Posts Tagged ‘patent reform’

Threat to the American Patent System and Inventors’ Rights

Tuesday, October 10th, 2017

On August 11, 2017, a group of inventors went to the United States Patent Office to make a statement and give testimony against new patent laws that promote the theft of our intellectual property instead of protecting it. Afterward, the inventors demonstrated in front of the Patent Office, and several burned their patents.  Michael Caputo, Managing Director of Zeppelin Communications, stated, “Patents have become worthless.”  The C-Span video of the protest can be viewed here.

Why is the American patent system and inventors’ rights being threatened?  In September 2011, Congress passed and the president signed the Leahy-Smith America Invents Act (AIA) that changed the U.S. patent system to the party “first to file” instead of the “first to invent to bring the U.S. in line with other countries who adopted first to file patent systems years ago, supposedly to simplify the patent process for companies that file applications in multiple countries. Its central provisions went into effect on September 16, 2012 and on March 16, 2013.

At the time, supporters said it would 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.

Opponents argued that there was no reason to change the U.S. system, and inventors and small businesses complained that switching to a “first to file” system would give large companies an advantage and hurt individual inventors.

To find out what has happened to the American Patent System and Inventors’ Rights since 2011, I requested information from Randy Landreneau, Founder Independent Inventors of America, Paul Morinville, Founder US Inventor, and Adrian Pelkus, President of San Diego Inventors Forum.

Randy Landreneau: “America has been the most innovative country on earth from the start. A key reason for this is the revolutionary patent system created by our Founders that provided intellectual property rights to any man or woman, rich or poor. The rest of the world had systems that were for the aristocracy and those favored by the powerful…America maintained a superior system in protecting the intellectual property rights of inventors until …the passage of The America Invents Act in 2011…While it is hard to quantify the effect of changing to First-to-File, this change does place a disadvantage on the independent inventor relative to the large corporation. But another change has had very measurable negative effects.

The America Invents Act created new and easier ways to invalidate an existing patent. Prior to this, to invalidate a patent required going to a judicial court with its various protections offered to the holder of a property right. The America Invents Act created procedures for an administrative court, the PTAB (Patent Trial and Appeals Board), that does not have the same protections. Approximately 70% of the patents that companies try to invalidate using the PTAB get invalidated.

There are efforts underway to get the PTAB procedures ruled unconstitutional or at least reigned in and similar to the procedures of a Judicial court. Certainly, the PTAB procedures are doing great harm to American innovation.”

A more recent bill was even worse – The Innovation Act (H.R. 9), which passed the House in December of 2013. But, the Senate version (PATENT Act, S.1137) was fought effectively and did not pass the Senate.  However, these bills were reintroduced in subsequent sessions of Congress until the summer of 2016, when it became clear these bills were not moving forward.

Hundreds of millions of dollars have been spent pushing a false narrative that nefarious entities called “patent trolls” are using frivolous litigation to make companies pay them unfairly. More often, in actuality, an inventor has a patent that is being infringed by large corporation that he cannot afford to fight in court. So, he sells his patent to a company that does have the wherewithal to fight in court (a non-practicing entity or NPE), and the infringer loses because he is guilty.

One element of the Innovation Act was ‘Loser Pays.’ If an inventor sues a corporation for patent infringement and does not win, he could be liable for the infringer’s legal costs. This could be more than $5,000,000. This liability would also be a personal liability to an investor with an interest in the patent (piercing the corporate veil and placing personal assets at risk).

There are still efforts underway by multinational corporations to get a similar bill passed in the future. Currently, there is the threat that something similar to the Innovation Act will come back.

But, the more current threat is how the courts have been moving toward not considering a patent as the property right that it has been for 200 years. A three-judge panel actually ruled that a patent is a public right. If the courts start to widely regard patents as not being property rights, as some feel they are already doing, this will greatly harm American innovation. If a court does not respect the rights of an inventor, court procedures end up being applied in ways that work against him. Recently, there have been numerous cases where judges ruled that a patent was too abstract, and the inventor was not given the normal due process of providing witnesses, testimony, or otherwise fighting to retain his intellectual property.

There is an effort underway to get the U. S. Supreme Court to take up this issue and rule in the favor of patents being property rights. If this effort succeeds, we will have, at least temporarily, stopped the erosion of inventor rights that are so important to this great nation. I and others are involved in fighting to maintain the rights of inventors, and to expand them where they have been reduced in recent years.”

Paul Morinville wrote his opinion in a paper titled, “We’ve Been Googled,” when H.R. 9 looked like it would pass in which he stated that “H.R.9 creates a Patent System without Inventors. Over the last decade, Google and others have spent hundreds of millions of dollars to lobby Congress and produce an ingenious ‘patent troll’ narrative, which distorts the reality of invention in America. In this decade long war on inventors, H.R.9 is the Google lobby’s latest accomplishment. Not surprisingly, H.R.9 is not directed to fixing the fictional problem of ‘patent trolls.’ Instead, H.R.9 mounts its considerable damage on the patent system in general, specifically harming inventors and small patent-based businesses.”

Morinville explained, “If this bill becomes law, inventors will not be able to enforce their patent rights against moneyed corporations like Google. However, moneyed corporations like Google will still be able to enforce their patents against small businesses with even more devastating consequences to those small businesses. Patent litigation is about risk and cost versus reward. If risk or cost is too high in relation to reward, a patent cannot be enforced.”

Adrian Pelkus: “I’m an inventor named on 14 issued patents and have made my life as a serial entrepreneur doing new product development for over 30 years. Along the way I have created many startups and raised millions of dollars on the back of IP. I have coached inventors and startups every Thursday since 1985 and have run one of the larger inventor clubs in the U. S. since 2005, the San Diego Inventors Forum (www.sdinventors.org.)

He said, “What is most absurd about the America Invents Act to American inventors is the fact that with PTABs we can lose our ISSUED PATENTS… A company challenging a patent wins 90% of the time. The cost to defend is so expensive that inventors give up and are unable to afford achieving their dreams.”

Now, issued patents guaranteed as a Property Right in the constitution are being challenged. A business that infringes would just pay a royalty to the inventor if found guilty hence ‘efficient infringement.’ The biggest incentives to create new ideas and businesses are weakened because the guarantee that an issued patent will protect your IP interests and investments is gone. Patents can now become liabilities. The proposed bills to penalize an inventor with loser pays and threatens to make their investors pay was beyond absurd; it would be economic and intellectual suicide. The end of our rights and hopes as inventors is in plain sight.”

Adrian became connected to Randy Landreneau and Paul Morinville when they reached out to other inventor groups, and he was invited to join the fly-in to Washington, D.C. to fight H.R.9 in April 2015. After that fly-in to Washington, D.C. he became focused on fighting against bills that would destroy our patent system and joined the board of US Inventor in August 2016. He was already on the board of the United Inventors Association and had been working to unite the inventor clubs and groups nationwide.

In January, 2017, the Policy Panel of US Inventors authored a USI Policy Section 101 paper and in February, it was determined that they had to “get as many inventors as possible calling Congress and writing about the threat of a new bill.” 

Adrian said, “I sent out my first call to action to all the clubs and sent a second one the next week and every week since. I discussed the plan to unite the groups and clubs with Stephen Key of Invent Right and Louis Foreman of Edison Nation, who asked how they could help. With their help, we have united 24 inventor groups nationwide to fight the threat to our American patent system and protect inventors’ rights.

I established a bimonthly phone conference with the heads of the biggest organizations in the inventor community, inventor clubs, and individual inventors in an effort to create a coalition that would support a petition that reflects our concerns about and suggestions to change the America Invents Act. This coalition is a historic cooperation that will unite the inventor community and bring a voice to Washington, D.C. they need to hear!

We now have a petition that we believe will help make America great again by making it a great place for American Inventors again. This petition represents concerned citizens, inventors, entrepreneurs, and businesses from coast to coast. I’m proud to contribute my efforts to help America by restoring its patent system. 

I agree with Landreneau, Morinville, and Pelkus that the America Invents Act is gradually destroying the American Patent System. If a bill similar to H. R. 9 passes Congress, it would the final nail in its coffin.

Why is this important? Because most new technologies, especially break-through or disruptive technologies, come from individual inventors who either start a company or license their technology to companies that are more able to take them to the market.

As a mentor for San Diego’s CONNECT Springboard accelerator program and fellow director on the board of the San Diego Inventors Forum with Adrian Pelkus, I work with inventors designing new products or break-through technologies. Local inventors have the opportunity to compete in the San Diego Inventors Forum annual invention contest for best new consumer product or best new technology. All contestants must have applied for at least a Provisional patent before they can participate. The future success of their product or technology is contingent upon their having a patent they can protect from infringement. Their ability to raise the financial investment they need to bring their product to the marketplace depends upon their being able to protect their patent. No investor will take the risk of investing in a product or technology that cannot be protected.

Please join the American inventors coalition formed by Adrian Pelkus, Randy Landreneau, Paul Morinville, and others to save American inventors by signing the petition at http://www.usinventor.org/petition.

 

Patented Technology is Key to RoadLoK’s Success

Tuesday, July 14th, 2015

There is no lack of ingenuity and innovation in the U. S. today. Each year, thousands of new products are invented, and but most are never produced. Knowing how to use technology to create a product doesn’t mean you know how to manufacture it and get it to market. Obtaining a patent is a key factor in achieving success, but you also need to recognize the limitation of your knowledge and expertise and utilize experts in fields you need, such as product design/engineering, patent/licensing, material/process selection for prototyping and production manufacturing, and marketing.

I recently had the opportunity to interview Adam Xavier, founder and CEO of New Hampton Technologies dba RoadLoK Security, who is an example of an inventor and entrepreneur who successfully got his product patented and into the marketplace.

His company distributes products worldwide under the brand name RoadLoK. The company specializes in the design and production of model-specific vehicle locking systems for motorcycles, scooters and off-road power sports vehicles. The RoadLoK is the only locking system that safely and effectively prevents rollaway theft. The system is designed to be permanently mounted on a motorcycle, thereby eliminating the need for storing the lock while riding. The system’s permanent mounting eliminates all momentum, making it virtually impossible to damage calipers and fenders. This is accomplished while also protecting the rider, should the rider forget to unlock the system before attempting to ride off.

I asked how he got the idea for his product, and Adam said, “My twin brother Eric and I were sitting in the outside seating area of a bar the summer after we graduated from college and saw a man forget to take off his lock and tip over his motorcycle. We started talking about a better idea for a lock and drew a sketch on a napkin. The next day, we searched to see if there was a lock similar to our idea, but didn’t find one. We took our sketch to a CAD designer to turn our idea into a design that could be manufactured. A friend from college, Matt Tomosivitch, who had become a machinist, made our first prototype. Matt is now the chief engineer of our company.

Continuing, Adam said, “We made a video of our lock that showed how it worked. We wrote a comprehensive 60-page business plan. We filed for a provisional patent in July 2005. Then, we sent our video to local investor network group in New York and were kicked down to the group in our area, Orange County. The director contacted us, and we gave our pitch in December 2005. We got our first investment check from the Orange County Capital Development Group on February 16, 2006. This investment was enough to get us to our first trade show in March, the International Motorcycle Show in Atlanta, GA.

Adam said that they set up their first office in Middleton, NY and later moved to Newburgh, NY. They spent two years of R&D to finalize the design and raised another $3 million over three years to get into full production. They used 3D printing to make new prototypes as they improved the design. They received a lot of mentoring and hands-on help from their angel investors.

Their first utility patent was granted on December 23, 2008 after their third attempt at an “office action” at the patent office. They got their second patent in 2010.

When they started the company, Adam said that they wanted to keep everything made in the U. S. They used www.thomasnet.com to find all of their vendors. They have seven major vendors for all of the different parts of their product, and they are located in Illinois, North Carolina, New York, and Texas. Their mission is to produce a high quality product, so all of their vendors are ISO 9001-2008 certified to meet the exacting requirements of their customers.

They later moved to California because they needed to have face-to-face communication with their two biggest customers, one located in Murrieta and one in Corona, CA. California also has the biggest population of motorcycle riders.

The executive offices are now located in Santa Monica, CA, but their product is manufactured in Salisbury, North Carolina and assembled to order at their plant in Torrance, CA. Since the RoadLoK is produced to order, production is not automated and does not utilize any robots. They are looking at doing more vertical integration of parts manufacturing. Their screw-machining vendor in Chicago makes two parts, and the patented design of their locking pin has 5 components made by three different vendors.

They started to implement lean principles in 2009 and changed one component from a square rod to an extrusion, which reduced material waste by 62%. They have been working towards reducing other material waste and time since then.

Their original plan was to focus on after-market sales of the product for the first two years and then license the product to motorcycle manufacturers on a non-exclusive basis similar to how the airbag is licensed to car manufacturers. Now in its 9th year of operations, RoadLoK’s largest customers are KTM Sportmotorcycle and Ducati with others to be announced within the next year.

When asked how his company has been impacted by competition from offshore in Asia, Adam said, “We don’t have any direct competitors offshore, just cheaper substitute locking mechanisms. We are selling in Australia, Japan, and China and recently selected a company to partner with to produce parts in China to sell to the Chinese market. We have started the process to file a patent in China. We need to have manufacturing plant in China to sell to the Chinese market because of the high import duties. Brazil is another county we are looking at to set up a manufacturing plant because of the high import duties. There would be a win/win benefit of jobs to the community and provide a much-needed product for the people.”

I naturally asked how the recession affected his company when they were only a little over two years old when it started in late 2008. Adam said that they were spending about 85% of their time setting up a distributor network and program to sell to dealers utilizing direct sales persons. But, motorcycles are purchased with discretionary income, which dried up during the recession as people lost their jobs. So, their direct sales to motorcycle riders through distributors/dealers dropped drastically. To survive and grow, Adam said, “We had to reduce our direct sales staff and reduce our travel costs. We changed our sales model to online retail sales and direct sales to motorcycle manufacturers. This model has helped us grow and succeed. We have also started R&D on the next generation of vehicle immobilizers to other two or more wheeled vehicles that do not have a transmission.”

Adam had read my article on “Which Patent Reform Bill Doesn’t Destroy the American Patent System?” and said, “Our having a patent pending was key to getting investors and having a patented product has been the key ingredient to our success as a company. Investors want the protection of a patent, but they wouldn’t take the risk of being made personally liable. There is no way that we could have gotten investors if our investors had been personally liable for defending our patent in a patent infringement lawsuit.” Note: Adam was referring to the “Loser Pay’s provision of H. R. 9 and S.1137.

If we want to have more successful companies manufacturing products in America, then we need to protect our American Patent System and stop H.R. 9 and S. 1137 from being passed. Instead, we need to pass the Strong Patents Act of 2015, S. 632, which will “Enact balanced reforms to reduce abuse while sustaining American leadership in innovation.”

 

Anti-Inventor Legislation Being Proposed in Congress

Tuesday, February 3rd, 2015

Sometimes it seems we have to play “Whack-a-mole” against well-meaning legislation that would have harmful, unintended consequences. Last year, the Innovation Act, H.R. 3309 passed the House of Representatives by a 325 – 91 vote on December 5, 2013. It seemed like a comparable bill would easily pass the Senate until a concerted effort to defeat this bill was undertaken by Randy Landreneu, Founder of the Independent Inventors of America, and another inventor, Paul Morinville, by visiting key people in the offices of about 60 Senators.

Their efforts were aided by such organizations as CONNECT and Biocom in San Diego, the Biotechnology Industry Group, and the Independent Inventors of America. Because of the opposition by these groups and other groups not cited, the bill ended up being dropped in the Senate.

Why did these organizations oppose this effort on patent reform? Gary Klein, V. P. Public Policy, of San Diego’s CONNECT organization, stated: “A startup company’s main asset is its intellectual property. Most investors’ first question to startups is about how their technology is protected. The Innovation Act that passed the House has several provisions – fee shifting, covered business methods, joinder rules, discovery and customer stay – that will have some very serious adverse consequences for small/startup companies, universities and research institutions, as well as companies who use licensing as a business model.”

Joe Panetta, President and CEO of Biocom, stated “Not only does H.R.3309 fail to adequately address the abusive litigation practices it aims to curb, but it would place burdensome and unnecessary requirements and penalties on all patent holders. The bill is likely to inadvertently harm the world’s greatest innovation system by limiting legitimate patent holders’ ability to assert their rights.”

The Biotechnology Industry Group (BIO) was concerned that it would undermine biotech research and innovation. Daniel Seaton noted on BIO’s Patently Biotech blog, “the Act would ultimately make it more difficult for patent holders with legitimate claims to protect their intellectual property…Provisions in the legislation would erect unreasonable barriers to access justice for innovators, especially small start-ups that must be able to defend their businesses against patent infringement in a timely and cost-effective manner, and without needless and numerous procedural hurdles or other obstacles.”

The Independent Inventors of America against Current Patent Legislation, representing independent inventors and small patent-based businesses across the country, disputed the claim that patent infringement litigation had escalated. They initiated a petition stating “The Government Accounting Office Report required by the America Invents Act finds that there is no ‘patent troll’ problem. Data supporting the claim of billions of dollars of reported cost cannot be verified and actually represent primarily voluntary and court directed license agreements for valid patents. In addition, analysis of patent litigation shows that the number of patent suits relative to the number of patents issued today remains consistent over the 200 plus year history of the patent system with the exception of a short period prior to the Civil War when the rate was higher than it is today. The reports supporting this latest round of legislation are simply not valid.”

They argued that “what is being characterized as a “patent troll,” and the target of the proposed legislation, is really an investor. As individual inventors and small patent-based businesses, we need investors to practice and protect our inventions. A patent is sometimes the sole asset we can leverage to attract that investment. Damaging investors therefore damages inventors.”

The petition stated, “This legislation will levy grave harm upon independent inventors and small patent-based businesses, as well as the investors we need to help commercialize new technologies and to protect our inventions.” They “stand firmly against the proposed legislation and any future legislation that would weaken the American Patent System.” The governing body of the San Diego Inventors Forum, of which I am a member, signed the petition along with many of our members.

The main reasons why inventor organizations opposed the Act were:

Loser Pays – would significantly increase the risk and cost of defending a patent and “could be fatal to a large percentage of inventions.”

“Joinder” clause – allows investors to be personally liable for legal fees if inventor loses lawsuit, so this would severely limit investment in new technologies.

Patent Term Adjustment – eliminates a patent adjustment for a delay in patent issuance caused by the U. S. Patent Office (Note: Patents are granted for 17 years, but if it takes five years to get a patent, the patent term would be only 12 years instead of 17.)

New Bill in the Works

Now, Washington, D. C. insiders are indicating that legislation very similar if not identical to the Innovation Act will be introduced in the House of Representatives as early as February.

Why is a new version of the Innovation Act being proposed? The stated purpose is to curb frivolous lawsuits for patent infringement by so-called “patent trolls,” a derogatory term defined by Wikipedia as “a person or company who enforces patent rights against accused infringers in an attempt to collect licensing fees, but does not manufacture products or supply services based upon the patents in question, thus engaging in economic rent-seeking. Related, less pejorative terms include patent holding company (PHC) and non-practicing entity (NPE).”

Proponents of the Innovation Act said that” in the two years since the AIA was enacted, patent litigation has exploded. More and more firms are acquiring broad patents not to use the technology but rather to extract licensing fees from companies that infringe the patents accidentally…so a number of industry groups that weren’t traditionally involved in patent debates have begun agitating for patent reform.”

However, the Patent Freedom organization states, “NPEs are not all cut from the same cloth. Some inventors choose not to pursue the development, manufacturing, and sales of their inventions. They may lack the resources to do so, or the interest, passion, and commitment that such an effort requires. Instead, they may seek to license their inventions to others who can use them to deliver better products and services, often with the assistance of those with experience in this area. Or they may choose to sell the patents outright…. some entities buy patents with the express purpose of licensing them aggressively. For instance, about 25% of “parent” NPEs tracked by Patent Freedom are enforcing only patents that they had acquired. Another 60% are asserting patents originally assigned to them, and the remaining 15% are asserting a blend of originally assigned and acquired patents”

If new legislation is crafted to be similar to the Innovation Act, it would create additional requirements as part of the legal process associated with patent infringement under United States law. Some of the provisions that were in the Innovation Act are paraphrased below:

  • Requires specificity in patent lawsuits – requires specified details concerning each claim of each patent that was allegedly infringed.
  • Makes patent ownership more transparent with a “Joinder” clause requiring patent plaintiffs to name anyone who has a financial interest in the patent being litigated. This would include investors.
  • Makes the loser pay – “if a losing plaintiff cannot pay, the bill would allow a judge to order others who had a financial stake in the plaintiff’s lawsuit to join the lawsuit and pay the costs of an unsuccessful patent lawsuit.” This could force investors to participate in paying the legal fees, which would discourage investment.
  • Delays discovery to keep costs down – gives time to allow the courts to address legal questions about the meaning of patent claims with the goal of reducing legal costs and allow more frivolous lawsuits to be resolved before defendants have incurred large legal bills.
  • Protects end users – allows technology vendors to step into the shoes of their customers and fight lawsuits against trolls on their customers’ behalf in cases where restaurants, supermarkets, airlines, casinos, real estate agents and other brick-and-mortar businesses are being sued for using technology such as Wi-Fi instead of the manufacturers of the equipment.

Randy Landreneu, Independent Inventors of America, stated: “There were a number of provisions fatal to independent inventors, like Loser Pays (if you sued a corporation for patent infringement and did not prevail, you would be liable for their legal costs, which could be over $1,000,000). The Innovation Act also had the provision that an investor with an interest in your patent would be personally liable for these legal costs. This would have eliminated the ability to defend a patent for the vast majority of inventors, as well as greatly reducing any investment in patent related startups.”

Adrian Pelkus, SDIF President, states, “A new version of the Innovation Act horrifies me in the way that it would allow corporations to beat up on small inventors. Financial ruin for inventors would be extremely easy due to the nature of startups, meaning most inventors could lose their fledgling businesses disputing challenges to issued Intellectual Property. If we increase the risk that their IP will be challenged (perhaps even frivolously just to stop them from progressing to market), innovation will grind to a standstill.

At a time when we need American ingenuity and investors to rebuild our economy, taking steps to diminish our rights as inventors is un-American, economically dumb and intellectually suicidal. Stifling innovation in a technologically based society is a sure path to economic ruin which is why the USPTO system was originally designed to reward not punish the inventor. We are a nation of creators and builders living at a time when science and technology is exponentially enriching our quality of life. Disturbing the evolution of ideas disrupts our development as a society, and changes to our patent laws are doing just that. American inventors create new products and jobs. The more we enable inventors, the more our country prospers and the better our lives become. We can expect only the opposite if we if we stifle inventors by allowing laws to be passed by corporations pressuring our representatives to protect only their interests.”

I urge everyone to contact your Congressional Representative before the new bill hits the floor. Tell them that you are against further weakening of patent rights. Tell them that current efforts at “patent reform” will greatly hurt inventors and innovation in America. We must not stifle innovation if we want to create more American jobs and maintain our technological advantage in the global marketplace.