Privacy, Business and Law

On Oct. 7th & 8th, the U.S. Patent Office will hold hearings on Patent Law Harmonization. Across America, that is not the crack of a bullwhip. Few lose sleep worrying about the U.S. patent system. They should. Today’s American patents design tomorrow’s American jobs. That’s why there’s a quiet riot over proposals to change the unique basis of American patents from whom the first inventor is to whom the first filer on an invention is – whether or not the first filer is the actual inventor.

Backing a change to “first-to-file” is the National Association of Manufacturers; the Intellectual Property Organization, (large corporate patent holders); and an association of patent attorneys. Considerable pressure comes from Europe and Japan, which connect first-to-file issues to trade agreements. Foreign countries seek a greater share of the U.S. market, the world’s largest, by increasing the ease with which U.S. patents are invalidated. Attorneys with large foreign clients tend to be supportive.

Opponents to first-to-file include independent inventors and university researchers. They were encouraged in February when the American Bar Association House of Delegates voted to reaffirm its opposition to first-to-file. However, inventors remain concerned that well-heeled opponents will seduce a Congress focused on campaign contributions.

Indeed, the first-to-file track appeared well-greased last year. The Bush administration established an Advisory Commission on Patent Law Reform. Edward MacCordy, a commission member representing university researchers, resigned in disgust after he found the affair so “obviously orchestrated” he wasn’t allowed to publish even a one-page dissent in the commission report. When legislation to adopt the first-to-file system was proposed in April, 1992 by Senator Dennis DeConcini (D-Ariz.) and Rep. William J. Hughes, (D.- N.J.), quickly held hearings were limited to invitees. Oddly, the commission and even the hearings lacked people who actually invent things. Criticism over the narrowness of those hearings may be why Congressional proponents of first-to-file have suddenly delayed action until the Patent Office holds the next round of hearings.

At last year’s congressional hearings, harmonization proponents testified that first-to-file harmonization would greatly simplify U.S. law and would affect only a small number of second-to-file inventors who might otherwise eventually prevail, after a costly contest, as the first to invent. The sought tradeoff they expressed is easier acquisition of foreign patents by U.S. companies seeking foreign markets.

Advocates for harmonization, (first-to-file), make much of the small percentage of patent applications that result in “interferences”, or contested claims over who was first to invent. Most interferences are settled, but in any case the issue is a red herring. The real impact of first-to-file is a tremendous expansion of the use of “prior art”, (knowledge known to others), to invalidate U.S. patents.

Under our first-to-invent system, a U.S. inventor who has conceived his inventive idea and worked diligently to perfect it is automatically protected from the effects of any prior art which becomes public during the time the inventor is developing his invention, (from the conception date to the reduction to practice and filing). Though he must file a patent application within one year of the time that his invention becomes public or is offered for sale, he currently retains automatic protection from such prior art throughout his development time and that one year after public disclosure.

Unlike in the U.S., where prior art can be gotten rid of by an earlier conception date which was followed by the diligent pursuit of development, under the foreign system inventors lose all protection against such third party prior art. Suppose someone discovers another’s idea in the works. He could fax it around the world. If it is published anywhere in any language even a day before the patent is filed – a school newspaper in New Guinea – it could emerge later and invalidate the patent. First-to-file proponents speak of an international “grace period”, but it only keeps the inventor’s own public use or publications from becoming “prior art” against himself. Big deal. If he publishes an article before a fully developed patent is filed, he might as well slap a “kick me” sign on his back.

This will launch corporate espionage into high gear. Peter Schweizer, author of “Friendly Spies”, points out that the limited research and security resources of individuals and small companies will make them the most vulnerable in a first-to-file system. It’s difficult to quantify the long-range cost of a lost idea. In 1991, the White House Office of Science and Technology estimated economic espionage cost U.S. companies up to $100 billion a year in lost market share, contracts, research and development. Schweizer says we don’t hear much about it, as companies shun bad publicity and/or do not want to ruffle foreign partners or foreign financiers. He notes that the threat will grow because “economic espionage is a low-risk, high-yield activity.”

First-to-file is a dream machine for those who would use espionage to invalidate U.S. patents. The untrustworthy employee will become king. To have a chance of proving fraud, one must have huge resources for globe-trotting litigators. As “prior art” starts popping up all over the world, challenging it in the many nations that do not have meaningful discovery in their legal systems will be the equivalent of a snipe hunt.

Low fee “provisional” patent applications during the period of invention development are offered up as a solution, as inventors could file provisional patents at every step of development until a final application is done within one year of the first provisional. Fees are not the only cost, of course, which is one of the reasons first-to-file is called the “patent attorneys full-employment act.” This might not burden large companies, but the scheme is woefully ignorant of the creative habits of individual inventors, who won’t be interrupting work periodically to run down and file patents.

Dr. Irving Kayton, a professor emeritus of intellectual property at George Mason University’s School of Law, predicts that American corporations that think their size and marketing apparatus will keep them out front in a worldwide first-to-file system will “rue the day the system switches. The Japanese, with 25,000 to 50,000 patent filers and computerized systems for the instant transmission of applications, are already set up to knock their shorts off in any first-to-file competition. Why do you suppose multinationals and foreign countries want to end our first-to-invent system”, asks Kayton, “to preserve our intellectual property rights and help us compete?”

As large corporations already operate internationally in a first-to-file world, what’s the rush on our important domestic front? The Paris Convention of 1883 already provides the benefit of using the original filing date in the home country if filings in other countries are done within a year. MacCordy, the former President of University Technology Managers, says U.S. companies pushing first-to-file really seek “prior user” rights that negate the exclusive licensing rights now granted with a patent. Under prior use proposals, companies that claim prior use of an idea before the patent was filed, or that made “substantial preparations for use”, (whatever that means), could continue the use, including manufacturing and sale, without paying the patentee. That amounts to a royalty-free, compulsory license.

“This is a move to put trade secrets in a superior position to patents,” says MacCordy. “First-to-file proponents figure their market share and size makes patents less important to them. If the patent system is weakened and investment incentives slip for smaller entities, it lessens the chance for new competitors.” Prior user laws, already in use in some countries, leave research and patent investment decisions in the dark. The value of patents to university researchers and independent inventors is often limited to the ability to license their creations. Large companies with license-free trade secrets would diminish a patent’s value and lessen the incentives that balance the great risks from creation to market. How many small investors can lay everything on the line if a giant like GE could come forward later and say it already made “substantial preparation of use” of the invention? Besides providing incentives to create, the patent system is designed to promote and share knowledge. Trade secrets are not.

To further appreciate the chaos first-to-file will heap on intellectual property in the U.S., consider that first-to-invent was contemplated by the framers of the Constitution. James Chandler, Director of the Computer Law Program at George Washington Law Center observes “any system preserving the rights of someone who isn’t the first to invent is of dubious constitutionality. This could take years to resolve. Patents granted in the interim could go up in smoke. The secret of success for any property system is the certainty of the means of acquisition and the security of possession. To interject uncertainty and insecurity at this time, during such keen competition, would be disastrous.”

Listen discriminately to the myths purveyed by first-to-file advocates. One is that technology is so complex important ideas must now spawn in corporate labs and that the small player will decrease in significance. That didn’t occur to endless contemporary creators of thousands of U.S. jobs who can laugh that one off. It is also said that foreign applications would be cheaper. However it often costs four grand just to translate a U.S. application into Japanese while patent office fees in Germany often total about thirty grand; these costs would change not one bit. Another widely parroted myth is that inventors often just have “paper patents”, and hence their contributions are less worthy. That’s like saying a writer’s words have no value because he doesn’t mill the paper, sell the ads, or hawk the publication. A patented idea is a roadmap to innovations that build on it, and the patent wouldn’t be given out if the idea didn’t have merit.

It is a sad comment that when inventors are successful, with the law as well as their ideas, they often reach that historic and ironic plateau where they are vilified or made to look like paranoid eccentrics by the lawyers and the public relations firms of corporate foes, whose accusations are often hypocritical at best. It is no wonder that American inventors fear first-to-file will bring forth an entrenched corporate culture, technology rip-offs, and lack of practical legal recourse for small operations. Indeed, independent inventors have already suffered the low end of a double standard, usually getting short shrift in mercurial U.S. courts before the creation of a consolidated patent appeals court in 1982 brought a semblance of balance. That balance is not guaranteed, and first-to-file is an invite to a backslide.

The insight lost in the commotion, and one that has so far eluded both labor and small business groups, is that this is a jobs issue next to which NAFTA pales. Large corporations are not supplying a net increase in employment. Their jobs are being slashed before each shareholder meeting. We look to entrepreneurs and growing small businesses to generate jobs in this country. Often as not, it’s independent inventors that plant the seeds for new industries.

The U.S. system has room for improvement. But defects can be tinkered with without trading away the core concept that jump-started our colonial economy and made America the technological vanguard. Push to improve foreign systems, but keep the focus on maximizing the yield of homegrown innovation to ease the entrance of ideas and taxable industries.

“Government must avoid nipping creativity in the bud with penny-wise and pound foolish approaches to budget balance. We should acquire more patent examiners with specialized expertise, and pay them well. Cutting back on patent administration or cranking up “user fees’ to make inventors pay for the patent office is like trying to lose weight via liposuction on the brain.”

We now debate the role of government in promoting a high-tech industrial base. Begin with the recognition that any erosion in the protection and value of original ideas is ultimately an erosion of America’s culture. To structure an economy that is more than a pyramid scheme of selling each other video tapes, hamburgers and skin cream, we’d better keep in mind why our country’s founders brainstormed “first-to-invent”.

by Don Banner and Skip Kaltenheuser

Don Banner served as U.S. Commissioner of Patents in 1978 and 1979 and is a patent attorney in Washington.

Skip Kaltenheuser is a writer and lawyer who is researching innovation issues.