As we all know, the Senate passed the House version of the America Invents Act (AIA) on September 8 and President Obama signed it into law last Friday. Supporters claim the legislation is crucial to job growth.

However, many in the IP industry disagree with the President and supporters of the bill on several points. In the first “Pulse of the IP Industry” survey, conducted in August by General Patent Corporation in conjunction with American Innovators for Patent Reform (AIPR), 57.9 percent of respondents said they view the change from a first-to-invent to a first-to-file patent system unfavorably.

The objectives of the America Invents Act – as stated by the bill’s authors and apologists – were to bring the U.S. patent system in line with other countries, remove some of the red tape from the patent application process, and encourage innovation and job growth. So how do people in IP-related fields think the bill measures up?

First-to-File: Bad News for Small Businesses

One of the most hotly contested areas of the AIA – and one which, as mentioned above, over half of survey respondents disapproved of – is the change from a first-to-invent to a first-to-file patent regime. This change moves the emphasis away from awarding the patent to the actual inventor and instead awards a patent to the first applicant. With the cost of applying for a patent running into the many thousands of dollars, this change gives large corporations with deep pockets and IP departments a distinct advantage over inventors, small businesses and universities. Many critics of the bill feel that it represents a move away from the original intent of the Founding Fathers, who clearly wrote that they wanted patents to be issued to “inventors” and not applicants.

The U.S. is not the first country to switch from a first-to-invent to a first-to-file patent system. Canada made that change in 1989, and researchers studying the transition noted that it “skewed the ownership structure of patented inventions toward large corporations and away from small businesses.”

One of the most vocal critics of the America Invents Act has been Paul Michel, a retired judge of the U.S. Court of Appeals for the Federal Circuit (the court that hears patent appeals). "Now that everyone knows that the first filer wins, there will be pressure on all companies to act as fast as possible, even if there is research left to do," he claims in an interview in Corporate Counsel. "[Businesses] may need to file three or four patent applications over the course of one or two years. In the past, they would have quietly kept working and then filed one application at the end."

First-to-File: Bad News for Job Growth

Congress overwhelmingly stands by the legislation despite evidence that it may create an unfair playing field. When arguing in favor of the AIA on the House floor, Judiciary Committee Chairman Lamar Smith said, “There are some who think this bill hurts small businesses and independent inventors, but they are wrong. It ensures that independent inventors are able to compete with larger companies both here and abroad. American inventors seeking protection here in the United States will have taken the first step toward protecting their patent rights around the world.” Asked if they agree with this statement, 65.4 percent of survey respondents said no.

What’s bad for start-ups and entrepreneurs is also bad for job growth, since there is little disagreement that it is small companies and start-up businesses that hire new employees while many large corporations are downsizing or out-sourcing new jobs to foreign countries. As economist Tim Kane of the Kauffman Foundation pointed out, “When it comes to U.S. job growth, start-up companies aren’t everything. They’re the only thing.” (Quoted in “‘First to file’ is threat to job creation,”a blog post by Henry R. Nothhaft published on TheHill.com’s Congress blog).

First-to-File: Bad News for Patent Issuance

Almost everyone agrees that the change to a first-to-file system will result in a flood of new patent applications just when the U.S. Patent and Trademark Office (USPTO) is facing a huge patent application backlog. American Innovators for Patent Reform estimates that there are currently 700,000 patent applications in prosecution at the Patent Office, and that number will increase dramatically when the AIA takes effect. AIPR reports that it currently takes an average of 37 months to receive a patent, and thousands of new first-to-file applications will most definitely increase the time it takes to be issued a patent.

Streamlining the Patent Process?

The AIA is supposed to make it easier and faster for the Patent Office to issue quality patents. Toward that end, the AIA grants the USPTO the ability to set its own fees, which is an improvement from having Congress do all fee-setting for the agency. Unlike the Senate version of the bill, the House version of the America Invents Act (H.R. 1249) – the bill that was passed by the Senate and signed into law – stopped short of ending fee diversion.

The U.S. Patent and Trademark Office is one of the few federal agencies that uses NO taxpayer dollars. It is fully self-funded from the fees it collects from patent and trademark applicants and assignees. While the Patent Office can set its own fees, it cannot keep all of the fees it collects! Instead, its budget is set by Congress, and all monies the agency takes in over and above the amount appropriated by Congress are diverted to the U.S. Treasury for other government departments and programs. So although the Patent Office now has the ability to set its own fees, it won’t be able to use the additional revenue it collects!

In our survey, the vast majority of respondents – 85.4 percent – were in favor of allowing the Patent Office to keep ALL of the fees it collects. Many patent professionals have lamented that the USPTO really needs access to all of its fee revenue if it is to expand, hire new patent examiners, make necessary IT system upgrades and start to work down its huge patent application backlog.

Trading in Secrets

Since 61.6 percent of survey respondents said they expect the AIA to increase the cost of securing a patent – and add to that the pressure to file the first patent application and the fact that post-grant review increases the chances that a patent will be challenged – we have an environment in which, say some patent experts, more inventions will be maintained as trade secrets.

“Information about new inventions is critical to technological progress,” said law professor Jason Rantanen in a blog post on Patently-O.  “By increasing the value of secrecy as an option for monetizing inventions, the Leahy-Smith America Invents Act represents a step backwards in terms of information dissemination.  The prior user defense created by the Act recalibrates inventors' decisions between secrecy and patenting so as to favor the choice of secrecy.  This shift has the potential to reduce the number of patents that are filed on secret inventions.”

Having fewer inventions patented and, therefore, published, defeats the Founding Fathers’ express desire that inventions “promote the Progress of Science” by being patented rather than being kept as trade secrets!

Adding More Uncertainty to a Weak Economy?

Asked if they believe the AIA will provide greater protection for intellectual property, 69 percent of survey respondents said no, 18.4 percent were not sure and only 12.7 percent said yes. The survey also found that:

• 77.4 percent are NOT more inclined to hire as a result of the Act.
• 43.9 percent actually think the Act will negatively impact their businesses.
• 69.0 percent do NOT see the “America Invents Act” as providing greater IP protection.

Poorly Written Legislation?

Judge Michel has yet more criticism of the America Invents Act. "There will be heightened uncertainty for the rest of the decade," he says. "The bill makes fundamental changes, and many sections are poorly written and ambiguous."

Only time will tell if the AIA accomplishes its stated goals, but this survey – although it is small and unscientific – shows that many in the IP world have their doubts.

October Wealth of Ideas: We will address what innovators need to know, and need to do, under the America Invents Act.