Recently, a colleague inquired about prior user rights. Knowing that we have not heard much about it since the passing of the AIA, we took a look at what has been happening, only to find not much.
Having historical origins reaching back to provisions in the Patent Act of 1836, when enacted in 1999, the prior user rights defense was limited to business method patents.[1] With the passage of the AIA, the defense was expanded to cover all technologies. Reportedly, however, the defense is rarely asserted, even more rarely litigated on the merits, and does not appear to have ever been successfully used in the US.[2] These findings can be attributed to its narrow scope and numerous exceptions, difficulties in establishing proofs, and other limitations and risks associated with the defense.
Prior user rights can provide a legal defense to patent infringement where a prior commercial use infringes a later-filed patent to a third party.[3] In its simplest form, this defense arises from use of processes, machines, materials or compositions, and serves to protect subsequent use of the same – provided the statutory requirements are met. Directly protected activities include the practice of a process, operation of a machine, or use of a component or composition of matter used to produce a commercial end product.[4] The defense does not apply to end products sold to consumers that infringe a patent.[5] The defense only applies against specific claims for which prior use of the subject matter can be demonstrated.[6] Accordingly, a successful prior use defense may not dispose of all the claims in a lawsuit.[7] The prior use must be aligned with each asserted claim to fully protect the defendant.[8]
To prevail with prior user rights, a defendant must prove a commercial use that produced a useful end product in good faith. By statute, subject matter of the defense consists of a process, or a machine, manufacture or composition of matter that is used in a commercial process that would otherwise infringe a claimed invention.[9] The commercial use of the subject matter must have occurred at least one year before the earlier of: (a) the effective filing date, or (b) the date on which the claimed invention was disclosed to the public in a manner that qualified for the exception from prior art under section 102(b), i.e., a public disclosure on behalf of the inventors.[10] As a result, in order to establish the defense, a specific date of commercial use prior to the one-year measurement must be proven by clear and convincing evidence.[11]
Commercial use cannot be a sham. While it can be partially or entirely internal commercial use, it must produce an end result that is useful. Usefulness of an item, however, can change with time and experience as technology advances. Legislative history advocates a broad interpretation of commercial, yet, ultimately the courts must provide guidance as to whether the end product is or is not useful.[12] Also missing in the statute is guidance on actual arm’s length sale or commercial transaction of the end result and the boundary between a qualifying commercial use and activity that falls short because it is only preparation for such use.[13] What is clear, however, is that the prior commercial activity must have occurred in the United States.[14]
In addition to the difficulty of aligning subject matter commercially used with the scope of a patent claim, other problems can arise with the defense. First, by demonstrating prior use of “subject matter…that would otherwise infringe,” a defendant is effectively conceding infringement and relying fully on this defense.[15] Furthermore, the defense is personal and can only be asserted by the prior user or an entity under common control with the prior user.[16] The statute expressly asserts that only the person who performed or directed the performance of the commercial use and not simply caused the use to occur.[17] Under the language of the statue, a person entitled to the defense is not limited to a natural person but includes a legal entity and any legal entity that controls, is controlled by or is under common control with such person. For example, an Illinois district court struck down the defense where the defendant and prior user became commonly controlled after the priority date of the patent.[18] The benefit of the prior user rights defense is not available by license or assignment or part of a transfer.
Numerous exceptions and limitations further weaken the attractiveness of the defense.[19] For example, the defense is geographically restricted to sites where the prior use occurred.[20] The defense is ineffective where the prior user has abandoned the use.[21] The defense cannot be asserted against patents first owned by universities or their technology transfer organizations.[22] Moreover, there is no requirement that the university continue to own the patent for the exemption to apply, nor does the statute address the degree of ownership that the university must have. Therefore, it may be that a third-party licensee of the qualified university can take advantage of the exemption.
If the defense is pleaded without reasonable basis and the defendant is later found to infringe, attorney’s fees can be awarded to the plaintiff.[23] The defense only operates against infringement and has no bearing on invalidity.[24] The defendant bears the burden of proof by clear and convincing evidence – a high bar in any type of litigation, let alone patent infringement.[25]
The high evidentiary standard, numerous exceptions, and risks of conceding infringement and/or paying opposing attorneys’ fees make the prior user rights defense a precarious option at best and certainly not one to depend upon in lieu of patent rights. Assurance of the defense is further jeopardized by the not-yet-litigated uncertainties, such as the meanings of “commercial use” or “abandonment of use”.[26] While the prior user defense could be available as a last resort or through creative litigation tactics, the steep risks and unresolved ambiguities strongly disfavor reliance on it. Therefore, the availability of this defense to allegations of patent infringement should not be a reason to forego patent protection.[27]
[1] Alan J. Kasper et al., Patents After the AIA: Evolving Law and Practice 18-11 to 18-12 (Am. Intellectual Prop. Law Ass’n. ed., 2016) (“[P]rovisions in the Patent Act of 1836 . . . were intended to counter a limitation on the grant of a patent to the first inventor.”).
[2] See, e.g., Shayne D. Rasay & Glenn E.J. Murphy, Revisiting the AIA Prior User Rights Defense, The Legal Intelligencer (Jan. 28, 2020, 1:50 PM), https://www.law.com/thelegalintelligencer/2020/01/28/revisiting-the-aia-prior-user-rights-defense/; see also Coby Nixon, ‘Prior User’ Defense Still Unpopular With Accused Infringers, Law360 (Sept. 3, 2015, 10:12 AM EDT), https://www.law360.com/articles/697190.
[3] 35 U.S.C. § 273(a-g).
[4] Kasper et al., supra note 1, at 18-14 to 18-15; 35 U.S.C. § 273(a).
[5] End-use products originally sold commercially, but later adapted for internal commercial use to produce other useful end results or products, may also be entitled to the defense or covered by the principles of patent exhaustion. See 35 U.S.C. § 273(d); Kasper et al., supra note 1, at 18-18 to 18-20; see also Lexmark Int’l, Inc. v. Impression Prods., 816 F.3d 721, 734, n.5 (Fed. Cir. 2016) (explaining that a sale by a prior user has the same exhaustion effect as a sale by a patent owner).
[6] Exemplary is a propounded prior user rights defense struck down by a district court in New York where the defendants showed prior use of a pump, but that prior use by itself would not infringe the plaintiff’s patent. Vaughan Co. v. Global Bio-Fuels Tech., LLC, 2013 U.S. Dist. LEXIS 152068, 34-35 (N.D.N.Y. 2013); 35 U.S.C. § 273(a) (“A person shall be entitled to a defense . . . with respect to subject matter . . . that would otherwise infringe a claimed invention . . . ”).
[7] See 35 U.S.C. § 273(a); see Vaughan, 2013 U.S. Dist. LEXIS 152068 at 34-35.
[8] See 35 U.S.C. § 273(a); see Vaughan, 2013 U.S. Dist. LEXIS 152068 at 34-35.
[9] 35 U.S.C. § 273(a).
[10] Id.; The effective filing date for a claimed invention can be the actual filing date of the application for patent or the filing date of the earliest application for which the patent or application is entitled. When there is a prior public disclosure by or on the behalf of the inventors, the disclosure must have been made in a manner that qualifies it as an exception under 35 U.S.C. § 102(b) prior to the filing date of the application. 35 U.S.C. § 273(a)(2); MPEP § 2152.01.
[11] 35 U.S.C. § 273(b).
[12] Kasper et al., supra note 1, at 18-27.
[13] Kasper et al., supra note 1, at 18-27 -18-31.
[14] Outside of the US, prior user rights are viewed differently and often more liberally. As a result, the Trilateral Industry that includes business and user groups from the Trilateral Patent Offices of USPTO, EPO and JPO together with other patent offices has been studying certain harmonization issues which included prior user rights. See the fiveIPoffices website is at https:/www.fiveipoffices.org/index. As of late 2019, derivation remains an open item as there is no consensus on whether a “deriver’ can get prior user rights.
[15] See 35 U.S.C. § 273(a).
[16] 35 U.S.C. § 273(e).
[17] 35 U.S.C. 273 (e) (1)(A).
[18] Dunnhumby United States v. Emnos United States Corp., 2014 U.S. Dist. LEXIS 203944, 8-10 (N.D. Ill. 2014).
[19] 35 U.S.C. §§ 273(e-g).
[20] Id.
[21] Id.
[22] 35 U.S.C. §273 (e)(5).
[23] 35 U.S.C. § 273(f).
[24] 35 U.S.C. § 273(g); BASF Corp. v. SNF Holding Co., 955 F.3 958, 968 (Fed. Cir. 2020) (stating in footnote 8 that a successful prior use defense does not necessarily establish invalidity); See also, Seal-Flex, Inc. v. W.R. Dougherty & Assocs., 179 F. Supp. 2d 735, 742 (E.D. Mich. 2002) (holding a prior user rights defense untimely where the defendant had already been found to have literally infringed).
[25] 35 U.S.C. § 273(b).
[26] 35 U.S.C. §§ 273(a), 273(e); Brian McCall, Don’t Bet On It: Why Businesses Should Not Forego Patent Protection in Favor of the Newly Expanded Prior User Defense, 31 (July 2012), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2128584.
[27] McCall, supra note 24, at 24; Nixon, supra note 4.