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Everything you need to know about patent reform in one post

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MUSEUM OF AMERICAN HISTORY

Later this evening, the Senate is set to hold a key cloture vote on the America Invents Act, a piece of patent-reform legislation that’s been nearly a decade in the haggling. Final approval could come as soon as Thursday. You might remember patent reform from some of President Obama’s speeches claiming that the bill “would make it easier for entrepreneurs to patent a new product or idea.” So what does this bill actually do? And will it really boost the economy? Here’s a rundown:

What’s so bad about the existing patent system? Let’s start with the least-controversial answer. Right now, the U.S. Patent and Trademark Office simply can’t keep up with the onslaught of patents. It’s sitting on a backlog of 750,000 applications, and it takes three years for a patent to wend its way through the system — up from 18 months in 1990. A Commerce Department report from April 2010 claimed this delay “could ultimately cost the U.S. economy billions of dollars annually in ‘foregone innovation.’ ”

A backlog sounds easy to fix. Is that all that’s wrong? Hardly! Critics say there are deeper problems with how patents are awarded and defended in the first place. “This American Life” recently aired a segment on patent trolls: firms that exist solely to stockpile patents — often vague patents on basic business methods — and lob infringement suits at companies trying to market products. Start-up firms are at risk of being throttled in court, while established tech firms waste time gobbling up patents as a defensive measure, so that they can countersue if need be. That’s arguably why Google shelled out $12.5 billion to buy Motorola — to defend its Android platform against mounting courtroom attacks.

Does the bill address these issues? Not really. Experts say the bill mainly tackles the first bundle of problems — making a few tweaks to patent office procedures — while ignoring the second. Most significantly, the legislation changes the patent standard so that the first inventor to file an application gets the patent. (Right now, inventors can tussle over who thought of something first.) The bill would also allow companies to challenge dubious patents through a streamlined process rather than resorting to litigation. There’s a fast-track process for some patents. The patent office also gets more authority to set higher fees and — if Sen. Tom Coburn (R-Okla.) gets his way — to keep more of the money it raises through those fees. More on that in a bit.

Why criticize the bill? The most contentious provision is the shift from a “first to invent” to a “first to file” system. The upside, proponents say, is that this change will harmonize our system with Europe’s and Japan’s. It could also tamp down the bickering over who thought of what first. But critics say this provision mainly benefits large corporations — the ones with the legal resources to rush things to the patent office — over smaller firms and start-ups. What if, for example, a tiny tech company takes an idea to a venture capitalist that’s not bound by a non-disclosure agreement and the VC, in turn, hands the idea over to one of the bigger companies in its portfolio? While the bill technically contains provisions for small firms to defend themselves, patent lawyers say it’s not clear that they’d win out in practice. Canada’s experience under first-to-file appears to bear this out.

What about the less-noticed aspects of the bill? Yar Chaikovsky, a patent lawyer at McDermott Will & Emery, says that while the “first to file” change gets all the press, smaller bits of the law could eventually prove significant. For instance, the bill has a “post-grant review process” that allows companies to challenge frivolous patents through the patent office, rather than getting bogged down in the courts. Many experts have argued that tech firms won’t take advantage of this provision. But Chaikovsky points out that there were lots of minor bits of the American Inventors Protector Act in 1999 — such as the inter partes reexamination procedure to knock down dubious patents — that seemed inconsequential at first but have become more widely used over time.

Who is backing the bill? At this point, the main opposition is coming from small-business groups like the National Small Business Association. A variety of larger firms that make up the Coalition for 21st Century Patent Reform have embraced the bill, partly because they hope it will shovel more money into the patent office. But by and large, the bill isn’t terribly controversial in Congress. A similar version passed the Senate in March by a 95 to 5 vote. That’s partly because some of the major disputes — such as how to determine damages in patent suits — have been settled by courts. It’s also partly because Congress watered down the bill enough that it no longer tackles many of the largest issues.

So the stakes aren’t nearly as high anymore? That’s one way to look at it. The blog PatentLYO recently conducted a survey of IP professionals, and the majority of respondents said it wouldn’t do much to cut red tape or streamline the patent process.

But surely this will create jobs, right? You can find plenty of news reports citing the bill’s sponsor, Sen. Pat Leahy, as saying this legislation will create 200,000 new jobs. But when I contacted Leahy’s office, they said this number appears nowhere in the senator’s floor speeches and weren’t sure where it came from. The only hard analysis I could find comes from economist Everett Ehrlich, who in 2009 found that (a different version of) patent reform could create 100,000 jobs over five years. That’s minor in the scheme of things — the United States needs 100,000 new jobs each month just to keep up with population growth.

Is anything holding up the bill? The last remaining squabble is over “fee diversion.” Currently, the patent office collects fees for processing applications and granting patents. But Congress gets to spend that money however it chooses. Many businesses would rather the money stay with the patent office, to keep it well-funded. Coburn agrees, and is fighting to reinstate this provision. Congressional appropriators don’t like this idea. Other critics, like Dan Ravicher, who heads the Public Patent Foundation, say that letting the patent office keep its fees can create bad incentives for the office to boost applications and grant as many patents as possible. “It creates a financial conflict of interest, and could worsen the quality problem,” Ravicher says.

Is this the last word on patent reform? Not at all. There will still be plenty of complaints with the system even if this bill sails through. Over at Ars Technica, Tim Lee asked patent-reform advocates what changes they’d like to see in an ideal world. Respondents mentioned ideas such as strict limits on what could be patented — so as to avoid overbroad patents on basic techniques like streaming music — or a new process to allow tech companies to check a patent’s validity before employing it (right now, companies often find out whether their patent is valid only after getting slapped with an infringement suit). Whether or not these ideas are politically feasible, calls for further reform aren’t going away.

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