Challenging Patent Reform First-to-File Provision

I recently received an e-mail from Ron Katznelson, who is the Founder and President of Bi-Level Technologies in Encinitas, CA.  Dr. Katznelson is a named inventor in more than 25 U.S. patents and his research and development interests include optimal signal design, digital RF signal processing, digital television, signal representation & sampling theory, intellectual property management and patent law.  Over the past several years Dr. Katznelson has been heavily engaged in the patent reform debate, both with respect to reforms the Patent Office has attempted to implement and with respect to reforms that Congress has been considering.  Dr. Katznelson is now attempting to gain support within the inventor and start-up community to request Congress to reconsider the First-to-File provisions that are currently within the current patent reform legislation, which is now pending and widely believed to be a done deal. 

Dr. Katznelson believes, as many do, that the first-to-file provisions are not helpful to the independent inventor and start-up communities, and instead favor larger corporations.  I have been on record for years saying that Congress would never pass a first-to-file law because it would substantially impair the ability of individuals, start-ups and research and development based companies to compete against extremely well-funded and established corporations.  If the US patent system becomes a race to the Patent Office this will favor those who are capitalized and be an impediment to those small businesses and start-ups that are the life-blood of the US economy. 

Dr. Katznelson is attempting to gain signatures on a letter that he will present to Congress in the coming days.  The companies who have thus far signed the letter are largely unknown because they are in their early stages of development Any company who wishes to join the list by the close of business on Thursday, April 9, 2009, are welcome to do so by contacting him directly at [email protected]. Send the full legal name of the company and city.  For those who are not familiar with Dr. Katznelson, I can tell you that he is widely respected and can be taken seriously, so if you are inclined to agree with his position I would not hesitate to contact him and join in his efforts.

I would encourage everyone to read the full letter, but what appears below is the Detailed Concerns section of the letter explaining why it is believed that the First-to-File provisions are problematic (footnotes have been omitted).

The First-To-File (FTF) provisions of S. 515 do not merely amend § 102(g) for resolving interference issues in favor of the first to file. Rather, they radically change most subsections of § 102 and § 103 to redefine what prior art means, thereby undermining basic priority property rights of inventors. These proposed amendments would have far-reaching adverse consequences, some of which we enumerate below.

(1) We believe that the FTF proposals in S. 515 impermissibly deviate from the Patent Clause of the U.S. Constitution, as this clause had been consistently understood over two hundred years to secure the rights of first inventors to their inventions.

(2) We are concerned about the chilling effects FTF would have on startup companies’ ability to forge strategic partnerships and obtain related investments during the most critical phase of their development. Startup inventors would find it hard to disclose their inventions to potential strategic partners/investors, because the proposed statute has much lower threshold triggers for loss of patent rights of those who actually conceive of an invention first. Small entities that cannot “throw money” at accelerating their R&D efforts would be disadvantaged compared to larger entities in the race to the patent office that the proposed statute creates.

(3) The proposed “derivation” proceedings contemplated by the bill to address misappropriation of inventions by the first filer add complexity and place untenable evidence discovery burdens on smaller companies. This is because the primary evidence of “derivation” or misappropriation will be in the hands of the adversary whose patent priority is being questioned. In contrast, under current law, the primary evidence for determining priority is in the possession of the parties.

(4) Proponents of FTF argue that its priority certainty promotes judicial efficiency, but this purported certainty is highly questionable. The priority issues will simply change from those of conception, reduction to practice, etc. under current law, to issues of claim support under § 112 in provisional application strings, CIPs, and specification support in the eventual application for after-added claims. Moreover, Interference proceedings would be replaced by “derivation” proceedings because first inventors would not just cede priority to first filers without attempting to discover possible first filer derivation from their prior invention.

(5) In a recent study2 of over 1,000 applications, it was found that at least 13% of priority applications would lose more than one year of priority rights under FTF and that at least 4% would lose more than two years of priority rights.3 Although a minority, these are probably the most valuable patents, requiring longer experimentation and development of preferred modes of practicing the inventions. These statistics provide only lower bounds, as data on actual earlier invention dates were not available. Some companies have explained that they already file patent applications as if FTF were in place, because of their international practices. They opine that enacting FTF would not make much difference in their operations. However, examination of patent disputes suggests that in many cases this argument is shortsighted, overlooking the role of U.S. patents in international patent portfolios, in which the U.S. patent is often the central pillar. When a U.S. patent is part of a patent family, validity of the foreign counterpart patents in the family is generally not litigated. Many disputes settle across the full international patent family, based on analysis of only the U.S. patent, because that is where the dominant economic value lies. Thus, we believe that since FTI was effectively the controlling criterion, patentees have had very little actual experience in evaluating the full effects of FTF on international patent portfolios.

(6) U.S. R&D jobs would likely be lost following enactment of FTF. The loss of patent priority rights would selectively harm only companies that employ U.S.-based R&D teams, as current law provides the advantage of priority rights only to domestic activities prior to filing. In contrast, foreign competitors having foreign-based inventors would lose nothing. To the extent that multinational firms have incentives to keep their R&D activity in the U.S. due to the current domestic priority advantages that make their inventions more valuable, the proposed FTF law would remove all such incentives.

(7) Over more than a century, the American First-To-Invent (FTI) system produced a legal balance among the various factors and incentives of the patent law, including written description and enablement requirements and the patentee’s entitlement to priority. The expertise in the American innovation process for handling disclosure, investment, collaboration and technology diffusion was developed and perfected under the legal procedures and protections afforded by the FTI regime. FTF would dramatically upset this legal balance and change the costs, the risks, the internal engineering procedures and the processes of IP development. It would “throw out the window” our workforce’s expertise of doing its innovation business, requiring a lengthy learning curve based on development of new case law and new strategies over many years to come. If enacted, FTF will create two legal frameworks, encumbering Americans with confusion over priority rights of new patents and the more valuable priority rights of old patents issued prior to FTF’s effective date.

(8) There is evidence that FTF would likely create unintended collateral damage, an unprecedented flood of hastily submitted patent applications to the USPTO. In some cases, companies say they would have to double the number of applications they file to ensure early priority dates.4 Other evidence shows that many of the applications filed under the “FTF gun” have lower quality, with a majority being ultimately abandoned.5 One important item that FTF proponents neglected to consider is that the USPTO does not use the pre-examination application disposal mechanisms used by other national patent offices to encourage voluntary abandonment. Those mechanisms, including issuing Search Reports and Deferred Examination, are crucial to prevent flooding the examiners in FTF systems6 but are not included in the “harmonized” provisions of this legislation. U.S. FTF would increase the backlog at the USPTO, reduce patent quality and would generate more fodder for “trolls”.

(9) Because of the increase in applications filed, FTF would also saddle U.S. innovators with higher product development costs because they would have to invest R&D resources to develop non-infringing solutions “designing-around” patents that would have never been applied for, let alone issued, under the current First-To-Invent system.