Patent Reform 2011 – A Sword with Two Very Sharp Edges (part 1)

David Kappos is President Obama’s “Patent Czar”.  He has helped create and guide patent reform legislation through the US Senate last week by a score of 95-5.  The US hasn’t had such a significant overhaul of the patent system in decades as this bill could usher in.  Reform is needed, it is claimed, because the pace of patent applications increase every year and are currently occuring at a speed not contemplated in previous patent legislation. 

I don’t believe this legislation improves the infrastructure for handling this new economic reality.  Nor will it help to do what patent systems were created to do:  generate an optimum amount of patentable innovation!

About 500,000 patents are submitted each year and there is currently a more-than 700,000 patent backlog for review.  Recent aggressive hiring has increased the number of patents issued each year to about 150,000.  So, clearly, the backlog of patents will continue to build unless something is done.  This is not good for American innovation and long term value creation.

The major change in the legislation is in what determines who first created an invention.  All the developed world except the US operates on a “first to file” system in which the date of patent protection is determined by when the inventor actually filed their application.  The US has followed a “first to invent” system which determines the official date of invention by when the inventor invented it.  Now that can be tricky.  For instance, when there are two competing claims rather subjective methods are used to determine the winner of the earlier-to-invent contest.  So, first to file is claimed to solve that…but does it stimulate innovation or stymie it?

Mr. Kappos was a lifetime employee of IBM which, by the way, has 40,000 patents to its name.  It is the patent king of the US with more wins than any other corporation.  I have to believe that the experience Mr. Kappos had at IBM must influence his view of what an effective patent system would look like.  If the CEO of IBM could select a patent filing system, (ie either first to file or first to invent), they’d select first to file.  And sure enough, the big companies of the US are lining up in support of this amended way of doing business.  Why?  Well, because they employ a massive number of intellectual property attorneys to prosecute patents, that’s why.  With a change to first-to-file, this investment will pay off.  They can stick many more flags in the invention ground by filing quickly, perhaps even if the facts aren’t all in. 

They claim that too many individual inventors have been showing up with inventions that they themselves actually already invented.  So, they need to spend a lot of money filing lawsuits to stop those pesky inventors in the garage with no legal representation.  First to file is easier to follow, but is less fair by placing the power in the hands of large corporations who can spend more resources submitting patent applications.

And if that won’t help them enough, an additional tool is available to them…easy third party patent challenges.  Again, big companies will be able to engage their resources to challenge patents up to nine months after issuance.  Even if they don’t care about the patented space.  Small inventors do not benefit as much from this.  Occasionally, they’ll challenge a big company patent.  But the cost and time involved in doing so is not on their side, it is on the side of the big company.

There have been numerous studies that show that small companies and start-ups produce more innovation.  That should be our goal.  My belief is that this reform might just reduce the backlog of patents because it will stymie submissions by independent inventors, but it won’t make for a better economy or patent system. 

More on that in Part 2.

About TechonomicMan

Manager, Entrepreneurial Services at Ben Franklin Technology Partners in Northeast PA.
This entry was posted in Economic Development Policy, Innovation and the World and tagged , , , . Bookmark the permalink.

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