Wealth of Ideas Newsletter, July 2011

On June 23, the U.S. House of Representatives passed H.R. 1249, its version of the America Invents Act. In March of this year, the Senate passed its version of the bill (S. 23). Now that both houses of Congress have approved a version of the same legislation, how do the two separate bills measure up? This month, we take a look at how the two versions are similar, how they’re different, and why opponents of the bill might still have a chance to slow its adoption.

Patent Office Funding

A big difference between the two bills – and one which caused major controversy leading up to the House vote – is the matter of USPTO funding. The Senate version of the bill, as passed, allows the Patent Office to keep and use all fees it collects, rather than having its budget set (and limited) by Congress.

Since 1990, over $800 million in Patent Office fees has been siphoned off by Congress for use by other government programs. Many patent experts and IP organizations – including American Innovators for Patent Reform (AIPR) – contend that fee diversion has prevented the USPTO from having the resources it needs to hire new examiners, update its outdated computer system and work down its patent application backlog.

An adequately staffed and well-equipped Patent Office would seem a desirable goal. The USPTO does not report on how many applications are in process, but AIPR estimates the patent application backlog to be 700,000, while some sources put it as high as 1.2 million applications. The America Invents Act’s provision to end fee diversion from the Patent Office was welcomed by many patent experts and groups that were otherwise critical of the legislation. Fully funding the Patent Office was – it seemed – one of the few things that people on both sides of the patent reform debate could agree on.

However, this provision was criticized as unconstitutional by some House members because removing the Patent Office from the appropriations process and allowing it to set its own fees granted too much autonomy to one government agency. The House bill did, however, grant fee-setting authority to the Patent Office Director, although the very next section of the bill sets the USPTO’s fees.

In the end, what the House bill does to resolve the funding issue is unclear. Section 22 of the House bill calls for Patent Office fees to be deposited into something called the “U.S. Patent and Trademark Office Public Enterprise Fund” rather than its current destination, the “Patent and Trademark Office Appropriation Account.” However, the bill doesn’t specify exactly how the Patent Office can access those funds.

There’s some potential good news for the Patent Office, however. On July 8, the House Appropriations Subcommittee on Commerce, Justice and Science approved a large increase in USPTO funding. Subcommittee chairman Frank Wolf (R-VA) said, "The bill includes $2.7 billion for the Patent and Trademark Office – the full estimate of fee collections for FY12 – and a 28 percent increase above FY11. Should PTO collect additional fees above the amount appropriated, the bill makes that excess available to PTO." The bill will still need to go before the full Appropriations Committee, but if approved, it will essentially fully fund the Patent Office for fiscal year 2012.

“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,” said USPTO Director David Kappos, following the passage of the America Invents Act in the House. “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.”

First-to-Invent

One thing that both the Senate and House versions of the America Invents Act have in common is the change from a “first-to-invent” to a “first-to-file” system. Should two inventors file for essentially the same invention, the only date that will matter is the filing date of the patent application, not who was actually the first to invent the new technology. Under this change, many IP experts predict a “race to the patent office” that larger entities may be better equipped to win.

For inventors concerned about the change to first-to-file, there is a window of opportunity: The America Invents Act includes a “transitional provision” that this change won’t take effect until 18 months after the date that the legislation is enacted. The downside: Some have speculated that this chance to file under the existing “first-to-invent” system will lead to a flood of new patent applications that will add to the backlog – thus increasing the workload on the already over-worked and under-funded Patent Office.

False Marking

In response to the spate of “false marking” lawsuits in 2010 (for background information, see our first blog post on the subject, “The New Trolls”), both the Senate and House bills contain a provision to amend the false marking statute, 35 U.S.C. 292(a) and (b). Both bills restrict the right to bring a lawsuit under the statute.

Formerly, any citizen could file a false marking lawsuit on behalf of the federal government – this is known as a "qui tam" lawsuit – and would be entitled to a share of the damages. Both versions of the America Invents Act limit the filing of false marking lawsuits to the federal government and parties that suffered competitive injury because of an act of false marking, such as competitors of the company accused of marking their products with expired or irrelevant patent numbers.

The House bill differs from the Senate bill in this area, however, and limits the scope of liability for marking a product with a patent number that has expired. As long as the patent actually covered the product, no civil or criminal liability will arise. The Senate will have to respond to this amendment during the reconciliation process.

How will this part of the legislation affect existing false marking lawsuits? Pretty profoundly: All qui tam lawsuits brought by public citizens (i.e., those who have not suffered as a result of the false marking, but want a share of the damages) will be eliminated should this legislation be enacted.

What’s Next for the America Invents Act?

Now that H.R. 1249 has passed in the House, Senate Judiciary Committee Chairman Patrick Leahy (D-VT) has indicated that he would like the Senate to approve the House’s version of the America Invents Act rather than going through a complicated and possibly lengthy House-Senate conference to iron out the differences.

But with the Congress’ attention currently focused on debt ceiling and budget issues, and the month-long August recess looming, it seems unlikely that this legislation will be addressed before Congress reconvenes in September. Opponents of the legislation are expected to push for just such a House-Senate conference on the bill.