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Prior User Rights

By Eugene T. Perez and Utsav Gupta

Introduction

Suppose that your company gets a warning letter that it is infringing a recently issued patent.  Now suppose that the patented technology has been used by your company for years, and well before the filing date of the application.  The American Invents Act (“AIA”) has created “Prior User Rights” (“PURs”) as a prior commercial use defense.1 PURs are codified at 35 U.S.C. § 273.2 The defense is available for patents issued on or after September 16, 2011.3

The Patent Act of 1793 first included PURs.4  PURs were later removed in the Patent Act of 1952.5 The 1999 Patent Act reestablished PURs but only for business method patents.6 The AIA expanded PURs to presumably cover all patentable subject matter.7

PURs complement the AIA’s transition from a first-to-invent to a first-to-file system.8 Under first-to-file, “manufacturers need some protection to engage in activity that may later be patented out from under them.”9  PURs may also help retain high paying jobs in the United States by allowing companies to keep internally used technologies as trade secrets.10  However, some believe that the timing requirements actually discourage keeping trade secrets; PURs may instead help protect the “innocent non-IP savvy inventor against the complexity of the patent system.”11

Elements of the Defense

To qualify for the defense, the user must establish that he or she (1) “act[ed] in good faith;” and, (2) “commercially used the subject matter in the United States.”12  Commercial use can be shown (a) “in connection with an internal commercial use”; (b) with an actual arm’s length sale; or, (c) with some “other arm’s length commercial transfer of a useful end result of such commercial use.”13

Additionally, 35 U.S.C. § 273(d)14 is a patent exhaustion provision that extends the prior use defense to downstream purchasers.15

The person asserting the defense bears the burden by “clear and convincing evidence,16 a relatively high standard.  This standard is often the “highest standard of proof used in civil litigation” and is generally used to determine patent validity in court.17  Also, even if the defense is successfully implemented, this does not mean the patent is invalid.

Good Faith

Litigation will likely resolve what constitutes “good faith.”18

Commercial Use

“Commercial use” is ambiguous.19  Litigation may resolve what activity is commercial.20

The legislative history of the AIA helps define the term “internal commercial use.”21  These rights “shall vest when innovative technology is first put into continuous internal use in the business [to develop] commercializable products.”22

Statutorily Defined Commercial Uses

Congress makes clear that “[p]remarketing regulatory review” and “[n]onprofit laboratory use” are commercial uses.23

Many products, like drugs, require “significant regulatory review” before they may be sold.24 This period is considered a commercial use.  The statute includes 35 U.S.C § 156(g)’s definition of “regulatory review period”.25 Section 156(g) relates to “drugs, medical devices, food, and veterinary sciences;” additionally, the statute covers all classes of products subject to regulatory review.26

PURs also protect the inventive activities of nonprofit entities like research laboratories, universities and hospitals.27 The defense may only be used for “continued and noncommercial use.”28  When a transition from nonprofit to for-profit use occurs, the user loses this right.29

Timing

The commercial use must have occurred at least one year before the earlier of either 1) “the effective filing date of the claimed invention”; or 2) “the date on which the claimed invention was disclosed to the public in manner that qualified for the exception from prior art under” 35 U.S.C. § 102(b) as amended by the AIA.30

The first inventor may gamble that a subsequent inventor will not file a patent during the first year of internal commercial use.31  However, commentators have pointed out that requiring the prior use to predate patent filing by a year compounds with the length of time it takes for a patent to be published – about eighteen months – creating a two and a half year period of uncertainty.32

The Federal Circuit considered the timing provision in Teva v. Astrazeneca.33  The defendant had earlier developed the drug claimed by the patentee.34  The claim was filed by the second inventor less than a year later.35  The development of the drug did not qualify for PURs.36

Limitations and Exceptions

Personal Defense

§ 273 (e)(1)(A) limits the defense to “the person who performed or directed the performance of the commercial use.”37  The defense cannot be transferred unless the “entire enterprise” is transferred in good faith.38  In addition, the owner of the transferred defense cannot change the physical location of the commercial use once a second inventor has filed a patent application.39

Derivation

A prior commercial user cannot use this defense if he or she acquired the invention from the patentee.40

Not a General License

The PURs defense only extends to “specific subject matter” to which a commercial use applies.41  However, the defense also extends to “variations in the quantity or volume of use” and to non-infringing “improvements in the claimed subject matter.”42

Abandonment

Establishing the defense requires continued use.43  Abandoning the use destroys the defense from the point of the abandonment.44

University Exception

PURs may not be used against patents from universities or technology transfer organizations when government funds are used to fund “any of the activities required to reduce to practice the subject matter of the claimed invention”.45  Universities are defined in 20 U.S.C. § 1001(a).46  Congress intended technology transfer organizations to be defined consistently with the Bayh-Dole Act.47  What constitutes using government funds is not immediately clear, and will likely develop through litigation.48

Unreasonable Assertion

If the defense is asserted without a “reasonable basis,” and was “pleaded by a person who is found to infringe the patent,” the court shall award attorney’s fees.49  By increasing the costs to the defense, Congress hopes to discourage abuse.50

Invalidity

“A patent shall not be deemed … invalid under [§§] 102 or 103 solely because a defense is raised or established.”51 Prior use is a question separate from validity.52

Strategy

Because PURs apply to all patents, the strategies of the prior user change depending on whether the patent was filed before or after the implementation of the AIA on September 16, 2011.  In a pre-AIA regime, the prior user has four defenses: patent invalidity under the old §§ 102(a), 102(b) and 102(g); or, prior use under the new § 273.53 Post-AIA, an invalidity defense under the new §§ 102 and 103 requires that the use have been publicly available.54

  1. Ethan Horwitz & Lester Horwitz, Patent Litigation: Procedure & Tactics § 10.25 (Matthew Bender, 2013).
  2. 35 U.S.C. § 273 (Lexis 2013).
  3. 4 Lester Horwitz, Patent Office Rules and Practice pt. 1, ch. 43, § AIA[C] (Matthew Bender, 2013).
  4. Daniel H. Sherr, Prior Commercial Use, in Patent Commentaries Analyzing the America Invents Act, ch. 7, § 7.01 (Matthew Bender, 2011).
  5. Id.
  6. Id.
  7. E.g., id.; Horwitz, supra note 3, pt. 1, ch. 43, § AIA[C]. See also 35 U.S.C.A. § 273(a) (Lexis 2013) (scope of technology covers “subject matter of a process, or consisting of a machine, manufacture, or composition of matter used in a manufacturing or other commercial process”).
  8. Horwitz, supra note 3, pt. 1, ch. 43, § AIA[C].
  9. Id.
  10. Id.
  11. Sherr, supra note 4, ch. 7, § 7.01.
  12. 35 U.S.C. § 273(a)(1) (Lexis 2013).
  13. Id.
  14. 35 U.S.C. § 273(d) (Lexis 2013).
  15. Sherr, supra note 4, ch. 7, § 7.01.
  16. 35 U.S.C. § 237(b) (Lexis 2013).
  17. Sherr, supra note 4, ch. 7, § 7.01.
  18. Id.
  19. Id.
  20. Id.
  21. Id.
  22. Horwitz, supra note 3, pt. 1, ch. 43, § AIA[C] (quoting 157 Cong. Rec. S5427 (daily ed. Sept. 8, 2011) (statement of Sen. Leahy)).
  23. 35 U.S.C. § 237(c) (Lexis 2013).
  24. Sherr, supra note 4, ch. 7, § 7.01.
  25. 35 U.S.C. § 237(c) (Lexis 2013).
  26. Sherr, supra note 4, ch. 7, § 7.01.
  27. Sherr, supra note 4, ch. 7, § 7.01.
  28. 35 U.S.C. § 237(c)(2) (Lexis 2013).
  29. Sherr, supra note 4, ch. 7, § 7.01.
  30. 35 U.S.C. § 237(a)(2) (Lexis 2013).
  31. Sherr, supra note 4, ch. 7, § 7.01.
  32. Horwitz, supra note 3, pt. 1, ch. 43, § AIA[C].
  33. Id. (citing Teva Pharm. Indus. v. Astrazeneca Pharms. LP, 661 F.3d 1378 (Fed. Cir. 2011)).
  34. Id.
  35. See id.
  36. Id. The patent was, however, invalidated under § 102(g)(2). Id.
  37. 35 U.S.C. § 237(e)(1)(A) (Lexis 2013).
  38. Id. § 237(e)(1)(B); see also Sherr, supra note 4, ch. 7, § 7.01.
  39. 35 U.S.C. § 237(e)(1)(C) (Lexis 2013); see also Sherr, supra note 4, ch. 7, § 7.01.
  40. 35 U.S.C. § 237(e)(2) (Lexis 2013); see also Sherr, supra note 4, ch. 7, § 7.01.
  41. 35 U.S.C. § 237(e)(3).
  42. Id.
  43. Sherr, supra note 4, ch. 7, § 7.01.
  44. 35 U.S.C. § 237(e)(4).
  45. 35 U.S.C. § 237(e)(5); see also Sherr, supra note 4, ch. 7, § 7.01.
  46. 35 U.S.C. § 237(e)(5).
  47. Horwitz, supra note 3, pt. 1, ch. 43, § AIA[C] (quoting 157 Cong. Rec. S5427-28 (daily ed. Sept. 8, 2011) (statement of Sen. Leahy & Sen. Kohl)).
  48. Sherr, supra note 4, ch. 7, § 7.01.
  49. 35 U.S.C. § 237(f).
  50. Sherr, supra note 4, ch. 7, § 7.01.
  51. 35 U.S.C. § 237(g).
  52. Sherr, supra note 4, ch. 7, § 7.01.
  53. Horwitz, supra note 3, pt. 1, ch. 43, § AIA[C].
  54. Id.