Sea Change in Patent Law
Proposed Legislation Would Wean the United States from a 'First to Invent' Approval System
Posted Jan 8, 2006 3:17 PM CST
By Steve Seidenberg
Gordon Gould was still a graduate student in physics at Columbia University when he made his breakthrough in November 1957. He developed a way to use beams of light to perform an array of tasks. A half-century later, Gould’s invention is integral to the technology revolution—it can be used to perform delicate eye surgery without harming vision, it translates the digital messages on CDs and DVDs, it reads barcodes, and it helps make high-speed data communications possible. Gould named his invention the laser.
But Gould nearly missed out on any financial rewards for his invention.
Right from the start, Gould thought his device might be valuable, so he wrote down his ideas in a notebook and brought it to a Brooklyn candy shop, where he had it notarized. Then he went to a lawyer, but the lawyer told him he couldn’t patent his invention until he had an actual working model.
Actually, Gould could have filed for a patent right away. Following the erroneous advice cost Gould dearly because two scientists at Bell Labs also were working to develop a laser-type device. And on July 30, 1958, almost a year after Gould came up with his invention, Charles Townes and Arthur Schawlow applied for a patent on their version. Gould didn’t apply for a patent until April 1959.
For decades after that, Gould fought in the U.S. Patent and Trademark Office and in the courts to win the patent rights to his invention. Finally in 1987, Gould won his first major victory when the U.S. Court of Appeals for the Federal Circuit ordered the PTO to give Gould a patent on one type of laser.
More laser patents would follow, and Gould eventually received an estimated $30 million in patent royalties (after paying legal expenses). He was inducted into the National Inventors Hall of Fame, and he died a rich man in September at the age of 85.
But Gould’s story might have ended in a very different way if the United States did not base its system of awarding patents on the “first to invent” principle, which says that a patent should be issued to the inventor who can prove he or she was the first to come up with the invention.
The United States is the only nation in the world that follows the first-to-invent principle in awarding patents, and proponents of this approach say it taps into the American strain of independent inventiveness personified by such icons of ingenuity as Thomas Edison, the Wright brothers and Benjamin Franklin. The first-to-invent principle has been in effect since the first U.S. patent was issued in 1790.
But that may soon change. The U.S. patent system is on the verge of a sea change as support builds for abandoning the first-to-invent principle in favor of the “first to file” approach that is used by the rest of the world. Under a first-to-file system, Gould probably would have been out of luck because, regardless of whether he was actually the first to invent the laser, he did not file the first patent for it.
CHANGE IS IN THE AIR
Moving the U.S. patent approval process from a first-to-invent basis to a first-to-file approach is at the heart of the proposed Patent Reform Act, H.R. 2795, which is under consideration in Congress.
Enough of the provisions in H.R. 2795 are controversial, however, to stall the bill for months in the House of Representatives. The bill now is in the House Judiciary subcommittee on courts, the Internet and intellectual property.
But those debates don’t reflect widespread opposition to converting the U.S. patent system to a first-to-file approach, say experts in the field.
“Differences between industry sectors may put the entire bill at risk,” says Michael Kirk, executive director of the American Intellectual Property Law Association. “Several legislators have said that unless there is an industry consensus on the content of bill, it is unlikely to go forward.”
Still, even with the Patent Reform Act stalled in Congress, there appears to be growing support for moving the patent process to a first-to-file approach. “There has been very little opposition to that so far, very little disagreement among the various interest groups,” says E. Anthony Figg, a Washington, D.C., patent attorney who chairs the ABA Section of Intellectual Property Law.
The ABA jumped on the first-to-file bandwagon in February 2005, when the association’s policy-making House of Delegates approved the Intellectual Property Law Section’s recommendation that the association support “legislation providing that the right to a patent shall belong to the inventor who first files an application for patent” containing adequate disclosure of information describing the invention. The House adopted the recommendation by a 277-121 vote.
During the House debate, opponents of the measure argued that abandoning the first-to-invent approach would undermine the abilities of individual inventors and small companies to keep up with larger competitors.
The first-to-invent patent system is “uniquely American” in how it encourages the entrepreneurial spirit, said Sharon Stern Gerstman of Buffalo, N.Y., a member of the council for the ABA Section of Taxation. Changing to a first-to-file system “would burden American inventiveness without addressing the purported problems” with the first-to-invent system, she said.
“Make no mistake,” Gerstman said. “This resolution is a great benefit to big business and a great burden to individual inventors.”
Proponents of the first-to-file approach acknowledge that it offers certain advantages that larger companies can appreciate, but they also maintain that the patent law landscape has changed since the House of Delegates last considered proposals to support a first-to-file approach for the U.S. patent process. At that time, in 1993, the House declined to abandon the first-to-invent principle.
One reason for supporting a first-to-file approach, according to proponents, is a desire to bring U.S. law into alignment with the rest of the world.
Because that alignment does not now exist, inventors who want to protect their patent rights internationally often must go through patent approval processes in several different countries. In effect, this means that a patent request is reviewed by different examiners in different ways in different countries. This redundancy makes obtaining and enforcing patents on a worldwide basis so expensive that only the largest multinational corporations can easily afford it, says Gerald J. Mossinghoff, a former U.S. patent commissioner now in private practice in Alexandria, Va.
Some governments and patent experts have been trying for years to develop a treaty that would harmonize patent law and allow one application to cover, say, Europe, the United States and Japan. These efforts haven’t gone far, however, because the American first-to-invent system is so hard to reconcile with the first-to-file system used in the rest of the world.
While the advantages to multinational corporations and governments of bringing global harmonization to patent law are apparent, it is less clear whether smaller companies and individual inventors also would benefit, especially if they are not seeking to patent an invention on a worldwide basis.
In 1994, Congress removed one of the major advantages that U.S. inventors enjoyed under the first-to-invent system. Before 1994, a foreign-based inventor who filed abroad under a first-to-file system could not use work that took place outside the United States to establish an invention date earlier than the date on which the inventor filed for a U.S. patent. Thus, a U.S.-based inventor could claim a patent in this country by using the date of invention, while a foreign inventor would have to use the date of application.
When Congress removed this provision from the patent laws, it eliminated a primary policy argument for retaining the first-to-invent rule, says Hayden W. Gregory, a legislative consultant on intellectual property law for the ABA’s Governmental Affairs Office in Washington, D.C.
IN SEARCH OF CERTAINTY
Larger corporations and many other players in the patent process also support the first-to-file approach in the belief that it would bring more order to the system for challenging patents under U.S. law.
“In the absence of the award of the right to patent to the first inventor to file, the U.S. patent law today requires that rival inventors can be forced to fight for the right to patent an invention in a so-called patent interference,” says the Intellectual Property Law Section’s report supporting its recommendation that the House of Delegates back the first-to-file principle. “No one disputes that the interference fight proceeds at enormous expense, with prolonged uncertainty and little predictability as to the outcome.”
That process is based on “proofs of invention date”—the evidence of what an inventor did, and when, to develop a particular invention prior to the date on which another party supposedly came up with the same invention.
A first-to-file system “is less expensive [than first-to-invent] because there are no interferences,” says Herbert C. Wamsley, executive director of the Intellectual Property Owners Association, referring to the administrative proceedings the Patent and Trademark Office conducts to determine the first inventor when a patent is challenged. “Interferences,” he adds, “are time-consuming and expensive.”
Moreover, “first-to-file provides more legal certainty—that’s really the key thing,” says Wamsley, whose association membership is primarily large corporations. Under the first-to-invent system, a company or individual inventor can file a patent application and perhaps even obtain the patent, only to be surprised by a basement inventor who produces evidence of “secret prior art”—an earlier form of the same invention. The first patent applicant may already have spent millions of dollars preparing to exploit its invention, only to find those rights awarded to the challenger, who may bring an infringement lawsuit as well.
None of that is supposed to happen in a first-to-file system because the creator of an undisclosed invention presumably could not obtain any rights against a party that already has applied for or received a patent.
Proponents of the first-to-file system also argue that the first-to-invent system they want to replace does not offer the protections for smaller inventors that often are attributed to it. Proponents of first-to-file point to research conducted by Mossinghoff in recent years to support their contention that first-to-invent does not really work to the benefit of individual inventors.
Mossinghoff presented the results of his most current research July 26 in testimony during a House subcommittee hearing on H.R. 2795.
Mossinghoff examined patent interference cases from 1983 to 2004. He found that, of 3,253 two-party interferences conducted in those years—estimated to be fewer than 1 percent of all patent filings—139 individual inventors who filed their patent applications second won their interference cases. But 167 individual inventors who filed their patent applications first wound up losing their interference cases to later patent applicants. In effect, individual inventors lost 28 more cases than they won in legal battles to determine who was the first inventor.
Mossinghoff’s research suggests the outcome of an interference is related to the size of the inventor. In the years he studied, individual inventors won their cases less often than either large companies, which came out about even in their cases, or small businesses, which won more interferences than they lost. From 1983 to 2004, 92 small businesses that filed first lost their interferences, while 97 small businesses that filed second won their interferences, giving them a net advantage of only five cases. See “The First-To-Invent Rule in the U.S. Patent System Has Provided No Advantage to Small Entities,” June 2005 Journal of the Patent and Trademark Office Society, page 514.
What explains these different results among the different categories of inventors?
For one, Mossinghoff says, it’s often difficult for an individual to prove the date on which he or she conceived the invention. “It turns out big companies are more sophisticated in getting their inventors to keep detailed and dated notebooks,” he says. “Little inventors don’t do as good a job doing this.”
Moreover, it is not enough for an inventor to have a notebook that details what invention was conceived and when. If the inventor wants to win an interference, the inventor must be prepared to show that he or she also acted diligently to reduce the conception of the invention to practice—in other words, to create a working model of the invention. If there is a significant period of time for which the inventor cannot prove he or she was actively working on reducing the conception to practice, the inventor likely will lose the interference case.
And all this evidence of conception and reduction to practice must be corroborated by an independent source.
This requires a lot of recordkeeping, so it shouldn’t be surprising that individuals often have a tough time creating the necessary paper trail to win interferences. Individual inventors also can be at a disadvantage because they are unfamiliar with the complex, arcane procedural rules of interferences. “It’s a very technical proceeding,” says Kirk of the American Intellectual Property Law Association. “A party can lose the contest because it didn’t file the right motion at the right time.”
Then there’s the financial expense of interferences, which can be daunting. According to a 2003 survey conducted by Kirk’s association, the median cost of completing the interference process is more than $300,000. That’s a lot of money for a solo inventor, but it’s a figure large companies can easily absorb.
Given the apparent advantages that large companies have over individual inventors in interference proceedings, it might be expected that large companies would use these proceedings more readily than their smaller competitors.
A recent study conducted by Mark A. Lemley, a law professor at Stanford University, and Colleen Chien, a patent lawyer in San Francisco, appears to support this thesis.
In a random study of 190 interferences decided by the Board of Patent Appeals and Interferences between 1997 and 2003, Lemley and Chien were able to ascertain the size of 94 initiating parties and 145 respondents.
Analyzing these results, the researchers determined that small entities initiated just 18 percent of the examined interferences. Large entities commenced 77 percent of them. Conversely, interferences were filed against small entities in 43 percent of the cases and against large entities in 53 percent of the cases. (Interferences involving nonprofit entities account for the remaining cases.)
“These findings are significant because they suggest that interference proceedings are more often used by large entities to challenge the priority of small entities, not the reverse,” Lemley and Chien wrote in a law review article reporting on their study.
“This evidence further supports Mossinghoff’s conclusion that the first-to-invent system is not working to the benefit of small entities. If anything, small entities are getting bogged down in interference proceedings initiated by larger companies.” See “Are the U.S. Patent Priority Rules Really Necessary?” July 2003 Hastings Law Journal, page 1299.
In the face of this statistical evidence, why do many in the community of individual inventors remain committed to the first-to-invent system? In some cases, it’s a matter of misplaced faith in the first-to-invent principle, some experts say.
Small inventors “embrace the crazy idea that they can win interferences, even though they keep lousy records and have few and/or poor corroborating witnesses,” says Charles “Chico” Gholz, a lawyer who practices at the same Alexandria, Va., firm as Mossinghoff.
Gholz maintains that individual inventors and small companies would significantly benefit from a first-to-file system because they are able to decide quickly whether they want to obtain patent protection for an invention, while large corporations must await the decisions of various internal committees and company executives.
Moreover, individuals and small entities would probably have their applications prepared by attorneys in private practice, who, Gholz claims, generally work faster than in-house patent counsel at large companies. Thus, according to this argument, individuals and small companies should easily be able to beat their large corporate rivals in a race to the patent office.
But not everyone agrees with that point of view. Some say that cost constraints force individual inventors and smaller companies to agonize more than their larger brethren over whether an invention is worthy of a patent application.
“Large companies have the financial wherewithal to file lots of applications,” says Coe Bloomberg, a patent litigator in Los Angeles. “Small companies, particularly startups, are very sensitive to costs [so] they are very selective about what they file.”
These same cost constraints mean that when a small company does file for a patent, it wants to be sure that its application is up to snuff, Bloomberg says. The company wants to assure that its invention really does what it is supposed to do, and that its patent application contains enough detailed information to enable someone skilled in the art to practice the invention. (If this enablement information is lacking, the PTO will reject the application.)
As a result of these concerns, small companies spend extra time working on their inventions and their patent applications, according to Bloomberg. “They’d rather spend more time to prove up their case, to ensure the patent application is enabling,” he says. Thus, he asserts, small companies prefer the first-to-invent system because it provides them with additional time to refine their inventions and their applications.
There are reasons to doubt that small companies would change their ways if the United States were to adopt a first-to-file system, according to Lemley and Chien. They point out that, even though the current system provides inventors with significant incentives to file as early as possible, a goodly number of the parties who wind up receiving patents on contested inventions are not the first to file.
Moreover, the first-to-file system would provide an additional incentive for an inventor to file early—but this incentive would apply to all inventors, big and small. “There is no reason to believe that those who are first to invent but last to file under the current system would be more affected by this incentive,” Lemley and Chien wrote in their Hastings Law Journal article.
But even though changing the U.S. patent approval process to a first-to-file system has widespread support among big business, doing so wouldn’t create a perfect world for large companies.
Even under a first-to-file system, a claim of prior art still could be used to attack a patent or patent application by showing that the invention is not really novel enough to merit a patent. (Under a first-to-file system, however, prior art could not be used to create any new patent rights for the creator of the prior invention.)
THE PRIOR ART LOOPHOLE
The definition of prior art under current U.S. patent law doesn’t seem to fit well with a first-to-file system. Under the law, an inventor may obtain patent rights only to the novel aspects of an invention.
That precludes obtaining rights to any aspects of the invention that have been anticipated by prior art. Merely making an invention, for instance, can create prior art even if the invention is not yet disclosed to anyone, provided that the creator has not “abandoned, suppressed or concealed it,” which means the creator is either still actively working on the invention or actively preparing to exploit it, according to Michael Scheer, a patent attorney in New York City.
Thus, even under a first-to-file system, a corporation with a big investment in a patented invention could suddenly lose its exclusive patent rights because of the previously unknown work of a basement inventor, unless the definition of prior art is changed. (The corporation wouldn’t be as bad off as under current law, however. Although the corporation would lose its exclusive patent rights, the basement inventor wouldn’t gain those rights because he or she wasn’t the first to file. As a result, under the first-to-file system, the invention would be available for everyone to use, including the corporation.)
That’s one reason why the proposed Patent Reform Act contains a new definition of prior art. The bill would narrow the definition of prior art to include only inventions that are “reasonably and effectively accessible” to those skilled in the field. The new definition would exclude inventions that are relatively unpublicized and products such as software that are marketed to the public but whose workings are kept hidden from experts in the field because the products cannot readily be disassembled to see how they work.
Software companies are worried that their rights would be undercut by the proposed redefinition of prior art. Others are concerned that the definition is so vague that it would spawn a huge amount of litigation.
“There would end up being many litigations and many hearings about whether a piece of proposed prior art is reasonably and effectively accessible,” says Kelly Hunsaker, a patent litigator in Redwood City, Calif.
In addition to redefining prior art, the proposed legislation would:
• Create a new post-grant opposition proceeding that would allow a third party to ask the PTO to revoke a patent within nine months after the patent is issued.
• Narrow the definition of “willful infringement.” Under current law, a patent owner can get treble damages if an infringer has acted willfully. The bill would raise the standard for willfulness to require a patent owner to provide a pre-litigation notice that sets out the details of the supposed infringement in detail. There could be a finding of willful infringement only if the recipient of this notice ignored it and continued to act in an infringing manner.
• Make it harder to use the inequitable conduct defense, which now is almost always raised in patent infringement cases. Essentially, conduct in prosecuting a patent application would be considered inequitable only if it amounted to a common-law fraud on which the patent office relied in issuing the patent.
• Broaden prior user rights. Legislation passed by Congress in 1999 established a prior user defense against infringement, covering business methods for parties that independently reduced the patented invention to practice more than a year before the patent application was filed and commercially used the invention before the filing date. The proposed bill would make this defense available against all types of patents and allow it to be asserted by companies that merely make “substantial preparations for commercial use” of the invention.
RACE TO THE PATENT OFFICE
Despite the claims of many first-to-file proponents, it is possible that patent interferences would not disappear under a first-to-file patent approval process. Even if prior art issues did not arise, experts say interferences still would address issues of inventorship (whether the invention was created by the patent applicant or another party) and derivation (whether the applicant takes ideas for the invention from another party).
Experts generally agree that the number of interferences would drop significantly under a first-to-file system. “My optimistic hope is that there will be 25 percent as many interferences as there are now,” Gholz says.
But some experts also say that may not result in significant savings for many companies, for three reasons: First, interferences already are rare. Second, the savings resulting from fewer interferences may be more than offset by the costs of preparing additional patent filings, as companies rush to file as many applications as they can—as soon as they can—to protect their rights in a first-to-file system. Third, inventors may start to file more provisional patent applications in addition to full applications. Filing a provisional application allows an inventor to obtain an early filing date with an additional year in which to file a full application.
“There is enormous pressure to get an early filing now,” Gholz says. “There will be more pressure to file early if we move to first-to-file, but no one knows how much this pressure will go up.”
If anyone feels that added pressure—and cost—to file early, it is likely to be individual inventors and small companies, some experts say, because large companies already act as if the United States has a first-to-file system. “The members of [the Intellectual Property Owners Association] are already preparing their U.S. patent applications as if they were under a first-to-file system because they frequently file abroad on the same patent applications,” says executive director Wamsley. “The pressure is already there to file quickly because of the need to obtain early dates for foreign rights.”
Steve Seidenberg, a lawyer, is a freelance journalist in Fanwood, N.J., who contributes regularly to the ABA Journal.