After 10 Years of Debate, Congress Has Addressed Business Requests for Patent Reform
President Abraham Lincoln lauded the patent system for adding "the fuel of interest to the fire of genius." Yet even in Lincoln's time the patent system had its detractors. In the last ten years, though, scattered criticism has turned to widespread disdain. Companies like Activision spend millions of dollars to defend against patent lawsuits filed by patent holding companies. Companies like Demand Media file applications for patents and then wait five to ten years to get a patent.
Responding to overwhelming public opinion, and after more than ten years of debate, the America Invents Act became law in mid-September 2011. Despite furious partisan politics on most economic issues, the AIA passed with overwhelming support in Congress and was quickly signed by the President. Some touted AIA as a jobs bill, but it mostly represents a reduction in patent risks for middle market and large businesses, with little significant impact on most small businesses and individuals. Enactment of the AIA also means we will not see further patent reform from Congress for at least another decade.
Patents are limited-term, government-granted monopolies on new technologies and useful creations. Many people view patents as just another government handout. As with any government grant, some businesspeople debate the patent system's public policy merits, others decry individual grants as government excess or error, and still others maneuver to use the system for personal gain. The United States has had a patent system since its founding, and these debates, complaints, and maneuverings have always been the norm.
Enactment of the AIA does not end the debate, the errors or the maneuvering. It does end legislative patent reform for the near future. Thus, instead of debate, the smarter business people want to know how to maximize their benefit from the changes, and they want to identify and control new risks. This means cutting through the noise of the academic-minded to arrive at the real economic impact.
Most of the attention has focused on the conversion of the patent system from the current "first-to-invent" to the new "first-to-file" system. Standing alone this change will have the most impact on biotech, pharmaceutical and chemical companies because individual patents matter so much to them. Other businesses will experience little significant impact from the change. Buried within this change, however, one finds that the old one-year grace period for US patent filings has been severely restricted. As before, a patent can be granted and is valid despite public disclosures and sales by the inventor within the year before a patent is filed. However, under the old regime public disclosures and sales by others also were excluded. When the first-to-file rules take effect in March 2013, the one-year grace period will apply only to the inventor. This creates considerable incentive for early disclosure and commercialization by smaller companies and early patent filings by larger companies.
Less attention but more immediate benefit comes from the changes aimed at hampering "patent trolls" – patent holding companies in the business of extracting settlements and licenses from companies that make and sell products. A suit by a patent troll commonly names tens and sometimes hundreds of defendants, where the only commonality was the allegation that they all infringed the plaintiff's patent. Businesses – large and small – complain that these suits are unfair. Under the new rules, while a manufacture and its downstream distributors and customers can be sued together, we won't see competitors being forced to cooperate in court. Instead we will see multiple, separate lawsuits, often in court houses all over the country, and each defendant gets their own day in court. Already it seems that the overall volume of patent troll litigation has fallen.
The AIA quietly also ended the business of "false marking trolls." Patent-marking trolls exploited a flaw in the patent act that allowed anyone to sue a company that had an incorrect patent number on their product. Because of the high cost of defense, these suits for false patent marking usually resulted in a quick, easy settlement for the false marking troll. The AIA corrected the flaw.
A change in the law of "willful infringement" reduces the risk of punitive damages in patent suits, and also reduces the need for companies to spend tens of thousands of dollars for outside patent counsel to write opinion letters to allay these risks. Though advice of counsel continues to have value, the AIA adopts a more flexible standard that should allow business to better balance cost against risk.
Beginning in September 2012, companies can use an expanded array of proceedings to invalidate problem patents. The Patent Office will continue to handle these post grant oppositions, and it is hoped that this will provide a faster and less expensive avenue for everyone to resolve questions of patent validity.
Another cost and speed provision of the AIA gives expedited processing to a patent application in exchange for a high fee. This new statutory provision has similarities to the priority examination procedure established by the Patent Office last year. If this works, maybe it will convince the government to sell carpool lane permits for a high fee.
The AIA will not quell the existential debate about the patent system, nor will it prevent occasional Government mistakes or gamesmanship. However the AIA does a good job of correcting some of the bigger problems and strikes admirable balances between the competing interests of an array of industries and business sizes.