Federal patent legislation could mean major changes: Proposed reform act could cut down on ‘trolling’ and litigation by switching approvals to a first-to-file system

Pending federal legislation could bring sweeping changes to a patent system critics say is broken and in need of repair.

The Patent Reform Act-before Congress since last year-presents the most substantial overhaul in decades. Significant changes include creating a process to challenge patents after they are granted and awarding a patent to the first person to submit paperwork.

Patents currently are granted to the first person who hatched the invention, regardless of when documents were filed. Time frames, though, can be difficult to prove and increasingly are leading to litigation associated with determining the first inventor.

Trolling

Patent litigation has been rising sharply, growing more than 25 percent since 2000. Some of that stems from what is known as “patent trolling,” a term used to describe an individual or company that holds a patent with no intention of marketing an idea or making a product.

The patent holder instead waits for another company to develop a similar product, then threatens it with expensive patent-infringement lawsuits to extract large monetary settlements.

Industry analysts say NTP’s lawsuit against Research In Motion Ltd., maker of the popular BlackBerry device, is a classic example of patent trolling and draws attention to the murky world of patents.

NTP, a small Virginia-based firm, owns patents that cover the method in which email is sent over wireless networks to mobile computers. NTP, however, has never developed a product to capitalize on those patents.

NTP sued RIM in 2001, claiming its BlackBerry device infringes on those patents. To settle a long-running court dispute and avoid a BlackBerry shutdown, RIM on March 3 agreed to pay NTP $612.5 million.

“A company such as NTP, that doesn’t really have a business, can threaten to shut down a company like BlackBerry, that does,” said Don Knebel, chairman of the intellectual property group at Indianapolisbased law firm Barnes & Thornburg LLP. “That puts a lot of pressure on companies to settle [lawsuits] to avoid the risk of being shut down for even a day.”

Corporations such as Microsoft and Oracle are clamoring for reform. Microsoft is especially critical of a system that has caused it to spend $100 million a year defending itself against dozens of lawsuits at any one time. The software maker went on the offensive after a jury awarded Eolas Technologies $565 million in damages-a decision that has been partially reversed-in a patent dispute over Internet Explorer.

Associations representing major research universities and medical colleges-the Association of American Universities, the American Council on Education, the Association of American Medical Colleges and the Council on Government Relations-support reform.

Switching to a first-to-file system would provide significant benefits to the patent system, as well as to universities, they contend, but some members of higher education raise concerns.

University inventors typically are faculty members who first publish in academic journals and later consider whether to file to obtain a patent. Before filing a patent application, universities often need time to consider the potential commercial application of a basic research discovery, which may not be obvious at the point of discovery, they wrote in a letter to federal lawmakers.

Moreover, the budget limitations of notfor-profit universities often constrain the resources they can devote to rapidly filing patent applications, making it more difficult for them under a first-to-file system.

Simran Trana, acting director of the Purdue Research Foundation’s Office of Technology Commercialization, concurred.

“We often don’t have the resources that a big company has to file quickly,” she said. “First-to-file doesn’t provide an even playing field.”

If lawmakers approve legislation including the first-to-file component, the associations want the system to maintain the opportunity to file provisional applications and the 12-month grace period for publishing articles containing a disclosure of the invention.

The provision encourages the early disclosure of basic research results by inventors while permitting them to file up to a year later.

The legislation also proposes the creation of a process to challenge patents after they are granted. “Opposition requests” could be filed up to nine months after a patent is awarded or six months after a legal notice alleging infringement is sent out.

Office overworked

The U.S. Patent and Trademark Office is overwhelmed by the pace of patent applications. It took 75 years for the agency to compile its 1 millionth patent, from 1836 to 1911. But 6 million patents have been granted since then, including 1 million in just the last six years.

“There have been a lot of patents issued in the past that have been extremely broad, and that causes a lot of problems,” said Mark Long, president and CEO of the Indiana University Emerging Technologies Center. “Originally, patents were considered for the public good.”

The IUETC transfers research from the IU Medical School laboratories to companies where the research can be turned into commercial products. University-owned patents have not been targeted by trolls, Long said.

The patent agency’s trouble in hiring and retaining qualified staff presents further obstacles. Although it has outsourced work to Australia and South Korea, a backlog of 600,000 applications still exists. It takes almost three years for a patent to receive approval.

Not everyone is convinced reform is needed, though. Pharmaceutical firms such as Indianapolis-based Eli Lilly and Co. are satisfied with the current system and depend upon injunctions to stop generic drugmakers from infringing upon their patents.

And Microsoft’s former chief technologist, Nathan Myhrvold, now the chief executive of a startup that exists to create and license inventions, says problems with the current system are overblown. He also has said he sees nothing wrong with inventing something without making products.

David Johnson, president and CEO of BioCrossroads, an organization that promotes life sciences business in Indiana, said his members cannot be lumped into that category.

“Most of the things we see that are patented here need to be put into play immediately,” he said. “Patents are not passive; they are active.”