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By Kirsten Johnson and Dinesh Melwani, Bookoff McAndrews, PLLC

The Rose Sheet (Aug. 5, 2013)

Nearly a year has passed since the America Invents Act made a number of significant changes to U.S. patent law, including introducing cost-effective mechanisms for challenging the issuance of a patent and bringing the U.S. patent-filing system into harmony with the rest of the world.

In the personal-care industry, where testing and refining a formulation can mean the difference between moderate sales and a blockbuster product, patents are key to protecting market exclusivity, thereby enabling companies to recoup expenses associated with research, development and regulatory-compliance activities.

Companies that are aware of the AIA’s intricacies and incorporate patent strategy into their business plans will be well-positioned to gain an advantage over less conscientious competitors.

The Race is On

One significant impact of the AIA is the conversion of the U.S. patent filing system from a “first-to-invent” to a “first-inventor-to-file” regime consistent with other patent-savvy nations.

Under new rules that entered into force in March, patent inventorship, outside of a few limited exceptions, is determined according to the date an inventor first files an application with the U.S. Patent and Trademark Office, regardless of the ability of a second filer to prove earlier inventive activity.

In light of this change, companies should establish procedures for quickly collecting new invention disclosures and filing patent applications in a timely manner to reduce the chance of a third party obtaining rights to an invention as a result of an earlier filing.

This race to the patent office may raise concerns, particularly since early research efforts may not yield an eventual commercial product. Pressure to file can be alleviated by making strategic use of provisional patent applications, which have lower filing fees, are not examined and provide a one-year time frame for pursuing patent protection of the same subject matter through a non-provisional application or international application.

By filing provisional applications, personal-care and cosmetics companies essentially buy time to continue evaluating the merits of an invention while securing a filing date to protect against competitors gaining rights to an invention by beating them to the punch.

Firms can use the provisional application to record incremental improvements in composition, pH, temperature and other parameters that may later prove important for a commercial product. Provisional applications also can be used to capture advancements in methods and processes of manufacturing.

As each provisional application nears the end of its one-year lifetime, patent counsel and inventors can reassess its disclosure and determine whether to claim the priority filing date by submitting a non-provisional or international application. Broad description in the provisional can be fleshed out to reflect subsequent optimization efforts, for example, and unique characteristics of a given product line.

If research is headed in a different direction, abandoning the provisional would save the cost of pursuing irrelevant subject matter and ensure that any confidential information within the provisional is not made public.

Cost Considerations

The changes introduced by the AIA trigger questions about cost and whether the new scheme favors large corporations with big coffers over smaller enterprises.

Some have argued that the race to file may compel companies with fewer resources to take on the cost of patent prosecution before they are ready.

Though provisional applications may be less expensive initially – with filing fees currently starting at $260 versus approximately $1600 for a non-provisional application – companies big and small ultimately must bear the costs associated with examination of a non-provisional application, which can last anywhere from three to five years.

Companies with fewer than 500 employees, among other requirements, may qualify for “small entity” status, which can cut many USPTO fees in half. A new “micro entity” status introduced by the AIA reduces many fees even further for small entities that satisfy additional criteria, including requirements related to income level and prior application filings.

Smaller players that don’t qualify for fee relief can work with their legal counsel on strategies to prioritize goals and optimize resources. For example, aggregating multiple concepts into a single, robust provisional application on the front end can be a cost-effective means of maintaining control over assets under development, which can then be separated into non-provisional applications as desired, for filing within the provisional’s one-year lifetime.

Expedited prosecution (“Track 1” in patent parlance) is an option for fast-tracking the examination of non-provisional applications, shortening the waiting time from two-three years to several months. While the fee is not insubstantial – $4,000 and $2,000 for large and small entities, respectively – the shortened timeframe may save the cost of protracted prosecution.

Startups in particular may view the expedited route as advantageous as they look to demonstrate short-term value to potential investors. Obtaining one or more patents can signal that a company has innovative technology, is an active player in the market and represents a good investment.

Continuing applications may be filed during the pendency of early fast-tracked cases to pursue claims of different scope for tangential innovations, affording robust patent protection of a company’s technology.

For The Record

Even in a “first-inventor-to-file” system, documenting research, both pre- and post-filing, is important.

Generally, it is recommended that patent applications be filed before a prior-art disclosure, or the public release of information relevant to the invention in question.

However, the AIA includes a mechanism for disqualifying a disclosure as prior art that can be cited against a pending application. Specifically, public disclosure of the invention by the inventor(s) will not preclude patentability as long as the patent application is filed within one year of the disclosure. Nor will a third party’s public disclosure preclude patentability if the disclosure is derived from the inventor’s work. If, however, the public disclosure by either the inventor or a third party is made more than one year before the filing, the USPTO may reject the patent based on the prior disclosure.

Use of the aforementioned mechanism requires patent applicants to submit a declaration or affidavit to explain why a prior disclosure should not serve to reject a patent application. Keeping detailed research, publication, and presentation records is key to providing the USPTO with this information.

Ongoing discussion between inventors and patent counsel is also important during examination of a patent application to ensure that the claims cover the company’s technology, contemplated alternatives or variations and design-arounds. Claims that ultimately issue for a formulation requiring an alcohol, for example, may be of little commercial value if the product contains an aldehyde instead.

Regular communication also is crucial to ensure compliance with all USPTO requirements, including the duty to disclose information material to the patentability of the claimed subject matter.

Taking The Offensive

In addition to strengthening their own patent portfolios, personal-care and cosmetics companies should keep an eye on their competitors’ activities. The AIA introduced new mechanisms that allow third parties to challenge patents and pending applications. Depending on the circumstances, one or more of these proceedings may enable a company to bolster its market position – potentially at lower cost than traditional court litigation.

For pending applications, a third party may submit publications of potential relevance for the examiner’s consideration in a “preissuance submission.” The submission must be filed within a specific time period, and the applicant has no obligation to respond without the examiner’s request. Because any resulting patent will be presumed valid over the information provided, companies should weigh the pros and cons involved and consult with a patent attorney before choosing to file a preissuance submission rather than, for example, contesting a patent on a post-issuance basis.

Nearly 800 preissuance submissions have been filed to date.

Post-issuance proceedings introduced under the AIA include inter partes review (IPR) and post grant review (PGR), both conducted through the USPTO’s Patent Trial and Appeal Board.

While an IPR proceeding is limited to validity challenges based on anticipation or obviousness of an invention in view of a prior-art publication, PGR allows for challenges on additional grounds, including deficiencies in the patent description, such as insufficient detail about the invention to allow a reader to reproduce it.

However, PGR is only available for certain business method patents and patents subject to the first-inventor-to-file provisions (i.e., patents issuing from an application with an effective filing date of March 16, 2013, or later).

More than 300 IPR requests have already been filed, about 20% of which involve chemical-related technologies. As decisions from these early cases become available, companies will be able to better assess the costs and benefits of post-issuance challenges through the USPTO compared with traditional litigation. Because unsuccessful PGR and IPR proceedings may limit future options for challenging the patent, e.g., in court, careful consideration and consultation with a patent attorney are recommended.

In a dynamic industry that revolves around continual changes in product composition and rollouts of new product lines, personal-care and cosmetics companies should take steps to ensure that their patent strategies align with overall business objectives.

By keeping in mind both short- and long-term goals, and making use of new opportunities provided by the AIA, companies can position themselves to maximize their technological capital and maintain an edge over competitors as the effects of the reforms continue to come to light.