Obama Signs Patent Reform Legislation; Attention Turns to PTO Funding, Rulemaking

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By Tony Dutra

Patent reform is now law. At a signing ceremony in front of veterans of the patent reform debate, as well as with teenagers with budding entrepreneurial aspirations, President Barack Obama signed the Leahy-Smith America Invents Act Sept. 16 in Alexandria, Va.

“This much-needed reform will speed up the patent process so that innovators and entrepreneurs can turn a new invention into a business as quickly as possible,” the president said in a pre-signing speech at the Thomas Jefferson High School for Science and Technology.

He cited the unexamined patent application backlog at the Patent and Trademark Office and claimed that the prospective patents represent “jobs and businesses of the future just waiting to be created. … We can't afford to drag our feet any longer.”

In press calls before and after the signing, PTO Director David J. Kappos showed that the agency was well on its way to preparing functionally to implement the many provisions in the legislation that will change examination and opposition procedures. However, to meet the bill's deadlines, the PTO will need to complete a massive hiring of examiners and administrative law judges, which cannot happen without adequate funding from Congress as of Oct. 1.

A continuing resolution from the U.S. House of Representatives would keep the PTO at its current spending level and short-circuit the hiring process, Kappos said. Unless Congress adds an “anomaly” that lets the agency keep the user fees that it receives from the patent community, “we are going to fail to implement the legislation,” he admitted. “There is no way we can be ready” by Sept. 16, 2012, when major provisions are scheduled to take effect.

Patent Reform Focus on First to File

The patent reform bill, H.R. 1249, was approved in a 304-117 vote June 23 in the U.S. House of Representatives.

Most significantly, the legislation moves the United States from a first-to-invent to a first-inventor-to-file system and extends prior user rightsprotection to non-patenting commercial users of a later patented invention.

It further modifies and creates procedures for challenging both patent applications and issued patents at the PTO, potentially preempting costly litigation on patents that never should have been granted.

Though the House changed controversial aspects of a bill, S. 23, approved in the Senate in March, the Senate passed H.R. 1249 without amendment Sept. 8 in an 89-9 vote, thus moving the bill directly to the president's desk.

High Schoolers Open the Show

Obama actually had third billing at the signing ceremony.

First up was the school's student body president, Helen Hastings, who referred to her classmates as “future scientists and innovators” who will eventually “take advantage of the America Invents Act.”

Student Rebecca Lynne Hyndman introduced Obama by noting that she was a patent (7,726,080) holder, having applied when she was 14 years old.

More than a little impressed in his opening speech, the president began, “I have to say, when I was a freshman in high school, none of my work was patent-worthy.”

He noted that Thomas Jefferson, in fact, was a patent holder, having received a phonograph patent seven weeks after application. “These days the average is three years,” though, he said, and the backlog of unexamined applications is at about 700,000. “Somewhere in that stack of applications could be the next technological breakthrough, the next miracle drug, the next idea that will launch the next Fortune 500 company,” he said. “The next Thomas Edison or the next Steve Jobs.”

“We have been the most dynamic, innovative economy in the world,” Obama proclaimed, and the bill's provisions will allow us to continue as the leader in innovation.

Obama Brings Opponents Together

The day before the ceremony, the administration held a conference call in preparation.

The Sept. 15 press release announcing the call said that the bill was “[p]assed with the President's consistent leadership and strong bipartisan support.” The bipartisan support has long been a hallmark of patent reform, but Obama's involvement was not known within the patent community.

In the conference call, Jason Furman, deputy director of the National Economic Council, recalled a December 2010 meeting of CEOs of major corporations. Obama was apparently surprised that patent reform was one of the top three or four topics of interest to the group, Furman said. The president asked, “If patent reform is so good, why hasn't it happened?”

Furman said that the contrasting views of the pharmaceutical and high technology industries became evident, as explained by meeting attendees John C. Lechleiter, CEO of Eli Lilly and Co., and John T. Chambers, CEO of Cisco Systems Inc. Obama called on the two executives to meet with then Secretary of Commerce Gary F. Locke and, eventually, with Kappos as well.

Kappos added that the president “provided the impetus for the groups to overcome their differences.” Prior to joining the PTO, in fact, Kappos had been a major player in the debate, as chief intellectual property counsel for IBM Corp. He characterized patent reform at that time as “highly controversial and a compromise elusive. … What changed in the last two-and-a-half years is the leadership of President Obama.”

PTO Funding Critical Long Term

Obama signed H.R. 1249 Sept. 16 with its two main sponsors, Sen. Patrick J. Leahy (D-Vt.) and Rep. Lamar S. Smith (R-Texas), right behind him. Leahy seemed particularly happy, taking pictures of the bill, his colleagues, and the president at every opportunity.

When BNA asked if he was relieved, though, Leahy said, “My wife is. But there is still more to do.”

Leahy was referring to PTO funding in the long term, as H.R. 1249 rejected the opportunity to leave funds within the PTO's immediate reach and instead kept alive the possibility that fees collected from patent applicants and owners will be withheld from the agency. Leahy insisted nevertheless that he trusts the word of House Appropriations Committee Chairman Rep. Harold Rogers (R-Ky.), who has committed to giving the PTO the funds it collects.

On Sept. 14, the Senate Appropriations Subcommittee on Commerce, Justice, Science, and Related Agencies approved funding legislation that would allow the PTO to spend $2.7 billion in FY 2012. That is the agency's current estimate for fee collections from patent applicants and owners. That would be a significant victory for the PTO, but Congress's approval of FY 2012 funding is probably a few months in the future. The full appropriations committee met Sept. 15 and approved the subcommittee's legislation without amendment, by a vote of 29-1.

But Funding as of Oct. 1 of Immediate Concern

In the short term, the House is considering a continuation resolution to keep the government running into the next fiscal year, as of Oct. 1, but that bill keeps the PTO at its FY 2011 level, $600 million lower.

The Senate is about to consider its version of the continuation resolution and the PTO's request for what is known as an “anomaly,” which is usually used to make technical corrections to a resolution continuing spending at the current level. The PTO's argument for an anomaly is simply that Congress just loaded it with a mandate to implement a series of new procedures and make other operational changes, and it cannot be expected to meet tight deadlines with funding at a level more than 20 percent below its projected needs.

In a Sept. 16 conference call with the media after the signing, Kappos said that without the anomaly, “We'll be collecting many million dollars in excess [of our budget] that we won't be able to spend. We'll be going on a starvation diet.”

Kappos announced that the PTO's staffing needs—so as to meet aggressive timetables for implementation in H.R. 1249—include hiring 1,500-2,000 examiners and 100 administrative law judges.

In particular, the new and revised post-grant opposition procedures in H.R. 1249 put additional work on the newly named Patent Trial and Appeal Board. The procedures are expected to be heard by three administrative patent judges, a group already experiencing a significant backlog in appeals. Those provisions take effect one year from signing, but if the PTO cannot hire the judges, Kappos said, “There is no way we can be ready.”

“Frankly I think this is a test of the deal that was made to properly fund the PTO,” he said, referring to the commitment made by Rogers and Leahy.

In an interview with BNA at the signing ceremony, Robert D. Budens, president of the Patent Office Professional Association, the examiners's union, echoed Kappos's concerns. “If this becomes an unfunded mandate [by Congress],” Budens said, “patent quality will suffer in all aspects.” In contrast, if the funds are available and the agency is able to staff up, he said, “I don't see at this time any problems meeting the deadlines.”

PTO Hitting the Ground Running

As to the implementation of the bill, in the Sept. 15 press call, Kappos noted that the agency has been preparing extensively for the last couple of months in a “prompt, effective, business-like fashion.” He said that PTO has formed implementation teams across all disciplines and is ready to publish regulations almost immediately.

“I think it's fair to say we're very much on top of implementing this legislation quickly,” he contended.

However, as his lieutenants have been saying repeatedly for the last month or so, Kappos urged the patent community to provide direct input to the agency on any provision.

“As we work toward unlocking new technologies and new industries,” he said, “we encourage the patent community to work with us on a successful implementation.”

Patent Community Relieved But Worried

BNA interviewed other attendees at the H.R. 1249 signing ceremony, a number of whom have been on the front lines of the patent reform debate for the last six years.

Most effusive was Robert A. Armitage, general counsel at Eli Lilly & Co., Indianapolis. “It's a great day for America,” he said.

Were it not for the funding issues, Armitage would have had a lot of company in his zeal. Armitage's colleague at Lilly and current Intellectual Property Owners Association President Douglas K. Norman said he was “quite pleased that the bill is becoming law—of course, other than PTO fee diversion. We'll wait to see how it's handled in practice” by appropriators in Congress.

Warren Tuttle, president of the United Inventors Association, agreed. It was not all we would have hoped for, he said, but the bill will be helpful for independent inventors and small companies.

Q. Todd Dickinson, executive director of the American Intellectual Property Law Association, said he was “relieved that it's over,” but that PTO funding is now the most immediate concern.

Current Application Fees Leaving PTO

Dickinson pointed out that the government is, in fact, in FY 2011, in the mode of taking funds collected by the PTO and not returning them to the agency, since diversion is in effect right now. That is, the PTO will be receiving fees through Sept. 30 above its FY 2011 budget, and Congress has not appropriated the fees back to the agency.

Since one of the provisions of the bill is a 15 percent PTO fee increase that will take effect Sept. 26, Dickinson said there is anecdotal evidence of a rush to file patent applications before the deadline. That means that the bill gave an incentive for patent application fee filings quickly, but the fees will not be available to the PTO to examine those applications. “There's something wrong with that,” Dickinson said flatly.

One commentator suggested that applicants could do the PTO a favor by sending their fees via certified mail on Sept. 25. Presumably, if the agency is unable to process the funds until Oct. 1, the fees will be recorded in the new fiscal year.

Next Big Issue: Rules for PGR

Finally, BNA asked the stakeholders for their greatest concern as the PTO embarks on its flurry of rulemaking notices about to be published in the next couple of months. Those who addressed the question identified, without hesitation, the new post-grant review procedure.

After a patent is issued, an opponent will be able to challenge the patent on any grounds—current procedures are limited to prior art for anticipation and obviousness—within the first nine months. That provision takes effect Sept. 16, 2012.

Dickinson, for example, worried that not many at the agency—where he once served as director—are used to such “quasi-litigation.”

Kappos, Budens, and PTO Commissioner for Patents Robert Stoll all mentioned post-grant review as a concern, but the latter two focused on other parts of the bill as being of more pressing interest.

Budens said that examiners would have to be educated on the revised and expanded definition of prior art that is accompanying the change to a first-inventor-to-file system.

Stoll said a key piece of upcoming rulemaking will be the PTO's proposal for its fee structure, since H.R. 1249 gives the agency fee-setting authority.

Armitage, reflecting his attitude on this day at least, when asked what rule he was most concerned about, simply praised the PTO and Kappos.

“When I look at the patent office and its senior management team right now, somehow I can't describe my feelings as ‘worried,' ” he told BNA.


Obama's speech is at http://pub.bna.com/ptcj/PresidentSignsHR1249Sep16.pdf  

H.R. 1249 is at http://pub.bna.com/ptcj/HR1249VotedJun23.pdf  

PTO patent reform website at http://www.uspto.gov/patents/init_events/aia_implementation.jsp  

Armitage and Dickinson are members of this journal's advisory board.