Revisiting the AIA Prior User Rights Defense

Written by: Glenn E. J. Murphy & Shayne D. Rasay

The Leahy-Smith America Invents Act (“AIA”) marked significant policy shifts in the U.S. patent system, most notably the AIA’s transition from a first-to-invent to a first-to-file regime.  Complementary to the first-to-file regime was the AIA’s expansion of the existing prior user rights defense to patent infringement, which is presently codified at 35 U.S.C. § 273.   This defense  allows a prior commercial user of an invention who did not file a patent application to, subject to certain requirements, continue such use without interruption despite the claim by a third party  that  such use infringes a subsequently issued patent covering the same invention.  Pre-AIA, the prior user rights defense was significantly limited, being applicable only against patents claiming business methods (e.g., non-technical inventions), but the AIA expanded the scope of the defense to generally include all patentable subject matter.

The AIA’s expansion of the prior user rights defense did not pass without restrictions.  The most notable of these restrictions is § 273(e)(5)(A), colloquially known as the “university exception.”  This exception prohibits the assertion of the prior user rights defense where the patent in suit was, at the time the invention was made, owned or subject to an obligation of assignment to either an institution of higher education or a technology transfer organization related to such an institution.  Whether the AIA’s expanded prior user right has served the policies its proponents advocated is difficult to assess; there have been no litigated assertions of the defense reported in the eight years following its enactment.  Nevertheless, increasing university patent acquisition and enforcement activity, begun in the wake of the Bayh-Dole Act of 1980, continues to grow following the AIA, undoubtedly amplifying concerns among commercial entities about the growing number of university-originating patents that are exempt from the AIA prior user rights defense.

A comprehensive review of the legislative record reveals that initial efforts to introduce and later to expand the prior user rights defense have routinely received robust opposition from universities and their advocates.  Notwithstanding this persistent advocacy, the AIA resurrected legislative efforts to advance the prior user rights defense as a concomitant element of the new first-to-file regime.

The academic community advanced various rationales for rejecting an expanded prior user rights defense.  It would promote the retention of innovations as trade secrets and thus contravene the fundamental premise of the patent system to reward and encourage disclosure.  It would adversely affect universities’ ability to transfer their technology because powerful, unlicensed corporations could emerge to compete with no requirements to license and no requirement to pay royalties.  Regardless of these arguments, the practical effect of the university exception is, at least when it comes to prior user rights, to elevate university-derived patents over those of every other patentee.  Indeed, the USPTO’s mandated report to Congress notes that the United States is unique in including a provision benefiting the academic sector, and that across the globe there are no similar limitations on the prior user rights defense.  Selectively awarding marginally greater rights to one category of patent owner at least facially compromises the general principles of neutrality and generality enshrined in federal patent laws.  Given these principles of neutrality, should the federal government advance the property rights of specific patent owners at the expense of others?

In contrast to the robust opposition mounted by the academic community, arguments against the university exception were not as strident.  The subdued opposition to the university exception suggests that stakeholders may have failed to fully appreciate the merits of prior user rights as a legitimate defense and/or the implications associated with the university exception.  More likely, the limitation on the enforceability of the defense may not have been a predominant concern for the participating opposing stakeholders, who affirmatively calculated the risks and arrived at the conclusion that a concession would not subject them to intolerable liability.

Such calculations may have included determinations that the academic community was an inactive market participant and an unlikely rival to commercial activities.  The affected parties may be engaged in a field with high barriers to market entry, or where patent protection may be unnecessary, or only marginally valuable, such that the likelihood for a subsequent third-party patent to arise is low.  Additionally, the field may be highly regulated, as is the case with the pharmaceutical industry, such that trade secret protection would produce little to no strategic advantages since detailed disclosures of innovations are routinely required by regulatory agencies (e.g., by the FDA approval process).  Or perhaps the commercial use of certain technologies is so inherently confidential that the risk of an accusation of patent infringement is acceptably remote.

But the university exception may actually facilitate inequities and inefficiencies within the patent system.  For instance, it may encourage non-practicing entities to capitalize on the invulnerability of university-derived patents to the prior user rights defense; the public gains nothing from the perpetuation of such dubious activities that at best, do little to encourage and at worst, impede the commercialization of valuable innovations for consumer benefit.  Denial of the prior user rights defense in cases involving university-derived patents may also remove from the public domain the fruits of the prior user’s commercial exploitation of the subject invention.

Like the beneficiaries of the university exception, small businesses and individual innovators have the potential to contribute value into the public domain, but they frequently do not have the financial capabilities to fully prosecute a patentable invention, much less employ already limited resources to compete against major players in the industry.  Such constraints are further exacerbated by the university exception because selectively promoting the interests of universities creates a distorted entrepreneurial environment.  Start-ups and small businesses must choose between prematurely disclosing potentially valuable commercial activities and risking patent infringement liability and loss of access to their intangible property rights.  It appears unfair to hold against the prior user their decision to seek to maintain a discovery under trade secret law (instead of seeking patent protection)  The constitutionality of penalizing this choice by saddling the prior user with liability for infringement might well benefit from future judicial scrutiny.

Is it proper for federal patent laws to facilitate the ability of select patent owners to obtain or maintain dominant market positions in this way?  What sets apart university scientists from industry contributors, who also regularly submit review papers and research articles for publication, and whose employers more quickly bring the fruits of their efforts to the consuming public?  What is the justification behind the difference in treatment received by a technology transfer organization and a company in the private sector who similarly desires to be seen as a leader in innovation, for purposes of attracting licensing opportunities?  What specific circumstances does the academic community disproportionally face within the patent system that other stakeholders do not face to warrant this powerful exception to the prior user rights defense?  Does this limited prior user rights defense fulfill the constitutional mandate to “promote the Progress of Science and useful Arts” for the benefit of the consuming public?  So long as these questions remain unanswered, this unused provision of the patent statute merits further scrutiny and continued critical analysis.

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