Friday 7 October 2011

Big laws, small businesses: what will be the AIA's impact

Child's play: patents have never
been easy for small businesses to
deal with -- but are things changing?
While there are commentaries a-plenty on the detailed legal ramifications of the recent United States overhaul of its patent system , not so much has been written about the impact of this legislative shift on the business community. For this reason, IP Finance is pleased to host this short note by Deborah Sweeney, CEO of
"The Leahy-Smith “America Invents” Act: How will it affect Small Businesses and Startups?

The United States was one of the last countries in the world to have a first-to-invent system for issuing patents. If two inventors were competing for patent rights, they would have to prove they conceived of the idea and turned it into a product in a reasonable time frame before the other party. This meant that it could take years and a significant investment of time and money before an inventor secured the rights to their product, making the United States fairly unattractive when it came to filing patents. 

In an attempt to make the United States more attractive to entrepreneurs and inventors, the America Invents Act was passed and the country moved to a “first-to-file” system. This empowers inventors, and the businesses that invest in them, to a level never before seen in the country. However, there is still quite a bit of confusion as to how this is going to impact small businesses, start-ups, and inventors. In the hopes of clearing some of the confusion, here are what I believe are the biggest impacts the passage of this act will end up having on smaller companies and the creators of the products they are built around. 
Legal Issues are less of a Deterrent for Investment 
Investing in something new is always a gamble, but hopefully the America Invents Act will reduce that gamble by curtailing the amount of litigation typically involved with pursuing a patent. This is great for smaller business that simply don’t have the capital to keep a team of lawyers on call, and also means that bigger corporations, which are often seen as some of the worst offenders in frivolous patent lawsuits, will find it very difficult to move into the court system. 
This Act, in an attempt to get America on par with the rest of the world, also ensures that an equivalent patent filed first anywhere in the world will qualify as grounds for patent refusal. Small businesses everywhere no longer have to worry that a foreign company is going to come after them for patent infringement as it is now the patent office’s job to check any for any conflicts, domestic or international. 
Smaller Companies have a Cheaper Fast-Track Option 
A small business is almost always able to move faster than a major corporation, so the first-to-file system greatly benefits an entity that doesn’t have to involve multiple departments and corporate bureaucracies before pursuing a patent. This legislation has established an expedited option to help get applications reviewed quicker (typically within twelve months), but this course does mean the applicant has to pay an extra fee. However, if your business qualifies as a small entity or if you are an independent inventor, you get fifty percent off that fee. If your business qualifies as a micro-entity, you can get up to seventy-five percent off. This creates a substantial incentive for small businesses and entrepreneurs to invent, invest and operate in America, when combined with the fifty-percent off of filing fees that small entities receive by only having to pay $200 per application 
Everyone who uses the patent office can also rest assured that the lengthy process will be shortened thanks to an increase in funding that will allow the USPTO to hire additional examiners and other direly needed personnel. 
Non-Inventors are Allowed to File without the Inventor 
This portion of the legislation is a little controversial as it creates a path for an investor to cut out the inventor if they do not uphold their legal obligations to their investors. Some feel that, as the inventor is the one who thought up the product, they shouldn’t be so easily removed. However, not having this option open does create a little bit of apprehension in investors. If an inventor chooses to terminate their relationship illegally with whatever entity is backing them, that entity would end up having to navigate the court system being able to make a single cent. 
This is a major concern for investors as they are going to be involved in this process for at least a year, so creating this rule means more sources of capital will be open to the sole inventor since the investor is guaranteed some right to the finished product. 
The belief behind the crafters of this law is that it will increase American competiveness, small business and total number of patents. It is supposed to help small businesses, investors and inventors to create a profitable product, which it hopefully will by giving them incentives and a bit more competitive advantage against major corporate entities. It will take years to judge if this legislation is successful or not, but it is a step in the right direction to maintaining America’s competitive edge".
Readers' thoughts on what countries outside the US can learn from this exercise are appreciated. One point of interest is that, in the sphere of invention-to-investment-to-market, there are two quite separate ways of measuring and encouraging (or discouraging) competition: one is in the battle between small US entities and the mega-corporations which so famously stalk the North American continent, while the other is the competition between US industry large and small and its rivals in lively and innovative markets outside the United States. Has Congress struck the right balance in each of these spheres of commercial competition? Thoughts, please ...


Chris Buchko said...

I think most US patent professionals who focus on small and growing patent-focused businesses would disagree with almost everything in this post, beginning with the idea that the US is an unattractive patent destination.

Small companies, and investors in small companies, are properly worried that the AIA has weakened patent rights and increased the cost of obtaining enforceable patents.

While it is true that there will no longer be "interference" proceedings to determine who invented something first, those proceedings were a significant minority as compared to patent litigation. The question asked by investors is not "did you invent this first" but "can you hold a competitive advantage with your IP".

The AIA introduces new ways for a competitor to challenge patents - during prosecution, immediately post-grant, and at any time after the patent issues. If anything, there is less certainty that a patent application will mature into valuable IP rights.

Whether or not patent litigation in courts will decrease because of the AIA, it is certain that there will be an increase in non-judicial, administrative challenges. Further, there is no guarantee that any of these administrative challenges will be resolved in a timely way.

Also, the AIA expands the doctrine of prior use, which provides a new incentive for incumbent companies to keep there discoveries secret and creates even more uncertainty about the value of an innovator's IP.

In sum, I believe the AIA tips the balance (however it may have existed before) away from small companies and individual inventors and towards incumbent companies with the financial resources to challenge patent applications at every stage during their lifetime. I don't believe that tipping the balance towards incumbents makes the US more attractive to entrepreneurs and inventors.

Anonymous said...

I'm an independent inventor and became an independent inventor when my employer chose to terminate my contract in an illegal cost cutting exercise. Do I have less protection under this act because non-inventors are allowed to file without the inventor?