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The New Patent Law in New Zealand

The Prior User Defense to Patent Infringement Liability Under the AIA - Basic Considerations

11 years ago

by Steven J. Hultquist                                           © 2013, HULTQUIST, PLLC

The America Invents Act (AIA) has made a substantial change in the scope of the prior use defense to patent infringement claims under 35 USC 273.

The revised statute provides a patent infringement defense to a trade secret user who commercially uses a subsequently patented process, or who uses a subsequently patented machine, manufacture, or composition of matter in a commercial process, if such commercial use was carried out by the trade secret user in the U.S. for at least one year before the effective filing date or first public disclosure of the patented subject matter by or deriving from the patent owner. The defense is available against patents issued on or after September 16, 2011.

The commercial use required for the defense includes actual use, arm’s-length sale/transfer of the end result of the use, marketing or use subject to premarketing regulatory review, and laboratory use for public benefit.

Under the defense, the trade secret holder can increase the extent of its initial commercial use of the patented subject matter – in other words, the trade secret holder has a legally sanctioned right not only to continue U.S. commercial use of the patented subject matter, but also to grow its business at the location involving the commercial use, without infringement liability. 

The defense is limited to the party that performed or directed the performance of the commercial use (including related controlling and controlled entities, e.g., corporate parents and subsidiaries) and is not transferrable to other parties, except in connection with transfers of the business in which the commercial use is carried out.  The defense is limited to the specific location of the trade secret holder’s commercial use, provided that the commercial use at such location predates the effective filing date of the patented subject matter, or the transfer of the business in which it is conducted, if later.

The defense is not available, however, if the owner of the patented subject matter at the time of its invention is a university or a technology transfer organization dealing with university technology, except in the limited instance that there is a prohibition on government funding of the invention activity (e.g., involving embryonic human stem cells). 

In order to firmly establish the defense, when a subsequent patent pending application is first discovered, the trade secret holder should confer with patent counsel and prepare a claim chart in which each element of the claimed invention is documented as to the trade secret holder’s prior commercial usage (e.g., by business records, employee affidavits, etc.), so that all elements of all relevant claims are fully addressed in the claim chart.  This is critical, since the defense must be established by clear and convincing evidence.

In preparing this evidentiary basis for raising the defense in the event that the patent is asserted, documentation of the continuity of commercial use should also be gathered and maintained for each site that is involved in the use, to rebut any later contention by the patent owner that there has been abandonment of the commercial use owing to a break in the documented continuity of usage.

It is essential that the evidence presented to support the defense be effective to conclusively establish the defense, since if the defense is held to be unavailable for any reason, the trade secret holder’s offered evidence for the prior user defense may be held to satisfy the preponderance of the evidence standard for establishing the trade secret holder’s infringement.  This situation may in turn create a potential for enhanced damages exposure for willful infringement as well as liability for attorneys fees, if it is held that the reliance on the prior user defense was legally unwarranted, as lacking reasonable basis.

The full text of the AIA text of 35 USC 273 is set out below for reference.

35 U.S.C. 273 Defense to infringement based on earlier inventor.

(a)  IN GENERAL.–A person shall be entitled to a defense under section 282(b) with respect to subject matter consisting of a process, or consisting of a machine, manufacture, or composition of matter used in a manufacturing or other commercial process, that would otherwise infringe a claimed invention being asserted against the person if—

(1)  such person, acting in good faith, commercially used the subject matter in the United States, either in connection with an internal commercial use or an actual arm's length sale or other arm's length commercial transfer of a useful end result of such commercial use; and

(2)  such commercial use occurred at least 1 year before the earlier of either—

(A)  the effective filing date of the claimed invention; 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).

(b)  BURDEN OF PROOF.—A person asserting a defense under this section shall have the burden of establishing the defense by clear and convincing evidence.


(1)  PREMARKETING REGULATORY REVIEW.—Subject matter for which commercial marketing or use is subject to a premarketing regulatory review period during which the safety or efficacy of the subject matter is established, including any period specified in section 156(g), shall be deemed to be commercially used for purposes of subsection (a)(1) during such regulatory review period.

(2)  NONPROFIT LABORATORY USE.—A use of subject matter by a nonprofit research laboratory or other nonprofit entity, such as a university or hospital, for which the public is the intended beneficiary, shall be deemed to be a commercial use for purposes of subsection (a)(1), except that a defense under this section may be asserted pursuant to this paragraph only for continued and noncommercial use by and in the laboratory or other nonprofit entity.

(d)  EXHAUSTION OF RIGHTS.—Notwithstanding subsection (e)(1), the sale or other disposition of a useful end result by a person entitled to assert a defense under this section in connection with a patent with respect to that useful end result shall exhaust the patent owner's rights under the patent to the extent that such rights would have been exhausted had such sale or other disposition been made by the patent owner



(A) IN GENERAL.—A defense under this section may be asserted only by the person who performed or directed the performance of the commercial use described in subsection (a), or by an entity that controls, is controlled by, or is under common control with such person.

(B) TRANSFER OF RIGHT.—Except for any transfer to the patent owner, the right to assert a defense under this section shall not be licensed or assigned or transferred to another person except as an ancillary and subordinate part of a good-faith assignment or transfer for other reasons of the entire enterprise or line of business to which the defense relates.

(C) RESTRICTION ON SITES.—A defense under this section, when acquired by a person as part of an assignment or transfer described in subparagraph (B), may only be asserted for uses at sites where the subject matter that would otherwise infringe a claimed invention is in use before the later of the effective filing date of the claimed invention or the date of the assignment or transfer of such enterprise or line of business.

(2) DERIVATION.—A person may not assert a defense under this section if the subject matter on which the defense is based was derived from the patentee or persons in privity with the patentee.

(3) NOT A GENERAL LICENSE.—The defense asserted by a person under this section is not a general license under all claims of the patent at issue, but extends only to the specific subject matter for which it has been established that a commercial use that qualifies under this section occurred, except that the defense shall also extend to variations in the quantity or volume of use of the claimed subject matter, and to improvements in the claimed subject matter that do not infringe additional specifically claimed subject matter of the patent.

(4) ABANDONMENT OF USE.—A person who has abandoned commercial use (that qualifies under this section) of subject matter may not rely on activities performed before the date of such abandonment in establishing a defense under this section with respect to actions taken on or after the date of such abandonment.


(A) IN GENERAL.—A person commercially using subject matter to which subsection (a) applies may not assert a defense under this section if the claimed invention with respect to which the defense is asserted was, at the time the invention was made, owned or subject to an obligation of assignment to either an institution of higher education (as defined in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a)), or a technology transfer organization whose primary purpose is to facilitate the commercialization of technologies developed by one or more such institutions of higher education.

(B) EXCEPTION.—Subparagraph (A) shall not apply if any of the activities required to reduce to practice the subject matter of the claimed invention could not have been undertaken using funds provided by the Federal Government.

(f) UNREASONABLE ASSERTION OF DEFENSE.—If the defense under this section is pleaded by a person who is found to infringe the patent and who subsequently fails to demonstrate a reasonable basis for asserting the defense, the court shall find the case exceptional for the purpose of awarding attorney fees under section 285.

(g) INVALIDITY.—A patent shall not be deemed to be invalid under section 102 or 103 solely because a defense is raised or established under this section.


Hultquist, PLLC

March 16, 2013

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