Patent Reform Bill: Short on Reform?

 

Takeaway

  • Leahy-Smith America Invents Act represents most significant reform to patent law in nearly 60 years
  • Increased resources for patent office and fast-track approval option may not go far enough to alleviate backlog
  • Updated "first-to-file" system brings U.S. law in line with international patent processes

Somewhere in the middle of the vastly differing opinions about the recent patent reform bill — officially passed in September 2011 as the Leahy-Smith America Invents Act — lies the reality of what the bill does and does not address, and what it will actually mean for U.S. businesses and the economy. While the bill represents the most significant reform of the Patent Act since 1952 and brings major changes to key aspects of the patenting process, it remains unclear what the actual short- and long-term impacts will be.

Will patent reform streamline the currently backlogged patenting process and provide a boost to the economy by creating jobs and fostering innovation, as its supporters say? Or will the new patenting process unfairly favor large companies over entrepreneurs and individual inventors, as detractors claim? Or, perhaps worse yet, might the act end up being another victim of Congressional bickering and a missed opportunity to enact meaningful change, as McCombs Professor John Allison predicts?

“I don’t think the patent reform bill will have much of an impact on our economy because I don’t see how the changes in the bill will help create jobs, and I don’t think we’ll see the backlog cleared up either,” says Allison, the Spence Centennial Professor of Intellectual Property. “In fact, Congress won’t revisit the patent law for decades now, so I think we missed the chance to address some of the core problems with the U.S. patent system.”

Some Big “Ifs”

The America Invents Act attempts to reduce the backlog and speed patent issuance by providing increased resources for the U.S. Patent and Trademark Office (USPTO), and ushering in a new fast-track option that guarantees 12-month turnaround time for “important patents.” But Allison feels the bill does not do enough because it does not address several key issues, including Congress’ ongoing ability to use money collected from the patent system for other purposes.

“The reform bill does not keep Congress from skimming from patent fees, which is unconscionable,” he says, explaining that a provision to halt this fee diversion was knocked out of the final Senate bill. “With ongoing fee diversion, I don’t see how these reforms will help to reduce our patent backlog.”

Allison points to another reform provision he believes will unintentionally hinder efforts to combat the backlog: new and revised post-grant review processes, which are supposed to give the USPTO more power in resolving patent challenges without the need for expensive and time-consuming lawsuits — but which Allison believes will be ineffective.

“The post-grant opposition proceeding gives someone the opportunity to challenge the validity of an issued patent within nine months after the patent is issued. So, it will just add another layer onto the patent process,” Allison explains. “In addition, I have doubts about how often people are going to take advantage of the post-grant review [as opposed to litigation], because if they challenge the validity of a patent in a post-grant opposition proceeding, they are unable to raise the same argument in court should they be sued for patent infringement.”

The bill contains one change that Allison believes will help cut down on patent litigation abuse. Historically, he notes, a patent owner had the ability to sue a large number of unrelated defendants, claiming they all sold products or services or in some other way infringed on the same patent. “A semiconductor manufacturer, for instance, could sue 100 retailers for selling a competitor’s product that the manufacturer claimed infringed on its patent,” he explains. Defendants in these cases often had a hard time presenting a united front, so they ended up settling and paying money to the patent holder.

“But under the new law, a patent owner can sue two or more parties for infringing the same patent only if they are related companies, or their alleged acts of infringement arise out of the same transaction or series of transactions,” Allison explains. “This will have a dramatic effect on litigation abuses.”

The First-to-File Factor

Perhaps the most notable and impactful reform of the new act is the switch from a “first-to-invent” to a “first-to-file” system. Under first-to-file, the first inventor filing for patent protection is entitled to the issued patent, regardless of whether or not they were the first to invent the technology or product in question. The switch should help to alleviate the lengthy and often expensive process of determining who was the first to invent, and it brings the United States in line with the rest of the world, where first-to-file is the norm for patenting.

“Going to a first-to-file system will be very helpful for U.S. companies and university startups. It puts the nation in harmony with the rest of the world when it comes to patent standards, and in today’s global economy, that is essential,” says Richard Miller, chief commercialization officer in UT’s Office of Technology Commercialization. (For more on the new act’s effect on universities’ commercialization efforts, see sidebar.)

Allison agrees, adding that our “modified” version of the first-to-file system retains an important holdover from the first-to-invent system: a one-year grace period that offers protection to inventors who are slow to file for a patent. “If an inventor is the first to disclose an invention, to publicly use it, or put it on sale, they have one year from that time in which to file a patent,” he explains.

How Will the Little Guy Fare?

Allison does hold some concerns, however, that the first-to-file system—as well as the increased patent application fees that are part of the reform act—may put small businesses and individual inventors at a disadvantage.

“It’s reasonable to suppose that large companies with a lot of resources — who are repeat players in the patent system to a much greater degree than any individual or small company can possibly be — might be able to get to the patent office with a good application faster than a smaller entity seeking a similar patent,” he explains. “Also there are economies of scale for large companies that patent frequently: if they repeatedly use the same patent law firm, they will likely get a better deal in legal expenses; and they can ask several law firms to bid on their patenting work in order to receive lower rates. Also, large companies are better able to build patent portfolios, holding multiple patents on related advances.”

However, the “little guys” who were most overlooked in this bill, according to Allison, are the USPTO patent examiners. “Working conditions for examiners have never been very good. They aren’t given enough time to examine patent applications, and they don’t have the continuing training and education opportunities they need to remain up-to-date on the wide variety of topics they must be comfortable with when examining applications,” he explains. In addition, the position is often a stopping-point for professionals seeking to become patent attorneys, so there is constant turnover, and the examiners who remain in the office may not be the most qualified examiners, he notes.

“This bill really missed an opportunity—it would have done a world of good for patent quality to make some improvements for the examiners,” he adds.

Ultimately, both Miller and Allison feel the patent reform bill will yield only minor changes and will not have a substantial immediate impact on jobs, the economy, or the day-to-day operations of U.S. businesses and university startups. Says Miller: “Over time, if these changes strengthen the patent system, the impact will be positive for American business and for universities too. But acutely, there is absolutely no impact on the work that we are doing.”

Allison concurs. “Unless the increased fees for patent applications really do generate enough revenue to allow the USPTO to hire more examiners, I don’t see how this bill will speed up patent issuance enough to spur economic growth or the creation of new jobs,” he says. “Unfortunately, I don’t foresee much changing as a result of this bill.”

Sidebar: Patents as VC Drivers

The question of the bill’s impact is an interesting one for universities. As natural incubators of intellectual property and innovation, institutions like The University of Texas at Austin have become an important generator of technology commercialization efforts and startup businesses. And the patent process plays a large role in the success of taking a university-bred technology to market. 

“Most university commercialization efforts are very technical and involve cutting-edge science, so patents are crucial,” explains Professor Richard Miller, chief commercialization officer for UT’s Office of Technology Commercialization, which generated $26 million in commercialization revenue in fiscal year 2011, and has created over 60 new companies in the past nine years. Getting patents filed and issued in a timely way is key to attracting venture capital, Miller notes, explaining that VCs look closely at pending patents and patent applications when deciding whether to invest in startups. 

“If a patent application looks weak, it can be the kiss of death for a startup. On the other hand, if the company already has an issued patent, that is a definitive advantage in securing VC funds,” he says. 

Currently, with a backlog of nearly 700,000 patent applications awaiting examination, it takes an average of almost three years to obtain a patent, and inventors may wait some five to 10 years if legal issues arise. “If this reform bill can accelerate the issuance of patents, it will be very good for university startups,” Miller notes.

Disclaimer

The views expressed are those of the author and not necessarily The University of Texas at Austin.

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Faculty in this Article

John Allison

Mary John and Ralph Spence Centennial Professor of Business Administration, Department of Business, Government and Society McCombs School of Business

John Allison received his J.D. from Baylor University with highest honors and was Editor-in-Chief of the Law Review. His primary research...

About The Author

Amy Roach Partridge

Freelance Writer,

Amy Roach Partridge is a freelance writer and editor who contributes to numerous business, university alumni, trade, and regional magazines and...

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