Senate To Revisit Patent Reform

With the heated debate over raising the nation’s debt limit resolved until after the 2012 election, President Barack Obama is promising to return his focus to the issue that will likely decide his political fate: the U.S. jobs crisis.

“In the coming months, I’ll continue also to fight for what the American people care most about: new jobs, higher wages, and faster economic growth,” Obama remarked at the White House on Aug. 2, shortly after signing the debt-ceiling deal into law.

A key part of that agenda, the President declared, is overhauling the nation’s patent system. “Through patent reform, we can cut the red tape that stops too many inventors and entrepreneurs from quickly turning new ideas into thriving businesses—which holds our whole economy back,” Obama said.

Senate Majority Leader Harry M. Reid (D-Nev.) then announced that patent reform legislation will be among the first items taken up for consideration when the Senate returns from recess on Sept. 6. Many Senate Democrats have said the measure will help create jobs by making it easier to reward innovation.

Bills to reform the patent system have already passed the House of Representatives and the Senate. The measures, both titled the America Invents Act, are similar, but they have a number of differences that usually would need to be reconciled and then reconsidered by both chambers. However, it appears that the Senate will attempt to pass the House bill (H.R. 1249) in its entirety, which would expedite delivery of the patent reform bill to the President for his signature.

Senate Judiciary Committee Chairman Patrick J. Leahy (D-Vt.), chief sponsor of the Senate version of the legislation (S. 23), supports that strategy. “The time has come to send [H.R. 1249] to the President’s desk to be signed into law. I hope all senators will join me, again, in passing this important bill after the August recess,” he says.

If enacted, the legislation would be the first major overhaul of U.S. patent law in nearly 60 years. The proposed changes, which are backed by the Obama Administration and a wide range of business groups and high-tech companies, aim to ease a lengthy backlog in patent applications, streamline complex procedures that have often led to costly litigation, and put the U.S. under the same filing system as the rest of the industrialized world.

Among other things, the legislation would transition the U.S. from a first-to-invent to a first-inventor-to-file patent system. Patents would be awarded to the inventor who first files an application with the U.S. Patent & Trademark Office (PTO), rather than requiring examiners to decide who was first to produce an invention.

Critics argue that the shift would put individual entrepreneurs and small businesses at a significant disadvantage against large corporations that have the legal and financial resources to win the race to file an application.

But advocates of the first-to-file switch maintain that it will benefit all inventors by aligning the U.S. system with those of the nation’s major trading partners, creating efficiencies for those who seek patent protection in the U.S. and other markets, such as Europe and Japan.

“It would also provide a more objective measure of determining patentability, thereby providing inventors with more certainty and potentially limiting costly and time-consuming litigation over who was the first to invent,” says Karl Uhlendorf, vice president of the Pharmaceutical Research & Manufacturers of America, a trade association representing the brand-name drug industry.

The biggest difference between the House and Senate legislation is language on funding for the patent office. Improving PTO’s funding model is considered central to the effort to give the office sufficient resources to hire enough examiners to review patent applications in a timely manner. Currently, there is a backlog of approximately 1.2 million pending applications that forces inventors to wait nearly three years to get a final decision.

“Countless inventions that can spark new businesses are right there—sitting in our backlog—and reducing that backlog is one of my highest priorities,” PTO Director David J. Kappos told a forum on patents and job creation earlier this year (C&EN, Feb. 21, page 27). Citing a study by the U.K.’s patent authorities, he noted that “the backlog could ultimately cost the U.S. economy billions of dollars annually in foregone innovation.”

The legislation (S. 23) approved by the Senate on March 8 by an overwhelming 95-5 vote includes a provision authored by Sen. Tom Coburn (R-Okla.) that would allow the patent office to access and spend all of the revenues it generates from filing fees paid by patent and trademark applicants. Currently, those fees go into the Treasury Department’s general revenue fund, and Congress annually appropriates money for the patent office.

But PTO typically generates millions more dollars in fees each year than it receives in appropriations. In fact, since 1992, nearly $1 billion in fees collected by the patent office have been diverted to other programs in the federal budget by congressional appropriators. For example, the fiscal 2011 budget limits the office’s spending authority to $2.09 billion, even though PTO expects to collect about $2.19 billion in fees over the same period.

Coburn’s amendment would end this practice. All fees paid to PTO would go directly into a fund at the Treasury Department, which the office could tap as needed to cover its operating expenses. The money would not be funneled through the congressional appropriations process and would, therefore, not be exposed to the threat of being diverted to general government spending.

A similar ban on so-called fee diversion was originally included in H.R. 1249. That version of the legislation won bipartisan support from the House Judiciary Committee in April. But shortly before the measure reached the House floor on June 23, Rep. Hal D. Rogers (R-Ky.), chairman of the Appropriations Committee, and Rep. Paul D. Ryan (R-Wis.), chairman of the Budget Committee, objected, arguing that Congress should retain control of patent office funding.

“We strongly oppose this proposed shift of billions in discretionary funding and fee collections to mandatory spending,” Rogers and Ryan wrote in a letter to Judiciary Committee Chairman Lamar S. Smith (R-Texas). “Putting PTO funding on auto-pilot is a move in exactly the wrong direction, given the Republican majority’s commitment to ... reducing the nation’s unparalleled deficits and debt.”

Under a compromise negotiated by the three lawmakers, the excess fees would be put into a special account available to the patent office through future appropriations. “The money in the fund will be reserved for and used by PTO and only PTO,” Smith remarked in announcing the deal on the House floor.

“This maintains congressional oversight, while making sure that fees collected by PTO can no longer be diverted” to other federal programs by appropriators, declared Smith, the chief sponsor of H.R. 1249. The House then passed the bill by a vote of 304-117.

Although Rogers has pledged in a letter to GOP leadership that appropriators will ensure that the patent office receives all of the revenue it generates in fees, Coburn says there is no guarantee that Congress will stop taking funds away from PTO.

“Unfortunately, the Appropriations Committee has a poor record of managing such accounts responsibly and honestly in this area and others,” Coburn says. “For instance, the Appropriations Committee has stolen billions from the Crime Victims’ Fund and other funds. There is no reason to believe they won’t continue to do the same with the patent account.”

That point of view is shared by groups such as the Innovation Alliance, which opposed House passage of H.R. 1249 on the basis that the compromise fee language lacked sufficient safeguards. “Any future appropriations bill could easily divert PTO funds to other uses,” says Brian Pomper, executive director of the alliance, which represents Qualcomm, Tessera Technologies, and other midsized technology companies.

“As a result, it will be difficult if not impossible for PTO to make multiyear plans, to hire and retain personnel, and to improve operations and information technology, all of which are critical to decrease the substantial backlog of pending patent applications,” Pomper adds.

However, the White House and most stakeholders have decided that the compromise funding arrangement for the patent office is better than having no bill at all. The Coalition for 21st Century Patent Reform “does support the House-passed America Invents Act and is working with Senate offices to have it adopted in September,” spokesman Bill Mashek tells C&EN.

The coalition represents some of the nation’s largest chemical and pharmaceutical companies, including Dow Chemical, DuPont, Eastman Chemical, GlaxoSmithKline, Merck & Co. and Pfizer.

In a recent letter to Leahy urging Senate passage of H.R. 1249, the coalition says the funding agreement will ensure that “the fees paid to PTO by inventors will not be diverted and will be made available to the office for processing patent applications and other important functions.”

Although the coalition says it would have preferred the Senate’s approach in S. 23 to prevent diversion of patent office funds, “we believe that acceptance of the House bill provides an effective and the most immediate path forward to address problems of the patent office,” the letter adds.

The Coalition for Patent Fairness—which represents tech giants such as Intel, Google, Apple, and Oracle—is also calling on the Senate to pass the House-approved patent bill, as is the Biotechnology Industry Organization, a trade association with more than 1,100 member companies worldwide.

The American Chemical Society is also confident that provisions in both the House and Senate patent reform bills would improve PTO’s ability to work through the massive application backlog, which poses “an impediment to the creation of new businesses that rely on patents to thrive,” says Glenn S. Ruskin, director of the ACS Office of Public Affairs.

ACS, which represents more than 163,000 chemists and chemical engineers, is satisfied that H.R. 1249 will ensure that PTO will retain all of the fees it collects from inventors. “We believe that the House compromise language would in fact end fee diversion,” Ruskin says, even though Congress will still need to appropriate the funds. “We now need to get Congress to agree to a final version and get it signed into law,” he adds. ◾