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U.S. Patent Alert

U.S. Patent Alert

February 16, 2013
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" The expected stampede of inventors rushing to beat the March 16 deadline is understandable for all the inventors that believe they are first inventors. "

In 1998 I wrote an article for, what was at the time, a new adult industry business publication called AVN Online. The article focused on a federal circuit court decision that had just been handed down in the case of State Street Bank and Trust Company v. Signature Financial Group, Inc.

The historic decision dramatically expanded U.S. patent laws to cover business method inventions. In that article I stated that the expansion of the scope of patentable subject matter to business methods could potentially be beneficial for some online adult businesses because even in those early days of ecommerce, online adult entertainment companies were rapidly creating new technologies and business models ahead of their nonadult counterparts.

Well, here we are 14 years later and as one of the only two licensed patent attorneys I know of practicing in the adult entertainment law area (my wife being the other), I have had the privilege of helping many adult entertainment companies exploit their innovations and technology improvements through the acquisition of valuable patent rights for their inventions. One such company, for example, recently sold one of its patent portfolios for more than $10 million.

There is little doubt that patents are important and that we are in what might be viewed as the golden age of Internet-era patent acquisition and litigation. Nearly every day there are stories in the business press regarding technology titans acquiring patents or battling over patent rights in courtrooms around the world. And it is not an understatement to say that some of the patent battles are truly titanic. As Oracle fights Google over Android, and Apple and Samsung duke it out over smart phone technology supremacy in courts all over the world, it has become clear that the competition over patent rights is a very high-stakes affair.

Underscoring this is the fact that patent damage awards over $100 million are no longer uncommon, and even larger awards, such as Apple’s recent $1 billion award against Samsung (Apple Inc. vs. Samsung Electronics Co. Ltd.) are becoming more and more frequent.

But the fact that so many Fortune 500 companies are in patent litigation might lead you to believe that patent lawsuits are only for the big boys. But that is hardly the case. Patent litigation is increasing at every level. In fact, the explosion in business method and software patent grants after the State Street decision has spawned a patent litigation industry built around what is called “patent trolling”. Patent trolling is a business model that generates revenue exclusively from enforcing patent rights rather than developing products that embody the technologies underlying the patents.

In the last few years the adult industry has been plagued by a marked increase in patent trolling activity against adult entertainment companies as more and more patents are being issued that cover technologies used by adult entertainment companies. (See a previous XBIZ article at http://www.xbiz.com/articles/140838/).

Despite the upsurge in patent trolling activity, however, I haven’t changed my advice to online adult entertainment companies: if you are creating a new technology or a new business method effectuated through computers, it is clearly in your best interest to protect and exploit your inventions through the acquisition of patents.

But while my advice to adult technology companies to protect their inventions has not changed, the patent laws certainly have, and are about to again. In fact, in the first quarter of 2013, a patent doomsday date will arrive that will bring some of most significant changes to the U.S. patent system in 60 years. It will bring new rules that will affect literally every new patent applicant.

The Leahy-Smith America Invents Act

Last year, President Obama signed into law the Leahy-Smith America Invents Act (“AIA”), named for its lead sponsors, Senator Patrick Leahy (D-Vermont) and Representative Lamar Smith (R-Texas). Under the AIA, starting on March 16, the U.S. will abandon its longstanding “first-to-invent” patent system and replace it with a modified “first-to-file” regime referred to as a “first-inventor-to-file” system.

The first-inventor-to-file provisions of the AIA will also alter the scope of what types of previous patents, publications and other matter, called “prior art,” can be used by the Patent Office in its evaluation of whether a claimed invention in a patent application is suitably novel and non-obvious to be entitled to patent protection.

Under our current first-to-invent system, “invention” is generally defined to comprise two steps: first, the conception of the invention, and second, the “reduction of the invention to practice.”

When an inventor conceives of an invention and then diligently reduces the invention to practice by filing a patent application or by practicing the invention, the inventor’s date of invention will be deemed to be the date of conception. Thus, provided that a person who is the first to invent an invention diligently reduces his or her invention to practice, he or she will be deemed to be the only inventor entitled to a patent regarding the invention. This is the case even if another inventor files a patent application regarding the same subject matter before the person who was the first to invent the subject matter of the application.

But also under our current first-to-invent patent system, the first applicant to file has the prima facie right to the grant of a patent. In cases where a second patent application is filed for the same invention, if the second applicant was the first inventor, he or she can institute what is called an interference proceeding to establish that he or she was the first inventor and the only party entitled to the grant of a patent.

Simply put, current patent law will enable the first inventor who diligently implements his or her invention or files a patent application to prevail over a subsequent inventor, even if the subsequent inventor files a patent application before the first inventor.

But on March 16 all this will change. In all but a few exceptional and unlikely circumstances, if a person is the second, third or an even later inventor, but the first of the inventors to file for patent protection, that person will be the only inventor potentially eligible to be granted the patent. For patent applications filed after March 16 in situations where there are multiple inventors, the first-intime inventor will no longer be able to institute an interference proceeding against a later inventor that beat the first inventor to the Patent Office.

Some critics of the AIA, myself included, feel that the AIA gives large companies, which often have patent lawyers, if not entire patent prosecution departments already on staff, a big competitive advantage over smaller companies and solo inventors.

Others have argued that the change to a first-inventor-tofile system will also disproportionately have a negative impact on startup companies over more established companies by imposing a relatively greater financial burden on the startups.

These critics claim that because a startup company that is the first to invent a technology could lose the ability to obtain a patent to a later-inventing, but first-filing competitor, the startup will likely be forced to take on the expense of filing its patent applications as soon as possible.

Often, according to critics of the first-inventor-to-file regime, this will require a startup to expend precious capital for expensive patent application prosecution at a time when it can least afford to do so.

This contrasts with the current first-to-invent regime, where the same startup could choose to defer patent application expenditures using their first-to-invent status to prevail over any earlier filing, but later inventing, competitors, provided that the delay was not inconsistent with the inventor’s obligation to diligently reduce the invention to practice via use or the filing of a patent application.

Some of the AIA’s defenders have responded to such criticism by pointing out that information flow in a small company can often be much more efficient than in large companies, which tend to be more bureaucratic.

They argue that small companies, in general, will often be better able to more quickly spot patentable innovations and more quickly act to make sure they are protected than their large company counterparts. Thus, AIA proponents argue, the first-inventor-to-file system will actually favor small companies, particularly those that are more agile and better able to allocate resources to their most promising inventions.

Regardless, of which types of inventors will likely be more or less favored under the new system about to go into effect, one thing is almost certain, the U.S. Patent and Trademark Office will likely be deluged with patent applications in the months prior to the date the first-inventor-to-file provisions of the AIA take effect.

It will likely be similar to the high volume rush to file patent applications that occurred in 1995, when legislation went into effect changing the patent term from 17 years from the date of issue to the current 20 years from the earliest filing date.

The expected stampede of inventors rushing to beat the March 16 deadline is understandable for all the inventors that believe they are first inventors. The current patent application rules clearly favor first inventors in a way that will disappear on March 17. But there are other reasons why if you are considering filing a patent you should do so before the March 16 deadline. In addition to various other changes in the patent law, under the new system, the types and scope of references and activities that the Patent Office can use as prior art to reject a patent application will expand dramatically. For example, certain foreign patent applications and activities occurring in other countries that did not previously constitute prior art will become available as prior art under the new rules. This will likely make the patent application process, which is already very difficult and very expensive, even more arduous for most applicants.

In sum, it is going to get a lot more difficult to get a U.S. patent application granted after the AIA becomes fully effective next year. So if you are considering applying for a U.S. patent, it is clearly in your best interest to do so before the AIA’s first-inventor-to-file provisions go into effect on March 16.

And because there is likely to be a rush to file patent applications as that deadline approaches, I also suggest that you should be mindful of the fact that patent lawyers throughout the country are also likely to get swamped. As a patent attorney, I can assure you that a well-prepared patent application takes a considerable amount of time to draft.

So if you have a patentable invention in the works, I strongly urge you to consult a patent attorney as soon as possible.

This article is not intended to be, nor should it be considered to be, legal advice.

Gregory A. Piccionelli is an intellectual property attorney specializing in adult entertainment matters. He can be reached at Piccionelli & Sarno at (818) 201-3955 or greg@piccionellisarno.com.


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