The House passed H. R. 1249, The Leahy-Smith America Invents Act, on June 23rd by a 304-to-117 vote, a bipartisan tally with more than two-thirds of lawmakers from each party supporting the bill. The Senate passed similar legislation in March on a 95-to-5 vote. The bill would change how the U.S. grants patents and award them to the party which is “first to file” an invention instead of the “first to invent” it. The bill to reform the U.S. patent system for the first time in nearly 60 years would bring the U.S. in line with other countries who adopted first to file patent systems years ago, a move that will simplify the patent process for companies that file applications in multiple countries.
Congress has been trying to reform U.S. patent rules for more than a decade, but previous efforts to reach a compromise on new rules fell apart because of disagreements by various industries, including pharmaceutical and Silicon Valley companies. However, many of the most divisive issues have been settled by the courts in recent years, leading to the current legislation.
The banking industry scored a victory when lawmakers included a provision in the bill which would make it easier for banks to get re-examination of patents on financial business processes such as check-scanning, in an effort to avoid paying patent-infringement fees. The U.S. Chamber of Commerce and the National Retail Federation joined the banking industry to push for the provision, which was opposed by some small inventors. An amendment sponsored by six lawmakers to strip that provision from the bill failed. The banking industry measure is also in the Senate version of the bill.
Fifteen amendments were introduced, and only seven were accepted. Among the amendments rejected were Rep. Sensenbrenner’s Amendment 502 to strike Section 3 of the legislation converting the U. S. patent system from a “first to invent” to a “first to file” system and Amendment 492 by Rep. Conyers (D-MI), which would have inserted language to move the United States to a “first to file” system only upon a Presidential finding that other major patent authorities have adopted a similar one year grace period.
Rep. John Conyers (D., Mich.) said the legislation would “benefit large multinationals at the expense of independent inventors and small businesses” and would “harm jobs, harm innovation and harm our nation.”
Even though the legislation enjoyed broad industry support and was relatively uncontroversial, the House bill ended up filled with some thorny provisions that riled a few industry groups. Some inventors and small businesses complained that switching to a “first to file” system would give large companies an advantage and hurt individual inventors. Opponents argued there is no reason to change the U.S. system.
The bill’s supporters say it will improve patent quality by creating a new process for reviewing patents after they have been issued and allow third parties to provide information on other parties’ applications. To address concerns by university researchers, the bill would also give inventors a grace period to file for patents after publicly disclosing their inventions. It would also stop the ability of inventors to receive patents on tax strategies.
“This bill is designed to help all inventors,” said Rep. Lamar Smith (R – Texas), who chairs the House Judiciary Committee and helped author the legislation. The current system “seriously disadvantages small inventors and companies” because it can lead to years of costly legal challenges to their patents, he said.
Representative Mike Michaud (D-ME), who voted in favor of the bill, said, “We need to make it easier for companies to innovate and make things here at home, and this bill does that. Although I was disappointed that the bill did not improve the funding structure for the Patent and Trademark Office, I am pleased that provisions were added to make it better for U.S. manufacturing. This bill shows how effective Congress can be when both sides of the aisle work together. I look forward to working in a bipartisan fashion with my colleagues to further advance U.S. manufacturing and see this bill through the conference process with the Senate.”
Rep. Don Manzullo (R-IL) voted against the bill after his two proposed amendments failed. One would have totally transformed the bill by simplifying it with a plan focused solely on reducing the huge backlog in patent applications, and the other would have eliminated one section of the bill that gives the Patent & Trademark Office the ability to set its own fees. Rep. Manzullo stated, “This bill would weaken our strong patent system that has protected American entrepreneurs for centuries from overseas companies trying to pirate their inventions.” Manzullo said. “Any patent reform we undertake should focus on reducing the backlog in patent applications, not dramatically altering the system and giving multinational corporations advantages over American innovators. The last thing we should be doing right now is giving foreign companies an even greater opportunity to take our ideas and our jobs.”
Manzullo also believes the bill is unconstitutional (earlier this month, the Supreme Court reaffirmed that patent rights belong to the inventor) and unnecessarily adds a new post-grant review provision that will further delay and add further litigation to the patent approval process.
Biotechnology Industry Organization (BIO) President and CEO Jim Greenwood released the following statement: “BIO will continue to work with House and Senate leaders to ensure that final patent reform legislation addresses any remaining concerns and is enacted into law this year.”
“Small biotechnology companies rely heavily on their patents to attract investment to fund the lengthy and expensive research and development process necessary to bring breakthrough medical therapies and other products to patients and consumers. Strong intellectual property protection is critical for these companies.
“The Leahy-Smith America Invents Act will bring our patent system into the 21st century. The improvements made by the bill will benefit all sectors of the national economy by enhancing patent quality and the efficiency, objectivity, predictability and transparency of the U.S. patent system.”
The most important difference between the two bills is funding for the United States Patent and Trademark Office. The bill passed by the Senate put an end to the practice of fee diversion, which occurs when the Congress appropriates the USPTO less than they collect in fees. The excess in the fees collected from users of the USPTO then go to the federal government as general revenues and are used for purposes other than the operation of the United States Patent and Trademark Office.
Interest groups are already lining up to continue the fight, and there will probably be many more interest groups that protest the removal of provisions that would end fee diversion once and for all. The Innovation Alliance, a lobbying group representing some biotech and tech companies including Qualcomm Inc., pulled its support of the legislation prior to passage last week over a disagreement on how patent office operations are funded.
The Innovation Alliance’s Executive Director, Brian Pomper, released the following statement shortly after the America Invents Act passed: “The Innovation Alliance is disappointed that the House of Representatives has approved legislation that will not end permanently the diversion of user fees from the U.S. Patent and Trademark Office (USPTO).
“Along with many other patent stakeholders across a range of sectors and business models, we believe that the anti-fee diversion provisions approved by an overwhelming vote of 95-5 in the U.S. Senate and a 32-3 vote in the House Judiciary Committee offer the USPTO the reliability and structure it needs to reduce today’s significant backlog of 700,000 patent applications. Reducing the patent backlog and strengthening the USPTO is essential for driving innovation, job creation, and economic growth. We will continue to work with lawmakers and other stakeholders to ensure that any patent bill that becomes law ends fee diversion permanently.”
Prior to passage in the House, Senator Tom Coburn (R-OK), who was the champion in the Senate of the provisions that would end the practice of fee diversion, issued the following press release: “For too long tomorrow’s inventions have been stymied by today’s incompetence in government. It is outrageous for Congress to take fees paid by Americans for a specific service and spend those dollars on other programs. Since 1992, Congress has pilfered nearly $1 billion in user fees dedicated to the Patent and Trademark Office and spent those dollars elsewhere. As a result, we have 700,000 patents waiting for a first review that, if approved, could help get our economy moving again,” Dr. Coburn said.
“The Senate voted to end this egregious practice by a margin of 95 to 5 when it passed legislation this March that included an amendment I offered to end fee diversion once and for all. The House, unfortunately, decided to water down this language and allow the Appropriations Committee to control this account. Unfortunately, the Appropriations Committee has a poor record of managing such accounts responsibly and honestly in this area and others. For instance, the Appropriations Committee has stolen billions from the Crime Victims’ Fund and other funds,” Dr. Coburn said. “There is no reason to believe they won’t continue to do the same with the patent account.”
Now, the fight will go back to the Senate where Senators will be asked to swallow the changes adopted by the House of Representatives, which seems unlikely. Senator Patrick Leahy (D-VT) and Congressman Lamar Smith (R-TX) will likely want to find compromise language that can pass both the House and the Senate. A formal Conference on the bill is unlikely, which would mean that the Senate would need to work out language acceptable to the Senate while also being acceptable to the House.
Meanwhile, David Kappos, Under Secretary of Commerce for Intellectual Property and the Director of the United States Patent and Trademark Office, issued the following statement: “I want to congratulate the House of Representatives for passing the Leahy-Smith America Invents Act today…The effort to reform our nation’s patent laws began a decade ago, and House passage today brings patent reform a significant step closer to becoming law. This bi-partisan legislation will transform our patent system, enhance our Nation’s competitiveness and promote economic growth and job creation.
We are encouraged by the statements of so many Members of Congress calling for the USPTO to have full access to all of its fee collections. We are particularly thankful to Chairman Rogers for his commitment to ensure that the USPTO has full access to its fees when fee collections exceed Congress’ annual appropriation for USPTO. Full funding of the USPTO is necessary for the USPTO to successfully implement this legislation and to more effectively perform its core mission. We are hopeful that this critical legislation can move expeditiously toward final passage and enactment.”
Many are not at all thankful for the role of Congressman Hal Rogers (R-KY) because it was Rogers who protested the end to fee diversion and inserted the language that does not guarantee the USPTO will be able to access 100 percent of the user fees it receives. Under a compromise, House lawmakers did agree to let the agency keep patent fees but would put any funds excess of its annual budget into a reserve account overseen by Congress. The provision conflicts with the Senate’s patent bill and the White House expressed concerns about the proposal Tuesday, saying the patent office “must be able to use all the fees it collects to serve the users who pay those fees.”
The House and Senate must now negotiate a final bill before patent reform can be sent to President Obama to be signed into law. It seems unlikely that the Senate would accept the removal of provisions that will end fee diversion and the across-the-board-prior-user rights also in the House version. Although the House and Senate bills must now be reconciled, the White House has already signaled its support for the legislation to be signed into law.
Once again, our elected representatives have sold out to the interests of multinational corporations at the expense of inventors and small businesses.