Patent Reform: A Rare Bipartisan Triumph for Innovation and Growth

Amid continuing partisan strife over the federal deficit, health care, and the EPA, buttressed by fanciful dreams and expenditures for "green technologies" and other budget-busting "investments in America's future," Congress, with strong support from the Obama administration, may well be on the verge of passing legislation that truly will enhance future U.S innovation and economic growth. On March 8, the Senate passed the "America Invents Act (S. 23) by a vote of 95-5. In the coming weeks, the House Judiciary Committee will process a companion bill; and if the two houses can reach accommodation, a technology-enhancing patent reform act will become law this year.

The 2011 Senate patent reform bill - as the near-unanimous Senate vote underscores - passed as a result of genuine bipartisan consultation and compromise. Senators Patrick Leahy (D-Vt), Charles Grassley (R-IA), and Oren Hatch (R-Utah), chairman and ranking minority members respectively of the Senate Judiciary Committee, and their staffs, spent many hours over the past two years working through the complicated substantive issues while attempting to accommodate diverse corporate sector interests and priorities. They received crucial help from Sen. John Kyle (R-AR.), whose staff crafted a breakthrough amendment and compromise on one of the most debated and contentious elements of the legislation (rules for administrative appeal hearings after the U.S. Patent Office has granted a patent).

The economic significance of the patent system -- and the importance of "getting it right" on legislative reform -- is underscored by numerous studies. In the United States, an estimated 30-40 percent of the gains in productivity and economic growth throughout the 20th century have been attributed to innovation in its various forms. In 2005, economists Kevin Hassett and Robert Shapiro calculated that the value of U.S. intellectual property (patents, copyrights, trademarks) was $5-5.5 trillion.

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Within this world of knowledge and ideas, the patent system occupies a central place - a fact recognized by the Founding Fathers, who enshrined intellectual property in Article 8 of the Constitution, granting limited monopoly to inventors, artists and writers to "promote the progress in Science and the Useful Arts."

The U.S. patent system has evolved over time, and while in the broadest context it has worked quite well, problems and impediments to innovation have accumulated in recent decades. The challenge for the Congress, then, has been to craft targeted changes to the existing system that will remove those impediments, while retaining the flexibility and dynamism to adjust to future needs of U.S. entrepreneurs across diverse technological fields and sectors.

S. 23, the bill passed by the Senate, largely accomplishes these goals: it harmonizes U.S. patent policy with other nations' practices; it creates an administrative appeals system that carefully balances the rights of patent applicants with challengers; and it removes a number of subjective elements that have crept into the patent system. Finally - of equal importance - the Senators have exercised restraint in not second-guessing the courts in areas where judicial decisions are already settling a number of difficult questions.

Specifically, the Senate bill brings the United States into harmony with other national patent systems by changing to a first-inventor-to-file system from the existing first-to-invent system. The present practice has produced endless controversy - and litigation - over who actually had first inventor rights. Taking into account the concerns of some small inventors and academics, the legislation also provides a "grace period" of one year, during which the inventor's own disclosure (through a research article, for instance) would not defeat the right to obtain a patent.

Second, the bill attempts to mitigate the huge costs of patent litigation (average patent court litigations costs:$4-5 million) by establishing a post-grant administrative procedure aimed at settling challenges in a less costly and more expeditious fashion. S. 23 creates a 9-month window after a patent has been granted for an administrative proceeding in which any third party may challenge the initial determination of the patent office. It also continues a more constricted reexamination procedure (a so-called second window) that can be requested after the conclusion of the first appeal. These reexamination appeals, however, can only raise questions of novelty and non-obviousness derived from existing patents or printed material. Deadlines for both procedures ensure prompt action.

Third, the new legislation curtails or eliminates certain subjective elements of the patent process, the most significant being the requirement for an inventor to describe the "best mode" or practice of his or her invention - or risk later challenges or invalidation. The Senate removes a failure to disclose best mode as a defense for patent validity.

Finally, the Senate has wisely not attempted to second guess the federal courts in a number of areas where they have addressed difficult issues through interpretation of existing law. For instance, in one case, eBay v. mercExchange, the Supreme Court effectively reined in the excessive use of permanent injunctions by so-called patent "trolls," who had used the patent system to extort payments just to get out of the way. And in a second area, developing case law has established practical, appropriate principles for determining damages for patent infringement. As Dan Burk, a leading patent legal scholar, has stated: "a judicial response is often the fastest and most efficient way to address emerging issues."

House Judiciary Committee Chairman Lamar Smith (R-TX), and second ranking minority member Howard Berman (D.-CAL) both have long bipartisan experience and expertise in the area of patent law. In draft form (The bill has been published and will be formally introduced this week), the House bill is quite close to the Senate bill on most issues.

There is thus the expectation that in the coming weeks the House will also pass a patent reform bill by a sizeable majority. Then it will be up to the congressional leaders in both parties to shepherd a final product through a conference committee and on to the president for enactment before Congress departs in the fall.

Claude Barfield is a resident scholar at AEI.

Photo: Wikimedia Commons

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Claude
Barfield
  • Claude Barfield, a former consultant to the office of the U.S. Trade Representative, researches international trade policy (including trade policy in China and East Asia), the World Trade Organization (WTO), intellectual property, and science and technology policy. His many books and publications include Swap: How Trade Works with Philip Levy, a concise introduction to the principles of world economics, and Telecoms and the Huawei conundrum: Chinese foreign direct investment in the United States, an AEI Economic Studies analysis that explores the case of Chinese telecom equipment maker Huawei and its commitment to long-term investment in the US.
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    Email: cbarfield@aei.org
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