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Patently Inadequate


President Obama signing the America Invents Act

President Obama signed the America Invents Act into law on September 16, 2011, at Thomas Jefferson High School for Science and Technology in Alexandria, VA.

Credit: Rex Features (1443528G) United States via AP Images

Well before president Obama signed the Leahy-Smith America Invents Act (AIA) into law last September, the bill was already being hailed as the biggest overhaul to U.S. patent law since 1952. Promising to spur innovation, shorten application backlogs, and curtail legal costs, the bipartisan bill easily passed both houses of Congress. But despite grand aims, lawmakers did not rebuild the patent law from the ground up. Instead, they assembled a hodgepodge of compromises, particularly between the interests of large software companies, for whom patents have largely been a net drain, and those of biotechnology firms, which favored strong patent protection. To the bill's mildest critics, AIA did not go far enough in meeting the needs of the software industry. To bigger detractors, the new law is even worse than the old system—it is the legislative equivalent of spaghetti code, a jumble of rules whose meaning and implications will take judges and intellectual property (IP) lawyers years to untangle.

"This law is what the British call a 'dog's breakfast'—a little bit of everything," says University of California–Irvine law professor Dan Burk, who testified during Congressional deliberations last March. Unfortunately, Burk says, the lawmakers' attempts to reconcile competing aims led to provisions that have not been tested in other countries. "None of this new stuff has ever been seen anywhere on the planet Earth before," he says. "This is brand-new stuff that they made up in the halls of Congress, so nobody really knows what it means or how a lot of it is going to turn out. As a consequence, I'm guessing we have 20 years of litigation ahead of us before we know what the rules of the game are."

Although the full implications are not known, most experts agree on which handful of changes will have the greatest impact on the software industry, for which the threat of patent-infringement claims has long been a thorn in its side. Consider, for example, the Texas case earlier this year in which World Wide Web inventor Sir Tim Berners-Lee testified for the defense against a group of plaintiffs who claimed that anyone using interactive Web features was trampling on their intellectual property. Though interactive features seem obvious to Internet programmers today and have been a mainstay of Web sites for years, the ease of both patenting and suing made it easy for holders of two older patents to try wringing money out of anyone using interactive elements. (The plaintiffs lost.) The overwhelming majority of patent disputes never actually go to trial, but even settling lawsuits is expensive. Under the old law, Burk says, "a patent holder could sue, offer to settle for $1.5 million, and walk away with a nice pile of cash without putting the patent significantly at risk. It was cheaper for the defendant to pony up the $1.5 million."


One of the biggest and most positive changes with the America Invents Act is the establishment of prior-user rights as a defense against patent infringement suits.


This problem will not go away under the new law, but some of the law's changes will help at least somewhat. One of the biggest and most positive changes is the establishment of prior-user rights as a defense against patent infringement suits. "There are thousands and thousands of examples of software used by companies for making things," explains law professor John Allison of the University of Texas–Austin. In many other countries, patent laws enable companies to keep such internally used techniques a trade secret without worrying that they would be on the hook for patent infringement if someone else decided to patent the same technique. In the U.S., on the other hand, "under the old law you could lose your ability to use technology that you invented," says John Duffy, a law professor at the University of Virginia School of Law.

The AIA's introduction of the prior-user defense changes all of that. Especially given the costs of patenting, firms will likely have less incentive to disclose their inventions under this new provision, so the upshot could well be fewer patent filings and more trade secrecy. Even so, only time will tell whether companies will increase investment in technologies that they will not be patenting, says Allison, an empirical legal scholar.

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First to Disclose

Another major change, which like the prior-user defense tries to harmonize America's patent process with that of the rest of the world, is the much-discussed move from a first-to-invent system to a first-inventor-to-file system. The old system was a recipe for priority disputes (called interferences) because if two people working independently both filed for a patent, there was a question of who was the first to invent. "Those proceedings were very messy and hard to resolve because people didn't document very well what they were thinking on a given day," says John Marshall Law School professor Richard Gruner, who directs the school's Center for Intellectual Property Law. The new law aims to ward off such contests by creating a bright-line rule—priority would simply go to the first person to file the patent.

But in practice things will not be so clear-cut, says Burk. With the new law, he says, "we're neither first-to-invent nor first-to-file. What we really are now is 'first-inventor-to-disclose.'" That is because the law gives inventors up to a year to file a patent after publicly disclosing the invention. "That then blocks everybody out for a year." An unintended consequence of this, Burk believes, will be an impetus to game the system, especially around the March 16, 2013 changeover to the new system, with software developers and their lawyers strategizing about when to disclose an invention and when to file a patent. The law is not retroactive: Patents filed before the March changeover will be subject to the old system, so anyone with a patentable idea today faces the tough decision of whether to file now or to delay for the sake of falling under the new system. Burk says he is already seeing this kind of head-scratching among some companies' in-house counsel. The rules of the game are even more muddled by the fact that the law does not actually define the term "inventor," he says.

Despite the one-year grace period, most experts predict the change from a first-to-invent system will spur a rush to the patent office, which could mean a pile of hasty, slapdash applications and, most likely, an even bigger edge than ever for corporate giants with the means to hire teams of pricey IP lawyers.

Some say that to compete with overseas patent applicants the larger companies were already thinking in terms of first-to-file even before the new law. As Gruner puts it, "Any company that filed [later than others] in Europe or Japan was already out of luck in those systems." But the AIA's expansion of what counts as "prior art" that can be used to invalidate a patent creates new incentives to file early and often. This expansion, of course, also means it will be harder to obtain a patent, since more prior art will mean that fewer new patent applications will pass the novelty and non-obviousness tests.

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Weeding Out the Worst

Just about everyone agrees the AIA will do away with the very worst patents. "A lot of people in the software industry complain about obvious patents being issued," says the University of Virginia's Duffy, adding that obvious or non-novel patents increase costs without improving business conditions. "If there are a lot of bad patents, that's like stupid regulation—the kind of thing trade organizations lobby to prevent." Therefore, even though Duffy is wary of big government (and concerned the AIA may have given the U.S. patent office the fee-setting power to bloat itself), he is glad to see new ways for anyone to challenge bad patents directly through the patent office rather than the courts. That opens up the possibility of communal policing—a kind of crowdsourcing of the work of weeding out bad patents, which could drive down the costs of maintaining high patent quality. But like other legal scholars, Duffy is hesitant to make predictions until the evidence comes in. "It's not at all clear that it'll reduce costly litigation," he says. "That's the hope, not proven reality."

It is also not clear that getting rid of only the worst patents will do much to slow large firms' current patent arms race that, most recently, spurred Apple, Microsoft, and Google to pay billions of dollars to acquire arsenals of patents from Nortel and Motorola. This Cold War-like strategy of mutually assured destruction may be an effective defense against lawsuits and injunctions to stop selling products, but every dollar spent stockpiling patents is a dollar not spent on innovation. Improving patent quality should help relieve this problem, and the law aimed to make it easier to challenge bad patents, says Ted Sichelman, a former software entrepreneur who is now a professor at the University of San Diego School of Law. "But those provisions were watered down in the final bill."


The America Invents Act's expansion of what counts as "prior art" that can be used to invalidate a patent will create new incentives to file early and often.


What about patent trolls, the so-called "non-practicing entities" (NPEs) that profit from settlements in nuisance suits against software companies that actually develop and sell products? Such legalized shakedowns are another bane to the industry, particularly to large corporations, so the patent-troll problem was a major impetus for patent reform. Yet only the new joinder provisions, meant to limit plaintiffs' ability to target multiple defendants in a single lawsuit, are likely to make any kind of dent in that problem. "Suppose you have a piece-of-junk patent," explains Sichelman, "and the odds of you winning a [patent infringement] lawsuit are pretty low; but you know it will cost everyone involved $50,000, and in patent cases it's hard to get attorneys' fees back. So the old model was to sue a bunch of companies at once."

The new joinder provisions change the NPEs' cost-benefit analysis, since plaintiffs will no longer be able to inexpensively target additional defendants. The marginal cost of filing separate lawsuits is not huge, either, but the new math means the NPEs will not be suing willy-nilly.

It is possible the law will have positive effects on the larger economy, but probably not in ways the bill's supporters would want. When reporters called Irvine's Burk for a comment on Senator Patrick Leahy's claim that the AIA would create 200,000 new jobs, Burk was quick to offer a quip. "I said, 'Yeah, for patent lawyers.' If I were running I business, I wouldn't be so excited about it."

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Further Reading

Crouch, D. and Rantanen, J.
Patently-O blog, www.patentlyo.com.

Coyne, P.J.
The America Invents Act: How does it strengthen the patent system? Bloomberg BNA's Patent, Trademark & Copyright Journal, Oct. 28, 2011.

Durham, A.
Patent Law Essentials: A Concise Guide, Praeger, Westport, CT, 2009.

Hawley, J.J.
Patent Law Forum: America Invents Act, http://youtu.be/P383R9MFtiE, March 12, 2012.

Pressman, D.
Patent It Yourself, Nolo, Berkeley, CA, 2011.

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Author

Based in San Francisco, Marina Krakovsky is the co-author of Secrets of the Moneylab: How Behavioral Economics Can Improve Your Business.

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Figures

UF1Figure. President Obama signed the America Invents Act into law on September 16, 2011, at Thomas Jefferson High School for Science and Technology in Alexandria, VA.

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