Want more jobs? Fix the broken patent system

By David Goldman, staff writer


NEW YORK (CNNMoney.com) -- After decades of inaction, lawmakers are finally closing in on a sweeping overhaul of America's antiquated, underfunded and extremely broken patent process. The popular move could help spur much-needed innovation and job creation -- but first, it has to get through a Senate logjam.

The Senate Judiciary Committee passed a bill in April that would patch a litany of problems with the patent system, which hasn't had a major reform in more than five decades. Two months later, the measure still has no timetable for the Senate-wide vote needed to move it through Congress.

"I don't know why this hasn't gotten floor time," Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., said in a recent interview. "This has nothing to do with ideology. We need an updated patent system to create and protect jobs, and it wouldn't add a penny to the deficit."

Leahy noted that the bill has three Republican co-signers, along with three Democrats. As a result, he predicted that once it gets floor time, the bill could get passed in just three days -- a blink of an eye compared to the marathon sessions it took to get stimulus, health care and financial reform passed.

The House has two similar bills under consideration, though its versions aren't as far along as the Senate's. If the Senate bill gets passed, it would likely make its way through the House fairly quickly, Leahy said.

But with patent reform, nothing is ever that simple. House Judiciary Committee Chairman John Conyers, D-Mich., has said he has concerns about some aspects of the Senate bill. The differences would have to be hammered out by the two chambers.

And not everyone thinks the bill will sail through as smoothly as Leahy predicts.

"Sen. Leahy is right; it's not a partisan issue. It's a regional and industry-related issue, and both parties are split on it," said Dan Clifton, head of policy research Strategas Research Partners. "If it did get on the floor, it's not guaranteed to get 60 votes, and it's not clear that the Senate version could get enough votes in the House."

Why it matters

The U.S. patent system is outdated and inefficient.

As the law stands now, inventors can sue for infringements on their intellectual property even if they never filed to patent it. Companies can request reviews after a patent has been granted to delay competitors from bring new products to market. Patent disputes take years to work out in court, and often cost both sides millions of dollars.

Meanwhile, the regulator overseeing all of this -- the U.S. Patent and Trade Office -- doesn't receive any taxpayer support and can't even set its own fees. The result is a backlog of patents over 700,000 long, with an average wait time for patent approval of more than three years.

David Kappos, director of the Patent Office, said "millions of jobs" are waiting in the wings as his agency works to clear its backlog. A recent Social Science Research Network study found that 76% of startup executives said patents are essential to get funding. The Harvard Business Review recently called the Patent Office "the biggest job creator you never heard of," because of its role in issuing patents to startups, "the primary source of almost all new net job growth in America."

Lawmakers and intellectual property experts say most of the country's patent problems aren't hard to solve. The reform bill the Senate Judiciary Committee passed in April would have "no effect on revenues" for the government, according to the Congressional Budget Office -- which means it won't cost taxpayers a dime to implement. The Obama administration supports the bill, and the Commerce Department recently issued a report that said patent reform would accelerate economic growth and job creation.

What's in the bill

The Senate bill consists of six main fixes to the system, which focus on making the Patent Office more efficient and the legal process more streamlined.

The biggest change that would occur is a transition to a "first-to-file system," from a "first-to-invent system." The United States is the only major industrialized nation that awards patents to those who can prove they invented something before someone else's patent was filed. As a result, the U.S. patent system is bogged down by legal disputes and delays as courts attempt to determine who created an invention first.

Another significant change includes allowing third parties to challenge patents before they are granted. That would cut down on post-grant court battles and making it likelier that only higher-quality patents will emerge from the process.

The bill also allow for a strong arbitration system, limits on patent violation damages, and incentives for bringing inventions to market. That last provision is intended to cut back on "patent trolling" -- the practice of collecting patents for creations you never plan to manufacture, then opportunistically suing alleged infringers.

Finally, the bill would allow the Patent Office to set its own fees, making it cheaper for smaller companies to file and more expensive for larger companies or those seeking more complex patents. That move would help the office raise the revenue it needs to hire the staff necessary to reduce its long backlog.

The bill isn't perfect, and it won't close all the loopholes companies use to take advantage of the system. Some groups representing smaller inventors worry that the "first-to-file" system will make it more difficult for individuals to file patents, as they compete with Big Tech.

But for the most part, businesses, government officials, and intellectual property attorneys are eager for Congress to act. Supporters point out that the reform bill slashes the patent application cost for "small entities" by 50% and "micro-entities" by 75%. That means some patents could cost as little as $250 to file.

"Reform would help the U.S. economy by establishing some key principles," said Bijal Vakil, a partner in White & Case's intellectual property team in Palo Alto, Calif. "If the laws aren't changed, domestic and foreign companies will continue to be slammed with expensive lawsuits."

Meanwhile, the Patent Office isn't just sitting on its hands. As the government agency waits for Congress to sort reform out, it has made some important changes that don't require congressional approval. As a start, it began giving examiners more time for interviews and case examinations. The hope is that they'll get more approval decisions right the first time, heading off future disputes.

That change has reduced the number of post-grant reviews per patent by about 20%. As a result, the agency is on pace to get its case backlog down below 700,000 by the end of the year and below 300,000 by 2015.

But agency director Kappos says patent reform remains crucial.

"While we're doing lots to improve our agency, I couldn't say any more strongly that patent reform is very much needed for our country," he said. "This is not just about improving efficiencies, this is about our national competitiveness."

Kappos said he remains optimistic that a bill will pass this year. But first, it has to get to the Senate floor. To top of page

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