Introduction
After several years of active lobbying, the patent laws of the United States have been amended by the American Inventors Protection Act of 1999, (hereinafter "AIPA"). The AIPA was signed into law on November 29, 1999. One of the most important facets of the AIPA is the First Inventor Defense. In this defense, the AIPA creates a prior use defense to allegations of patent infringement when the proper criteria are met. While ostensibly broad, a failure to demonstrate a reasonable basis for raising the defense may result in an award of attorneys fees against any one relying on the defense.
The Defense
The First inventor Defense is to be codified in Section 273 of Title 35, U.S. Code. With the burden of proof resting on the party relying on the defense, allegations of patent infringement may be defended against by establishing that the activity complained of was initiated more than one year prior to the filing date of the patent being asserted. In specific, the statute reads:
(1) IN GENERAL - It shall be a defense to an action for infringement under section 271 of this title with respect to any subject matter that would otherwise infringe one or more claims for a method in the patent being asserted against a person, if such person had, acting in good faith, actually reduced the subject matter to practice at least 1 year before the effective filing date of such patent, and commercially used the subject matter before the effective filing date of such patent.
To apply the defense, several conditions must be met. First the activity complained of must involve a method of doing business. The statutory language recites the term "method". However the Judiciary Committee Report and legislative history including hearing commentary discuss methods of doing business such as that defined in the State Street Bank case, 149 F. 3d 1368, 47 USPQ 2d (BNA) 1596 (Fed. Circ. 1998), cert. den red, 119 S. Ct. 851 (1999), which was recently handed down by the Federal Circuit. The legislative history also notes that methods as falling into the defense are not limited to any particular industry such as the financial service industry. Rather, "methods" applies to any industry that relies on trade secrecy for protecting methods for doing or conducting the operations of their business.
The activity complained of must also have been reduced to practice more than one year before the filing date of the patent at issue. The alleged infringer must have undertaken the activity in good faith, i. e., without knowledge of the patentees intentions or competing efforts.
Further, the activity being complained of must have taken place in a commercial environment. There are certain exceptions to commercial use for nonprofit entities such as universities, research centers, and hospitals. However the definition of "commercial use" is an actual arms length sale or transaction. The method in commercial use may be either an internal method or external. This criteria finds support in the legislative history of the AIPA which notes that commercial use does not require that the subject matter at issue be accessible or otherwise known to the public.
Limitations of the Defense
The First Inventor Defense does have several negative limitations on its use. First the defense is not a general license; issues of claim scope and sales volume are of concern. To assert the defense, an alleged infringer must meet the criteria of the statute on a claim by claim basis. However once this is done the legislative history of the statute does note that there is to be elasticity in the quantity or volume of use.
The defense is also limited geographically and personally. Specifically, when the operation of the business to which the defense is applicable is moved or transferred, the further use of the defense is limited. With this occasion, the defense may be asserted only for those activities which predate the later of the transfer or the filing date of the patent. The defense is also a personal defense and cannot be transferred to a third party except as an ancillary portion of a commercial sale.
Other limitations which apply to the use of the defense include those typical prior art type defense such as derivation from the patentee, and abandonment of the commercial use.
Failure of the Defense
One final aspect of the defense which is critical to its consideration are the provisions relating to an unsuccessful assertion of the defense. As noted above, the party advancing the First Inventor Defense, has the burden the burden of establishing the defense. By statute, the failure of the defense combined with a failure to demonstrate a reasonable basis for asserting the defense could subject the infringer to an award of attorneys fees against it. Interestingly, the statute says that "the court shall find the case exceptional" while the legislative history states that the party "may be held liable for attorney's fees" under the statute. My belief is that this is a true conflict which may create an interpretive problem with the statute. However a conservative stance when advising clients is probably most appropriate.
Lastly, continuing activity on the part of the alleged infringer should be undertaken with great care even if the defense is found to apply. The effect of a successful assertion of the defense does not invalidate the subject patent. This statutory criteria taken together with the stringent application of the defense - on a claim by claim basis without provision for a general license - dictate that further work in the area of concern be undertaken carefully.
