SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Prior Domestic Commercial Use Act of 
1995''.

SEC. 2. DEFENSE TO PATENT INFRINGEMENT BASED ON PRIOR DOMESTIC 
              COMMERCIAL USE.

    (a) Defense.--Chapter 28 of title 35, United States Code, is 
amended by adding at the end the following new section:
``Sec. 273. Prior domestic commercial use; defense to infringement
    ``(a) Definitions.--For purposes of this section--
            ``(1) the terms `commercially used', `commercially use', 
        and `commercial use' mean the use in the United States in 
        commerce or the use in the design, testing, or production in 
        the United States of a product or service which is used in 
        commerce, whether or not the subject matter at issue is 
        accessible to or otherwise known to the public;
            ``(2) the terms `used in commerce', and `use in commerce' 
        mean that there has been an actual sale or other commercial 
        transfer of the subject matter at issue or that there has been 
        an actual sale or other commercial transfer of a product or 
        service resulting from the use of the subject matter at issue; 
        and
            ``(3) the `effective filing date' of a patent is the 
        earlier of the actual filing date of the application for the 
        patent or the filing date of any earlier United States, 
        foreign, or international application to which the subject 
        matter at issue is entitled under section 119, 120, or 365 of 
        this title.
    ``(b) Defense to Infringement.--(1) A person shall not be liable as 
an infringer under section 271 of this title with respect to any 
subject matter the manufacture, use, sale, or offer for sale of which 
in the United States or the importation of which into the United States 
would otherwise infringe one or more claims in the patent being 
asserted against such person, if such person had, acting in good faith, 
commercially used the subject matter before the effective filing date 
of such patent.
    ``(2) The sale or other disposition of the subject matter of a 
patent by a person entitled to assert a defense under this section with 
respect to that subject matter shall exhaust the patent owner's rights 
under the patent to the extent such rights would have been exhausted 
had such sale or other disposition been made by the patent owner.
    ``(c) Limitations and Qualifications of Defense.--The defense to 
infringement under this section is subject to the following:
            ``(1) Not a general license.--The defense under this 
        section is not a general license under all claims of the patent 
        at issue, but extends only to the subject matter claimed in the 
        patent that the person asserting the defense had commercially 
        used before the effective filing date of the patent, except 
        that the defense shall also extend to variations in the 
        quantity or volume of use of the claimed subject matter, and to 
        improvements in the claimed subject matter that do not infringe 
        additional specifically claimed subject matter of the patent.
            ``(2) Effective and serious preparation.--With respect to 
        subject matter that cannot be commercialized
         without a significant investment of time, money, and effort, a 
person shall be deemed to have commercially used the subject matter 
if--
                    ``(A) before the effective filing date of the 
                patent, the person reduced the subject matter to 
                practice in the United States, completed a significant 
                portion of the total investment necessary to 
                commercially use the subject matter, and made a 
                commercial transaction in the United States in 
                connection with the preparation to use the subject 
                matter, and
                    ``(B) after the effective filing date of the 
                patent, diligently completed the remainder of the 
                activities and investments necessary to commercially 
                use the subject matter, and promptly began commercial 
                use of the subject matter.
            ``(3) Burden of proof.--A person asserting the defense 
        under this section shall have the burden of establishing the 
        defense.
            ``(4) Abandonment of use.--A person who has abandoned 
        commercial use of subject matter may not rely on activities 
        performed before the date of such abandonment in establishing a 
        defense under subsection (b) with respect to actions taken 
        after the date of such abandonment.
            ``(5) Personal defense.--The defense under this section may 
        only be asserted by the person who performed the acts necessary 
        to establish the defense and, except for any transfer to the 
        patent owner, the right to assert the defense shall not be 
        licensed or assigned or transferred to another person except in 
        connection with the good faith assignment or transfer of the 
        entire enterprise or line of business to which the defense 
        relates.
            ``(6) One year limitation.--A person may not assert a 
        defense under this section unless the subject matter on which 
        the defense is based had been commercially used or reduced to 
        practice more than one year prior to the effective filing date 
        of the patent by the person asserting the defense or someone in 
        privity with that person.
            ``(7) Derivation.--A person may not assert the defense 
        under this section if the subject matter on which the defense 
        is based was derived from the patentee or persons in privity 
        with the patentee.
    ``(d) Unsuccessful Assertion of Defense.--If the defense under this 
section is pleaded by a person who is found to infringe the patent and 
who subsequently fails to demonstrate a reasonable basis for asserting 
the defense, the court shall find the case exceptional for the purpose 
of awarding attorney's fees under section 285 of this title.
    ``(e) Invalidity.--A patent shall not be deemed to be invalid under 
section 102 or 103 of this title solely because a defense is raised or 
established under this section.''.
    (b) Conforming Amendment.--The table of sections at the beginning 
of chapter 28 of title 35, United States Code, is amended by adding at 
the end the following new item:

``Sec. 273. Prior domestic commercial use; defense to infringement.''.
SEC. 3. EFFECTIVE DATE AND APPLICABILITY.

    This Act and the amendments made by this Act shall take effect on 
the date of the enactment of this Act, but shall not apply to any 
action for infringement that is pending on such date of enactment or 
with respect to any subject matter for which an adjudication of 
infringement, including a consent judgment, has been made before such 
date of enactment.
Prior Domestic Commercial Use Act of 1995 - Amends the Federal judicial code to create a defense to patent infringement with respect to any subject matter the manufacture, use, sale, offer for sale, or importation of which in the United States would otherwise infringe one or more claims in the patent being asserted, if a person had, acting in good faith, commercially used the subject matter before the effective filing date of such patent. 
Specifies that the sale or other disposition of the subject matter of a patent by a person entitled to assert the defense shall exhaust the patent owner's rights to the extent they would have been exhausted had such disposition been made by the patent owner. 
Subjects the defense to specified limitations and qualifications regarding:  (1) the scope of the defense (the defense is not a general license under all claims of the patent at issue but extends only to the subject matter claimed in the patent that the person asserting the defense had commercially used before the effective filing date of the patent, with exceptions); (2) effective and serious preparation; (3) burden of proof (on the person asserting the defense); (4) abandonment of use; (5) who may assert the defense (it is a personal defense); (6) a one-year limitation (the subject matter on which the defense is based must have been commercially used or reduced to practice more than one year prior to the effective filing date of the patent); (7) unsuccessful assertion of the defense (directs the court to find the case exceptional for purposes of awarding attorney's fees); and (8) invalidity of a patent (a patent shall not be deemed invalid solely because a defense is raised or established under this Act).
Prior Domestic Commercial Use Act of 1995