Wednesday, September 21, 2011

A watershed event in US IP and innovation practice - Patent Office -- "First to File'' Bill (2011)

Little has been heard in the news and few individuals will be directly affected, but the Patent Office's changeover to "First To File Rule" is likely to have a profound effect on innovation, the process by which inventions find their way to market.

The rest of the world has been on the First To File (FTF) all along. Only the US has managed the granting of patents by the First To Invent (FTI) rule and the difference is profound.

As I have written elsewhere in this blog the FTI rule creates the poorly understood consequence of allowing an inventor to claim "prior art" against an issued patent and obtain a disallowance of the patent in whole or in part. For RIM (Research In Motion), makers of the Blackberry, it played out in a disastrous chain of events (details see Blackberry).

To be sure, there are valid considerations in favor of FTI since it attempts to give credit to the true inventor and developer of the first insight on the matter. However, in a world where questionable documentation can fool a lot of people (see recent attempted fraud on Facebook), patent holders are sitting ducks. Even in cases where legitimate claims are brought forth and the original intent of FTI is satisfied, a systemic instability is created that creates incentives for litigation particularly by "patent trolls" that use the process as a lever for negotiation and extortion of bogus payments without even going through the full course of litigation.

An objection to the FTF rule could be made in the distant past: that only wealthy companies and individuals could file for patents thereby preventing the"little guy" from placing a legitimate claim on their invention. That may have been true in the 70's and 80's and even 90's (I can prove that it was true in 1980), but now, a "provisional filing" is sufficiently easy and inexpensive to file not to be a major obstacle to anyone that truly believes to have invented a better mouse trap. Moreover, in my view, no system can or should be designed to aid those with just an idea and not enough initiative or belief to take steps to defend their intellectual property.

What this changeover should, and I hope will, create is more reliability in the protection implied by issued patents. Once a patent is issued it is a done deal, entrepreneurs and investors can count on it. Enforcement is hard enough with out the need for the uncertainty of possible reversals by litigation by holders of prior art claims.

One unintended consequence may well be to make the patent portfolio held by trolls more valuable since they will no longer be exposed to the risk of litigation leading to disallowance of one of their patents. The degree to which this may be true will be profusely analyzed by better legal experts than me. Keep your ears open and talk to your IP counsel.

For the moment, let's rejoice that one area of uncertainty in the innovation business, heretofore frequently not clearly understood and fully accounted for, has been reduced. As investors in startups built to commercialize inventions that try to make their way to market we may have one less imponderable risk factor to worry about.

Marco Messina

Note: the above comments are offered from the point of view of a technology startups investor not as a legal expert, which I am not. Check with your IP attorney for that perspective.

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