SEC. 5. DEFENSE TO INFRINGEMENT BASED ON PRIOR COMMERCIAL USE.
(a) IN GENERAL.--Section 273 of title 35, United States Code, is amended to read as follows:
“§ 273. Defense to infringement based on prior commercial use
“(a) IN GENERAL.--A person shall be entitled to a defense under section 282(b) with respect to subject matter consisting of a process, or consisting of a machine, manufacture, or composition of matter used in a manufacturing or other commercial process, that would otherwise infringe a claimed invention being asserted against the person if--
“(1) such person, acting in good faith, commercially used the subject matter in the United States, either in connection with an internal commercial use or an actual arm's length sale or other arm's length commercial transfer of a useful end result of such commercial use; and
“(2) such commercial use occurred at least 1 year before the earlier of either--
“(A) the effective filing date of the claimed invention; or
“(B) the date on which the claimed invention was disclosed to the public in a manner that qualified for the exception from prior art under section 102(b).
“(b) BURDEN OF PROOF.--A person asserting a defense under this section shall have the burden of establishing the defense by clear and convincing evidence.
“(c) ADDITIONAL COMMERCIAL USES.--
“(1) PREMARKETING REGULATORY REVIEW.--Subject matter for which commercial marketing or use is subject to a premarketing regulatory review period during which the safety or efficacy of the subject matter is established, including any period specified in section 156(g), shall be deemed to be commercially used for purposes of subsection (a)(1) during such regulatory review period.
“(2) NONPROFIT LABORATORY USE.--A use of subject matter by a nonprofit research laboratory or other nonprofit entity, such as a university or hospital, for which the public is the intended beneficiary, shall be deemed to be a commercial use for purposes of subsection (a)(1), except that a defense under this section may be asserted pursuant to this paragraph only for continued and noncommercial use by and in the laboratory or other nonprofit entity.
“(d) EXHAUSTION OF RIGHTS.--Notwithstanding subsection (e)(1), the sale or other disposition of a useful end result by a person entitled to assert a defense under this section in connection with a patent with respect to that useful end result shall exhaust the patent owner's rights under the patent to the extent that such rights would have been exhausted had such sale or other disposition been made by the patent owner.
“(e) LIMITATIONS AND EXCEPTIONS.--
“(1) PERSONAL DEFENSE.--
“(A) IN GENERAL.--A defense under this section may be asserted only by the person who performed or directed the performance of the commercial use described in subsection (a), or by an entity that controls, is controlled by, or is under common control with such person.
“(B) TRANSFER OF RIGHT.--Except for any transfer to the patent owner, the right to assert a defense under this section shall not be licensed or assigned or transferred to another person except as an ancillary and subordinate part of a good-faith assignment or transfer for other reasons of the entire enterprise or line of business to which the defense relates.
“(C) RESTRICTION ON SITES.--A defense under this section, when acquired by a person as part of an assignment or transfer described in subparagraph (B), may only be asserted for uses at sites where the subject matter that would otherwise infringe a claimed invention is in use before the later of the effective filing date of the claimed invention or the date of the assignment or transfer of such enterprise or line of business.
“(2) DERIVATION.--A person may not assert a 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.
“(3) NOT A GENERAL LICENSE.--The defense asserted by a person under this section is not a general license under all claims of the patent at issue, but extends only to the specific subject matter for which it has been established that a commercial use that qualifies under this section occurred, 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.
“(4) ABANDONMENT OF USE.--A person who has abandoned commercial use (that qualifies under this section) of subject matter may not rely on activities performed before the date of such abandonment in establishing a defense under this section with respect to actions taken on or after the date of such abandonment.
“(5) UNIVERSITY EXCEPTION.--
“(A) IN GENERAL.--A person commercially using subject matter to which subsection (a) applies may not assert a defense under this section if the claimed invention with respect to which the defense is asserted was, at the time the invention was made, owned or subject to an obligation of assignment to either an institution of higher education (as defined in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a)), or a technology transfer organization whose primary purpose is to facilitate the commercialization of technologies developed by one or more such institutions of higher education.
“(B) EXCEPTION.--Subparagraph (A) shall not apply if any of the activities required to reduce to practice the subject matter of the claimed invention could not have been undertaken using funds provided by the Federal Government.
“(f) UNREASONABLE 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 fees under section 285.
“(g) INVALIDITY.--A patent shall not be deemed to be invalid under section 102 or 103 solely because a defense is raised or established under this section.”.
(b) CONFORMING AMENDMENT.--The item relating to section 273 in the table of sections for chapter 28 of title 35, United States Code, is amended to read as follows:
“273. Defense to infringement based on prior commercial use.”.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to any patent issued on or after the date of the enactment of this Act.