Technology companies and manufacturers know that they do not infringe a patent if they (or their products) do not practice a claimed invention. But did you know that there are certain circumstances where your company or its products can practice every single element of a patent and not legally infringe that patent?
The doctrines of intervening rights and prior commercial use allow for just that. For the accused infringer, these principles are the equivalent of a get-out-of-jail-free card. For the patent owner looking to assert its patents, they can be a death knell.
Intervening rights stem from the inequities of a person obtaining a patent — and thus putting the public on notice as to a claimed invention — and then later changing the scope of the claimed invention through a reissue application.
Whether the scope of the reissue patent is broader than the original patent, or narrower to avoid prior art, so long as the scope of the claims of the reissue patent is materially different than the scope of the claims of the original patent, intervening rights may be a total defense to infringement of the reissue patent.
There are two types of intervening rights: (1) absolute intervening rights and (2) equitable intervening rights. Both are codified in 35 U.S.C.A. § 252, ¶ 2.
Absolute intervening rights
Absolute intervening rights allow a person to keep using or selling things that were already in existence at the time the reissue patent issues when the reissue patent has claims that are of a materially different scope than the claims in the original patent.
For example, if you were using a process covered by a reissue patent having materially different claims from the original claims, you could keep using that process even after the reissue patent issues. If you had inventory of a product that infringed the scope of the reissue patent, you could sell off that inventory and not infringe the reissue patent.
Absolute intervening rights do not, however, provide a defense to infringement where the process or product at issue infringed one or more claims of the original patent and the original patent has claims with substantially the same scope. Meaning that if the process or product infringed the original patent and claims of the same scope are in the reissue patent, intervening rights do not apply.
Also, absolute intervening rights do not allow a person to make and sell more of the type of things that were already in existence. For example, while absolute intervening rights may allow you to sell down already existing inventory of an infringing good, they do not allow you to make more of that product after the reissue patent issues. Similarly, even if you offered to sell a product prior to the reissue patent, you cannot then make and actually sell it after the reissue patent issues.
Equitable intervening rights
The second type of intervening rights — equitable intervening rights — may allow a person to continue infringing a reissue patent if a judge sitting in equity is convinced that you, the accused infringer, made "substantial preparation" for that infringement and only "for the protection of investments made or business commenced."1
The Federal Circuit has established a six-factor test to evaluate whether equitable intervening rights should apply.2 In practice, however, judges have awarded equitable intervening rights anytime the judge believes that the accused infringer has been wronged by the patent owner.
In the case of Gerhardt v. Kinnaird,3 Fred Gerhardt obtained a patent claiming a new type of truck body to transport bottled beverages and licensed that patent to Kenneth Kinnaird. Kinnaird's lawyer looked at Gerhardt's patent and informed Kinnaird that it was most likely invalid.
Kinnaird communicated this to Gerhardt, but instead of getting out of the license, Kinnaird received a license with a larger geographic scope. At the same time, Gerhardt applied for and received a reissue patent having a narrower scope that was not covered by the prior art that Kinnaird had identified.
Years later, Kinnaird stopped paying royalties and Gerhardt sued for infringement. Kinnaird defended himself on the basis of patent invalidity and equitable intervening rights. The judge plainly believed Gerhardt's reissue patent was invalid as obvious and that Gerhardt would never have sought a reissue patent in the first place had it not been for Kinnaird suggesting the original patent was invalid.
But instead of invalidating the reissue patent, the judge maintained its validity and applied the doctrine of equitable intervening rights to allow Kinnaird to continue making truck bodies that infringed Gerhardt's reissue patent.
In Mine Safety v. Becton Dickinson,4 Mine Safety sought a declaratory judgment that it did not infringe certain reissue patents held by Becton Dickinson. While Mine Safety infringed the patents, the judge granted Mine Safety equitable intervening rights because of its employment of over one hundred people and its development of a $3 million business in the seven years between when the original patents issued and when Becton Dickinson sought its reissue patents, but ordered Mine Safety to pay a royalty on its sales.
In John Bean v. Morris,5 the Federal Circuit affirmed a district court's awarding of equitable intervening rights when the accused infringer, Morris, had sent a letter to the patent owner, John Bean, explaining why his original patent for an auger-type poultry chiller was invalid. Bean then waited 11 years before filing for reexamination of the patent. The district court judge plainly believed that 11 years was too long to wait to obtain a new patent to then assert against Morris.
In contrast, judges have denied equitable intervening rights when the judge believes that the accused infringer is looking to use the doctrine of intervening rights as a windfall.
In Westvaco v. Int'l Paper,6 the accused infringer, Westvaco, had copied a new paperboard product that International Paper developed to extend the shelf life of orange juice. International Paper later filed for, and was granted, a reissue patent, after which Westvaco promptly sued for a declaratory judgment, seeking equitable intervening rights.
The district court judge held that its claims of the reissue patent were not materially different in scope from the original (and thus intervening rights did not apply), but also held that Westvaco had acted nefariously in copying International Paper's new product, denying equitable intervening rights even if they did apply. While the Federal Circuit disagreed as to the issue of claim scope, it upheld the district court's decision to deny the grant of equitable intervening rights.
In Shockley v. Arcan,7 the accused infringer, Arcan, was the contract manufacturer of patent owner, Shockley, making a device that allowed auto mechanics to easily slide underneath a vehicle. Arcan, however, also made and sold identical, yet unlicensed, devices to Shockley's competitors. Even though Shockley obtained a reissue patent, the district court denied equitable intervening rights to Arcan for its unlicensed sales, a decision that was affirmed by the Federal Circuit.
In Visto v. Sproqit,8 the accused infringer, Sproqit, had invested $8 million in the time between when the patent owner Visto's original patent had issued and when Visto successfully obtained a reissue patent. The judge, however, denied the application of equitable intervening rights because Sproqit introduced no evidence that it ever relied on the invalidity of the original patent before making its $8 million investment.
In sum, absolute intervening rights are available to accused infringers to continue to make or sell products or processes that were already in existence at the time of a reissue patent having claims of a materially different scope than the original claims. Equitable intervening rights can be available when a judge is convinced, after applying a six-factor test, that it would be equitable to allow the accused infringer to continue its infringement.
For patent owners, the key to enforcing reissue patents is either to ensure the scope of the claims does not materially change (and thus intervening rights do not apply), or even if the scope is changed, to promptly seek the reissue patent when the validity of an original patent is legitimately challenged; excessive waiting by the patent owner invites the application of equitable intervening rights for the accused infringer.
Prior commercial use defense
Historically, business methods were thought to be unpatentable. Everyone knew that abstract ideas were not patentable, and business methods were thought to be abstract.9 In 1998, the Federal Circuit made a somewhat controversial decision in State Street v. Signature, where the long-standing "business method exception" to patentability was overturned.10
Judge Giles Rich, the author of the 1952 Patent Act, stated for the majority that "we take this opportunity to lay this ill-conceived exception to rest," holding that business methods are and had always been patentable.11 This created somewhat of a problem because prior to the State Street decision, no one realized that business methods were patentable, so they just kept them as trade secrets.
Pre-AIA prior use defense
In response to this upset to the status quo, Congress passed the First Inventors Defense Act of 1999, which essentially stated that if a person had been practicing a business method, they could continue their infringement even if the method was patented by another. This was the first prior commercial use defense, and it was expressly limited to methods for conducting business.12
The only decision interpreting what it meant to be a method for conducting business, a district court case out of the Southern District of Iowa, held that a method for conducting business should be construed narrowly, and that the technology at issue in that case, a process for making curved pieces of metal from flat pieces — called "roll forming" — was not a business method covered by the First Inventors Defense Act of 1999.13
Post-AIA prior use defense
The America Invents Act completely re-wrote the prior commercial use defense.14 While the defense is no longer limited to business methods, the prior use must have been one that was "used in a manufacturing or other commercial process" more than one year prior to the effective filing date of the asserted patent. Despite Congress broadening the defense, it remains quite limited and seldom used.
First, the defense still does not cover the sales of end products that infringe a patent, just the processes that make them.
Second, the defense does not apply to patents that, at the time the invention was made, were assigned to or under an obligation to be assigned to a university or their tech transfer office. There is an exception to this exception: the university exception does not apply to technologies if, at the time of the invention, the university could not have used federal funding for the research. For example, there have been times when funding was not allowed for research on embryonic stem cells.
Third, the defense only applies to the specific claims for which prior use of the subject matter can be demonstrated. For example, assume an independent claim requires heating above 160 degrees and a dependent claim requires heating above 170 degrees. If you can demonstrate that, prior to one year before the patent was filed, you or your client practiced heating to 165 degrees, then that can qualify as a prior use to the first claim but not the second one.
Fourth, the defense only applies to prior use in the United States. Companies and persons cannot avail themselves of this defense if the prior use was overseas.
Fifth, proving the prior use defense requires an accused infringer to show that s/he was practicing every limitation of the asserted claims. In most cases, this will likely require conceding that the accused product or process infringes the asserted claims (or at least lead to this conclusion), thereby stripping the accused infringer of a substantive noninfringement defense.
While it is possible to assert noninfringement and prior user rights in the alternative, the accused infringer will eventually (most likely in connection with claim construction) need to make a strategic decision about which defenses to pursue.
Sixth, an accused infringer must prove, by "clear and convincing evidence," that the patented subject matter was commercially used in the U.S. at least one year before the effective filing date of the claimed invention. This is quite a high burden, particularly given the patentee need only prove infringement at a lower "preponderance of the evidence" standard. Thus, it may be possible for the patentee to successfully prove infringement, and the defendant to fail to prove prior use, based on the burden of proof alone.
Lastly, if one pleads this defense and fails to meet the clear and convincing burden, section 273(f) states that the court "shall" find the case exceptional for the purpose of awarding attorney fees under section 285. It is thus no wonder why in the first four years of its availability post-AIA, the prior use defense was pleaded in less than one percent of all patent cases.
In sum, while a prior commercial use defense exists (under both pre-AIA and post-AIA law), there are many exceptions to it, it is difficult to prove, and if one fails to prove it, one might be on the hook for attorneys' fees for having tried and failed. A better strategy could be to use the existence of the prior use to invalidate the asserted patent on traditional anticipation and obviousness grounds.
1 35 U.S.C.A. § 252, ¶ 2.
11 Id. at 1375.
12 35 U.S.C.A. § 273 (pre-AIA).