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The likely enactment of the patent reform bill, H.R. 1249, in September will force individual inventors and small businesses to file a series of patent applications upon each new invention enablement and build a patent portfolio rather than relying on a single patent, experts contended at a conference Aug. 30 in Washington, D.C.
The session, titled “The Overhaul of U.S. Patent Law Forum: The Impact on Patenting Practice, Patent Protection, and on Science & Engineering Jobs,” was cosponsored by the National Small Business Association and the Institute of Electrical and Electronics Engineers. Other than the speaker from the Patent and Trademark Office, each participant had a dire prediction of the impact of the bill.
Former Chief Judge Paul R. Michel of the U.S. Court of Appeals for the Federal Circuit cited the enormous burdens about to be placed on an already stressed PTO, and others cited substantive changes in patent prosecution as favoring large companies over small firms.
Noted academic in the patent field, John F. Duffy, a law professor at the University of Virginia, appeared to be the only attendee with even a glimmer of hope that the U.S. House of Representatives' bill will not become law, as he seemed truly perplexed why a Congress apparently intent on reducing the size of government would approve a bill that adds new layers of bureaucracy in a shift from what is now litigated in courts.
Nonetheless, Duffy offered some ideas on how best an inventor can plan for a post-reform patent prosecution process, albeit at a potential significant increase in cost to the patent applicant.
The Leahy-Smith America Invents Act appears to be on the verge of enactment as the Senate is planning to vote Sept. 6 to approve H.R. 1249. President Obama will undoubtedly sign it, as the administration touts the bill for its job-creation potential.
Before the discussion at the Aug. 30 conference turned to the problems with the bill, Janet A. Gongola, an associate solicitor who is serving as patent reform coordinator at the PTO, showed that the agency is prepared to act immediately upon enactment.
Gongola said that the PTO will have to publish a number of Federal Register notices in quick time, both because many of the bill's provisions require final rules within 60 days of enactment and because other changes have a 12-month effective date that requires a notice-and-comment period. An example of the former is a transition for the change in the threshold for reexamination proceedings. Examples of the latter include new post-grant procedures—supplemental examination allowing the patent owner to submit new material; the new “first window” post-grant review option; and the “transitional program” allowing special challenges to certain business method patents.
Gongola acknowledged to BNA that the changes to and expansion of post-grant procedures create a significant challenge for the agency. Therefore, she said, the PTO is focusing on, to the greatest extent possible, identifying common elements that the agency can apply across all procedures.
The move from the first-to-invent to the first-inventor-to-file (FITF) system is scheduled for the 18-month mark, but Gongola noted that this particular change will require guidance to examiners rather than a public notice.
The bill also requires the PTO to participate in nine separate new studies—seven as the lead agency—and to develop pro bono, diversity, and ombudsman programs and add satellite offices.
Gongola said that the public will be invited to provide input on all aspects of the PTO's required actions through notice-and-comment rulemaking, public roundtables, via e-mail at firstname.lastname@example.org, and via the agency's “AIA Microsite.”
Michel applauded the PTO for its efforts and intentions, but seeing the volumes of current backlogs about to be exacerbated by new procedures and studies, he slammed Congress for its actions in the course of approving H.R. 1249.
In particular, the House deleted the provision in the bill that would give the PTO direct access to all the fees it collects, replacing it with the establishment of a “reserve fund” requiring the agency to get Congress's approval to release the funds. Michel further noted that the current Congress hopes to keep fiscal year 2012 spending at 2011 levels, which would mean the PTO would not have access to $600 million it expects to collect in the coming year.
Michel said the result is that Congress has put the patent system “on a collision course.” He urged Congress to return to the Senate's version of a “revolving fund” so that the PTO can keep fees collected, or at least, to “create a firewall against future fee diversion” by House appropriators by adding a “sense of Congress” that the reserve fund should only go to the PTO and the agency should not be subject to a spending ceiling.
Duffy characterized the proceedings that the PTO will have to support—10 during a transition period with only two going away after several years—as a clear expansion of bureaucracy.
He noted that the bill further calls for an immediate 15 percent increase in virtually all patent fees, including maintenance fees, which he called “a tax increase on a particular species of property.” And with the provision granting fee-setting authority to the PTO, “future fee increases are at the agency's discretion,” he said.
H.R. 1249 will undoubtedly create “a more expensive, lawyerly, and complex patent system,” Duffy said. “In a time when many political leaders claim to be seeking governmental processes that are less costly and less complex, the pending patent bill shows the vitality of counter-forces that increase the cost and complexity of government.”
Other presenters provided additional dire predictions of a post-reform patent system.
• Jobs in the U.S. or overseas? Ron D. Katznelson, president of Bi-Level Technologies, Encinitas, Calif., said that an influential patent reform lobbying group, the Coalition for 21st Century Patent Reform, had no corporate members less than 18 years in business, reflecting a result in H.R. 1249 that favored large companies over small enterprises. He further asserted that those same companies have increasingly been moving research and development offshore, thus putting into question whether this “jobs bill” will be more likely to create jobs overseas.
Ron Hira, associate professor at Rochester Institute of Technology, followed Katznelson with statistics showing the movement of jobs and functions to low-cost countries. He further projected the impact of international price competition for certain jobs, forcing U.S. employees to accept lower pay and thus lowering the U.S. standard of living overall.
• The end of venture capital? Valerie S. Gaydos, president of Capital Growth Inc. and operator of the Angel Venture Forum, predicted a huge drop-off in angel investing because the increased costs of application will eat into the average amount collected during an angel investment round. She was probably more concerned, in fact, that the new patent challenge opportunities will decrease the value of entrepeneurs' patents and consequently decrease the anticipated payout from a startup company, making angel investment a worse bet.
Henry R. Nothhaft, former chief executive officer of Tessera Inc. and frequent recipient of venture capital said that the bill—which he called the “America Infringes Act”—added to the pains introduced by the Sarbanes-Oxley Act that make it extremely difficult for entrepreneurial ventures to reach a liquidity event. He predicted the end of venture-backed initial public offerings after patent reform, if Sarbanes-Oxley has not already killed them.
• Only the largest universities can play? Christopher C. Gallagher of Gallagher, Callahan & Gartrell, Concord, N.H., spoke on behalf of the university community lacking the large-scale technology transfer departments. He accused the large universities of buying off legislators to get a carve-out to a new provision expanding prior user rights, but said that the smaller colleges really do not know what the carve-out means.
Chris J. Katopis, a former director of congressional relations at the PTO who moderated the discussion, attempted to dim the dire predictions at points during the forum. He noted the large majority in both houses of Congress that voted in favor of the bills and said, “not all of them could have been bamboozled” by large organization and association interests.
Duffy, indeed, said that “some people of good faith think that the bill is designed to increase innovation. I just don't agree.”
Katznelson credited Congress for the lofty goal of removing subjective elements from patent prosecution and litigation, at least as to the intent of the move to FITF. However, with the prior user rights provision, he said, the House “introduced a whole new set of uncertainties” for patent holders who may not be able to enforce patents, particularly when the prior user is the dominant player in a market.
In the question-and-answer portion at the end of the forum, audience members seemed resigned to enactment of the bill and wanted more information about how to prosecute a patent moving forward.
“Stop thinking about a patent,” Duffy said. “Every patent is subject to challenge, so think of having a portfolio to cover a single invention.”
Because of the change to an FITF system, there is a clear incentive for inventors to file provisional applications to get first filing status, all agreed. However, Duffy explained that the provisionals have to enable the invention, and in most cases with startup firms, the product or service being developed changes before it reaches the market. Therefore, he anticipated, “Your lawyer will have to file several times” to keep first-filing status as to each stage of enablement.
Gallagher, however, noted that university research-based innovations typically play out over long periods and with enablement events usually resulting from collaborations. If it is necessary to file provisional applications before collaborating, he predicted the result will be reduced “the collegiality among professors” and thus slower development of new technologies.
Gaydos ended the forum by saying that the “massive changes” in the bill simply create too much uncertainty for angel investors, leading to a scarcity of capital and consequently, what she called “innovaporation.”
“We will sit back awhile and see if the bugs are worked out before we invest again,” she said.
By Tony Dutra
PTO's AIA Microsite at http://www.uspto.gov/patents/init_events/aia_implementation.jsp
Michel's views can be seen in more detail at http://reexamcenter.com/2011/08/the-reexamination-center-executive-interview-chief-judge-paul-r-michel-part-1-of-3-2/
Forum presentations available http://bit.ly/Forum-Page
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