Among the news of our stagnating economy and the political debate over a new stimulus bill, last Friday, Obama signed a new bill that reforms the entire patent process. In a rare moment of bipartisanship, the Senate passed this bill with an overwhelming majority (89-9). With those numbers, it appears that this bill is good for everyone. Obama cited this bill as a means to keep the United States the innovation capital of the world.
However, there are some critics who believe this bill does more harm than good for small businesses and potential entrepreneurs. Some reports from Europe and Canada (who have adopted similar patent reforms decades ago) argue that small businesses are virtually prevented from competing in the patent market due to the unfair advantages larger corporations have through these patent laws. With major parts of the reform not set to take effect for another 18 months, we’ll have to wait and see if small businesses here in the United States are similarly affected. Before that happens, here are the major provisions that small businesses must consider regarding the patent reform law.
1. Patent process goes from first-to-invent to first-to-file.
Current patent law awards a patent to the first person/entity that actually invented a device. If someone files for a patent, a challenger can institute an interference proceeding. If the challenger is able to present enough evidence that he or she was the first to invent the device, then the patent will be awarded to the challenger. Under the new system (to be implemented on March 16, 2013), the process will be “streamlined” to award the patent to the first person/entity that filed for the patent. Most developed nations in the world have the same first-to-file process.
The intent behind this change is to make the patent process more efficient by limiting the challenges to a patent, thus allowing the patent to come to market more quickly. As a result, those who are able to file a patent quicker than others will benefit from this change. As mentioned below, this means small businesses will be at a disadvantage compared to large corporations who have the resources to quickly navigate through the patent process.
2. The patent process will be streamlined with the potential to complete the entire process within a year.
Currently, the average processing time for a patent is around 3 years with 700,000 patents awaiting to be reviewed and a backlog of over 1.2 million patents. The main culprit to this inefficiency is the lack of resources and workforce to review these applications. Under the old patent law, funding of the patent office was through the fees it collects, but unfortunately, Congress routinely tapped these funds. Under the new system, the patent office keeps all the fees it collects and is able to adjust the fees as need arises. Through this reform, the patent office expects to hire between 1,500 and 2,000 new examiners as well as upgrade its computers and other information technology.
The new patent law also allows a faster review process (if willing to pay the higher fee) that can potentially issue a patent within a year. Small businesses would get a discount on the fee for that special process.
3. The patent process adds an additional review process called the Post-Grant-Review.
Along with the other patent challenges in the old patent law, the new patent law adds a review process called the Post-Grant-Review. Once a patent is issued, the patent can be challenged if the challenger can overcome a review threshold of “likelihood a claim of the patent is invalid.” It is uncertain how high this standard is, but the potential to hold up a patent is there. This Post-Grant-Review could take up to three years to resolve.
4. Expect some revisions before everything is said and done about the patent reform.
With any new legislation, there is always the potential of unintended consequences. So far, it appears the new patent law has an unintended consequence. Under the old patent law, patents were given a one-year grace period where applicants can use or sell his or her invention up to a year before filing for a patent. Often, this was necessary to gauge the market for his or her device and to demonstrate the invention for a potential investor prior to entering the patent process. Under the plain language of the new patent law, the grace period is eliminated whereby any use or selling of the invention bars the applicant from applying for a patent. This is obviously not the intent of the legislature. Hopefully Congress will wise up and revise this portion of the new patent law before it has negative consequences.
5. The new patent laws will benefit large corporations more than small businesses.
As any astute reader can figure out, many of the provisions of the new patent law benefit large corporations at the expense of small businesses and potential entrepreneurs. Although both Republicans and Democrats supported this patent reform, it is worth noting that the only group that have spoken against this bill were small businesses. Large businesses are the entities most capable of quickly filing for patents as compared to small businesses and entrepreneurs. Large corporations are the entities that are capable of tying up potential patents in prolonged review procedures that can be highly costly to a small business or entrepreneur. Large corporations are the entities most capable of paying the extra fees to speed up the patent process (even with the discount given to small business being considered).
The new patent law may have allowed the United States to come more into line with the rest of the world. However, it may have been at the expense of small businesses.
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