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Tuesday, 21 June 2011

In Favour of First to Invent: If It Ain't (Too) Broke, Don't Fix It"

Whenever I am asked to give a talk about patent basics, I find myself invariably saying, at one point or another, that "it is different in the U.S." One of the most pronounced of these differences is the U.S. position in favour of "first to invent" (FTI), as opposed to the "first to file" (FTF) principle that dominates the patent system of most other countries in the world.

Various congressional attempts have been made over the years to bring the U.S. position into line with the prevailing practice in the rest of the world. The most recent congressional effort in this regard is a particularly vigorous attempt to do so. In its wake, it has given rise to a spirited defence of the current U.S. practice on this point.

One of the most vigorous opponents to such changes to the U.S. "first to invent" principle is Gary Lauder, a veteran venture capitalist who is also a co-inventor of 12 registered patents. Mr Lauder has set out his views in various places, including on the widely-viewed online site, The Huffington Post. Lauder has somewhat expanded his thoughts on that piece and he has shared them with this Kat. Set out below are Lauder's main points, as edited by this Kat but which are all Mr. Lauder's own words.

1 " [In March 2011], … the Senate passed S.23, the America Invents Act. Its main proponent, Senator Patrick Leahy (D-VT), says that we are the last industrialized nation using the antiquated subjective First-to-Invent (FTI) system, instead of the First-to File (FTF) system, which awards the patent to the first one to submit an application, rather than the one who can prove having invented it first. Isn’t it odd that ours is old, subjective and different, yet we are the world’s leader in innovation?"

2. " [I]f the bill in congress becomes law, it will make it much harder for inventors & entrepreneurs to use the patent system, and will therefore render many companies unattractive as investments. This is not just about investing and profiting; it is about moving society forward through innovation, which usually requires substantial investment."

3. "Most people agree that our patent system has problems. The logic of this bill seems to be: 'Something must be done! This is something that can be done, therefore let’s do it.' Unfortunately, the problems that people want to see fixed are largely unaddressed in the bill (e.g. software patents, trolls (boogeyman), patent office delays in processing patents, etc.). The “something” that this bill is addresses negligible problems, but will result in adverse unintended consequences for our innovation ecosystem."

4. "This attempt to conform to other countries is called “harmonization,” which is a melodious word for “succumbing to peer pressure.” We tell our children not to do so when we know it’s wrong. So should we. In reality, the FTF part of the bill harmonizes with no other law as it creates a system of bars and exceptions that no nation had experienced before".

5. "There remain substantial differences, such that the claimed benefits of cost-
reduction would not materialize. This bill “improves” so much on foreign law that it would make getting patents even harder here than overseas. For example, this potential law bars receiving a patent for inventions that were publicly used or offered for sale prior to filing. This rule, had it been in place then, would have prevented the Wright brothers from receiving their patent on their airplane due to its public use at Kitty Hawk five months before the Wrights filed for the patent".

6. "Under current law, we have what’s called a “grace period.” That is the one-year between public disclosure and the time by which the inventor must file the application. This enables entrepreneurs to present to investors, share plans with potential hires, or exhibit at trade shows during that time without concern that such acts would either preclude a patent or enable someone else to poison the well so that no one can get a patent. Under FTF, if someone else finds out about your invention, and if they apply first, they can win. Overturning that result requires proving that they derived their idea from yours. "

7. "What’s most scary to me is that this creates strong financial incentives for usurping patent rights by hacking and industrial espionage, which is starting to be done purely for selling to others for profit. …The flip side of the problem is that it will put a chill on the normal open discourse that occurs today between innovators, investors and customers."

8. "One of the great benefits of our FTI system is that inventors can refine and improve their inventions in private prior to filing for it. Under FTF, one should file early and often on each idea, however impractical it later proves to be. That burden falls disproportionately on smaller companies for whom patenting expenses are material. …. If ever there was an innovation tax, this is it".

9. " If harmonization were actually occurring in this bill, it would be harmonizing with the more stagnant economies of Europe and Japan, not the more competitive and growing economy of China. China is not likely to harmonize according to recent reporting. "

10." Canada shifted to FTF in 1989, and a 2009 study found an "adverse effect on domestic-oriented industries and skewed the ownership structure of patented inventions towards large corporations, away from independent inventors and small businesses."

11. The EU, which has had FTF for a while, last month declared an “innovation emergency” due to how far behind us they are falling in innovation and R&D investments. It’s not working for them. There is even a movement afoot among small businesses in the UK and Germany to try to change their system to be more like ours!"


12. "The opposition to patent reform is today mostly a bunch of startup inventors, small business entrepreneurs and venture capitalists who are volunteering their time purely out of passion for the preservation of this amazing innovation ecosystem. This is in stark contrast with the army of lobbyists …."

13. "The absence of viewpoints from small companies — America’s largest contributors of new jobs — being present around the negotiating table is the main reason why this bill is so bad. … The suppression of opposition has characterized all aspects of this process, so it is not surprising that the result will trade away that which was valuable to those not represented — and society as a whole. ….[S]mall companies are no match for the maneuvers of large companies."

14. "It is extremely hard to succeed as an inventor and entrepreneur, but America has created the most fertile ground in the world for doing so. Maintaining that fertility enables Schumpeter's "creative destruction" to reshape our world for the better. Patents confer power and protection to the otherwise powerless — not those incumbents who have sufficient market power to crush new innovative entrants. [Ironically perhaps,] [a]ll of the companies that are advocating for patent reform were once start-ups, but most of their founding entrepreneurs are long gone."
Mr. Lauder certainly has strong views about this issue. How about our readers?

24 comments:

teemacs said...

P.S. My mistake. I was thinking of the grant date, not the application date, which was indeed in 1904. More haste. less speed...

Anonymous said...

Maybe rather insular comments from Mr Lauder? The world has seemingly moved on; there is a global market with global competitors, like it or not.

Yes, you could stick to the FTI system, get a patent in US after you disclosed it publicly and let the rest of the world happily copy your ideas for free, but just maybe you would like to have some protection elsewhere for your inventions?

And - as regards large corporations where the noticeable turnover is being made in the US - the FTF system fits very nicely thank you into any thought-out patent strategy. Will some inventions not be patentable due to prior disclosure - yes probably - but then again probably not many, and - arguably - the little guy in his back yard shed might be better off just not bothering patenting in the first place as he probably lacks the means to enforce the patent afterwards despite the (largely theoretical) contingency fee payment system. I'm sure Mr Lauder can mention several world- conquering inventions emanating from the shed over the last 50 years, but I reckon very few in the last 10 years (maybe I'm wrong?).

Basically whatever patent system you introduce, people will adapt to it, and having an FTF system, which is harmonised with most other countries, hardly requires much adaptation. Maybe we coud assist by sending Mr Lauder a few standard confidentiality agreements, if he is worried about not being able to discuss his inventions with potential clients before he files an application or during his priority year?

TJ said...

If interference proceedings in the US were affordable and widely used, then the current system might have some credibility as the friend of the small inventor. They aren't and therefore it doesn't.

Anonymous said...

This seems to be premised on America being the world's most innovative nation. Is it though?

http://en.wikipedia.org/wiki/Global_Innovation_Index

Anonymous said...

"The world has seemingly moved on; there is a global market with global competitors, like it or not."

Except the world has not moved on - patent law is still law, and there is no international body of law that has usurped the great constitution of the United States of America - no matter how often those preaching a de facto universal system would indicate otherwise.

Harm-inization be damned.

Anonymous said...

9. " If harmonization were actually occurring in this bill, it would be harmonizing with the more stagnant economies of Europe and Japan, not the more competitive and growing economy of China. China is not likely to harmonize according to recent reporting. "

My God, the bloody cheek. China has FTI now?

klezmershpiler said...

This discussion reminds me of a commercial poster from the beginning of the last century. A wheel producer had let everybody know that "tyres kill".

Graham Barker said...

As someone who isn’t an IP professional but does have a lot of experience of advising inventors, I agree with Gary Lauder. FTI sounds like a much better and fairer system than FTF, and far from changing US practice to match the rest of the world, it should be the other way round.

FTF hijacks the simple and rational process of recording the origins and development of an invention and turns it into a rigid, complex, expensive and self-serving legal process. By imposing artificial dates of origin, FTF creates opportunities for rewriting history so that an inventor’s efforts, possibly over years, can be negated. Inventor and invention are no longer important. All that matters is that an applicant has ticked the right boxes, met the right deadlines, paid the right fees. This is not innovation or enterprise; it’s bureaucracy and - all too soon - the survival of the richest.

FTI surely creates a more level playing field and so should encourage more invention. Gary Lauder reminds us that under FTI, the USA became the most innovative nation on earth. Cries of ‘Ah, but FTI isn’t cricket!’ kind of miss that point.

FTI can also create opportunities to assess how much real work has gone into an invention. This might help put invention back where it belongs - in the domain of actually doing things, not that of angels dancing on pinheads. Under FTF I can file a patent for an idea that is completely beyond my ability to realise. Under FTI, I could be exposed very quickly as a chancer with no real contribution to make.

Overall, it’s very difficult to see how FTF has been allowed to gain the ascendant given the manifest success of US innovators based on FTI.

Dr Mark Summerfield said...

Part I - points 1-7...

1. The US is not the 'world's leader in innovation' by any objective measure (http://en.wikipedia.org/wiki/Global_Innovation_Index).

2. There is no evidence that it is harder for inventors and entrepreneurs to use a FTF patent system. The rest of the world does just fine. Investors will have to deal with the system they have, and even if they have a preference for FTI, they will still invest under a FTF system.

3. A number of smart people have spent many years working towards these patent reforms. It is disingenuous to say that the 'logic' of the bill is that 'something must be done'. Just because Lauder disagrees with the proposed reforms does not mean they are arbitrary and willfully pointless.

4. If international diplomacy is a process of 'succumbing to peer pressure', I think that Lauder will find that other nations tend more readily to 'succumb' to the pressure of the US. 'Free' Trade Agreement, anyone? And the proposed system is really not that different from a number of other countries (e.g. Australia, Canada) that have FTF and a 'grace period'.

5. The bill retains a 1-year grace period. The arguments that some forms of 'use' or 'sale' may escape the grace provisions are based on an assumption that the courts will deliberately thwart the clearly-stated intentions of the bill's drafters, and Congress.In fact, the proposed grace period is superior to that available in countries such as Australia, because a disclosure by an inventor can effectively provide a prior right against the independent later disclosure of another inventor (so long as the first-to-publish is also first-to-file). The Wright brothers would have been just fine.

6. Right now, someone who derives the invention from the first inventor can file first, and become the senior party in an interference proceeding. Winning an interference in these circumstances effectively requires proving that the first-to-file derived the invention from the inventor.

7. See 6.

Dr Mark Summerfield said...

Part II - points 8-14...

8. Even with a grace period, and FTI, it is still better to file early. You seriously do not want to be the junior party in an interference proceeding. And using the word 'tax' to denigrate something that is not, in any meaningful sense, a 'tax' is tantamount to invoking Hitler to win an argument!

9. China is a FTF system. China's patent laws are closely based on European laws. In what way are China's laws not 'harmonised'? What 'recent reporting'? Of course, China is America's current bogeyman (see 'tax' and 'Hitler' above). As for the 'stagnant economies', Japan ranks higher than the US on the Global Innovation Index, as do four European countries (with another four following directly after).

10. No comment on this - I have not seen the study referred to.

11. The EU has had FTF for as long as it has existed as an 'entity', not merely 'for a while' (I am not aware of any individual EU countries that historically had FTI, but could be wrong). Since the EU has not always had an 'innovation emergency', could it not perhaps be that this (if it exists) is due mostly to current factors other than how priority disputes are resolved? Like, say, the general economic conditions?

12. Trust me, the opponents of patent reform have plenty of their own lobbyists. And you can have as much 'passion' as you like, which is all very commendable, but it does not necessarily make you right. Of course, the 'little guy' as always 'passionate' and 'altruistic', while the 'big, evil, corporation' is always cynically self-interested, so this argument just makes itself.

13. It's a conspiracy! Opposition has been suppressed! The most important, but weakest, stakeholders have been excluded from the process! Why were we not consulted?! OMG!!! Lauder surely knows the opponents' voices are heard on Capitol Hill, but the tide is turning nonethless.

14. This makes me feel all warm and fuzzy! 'Patents confer power and protection to the otherwise powerless'? Wow! How does anyone get along without them?!

Anonymous said...

So how is the current US patent process not a "rigid, complex, expensive and self-serving legal process"? The process can't exactly be equated to "recording the origins and development of an invention", I should think.

FTI or FTF is only a minor part of the patent process, FTI clearly being by far the most complicating alternative. Under FTF, there can be no dispute on the date, and there can be no dispute on what exactly was invented on that date and what not.

Regarding encouragement of invention, I don't think either FTI or FTF by itself would take away any incentive that the patent system offers to inventors. The rest is not so important. Even if FTF could be shown to be "unfair" in more cases that FTI, as long as the invention got invented the country is fine. Clearly far more important than any perceived fairness of FTI are cost, quality and timeliness of the patent process. It seems to me FTI doesn't improve either of those.

MaxDrei said...

Mr Barker, I'm not sure that it was FtI that delivered success to American inventors. The statistics show that speaking English is the biggest cause of heart disease. Do you believe them? A correlation is not the same as cause and effect. There are plenty of reasons other than FtI to explain why the USA has achieved so much, in science and engineering.

Actually, it is a myth and a delusion, that FtI benefits universities and sole inventors over BigCorp. What these groups overlook is that Big Corp can rub them out under FtI, with interference proceedings, but it can't do that under First to File. When the USA moves to FtF, they will find this out for themselves.

Anonymous said...

FTF hijacks the simple and rational process of recording the origins and development of an invention and turns it into a rigid, complex, expensive and self-serving legal process.

Beg your pardon? Which one is the "rigid, complex, expensive and self-serving legal process"?

FTF: Draft a patent application. File it.
FTI: Keep dated and signed research notebooks, have them regularly countersigned by a US witness, store them in a secure place, and be ready to have the stitches and ink examined in the event of interference proceedings.

What we are hearing are the screeches of a thousand vested interests being assaulted.

MaxDrei said...

Afterthought. Mr Barker when you start to tell me I'm wrong, because there are only 200(or whatever the number is) interferences per year, remember the advice of a former President, to "Speak softly, but carry a big stick".

His stick was the MAD (mutually assured destruction) bomb. Big Corp has its big stick too, it's called interference proceedings.

The point about these big sticks is that, if you go as far as actually to use them, you have already failed. Mostly, Big Corp doesn't fail. But FtF will deprive them of their Big Stick.

MaxDrei said...

Dr Summerfield, you say you can't comment on point No. 10. I suspect that Mr Lauder gets his "study" of Canada from the same source that reported to him that Europe, having had First to File "for a while", now finds it to be responsible for its recent emergency collapse in innovation.

One would have thought that academics and sole inventors would welcome a "First to Publish" patent regime, as proposed in the Bill. I thought it quite a nice fix, to reconcile the interests of university inventors with those of BigCorp. The patent system is supposed to Promote the Progress of Useful Arts by disseminating enabling disclosures early. That happens, these days, with A publications. It always struck me that First to Invent, in rewarding those who are slow to publish over those who file early at the PTO, is a hindrance to technical progress.

TJ said...

The quotation in point 10 has been taken of context. Canada's switch to FTF has not had "any effects on overall patenting. However, the reforms had a small adverse effect on domestic-oriented industries...".

Notice the word "small", conveniently omitted by Mr Lauder.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1394833

Anonymous said...

If the benefits of FTF didn't considerably outway the perceived benefits of FTI (fairness to the little person and hard down by university) I doubt for a moment that a single US citizen would have proposed the change to FTF, let alone it go all the way.

As for the great consitution of the US, I am sure it is the most important part of the DNA of every US citizen and something which they are universally proud of, but I'm sorry to advise that it is not the greatest thing since sliced bread and is certainly not something that should form the foundations of the procedural functioning of the world's IP processes.

And in any case, FTI is not simply first to invent, is it?

Graham Barker said...

MaxDrel says: 'The patent system is supposed to Promote the Progress of Useful Arts by disseminating enabling disclosures early. That happens, these days, with A publications. It always struck me that First to Invent, in rewarding those who are slow to publish over those who file early at the PTO, is a hindrance to technical progress'

If you're a private inventor or small business strapped for cash and other resources - and thus likely to develop your invention slowly - disclosing early can be a huge mistake. Protecting your work and your idea strategically is what it's all about.

Anonymous said...

Atlas shrugs off you mere 9actual) suppliers of innovation.

Do you not know that in the dystopia of the one-sided For-the-Public-Regime that you are considered a parasite?

Now get back to inventing for the masses.

MaxDrei said...

Well yes Graham, we do know that start ups need a sheltered childhood, but is that enough to justify a system that sets out to give 20 years of monopoly to those who are slow to file and publish? They can have one under FtF too, despite what you think. They will tell you how powerful it is, to have a WO publication, when you are struggling to attract funds, how reassuring that WO is for those contemplating investment.

Why not ask venture capitalists who are also engineers. They will tell you that a patent portfolio is vital for a biotech start up but of no significance (other than as a comfort blanket for the investors) in any other start-up.

Plenty of countries have agonised over whether the restraint on trade caused by installing a FtF patent law is a price worth paying, to achieve an overall acceleration of the progress of useful arts. It is a different calculation, whether a First to Invent patent system, which involves submarine patents and interference proceedings and so even greater restraints on trade, is worth having.

To repeat, the USA achieved its technological dominance (take software for example) despite the US patent system, not because of it.

Graham Barker said...

MaxDrei - Inventors don't set out to be slow; far from it. But many of them simply have no choice, usually because of lack of finance. You're asking them to add to their already considerable risk by filing too early. (And this is real, personal risk - not one that some clever corporate accountant can finesse a way round.)

Every individual or organisation will find different advantages in FTI and FTF. All I'm saying is that for private inventors, FTI is likely to be the better bet.

MaxDrei said...

Graham, I agree that inventors without finance have a hard time. But financiers refuse to sign an NDA and so I would be nervous about telling them what my invention is, without having first filed at the PTO. I don't trust them. You do, I take it.

Besides, consider a WO publication with an international search report revealing a clear path to patent. Once you are in a First to File jurisdiction, in which the first filer is inviolate, what better way is there, to pitch for finance (or to strike a deal with Big Corp) exposed to your emerging patent rights and worried that if they don't buy in, their competitor will?

So, now that the USA is going FtF, from now on shouldn't filing PCT early be part of your business plan, to maximise your inventor's chances of wealth?

Anonymous said...

I instructed the withdrawal from licence negotiations with a small company due to the first to invent position becoming an issue. If the US had been first to file, the deal (multi-million dollar) would probably have gone ahead. It is naive in the extreme to believe first to invent has any true value.

Gary Lauder said...

Sorry I have been off-line on vacation during the publication and subsequent debate. The post was summarized from a publication that cited the sources:
http://www.huffingtonpost.com/gary-lauder/patently-absurd-or-how-to_b_832703.html?view=print
That and the cited sources refute or address much of the criticism leveled here, but not all. Regarding the recently-published "Global Innovation Index," it ranks Japan ahead of the USA, which is evidence of the fact that we are really talking about different things. I am primarily concerned with entrepreneurial innovation/start-ups. "The International Innovation Index is part of a large research study that looked at both the business outcomes of innovation and government's ability to encourage and support innovation through public policy." I suspect that the level of government incentives for innovation are a function of the perception that innovation is lacking based only on the private sector.

Subsequent to publishing the above, this article was published re: the UK patent system not working for SME's: http://www.bloomberg.com/news/2011-05-09/smeia-red-hat-google-adidas-pepsico-intellectual-property.html

It appears that much of the criticism could be summarized as "how dare you claim superiority!" I admit that I don't know everything about everything, particularly overseas, but this statistic has meaning that is open to interpretation: "VC Per Capita: Europe $7, US $72, Israel $142" http://www.arcticstartup.com/2011/06/15/vc-per-capita-europe-7-us-72-israel-142

Time will tell since the bill will probably be passed by the US Senate w/in 2 weeks.

-GML
For more critical info on the bill, see: http://en.wikipedia.org/wiki/America_Invents_Act

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