Patent Reform Act Brings U.S. in Line with Other Industrialized Nations

By Lena Mualla *

Gentleman with his inventionThe America Invents Act, signed into law on September 16, 2011, comes after years of attempted reform of our patent system.  Although it passed in Congress by an overwhelming majority, the patent reform legislation generated significant controversy for a variety of reasons.

What does the bill do?

The most fundamental and sweeping provision of the Act is the switch from a “first-to-invent” approach, where whoever invents first gets priority to the grant of a patent, to a “first-to-file” system, where whoever files with the United States Patent and Trademark Office (PTO) first gets priority, regardless of who put the patent into practice first.  This key provision will be effective in 2013.  Hailed because it will put the U.S. in line with all other industrialized countries, the first-to-file approach would afford more predictability for corporations dealing at the international level.

Additionally, a third party would be able to challenge the issuance of a patent by requesting a post-grant review.  If the petitioner can prove that the patent is most likely invalid, or if the petitioner can show that there is a new, unsettled issue raised by the petition, the post-grant review will be granted.  The current burden for re-examination is much higher, requiring a “substantially new question of patentability.”

Backlogs

Backlogs have been a longstanding problem at the PTO.  Some say the bill did not go far enough, noting that the Act lacks a fee retention provision, which would have allowed the PTO to expand its resources, thereby minimizing backlogs.  However, since the bill does not include such a provision, fees paid by patentees will continue to be diverted for use by other government projects outside of the PTO.

Patent “Trolls”

Low-quality patents, as they are euphemistically called, refer to overly broad patents obtained by patent trolls who have no intention of actually using the patent in practice.  Instead, a patent troll’s sole objective is to assert its rights against infringers in order to profit from legal actions, either by obtaining cash settlements or licensing agreements.  The Act aims to reduce patent trolling by offering several chances to contest the grant of a patent such as a post-grant review, or, once the nine-month window for post-grant review has passed, inter-partes review.  Moreover, under the Act, a plaintiff alleging infringement can no longer join alleged infringers who are otherwise unrelated in a single suit.  This means a court can no longer require defendants who are unrelated to appear in an inconvenient forum.  It also requires the patent troll to file numerous claims rather than just one per infringed patent, thereby making patent trolling more difficult.

Who wins?

The aim of the Act was to make the PTO more efficient in its handling of patent issues while benefiting all kinds of inventors, small businesses, and large corporations alike.  The benefit of first-to-file is that it makes patents easier to administer, dispensing with the need to sort out who was the first to put an idea into practice.  Moreover, the 15% surcharge on PTO fees intends to give the PTO sufficient resources to meet its administrative burdens more promptly than in the past.

Glaxo Smith Kline buildingYet, detractors such as Steve Perlman, an inventor who calls the Act a “catastrophe,” argue that first-to-file will favor large corporations with greater access to legal resources at the expense of small businesses.  In fact, the backing of the large technology and pharmaceutical companies was critical to the final consensus resulting in the passage of the Act.  According to Maplight.org, interest groups spent over $156 million to obtain Senate support for the Act.  An examination of the breakdown of which interest groups spent what money suggests at least one winner: about $64 million of the $156 million, approximately 41%, came from attorneys and law firms.

* Lena Mualla is a second-year law student at Wake Forest University School of Law.  She holds a Bachelor of Arts in Government and International Politics from George Mason University.  Ms. Mualla, a Fulbright award recipient, taught English in Indonesia prior to entering law school.  Upon graduation, she intends to practice international law or environmental law.