By Kevin Noonan —

On Wednesday afternoon, Senator Dianne Feinstein (D-CA) (at right) addressed the Senate, calling for passage of an amendment to strip the "first-inventor-to-file" provisions from the Senate patent reform bill (S. 23).  That amendment lost, 87-13 on Thursday, but her 5-minute speech raised important issues for the House of Representatives to consider when it takes up patent reform legislation (as well as issues that may be raised in any Constitutional challenge).  Senator Feinstein said the following:

I rise today to offer an amendment [SA 133] to strike the first to file provisions of this bill.  I am joined in this effort by my co-sponsors, Senator [James] Risch [R-ID], Majority Leader [Harry] Reid [D-NV], and Senators [Mike] Crapo [R-ID] and [Barbara] Boxer [D-CA].  I also ask unanimous consent that Senator [John] Ensign [R-NV] be added as a co-sponsor of the amendment.  I know that the bill has contained these provisions for some time now, and I acknowledge that I have voted for different versions of it that contained these provisions.  But I've heard more and more in the past two years from small . . . inventors, startup companies, small businesses, venture capitalists, and yes even large companies, from all around our country, but especially in my state of California, that this proposed transition, from our first to invent system to a first to file system would be severely harmful to innovation, and especially burdensome on small inventors, startups, and small businesses.  And I have become convinced that it's the wrong thing to do.

For the benefit of my colleagues, who have not been so embroiled in this rather technical issue, let me provide a little background.  For over a century, our country has awarded patents to the first inventor to come up with an idea, even if somebody else beat them to the Patent Office.  A "first to invent" system, and we have done very well under the first to invent system.  This bill would change that, so that the first person to file an application to a patent for a particular invention would be entitled to that patent, even if another person actually created the invention first.  And this is what's known as the "first to file" system.

Now the argument . . . that's made for transitioning is that the rest of the world follows first to file, and this will harmonize our system with theirs.  This is really supported by big companies, who have already made it, who have an international presence.  Therefore, I understand their support for first to file.  But under first to invent, we have been the world's leader in innovation, and the first to file countries have been playing catch-up with our technological advances.  So without all due respect, I wouldn't trade America's record of innovation for that of virtually any other country, or certainly any first to file country.  The genius of America is inventions in small garages and labs, and great ideas that come from inspiration and perspiration in such settings and then take off.  So many of America's leading companies — Hewlett Packard, Apple, Google, even AT&T arising from Alexander Graham Bell's lab, for example — started in such settings and grew spectacularly, creating jobs for millions of Americans and lifting up our economy and standard of living.

A coalition of affected small business groups, including the National Small Business Association and others, recently said and I quote, that "first to file disrupts the unique American startup ecosystem that has led to America's standing as the global innovation leader."  It's critical, I believe, that we continue to protect and nurture this culture of innovation.  And preserving the first to invent system that has helped foster it, is essential to do this.

Moreover, this bill would not actually harmonize our patent priority system with that of the rest of the world.  Many first to file countries allow more extensive use of prior art to defeat a patent application, and provide for greater prior user rights than this bill would provide.  And Europe does not provide even the limited one-year publication grace period that this bill does.

An important part of this debate are the changes the bill makes to the so-called "grace period" that inventors have under United States current law.  Presently, a person's right to their invention is also protected for one year from any of the following:  1) describing their invention in a printed publication; 2) making a public use of the invention; or 3) offering the invention for sale.  This is called "the grace period," and it's critical to small inventors.  108 startups and small businesses wrote last year and I quote, "U.S. patent law has long allowed inventors a one year grace period so that they can develop, vet and perfect their invention, begin commercialization, advance sales, seek investors and business partners, and obtain sufficient funds to prosecute the patent application."  During that grace period, many inventors learn about starting a technology-based business for the first time.  They must obtain investment capital.  They often have to learn from outside patent counsel (at considerable expense) about patenting and related deadlines and how to set up confidentiality agreements.  Many startups or small businesses are in a race against insolvency during this early stage.  The grace period protects them during this period, and loss of patent rights due to any activities, any information leaks or inadvertent unprotected disclosures prior to filing their patent applications.

S. 23 eliminates this grace period for offering an invention for sale or making a public use of it, leaving only a grace period from, quote, "disclosure" of the invention.  There are two problems with this.  First, disclosure is not defined in the bill.  This will generate litigation, while the courts flesh out that term's meaning.  While this plays out in the courts, there will be uncertainty about whether many inventions are patentable or not.  This uncertainty will in turn chill investment, as venture capitalists will be reluctant to invest until they are confident that the inventor will be able to patent on their own invention.  Secondly, because of this lack of definition, some patent lawyers interpret "disclosure" to mean a disclosure that is sufficiently detailed to enable a person of ordinary skill in the particular art to make the invented item.  In practical terms, this means a patent application or a printed publication.

Now this does provide some protection to universities, it's true; they often publish about their inventions.  However, it is scant protection for the small inventor.  They don't publish about their inventions, until they file a patent application.  As the 108 small businesses put it, and I quote, "no business willingly publishes complete, technical disclosures that will tip off all competitors to a company's technical direction.  Confidentiality is crucial to small companies."  The grace period from offering for sale or public use really is critical for their protection.  Eliminating it, will in the words of these small businesses, quote, "practically gut the American one-year grace period."  The National Small Business Association wrote recently, and I quote, "The American first to invent, grace period patent system has been a major mechanism for the dynamism of small business innovation.  It is clear that the weak or entirely absent grace periods used in the rest of the world's first to file patent systems, throttle small business innovation and job creation."

Our amendment would provide [sic, protect] America's world-leading system.  I'm also very concerned that first to file would proportionately disadvantage small companies and startups with limited resources.  I've become convinced that this change would impede innovation and economic growth in our country, particularly harming the small, early-stage businesses that generate job growth.  Obviously the process of innovation starts with the generation of ideas.  Small California companies and inventors have described to me, however, how most of these ideas ultimately do not pan out.  Either testing or development proves that they are not feasible technologically, or they prove not to be viable economically.  Unfortunately, first to file incentivizes inventors to race to the Patent Office, to protect as many of their ideas as soon as possible, so they're not beaten to the punch by a rival.  Thus, first to file will likely result in significant over-filing of these dead end inventions, unnecessarily burdening both the Patent and Trademark Office and inventors.

As Paul Michel, former Chief Judge of the Court of Appeals for the Federal Circuit, and Gregory Junamen, President of the International Federation of Professional and Technical Engineers put it in a recent letter to the [Judiciary] Committee, and I quote, "as Canada recently experienced, a shift to a first to file system can stimulate mass filing of premature applications as inventors rush to beat the effective day of the shift or later filings by competitors."  This presents a particular hardship for independent inventors, for startups and for small businesses, which do not have the resources, and volume, to employ in-house counsel, but must instead rely on more costly outside counsel to file their patents.  This added cost will drain resources away from the viable ideas that can build a patent portfolio, and a business.  At a time when the Patent and Trademark Office has a dramatic backlog of one million patents waiting to be examined and a pendency time of some three years, Congress should be careful to ensure that any legislative changes will not increase patent filings that are untruthful.

The counter argument is made that a small inventor could file a cheap, provisional patent application and that's sufficient protection.  However, patent lawyers who work with small clients have said that they advise their clients not to treat a provisional application any less seriously than a full patent application.  If there is part of an invention that's left out of the provisional application, that application will not be protected, and the parts that are included in the provisional application will also be vulnerable, under an attack that the inventor failed to disclose the best mode of the invention, by leaving out necessary information.

The argument is made that first to file will establish a simple, clear priority of competing patent applications.  Proponents of first to file argue that it will eliminate costly, burdensome proceedings to determine who actually was the first to invent, which are known as interference proceedings.  However, the reality is that this is not a significant problem under our current system.  There are only about 50 interference proceedings per year to resolve who made the invention first.  This is out of 480,000 patent applications that are submitted each year.  In other words, one hundredth of one percent of patent applications.

Another problem with the bill's first to file system is the difficulty of proving that someone copied your invention.  The bill's proponents assert that it protects against one person copying another person's invention by allowing the first inventor to prove that, and I quote, "such other patent was derived from the inventor of the invention."  Currently, you as a first inventor can prove that you were first by presenting evidence that's in your control:  your own records, contemporaneously documenting the development of your invention.  But to prove that somebody else's patent application came from you (under the bill, was "derived" from you), you would have to submit documents showing this copying.  Only if there was a direct relationship between the two parties will the first inventor have such documents.  If there was only an indirect relationship, or an intermediary (for example, the first inventor described his invention at an angel investor presentation or he didn't know the identities of many in attendance), the documents that show derivation (which means "copying") are not going to be in the first inventor's possession.  They would be in the second party's possession.  You would have to find out who they talked to, who they e-mailed with, to trace it back to your original disclosure.  But the bill doesn't provide for any discovery in these derivation proceedings.  So the first inventor can't prove their claim.

For these reasons, and many others, the first to invent system, which I believe has made our nation the leader in the world, which our amendment would preserve, is supported by numerous people and businesses around the country, including the National Small Business Association, the Coalition for Patent Fairness (that's a coalition of large, high-tech companies), the Institute of Electrical and Electronics Engineers, which has 395,000 members, the International Federation of Professional and Technical Engineers, AFL CIO, the University of California system, the University of Kentucky, Paul Michel, the former Chief Judge of the U.S. Court of Appeals for the Federal Circuit, which plays a critical role in hearing appeals in patent cases, and the U.S. Business and Industry Council, American Innovators for Patent Reform, the National Association of Patent Practitioners, Professional Inventors Alliance USA, Connect, a trade association for small technology and life science businesses, and many small inventors, as represented for instance by a letter signed by 108 startups and small businesses from across the country.

. . .

Mr. President, I don't often agree with the organization Gun Owners of America, an organization that believes that the National Rifle Association is too liberal.  But I do agree with them on this issue.  They are part of the coalition of 23 conservative organizations that wrote to the leaders about this, arguing and I quote, "our competitors should have to harmonize up to our superior intellectual property regime, rather than our having to weaken our patent system and harmonize down to their levels.  There are many other signatories, but I think this is really a battle between the small inventor, the beginning in the garage, the Apple computer who was nowhere, who through the first to invent system was able to create one of the greatest companies in the world.  America's great strength is the cutting edge of innovation and the first to invent system has served us well.  You know, if it isn't broke, don't change it and I don't really believe its broke.

Of course, the amendment was defeated.  But Senator Feinstein's remarks may contain a glimmer of how the first to file regime may be opposed when matters go to the House of Representatives.  Perhaps those members will be more receptive to the sentiment from the Gun Owners, that harmonization makes more sense if it improves, rather than weakens, the patent system.  Or at least there may be a sentiment to require that the other major patent offices provide a U.S. grace period before the first to file provisions comes into effect (which was a requirement in the last patent reform bill to pass the House three years ago).  Senator Feinstein's remarks can be viewed here.

By Kevin E. Noonan —

On Tuesday, for the second day in a row, Senator Patrick Leahy (D-VT) (at right) stood on the floor of the Senate and argued for his colleagues to pass S. 23, now named the "Invent America Act."  In Tuesday's action (which can be seen here:  Senate Session, Part I and Senate Session, Part 2), Senator Leahy introduced a Manager's Amendment (the reported provisions of which are summarized below).  In addition, Senator Mark Kirk (R-IL), joined by Senator Mark Pryor (D-AR), introduced an amendment (S.AMDT.123) to provide a fast lane for small businesses within the USPTO, while Senator DeMint (R-SC) introduced an amendment not germane to patent law.  Senator Leahy, while yielding to permit these amendments to be entered, insisted in each instance that the Manager's Amendment be the amendment under consideration by the Senate at all times.

The Manager's amendment is expected to have the following effects:

• Change the title of S. 23 to the "America Invents Act"

• Change the date of the repeal of statutory invention registrations, which are used only in first-to-invent, to conform to the date of the change to first-inventor-to-file.

• Strike all damages language remaining in the bill — including the gatekeeper, sequencing, and recodification of current law as subsection (a) which was the "grand compromise" brokered in the last Congress by Senator Dianne Feinstein (D-CA), then-Senator Arlen Spector (R, then D-PA), and Senator Leahy.  The bill now makes no changes to 35 U.S.C. § 284; this turn of events is ironic, in view of the importance of changes to this section in motivating support and providing the genesis for patent reform.

• Regarding the post-grant review provisions, replace the subsection imposing a six-month deadline on filing after litigation is commenced with a provision requiring a court to consider a preliminary injunction without taking the existence of either a petition or post-grant review proceeding into account if the patent owner sues within 3 months of the issuance of patent.

• Limit the post-grant review provisions to only "first-inventor-to-file" patents — i.e., "first-to-invent" patents will not be subject to post-grant review.  The rationale for this change is that first-to-invent patents raise discovery-intensive invention-date and secret-prior-art issues that would be difficult to address in an administrative proceeding.  This also facilitates PTO institution of the post-grant review regime.  In light of this change, the time for implementing post-grant review is moved back to one year after enactment, so that it becomes effective at the same time other provisions of the new law are implemented, which is what the PTO is said to prefer.

• Give the Director discretion to continue to use old inter partes reexam during the first four years after the new law is implemented.  The Director believes his reforms in the Office have greatly improved the existing inter partes procedure, and it may actually work more efficiently.  The existing inter partes procedure can also be used for post-grant review proceedings that are instituted only on the basis of patents and printed publications.

• Strike the codification of the In re TS Tech USA Corp. case regarding transfer-of-venue rule.  TS Tech already applies as a matter of case law in the Fifth Circuit.  (The Federal Circuit applies regional circuit law to procedural matters, and reads Fifth Circuit law as applying the transfer of venue rule.)  Complaints about venue generally focus on the Eastern District of Texas, so there is little need to apply TS Tech nationally or by Act of Congress.

• Add a new provision requiring the Director to charge reduced fees to small entities for use of accelerated examination.

• Add language making clear that the repeal of the Baldwin rule (which rule requires Federal Circuit judges to live within 50 miles of Washington, D.C.) shall not be construed to require the Administrative Office of the Courts to provide judges with office space or staff outside of D.C.

• Broaden the definition of "microentity," a status that entitles applicants to reduced fees (purportedly with PTO approval).

• In the tax patents section, add language:  (1) clarifying that the legislation does not bar patenting of tax software that is novel as software — i.e., where the innovation is in the software, although this may not survive to final passage; and (2) establishing that making tax strategies unpatentable shall not be construed to imply that other business methods are patentable or valid.  This is intended to avoid the implication from Bilski v. Kappos (2010), where the Supreme Court interpreted Congress's 1999 enactment of a prior-user right that only applied against business-method patents as implying that business methods qualify as patentable subject matter under § 101, which was enacted in 1793.

• Add language to the part of the bill regarding the Surpreme Court's decision in Holmes Group v. Vornado Air Ciculation System allowing removal of patent cases from state to federal court to clarify that derivative jurisdiction is not required in such cases.  (Derivative jurisdiction is the doctrine that, even if a federal district court would have had original jurisdiction over an action, on removal, the district court can only have jurisdiction if the state court from which the action is removed properly had jurisdiction.)

• Include the Schumer-Kyl business-methods amendment, modified to accommodate industry concerns and PTO needs.  The Schumer amendment provides for a proceeding that is a relatively cheap alternative to civil litigation for challenging these patents, which will reduce the burden on the courts of dealing with invalid business-method patents.  The proceeding has been limited since mark up so that:  (1) only defendants or accused infringers may invoke the proceeding; (2) prior art is limited to existing § 102(a), which must be publicly available, or prior art of existing § 102(b) scope that falls outside the existing § 102(b) grace period (i.e., effectively, existing § 102(b) prior art but limited to existing § 102(a)'s publicly-available prior-art scope); (3) the proceeding may not be used to challenge a patent while it is eligible for a post-grant review challenge (i.e., a "first-inventor-to-file" patent during the first 9 months after its issue); (4) the proceeding is available only for four years; (5) district courts can decide whether to stay litigation based on the four-factor Broadcast Innovation v. Charter Communications test, and the Federal Circuit can review the decision to stay on interlocutory appeal to ensure consistent application of established precedent; (5) the definition of business-method patent, which tracks the language of Class 705, is limited to data processing relating to just a financial product or service (rather than also to an enterprise.

• Give the PTO greater flexibility in paying and compensating the travel of APJs.  A large number of APJs will need to be recruited, trained, and retained to adjudicate post-grant review and derivation actions.  This change's enhancements will be paid for out of existing funds.

• Include the Coburn amendment ending fee diversion.  Currently, PTO fees go into a Treasury account and are only available to the Office as provided in appropriations.  In the last two decades, about $800 million in PTO user fees has been diverted from PTO to other federal spending.  The Coburn amendment creates a revolving fund, giving PTO direct access to its fees without the need for enactment of an appropriations act.

In addition, in a separate amendment, the Office is authorized to set its own fees:

(1) IN GENERAL.–The Director shall have authority to set or adjust by rule any fee established, authorized, or charged under title 35, United States Code, and the Trademark Act of 1946 (15 U.S.C. 1051 et seq.), notwithstanding the fee amounts established, authorized, or charged thereunder, for all services performed by or materials furnished by, the Office, provided that patent and trademark fee amounts are in the aggregate set to recover the estimated cost to the Office for processing, activities, services, and materials relating to patents and trademarks, respectively, including proportionate shares of the administrative costs of the Office.

The amendment passed on a vote of 97-2.  Senators Jon Kyl (R-AZ) and Amy Klobucher (D-MN) spoke in favor of the bill and the Manager's Amendment, with neither exhibiting any particular understanding of the issues.  Debate continued today, with Senator Feinstein (D-CA) introducing an amendment to strip the bill of the first-inventor-to-file provisions (Patent Docs will have more on this debate in a subsequent post).  (When the Senate gets through with this bill, there may not be much left.)

In view of the amendments, the principal changes constituting "patent reform" will be the change to first-inventor-to-file and post-grant review, both of which have raised concerns from sole inventors and small businesses as having a disproportionately negative effect (see "More Reaction to Senate Patent Reform Legislation").  These complaints suggest that, as has happened before, interests who believe this bill will harm their capacity to innovate should make their views known to their Senators.