Wealth of Ideas Newsletter, March 2011

Despite the protests of small businesses, inventors, universities and Silicon Valley businesses, the Patent Reform Act of 2011 (S. 23) – now known as the America Invents Act – was passed by the Senate on March 8. (A PDF of the bill is here.)

Some of the damaging provisions were amended out of the bill prior to the final vote, but two major drawbacks remain: A change from a first-to-invent to a first-inventor-to-file provision, and the addition of a post-grant review system.

First-Inventor-to-File

The America Invents Act would establish a system under which a person other than the initial inventor could receive a patent! The switch to a European-style first-to-file regime was controversial, and Sen. Dianne Feinstein filed an amendment to retain the first-to-invent system that is currently in use by the U.S. Patent & Trademark Office after small business owners convinced her that it would unfairly benefit larger companies.

“Under our first-to-invent system, our nation has been by far the leader in the field of innovation, the leader in the field of new patents, new discoveries and new inventions,” Feinstein said. “The other first-to-file countries have been playing catch-up with our technological advances.”

However, the Senate voted 87-13 to table the Feinstein amendment, because first-to-file has become one of the key issues in a move to “harmonize” the U.S. patent system with the patent systems in other countries, most of which are first-to-file.

Canada made the switch to first-to-file in 1989, and a 2009 study from researchers at Canada’s McGill University’s Department of Economics found that the change “failed to stimulate Canadian R&D efforts” and “skewed the ownership structure of patented inventions towards large corporations, away from independent inventors and small businesses.”

Proponents of first-to-file claim it will simplify the patent application process. However, such a system will eliminate the one-year grace period now granted to inventors and other “micro-entities” during which they can fine-tune their inventions, reduce their inventions to practice, test market the technology and secure financing before submitting a comprehensive application. Under a first-to-file system, the Patent Office will find itself flooded with poor quality applications as applicants rush to secure filing dates for their applications. This, in turn, will exacerbate the 700,000 backlog of patent applications at the USPTO.

Post-Grant Review

The America Invents Act would give large corporations – often the most flagrant infringers of patents – an unfair advantage by establishing a post-grant review that would enable a company that is infringing a patent to challenge the patent’s validity. There are already two forms of patent review – ex partes and inter partes reexamination – so adding a third would only serve to make patents more difficult to defend, especially for smaller businesses and individuals. Under post-grant review, an infringer could force the patent owner that does not have the resources to defend its patent to abandon it. Infringers could essentially assassinate a patent they are infringing before the patent owner can enforce it!

The difficulties with both first-to-file and post-grant review were succinctly stated in the open letter sent by American Innovators for Patent Reform and eight other organizations prior to the passage of the bill: “Increased filings driven by S. 23’s ‘use it or lose it’ grace period rules and by post-grant review will further burden PTO at a time when PTO’s backlogs are unacceptable.”

Other Changes in the America Invents Act

The final version of the bill did include some positive changes. For example, it did away with a controversial provision that would limit venue selection, a section was removed that would have made it more difficult for patent owners to prove willful infringement, and the final legislation does not require judges to act as “gatekeepers” in determining damages in patent lawsuits.

Some of the other positive aspects of S. 23 are:

• “Best mode” no longer a basis for a finding of invalidity: Though inventors must still disclose the best mode of practicing their invention (or “preferred embodiment”) when applying for a patent, the issued patent’s claims cannot be invalidated solely based on the inventor’s failure to disclose the best mode. The loosening of this requirement may be related to the change from first-to-invent to first-to-file.
  
• Restrictions on who can sue for false marking: The bill would end the rash of “false marking” lawsuits in which any citizen can sue a company on behalf of the government for the offense of marking products with expired or incorrect patent numbers (and collect half the damages) by limiting the filing of such lawsuits to the government and parties (i.e., competitors) who were actually harmed by the act of false marking.
  
• Pre-issuance third-party submissions allowed during examination: This provision would allow third parties to submit relevant prior art (in the form of printed publications) for consideration during the examination of a patent application.
  
• Fee-setting authority granted to the Patent Office: This section of the bill would allow the Patent Office’s Director to establish or adjust fees charged by the USPTO, and would also grant fee reductions to small entities and micro-entities (50% and 75%, respectively). There is also a provision to end fee diversion of USPTO revenues. That means that instead of handing over to the Treasury any fee revenues above the budget set for it by Congress, the Patent Office would be allowed to keep all fees that it collects for its own operations.

The bill would also make tax strategies unpatentable by considering them “known prior art.” And in one of S. 23’s more welcome changes, the bill authorizes the USPTO’s new “satellite office” in Detroit. It is planned to be the first of three such offices across the country, and should help the Patent Office work through the backlog of patent applications by bringing in more patent examiners in key locations.

What’s Next for Patent Legislation?

In the coming weeks, the House of Representatives is expected to take a swing at patent reform. The House Judiciary Committee plans to introduce and vote on its own bill soon. Although the Senate bill has been widely touted for the bipartisan cooperation that went into the America Invents Act’s passage, a Republican-controlled House is likely to take a different look at patents, innovations and the needs of America’s small businesses.

There is still strong opposition to the America Invents Act, and that includes American Innovators for Patent Reform (AIPR).

“We are not ready to support this bill,” said Alexander Poltorak, the founder and President of AIPR (and also Chairman and CEO of General Patent Corporation), echoing many other organizations and smaller entities who don’t want to see their patent rights slip away. “The fight now moves to the House.”