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Businesses split over national patent reform


As new patent reform legislation is debated on the U.S. Senate floor this week, California businesses are divided over the bill.

If the Patent Reform Act (SB 23) passes, it would be the biggest change to the U.S. patent system since 1952, in the days before Silicon Valley was a magnet for the high-tech industry.

The most significant change proposed is the switch from a first-to-invent to a first-inventor-to-file system, used by most other countries. On Wednesday afternoon, California senators pushed to strip this measure from the bill. U.S. Sen. Dianne Feinstein, D-Calif., said after listening to the California tech industry, she is "convinced this is the wrong thing to do," the San Francisco Chronicle reported.

The distinction between the two systems is sometimes misunderstood. In the version of the bill that includes a first-to-file system, "You still have to be an inventor, you cannot copy the idea from someone else or patent something that is already published. You have to have come up with it yourself and then be the first to file," said Robert Barr, executive director of the Center for Law and Technology at the UC Berkeley School of Law.

He said he supports the first-to-invent system.

"We've been living with a first-to-invent system for 200 years," Barr said. "The change would really create too much uncertainty in the law. Also, I think the first-to-invent system is fairer."

While there is disagreement about the specifics of reform, there is widespread consensus that the U.S. Patent and Trademark office's backlog is excessive; it now takes about three years to process a patent application. Sen. Patrick Leahy, D-Vt., who sponsored the bill, says the delay impedes the creation of American jobs. In the new bill, the patent office authority could set its own fees at a level that would give it enough funds to reduce its backlog.\

Roughly one quarter of the U.S. patents filed come from California, and businesses here have been lobbying hard for changes over the past few weeks.

Support and opposition hasn't been static, with IT companies, biomedical and pharmaceutical companies, and small businesses pushing for different versions of the bill.

"It is the IT companies who have been pushing for a patent reform bill for the past several years; biotech and pharma have opposed it," said Mark Lemley, director of Stanford's Program in Law, Science, and Technology, in an e-mail response. "But the bill has been weakened sufficiently during that time that the parties have now switched sides, with biotech and pharma generally supporting it and the IT companies generally opposing it." 

UC Berkeley professor Barr said two industries have different concerns. IT companies "are more concerned about too much litigation whereas pharmaceutical companies are more concerned about having patents to protect their investment," he said.

A group of companies, academic institutions, manufacturers and entrepreneurs, including California-based companies such as the California Healthcare Institute, Genentech, SanDisk Corporation, and Northrop Grumman, recently expressed support for the legislation in a letter to senators Harry Reid, D-Nev., and Mitch McConnell, R-Ky. They said the backlog of patent applications and the legal red tape are the primary issues they believe the bill will help resolve.

The Patent Fairness Coalition – which includes California-based companies such as Cisco, Google Inc., the San Jose Silicon Valley Chamber of Commerce and Wells Fargo & Co. – opposes the legislation, but has supported amendments passed on the Senate floor this week, noting in a press release that "the bill is moving in a promising direction."

Small businesses in California and nationwide have expressed strong opposition to the switch from a first-to-invent to a first-to-file system. In a letter to Reid [PDF] last week, a group of nine organizations representing small businesses, start-up entrepreneurs, independent inventors and technical professionals, wrote:

The bill favors multinational and foreign firms over start-up firms seeking an initial foothold in U.S. domestic markets, and favors market incumbents over new entrants with disruptive new technologies. Because (SB 23) removes the option to delay patent expenses, the bill advantages established companies, and disadvantages start-ups that must seek and carefully shepherd their capital.

In California, Active Spectrum, a small company that makes sensors for scientific research and the oil and chemical industries, is concerned that bigger companies have an advantage in the first-to-file system. "We very much try to delay filing patents when we start into a research idea until we feel that the idea has merit. For a small business, if you go to a first-to-file system, you're forcing a small company to come up with the money very quickly to file," said Christopher White, a member of Small Business California and chief technology officer of Active Spectrum.

However, it's unclear whether these concerns are warranted.

"Individuals and small businesses are worried that large companies will beat them in a race to the patent office under a first-to-file system," said Stanford's Lemley. "In fact, though, the empirical evidence suggests that the first-to-invent system does not benefit individuals and small businesses; it is more costly and requires better record-keeping, which individual inventors often don't do."



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