When President Obama signed the new patent bill last Friday, he took a major step, not toward creating jobs, as he claimed, but toward destroying them. Here are three reasons why:
First, the new law overturns America’s 220-year practice of giving a patent to the first to invent a new device or technology and give it instead to the first to file a patent on it. This will shift the advantage to large, deep-pocketed companies who, with their legions of lawyers and many millions of dollars in resources, can now swamp the USPTO’s inboxes with a tsunami of applications. Independent inventors and small start-ups who do not have the equivalent legal and financial resources to compete, meanwhile, will be forced to the back of line at the patent office.
Why is that bad? According to the 2008 Berkeley Patent Survey, 76 per cent of venture-backed entrepreneurs say patents are vital to obtaining the venture funding needed to scale up their businesses and start hiring. No patents means no financing.
That hurts not only entrepreneurs, of course, but all of America. For it is an absolute fact that all net job growth over the last 35 years — literally 100 per cent of it — comes from entrepreneurial startups. If you took startups out of the picture and looked only at large or incumbent businesses, job growth over the last 35 years would actually be negative.
In the words of Kauffman Foundation researcher Tim Kane, “When it comes to U.S. job growth, startup companies aren’t everything. They’re the only thing.”
Proponents of this new first-to-file law say the change will harmonize U.S. patent system with those in Europe, where less than 1 per cent of patents are filed by job-creating small businesses and independent inventors compared to 28 per cent in the U.S.
I’m all in favour of harmony — who isn’t? But if ever there was a case to be made for U.S. exceptionalism, it’s in our unique patent system which since the nation’s founding has been geared to the needs of entrepreneurial innovators. Indeed, our patent system is a big reason why almost every major technological breakthrough of the last 100 years — from autos and aeroplanes to semiconductors and PCs — originated in America rather than Europe or someplace else.
The second way the patent law will kill jobs is that its new “post-grant review” (PGR) provisions will keep many entrepreneurial startups in limbo, thereby freezing their hiring.
Judge Paul Michel., the retired chief judge of the U.S. Court of Appeals for the Federal Circuit — the main court that handles patent cases — has publicly warned that the new law will “torpedo patent rights for innovators.” Under the new PGR procedures, he noted, a big firm with ample resources can hold up a small startup’s patent with challenges for as long as a decade!
What’s so bad about that? Think of a patent like a deed to land. If your deed is under legal challenge for many years, how can you possibly get a loan to build a house on it?
It’s the same with patents. Only in this case, entrepreneurs won’t be able to get the venture capital they need to build their businesses and hire people. What’s more, infringers will be more likely to steal the technology. And the technology itself could be obsolete by the time the entrepreneur ever obtains clear title to it.
Third, a provision of the new law allows Congress to continue to treat the patent office as a petty cash drawer and divert applicant fees to other purposes. This means that the patent office will remain chronically underfunded and unable to clear its backlog of 1.2 million applications.
Even the president’s own patent office director, David Kappos, has conceded that this backlog is costing America “millions of jobs.” My own research shows that if we simply cleared that backlog, we could create up to 2 ¼ million new jobs by 2014. Now, those jobs will in all likelihood be lost, along the 8 million jobs already lost during the recession.
To be fair, there are a couple of theoretically good provisions in the new law, such as a “fast track” program to speed up small business applications and allowing the patent office the right to set its own fees. But notice I said “theoretically.” The reason I did so is because we’ve all seen this movie before — and it didn’t end well the last time we saw it.
In 2010, the patent office announced a series of new revitalization measures, including new hiring initiatives, new upgrades to a patent office technology infrastructure that President Obama called “an embarrassment,” and yes — a new “fast track” program for small businesses.
But because Congress (yet again!) diverted the funds needed to actually implement any of these new programs, USPTO director Kappos announced on April 22, 2011 that the expedited Fast Track examination program was suspended, the opening of a satellite office in Detroit was postponed indefinitely, the infrastructure upgrades were being scaled back, employee training reduced, and all hiring —for both new positions and backfills — indefinitely frozen.
And sure enough, as patent policy expert Hal Wexler pointed out this week, “On October 1, 2011, government agencies will be operating under a Continuing Resolution which should freeze funding levels that will not permit the Patent Office to take advantage of [any] new government revenues gained by the fee increase. Even worse,” he added, ” the Patent Office must fund its new statutorily mandated programs [such as post-grant review]. This necessarily means cutbacks for the regular examining corps.”
When signing the new patent law, President Obama hailed the rare bi-partisanship that led to the law’s passage. And it’s certainly true, the bi-partisanship was rare.
But it was bi-partisan cluelessness, not wisdom, that led to this new job-killing law.
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