Privacy, Business and Law

The Japanese are most interested in US patent legislation. They maintain a large lobbying presence in Washington, and they hire many US lobbying firms to influence US legislation and regulation. There is even a separate office of the Japanese government in Washington to coordinate their lobbying activity concerning the US patent laws.

The US Secretary of Commerce, before entering government, was a well known lobbyist in the largest lobbying firm in Washington. In January 1994 he entered into an agreement on behalf of the US government with the Japanese government. This was done suddenly without any consultation with US patent professionals, inventors’ organizations, and other interested parties.

In that peculiarly lopsided, and entirely unexpected 1994 agreement the Secretary agreed to introduce legislation to change US patent law so thoroughly and fundamentally, as it has not been done since its over 200 year existence. All of these changes in US patent law are of disproportionately great benefit to foreigners, especially to Japanese exporters of high technology products to the United States. In return the Japanese agreed to extend some insignificant procedural benefits to US applicants for Japanese patents, such as postponing by 2-months the need to file a Japanese translation of a patent application, and to permit the correction of translation errors.

The attempt to present a reason for agreeing to these changes was that most other countries have these features in their patent laws. While most other countries do indeed have such laws, a previous overambitious international law harmonization effort has failed because of opposition by US circles to such changes. Thereupon the Secretary of Commerce quietly entered into that agreement through back-door diplomacy to bring about these changes that were intensively desired by the Japanese. Why did the Japanese desire these changes in US patent law?

The Japanese economy is run by elite government administrators in a very few ministries, who create economic plans and execute them through a peremptory process euphemistically referred to as “administrative guidance.” Their industry and foreign trade planning process is exercised by the Ministry for Industry and Trade (MITI) which also runs the Japanese Patent Office. MITI considers as its most important activity the promotion of Japanese exports aiming at a worldwide, frequently ruthless monopolization of market shares on an industry by industry basis.

The propensity of the Japanese to get many patents results mostly in their obtaining a large number of patents frequently dealing with small technological details, rather than with broad inventions and inventions in advanced fields of high technology. In that respect they do not differ greatly from the inventors in most large US companies. The traditional source of significant new inventions have been individual inventors and small companies in the US, and to a considerably lesser extent some large US companies, particularly in the pharmaceutical industry.

The Japanese are particularly adept in taking ideas and inventions generated abroad, and through painstaking development and consumer testing and consensus techniques converting these foreign inventions into successful products. This activity was always strongly promoted by MITI which initially encouraged the importing of technology licenses from abroad, and by a massive and intrusive early strong censorship of all license agreements, and an early currency restriction on foreign spending assured that the cost of such undeveloped technology was sufficiently low to Japanese business. It was this promoted and heavily controlled and protected in licensing activity that assured the buildup of the industrial power of Japan. By the 1970s this intensive buildup of acquisition of market share permitted MITI to retreat from the censorship of individual license agreements and control of foreign spending decisions of Japanese industry, to the less intrusive and more general administrative guidance procedure.

With the buildup of its industry, Japan soon outgrew its own domestic market and became increasingly confronted with the problem of exporting the results of the development based on the imported technology. High technology product exports initially did not represent a frequent problem, because MITI insisted that patent licenses purchased by the Japanese include licenses under the worldwide patents of the US licensors. However when the license was not a patent license, but involved know-how, and later when MITI’s censorship receded the problem became more manifest. The problem was not as great in exports to other parts of the world, but exporting the results of patented US technology to the United States created a unique set of import barriers for Japan. The Japanese are notorious for erecting their own import barriers, but they are also most tenacious in their attempts to destroy such barriers wherever they are encountered to the detriment of their exports.

Broad US patent applications on high technology inventions spend long years of pendency in the US Patent Office, and therefore issue in the US many years after they have issued in most other countries of the world. Not only are US patent applications relating to high technology delayed by their protracted examination, but under the harsher, unique US unity of invention rules, they have to be divided much more often into separate and separately examined and even more delayed divisional applications. Unity of invention objections are so relaxed abroad, that most foreign countries even eliminated divisional patent applications.

This meant that US patents usually expire many years after the corresponding patent applications have expired abroad. This attenuated the ability of Japanese exporters to import high technology products to the US, the biggest single market in the world. Early attempts of Japanese importers, to the US of violating US patents were further hampered by the establishment of a single appellate forum for patent cases, the Circuit Court of Appeals for the Federal Circuit. That court created a uniformity of application of US patent law, and enhanced the status and enforceability of US patents to such an extent that knowingly infringing a valid US patent became a very risky and costly proposition for any infringer.

This has presented a reasonably effective barrier to Japanese high technology exports to the US until the early 1994 visit to Tokyo of the US Secretary of Commerce. There he proceeded to misunderstand the mission of his office as fostering Japanese imports to this country, instead of fostering US exports. What was and is further sought to be changed at the behest of the Japanese

The Secretary of Commerce agreed on behalf of the US government to the following substantive changes US of patent law by: (i) changing the term of US patents from its 17 years from the issue of a patent, to 20 years from the earliest filing of a patent application; (ii) replacing the relatively simple current patent reexamination practice to investigate previously not considered prior art, with a foreign-style opposition/cancellation procedure extending to a large variety of further grounds, save one, and (iii) publishing the contents of patent application files 18 months after their earliest filing, whereas currently these are held secret until a patent issues.

Next the Secretary set out to implement his agreement with the Japanese. Coincidentally, the GATT Uruguay Round Treaty implementation legislation was pending in Congress at that time. The GATT Treaty required that its signatories establish a minimum patent terms of at least 20 years from the initial filing of a patent application. This was inserted into the Treaty, because some developing countries had exceedingly short patent terms. The logical and least intrusive way for the United States to implement that requirement would have been to establish that US patents would have a term that is the longer of the then current 17 year term from issue, and 20 years from the earliest filing date. The Secretary of Commerce has, instead, inserted only the latter alternative into the pending legislation which was on a Congressional “fast track” in that it could not be amended, but merely voted in or voted down. What are and would be the detrimental consequences of these Japanese inspired changes in US patent law (i) The harm of the abbreviated patent term.

Most patents that issue in the United States do not deal with high technology on the cutting edge. The three fundamental changes of US patent law that the Commerce Secretary gave away to the Japanese are all harmful to the interests of US creators of revolutionary, high technology inventions. These changes of the law, however, are not significantly detrimental to the creators of other, more average inventions that do not involve high technology.

The newly established patent term of 20 years from initial filing will make patent practice as regulated by the Patent and Trademark Office, much more complicated, and, as is the case with every kind of burdensome government regulation, will make the patenting process much more expensive for everyone. The newly established patent term will be substantively harmful only to a relatively small number, but to the most important patents whose terms will be substantially shortened under the new law. Routine patent application pendency is usually short, and in the case of such applications the actual patent term may become a little longer than under the former term of 17 years from patent issue. However, in many if not most of these cases the actual useful life of the patent is shorter than the full patent term. Therefore, neither a slightly longer term, nor a somewhat abbreviated term would make any difference to the owners of such patents involving routine inventions.

The pendency of patent applications covering high technology, is much greater than that of the average patent application. They take much longer to be examined under the adversary examination system of the Patent and Trademark Office that is employed in the case of high technology inventions. The commercial value of inventions involving high technology develops considerably more slowly. Therefore, a patent covering a pioneering, high technology invention begins to become the most valuable, and starts to pay off to its owner many years after it has been initially filed. As it was also pointed out in the latest report of Committee 101 of the American Bar Association, patent applications in certain areas of technological endeavors, such as in chemistry, biotechnology, semiconductors, computer sciences, and of pioneering and high technology inventions in other areas, are examined over several years, sometimes as long as 10-12 years, in the Patent and Trademark Office. Under the new law all of those years of pendency will actually and substantially shorten the term of the eventual patent, providing it not only with a much abbreviated useful life, but with a substantially reduced income flow that ends just around the time when the patent really starts to pay off to its creator. It will, of course, also mean that the Japanese will be able to import the subject matter covered by such earlier expired patents much sooner to the US.

This damage to the interests of the most important inventors in the US, is not readily understood by many people, because the most valuable inventions in this country are uniquely created by individual inventors and by relatively small companies. Not many high technology companies have grown to the size of an Intel or a Microsoft. The damage that he caused was obviously not understood by the Commerce Secretary who may have never even seen a patent before. The problems are not understood by most foreigners, and not even by many patent attorneys who do not have sufficient experience with the types of inventions that would be damaged by the new, abbreviated patent term. Thus the greatest damage by the new patent term provisions has been done to those who have the least ability and wherewithal to hire those who can make representations to Congress, and to get the attention of the press.

The Japanese in their push for shorter terms for the most valuable US patents have acquired some strange bedfellows in their efforts, mostly large, multinational US companies. These firms do not have much use for patents, because they also suffer a competitive disadvantage by their inability of early commercialization of valuable, high technology inventions of creative individuals and small enterprises. The patent lobbying organization connected to the National Association of Manufacturers (NAM), under the name of Intellectual Property Owners (IPO), waged and continues to wage a concentrated and vituperative campaign for the Japanese inspired patent law changes, and they have reputedly retained a high powered lobbying firm at the cost of $50,000/month. A former President of IPO, a former Patent Commissioner who disagreed with their tactics resigned as a matter of principle.

One catchphrase bandied about by the domestic proponents of the Japanese inspired changes, is “submarine patents.” These were defined as patent applications which were kept pending by their owners in secret for inordinately long times, and when they belatedly issued, they were supposed to have been asserted against, to hold up to ransom industries which have developed and matured in the meantime. This sounds like a reprehensible practice, except there is one problem with this, there have been no such submarine patents. Surely there were patents that have issued after many years of pendency, but none are known to have been asserted against mature industries. Furthermore, such inordinately extended pendencies can be eliminated by other measures, without drowning the baby in the bathwater discarded by the Japanese and their water carriers in the US. (ii) The harm of introducing a foreign style opposition/revocation legislation

Converting the current patent reexamination procedure to a foreign style opposition/revocation practice, as promised by the Commerce Secretary to the Japanese, creates a second harmful effect on pioneering US patents. Legislation that would cause such harm was introduced in the House of Representatives (H.R. 1732) in the 104th Congress. This newly proposed opposition procedure would be most useful to large companies, such as from Japan, the US and from elsewhere, to harass the owners and to annihilate the pioneering patents of such owners with less deep pockets. Even if the less wealthy patent owner could afford to waste money on defending against such interminable attacks, those patents that stand in the way of any large company, can be tied up indefinitely in expensive litigation in the Patent Office and then in the courts, while the pioneering patented subject matter cannot be enforced against the infringing opposers.

The contemplated opposition/revocation procedure, however, would not be a two-way street, because it could not be so readily available and asserted against the US patents of the Japanese and of other foreigners who were transformed into a protected class under the proposed legislation. Under US patent law a patent has to contain a description of what is referred to as the “best mode of carrying out the invention.” There is no such requirement under the laws of other countries, and the US patents of foreigners are therefore most vulnerable to being invalidated for lack of disclosure of that best mode. As the Japanese-inspired legislation was drafted, in the proposed new kind of patent review opposers may not question the compliance of the attacked patent with the “best mode” disclosure requirement. Thus the patents of the Japanese are safe from being attacked at their greatest point of likely vulnerability. (iii) The harm of introducing the foreign practice of early publication of pending US patent applications The third leg of the Japanese attack against US patents was introduced at the behest of the Commerce Secretary in the House of representatives as H.R. 1733. To begin with, the legislative proposal is wasteful of the patent applicants’ money, because it requires a costly and complicated publication process at 18 months after the earliest filing of a patent application, whereas the average patent issues and is published only a month later after a 19 month pendency.

The early publication of US patent applications will also disclose much more than the early publication of patent applications in other countries. Those early published US patent applications also contain the required “best mode” disclosure which is conspicuously absent from published patent applications in all other countries, including Japan. Thus a less creative foreign or domestic copyist is provided with an early disclosure of the innermost secrets of applicants, such as for pioneering, high technology US patents, and this substantially reduces the lead time that the pioneering inventor would have over the unscrupulous copyist of the pioneering invention.

The proposed legislation tries to throw a bone to individual inventors by permitting a slight further delay in publishing their applications, but the availability of such a delay is restricted and is conditioned on the individual small inventor swearing that he did not file any corresponding applications abroad, and promising not to file any in the future. In this manner the Commerce Secretary accommodated his Japanese friends to keep them free to use such US inventions in foreign countries without interference from the US inventor who was thus precluded from filing his invention in Japan and elsewhere abroad. Conclusion The press has been strangely quiet, and the public has been kept in relative ignorance about these machinations of the Administration. There is only now a slowly increasing realization of the problem and difficulties created by the Commerce Secretary’s “deal” with the Japanese. It is essential that analyses of these problems be given greater publicity, and the Rohrabacher/Dole bills which have been bottled up until now, should be promptly enacted. Furthermore, the pending legislation should not be enacted, if necessary by delaying enactment until the Commerce Secretary’s ally, the lame duck Chairman of the House Intellectual Property Subcommittee Mr. Moorehead has retired.