Category: How to
I have written extensively on the problems I see with IPXI’s model to market licensing rights to patents. Their model is based on a commodities contracts type of model, where unit licensing rights can be bought and traded. I believe a model based on how Amazon sells books would be more effective and open up the patent licensing market to smaller entities and inventors. This sort of retail licensing system would allow inventors to post an invention that they are willing to license with a unit licensing rate for one instance of the invention. For software enabled inventions the unit licensing rate might be based on a per execution basis or a time limited period. The retail licensing system would issue a certificate that the licensor would use to prove that they had bought a license and only be good for one instance or execution. It is my assumption that the unit licensing rates would be so low that it would be easier to license the invention than infringe. The license would not come with any warranties of validity or non-infringement, but would come with a warranty of ownership of an issued patent. In addition, there might be bulk unit licensing discounts and a chance for the inventor to sell their engineering talent to help implement the invention.
This system would reduce the cost of licensing. Avoid some of the problems of IPXIs model, such as having a limited number of unit licenses and it would open up the market to individual inventors and small entities and spark an inventive wave that we would all profit from.
Here are the four ways to administratively challenge a patent or patent application. Note that I do not consider an ITC (International Trade Commission) case an administrative challenge. The challenges are organized from least expensive and complicated to more complicated and expensive.
35 U.S.C. §122(e)
37 CFR §1.290
For more information see http://www.uspto.gov/forms/3prsubmission_instructions.pdf.
This process only allows one to submit printed publications, including published patents and patent application along with a concise statement as to why they are relevant. Note
Third-Party Submissions must be made (1) before the later of (i) 6 months after the date the application is first published by the Office, or (ii) the date of a first Office action on the merits rejecting any claim, and (2) before the date a notice of allowance is given or mailed.
2. Ex Parte Reexamination (Determination of issue by Director)
35 USC 303(a)
The basic characteristics of ex parte reexamination are as follows:
(A) Anyone can request reexamination at any time during the period of enforceability of the patent;
(B) Prior art considered during reexamination is limited to prior art patents or printed publications applied under the appropriate parts of 35 U.S.C. 102 and 103;
(C) A substantial new question of patentability must be present for reexamination to be ordered;
(D) If ordered, the actual reexamination proceeding is ex parte in nature;
(E) Decision on the request must be made no later than 3 months from its filing, and the remainder of proceedings must proceed with “special dispatch” within the Office;
(F) If ordered, a reexamination proceeding will normally be conducted to its conclusion and the issuance of a reexamination certificate;
(G) The scope of a claim cannot be enlarged by amendment;
(H) All reexamination and patent files are open to the public, but see paragraph (I) below;
(I) The reexamination file is scanned into IFW to provide an electronic format copy of the file. All public access to and copying of the reexamination file may be made from the electronic format copy available through PAIR. Any remaining paper files are not available to the public.
3. Inter Partes Review
35 U.S.C. §§ 311-319
For More information See http://www.aiarulemaking.com/rulemaking-topics/group-2/inter-partes-review.php
Essentially this is a mini-lawsuit in front of the Patent Office that requires the challenger to present mainly publications as evidence that a patent should not have issued (35 USC 102 & 103). This process must be initiated within nine months of issuance of a patent. The decision is non-appealable.
4. Post Grant Review
35 USC § 321
This is a newly introduced process by the AIA. In general it only applies to patents filed after March 15, 2013. This process will allow the challenger a broader range of challenges than Inter Partes Review.
For More information see http://www.uspto.gov/aia_implementation/faqs_post_grant_review.jsp
Periodically, the PTO decides they need a more aggressive (more European) approach to restrictions. This practice not only fails to follow the law but it is an attempt to use restriction practice to limit the applicant’s right to define their invention. In other words, it is a backhanded way of limiting invention under 35 USC 101 or 35 USC 103.
According the MPEP 803,
There are two criteria for a proper requirement for restriction between patentably distinct inventions:
(A) The inventions must be independent (see MPEP § 802.01, § *>806.06<, § 808.01) or distinct as claimed (see MPEP § 806.05 – § *>806.05(j)<); and
(B) There *>would< be a serious burden on the examiner if restriction is >not< required (see MPEP § 803.02, **> § 808<, and § 808.02).
If two or more independent and distinct inventions are claimed in one application, the Director may require the application to be restricted to one of the inventions. If the other invention is made the subject of a divisional application which complies with the requirements of section 120 of this title it shall be entitled to the benefit of the filing date of the original application. A patent issuing on an application with respect to which a requirement for restriction under this section has been made, or on an application filed as a result of such a requirement, shall not be used as a reference either in the Patent and Trademark Office or in the courts against a divisional application or against the original application or any patent issued on either of them, if the divisional application is filed before the issuance of the patent on the other application. If a divisional application is directed solely to subject matter described and claimed in the original application as filed, the Director may dispense with signing and execution by the inventor. The validity of a patent shall not be questioned for failure of the Director to require the application to be restricted to one invention.
Why does the MPEP change “independent and distinct” to “independent or distinct?” It appears the Patent Office’s is not following the law and attempting to make it easier to require a restriction.
The question the statute leaves unanswered is what is an independent and distinct invention. According to the MPEP 802.1:
The term “independent” (i.e., **>unrelated<) means that there is no disclosed relationship between the two or more inventions claimed, that is, they are unconnected in design, operation, and effect.
According the MPEP 802.2 the term distinct means
Related inventions are distinct if the inventions as claimed are not connected in at least one of design, operation, or effect.
From the above it is clear that “distinct” casts the widest net. I will note the MPEP suggests that the case law on point does not always use the above definition. The important thing to remember is that we are talking about the inventions as claimed. Thus, if any set of claims incorporates both inventions, they are clearly connected by design, operation or effect.
The Patent Office when issue a restriction requirement often asserts the combination/sub-combination rule to argue that two inventions in an application are distinct. However, this rule is still based on how the combination/subcombination are claimed and requires the PTO show that it would be a serious burden if the restriction were not upheld.
Unfortunately, the PTO often ignores the “claimed” requirement for distinct inventions. If the PTO is allowed to do this it arbitrarily limits what the applicant can claim as their invention. Every invention is a combination of known elements (conservation of matter and energy) and when the PTO incorrectly limits which subcombinations the inventor can claim, they limit the right of the inventor to define what their invention is. This has the same effect as limiting what the inventor can claim under 35 USC 101 or 35 USC 103. From a practical point of view this arises when a subsequent Office Action rejects the claims based on certain prior art and the applicant then wants to modify their claims to incorporate the features of one of the subcombinations. The PTO disallows this amendment by suggesting the applicant has not selected that subcombination. This practice is wrong, illegal, denies the applicant of due process, and denies the applicant’s right to define their invention.
Just because you can obtain a patent for your invention does not mean that you should file for a patent. So how do you determine whether it makes business sense to file a patent application on your invention? The goal of filing a patent application is to create a barrier to entry. There are many ways to create a barrier to entry in business. For instance, a company’s customer list can give you an advantage over potential competitors since they will not know who the key people are in the industry. Another barrier to entry might be your location if you are a retail store. A gas station on at a busy intersection with easy access has an advantage over competitors that cannot be at the same busy location. Trademarks may also provide a barrier to entry.
In order to understand the value of a patent to your business it is helpful to make an analogy to physical barriers to entry. You probably lock the door to your house, but you know that someone can break the window and still get into your house. So why do you lock the doors to your house? Probably because you know that it will slow down any burglars and make it more difficult to enter your house. As a result, you increase the chance that any burglars will either give up or move on to someone else’s house. Note that you can always spend more money on the locks to your house, but at some point it doesn’t make economic sense. If you spend $1 million on a safe for a $10K diamond, it doesn’t make sense. The same thing is true for patents. You are not trying to create a perfect barrier to entry, you are trying to increase your competitors cost and slow them down if they decide to compete with you. For many of my clients the main goal is to make it painful enough for someone to compete with them that the potential competitor would rather buy out my client.
Thus the question is not whether you can afford to enforce a patent, or whether having a patent will eliminate all you competitors, but whether filing for a patent application or obtaining a patent will increase your competitor’s cost and slow down their entry into your market. If you spend $10K to obtain a patent and it increases your competitor’s cost $100K and slows them down, then it probably makes sense to file a patent application.
The size of your market must also be taken into account. The bigger your market the smaller the barrier needs to be. For instance, a company with $5 billion a year in sales in a well defined market should file patents on almost any invention in their market space. Vice versa the smaller the market the bigger the barrier to entry needs to be. I have had clients walk into my office where I am pretty sure we can create an almost perfect barrier to entry, but the market is only $80k a year. This is essentially buying a job and it makes no sense to file a patent for that size of market no matter how strong the barrier to entry.
Remember the goal of patent is to create a barrier to entry. Just like physical barriers to entry, you should not expect a perfect barrier to entry. For most startups, you want a strong enough barrier to entry that your competitor will buy you out rather than compete with you.
I often hear something like ‘only 2% of patents every pay off’ or are commercialized. This comment is quoted as if it is gospel and often is said in a snide or cynical way. This comment came to my mind as I was preparing a list of patents and associated products for one of my clients. This client has seven or eight patents and every single patent covers a product my client is producing and selling. While I certainly have clients that have filed for patents that are not licensed or being practiced, these are the exception not the rule. The economist Jacob Schmookler in his 1966 book Invention and Economic Growth, investigates this issue and his survey showed that over 50% of patents are commercialized. Economists Lamoreaux and Sokoloff investigated the rate at which independent inventors were able to sell their patents around 1900 and at that time it was around 30%. Clearly, the myth that only 2% of patents are ever commercially successful is without basis in fact.
I believe this myth about the success rate of patents is part of an attempt to devalue patents and inventors in general. Large companies that do not want to pay for using other people’s inventions (patents) use this myth to paint inventors who sue them as crackpots. In addition, these companies use this myth to pay their employee inventors less. The anti-patent crowd has an interest in perpetuating this myth, because it demonstrates that patents are economically unimportant. However, the evidence shows that patents are successful financially at a much higher rate than the myth suggests and this shows the importance of patents and inventors to our economy.
The America Invents Act (AIA) has changed the rules for marking products with patents. The law allows you to “mark” you product by providing a website that explains which patents cover which products. This is a positive step to move the patent system into the 21st century.
The reason for marking you product with a patent number is that it provides “constructive notice” to infringers of your patent. Damages for patent infringement accrue from the date of actual or constructive notice to the infringer. As a result, the damages you may recover will be larger the sooner an infringer is deemed to have notice of your patent.
From a practical point of view, having a website explaining which patents cover which products is significantly easier and less expensive than marking the actual product or the product’s packaging. If it is not too expensive to also mark your product or its packaging I would suggest that inventor’s do both.
Here is how Section 16 of the AIA reads:
(a) VIRTUAL MARKING.—
(1) IN GENERAL.—Section 287(a) of title 35, United States Code, is amended by striking ‘‘or when,’’ and inserting ‘‘or by fixing thereon the word ‘patent’ or the abbreviation ‘pat.’ together with an address of a posting on the Internet, accessible to the public without charge for accessing the address, that associates the patented article with the number of the patent, or when,’’.
(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to any case that is pending on, or commenced on or after, the date of the enactment of this Act.
Google agreed to acquire Motorola Mobility for $12.5 billion. Most people believe the main motivation for Google was to acquire Motorola’s patent portfolio of over 17,000 patents and patent applications. The comments on this deal encompass all the insanity around the Patent Wars. Below I will discuss some of these issues
Is this a good deal for Google? Does it make economic sense? In buying Motorola, Google gets a company that has been in the forefront of mobile communications since its inception. The biggest risk is that Motorola is bit bureaucratic. They were slow to develop CDMA phones in the 90s and never completely recovered. Motorola has been hardware focused, when the industry is clearly being driven by software advances now. The main reason for acquiring Motorola is to get their patents and leverage them into freedom of action in the Andriod market space.
Innovation and Paying for Patents
There are numerous people complaining that Google’s $12.5 billion is being spent on patents instead of being spent on engineers and products. Actually, spending money on patents IS spending money on engineers. Engineers created the inventions and the patents just provide legal title to the inventions. When companies spend money acquiring patents they are spending money for the development of inventions and therefore engineers. If inventions are not protectable, companies do not spend more on engineers they spend less. They just take other people’s inventions, rather than paying for internal or external development. In fact, you can trace engineering salaries and employment to strong patent laws. Countries with weak patent laws either have very few engineers or their salaries are fairly low or both.
New products are the result of inventions. Increases in our level of technology are what make us wealthy. When people pay for patents (inventions) it encourages other people to innovate, it does not discourage innovation.
Too Many Overly Broad Patents being Issued
There has been a lot of wailing about too many over broad patents being issued. This whining is coming from the same people who complained about Amazon’s one click patent, which was upheld after numerous challenges. Why did Barnes and Noble get a 10x increase in online sales (after copying Amazon’s one-click technology) if the one click patent was not innovative?
All objective measures of patent quality have been increasing for years. For instance, the GDP per patent, R&D dollars per patent, and number of citations per patent have all been on the increase. For more information see Patent Quality Nonsense.
Do some bad patents get issued? Absolutely and some of my clients have been affected by this. However, most people making the claim that there are too many bad or overly broad patents do not even know that the scope of a patent is determined by its claims. They do not know that claims cannot be read like prose, they have to be read like an equation where every word has to be given meaning.
Many people see this acquisition as just another outgrowth of the numerous frivolous patent cases being filed. However, the facts do not support this point of view. Judge Michel, former head of the CAFC, the court which hears all patent appeals, points out that the number of patent suits filed each year has remained constant at less than three thousand. Only about 100 of these suits ever go to trial. In a technology based, $14.5 trillion economy with over 300 million people and 1 million active patents- THIS IS A TRIVIAL NUMBER.
Are there any problems with our patent system? Absolutely. The underfunding of the patent office causes inventors to wait years and even up to a decade to receive their patent. But, more specifically to the Google/Motorola case, the wireless smart phone space needs a more efficient method of clearing patent rights. I suggest a non-profit entity similar to ASCAP, which clears copyrights for musicians and composers. For more information see Patent Wars a Market Solution.
Finally, for those worried about the poor, small company who had a great idea for an app and are now scared they may find themselves embroiled in a patent lawsuit- GET A PATENT CLEARANCE OPINION before you develop.
One of Director David Kappos’ first actions was to send out an email to all the examiners at the USPTO (U.S. Patent and Trademark Office) that rejection did not equal quality. Mr. Kappos has had almost two years to make good on the policy change. When Mr. Kappos took over the allowance rate had fallen to 39%. While this shows progress and many parts of the Patent Office have gotten the message there are still several art units where they are still operating under the “rejection equals quality” policy.
The USPTO has a data visualization center, which tracks many usefl statistics. For instance, the overall allowance rate is 62.9% from a low of around 56.4%. The overall allowance rate does not consider RCEs as a new case. For companies that can afford to fight indefinitely with the PTO this is a better measure, but for companies on a limited budget this is small consolation. Despite the rhetoric that companies file multiple patents willy-nilly, the extreme cost and length of time it takes to obtain a patent means that even the wealthiest of companies are discerning in their patent filings. As a result, an overall allowance rate near its historical average of 70-75% makes more sense.
It now takes on average 25.2 months from the date of filing a patent application until you receive an Office Action. This varies significantly from one art unit (technology) to another. In addition, Congress stole another $100M in user fees, which has caused this delay to increase. Unfortunately, our Congress is not serious about their Constitutional duty to secure the rights of inventor.
According to the Milwaukee Journal Sentinel http://www.jsonline.com/business/120673029.html, Congress, has just decided to steal another $100 million from the Patent Office, which is really stealing from US inventors. We don’t need financial reform or Sarbanes Oxley for the private sector we need if for Congress and the President. All of them would be in jail if they pulled this stunt in the private sector. The morality of the public sector has fallen to a new low. One result appear that the USPTO will have to impose a hiring freeze. This is just more evidence that Congress is not serious about its Constitutional duty of protecting the Rights of Inventors.
The Economist in an article entitled The spluttering invention machine repeats a number of lies associated with patent reform. For instance, they repeat the Patent Thicket theory for which there is absolutely no empirical evidence. You would expect that a magazine like the The Economist would at least do a little research on the topic. Here are some of the errors in the article.
This Article repeats the Patent Thicket theory (too many patents inhibit innovation). Every single empirical study has found little or no evidence for the Patent Thicket theory. For instance see R&D, Invention and Economic Growth: An Empirical Analysis, by Professor Hulya Ulku and Ted Buckley, Ph.D., The Myth of the Anticommons, Bio, www.bio.org (2007) and Epstien, Richard A., Kuhlik, Bruce N., Is there a Biomedical Anticommons, Regulation, (Summer 2004), pp. 54-58. You would expect an organization like the Economist to do their homework before they repeat these myths.
However, there is plenty of evidence that a lack of a patent system or a weak patent system inhibits innovation and economic growth. For instance, North Korea has no patent system and has absolutely no innovation. Those countries that first adopted a modern patent system have been the most innovative. When the patent system was under attack in the US in the 1970s the US suffered stagflation. For more information see The Source of Economic Growth.
This Article also repeats the myth of low patent quality in the US. By every objective measure the quality of patents has been increasing, including GDP per patent, R&D spending per patents, and number of citations per patent. See Patent Quality Nonsense and The Patent Quality Myth. It is disappointing that the Economist repeats these diatribes against patents without even a cursory check of the facts.
PATENT REFORM: America Invents Act
The main problem with the US patent system is the long pendency time. This is a result of the underfunding (stealing of user fees) of the Patent Office. Suffice it to say that correcting this situation is not the major thrust of this legislation. The main point of this legislation is to weaken the US patent system, by the addition of oppositions and the weakening of the US grace period, so that it easier for large corporations to steal the inventions of startups and independent inventors.
I have a patent case that appeared to be going nowhere and a client who did not want to wait for the appeal process. As a result, we decided to try the Ombudsman Program. The facts are that we had filed four separate responses (one RCE) and had three telephone interviews in this case. We also filed a Notice of Appeal with a Pre-Appeal Brief. The case was reopened after the Pre-Appeal Conference.
The inventor is highly educated and well respected in the area of technology of the invention. The inventor has several other patents in this area of technology and is over 65 so we filed a Petition to Make Special. The company is a typical start-up that is looking to raise additional financing in order bring the invention to the market. Having an issued patent would provide a huge boost to their fund raising efforts. This funding would provide jobs and the technology will save billions of dollars a year to the U.S. economy. This is exactly the sort of company that drives employment in the U.S. according to the Kauffman foundation. Their study showed that all net new jobs in the U.S. are created by new companies – to see the study click here. High paying, high quality jobs are mainly created by companies with new technology.
I was concerned that the Ombudsman Program may not be able to help me, since it is clear that it is not designed to circumvent the normal examination process. The essence of the problem was failure to follow the requirements for compact prosecution. In the first telephone interview, I explained that our technology was able to cut a channel in the substance without creating enough heat to change the state of the material surrounding the channel. All the prior art not only generates enough heat to change the state of the material it is a goal of the prior art to generate this heat and cause the change in the state of the material. During the first telephone interview, the Examiner and the SPE told me the claims were just TOO BROAD. Of course, no such rejection exists under the law and the Ombudsman program should be able to deal with this issue. While Jon Dudas may have thought this was valid rejection, he was not a patent attorney and his ignorance of patent law and technology would fill whole libraries. In an attempt to work with the Examiner, I added additional structure to the claims. Some of this structure made it even more clear that we were not heating the material and changing its state. I was told that the changes looked good and it was likely we would receive a Notice of Allowance, but they could not make any promises. The next Office Action cited a new reference that again purposely generated enough heat to change the state of the material. This process was repeated three times. This sort of switch and bait process where the applicant amends the claims based on an interview to only be shot down in the next Office Action became standard under the Dudas’ regime. In many cases, the only reason the applicant agreed to the amendment was to obtain allowance, not because they agreed with the Examiner. These amendments to the claims should be considered contingent on allowance. Otherwise they should be withdrawn.
Only once was a prior art reference not in the category of purposefully generating heat while cutting to change the state of the material, but it was even more irrelevant to the invention. Then we filed a Notice of Appeal with a request for a Pre-Appeal Conference. The result of the Conference was to reopen prosecution with another reference that again purposely generated enough heat to change the state of the material. That was when we decided to try the Ombudsman Program.
I sent my issue into the Ombudsman form and was quickly contacted by an Ombudsman. Our telephone conversation was very cordial and they said that they would contact the SPE. This process took awhile because it was around the holidays. Eventually, I received a call from the SPE. The SPE has not reviewed the case, they had no idea of the issues involved, and instead of listening to me they quickly starting arguing about the case. The SPE even went so far as to call our invention “MAGICAL” because the claims state that we generate essentially no heat during the cutting process. This was not only rude it is wrong. I have a MS in physics and I clearly understand that any frictional engagement is going to generate heat. However, we have viewed this procedure with an infrared camera with sensitivities down to 1/10th a degree and the surrounding material does not appear to heat up at all. The phrase about generating essentially no heat is clearly true and is in context of the prior art which generates enough heat to change the state of the material. In order to change the state of the material it must be heated around 32 degrees Celsius above its standard operating temperature. The most likely reason we do not generate any measurable amount of heat in the cutting operation is that the cutting tool starts at ambient room temperature, which is below the operating temperature of the material being cut, and the material is relatively soft so the cutting process takes very little time and does generate much frictional heat. In the end, all I got was another useless interview the SPE. I could have done this without contacting the Ombudsman.
Conclusion – Is it worth it to use the Ombudsman Program?
1) It is possible I asked too much of the Ombudsman Program, but I should have told this in the initial conversation with the Ombudsman.
2) The Ombudsman program should be able to at least demand that Examiner and SPE comply with the requirements for compact prosecution. This is a procedural issue which is the type of issues the Ombudsman Program is suppose to deal with. It is also a huge problem with Examiners trained under the Dudas’ regime. The Ombudsman should be able to demand that the Examiner and SPE clearly explain why they keep citing new art with each new Office Action. If the Examiner and SPE cannot explain this to the satisfaction of the Ombudsman, the Ombudsman should have the authority to demand that no new art be introduced in the case.
Note that the excuse by Examiners and SPEs that changes to the claims required an additional search is usually not valid. The Examiner is suppose to perform their search based on the specification, not the claims. None of the changes to the claims in this case in anyway change the basic thrust of the invention.
3) I have another case where an Office Action after the Appeal has raised the same issues that were decided on Appeal. This would be a perfect case for the Ombudsman program to demand the Examiner and SPE comply with the law and not reargue issues already decided, but based on my present experience I doubt I will contact the Ombudsman program.
4) It would be nice for the PTO or anyone reading this to post any successes they have had with the Ombudsman Program so that we all know what issues they are capable of solving.
According to IPWATCHDOG President Obama has renominated Edward C. DuMont and Jimmie Reyna to serve on the United States Court of Appeals for the Federal Circuit. Neither of them are patent attorneys. As I pointed out in my post Makeup of the CAFC, the number of patent attorneys on the court has been shrinking since its creation. Neither DuMont or Reyna have a technical background. Patent law requires both an understanding of the underlying technologies involved and an understanding of the law. We have seen consistently bad decisions out of the Supreme Court and CAFC because they do not understand the underlying technologies. It takes a number of years to understand patent law, it is not like other areas of the law. For instance, most judges do not understand the very basic concept that all inventions are combinations of existing elements. They do not understand that this follows from conservation of matter and energy. It is not a legal concept it is fundamental principle of reality. We need patent attorneys with strong technical backgrounds on the CAFC, if we are going to have a well function patent system in the US.
According to David Kappos, Director of the Patent and Trademark Office, we can expect regional patent offices shortly. He made this announcement at the AIPLA meeting in Washington DC in October. There are a number of advantages to regional patent offices. The USPTO is located in Arlington Virginia, next to Washington D.C., where the cost of living is expensive and the 9000 government employees have little significance to the state of Virginia. By having USPTO west in Denver, Portland, Seattle, Austin, Minneapolis, etc. or some combination thereof, examiner retention rates are likely to significantly increase, since the cost of living is lower. The pool of qualified, English speaking applicants for patent examiners would increase, since the USPTO has admitted they have a hard time keeping examiners who are not from the northeast.
The USPTO mission is about promoting technology and it makes sense that the USPTO should be located near the centers of technology, not the center of political power. By having the USPTO near great centers of innovation, examiners are more likely to have a better understanding of the underlying technologies they examine. Locating the USPTO in multiple congressional districts increases the likelihood it will remain fully funded.
I hope that these regional patent office are fully functioning patent office the with appeal boards and all the art units. I think this will eliminate the group think that we have seen at patent office in recent years.
AIPR has provided an excellent analysis of the numerous problems with the present “Patent Reform” bill. There analysis is reproduced below:
S.515 and HR.1260, the Patent Reform Act: the weak grace period harms startups, small businesses and university spin-offs, and will strangle millions of jobs
The Patent Reform Act weakens the one-year grace period, in way that sharply tips the patent system in favor of large companies and companies with substantial offshore business, and against small companies, startups, university and other research spin-offs, and companies requiring FDA approval, and U.S. employees of international companies. Small companies’ patents will be invalidated. The costs of the patent system for small entities will increase, and venture capital investments in startups will decrease, by about $1 billion per year. Because of multiplier effects, within a few years, the reduction in business formation that starts immediately will, within a few years, destroy about $100 billion per year of economic activity.
Current law gives an inventor one year to communicate outside a single firm, to openly raise capital, to assemble strategic partners, and to field test. Under current law, the grace period allows a year to sort good inventions from bad, before significant resources must be committed to the patent process. The current grace period lets companies gather information for a year so they can make good business, patenting, and investment decisions during the most difficult part of an invention’s lifetime, the early stage transition from the lab to commercialization.
The proposed amendment to the grace period is unworkable and unusable in practice. The bill proposes that all disclosures of the invention within a year before the filing date bar will bar a patent, unless the true inventor can show “the subject matter was obtained directly or indirectly from the inventor.” While this sounds facially reasonable, given the methods of proof available, this grace period is useless as a practical matter, because the bill provides no access to discovery of the facts that inventors will need to prove their cases. Inventors will be forced into premature “use it or lose it” decisions, to file a patent application today or run a high risk of losing the option forever.
Further, the bill is ambiguous. One key term, “disclosure,” is undefined. Because the PTO must interpret statutes as adversely as possible in order to force issues to the Federal Circuit, the PTO will be required to interpret the new law to excuse only printed publications prepared with the care and expense of a full patent application. ALL testing, offers for sale, public demonstrations, etc. will be patentability bars, with NO grace period, until the courts straighten this out. That will take at least seven years. It might be never, if the courts read the new law the way some big companies have advocated.
- The situations that destroy patent rights arise suddenly, with no opportunity for a small company to recover. The bill reflects the way large companies do business, but penalizes small companies:
- The bill sharply favors companies that can do all of their financing, R&D, pre-launch marketing, etc. in house—but creates unacceptable risks for companies that must disclose their inventions or business plans in order to get investors or partners
- Other countries that converted to a patent system like S.515 have lost their startup and small companies – the Patent Office admits it has never considered Canada, which made almost the same change, and had experienced no net benefit, only a shift from small companies to large
- Because patent rights become so fragile, small company inventors must operate as if there were no grace period at all. That raises huge costs:
- Businesses have to conduct their affairs based on the information available today. The bill assumes that businesses have perfect foresight knowledge, and can make good decisions without the information that accumulates over the grace period year of current law.
- Under existing law, patent rights are largely determined by ordinary business activities. A business doesn’t have to spend extra money just to speculatively protect patent rights. Under the new weak grace period law, a business has “use it or lose it,” at great expense and risk of error.
- The statute forces companies to spend money on patent attorneys far earlier, when most startups have the least money available, even on inventions that turn out to be worthless over the year.
- Best estimates from other countries, whose laws are similar to S.515, are that inventors will have to file 100,000 to 200,000 more patent applications per year, a cost of about $ 500 million to $1 billion per year.
- Venture capital investments will fall significantly if small companies are forced to spend money on patent applications for inventions that turn out to be worthless, and that are not filed under current law, but must be filed under S.515’s “forced to file”
- This surge of patent applications will overwhelm the Patent Office, worsening backlog. Many of these applications will go abandoned after the Patent Office bears its highest cost, the cost of examining an application for the first time. The Patent Office’s fee structure is backloaded toward issued patents, so that the Office will receive only 20% or so of its fee income for doing 70% of the work.
- “Harmonization” and international patent protection (the main rationales given by the proponents) are relevant to only a tiny minority of small entities
- Why would we want to “harmonize” toward economies that have less than half the U.S. rates of startup formation and R&D investment?
- Startups succeed or fail depending on their U.S. markets. International patents are irrelevant to most startups.
- The House bill provides that this provision only goes into effect when other major countries change their laws to harmonize toward a middle ground. S.515 removes this quid pro quo. S.515 can’t achieve any benefit if it doesn’t require other countries to move our direction.
Letter of the Small Business Coalition on Patent Legislation to SBA Administrator Karen Mills, (December 15, 2009) at http://www.connect.org/news/pdf/Coalition-Letter-to-SBA-Dec-15-09.pdf, on behalf of National Small Business Ass’n, CONNECT (San Diego small businesses), American Innovators for Patent Reform (coalition of inventors, researchers, engineers, entrepreneurs, etc.), Professional Inventors Alliance (independent inventors), National Ass’n of Patent Practitioners (patent attorneys, a majority of whom represent small businesses), IP Advocate (university faculty inventors)
David Boundy and Matthew Marquardt, Patent Reform’s Weakend Grace Period: Its Effects on Startups, Small Companies, University Spin-Offs, and Medical Innovators, Medical Innovation & Business, Summer 2010, 2:2 pp 27-37, http://journals.lww.com/medinnovbusiness/Fulltext/2010/06010/ Patent_Reform_s_Weakened_Grace_Period__Its_Effects.6.aspx
- Innovation Act Will Greatly Harm Independent Inventors: Guest Post Randy Landreneau
- Patents are Natural Rights
- Patents Are Property Rights – Period
- Disuniformity: Paper on CAFC’s Failure to Provide Clarity
- Patent Litigation Explosion by PAEs: Obama Misleading the Public Again
- Alice Corp v. CLS Bank: Brief in Opposition to Certiorari
- Pendulum of Justice Now in Paperback
- What is not Economic Growth: Consumption and Destruction
- George Reisman: Are Objectivist Economists Consistent with Rand?
- Innovation Act of 2013