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A Look at the Five-Year Impact of the America Invents Act: The legislation has helped improve patent quality, cut down on ‘patent trolls,’ and reduce a backlog of applications.

Posted on March 15, 2017

William Munck, Munck Wilson Mandala managing partner, featured in article by John G. Browning, published in D CEO, March 2017

Sept. 16, 2016 marked the fifth anniversary of the America Invents Act. Penned by Sen. Patrick Leahy of Vermont and U.S. Rep. Lamar Smith of Texas and passed with overwhelming bipartisan support, the law was intended to reform the outdated patent process. As President Obama explained at its signing, the AIA was intended to cut “away the red tape that slows down our inventors and entrepreneurs” by “[putting] a dent in the huge stack of patent applications waiting for review” to “help startups and small business owners turn their ideas into products three times faster than they can today.” The President further emphasized that the Act would “improve patent quality and help give entrepreneurs the protection and the confidence they need to attract investment, to grow their business, and to hire more workers.” As President Obama went on to observe, “somewhere in that stack of applications could be the next technological breakthrough, the next miracle drug, the next idea that will launch the next Fortune 500 company. And somewhere in this country–maybe in this room–is the next Thomas Edison or Steve Jobs, just waiting for a chance to turn their idea into a new, thriving business.”

Indeed, the AIA represents what founding partner Bill Munck of Dallas intellectual property law powerhouse Munck Wilson Mandala describes as “the most significant change in the U.S. patent system in 60 years.” The reforms it brought about are many, but arguably the most significant is the first-to-file system, a change from the first-to-invent system. Prior to the AIA, someone who filed for a patent could be challenged by another claiming to have had that idea first, and—usually with much documentation and legal wrangling—potentially deny the first filer the rights to that invention. Now, under the AIA, the party who files first will be granted the rights over subsequent filers regardless of who invented first. By submitting to a first-to-file system, says Munck, “we brought our patent system in line with the vast majority of countries around the world.”

This “first-to-file” change has already had a demonstrable impact for inventors and startups in particular, according to Chris Rourk, a partner at Jackson Walker who often works with startups making presentations to and seeking funding from angel or venture investors. Investors often refuse to sign non-disclosure agreements, and without such an NDA, Rourk points out, “Start-up companies might find themselves in a catch-22 situation, where seeking the funding that they need to afford patent protection could result in the loss of patent rights.” With the AIA it’s become important for startups to file a patent application or at least an informal provisional application as a stop-gap measure, although Rourk cautions that applicants should be careful not to let too much time pass between filing an informal provisional application and filing a completed one. He gives an example of one startup that tried to save money on patent prosecution costs by filing its own provisional application, only to wind up spending a lot more when the improperly filed application was unintentionally abandoned and had to be revived with legal help.

Along with the first-to-file change, the AIA also introduced a “prioritized examination process,” which allows applicants to get a “first office action” within six months and a final disposition within a year. This fast-tracking comes at a price (a $4,800 fee for large entities, and $2,400 for small entities), but as Rourk points out it can be well worth it. He cites a client he worked with who spent about $40,000 to fast-track their patent protection using this prioritized process, a strategy that paid off when it was able to secure $2 million in funding because it was able to show that its product had novel, protectable features.

Yet another significant reform ushered in by the America Invents Act has been the introduction of administrative proceedings, or “post-grant review procedures,” to challenge the validity of a patent through trial at the patent office. Meant as a way of curtailing “patent trolls,” this provision created “inter partes review” proceedings and “covered business method” reviews. Both the IPR and CBM proceedings represent a significant departure from the traditional challenges to patent validity in civil litigation. First, the entire proceeding typically concludes within one year of filing, making it speedier than traditional litigation. Second, the proceeding (which, like litigation, allows for limited fact and expert discovery) is conducted before the Patent Trial and Appeal Board, a panel of patent administrative judges—unlike a jury of laypersons in federal court. Third, the party challenging the patent need only prove invalidity by a preponderance of the evidence (a lower burden of proof than the “clear and convincing” standard in civil litigation). And finally, unlike federal civil courts that interpret patent claims with their “plain and ordinary meaning,” the PTAB is charged with interpreting patent claims with their “broadest reasonable interpretation.”

These new review proceedings have proven to be very effective ways to challenge patents, albeit not without some controversy. One study showed that 60 to 70 percent of the IPR petitions filed were granted and led to proceedings being initiated, and that once instituted the final decisions upheld some or all of the challenged claims less than twenty-five percent of the time. In 2014, a former chief judge of the Federal Circuit even called these proceedings a “death squad for killing property requests.” However, as Bill Munck observes, such proceedings have “severely curtailed ‘patent troll’ litigation. The AIA encourages companies to file more robust patent applications, preferably vetting … during preparation rather than prosecution.”

One effect of the AIA’s reforms has been clear progress toward one of its stated goals: to reduce the significant backlog of patent applications awaiting examination. When the act was signed in September 2011, that backlog was 700,000 and growing. By midway through 2016, that number had been slashed to about 550,000. Equally important, the timeframe for pending actions had been reduced by more than seven months, from 33 months to 25.7 months.

The new USPTO satellite office in Dallas has played an integral part in reducing the backlog and implementing the AIA’s goals, given that more than 100 examiners and numerous administrative judges are assigned to that office. Not only are IPR proceedings held there, but it’s also been a boon to businesses in the area with frequent public meetings, roundtables, workshops, and other events for both attorneys and inventors. And while most patent examiners still work in the USPTO’s main office in Alexandria, Va., Carrington Coleman partner Steve Levine says that it’s helpful to have a local connection. “A Dallas inventor may still have his or her patent application examined in an office other than Dallas, but resources in Dallas provide access, education, and technology that previously did not exist locally,” he points out.

And as Bill Munck notes, having the USPTO satellite in Dallas has a significance deeper than just additional resources or boots on the ground. “Its mere existence is the federal government’s official recognition that Dallas (over Austin and Houston) is ‘the’ research/industry and innovation center of Texas and its contiguous states,” he says. “The satellite office is a pathway to the marketplace for revolutionary ideas, and gives local and regional innovators a potential strategic advantage as the USPTO modernizes and expands beyond Washington.”

John G. Browning is an attorney, award-winning journalist, and book author.