Patent reform is about to negotiate the final hurdle standing between it and President Obama?s desk, where it would almost certainly be signed into law. The hurdle is a Senate cloture vote scheduled for September 6. The patent reform bill ? which these days goes by the friendly name of the ?Leahy-Smith America Invents Act? ? has already passed the House; clearing the Senate cloture vote pretty much guarantees passage and enactment.
Listening to the White House and lawmakers from both sides of the aisle, passage is both inevitable and will work economic wonders for all Americans: the bill will ?boost patent quality, reduce the backlog of patent applications, and cut costs for American companies? by ?provid[ing] greater certainty and consistency for innovators? rights,? reducing legal costs on small businesses, and helping innovators commercialize their inventions, ultimately ?cut[ting] the red tape that . . . holds our whole economy back?. Indeed, as soon as Congress sends the bill to the President, it will be ?easier for entrepreneurs to patent a new product or idea ?- because we can?t give innovators in other countries a big leg up when it comes to opening new businesses and creating new jobs.?
You may recall that similar legislation has been proposed for at least the last six years; however, 2011 is the first year that patent reform will allegedly ?boost the economy? or ?create jobs.? What in the 2011 legislation is newly geared at invention commercialization and economic growth through patent reform?
Nothing, as it turns out. Instead, as several non-politician commentators have pointed out, many provisions newly stuffed into the current bill are certain to have a negative impact on patent examination backlog while failing to address other real problems with the patent system, suggesting that those praising the bill are either not paying attention to its contents or are simply desperate to pass anything branded under ?job growth? or ?reform? in a legislative system that is largely perceived as dysfunctional.
This opinion piece takes a closer look at three problems ? stripping of USPTO funding, unique anti-patent treatment for the financial sector, and prior user rights that undermine technological disclosure and promote trade secret culture ? with the Leahy-Smith America Invents Act now before the Senate and opposes its enactment. An examination of the substance of the bills and the legislative process that created it shows no red tape will be cut by, and few inventions sped to market by, the reforms born more out of partisan point scoring and special interest catering than any interest in reducing patent backlog and increasing patent quality and job creation.
First up is the most tragic provision of the America Invents Act ? Section 22, which limits how much the USPTO can use its own fees. That is, Section 22 permits Congress to take the money the USPTO earns from providing services to applicants and divert the funds to non-USPTO projects. The practice, termed ?fee-diversion,? has been ongoing and resulted in cuts to USPTO services, as the USPTO Director himself has stated, including limiting new Examiner hiring and acquisition of new IT infrastructure that would help combat the growing patent backlog.
The Senate originally passed their version of a patent reform bill (S.23) in March 2011 by a 95-5 bipartisan vote. S.23 guaranteed the USPTO could keep and plan around all the user fees it collects, thanks in large part to the efforts of Senator Tom Coburn (R-OK). The House, however, in an effort spearheaded by Reps. Paul Ryan (R-WI) and Hal Rogers (R-KY), reversed this benefit. The House version currently awaiting Senate approval includes a new Section 22, which permits Congress to take excess USPTO funding from a special fund and spend it elsewhere. While Representative Rogers stated that excess USPTO funds will be spent only on the USPTO, the actual language of Section 22, in addition to the pressure from the new debt-ceiling committee to squeeze all excess revenues into the general treasury, does not give the USPTO any certainty as to what funding will be available in coming fiscal years. Additionally, the fee diversion of Section 22 undermines any fee-setting authority given to the USPTO; the USPTO cannot set fees to recover USPTO expenses if those fees are appropriated by Congressional third-parties to cover other government expenses. (It?s worth noting that the House also added a sunset provision to the USPTO fee-setting authority, so it will go away in seven years anyway.)
So all the exhortations that the patent reform bill will speed inventions to market by reducing the patent backlog are almost certainly false, at least to the degree that such backlog might be addressed with additional USPTO funding. Without being able to hire additional Examiners or make long-term decisions based on long-term funding, the Office will have few tools to improve patent quality and reduce the nearly 700,000 application backlog (it currently takes the Office over 2 years to act on an application filed today). As a frequent user and customer, I find that USPTO operations are already in a precarious state. Continuing fee diversion, under Section 22 of the current House bill, will only worsen this situation by preventing the USPTO from making long-term plans or funding initiatives to meet the demands of American innovation like reducing the examination backlog.
Next up, provisions doling out benefits to the special interest of the day: banks. Sections 14 and 18 of the America Invents Act establish special anti-patent treatment of inventions on tax strategies and pure business/financial services methods. In a special-interest coup for the bank lobby, Senator Charles Schumer (D-NY) added provisions to the bill that invalidate entire swaths of tax strategy patents and provide a unique procedure to tie up patents asserted against their business models in new USPTO post-grant review. The only reason these narrow areas of innovation are undeserving of patent protection is because established financial service entities don?t want to pay licensing fees or damages due to patents their businesses infringe. The financial servicers would rather use the patented tax strategy, check-processing method, stock-transfer mechanism, or what-have-you without the person who came up with the strategy/method/mechanism getting any cut of the profits or potentially entering the market and upsetting established market shares with disruptive innovation. Of course, financial services innovation will quickly disappear altogether when the patent system cannot protect or reward it, which is likely exactly what the lobbying financial servicers want.
As former Federal Circuit Judge Paul Michel and IP commentator Hal Wegner have noted (and received criticism from the banking lobby for so noting), given the mechanisms and (lack of) reasoning for Congress?s special treatment of the financial service industry, it?s unclear why US lawmakers, or even foreign lawmaking bodies, will not identify and exclude other industries from patent protection on disruptive innovation, so long as those industries lobby Congress hard enough. Maybe China will decide that pharmaceutical methods are not a patent-worthy industry, and this just happens to result in all US-invented drug treatments having no patent rights in their country? Indeed, the fact that only financial services patents were given the axe in the America Invents Act, despite long-standing outcry against software patenting in this country, suggests that the anti-software patent voices just need to start playing donation hardball with influential senators to get software patents similarly invalidated or caught up in endless review before the USPTO.
Particularly worse is the combination of post-grant reviews (plural ? as in multiple administrative procedures) of Sections 18 and 6 of the patent reform bill, which increase the complexity of post-issue procedures before the USPTO to a mega-bureaucratic and almost byzantine level. Professor John Duffy makes this point better than I ever could. It?s probably even worse than Professor Duffy admits, because the post-grant review procedures are not clearly delineated in their application ? they simply permit post-grant review for ?non-technological inventions,? as decided by the USPTO Director. So what is a ?technological financial? product or service? Checks with anti-counterfeit technology in them? Stock trading methods that rely on computerized trading technology? Methods of hedging risks in an e-commerce commodity market? Only the current USPTO director knows! As a patent attorney, I can?t help but admire Sections 6 and 18 for the increased work and revenue they will generate in the near term for my profession. But keep in mind, this is a bill that is supposed to ?cut the red tape? and ease USPTO examination burdens. I can?t see how the creation of several new overlapping procedures for the USPTO to deal with an ambiguous class of patents it has already issued will help streamline USPTO operations. Maybe in the long-term, Sections 6 and 18 will reduce USPTO burdens, as innovators come to realize the price of dealing with these many post-grant proceedings and stop filing patents and disclosing their innovations?
Lastly, Section 5 of the America Invents Act creates a blanket defense to patent infringement for prior, secret users of a patented invention. Basically, so long as a party secretly uses an invention ?commercially? (even one use will apparently do), they are protected from ever infringing a third party?s later patent on that invention. That is, the party that uses and keeps as many trade secrets as possible can be assured individual benefit from the trade secrets without any risk of infringement if a third party manages to later replicate and patent (and thus disclose) their trade secret. This is horribly detrimental to an underlying policy goal of the patent system ? disclosure of scientific breakthroughs and technological advances. Under Section 5, an innovator has no motivation to come forward with any inventive process, because they have a patent infringement defense if a third party later patents such a process. Under current law, anyone maintaining a trade secret indefinitely runs the risk of infringing a third party?s later patent on that secret. Section 5 eliminates this risk; a manufacturer that believes they can maintain trade secrets indefinitely, such as in the case of a highly-specialized field, in extremely advanced breakthroughs, or when no competitors are seeking patent protection, faces no risk under the current patent reform bill. The result will inevitably be greater universal trade secret activity, with fewer advanced manufacturing and fabrication processes being disclosed for patent protection, entire industries potentially falling into guild-like secretive societies, and entry costs into highly advanced technology sectors greatly increasing.
Worse, (and I apologize that this paragraph is getting very ?inside baseball?) Sections 2 and 5 of the reform bill, together, potentially reverse Metalizing Engineering. The Metalizing doctrine prevents a party who commercially benefits from their trade secret from later patenting that trade secret, while allowing third parties to independently invent and patent (and thus disclose) the trade secret. Section 2, with its generic use of the term ?disclosure,? may permit the trade secret user to later patent that trade secret (despite Senator Leahy?s thinking to the contrary), while defeating any third-party ability to ensnare the trade-secret keeper in infringement. The net result of patent reform will inevitably be greater trade secret use and less public disclosure of technological advances; it is just a question of to what lengths and risks industries will go to effectively keep trade secrets. I can?t begin to guess how this is going to spur innovation and boost our economy.
To be sure, the America Invents Act includes many neutral or good things for the patent system. The legislation removes the idiosyncratic ?best mode? requirement from the patent statute, removes restrictions on Federal Circuit judge?s residency, eases signature problems with non-cooperative inventors, supercedes the Supreme Court case of Holmes Group v. Vornado, permits USPTO fee-setting, addresses false-marking lawsuit abuse (and potential unconstitutionality), liberalizes third-party submission of information relevant to the examination process, and harmonizes US patent law with the rest of the world by switching the US from a ?first-to-invent? to a ?first-to-file? jurisdiction (albeit partially and ambiguously).
Sometimes one must take the bitter with the sweet in getting legislation passed. But the above acrid ingredients ? stripping of USPTO funding, special anti-patent treatment for the financial sector, and prior user rights that undermine technological disclosure ? overwhelm the patent reform cake with bitterness, leaving maybe a single sweet cherry on top. I urge all interested practitioners to oppose the America Invents Act currently awaiting a cloture vote in the Senate by contacting your Senator, signing the petition at reformaia.org, and contacting your advocacy groups like IPO and AIPLA.
In the meantime, here are some other perspectives on the problems with the America Invents Act. [Foreign Policy Blog] [The Hill] [Innovation Alliance] [shellypalmer] [Lauder Partners] [No on HR1249] [Inventive Step] [IP Nuggets] [Trading Technologies]
Source: http://alleylegal.com/2011/08/the-problems-with-patent-reform/
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