The Patent Reform Act [2007] and the Small Inventor [International]

A federal bill expected to receive a vote from the Senate this year would trigger the most radical changes to the U.S. patent system in more than 50 years. Supporters of the Patent Reform Act of 2007 want to switch to a “first-to-file” system that would grant patent rights to the first person to file an application. The United States is the lone country still using a “first-to-invent” system that rewards an inventor who first conceives the innovation, even if another person submits an earlier application.

The results can be costly, complex and time-consuming. When at least two people file an application on the same invention, the Patent Trademark Office conducts a trial, known as an interference proceeding, to determine the first inventor. Eliminating interferences and aligning the United States with the rest of the world are the main arguments for switching to a first-to-file system. But opponents argue the change would harm solo inventors and small companies, which account for about 45 percent of patent applications.

Here’s why: The new system would create a race to the Patent Trademark Office, and the entity most likely to win is the one with the most resources—corporations with deep pockets. They’re less concerned about filing fees and are more likely to file an application even though the commercial benefit of the technology may be risky. Small businesses, on the other hand, will wait to file until they’re certain a market exists for the product before committing funds for filing fees.

Filing fees range from $500 to $1,000. But navigating the lengthy process, which typically takes two to three years, often requires legal assistance. Attorney fees can push the costs for a simple invention to $20,000 and to $40,000 for a complex filing.

With 1.6 million active patents in the United States, the possibility of infringement has led to more litigation, particularly within the technology sector. Microsoft Corp. is among larger software developers that support a first-to-file system because the company is often forced to fend off infringement suits brought later by smaller competitors. Unlike the auto industry, for instance, in which large sums of money are necessary to produce an innovation, an independent inventor sitting at his kitchen table can develop software.

Some of the litigation stems from what is known as “patent trolling,” a term used to describe an individual or company that holds a patent with no intention of marketing an idea or making a product.

The patent holder instead waits for another company to develop a similar product and then threatens it with expensive patent-infringement lawsuits to extract large monetary settlements. Under the reform act, a new venue would provide a less expensive and more streamlined way to hash out disagreements. It would allow anyone to seek cancellation of an existing patent within a year of its approval. The proceeding, however, would be available only for patents issued after the date of the bill’s enactment.

The bill also would change how patent damages are calculated, including limitations on their availability for willful infringement. Proponents of changing the damage provisions argue that large patent awards are excessive compared to the actual value of the patent.

Further, budget limitations of not-for-profit universities often constrain the resources they can devote to rapidly filing patent applications, making it more difficult for them under a first-to-file system. Not everyone is convinced reform is needed. Pharmaceutical firms such as locally based Eli Lilly and Co. are satisfied with the current system and depend upon court injunctions to stop generic drugmakers from infringing upon their patents.

Indeed, from 1996 to 2006, the number of patent applications more than doubled from about 200,000 to 450,000, according to the PTO. Nearly 1.1 million applications are currently pending, and 760,000 of those still await first action. The average time it takes to get approval is 32 months.

To shave the backlog, the PTO hired 1,200 patent examiners in 2007 and has plans to employ 1,200 more examiners this year. Compounding the problem of delays is that the tedious work leads one of every two examiners to leave the job within the first year.

US patent reform to benefit Indian firms [India]

Indian pharmaceutical firms, which make most of their revenues and profits from the manufacture of off-patent, or generic, drugs, are set to play a larger role in the US, the world’s biggest drug market.

That is, if a US plan to reform patent laws by including provisions for what is called post-grant opposition to patents and limiting avenues for extending patent protection for medicine companies becomes law.

The immediate impact of the law change will be to ease challenges on drug patents and also lower legal costs in such challenges.

The changes anticipated in the Patent Reforms Act, which has already been passed by the US House of Representatives in February, would allow opposing a patent after its grant in the US, as is possible in countries such as the UK, Germany and India, along with a general tightening of patentability rules in the US.

It would also, to a large extent, halt the tactics of research-based drug giants in the US to include all possible claims in the patent application by modifying it several times during the life of a patent through what is known as “ever-greening”.

With the reforms, the US patent office sought to limit the number of times to two that a patent applicant can file “continuations” of patents. Currently, there is no limit on the number of times that a patent holder can keep updating its patent claims through such filings. The draft law is now under consideration of the US Senate.

The patent reforms in the US are aimed at eliminating frivolous patents as also invalidating several existing patents that have received such protection through “continuation” filings based on simple modifications. This would help generic players to enter the market with more products as the legal expenses will go down.

Patent experts said that the reforms that the US has initiated are an attempt to harmonize its patent law with the rest of the world, which follows a comparatively higher threshold for patentability.

The new rules, for instance, will replace the current US system that grants patents to applicant who can prove “first-to-invent” status with a “first-to-file” regime in force in others countries.
With the provision of post-grant opposition, generics companies will get a new opportunity to argue against the unsubstantiated claims made by the patent holder without going to court of law or infringing the patent—both expensive options.