Deep Divisions Between Firms Large and Small Remain Over House Patent Reform Bill

After six years and multiple hearings, stakeholders in the great patent reform debate still can’t agree on how to modernize U.S. law to stifle abuse of the system, and to streamline the process of awarding patents.

The House Judiciary Committee on Wednesday introduced its long-awaited patent reform legislation and once again several provisions sparked off a objections both from committee members as well as from witnesses.

Though the morass of companies and institutions on either side of the debate can make the issues confusing, one set of factors that establishes the dividing line that determines the position of a company is its size, the condition of its finances, and the centrality of a patent to the company’s survival.

Thus it wasn’t surprising on Wednesday when a group of mid-sized technology companies (some of which are headed by serial entrepreneurs) issued a statement that flat-out opposed the proposed legislation.

The group opposes the legislation because they fear that start-ups could be sabotaged by serial attempts to invalidate patents they’ve obtained at new post-grant proceedings at the USPTO.

“The Innovation Alliance is disappointed that the America Invents Act as introduced today in the House of Representatives does not include some important safeguards against the potential for abuse of the post-grant review procedures at the U.S. Patent and Trademark Office,” said Brian Pomper, the group’s executive director in a press statement. “In particular, the bill includes a weak threshhold for ‘second window’ interpartes review proceedings, one that will allow virtually all challenges to proceed to a trial-like hearing before an adminsitrative patent judge.”

“We believe a higher threshhold is needed to enable the USPTO to manage the increased workload of the new administrative review system fairly and efficiently by screening out meritless or unsubstantiated petitions.”

The Innovation Alliance’s members include Dolby Laboratories, Tessera, Digimarc.

Some inventors in the technology community worry that this new procedure at the patent office would result in so much uncertainty that it would undermine their ability to get financing, and to create new companies — even more so than the other provisions that have garnered so much press attention: The switch to First-To-File from First-To-Invent, and the changing of the rules governing the one-year ‘grace period’ that allows inventors to sell and practice their inventions prior to filing for a patent.

But large Silicon Valley technology companies that are often the target of what they deem are “frivolous” lawsuits support the change. They believe that the proposed changes will speed up the process of revoking patents that should never have been issued in the first place.

To be sure, many ideas in the legislation enjoy the support of a wide group of associations and companies. Even House Majority Leader Eric Cantor, R-Va., weighed in on Wednesday with his support.

“The bill introduced today by Chairman Lamar Smith and the House Judiciary Committee will streamline and modernize the patent approval process, so that the government can return to rewarding American ingenuity, which is the lifeblood of new job creation, entrepreneurialism and business growth,” Cantor said in the press statement.

Many of the concerns that sparked off calls for reforming the patent system have been addressed in the courts.

Both the House and Senate legislation takes up where the courts left off. The bills call for the harmonization of the U.S.’ legal system with the rest of the world’s by switching the way the U.S. awards its patents to those who file first for a patent, rather than to those who claim they invented something first. Another proposed change is a truncated “grace period,” the period during which an inventor is allowed to sell and use their invention before filing for a patent.

Although many small business representatives and others object to these changes, globalization means that small businesses should be thinking globally anyway, say many patent law experts.

Some U.S. entrepreneurs, for example, might never have the intention of selling a product in China, for example, but may find their products being copied there after some people were able to get access to their products at trade shows in the United States. If they haven’t filed for patents in China, they can’t protect their products there, or anywhere else outside of the United States where the products might be selling.

So having everyone on a similar system just makes the filing process easier, say advocates for the change.

Another proposal in the House bill that’s stirring up opposition is a proposal to extend prior-user rights. That’s the notion of protecting someone who is using an invention as a trade secret against a patent infringement lawsuit from someone who later discloses the invention, and filed for the patent.

During the Wednesday hearing, Rep. Jim Sensenbrenner, R-Wis. told David Kappos, the United States Patent and Trademark Office director, that the provision could act as a “poison pill” to the successful passage of the legislation.

Sensenbrenner said that, in his mind, Congress should just enact the provisions to make sure that the patent office is fully funded, and that would end fee diversion, and let the rest of the ideas in the legislation “sink or swim.”

Other legal professionals in the blogosphere agreed that the prior user rights provision is a bad idea.

“A patent system that rewards trade secret rights over patent rights is an abomination,” said patent attorney Gene Quinn on his popular patent law blog IPWatchDog.

But large U.S. technology firms that are often embroiled in patent infringement suits re-iterated their support for the idea in a statement issued Wednesday.

“We will continue to support prior user rights and a robust funding structure for the Patent and Trademark Office, and work with Congress to resolve our concerns,” read the statement from the Coalition for Patent Fairness, a group that includes Apple, Cisco, Dell, Google, Intel, Oracle and others.

For their parts, other members of congress also weighed in again on Wednesday with their opposition to the House legislation as introduced.

Rep. Mike Michaud of Maine, as well as Rep. Don Manzullo of Illinois issued statements re-iterating their concerns over various provisions of the legislation.

Unlike previous years, however, this year’s patent push is part of a larger economic agenda being promoted by the Obama Administration. The administration is touting reform as a way to revitalize job growth — hopefully to be sparked off by start-ups and small businesses.

And so there was an edge of desperation to the questions posed by many members of the House Judiciary committee in attendance on Wednesday.

“I’m in the reconciliation business,” Rep. Mel Watt, D-N.C. told one of the witnesses as he tried to coax concessions from the panel.

“At the end of this, my ultimate question is: Is there a way to reconcile where the three of you all are on this issue?” he asked.

It seemed as if many of them wanted the witnesses to say something good — anything good — about the legislation after six years of trying to forge a bill that could be acceptable to everyone.

If a compromise isn’t reached, the effort could just crash, the patent application backlog would  just continue to grow, and then it’ll be the tech companies and unemployed workers in the US economy that are desperate.

Instead of just thinking on behalf of certain constituents then, perhaps lawmakers can use their six years of debate to truly determine for themselves what might be best for job creation from the start-up point of view. After all, that’s where growth comes from.

As an official at the patent office recently stated during a panel organized by the Intellectual Property Breakfast Club: “You want a clean, consistent, efficient system that establishes rights, that establishes effective dates in a fair, and reasonable way.”

Perhaps that should be policymakers’ mantra as they continue to work on this legislation: Focus on getting the patent approval process right the first time, and then limit the processes for second-guessing the system.