The new first inventor defense [2] (sometimes referred to as a prior user defense) became effective on November 29, 1999, except that it shall not apply to any action for infringement that was already pending on that date. The defense applies only to actions for infringement of claims that may be infringed by "any method of doing or conducting an entity's business." The exact scope of this provision is not entirely clear.

The Senate Committee report refers to the need for such a provision as becoming more urgent following the Federal Circuit's decision in State Street Bank v. Signature Financial Group which upheld the potential patentability of various business methods which until recently had been thought not to be patentable, simply because of the nature of the inventions involved. However, the Senate committee reports that the provision is not intended to be confined to the facts of the State Street case, commenting:

The first inventor defense is not limited to methods in any particular industry, such as financial services, but applies to any industry which relies on trade secrecy for protecting methods of doing or conducting the operations of their business.

A further comment indicates that the provision is not intended to be restricted to any particular form of claims, if the essence of what is claimed is in fact a business method, for example, it is intended to cover a machine that has been programmed to carry out a business method.

The Senate Committee's comments on the bill point out that trade secret law serves the public interest in a different way from patent law by protecting investments in new technology and notes that "it would be administratively and economically impossible to expect an inventor to apply for a patent for all methods and processes now deemed patentable."

The provision applies only if the party being sued had, acting in good faith, reduced the subject matter in question to practice at least one year before the effective filing date of the patent being sued on. (The effective filing date is defined as including validly claimed priority dates.)

If the requirement is met, it protects two different types of activities depending on the nature of the party asserting the defense. These exist where there had been use in good faith before the effective filing date of the patent in suit, that is, either commercial use (which is defined as including filing a New Drug Application (NDA) or similar application for marketing approval), or in the case of a non-profit research laboratory or a non-profit entity "such as a university, research center or hospital" any use "for which the public is the intended beneficiary."

The defense is personal, does not render the patent invalid and in cases where a business is sold, is confined to sites where the invention was used before the effective filing date of the patent or the date of the assignment, whichever is later. The defense does, however, carry over to those who acquire a "useful end product produced by the patented method." In the case of non-profit organizations, the defense is confined to use by the organization in question and does not extend to any subsequent commercialization of that work. Pleading such a defense which fails shall be grounds for award of attorney fees to the prevailing party.