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Posts Tagged ‘patent reform’


One Year Anniversary of Patent Reform: Two Reasons Why it is Un-Constitutional

A year ago the pork laden so called Patent Reform bill known as the America Invents Act (AIA) was enacted.

First to File Provision: 

Article 1, Section 8, Clause 8 of the Constitution states:

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

The Constitution does not give Congress the authority to grant patents to the first person to file and doing so violates the exclusive Rights of inventors.  The proponents of the AIA argue that it is really a First Inventor to File system, not a first to file system.  This is nonsense.  There is no such thing as being the second or third or ninth inventor.  An inventor is the first one to create something.  For more information see Lawsuit Challenges AIA’s Constitutionality.

Fee Setting Authority: 

Article 1, Section 7, Clause 1 states.

All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills.

The AIA gives the US Patent and Trademark Office (USPTO) fee setting authority.  However, the part of the AIA that made sure that USPTO would be able to keep all its fees was removed by Representative Paul Ryan.  Since it is very unlikely that the USPTO will keep all its fees, they are creating a bill for raising Revenue.

 
My Book: The Decline and Fall of the American Entrepreneur Now Available on Kindle

The The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation , is now available in Kindle format for only $7.99.

Book Highlights:

*New US laws since 2000 are killing US Innovation

*Explains why the venture capital model is dying.

*Innovation is key to creating high quality jobs

*Innovation is key to increasing real per capita incomes of Americans

*How to make the US the innovation leader of the world again

 

What others are saying about the book

Mr. Halling combines two topics — the impediments to entrepreneurship that have been created by the U.S. government as an unintended consequence of its pursuit of other goals and the systemic weakening of the U.S. patent system by the U.S. Supreme Court and the Congress.

The resulting technological stagnation is a major reason the U.S. has gone from producing 25 percent of the World’s Gross Product in the mid 1990s to about 20 percent today. The loss is significant – about $3 trillion of U.S. GDP in 2009 alone.

He demonstrates in clear terms the linkages between economic growth, productivity, and income. And he lays out how technological advancement has always been the American advantage in global competition, an advantage that the U.S. is squandering.

Dr. Pat Choate, economist, former Vice Presidential running mate of Ross Perot 1996, Director of the Manufacturing Policy Institute, Phd. Economics University of Oklahoma

 

“Dale Halling’s Decline and Fall of the American Entrepreneur makes a compelling case for the need to reform regulatory and other policies that hamstring entrepreneurial innovation in our country. Everyone concerned about the decline in American innovation should read this book.”

David Kline, Coauthor of “Rembrandts in the Attic” and “Burning the Ships”

The Decline and Fall of the American Entrepreneur presents the issues facing technology start-up companies in today’s environment.  The book sheds light on the underpinnings of these issues and is enthralling.  Halling’s tight, accessible and personal style make this a fast and compelling read.  His book is a political clarion call that should be heard now.

Greg Jones, Former President Ramtron International (RMTR) and CEO Symetrix Corporation.  Both companies founded on IP.

This book conclusively establishes the link between innovation and per capita income, and shows that we have recently entered into a time in which innovation is under assault.  This assault has resulted in a predictable loss of income and contributed significantly to the economic woes we are experiencing right now.  The book’s sound policy recommendations suggest a way to turn the economic ship around to set a course for a return to prosperity.

Peter Meza,Patent Attorney – Counsel Hogan & Hartson, Attorney for Alappat –  In re Alappat

 

 
Forbes Explains How America Invents Act will Hurt Tech Entrepreneurs

This excellent article shows that when Canada changed from a first-to-invent system to a first-to-file system, it was bad for individual inventors, technology start-ups, and Canadian venture capital.  The article then quotes a UK study showing how the European system is not encouraging innovation.  The article notes that the America Invents Act will effectively eliminate the one year grace period for inventors, which is particularly important for startups.  The new post grant review will allow large companies to tie up entrepreneurial companies in expensive litigation for years.  The post grant procedure has been used effectively in Europe to stifle startup competitors by large companies.  Unfortunately, one of the supposed benefits of the Act was to stop fee diversion.  The Patent Office is completely funded by user fees and Congress has taken (stolen) these fees to support other Congressional pet projects.  The result of fee diversion is that it now takes four or more years on average for a patent to issue.  This pendency time results in the patent often issuing long after the commercial opportunity has passed the company by.  If it took 3 to 4 years to obtain title to your car or house after you bought it, you would think you were living in a third world country.  However, this is what happens in the patent world everyday and the America Invents Act does not solve this problem.  The author concludes that Congress should be careful that the America Invents Act not become the equivalent of Sarbanes Oxley.

This article was written by Gary Lauder is Managing Director of Lauder Partners, a Silicon Valley-based venture capitalist and co-inventor of a dozen patents. More info on this issue can be found on his Web site.

 

 
What Would Real Patent Reform Look Like?

I have written a number of times on what real patent reform would actually accomplish.  One of the major problems with our patent system is that your rights stop at the border.  This is different than any other property right.  For instance, if I drive my car across the border into Canada, I still own my car.  If I drive my book across the border into Canada I still own both the physical version of my book and the copyrights to my book.  But, if I drive my invention across the border I no longer own my invention.  This situation existed for copyrights 150 years ago and it was recognized that there was no logical reason for copyrights to end at a countries border and it discouraged the publication of domestic authors.  The same is true of patents.

I suggest a system of reciprocity in which an inventor who obtains a patent in Canada, for example, has patent rights in the U.S. and vice versa.  This would decrease the duplication of efforts across patent offices around the world and significantly reducing the present backlog in the U.S. patent office.  More importantly, it would increase the value of a patent and increase the chance of obtaining funding for technology startups.

A friend of mine, Jim Lauffenburger, explains in practical terms why this important.  His company has found trade secrets to be a much more useful tool, because of the lack of patent reciprocity.

It is interesting that in my company, EM Microelectronics, the best method for protection is definitely keeping a secret, not filing for patent protection. (And keeping those secrets is extremely challenging and difficult.)

Why, you ask?
Because we are unable to enforce patent protection in Asia, and unable to prevent literal copying.

We spend man-decades of highly skilled (and expensive) engineering time to design a new IC. The IC goes into mass production in some successful product. It gets rapidly reverse engineered in Asia. Nearly direct copies of the part soon appear, and can be priced at only silicon-cost, without the huge development costs.

We visited several of these Asian “design centers” to ask them how they do it, under the guise of possibly utilizing their services. But even that guise was not really necessary, because they were proud of their “design method”: They do a layer-by-layer stripping and micro-photographs, and create a direct schematic from that. They convert the digital logic into standard cells, and then re-Place-and-Route using “their own IP” (the standard cells). For the analog portions, they use the layers as-is, but rotate or flip them 90 degrees so that it looks different. Then end result is what they claim is their own IC and their own IP, and it looks quite a bit different from our ICs. But, during that entire process they were simply “turning the copy crank”; not actually designing anything from concept.

Fighting this copying at a trademark level won’t work (it looks different). Fighting this at a patent level is extremely time consuming and expensive.

Thus, the only way to fight it is to try to hide features and make very special implementations that don’t work correctly in a layer-by-layer copy. (This of course, is very difficult, and expensive, and MUST be kept fully secret.)

This shows (to me) once again, that most of our law (and society) only works if the we all generally agree on the moral and ethical basis undergirding our actions and laws. Once that is lost, chaos follows. (And “messes get created” by all the reams of laws generated to try to make up for the lost ethical basis.)

While Jim’s company has made a logical decision under the present law, part of the reason for having a patent system is to encourage the spread of technical information.  Trade secrets inhibit this dissemination of technical information and slow down technological and economic progress.  The America Invents Act does nothing to solve this problem.

 

 

Gametimeip makes an interesting point about the America Invents Act:

The sheer size of the bill (150 pages) is massive compared to other legislation, such as the original patent act (9 pages), the Civil Rights act of 1963 (28 pages), and the National Labor Relations Act of 1935 (9 pages).

Paraphrasing Mark Twain: Congress did not have time to write a short, good piece of legislation, so they wrote long, bad piece of special interest legislation.  This is beginning to be quite a trend in Congress.  Write massive pieces of legislation that even the legislators do not read before voting on them.  No wonder our economy is in a depression.

 

 
8 Millionth U.S. Patent Issues

According to the USPTO website, 8,000,000 patent issued today, August 16, 2011.  The patent is entitled “Visual Prosthesis” and the inventors are Greenberg, Robert J. (Los Angeles, CA, US), Mcclure, Kelly H. (Simi Valley, CA, US), Roy, Arup (Valencia, CA, US).  The patent is assigned to Second Sight Medical Products Inc.  The patent took almost four years from filing, October 18, 2007, until issuance.  Hopefully, this company did not need this patent to secure funding, which is common.  This illustrates one of the major problems with our patent system – namely the absurd length of time it takes to get a patent issued.  A patent is a property right and if it took you four years to obtain title to a car or house or stock you bought you would think you were living in a third world country.

According to the Patent Office’s press release the patent explains:

In a healthy eye, the photoreceptors (rods and cones) on the retina convert light into tiny electrochemical impulses that are sent through the optic nerve and into the brain, where they are decoded into images.  If the photoreceptors no longer function correctly, the first step in this process is disrupted and the visual system cannot transform light into images, causing blindness.

The system awarded patent number 8,000,000 is designed to bypass the damaged photoreceptors altogether.  A miniature video camera housed in the patient’s glasses sends information to a small computer worn by the patient where it is processed and transformed into instructions transmitted wirelessly to a receiver in an implanted stimulator.  The signals are then sent to an electrode array, attached to the retina, which emits small pulses of electricity.  These electrical pulses are intended to bypass the damaged photoreceptors and stimulate the retina’s remaining cells to transmit the visual information along the optic nerve to the brain.

Of course, I am sure that the patent critics will complain that this patent is an example of how the Patent Office issues bad, overly broad, patents for inventions that were created years ago.  This is clearly obvious in light of modern electronics and an understanding that the brain is really just electrically signals.  What is unique about converting light signals into electrical signals anyway?  It really all boils down to wiggling electrons, which has been done since man first harnessed fire.  I am sure that the critics will point out how this patent does not encourage innovation and is just legal title to sue and waste resources that would be better spent on engineers????????????????????????????????

 

 
IPBiz on Mark Cuban’s Comments on Patents

Mark Cuban, owner of the Dallas Mavericks, has been weighing in on patents and patent deform (America Invents Act).  Lawrence Ebert, who writes IPBiz, has an excellent analysis entitled, Mark Cuban on patent law: who wants to make lawyers happy anyway ?.  According to IPBiz, Cuban argues

Pick any country that is currently doing well, China is a perfect example. In China the Intellectual Property Laws are so weak that someone thought it was a good idea to completely replicate Apple retail stores. Compare their economy to ours. As much as I hate to compare other economies to ours, it’s worth taking a look .

Ebert’s  response is right on: S

Sure, free riders can have a great run, up to the point that they run out of creators to steal from.

Mark Cuban made his money being reseller of software.  He has no experience in trying to create an invention and then market the invention and then have another person steal your inventive effort.  Mr. Cuban might feel different if I broadcast his Dallas Mavericks without paying him a licensing fee.  Intellectually and morally it would be exactly the same position and think of all the money I would make.

 

 

According to the excellent blog Gametime IP “The cloture vote will occur on Tuesday, September 6th after 5:30pm. Cloture will cut off debate and bring Patent Reform to a final vote.”  This is bad news for independent inventor, bad new for American innovation, and bad news for the U.S. economy.

 

 
Patent Reform a Sham: Data Treasury Story Exposes True Motives

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.

 
Why the America Invents (not) Act is Bad for the US Economy

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.

 
Wall Street is Un-American

Over half of the earnings of the S&P 500 companies are derived from foreign operation, according to Stuart Varney.  As a result, the financial returns of these companies are not directly related to the UnitedState’s economy.  This is part of the reason why the stock market is no longer a good a leading indicator of the American economy.  There are a number of other differences that have led to a decoupling between main street and wall street.  For instance, large companies have been able to tap the Federal Reserve for short term loans – see Federal Reserve Discloses $2.3 Billion Short-Term Loan to Harley-Davidson – $3.3 Trillion in Total to Others.  Note that some of the companies the Fed bailed out were not even American companies.  Wall Street was not only able to obtain short term loans from the Federal Reserve, they received TARP funds, and they have been able to use these funds to make money on carry trades.[1]  It is clear that the interests of Wall Street banks and large multinational companies are not aligned with America’s.

Despite this lack of alignment in the economic interests of the American people and Wall Street, the Bush and Obama administrations and Congress only consult large businesses and Wall Street when setting policy.  For instance, the Senate refused to hear testimony from individual inventors and startups when debating the “America Invents (not) Act.”  This Bill contains a special provision for Wall Street that 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.  Wall Street is not interested in competing based on merit, it wants to compete on political connections and pedigree, which is clearly un-American.

Securities laws have consistently skewed the rules to favor large Wall Street firms, including Sarbanes Oxley and Dodd Frank, which are so complex they drive out startup and small investment banking firms.  The law on retirement saving was another big give away to Wall Street.  These laws pretty much restricted IRAs, etc. to investment products sold by Wall Street.  This drove investment dollars from home towns to New York to the detriment of main street and America.  Wall Street also has a vested interest in government debt, since they get a commission for placing government bonds and make commissions every time they are traded.  According to Charlie Munger 25% of the United States GDP is now earned by finance companies.  Finance companies facilitate purchasing and investing transactions the do not make anything and only provide finance services.  When they earn 25% of every dollar in the country, you can be assured that things are seriously out of whack.[2]

The interests and performance of Wall Street are no longer aligned with the interests of the American people.  Wall Street is un-American.


[1] A carry trade is when the Federal Reserve allows banks to borrow money at a lower interest rate than they can loan it out at (risk free).  The most egregious example is when political powerful banks (corporations) can borrow from the Federal Reserve at a lower rate than short term Treasury Bills are yielding.  This takes absolutely no intelligence to make huge amounts of money, as long as the Federal Reserve will loan out money.  This is how the TARP banks have been able to pay back their TARP loans.  However, it is just a fraud and the cost of this fraud is being paid for by the American taxpayer/worker.

[2] This might be okay in a small banking oriented country, such as Luxenburg, but is devastating indictor for a large country like theUnited States, which requires a diverse economy.

 
Rep. Dana Rohrabacher: America Invents Act – Bad for America, Good for Multinational Corporations

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 is a guest post by David Boundy directed to fellow patent attorneys.

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 expensive 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.

 

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.

 

This intriguing question and its implications for US economic policy are tackled in the groundbreaking book Great Again, by Henry R. Nothhaft with David Kline.  They answer the above query with a series of questions:

Could a twenty-year-old college dropout, just back from six months in an ashram somewhere, attract funding for a capital-intensive venture based on the manufacture (yes, the manufacture) and sale of a $2,500 consumer product unlike any that had ever been bought by consumers before?  One whose potential uses were at best unknown, and possibly nonexistent?  And one for which the total current market size was exactly zero?

Not only could Apple not get funded today, it probably could not go public. Nor would Apple have received its first patent (USPN 4,136,359) in only 20 months.  The book asks “how many of today’s Apples are not getting a chance?”

The authors use the above example to make a broader point that theUSis failing economically and technologically because of the policies we are pursuing.  They show that all net new jobs created in theUSsince 1977 (and possibly longer) were created by startups like Apple.  All increases in real per capita income are due to new technologies and most revolutionary/disruptive technologies are created by startups and individual inventors.  So what are the policies that have undermined our economy, by undermining technology startups?

The book examines five areas:

1.Role of regulations.  The Authors show that our tax policies, Sarbanes Oxley and our indifferent (some might say arrogant) regulators’ application of well meaning regulations to startups is driving them either overseas or out of business.

2. Underfunding the patent office. This is costing theUS millions of jobs and billions in GDP.  According to the authors, each issued patent is worth 3-5 jobs on average, particularly patents issued to startups.

3. Manufacturing policies in the US.  Manufacturing is key, particularly in a world that does not respect property rights in inventions, to ensuring that theUS profits fromUS innovation and not other countries.  TheUS is also losing the global battle for human talent.

4. Battle for global talent. Our restrictive immigration policies are depriving theUS of talented entrepreneurs such as Andy Grove, founder of Intel.

5. Funding for research.  The book shows that our spending on basic science and engineering is not only declining as a percentage of GDP, but the system has become short-term oriented and bureaucratic.

While this book tackles complex issues, it is a quick easy read.  It is full of interviews from entrepreneurs, venture capitalists, and technologists who built America’s technology startups over the last three decades.  Great Again provides numerous real life examples to illustrate its points.

This pioneering book shows how the US can create jobs and increase per capita income.  The policy prescriptions are based on solid science.  Just cutting government spending (balancing the budget) will not cause theUSeconomy to grow vigorously, we need pro-growth policies.  The authors are some of the few people that understand what policies are needed for the US to be GREAT AGAIN.

Great Again: Revitalizing America’s Entrepreneurial Leadership, by Henry R. Nothhaft and David Kline

 

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