Wednesday, May 11, 2011

Will startups and inventors win or lose with patent reform?

By Kyle Alspach

When it comes to the potential impact on startups and independent inventors, the patent reform effort under way in Congress could be good or bad — or somewhere in between — depending on who you ask.

Though the patent reform proposals are multifaceted, one major proposed change with implications for startups would be the switch from a “first-to-invent” system to a “first-to-file” system in the U.S.

Currently, the U.S. is the only country in the world that uses first-to-invent, in which an inventor is given the opportunity to try to prove they created an invention first, even if they weren’t the first to file for a patent on it. That proceeding, known as interference, is typically lengthy and costly for all involved.
Steven Frank, a partner at Bingham McCutchen LLP in Boston, said the patent reform effort will most likely lead to changes in patent law some time this year — and that the changes will most likely include the change to a first-to-file system (both the Senate and Houses versions of the patent reform bill include the measure).

According to Frank, this is a good thing for startups and individual inventors, despite concerns to the contrary from organizations that oppose patent reform. “They feel it would disadvantage them — would rob them of their ability to rely on their invention. The theory is that big companies have the resources to file patent applications, and the little guys don’t,” Frank said. “In my view, that’s totally wrong. The research people have done has shown exactly the opposite — that in fact, first-to-invent actually benefits large companies rather than small inventors.”

Frank cited one main reason for this. For someone to prove they were the first-to-invent, they must go to great lengths to establish an invention date — observing strict lab notebook procedures (including having witnesses for their lab notebooks) and jumping through hoops related to diligence throughout the invention process, he said. “The documentation requirements to successfully rely on invention date are significant,” Frank said. “Typically it’s big companies that have sufficient resources and procedures to perform the necessary documentation. Individual inventors and small companies typically do not have those kinds of practices.”

Frank also said the first-to-file system would make administration of the patent process simpler, eliminating many complex procedures, which should be a benefit for smaller-scale inventors.

Chelsea Loughran, an associate at Wolf Greenfield & Sacks PC in Boston, said the elimination of interference proceedings could have benefits for some startups and individual inventors. “It becomes very easy to determine who wins,” she said. “It does eliminate the costly proceeding for determining who is the first inventor.”

Loughran, however, is not entirely convinced that patent reform would be a net benefit for startups and small-scale inventors. “Anything that’s going to drive up cost generally is going to be bad for that population,” she said. “Even really small changes in the law could have the intended or unintended effect of driving up cost, which could be a problem for that population.”

Loughran pointed to another component of the patent reform proposal, which would do away with the one-year grace period in which companies and inventors can talk about their inventions without fear of the information being considered “prior art” — essentially, information that’s made public and, thus, would disqualify a patent on the invention.

“For small companies trying to go and secure funding, they need to be able to talk to people about their ideas. While the patent office excludes disclosures by that investor, any other disclosure would be considered prior art” under the patent reform, Loughran said. “If you go out and tell somebody about your invention, and they tell somebody, and a newspaper article is published with the idea, the article can count as prior art.” The result: “there’s going to be an increased sensitivity to non-disclosure agreements and confidentiality agreements, and that can drive up costs, making it more difficult for small companies,” she said.

Organizations that oppose patent reform go even further. In a recent joint letter to the U.S. House of Representatives, a number of organizations — including the National Association of Patent Practitioners, the National Small Business Alliance and the U.S. Business and Industry Council — said the weakening of the grace period “raises risk of loss of patent rights by our members, as it impedes the important process of incubating and vetting inventions.”

“Current law provides inventors a pre-filing grace period, permitting inventors to share ideas without fear of leaks and piracy, to raise capital, to refine those ideas, and to discard the ones that prove worthless, before the legal deadline forces the investment of tens of thousands of dollars in a patent application,” the groups wrote. “The proposed act disrupts the unique American startup ecosystem that has led to America’s standing as the global innovation leader — the ecosystem that is vital to our businesses, but with which large firms have less expertise.”

Not all inventors are so convinced, however. Amar Sawhney, a serial life sciences entrepreneur who is currently CEO of I-Therapeutix Inc. in Waltham, said first-to-file is a “more objective way” to award patent rights, noting the complexity of the first-to-invent procedures.

“It becomes a subjective thing, and puts a big burden on people and the courts to analyze everything,” said Sawhney, who holds 120 patents. “It’s a really gray area, as opposed to being objective with the date of filing.”

Sawhney said that while he isn’t entirely sure whether the reforms would be good or bad for his own enterprises, he believes it would advance the “larger good.”

“I believe this is a better way to proceed,” he said.