Prior User Rights Study Report to Congress - America Invents Act

While economic literature squarely addressing these questions is lacking, several publiccomments to the Federal Register Notice addressed the import of prior user rights to VC investment.Several respondents, including a prior director of a technology-focused Federal research organization, 183asserted that prior user rights would create incentives for businesses to protect innovations through tradesecrets instead of seeking patents. The implication is that the potential for secret uses in a market wouldmake it more difficult for investors to estimate markets and value invention, 184 thereby depressing theattractiveness of a later patenting start-up to venture-capital funding. However, opinion was mixed on thisquestion: One response by a major technology association which represents large, medium and smallcompanies 185 suggested that, without the prior user rights defense, the company which lost the “race to theUSPTO” in a first-to-file environment would lose all investment returns for that project. By avoiding sucha harsh result in the particular case, the prior use right could provide venture capitalists with increasedinvestment certainty.A search of the existing economic literature yielded no empirical study of the impact of prior userrights within the U.S. venture-capital investment context, so correlations per se are not available.However, relevant information can be gleaned from a) identifying assertion rates and impacts of prioruser rights in other countries, and b) assessing the degree to which trade secrets are already included innormal decision making by venture capital firms when making their start-up investments.According to a recent European Commission study on prior user rights, 186 “very few casesinvolving prior use rights are brought to court [in Europe],” and questions posed to their stakeholderssuggested that “the impact of prior use rights on patent litigation seem to be low.” Europe shares with theU.S. many of the economic characteristics that ought to be relevant in assessing the impact of a prior userrights defense in the U.S.: It is highly innovative, supports a strong patent system, and possesses welldevelopedcapital markets and a large and vibrant competitive environment. It is noteworthy, however,that Europe tends to have a less well-developed entrepreneurship, start-up, and venture-investingenvironment than does the U.S.183 Comments from Tony Tether, to David Kappos et al., Undersecretary Dep. of Comm. for Intell. Prop., andDirector of the USPTO 4 (Nov. 4, 2011) [hereinafter “Comments of Tony Tether”],http://www.uspto.gov/aia_implementation/pur-2011nov07-tony_tether.pdf.184 See Ellen Jalkut & Michael J. Remington, Prior User Rights Expansion: Congress, the Courts, andConstitutional Considerations, 82 BNA PAT., TRADEMARK, & COPYRIGHT J., Sept. 2, 2011, at 9, available athttp://www.drinkerbiddle.com/files/Publication/cbeafa8f-1b3b-4787-9fb8-17739e59dca9/Presentation/PublicationAttachment/8ddaaed5-a6e9-4c30-b7af-1b8ff12f0a7e/ITN_Remington_BNA.pdf.185 Comments from Brian Kahin, Senior Fellow, Computer & Comm. Indus. Ass’n, to the USPTO, Comments of theComputer & Commc’ns. Ind. Ass’n (Nov. 8, 2011) [hereinafter “Comments of the Computer & Commc’ns. Ind.Ass’n”] http://www.uspto.gov/aia_implementation/pur-2011nov08-ccia.pdf.186 See VAN EECKE, supra note 125.34