By Kevin E. Noonan —

The seeming legislative juggernaut that is the America Invents Act (S. 23 and H.R. 1249) is reportedly going to come to a floor vote in the House of Representatives this month.  If it passes, there is a real chance that the bill will be passed "as is" by the Senate, despite any differences between S. 23 and H.R. 1249 and be on the President's desk for signature before fall.  Since the administration's position is known (see "Commerce Secretary Provides Administration's Views on America Invents Act"), the time is for applying political pressure on Congress to address those portions of the bill that may hinder, not help, innovation.

One example of an attempt to encourage the "grass roots" effort that will be necessary to defeat (or amend, however unlikely that option may be) the bill is a letter from Carl Gulbrandsen (at right), the Managing Director of the Wisconsin Alumni Research Foundation (WARF).  WARF has long been a leader in technology transfer, beginning almost a generation before passage of the Bayh-Dole Act due to Vitamin D technology developed at the University of Wisconsin.  Dr. Gulbrandsen himself is a veteran advocate for increased intellectual property protection for university inventors; for example, he was one of the creators and leading proponents of the CREATE Act, which was intended to facilitate university-industry joint research.  Under his stewardship, WARF received the National Medal of Technology in 2003.

In short, Dr. Gulbrandsen has a lifetime of experience with technology transfer, innovation, and the patent system.  Thus, when he airs his views on issues like patent reform, it seems only prudent that Congress (and the rest of us) pay attention to what he has to say.  What follows is a letter from Dr. Gulbrandsen to his colleagues and the members of the Association of University Technology Managers (AUTM), regarding that group's support for the latest "patent reform" bill:

Dear fellow AUTM members and colleagues:

I am writing in response to the letter sent out by the AUTM board on May 17, 2011 (the "AUTM Letter") encouraging the membership to support H.R. 1249, the House of Representatives patent reform bill.  As director of an office that has been extensively involved in working with Congress and a number of stakeholders in the patent reform effort, I was very disappointed to read the AUTM Letter.  The letter does not fairly represent the impact the proposed legislation will have on universities, start-up companies, small businesses and independent inventors (hereafter, collectively, "innovators") if it becomes law.  The bill does represent a compromise as indicated by the AUTM Letter, as do all bills; and compared to the legislation as originally proposed, it is an improvement.  But compared to the present patent law, it is anything but an improvement.  Rather than benefit universities and strengthen patents as claimed in the AUTM Letter, H.R. 1249 promises to increase the cost of obtaining, maintaining and enforcing patents.  Directly and indirectly this proposed legislation would weaken patents and greatly reduce the incentive for licensing, changes that will frustrate innovation by favoring big business over innovators.  It conflicts with the statutory objectives and spirit of the Bayh-Dole Act and is of dubious constitutionality.

The reform proposed in this legislation includes the most significant changes to the U.S. patent law in over a century — and they are not good changes.  There are five major changes proposed which individually and in concert weaken patents and make it more difficult and expensive for universities to obtain, maintain, license and enforce patents.

First, the proposed legislation moves the U.S. patent system from a first to invent system to a first inventor to file system.  The AUTM Letter states that this enables "U.S. inventors to compete more effectively and efficiently in the global marketplace."  How does moving from a first to invent, which has been part of the U.S. patent system from its beginning, to a race to the patent office make U.S. inventors more competitive?  It doesn't; moving to a first to file system favors large businesses and in particular, well-financed, large foreign businesses over innovators.  Operating effectively in a first to file system requires financial and staffing resources that are generally not available to universities or other small entities.  Most universities today need a licensee willing and able to pay the patent cost before an application is filed.  Under a first to file system, that will often mean the university loses the race.

Second, the proposed legislation weakens the grace period that has been such an important and valuable right for U.S. inventors.  For universities the grace period has been particularly important. Under present law, the inventor need not do anything affirmative other than having made the invention to be entitled to the grace period.  The inventor is entitled to swear behind any prior art created during the grace period and still be entitled to obtain a patent.  Under the proposed law, the inventor must affirmatively disclose the invention to be entitled to a grace period.  Thus under the proposed law, a disclosure of the invention not made by the inventor or another acting on information from the inventor will act as a bar even if within a year of filing the application.  Moreover, if the purpose of the proposed legislation is harmonization with the rest of the world, then the disclosure grace period is effectively non-existent.  A disclosure before filing acts as an absolute bar in most jurisdictions outside the United States so the grace period only becomes useful if one does not intend to file globally.

Third, the proposed legislation effectively shifts the constitutional balance between trade secrets and patents to favor trade secrets.  Under present law, a person needs to choose between protecting an invention through trade secret and filing a patent application.  If the inventor chooses trade secret, the law today holds that the inventor abandons his right to obtain a patent.  Under section 35 U.S.C. section 102(c), a person is barred from receiving a patent if that person has abandoned the invention.  The proposed legislation does away with section 102(c), so if this proposed legislation becomes law, a person can keep the invention a trade secret until it becomes clear that it would be better to have a patent and then file a patent application effectively extending that person's competitive advantage 20 years.

Fourth, the proposed legislation further shifts the constitutional balance in favor of trade secrets by expanding prior user rights.  Under present law, a patent owner holding a patent covering a trade secret that is not a business method can sue the trade secret user, and if successful, receive just compensation including in some circumstances an injunction.  Under the proposed legislation, the trade secret owner could assert the prior user defense and if successful receive a free, paid-up license under the patent for the patented invention and any products made using the patented invention.  In essence, the trade secret holder receives a free ride on the rights of the patent owner and what was thought by the patent owner to be exclusive rights as required by the Constitution becomes non-exclusive.  Of course, if the trade secret owner is a large company able to control the market, the patent rights may become commercially worthless to the patent owner.  As open environments, universities ordinarily do not deal in trade secrets, which is one of the reasons why WARF has consistently opposed expansion of prior user rights.  AUTM, until the letter of May 17, was a partner in opposing expansion of prior user rights, but now has shifted sides for reasons stated in the AUTM letter — reasons we believe are largely political and not in the best interests of universities.

Fifth, the proposed legislation adds more opportunities to challenge the validity of patents.  Today, patent validity can be challenged through reexamination (ex parte and inter partes) and through infringement litigation.  Currently, it is more difficult to challenge a U.S. patent than a foreign patent, which we believe is good for U.S. universities and for U.S. innovation because it means that U.S. patents are considerably stronger than foreign patents.  Strong patents are critical to start-up companies trying to raise venture dollars.  Strong patents are also good for licensing.  The proposed legislation, however, adds both a post grant review procedure where patents during the 12 months following issuance can be challenged on any grounds and an enhanced inter partes reexamination procedure.  The net result is valuable patents will be more subject to challenge which increases costs for the patent owner, weakens the value of the patent, and makes it more difficult to license or raise capital funds necessary to starting a company and creating jobs.

As stated above, each of these changes acts to weaken our patent system to the disadvantage of innovators and especially university innovators.  Taken together, these changes strike a terrible blow to innovation in the United States.  Times are hard enough as is to start a company.  The last thing investors want is uncertainty, which is exactly what will happen if this proposed legislation becomes law.

This uncertainty is enhanced by legitimate questions of the constitutionality of this law.  In shifting the constitutional balance, the expansion of prior user rights runs counter to the constitutional purpose of our patent law which is to promote the progress of the useful arts by securing for a limited time exclusive rights to the inventor in return for disclosure of the invention.  It also fails to respect the express limitations in Article 1, Section 8, clause 8 of the U.S. Constitution.  The movement to a first inventor to file from the present first to invent system may also be constitutionally prohibited (referencing an article by Jonathan Massey).  Any patent reform that runs counter to the constitutional text and underlying purpose will face legal challenges that will call into question the validity of any patents granted under that legislation.  These concerns decrease the value of patents, make it more difficult to license and increase the cost of enforcement, which impacts innovators disproportionately more than large companies.

We encourage you to take a hard look at the legislation in light of what you and your offices are trying to do to commercialize university inventions.  I believe this proposed legislation strikes at the heart of what we are all trying to do and I am convinced it will make our jobs significantly more difficult.  We have attached materials that add additional information to the comments made above.  If you share our concerns, now is the time to act.  The Chairman of the House Judiciary Committee has stated publicly that he expects H.R. 1249 will be scheduled for consideration by the full House of Representatives during the middle of June.  Please ask your congressional representatives to oppose the bill or if you cannot do that directly, ask your governmental affairs people to do so for you.  Feel free to provide a copy of this letter to anyone you believe will be interested and helpful.  For example, provide a copy of this letter to the start-up companies you are working with, other local entrepreneurs and venture capitalists and ask that they oppose this legislation for the reasons stated in this letter.  Any assistance at all that you can provide will be very much appreciated.   Thank you for taking the time to read and carefully consider this letter.

Sincerely,

Carl E. Gulbrandsen
Managing Director
Wisconsin Alumni Research Foundation
614 Walnut Street
Madison, Wisconsin 53726

The rush to enact patent reform in this Congress stems from a variety of factors — the perception at the turn of the last century that the patent system was "broken"; the many attempts to enact patent reform over the past four Congresses; the differing economic incentives between technology sectors (with the computer/high tech sector being generally in favor of limited patent rights and the biotech/pharma sector being in favor of strong patent rights) are examples.  This time, however, patent reform has been packaged by its supporters as a way to stimulate the economy and provide jobs; the lure of improving the economy is a veritable siren song to politicians who need to appear to be doing "something" to improve the economy in view of the economic meltdown in 2008.  And patent reform is a good sound bite for that political pitch, since few understand the relationship between patents, innovation, and economic growth and fewer still are immediately harmed by reform (although the negative effects will eventually be felt, it will be hard for most to assess blame on the cause and effect or those responsible).

While the political impetus and motivations may be understandable, they are not enough to justify passage of a bill as flawed as S. 23/H.R. 1249 (for all the reasons mentioned in Dr. Gulbrandsen's letter and more).  There is some hint of the beginnings of a bipartisan effort to address some of these issues before the bill is brought to a vote in the House; unfortunately, it will take more than that to make this a true "reform" bill.  Politics being the art of the possible, it is only by ramping up their political efforts that opponents have a chance of preventing the bill as currently constituted from passing.  Time is growing short.

By Donald Zuhn —

In similar letters sent earlier today to the Chairman and Ranking Member of the House Judiciary Committee, Secretary of Commerce Gary Locke (at right) outlined the Department of Commerce's position on the House version of the America Invents Act (H.R. 1249), which was reported out of Committee almost seven weeks ago (see "House Judiciary Committee Approves H.R. 1249").  Secretary Locke began each letter by noting that "passage of needed reforms to our patent laws has been a high priority for me during my time as Secretary of Commerce because of its importance to America's competitiveness and our economic growth."

With the Republican-controlled House focused on cost cutting and deficit reduction, the Secretary reminded the letters' recipients, Chairman Lamar Smith (R-TX) and Rep. John Conyers, Jr. (D-MI), that "[e]nactment of a balanced bill is an important part of the Administration's goal of 'out-innovating' our economic competitors and winning the future — and it can be done with no cost to taxpayers and no addition to the deficit."  While acknowledging that the Senate (S. 23) and House versions of the bills are not identical, Secretary Locke stated that the Administration was "confident that the variations between the two can be resolved and that enactment of a bipartisan consensus bill is within reach."  The Secretary spent the remainder of each letter outlining the Administration's views on five "key provisions" of the House bill, which he said were "important to our goals of an appropriately funded and well-functioning USPTO and successful passage of a balanced bill."

Secretary Locke started by tackling the first-inventor-to-file provision, declaring that the Administration "strongly support[s] the proposed transition of the United States to a first-inventor-to[-]file system."  Arguing that this transition is "an essential feature of any final bill that will simplify the process of acquiring rights while protecting innovators," the Secretary pointed out that "[t]he first-inventor-to-file provision is consistent with the practices of our economic competitors, and would benefit U.S. businesses by providing a more transparent and cost-effective process that puts them on a level playing field with the rest of the world."  With regard to the grace period provided by the House bill — which has been a topic of debate in patent circles since the bill was reported out of Committee — Secretary Locke contended that H.R. 1249 "provides a more transparent and certain grace period (a key feature of U.S. law) and a definite filing date that enables inventors to promote, fund and market their technology while making them less vulnerable to costly patent challenges, which disadvantage small entity inventors."  According to the Secretary, these changes "will benefit all stakeholders, both small and large, regardless of the field of innovation."

Moving to the USPTO fee setting and funding provisions, Secretary Locke stated that the fee-setting authority provided in the bill would allow the USPTO to "ensure full cost recovery at no expense to America's taxpayers," as well as "process applications more quickly and produce higher-quality patents that are less likely to be subject to a court challenge."  Pointing to the "deliberative and transparent [fee] review process" set forth in the bill, the Secretary suggested that the bill contained "a comprehensive and appropriate set of mechanisms to ensure all fee changes are well-considered and well-calibrated."

Addressing the bill's post-grant review provisions, the Secretary stated that the Administration "supports establishing a new post-grant review proceeding and retooling the existing post-grant inter partes reexamination procedure," arguing that "[t]hese proceedings will serve to minimize costs and increase certainty by offering efficient and timely alternatives to litigation as a means of reviewing questions of patent validity," and "provide a check on patent examination, ultimately resulting in higher quality patents."  As for the Office's ability to handle the burden of these proceedings, Secretary Locke indicated that "[v]arious safeguards and flexibilities are included in the proposed proceedings to enable USPTO to effectively implement and manage them."

With regard to pre-issuance submissions, the Secretary contended that "the opportunity for third parties to submit potentially relevant prior art to the USPTO after publication of an application and before examination" will "increase the quality of patents."

The Secretary closed his letter by discussing the expansion in H.R. 1249 of the prior user defense to all areas of technology, stating that "[a]s a matter of fairness, we believe that innovators who independently create and commercialize technology should not be penalized for, or deprived of, their investment."  Taking note of the concerns raised by "some in the university community," Secretary Locke offered "to work with the Committee on any proposed revisions" to the provision.

In a press release concerning Secretary Locke's letter to House leadership, the U.S. Patent and Trademark Office indicated that the America Invents Act "enhances the U.S. patent system by increasing certainty of patent rights through implementation of a first-inventor-to-file standard for patent approval while also reducing the need for cost-prohibitive litigation, which all too often ties up new ideas in court, stifling innovation and holding back job creation," adding that "[u]ltimately, the proposed legislation will provide the most meaningful reforms to the U.S. patent system in 60 years."  The release also stated that the legislation will create an "updated patent infrastructure [that] will level the playing field for small enterprises seeking to participate in the global marketplace — reducing expensive and time-consuming litigation, simplifying the process of acquiring rights and creating a system that mirrors others around the world, all while enhancing American competitiveness and spurring economic growth."

For additional information regarding this and other related topics, please see:

• "Patent Reform News Briefs," May 11, 2011
• "Boundy Issues Call to Arms on America Invents Act," April 21, 2011
• "More Reaction to H.R. 1249," April 18, 2011
• "House Judiciary Committee Approves H.R. 1249," April 14, 2011
• "Reaction to Manager's Amendment to House Patent Reform Bill," April 13, 2011
• "House Judiciary Chairman Releases Manager's Amendment to H.R. 1249," April 12, 2011
• "Reaction to House Patent Reform Bill," March 31, 2011
• "House Introduces Its Version of 'America Invents Act,'" March 30, 2011
• "Patent Reform Discussion Moves to House," March 29, 2011
• "The Disappearance of Deceptive Intent in S. 23," March 23, 2011
• "'Reform' at the U.S. Patent and Trademark Office," March 22, 2011
• "Few 'Reform' Provisions Remain in S. 23 Relating to the Judiciary," Marech 21, 2011
• "Additional Opportunities for Pre- and Post-grant Review, and Brand New Patent Trial and Appeal Board in S. 23," March 17, 2011
• "Post-grant Review Provisions of S. 23," March 16, 2011
• "Inventor's Interests, If Not Rights, Limited by S. 23," March 15, 2011
• "What Are the Provisions of the Proposed "First-Inventor-to-File" System in S. 23?" March 14, 2011
• "Obama Administration Supports S. 23," March 9, 2011
• "Reaction to Senate Passage of S. 23," March 8, 2011
• "Senate Passes S. 23," March 8, 2011