Patent Reform, End to Fee Diversion, Heats Up in Congress

It is admittedly hard to get worked up about the prospects of patent reform given that over the last 5 to 6 years we have be variously told that it was only a matter of time, a done deal, imminent and/or guaranteed.  Of course, patent reform hasn’t happened; legislative efforts have simply been unable to cross the finish line.

Notwithstanding, Congress is at it once again, with the Senate Judiciary Committee reporting out a bill last week that remarkably resembles the bill that has been unable to gain any traction in the Senate for the last several years.  That would suggest that the same fate is in store for this legislation.  Not so fast!  I have a suspicion that this year things are different and that we really could be on the cusp of patent reform.  Whether that is for better or for worse will largely be in the eye of the beholder, but what is emerging feels different and I think we are closer to change, and perhaps an end to fee diversion, than we have been at any point over the last 6 years.

One of the reasons that patent reform has been so difficult to get across the finish line is because in recent years the legislation was not reported out of the Senate Judiciary Committee until virtually the last minute.  There are a lot of powerful interests lined up on all sides, in fact you could say that the bill has been surrounded by lobbyists all promoting different interests that are sometimes diametrically opposed.  Building consensus has been virtually impossible because parties A and B might align on one issue and then A with C and B with D on another issue.  With the bill finally getting to a critical stage so late in the legislative cycle it isn’t difficult to understand why nothing has gotten done.  No consensus and a lack of time is a recipe for stalled legislation.

In truth, few organizations have really taken a leadership role in presenting a vision of what should be in a patent reform bill, choosing rather to demagogue the issues in order to promote self interests or simply criticize without presenting alternatives.  That, however, might be changing.  Organizations like the Innovation Alliance, BIO and the American Intellectual Property Association, to name a few, have been leaders and continue to talk about what will move the country forward to promote innovation, encourage entrepreneurship and facilitate the organic growth of jobs through the implementation of sound innovation policy. But how much can those promoting a thoughtful agenda accomplish when large corporations have tremendous access?

I am not suggesting there is anything nefarious going on with respect to lobbying, but the reality is that persuasive people can and do alter opinions of decision-makers when their viewpoint is disproportionately heard.  As Hank Nothhaft explained in a recent speech, those that get the most face time with leaders do not promote policies friendly to those that are overwhelmingly the job creators — small businesses and technology based start-ups.  Nothhaft explained:

Last month, President Obama held a summit on job creation and invited a group of fortune 1000 CEOs to give him advice. Exactly the wrong group of people to talk to. It’s not just President Obama of course. Every president and every congress for the last 60 years has done exactly the same thing; sought advice from everyone but the one group in the world who actually creates jobs, entrepreneurs.I guess somehow we are invisible and our voices go unheard. Everyone else has a voice in Washington; big business, retailers, insurers, doctors, bankers, teachers and every other interest group you can think of. Only entrepreneurs do not have a voice. Yet ironically, they are the vital few to quote Jonathan Hughes, “upon whom all society depends for progress.”

This year, however, the Senate Judiciary Committee has already reported out S. 23, which is the current version of patent reform in the Senate, and the 112th Congress is only a little more than one month old.  Thus, time is on the side of those who would like to see patent reform this cycle.  Those opposing patent reform will not be able to play out the clock as they have been able to do in the past, making it all the more critical that those with holistic and thoughtful approaches to patent reform need to make themselves heard.

In the last cycle the Senate Judiciary Committee reported out patent reform and then virtually all of the Senators, both Republican and Democrat, practically begged Senate Majority Leader Harry Reid to find time on the floor to bring the legislation up for a vote.  Floor time was essential in the last Congress because there were a few amendments that needed to be added on the floor, presumably to guarantee passage by the full Senate.  Without explanation Senator Reid never found time for patent reform.  It seems likely that if we do not get patent reform again it will be because of Senator Reid.  House Republicans are on board, the Senate Judiciary Committee has been on board for years, and the Department of Commerce generally and the Patent Office specifically are in favor of patent reform, so there is every reason to believe that if it passes through Congress the President will sign it into law.

When I interviewed Congressman Chaffetz (R-UT) the other day he indicated that Republicans in the House seemed interested in getting serious about patent reform and working to get something done.  Chaffetz said: “there is certainly a commitment to plowing this legislation through to the finish line… this has been percolating for so long on so many fronts I think, in general, they want to get more serious about it…”  If House Republicans are on board and the Subcommittee on IP and the entire Judiciary Committee are on board, as suggested by Congressman Chaffetz, it would seem that patent reform of some sort can be expect from the House of Representatives.

Recently Chief Judge Paul Michel (ret.) and Gregory Junemann, President of the International Federation of Professional & Technical Engineers, wrote a letter to Senator Patrick Leahy (D-VT) and Senator Charles Grassley (R-IA) and told them point blank that “increasing PTO resources should take precedence over processing comprehensive patent reform legislation.”  The letter went on to say: “All Congress need do is: (1) enact legislation to increase the user fees that fund PTO operations and (2) give the PTO access to all fees collected.”  Michel and Junemann also point out that several provisions of S. 23 would make the delay at the Patent Office.  For example, the Canadian experience with first-to-file suggest that change would “stimulate mass filing of premature applications.”  Moreover, the additional workload created by additional challenges to issued patents would increase delays by “diverting board resources to a new procedure.”  Chief Judge Michel will testify Friday, February 11, 2011, in front of the House Judiciary Committee on these issues.

To illustrate the truly strange bedfellows that are coming together on patent reform, you have Junemann, a prominent labor official, agreeing with a conservative coalition that includes the Christian Coalition, Gun Owners of America and others who believe “[t]he proposed reforms really benefit large, established corporate market players at the expense of U.S. economic growth.”  The conservative coalition on patent reform, in their letter to Senate and House leaders also explained that the logical solution to genuinely foster innovation is to “fully fund the USPTO, allowing it to set user fees and keep them to run the USPTO efficiently and effectively, rather than letting them be diverted to other parts of the government.”

Todd Dickinson, former Director of the USPTO and the current Executive Director of the American Intellectual Property Law Association, has also aggressively raised the issue of putting an end to fee diversion at every turn.  As have numerous lobbyists and companies that have secured meetings with Members of Congress.

The additional workload burdens raised by Michel and Junemann, which will be placed on the Patent Office if S. 23 or something like it are passed, have been litigated over and over again behind closed doors and are, at least in part, responsible for why we haven’t seen patent reform.  The analysis is sound, but yet these and other controversial issues remain in pending patent reform.  The fact that these burdens continue to exist in the legislation make it all the more necessary for the Patent Office to be given fee setting authority and the diversion of user fees collected by the Patent Office must stop permanently.

In my interview with Congressman Chaffetz he agreed.  Chaffetz explained that allowing the Patent Office to keep the user fees it collects to reinvest in ongoing operations “seems to make perfect sense.”  Chaffetz went on to say: “It is unfair to charge a fee and then not have that go back in for the services that people are paying for, in my mind. It certainly needs to ferret itself out, but I think a growing number of people believe that.”

Indeed, one of the sticking points in the Senate seems to be the absence of a provision to eliminate diversion of fees from the Patent and Trademark Office to other government programs. At the mark-up of S. 23 on February 3, 2011, Senator Coburn submitted and then withdrew an amendment that would eliminate fee diversion, although he did indicate that he will raise the Amendment to end fee diversion on the Senate floor. Several other Senators expressed support for the Coburn Amendment, but noted that there is a jurisdictional issue since fee diversion falls under the purview of the Appropriations Committee.  “It is despicable they divert fees from the Patent Office,” said Sen. Orrin Hatch, R-Utah. “It is nothing less than a tax on innovation.”

What does this all mean?  As imperfect at patent reform efforts may be there seems to be great interested on Capitol Hill on both sides of the isle and in both the House and Senate to get something done.  We can debate whether what might get done is necessary or even likely to lead to a better patent system, but it seems clear that those with an interest need to take steps to make sure their position is heard. Sitting on the sideline and watching the clock is not an option.

Moving forward the key to patent reform may well be whether language emerges that would put an end to fee diversion.  There is broad consensus among everyone that an end to fee diversion need to happen in order for there to be any meaningful change for the better.  With an end to fee diversion secured it would be exceptionally difficult for those who oppose patent reform to muster enough political juice to derail the effort, so I look for a continued push akin to the Michel-Junemann approach, which is shared by the Innovation Alliance, which advocates fixing funding at the Patent Office first and seeing what good comes of that first before rushing to change substantive law.

While so many circle the bill and engage in a circular firing squad mentality don’t count out those on the periphery advocating a piecemeal approach that centers around fixing the Patent Office.  That position seems to be gaining steam and could lead to the consensus that will break the patent reform log-jam.  The question is whether that comes in place of pending reform or it is bootstrapped into pending legislation as a way to build enough compromise to usher what many believe is flawed reform across the finish line.