The America Invents Act: A Drill-down

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The long awaited and the long debated Leahy-Smith America Invents Act is finally here and legal pundits are wasting no time in pointing out its merits and demerits. The act itself, passed by the U.S. Senate on September 8, 2011 with a landslide majority of 89-9 and more recently signed by President Obama, aims to initiate a long pending overhaul of the US patent law, which has oft come under criticism for inefficiency. At the same time, it is interesting to analyze the repercussions of the new law on the Intellectual property segment and the new waves it will create. Before we begin to dispel the subtleties of this new act, let us analyze the need for it and list down some notable changes that it proposes.

Why was it needed?

Statistics released by the USPTO showed that, as of fall of 2009, the PTO was reeling under a backlog of 1.2 million unexamined applications and that the average time for a patent has increased to three and a half years. Compelled by the growing backlog, the PTO had started to reject applications at an unprecedented rate, which puts inventors in a rather precarious risk of losing competitive edge. In addition, undeserved patent grants continually come back to haunt either the USPTO or the courts in the form of re-examinations and dead-end litigations. And we have time and again witnessed how such proceedings drain resources off organizations and judicial system alike while doing no good to propel the state of technology itself.

There was also felt a growing need for reform in the way USPTO managed its finances. For instance, the patent office needed an increased leverage in setting fees for patent applications, and independent decision making power on strategic investments. Congressional interference in various PTO matters had, in the past, resulted in driving out the surplus money to other federal sectors, which could instead have been used for major infrastructure upgrades and for creating patent office jobs.

There were also other supplementary issues of related to Business Method patents and Software patents that needed addressing. Such patents have particularly resulted in high frequencies of tussle caused among major corporations and as well as genesis of a considerable number of NPEs (Non-Practicing Entities).

What is the reform?

The America Invents Act contains a number of notable points, set to change the way we think of the US intellectual property framework:

1.       First-to-File: Perhaps the most notable change in the United States patent law is the move towards a First-to-File (FTF) system. United States remained one of the very few countries which follow a First-to-Invent (FTI) system, where a person who invents a technology gets the right to the patent as opposed to the person who first applies for a patent. On the other hand, First-to-File system grants the patent to the person who files a patent application before any other application is filed using the same technology, provided the applicant invented the technology independently. This overhaul puts US in line with most other countries (who follow the FTF system), and greatly reduces confusion on the part of corporations.

As a direct consequence of the FTF system, a concept called Derivation proceeding has been introduced in case of a conflict where an early applicant derives the claimed invention from an inventor who filed for an application later. The act provides inventors with a certain time window for a derivation proceeding in which ownership of the IP rights can be corrected. Derivation proceedings will effectively replace the now-obsolete interference proceedings essential to the FTI system.

2.       Priority Examination: The new act introduces a provision for expedited patent examination if the filing party wants to enforce the patent as soon as possible for an increased fee of $4,800. To be eligible for priority examination, a patent should not have more than 4 independent claims and or more than 30 claims in all. The provision also eliminates a requirement for submitting an extensive Prior Art Search Report along with the application. As before, small entities are entitled for a fee waiver of 50% but the new act further simplifies the process for establishing small entity status.

 3.       Post-Grant Review: According to this procedure, a person may file a petition to initiate a post-grant review of the granted patent within 9 months of grant. This option complements ex-parte and inter-parte re-examinations, and is expected to greatly enhance patent quality.

 4.       Pre-issuance Submissions: In an interesting but potent move, the new act allows any third party to submit prior art within six months of publication of the application, which would then be included in the prosecution process.

 5.       Fee Setting Authority: The act also provides fee setting authority to the USPTO to ensure that it is adequately funded and properly staffed.

What are the repercussions?

The America Invents Act is slated to have tremendous meaning not only for the patent office but also for the market. Not only does the law make things simpler for the USPTO and reduce its administrative burden, it also raises some very pertinent and discernable flags on its worth to start-ups and individual inventors.

A shift from FTI to FTF system creates uniformity among countries with respect to intellectual property. It also lends a textbook lesson to inventors about how important their intellectual property is and how carefully they should protect it. But at the same time, it puts an increased financial and strategic pressure on individual inventors and small entities. An FTF system provides a huge advantage to bigger firms with enough resources to file a patent for any idea as soon as they conceive it, whereas smaller entities (even if they conceive the idea first) might not possess the resources to do so. Critics of the act argue that the FTF system trades the philosophy of human creativity off for capital-intensive investment to convert ideas into practice.

Moreover, the US is certainly not the first country to make such a transition. Canada changed its patent laws from FTI to FTF in 1989 and serves as a valid yardstick on the effectiveness of the transition. One such study notably pointed out that “reforms had a small adverse effect on domestic-oriented industries and skewed the ownership structure of patented inventions towards large corporations, away from independent inventors and small businesses.” While these studies give a perspective, one cannot overlook various other factors that might have propelled the shift. For instance, change in foreign policies, popular public sentiments, comparison of industry trends, etc.

Interestingly, this pressure to be the first to file a patent may in the end lead to a flurry of applications based on a mere whim of an idea and increase the load on the PTO (fortunately, however, along with the increase in the USPTO fee collections). Critics have gone as far as to allege that big players have conspired and lobbied to get the act passed.

The FTI system has, arguably (for the loss of empirical evidences), in no small measure, contributed to the great entrepreneurial atmosphere which incubates a record number of start-ups and small businesses in the US. The FTF system on the other hand can go either way. As opposed to large corporations, start-ups apply for a patent only after they have finalized their roadmap map and weighed the usability of their intellectual property. In an FTF system, this may just be too late. Consequently, funding such startups becomes riskier.

At the same time, once the economy fully rebounds and venture capitalists resume investing huge amounts into startups, the FTF system may even prove beneficial to the small entities. A new kind of micro-investment model can be imagined where venture capitalists would readily fund patent applications and perhaps at a later stage the venture itself, as opposed to funding the venture up front.

Other welcome provisions include post-grant opposition and pre-issuance submissions which while increasing the PTO’s burden, will ensure the quality of patents that get granted. Moreover, pre-issuance submissions in particular will invite a greater participation from competing market entities even before the applicant obtains its patent.

In the end, we should realize that we are, in effect, dealing with a trade-off. Streamlining the patent office procedures so that it acts as a proponent to the progress of the technology and not as a deterrent was absolutely essential and greatly welcome. This reform will achieve that significant goal, perhaps at the cost of increased competition for individual inventors and startups. But we also expect to witness some game-changing business models which not only counter this disadvantage for small entities but in turn add on to the entrepreneurial atmosphere characteristic to corporate America.

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Rahul Vijh
Rahul Vijh

There is nothing permanent except change. And it’s that change that Rahul enjoys blogging about. Whether it is the latest change to patent law, or the biggest, newest, latest device on the market, Rahul is sure to be up to date with the story, the background and the future.

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