Congress takes up major change in patent law

The patent system hasn't changed much since 1952 when Sony was coming out with its first pocket-size transistor radio, and bar codes and Mr. Potato Head were among the inventions patented. Now, after years of trying, Congress may be about to do something about that.

The Senate is taking up the Patent Reform Act, which would significantly overhaul a 1952 law and, supporters say, bring the patent system in line with 21st century technology of biogenetics and artificial intelligence. Sen. Orrin Hatch, R-Utah, hails it as "an important step toward maintaining our global competitive edge."

Congress has been trying for well over a decade to rewrite patent law, only to be thwarted by the many interested parties — multinational corporations and small-scale inventors, pharmaceuticals and Silicon Valley companies — pulling in different directions. Prospects for passing a bill now, however, are promising.

As IBJ reported last June, numerous Indiana-based companies would welcome the change.

The Senate bill is sponsored by Judiciary Committee Chairman Patrick Leahy, D-Vt., Hatch and another top Republican on the panel, Sen. Chuck Grassley of Iowa. The committee voted 15-0 in early February to send the legislation to the full Senate.

The overhaul is long overdue. It now takes the U.S. Patent and Trademark Office about three years to process a patent application. There are about 1.2 million applications pending — 700,000 waiting consideration and another 500,000 somewhere in the process. The patent office says it received about 483,000 applications in 2009 and granted about 192,000 patents.

"Hundreds of thousands of patent applications are stalled" at the patent office, Leahy said. "Among those is the application for the next great invention."

The most sweeping, and controversial, change is the transition from a first-to-invent application system to a first-to-file system that is used by every other industrialized nation, but has been opposed by independent inventors. It comes with an enhanced grace period to protect inventors who publicly disclose their inventions before seeking patents.

Companies or individuals seeking patents in multiple countries are confronted by a different set of rules in this country, said Bill Mashek of Coalition for 21st Century Patent Reform, a group that represents big companies like General Electric, Pfizer and 3M. "It puts us at a disadvantage globally."

The bill would create a nine-month "first window" post-grant procedure to allow challenges to patents that should not have been issued and to cut down on litigation and harassment of patent owners by improving the review system for challenges. It provides more certainty to damage calculations.

It also gives the patent office authority to set its own fees at a level that will give it enough funds to reduce its backlog of applications. It requires that smaller businesses continue to get a 50-percent reduction in fees and creates a new "micro-entity" class — with a 75 percent reduction — for independent inventors who have not been named on five or more previously filed applications and have gross incomes not exceeding 2.5 times the average. The standard fee for filing a patent is now $1,090, with additional maintenance fees over the life of the patent.

In a change from current law, tax strategies could not be patented.

Leahy's office lists a diverse group of supporters, including major drug companies, IBM, the AFL-CIO, the Association of American Universities, Caterpillar and USPIRG.

One reason supporters are optimistic about the bill's prospects this year is that courts have dealt with some of the more contentious issues involving lawsuits and damage awards.

"When we started these efforts many years ago, we faced a grim landscape where patent lawsuits threatened to stifle the pace of innovation and shut down our factories," David Simon, associate general counsel for Intel Corp., told the House Judiciary Committee. "Today, the scenario has changed drastically."

Testifying in February on behalf of the Coalition for Patent Fairness, a group of high-tech companies, Simon credited the change to Supreme Court and other federal court rulings dealing with such practices as venue shopping where litigants sued in courts known for handing out large damage awards.

Simon's coalition, however, has not endorsed the Senate bill. In a statement, it said the bill still needs to do more "to lessen the growing burden of abusive and unjustified patent infringement claims."

A group of nine organizations representing small businesses, start-ups and independent inventors was more forthright in its opposition, saying in a letter to senators that the first-to-file system would have "unique adverse effects" on its constituents.

"The bill favors multinational and foreign firms over start-up firms seeking an initial foothold in U.S. domestic markets, and favors market incumbents over new entrants with disruptive new technologies," said the letter signed by groups such as American Innovators for Patent Reform and the U.S. Business and Industry Council.

Louis J. Foreman, publisher of Inventors Digest and chief executive of Enventys, a Charlotte, N.C., product design and engineering firm that has helped develop and file some 400 patents, said the Senate bill will help give independent inventors the two things they need most in applying for a patent: speed and certainty.

Foreman discounted the argument that first-to-file puts the small-scale investor at a disadvantage to the big corporation. "An independent inventor is so much more spontaneous," he said, "I'll outrun a big company any day of the week."