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   04.11    


04.11

House Introduces Patent Reform Bill

By IEEE-USA Staff

After the Senate passed Senator Patrick Leahy’s American Invents Act (S. 23) by a 95-5 vote on 8 March, all eyes turned to House Judiciary Committee chair, Rep. Lamar Smith (Texas) to see how the House of Representatives would respond to the Senate’s take on patent reform.   On 30 March, Rep. Smith introduced his own version of the America Invents Act (H.R. 1249), followed by a full committee hearing on the bill held on 31 March. [See a side-by-side comparison of the two bills.]

Some of the key reforms outlined in Smith’s House bill include:

  • First Inventor to File:  Shifts the United States from a “First to Invent” to a “First to File”  System,  harmonizing U.S. patent law with other countries.

  • Post-Grant Review: Establishes a new administrative construct called post-grant opposition that allows disputes involving patent quality and scope to be settled.

  • Business Method Patents: Authorizes a special ex parte reexamination of business-method patents.  This process allows business method patents to be re-examined using the best prior art as an alternative to expensive litigation and helps invalidate poor-quality patents.

  • Third-Party Submission of Prior Art: Prevents bad patents from being awarded by permitting third parties to submit information regarding a patent application that may be relevant for the patent examiner to review.

  • PTO Fee-Setting Authority & Revenue Retention: Authorizes the PTO Director to establish patent and trademark fees to recover the costs of services rendered to inventors and trademark filers. Allows the PTO to retain revenue generated by these fees in order to hire new examiners and address the patent backlog.

  • Best Mode: Retains the best mode requirement for purposes of submitting an application, but prevents a defendant from claiming that a plaintiff failed to comply with the best mode requirement when filing for a patent.

As various groups rallied to support or oppose particular proposals contained in the House bill, one issue of contention emerged in sharp focus, the bill’s proposal to move the United States from a “First to Invent” to a “First to File” system. 

In the 30 March hearing, U.S. Patent and Trademark Office Director David Kappos indicated the Administration’s support for this transition, noting it would “reduce legal costs, improve fairness, objectivity and transparency, and support U.S. innovators seeking to market their products and services in other countries.”  

Steven Miller, of the Proctor and Gamble Corporation, also testified in support of the “First-to-File” reform, arguing that “First-to-Invent” has not protected the interests of small inventors, and noting that “an inventor can be first to make the invention and first to file a patent application, but still forfeit the right to a patent because the inventor cannot sustain the cost of the 'proof of invention' system.”

Mark Chandler, of Cisco Systems, representing the Coalition for Patent Fairness, observed that “prior user rights are vital to a functional first-to-file system” and indicated that the Coalition would oppose a shift to the “First-to-File” system if the legislation doesn’t ensure prior user rights. 

In a similar vein, John Vaughn, testifying on behalf of the American Association of Universities, indicated university support for the bill as long as it maintained “three components of the current U.S. patent system: (1) a 12-month grace period for publishing articles containing a disclosure of the invention, (2) the opportunity to file provisional applications, and (3) the requirement of current U.S. patent law that an applicant sign an oath that he or she is an inventor of the claimed invention.”

Missing from the hearing panel was a witness to represent small business and individual inventor interests.

Highlights from IEEE-USA’s response to the House Judiciary Committee and other commentary on key patent reform issues is appended below.   [Also see “2011’s Patent Reform Legislation,” Glenn Tenney, Today’s Engineer (March 2011) ]

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Introductory Remarks by Rep. Lamar Smith, Texas (Chair of the House Judiciary Committee and Sponsor of the America Invents Act, H.R. 1249.
Excerpted from Press Release, “Chairman Smith:  Patent Reform Creates Jobs,” U.S. House Committee on Judiciary (30 March 2011):

“The strength of our economy relies on our ability to protect new inventions and build on innovation. Patents protect intellectual property and encourage the creativity that generates jobs and increases productivity. 

“Unfortunately, our outdated patent system has become a barrier to innovation and invites lawsuits from holders of questionable patents seeking to extort millions of dollars from companies. We cannot protect the technologies of today with the tools of the past.

“We need reforms that discourage frivolous suits, enhance patent quality and streamline international principles. Better patents lead to products and innovations that generate jobs and drive economic growth. After six years of bipartisan efforts, I look forward to crossing the finish line on patent reform.”

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Response by IEEE-USA, American Innovators for Patent Reform, National Small Business Association, the U.S. Business and Industry Council and Others to America Invents Act, H.R. 1249
Excerpted from IEEE-USA/Coalition Letter to House Judiciary Committee leaders on America Invents Act (H.R. 1249): 

While the current bill makes important progress in efforts to fund the U.S. Patent Office, the bill contains troubling provisions pertaining to matters that are critical to small businesses. The current proposals will inflict substantial harm on our members, who need strong reliable patents to build our businesses and create jobs. The proposed Act has several features that will increase our costs sharply and reduce our access to the patent system, increase the Patent Office’s delay and backlog, and decrease our ability to enforce our patents.  By making patents less certain, and adding costs and delay, the bill impairs our members’ ability to raise capital.

The weakening of the grace period, as part of the “first inventor to file” section of the bill, raises risk of loss of patent rights by our members, as it impedes the important process of incubating and vetting inventions. The proposed Act provides a grace period only for early publication by the inventor, which our members seldom risk due to competitive reasons. The Act limits the grace period to that which is commercially similar to a failed system that the U.S. abandoned in 1839, when the U.S. recognized that inventors need a commercially-reliable opportunity to work and market their inventions before the deadline for patenting. Current law provides inventors a pre-filing grace period, permitting inventors to share ideas without fear of leaks and piracy, to raise capital, to refine those ideas, and the discard the ones that prove worthless, before the legal deadline forces the investment of tens of thousands of dollars in a patent application. The proposed Act disrupts the unique American start-up ecosystem that has led to America’s standing as the global innovation leader—the ecosystem that is vital to our businesses, but with which large firms have less expertise. Within the “first to file” section, the change to the filing grace period disadvantages small companies, startups and independent inventors that must seek outside financing and strategic partners, in favor of firms that can arrange all of their investment, testing, manufacturing and marketing internally. It is this necessary step of early disclosure of inventions to outside third parties prior to filing an application that will put our members at greater risk under the proposed weakened grace period.

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Playing A Dangerous Game With Job Creation
Excerpted from “Playing a Dangerous Game With Job Creation”, by Henry N. Nothhaft, Harvard Business Review, The Conversation Blogsite (31 March 2011): 

Representatives of some of the largest companies in the world testified that the new patent reform bill will enhance job creation in America. Yet the one and only group that actually creates all new job growth in the U.S. and could challenge those claims — i.e., startup entrepreneurs and small businesses — was not invited to speak.

Too bad. Because if only Congress and the American people could hear the voices of entrepreneurs, they might learn how key elements of this new patent reform bill will in fact enrich the giant technology multinationals at the expense of American job creation.

Take the patent bill's plan to end our nation's 221-year-long practice of granting a patent to the "first and true inventor" and give it instead to those who get to the patent office and file their applications first — usually those with large financial and legal resources.

The problem with replacing "first to invent" with "first to file" is not simply that it tramples upon the core American belief in merit which holds that the person who actually invents something first ought to own the rights to it. This measure will also reduce a patent system expressly designed by the Founders to serve small business inventors into one in which Big Business has the advantage and entrepreneurs are shut out. This cannot help but stifle job creation and undermine U.S. technological and economic leadership in the world.

Why? Because as multiple studies old and new confirm, only small startups create new industries and the millions of jobs that go with them. Indeed, over the last century, virtually every new industry was launched not by a big established firm but by entrepreneurial innovators.

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Open Innovation and the Evolving IP Marketplace
Excerpted from “The Evolving IP Marketplace:  Aligning Patent Notice and Remedies With Competition,” Federal Trade Commission (March 2011):

Understanding what changes to the law of patent notice and remedies would increase innovation and better align the patent system and competition policy requires that we first examine how the pathways to innovation and the role of patents in promoting innovation have evolved. In one significant change, many firms have increasingly embraced “open innovation.” In a traditional or closed model of innovation, a firm relies on its own research and development (R&D) to create the products it markets. But a firm that pursues an open innovation strategy recognizes that valuable ideas can originate with others and seeks to acquire those inventions that fit its business model. Many of the inventions acquired and commercialized by large firms originated with start-ups and small companies, which have accounted for a steadily increasing percentage of R&D spending over the past 30 years.

Consumers benefit from open innovation strategies. The growth of technology transfer has permitted a division of labor to emerge between those who invent and those who manufacture most efficiently. This division of labor speeds up the rate of innovation and results in broader, faster distribution of new products to consumers. By providing a pathway for invention without commercialization, technology transfer also lowers barriers to entry for inventors who do not have access to the capital required to build manufacturing facilities and establish distribution channels. Easier entry supports additional sources of invention, which increases competition among technologies to be further developed and incorporated into products. That competition benefits consumers by generating better, cheaper products. Moreover, competition among early-stage technologies for development funding is an important mechanism for allocating scarce resources to those inventions having the greatest chance of generating the products most valued by consumers.

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Reality-Based Patent Reform
Excerpted from “Reality-Based Patent Reform”, by Chris Gallagher and Kevin L. Kearns, The Hill, Congress Blog (24 March 2011):

The seminal importance of the Federal Trade Commission’s (March 2011) report is that it describes a very different IP reality than the one assumed by S. 23 and similar versions of congressional ‘patent reform.’ The report highlights the emergence of today's ‘open innovation,’ which most often emanates from public and private transfers of technology through licensing and the collaborative interactions of universities and smaller start-ups, spin-outs, and research firms.

This new, open-innovation dynamic is gradually replacing the formerly dominant, internal ‘closed innovation’ efforts of large companies. The scientific innovation model of our smaller firms, universities, and research consortia and the incremental innovation model of the large market incumbents both contribute to our world-class innovation. Unfortunately, S. 23 and its ilk ignore the needs of the fast-developing independent start-up model.

If S. 23 reflected the forward-looking FTC perspective, it would not be promoting the unwieldy ‘first-to-file’ procedure, which eliminates inventors’ critical ‘grace period’ protections. This and other provisions will cripple early-stage innovation by ‘harmonizing down’ our first-class patent system to the inferior systems of other countries, which should be persuaded to ‘harmonize up’ instead.

Europeanizing our system for the filing convenience of global multinational firms — that overwhelmingly practice the internal, ‘closed innovation’ approach — will cripple today’s innovation evolution with costly procedures while curtailing the beneficial ‘creative destruction’ inherent in technological progress.

It is easy to understand why market-disruptive innovation might distress large incumbent firms, but forcing the American economy into a single, narrow innovation model favoring outsourcing, offshoring global giants will stamp out the local jobs generation capability of smaller firms.

Congress should not intervene to distort the technology economy’s continued evolution by crippling the open, independent innovation efforts of small businesses, our nation’s leading job creators, at the very time we can least afford it.

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