March 28, 2017

Patent Reform and Tech Transfer

There are presently two bills pending in Congress, S 73 and HR 1249 that would significantly change patent law in the United States.   Much has been written about the proposed adoption of the first inventor to file requirement that would bring the United States closer to harmonization with all other countries,  however, very little has been written about how this change would impact public universities which have become increasingly aware of how a large patent portfolio can generate significant revenue.  The first provision that has been generally overlooked is that the proposed law includes an exception to the first to file rule for university inventors. The second is a change in the importance of lab notebooks.  Third, would be changes in the fee structure, and, fourth is the expansion of prior user rights.

First inventor to file

Changing the American standard from first to invent to first inventor to file would bring U.S. patent law into line with other countries in the world. This means that it does not matter when conception is, it only matters that a person is the inventor and he or she was the first to file.  Many grace periods have also been removed from the doctrines of first sale and public use.

However, there is still an exception in Section 2 of SB23 and HR 1249 in the bills for disclosures that come from the inventor either directly or tangentially. This exception allows for university inventors to publish, present, or otherwise disclose their invention and still have a 1 year grace period to file a patent application in the United States.  However, universities should be aware that there is an exception to this exception.  Indeed, it is still possible for another inventor, who had made the invention without the aid of the university disclosure to gain priority by filing for a patent before the university.  If the university inventor believes that the application was actually based on the university disclosure, the university can initiate a “derivation proceeding” to determine whether the first to file inventor actually based his or her invention on the university disclosure.

Inventor Notebooks

First inventor to file would reduce the need and value of keeping good lab notebooks.  This would affect university and corporations to the same degree. Currently, lab notebooks can be invaluable evidence of first to invent by establishing priority dates for the date of conception and reduction to practice by having a witness sign and date the description of the invention. Because priority dates of first to invent would no longer be relevant, the necessity and usefulness of a lab notebook would be reduced. The result is a situation where lab notebooks would only need to show independent invention and not when said invention took place.


The fee structure hierarchy change is likely to lead to an increase in fees. Currently, all fees collected by the United States Patent and Trademark Office go directly to the U.S Treasury.  Congress determines the USPTO’s budget which is generally less than the fees collected by the Patent Office In effect, Congress, therefore, is returning to the USPTO a smaller percentage of the fees collected. The structural change under Sec 9 in bill S23 would let the USPTO set the filing fees and keep that money to operate removing Congress from the equation.

However, it is still likely that the USPTO would increase the fees for a number of reasons including to respond to criticism about how long it takes from the time of the filing of the patent application to the issuance of the patent and the high turnover rate of examiners.  The PTO could use an increased budget to open three satellite patent offices in places like Detroit, Michigan as proposed under Sec. 21 of S23.

The bill proposes that state universities, which are defined as a “micro entity” under Section 12, will pay only ¼ the rate of fees for non-qualifying entities under Section 9 of S23. As such, universities may not see an increase in fee since they currently pay ½ the rate of non-qualifying entities.

However, universities should be aware that again there is an exception to this exception.  The bill permits the Director of the USPTO to impose limits on a university’s discount.  The Director apparently has full discretion in that regard so long as the reduction in the discount is reasonably necessary in order to avoid undue impact on other patent applicants:

`(2) Director'(s) AUTHORITY- The Director may, in the Director’s discretion, impose income limits, annual filing limits, or other limits on who may qualify as a micro entity pursuant to this subsection if the Director determines that such additional limits are reasonably necessary to avoid an undue impact on other patent applicants or owners or are otherwise reasonably necessary and appropriate. At least 3 months before any limits proposed to be imposed pursuant to this paragraph shall take effect, the Director shall inform the Committee on the Judiciary of the House of Representatives and the Committee on the Judiciary of the Senate of any such proposed limits.’.

While the meaning of this language is not completely clear, it does seem to mean the Director may remove or limit universities status as a micro entity if the Director finds it can not generate enough revenue from non-discounted patent applicants and thinks it unfair to raise fees overall. This understanding would likely affect larger intuitions who generate large revenue or file many patent applications each year.  These institutions may be seen as causing “undue impact” on other patent applicants by flooding the market with patents at a discounted and possibly anticompetitive rate.   Accordingly, MIT, Harvard, Stanford and similar institutions are likely to be affected long before smaller institutions.

Prior User Rights

Currently, the main difference between the Senate and the still in flux House version of patent reform is in prior user rights.  The Senate version of the Patent Reform Act apparently does not change prior user rights so as to maintain the status quo which gives prior user rights for those who would otherwise infringe method patents if those methods had been used commercially 1 year prior to the filling date of the patent application by the supposed infringer.

In contrast, House Bill 1249 would expand prior user rights to all types of patents. This provision seeks to avoid punishing inventors who kept their inventions secret because they erroneously believed, prior to the CAFC decision in State Street Bank v. Signature Financial Group, that business methods were not patentable. The new language in the House Bill allows prior user rights for any patentable invention used anywhere in the world commercially more than one year prior to the filling date on the supposedly infringed patent.

However, neither of the versions of the bill would affect universities. In fact, the defense of prior user rights could no longer be asserted against university developed patents including method patents.  Universities, thus, would be in an even stronger position to assert their patent rights as compared to other entities:

(i) DEFENSE NOT AVAILABLE IN CERTAIN CASES- A person may not assert the defense under this section if the subject matter of the patent on which the defense is based was developed pursuant to a funding agreement under chapter 18 or by a nonprofit institution of higher education, or a technology transfer organization affiliated with such an institution, that did not receive funding from a private business enterprise in support of that development.

The one caveat to note is that if a private business enterprise funds the development through research or otherwise, an infringer can then use the prior use defense. This makes documentation of the source of the research funds incredibly important in the case of having to defend against a claim of patent infringement.


It is likely that first inventor to file will lead to inventors submitting applications sooner especially if there is a concern that a competitor has also possibly made a similar invention.   This change will also reduce the need for inventors at universities to improve their lab notebook practices. Fee structure changes will likely lead to a reduction in overall costs, however, if a public university greatly increases the number of patent applications filed, the PTO may reduce the 75% discount rate that a public university would be entitled to as a result of qualifying as a micro entity.   Lastly, the expansion of prior user rights would actually benefit a public university since the proposed law would remove that potential defense against infringement claims involving university owned patents  including for method patents.

*This post was co-written by Peter Toren and law student Micah Ascano of the University of New Hampshire School of Law.


  1. Marc Sedam says:

    Well thought out piece, but in practice I come out to the opposite conclusions. The likely outcomes for universities are fewer patents filed since there’s going to be a race to file I’m not going to file unless I know the patent stands a chance which means I’ll require more data to be sure. Under current rules I’d file earlier because I know that if we were truly first to invent it could be hashed out later. The “reduced cost” argument is a red herring. The actual cost to file a patent due to USPTO fees is an order of magnitude lower than the cost to prep and prosecute. So sure, total costs will drop 5% but that’s not enough to make me change how I do things. The prior user rights issue is such a humongous LOSS for universities because it doesn’t come with discovery. In essence what used to be an infringement issue (with first to invent being the university’s leverage) now is a “he-said/ she-said” argument where the person infringing is the only one who has the smoking gun to whether the idea was stolen or not.

    BTW, I’m the new head of tech transfer at UNH. Would love to talk to you about this if you have the time.

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