Patent Pending

Have an idea for the next big thing? You'll need a patent, but pay attention to big changes in store for U.S. patent law.

The U.S. Patent and Trademark Office, which receives 300,000 applications and issues 180,000 new patents each year, is under fire for issuing too many invalid, broadly written patents. Consider the biotech industry, where people have been allowed to patent pieces of genes, waiting to cash in if someone finds a profitable use for them. Battles are also underway in the software industry over patents for Wi-Fi hot spots and paying for online orders with credit cards.

"Today, anyone can get a patent, even on things they haven't really invented," says Josh Lerner, a Harvard Business School professor and co-author of Innovation and Its Discontents: How Our Broken Patent System Is Endangering Innovation and Progress, and What to Do About It. At the same time, courts have made patents more powerful, landing more companies in court: Patent suits increased nearly 8 percent between March 2003 and March 2004 alone.

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The FTC's recommendations include tightening qualification standards for patents, letting competitors challenge patents early in the application process, making it easier for competitors to review each other's patents, and limiting damage awards in cases of willful infringement, where injured parties can currently collect up to three times the court-assessed damages. Rep. Lamar Smith (R-Texas) is sponsoring the Patent Reform Act of 2005 (H.R. 2795), which includes some of the FTC's recommendations and would create a "first to file" system, where patents would be awarded to those who are first to file instead of first to invent. Congressional committees are at an impasse over a few of the bill's provisions, so it may not pass until next year.

Jennifer Albert, an intellectual property partner with Hunton & Williams in Washington, DC, worries it could get harder for entrepreneurial companies to bargain over licensing royalties and keep competitors at bay if the USPTO adopts the FTC's recommendations. "Normally, the threat of triple damages balances the scale for a small company enforcing its patent," she says, adding there's a movement afoot to limit injunctive relief to patent owners who are actually practicing their inventions.

The FTC and Congress aren't the only entities suggesting changes to patent law. The Supreme Court will soon debate whether to overturn a long-standing precedent that gives market leverage to companies holding patents.