Last year’s passage of the Leahy-Smith America Invents Act (AIA) promised significant changes to the Patent Act, but the effect of those changes remains to be seen – largely because the most sweeping revisions have not yet taken effect. Though the AIA was signed on September 16, 2011, there have been few changes in the patent process. Fees have been raised, a reserve fund has been created, and much research has begun. However, many revisions are still inchoate, and require a bureaucratic process of meetings, reports, and recommendations.
In January of this year, the United States Patent and Trademark Office (“PTO”) released two AIA-mandated reports. The first report is titled “International Patent Protections for Small Businesses,” and it analyzes the value of foreign patents for startups. Though hardly a sliver of the coming overhaul of the Patent Act, the report is an interesting study in one element of the AIA’s perceived role in stimulating a still-flagging economy.
A Quick Note on Methodology
One of the most striking passages in the report is the section discussing its methodology. It is almost apologetic in tone, noting that the PTO had only four months and limited resources to complete the report. Consequently, much of the analysis is based on data that was not meant to query small business patenting practices, and all of the public input was collected at two hearings. It is, therefore, a broad overview of issues surrounding foreign patents as they relate to small businesses.
Stimulating Growth Through Patents
A primary purpose of the AIA is to reward innovation through sweeping changes in the patent process. At the core of this goal is the promise of job creation, a process that is driven by new business. As Tim Kane of the Kauffman Foundation noted: “…startups aren’t everything when it comes to job growth. They’re the only thing.” The PTO agrees, stating in the Executive Summary of its report that “small businesses are the primary driver of job creation in the United States, with young startup companies, which are by their nature small businesses, creating on average three million U.S. jobs per year.”
The PTO report points to evidence that there is a correlation between patenting and economic success among small high technology companies. In spite of this apparent relationship between patenting and success, very few early startups participate in the patent process. Not surprisingly, most patent activity among small businesses is concentrated in high technology sectors. The reasons for the popularity of patenting among tech companies are rooted as much in the financial/investment life cycle common in that arena as they are in the reliance on patentable gadgetry, with executives stating that “patenting was important for capturing competitive advantage in the marketplace, preventing copying, improving success at attracting investment, and increasing the likelihood of being acquired by another company or having a successful initial public offering (“IPO”).” In short, patents are important assets for tech companies.
An International Perspective
As the title of the report indicates, its primary focus is on the role of foreign patents in the success of small businesses. Foreign patents for U.S. small businesses are rare – a fact that tends to hamper internationalization efforts. One of the problems is that many small companies do not realize that the power of a U.S. patent only extends as far as this country’s borders. A lack of understanding of international intellectual property laws can make it difficult for U.S. companies to connect with global partners. Without local protection for their markets, international partners tend to shy away from collaboration and investment. Furthermore, there is a very real risk of foreign companies copying and patenting inventions in their home countries, leaving U.S. companies in a weakened position globally.
Diplomacy and Education in Lieu of Financial Assistance
One of the biggest barriers facing small businesses that wish to acquire foreign patents is that of cost. International patents are relatively expensive (particularly when factoring in attorney costs and translation fees), and patent expenses tend to occur early in a startup’s life cycle. The report discusses the issue of expense at some length, but warns against government intervention in “private sector issues.” Most of the companies whose input was collected at the two hearings voiced a preference for avoiding government grants or loans to fund foreign patent applications. Instead, the report suggests that the government address the issue by two methods:
The first method is what it terms “diplomacy and harmonization,” which it posits could reduce foreign patent costs. It relies on comments from several firms in a variety of industries, suggesting everything from delaying requirements for translations to assisting in negotiating down filing costs. As evidenced most starkly by the shift from a first-to-invent to a first-to-file system, one of the goals of the AIA was to harmonize U.S. patent policies and procedures with those of other countries. Other harmonization efforts – moving toward absolute novelty, protecting prior users, reducing subjective elements of the law – are part of the long-term implementation of the AIA.
The second method is an “aggressive” foreign patent education effort aimed at small businesses. The notion is that informing small businesses of the value of foreign patents, as well as the “pathways and mechanisms” necessary to file, would result in increased patent activity. It is suggested that the PTO should partner with the Small Business Administration (“SBA”) to expand the PTO’s Intellectual Property Awareness Campaign, leverage the SBA’s nationwide network of Small Business Development Centers, and scale efforts to reach more businesses.
Will the PTO work with the SBA to reach more small businesses and educate them on the value of foreign patents? Can they leverage diplomacy efforts with Patent Cooperation Treaty (“PCT”) countries to streamline the international patent application process? Will these changes add up to increased globalization for domestic startups and a positive influence on job creation, or will the overall effect of the AIA be negative? The real effects of the AIA remain to be seen, but change is clearly on the way.
Though many of the changes are procedural and legal, there will be at least one tangible manifestation of the AIA’s effect this year. In an effort to expand capacity and reduce backlog, the PTO will open three (or more) satellite offices, with the first opening in Detroit on July 16, 2012. At least two more offices will be open by September 16, 2014. The most hotly anticipated change is, of course, the shift to a first-to-file system, which is scheduled to take place on March 16, 2013. Until then, a host of other provisions will become active on a rolling basis.