Now that the dust is settling from the passage of H.R. 1249/S.23 (aka the oxymoronic America Invents Act) and those (like me) have stopped “moaning and groaning” about how the America Invents Act or AIA (I feel like washing my mouth out with Ivory soap every I say it) is an utter “sham” to be called reform, it’s time to deal with the reality. The AIA will definitely affect how innovative American small businesses and individuals (the “Davids”) approach patenting their technology in the U.S., especially the change from “first to invent” to “first to file” which has now slanted the playing field in favor of large multinational corporations such as Microsoft (the “Goliaths”). But there are still patenting strategies for the American Davids of Innovation to cope with the AIA (and still compete with the Goliaths) if the primary market to protect is the domestic market.
First, let’s define what I mean by the domestic market. By domestic market, we’re talking about the United States. Not Asia. Not Europe. Not even NAFTA. Just good ol’ America which, for many American Davids is all they care about, and can usually deal with.
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.
Shortly after 2pm Eastern Time the United States House of Representatives voted on the Managers Amendment to the America Invents Act, H.R. 1249. The Managers Amendment passed by a vote of 283 – 140. The House then proceeded to address several amendments to H.R. 1249. It seems that there will be a vote on H.R. 1249 later today, and the way the amendments are going it seems as if the House will pass patent reform.
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.
Thomas Jefferson, author of the Patent Act of 1793
The United States Constitution is a relatively short document, but one that has provided guiding principles for over 220 years. At a time when the nation was struggling to exist under the Articles of Confederation our Founding Fathers met in Philadelphia beginning on May 14, 1787. The outcome of this convention was the U.S. Constitution, which was signed by 38 of the 41 delegates present on September 17, 1787. New Hampshire was the ninth State to ratify the Constitution, and did so on June 21, 1788, causing the Constitution to become the supreme law of the land.
Article I, Section 8 of the U.S. Constitution granted Congress the power to grant patents and copyrights for limited times in order to promote the progress of science and the useful arts. As James Madison stated in Federalist Paper No. 43, the usefulness of the Congresses power to award both patents and copyrights “will scarcely be questioned.” Madison, Debates in the Federal Convention of 1787, at 512-13 (Hunt and Scott ed. 1920). Indeed, the new Congress wasted little time in exercising this power to promote the progress. Clearly demonstrating just how important the Founding Fathers perceived a patent system to be, the third Act of Congress was the Nation’s first Patent Act; the Patent Act of 1790.
As Patent Doc Kevin Noonan pointed out recently, what hasn’t been much discussed is the fact that prior user rights violate the intent of Article I, Section 8 of the U.S. Constitution. I have alluded to this in some articles, and have also alluded to the fact that first to file provisions are more in keeping with the purpose of the so-called Patent Clause to the U.S. Constitution. The very reason for granting Congress the power authorize the granting of patents is to promote the dissemination of information. That is how society benefits, and it is how progress is promoted. I will not go so far as to say that first to invent is unconstitutional, that would be nonsensical. Neither will I go so far as to say that prior user rights are unconstitutional. Nevertheless, what I will say is that first to invent and prior user rights embrace a philosophical choice that is antithetical to the very purpose of the Patent Clause.
I have been watching in utter amazement as individuals with a variety of experience in the patent field debate the constitutionality of the first to invent proposals. This started when those who will not allow truth and accuracy to deter from their arguments started saying that the Supreme Court ruled first to file unconstitutional in Stanford v. Roche. That argument was, and still remains, specious because Standord v. Roche had nothing to do with the issue, nowhere in the case did Chief Justice Roberts make such statement, hint that he was thinking such a thing, or say anything colorably related to such a conclusion. See Did the Supreme Court Rule First to File Unconstitutional?
Now the argument is morphing into a discussion of whether the word “inventor” must mean “first inventor.” This very question is being seriously raised in some academic circles, by some patent practitioners who ought to know better, and by those who simply want to kill patent reform at all costs even if they have to engage in gross misrepresentation in order to do so. Indeed, there are those ranging from neophyte to relatively experienced that are seeking to change history, ignore logic and refuse to acknowledge well established patent law precedent in order to twist the word “inventor” in the U.S. Constitution to mean “first inventor,” which would then call into question the constitutionality of the first to file provisions of patent reform now before the House of Representatives; H.R. 1249.
Earlier this week two key House Republican leaders, Congressman Paul Ryan (R-WI), who is Chair of the House Committee on the Judiciary, was joined by Congressman Harold Rogers (R-KY), who is Chair of the House Committee on Appropriations, wrote Congressman Lamar Smith (R-TX) explaining that they oppose provisions in House patent reform legislation H.R. 1249 that would allow the Patent and Trademark Office to keep and use the fees collected to run the agency. See House Republicans Oppose an Adequately Funded Patent Office. This is an extremely myopic and ill conceived notion. The Patent Office is unlike other government agencies in that it is completely funded by user fees, takes absolutely no taxpayer funds and provides a valuable service for a fee.
Given that House Republicans seem to fear an adequately funded Patent Office I got to thinking — What could they be afraid of? With that in mind, here are the top 10 things that House Republicans just might be afraid of as they seek to oppose an adequately funded Patent Office. Can you hear the black helicopter squad swirling overhead, conspiracy theories in hand?
In a rather stunning development, key Republican leaders in the House of Representatives are opposing an adequately funded Patent Office. Indeed, the opposition to appropriate funding for the United States Patent and Trademark Office is becoming a political matter, and the language used to describe the issues suggests that Republicans seem to believe they can score points against the Obama Administration by opposing USPTO funding.
In a letter sent to Congressman Lamar Smith (R-TX), two key Republican Chairmen are opposing the USPTO funding mechanisms currently in place in H.R. 1249, which mirror those passed by the Senate earlier this year. Congressman Paul Ryan (R-WI), who is Chair of the House Committee on the Judiciary, was joined by Congressman Harold Rogers (R-KY), who is Chair of the House Committee on Appropriations, opposing provisions that would allow the Patent and Trademark Office to keep the user fees it collects, which are payment for services to be rendered.