Property Rights

This story appears in the February 1996 issue of Entrepreneur. Subscribe »

Two republican congressmen with competing bills on patents are both claiming small-business support. However, only one of them would pass a lie detector test with flying colors.

Reps. Dana Rohrabacher (R-CA) and Carlos Moorhead (R-CA) brought their yearlong slugfest to the House Judiciary Subcommittee on Courts and Intellectual Property (which Moorhead chairs) on November 1. The bone of contention? Rohrabacher wants to change U.S. patent law, which was altered recently in compliance with the GATT world trade agreement signed by the United States in 1994.

Before GATT, American patents were protected for 17 years from the time they were granted by the U.S. Patent and Trademark Office (PTO). The GATT agreement says a patent will be protected for a minimum of 20 years after an application is filed. The United States set the patent protection floor and ceiling at 20 years from the time of filing-no more, no less.

Rohrabacher's bill (H.R. 359) would amend that so patents would have either 17 years from the date of issuance or 20 years from the date of application, whichever is longer. He points out that the PTO often drags its feet on patents related to breakthrough technologies. As a result, under post-GATT law those inventions will get considerably less than the 17 years of protection they would have enjoyed before GATT.

"The polypropylene patent, which the Patent Office issued after 27 years of delay, would have gotten zero protection," Rohrabacher said at the hearing, as an aide displayed a poster board detailing patent delays for key inventions.

Moorhead's bill (H.R. 1733) does not address the term of patents. Its most controversial provision requires the PTO to publish a pending patent after 18 months. After that date, inventors could claim royalties, even if no patent had been issued. Moorhead also attempted to get the support of inventors by adding a fourth reason (there are three in current law) why patents can be extended beyond 20 years: if the PTO unreasonably delays its examination of a patent. Up to 10 years (the current limit is five years) could be granted because of any of the four administrative delays.

At the hearing, Moorhead and Rohrabacher argued that their respective bills each had the support of small business. Moorhead had a tougher time proving that, however, since National Small Business United, the National Association for the Self-Employed and many inventors' groups back Rohrabacher. Perhaps more important, last year the White House Conference on Small Business passed a resolution supporting Rohrabacher's bill.

Backing Moorhead is The Coalition to Save Patent Term Reform. Its members: the likes of Xerox, 3M, Apple, Rockwell, Polaroid, Phillips Petroleum and other giants.

Hoping to prove he had some small-business support, Moorhead brought in William Budinger, chairman and CEO of Rodel Inc. in Newark, Delaware. However, Budinger's company, which is 26 years old and grew from his invention of a "hickey picker," a tool that picks blemishes off lithographic presses, has at least 500 employees at two facilities in Delaware and Arizona; another
75 are employed at a plant in Japan.

Ed Stead, vice president of Apple Computer, was also there to back Moorhead. Paul Heckel was not. Heckel owns HyperRacks Inc., a Los Altos, California, company he formed in 1982. He filed a patent infringement suit against Apple in 1989, claiming Apple infringed on his patent for its HyperCard product. After filing its own noninfringement suit, Apple subsequently paid a sum to Heckel and obtained a license to produce the product.

Heckel, who formed an organization called Intellectual Property Creaters in 1994, backs Rohrabacher and says Moorhead's call for publishing patents after 18 months is "a sucker's contract."

Budinger admitted publishing a patent after 18 months could prevent an inventor from keeping the product secret if it doesn't prove patentable. But he claimed that won't happen under the Moorhead bill. After 18 months, 75 percent to 90 percent of all U.S. patent applications are already published overseas, where American and foreign companies can view them. That's because 45 percent of those patents are filed by foreign companies and another 30 percent by multinational corporations.

But what about inventors whose patents aren't filed abroad and subsequently aren't granted by the PTO? Budinger admitted 18-month publication would cause a problem for these people, but he claimed the Moorhead bill ameliorates that problem. "For small inventors who do not file abroad, H.R. 1733 delays publication until three months after the PTO has taken the first office action [on the product]. If granting looks unlikely, the applicant has time to withdraw the application before publication. Thus the secret is safe."

John Morgan, an aide to Rohrabacher, says there might be room for compromise if Moorhead agreed to delay publication until three months after the second PTO action. He explains, "It is extremely uncommon to win a patent after the first office action."

In terms of congressional support, Rohrabacher has the bigger cheering section, with 189 co-sponsors; Moorhead has about 40. But Moorhead is also chairman of the subcommittee with authority over patents. So it may not matter that inventors and entrepreneurs solidly support Rohrabacher.

Heckel worries that Rohrabacher may have to make a compromise inventors oppose. "He may not want to," Heckel says, "but he may not have a choice."

---

Stephen Barlas is a freelance business reporter who writes monthly Washington columns for 15 magazines.

Fraud Squad

Congress is considering legislation that would make it more difficult for invention marketing companies-many of which are scam artists-to pull the wool over inventors' eyes.

Sen. Joe Lieberman (D-CT), who held hearings on this issue in 1994, is leading the charge. His bill (S. 909) was introduced in the House (as H.R. 2413) by Rep. Carlos Moorhead (R-CA), a chairman of the Judiciary Subcommittee on Courts and Intellectual Property. Moorhead held hearings on the bill in his subcommittee in October.

Typically, fraudulent invention marketing companies inflate the commercial possibilities of an invention, then do an incomplete or incorrect patent search, get a worthless patent and fail to market the invention. The inventor ends up spending thousands of dollars on these bogus efforts.

The Federal Trade Commission (FTC) has forced some invention marketing companies into out-of-court settlements. But Robert Lougher, president of the Inventors Awareness Group Inc., which he formed in March 1992 after quitting his job at an invention marketing company in disgust, says many FTC settlements are token affairs in which inventors get back a few dollars on the thousands they unwittingly invested. "This is a slap in the face," he complained. Also, even after FTC action, invention marketing companies can still continue to operate under different names.

The Lieberman bill would require invention marketing companies to register with the U.S. Patent and Trademark Office (PTO) if they offer to file for and obtain a utility, design, or plant patent or trademark protection for clients. Contracts offered to inventors would be standardized and would have to include a cover sheet disclosing the number of applicants the company has rejected in the past five years, as well as the number of customers who have earned a profit from their inventions.

Lougher would rather see the FTC run the registration program since the PTO has no enforcement authority. While he admits this isn't an ideal solution, he believes the FTC is better equipped to do the job.

SBA Update

Entrepreneurs whose local banks don't traditionally lend to small businesses, such as those in rural areas, now have a capital source through the Small Business Administration's new Main Street Investment Program.

The program combines the state's investment dollars and network of financial institutions with the SBA's successful LowDoc loan program. Participating states' treasurers allocate tax dollars to buy certificates of deposit from community banks. The banks in turn agree to use those funds to make Main Street Investment loans to small businesses.

Loans, for a maximum of $100,000, are available for start-up or expansion; the SBA guarantees up to 80 percent of each loan. To apply, business owners fill out the one-page LowDoc loan application and generally get an answer from the bank within three days.

Since it began in October 1994, the Main Street Investment Program has expanded to 17 states: Colorado, Florida, Iowa, Maine, Maryland, Massachusetts, Mississippi, Missouri, Montana, North Dakota, Ohio, Pennsylvania, South Carolina, South Dakota, Utah, Vermont and Wyoming. The SBA hopes to have the program in at least 25 states by year-end.

For more information, contact your local SBA office, or call the SBA Answer Desk at (800) U-ASK-SBA. -Philip Lader, Administrator of the SBA