Prior User Rights Study Report to Congress - America Invents Act

While Europe’s experience with prior user rights may suggest that the U.S., too, will experiencefew impacts from the adoption of the defense, these data are not complete. Without the benefit ofempirical evidence, it will not be possible to make determinations before U.S. companies have had achance to exercise these rights, and legal precedent is developed as to when a prior use defense mayvalidly be supported. Clarification of the extent of subject matter upon which a prior user rights defensecan be exercised, specifically with regard to other commercial processes may ultimately help VCinvestors better estimate the risk of prior users actually affecting the return on their investments.The best available evidence shows, however, that the U.S. venture-capital investmentenvironment has grown and thrived in a context of uncertainty over property rights in innovation,especially as regards patents and trade secrets. In a survey conducted at Carnegie-Mellon University inthe early 1990s by Wesley Cohen and coauthors, these researchers found that among U.S. manufacturingfirms, the majority of industries studied considered secrecy as an effective means of appropriating returnsfrom innovations. 187 The importance of secrecy to protecting innovation by U.S. companies since theearly 1990s suggests that venture-capital firms have long experience estimating the risk in a competitiveenvironment that contains a large number of trade secrets. Academic research conducted in 2008 reportedon one experienced VC who said that:[w]hen thinking about the life-cycle of a company, in many respects thevalue of the IP is really generally assessed at the early stage by the firststages of “professional” money. These early-stage [professionalinvestors] will do a great deal of scrutiny of IP of all types, but especiallyof trade secrets and patents. 188Such research suggests that investors have experience navigating the complexities of patenting andsecrecy used by innovators in making investment decisions. Moreover, if prior user rights are likely to berarely exercised in the U.S. (as is suggested by the European experience), then it is reasonable to concludethat “switching” from patent to trade secret protection as a result of the availability of this defense may belimited in nature.Thus, after considering the available evidence, the USPTO finds that:Finding 4:There is no substantial evidence that prior user rights as established in theAIA will have a disproportionately negative impact on venture-capitalinvestments to small businesses and start-ups.187 See Cohen, supra note 166.188 Stuart J.H. Graham et al., High Technology Entrepreneurs and the Patent System: Results of the 2008 BerkeleyPatent Survey, 24 BERKELEY TECH. L.J. 1255, 1305 (2009) (quoting a venture-capital investor).35