Congressman Lamar Smith (R-TX)

At approximately 5:50pm the United States House of Representatives passed H.R. 1249, which is known as the America Invents Act, by a vote of 304-117.  This bill differs from the Senate version of patent reform, S. 23, so there will be no bill going to the desk of President Obama just yet.  There are important differences between the two bills, chief among them is funding for the United States Patent and Trademark Office.  The bill passed by the Senate put an end to the practice of fee diversion, which occurs when the Congress appropriates the USPTO less than they collect in fees.  The excess in the fees collected from users of the USPTO then go to the federal government as general revenues and are used for purposes other than the operation of the United States Patent and Trademark Office.

Congressman Hal Rogers (R-KY)

The one thing in the Senate version of patent reform that everyone agreed on was the end to fee diversion.  The House of Representatives, however, has decided that an end to fee diversion should not be included in patent reform, which is causing a great unease within the industry.

The Senate had struggled with patent reform for years, and in February 2011 they broke through with a carefully crafted balance.  The Senate version of patent reform is light on “reform” in any real sense, except for one.  The Senate voted to end the practice of diverting fees collected by the Patent and Trademark Office to other, completely unrelated purposes.  The House of Representatives, lead by Congressman Hal Rogers (R-KY) who is Chair of the Appropriations Committee, demanded that the USPTO do with the amount of funds appropriators want to give the Office, not the amount of funds collected from users who pay for the Office.  This is causing many industry groups to openly withdraw support and fight against patent reform; a remarkable turn of events.

Earlier this year we learned that General Electric (NYSE:GE) paid no taxes for 2010.  See G.E.’s Strategies Let It Avoid Taxes Altogether. Yes, the largest corporation in the United States had a very good 2010.  They booked over $14 billion in profits, with over $5 billion coming from U.S. operations, yet they paid not a dime in taxes to the Federal Government.  To add insult to injury, General Electric was able to claim a tax benefit of $3.2 billion for 2010, making its effective tax rate for 2010 substantially negative.

But General Electric was not the only large U.S. corporation not to pay taxes.  According to Citizens for Tax Justice, General Electric had some company.  In fact, American Electric Power, Dupont, Verizon, Boeing, Wells Fargo, FedEx and Honeywell all had tax rates between -0.7 percent and -9.2 percent for the stretch between 2008 to 2010.  See Study finds many corporations pay tax rate of effectively zero.

On the other hand, the United States Patent and Trademark Office continues to have user funds siphoned off, making the USPTO a much larger taxpayer than the largest U.S. corporations.

ARLINGTON, VA — In April 12, 2011 letters to House and Senate leaders, the American Intellectual Property Law Association (AIPLA) expressed deep concern about the serious shortfall in the current legislation to fund the U.S. Patent and Trademark Office.

H.R. 1473, the Full-Year Continuing Appropriations Act, 2011, is the legislation reflecting the compromise on the Continuing Resolution to fund the government for fiscal 2011. The letters point out that the provisions of the bill related to the USPTO appropriate $100 million less than the projected user fee revenues to be collected, essentially diverting that money to other government programs. In addition, the bill lacks the appropriations “buffer” language included in previous bills to ensure that the Office may utilize the fee revenue that exceeds the original projected collections for the fiscal year.

The Innovation Alliance is disappointed that the America Invents Act as introduced today in the House of Representatives does not include some important safeguards against the potential for abuse of the post-grant review procedures at the U.S. Patent and Trademark Office (USPTO). In particular, the bill includes a weak threshold for ‘second window’ inter partes review proceedings, one that will allow virtually all challenges to proceed to a trial-like hearing before an administrative patent judge. We believe a higher threshold is needed to enable the USPTO to manage the increased workload of the new administrative review system fairly and efficiently by screening out meritless or unsubstantiated petitions.

EDITORIAL NOTE: What follows is a letter to Congress from Gary K. Michelson, MD, published here with permission.

President and inventor, Abraham Lincoln

As Abraham Lincoln said “The Patent system added the fuel of interest to the fire of genius”.

Many inventions allow a worker to be more productive.  That is to provide more service or more product with no increase in the work performed.  For example in the era of the building of the great canals in America steam shovels appeared such that one man and such a machine (an invention) could displace 100 men with shovels.  Similarly a large room full of typists with typewriters were replaced by a single person with a word processor (an invention) who was then capable of turning out an unlimited supply of originals.

It’s crunch time.  The Patent Reform Act of 2011 is scheduled for an up-or-down vote on the Senate floor this Monday, Feb. 28.  It’s time for all intellectual property professionals to look carefully at the Patent Reform Act, and decide: is this bill good for American innovation or bad?

I am convinced that it is bad.

This bill (and its predecessors) has been extensively lobbied.  A handful of large, multinational companies have lobbied vigorously for it.  A handful of other large entities have lobbied vigorously against it.  Yet consistently, small businesses, start-ups, entrepreneurs, and independent inventors – the present and future job creators in the U.S. – have said that this bill will hurt them today and it will hurt U.S. competitiveness tomorrow.