New Patent Law: Patently Unfair?

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Last March the Senate voted 95-5 to pass a bill called the America Invents Act, which would represent the biggest overhaul of the U.S. patent system in 60 years. Last week, the house passed similar legislation. The next step is to reconcile the two versions, then send the completed bill to the White House for the president’s signature. Since the White House has expressed support, it’s possible the bill could become law within weeks.

While there’s no argument that the Patent Office can use some streamlining – there’s a 3-year, 700,000-patent backlog of pending approvals – some insist the new law will benefit big business to the detriment of the little guy.

The changes

The law includes lots of changes. Some concern patents you probably never knew existed: For example, there’s a provision that bans the ability to patent “tax strategies.” Apparently, back in 1998, the courts starting allowing patents for “methods of doing business” – including methods of avoiding income taxes. And since that time, the Patent Office has been allowing them. But this rubbed some in Congress the wrong way, and the new law will make such strategies ineligible to earn a patent. From a press release by Senator Chuck Grassley (R-Iowa):

“Tax patents prevent taxpayers from being able to use certain tax strategies unless they’re willing to pay for them,” Grassley said. “It’s unfair for taxpayers to have to pay for these methods. Our legislation reins in the cottage industry of those trying to own tax planning strategies that should be available to everyone or that would encourage inappropriate tax avoidance.”

The law would also allow the Patent Office to set its own fees, charging less for simpler ideas or smaller inventors and more for big companies or complex patents. That flexibility would allow the patent office to focus more manpower on getting complex patents done quickly, while offering small inventors filing fees as low as $250.

But there are other, more controversial changes afoot: primarily first-to-invent, vs. first-to-file.

Patents grant an exclusive right to sell or license an invention for 20 years. Under existing law, they’re awarded to the person who can prove they first developed an invention or process. The new law would instead award patents not to original developers but to whoever first files a patent application. There’s some logic behind the change: Simply by saying they invented it first, today inventors can sue for inventions they never patented. In a process called “patent trolling,” some companies file patents on products they don’t intend to produce, then wait to sue others who develop them. Others delay competitors from bringing something new to market by suggesting they developed it first. Disputes can cost millions and take years to resolve.

The problem

Since large companies often have in-house teams to develop patentable products, they’re in a better position to file fast and without exposing their ideas to the outside world. The guy who tinkers alone in his garage, on the other hand, has little chance of going through the expensive and complicated patent process without first exposing his idea to people ranging from lawyers to venture capital firms.

In short, because big companies have in-house experts to rapidly and secretly shepherd discoveries through the patent process, they’ll gain an advantage. Just as important, they’ll face fewer challenges since the only legal issue will be when the patent was filed, not when the invention was first created – something much more complicated and time-consuming to establish.

Will this new way of approaching patents better equip American business to innovate, develop new products, stay globally competitive and create new jobs? Yes. Will it better enable big business to steamroll the little guy on their way to the patent office? Perhaps.

For and against

The patent push has been going on for six years, championed by the U.S. Chamber of Commerce and companies ranging from Exxon to Microsoft. Opponents include some small business groups, the American Bar Association, and the American Civil Liberties Union.

Said supporter and House Judiciary Committee Chairman Lamar Smith (R-Texas):

Today’s vote in the Senate is a victory for American innovators who create businesses, generate jobs and drive economic growth. The current patent system is outdated and is bogged down by frivolous suits and uncertainty regarding patent ownership. Patent reform unleashes American inventors and allows patent holders to capitalize on their innovations and create new products and more jobs.

Clyde Prestowitz, founder and president of the Economic Strategy Institute disagrees. From this article:

Most countries grant patents to those who first file their applications for patents on new inventions regardless of whether they were actually the original inventors. This is obviously a bureaucratically simpler procedure and also one that obviously favors big companies with platoons of scientists and lawyers who can scan the horizon for news of new inventions and then quickly file patent applications. This is the approach that the new act would impose on U.S. patent application procedures.

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  • Anonymous

    Corrupt Corporate America and our “pay for play” corrupt congress are behind this bad bill. More of the “eliminate frivolous lawsuits” baloney.  Now, large corporations can “claim jump” and literally steal ideas from small business men before they have the opportunity to file. It is disappointing that Obama is nothing but a shill for corrupt corporations in America. Outrageous executive pay for corporate tycoons who think of themselves as being like “rock stars” concerning fame and fortune. This bad patent law is just another way that “greed” will seek a higher level in our corrrupted society!