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
