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How Patent Law Changes Could Hurt Small Inventors

A new bill currently being considered in the House brings changes that no longer look out for the little guy.

Regular readers of this column know I encourage new inventors to spend less time focusing on patents and more time concentrating on the business aspects of their inventions. Most of the time, this advice rings true. But because there's a debate currently raging on Capitol Hill about amending the existing patent law--changes that could potentially negatively impact smaller, independent inventors--I felt it important to put this issue front and center in this month's column.

Over the past several months, Congress has been discussing numerous changes to existing patent law. While certain elements of the legislation will bring the U.S. patent system in line with much of the rest of the world by potentially simplifying the process of filing, granting and disputing patents, my concern is that the direction and consequences of this new legislative effort will unfairly impact smaller inventors, who may face increased financial and administrative burdens throughout the patenting process.

The best information I found on the proposed changes was shared with me and best summed up by Stuart West, the founder and a principal attorney with West & Associates . Here's what you need to know:

Proposed Major Changes
There are two very similar bills currently in process--one in the House (H.R. 1908) and one in the Senate Bill (S. 1145). In May, the Senate removed their bill from consideration from this session (although it could easily reemerge). The bill in the House was passed--with a fairly close vote of 222 to 175--on September 7, 2007, and while it has several more hurdles to clear, including passage by the Senate, it's the furthest along, so let's focus on this one.

There are six major changes proposed by the House bill that could negatively impact the small inventor:

  1. A switch from a first-to-invent system to a first-to-file system
  2. Substantial changes to patent infringement damages
  3. Introduction of a post-grant review/objection period
  4. Permission granted to third parties to submit art directly to examiners, providing them the ability to impact patent prosecution
  5. Substantial limitations on the selection of courts for patent litigation
  6. Early appeals in litigation matters

Let me review these one by one.

1. Switching to a first-to-file system. Under current patent law, when two patent applications are filed for the same invention by different inventors, the inventor who can prove he or she was the first person to invent it is legally entitled to the resulting patent. Presently, these conflicts are resolved within the U.S. Patent and Trademark Office (USPTO) through interference proceedings. Under the proposed Patent Reform Act, however, our current "first to invent" system would be replaced with a "first to file" system, which would award patents to the party that was "first off the blocks" to file the patent.

While this new process would bring our system into synch with the rest of the world, it also gives the advantage to the person with the largest wallet and existing infrastructure. For instance, let's say Inventor A has an idea and has begun working on it but lacks the resources to file for a patent. Along comes Large Company B, which independently developed the same idea and is able to file for a patent right away because they have the resources available. In this example, it doesn't matter who had the idea first; it only matters who could afford to file for the patent. Score: Large Company B = 1. Small Inventor A = 0.

2. Extensively changing the law that affects patent infringement damages. Current U.S. patent law says that a patent holder is entitled to damages adequate to compensate for the patent infringement, but in no event can the damages be less than a "reasonable royalty." That means if the patent holder has actually manufactured the product that's been infringed upon by someone, then the patent holder is entitled to lost profits. Additionally under current law, if the patented item is only a component of a sold product, the patent holder is entitled to damages based on the value of the complete item.

Under the new rule, the amount of the "reasonable royalty" would be based solely on the value added to the item by the inclusion of the patented component. This would limit an individual inventor's clout, as the payment for damages would most likely decrease under the new law.

The bill also limits the potential situations where the court could determine a willful infringement (and thereby enhanced/treble damages) to situations where the patent owner establishes, by clear and convincing evidence, that 1) the infringer continued to infringe after receiving a specific written notice from the patentee; 2) the infringer intentionally copied the patented invention with knowledge that it was patented; or 3) after having been found by a court to have infringed on a patent, the infringer infringed the same patent again.

More damaging to small inventors, though, is that the new bill creates a "good faith belief" defense, which can be raised by showing that the defendant had an "informed good faith belief that the patent in question was invalid or unenforceable, or would not be infringed by the conduct later shown to constitute infringement of the patent." While the U.S. Supreme Court recently established a similar exception, this codification increases the burden on the original patent holder, who would need to show that the infringement was intentional and that the infringer had a "good faith belief" that he wasn't actually infringing. In my judgment, this once again plays to the benefit of those with greater legal resources. Score: Large Company B = 2. Small Inventor A = 0.

3. Introducing a post-grant review. Presently, once a patent is granted by the USPTO, it is presumed valid and cannot, for the most part, be challenged except through legal proceedings. Under the proposed bill, however, the USPTO would now allow petitions to be filed for the administrative cancellation of an issued patent within 12 months of the patent's issue ("first window"). During this first window of review, there would be no presumption of the validity of the patent in question.

During the review window, the burden to establish invalidity is by "a preponderance of the evidence," a lesser burden of proof than the "clear and convincing" standard currently in use (which would remain the standard required to invalidate a patent in court). What would all this mean for patent holders? That for the first 12 months after its issue, a patent may not be as secure as it is today. Score: Large Company B = 3. Small Inventor A = 0.

4. Third-party interference in patent prosecution. Under existing U.S. patent law, third parties are essentially excluded from the patent prosecution process; the process involves just the filer and the patent examiner. As currently proposed in the House bill, however, third parties would now be permitted to submit patents, published applications or other printed publications to the patent examiner, thus potentially interfering with, complicating or preventing issuance of the inventor's patent. Score: Large Company B = 4. Small Inventor A = 0.

5. Limiting patent litigation locations. Patent infringement suits may currently be brought to court in any district where the defendant is subject to personal jurisdiction. In practice, this has allowed for a patent suit to be brought wherever the product accused of infringement is sold.

Under the proposed law, however, plaintiffs could only bring suit 1) where a defendant has its principal place of business or is incorporated; 2) where the defendant has committed substantial acts of infringement and has a regular and established physical facility that constitutes a substantial portion of its operations; and, 3) under certain limited circumstances, where the plaintiff resides.

When an inventor can file a claim in his or her home town, they are much more likely to be able to afford to defend their patent than if they have to file in the home state of the offender. Again, this proposed change clearly falls to the advantage of those entities with greater resources. Score: Large Company B = 5. Small Inventor A = 0.

6. Early litigation appeals. Under current U.S. law, appeals are only permitted from a final judgment--a ruling that ends the litigation. The new laws, however, permit a party to appeal a district court's claim construction order before a final judgment has been made on the merits.

This option could create substantial delays in the determination of a patent litigation. Right now, you basically have to win or lose before you can appeal. Under the new system, you can begin the appeal process (and therefore stall the underlying base litigation) at several points throughout the base litigation. In other words, the case can conceivably be passed back and forth several times between the District Court and the Federal Circuit Court of Appeals before a first judgment is even rendered. Then, after all these interlocutory appeals, the case could still be appealed to the Federal Circuit Court of Appeals. Again, this is a costly process that plays to the advantage of large companies. Final Score: Large Company B = 6. Small Inventor A = 0.

It's Your Move
If these potential legislative changes concern you, contact your own members of Congress ( www.house.gov , www.senate.gov ) and ask them to look out for the interests of independent inventors.

Your Million Dollar Dream: Regain Control & Be Your Own Boss Tamara Monosoff is the author of Your Million Dollar Dream: Regain Control & Be Your Own Boss and The Mom Inventors Handbook, Secrets of Millionaire Moms, and co-author of The One Page Business Plan for Women in Business. She is also the and CEO of www.MomInvented.com. Connect on Twitter: @mominventors and on Facebook: facebook.com/MomInvented.

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