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Legal Bytes: Taking a closer look at the America Invents Act

William N. Hulsey III

In 2010, nearly 108,000 U.S. patents on inventions were issued to U.S. inventors, with New York receiving more than 7,000 — ahead of all states except California (27,337) and Texas (7,545), and more than those issued in all but four countries: Germany, Japan, South Korea and Taiwan.

New York exports nearly $70 billion in products to foreign markets and billions more to U.S. markets outside the state. As much as half of these exports include technologies and innovations protected by the intellectual property laws, particularly the patent laws.

The Greater Rochester area ranks among the top knowledge-based economic regions in the world. Forbes’ magazine rates the most innovative cities in the U.S., placing Rochester fifth for patents per capita in 2010. In fact, with 1,110 patents issued to Monroe County residents, Rochester saw a more than 30 percent increase over 2009.

So New York, and especially Rochester, holds great stakes in the U.S. patent legal system, and these laws changed this month with President Obama signing into law The Leahy-Smith America Invents Act of 2011.

The law is named after Sen. Patrick Leahy (D-Vt.) and Rep. Lamar Smith (R-Texas), who have championed the patent reform effort since 2005. The Act aims to reduce frivolous and costly litigation, increase patent certainty, reduce the time required to receive a patent, reconcile our laws with foreign patent systems and promote the creation of American jobs.

Earlier this year, the U.S. Senate passed similar legislation 95-5. Earlier this month, the Senate’s 89-9 bipartisan vote sent the bill to the White House. On Sept. 16, Obama signed it in a ceremony at Thomas Jefferson High School for Science and Technology in Northern Virginia.

Senate Majority Leader Harry Reid, (D-Nev.), has acknowledged that patent reform will be the first to move when Congress reconvenes this month as part of a package of legislation designed to boost job creation. Reid and Leahy have said they expect the legislation to create as many as 200,000 jobs.

Studies by the Federal Reserve show that innovation in capital goods results in a direct increase in wages. Worldwide, 75 percent of differences in income correspond directly to differences in innovation-driven productivity.

Since congressional enactment of our current U.S. patent system in 1952, technologies, economies and global politics and markets have dramatically changed. Back then, there was no Internet, no e-commerce, no personal computers, no genetically engineered life forms, no birth-control pill and a much smaller pharmaceuticals industry.

Television was in its infancy, and modern-day levels of global commerce were not perceived by even the most far-sighted economists. Crafting laws to reflect today’s market realities is the goal of the patent reform effort.

Today, we experience global economic and technological integration and interdependencies in a “flat” world, meaning existing and new U.S. laws must take into consideration the complexities of global marketplaces.

In achieving the goals of patent law reform and harmonization, Congress carefully balanced the interests and concerns of universities, small businesses and independent inventors, all while promoting investment in research and development, job creation and global competitiveness.

In making this balance. the Act addresses a number of important aspects of patent granting and enforcement.

Backlog of patents

According to the U.S. Patent and Trademark Office, more than 700,000 patent applications await examination. It takes an average of 26 months before an examiner reviews an application and an average of 34 months before examination is complete.

Many inventors wait five to 10 years for their patents to be issued. These delays can often defeat the purposes of pursuing patent protection in the first place.

Patent office director David Kappos has expressed his view that patent reform will help the agency clear the backlog, reduce the time it takes to get a patent to 18 to 20 months, and put more Americans to work as innovators move their ideas to the marketplace more quickly.

First-to-invent patent system

The Act moves the United States from a “first-to-invent” to a “first-to-file” patent system. Under a first-to-file system, the first inventor who files for patent protection will be entitled to any issued patent, regardless of their resources or who was the first to invent.

This not only aligns the United States with all other leading industrial nations, it also allows the patent office to decide patentability more efficiently and permits inventors to know their rights more clearly. Postage dates and electronic filing dates are generally much easier to confirm than date of invention, which often requires discovering facts that occurred many years ago in a variety of locations and involved many people who might have different memories of important events.

Changing what is patentable

The Act addresses what types of innovations can receive patent protection. For example, certain tax strategies will not be protectable by patent, regardless of filing date or whether a patent has already been issued. Also, patent claims directed to or encompassing a human organism will be barred from protection.

However, some controversial business methods remain patentable. For example, Amazon.com holds a strong patent for its “One-Click” method for purchasing without the use of an Internet shopping cart.

Patent litigation and its costs

Presently, patent litigation costs can range from $500,000 to $5 million or more, depending on the patents and parties involved. The Act provides new and revised post-grant review processes for challenges to issued patents within a set period of time after the patent issued. Third parties are allowed to request that the patent office review whether a patent was improperly or defectively issued.

In addition to the post-grant review, the Act changes the inter partes re-examination process, which allows anyone other than the patent owner, including a potential infringer, to challenge the patent.

The inter partes re-examination process may be exercised after a patent is issued or even after post-grant review. These two processes offer a significantly less expensive and quicker alternative to litigation — estimated at 2 to 10 percent of litigation costs.

Fee-setting authority

The new patent law gives the patent office authority to set its own fee amounts. To address a substantial personnel shortage and application backlog, the patent office has proposed a 15 percent increase in almost all fees, including maintenance fees, which are paid at four-year increments after a patent issues.

Additionally, the patent office has proposed an optional prioritized examination called “track one” for $4,800. The patent office reports that the fee increases coupled with the end of fee diversion will contribute significantly to the agency’s planned 40 percent reduction in patent pendency.

Fee diversion

The Act provides a special USPTO Public Enterprise Fund from paid-in use fees, ending “fee diversion” from the office. The patent office is one of the only — if not the only — government agencies that does not use taxpayer dollars. It is entirely funded from the fees related to patent applications and other services it offers.

However, before the Act, those fees were deposited into the U.S. Treasury, and only a portion are returned to the patent office to fund its activities. This has resulted in a severe shortage of personnel and drastically increased the backlog of pending patent applications. Kappos, the director, has said that full funding is necessary for the patent office to implement patent reform “and to more effectively perform its core mission.”

‘Pro bono’ patent program

In addition to the federal patent statute changing, the patent office has recently undertaken an array of innovative programs to help promote innovation and use of the U.S. and world patent systems. One such program derives from the comment most often heard from independent inventors: that it costs too much to get a patent.

To address this, the patent office has started a pro bono patent filing program and has committed to assist communities across the country establish their local version.

Although in the near term many of the provisions of patent reform will complicate proceedings before the patent office as all parties interpret and implement the changes, the wide-ranging support from industry, both chambers of Congress, the U.S. Chamber of Commerce and the White House have achieved a bipartisan and cross-industry milestone.

William N. Hulsey III, a patent attorney, is presently of counsel to Boylan Code LLP and leads the Austin, Texas-based Hulsey PC, a globalintellectual property firm. He has served U.S. patent and trademark law clients in the Greater Rochester area for 17 years, and has taught the topic in more than 30 countries as a Fellow of the IC2 (Innovation, Creativity & Capital) Institute at the University of Texas.

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