How Will Changes to US Patent Law Affect Entrepreneurs?

By Jane Yu




U.S. patent law will undergo the first reform in 60 years on March 16, 2013, when the remaining changes of the Leahy-Smith America Invents Act take effect. The reform is supported by companies such as eBay, 3M, Apple, Facebook, and Google, and while some aspects of patent law have uncertain effects for entrepreneurs, there are unquestionably positive attributes that it brings to the technology ecosystem.


The main change to patent law: First-to-file

The main change to U.S. patent law is a shift from a first-to-invent system to a first-to-file. The U.S. has historically operated on a "first-to-invent" standard, meaning whoever had first thought of the invention in its completed form holds the inventions patent rights. Now, it will adopt the "first-to-file" standard, which gives patent rights to the first entity who files a patent, as long as it is:
1)    Sufficiently different from prior art, which is existing, publicly available or publicly disclosed IP
2)    Details an embodiment of the invention, as well as possible practical uses
3)    Clearly defined so an informed reader can tell what is or isn't being patented
4)    Concrete, and not too abstract or conceptual (Take note, Apple!)

Why this matters: The new standard puts time pressure on inventors to file ideas quickly - something that is more difficult for solo entrepreneurs with little patent experience than large corporations staffed with patent lawyers. Also, many cash-strapped, early-stage startups currently dont make filing patents a priority, as they could first test a concept and prove they invented it later on. This will no longer be the case, as patents will be granted to the first to file an idea. This puts added pressure on busy entrepreneurs to file their ideas before testing them, which could slow down startup creation.

The prior art provision, however, could prevent a race to the patent office, as companies that publicly disclose their idea (prior art) have no need to fear that another company could hear of their concept and rush to file and claim a patent on their idea. Also, overall, the "first-to-file" standard is more objective, and less subject to long and costly legal battles later on: The "first-to-invent" standard has historically been difficult to discern, and it costs an average of $400 - $500K in litigation costs to conduct litigation over patent ownership. It's better for entrepreneurs to simply conduct the proper diligence upfront to protect their IP, instead of being vulnerable to continuous arbitration proceedings in the future.

In addition, most developed international countries operate on first-to-file, so with the changes, America will be more in line with international standards, which should streamline the international patent process for global entrepreneurs.

The PTO will become more efficient

Perhaps one of the most encouraging aspects of U.S. patent law reform is in the potential for the Patent & Trademark Office (PTO) to improve its efficiency and operations. Previously, all revenues generated by the patent office has to be handed to the U.S. Treasury, and the patent office then has to request funds to cover its expenses during appropriations. This is inefficient and doesn't allow the PTO to manage its own P&L to invest in critical infrastructure and hiring, as many of the revenues are diverted to other federal programs. The new reforms allow the PTO to set its own fees, conduct its own hiring, and invest in technical upgrades.  

Why this matters: The PTO has a backlog of 1.2 million patents pending approval, and it takes an average of three years to get a patent approved in the U.S. The newfound ability for the PTO to manage its own finances could motivate the PTO to improve operations for maximum efficiency, as all of its revenues will be reserved in a fund to be used only for the PTO and not any other governmental institution.

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In conclusion, entrepreneurs must simply familiarize themselves with the process of filing patents, and prioritize this process as much as incorporating their companies and filing 83(b) elections, because the act of filing will have greater importance with the passing of patent law reform. However, entrepreneurs shouldn’t be too worried about other companies stealing and rushing to patent existing and publicly disclosed ideas, as patent law reform will have “prior art” provisions that still protect their IP. Most of all, the greatest and most unquestionable benefit to innovation will come from the PTO becoming more efficient and better able to improve operations to handle future filings.


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