The Grassley PATENT Act will make our faltering patent system worse for innovators

By Bob Krause
June 28, 2015

Bob Krause (D) is a candidate for Senate in Iowa in 2016.

Bob Krause (D) is a candidate for Senate in Iowa in 2016.

A few weeks ago, the PATENT Act, S.1137, was pushed through the Senate Judiciary Committee. My 2016 general election opponent, Senator Charles Grassley of Iowa, chairs this committee and pushed the legislation. The legislation will damage inventors, innovative manufacturing companies and small independent entrepreneurs that are Iowa’s economic backbone.

Iowa has always been a place where everyday people come up with innovative new ideas, patent them and start companies. Throughout Iowa, innovative small businesses and small-time entrepreneurs dream of making it big. They invent and patent everything from three point hitch attachments to high tech software. Thousands of inventors are dreaming up the next big thing to sell to a manufacturer or investor.

Even I have had my dreams. I invented and patented a system for intermodal transportation at one point in my career (see Patents 4,416,571 and 4,547,107). While circumstances were unfavorable to development, the challenge of putting the concept together, and seeking capitalization, was etched indelibly on my consciousness. I understand the undercapitalization issues that small time inventors face. I understand the sneak-peeks that established multi-nationals will garner to steal from someone they know has vestigial ability to fight them in court. I understand the sanctity of the patent that is necessary to capitalize a startup.

Iowa inventors and innovation businesses drive our local economies by creating thousands of jobs for Iowans. “Grow your own” has always been the best and most reliable strategy for economic growth, and it cannot be done without a sound and fair patent system. Preservation of a fair patent system should be a top priority for Iowa if we are to grow prosperous companies as well as crops.

Today, our patent system is faltering. A few misguided decisions by the courts and the “so-called” America Invents Act of 2011 has made it a CEO’s fiduciary responsibility to steal patented inventions and massively commercialize them with no concern for patent rights. Weak patent rights create big problems for small time independent inventors, small businesses and investors.

Today, the odds are that an inventor will lose his patent if he brings an infringement case against a large corporation. In today’s world of time-warp like speed between invention and obsolescence, no one knows what is patentable and what is not, and patent defense has become a multi-million dollar crapshoot stacked cruelly against inventors and small businesses.

Large corporations have taken advantage of problems created by weak patent rights and have used their massive resources and excellent political connections to do so. The so-called “patent troll” fabrication is part of the script. While there are lawyers that specialize in patent defense, there are specialists in many fields of law. Each requires a client that has a need for justice that falls in a specialized legal field.

But now, for the first time in our history, inventors and their counsel are considered villains for defending hard-earned patent rights. Companies that steal patents from inventors are called our innovators. The innovation world has turned up-side-down.

The world of many early inventors in our nation was hard-scrabble. The phrase “Necessity is the Mother of Invention” speaks true to them. 70 percent of the top 400 great inventors of the 19th Century had relatively little schooling (and usually little wealth). Thomas Edison and many others of the “greats” actually had to quit school very early in life to support families.

Today’s independent and small business inventors is similar. In my personal experience as an inventor, I pursued capital for development, meeting with railroads and manufacturers until I ran out of gas money. During that time, at least one attorney for a manufacturer that I visited made very clear that his intention was to steal it for his client, knowing that I did not have the resources to do much about it.


Then in 2011, Congress passed the America Invents Act. In the buildup to the passage of the Act, big business in America created the patent troll myth. That in turn made the problem of contingency representation for the small time inventor/patent holder worse that it was prior to America Invents.

Now, Senator Grassley’s new proposed PATENT Act extends this abstract straw-man of the feared patent troll, and transmogrifies the alleged evil troll into something that Congress does not intend, but big business does – the troll that stands at the courthouse door. If this bill passes, there may never be a “loser pay,” between the big corporation and the small business/inventor/investor simply because PATENT Act will make it impossible for a small time inventor to get this far in the first place.

The Grassley PATENT ACT works to inflicts its damage on what is called the secondary patent market. The secondary patent market enables capital investment in small innovation companies. Without the secondary market, inventors cannot fund companies to commercialize inventions and the patent system fails. Well, it doesn’t completely fail— big companies can still play because they don’t need the capitalization effects of the patent system, and most are carved out of the PATENT Act anyway.

The secondary market for patents works something like the secondary market for mortgages. When you get a mortgage to buy a house, the bank takes a security interest in your house. If you default, the bank takes control of the house and resells it to return their investment. No bank will loan you money if they are not allowed to resell the house. Investors in startup companies take a similar security interest in a patent. The PATENT Act makes it nearly impossible for an investor to sell a patent if the investor ends up owning it. It’s like telling banks they cannot resell houses. Banks won’t write mortgages. It works the same for investors in early stage companies – most won’t invest.

The PATENT Act blocks the complete system at its inception. It implements a loser-pay system that effectively blocks the courthouse door and eliminate justice for the small businessman and small time inventor. Knowing that this block is there, both inventors and investors owning patents will refuse to risk millions of dollars in personal assets when face-to-face with a deep pockets opponent. The alternative, to bond for millions of dollars just to open these blocked courthouse doors. Most Iowa inventors and small businesses don’t have millions of dollars, so they need an investor’s help to defend their patent rights. It’s senseless to think that any investor will help an inventor post bond with unlimited personal risk, and a high probability of losing, and no way to know what is patentable and what is not. Without money, the PATENT Act wipes out access to the patent system for all but big multi-national corporations.

Iowans, like most Americans, believe the patent system will always be there for us to build companies and live the American dream. Nearly every little small town in Iowa has a story of some small-time inventor who built a better widget and opened to economic door for the community. Where I live in Fairfield Iowa, that person was William Louden. This 19th Century inventor invented the world’s first commercially successful monorail system – originally used to transport hay into barns and manure out. The little company and its invention matured to the point that it developed the monorail assembly line for General Motors and ultimately for the Manhattan Project that manufactured the nation’s first atomic bomb. That single monorail invention changed the face of America and changed Fairfield. Fairfield became the largest shipper on the old Rock Island Railroad and the town prospered with spin-off after spin-off.

But this small-town engine of economic growth will not be there for Iowa in the future. The person bringing this trouble to the patent system, to our innovation economy, and to Iowa is our own Senator Grassley. If Grassley’s PATENT Act is passed into law, there will be few independent inventors in Iowa and many existing innovative businesses will soon go out of existence. That’s bad news for Iowa.

Well before the invention of the Corporate Personhood, Our Founding Fathers saw the need, and wrote the patent system into Article One of the Constitution, which states: ”The Congress shall have power … To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”

But it is hard to say that authors and inventors have these exclusive rights when the corporate troll blocks the courthouse door. We need to unite to stop this bill and ask Senator Grassley to stand up for the Constitutionally mandated system for patent protection that has driven the economy of America for well over 200 years.

The Author

Bob Krause

Bob Krause is a candidate for U.S. Senate in 2016. Bob, a lifelong Democrat, is a native Iowan who has been a state legislator, school board member, top federal official in the USDOT, national think tank director, colonel in the Army Reserve, operator of a small business, inventor and the founder of an active veterans’ charity.

For more information please see Krause for Iowa.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 11 Comments comments.

  1. Morinville Paul June 28, 2015 6:05 pm

    It seems the people who actually understand the damage of Grassley’s PATENT Act and it’s evil twin Googlatte’s Innovation Act are the people who actually invent stuff and try to build companies. And, of course, the lawyers who represent them.

    Somewhere lost in the discussion is that a patent is a property right not a slip and fall. Nobody is attempting to capitalize a company with a coffee burn suit, however people actually attempt to capitalize companies with patents and have for over 200 years.

  2. Hank Rearden June 28, 2015 8:45 pm

    Great article! Thanks for bringing attention to this important issue and the need for patent protection for ALL inventors (not only the Google, Cisco and Facebook).

  3. tom walker June 29, 2015 7:42 am

    It’s time for everyone to come to the aid of the small business inventor and their respective small business. We must fight like hell to keep america strong and open to everyone with “a dream”. Time to fight for the small guy, not multinational corporations.

  4. A. Nony. Mous June 29, 2015 8:56 am

    From an outsider looking in, it seems to me that the damage is done. With the decision of your Supreme Court (again!!) to equate corporations with people, you have given major corporations and the wealthy the ability to buy your government – people standing for election get the money and the donor gets its back scratched. I know nothing about the gentleman, but with such attitudes, I’m sure Mr. Krause will need a telescope even to see the feeding trough. Little guys simply don’t (and won’t) get a look in. How you fix that , if indeed it can be fixed, remains to be seen. Good luck with it.

  5. splinter June 29, 2015 10:48 am

    Great article.

    It’s incredible there is still anti-patent reforms in the pipeline after all the anti-patent reforms we’ve already had, including:
    A) AIA
    B) KSR – reformed the obviousness standard likely knocking out many weak patents.
    C) Williamson – revising 112, 6th (despite the fact that statute is clear).
    D) Alice Corp/Bilski/Prometheus – revising 101 (again, despite that status being as clear as day).
    E) Nautilus – revising 112, second paragraph
    F) Damages reforms
    G) MedImmune – revising DJ action standards
    H). Ebay – revising permanent injunctions
    I) “doctrine of equivalence” – it was a while ago, but this cut back patent rights a lot.
    etc.

    These are all independent reforms which by themselves have a big impact. Collectively, it’s death by multiple deep cuts.

    The past five years we’ve been massive reforms (either from legislature or from the Court) that have made it much much harder to obtain a patent and much much much harder to monetization.

    We had a “patent bubble” (too many pro-patent standards) but the pendulum has swung way too far into the anti-patent regime.

    I cannot understand how Washington doesn’t understand this. They must be bought by Big Business. It’s the only explanation.

    Big Business now considers “patents” and employees a “tax” they are no longer willing to “pay”.

  6. Robert N. Schmidt June 29, 2015 11:23 am

    You forgot to mention that Grassley has already cost the American economy over $1 Trillion by helping to pass the America Invents Act. See: http://patentlyo.com/patent/2015/06/america-invents-trillion.html
    Perhaps the people of Iowa should know how bad this Senator’s bills are for the economy and for their jobs.

  7. Anon June 29, 2015 12:22 pm

    Robert,

    The Trillion dollar number is bogus.

    While perhaps the death of the thousand cuts may ring the register to the same tune, using numbers like from the link provided lowers credibility, and is just not necessary to make the important points that can be made without that, shall we say, “over-exuberance.”

  8. Joachim Martillo June 30, 2015 6:56 am

    We need to have a longer perspective to understand what is happening to the US patent system.

    The beginning of efforts to undermine (or to transform it into a tool only of big corporations or of big capital) goes back to 1994 with the institution of SAWS (Sensitive Application Warning System) just before the US switched to GATT rules for patent terms.

    Pioneering technologies must have looked like low hanging fruit.

    The application gets published and then the prosecution gets stalled for 8-12 years or more. Maybe the inventors give up and fail to get venture funding. Maybe their startup dies because they could not get funding because they could not show a meaningful patent portfolio.

    Meanwhile an IP Poacher uses the technology with impunity, he maybe sets up his own company, he does an IPO, he cashes out, and the now public firm crashes when the .com (or next) bubble bursts.

    If the inventors ever obtained their patent (with practically no term), there isn’t even any entity to sue for compensation for damages from infringement.

    SAWS has the appearance of an effort to favor large corporations and big capital over small firms and individual struggling inventors. The program practically guarantees that only large (transnational) corporations and big capital will be able to protect their IP.

    Despite the claims of the USPTO, I can affirm after a review of recent office actions that SAWS almost certainly continues unabated albeit under other names.

  9. Anon June 30, 2015 8:39 am

    Joachim,

    After first denying its existence, the Office “came clean” and published a rather telling statement that included the admission that SAWS was only one of an undisclosed number of such shadow (even star chamber) like devices being used “off the record” at the USPTO in clear and direct violation of the statement that all examination is to be done on the written record.

    I noted at the time that the Office so “bravely” announced their discontinuation of the SAWS program that such was not near enough and that the public at large (and those inventors directly affected) still “do not know what we don’t know” as to the level and depth of shadow operations.

  10. Larry Robertson July 1, 2015 10:29 am

    As one on the front lines of Innovation, I want to share my concern about the unavoidable long-term catastrophic impact of trending legislation like the Grassley Patent Act. This legislation is certain to derail American innovation and with it, America’s last remaining edge (economically speaking) against China. We cannot out-manufacture them, but we can (and do) out-innovate the rest of the world. Passage of this legislation will, at minimum, dampen the spirit of the American inventor and very possibly create an “innovation tourism industry” for the first country to recognize that our folly could be their gain.

  11. Chuck Lamprey July 1, 2015 12:58 pm

    As an independent inventor whose business model is to:

    1) innovate,

    2) protect the IP, and then

    3) license the IP.

    this act kicks one of the legs out from under that three-legged stool upon which my family’s income depends.

    It’s such a shame that we have ‘representatives’ who are beholden to large, moneyed interests.

    licenses