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Reinventing The Patent Act

Brandon Shalton is on a mission from God. Well, sort of.

Shalton created a company in 1999 that developed audio-to-web technology that could instantly digitize phone messages and post them on a Web site. Although the company foundered on the shoals of the dot-com disaster, it gained new life in 2003 in the form of, a Web site serving the online-ministry needs of churches.

"It won't stop patent trolls," Shalton says. "The patent office is an institution that some people believe exists to serve their purposes. A system that was intended to protect the 'little guy' from larger companies stealing their ideas is turning into a system that serves large companies who can just patent anything."

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"Our industry is vulnerable to these claims," says Bart Eppenauer, chief patent counsel and associate general counsel for Microsoft Corp. "Microsoft spends more than $100 million annually defending patent-infringement lawsuits. Most of the cases are brought by patent speculators who don't have products or conduct their own R&D, but are there to win a lottery-ticket case."

However, on the other side of the debate, pharmaceutical companies (and businesses in many other traditional manufacturing industries) are not vulnerable to patent trolls. They sell products based on fewer inventions, and each one is more costly and time-consuming to develop than almost any software or IT component. Pharma/biotech companies are accustomed to spending millions of dollars on R&D, and protecting their IP is a paramount consideration. Thus these companies invest heavily in patent protection and regulatory compliance, and a strong government-relations infrastructure is vital to their success.

On the other hand, if the interests of large inventors or powerful political lobbies are allowed to stymie needed changes--or divert those changes in directions that hurt other constituencies--innovation could likewise suffer.

"In the big picture, what's going on here is that the established, entrenched members of the patent community, including the lawyers, are accustomed to the system and don't want it to change," Schultz says. "The Patent Act of 2005 is a step in the right direction, and generally all the reforms are necessary. But there are serious management and structural issues at the PTO itself that the PTO doesn't even acknowledge. I'd caution anyone against seeing this bill as a panacea."

In the long run, the outcome could be to degrade the innovation prowess that has made the U.S. a technology leader on the world stage. "Opponents of first-to-file say our technology advantage is somewhat related to the fact that our system is different," says Ken Godlewski, a partner with Kilpatrick Stockton in Washington, D.C. "We create incentives for people who aren't necessarily the first in line at the PTO to establish they are entitled to a patent."

Furthermore, some proposed changes designed to help small players might actually hurt them. Namely, the post-grant opposition procedure would provide a lower-cost venue for challenging questionable patents, but smaller entities might find themselves at the mercy of large companies that can afford to make the most of the post-grant process.

Moreover, filers could create a logjam of ill-defined patents at the PTO as they rush to file before they are ready to fully specify their inventions. Few argue, however, that the first-to-file provision will flood the office with provisions, simply because multinational corporations--who represent a majority of the filers--already are operating under a first-to-file regime.

A flood of post-grant oppositions, however, is a real concern that might have dramatic effects on the PTO.

Opponents to the injunctions provision saw it as an immoderate solution to the problem of abusive litigation, and in fact it might have encountered a constitutional challenge in the Supreme Court.

"The Constitution gives inventors the right to exclude others from manufacturing an invention," Roche says. "The type of reforms proposed--replacing the right to an injunction with compulsory licensing--might be unconstitutional."

Russo's story illustrates the real-world consequences of funding policies at the PTO. Congress provides the agency with a budget, and filing fees the PTO collects go to the general fund rather than back into the agency's budget. Hence when filings and other activities increase rapidly, as they did in the late 1990s, the PTO quickly becomes swamped with work it can't afford under its fixed budget.

The Patent Act of 2005 (HR 2795) would exacerbate this problem because it would add duties to the patent office, most notably a post-grant opposition procedure that didn't exist before, and the responsibility for determining whether a filer has violated duty-of-candor requirements. However, the bill doesn't provide any additional funding resources for the PTO to implement these requirements and does nothing to fix the basic problem of fee diversion.


Michael T. Burr

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