Category: Law
This case is another example of the courts ignoring the statutory language and not understanding basic technical and patent concepts. Cybersource invented a process for determining if credit card fraud was likely in an online transaction based on the relationship between the IP (Internet Protocol) information’s past association with the credit card. They sued Retail Decisions for infringement of their patent 6,029,154 and Retail Decisions counter that the claims were unenforceable because they were not directed to statutory subject matter.
The court first examined claim 3, which had undergone a reissue examination. Claim 3 is a method of first discovering the IP information normally used with the credit card and then determining if this indicative of a fraudulent transaction.
3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of:
a) obtaining information about other transactions that have utilized an Internet address that is identified with the [ ] credit card transaction;
b) constructing a map of credit card numbers based upon the other transactions and;
c) utilizing the map of credit card numbers to determine if the credit card transaction is valid.
The Court found this claim invalid under 35 USC 101, which states
Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.
Claim 3 is clearly directed to a process, but somehow the courts have decided to legislate from the bench and add additional requirements. Here, the court argued that claim 3 did not meet either of the prongs of the machine or transformation test. Which the court explained, “we held that a claimed process would only be “patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus; or (2) it transforms a particular article into a different state or thing.” Step (a) requires obtaining information about other transactions on the internet associated with the credit card. This is going to require a computer to access the internet and acquire this information and store it somewhere, probably on the computer. In order for the computer to access the internet it needs a modem, which is an electronic circuit that generates voltage signals that are sent over the internet to another computer. These are physical processes (transform voltages and currents) by machines. A computer is a machine as is a modem. This claim clearly meets both the machine and transformation prong of the test.
The court’s response that it would be possible for someone to just look at a previously compiled database of this information is inconsistent with the patent and reality. The court ignores that a patent is presumed valid, which means that it MUST try to find an interpretation of the claim that is valid. Instead the court does the exact opposite. A clear reading of the specification finds that a merchant will send credit card information to the internet verification system over the internet or at least over some communication system. That means the method is tied to a machine, namely a computer and communication system comprising multiple computers. It also means the computer is transformed. The voltages stored in its memory change. It makes no practical sense for this process to be undertaken by hand. The merchant cannot have a customer wait for hours for a person to review a previously created written record (because if it is a database on a computer – it’s a MACHINE) to create the map of credit card numbers. Then wait on the person to hand evaluate this information. This process only makes sense when carried out by machines. Retail Decisions is not arguing that they be allowed to carry the process out by hand to avoid the claims. This line of reasoning is completely disingenuous. This Courts’ reasoning makes a mockery of 35 USC § 282 and 35 USC § 101 and the machine or transformation test.
Claim 2 was a Beauregard claim—named after In re Beauregard, 53 F.3d 1583 (Fed. Cir. 1995)—is a claim to a computer readable medium (e.g., a disk, hard drive, or other data storage device) containing program instructions for a computer to perform a particular process. This case made it clear that you did not have to claim the computer to meet 35 USC § 101 requirements. The Court just ignored this case and found claim 2 non-statutory for the same reasons as claim 3. Whatever happened to stare decisis? This is a clear case of Judicial Activism.
It is clear from the way the opinion was written that the judges felt the Cybersource patent was just too broad. However, their reason for rejecting the claim was not on Novelty (102) or nonobviousness (103) it was lack of statutory subject matter. The opinion seems to show a lack of understanding between the sections 101 and 102/103 of the code.
Non-Patent Attorneys on CAFC
This is another case that demonstrate that a requirement for being a judge on the CAFC should be that you were a practicing patent attorney, who actually prosecuted patent application. In this case, none of the three judges are patent attorneys and Bryson and Dyk do not have a technical background. The Court clearly did not understand how the invention worked. They seem to believe that computer are not machines and perform mental processes. They do not understand that computers are electrical circuits, the internet is made of computers, and all these computers are transforming voltages and currents, not unlike a transformer. The judges showed confusion between different sections of the code and they ignored the previous ruling of their own Court. Patent law is too important to be left to attorneys without the appropriate training.
The CAFC opinion in this case was issued on July 29, 2011. This case has alternatively been known as ACLU v. Myriad or the Myriad gene patent case. In a 2-1 decision, the Court of Appeals for the Federal Circuit (CAFC), stated that patents to isolated genes are patentable subject matter (35 USC 101), they found the comparing and analyzing method claims were not directed to patentable subject matter, and found Myriad’s method claims to screening potential cancer therapeutics via changes in cell are patentable subject matter.
Isolated Genes Claims
The opinion explains, “It is undisputed that Myriad’s claimed isolated DNAs exist in a distinctive chemical form—as distinctive chemical molecules—from DNAs in the human body, i.e., native DNA. Native DNA exists in the body as one of forty-six large, contiguous DNA molecules.” p. 41 Since isolated DNA is distinct and man made, it is patentable subject matter.
Moore in his concurring opinion points out:
In contrast, mere purification of a naturally occurring element is typically insufficient to make it patentable subject matter. For example, our predecessor court held that claims to purified vanadium and purified uranium were not patentable subject matter since these were naturally occurring elements with inherent physical properties unchanged upon purification. See In re Marden, 47 F.2d 958, 959 (CCPA 1931)
He distinguishes these cases as, “Isolation of a DNA sequence is more than separating out impurities: the isolated DNA is a distinct molecule with different physical characteristics than the naturally occurring polymer containing the corresponding sequence in nature.” P. 11 Moore He further states, “I decline to extend the laws of nature exception to reach entirely manmade sequences of isolated DNA, even if those sequences are inspired by a natural template.” P. 14 Moore. He further explains the difference between this case and purified vanadium or uranium as, “Given the chemical differences highlighted by Judge Lourie’s opinion and discussed supra, the mere fact that the larger chromosomal polymer includes the same sequence of nucleotides as the smaller isolated DNA is not enough to make it per se a law of nature and remove it from the scope of patentable subject matter. The actual molecules claimed in this case are therefore not squarely analogous to unpatentable minerals, created by nature without the assistance of man.” P. 15 Moore.
Moore further takes on the red herring[1] debate about whether these sort of patents result in promoting science and the useful arts. He points to David E. Adelman & Kathryn L. DeAngelis, Patent Metrics: The Mismeasure of Innovation in the Biotech Patent Debate, 85 Tex. L. Rev. 1677, 1681 (2007), as clearly showing biotech patents have resulted in increase innovation.
Method Claims to Comparing and Analyzing
The courts stated, “We conclude that Myriad’s claims to “comparing” or “analyzing” two gene sequences fall outside the scope of § 101 because they claim only abstract mental processes.” p. 50 This is clearly mistaken. The step of comparing requires a physical and transformative process. For instance, the process of sequencing a gene is a physical and transformative process it is not a mental process. There is no other way to compare and analyze two gene sequences without the physical process of sequencing. As explained by Myriad:
The steps of “extracting and sequencing DNA molecules from a human sample (is necessary)—before the sequences can be compared or analyzed. According to Myriad, the district court failed to recognize the transformative nature of the claims by (1) misconstruing the claim term “sequence” as just information, rather than a physical molecule; and (2) erroneously concluding, in the alternative, that Myriad’s proposed transformations were mere data-gathering steps, rather than central to the purpose of the claims. p. 49.
Method Claims to screening potential cancer therapeutics
The court in analyzing these claims states:
Starting with the machine-or-transformation test, we conclude that the claim includes transformative steps, an “important clue” that it is drawn to a patent-eligible process. Bilski, 130 S. Ct. at 3227. Specifically, the claim recites a method that comprises the steps of (1) “growing” host cells transformed with an altered BRCA1 gene in the presence or absence of a potential cancer therapeutic, (2) “determining” the growth rate of the host cells with or without the potential therapeutic, and (3) “comparing” the growth rate of the host cells. The claim thus includes more than the abstract mental step of looking at two numbers and “comparing” two host cells’ growth rates. The claim includes the steps of “growing” transformed cells in the presence or absence of a potential cancer therapeutic, an inherently transformative step involving the manipulation of the cells and their growth medium. The claim also includes the step of “determining” the cells’ growth rates, a step that also necessarily involves physical manipulation of the cells. p. 53
The sad thing about the court’s analysis above is that it clearly applies to the method claims for comparing and analyzing. You cannot compare and analyze without manipulating the cells. Even if a non-mechanical method were found for sequencing a gene (e.g., an optical, x-ray of other analysis) this is clearly a physical process and transformative. The court is being logically inconsistent between the method claims to comparing and analyzing and the method claims to screening potential cancer therapeutics.
While I do not agree with all the points made by Judge Lourie and Moore, these are thoughtful opinions by smart people who understand patent law and the underlying technology. Note that both of these judges are patent attorneys and have advanced technical degrees. Unfortunately, but not surprisingly, the same thing cannot be said about the dissenting opinion by Judge Byson. Byson is neither a patent attorney and does not have a technical background.
Dissent
Judge Byson’s dissent boils the question down to, “whether an individual can obtain patent rights to a human gene. From a common-sense point of view, most . . . observers would answer, Of course not. Patents are for inventions. A human gene is not an invention.” This shows Judge Byson’s complete lack of understanding of the underlying technology. Myriad did not patent a human gene, it patent an isolated human gene. Isolated gene’s have value (utility) that non-isolated genes do not or the plaintiffs would not have filed this lawsuit. Myriad did not patent a random segment of human genetic material, it patented a human gene that had diagnostic value. Discovering that diagnostic value was the product of human intelligence. An invention is a something created by man that has objective utility. The isolated gene is created by man and it has objective[2] utility. The dissent’s arguments show why the CAFC should be limited to patent attorneys.
[1] This is a red herring argument, because these same people do apply this standard to copyrights. Do Disney movies really promote science and the useful arts?
[2] By “objective utility” I mean to distinguish this from a creation that only has aesthetic utility.
On June 20th, the Supreme Court granted cert. for the second time in Mayo Collaborative Services v. Prometheus Labs., Inc, Supreme Court No. 10-1150. This case is about patents 6,355,623 and 6,680,302 to Prometheus, which claim methods for determining the optimal dosage of thiopurine drugs used to treat gastrointestinal and non-gastrointestinal autoimmune diseases. Prometheus sued the Mayo Clinic for infringement and Mayo’s defense was that the patents are invalid as not being patent eligible material under 35 USC 101.
The House had their first ever debate last night (6/22/11) on the Constitutionality of a piece of legislation under the new rules requiring the House specifically address the Constitutionality of legislation. The major supporter for the Constitutionality of America Invents Act was Lamar Smith, Republican from Texas and the major Congresswoman challenging the Constitutionality was Marcy Kaptur, Democrat from Ohio.
The following letter from a number of Law Professors deals with the Constitutionality of a First-to-File system as contemplated by the America Invents Act (H.R. 1249 and S. 23)
The following letter from a number of Law Professors deals with the Constitutionality of a First-to-File system as contemplated by the America Invents Act (H.R. 1249 and S. 23)
June 17, 2011
By Email
Speaker John Boehner
Office of the Speaker
H-232 U.S. Capitol
Washington, DC 20515
Democratic Leader Nancy Pelosi
Office of the Democratic Leader
H-204 U.S. Capitol
Washington, DC 20515
Re: Unconstitutionality of “First-Inventor-to-File” Provision in H.R. 1249
Dear Speaker Boehner and Leader Pelosi:
We are writing concerning the issue of the unconstitutionality of § 2 in H.R. 1249, the provision titled “first-inventor-to-file.” It is the belief of the signatories to this letter, all of whom are law professors who specialize in intellectual property law, that this provision is unconstitutional under the Copyright and Patent Clause in Art. I, § 8, Cl. 8.
Section 2 of H.R. 1249 violates both the plain terms of the Copyright and Patent Clause and the historical interpretation of this clause by Congresses and the federal courts. Although there are many legitimate concerns about H.R. 1249’s impact on innovation, this unconstitutional provision by itself is sufficient to justify withdrawing this bill from consideration. At a minimum, this is a justifiable reason supporting the 54 House Members who have joined the June 1, 2011 letter to the Rules Committee in expressing their concerns about the constitutionality of H.R. 1249.
H.R. 1249 Unquestionably Takes Patents Away From Inventors
Although the word “inventor” appears in the title in § 2, which confusingly uses the phrase “first-inventor-to-file,” it nonetheless creates the same first-to-file rights that existed in the patent reform bills that had been introduced in prior Congresses and which were universally recognized as creating a first-to-file patent system. It also creates the exact same first-to-file rights that exist in other countries that have adopted first-to-file patent systems in both name and substance, such as Canada. Section 2 has to create a first-to-file patent system if only because one of the primary justifications for this provision in H.R. 1249 is that the United States should harmonize with other countries’ first-to-file patent systems. In sum, despite the confusion created by its title, H.R. 1249 unquestionably creates a first-to-file patent system.
The Constitution Only Empowers Congress to Give Patents to “Inventors”
The basis of the 220-year-old first-to-invent patent system in the United States is the Copyright and Patent Clause, which states that Congress has the power:
“To promote the Progress of Science and the useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” U.S. Const., Art. I, § 8, Cl. 8 (emphasis added).
The operative terms for patent law is that Congress is empowered only to “secure[e]” to “Inventors” their “exclusive Right to their . . . Discoveries.”
In the Founding Era, the term “Inventors” was defined in the newly independent United States of America as referring only to first inventors. In Samuel Johnson’s 1785 dictionary, often relied on by the Supreme Court as an authoritative source of meaning in the
Founding Era, an “inventor” is defined as “one who produces something new; a devisor of something not known before.” Moreover, Johnson defined a “discoverer” as “one that finds anything unknown before.” Samuel Johnson, A Dictionary of the English Language (6th ed. 1785). Johnson was not alone in thinking that “Inventors” referred only to first inventors. St. George Tucker, for instance, defended the Copyright and Patent Clause against criticisms that it empowered Congress to create commercial monopolies by observing that “nothing could be more fallacious,” because this constitutional provision limited Congress to securing only an “exclusive right” in “authors and inventors.” St. George Tucker, Blackstone’s Commentaries: With Notes of Reference to the Constitution and Laws of the Federal Government of the United States and of the Commonwealth of Virginia, vol. 1, appendix (1803): p. 266.
Moreover, the First Congress, whose acts are often recognized as probative of the original meaning of constitutional terms, explicitly rejected the English practice of granting patents to importers of technology, recognizing that importers were not first and true inventors. During the drafting of the bill that became the Patent Act of 1790, the House committee decided not to follow the English practice of extending patent rights to the “first importer” of overseas inventions. Representative Thomas Fitzsimmons wrote: “The 6th Section, allowing Importers, was left out, the Constitutional power being Questionable.” See Karen E. Simon, The Patent Reform Act’s Proposed First-to-File Standard: Needed Reform or Constitutional Blunder?, 6 J. MARSHALL REV. INTELL. PROP. l. 129, 141 & n. 95 (2006-2007) (quoting congressional record).
Thus the Patent Act of 1790 authorized the grant of a patent only to a person who has “invented or discovered any useful art . . . not before known or used.” See Patent Act of 1790, § 1, 1 Stat. at 109-110. The Patent Act of 1790 further provided for termination of a patent “if it shall appear that the patentee was not the first and true inventor.” See Patent Act of 1790, § 6, 1 Stat. at 111. This uniquely American first-to-invent requirement was readopted in all patent statutes enacted by successive Congresses in 1793, 1836, 1870 and 1952.
As the famed patent law historian, Edward Walterscheid, whose work has been relied on by the Supreme Court in many patent cases, has written: “Implicit in the use of the terms ‘inventors’ and ‘discoveries’ in the intellectual property clause is the premise that before an exclusive right can be granted, the discovery to be patented must be novel. . . . Simply put, novelty is a constitutional requirement.” Edward C. Walterscheid, The Nature of the Intellectual Property Clause: A Study in Historical Perspective (Buffalo: William S. Hein & Co., 2002) at p. 310-11 (emphasis added). Walterscheid further writes that James Madison and early Congresses embraced a uniquely “narrow” conception of novelty compared to England (which permitted patents for importation), as they believed that for an invention “to be patentable in the United States a discovery had to be original to the inventor.” Id. at p. 312-13.
Supreme Court Confirms Patents Must Be Granted to Inventors
In numerous court decisions since the early American Republic, Supreme Court Justices have repeatedly recognized that the patent statutes imposed this constitutional requirement. In 1813, Chief Justice John Marshall, riding circuit, wrote that the “constitution and law, taken together, [give] to the inventor, from the moment of invention, an inchoate property therein, which is completed by suing out a patent.” Evans v. Jordan, 8 F. Cas. 872, 873 (C.C.D. Va. 1813) (No. 4,564) (emphasis added).
In the Supreme Court’s decision in Stanford v. Roche just last week, Chief Justice Roberts quotes from many of the Supreme Court’s decisions over the past 220 years to establish that “Our precedents confirm the general rule that rights in an invention belong to the inventor.” This included, for instance, the decision in United States v. Dubilier Condenser Corp., in which the Supreme Court held that U.S. patents have long secured “the result of an inventive act, the birth of an idea and its reduction to practice; the product of original thought.” 289 U.S. 178, 188 (1933) (emphasis added). Justice Joseph Story, recognized by patent scholars today as one of the founders of American patent law, wrote that “No person is entitled to a patent under the act of congress unless he has invented some new and useful art, machine, manufacture, or composition of matter, not known or used before.” Bedford v. Hunt, 3 F. Cas. 37, 37 (C.C.D. Mass. 1817) (No. 1,217) (emphasis added).
Congress May Not Define “Inventors” However It Wishes
Some supporters of the constitutionality of § 2 have stated that the meaning of the word “Inventors” in Art. I, § 8, Cl. 8 should be left to the policy discretion of Congress to interpret and apply in its patent statutes. But this cannot be a valid principle for applying constitutional provisions to Congress, because it would mean that every word in every provision of the Constitution should be left to the policy discretion of Congress as to how it should be applied to American citizens. Under this approach, Congress could freely redefine the meaning of “speech” in the First Amendment, or Congress could freely redefine the meaning of “due process” in the Fifth and Fourteenth Amendments. Certainly Congress has some discretion within the scope of its enumerated powers to enact legislation; this is why the Framers adopted the Necessary and Proper Clause. But the very idea of a Constitution that specifically enumerates limited powers in the federal government through expressly worded provisions requires that the limiting terms in these provisions not be read out of the Constitution by interpretative fiat. If “Inventors” is to have any meaning whatsoever in defining and limiting the scope of Congress’s power to enact patent statutes under the Copyright and Patent Clause, it can only mean what it has been consistently interpreted to mean for 220 years: patents may be secured only to the first inventors.
Supporters of the constitutionality of § 2 have further claimed that the instances in which patents are denied to first inventors given their post-invention activities, such as public use or abandonment, suppression and concealment of an invention, prove that the Constitution does not require that patents go to first inventors. Again, this is a nonsensical principle of constitutional interpretation. The Constitution establishes the presumption that first inventors are secured a patent, but it does not mandate that first inventors must receive patents regardless of their own actions. Thus, Congresses and courts have identified instances in which post-inventive actions by a first inventor can result in a default on the right to receive a patent. There are myriad examples—such as strategic behavior by an inventor in commercially exploiting an invention as a trade secret long before filing for a patent or an inventor’s publicly disclosing an invention and thus creating reasonable reliance interests in third parties that the invention is in the public domain—but they all entail post-invention actions that result in a substantive or procedural default by the first inventor in receiving a patent. This is no different from the constitutional practice of denying to felons the right to vote or the right to own firearms or restricting every American citizen’s due process rights through statutes of limitation, and so on.
Accommodating Foreign Laws Is No Excuse to Violate Constitution
Lastly, the supporters of the constitutionality of § 2 have alleged that Congress’s longstanding practice of accommodating foreign countries’ first-to-file rules when foreign inventors apply for patents in the U.S. somehow disproves the constitutional argument against this first-to-file provision. But such laws prove no such thing. The Constitution applies only within the jurisdictional boundaries of the United States of America, and thus it is merely an act of comity for Congress to permit foreign inventors who have created inventions in foreign countries to apply for U.S. patents; under the Constitution, Congress may permit or refuse such a patent application by discretionary fiat. This is why the United States has entered into treaties to secure international protection of patent rights. It is also why, since the early American Republic, foreign inventors working in foreign countries have always required Congress to enact special statutes to permit them to apply for U.S. patents. But the constitutional requirement for U.S. inventors is neither discretionary nor unclear: It requires that the laws “securing” patents to “Inventors” who are living and working in the United States may do so only for those “Inventors” who have created “Discoveries”—those who are first to invent, not first to file for the patent itself.
In closing, it is our belief that there is a serious question concerning the constitutionality of the first-to-file provision in H.R. 1249. But regardless of whether one agrees that a first-to-file system is unconstitutional, it is entirely appropriate that this debate occur in the deliberations concerning whether H.R. 1249 should be enacted by Congress. The constitutionality of a statute under consideration by Congress, in addition to whatever policy issues may be raised by it, is always something that should be openly and forthrightly considered by Congress, which has as much a duty to uphold the Constitution as do the Executive and Judicial branches.
Sincerely,
Daniel B. Ravicher
Lecturer in Law, Benjamin N. Cardozo School of Law
Executive Director, Public Patent Foundation
Adam Mossoff
Professor of Law
George Mason University School of Law
Lateef Mtima
Professor of Law and Director,
Institute for Intellectual Property and Social Justice
Howard University School of Law
Kali Murray
Assistant Professor of Law
Marquette University Law School
Sean Patrick Suiter Adjunct Professor of Law, Creighton University School of Law Visiting Professor of Law, Peking University School of Law
Dale L. Carson
Adjunct Professor of Law
Quinnipiac University School of Law
A patent reform bill is currently pending in Congress (Senate S. 23 and its House counterpart H.R. 1249) titled the “America Invents Act.” The bill proposes radical changes to the existing patent system that would impede innovation. Moreover, the bill contains ambiguous language that tends to confuse the reader, and is likely to confuse users of the patent system.
In particular, the bill attempts to draw a line of demarcation between “inter partes review” of a patent, on the one hand, and “post-grant review” on the other. The fly-in-the-ointment is that “inter partes review” occurs after grant, and is thus “post-grant.” Conversely, “post-grant review” is “inter partes” since it involves multiple parties, namely the patent owner and a third-party opponent. Accordingly, the bill is confusing since words appearing in one section are interchangeable with, and confusingly similar to, words in another.
In reality, the “post-grant review” proposal appears to be modeled after an analogous opposition procedure in place in Europe. Both procedures require the opposing party to submit a petition against the patent within a fixed number of months after the patent’s grant, or lose the opportunity to oppose using those procedures.
Significantly, other countries already tried European-style oppositions. In fact, Japan, China and South Korea implemented patent oppositions more than a decade ago. Within the decade, these efforts to mimic the European protocol all failed, and the procedures were abolished.
In Europe, there are no administrative alternatives to the opposition procedure. Hence, there’s no risk of redundancy in the European system, nor of confusion among users of the system. In contrast, Japan, China and South Korea have a separate administrative option, which still exists, called an “invalidation trial.”
The invalidation trial is comparable to the separate administrative option already available in the U.S. Patent Office, namely inter partes re-examination. The lesson we should learn from these Asian countries’ negative experiences with European-style oppositions is that introducing such a procedure is likely to confuse users of the system. Confusion among users of the patent system tends to stifle innovation.
Another provision of the bill would change our system from “first-to-invent” to “first to file.” That change might suit those who believe they can win a race to the U.S. Patent and Trademark Office. However, a race is not what Article 1, Section 8, Clause 8 of the Constitution envisions, nor is it what the Patent Act of 1836 formerly required or what the Patent Act of 1952 currently requires.
To the contrary, an “inventor” is not the person who is most fleet-footed in a race to the PTO, but rather the one who actually makes the invention first, unless the first party has “abandoned, concealed or suppressed it.”
A first-to-file system will demotivate inventors who believe that they do not have sufficient resources to win the race to the PTO. Demotivation of inventors tends to impede and stifle innovation. Such demotivation is the last thing that our nation needs, given the current state of the economy.
Another provision of the bill would undermine the incentive force associated with the constitutional mandate to “promote the…useful Arts” by tacitly encouraging each patent applicant to decrease the quality and quantity of disclosure of the invention in their patent applications.
Specifically, this provision would eliminate the penalty of unenforceability or invalidity that currently can be leveled against patentees in litigation for failing to disclose the best aspects of their invention in the patent application.
By virtue of this proposed change, a patentee’s failure to provide “best mode disclosure” of their invention would not be usable as a defense against patent infringement.
Although the best-mode requirement would technically remain “on the books,” it would have a hollow ring to it since there would be no risk of judicial penalty for failure to comply with the requirement.
Without the risk of sanctions, patent applicants may decide that it is in their best interest not to comply with the requirement, irrespective of their patent attorney’s counsel to the contrary. The likely result will be a diminution in the quantity and quality of information provided.
Reduced disclosure in patent applications will impede innovation by causing the patentee’s competitors to have to “reinvent the wheel” in order to piece together details about the invention that were left out of the patent application in order to keep those details a trade secret.
In conclusion, the proposed bill will diminish innovation and should not be enacted. If enacted, the resulting statute is likely to be repealed, but only after a huge waste of time, effort and taxpayers’ money.
Dale L. Carlson is a partner at Wiggin and Dana in New Haven, Conn., an adjunct professor of patent law at Quinnipiac University School of Law in Hamden, Conn. and immediate past president of the New York Intellectual Property Law Association, the largest regional IP law association in the country.
I met with a couple of Congressional aides today and it looks like there will be debate on the amendments Wednesday (6/15/11) and Thursday and the vote on the America Invents Act (H.R. 1249 & S.23) by the end of the week. The only reason for the rush must be that the Bill continues to lose support and the big companies pushing this Bill want it crammed through before opposition can coalesce.
According to the aides one amendment is to gut the Bill and only preserve full funding for the Patent Office (PTO). This is the only form of the America Invents Act that I could support.
Other amendments include the Paul Ryan and Hal Rogers proposal to cut the provision to stop fee diversion. Some Conservative groups have supported this idea under the idea that stopping fee diversion is violation of the US Constitution. The argument is that stopping fee diversion takes the power of the purse away from the Congress. This argument is nonsense. The PTO is and always has been a totally self funded agency. When you apply for a patent you write a check to the PTO, not to the General Treasury. When the funds are deposited into the General Treasury it puts Congress in the position of a trustee. A trustee has oversight power, but does not have the power to spend that money on other programs. When it spends PTO money on other programs it is committing fraud and theft. If Congress was private entity, all Congressmen would all go to jail for converting funds. When different (less stringent) rules apply to those in government than those in the private sector, then you have tyranny.
I was asked my opinion on giving the PTO fee setting authority. I am mixed. If the idiot, Jon Dudas former Director of the Patent and Trademark Office, had had fee setting authority, it would have terrified me the damage he could have done to the patent system. Of course, fee setting without the end of fee diversion is completely meaningless. So I see this issue with ambivalence at best.
Now is the time to put pressure on your Congressman. Please call you them and tell them to vote NO on the America Invents (not) Act.
According to the Wall Street Journal, “two powerful House Republicans, Rep. Hal Rogers (R., Ky.), chairman of the Appropriations Committee, and Rep. Paul Ryan (R., Wis.), chairman of the Budget Committee, called this week for changes in the legislation that would restrict the patent office’s ability to keep its own fees.” Ending fee diversion was the only positive part of the America Invents (Not) Act, HR 1249, S. 23). Representatives Rogers and Ryan should be condemned for this action. Congress is in the position of trustee of the Patent 
Office funds and if Congress were subject to Sarbanes Oxley Mr. Ryan & Mr. Rogers would be in jail today along with the rest of Congress. This makes the America Invents Act a complete farce. Ending fee diversion was always a little bit is not red herring as the next Congress could always just change this law.
When the government creates laws that do not apply to the government, just private citizens, this is the essences of tyranny. Rep. Ryan who is suppose to be a fiscal conservative and watching out for taxpayer dollars, is advocating the theft of inventor fees. If that is what the Tea Party and Paul Ryan consider being fiscally conservative, then it is clear that everyone in Washington believes that you have no right to the money you earn.
The Data Treasury story (reproduced below) shows that Patent “Deform” (America Invents [not] Act) is just a scheme for large international companies to steal American inventors’ technology. Data Treasury was a startup formed in 1998. Large Wall StreetBanks colluded to steal Data Treasury’s technology and forced Data Treasury out of business. Instead of just going away quietly, Data Treasury fought back by filing a patent infringement lawsuit. When they had some initial success in the courts, the banks responded by trying to use their pals in Congress to change the patent laws so they would not have to pay Data Treasury. In fact, the America Invents (not) Act, presently being considered by the House, contains a special provision attacking the Data Treasury patents. It allows Wall Street banks to attack “business method” patents, the very same patents that they are already infringing. This doesn’t extend to any other industry— only the financial industry- another Wall Street giveaway.
In my post Wall Street is Un-American I show that the interests of Wall Street and multinational companies are not aligned with the American people and this is just one more example. Data Treasury also exposes the Patent Troll myth. Data Treasury intended to be an operating company, but the theft of its technology made it impossible to compete in the marketplace against larger, better financed, entrenched, colluding competitors. As a result, they were forced seek restitution in the courts instead of competing in the marketplace. How many Data Treasury type companies did not receive funding because investors were scared away by this example of the uncertainty of property rights in technology (patents) in theUnited States? While Data Treasury is still a separate company, if Data Treasury had been forced to sell their patents, would justice be served by allowing these large international banks to steal American technology? In this case, it is clear that Data Treasury would be an operating company but for the theft of their technology.
This case also shows why the America Invents (not) Act will weaken the United Stateseconomy. HR1249 and passed S23’s provisions will weaken inventor’s property rights in their inventions. This will make it much more difficult to compete with established companies. As a result, startups will be much less likely to obtain funding. It has been shown that large, established companies are not the creators of emerging technologies, in general, and HR1249 and passed S23’s will significantly reduce funding for the startups and individual inventors who are the creators of emerging technologies. (See Invention – A Financial Analysis). Increases in our level of technology (inventions) is the only way to increase our per capita standard of living. This bill will cause the American standard of living to decline precipitously.
Some people excuse the theft of other people’s inventions, because they say patents are monopolies and anticompetitive. This is like arguing that property rights in, for example, cars is a monopoly and prosecuting car thieves inhibits competition in the market. There is no such thing as a “free market” separate from property rights. Creation is the foundation of property rights and patents are awarded to the creators of inventions – which, by the way, is why the America Invents (not) Act, HR1249 and passed S23’s, is Un-Constitutional.
Here is the Data Treasury story:
IT ALL BEGAN ONE NIGHT IN THE SUMMER OF 1994.
President Clinton was early in his first term as our nation’s president, the media’s obsession with O.J. Simpson was just beginning, and WebCrawler, the Internet’s first true search engine, had been up and running for a little more than three months.
Carl Gulbrandsen is the Managing Director of the Wisconsin Alumni Research Foundation (WARF) and wrote this excellent analysis of five problems with the America Invents (not) Act.
The reform proposed in this legislation includes the most significant changes to the U.S. patent law in over a century — and they are not good changes. There are five major changes proposed which individually and in concert weaken patents and make it more difficult and expensive for universities to obtain, maintain, license and enforce patents.
First, the proposed legislation moves the U.S. patent system from a first to invent system to a first inventor to file system. The Association of University Technology Managers (AUTM) Letter states that this enables “U.S. inventors to compete more effectively and efficiently in the global marketplace.” How does moving from a first to invent, which has been part of the U.S. patent system from its beginning, to a race to the patent office make U.S. inventors more competitive? It doesn’t; moving to a first to file system favors large businesses and in particular, well-financed, large foreign businesses over innovators. Operating effectively in a first to file system requires financial and staffing resources that are generally not available to universities or other small entities. Most universities today need a licensee willing and able to pay the patent cost before an application is filed. Under a first to file system, that will often mean the university loses the race.
Second, the proposed legislation weakens the grace period that has been such an important and valuable right for U.S. inventors. For universities the grace period has been particularly important. Under present law, the inventor need not do anything affirmative other than having made the invention to be entitled to the grace period. The inventor is entitled to swear behind any prior art created during the grace period and still be entitled to obtain a patent. Under the proposed law, the inventor must affirmatively disclose the invention to be entitled to a grace period. Thus under the proposed law, a disclosure of the invention not made by the inventor or another acting on information from the inventor will act as a bar even if within a year of filing the application. Moreover, if the purpose of the proposed legislation is harmonization with the rest of the world, then the disclosure grace period is effectively non-existent. A disclosure before filing acts as an absolute bar in most jurisdictions outside the United States so the grace period only becomes useful if one does not intend to file globally.
Third, the proposed legislation effectively shifts the constitutional balance between trade secrets and patents to favor trade secrets. Under present law, a person needs to choose between protecting an invention through trade secret and filing a patent application. If the inventor chooses trade secret, the law today holds that the inventor abandons his right to obtain a patent. Under section 35 U.S.C. section 102(c), a person is barred from receiving a patent if that person has abandoned the invention. The proposed legislation does away with section 102(c), so if this proposed legislation becomes law, a person can keep the invention a trade secret until it becomes clear that it would be better to have a patent and then file a patent application effectively extending that person’s competitive advantage 20 years.
Fourth, the proposed legislation further shifts the constitutional balance in favor of trade secrets by expanding prior user rights. Under present law, a patent owner holding a patent covering a trade secret that is not a business method can sue the trade secret user, and if successful, receive just compensation including in some circumstances an injunction. Under the proposed legislation, the trade secret owner could assert the prior user defense and if successful receive a free, paid-up license under the patent for the patented invention and any products made using the patented invention. In essence, the trade secret holder receives a free ride on the rights of the patent owner and what was thought by the patent owner to be exclusive rights as required by the Constitution becomes non-exclusive. Of course, if the trade secret owner is a large company able to control the market, the patent rights may become commercially worthless to the patent owner. As open environments, universities ordinarily do not deal in trade secrets, which is one of the reasons why WARF has consistently opposed expansion of prior user rights. AUTM, until the letter of May 17, was a partner in opposing expansion of prior user rights, but now has shifted sides for reasons stated in the AUTM letter — reasons we believe are largely political and not in the best interests of universities.
Fifth, the proposed legislation adds more opportunities to challenge the validity of patents. Today, patent validity can be challenged through reexamination (ex parte and inter partes) and through infringement litigation. Currently, it is more difficult to challenge a U.S. patent than a foreign patent, which we believe is good for U.S. universities and for U.S. innovation because it means that U.S. patents are considerably stronger than foreign patents. Strong patents are critical to start-up companies trying to raise venture dollars. Strong patents are also good for licensing. The proposed legislation, however, adds both a post grant review procedure where patents during the 12 months following issuance can be challenged on any grounds and an enhanced inter partes reexamination procedure. The net result is valuable patents will be more subject to challenge which increases costs for the patent owner, weakens the value of the patent, and makes it more difficult to license or raise capital funds necessary to starting a company and creating jobs.
As stated above, each of these changes acts to weaken our patent system to the disadvantage of innovators and especially university innovators. Taken together, these changes strike a terrible blow to innovation in the United States. Times are hard enough as is to start a company. The last thing investors want is uncertainty, which is exactly what will happen if this proposed legislation becomes law.
This uncertainty is enhanced by legitimate questions of the constitutionality of this law. In shifting the constitutional balance, the expansion of prior user rights runs counter to the constitutional purpose of our patent law which is to promote the progress of the useful arts by securing for a limited time exclusive rights to the inventor in return for disclosure of the invention. It also fails to respect the express limitations in Article 1, Section 8, clause 8 of the U.S. Constitution. The movement to a first inventor to file from the present first to invent system may also be constitutionally prohibited. Any patent reform that runs counter to the constitutional text and underlying purpose will face legal challenges that will call into question the validity of any patents granted under that legislation. These concerns decrease the value of patents, make it more difficult to license and increase the cost of enforcement, which impacts innovators disproportionately more than large companies.
We encourage you to take a hard look at the legislation in light of what you and your offices are trying to do to commercialize university inventions. I believe this proposed legislation strikes at the heart of what we are all trying to do and I am convinced it will make our jobs significantly more difficult. We have attached materials that add additional information to the comments made above. If you share our concerns, now is the time to act. The Chairman of the House Judiciary Committee has stated publicly that he expects H.R. 1249 will be scheduled for consideration by the full House of Representatives during the middle of June. Please ask your congressional representatives to oppose the bill or if you cannot do that directly, ask your governmental affairs people to do so for you. Feel free to provide a copy of this letter to anyone you believe will be interested and helpful. For example, provide a copy of this letter to the start-up companies you are working with, other local entrepreneurs and venture capitalists and ask that they oppose this legislation for the reasons stated in this letter. Any assistance at all that you can provide will be very much appreciated. Thank you for taking the time to read and carefully consider this letter.
This article is from the Golden News explains the problems with the America Invents Act.
Senator Coons recentlywrote about a looming crisis in America — a record backlog of patent applications at the U.S. Patent and Trademark Office. While Senator Coons is 100% correct about the importance of innovation to our economy, and about the foolishness of continuing to allow this backlog of patents to cripple American job creation, he is 100% wrong about H.R. 1249, the America Invents Act. Unfortunately, the authors of this bill are using the funding issue and the patent backlog crisis to implement radical changes on our patent system, which is the very engine of American job growth. This unconstitutional legislation will create new problems for our nation’s inventors, entrepreneurs 
and our economy.
In the name of harmonizing our laws with other countries, Congress is about to dramatically diminish the patent protections offered to American innovators over the history of our Republic. If this globalist maneuver succeeds it will severely weaken our patent system and America will have lost the value of its greatest asset: the creative genius of our people. This is no joke. S. 23 has already passed the Senate, and H.R. 1249 has passed the House Judiciary Committee. If enacted into law, provisions of this legislative onslaught will put America’s inventors at the mercy of multinational corporations and state-sponsored cyber thieves.
This pending legislation mandates patents not be awarded to the inventor of new technology, but instead to the “first entity to file” for a relevant patent.
The first language suggested by the authors of this legislation left out “inventors” altogether, but once this blatant attack became clear, the authors added the word “inventor” to “First Inventor to File” in order to confuse anyone not closely following this bill. This word-game is arrogant and insulting. Anyone filing can claim to be an inventor. There is, in reality, only one inventor. To claim otherwise, as this legislation does, will lead to injustice. The U.S. government will have setup the rules to allow Chinese probers, for example, to file the paperwork, pay a fee, and legally steal America’s creative genius. The “real inventor” is of no concern to this proposed system. CHINA WANTS TO CHANGE THE PATENT RULES TO HELP INFRINGERS FILE FIRST. This is totally out-of-sync with American tradition and contrary to our fundamental law; and it’s being changed to HARMONIZE our strong protections with weaker protections in Europe, Japan.
The second deadly component of this pending patent legislation is that it adds onto the process a whole new review, also known as a legal challenge, to a patent after it is issued. Again, the victimization of American inventors is obvious. Multinational corporations, and even just regular foreign companies, will be able to tie-up a patent owner in court, and pile monstrous expenses on the inventor to defend the patent they have been granted. And unless the inventor is already wealthy, he or she will be forced to sell at bargain prices. It happens overseas all the time. It will happen to our guys when patent law is harmonized.
Make no mistake, this pending legislation is being pushed by the globalist corporate elite who have sought to dismantle America’s patent system for decades. Today, their dream is closer than ever to becoming our nightmare. They present this legislation as if it merely tweaks our patent system, instead of attacking it. Senator Coons wasn’t yet in Washington the last time this legislation came to the floor, so he doesn’t remember the last assault on our nation’s innovators, or the ones before that. We stopped this attack before, and we must do it again! This legislation poisons the long-term health of American competitiveness and national security.
Congress needs to hear from the working people of this nation rather than the multinational corporations, who could care less what this bill will do to the future of America.
All of my colleagues, on both sides of the aisle, should oppose this unconstitutional overreach, which will undermine our future, and pass legislation that fully funds the patent office with our current patent laws in place. Only then can we reduce the backlog of patent applications while maintaining the strength of our patent system by fully protecting inventors from infringers at home, and from around the world.
This case, TEWARI DE-OX SYSTEMS, INC., v. MOUNTAIN STATES/ROSEN, L.L.C., in Texas shows the damage done by the publication rule for patents applied for a patent on a method of extending the shelf life of meat in a retail setting on May 8, 2003. The patent application was published on April 15, 2004 (earlier than 18 months because it was based on a provisional). In March of 2005 Tewari approached Mountain States on how they could increase the shelf life of meat products. Mountain States signed a Non-Disclosure Agreement (NDA) and Tewari explained how their process extended the shelf life of meat. Subsequently, Mountain States started 
practicing Tewari’s process. Tewari sued Mountain States for theft of their trade secrets. Mountain States claimed no trade secret existed at the time of the NDA because Tewari’s patent application had already been published and the court agreed.
If theU.S.had not adopted the publication rule, Tewari’s process would have been (probably) a trade secret. It is likely that Tewari eventually found that it was just too expensive to fight the “rejection equals quality” mentality of the Patent Office at the time they would have been arguing their case, although I did not examine the prior art. But, because of the publication rule Tewari did not have this choice. (If they did not foreign file, they could have opted out of publication, but the rules make this onerous.) As a result, Mountain States was free to steal Tewari’s trade secrets. This allowed a large company to free load off of the efforts of an innovative startup. Even if Tewari was legitimately denied a patent, it most likely would have had a defensible trade secret. Note that the Tewari’s patent application was published before they received their first office action. Tewari had no opportunity to determine if it was going to get a fair deal from the patent office before their invention was publicly disclosed to the world. The publication rules were sold under the theory that most patent application issue within 18 months. Now days the pendency time for the first office action is 25.2 months – seven months after the patent application is published.
Tewari was denied the rights to their intellectual property because of the publication requirement. A large, lazy, non-innovative company was the benefactor of this theft. This undermines investment in start-up technology companies that create most emerging technologies and provide high quality, high paying jobs. The publication requirement should be abolished.
Dear fellow patent attorney:
I need your immediate assistance to help defeat a particularly bad patent bill now in its final stages of consideration by the U.S. Congress. You have seen the blogs and emails explaining how the America Invents Act (formerly the Patent Reform Act of 2011) will dismantle our carefully-balanced patent system, the system that has made America the innovation engine for the world. The bill is bad forAmerica, bad for your clients, and bad for you as a patent attorney. Other countries innovate at half our rate. The multinationals want to “harmonize” our laws with those unsuccessful systems for their own convenience. This bill imposes about $1 billion in costs by taking away options that domestic American businesses use, to save a comparatively trivial amount for the Patent Office and a small number of multinational corporations.
The appendix to this letter outlines the proposed law and how it will significantly damage our clients, our profession, and our country.
Because this bill has passed the full Senate and the House Judiciary Committee, it could be enacted within weeks. The big multinational corporations have plowed untold sums of money into lobbying, and have the bill they want. It’s essential that Congress hear from domestic American businesses and inventors, and hear from them now. Congress desperately needs to learn from small businesses and startups how they actually use the patent system to create new products, jobs, and wealth.
Congress is on recess until May 2, and your Representative will be in your district. This is your best opportunity to inform your Representative that this bill will destroy American jobs by making it impossible for startups, small companies, and university spinoffs to protect the inventions they create, to obtain the funding they need to commercialize their inventions, and to earn the profits they need to grow new R&D-intensive businesses.
The “Asks”
Go to www.house.gov to find your Representative’s contact info. To schedule a meeting, many offices will want you to FAX in a request letter. Second best is a phone call to your district office (not the D.C. office). Third best—and far less effective, but better than nothing—is an email. www.reformaia.org can help you with some of these contacts.
Ask your clients to join you at a meeting, or at a minimum, to call or write. This letter is accompanied by a “script” you can give to clients for them to make their calls. Your representative should simply vote the bill down—overall, the bill does more harm than good, regardless of any other changes that might be incorporated.
If you live in Ohio, call Governor Kasich’s office, (614) 466-3555. Point out that the governor’s $700 million Ohio Third Frontier jobs program cannot work, and that the Innovation Ohio Loan Fund will be not be repaid, if the federal Patent Act is changed to deter investment in university spin-offs and startups, and to make it harder for new businesses to succeed.
Please take the opportunity to meet or phone, or at least email your Representative. (A phone call has several times the weight of an email, and a meeting will have many times the impact of a phone call). You will be more likely to get a personal meeting, and you will have far more impact, if you as an attorney bring one or two of your clients with you. Stay away from patent jargon, because the person you talk to will almost certainly know nothing about patent law. It’s crucial that you discuss the effects of the bill in terms of destruction of innovation, jobs, start-up businesses, and the like, issues that a Representative or staffer can relate to. Urge your clients to join you for a meeting.
It’s crucial to act now. Please help preserve our gold standard patent system, one of the biggest engines of job growth in the U.S., and part of the reason U.S. attorneys can create so much more value for their clients than our counterparts in the countries to which Congress proposes to “harmonize.”
David Boundy
Vice President, Assistant General Counsel Intellectual Property at a well-known financial services firm, in Boston MA
APPENDIX: HOW THE AMERICA INVENTS ACT CHANGES PATENT LAW
The bill tilts the playing field in favor of multinational corporations and market incumbents. The bill shifts from today’s emphasis on disclosure and disruptive innovation to favor trade secret and market incumbency, in the following ways.
- The § 102(a) grace period is totally repealed. Every inventor will be in a race against all other possible disclosures—no inventor will have the time to perfect and test an invention before filing. All companies will be forced to file before an invention is fully understood or tested. That will be expense for your clients and trouble for you as an attorney, and reduce patent quality.
- Inventors, entrepreneurs, and startups use the grace period of § 102(a) to meet with investors, do the trial-and-error of R&D, and test their inventions. Under today’s law, the implied obligations of confidentiality in conversations with investors and early-stage partners give sufficient protection to permit these ordinary business activities. The bill repeals all these protections, and replaces them with a flimsy grace period that creates unacceptable risk of loss of patent rights, that no business can rely on—though adds strong protections for large companies that can raise all their financing, and do all their manufacturing and testing in-house. Inventors won’t be able to talk to investors without a patent, and won’t be able to file an application without an investor.
- The bill states that an inventor can recover patent rights if he can prove that all other disclosures originated with the inventor—but the bill neglects to create a procedural forum for showing derivation in cases where the leak is not embodied in a patent application, or where the leak neglects to attribute the original inventor. As a practical business matter, the bill leaves no commercially-feasible grace period, an integral part of U.S. patent law since 1839.—you will have to file every application as soon as possible, often long before the invention is ready.
- Today’s law gives Americans several advantages over foreign inventors (under the “Hilmer rule”). The bill removes these advantages, and instead places American inventors at a disadvantage to foreign inventors. Consider this fact pattern:
- A German inventor files a patent application in Europe, and later in the U.S. under a bilateral treaty
- Shortly after the German’s first filing, an American files a patent application in the U.S. on a similar (not identically the same) invention, and then under the same treaty in Europe
Under the proposed legislation, the German’s patent application will be prior art that blocks the American in the U.S. If we switch them around, so that the American files first, then the American does not block the German in Europe. The bill does not “harmonize” the law, and the difference disfavors Americans.
- The bill provides that all disclosures within and by a single company do not create bars. This is great for multinational companies, with large in-house staffs, but totally useless for a startup or small company that has to partner with outsiders. Startups use and need the options and protections of current law, but the new bill cuts them away.
- A single offer for sale or public demonstration one day before filing a patent application will irretrievably destroy patent rights, if the poorly-drafted language is interpreted literally.
- The § 102(b) grace period is cut back—it no longer protects against activities by third parties, but only the inventor’s own activities.
- A new “post grant review” procedure allows a competitor, at a time of his own choosing, to start a half‑million dollar proceeding against a patent holder that has threatened no one. Existing, more modest versions of this procedure have already put companies out of business.
- As a patent attorney, you will no longer have time to do a good job preparing a patent application, you’ll be “forced to file” prematurely. This will expose you to risks and destroy your weekends. Poor initial applications will drive up post-filing prosecution costs. The stricter and earlier filing deadlines will place you at a blocking point for many of your clients’ business activities, harming your client relationships. Where good patent attorneys are allies in creating value for businesses today, the bill will move you to being a cost—at a much lower billing rate.
The bill destroys commercial certainty and corrupts the incentives in the system:
- Various statutory requirements that an applicant act “without deceptive intention” are repealed—in the future, applicants will have incentive to act with deceptive intent.
- Key terms of art are redefined—you’ve spent a career learning the meaning of “on sale” and “public use,” but the legislative history fundamentally redefines these terms. It will take decades for courts to establish new precedent to provide any meaningful commercial certainty.
- The Metallizing Engineering “secret commercial use” bar is repealed—a company will be able to use an invention as a trade secret, and then spring a patent on the public years later. That favors market incumbents, but makes innovation harder for everyone else.
- The “best mode” requirement is reduced to a sham: a patentee will be permitted to disclose only a fictitious embodiment, while holding the best as a trade secret.
- The bill gives companies the right to patent and repatent inventions for years, to keep them locked up, neither using them nor permitting them to be used, for far longer than 20 years.
- Several aspects of the “first-inventor-to-file” provision—the ones that give patents to second inventors, and to companies that kept inventions in secret for years before filing patent applications—violate constitutional limits on Congress’ authority—years more litigation and commercial uncertainty.
- The Act allows Wall Street banks to attack “business method” patents that they are infringing. This doesn’t extend to any other industry, only business methods—another Wall Street giveaway.
The bill is out of committee—further amendments are unlikely. It is literally impossible to alter the bill to meet the needs of startups through an amendment strategy at this late date. The multinationals and their congressional allies smell victory. They see no reason to allow any weakening of their preferred bill through amendments favoring small businesses. The only option at this point is to vote it down.
Typical inventor activities that no longer “work”
Most startups, and many inventions at established companies, go through at least one of two “stories.” They’re reasonable commercial practice under today’s law, but not under the bill:
- An entrepreneur with nothing but an idea typically has to present his idea to dozens of venture capitalists and potential manufacturing or marketing partners, without formal confidentiality agreements, to get a company started. (VC’s never sign confidentiality agreements for first meetings.) This works under today’s law, because of the implied obligation of confidentiality and the protection of § 102(a), but under the bill, these conversations will create commercially-unacceptable risks to the investor and partner. U.S. inventors will be under the same “Catch-22” as European inventors—unable to talk to potential investors until a patent application is filed, but unable to file a patent application without an investor. Startups will die before being born.
- Companies that need a long “invention incubation” period—trial and error, conceive, test and discard, until finding the “magic combination” of techniques—use the § 102(a) grace period to do their R&D in confidence, and file patent applications only when it’s clear which inventions are valuable, and how they work. Under the bill, a company will have to file a continuous stream of patent applications, many directed to inventions that are dumped under current law. This will increase patent costs remarkably.
Almost every startup goes through one of these two, many through both, as new companies create new wealth and new jobs under today’s law. Inventors wait to file quality patent applications until they have quality inventions. America’s unique and strong right to file in the future, after the inventor and investor know whether the invention is valuable, makes business easy, and prevents wasted costs for inventions that prove worthless.
The “America Invents Act” revokes this historic right. Property rights turn on non-business legal technicalities created to satisfy bureaucrats, technicalities that will cost $1 billion annually. The bill requires a company to file premature, hasty, and expensive patent applications on every baby-step idea to preserve rights against third parties who are dabbling in the field without intent to develop a commercial product. The America Invents Act makes these two stories nonviable for startups—because the authors “didn’t think” about them, or didn’t want to.
In 2010, the Kauffman Foundation and Census Bureau released two studies on job creation. Both found that “net job growth occurs in the U.S. economy only through start up firms.” If creating new jobs is Congress’s Job One, then killing the America Invents Act is a good place to start.
The proponents’ arguments do not survive scrutiny
Proponents suggest that the bill does away with complex and costly interferences. That’s true, but irrelevant. Under 100 applications per year end up in interferences. In contrast, the change to today’s “§ 102(a)” grace period affects commercial decisions and raises costs for hundreds of thousands of inventions per year, during the time before filing, by giving inventors and patent attorneys time to get it right the first time. Because the Patent Office has no insight into the pre-filing process of invention, it simply hasn’t taken into account the realities of invention incubation and the costs of its proposal. Further, the proposed replacement, “derivation proceedings,” are the most costly disputes in patent law in those jurisdictions where they exist.
Second, proponents argue that provisional applications will be a cheap way to preserve rights. But that isn’t true under the new law. Under current law, a cheap provisional is useful to show conception and diligence. But under Patent Reform, a provisional application only provides legal benefit if prepared with full § 112 ¶ 1 care and completeness. For a typical startup invention, the cost in attorney fees and inventor time for a provisional application is $10,000 or more—a formidable barrier to an entrepreneur’s first conversation with an investor.
Third, proponents argue, “The bill locks in rights if you publish a disclosure of the invention.” But all companies rely on secrecy for their future plans. No company publishes its most sensitive and advanced technology years before introduction. This argument ignores business reality.
I have been wondering about the number judges on the Court of Appeal for the Federal Circuit who were practicing patent attorneys. I was surprised that I could not easily find this information. Here is what I found (I believe this information is accurate, but if I am mistaken please let me know). According the CAFC’s website there are 16 judges and five of them are patent attorneys. Six of the judges have technical backgrounds. I think this is pitiful. However, all six of the judges on senior status do not have technical backgrounds and are not patent attorneys. Thus, among the active judges five of 10 are patent attorneys and six of ten have technical backgrounds. It appears that the court is moving in the right direction. The newest judge is Kathleen M. O’Malley who does not have a technical background and is not a patent attorney. The CAFC website plays up her experience with patent cases, but I am skeptical that this makes up for the right technical background or real experience in patent prosecution for the reasons stated below.
The CAFC has jurisdiction over most patent appeals. According to the CAFC website 39% of its cases relate to intellectual property – 36% of which are patent cases. It might be argued that since only 36% of their cases are related to patents, then it makes sense that only 36% (50% of active) of the judges should be patent attorneys. I would argue this is incorrect. First of all, we have plenty of federal judges without technical backgrounds. It is not necessary to populate the CAFC with judges that do not have technical backgrounds to provide balance to the makeup of our federal judges. In fact, the exact opposite is true. Second, it is easy for a judge with a technical background to pick up and new area of law, but it is almost impossible for a judge without a technical background to understand the technical concepts associated with genetic engineering, XML, spread spectrum, organic chemistry or numerous other areas of technology. We perpetuate a myth that the facts are decided at the trial level, so the judges at the appeal level do not have to understand the underlying technology to reach a correct decision. However the judges on the Supreme Court prove over and over again that their ignorance of basic technology and science results is bad decisions. See Bilski: The Good, the Bad, and the Ugly http://hallingblog.com/2010/06/29/bilski-the-good-the-bad-and-the-ugly/ and KSR: Supreme Ignorance by Supreme Court http://hallingblog.com/2010/01/19/ksr-supreme-ignorance-by-supreme-court-2/. As a result, I believe that we need significantly more patent attorneys as judges on the CAFC.
| Judge | Patent Attorney | Technical Background |
| Rader | No | No |
| Friedman* | No | No |
| Newman | Yes | Yes – Ph.D |
| Archer* | No | No |
| Mayer* | No | No |
| Plager* | No | No |
| Lorie | Yes | Yes – Ph.D |
| Clevenger* | No | No |
| Schall* | No | No |
| Bryson | No | No |
| Gajarasa | Yes | Yes – BSEE Patent Examiner |
| Linn | Yes | Yes – BEE |
| Dyk | No | No |
| Prost | No | Yes – BS |
| Moore | Yes | Yes – MSEE |
| O’Malley | No | No |
* Senior status.
The following additional information was provided by stepback.
PAULINE NEWMAN, Circuit Judge: … She served as patent attorney and house counsel of FMC Corp. from 1954 to 1969 and as research scientist, American Cyanamid Co. from 1951 to 1954. Judge Newman received a B.A. from VassarCollegein 1947, an M.A. from ColumbiaUniversityin 1948, a Ph.D. from YaleUniversityin 1952 and an LL.B. from New York University School of Law in 1958. From http://www.cafc.uscourts.gov/index.php?option=com_content&view=article&id=126:pauline-newman-circuit-judge&catid=1:judges&Itemid=24. Not surprisingly I have often believed Judge Newman is the most intelligent judge on the CAFC.
KIMBERLY A. MOORE, Circuit Judge: … was an Associate at Kirkland & Ellis from 1994 to 1995. From 1988 to 1992, Judge Moore was employed in electrical engineering with theNavalSurfaceWarfareCenter. Judge Moore received her B.S.E.E. in 1990, M.S. in 1991, both from the Massachusetts Institute of Technology, and her J.D. (cum laude) from theGeorgetownUniversityLawCenterin 1994.
RICHARD LINN, Circuit Judge: … was a Partner and Practice Group Leader at theWashington,DClaw firm of Foley and Lardner from 1997 to 1999. He was a Partner and head of the intellectual property department at Marks and Murase, L.L.P. from 1977 to 1997. Judge Linn served as Patent Advisor, United States Naval Air Systems Command from 1971 to 1972, was a Patent Agent at the United States Naval Research Laboratory from 1968 to 1969, and served as a Patent Examiner at the United States Patent Office from 1965 to 1968 … He received a B.E.E. from Rensselaer Polytechnic Institute in 1965, and a J.D. from Georgetown University Law Center in 1969.
ARTHUR J. GAJARSA, Circuit Judge: … was a partner in theWashington,DClaw firm of Joseph, Gajarsa, McDermott and Reiner, P.C. from 1987 to 1997. Since 2003, Judge Gajarsa has been an Adjunct Professor at theGeorgetownUniversityLawCenter. From 1980 to 1987, he was a Partner in the law firm of Wender, Murase and White. From 1978 to 1980 he was a Partner in the law firm of Gajarsa, Liss, and Conroy and from 1971 to 1972 … received a B.S.E.E. from Rensselaer Polytechnic Institute in 1962, an M.A. from Catholic University of America in 1968, and a J.D. fromGeorgetownUniversityLawCenterin 1967.
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