Guest Post: David Boundy – Defeat the America Invents Act

The following is a guest post of David Boundy who is a Vice President and Assistant General Counsel for Intellectual Property at a well-known financial services firm.  The views he expresses here are not those of his employer or its clients.  The post is similar to one published last week at Patent Docs.  His post follows: 

Dear fellow patent attorney:

      I need your immediate assistance to help defeat a particularly bad patent bill now in its final stages of consideration by the U.S. Congress.  You have seen the blogs and emails explaining how the America Invents Act (formerly the Patent Reform Act of 2011) will dismantle our carefully-balanced patent system, the system that has made America the innovation engine for the world.  The bill is bad for America, bad for your clients, and bad for you as a patent attorney.  Other countries innovate at half our rate.  The multinationals want to “harmonize” our laws with those unsuccessful systems for their own convenience.  This bill imposes about $1 billion in costs by taking away options that domestic American businesses use, to save a comparatively trivial amount for the Patent Office and a small number of multinational corporations.

      The appendix to this letter outlines the proposed law and how it will significantly damage our clients, our profession, and our country.

      Because this bill has passed the full Senate and the House Judiciary Committee, it could be enacted within weeks.  The big multinational corporations have plowed untold sums of money into lobbying, and have the bill they want.  It’s essential that Congress hear from domestic American businesses and inventors, and hear from them now.  Congress desperately needs to learn from small businesses and startups how they actually use the patent system to create new products, jobs, and wealth. 

      Congress is on recess until May 2, and your Representative will be in your district.  This is your best opportunity to inform your Representative that this bill will destroy American jobs by making it impossible for startups, small companies, and university spinoffs to protect the inventions they create, to obtain the funding they need to commercialize their inventions, and to earn the profits they need to grow new R&D-intensive businesses.

The “Asks”

      Go to www.house.gov to find your Representative’s contact info.  To schedule a meeting, many offices will want you to FAX in a request letter.   Second best is a phone call to your district office (not the D.C. office).   Third best—and far less effective, but better than nothing—is an email.  www.reformaia.org can help you with some of these contacts.

      Ask your clients to join you at a meeting, or at a minimum, to call or write.  This letter is accompanied by a “script” you can give to clients for them to make their calls.  Your representative should simply vote the bill down—overall, the bill does more harm than good, regardless of any other changes that might be incorporated.

      If you live in Ohio, call Governor Kasich’s office, (614) 466-3555.  Point out that the governor’s $700 million Ohio Third Frontier jobs program cannot work, and that the Innovation Ohio Loan Fund will be not be repaid, if the federal Patent Act is changed to deter investment in university spin-offs and startups, and to make it harder for new businesses to succeed.

      Please take the opportunity to meet or phone, or at least email your Representative. (A phone call has several times the weight of an email, and a meeting will have many times the impact of a phone call). You will be more likely to get a personal meeting, and you will have far more impact, if you as an attorney bring one or two of your clients with you.  Stay away from patent jargon, because the person you talk to will almost certainly know nothing about patent law.   It’s crucial that you discuss the effects of the bill in terms of destruction of innovation, jobs, start-up businesses, and the like, issues that a Representative or staffer can relate to.  Urge your clients to join you for a meeting.

      It’s crucial to act now.  Please help preserve our gold standard patent system, one of the biggest engines of job growth in the U.S., and part of the reason U.S. attorneys can create so much more value for their clients than our counterparts in the countries to which Congress proposes to “harmonize.”

David Boundy

Boston MA

(212) 294 7848, PatentProcedure@gmail.com

APPENDIX:  HOW THE AMERICA INVENTS ACT CHANGES PATENT LAW

      The bill tilts the playing field in favor of multinational corporations and market incumbents.  The bill shifts from today’s emphasis on disclosure and disruptive innovation to favor trade secret and market incumbency, in the following ways.

  • The § 102(a) grace period is totally repealed.  Every inventor will be in a race against all other possible disclosures—no inventor will have the time to perfect and test an invention before filing.  All companies will be forced to file before an invention is fully understood or tested.  That will be expense for your clients and trouble for you as an attorney, and reduce patent quality.
  • Inventors, entrepreneurs, and startups use the grace period of § 102(a) to meet with investors, do the trial-and-error of R&D, and test their inventions. Under today’s law, the implied obligations of confidentiality in conversations with investors and early-stage partners give sufficient protection to permit these ordinary business activities.  The bill repeals all these protections, and replaces them with a flimsy grace period that creates unacceptable risk of loss of patent rights, that no business can rely on—though adds strong protections for large companies that can raise all their financing, and do all their manufacturing and testing in-house.  Inventors won’t be able to talk to investors without a patent, and won’t be able to file an application without an investor.
  • The bill states that an inventor can recover patent rights if he can prove that all other disclosures originated with the inventor—but the bill neglects to create a procedural forum for showing derivation in cases where the leak is not embodied in a patent application, or where the leak neglects to attribute the original inventor.  As a practical business matter, the bill leaves no commercially-feasible grace period, an integral part of U.S. patent law since 1839.—you will have to file every application as soon as possible, often long before the invention is ready.
  • Today’s law gives Americans several advantages over foreign inventors (under the “Hilmer rule”).  The bill removes these advantages, and instead places American inventors at a disadvantage to foreign inventors.   Consider this fact pattern:
  • A German inventor files a patent application in Europe, and later in the U.S. under a bilateral treaty
  • Shortly after the German’s first filing, an American files a patent application in the U.S. on a similar (not identically the same) invention, and then under the same treaty in Europe

Under the proposed legislation, the German’s patent application will be prior art that blocks the American in the U.S.  If we switch them around, so that the American files first, then the American does not block the German in Europe.  The bill does not “harmonize” the law, and the difference disfavors Americans.

  • The bill provides that all disclosures within and by a single company do not create bars.  This is great for multinational companies, with large in-house staffs, but totally useless for a startup or small company that has to partner with outsiders.  Startups use and need the options and protections of current law, but the new bill cuts them away.
  • A single offer for sale or public demonstration one day before filing a patent application will irretrievably destroy patent rights, if the poorly-drafted language is interpreted literally.
  • The § 102(b) grace period is cut back—it no longer protects against activities by third parties, but only the inventor’s own activities.
  • Patents can become liabilities—because a new “post grant review” procedure allows a competitor, who
  • As a patent attorney, you will no longer have time to do a good job preparing a patent application, you’ll be “forced to file” prematurely.  This will expose you to risks and destroy your weekends.  Poor initial applications will drive up post-filing prosecution costs.   The stricter and earlier filing deadlines will place you at a blocking point for many of your clients’ business activities, harming your client relationships.  Where good patent attorneys are allies in creating value for businesses today, the bill will move you to being a cost—at a much lower billing rate.

The bill also destroys commercial certainty and corrupts the incentives in the system:

  • Various statutory requirements that an applicant act “without deceptive intention” are repealed—in the future, applicants will have incentive to act with deceptive intent.
  • Key terms of art are redefined—you’ve spent a career learning the meaning of “on sale” and “public use,” but the legislative history fundamentally redefines these terms.  It will take decades for courts to establish new precedent to provide any meaningful commercial certainty.
  • The Metallizing Engineering “secret commercial use” bar is repealed—a company will be able to use an invention as a trade secret, and then spring a patent on the public years later.  That favors market incumbents, but makes innovation harder for everyone else.
  • The “best mode” requirement is reduced to a sham: a patentee will be permitted to disclose only a fictitious embodiment, while holding the best as a trade secret.
  • The bill gives companies the right to patent and repatent inventions for years, to keep them locked up, neither using them nor permitting them to be used, for far longer than 20 years.
  • Several aspects of the “first-inventor-to-file” provision—the ones that give patents to second inventors, and to companies that kept inventions in secret for years before filing patent applications—violate constitutional limits on Congress’ authority—years more litigation and commercial uncertainty.
  • The Act allows Wall Street banks to attack “business method” patents that they are infringing.  This doesn’t extend to any other industry, only business methods—another Wall Street giveaway.

The bill is out of committee—further amendments are unlikely. It is literally impossible to alter the bill to meet the needs of startups through an amendment strategy at this late date.  The multinationals and their congressional allies smell victory.  They see no reason to allow any weakening of their preferred bill through amendments favoring small businesses.   The only option at this point is to vote it down.

Typical inventor activities that no longer “work”

      Most startups, and many inventions at established companies, go through at least one of two “stories.”  They’re reasonable commercial practice under today’s law, but not under the bill:

  • An entrepreneur with nothing but an idea typically has to present his idea to dozens of venture capitalists and potential manufacturing or marketing partners, without formal confidentiality agreements, to get a company started. (VC’s never sign confidentiality agreements for first meetings.)  This works under today’s law, because of the implied obligation of confidentiality and the protection of § 102(a), but under the bill, these conversations will create commercially-unacceptable risks to the investor and partner.  U.S. inventors will be under the same “Catch-22” as European inventors—unable to talk to potential investors until a patent application is filed, but unable to file a patent application without an investor.  Startups will die before being born.
  • Companies that need a long “invention incubation” period—trial and error, conceive, test and discard, until finding the “magic combination” of techniques—use the § 102(a) grace period to do their R&D in confidence, and file patent applications only when it’s clear which inventions are valuable, and how they work.  Under the bill, a company will have to file a continuous stream of patent applications, many directed to inventions that are dumped under current law.  This will increase patent costs remarkably.

      Almost every startup goes through one of these two, many through both, as new companies create new wealth and new jobs under today’s law.  Inventors wait to file quality patent applications until they have quality inventions.  America’s unique and strong right to file in the future, after the inventor and investor know whether the invention is valuable, makes business easy, and prevents wasted costs for inventions that prove worthless.

      The “America Invents Act” revokes this historic right.  Property rights turn on non-business legal technicalities created to satisfy bureaucrats, technicalities that will cost $1 billion annually. The bill requires a company to file premature, hasty, and expensive patent applications on every baby-step idea to preserve rights against third parties who are dabbling in the field without intent to develop a commercial product.  The America Invents Act makes these two stories nonviable for startups—because the authors “didn’t think” about them, or didn’t want to.

      In 2010, the Kauffman Foundation and Census Bureau released two studies on job creation.  Both found that “net job growth occurs in the U.S. economy only through start up firms.”  If creating new jobs is Congress’s Job One, then killing the America Invents Act is a good place to start.

The proponents’ arguments do not survive scrutiny

      Proponents suggest that the bill does away with complex and costly interferences.  That’s true, but irrelevant.  Under 100 applications per year end up in interferences.  In contrast, the change to today’s “§ 102(a)” grace period affects commercial decisions and raises costs for hundreds of thousands of inventions per year, during the time before filing, by giving inventors and patent attorneys time to get it right the first time.  Because the Patent Office has no insight into the pre-filing process of invention, it simply hasn’t taken into account the realities of invention incubation and the costs of its proposal.  Further, the proposed replacement, “derivation proceedings,” are the most costly disputes in patent law in those jurisdictions where they exist.

      Second, proponents argue that provisional applications will be a cheap way to preserve rights.  But that isn’t true under the new law.  Under current law, a cheap provisional is useful to show conception and diligence.  But under Patent Reform, a provisional application only provides legal benefit if prepared with full § 112 ¶ 1 care and completeness.   For a typical startup invention, the cost in attorney fees and inventor time for a provisional application is $10,000 or more—a formidable barrier to an entrepreneur’s first conversation with an investor.

      Third, proponents argue, “The bill locks in rights if you publish a disclosure of the invention.”  But all companies rely on secrecy for their future plans.  No company publishes its most sensitive and advanced technology years before introduction.  This argument ignores business reality.

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10 Responses to “Guest Post: David Boundy – Defeat the America Invents Act”

  1. mike Says:

    Maybe we should quit pretending there will ever be patent reform. I personally am not opposed to a first-to-file system, heck I think we should all go to a PCT style system just to make it easier to go international. BUT for each proposed change to the patent system there are a dozen different groups that pipe up, “We want change, but not that change!!!” We should stop pretending that anybody wants any meaningful changes to the patent system and just keep going with the status quo.

  2. David Boundy Says:

    Mike –

    It’s crucial to be precise in the analysis.

    I have no business objection to first-to-file as the tie-breaker between two simultaneous applicants (a revision confined to today’s 35 USC 102(g)). (There are real constitutional questnos, and I don’t look forward to the decade of uncertainty while those questions get worked out, but on a business level, 102(g) comes into play so rarely that nobody should care a bit about it.) I expressly take no position on 102(g).

    The issue that creates billions of dollars of legal costs, business disruptions, lost business opportunities, loss of startup formation, etc. is the loss of the grace period of 102(a)-(f), particualrly 102(a). That’s all I’m writing about here!

    David Boundy

  3. mike Says:

    I understand that all of the changes do not work well for all of the people. Yes, there are portions that are not well written, you have too many cooks each with their own pet project. Of course none of them actually worked with a patent and most have never seen a ribbon copy. Our industry does not have a unified message and this is how it was interpreted on the hill. With Biotech on one side and E-business on the other, we will never have a unified message. If this bill does not pass, then they will go back to the drawing board until next year. It’s too late to develop a middle ground solution drafted by patent practitioners that addresses the major issues in a patent saavy manner. So you either support the bill or you support status quo. It may be naive, but those are the options I see.

  4. Patent Applications to Create Defensive Prior Art « INVENTIVE STEP Says:

    [...] The second thing is to file a patent application as soon as possible.  At least until the America Invents Act becomes law, the US system remains a first to invent system.  If the client can prove it was the [...]

  5. PTO Expands Pre-Office Action Interview Program « INVENTIVE STEP Says:

    [...] the right direction for the Kappos regime.  Now, if we can just get the Administration to fix the problems with the Patent Reform bill . . [...]

  6. Campaign Against America Invents Act Intensifies « INVENTIVE STEP Says:

    [...] Some might say that they are a bit late to the game considering that the Patent Reform bill pending in Congress passed the Senate 95-5 in March and by a similar huge majority passed the House Judiciary Committee in April, but opposition to the America Invents Act is intensifying.  [...]

  7. Nathanael Says:

    “# Various statutory requirements that an applicant act “without deceptive intention” are repealed—in the future, applicants will have incentive to act with deceptive intent.”
    This sounds important, but in the current situation applicants routinely act with deceptive intent and get away with it. And fraud on the patent office would remain illegal, right? So is this a significant difference?

    “# The “best mode” requirement is reduced to a sham: a patentee will be permitted to disclose only a fictitious embodiment, while holding the best as a trade secret.”
    This is bad, but it was already a sham in practice.

    “# The bill gives companies the right to patent and repatent inventions for years, to keep them locked up, neither using them nor permitting them to be used, for far longer than 20 years.”
    Really?!? Could you provide evidence of this? Because this sounds *genuinely* bad and if it is actually in the bill that would be really, really bad. If this is really there, why didn’t you lead with it — and give quotations indicating why this is the case?

  8. mike Says:

    We’ve had almost 10 years to get this straightened out. Now that patent reform people have been asking for and anticipating (no pun) has passed one of 2 major hurdles to becoming law, now we start trying to influence Congress. Shouldn’t we have had our input on the Senate bill when it received committee approval or before it was on the Senate floor? Now it is too late. If you kill patent reform now, you kill it for a very long time.

    I personally think we should strive to integrate with international patent filing systems. The current bill brings us in line with many of the international patent laws. It does switch us from 1st to invent to 1st to file. Will it change our practice much? For most of us the “BIG CHANGE” is more theoretical than practical. Patent applications will still be drafted and filed in the same manner. The claims will still be the same. And for 99% of the applications they will be prosecuted the same. FOR the <1% that participated in or made there practice specific to interference procedings, well… you may have to find a new specialty.

  9. Amendments to America Invents Act « INVENTIVE STEP Says:

    [...] the implications of the bill.  Recently, a fair amount of opposition to the bill has arisen from those involved in venture capital, several from the media, and from within Congress itself.  Is it enough to significantly alter or [...]

  10. If Fee Diversion Continues, Kill the Bill « INVENTIVE STEP Says:

    [...] David Boundy is reporting on Patent Docs that House Republican leaders have reached an agreement to remove the provisions of H.R. 1249 that would prohibit Congress from stealing PTO funds.  If this is true, the bill must be defeated. [...]

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