INVENTIVE STEP

At 5:30 pm EDT today, the Senate will vote on a judicial nomination before proceeding to a cloture vote on H.R. 1249.  To invoke cloture requires the votes of 60 senators.  If cloture is invoked, debate on H.R. 1249 will be limited to 30 hours and only to the bill as it stands and any amendments that have been filed prior to the cloture vote.  Senate rules require that an up-or-down vote be taken on the bill before the upper chamber of Congress is permitted to take up other business.

H.R. 1249 is the House version of the Patent Reform bill that passed that chamber in June.  Although the Senate passed the original Patent Reform bill in the 112th Congress, the House has thusfar won the fight over the issues.  The House bill differs from the Senate version in that it does not end the practice of PTO fee diversion by Congress and it adds several other provisions such as the defense of prior user rights.

When the two houses of Congress pass different versions of the same legislation, a typical procedure is to convene a Conference Committee with members of both chambers that work together to craft a compromise that can then be passed by both houses.  In this case, the Senate appears to be satisfied to permit the House to carry the day on Patent Reform.

If the Senate simply passes H.R. 1249, the bill will proceed to Pres. Obama for enactment.  If the Senate passes H.R. 1249 with amendments, the amended bill would need to be re-passed by the House or proceed to a Conference Committee before enactment.

The Senate appears ready to capitulate.  I expect the cloture vote to pass today with limited debate on the House bill before it is passed late this week or early next week.

Stay tuned . . .

Given Sen. Harry Reid’s (D-NV) push for cloture on patent reform and the Senate’s previous 95-5 approval vote, and the more pressing budgetary issues facing the country, passage of H.R. 1249 seems inevitable.  The bill is littered with problems, but the number one problem is that, unlike the Senate bill, it does not guarantee an end to fee diversion.  Therefore, without permitting the PTO to keep all of its collected fees, adding additional requirements to the PTO in the form of post-grant oppositions and other new procedures will only add to the PTO’s backlog and pendency problems.

Fee Diversion

Make no mistake about it.  Without the guarantee of S. 23 to end fee diversion, diversion will continue.  Congress views PTO fees as part of the general budget that it is free to use as it pleases.  It then allocates another amount of money to the PTO to fund its operation.  Congress has never allocated more than the PTO has collected, but it has allocated nearly $1 billion less than what the PTO has collected over the past 10-15 years. 

The result is, of course, an additional tax on PTO users.  Tea Party members who have pledged not to raise taxes are doing exactly that when they steal money from PTO users for the general budget.  Congress has already robbed the PTO of $100 million of collected fees in FY2011.

The debt ceiling fight resulted in a serious push to cut spending by the federal government.  The Tea Party and other members of the Republican Caucus have refused to permit a tax increase of any kind.  Regardless of whether this is good or bad politics, Congress needs to decrease spending.  Congress considers PTO fees to be part of the general federal budget.  What’s do you think is going to happen to fees collected by the PTO?  What a great way to cut federal spending without raising taxes, right?

The legislation to raise the debt ceiling created a Super Committee that will be meeting to make recommendations on cutting federal spending further in an effort to reduce the deficit.  As pointed out by Hal Wegner, the members of the Committee include:  Rep. Jeb Hensarling (R-TX) co-chair; Sen. Patty Murray (D-WA) co-chair; Rep. Dave Camp (R-MI); Rep. Fred Upton (R-MI); Sen. Max Baucus (D-MT); Sen. John Kerry (D-MA); Sen. Jon Kyl (R-AZ); Sen. Pat Toomey (R-PA); Sen. Rob Portman (R-OH); Rep. James Clyburn (D-SC); Rep. Xavier Becerra (D-CA); Rep. Chris Van Hollen (D-MD).  Some have expressed hope that Sen. Kyl and Rep. Portman may stand up for the PTO to permit it to keep its fees.  We can hope, but don’t count on it.

PTO Seeks Comments on Patent Reform Implementation

Meanwhile, the PTO is so confident in quick passage of the bill in September, that it is seeking rule-making comments regarding its implementation before it has the authority to do so.  Some of the provisions of the Act would take effect immediately upon enactment, so the PTO will have a great deal of work to implement those portions immediately.  You have to give the PTO credit for being on top of it.  Comments can be sent to aia_implementation@uspto.gov.

Another Huge Spike in Application Filings?

Some provisions of the Patent Reform Act will take effect 18 months after its enactment, most notably the change from first-to-invent to first-to-file.  Assuming September passage, this would put the 18 month date at March 2013. 

As Prof. Crouch at Patently-O and others have noted, the last change to patent application procedure of this magnitude occured on June 8, 1995.  Patents issuing from applications filed prior to that date had a term of the longer of 17 years from issuance or 20 years from earliest filing; patents issuing from applications filed after that date had a term of 20 years from earliest filing only.  An enormous spike in filings occurred leading up to that date.  A similar or even greater spike can be expected in the time leading up to March 2013.  This can only further contribute to the PTO’s backlog.

Now that Congress has finally resolved the crisis over the debt ceiling, it’s time for them to go on their annual month-long vacation.  When they return, they plan to take up the House patent reform bill first.  From the sound of it, they plan to simply vote on the problem-filled bill passed by the House in June.

Senate Majority Leader Harry Reid (D-NV) planned to file cloture on the bill on Tuesday, thereby permitting floor action when the Senate reconvenes on September 6.  This would seem to limit debate on the measure and only permit consideration of the House bill.

Meanwhile, President Obama also continues to push for passage.

Through patent reform, we can cut the red tape that stops too many inventors and entrepreneurs from quickly turning new ideas into thriving businesses—which holds our whole economy back.

Sen. Reid and Sen. Patrick Leahy (D-VT) said the patent reform bill will create 200,000 jobs.  I’d love to see where that number comes from.

After two days of debate that included the issues of the constitutionality of the first-to-file regime and PTO funding provisions, the America Invents Act overwhelmingly passed the House of Representatives yesterday, 304-117.

Earlier in the day, the House had passed Judiciary Committee Chairman Lamar Smith’s (R-TX) Manager’s Amendment, 283-140.  The Manager’s Amendment stripped the original bill of the PTO’s fee-setting authority.  Although Chairman Smith argued that the newly worded fee provision requires PTO collections be placed in a specific fund that can only be used by the PTO, the fact is that the provision is very similar to the status quo.  The fees the PTO collects must still be appropriated by Congress.  House members promised not to steal any more funds from the PTO, but we all know how much congressional promises are worth.

Patent Docs has a recap of the voting on various proposed amendments to the bill.

Now, the House bill must be reconciled with the Senate bill before anything is sent to Pres. Obama for signature.  The leading proponent in the Senate for ending fee diversion, Sen. Tom Coburn (R-OK), issued a press release urging the House to reject the bill that lacks the provisions to end fee diversion.  He argued that without this safeguard, there is no reason to believe that the Appropriations Committee will not continue to steal funds from the PTO.

Meanwhile, the Aministration, through Director Kappos, issued a statement praising passage of the bill and encouraging expeditious final passage.  Director Kappos seems more confident in a promise from the Appropriations Committee than seems warranted given that that committee is responsible for the current mess that siphoned off close to $1 billion from the PTO over the last 20 years.

Will the Senate accept the removal of the fee diversion prohibition language?  What about the House’s broad prior use rights?  Let’s hope not.  The bill that passed the House is a far cry worse than the one that passed the Senate.

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.

As noted previously, the America Invents Act has numerous problems such as prior user rights and the near removal of the grace period. 

The best part of the bill, the one that IP professionals have been fighting for for over a decade was the end of fee diversion, Congress’ continued theft of PTO user funds.  The PTO is completely funded by user fees; it does not operate with tax money.  Those fees should be set at a level that permits the PTO to conduct thorough and expeditious examination of all applications that are filed, as well as all reexamination and similar proceedings.  The PTO is also in serious need of replacing its ancient IT infrastructure.  Because patent examination takes more than one year, the PTO also needs the ability to budget for more than one year at a time.  In an era where Congress cannot even pass a budget for a single fiscal year, the PTO cannot operate in this manner.  It requires fee-setting and retaining autonomy.  Congress’ near $1 billion theft from the PTO over the years is a lot of what got us into the current mess at the PTO.  Simply permitting the PTO to be adequately funded, apart from other reforms, would go a long ways towards fixing any problems with the patent system.

Other Provisions

Section 18 of the bill is a special transition program for challenging business method patents.  The section defines “business method patents” as

a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.

OK, so what’s a “technological invention”?  The bill does not define that term, but instead leaves it to the PTO to “issue regulations for determining whether a patent is a technological invention.”  The Federal Circuit earlier ruled that the PTO does not have general substantive rule-making authority.  Does this section of the bill grant the PTO such authority, or would such rules be merely procedural in nature?

More troubling, however, is the question of whether the patent law going to turn into the tax code where each industry or lobby gets its own provisions and special procedures and defenses.

The word is that the bill could come to the floor of the House for a vote as soon as Wednesday.  It’s getting to be crunch time for patent reform.

The battle over Patent Reform continues.  Judiciary Committee Chairman Lamar Smith (R-TX) has introduced an amendment to H.R. 1249 that includes changes to a number of provisions.

Chairman Smith’s Amendment

First, in a bout of extreme modesty, he proposes to change the name of the bill yet again, to the “Leahy-Smith America Invents Act.” 

The amendment changes the wording of the prior commercial use defense.  The elements of the defense were previously covered here and are largely unchanged.  This defense rewards those who commercially use an invention for more than one year before the application of the patent, but otherwise keep the invention secret.  The amendments since the bill’s introduction have provided for exceptions to the defense for patents owned by universities or technology transfer organizations because they decried the defense most loudly.  The defense is also not available if the commercial use was abandoned prior to its assertion.  This is a terrible provision that seeks to reward not those who disclose their inventions to “promote the progress of science and the useful arts,” but those who conceal their inventions.

The amendment conforms the post-grant review timing provisions with the Senate version of the bill, reducing the time for filing a post-grant review petition from 1 year to 9 months after the patent issues.

The amendment now specifically defines universities or other institutions of higher learning as “micro entities” for fee purposes.

Interestingly, given the congressional opposition to the director’s fee-setting authority, the amendment increases the sunset provision from 6 years to 7 years for such authority.

The amendment adds a defense for activity that would otherwise infringe a patent that relates to genetic diagnostic testing, obviously directed toward the Myriad case.  If the district court got the case right, why would this defense be necessary?

The amendment includes a new section that “no patent may issue on a claim directed to or encompassing a human organism.”  Who knows what this section is intended to mean.  No patents can currently claim a human organism.  The amendment does indicate that this section does not affect the validity of any currently issued patents.

Other Proposed Amendments

Numerous other amendments have been proposed by various members of Congress. 

Reps. Baldwin (D-WI) and Sensenbrenner (R-WI) seek to remove the prior user rights defense.  Rep. Terry (R-NE) would require a study to be undertaken to determine that this defense would not harm the patent system prior to its taking effect.

Reps. Conyers (D-MI), Manzullo (R-IL), and Sensenbrenner (R-WI) seek to strike nearly the entire bill, except the PTO’s fee-setting provisions.

Reps. Conyers (D-MI) and Rohrabacher (R-CA) seek to preclude a change to first-to-file until at least one other major patent office adopts a one year grace period.  Rep. Sensenbrenner (R-WI) would simply seek to strike the provisions changing the US to first-to-file.  In a separately proposed amendment, Rep. Terry (R-NE) also seeks to strike this provision.

Rep. Lofgren (D-CA) seeks to fully restore the current one year grace period.

Rep. Manzullo (R-IL) seeks to eliminate the PTO’s fee-setting authority.

A number of other proposed amendments seek to implement preferences for minority or women-owned businesses in the patent system or to at least study and collect information on the number of minority or women inventors.

Other Information

Patent Docs reports that Chairman Smith and Sen. Tom Coburn (R-OK) have responded to the letter from Reps. Rogers (R-KY) and Ryan (R-WI) opposing the PTO’s ability to set fees and keep the fees it collects.  Patent Docs also reports that Reps. Conyers (D-MI), Kaptur (D-OH), Manzullo (R-IL), and Sensenbrenner (R-WI) have circulated a letter urging their fellow congressmen to vote no on the bill.

Analysis

The bill had a ton of momentum when it resoundingly passed the Senate in March.  Happily, Congress has now slowed it down a bit and will hopefully seriously consider all of 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 kill the bill?  It still remains doubtful.  Most of the opposition and significant proposed amendments are from the same group of representatives.  They will need to rally significantly more opposition to achieve their ends.

I have generally withheld judgment on the bill because I do think that the patent system does need some improvements.  After further consideration, I think the bill presents too many problems and I would now oppose it.

I am in favor of permitting the PTO to set and keep its own fees.  If the provisions prohibiting fee diversion are removed, as advocated by some congressmen led by Reps. Rogers and Ryan, the bill should be defeated in its entirety.  IP professionals that practiced under previous administrations that were adverse to patent applicants have difficulty granting the Office so much power.  Director Kappos has entirely reversed this trend to the point that IP professionals and applicants can and should trust him to do the right thing.

But the theft of fee diversion must be ended immediately.  Estimates are that Congress has stolen close to $1 billion from the PTO in the last decade or so.  As a user-funded agency that gets no tax dollars, the PTO must be permitted to keep all of the fees that it collects.

But, the bill also has numerous problems.

1. Prior user rights.  This is an awful provision that rewards users who keep their technology secret.  This is entirely at odds with the purpose of the patent system which is to promote the progress of science and useful arts.  Such progress is only promoted if inventors share their new innovations with the public so that other may build on it “by standing on the shoulders of giants.”  There is simply no reason for a blanket defense that promotes such secrecy.  If this defense is so great and so necessary, why the university exception?
2. Near elimination of the grace period.  Although this provision may be fixed by amendment, it is hard to understand how or why this provision got as far as it did.  Under current law, patent applicants can use evidence of inventive activity to pre-date third party references and the inventor’s own public activity that occurred within a year of the application’s filing date. 
   Even under a first-to-file regime, inventors should be able to pre-date prior references that are used for obviousness rejections.  The current bill eliminates the grace period for all third party activity and for the inventor’s own activity of public use or sale.
   The way Congress has botched this provision of the bill shows how complicated § 102 of the current patent act is.  When one asks what the definition of “prior art” is, the answer is not always easy.  The answer is basically whatever § 102 says it is.  By completely changing the system, we disrupt the delicate balance created by the various subsections of § 102.  This will create uncertainty for a number of years until sorted out by the courts.
3. Switch from first-to-invent to first-to-file.  Virtually, the only arguments in favor of this change are (1) second filers never win interferences anyway so why have them, and (2) harmonization.  This issue relates to issue 2 to some extent.  If interferences are not a big deal, why make the change?  The new derivation proceedings would seem to be quite difficult for a smaller party to win over a larger entity.  
   First-to-file will understandably create a rush to file new applications at the PTO.  Our patent system has strict requirements of written description and enablement of the invention.  Applicants who file later after trying to make sure their inventions are perfected and ready may be disadvantaged by waiting too long.  They may lose the race to file first.  Applicants who file early may find they don’t have enough support or details of the invention in the application to gain patent protection.  Thus, a patent attorney’s advice to potential clients would be to file early and often:  try to win the first to file race and try to file applications that meet the disclosure requirements.  Small inventors and start-ups who now barely have enough money to file one application will be at a severe disadvantage to larger companies with larger patent budgets.  This will be a significant change to our patent system.
   The US has been the most innovative country in the world and has arguably the best patent system.  Why are all calls for harmonization for us to harmonize our laws and not for others to harmonize with us?
4. Failure to eliminate secret prior art from obviousness rejections.  While we’re on the topic of harmonization, it is worth noting that most of the world does not permit unpublished or secret prior art to be used for obviousness rejections, but only for novelty defeating purposes.  This is especially important when making a change for first-to-invent to first-to-file and virtually eliminating our current grace period for third party activities.  Why not harmonize with respect to this issue?

Thanks to Hal Wegner for bringing these amendments to my attention.

Most opposition to the America Invents Act, previously passed by the Senate and likely to come to a vote in the House in the coming weeks, has been from smaller companies and universities.  Now, however, some opposition is being raised by members of Congress themselves.

Constitutionality

Reps. Dana Rohrabacher (R-CA) and Marcy Kaptur (D-OH) have raised the question whether the change from first-to-invent to first-to-file is constitutional.  They have even requested time to debate this issue on the House floor prior to a vote on the bill.  Their request has been joined by 50 other members of Congress.

While I don’t believe they have a strong argument, they base their position on the Patent and Copyright Clause of the Constitution.

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

They argue that the current system guarantees a patent to the first inventor (provided that the application meets the requirements for patentability).  By changing to a first-to-file system, someone other than the first inventor may be granted a patent, contrary to the Patent and Copyright Clause. 

The counter to this argument is that the change is actually a change to a first-inventor-to-file system.  Someone cannot simply file a patent application on someone else’s invention.  The new derivation proceedings are supposed to be a safe guard against this type of theft.  The only way to get a patent is to be an inventor.

But, what does that mean?  If you are not the first to conceive or reduce an invention to practice, are you actually an inventor?  If two individuals independently conceive of an invention, is the one who conceived second but filed first an inventor?  I guess these are the types of questions that Reps. Rohrabacher and Kaptur would like to debate.  IPWatchdog has a discussion of some of the issues here.

Fee-Setting Authority Would Make PTO Too Powerful

One of the top mandates of Patent Reform has been to keep Congress’ hands off PTO users’ money.  Theft of this money in the form of fee diversion has been an on-going problem for a number of years, stretching back through several administrations.  The America Invents Act seeks to end this practice by permitting the PTO to set its own fees and keep all of the money it collects.

Some members of Congress, however, won’t let go of the PTO cash cow without a fight.  Reps. Harold Rogers (R-KY) and Paul Ryan (R-WI) have sent a letter to Judiciary Committee Chairman Lamar Smith (R-TX).  Rep. Rogers is the Chairman of the House Committee on Appropriations and Rep. Ryan is the Chairman of the House Committee on the Budget.

We strongly oppose this proposed shift of billions in discretionary funding and fee collections to mandatory spending.  Putting PTO funding on auto-pilot is a move in exactly the wrong direction, given the new Republican majority’s commitment to restraining spending, improving accountability and transparency, and reducing the nation’s unparalleled deficits and debt. . . . It would be both irresponsible and unwise to allow the [USPTO] to operate solely under the authority of bureaucrats and White House political appointees — without being held accountable to the American public through their elected representatives in Congress.

They urge that the fee-setting provisions of the bill be deleted or modified before it comes to the floor for a vote.

Nowhere in their letter do they indicate how this provision would increase mandatory spending or increase the deficit or national debt.  Reading between the lines, one can only surmise that they are referring to the loss of the ability to steal PTO funds in the future.  The removal of this provision should doom the bill.

Is there enough opposition forming that the chances of passage are becoming slimmer?  It’s hard to say.  The more time that passes, however, the more opportunity the opposition has to organize.  We shall see in the coming weeks whether the votes remain for passage or whether the bill will die.

HT:  Patent Docs.

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. 

Specifically, the issues of the virtual elimination of the current one year grace period and the change from a first-to-invent to a first-to-file regime are being attacked.  Clyde Prestowitz, founder and President of the Economic Strategy Institute argued against the bill last week on his Foreign Policy blog.  He argued that the reason that America leads the world in innovation by large margins is because of our inventor-friendly system of granting patents to the first true inventor, instead of whoever wins the race to the PTO. 

He noted that the bill is being pushed by large, multi-national corporations who will benefit most from the change in the law.  He also argued that foreign inventors will be at an advantage over US inventors under the bill’s provisions.  He urges President Obama to pressure Congress to kill the bill or to veto it if it passes.

Several other media outlets have picked up on this position and question whether Congress is trying to kill American innovation through the America Invents Act.

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.