After years of speculation and debate, this latest implementation of patent reform (H.R. 1249) could move quickly through the senate this week. The best hope for those opposed to the bills dramatic changes would be an amendment allowing the USPTO to keep the fees it generates. An end to the controversial “fee diversion” practice, a practice enabling the House appropriations committee to “re-distribute” nearly $1 B of USPTO fees, already passed the Senate in its version of the bill (S.23). The House, however, appears determined to keep its options open by proposing instead to continue “appropriating” collected fees while making empty promises about future funding.
Meanwhile, evidence demonstrating the dangers posed by patent reform grows ever stronger. First, empirical evidence strongly suggests that major components of the bill will negatively affect individual inventors and small businesses. Second, the bill provides uncertainty to investors and provides new avenues for incumbent firms to tie up small business patents in bureaucratic nonsense. Third, a Federal judge retired specifically to oppose the legislation and push for proper patent office funding before tinkering with centuries-old doctrines. Finally, however, not all is bad. The bill looks to be a boon for the legal industry.
1. Empirical Studies: First to File will harm small businesses.
An interesting study published on SSRN and Professor Dennis Crouch’s PatentlyO confirms the results of an earlier study examining the effect a switch to first-to-file will have on small businesses. From the summary:
Our main finding is a substantial drop in the fraction of patents granted to small inventors in Canada coincident with the implementation of first-to-file. The overall policy implications depend on the relative value of inventions by small inventors, but the results do reveal that, contrary to the conventional wisdom, a change to first-to-file is not free — it is likely to result in reduced patenting behavior by individual inventors.
This is consistent with a 2009 study which found an “adverse effect on domestic-oriented industries and skewed the ownership structure of patented inventions towards large corporations, away from independent inventors and small businesses.” I’ve yet to see a legitimate rebuttal to either study at this point.
2. Investment Capital: New procedures undermine confidence in venture-backed businesses
Valerie S. Gaydos, an Angel investor and president of Capital Growth, Inc. spoke last week about the effects of the bill on start-up businesses. Notably, Gaydos suggests that an earlier-filed application by a start-up could be subjected to unwarranted “derivation proceedings” and post-grant review. Start-up companies are less equipped to deal with and adapt to these new procedures, and would be disproportionately affected by cost. In short, investors are less interested, and start-ups suffer from a bill that “tilts playing field in favor of multinational corporations (market incumbents) with existing patent portfolios over start-ups” and “creates uncertainties of investing in start-up IP due to a myriad of new legal pitfalls which disfavor start-ups.”
3. Let the Patent Office do its job
Former Chief Judge Paul Michel retired from a lifetime appointment to the Federal bench, in part, because only by doing so would he be allowed to publicly comment on the legislation being voted on this week. And in making those public comments, Judge Michel held nothing back, saying “I don’t intend to sound disrespectful, but I think it might be unavoidable because–from studying the history of the last several years of patent reform–I’m forced to the conclusion that Congress has got patent reform exactly backwards.” The first priority, according to Judge Michel, is to provide the patent office with the resources it needs to do its job. Until the patent office is funded, meaningful patent reform is impossible, says Michel. To drive his point home, Judge Michel distributed some statistics (embedded below) showing how thinly stretched the patent office’s resources have become along side the disappearance of user fees. The present situation, along with the new duties imposed by the bill, put the patent office on a “collision course” that will result in patent examination getting slower and patent value going down. Judge Michel forecasts the net result, saying “Investment in innovation and job creation will go down when we need it to go up.”
4. Lawyer’s Paradise
Somewhat tongue-in-cheek, Professor John Duffy expresses his view that the bill will move us “Toward a More Expensive, Lawyerly and Complex Patent System.” For one thing, the sheer size of the bill (150 pages) is massive compared to other legislation, such as the original patent act (9 pages), the Civil Rights act of 1963 (28 pages), and the National Labor Relations Act of 1935 (9 pages). The bill calls for an immediate fee hike “promised” to the patent office, but realistically up for grabs to opportunistic Congressmen. The bill promises to add (1) multiple, overlapping, bureaucratic procedures; (2) confusion (doublespeak) by maintaining the best mode requirement, but preventing courts from enforcing it; and (3) special-interest pandering to financial institutions.
Professor Duffy’s opinion can likely be summed up in one sentence: “The change increases the importance of lawyers in the system (as compared to inventors).”
- The USPTO Solicits Comments On Implementing Patent Reform (patentcalls.com)
- Industry Survey on Patent Reform (gametimeip.com)
- Patent Office Deputy Director Rea Lays Out Administrative Initiatives (gametimeip.com)
- Inventor / Patent Owner Claudio Ballard Speaks Out Against Patent Reform (gametimeip.com)
- Patent Reform 2011: Vote Scheduled At the Conclusion of Labor Day (patentlyo.com)