From the USA: Not so intellectual property - Skip Kaltenheuser

Backed by Obama and hailed as a panacea for unemployment, the overhaul of America’s intellectual property regime has proven popular, but could nevertheless turn out to be a dramatically wrong turn.

Touted as ‘historic’ and as ‘a jobs-creating bill’, the Leahy-Smith America Invents Act passed Congress by huge margins, radically changing the US patent system. President Obama embraced the bill, signing it on 16 September. How regrettable.

‘Historic’, yes, in gutting the core concepts of US patent law brilliantly enshrined in the 1787 Constitution: ‘The Congress shall have power...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.’ [author’s emphasis] As the close of the American Revolution coincided with the dawn of the Industrial Revolution, those dictates built the mother of invention, a national patent system that transformed the US economy into the world’s mightiest and most innovative.

‘Jobs-creating’, only if retitled the Patent Lawyers Full Employment Act, while confronting the inevitable chaos. But those jobs will be fleeting, once the new system ultimately tears down the value of patents.

The primary driver of the bill is Senate Judiciary Chairman Patrick Leahy, who’s been pushing such changes for many years. The primary driver of Leahy is computer giant IBM, the most important employer in Leahy’s state of Vermont. The Director of the US Patent and Trademark Office (PTO), by the way, is David Kappos, IBM’s former Vice- President for Intellectual Property Law, who lobbied for similar changes while at IBM – a spin of the revolving door.

Forgive the broad strokes on this complex topic, but chief features include switching America’s unique ‘first to invent’ (FTI) system to a more European ‘first to file’ (FTF) system, which some claim is of dubious constitutionality. There are also increased opportunities to challenge a patent’s validity after it’s been granted.

Paul Michel, the former Chief Judge of the United States Court of Appeals for the Federal Circuit – the judicial turf charged with patent cases – is so alarmed that last year he resigned his lifetime appointment to sound warnings on the bill. That’s dedication rarely sighted in Washington. Michel says, ‘[I can] guarantee that if I went into private practice I could hold up any patent for almost a decade in post grant proceedings; it would never reach trial in district court.’

'‘For startup companies, the American market remains the main event. As net job increases in America come from startup companies, calling this a ‘jobs bill’ is a sad joke. Abraham Lincoln described patents as adding ‘the fuel of interest to the fire of genius.’’

What is the worth of a patent that goes nowhere before it’s obsolete or invented around?

Even now, the average time to get a patent granted is already approaching four years, unless applicants can afford to pay extra fees to move up the examination queue.

Michel scoffs at claims of job creation. With a backlog already at 1.2 million applications, he says aspects of the law will further slow the granting of patents. Moreover, Michel figures that attempting to make a go of the new system would require the PTO to pick up another hundred judges and another thousand patent examiners. That won’t happen with a PTO starved of funds, after years of Congress raiding the patent fees that might otherwise fully fund PTO needs. Congress still holds the purse strings.

David Boundy, Vice-President for Intellectual Property at Cantor Fitzgerald, sees a number of other changes that combine with FTF to create the perfect patent storm. Cumulatively, they will bedevil the reliability of patents while increasing pressures on smaller entities and driving up their costs throughout their run down the patent gauntlet. For example, there’s the grace period that, under FTI, allowed inventors to pitch their creations to multiple potential investors – such as a room full of angels – without losing the right to perfect and file their patents within a year of the sales pitch or publication.

Under FTF, the scope of that grace period is now greatly diminished, with the new complexity and expense of ‘provisional patents’ after initial disclosure of an invention, for intermediate steps prior to deciding on a final patent. No one really knows how that will play out. Under the new law, it’s unlikely the Wright brothers could have patented their flight inventions once they made them public flying their plane at Kitty Hawk, says Boundy. Large companies, of course, have no such problems discussing their inventions and calling their financial shots in-house.

Boundy also notes ambiguities in a sloppily written bill that will have ‘cases interpreting the law going to the courts for twenty years before lawyers really know how to advise clients.’

Although some university groups have expressed support for the new law, Chris Gallagher, Senior Policy Director at New Venture Advisors, thinks many will rue the day. Gallagher works with clients involved in early-stage innovation, including scores of university technology transfer folk. ‘Most understand the flaws in the new grace period, but were told by superiors not to speak out,’ says Gallagher.

Expanded use of ‘prior user rights’, which elevates trade secrets over patents, insulating companies who’ve kept their technologies secret from having to pay royalties, also concerns Gallagher. ‘With patent reliability weakened, private investment in patent-supported start-ups will diminish, foreclosing for many the choice of using the independent start-up business model. Now schools seeking to build their research programmes won’t get traction.’

Beyond the implicit deal of sharing knowledge with the world, patents are about capital formation that allows newcomers into the game. That’s why established companies like IBM and Microsoft work so hard to knock back the value of patents for potential competitors with disruptive technologies, says Gary Lauder, of Lauder Partners venture capitalist firm.

‘Without reliable patents, investors will take fewer risks,’ says Lauder. ‘The US gets ten times the angel and venture capital of Western Europe – which recently declared an “innovation emergency”, so why are we harmonising with them? They should be harmonising with us. FTF forces a race to the PTO, which favours large companies with superior resources, as does post-grant review, which creates opportunities to delay patents and bleed small companies. These problems have suppressed small-entity innovation in Europe and Japan, and will do so in America.’

For startup companies, the American market remains the main event. As net job increases in America come from startup companies, calling this a ‘jobs bill’ is a sad joke. Abraham Lincoln described patents as adding ‘the fuel of interest to the fire of genius.’

Where’s the sizzle now?