Analyzing Provisional Rights for Patent Applicants

With the passage of the Domestic Publication of Foreign Filed Patent Applications Act of 1999, the U.S. Congress instituted a pre-grant patent publication system. As a result, the USPTO must now publish domestic utility patent applications filed on or after November 29, 2000 within 18 months of their earliest priority date, unless conditions for preventing publication are met.

The pre-grant publication system, codified in 35 U.S.C. '122(b), does not apply to all applications. Provisional and design patent applications, applications that are no longer pending when due to be published, and applications that are subject to a secrecy order are excluded. In addition, an application will not be published if a nonpublication request is filed with it. The nonpublication request must certify that the invention disclosed in the application has not and will not be disclosed or claimed in a foreign patent application, or under international agreement, that requires publication 18 months after filing.

Patent applicants may, however, rescind nonpublication requests at any time. They may also voluntarily request early publication before the 18-month period or even republication of their applications after it. See 37 C.F.R. '1.221 (setting forth requirements for republication). As an incentive to publish and as a check on potential abusers of the pre-grant publication system, Congress gave patent applicants provisional rights in their published patent applications. Under 35 U.S.C. '154, inventors have the right to obtain a reasonable royalty from anyone who, between publication and the patent's issuance, makes, uses, sells, offers to sell, or imports into the United States the invention as claimed in the published application.

It is therefore essential that all U.S. patent applicants, whether their applications are subject to automatic publication or not, understand how provisional rights are gained in an application, how those rights are likely to be enforced by a court and finally, the benefits that accrue from them. No court has yet had the opportunity to opine on the provisional rights section of 35 U.S.C. '154. As such, one must look to the statute itself as well as the legislative history for guidance.

Under '154, three things must happen before an inventor may exercise provisional rights in an application. First, the inventor must supply “actual notice” of the published patent application to the potential infringer. Second, the application must issue as a patent. And third, the claims of the issued patent must be “substantially identical” to the claims in the patent application.

Accrual of Provisional Rights

35 U.S.C. '154(d)(1)(B) requires that the patent applicant give the infringer “actual notice of the published patent application.” While the statute itself does not explain exactly what is meant by “actual notice,” the legislative history states that “[t]he requirement of actual notice is critical. The mere fact that the published application is included in a commercial database where it might be found is insufficient. The published applicant must give actual notice of the published application to the accused infringer and explain what acts are regarded as giving rise to provisional rights.” Statements on Introduced Bills and Joint Resolutions, Senate, S. 1948, Cong. Rec. S14716 (Nov. 17, 1999), available at http://thomas.loc.gov.

It is possible that courts could turn to 35 U.S.C. '287(a) for further clarification of the actual notice requirement. As a limitation on damages, the requirement of actual notice under '287(a) is designed to ensure that the recipient knew of the adverse patent during the period in which liability accrues, when constructive notice by marking is absent. See SRI Int'l, Inc. v. Advanced Techs, 127 F.3d 1462, 1470 (Fed. Cir. 1997). Under '287(a), damages for unmarked products are calculated back to the date the infringer was given actual notice of the infringement.

No matter how the actual notice requirement of '154(d)(1)(B) is ultimately interpreted, one may be certain that provisional rights will not accrue without it. Therefore, as soon as a patent application is published, an applicant intent on securing provisional rights should police the relevant marketplace and provide potential infringers with notice of the patent application as well as a description of the potentially infringing activities.

Exercising Provisional Rights

35 U.S.C. '154(d)(2) states that a patentee may not obtain a reasonable royalty “unless the invention as claimed in the patent is substantially identical to the invention as claimed in the published patent application.” The legislative history explains that this requirement is intended to put the public on notice. “To allow anything less than substantial identity would impose an unacceptable burden on the public. If provisional rights were available in the situation where the only valid claim infringed first appeared in substantially that form in the granted patent, the public would have no guidance as to the specific behavior to avoid between publication and grant. … The burden should be on the applicant to initially draft a schedule of claims that gives adequate notice to the public of what she is seeking to patent.” Statements on Introduced Bills and Joint Resolutions, Senate, S. 1948, Cong. Rec. S14716 (1999).

The standard for substantial identity under '154(d) is intended to be the same standard as that applied for intervening rights in the context of reissue and reexamination applications. As explained in a House Committee Report discussing forerunning legislation whose provisional rights provision and “substantially identical” requirement were reproduced almost verbatim in 35 U.S.C. '154(d), “[t]he requirement for 'substantial identity' in this section is based, by analogy upon the decisional law for establishing intervening rights under the reissue statute. In section 252 of title 35, the term 'identical' has, heretofore, been used without qualification, but the courts have interpreted that term to encompass claims that are 'substantially identical.' Slimfold Mfg. Co., Inc. v. Kinkead Industries, Inc., 810 F.2d 1113, 1 U.S.P.Q.2d 1563 (Fed. Cir. 1987).” H.R. REP. NO. 105-39, at 62 (1997) accompanying H.R. 400, the “21st Century Improvement Act,” available at http://thomas.loc.gov.

In Slimfold, the Federal Circuit stated that it is the scope of the claims that must be identical, not the words used, and affirmed a district court decision which held that amending a claim, merely to provide antecedent basis for an element already recited in the claim, did not substantially amend it. See Slimfold, 810 F.2d at 1115-17. As a result, under '154(d) material changes to a patent application will likely render it no longer substantially identical to the published application and leave a patent applicant without recourse to provisional remedies. Therefore, changes to the published claims should be made only when necessary and, depending upon their scope, followed by republication of the application and a renewal of actual notice to potential infringers. Provisional remedies should then be available starting from the date of republication.

Right to Obtain a Reasonable Royalty

Finally, if the claims of the issued patent are substantially identical to the claims in the published application, a patentee may, in an action brought no later than 6 years after the patent's issuance, recover a reasonable royalty from an infringer. Calculating reasonable royalties is a complex matter that involves several factors (eg, the Georgia Pacific factors) and is performed on a case-by-case basis. See Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), affirmed in part, 446 F.2d 295 (2d Cir. 1971). Since the inventions at issue when dealing with patent applications are by their very nature “new,” such reasonable royalties may be difficult for courts to determine and therefore have the potential to undervalue the actual harm to the inventor arising from infringement. See Sumanth Addanki, Lost Profits and Reasonable Royalties: Approaching Patent Damages from an Economic Perspective, 7 J. PROPRIETARY RTS. 2 (1995). Enhanced damages for provisional rights are specifically excluded under 35 U.S.C. '284.

Conclusion

While no court has yet had the opportunity to do so, the legislative history and analogous case law do provide patent applicants with a relatively clear interpretation of how the provisional rights of '154(d) will be applied. This understanding is necessary not only for applicants who wish to rely on provisional rights, but also for those who have the option of nonpublication. However, given the fairly strict requirements of actual notice and substantial identity and the possibility of recovering only a reasonable royalty, it remains to be seen how many patentees will actually take advantage of the provisional remedies of '154(d).

With the passage of the Domestic Publication of Foreign Filed Patent Applications Act of 1999, the U.S. Congress instituted a pre-grant patent publication system. As a result, the USPTO must now publish domestic utility patent applications filed on or after November 29, 2000 within 18 months of their earliest priority date, unless conditions for preventing publication are met.

The pre-grant publication system, codified in 35 U.S.C. '122(b), does not apply to all applications. Provisional and design patent applications, applications that are no longer pending when due to be published, and applications that are subject to a secrecy order are excluded. In addition, an application will not be published if a nonpublication request is filed with it. The nonpublication request must certify that the invention disclosed in the application has not and will not be disclosed or claimed in a foreign patent application, or under international agreement, that requires publication 18 months after filing.

Patent applicants may, however, rescind nonpublication requests at any time. They may also voluntarily request early publication before the 18-month period or even republication of their applications after it. See 37 C.F.R. '1.221 (setting forth requirements for republication). As an incentive to publish and as a check on potential abusers of the pre-grant publication system, Congress gave patent applicants provisional rights in their published patent applications. Under 35 U.S.C. '154, inventors have the right to obtain a reasonable royalty from anyone who, between publication and the patent's issuance, makes, uses, sells, offers to sell, or imports into the United States the invention as claimed in the published application.

It is therefore essential that all U.S. patent applicants, whether their applications are subject to automatic publication or not, understand how provisional rights are gained in an application, how those rights are likely to be enforced by a court and finally, the benefits that accrue from them. No court has yet had the opportunity to opine on the provisional rights section of 35 U.S.C. '154. As such, one must look to the statute itself as well as the legislative history for guidance.

Under '154, three things must happen before an inventor may exercise provisional rights in an application. First, the inventor must supply “actual notice” of the published patent application to the potential infringer. Second, the application must issue as a patent. And third, the claims of the issued patent must be “substantially identical” to the claims in the patent application.

Accrual of Provisional Rights

35 U.S.C. '154(d)(1)(B) requires that the patent applicant give the infringer “actual notice of the published patent application.” While the statute itself does not explain exactly what is meant by “actual notice,” the legislative history states that “[t]he requirement of actual notice is critical. The mere fact that the published application is included in a commercial database where it might be found is insufficient. The published applicant must give actual notice of the published application to the accused infringer and explain what acts are regarded as giving rise to provisional rights.” Statements on Introduced Bills and Joint Resolutions, Senate, S. 1948, Cong. Rec. S14716 (Nov. 17, 1999), available at http://thomas.loc.gov.

It is possible that courts could turn to 35 U.S.C. '287(a) for further clarification of the actual notice requirement. As a limitation on damages, the requirement of actual notice under '287(a) is designed to ensure that the recipient knew of the adverse patent during the period in which liability accrues, when constructive notice by marking is absent. See SRI Int'l, Inc. v. Advanced Techs , 127 F.3d 1462, 1470 (Fed. Cir. 1997). Under '287(a), damages for unmarked products are calculated back to the date the infringer was given actual notice of the infringement.

No matter how the actual notice requirement of '154(d)(1)(B) is ultimately interpreted, one may be certain that provisional rights will not accrue without it. Therefore, as soon as a patent application is published, an applicant intent on securing provisional rights should police the relevant marketplace and provide potential infringers with notice of the patent application as well as a description of the potentially infringing activities.

Exercising Provisional Rights

35 U.S.C. '154(d)(2) states that a patentee may not obtain a reasonable royalty “unless the invention as claimed in the patent is substantially identical to the invention as claimed in the published patent application.” The legislative history explains that this requirement is intended to put the public on notice. “To allow anything less than substantial identity would impose an unacceptable burden on the public. If provisional rights were available in the situation where the only valid claim infringed first appeared in substantially that form in the granted patent, the public would have no guidance as to the specific behavior to avoid between publication and grant. … The burden should be on the applicant to initially draft a schedule of claims that gives adequate notice to the public of what she is seeking to patent.” Statements on Introduced Bills and Joint Resolutions, Senate, S. 1948, Cong. Rec. S14716 (1999).

The standard for substantial identity under '154(d) is intended to be the same standard as that applied for intervening rights in the context of reissue and reexamination applications. As explained in a House Committee Report discussing forerunning legislation whose provisional rights provision and “substantially identical” requirement were reproduced almost verbatim in 35 U.S.C. '154(d), “[t]he requirement for 'substantial identity' in this section is based, by analogy upon the decisional law for establishing intervening rights under the reissue statute. In section 252 of title 35, the term 'identical' has, heretofore, been used without qualification, but the courts have interpreted that term to encompass claims that are 'substantially identical.' Slimfold Mfg. Co., Inc. v. Kinkead Industries, Inc. , 810 F.2d 1113, 1 U.S.P.Q.2d 1563 (Fed. Cir. 1987).” H.R. REP. NO. 105-39, at 62 (1997) accompanying H.R. 400, the “21st Century Improvement Act,” available at http://thomas.loc.gov.

In Slimfold, the Federal Circuit stated that it is the scope of the claims that must be identical, not the words used, and affirmed a district court decision which held that amending a claim, merely to provide antecedent basis for an element already recited in the claim, did not substantially amend it. See Slimfold, 810 F.2d at 1115-17. As a result, under '154(d) material changes to a patent application will likely render it no longer substantially identical to the published application and leave a patent applicant without recourse to provisional remedies. Therefore, changes to the published claims should be made only when necessary and, depending upon their scope, followed by republication of the application and a renewal of actual notice to potential infringers. Provisional remedies should then be available starting from the date of republication.

Right to Obtain a Reasonable Royalty

Finally, if the claims of the issued patent are substantially identical to the claims in the published application, a patentee may, in an action brought no later than 6 years after the patent's issuance, recover a reasonable royalty from an infringer. Calculating reasonable royalties is a complex matter that involves several factors (eg, the Georgia Pacific factors) and is performed on a case-by-case basis. See Georgia-Pacific Corp. v. U.S. Plywood Corp. , 318 F. Supp. 1116 (S.D.N.Y. 1970), affirmed in part , 446 F.2d 295 (2d Cir. 1971). Since the inventions at issue when dealing with patent applications are by their very nature “new,” such reasonable royalties may be difficult for courts to determine and therefore have the potential to undervalue the actual harm to the inventor arising from infringement. See Sumanth Addanki, Lost Profits and Reasonable Royalties: Approaching Patent Damages from an Economic Perspective, 7 J. PROPRIETARY RTS. 2 (1995). Enhanced damages for provisional rights are specifically excluded under 35 U.S.C. '284.

Conclusion

While no court has yet had the opportunity to do so, the legislative history and analogous case law do provide patent applicants with a relatively clear interpretation of how the provisional rights of '154(d) will be applied. This understanding is necessary not only for applicants who wish to rely on provisional rights, but also for those who have the option of nonpublication. However, given the fairly strict requirements of actual notice and substantial identity and the possibility of recovering only a reasonable royalty, it remains to be seen how many patentees will actually take advantage of the provisional remedies of '154(d).