‘Patent Reform’ Will Keep Small Business Inventions From Being Commercialized

Part I of this five part series focused on the national economic impact of the pending patent reform bills.  These included the disincentive to invent, job losses, shifting jobs overseas, and loss of American wealth.  Part II looked at the impacts of “Loser Pays,” “Pay to Play,” and “Fee Shifting-Joinder” provisions.   Parts III and IV discuss mechanisms of how the other provisions of the bills will make us poorer and kill jobs for ourselves and our children. Part V will summarize our discussion.

In this Part III, we will discuss

  • Covered Business Methods (CBM) and
  • Elimination of Post Grant Review Estoppel

If Covered Business Methods (CBM) expansion and the proposed elimination of post grant review estoppel provisions are enacted, it will provide greater incentive to challenge granted patents, making serial challenges the new norm.  These provisions will substantially and negatively impact small business innovators who will be forced to continually fight to keep the patents they have obtained after having already spent many years during patent prosecution to obtain the rights. This means patent rights will never be more than an expectation and not a true property right. Therefore, if these provisions are enacted it will mean no patent is every truly safe, no title is every quieted, and this will substantially, and negatively, impact investment opportunity and ultimately the commercialization of innovations.  (Think about what it would do to the real estate market if you could never be sure you had good title to your home.)

Covered Business Methods (CBM) provisions were removed from HR3309, but are still in some Senate bills (S.866).  These provisions will devalue many software patents, thus hurting the economy.  With the pervasive use of the computer, software patents have continued to grow, and now make up more than half of all patents. See GAO Report Assessing Factors That Affect Patent Infringement Litigation Could Help Improve Patent Quality, GAO-13-465, August 2013, p. 11-13. Thus, CBM provisions will adversely affect the fastest growing segment of our economy.

The America Invents Act (AIA) limited Covered Business Methods (CBM) to a “financial product or service.” This was a special provision to protect Wall Street Banks.  It allowed post-grant review proceedings, to be made at any time until September 16, 2020, clouding their title for eight years.  However, recently-introduced legislation proposes to make the transitional proceedings of Section 18 permanent and expand the definition of “covered business method patent” to include data processing patents used in any “enterprise, product, or service.” This means that any party sued for or charged with infringement can always challenge an extremely broad range of patents at the USPTO. The request for a proceeding need not be related to financial products or services and can be submitted any time over the life of the patent. This would have far-reaching implications, because data processing is integral to everything from cutting-edge cancer therapies to safety systems that allow cars to respond to road conditions in real time to prevent crashes. Subjecting data processing patents to the CBM program would thus create uncertainty and risk that discourage investment in any number of fields where we should be trying to spur continued innovation.

The Patent Coalition, a group of patenting companies, recently wrote:

On behalf of industry groups, professional organizations, university associations, and leading companies in America’s most innovative industries, including technology, communications, manufacturing, consumer products, energy, financial services, medical devices, software, pharmaceuticals, and biotechnology, we are writing to encourage you to not include measures to expand the “covered business method” (CBM) patent program as you move forward with patent reform legislation. Expanding the CBM program will hurt America’s innovators – both small and large – and weaken America’s competitive advantage around the world, at a time when we can least afford it.

In December 2013, the House of Representatives passed The Innovation Act (HR 3309). When originally introduced, this legislation contained a provision expanding the CBM program. However, the provision was removed because it created a political and a policy roadblock.

During Congressional consideration of the America Invents Act (“AIA”), proponents of Section 18 argued that it was a necessary and temporary measure to review a very narrow class of financial-services-related patents. Under Section 18 of the AIA, transitional post-grant review proceedings for “covered business method patents” (CBM program) allow the USPTO to take a second look at a patent after that patent’s grant or reissuance, in order to determine its validity. A “covered business method patent” is a business method patent that relates to a “financial product or service.” Regular post-grant review proceedings require that a proceeding must be requested no later than nine months from a patent’s grant date or reissuance date.  However, a request for a “covered business method patent” proceeding can be made at any time until September 16, 2020 – the date the transitional program is scheduled to sunset.

Since the Schumer bill makes this permanent and expands the definition of “covered business method patent” to include data processing patents used in any “enterprise, product, or service.”, we will see new patented software innovation squashed not just for financial services, but for all data processing; and not just for the next six years, but forever.  Remember, this is roughly half the patents, which will adversely affect a huge portion of the economy. This means that any infringer can always challenge an extremely broad range of patents at the USPTO. Since developers of higher value software that has a longer shelf life usually want to patent it, this proposal would devalue American software by creating new serial challenges during the patent’s life, effectively killing small software development companies.

Since data processing is integral to everything from car safety systems to life-saving medical devices and new engineering design software. This would create uncertainty and risk that discourage investment in any number of fields where we should be trying to spur continued innovation.

For more than 220 years, the US patent system has promoted “the progress of science and useful arts,” as the Founders intended.  It provided the same incentives for all types of inventions. To expand and make permanent the CBM program would be to turn ill-advisedly and irrevocably in a new direction — discriminating against an entire class of technology innovation, the class that has the greatest new potential for growth, data processing software.  This will kill US jobs.

Expanding the CBM program will undermine many valid patents by giving infringers a new procedural loophole to delay enforcement. Infringers would be able to delay legitimate lawsuits they face in district court by initiating CBM proceedings at the PTO. This would buy time to gain market share on innovative, patent-holding competitors.

This part of the proposed bills will adversely affect innovators, educators, researchers, developers and US employers.  Expanding the CBM program is bad for America and American jobs.

Elimination of Post Grant Review Estoppel – Under the AIA, a Post Grant Review prohibits the petitioner from later arguing “any ground that the petitioner raised or reasonably could have raised during that post-grant review.” The proposed legislation deletes “or reasonably could have raised.” This will allow a defendant to bring multiple sequential Post Grant Reviews in an effort to defeat the patent holder by burning the inventor’s financial resources and time with effectively perpetual litigation.  It would also now allow the infringing petitioner to assert in a civil action or at the International Trade Commission (ITC) “that the claim is invalid on any ground” even though the petitioner could have reasonably raised the issue during that post-grant review. This provision could easily become fatal to most small inventors.  These multiple “bites at the apple” by infringers will continue to cloud patent title and frustrate legitimate inventors, denying them justice and making fundraising even more difficult.  This provision is another example of how small business inventers can be driven to extinction by exhausting their resources while trying to enforce, or even just keep, their patents.


About the Authors

Robert N. Schmidt is Chairman and CEO of Cleveland Medical Devices, Inc., a company that develops, manufactures and markets sleep disorder products. Schmidt is also the National Co-Chair of the Small Business Technology Counsel (SBTC), which is a Council of the National Small Business Association (NSBA).

Heidi Jacobus is Chairman and CEO of Cybernet Systems Corporation, which is a leader in American research and development in the medical and defense fields and is one of the country’s largest Small Business Innovative Research (SBIR) contract winners. Jacobus is also the National Co-Chair of the Small Business Technology Counsel (SBTC), which is a Council of the National Small Business Association (NSBA).

Jere W. Glover is Of Counsel to the Washington, DC, firm of Seidman & Associates. Glover is also the Executive Director of the Small Business Technology Counsel (SBTC), which is a Council of the National Small Business Association (NSBA).


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Join the Discussion

2 comments so far.

  • [Avatar for Anon]
    April 29, 2014 11:42 am

    Another guess Benny…?

    Your track record on guesses tends to just show your lack of appreciation for legal issues involved.

  • [Avatar for Benny]
    April 29, 2014 09:05 am

    “Infringing petitioner” ?
    Are the majority of these cases brought by manufacturers who are actively infringing, or by those who wish to enter the market without paying for a license (which would knock their competitive edge sideways)?
    I would guess the latter case. To label everyone who objects to, or attempts to invalidate a patent an infringer may well be an unjust accusation.