Prior Commercial Use as a Defense to a Patent Infringement Claim

Companies have sometimes been appalled to learn that they could be liable for patent infringement when they did nothing more than continue to sell products that they had publicly sold for years, with no knowledge of any relevant patent nor any claim of infringement by the patent owner. There have long been some limited defenses available to innocent prior users, but the emphasis should be on limited. Since 1999, the Patent Act has given immunity to a user of a patented “method of doing or conducting a business” if it could show that it had made commercial use of the business method at least one year prior to the filing of the relevant patent application. In addition, there have always been some generally-applicable equitable defenses to patent infringement called laches and estoppel—but they require that the patent owner knew of the infringement and took no action, and that the infringer then relied on the inaction.

Now, the America Invents Act, signed into law on September 16, 2011, will offer companies significantly broader protection in cases of innocent infringement. Specifically, it will protect companies from infringement claims if they innocently use an infringing process, or make and sell an infringing product that is used in a commercial process, without knowledge of the claimed patent. Not surprisingly, this broad protection is subject to a series of limitations:

• It applies only to U.S. patents issued on or after September 16, 2011, the date of enactment.
• The company must have continuously used the offending process, or made and sold the offending product, in “good faith” in commerce in the United States at least one year prior to the earlier of the date on which the patent application was filed or the date on which the inventor disclosed the invention to the public. To qualify, this commercial use need not have been public—in fact, prior public use might provide grounds for invalidating the patent under other provisions of patent law.
• The requirements for good faith will evolve over time. At a minimum, it is unlikely that the defense will be available if the company had reason to believe that it was infringing a patent when it started using the process or making and selling the product.
• The statue expressly makes the defense unavailable to the company if its product or process was “derived” from the patent owner or someone in privity with the patent owner, such as a licensee. For example, a company would be unable to assert this defense if the offending product was developed for it by the party who owns the patent. While this is not technically a part of the “good faith” requirement, it is based on the same notion that the prior user’s conduct must be innocent.
• The defense is limited to the continuation of the specific processes or products that meet the above tests, together with variations in quantity or volume, and improvements that do not infringe additional claims of the patent. The successful use defense does not invalidate the patent, and the defense does not amount to a general license under all of the claims of the patent claimed to be infringed. This could limit the value of the defense to companies in industries where products typically have short life cycles and must be constantly improved.
• The benefit of the defense can be passed on to the company’s customers under the “patent exhaustion” doctrine. That is, if the prior user can rely on the defense to make a product, customers cannot be sued for buying and using that product. The defense is otherwise personal to the company and cannot be assigned or licensed to a third party except as an ancillary part of the sale of a business. Even in the latter case, the defense extends only to the qualified sites of the acquired business, and does not extend more broadly to the acquiring company. These limits should effectively preclude trafficking in prior user rights.

Finally, a company must be aware that Congress did not intend for this defense to be a “free shot” at existing patents. The company claiming the defense has the burden of proving by clear and convincing evidence that it meets the required standards. In addition, if the court finds that the company fails to demonstrate a “reasonable basis for asserting the defense,” it may award attorneys fees to the patent owner.