Health Insurance Exchanges: The Participation Paradox

As state and federal agencies work to create operational health exchanges, one critical question remains unanswered: How will the key stakeholders participate in the new health exchanges?  Health insurance exchanges are intended to be the vehicle through which millions of Americans will obtain health insurance as mandated by the Affordable Care Act (“ACA”).  The success of the health exchanges will largely rest on an equilibrium of participation by consumers, insurers and health care providers.  A lack of involvement by any one group could have a dramatic effect on the other stakeholders, and ultimately, the success of the health exchange.

For example, hundreds of thousands of Michigan residents are expected to utilize the exchange to obtain insurance.  However, an individual who does not maintain health insurance must make an additional payment to the IRS.  The difference between the IRS payment and the cost of a qualifying insurance policy is significant.  In its decision upholding the constitutionality of the ACA, the Supreme Court noted that, in 2016, the expected amount owed to the IRS is 50% to 85% less than the projected expense to purchase a qualifying insurance policy.  Therefore, it is possible that healthy, low-risk individuals will choose to pay the IRS rather than buying insurance.  This is especially true in light of the ACA’s elimination of pre-existing conditions from the coverage equation.

It is likely that such departure of the low-risk demographic from the market will have an impact on insurers.  Without a healthy population to equalize the risk on the exchange, insurers may attempt to increase insurance premiums for the remaining population.  However, given the regulatory environment, insurers will not be able to rely solely on premiums.  Instead, insurers may also seek to reduce reimbursements to providers who deliver care under plans offered on the exchange.  Ultimately, some insurers may simply choose not to participate in the exchange after evaluating the perceived risks associated with its population.  Less competition amongst insurers could also lead to increased insurance premiums.

Although the health exchange will increase the number of insured potential patients, not all health care providers will be interested in participating in the exchange.  Decreasing reimbursements may eliminate any incentive a provider has to increase the scope of health insurance plans he is willing to accept.  This is especially true if the new plans are associated with a higher-risk population.  In addition, the administrative costs associated with collecting patient contributions under these plans may be prohibitive.  Providers have historically opted in and out of various governmental programs for similar reasons.

Ultimately, the question remains how will consumers, insurers and health care providers participate in the health exchanges, and whether it will be in a way that creates a sustainable equilibrium.

© 2013 Michael P. James, J.D., M.B.A., CSSGB

To find out more about the Michigan health exchange and the impact the Affordable Care Act has on health care, contact attorney Michael James at mjames@michaeljameslaw.com, 810-936-4040 or www.michaeljameslaw.com. Michael James provides representation and counseling related to all facets of business enterprise and health care matters.

Michigan Moves One Step Closer to a Federal-State Partnership Health Exchange

On February 27, 2013, the Michigan House Appropriations Committee overwhelmingly approved $30.67 million in federal grant money to establish a State Partnership Exchange.  A day later, House Bill 4111, which permits the state to accept the federal grant, passed the Michigan House of Representatives with a vote of 78 to 31. The bill now moves to the Michigan Senate.

This week’s actions move Michigan one step closer to creating a State Partnership Exchange.  After legislation to create a state-based health exchange failed in late 2012, the federal-state partnership was Michigan’s only option to be involved with the state’s health exchange in 2014.  Michigan plans to use these funds to perform the plan management and consumer assistance functions of the State Partnership Exchange.  In addition, the funds will help Michigan bring its Medicaid and CHIP programs online with the exchange.

If the HB 4111 is passed in the Senate, Michigan can move forward with its plans under the State Partnership Exchange model.  According to the United States Department of Health and Human Services (“HHS”), a State Partnership Exchange allows a state to assume primary responsibility for carrying out certain activities related to plan management and/or consumer assistance and outreach.  With respect to plan management, the scope of state responsibilities may include certifying health plans for the exchange and the day-to-day administration and oversight of health plan issuers.  On the consumer front, HHS hopes to draw on a state’s knowledge and experience regarding the needs of the state’s population.  Here, the scope of state responsibilities may include: the day-to-day management of the Exchange Navigators; the development and management of a separate, in-person assistance program; and the creation of outreach and educational activities.

I will continue to provide updates as details related to Michigan’s health exchange unfold.

© 2013 Michael P. James, J.D., M.B.A., CSSGB

To find out more about the Michigan health exchange and the impact the Affordable Care Act has on health care, contact attorney Michael James at mjames@michaeljameslaw.com, 810-936-4040 or www.michaeljameslaw.com. Michael James provides representation and counseling related to all facets of business enterprise and health care matters.

Changes in Health Care Laws Allow Retailers to Expand the Scope of Rewards Programs

Introduction:

Rewards programs have become an increasingly popular and important way for businesses to attract new customers and retain their most profitable clientele.  In addition, these programs provide companies with a wealth of data related to consumer purchases that can be used to forecast demand and create targeted marketing initiatives. Typically, rewards programs consist of coupons or rebates given by a retailer to a customer after the customer surpasses specific spending thresholds.  Rewards are usually redeemable on future purchases at the retailer or one of the retailer’s business partners.

Prior to the Patient Protect and Affordable Care Act (“ACA”), retailers faced potential exposure if their programs rewarded customers for the dollars spent on items covered by federal health care programs.  Therefore, retailers generally excluded purchases of medical devices, medical supplies and prescription drugs covered by Medicare and Medicaid from their rewards programs. However, the ACA has created new regulations that directly affect the permissible scope of retailer rewards programs.  As a result, retailers that comply with the new regulations may be able to expand their programs to include purchases related to items covered by federal health care programs.

Changes in Health Care Regulations:

Civil Monetary Penalties

Section 1128A(a)(5) of the Social Security Act (“Act”) provides for the imposition of civil monetary penalties (“CMP”) against any person who offers or transfers remuneration to a Medicare or state health care program (including Medicaid) beneficiary that the benefactor knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of any item or service for which payment may be made, in whole or in part, by Medicare or a state health care program.  The Office of Inspector General (“OIG”) may also initiate administrative proceedings to exclude such party from the federal health care programs.  “Remuneration” includes the transfer of items or services for free or for less than fair market value.  The OIG has taken the position that incentives that are only nominal in value are not prohibited by the statute, and has interpreted “nominal in value” to mean no more than $10 per item or $50 in the aggregate on an annual basis.  Therefore, before the ACA, programs that offered significant rewards to customers based on their purchase of medical devices, medical supplies and prescription drugs covered by programs like Medicare would likely be in violation of the Act and be subject to CMP.

However, the ACA amended the definition of “remuneration” for purposes of CMP by adding a new exception for rewards offered by retailers.  Under the ACA, retailer rewards do not constitute “remuneration” for CMP purposes if they meet the following three criteria:

1)     The rewards consist of coupons, rebates or other rewards from a retailer;

2)     The rewards are offered or transferred on equal terms available to the general public, regardless of health insurance status; and

3)     The offer or transfer of the rewards is not tied to the provision of other items or services reimbursed in whole or in party by the Medicare or Medicaid programs.

Based on this exception, retail rewards programs should be able to avoid CMP as long as they are structured correctly.  If the retailer offers rewards in the form of coupons, rebates or other types of rewards based on a customer’s purchases, the first prong of the exception will likely be satisfied.  In order to satisfy the second prong, the rewards program must be offered on equal terms to all customers.  In other words, all customers of the retailer must be eligible to participate in the rewards program.  The final prong will likely create the most difficulty for retailers.  The rewards program cannot be tied to the provision of other items or services reimbursable in whole or in part by the Medicare or Medicaid programs.  Retailers will have to develop rewards programs that comply with this regulation for both “earning” and “redeeming” transactions.  Retailers should make it a priority to utilize the knowledge of an experienced business and health care attorney to develop a plan that enhances business objectives, satisfies federal regulations and avoids liability.

The Anti-Kickback Statute

The Anti-Kickback Statute (“AKS”) prohibits the payment or receipt of remuneration in return for referring individuals for items or services reimbursable by a federal health care program.  See Section 1128B(b) of the Act.  Under the AKS, “remuneration” includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind. The statute has been interpreted to cover any arrangement where one purpose of the remuneration is to obtain money for the referral of services or to induce further referrals.  Violation of the statute constitutes a felony punishable by a maximum fine of $25,000, imprisonment up to five years, or both.  A violation of the AKS will also lead to an automatic exclusion from federal health care programs, including Medicare and Medicaid.

Unfortunately, the AKS does not have a exception to the definition of “remuneration” similar to the one that was created by the ACA for CMP.  However, the OIG recently released an Advisory Opinion related to the AKS and retailer rewards programs.  Although Advisory Opinions have limited application and authority, the OIG’s analysis and determinations are insightful.

The OIG was asked to evaluate a rewards program of a retailer that owned and operated thirteen supermarkets, most of which had in-store pharmacies.  The retailer’s rewards program permitted customers to earn gasoline discounts at a partnering gas station based on the amount customers spent on purchases in the retail supermarkets, including the cost-sharing amounts paid by customers on items covered by federal health care programs purchased at the in-store pharmacies.

After evaluating the retailer’s rewards program, the OIG found that the program posed a minimal risk of fraud and abuse.  The OIG noted that the retailer’s stores sold a broad range of groceries and other non-prescription items.  As such, the risk that the rewards program would steer beneficiaries to the retailer’s stores to purchase federally reimbursable items or services was low.  Customers were not required to purchase prescription items to earn rewards and there was no specific incentive for transferring prescriptions to the retailer’s pharmacies.  The OIG also determined that the rewards program would not likely lead to an overutilization or otherwise increase the costs to federal health care programs.  Any cost-sharing amounts counted towards a customer’s rewards would result from prescriptions already prescribed, and the rewards could not be used on future prescription purchases.  Ultimately, the OIG determined that it would not impose sanctions on the retailer in connection with the AKS.

Conclusion:

Based on the changes to the regulatory environment found in the ACA and recent insights from the OIG, retailers may be able to expand their rewards programs to include purchases related to items covered by federal health care programs.  However, retailers must engage in careful analysis and planning to ensure that their rewards programs do not violate health care regulations.  Retailers interested in expanding their rewards programs, or making sure their current rewards programs comply with health care regulations, should seek the advice of an experienced health care attorney and consider obtaining an Advisory Opinion from the OIG based on the specifics of the proposed program.

© 2013 Michael P. James, J.D., M.B.A., CSSGB

Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters. For more information, you can contact Michael at mjames@michaeljameslaw.com, (810) 936-4040 or www.michaeljameslaw.com.

Patent Law Update: The America Invents Act – Part 4: Patent Defense Considerations

Introduction

In the first three articles in the “Patent Law Update: America Invents Act” series, I discussed the changes to the patent application process and issues that may arise after your patent application has been filed ( Article 1, Article 2, Article 3).  In this final article, I will transition my discussion to issues that may arise in defending your patent rights against potential infringers.  Here, I will cover three critical topics.  First, I will evaluate the changes to the prior use defense and how these changes may be used to protect your intellectual property.   Second, I will examine the changes to the best mode required disclosure and how this may impact patent litigation.  Finally, I will discuss the changes to the advice of counsel defense to infringement actions and their impact on willful infringement claims.

Expansion of the Existing Prior Use Defense

Under the old law, alleged infringers were permitted to advance a “prior use” defense when faced with a patent infringement case.  However, the prior use defense was only permitted in cases involving a business method patent.  In order to properly assert the defense, an accused infringer had to have been able to demonstrate that he or she had practiced the business method at issue at least one year before it was patented.

As of September 16, 2011, the scope of the prior use defense has been expanded to include all subject matter.  Now, if you can demonstrate that you made commercial use of the subject matter in the United States, at least one year before the effective filing date of the patent, the prior commercial may be used as a defense against patent infringement.

The expansion of the prior use defense provides you with a new tool to protect your intellectual property.  If your inventions involve subject matters that are readily understandable once they are placed on the market, the expansion of the public use defense may be of little consequence to you.  It is likely that your intellectual property may be protected against potential infringers as prior art.  However, if your inventions are not self-disclosing, the prior use defense may be an incredibly valuable resource.  Inventions that are not self-disclosing include many business processes and inventions are that concealed within other end products.

Under the old system, inventors were faced with two choices: 1) disclose their non-self-disclosing invention to the public through a patent; or 2) treat the invention as a trade secret and keep it secret.  If the invention was disclosed through a patent, the inventor would gain patent protections, but lose the strategic advantage of maintaining the subject matter’s secrecy.  If the invention was treated as a trade secret, the inventor may preserve his or her confidential information, but risks losing rights to the invention as a result of someone obtaining a patent for the same subject matter.  Both options had their advantages and disadvantages. The new prior use defense under the AIA reduces the difficulty faced by inventors as a result of this trade-off.  Instead, the new law favors maintaining secrecy because it eliminates the risk of someone else being able to patent your invention.

Best Mode Requirement

Under the old patent system, a patent could be invalidated if the inventor failed to disclose the “best mode” of the invention.  The law required that an inventor disclose the best mode for carrying out the invention in his or her application.  The purpose of this requirement was to deter inventors from applying for a patent, while at the same time, concealing from the public the preferred use of the subject matter.  If the inventor was going to receive the exclusive right or monopoly to the invention under a patent, the law required the applicant to disclose its best use.

As of September 16, 2011, the America Invents Act (“AIA”) has eliminated the failure to disclose the best mode for an invention as a basis for invalidating a patent.  This appears to be true even if it is later determined that the inventor knew of a best mode and intentionally failed to disclose it on the patent application.  In eliminating the invalidity or unenforceability defenses from patent litigation, Congress has seemingly eliminated a rule that often conflicted with a patent applicant’s desire to maintain certain aspects of an invention as trade secrets.

However, even though the “best mode defense” has been eliminated from litigation, the best mode requirement has not been eliminated from the patent application process.  Not surprisingly, there remains some debate over how these two best mode provisions will interact with each other.  It is clear that an applicant must include a description of the subject matter that allows an examiner to use the invention over the full scope of its claimed purposes.  What is unclear is whether the application must also delineate a use that is of special value or interest to the inventor.  A potential consequence of failing to disclose a best mode on your patent application is that the application may be rejected by the patent examiner.  In addition, the absence of a best mode description in your application may expose your patent to attacks from third parties under the newly created post-grant review procedures (discussed in Article 3).

Advice of Counsel

Under the old patent law system, the “advice of counsel” defense played a critical role in defending infringement actions, especially when those actions included claims of willful infringement.  Once you were put on notice of an alleged infringement, you were faced with a critical decision.  Do you continue to manufacture and sell the accused product or not?  If you elected to continue with your business enterprise, you could have been subjected to treble damages and attorneys’ fees under a theory of willfulness and bad faith if you lost the infringement claim.  The solution many alleged infringers implemented was to obtain a non-infringement or invalidity opinion regarding the uniqueness of their product and/or the merits of the infringement allegations.  Even if the opinion was ultimately wrong and it was determined that the product infringed upon a valid patent, the opinion could be used to support a finding that no willful infringement took place.  As such, an opinion letter served as potential insurance against treble damages and attorneys’ fees in an infringement litigations.

As of September 16, 2011, judges and juries are not allowed to drawn an adverse inference from an accused infringer’s failure to obtain an opinion letter from counsel as to the alleged infringement.  The same holds true in situations where an alleged infringer refuses to waive attorney-client privilege when asked to disclose an attorney’s opinion regarding his or her own product or the alleged infringement.  As a result, an alleged infringer’s failure to obtain an opinion letter cannot be used to prove willful infringement or bad faith in infringement cases.

Even though AIA prevents an adverse inference from being drawn for failing to obtain the advice of counsel, it may still be in your best interest to obtain a non-infringement or invalidity opinion letter.  When a person becomes aware that he or she may be infringing upon a patent, a duty arises to exercise due care and investigate whether or not your product infringes upon the subject patent.  Most courts consider the totality of the circumstances when deciding if a defendant has willfully infringed a patent.  As part of this analysis, the courts will consider whether the alleged infringer investigated the scope of their patent when he or she learned of the claim and whether he or she formed a good-faith belief that the claim was invalid or that the competing patent was not infringed.  It may be difficult to demonstration that you have performed your due diligence without a non-infringement or invalidity opinion letter.

Conclusion

The AIA involves a number of changes to strategies routinely used and relied on by patent holders in patent litigations.  You should contact your attorney to develop a litigation strategy that capitalizes on the recent changes to the patent laws.

© 2013 Michael P. James, J.D., M.B.A., CSSGB

Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters. For more information, you can contact Michael at mjames@michaeljameslaw.com, (810) 936-4040 or www.michaeljameslaw.com.

Patent Law Update: The America Invents Act – Part 3: Patent Ownership, Validity & Conflicts

Introduction

In the first two articles in the “Patent Law Update: America Invents Act” series, I discussed the changes to the patent law that affect the patent application process. (Article 1Article 2) In this third newsletter, I will transition my discussion to issues that may arise after your patent application has been filed.  Here, I will cover four critical topics.  First, I will evaluate the new derivation proceedings and how they differ from the existing interference proceedings to resolve conflicts between competing inventors applying for patents on the same invention.  Second, I will examine the expansion of the current procedures for third parties to submit evidence of prior art to the United States Patent and Trademark Office (“USPTO”) to derail a pending patent application.  Third, I will discuss the new supplemental examination procedures and how they can be used to as both an offense and defensive resource related to a patent’s legitimacy.  Finally, I will survey the new procedures developed by the USPTO to resolve the validity of a recently issued patent through formal trial proceedings.

Article 4

Derivation Proceedings

Under the current system, special examiners from the USPTO use interference proceedings to resolve conflicts between competing inventors applying for patents on the same invention.  During these proceedings, inventors are permitted to submit signed and dated notes, prototypes, affidavits and secondary evidence like credit card statements and receipts to prove that he or she was the first to create the disputed invention.  An inventor is also permitted to contest the sufficiency of the other’s inventor’s supporting documentation. Ultimately, interference proceedings are designed to determine who was the first to invent the object or process and/or whether the competing claim is novel or obvious in light of the competitor’s claimed subject matter.

On March 16, 2013, the first-to-file system will eliminate interference proceedings and the practice of “swearing back” (where the inventor submits documentation of a date of conception or reduction to practice prior to the date of the disclosure or filing).  Instead, conflicts between inventors will be entitled to resolution through a derivation proceeding.  However, derivation proceedings will operate differently than the current interference proceedings.  The focus of these new proceedings is to determine whether the subject of a patent application was derived from the invention of someone else.  Although this may seem synonymous to an interference proceeding, there is a subtle difference: an interference proceeding is designed to establish your ownership in an invention, whereas a derivation proceeding is designed to prevent someone else from obtaining the rights to a derivative of your invention.  Under the new system, disputes over the ownership of an invention will be resolved solely based upon the priority and disclosure rules discussed in my first article.  In light of the changes to the disclosure and prior art rules, the new derivation proceedings will inevitably be more complex than the old interference proceedings.

Third Party Submission of Prior Art

Third party submissions of prior art are designed to strengthen the patent system by quickly eliminating patents that are obvious in light of prior art.  The process helps the USPTO identify prior art that is relevant to its evaluations and determinations.  Currently, third parties are permitted to submit prior art to the USPTO they believe are applicable to pending patent applications.  However, third parties are not permitted to explain why the alleged prior art is relevant to the PTO’s evaluation of the subject patent.  As discussed in Newsletter 1, the scope of prior art will be expanded beyond just patents and publications under the America Invents Act (“AIA”) in the Spring of 2013.

On September 16, 2012, third parties will still be permitted to submit prior art believed to be relevant to a pending patent application.  However, the new patent system will also allow third parties to provide statements about the relevance of the prior art that they submit.  Third parties will be permitted to submit prior art before the issuance of the patent or within six months after first publication of a patent application.  Third parties will also be permitted to submit prior art six months after the first rejection of a patent application.

AIA’s expansion of a third party’s ability to submit prior art and explain its relevancy to a pending patent application will be an important tool to ward off potential infringers.  A prior art submission may preclude the need to initiate lengthy review procedures (discussed below) or to file infringement claims in court.  Ultimately, a submission of prior art may prevent infringement before it even starts.

Supplemental Examination Procedure

After September 16, 2012, the supplemental examination procedure will allow a patent owner the ability to request a  supplemental examination of a patent to consider, reconsider or correct information believed to be relevant to the patent.  A patent owner can utilize this procedure to put his or her patent in the best form possible before initiating infringement litigation against an infringer.  Although the scope of the patent cannot be enlarged, the patent can be rewritten to strengthen its claims and protections.  In addition, a supplemental examination may give the perception that the patent has been doubly confirmed by the USPTO.  If modifications/corrections are concluded before litigation is initiated, the infringer cannot use the changes as a basis to support an argument that the subject patent is unenforceable.

The supplemental examination procedure can also be used by a third party to challenge the validity of a patent.  Here, the filing party must demonstrate that a substantial new question of patentability exists with the subject patent.  The new evidence regarding the patentability of the subject invention is limited to existing patents and printed publications.

The USPTO has ninety (90) days from that initial request to decide whether to grant the supplemental examination.  If the supplemental examination is granted, the patent holder is permitted to file a response.  In doing so, the patent holder may rewrite the patent so that the new evidence no longer invalidates the patent.  An ex parte filer is permitted to file a reply to the patent holder’s response.  Then, the USPTO will issue a ruling as to the validity of the patent.  The USPTO’s decision is appealable to the Patent Trial and Appeal Board (“PTAB”) and then to the Federal Circuit.

The supplemental examination process can be a powerful tool for a patent owner to prepare for litigation over the validity of someone else’s patent.  The process can also be a relatively cheap way for a party to challenge the validity of a patent, even though the patent holder may be able to prevent invalidation by amending the patent.  The key aspect to supplemental examinations is that they are administrative in nature.  Unlike the review processes discussed below, supplemental examinations do not mimic trial practices.  As a result, these examinations require less time and resources to reach resolution.

Post-Grant Review Procedures

Although this change will not become effective until September 16, 2012, the new post-grant review procedures will have an important impact on one’s ability to challenge the validity of a patent.  These procedures contain a number of new requirements that affect the nature and scope of the evaluation of process.  Ultimately, these procedures are designed to quickly eliminate conflicting patents that are obvious and provide a speedy alternative to civil litigation when a claimant seeks to invalidate a patent based on prior art.  For the sake of clarity, I will address the new procedures individually.

The Current Review Process:  Reexamination Procedures

The current patent system has a reexamination process.  The process was designed to allow the validity of a patent to be challenged without having to initiate litigation.  However, due to the increased volume of petitions that have been filed over the years, reexaminations routinely take many years to be resolved.  Reexamination procedures often involve multiple Office actions, several rounds of third party and patent owner responses to the Office actions and numerous other petitions.  Although the reexamination is conducted by the USPTO, the process resembles civil litigation in practice.

A reexamination petition can be filed any time during the life of the subject patent.  In order for a reexamination petition to be granted, the petitioner must demonstrate a substantial, new question of patentability exists with respect to the patent.  However, the scope of  the petition is limited to existing patents and printed publications.  A party is permitted to simultaneously pursue a declaratory action related to the validity of the patent in civil court and a reexamination process through the USPTO.  In order to prevail in the reexamination process, the petitioner must prove the unpatentability of the device, plant or process at issue by a preponderance of the evidence.

The Future Review Process:  Post-Grant Procedures and Inter Partes Procedures

Post-Grant Review Procedures

The post-grant review procedure is an entirely new process created under AIA.  A post-grant review is a trial proceeding under the jurisdiction of the PTAB.  Through the post-grant review process, a third party may request a proceeding to challenge the validity of a recently issued patent.  A post-grant review can be initiated under nearly any invalidity defense, including its patentability, novelty, obviousness, evidence of prior sale, prior use or public knowledge.  Post-grant review proceedings may also focus on deficiencies in the patent applicant, including the applicant’s failure to comply with the specification and best mode requirements.  These proceedings are designed to be resolved within twelve (12) to eighteen (18) months after they begin.

A third party can request a post-grant review by filing a petition within nine (9) months after the subject patent has been granted.  In light of this short time frame, I believe that it will be necessary to actively monitor your industry and evaluate the patents registered by your competitors.  As noted above, the scope of the possible grounds that will be available to challenge a competitor’s patent is much broader under the new system.  As such, I believe that it will be important to take advantage of these post-grant procedures in the future.

In order for a post-grant review proceeding to be granted, the petition must demonstrate that it is more likely than not that at least one of the claims challenged in the petition is unpatentable.  However, unlike the current reexamination process, a post-grant review would not be granted if the petitioner has already filed a civil suit challenging the validity of the patent.  If granted, the petitioner has the burden of proving unpatentability by a preponderance of the evidence.  This is the same burden of proof required under the current reexamination procedure and is more favorable to petitioners than the clear and convincing standard faced in the courts.  Once the patentability of a subject matter has been adjudicated by the PTAB, petitioners are precluded from challenging the validity of the patent involved in subsequent federal court or International Trade Commission proceedings on any grounds that were raised or reasonably could have been raised during the post-grant review proceeding.  However, the PTAB’s post-grant review decisions are appealable to the Federal Circuit.

Inter Partes Review Procedures

Under the AIA, the inter partes review process will be available to third party petitioners after the nine (9) month post-grant review period has expired or a post-grant review proceeding has been terminated.  An inter partes review process may be initiated any time during the remaining life of the subject patent.  In many ways, the inter partes review procedures are similar to the current reexamination procedures.

Much like the current reexamination process, the scope of inter partes review is limited to prior art consisting of patents and printed publications.  In addition, the petitioner has the burden of proving unpatentability by a preponderance of the evidence under both sets of procedures.  However, an inter partes review may only be initiated if there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the claims challenged in the petition.  This is a much higher standard than required under the current reexamination procedures.

An inter partes review cannot be initiated by a petitioner who has filed a civil suit challenging the validity of the patent.  However, if the petitioner files a civil action to challenge the validity of the patent on or after the date the petitioner files a request for inter partes review, the civil action is automatically stayed.  In addition, if a petitioner is defending an infringement claim, the petitioner cannot request inter partes review more than one year after being served with the complaint.  Taken together, these new timing restrictions will limit a petitioner’s flexibility in instituting a concurrent challenge against an infringer.

Overall, the post-grant review process and the inter partes review process create a new system to contest the validity of a recently issued patents.  Both the post-grant review process and the inter partes review process will make it more difficult to seek patent invalidation before the USPTO.  However, the post-grant review process has significantly broadened the scope of issues that can be considered by the USPTO to invalidate an infringing patent.  While the inter partes review process maintains the safeguards found under the current reexamination process, it also limits your ability to pursue remedies in multiple venues at the same time.  Because of the intricacies involved in the new system, you should meet with your attorney before its implementation to devise a strategy that will allow you to capitalize on its advantages and avoid its pitfalls.

Conclusion

The new patent law involves a number of new and revised procedures that may be applicable to your patent or patent application once it has been filed.  These procedures are designed to resolve disputes faster and reduce the cost associated with enforcing your intellectual property rights.  You should work with your attorney to determine how these new procedures can be utilized to protect your interests in existing and future patents.

My final article will discuss issues under the new patent law related to defending the interest in your patent.  In doing so, I will discuss three important areas of the new law.  These areas include: 1) the prior use defense; 2) the best mode requirement; and 3) advice of counsel.

© 2012 Michael P. James, J.D., M.B.A., CSSGB

Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters. For more information, you can contact Michael at mjames@michaeljameslaw.com, (810) 936-4040 or www.michaeljameslaw.com.

Patent Law Update: The America Invents Act – Part 2: Patent Applications Continued

Introduction

In the first article in the “Patent Law Update: America Invents Act” series (Article 1), I began my discussion of some of the changes to the patent law that will likely affect the timing of your patent applications.  In this second article, I will continue my discussion of the patent application process.  Here, I will cover three critical topics.  First, I will evaluate the new prioritized examination procedures and how they can be utilized to accelerate the process to receive your patent from the United States Patent and Trademark Office (“USPTO”).  Second, I will examine the revised micro entity status and explain how to qualify for its benefits.  Finally, I will discuss the changes to the inventor’s oath of declaration requirement on patent applications and what this may mean for your future applications.

Article 3

Article 4

Prioritized Examination

On September 26, 2011, the new prioritized examination procedures became law under the America Invents Act (“AIA”).  The new procedures are available for original utility or plant patent applications filed after this date.  Patent applications that have already been filed with the USPTO will not be eligible for prioritized examination.  Eligible patent applications may contain, or be amended to contain, no more than four independent claims or no more than thirty total claims.  The request for prioritized examination must be accompanied by a fee of $4,800 for large entities and $2,400 for small entities (defined below under Micro Entities).  This fee is in addition to the normal fees charged by the USPTO as part of the application process.

The goal of a prioritized examination is to resolve a patent application within twelve (12) months of its prioritized status being granted.  To accomplish this goal, applications that receive prioritized status will be placed on the patent examiner’s special docket until a final disposition has been issued to the patent applicant.  The USPTO considers a final disposition to be any of the following courses of action: 1) the mailing of a notice of allowance; 2) the mailing of a final office action; 3) the filing of a notice of appeal; 4) the completion of the patent examination; 5) the filing of a request for continued examination; or 6) the applicant’s abandonment of the application.  If the examination concludes or terminates prematurely as a result of one of these final dispositions, the application will be transferred to the examiner’s regular docket, and the applicant will not be entitled to a refund of the prioritized examination fee.  The USPTO is only permitted to accept 10,000 requests for prioritized examination in any given fiscal year.

The prioritized examination procedures may be an important resource for you to obtain a patent on your invention in an expedited fashion.  If you are interested in obtaining a prioritized examination of your patent application, you should contact your attorney as soon as possible.  If the USPTO has already met its 10,000 request quota and you would still like to utilize the prioritized procedures, you should work with your attorney to develop a strategy based on prior art, prior use and disclosures to protect your interests until the next cycle of prioritized examinations is available for prioritized filing.

Micro Entities

Currently, some inventors may be eligible to file their patent applications as a “micro entity”.  The new micro entity status under AIA provides a 75% discount on fees for certain applicants.  Under the old law, a 50% reduction in fees was available for small entities.  Micro entity status is offered to select individual inventors, small companies and institutions of higher learning.  In order to receive micro entity status, an applicant must file a statement with the USPTO certifying that it has met the appropriate criteria.  There are two ways to qualify for micro entity status with the USPTO.

For individual inventors or small companies, there are four main criteria to be a micro entity.  First, the applicant must qualify as a “small entity”.  A small entity is either a person, a small business having no more than 500 employees, a university or a non-profit organization.  In order to qualify as a small entity, the individual or entity cannot be under an obligation to assign or license the invention to an individual or entity that is not a “small entity”.  Second, the applicant must not have been listed as a named inventor in more than four (4) prior patent applications.  This limitation does not include provisional patent applications, foreign applications or applications owned by a previous employer.  Third, the applicant must have had a gross income in the previous year of less than three times the median household income reported by the Bureau of the Census.  Finally, if the intellectual property is assigned, the new owner must have had a gross income in the previous year of less than three times the median household income reported by the Bureau of the Census.

For individuals or entities that have a relationship with an institution of higher learning, an applicant must fall into one of two categories before micro entity status is granted: 1) either the majority of the applicant’s income must come from employment at the institution of higher learning; or 2) the applicant is under an obligation to assign ownership of the intellectual property to an institution of higher learning.

Micro entity status can help you realize tremendous savings on the cost of your patent applications.  It is worth evaluating your current status and relationships to determine if you are eligible to file your patent application as a micro entity.

Inventor’s Oath of Declaration

Under AIA, there are two substantive changes to the requirement that a patent application be accompanied by the inventor’s oath of declaration.  These changes become law on September 16, 2012.  First, under the current law, the patent application must be executed by the inventor in order to be considered by the USPTO.  Under the new law, a patent application may be filed without the participation of the inventor.  Instead, the owner of the rights to an invention may file the patent application.  AIA changed this rule to make it easier for companies to obtain patents on inventions where an inventor is either no longer available to participate in the application or unwilling to do so.

Second, under the current law, an inventor is required to certify a lack of deceptive intent when he or she seeks to either: 1) reissue a defective patent; or 2) retroactively obtain a license from the Commissioner of Patents for a patent inadvertently filed abroad before he or she was permitted to do so.  AIA will eliminate this requirement.

The changes to the inventor’s oath of declaration under AIA are important.  The removal of the inventor’s necessary participation in the application process will make it easier for companies to file patents for their inventions.  The removal of the certification of a lack of deceptive intent also plays a critical role.  Under the new law, companies will be insulated from claims of deception when they seek to correct errors in the application process.

The changes to the inventor’s oath of declaration in patent applications will likely play an important role in future patent applications.  However, your current employment contracts should be reviewed to ensure that your company is the proper owner of the intellectual property created by your employees.  Without a proper assignment designation, an inventor’s participation is likely still required after the new law comes into effect next Fall.

Conclusion

The changes to the patent law regarding prioritized examination, micro entities and an inventor’s oath of declaration may all play an important role in the filing of future patent applications.

My next article will discuss issues under the new patent law related to patent ownership, validity and conflicts.  In doing so, I will discuss four important areas of the new law.  These areas include: 1) derivation proceedings; 2) the role of 3rd party submissions of prior art; 3) supplemental examination procedures; and 4) post-grant review procedures.

© 2012 Michael P. James, J.D., M.B.A., CSSGB

Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters. For more information, you can contact Michael at mjames@michaeljameslaw.com, (810) 936-4040 or www.michaeljameslaw.com.

 

Patent Law Update: The America Invents Act – Part 1: Patent Applications

Foreword

 On September 16, 2011, President Obama signed the Leahy-Smith America Invents Act (“AIA”).  AIA substantially overhauls the U.S. patent system and includes numerous changes to the current patent law.  This revision is the most comprehensive modification of U.S. patent law since the 1950’s.  It is designed to promote technological progress in the United States, simplify various procedures and harmonize our patent system with the best parts of other major patent systems throughout the world.  As such, AIA includes both minor and major changes to our current system.

I have prepared a series of articles designed to educate you about some of the most important changes made to the patent system by the AIA and illustrate how these changes may affect your intellectual property rights.  Although some of the changes will not become effective for some time, other changes currently affect your intellectual property interests.  It is important for you to begin to develop a strategic plan to address the changes in the patent law to ensure that you are prepared and protected.

Article 2

Article 3

Article 4

Introduction

The first article in the “Patent Law Update: America Invents Act” series focuses on changes to the patent law that will likely affect the timing of your patent applications.  Although these changes do not come into effect until March 16, 2013, it is important to start to evaluate these changes now because of the profound impact they will have on the current patent law.  This article will cover three critical topics.  First, I will examine the new first-to-file system and how the change to this system may affect your current and future patent applications.  Next, I will evaluate the changes to what will be considered “prior art” in determining the novelty and non-obviousness of a proposed invention.  Finally, I will discuss the role of pre-application disclosures under the new patent law.

The First-to-File System

Perhaps the most significant modification to the current U.S. patent law is the change from a first-to-invent system to a first-to-file system.  Under the current law, the right to a patent is determined based on which applicant was the first to create the invention at issue.  Inventors are permitted to submit signed and dated notes, prototypes, affidavits and other evidence to prove that he or she was the first to create a disputed invention.  Under the new system, this process will no longer be permitted.  Instead, the right to a patent will be determined based on which applicant is the first to file a patent application, regardless of who actually created the invention.

Any patent application with an actual or effective filing date prior to March 16, 2013 will be governed by the current, first-to-invent rules.  As such, you will continue to be able to support your right to an invention by demonstrating that you were the first to invent, if you file an application before this deadline.  If you do not believe that you will be ready to file your patent application before the March 16, 2013 deadline, it is important for you to develop a plan to ensure that your rights in your invention are protected.

The Scope of Prior Art

To qualify for a patent in the United States, an invention must be both novel and non-obvious.  Under the current law, there are numerous requirements that must be met for an invention to be considered novel.  Generally though, an invention will be considered novel if: 1) the applicant created it; 2) if it is not known or used by others in the United States; and 3) if it is not patented or described in a publication in the United States or a foreign country prior to the filing date of the application.  In order for an invention to be non-obvious, an ordinary person in the relevant industry must not have been able to conceive the new invention’s improvements over the original invention when the original invention was created.

In both instances, the United States Patent and Trademark Office (“USPTO”) will compare the proposed invention to “prior art” to determine if the invention is both novel and non-obvious.  Under the current law, prior art generally includes things that people have created and that become available to the public, such as patents, published patent applications, treatises, articles, advertisements, websites, designs, products and related materials.

Under the new law, the USPTO will continue to compare proposed inventions to prior art to determine if the invention is both novel and non-obvious.  However, there will be a number of changes from the current process.  First, prior art will only be measured against the filing date of the application and not the date of invention.  Second, AIA eliminates any distinctions between actions or events that take place inside or outside the United States to determine the novelty of the invention.  As such, prior art will include all art that publically exists prior to the filing date.  The impact of this change is significant given our ever-expanding global economy.  Finally, the new patent law adds a new category of prior art.  Prior art will include material “otherwise available to the public”.  After March 16, 2013, patent applications could be denied based on evidence of prior public use, sale or availability of the invention anywhere in the world.  As a result, it will be necessary to drastically widen the scope of prior art searches before filing a patent application or when defending against an accusation of infringement.

The Use of Disclosures

The current patent law has a one-year statutory bar on disclosures.  Here, an inventor is free to disclose anything related to his or her invention during the year proceeding the filing of a patent application.  Disclosures made during this one-year period do not affect the novelty of the invention when the application is filed.  Moreover, because the right to the patent is based on when the invention was created, public disclosures after the date of creation have little effect on an applicant’s patent rights, as long as the application is filed within the one-year window.

Under the new law, disclosures play a critical role.  In fact, the first-to-file system is really a first-to-disclose framework.  The new law will preserve the one-year statutory bar on disclosures.  However, after March 16, 2013, the decisive date in determining who has the right to a patent will be governed by either an inventor’s application filing date or an inventor’s earlier public disclosure, provided that the disclosing inventor files a patent application within a year of that disclosure.  Specifically, the new law provides that an applicable third party disclosure will not be considered prior art if: 1) the inventor had already disclosed the invention prior to the third party’s disclosure; or 2) the third party disclosure was derived from the inventor or a joint venture.  Therefore, an inventor will be able to preserve his or her priority to the right to a patent, before filing an application, by making a public disclosure.

Although the new use of public disclosures appears to allow an inventor to delay filing a patent application for an additional year, the decision to make a disclosure is not nearly as simple.  First, it is unclear how courts will interpret the newly created form of prior art, i.e. materials “otherwise available to the public”.  It is not likely that we will know how broad in scope this new form of prior art will be for some time.  The new law leaves an inventor to speculate over what types of disclosures will constitute making the invention available to the public.

Second, many countries do not have the pre-filing, one-year statutory bar on disclosures found in United States patent law.  To the contrary, most foreign countries have an absolute novelty rule that a pre-filing disclosure of an invention eliminates its patentability.  Therefore, while a pre-filing disclosure may preserve your intellectual property rights in the United States, it may extinguish your patent rights elsewhere in the world.

Third, public disclosures will alert your competitors to your research and development efforts.  If you are trying to be first to market with a new product or process, a public disclosure may not be in your best interest.  Although the disclosure will preserve the patentability of your invention in the United States, it does not prevent others from inventing their own take on the idea.  One only has to consider the proliferation of portable digital music players, smart phones and touch pads that have come to market since Apple introduced their innovative products.

Conclusion

Clearly, the changes to the current first-to-invent system, scope of prior art and use of disclosures will have a profound impact on when you file a patent application and the way you establish your rights to an invention.  Although these modifications do not come into effect until March 16, 2013, the consequences of these changes require advanced planning and consideration.

My next article will conclude my discussion of the changes to the patent application process by focusing on: 1) the new prioritized examination process; 2) the role of micro entities; and 3) the inventor’s oath of declaration.

© 2012 Michael P. James, J.D., M.B.A., CSSGB

Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters. For more information, you can contact Michael at mjames@michaeljameslaw.com, (810) 936-4040 or www.michaeljameslaw.com.

Michigan Legislation to Create State-Based Health Exchange Fails

For the last several months, Michigan has been preparing to partner with the federal government to create a health exchange.  This month, Governor Snyder filed materials with the United States Department of Health and Human Services (“HHS”) to move forward with the partnership.  As part of this process, Michigan reserved its option to create a state-based health exchange.  However, it now appears that Michigan will not exercise this option and will continue to move forward with its partnership with HHS under the framework of a federally-facilitated exchange.

On Thursday, November 29th, pending legislation to create a state-based health exchange failed to gain necessary support from the state House Health Policy Committee.  Senate Bill 693, which was designed to create Michigan’s state-based health exchange called MI Health Marketplace, was defeated in committee on a 9-5 vote, with two abstentions.  Resistance to SB 693 was fueled by lingering, unanswered questions related to a health-based system, especially with respect to the future costs to Michigan taxpayers.

Despite Michigan’s election to form a partnership exchange with HHS, Michigan can still establish a state-based exchange to take over operations in 2015.

© 2012 Michael P. James, J.D., M.B.A., CSSGB

To find out more about the Michigan health exchange and the impact the Affordable Care Act has on health care, contact attorney Michael James at mjames@michaeljameslaw.com, 810-936-4040 or www.michaeljameslaw.com. Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters.

Strengthening the Michigan Economy through Michigan Business Courts

Michigan continues to foster an environment for businesses to grow and flourish.  Michigan’s most recent effort to generate favorable business conditions has been the creation of the Michigan business court system.  Michigan business courts were created to ensure accurate, consistent and predictable results for business and commercial disputes, despite the complexities routinely involved in these matters.  The new courts seek to intertwine business expertise with technology to efficiently provide low-cost dispute resolution.

The Michigan business court system goes into effect on January 1, 2013.  However, the State Court Administrative Office (“SCAO”) anticipates that all required, new business courts will not begin placing cases on their business dockets until July 1, 2013.

Michigan business courts will have jurisdiction over commercial disputes in which the amount involved exceeds $25,000.  Because the jurisdiction of the courts is limited to commercial disputes, only certain types of cases will qualify for this new system.  In order for a matter to be resolved by a business court, it must involve a claim related to:

  • Information technology, software or website development, maintenance or hosting;
  • Internal organization and/or operation of a business entity;
  • Contractual agreements or business dealings;
  • Commercial transactions;
  • Business or commercial insurance policies; or
  • Commercial real property.

The business courts will not resolve a case where the claims are based solely on:

  • Personal injury or wrongful death claims against health care providers;
  • Product liability where  the claimant is an individual;
  • Family matters;
  • Probate;
  • Criminal;
  • Condemnation;
  • Appeals from lower courts or administrative agencies; or
  • Landlord-Tenant matters involving residential properties.

It should be noted that the business courts will take cases that involve a mix of commercial and non-commercial claims.  However, it is possible that a case could be transferred between a business court and the applicable circuit court during the litigation process based on the addition or removal of parties and claims.

The business courts aim to increase the efficiency and effectiveness of the judicial process in several ways.  First, the parties to a case in the business court system will have the option to have their dispute resolved by a business judge, who will likely have significant knowledge and experience with business cases.

Second, the court system will integrate electronic communications into its operations.  The courts will utilize audio, video and internet conferencing to conduct hearings and proceedings.  Virtual court rooms and electronic filings will help reduce the costs and increase the efficiency of the litigation process.

Finally, it is anticipated that the business courts will have an alternative dispute resolution process to help parties resolve disputes before a trial is necessary.  This process is just one of the procedures and minimum standards currently being developed by the SCAO for the Michigan business courts.  The proposed rules for the Michigan business courts are scheduled to be distributed by January 1, 2013.

Each Michigan circuit court with three or more judges is required to establish a business court.  The SCAO has indicated that each qualifying circuit court must submit a business court plan to the SCAO and Supreme Court for approval by May 1, 2013.  Circuits with less than three judges are permitted to seek approval for a business court at any time.  To date, Kent, Macomb, Oakland and Wayne counties have already established business courts.  Michigan businesses should anticipate additional business courts in communities such as Washtenaw, Genesee, Ingham, Saginaw and Kalamazoo counties.  It is also likely that a few Northern Michigan communities will establish business courts under the new system.

© 2012 Michael P. James, J.D., M.B.A., CSSGB

To find out more about the Michigan business court system and its impact on business litigation, please contact attorney Michael James at mjames@michaeljameslaw.com, 810-936-4040 or www.michaeljameslaw.com.  Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters.

Michigan to Partner with Federal Government to Create Health Exchange

In the three months following the Supreme Court’s decision upholding the constitutionality of the Affordable Care Act (ACA), states have been evaluating their options under the provisions of the Act.  One option involves the establishment of a health insurance exchange.  Health insurance exchanges are intended to be the vehicle through which millions of Americans will obtain health insurance as mandated by the ACA.  Under the ACA, each state may elect to establish an exchange to facilitate the purchase of health insurance coverage.  However, states are not required to do so.  If a state elects not to create its own exchange, a federally-facilitated exchange will be formed by the Department of Health and Human Services (HHS).  Federally-facilitated exchanges can be established directly by HHS or through a partnership with a non-profit entity.

To date, the states have been divided on what to do about the health exchanges.  Currently, sixteen states have announced that they will create their own, state-based exchanges.  Conversely, seven states have announced that they will take no action and let HHS directly establish a federal-facilitated exchange.  Four states have announced that they will create a partnership with HHS under the framework of a federally-facilitated exchange.   Twenty-three states remain undecided.

Michigan is one of the four states that intends to create a partnership with HHS for the establishment of a health exchange.  Because of the partnership, Michigan’s exchange will not be completely controlled by the federal government.  However, the federal government has not released many of the operational details of the federal exchange or the partnership option.  Here is what we know so far.

The operation of a health exchange will be broken down into twelve categories.  These categories are: 1) legal authority/regulation; 2) plan management; 3) eligibility and enrollment; 4) customer service; 5) finance and accounting; 6) oversight and monitoring; 7) SHOP; 8) risk adjustment and reinsurance; 9) human resources and organization; 10) technology; 11) privacy and security; and 12) contracting, outsourcing and agreements.  Under the partnership exchange model, Michigan will have limited responsibilities.  These responsibilities include plan management, the in-person component of customer service and a narrow role in eligibility and enrollment.  The scope and breadth of these responsibilities remain to be defined.

Because a federal partnership is still a federal exchange, HHS would ultimately sign off on all decisions, except those related to the few areas of authority retained by the states.  We do know that Michigan will be required to make changes to its business processes and IT systems.  The federal government will direct many of these changes, and Michigan may be financially obligated to support these changes.  Federal grant resources with no state match can still be used for the establishment of a federal partnership exchange.  Michigan officials are scheduled to meet with HHS officials next week to discuss in detail how the health exchange will be established and operated in Michigan.

At the state level, Michigan plans to create an entity called the MIHealth Marketplace (MIHM) to handle its responsibilities of the partnership.  Governor Snyder’s vision for MIHM is for it to be a non-profit corporation controlled by a board of directors.  The board of directors will likely consist of seven voting members, with the OFIR Commissioner to serve as an additional non-voting member.  Because of the exchange’s impact on Medicaid, Governor Snyder is also considering adding the Medicaid Director as a non-voting member.  An executive director will run the day-to-day operations of MIHM.  Governor Snyder’s plan also includes a large advisory board of various stakeholders including businesses, consumers, providers and other interested individuals to participate in MIHM decision-making.

Currently, Michigan has yet to enact legal authority for MIHM.  On September 30, 2012, Michigan must choose its Essential Health Benefit (EHB) package and submit it to HHS.  The EHB will determine plan benefits in both off and on exchange plans for individual and small group markets.  This decision will apply for 2014-15.  Despite Michigan’s election to form a partnership exchange with HHS, Michigan can still establish a state-based exchange to take over operations in 2015.  According to Steven Hilfinger, Chief Regulatory Officer, Director of the Michigan Department of Licensing and Regulatory Affairs, Michigan has focused on partnering with the federal government because of the deadlines involved in the exchange process.

The upcoming timeline of critical steps in the health care exchange process are as follows.  On November 16, 2012, Michigan must submit a letter from Governor Snyder that includes Michigan’s “blueprint” to the  federal government for exchange certification.  On January 1, 2013, the federal government must certify each state regarding its readiness to have an exchange operational by the “go live” deadline.  The “go live” deadline is October 1, 2013.  At this point, open enrollment begins.  On January 1, 2014, benefits of exchange plans begin, and on January 1, 2015, exchanges must be financially self-sustaining.

© 2012 Michael P. James, J.D., M.B.A., CSSGB

To find out more about the Michigan health exchange and the impact the Affordable Care Act has on health care, contact attorney Michael James at mjames@michaeljameslaw.com, 810-936-4040 or www.michaeljameslaw.com.  Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters.