Privacy, Business and Law

Uncomfortable truths were revealed at a recent seminar on trade secrets, hosted by the National Intellectual Property Law Institute in Washington, DC. Among them is the extent of corporate espionage carried out against American companies. It is far greater than many companies acknowledge, as publicity can affect stocks, joint ventures and government contracts.

Another is the naivete of new and expanding companies regarding intellectual property theft. Those in the high tech industries are among the most vulnerable. This has profound implications for intellectual property that extend to proposals to radically change US patent law.

America awards patents on a first-to-invent basis. Despite the US’s recent, and laudable, backing off from multilateral patent “harmonization” talks, select multinationals and many countries remain determined to dump the core concept of rewarding the actual inventor with temporary but exclusive property rights. They favor a first-to-file rule. That system, a courthouse race, underpins most of the world’s patent systems.

The arguments for change vary. One is avoidance of sometimes expensive procedures to resolve a contest over whom the first inventor is. But such conflicts occur in only one tenth of one percent of patents, most are settled, and there are ways to simplify procedures and make them less expensive. Another motive is to trade for improved access to other countries patent systems. Pressing for worldwide improvements is vital, but other countries offer nothing that warrants dropping a system that, since the Constitution, has had no equal in launching new enterprises. Altering laws in other countries means little without effective and dedicated judicial and enforcement systems, or culturally similar purposes for patents.

There is one aspect of intellectual property that crosses cultures with ease. That is the desire to acquire “assets” of invention that will pull wealth from the world’s markets. Talk to professionals engaged in the business of plugging information leaks in companies. They describe a desperate hunger among both companies and countries for these assets. Governments, including those of traditional allies like France, are clear in their mission of assisting their companies with espionage. Some large multinationals maintain their own spy shops.

Consider prior art, which Washington attorney and former US Patent Commissioner Don Banner refers to as “the crazy aunt hiding in the harmonization attic that first-to-file enthusiasts don’t speak of.” “Prior art” is information already known by the public and hence unpatentable. Explains Banner, “Between the conception of the invention and time of filing, our first-to-invent system allows an idea to remain patentable even though its underlying knowledge becomes known to others. Inventors are automatically protected throughout critically important development time and a year after public disclosure. The provable date of conception outflanks the date prior art appears.”

Under first-to-file, says Banner, prior art would surge, easing the invalidation of future U.S. patents. This is because there is no protection against third-party prior art. Stolen ideas faxed to an obscure newsletter in Rwanda could later emerge to invalidate U.S. patents. Proposals that respond to this threat will never negate the high costs of proving fraud in foreign countries, many of which do not allow discovery. The decreasing half life of many high tech products lessens the practicality of litigation abroad.

Professor James Chandler, founder of the National Intellectual Property Law Institute, notes that the US produces ten times as much intellectual property as any other country, and this is a magnet to other countries that understand the relationship between this property and prosperity. Many discoveries are being lost to “a web of international involvement beyond what Americans can imagine. Decisions made in boardrooms are in the hands of foreign nationals within hours, and single companies sustain losses of tens of millions of dollars.” The invalidation of important patents can cost us control over entire industries and allow a flood of products ripped from unlicensed and uncompensated US innovation.

According to Brian Jenkins, of the investigative and security firm Kroll Associates, the vast majority of intellectual property thefts involve a disloyal employee, and most thefts go uncovered. Money is the big motivator. There may be desire to start or go with another company. Employees may be angry about not be recognized or be insecure about downsizing. They may feel stronger ties to a foreign company or to another country.

Much of the first-to-invent/first-to-file debate has traditionally centered on disadvantages, mostly undiscussed in this essay, that first-to-file related proposals represent to independent inventors, small businesses, and universities. They are very concerned over theft. If the grace period after conception did not exist to properly develop ideas, it would freeze discourse on development research by universities, inhibiting the open academic environment essential to their function. Smaller entities with limited resources for security and for recourse are presumed to be the most vulnerable.

But large or rapidly expanding companies are at risk from the increasing flux of employees and the way in which their critical information is handled. Under first-to-file, the disloyal employee would be king. Companies would be as vulnerable as the old west gold prospectors who were shot on their way to the claims office.

Americans who are swayed by the argument that we are out of step with the world should consider that America remains the most innovative country and the most coveted market. Most of the world has a different patent system. So what? Most of the world lacks a Bill of Rights, but that is not a reason to discard ours.

Were it not for the importance of the American market, foreign countries wouldn’t pay a whit of attention to our calls for improved intellectual property protection abroad, human rights, or anything else. We retain a fortunate ability to press for reasonable trade-offs without dropping first-to-invent, without swapping our cow for beans.

by Skip Kaltenheuser