain some protection against competition from foreign practice of his or her technology to create imports into the U.S. market by resort to International Trade Commission (ITC) proceedings or 35 U.S.C. § 271(g), which addresses the import of products made by an infringing process. However, if the inventor’s technology was not readily back-engineerable, detection of infringement may be problematic. The difference may be the availability of discovery from the purported infringer.
How does one advise a client who has already commercially exploited a manufacturing process for more than one year but has yet to file a patent application as to whether he or she can obtain valid patent rights?
One should advise the client that there is legal uncertainty about whether he or she can obtain valid patent coverage. Because the publication of a patent application will irrevocably destroy the client’s trade secret, he or she may wish to push out the decision date in much the same manner as the inventor who did file within the one-year anniversary of beginning commercial exploitation. In the delay period, the law may be clarified as to whether the D.L. Auld forfeiture doctrine survived the enactment of the FITF provisions of the AIA.
Will an infringement defendant or declaratory judgment plaintiff be able to assert secret commercial exploitation against a manufacturing process patent filed on or after March 16, 2013, or even get discovery on the issue?
There is no clear guidance on whether a court would continue to uphold the D.L. Auld forfeiture doctrine. It does seem more likely than not that it would do so for the reasons discussed above with regard to statutory interpretation and the continuing policy justifications for this doctrine. However, knowledgeable commentators and the USPTO have taken the opposite view. Given that appears to be a question of law, it should be resolvable on a motion for summary judgment.
Discovery should be readily available on the issue. Discovery is liberally granted in federal civil litigation, and here it quite likely would be needed to properly present the legal issue. It is possible but unlikely that the issue would be decided on a motion to quash discovery. It is particularly unlikely given that much of the same discovery could be justified as relevant to discovering if there had been public use or a public sale. For instance, a public use could have resulted from commercial use of a trade secret process in an environment in which inadequate security measures had been taken (perhaps access to the manufacturing plant had been inadequately restricted).
How does one advise a potential purchaser or licensee on the strength of such a patent if the commercial exploitation is uncovered in a due diligence investigation?
The purchaser or licensee needs to make the point that there is no clear answer on whether a court would find the D.L. Auld forfeiture doctrine abrogated. Therefore, the cost of the acquisition or the license should be discounted to reflect this legal uncertainty. The amount of the discount would, of course, depend on the commercial realities of any particular transaction including what, besides the patent property with this cloud over it, was involved. It should also be possible to structure a contingency clause that comes into operation if this legal ambiguity is resolved within some reasonable period in the future.
Post-AIA, a sale or offer for sale anywhere in the world will bar patentability of an invention,18 whereas under pre-AIA § 102(b), only activities within the United States could create such a bar. Arguably, e-commerce activity may be a real concern here, because sale or offer for sale on e-commerce will place a product on the virtual shelves worldwide, and purchases outside of the United States may make a product unpatentable. It will be prudent for inventors to consider the possible impacts of e-commerce activity and act conservatively. Likewise, it would be prudent for a potential purchaser or licensee to investigate possible e-commerce activities when considering the strength of a possible patent.
Future court holdings will peel away at the onion and unveil the true impact of the AIA on trade secrets. For now, the FITF provision of the AIA, particularly those relating to public use and sale in 35 U.S.C. § 102(a), did not clearly overrule D.L. Auld, and there is a reasonable probability that the law of that case may be applied to a post-AIA patent application. This possibility should be recognized when one is making decisions about the patentability of commercially practiced trade secrets, and appropriate steps should be taken to ameliorate the impact of this case should the holding of the case turn out to still be good law.
1. Mark Schafer, How the Leahy-Smith America Invents Act Sought to Harmonize United States Patent Priority with the World, A Comparison with the European Patent Convention, 12 Wash. U. Glob. Stud. L. Rev. 807, 816 (2013).
2. D.L. Auld Co. v. Chroma Graphics Corp., 714 F.2d 1144 (Fed. Cir. 1983).
3. W.L. Gore & Assocs., Inc. v. Garlock, Inc., 721 F.2d 1540 (Fed. Cir. 1983).
4. D.L. Auld, 714 F.2d 1144.
5. W.L. Gore, 721 F.2d 1540.
6. First-Inventor-to-File Roundtable, USPTO (Sept. 6, 2012), http://www.uspto.gov/aia_implementation/120906-fittf-roundtable.pdf.
7. Examination Guidelines for Implementing the First Inventor to File Provisions of the Leahy-Smith America Invents Act, 78 Fed. Reg. 11,059 (Feb. 14, 2013) [hereinafter Examination Guidelines].
8. Metallizing Eng’g Co. v. Kenyon Bearing & Auto Parts Co., 153 F.2d 516 (2d Cir. 1946).
9. Examination Guidelines, 78 Fed. Reg. at 11,062.
10. Id. at 11,062 & 11,084 n.8.
11. Id. at 11,062 & 11,084 n.3.
12. D.L. Auld Co. v. Chroma Graphics Corp., 714 F.2d 1144, 1147 (Fed. Cir. 1983).
13. Examination Guidelines, 78 Fed. Reg. at 11,062.
14. The 20-year term of a patent provided for in the General Agreement on Tariffs and Trade (GATT) does not start until the filing of a nonprovisional application.
15. While remedies may be available against the discloser, it will not solve the problem of the disclosure making the technology generally available to the public.
16. The use of requests for continued examination (RCEs) are not recommended, as they typically come back to an examiner’s docket more quickly.
17. Symbol Techs., Inc. v. Lemelson Med., Educ. & Research Found., LP, 429 F.3d 1051 (Fed. Cir. 2005).
18. 35 U.S.C. § 102(a)(1).