Patent Legislation Passes House Judiciary Committee

WASHINGTON June 23, 2011 – After several unsuccessful attempts in previous Congresses, the House Judiciary Committee passed the America Invents Act late Tuesday by a vote of 32-3, moving the first significant overhaul of the U.S. patent system in more than 60 years one step closer to becoming law.

The Senate passed a similar piece of legislation, the Patent Reform Act, in early March with a vote of 95-5. The House bill has gained the support of many companies including 3M, Apple, Dell, Facebook, General Electric, Google, and Johnson & Johnson.

Under the new legislation, the patent system will change from the first-to-invent system to a first-inventor-to-file system. The first-inventor-to-file is currently the international standard, with only the United States and Philippines using the first-to-invent system. Under the first-to-file system, patents would be granted to the inventor that files for a patent regardless of whether the filer was the first to actually invent.

The potential change has received widespread support – including that of the Obama administration, which issued a statement of administration policy on the matter: “This provision provides greater certainty for innovators, reduces legal costs that often burden small businesses and independent inventors, and makes it easier for innovators to market their inventions in the global marketplace.”

In a letter to the committee, the National Association of Manufacturers said the new system would “eliminate unnecessary cost and complexity in the U.S. patent system.”

The bill would also change the process by which the U.S. Patent and Trademark Office (USPTO) issues business method patents. Those patents protect new ways that business can be conducted, such as online sales methods or insurance procedures. Under the proposed system an administrative panel would be created to review existing business methods patents and determine their validity.

In addition to clamping down on business methods patents, the bill would ban all tax strategy patents. The move to ban tax strategy patents is strongly supported by the American Institute of Certified Public Accountants and the Financial Planning Association.

In a letter of support the groups stated,  “We believe that it is bad public policy to grant someone a monopoly over a form of compliance with the Federal tax code, and no taxpayer should be subject to paying royalties or defending  themselves in lawsuits simply for using a legal way to comply with the tax code.”

The USPTO would also be required to establish an ombudsman that would work solely with small business and independent inventors. The ombudsman would provide small businesses with guidance as they proceed through the filing system. Additionally the bill would direct the USPTO director to work with intellectual property law associations to establish pro bono programs to assist underfunded inventors with the filing system.

In order to expand the ability of the USPTO to work more closely with inventors the agency would expedite the establishment of satellite offices. While the PTO director would have the authority to select future offices, the bill mandates the establishment of an office in Detroit.

While both the House and Senate bills are very similar, they differ in one major section: the end of fee diversion from the USPTO. The Office charges inventors when they file for a patent. During the last 20 years, more than $875 million in user fees were redirected from the USPTO for use by other agencies. A recent review by the Congressional Budget Office showed that by allowing the USPTO to keep its entire user fees, direct funding by the federal government to the Office would decrease by $725 million over the next 10 years.

The Senate bill would give the USPTO more authority to use the funds it collects from the fees, whereas the House version places the collected fees into a special fund under the oversight of the House Appropriations Committee. Under the House bill, the funds could be diverted to other uses, but the House Appropriations Committee has stated that it will only use the funds for the USPTO.

“While I am disappointed that the bill will not go to the House floor with the specific language contained in the Senate-passed bill to end fee diversion, the America Invents Act remains legislation that will be a tremendous boon for American inventors, American manufacturers, and American jobs,” said Sen. Patrick Leahy (D-VT), author of the Senate bill in response to this change by the House.  “I believe that the fee diversion language in the manager’s amendment, coupled with a commitment by the House Appropriations Committee to provide the Patent and Trademark Office with access to the excess fees it collects each year, would be a concrete step in the right direction.”