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Reforming the Patent System: How Did We Do?

Friday, September 23, 2011

Recent patent reform showed remarkable restraint from Congress and will lead to a more efficient and rigorous patent system that will in turn create economic growth.

In late 2007, during an earlier push for reform of the U.S. patent system, my colleague and friend Jack Calfee and I co-authored Biotechnology and the Patent System. In the book, we set out a series of recommendations and cautionary notes. This past weekend President Obama signed into law the 2011 patent reform act (“America Invents Act”). It is the first major reform of the patent system in decades.

Jack’s untimely death this past February means that he is not around to judge the fruits of our labor. But my judgment is that he would be quite pleased with the new legislation—not least because, by and large, Congress followed the broader themes and specific suggestions that we advanced back in 2007. Not unexpectedly, I (and I think Jack, if he were to walk into my office today, as he often did) find much to commend in the legislation.

As we approached the legislative proposals, we suggested three criteria by which to judge the process:

First, do no harm. We were quite aware of the unintended consequences of earlier legislative and administrative “reforms”—for instance, the creation of a separate court for patent litigation (Court of Appeals for the Federal Circuit), which in its early years tilted the system heavily in favor of patent holders. We also argued that the U.S. patent system had shown a remarkable ability for identifying flaws and implementing self-correcting, substantive policy changes within existing authority. While new legislative mandates were necessary for some problems, we cautioned that sweeping legislative changes did not resolve an issue, but rather triggered a complicated process that included extended administrative interpretation and, ultimately, judicial intervention to explain the “hanging chads” of often imprecise legislative language.

The U.S. patent system has shown a remarkable ability for identifying flaws and implementing self-correcting, substantive policy changes within existing authority.

Our second, and most important, suggestion was to increase information flow through “bounded adversarial proceedings.”  “Bounded” because we were very aware of the potential for increased costs and protracted delays in any new institutional proceedings. Reviewing the results of the past decade, we urged a greater flow of information into the system—into the U.S. Patent and Trademark Office and the courts.

Third, we acknowledged long-standing substantive and interest group clashes over key elements of the existing patent system. Pragmatically, we urged that the focus should be on those areas where at least a minimum consensus had emerged across disparate groups.

Reviewing the new legislation, it becomes clear that Congress demonstrated remarkable restraint—it did not push the envelope in areas where the system is self-correcting. For instance, the courts have tightened patent eligibility requirements by overturning patents that are “obvious” and lack inventiveness. Similarly, they have made it more difficult to obtain huge damages when a claim is only against a single patent in a multi-patent product. And the U.S. Patent Office in recent years has demanded ever greater specificity and detail in patent applications.

With regard to greater information flow and a “bounded adversarial process,” the new law establishes a limited post-grant administrative review process that will be much less costly and time-consuming than litigation. Henceforth, during a short window after a patent has been granted, any outside party may challenge the initial determination of the Patent Office before a newly created review board. The act also provides for a more restricted reexamination procedure (a so-called “second window”) that can be requested after the conclusion of the first appeal. These second appeals, however, can only raise questions of novelty and non-obviousness derived from existing patents or printed material. Deadlines for both procedures ensure prompt action.

Reviewing the new legislation, it becomes clear that Congress demonstrated remarkable restraint.

On consensus-based reforms, the legislation moves forward with several important changes. It switches the United States from a first-to-invent system to a first-to-file system, which brings the country into line with most of the rest of the world. More important, this change will eliminate inconclusive and expensive proceedings to discern just when the “Eureka moment” occurred. Henceforth, first filing is dispositive. Populist critics from the left and right charged that small inventors would be hurt by this change, but the new act also provides safeguards for small inventors or universities. First, it allows individuals to file “provisional applications” without undue expense or effort—and to fill in details later. Second, it provides a one-year grace period after disclosure (say, in a research article) for an inventor to decide whether a patent is desirable.

Finally, years ago, Congress decreed that the patent system must be paid for with fees to the Patent Office—then it proceeded to steal most of this money for other programs. Strapped for resources in a time of steeply rising applications, the Patent Office now faces a backlog of hundreds of thousands of patent requests. Still jealous of its appropriations authority, Congress did not completely seal off the possibility of fee theft; but it did make it more difficult to divert these resources to other purposes.

In a time when the legislative branch has often seemed dysfunctional, it is heartening that a large bipartisan majority produced such a notable accomplishment. While the Obama administration is wrong to claim short-term job gains from patent reform, over time a more efficient and rigorous patent system will enhance U.S. innovation and, hence, economic growth. So Jack, the personal and intellectual pleasure from working together was matched by real results. What more can think-tankers ask?

Claude Barfield is a resident scholar at the American Enterprise Institute.

FURTHER READING: Barfield also writes “Patent Reform: A Rare Bipartisan Triumph for Innovation and Growth,
Why the Next IMF Leader Should Not Come from Europe,” “From ‘Government’ Motors to ‘Shanghai’ Motors?” and “It's Time to Dump the Doha Development Round.” Calfee wrote “Junk Science and the Anti-Vaccine Fraud,” discussed “Why the AARP Drug Price Reports Are Misleading or Worse,” and revealed “Something Old, Something New: Biotech’s Enormous Potential.” He outlined “Six Ways Not to Reform Healthcare,” considered “Drug Development in the Balance,” and explained why “Limiting Drug Prices Means Limiting Future Cures.”

Image by Rob Green | Bergman Group

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