Recently, the Inventor Protection Act, H.R.6557, was introduced to Congress. It’s a very well intentioned piece of proposed legislation. However, it may actually do more harm than good to efforts to strengthen patent rights in the aftermath of the AIA.
We will explain, but first let us say that we firmly support USInventor.org and the efforts they are putting into protecting individual inventors and small innovative companies such as supporting H.R.6557. Also, we want to express appreciation to Congressman Dana Rohrabacher for authoring and sponsoring this bill but especially for co-sponsoring the Restoring America’s Leadership in Innovation Act, H.R. 6264. The last time we talked with Congressman Rohrabacher’s office they indicated he was against federalizing legislation regarding patents (or at least the demand letter reform in the TROL Act). Apparently, he has changed his mind at least somewhat.
Also let us go on the record to say that we support:
- The TROL Act, R.6370
- The STRONGER Patents Act, R.5340
- The Restoring America’s Leadership in Innovation Act, H.R. 6264, sometimes referred to as the Massie-Kaptur Act
We support the basic concepts in H.R.6557, too, but do not agree with the limitation that the benefits should only apply to “inventor-owned patents.” Such limitation might sound reasonable upon initial consideration. However, as we specifically address below, this limitation fails to consider the fact that most inventions are created as a work for hire and involve more than one inventor.
We agree with the Findings, except for paragraph (2) of the Findings. [H.R. 6557: SEC. 2. FINDINGS. “(2) Inventors, not employees or investors, are the source of innovation intended by the Constitution (“securing to inventors”) and the Patent Act (“Whoever invents or discovers … may obtain a patent thereof … ).] The Constitution defines a property right that should not be diluted or damaged and does not disappear if passed from the original owner to a subsequent owner. Based on our experience most inventions, including all 146 of co-author Ken Stanwood’s issued US patents, are created as work for hire by employees of a company, and most name more than one inventor. The most vulnerable of those companies, startups, are typically funded by investors who view these property rights, created as works for hire, as an asset of the company that could be monetized if circumstances so warrant. For further info see “Benefit of the Secondary Patent Market to Startups.”
We have co-founded startups, worked for others, and given advice to still others. There may be exceptions like Josh Malone and Bunch O Balloons where the person and their company are basically one and the same, but this exception is not an accurate representation of the inventors associated with many small enterprises. Most startups have technology that is contributed by more than one person, especially as the technology and related products develops over time. It’s hard to say how many times while advising a startup that we have heard the story that they have great technology that is patent protected, but the inventors never executed assignments of the patents to the company, and now one of the inventors is disgruntled and has left or was pushed out by the other founders or management. Most investors view these startups as virtually unfundable and the patents as almost worthless. With “inventor-owned patents,” a rouge inventor can undermine any licensing attempt by the other inventors, and for all practical purposes the company has no rights. Talking with Josh, even he has assigned his patents over to his company.
Even ignoring such “falling out” scenarios, there are many reasons why employees eventually leave their current employers. Other employees will then build on the technology, potentially creating continuations-in-part with additional inventors. With inventor ownership, the rights to the invention become complicated. Unassigned patents may limit a company’s competitive advantage as these patents are then no longer a meaningful asset as collateral to investors or are useless to fend off competitors. However, under H.R.6557, getting these necessary assignment from the inventors, or monetizing the patents at dissolution of a startup, eliminates any protections under the bill. So, the inventors, company, and investors are stuck with a very tough decision – assign the patent ownership to protect the source of funding or retain protection under H.R.6557. They can’t do both.
And, the targeted problem is not really solved. Individual inventors will still need to bear significant expenses in defending their patents. There can still be a validity challenge in court. We have seen many validity challenges where a patent challenger would allege that dozens of references spanning hundreds of pages were prior art, with a thousand pages of claim charts. Sometimes some of the references are so far removed from the topic of the claims as to clearly be a tactic employed by an accused infringer for the purpose of causing more work and delays and increasing the patent owners’ expenses. Additionally, the bill does not address the current section 101 debacle. So, the inventor may need to defend against patentable subject matter objections. There must be an infringement analysis of the accused products, and this is not free. The damages estimation can be simplified under the bill, but it still requires some work. These efforts could easily add up to millions of dollars against a well-funded infringer. While the bill does increase the likelihood that a law firm would be willing to help an individual inventor on a contingency basis, there is definitely no guarantee.
There is a real concern that many in Congress will see H.R.6557 as a way to do “something” that looks like it is strengthening patents while relieving themselves of the need to consider one of H.R.6370, H.R.5340, and H.R.6264. The efficient infringer community could actually get behind H.R.6557 to delay any need to discuss the more comprehensive bills. It may stall these other three bill while doing very little to keep large companies from financially crushing the individual inventor anyway. Talking with Congressman Rohrabacher before the San Diego screening of Invalidated: The Shredding of the US Patent System, he was hopeful that H.R.6557 would give a meaningful push to the discussion of the topics presented in all the bills. He’s closer to the situation than we are, so we hope he’s right and we’re wrong.
We need to fix what is wrong with the patent system for everyone, not merely carve out exceptions for a few. Is H.R.6557 a step in the right direction, gaining momentum for stronger patent property rights for everyone, or will it harm the ability to reach that goal? We think the answer is clear that H.R. 6557 as written doesn’t do what the patent laws were intended to do – promote progress of innovation/science. If we start the discussion, though, there will possibly be future versions of the bill where our concerns are addressed. Such future versions may provide for stronger patent property rights for everyone.