The U.S. Senate overwhelmingly passed (95–5) the America Invents Act (formerly titled the Patent Reform Act of 2011) (S.23 or AIA), on March 8, 2011. This legislation represents a major patent reform initiative and is quite possibly the most significant patent reform since the 1952 Patent Act. This legislation could have significant impact on financial institutions.

The headline change ofthe AIA is that a patent would be awarded to the first-to-file a patent application rather than to the first-to-invent the invention. This should favor large financial institutions who are regularly active in patenting innovations because they will have the resources and systems in place to win a race to the patent office. Small financial institutions or those not regularly active in patenting innovations will need to adapt to more quickly react to their innovations or risk losing the race. Perhaps a more significant impact on financial institutions due to this change is that the first-to-file system makes prior users vulnerable to patent infringement. A financial institution can use an innovation for years as a trade secret and then be liable for patent infringement when another party patents that innovation. This could be very problematic in the financial industry which has largely considered its business methods and software as either unpatentable or better protected by trade secrets. As a result, the financial industry should be lobbying for prior user rights to be added to this legislation.

Other aspects of the AIA significant to banks and financial institutions are the creation of a proceeding to challenge business method patents in the patent office and the increased ability for third parties to oppose patents during pendency and after issuance. The AIA temporarily creates a proceeding within the patent office in which business method patents can be challenged by anyone. This will be important to financial institutions because the ever increasing threat of infringement suits based on business method patents that appear as though they should be invalid. This proceeding should provide an avenue to invalidate such patents that is less costly than litigation. The AIA also enables the public to provide prior art to the patent office at any time. This should reduce the number of patents that issue that are clearly not new innovations assuming financial institutions watch the pending applications and make prior art submissions to the Patent Office when relevant.

The AIA now awaits review and passage by the U.S. House of Representatives. Initial hearings by the House Judiciary Committee Subcommittee on Intellectual Property, Competition, and the Internet raised questions about, among other things, the lack of prior user rights and the inclusion of the proceeding to challenge business method patents.  Check out the Porter Wright Technology Law Source blog post for more information regarding the AIA.