Patent Reform is About Innovation – Jobs Are Guaranteed to Follow

As anyone who has any connection to the intellectual property laws of the U.S. knows, patent reform legislation, now known in its current form as the “America Invents Act,” has passed the Senate (S. 23) and is pending in the House of Representatives (H.R. 1249). A House debate and vote is expected relatively soon, as in this summer. My Congressional sources tell me that it is quite popular, and unlike the origins of its existence which date back six years, it is now part of a more comprehensive package of innovation-spurring, economic-recovery-causing, America succeeds legislation. Even the Whitehouse recently endorsed passage of the House Bill. U.S. Commerce Secretary Gary Locke said that the House Bill “is an important part of the administration’s goal of bolstering innovation.” In a letter to leaders of the House Judiciary, Locke noted that “we look forward to working with Congress toward prompt passage of legislation that will enable more timely and quality-focused examination of patent applications, establish a secure funding mechanism for the United States Patent and Trademark Office and reduce litigation uncertainties and costs.”

But there are a few critics of the proposed legislation. Passage of the House Bill is likely (pending resolution of the one main difference with the Senate Bill – having to do with Prior User Rights, an issue I will address in a subsequent article), but not before some political points can be made. This brief article addresses what is real and what is not, concerning the challenges yet to be resolved.

The big argument by critics is that the Bill is unconstitutional. A few days ago, Representatives Dana Rohrabacher (R-CA) and Marcy Kaptur (D-OH) expressed their opposition to H.R. 1249, citing constitutional concerns and listing several provisions they consider detrimental to American innovation and which they assert actually harm the ability of average inventors to secure patents. They were joined by two former House Judiciary Committee Chairmen, Reps. John Conyers (D-MI) and Jim Sensenbrenner (R-WI) in a letter signed by 50 bipartisan Members, addressed to the House Rules Committee, requesting time for the constitutionality of the bill to be adequately debated.

Although it is not clear what they mean by “average” inventors, they assert that the House Bill will cause weaker protections for our inventors “and we can expect American innovation to be easily stolen not only domestically but by foreign entities overseas.” Rohrabacher continued, “Perhaps the worst aspect of this bill, that hurts the American people the most, is the harmonization of our laws with those internationally in terms of the fundamental way we issue patents. “The bottom line is this,” Rohrabacher stated. “In our Constitution, the words make it very clear that the original inventor should be the one who receives the patent, not the global standard of whoever files first. That would be very damaging to American innovators and would change the way we do business.”

In addition to asserting unconstitutionality, they also expressed a belief that many of the Bill’s provisions are “jobs-killers” that harm the main source of new jobs in the economy – namely that the Bill will harm small businesses and start-ups. They base this criticism on their belief that the House bill increases costs on the “little guy” inventors, and drives up the likelihood that issued patents “will be infringed upon and subsequently tied up for years in the bureaucracy under the new procedures.” Presumably this last critique alludes to use of the post-grant review and/or inter partes review to challenge issued patents.

The problem with these arguments is that they find no support in reality or history. First, as to “first inventor to file” harming innovation, there are two facts that need to be realized. Both the Senate and House Bills present a “first inventor to file” system, not a “first to file” system. Therein lies an important distinction. The Constitution recites the need to reward “inventors.” Both the House and Senate Bills recite the same thing. As noted by USPTO Director, David Kappos, “there has been concern in the independent inventor community that the new process will make it easier for an interloper to learn of your invention and beat you to the patent office with an application. Under the “first inventor to file” system there is no risk of this happening because the interloper is not an inventor. All filers have to sign an oath and declaration under penalty of criminal sanctions. This leaves only the issue of simultaneous, non-collaborative invention—what we call interferences. The chances that a patent will be subject to interference based on a first to invent claim—that’s our current system—is .01%. In 2007—the most recent year for which we have statistics, the total number of interference cases for all applicants of all sizes that were decided based on a priority claim was seven. Of those seven decisions, only one involved a small or medium sized entity, and not a single one was won by an independent inventor who was the second to file. That means we already essentially have a first inventor to file system.” It also must be remembered that the legislation provides for a derivation determination, to insure that the first inventor to file was actually an inventor, and not a thief of the invention from someone else.

Second, it is an obvious reality of modern business that we all derive value from IP protection based on a global protection scheme. Even small entities know that international protection, usually sought through filings under the Patent Cooperation Treaty (PCT), is critical to their valuation and future success. Because the rest of the world already operates under a first to file system, the reality is that American innovators, large and small, are already incentivized to file their first application as soon as possible to preserve the earliest filing date so that international rights can ultimately be secured. The reality for any company making a product more advanced than, say, paperclips, is that an international protection plan is critical to their market capitalization (especially true for start-ups) and the first to file system is already part of that paradigm.

Finally, as to post-grant challenges, and the assertion that the big guys will bombard the little guys with bureaucratic hassles, again there is no basis other than rhetoric to support this proposition. Today we have litigation, ex-parte reexamination and inter-partes reexamination. Any and all of these can be used throughout the life of a patent to challenge its validity. This means there is uncertainty about the patent’s validity for roughly 15+ years of a patent’s useful life. And as a patent grows in importance, it becomes more susceptible to attack. The proposed legislation creates incentives for early challenges during the first year (or less – the Senate proposes nine months) of the life of the patent through Post-Grant Review. The burden on a challenger goes up after that time and is limited to a modified re-examination review or litigation thereafter. This means that early challenges to a questionable patent are incentivized, and only relatively stronger challenges later in the life of the patent would be brought. This system encourages quick and early challenges and thereby provides greater certainty for investors and stakeholders for the majority of the life of the patent. As we all know, certainty is prized among investors. And investment means job creation.

Moreover, as the House takes up a floor debate on this critical piece of legislation, we must remember to stay focused on the reality of what the changes will bring – and not let the rhetorical or otherwise unsubstantiated red herrings that are brought in to satisfy special interest groups interfere with the honest debate. When investors and innovators, big and small, see new technologies that have a predictable and solid footing in the global market place, jobs will follow quickly.

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