Tuesday, July 28, 2009

Patent Reform Risks: Consider the Voice of the Innovator

In the current efforts to bring "patent reform" to the United States, the voices of several loud and powerful groups appear to have much sway. Some of the most controversial aspects of the pending bills on patent reform appear well suited for aiding large companies who find patents (of others) to be costly nuisances. The proposed reforms will reduce potential damages for infringement and, through expanded third party challenges, post-grant review, and other provisions, make it more difficult and costly to obtain a patent. Changes in assessing damages may make it harder to benefit from a patent. Inventor rights might be diminished, one can argue, by giving patent rights to the first party to file rather than the original inventor.

The frustrations of Apple, IBM, and other large companies deserve some sympathy and attention, but the risk is that the most important engines of future innovation and business growth will be ignored. The next Steve Jobs may be a graduate student right now, and the leaders of the next wave of transformative innovation may be small entrepreneurs in fragile start-ups struggling to hold their own against well-funded incumbents. Who is listening to the voice of the innovators to come? Who is listening to the voice of innovators in small companies or lone inventors, frustrated over the unnecessary barriers to obtaining patent protection and the decreasing value and increasing uncertainty of patents?

Patents are the great equalizer. They give a lone inventor with a valuable innovation the chance to hold on to his or her intellectual property and profit from it, rather than having it usurped by more powerful forces. The temptation to take and exploit others' property is almost irresistible, when it can be done with impunity. Patents are the equalizer that can allow an incipient company to flourish. Who is listening to the voice of these small but important innovators who will shape the future? They don't have rich lobbyists now, so will they be ignored?

We must not make massive changes to the US Patent System that might weaken patent rights for small innovators unless we carefully understand what the impact on them will be, and determine how their needs and rights can be protected.

Consider one controversial aspect of proposed reform legislation, post-grant reviews. Once a patent has been issued in the current system, there is a presumption of validity and while the patent can be challenged in a re-examination proceeding or invalidated in litigation, the opportunities to attack a granted patent are strictly but reasonably limited. In the proposed legislation, the US system would be made more like the European system, where challenges to issued patents can add years of delay and heavy costs on the patent applicant. This system, in my opinion, can make life difficult for lone inventors and small, struggling companies seeking to use patents to gain a foothold against powerful incumbents. Dr. Scott Shane, a professor of economics at Case Western University, has written a paper examining the impact of the post-grant provisions in the legislation (PDF file). Here is an excerpt from his overview:
In the last Congress, both the House and Senate considered legislation to create a post grant review process lasting the life of the patent as part of the Patent Reform Act of 2007. A revised version was passed by the House of Representatives in September 2007.

In April 2009, the Senate Judiciary Committee reported the Patent Reform Act of 2009, which contained identical language on post grant review to that contained in the House passed bill of 2007. The language in the Senate Patent Reform Act of 2009 would create a 12-month post grant review period and expand the existing inter partes reexamination in a fashion that, together, would be similar to the European system of post grant opposition.

The purpose of this report is to outline the likely effects of the 2009 Senate legislative proposal. Contrary to the arguments made by proponents of the legislation, this expansion of administrative processes for challenging patent validity would likely have several adverse effects, including the following:

1. Increasing the length of patent pendency;
2. Creating uncertainty about patent validity;
3. Decreasing the disclosure of knowledge necessary for innovation;
4. Increasing the costs of achieving patent validation;
5. Reducing investment in R&D;
6. Hindering efforts of U.S. universities to transfer their inventions to the private sector; and
7. Increasing strategic patenting behavior by large, established firms.

Moreover, the proposed legislation will not have many of the beneficial effects the proponents of the legislation claim it will have. In particular, the proposed legislation:

1. Will not improve patent quality;
2. Will not reduce the cost of patent litigation; and
3. Will not speed the determination of patent validity.

If he is right, these are serious issue that will have an especially severe impact on small inventors and start-ups, which may beneficial to the large companies who are annoyed by those who are sometimes inappropriately called "trolls." But what will the impact be on innovation?

The United States patent system has its problems, but the fundamental premise of protecting the rights of actual inventors (rather than the first to file) and the favorable protection of property rights (including intellectual property) in this country is arguably one of the very keys to the economic miracle of the United States. The rush to make our country "more like the rest of the world" is not necessarily the wisest path. Perhaps it should be the other way around. I believe we will see economic prosperity grow in those nations like China that are working to strengthen inventor rights, not weaken them.

The problems we do have can be addressed in other less radical means. Given the anti-property rights mentality of so many in power today, I do not trust that the outcome of "patent reform" will protect property rights as well as the current system, especially if the voice of the innovator is overlooked. Unintended consequences on innovation in this country may be severe.

One can argue that some of the problems the reform legislation seeks to fix have already been largely resolved in the courts, or are minor issues not worth the price of the cure. Some aspects of the legislation are healthy, but the problems cannot be overlooked.

Useful related reading: "How President Obama Can Restore Our Patent System" by Robert W. Fieseler.

1 comment:

Nick Robinson said...

Hi Jeff,

I Saw your most of blog post are very interesting.I 'm Nick Robinson a community member at www.patents.com (Patents.com provides one of the most comprehensive worldwide sources of patent data - available in 15 languages. It’s a source for patent data, analytic tools and provides a hosted community platform enabling users to connect to generate business opportunities, including the licensing/sale of patent.)The blog post concerning "Patent Reform Risks: Consider the Voice of the Innovator" especially interested me.Will like to talk(through email) to you,is this the right time to talk about or should we talk during weekends ?

Nick Robinson