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Patently Mad About Patents

Credit: iStockphoto

Credit: iStockphoto

By Ian Maxwell

Recent changes in the US patent system have been promoted as a boon to the US economy, but are the benefits of these changes universal?

In most countries, liquid volume is measured in metric litres. In Australia, we once had fluid ounces but we wisely switched from the imperial to the metric system in the 1970s. Our American cousins eschewed such change and they still have fluid ounces, but different fluid ounces from the English imperial system that we abandoned. Back in their distant history the Americans decided to come up with their own measure of fluid volume, but didn’t bother to change the name from that used in the rest of the non-metric world.

For those of you who visit the US regularly this will come as no surprise. The US was, for a long time, a very large and quite isolated economy that was not in the habit of concerning itself with what went on in the rest of the world. Last century, after being reluctantly dragged into a couple of world wars, the US started getting very involved in the affairs of the rest of the world. The primary driver for this change of policy was not public opinion, but economics. US business started focusing on growth opportunities outside of the US, and the US government took on the role of clearing the path for US business abroad.

Despite this more recent increased economic and political engagement with the rest of the world, the US has hung onto many of its old habits, such as US fluid ounces. It also has a unique patent system developed back when the US was primarily a domestic economy and inventions were invariably chemicals or machines of one sort or another.

Late last year the US government enacted a whole bunch of changes to the US patent system in the Leahy-Smith America Invents Act (honestly that is its name! derived from its lead sponsors, US Senator Patrick Leahy and Rep. Lamar Smith, together with a bit of marketing spin), which some have claimed brings the US into line with the rest of the world, patentwise. A closer examination of the facts reveals that what they have really done is address a raft of issues associated with the US patent system’s impact on their domestic economy, and in the process they have created the equivalent of the “US liter” (i.e. a patent system that looks and feels metric but is really a little funkier than that, as I will explain later).

Patents, for those of you with just a passing association, are one of the most maddening creations of legislation ever dreamt up. On the surface, the patent system looks like a good idea; government offers a party a fixed period of monopoly over an invention in return for describing the innovation in a publicly published document – the “letters patent”. This process is well described by the famous quote of Galileo’s when in 1593 he petitioned the Doge of Venice for a patent on a machine “for raising water and irrigating land with small expense and great convenience … It is not … fit that such an invention, which is my own, discovered by me with great labour and much expense, be made the common property of everyone.” If he were granted a patent over its use, he said, “I shall then more attentively apply myself to new inventions for universal benefit”. Modest, eh?

By describing the invention in a patent, the details are there for all to see, and hence technology innovation within a society is accelerated in contrast to a society where technology ideas are kept secret. The classic example that illustrates this point is from the 17th century. The Chamberlains, a family of medical practitioners in England, applied for and were denied a patent for forceps, as used in the delivery of babies in the breech position. Their response was to keep the invention proprietary, to be used only by themselves in their own practice, and forceps did not come into common usage for another century. One can only wonder at how many lives would have been spared if that patent had been awarded.

The patent system is an artefact of law, first enacted in the Italian Renaissance, and in the 21st century the system is creaking. In the US there are more than 7 million patents in the database. It is virtually impossible for a patent to be properly examined by a single patent office examiner in a reasonable timeframe when places where one might look for prior art (publicly available information that might diminish the inventiveness and novelty of a proposed patentable invention) are almost unlimited.

Since patents can be challenged in many ways, including in court upon claims of infringement, a patent owner cannot feel too comfortable about the value of a single granted patent. The corporate world has responded by building whole rafts of patents whereas once they might have relied on one. Non-practising entities, pejoratively called “patent trolls”, have emerged to trade and deal in patents, essentially arbitraging corporate risk for personal gain. Companies such as Apple, Samsung and Google hurl patent portfolios at each other in infringements suits, like kids in a food fight; only the lawyers prevail. Whole corporations have been founded with the sole intent to invent or buy patents on a vast scale in order to exploit the outcomes against potential infringers or to sell a defensive position to operating corporations. There is even a stock index designed to actively represent a group of securities that own “quality” patent portfolios; derivatives will follow.

Small companies and universities find that they can spend many hundreds of thousands of dollars a year just to build a modestly sized patent portfolio with global patent coverage – money they can barely afford. Small operating companies can virtually never afford to defend their patents against infringement. The very concept of a patentable invention has been somewhat debased so that extremely incremental ideas are granted patent status, and this is how the corporate portfolios are generated.

I could go on. The truth is that the world’s patent systems are a mess. My opinion is that the whole thing needs to be totally re-invented. It will probably never happen, but a global patent system unifying all countries into one system would be a start. Minimal patenting fees should apply so that large companies do not have an unfair advantage over smaller entities, institutions and individuals. Alternatively, patent fees could be deferred until inventions generate sales revenues.

The existence of so much prior art is such a problem that patent applications should be subject to either a post-infringement examination system or a social networking examination system where competitors get to participate in finding prior art. The concept of different classes of “invention” needs to be extended whereby only the owners of the highest status are granted a virtual monopoly for the full term of a patent (typically 20 years), and the owners of the lower class of inventions have shorter patent terms or are subject to enforced licensing. Companies relying on patents to protect product monopolies should be forced to publish (on the web) the patents they believe are protecting each product. Patents that are not practised (not used in products or services) by the owners should default to the lower status of invention (i.e. enforced licensing).

Changes made under the recent Leahy-Smith Act in the US have been in steps in the right direction. However, like all major legislative changes, it is a case of two steps forward and one step backwards. Due to the domestic political process the US typically underprioritises the international impact of changes in domestic policy and the effect on US companies with foreign operations.

The headline change to the US patent system is the change from a “first to invent” system to a “first inventor to file” system. Previously it was quite frustrating working as a researcher in a company that filed US patents because the US had this very odd “first to invent” scheme, where the date of invention was used to mediate any competing claims of priority of invention; this required the rigorous keeping of dated and countersigned work books. In practice, this is a very hard discipline to maintain in any type of organisation, and increasingly more so since the world has gone electronic.

However, note carefully the word “inventor”; while much of the rest of the world runs a “first to file” system, the US has adopted a “first inventor to file” system (strangely, Australia has a similar system). This encourages the publication of an invention before a patent is filed, since publications made by the inventor up to one year before the filing date are excluded from prior art in examination of the patent for novelty and inventiveness.

This means that an academic publication is in effect a provisional patent of sorts. Publishing one’s ideas in an academic journal now prevents anyone else from patenting that idea in the US (because it is prior art) and this also gives the inventor a year to decide whether to proceed with a patent application. This is great for universities and small companies since it effectively reduces patenting costs and graces them more time to find commercial opportunities for patentable inventions.

Of course, outside the US, such a grace period is not common. So the benefits in the US of early publication actually undermine the potential to receive patents elsewhere in the world. In this context, the US legislators have been quite myopic. By creating benefits to inventors within the US, they may unwittingly destroy commercial opportunities for the same inventors outside of the US. And these days there is a lot more economic activity outside the US than there is in it.

The Leahy-Smith Act additionally redefines the concept of “prior use”. Under various patent systems around the world, one risk of not patenting and instead keeping things as trade secrets is that a competitor may patent the company’s ideas and a company may end up not being able to practice its own trade secrets. As is the case in Australia, in the US under the new Act, provided that the trade secret was in continual use for over a year in almost any form prior to a competitor filing a patent, a company may continue to use that technology free of any licence considerations.

I think this idea reflects a sense of fairness, but it also runs counter to the philosophy of the patent system, which is to encourage the publication of technology over trade secrets.

One very interesting exception to this concept of prior use is that patents from federally funded research institutions in the US can be enforced against allcomers including companies that can demonstrate more than one year’s prior use. Essentially this has handed US universities an economic advantage and incentive in the patenting game by making their patents more valuable than company patents. It also means that non- US universities, if they care to file patents in the US, are not on a level playing field with their US counterparts.

Generally speaking, in the US there is a much greater emphasis than in Australia on creating policy that encourages universities to create commercially viable outcomes. Policy changes as described previously are a good example. Already in the US inventors can, under certain circumstances, retain ownership of intellectual property even if the research was federally funded. The Leahy-Smith Act continues this trend by increasing the share of patent-licensing royalties that may be retained by government contractors who are non-profit operators of government-owned facilities.

One issue that patent offices all around the world face is a lack of resources. Staffing of patent offices has simply not kept up with the increase in the numbers of patents being filed. As a result, for example, in the US there is a backlog of over 700,000 patents, which typically equates to a 36-month period between filing and grant of a patent. This is unacceptable, especially for start-up companies that can be founded, grow rapidly and be sold in this time period without ever having the benefit of getting patents granted.

The new Act allows the US patent office to raise fees so as to hire more resources to address this issue. Of course the flipside of this is that smaller companies and universities will have an even higher cost hurdle when creating patent portfolios.

In an attempt to reign in the activities of patent trolls, the Leahy-Smith Act restricts the practice of joining many defendants in a single infringement case. This is intended to reduce the fees patent trolls can use for their activities. But I think patent trolls will simply find other ways to exploit the system. Good on the US legislators for trying though.

In an effort to improve the quality of patent examination, the Act allows for much greater third party provision of prior art during examination and even for a period after a patent is granted. This helps ensure that those most interested (i.e. the competitors of the inventor) get to throw as much relevant prior art at the patent examiner as possible.

This change to opposition is a big change – it is a cheaper and quicker way for competitors to oppose a patent before the patent rights are asserted. This ensures the patents are thoroughly tested prior to grant and are thus much more likely to stand up if tested in court in defence of any infringement.

The mixed bag of major changes in the Leahy-Smith Act seems to have been primarily motivated by increasing the beneficial impact of the US patent system upon the US economy. Senator Leahy said as much when he spuriously claimed the Act would be responsible for the creation of 200,000 new jobs.

For non-US inventors the greatest benefit is the abolition of the cumbersome “first to invent” system. It is pretty clear that the costs of getting a US patent will rise. The quality and value of a US patent (defendability in court) may also rise if the changes to the examination system actually work. Trade secrets will be easier to practice with fewer fears of others patenting them and preventing their continued use. But the policy changes have not properly considered the potentially negative impact on foreign companies and inventors within the US, and on US companies and inventors outside the US.

When I look at the Leahy-Smith Act, I can’t help of thinking that it might all be a bit too little, and a bit too late. The patent systems around the world are under tremendous strain. The societal and technological conditions that existed in the Italian Renaissance, when the basis of the current patent systems came into existence, simply do not exist anymore. Modification upon modification to the various country patent acts have gone as far as is practical; you simply can’t create a Ferrari from a Ford Escort, no matter how many modifications you get to make.

Increasingly, patents are as much an impediment as they are an asset to technology advancement, economic growth and trade. With big issues to worry about such as global warming, pollution and diminishing resources and food supplies, the very last thing we need is a bunch of disparate patent systems that get in the way of technological progress.

I fear though that not much will change; there are simply too many national, corporate and individual interest groups intent on continuing to exploit the current patent systems as they are.

Ian Maxwell is a venture capitalist and Adjunct Professor in Electrical and Computer Engineering at RMIT who started out his career as a physical polymer chemist. This article was first published in Chemistry in Australia.