APPENDIX A
A Patent Primer

Stephen A. Merrill and George C. Elliott1

WHAT IS A PATENT?

Intellectual property rights (IPRs) include copyrights, trade secrets, trademarks, and patents. The most common type of patent, and the subject of this primer, is called the utility patent to distinguish it from two special classes—plant and design patents. A utility patent is an exclusive right of limited duration over a new, non-obvious invention capable of practical application. There are four categories of inventions protected by utility patents: processes, machines, manufactures, and compositions of matter. The patent law defines “processes” to include new uses for machines, manufacturers, compositions of matter, and materials; and courts have applied dictionary definitions to the meaning of the other statutory categories. However, new technologies seemingly distinct from these definitions have been rationalized into these four classifications. Software, for example, has been patented as either “virtual” machines2 or processes.3

The right—to prevent others from making, using, selling, offering for sale, or importing the patent holder’s invention—is granted in return for publication of the invention. A patent contains claims setting out the precise legal boundaries of the protection, which applies to anything falling within the scope of the claims, not simply the inventor’s exact original work. Having the boundaries defined in

1  

Any opinions expressed in this appendix are solely the authors’ and do not necessarily represent the opinions of the U.S. Patent and Trademark Office (USPTO).

2  

State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1368 at 1371-72 (Fed. Cir. 1998).

3  

AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 at 1361 (Fed. Cir. 1999).



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A Patent System for the 21st Century APPENDIX A A Patent Primer Stephen A. Merrill and George C. Elliott1 WHAT IS A PATENT? Intellectual property rights (IPRs) include copyrights, trade secrets, trademarks, and patents. The most common type of patent, and the subject of this primer, is called the utility patent to distinguish it from two special classes—plant and design patents. A utility patent is an exclusive right of limited duration over a new, non-obvious invention capable of practical application. There are four categories of inventions protected by utility patents: processes, machines, manufactures, and compositions of matter. The patent law defines “processes” to include new uses for machines, manufacturers, compositions of matter, and materials; and courts have applied dictionary definitions to the meaning of the other statutory categories. However, new technologies seemingly distinct from these definitions have been rationalized into these four classifications. Software, for example, has been patented as either “virtual” machines2 or processes.3 The right—to prevent others from making, using, selling, offering for sale, or importing the patent holder’s invention—is granted in return for publication of the invention. A patent contains claims setting out the precise legal boundaries of the protection, which applies to anything falling within the scope of the claims, not simply the inventor’s exact original work. Having the boundaries defined in 1   Any opinions expressed in this appendix are solely the authors’ and do not necessarily represent the opinions of the U.S. Patent and Trademark Office (USPTO). 2   State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1368 at 1371-72 (Fed. Cir. 1998). 3   AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 at 1361 (Fed. Cir. 1999).

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A Patent System for the 21st Century this manner allows others who may make or use similar inventions to know whether they are infringing the patent. They also allow others to design around the claims (change and, ideally, improve upon the invention) without infringing the patent. WHAT IS THE LEGAL AUTHORITY FOR PATENTS? Based on utilitarian rather than natural-right theory, patents were among the legal concepts introduced to the American colonies by British settlers. Some colonies began to issue patents as early as 1641 and some states continued to do so through the period of the Articles of Confederation. To resolve their growing conflict over patents, the Constitutional Convention of 1789 resolved to create a national system through the Constitution itself, whose Article I, Section 8 authorized Congress to reward exclusive rights for a limited time to authors and inventors “for their respective writings and discoveries.” As secretary of state, Thomas Jefferson was responsible for implementing the first Patent Act (1790), although a pro forma registration system was quickly substituted (in 1793) for the original government approval process. Formal examination of applications by professional examiners was introduced by the 1836 revision of the Patent Act. Additional hurdles (for example, what later became known as the “non-obviousness” criterion) were introduced by the courts in the mid- and late-19th century. The contemporary patent system largely reflects the last major revision of the patent statute, the Patent Act of 1952, although some important changes affecting patent term and publication of pre-grant patent applications have been introduced in the last decade. WHAT MAY BE PATENTED? The statutory provision on patent-eligible subject matter is brief and has changed little from the version written by Thomas Jefferson: “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” The effective scope of patenting has been determined primarily by court cases, among them decisions upholding patents on genetically altered living organisms, isolated genes and parts of genes, computer software, and methods of performing business functions. There are no statutory exclusions, although as a result of legislation enacted in 1996 subsequent patents on surgical procedures may not be enforced against individual physicians and as a result of legislation enacted in 1999, accused infringers of business method patents can assert a prior use defense. It has been declared USPTO policy not to issue patents on human beings; this was recently codified in statute. And it remains axiomatic that principles, laws of nature, mental processes, intellectual concepts, ideas, natural phenomena, and mathematical formulae are not patentable, although the line

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A Patent System for the 21st Century between patentable inventions and principles of nature is becoming more difficult to draw. HOW ARE PATENTS OBTAINED? Unlike copyrights and trade secrets, which may be asserted by the originator without prior government approval, but like registered trademarks, patents are the product of applications to a government agency (the U.S. Patent and Trademark Office, or USPTO, in the United States), examination by the office, and usually negotiation between the applicant and the examiner over the scope of the claims allowable—a process called prosecution. The application is normally prepared by an attorney or by a patent agent registered with the USPTO. The priority of an application over any other applications for the same invention is established by determining the date of invention (first-to-invent), whereas in other countries the date of filing the application establishes priority of one inventor over another who invents the same thing (first-to-file). Upon receipt by the USPTO along with a filing fee, an application is classified by technology and assigned to an examiner in the relevant art unit or division of the office. The examiner generally takes up assigned applications in the order received by the office. The role of the examiner is to review the application to determine whether it complies with the basic formal requirements and legal rules. determine the scope of the protection claimed by the inventor. devise and carry out a search of previously issued patents and other published literature to determine whether the claimed invention is both novel and not an obvious extension or variation of what is already known. Patent and nonpatent literature (for example, scientific, technical, business or other published literature) that is relevant to defining the claims or defeating the patent altogether is known as prior art. Patent applicants may submit prior art for consideration by the examiner, or the examiner may be aware of pertinent prior art or discover it during the course of the search. Applicants are required to disclose prior art known to them that may be material to the examination of their applications. That does not mean that it is incumbent upon applicants to conduct a thorough search for prior art. examine the application to determine that the claimed invention was not known and would not have been obvious to a person of ordinary skill in the art at the time of invention based on the prior art found during the search, that the invention has utility, and that the invention is described in such full, clear, and concise terms as to enable a person of ordinary skill in the art to make and use it. The written description must satisfy a person working in the technology that the inventor had possession of the invention and provide sufficient guidance to enable

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A Patent System for the 21st Century BOX A-1 The Statutory Standards for Patentability Patent law establishes the standards of patentability against which the USPTO measures a patent application. These standards ask whether the claimed invention is patentable subject matter under 35 U.S.C. § 101 (basically processes, machines, manufactures, and compositions of matter). novel under 35 U.S.C. § 102, which requires that the invention not be wholly anticipated by prior art or public domain materials. non-obvious under 35 U.S.C. § 103, which requires the invention to be beyond the ordinary abilities of a skilled artisan knowledgeable in the appropriate field. useful under 35 U.S.C. § 101, which means the invention must be minimally operable toward some practical purpose. whether the application meets the disclosure requirements under 35 U.S.C. § 112 by: (i) so completely describing the invention that skilled artisans are enabled to practice it without undue experimentation; (ii) providing a description sufficient to ensure that the inventor actually has invented what the patent application claims; and (iii) containing distinct, definite claims that set out the proprietary interest asserted by the inventor. that person to carry out the invention without undue further experimentation or invention. Upon completion of the initial search and examination, whose duration varies among technologies, the examiner issues an official letter, known as a First Office Action, either allowing claims or rejecting them as unpatentable under one or more of the patent statutes. On average, first actions are now occurring approximately 14.4 months after filing,4 but it can take years or as little as a few months. The action may be to accept all claims in the application as patentable and allow the application. Normally, however, some or all claims are initially rejected and the applicant is 4   Department of Commerce. USPTO FY2001 Annual Program Performance Report and 2003 Annual Performance Plan, p. 281.

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A Patent System for the 21st Century given time to respond. Sometimes, negotiation between the applicant and the examiner ensues by telephone or in a face-to-face interview. That process may lead the applicant to amend some of the claims or the examiner to amend or withdraw the rejections. In most cases, all issues are not resolved through negotiation and the applicant must reply to the First Office Action with a written response that addresses each ground of rejection by amending the claims and/or providing an argument or evidence to show why the rejections no longer apply to the claimed invention. If, on the basis of the applicant’s response or ensuing negotiation, all claims are determined to be patentable, the examiner allows the application and a patent issues. If agreement cannot be reached on some claims, the examiner issues a Second Office Action finally rejecting the unpatentable claims. Following a final rejection, the applicant may cancel claims, amend them,5 appeal the rejections, abandon the application, or file a request for continued examination (RCE). An RCE automatically removes the finality of the previous office action so that the examination process may restart while building on the previous prosecution. An RCE counts for bookkeeping purposes as a new application. Except in the case of an RCE, the entire time that the examiner spends on a single application, from initial search and examination to allowance, appeal or abandonment, averages 20 hours,6 although the time varies among technologies. If agreement is not reached on allowable claims, an applicant may file a continuation of the original application and obtain an additional round of examination and negotiation. At the time of filing the continuation application, the applicant may add new material (“new matter”) to the specification of the invention and claim the invention with additional elements that were not originally disclosed, in which case the refiled application is called a continuation-in-part application. The original filing date of the parent application is preserved as long as no “new matter” is necessary to support the claimed invention. If additional claimed elements do require new matter for description or enablement, those claims only benefit from the filing date of the continuation-in-part application. If the examiner concludes that the application contains claims to more than one patently distinct invention (not simply variations on a single invention), the examiner may issue a restriction requirement, forcing the applicant to decide which claims to pursue in the original application. Excluded claims, along with an appropriate specification, may be filed separately in a divisional application, which receives full benefit of the original filing date as its effective filing date. In certain circumstances an applicant may request a rejoinder of excluded claims, 5   At this point in the prosecution, amendments are not entered as a matter of right but only at the discretion of the examiner if they raise no new issues and either make the claims allowable or simplify the issues for appeal. 6   Patent Office Professionals’ Association Newsletter. (2001). June/July 01 Vol. 1 No. 5. See http://www.popa.org/newsletters/junjul01.shtml.

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A Patent System for the 21st Century thereby maintaining the rejoined claims in the first application without filing a divisional application. A decision to allow some claims combined with cancellation of any claims that are not allowable results in an issued patent, on average 24.7 months from filing.7 A record of the prosecution history of any patent application is kept in the application file, which may be a paper or electronic file. A rejection that is maintained by the examiner after the applicant has responded to it may be appealed, first to the USPTO’s internal Board of Patent Appeals and Interferences (BPAI), a panel of administrative patent judges and if not successful there, to the Court of Appeals for the Federal Circuit (“Federal Circuit”). Alternatively, a disappointed applicant who has received an adverse BPAI opinion may file a civil suit against the director of the USPTO in the U.S. District Court for the District of Columbia. An applicant’s ceasing to prosecute an application at any point for any reason is known as abandonment. This sequence of steps is illustrated in Figure A-1. HOW LONG ARE PATENTS EFFECTIVE? The date of original patent application filing starts the clock on a 20-year period in which any allowed claims resulting from the original application are effective. Until recently the period was 17 years from patent issuance. In certain circumstances pharmaceutical product patents and some other patents that issue after extended administrative delay may be extended beyond that term. And since the 1999 American Inventors’ Protection Act (AIPA), a patent may be extended if certain administrative delays that are beyond the applicant’s control occur in the USPTO. The AIPA attempted to ensure that inventors would not get less than 17 years of patent protection unless they delayed the prosecution of the application. To take advantage of the available patent life, the patent holder must continue to pay maintenance fees to the USPTO at regular intervals—the end of the third year, the end of the seventh year, and the end of the eleventh year. Failure to pay the fee results in the patent’s expiring. WHAT IS THE DISCLOSURE FUNCTION OF PATENTS? As a condition of the right to exclude, the issued patent and its allowed claims are published, denying the patent holder the ability to keep the invention secret. Patents are part of the public technical literature because of the requirement that a patent be written in sufficiently clear, concise, exact, and complete terms to enable someone of ordinary skill in the art to make and use the invention. 7   Department of Commerce. USPTO FY2001 Annual Program Performance Report and 2003 Annual Performance Plan, p. 282.

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A Patent System for the 21st Century FIGURE A-1 Patent application examination process.

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A Patent System for the 21st Century Since March 2001, as the result of an international agreement to harmonize certain administrative practices, the United States has published most but not all pending patent applications after 18 months. Applicants who agree not to file for a patent outside of the United States may withhold their applications from publication until a patent is issued. Published U.S. applications disclose the name of the inventor(s), patent attorney or correspondence address, assignee, the entire specification as filed, and certain materials that may be submitted after filing but are necessary to complete the application; they do not reveal the results of the examiner’s prior art search. WHO OWNS A PATENT? A patent is issued to the inventor(s) named on the patent application, but title is frequently assigned to an employer (for example, firm, university, laboratory) or sponsoring organization as part of a prior agreement governing work products. Patents, like other property, may be sold outright, given away, or transferred along with other corporate assets in a merger or acquisition. HOW ARE PATENTS USED? There are several ways a patent owner exploits the economic value of a patent or a portfolio of related patents. All depend upon the threat of damages or injunction or both that may result from a suit for infringement, but their relative importance or incidence depends greatly upon the technology involved, the market, the scope of the patent claims, and the goals of the patent holder and competitors. A patent may be used to deter a potential competitor from entering the market rather than risk losing the investment necessary to do so. A patent can make market entry slower, less effective, or more costly by forcing a competitor to evaluate the patent and/or attempt to design around it. Many patents are licensed by their owners to other parties for commercial use. A patent may be licensed exclusively, giving one party the sole right to use the invention for any purpose, licensed exclusively for a particular field of use, or licensed nonexclusively, meaning that the owner and other licensees can use the invention. Licensees normally pay patent owners fees or royalties, although a cross-licensing arrangement may give reciprocal rights without payment of money. In that case the value derived is in obtaining access to a needed technology. The right to exclude, however, implies a right to refuse to license a patented invention. With rare exceptions, licensing cannot be compelled in the United States. Patents may confer leverage in other negotiations, for example, in setting technical standards for products in an industry requiring compatibility of component systems.

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A Patent System for the 21st Century Patents are among a company’s intangible assets that may enhance its attraction to investors or its valuation in a merger or acquisition. An increasingly common use of patents is defensive. If a patent holder faces the possibility of being sued for infringement, having the ability to make a counter claim for infringement of the patent holder’s own patent may help to avoid paying licensing fees or being sued or may induce settlement of an infringement claim. Barring settlement, patent suits can result in injunctive relief stopping the accused activity or substantial damage awards if infringement is established. HOW IS A PATENT CHALLENGED? A patent application or an issued patent may be challenged administratively (that is, within the USPTO) on narrow grounds. One basis for challenge is that another applicant may have made the invention first. Such a claim results in an interference proceeding conducted by the BPAI to establish who was the first inventor. Interferences do not occur in other countries’ first-to-file systems where priority is simply a function of the order in which applications are received. Once a patent is issued, the patentee, a third party, or rarely, the director of the USPTO may seek to have it re-examined if a substantial question of patentability based on prior art is raised. The relevant prior art is no longer limited to prior art that was not uncovered and therefore not considered in the initial examination. Re-examination may occur at any time during the life of a patent and is performed by a different examiner than the original one, and its outcome can be appealed to the BPAI. There are two types of re-examination proceedings, one in which there is no third-party participation (ex parte re-examination) and one available for patents applied for after November 29, 1999, in which a third-party complainant can participate (inter partes re-examination). Until November 2002, third-party inter partes re-examination requesters were barred from appealing a decision of the Board of Patent Appeals and Interferences. As a result, third-party requests have been very infrequent. The 21st Century Department of Justice Appropriations Authorization Act, Public Law 107-273, gives third-party inter partes requesters the ability to appeal board decisions to the Court of Appeals for the Federal Circuit. Nearly one-half of ex parte re-examinations are brought by patent owners seeking to strengthen at least a portion of their own rights with or without a narrowing amendment because some prior art has come to light. In Europe and some other countries it is possible for third parties to challenge patent validity on almost any of the grounds considered in examination, but these patent oppositions must be initiated within a few months after the patent is issued. Nevertheless, oppositions are substantially more frequent than U.S. re-examinations. A patent holder may be sued in federal court to have the patent declared invalid so long as the patentee has made an actual or implicit charge of infringe-

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A Patent System for the 21st Century ment and the complainant is in a position to engage in an allegedly infringing activity. Accused infringers (defendants) almost invariably challenge the validity of the patent at issue in litigation. Absent an infringement allegation, usually first embodied in a cease and desist letter from the patent holder’s attorney, there is no cause of action giving a party standing to bring a patent validity suit. Although appeals from USPTO decisions to reject patent applications also result in judicial review of patentability, third parties (potential infringers) may not participate in appeals from regular examinations or ex parte re-examination. HOW IS A PATENT ENFORCED? The right to exclude is a right to sue to stop the unauthorized making, using, selling, or offering for sale of something within the scope of the claims of a patent or to seek damages for the infringement or both injunctive relief and damages. A patent can be infringed under either of two doctrines—literal infringement, where every claim element is literally present in the accused device, product, or method, or infringement under the doctrine of equivalents, where there is an equivalent to the missing element in the accused device, product, or method. There are also three types of infringement: (1) A direct infringer is one who is actually using the accused product or practicing the accused process. (2) A contributory infringer does not actually practice the claimed invention but, for example, provides a product that can only be used in an infringing manner. (3) Inducement occurs when one actively causes another to infringe. Having a patent portfolio combining product, process, and product-by-process claims potentially enables a patent owner a choice of claims to assert against different infringers. There is a six-year statute of limitations on infringement. Patent suits are tried in federal district courts. Cases involving claims to monetary damages are tried by juries unless the right to a jury trial is waived by both sides. Suits for injunctive relief are equity actions. There is no right to a trial by jury in equity, and sometimes patentees avoid jury trials by foregoing money. In addition to the allegation of infringement and the counterallegation of patent invalidity, questions of intent and state of mind frequently arise in patent suits—that is, whether the infringement was willful infringement (knowing without a good-faith belief that the patent is invalid and/or not infringed); whether the applicant misled the USPTO in prosecuting the application, for example, by withholding known prior art (inequitable conduct), and whether the patent holder disclosed the best mode of implementing the invention. From a plaintiff’s perspective a successful suit results in the award of damages once infringement is established and/or an order to cease the accused activity. Where willful infringement is found, the damage award to the plaintiff may be tripled in value. An injunction may be entered at any stage of litigation and is rarely stayed pending an appeal. Most suits are settled before reaching the point of a decision.

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A Patent System for the 21st Century Since its creation in 1982 appeals of district court decisions in patent cases are to the Court of Appeals for the Federal Circuit in Washington, D.C. (rather than the regional appellate courts) and ultimately to the Supreme Court. In part because there is no possibility of conflicts in patent law interpretation among regional appellate courts, the Supreme Court has granted certiorari (review) to relatively few appeals of Federal Circuit decisions, although the number has increased in recent years. In addition to patent cases, the Federal Circuit handles a few other specialized areas of law—claims against the U.S. government and some international trade, contract, and energy cases. The Federal Circuit does not have jurisdiction in other areas of intellectual property, such as trademark or copyright law unless they are coupled with a patent issue. HOW ARE PATENTS TREATED INTERNATIONALLY? A patent is territorial, that is, valid and effective only in the country whose government issued it. The fact that commerce, on the other hand, is international led to the Paris Convention of 1883, which established the principle of national treatment and patent priority rules among the signatories. The convention came to be administered by the World Intellectual Property Organization (WIPO), a specialized agency of the United Nations, which made slow progress on further international harmonization. Among other functions, WIPO administers the Patent Cooperation Treaty (PCT), effective in 1978, designed to streamline the process of seeking patent protection in many countries. Under PCT an applicant may file an international application, designating any number of PCT-member states in which patent protection is desired, and may obtain a prior art search, which is conducted by one of the principal national patent offices designated as an International Searching Authority. For an additional fee the applicant may obtain an International Preliminary Examination Report prepared by the USPTO or the European Patent Office. The treaty specifies deadlines for completing the search and the examination, if any. WIPO forwards the results, which are merely advisory, along with a national application, to whichever countries the applicant originally designated. A member country may accept the search and examination opinions without further inquiry and issue or deny a patent or it may conduct a de novo search and examination or conduct a more abbreviated inquiry. Prosecution of a PCT application in no way precludes prosecuting of one or more national applications simultaneously to avoid the significant erosion of patent term that would occur if the international and national processes proceeded sequentially. In the late 1980s U.S. and European international businesses and governments sought a global strengthening of intellectual property rights, but in the forum of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT) rather than WIPO. In 1993 the Uruguay Round resulted in an agreement on Trade-Related Aspects of International Property (TRIPS), among

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A Patent System for the 21st Century other trade accords and created the World Trade Organization (WTO) to administer them. Disagreements over intellectual property rights between members are subject to the WTO’s dispute resolution procedure. The U.S., European, and Japanese patent offices have meanwhile pursued harmonization on a bilateral and trilateral basis, with the result, for example, that search results on identical applications are shared although not yet mutually accepted.