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Patent System Overhaul Passes US Senate

By Matt Jones

NEW YORK (GenomeWeb News) – The US Senate yesterday passed a bill that would fundamentally shift the country's patent culture by converting to a first-to-file from a first-to-invent system, creating a post-grant review process, and essentially harmonizing the system with common international practices.

The Leahy-Smith America Invents Act (HR 1249), which passed with strong bipartisan support (on a vote of 89 to 9), also takes measures to address the large and growing backlog of patent applications and enables the director of the US Patent and Trademark Office to set the agency's fees.

Gary Fedorochko, a shareholder at the intellectual property law firm Banner & Witcoff, told GenomeWeb Daily News in an e-mail yesterday that the America Invents Act "substantially harmonizes the US patent system with the patent laws of the rest of the world.

"Similar to the patent systems of other countries, the new law results in a race between inventors to the Patent Office, with the first inventor to file being the winner," he explained.

Although the White House has not commented today about the passage of the patent reform bill, which cleared the US House of Representatives in late June (304 to 117), the USPTO has supported the bill, and President Barack Obama mentioned its passage in a speech focused on job creation before a joint session of Congress just hours after the vote.

"Today you passed reform that will speed up the outdated patent process, so that entrepreneurs can turn a new idea into a new business as quickly as possible. That's the kind of action we need," Obama said during his speech.

When the Senate passed an earlier version of the bill in March, Obama suggested that he would sign the final product if it made it to his desk.

USPTO Director David Kappos also argued in support of the reforms in a House Judiciary Committee meeting in March. The transition to a first-inventor-to-file system is "an essential feature of any patent reform legislation," Kappos said at the time, pointing out that the US is alone in keeping the first-inventor system.

"The transition will simplify the process of acquiring rights while maintaining a one-year grace period that protects innovators," Kappos told the committee. "It will reduce legal costs, improve fairness, objectivity and transparency, and support US innovators seeking to market their products and services in other countries."

The America Invents Act also would make changes to the process of re-examining business method patents, would enable third parties to submit information regarding a patent application that could be relevant to an examiner, and would establish fees at the USPTO to recover costs of services it provides inventors and trademark filers and to hire new examiners to address the patent backlog.

The act also would maintain a 12-month grace period for publishing articles containing a disclosure of an invention, it would enable the filing of provisional applications, and it would require applicants to sign an oath that he or she is an inventor of a claimed invention.

The Association of American Universities said in a statement yesterday that the law "will enable US inventors at universities and elsewhere to compete more effectively in the global marketplace. The bill includes a number of carefully developed provisions to improve patent quality and reduce patent litigation costs," AAU said.

Critics of the changes the bill would enact, including a small but bipartisan group in the Senate, have said that it would give a competitive advantage to big companies over smaller firms or lone inventors because they could be quicker on the draw in filing patents and would be less burdened by the process and fees.

"I voted against the patent bill because I am concerned that this legislation could hurt startups, entrepreneurs and inventors – whose success is crucial to job creation in California and nationwide – by moving away from a system that has protected innovation in America for more than 200 years," Sen. Barbara Boxer (D - Calif.) said in a statement yesterday.

The National Small Business Association agreed with Boxer, arguing in a statement Wednesday that the act represents a "severe tilting of the system against small innovators and in the favor of large, multinational corporations."

NSBA President Todd McCracken added, "This legislation will irreversibly damage the ability of small-business owners and entrepreneurs to create, develop and commercialize their innovations."

NSBA in particular is concerned that the bill guts an existing grace period that gives companies one year to raise capital, assemble partnerships, and perform field tests before filing applications. The association said that the legislation will force smaller firms to file applications early and before good information on the invention is available.

"This will result in far greater costs and time for a small business community that already is extremely time-stretched and financially stressed," NSBA stated.

In his testimony before the House Judiciary Committee, Kappos sought to assuage such concerns about the shift, and argued that the current system "almost never benefits the individual inventor."

He said that in the past seven years more than three million patent applications were filed, but only 25 patents were granted to small entities that were the second inventors to file but proved they were the first to invent, and of those only one was an individual inventor.

Kappos also argued that legal fees for interference proceedings to determine who the first inventor average between $400,000 and $500,000, and can balloon from there if there are appeals. Therefore, the current system "favors those with deep pockets and works to the disadvantage of small companies and independent inventors with limited resources," he said.

Banner & Witcoff's Fedorochko told GWDN that for companies that are concerned about worldwide patent rights, such as large pharmaceutical or biotech firms that "frequently file [patent applications] around the world," the change to a first-inventor-to-file system is likely to have "a small impact on their filing practices."

"However, individual inventors, smaller companies such as start-ups who typically do not focus on foreign markets, and other companies that do not implement worldwide filing strategies, need to consider altering their filing strategies by filing a patent application as soon as they have conceived their invention to avoid the potential loss of rights should another inventor file a patent application directed to the same subject matter first," Fedorochko stated.

As a result, "the practice of establishing an early filing date for inventions by filing provisional applications is likely to increase."

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