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`A Guide to the Legislative History
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`of the America Invents Act: Part 11 of 11
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`Joe Matal*
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`Introduction
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`This is the second Article in a two—part series about the legislative history
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`of the recently enacted Leahy—Smith America Invents Act (“AIA”).1 The first
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`Article addressed those sections of the AIA that apply to an application be—
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`fore a patent has issuedw—principally, the bill’s amendments to §§ 102, 103,
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`1 15, 122, and 135 of title 35, and several of the AIA’s uncodified provisions.2
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`This second Article addresses those changes made by the AIA that apply only
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`after a patent has been granted. It examines the legislative history of the AIA’s
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`provisions concerning post—grant review of patents; inter partes proceedings;
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`supplemental examination; the section 18 business—method—patent—review
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`program; the new defense of prior commercial use; the partial repeal of the '
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`best—mode requirement; and other changes regarding virtual and false mark—
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`ing, advice of counsel, court jurisdiction, USPTO funding, and the deadline
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`for seeking a patent term extension. Ihis second Article consists of two parts:
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`Part I addresses sections of the U.S. Code that were amended by the AIA,
`and Part 11 addresses sections of the AIA that are uncodified.
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`I. Sections of the U.S. Code “lat Are Amended by the AIA
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`A. 28 U.S.C. §§ 1295(a)(1), 1338(a), and 1454: The Holmes
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`Group v. Vornado Fix
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`Section 19 of the ALA, at subsections (a) through (c), enacts the so—called
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`Holmes Group3 fix.é 'lhese provisions: (1) amend title 28 to clarify that state .
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`* Joe Matal has served as aJudiciary Committee Counsel to Senator Jon Kyl since 2002,
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`except for when he served as the Minority General Counsel of the Judiciary Committee
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`from May 2009 to January 201 1 while Senator Jeff Sessions was the ranking member of the
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`committee. The author thanks his wife, Maren, for her assistance and support during the
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`drafting of these Articles.
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`1 Pub. L. No. 112-29, 125 Stat. 284 (2011). The first Article appeared in volume 21,
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`page 435, of the Federal Circuit Bar Journal. Joe Matal, A Guide to the Legislative History of
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`tbeAmerz'ca Invents/let: Part] ofII, 21 FED. CIR BJ. 435 (2012).
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`2 Matal, supra note 1, at 436.
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`3 Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc, 535 US. 826 (2002).
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`‘ H.R. REP. No. 112—98, at 81 (2011).
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`Electronic copy available at: http://ssrn.com/abstract=2088887
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`FANDANGO EXHIBIT 1029
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`540 THE FEDERAL CIRCUIT BAR JOURNAL VOL. 21, No. 4
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`courts lack jurisdiction over legal claims arising under patent, copyright, and
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`plant—variety—protection statutes, and deem the various overseas territories to
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`be States for this purpose; (2) extend the Federal Circuit’s appellate jurisdiction
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`to compulsory patent and plant—variety—protection counterclaims, thereby
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`abrogating Holmes Group, Inc. 21. Vormzdo Air Circulation Systems, Ina;S and
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`(3) allow removal of civil actions in which “any party” asserts legal claims
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`under patent, copyright, or plant—variety—protection statutes.6
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`A provision appearing in earlier versions ofthe AIA as § 19(d), which would
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`have required the Federal Circuit to transfer cases that had been appealed as
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`patent or plant—variety—protection cases but in which no such legal claim “is
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`the subject of the appeal by any party,” was eliminated from the ALA during
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`House floor consideration.7
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`The 201 1 Committee Report briefly described these provisions, noted that
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`similar legislation was reported by the House Judiciary Committee in 2006,
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`and “reaffirm[ed]” the Committee Report for that earlier bill.8
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`The Committee Report for the 2006 Holmes Group bill stated that:
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`The [House Judiciary] Committee believes Holmes Group contravened the will of
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`Congress when it created the Federal Circuit. That is, the decision will induce litigants
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`to engage in forum-shopping among the regional circuits and State courts. Extending
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`the argument, the Committee is concerned that the decision will lead to an erosion
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`in the uniformity or coherence in patent law that has been steadily building since the
`Circuit’s creation in 1982.9
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`The Holmes Group provisions were added to the AIA during the Senate
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`Judiciary Committee’s markup of the bill on February 3, 2011.‘0 During the
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`Senate debates in March 2011, Senator Kyl noted that the AIA modified the
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`2006 bill by limiting its expansion of Federal Circuit jurisdiction to “only
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`compulsory counterclaims.”“ Senator Kyl stated: “Compulsory counterclaims
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`are defined at Rule 13(a) and basically consist of counterclaims that arise out
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`of the same transaction or occurrence and that do not require the joinder
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`of parties over whom the court would lack jurisdiction.”'2 He explained
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`that “[WJithout this modification, it is possible that a defendant could raise
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`unrelated and unnecessary patent counterclaims simply in order to manipulate
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`appellate jurisdiction.”13 Senator Kyl also noted that § 1454, the new removal
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`5 Holmes, 535 US. 826.
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`6 Leahy—Smith America invents Act, sec. 19, 125 Stat. at 332.
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`7 157 CONG. REC. H4446 (daily ed. June 22, 2011).
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`8 HR. REP. No. 112—98, at 81; see also id. pt. 1, at 54.
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`9 HR. REP. No. 109-40121: 5 (2006).
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`1° s.23,112:h Cong, sec. § 17 (2011).
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`H 157 CONG. REC. 31378 (daily ed. Mar. 8, 2011) (statement ofSen. Kyl).
`'2 Id. at 81378—79.
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`'3 Id. at 51379.
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`Electronic copy available at: http://ssrn.com/abstract=2088887
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`6 3 2 THE FEDERAL CIRCUIT BAR JOURNAL VOL. 21, No. 4
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`became clear that some offending business method patents are issued in other
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`sections.”592 The Cantwell amendment was defeated by a vote of 85—13.593
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`During the final day of Senate debate on the AIA, several Senators also
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`engaged in colloquies or made individual statements about section 18, almost
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`all of which focused on the section’s definition of “covered business—method
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`patent.”
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`3. 77m ‘blause (i1) ”Definition ofPrior/11¢
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`Subsection (a)(1) (C) creates a restricted definition of the types of prior art
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`that can be asserted against a first—to—invent patent in a section 18 review.595
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`Subparagraph (C) provides that an anticipation or obviousness challenge
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`against such a patent may only be supported with:
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`(i) prior art that is described by section 102(a) of such title of such title (as in effect
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`on the day before .
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`(ii) prior art that—
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`(I) discloses the invention more than 1 year before the date of the application for
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`patent in the United States; and
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`(11) would be described by section 102(a) ofsuch title (as in effecr on the day before the
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`effective date set forth in section 3(n)(1)) if the disclosure had been made by another
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`before the invention thereof by the applicant for patent.596
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`The “effective date set forth in section 3(n)(1)” is the effective date of the
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`first-to-file system.597 The reference to § 102(a) and (b) “as in effect on the
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`day before” that date thus means pre—AIA § 102(a) and (b).598
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`Clause (i) is simple—it refers to pre—AIA § 102(a) prior art.599 But clause
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`(ii) is somewhat complicated. It combines subclause (I),600 which refers to
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`592 Id.
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`59: Id. at 55437.
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`5% See id at 85428 (daily ed. Sept. 8, 2011) (statements of Sens. Pryor, Leahy, Durbin,
`and Schumer); id. at 55428—29 (statement of Sen. Coburn); id. at 55431 (statement of Sen.
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`Kyl); id. at $5432 (statement of Sen. Schumer); id. at 55433 (statement of Sen. Kirk); id. at
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`55433 (statement of Sen. Durbin); id. at 55441 (statement of Sen. Leahy). These statements
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`are discussed in the subsequent subsections of this section.
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`5” Leahy—Smith America Invents Act, sec. 18(a)(1)(C), 125 Stat. at 330.
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`596 [d
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`”7 Id. sec. 3(n)(1), 125 Stat. at 293.
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`”8 Id. sec. 18(a)(1)(C), 125 Stat. at 330.
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`599 16!.
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`60° In the US. Code and federal statutes, the order and names of the levels of substruc-
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`ture below the section level are: (a)—subsection (lower—case letter); (1)——paragraph (arabic
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`numeral); (A)——subparagraph (upper case letter); (i)—clause (lower'case roman numeral);
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`(I)—subclause (upper—case roman number); and (aa)———item (lower-case double letter).
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`(Corporate lawyers also tend to refer to clauses as “romanettes.”) Going up from the section
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`LEGISLATIVE HISTORY OF THE AMERICA INVENTS ACT: PART 11 OF II 6 33
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`pre—AIA § 102(b)’s grace period, with subclause (H), which refers to prior art
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`that has pre—AIA § 102(a)’s substantive scope and is presumed to fall outside
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`of pre—AIA § 102(a)’s invention—date—based grace period.“ In other words,
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`subclause (II) creates a hybrid form of prior art that consists of things that
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`are or would be pre—AIA § 102(a) prior art (we are required to assume that
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`they are outside of the invention—date grace period) and that do fall outside
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`the pre—AIA § 102(b) grace period.
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`The purpose of combining pre—AIA § 102(a)’s substantive scope with
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`§ 102 (b)’s grace period is to capture that universe ofpre—AIA § 102(b) prior art
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`that is publicly accessible.602 This more limited definition of the prior art that
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`can be asserted against a first—to—invent business—method patent in a section
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`18 proceeding was adopted in the same Senate floor managers’ amendment
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`that limited the types of patents that can be challenged in a post—grant review
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`to only first—to—file patents.603 As the Republican Policy Committee’s summary
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`of the managers’ amendment noted, the latter change was made to post—
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`grant review in part to avoid “secret—prior-art issues that would be difficult
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`to address in an administrative proceeding.”604 The same purpose of avoiding
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`discovery—intensive litigation over pre—ALA § 102(b)’s loss—of—right provisions
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`in an administrative proceeding animates clause (ii) ’5 definition of prior art.
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`4. 7113 Definition of “Covered Business Method Patent”: Exclusion
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`of “Rcbnologicul Inventions”
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`Section 18(d)(1) of the AIA provides that “the term ‘covered business
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`method patent’ means a patent that claims a method or corresponding
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`apparatus for performing data processing or other operations used in the
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`practice, administration, or management of a financial product or service,
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`except that the term does not include patents for technological inventions.”605
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`Several features of this definition were discussed extensively during the
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`House and Senate floor debates in 2011. The most important feature of the
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`definition is its exclusion of “technological inventions.”
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`During the March 201 1 debates in the Senate, Senator Schumer stated that:
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`level, title 35, like most of the Code, uses chapters, parts, and finally, titles. Some titles of
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`the Code, however place “parts” below “chapters.” See, e.g., 26 U.S.C. § 1 (2006).
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`6“ 157 Com. REC. $1367 (daily ed. Mar. 8, 2011).
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`602 As the Republican Policy Committee summary of the Senate floor managers’ amend—
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`ment noted, subclause (11) is “effectively, old 102(1)) prior art but limited to old 102(a)’s
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`publicly—available prior—art scope.” Id. Pre—AIA § 102(a) prior art is limited to what is publicly
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`accessible. See Woodland Trust V. Flowertree Nursery, Inc., 148 F.3d 1368, 1370 (Fed. Cir.
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`1998), rebg denied, 1998 US. App. LEXIS 24585 (Fed. Cir. Sept. 1, 1998).
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`“3 157 CONG. REC. 51038 (daily ed. Mar. 1, 2001).
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`6‘“ Id at 81366 (daily ed. Mar. 8, 2011).
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`605 Leahy-Smith America Invents Act, sec. 8(d)(1), 125 Star. at 331.
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`634 THE FEDERAL CIRCUIT BAR JOURNAL VOL. 21, No. 4
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`The “patents for technological inventionsn exception only excludes those patents whose
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`novelty turns on a technological innovation over the prior art and are concerned with
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`a technical problem which is solved with a technical solution and which requires the
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`claims to state the technical features which the inventor desires to protect. It is not
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`meant to exclude patents that use known technology to accomplish a business process
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`or method of conducting business—whether or not that process or method appears
`to be novel.606
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`This construction was propounded repeatedly by members of the House
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`and Senate during the 2011 debates on section 18 of the AIA.607
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`Senators Kirk and K 1 also addressed section 18’s otential a
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`to software patents. Senator Kirk stated that section 18 should not be “too
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`broadly interpreted to cover patents on tangible products that claim novel
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`and non—obvrous software tools used to execute busmess methods.” During
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`the March 2011 debates, Senator Kyl stated that:
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`As the proviso at the end ofthe definition makes clear, business methods do not include
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`“technological inventions.” In other words, the definition applies only to abstract
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`business concepts and their implementation, whether in computers or otherwise, but
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`does not apply to inventions relating to computer operations for other uses or the
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`application of the natural sciences or engineering.609
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`During the September 201 1 debates on the AIA, Senator Kyl “reiterate [d] ”
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`his March 201 1 statement about the technological—inventions exception, and
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`he noted that “inventions in com uter o erations obviousl
`include software
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`inventions.” He then added that:
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`Y
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`606 157 CONG. REC. 51364 (daily ed. Mar. 8, 2011).
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`607 See id at H4497 (daily ed. June 23, 2011) (statement of Rep. Smith); id. at $5428
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`(daily ed. Sept. 8, 201 1) (statement ofSen. Coburn); id. at 55433 (statement of Sen. Durbin)
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`(quoting Rep. Smith). All three of these members also expressed the View that a “covered
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`business method patent” would not include a patent for machinery that counts, sorts, or
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`authenticates currency.
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`608 Id. at 55433 (daily ed. Sept. 8, 2011) (statement of Sen. Kirk); see also id. (statement
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`609 Id. at S1379 (daily ed. Mar. 8, 2011) (statement of Sen. Kyl). Senator Kyl’s reference
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`to “abstract” business concepts has been construed by some to suggest that section 18 review
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`may be instituted only if a preliminary showing of § 101 abstractness—invalidity has been
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`made. His use of that qualifier is better understood, however, as a reflection of his View that
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`because only technological inventions—those which operate through natural or mathematical
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`principles (rather than human cognition)—will create reproducible results, allnontechnologi—
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`cal inventions are inherently abstract. See id. (noting “the expectation that most if not all true
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`business-method patents are abstract and therefore invalid in light of the Bilski decision”).
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`Moreover, the text and structure of section 18 clearly allow a business-method patent to be
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`challenged on any validity ground other than pre-AIA § 102(b)’s loss-of—right provisions.
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`6w Id. at 55431 (daily ed. Sept. 8, 2011) (statement of Sen. Kyl).
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`LEGISLATIVE HISTORY or THE AMERICA INVENTS ACT: PART II or II 635
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`This does not mean that a patent is ineligible for [section 18] review simply because
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`it recites software elements or has been reduced to a software program. If that were
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`the case, then very few of even the most notorious business—method patents could be
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`reviewed under section 18. Rather, in order to fall within the technological—invention
`exclusion, the invention must be novel as software. If an invention recites software
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`elements, but does not assert that it is novel as software, or does not colorably appear
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`to be so, then it is not ineligible for review simply because of that software element.
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`But an actual software invention is a technological invention, and is not subject to
`review under section 18.6”
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`Senator Schumer made a similar point during the March 2011 debates,
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`emphasizing that simply reciting technological elements in a patent is not
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`enough to qualify the claimed invention as a “technological invention.”612 He
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`also gave a litany ofexamples ofthings whose mere recitation in a patent would
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`not be enough to qualify the patent as disclosing a technological invention:
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`The technological invention exception is also not intended to exclude a patent simply
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`because it recites technology. For example, the recitation of computer hardware,
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`communication or computer networks, software, memory, computer—readable storage
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`medium, scanners, display devices or databases, specialized machines, such as an
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`ATM or point of sale device, or other known technologies, does not make a patent a
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`technological invention. In other words, a patent is not a technological invention because
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`it combines known technology in a new way to perform data processing operations.(’13
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`5. The Definition of “Covered Business Met/10d Patent”:
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`‘Tz’nancinl Product or Service”
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`Section 18(d)(1)’s definition of “covered business method patent” is
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`limited to processes or things for performing operations “used in the practice,
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`administration, or management of a financial product or service.”614
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`This part ofthe business—method definition also was the subject ofextensive
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`commentary during the House and Senate debates in 201 1. It has two distinct
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`elements: (1) “practice, administration, or management”; and (2) “financial
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`product or service.”615
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`During the September 2011 Senate debates on the AIA, Senator Schumer
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`addressed the second element—“financial product or service.”616 He stated:
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`“At its most basic, a financial product is an agreement between two parties
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`611 1d-
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`6'2 157 CONG. REC. 51364 (daily ed. Mar. 8, 2011) (statement of Sen. Schumer).
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`6'3 Id; see also id. at $1379 (statement of Sen. Kyl) (“But if a technological element in a
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`patent is not even assertedly or plausibly outside of the prior art, the Office should not rely
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`on that element to classify the patent as not being a business—method patent”).
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`6” Leahy—Smith America Invents Act, sec. 8(d)(1), 125 Stat. at 331.
`615 See id.
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`6'6 See 157 CONG. REC. S4532 (daily ed. Sept. 8, 2011) (statement of Sen. Schumer).
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`636 THE FEDERAL CIRCUIT BAR JOURNAL VOL. 21, No. 4
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`stipulating movements ofmoney or other consrderation now or in the future.”
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`He went on to list a long series of examples of such things, and concluded
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`by stating that “ [t]o be eligible for section 18 review, the patent claims must
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`only be broad enough to cover a financial product or service.”618
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`During the March 201 1 debates, Senator Schumer also addressed the first
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`element ofthe “financial services” part ofthe “covered business—method patent”
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`definition—“practice, administration, or management.”619 He noted that:
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`The amendment covers not only financial products and services, but also the “practice,
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`administration and management” of a financial product or service. This language is
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`intended to make clear that the scope of patents eligible for review under this program
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`is not limited to patents covering a specific financial product or service. In addition
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`to patents covering a financial product or service,
`the “practice, administration
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`and management" language is intended to cover any ancillary activities related to
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`a financial product or service, including .
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`site management and functionality, transmission or management of data, servicing,
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`underwriting, customer communications, and back office operations—cg, payment
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`processing, stock clearing.62°
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`Senator Schumer expanded on this statement, and on the meaning of the
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`“practice, administration, or management” element of the “covered business—
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`method patent” definition, during the September 2011 debates on the AIA:
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`[Slection 18 is intended to cover not only patents claiming the financial product or
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`service itself, but also patents claiming activities that are financial in nature, incidental
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`to a financial activity or complementary to a financial activity. Any business that
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`sells or purchases goods or services “practices” or “administers” a financial service by
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`conducting such transactions. Even the notorious “Ballard parents”621 do not refer
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`specifically to banks or even to financial transactions. Rather, because the patents
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`apply to administration of business transactions, such as financial transactions, they
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`622
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`not recrte a specrfic financ1al product or servrce.
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`During the September 201 1 debates, Senator Schumer also responded to a
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`statement about this part of the “covered business—method patent” definition
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`that had been made by a member of the House during the June 201 1 debates
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`in that body. That Representative had stated that section 18’s definition of
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`“covered business method patent”:
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`617
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`[61,
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`6'8 1d,; see 4130 2d at 81365 (daily ed. Mar. 8, 2011) (statement of Sen. Schumer).
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`6” See 157 CONG. REC. 81364—65 (daily ed. Mar. 8, 2011) (statement of Sen. Schumer).
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`62' Senator Kyl also commented on the Ballard patents, describing their role in the genesis
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`of section 18, during the March 2011 debates. See id. at $1379 (daily ed. Mar. 8, 2011)
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`(statement of Sen. Kyl).
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`622 Id. at $5432 (daily ed. Sept. 8, 2011) (statement of Sen. Schumer).
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`LEGISLATIVE HISTORY or THE AMERICA INVENTs ACT: PART II or II 6 37
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`is intended to be narrowly construed to target only those business method patents
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`that are unique to the financial services industry in the sense that they are patents
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`which only a financial services provider would use to furnish a financial product
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`or service. .
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`industries, but which a financial services provider might also use.‘’23
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`Senator Schumer responded that this interpretation of section 18 “is
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`incorrect.” 2 He stated that:
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`Nothing in the America Invents Act limits use of section 18 to banks, insurance
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`companies or other members of the financial services industry. Section 18 does not
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`restrict itselfto being used by petitioners whose primary business is financial products or
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`services. Rather, it applies to patents that can apply to financial products or services.625
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`Other supporters of section 18 expressed views similar to those of Senator
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`Schumer. During the House debates on the AIA in June 201 1, Representative
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`Lamar Smith submitted an extension of remarks in which he emphasized that
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`“ [t] his provision is not tied to one industry or sector—it affects everyone.”626 He
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`stated that section 18 could be used to review “patents that describe a series of
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`steps used to conduct everyday business applications in the financial products
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`and retail service space.”627 During the September 201 1 Senate debates on the
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`AIA, Senator Leahy also commented on this part ofthe definition of“covered
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`business method patent.” He stated that “[a] financial product or service is
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`not, however, intended to be limited solely to the operation of banks. Rather,
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`it is intended to have a broader industry definition that includes insurance,
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`brokerages, mutual funds, annuities, and an array of financial companies
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`outside of traditional banking.”628
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`Finally, during the March 2011 debates, Senator Kyl suggested that the
`USPTO could also look to claim—construction statements—which can now
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`be filed with the USPTO pursuant to ALA § 6(g)’s amendments to 35 U.S.C.
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`629
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`§ 301—~to determine whether a patent relates to a financral product or servrce.
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`6. The Definition of “Covered Business Metbod Patent”: “01'
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`Other” and “CorrespondingAppamtus”
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`As noted earlier, the House expanded the definition of “covered business
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`method patent” that had appeared in the bill that had passed the Senate in
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`March 2011. The earlier Senate definition had been limited, in part, to “data
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`(’25 Id at H4497 (daily ed. June 23, 2011) (statement of Rep. Shuster).
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`6“ Id. at 55432 (daily ed. Sept. 8, 2011) (statement of Sen. Schumer).
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`[‘1'
`625
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`“6 Id. at E1184 (daily ed. June 23, 2011) (statement of Rep. Smith).
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`627 [d
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`m
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`62
`Id. at 55441 (daily ed. Sept. 8, 2011) (statement of Sen. Leahy).
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`6” Id. at 51379 (statement of Sen. Kyl).
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`

`

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`6 38 THE FEDERAL CIRCUIT BAR JOURNAL VOL. 21, No. 4
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`processing operations.”630 The House replaced this language with the Words
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`“data processing or other operations.“31
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`The earlier Senate language “track[ed] the language of Class 705.”632 As
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`Senator Cantwell noted during the final Senate debates, “ [t] he House language,
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`by adding the word ‘other,’ broadens the definition of [covered business—
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`method patent in] section 18.”633 Senator Schumer agreed, stating that “the
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`House clarified] that section 18 goes beyond mere class 705 patents?“ He
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`argued that the House change was beneficial because “some offending business
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`method patents are issued in other sections.”635
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`Section 18’s definition of “covered business method patent” also includes
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`patents that claim “a method or corresponding apparatus.”636 Senator Schumer
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`commented on this language during the March 2011 debates:
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`The definition ofa “covered business method patent” includes “a method or corresponding
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`apparatus.” The phrase “method or corresponding apparatus” is intended to encompass,
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`but not be limited to, any type of claim contained in a patent, including, method
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`claims, system claims, apparatus claims, graphical user interface claims, data structure
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`claims—Lowry claims—and set of instructions on storage media claims—Beauregard
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`claims. A patent qualifies as a covered bu