The America Invents Acts – A Startup Killer?

By Collin Conerton

Throughout the world, the patent granting process has long been used as a primary way for countries to promote and encourage innovation among its citizens.  Countries see patents as powerful tools that drive advancement because they encourage inventors to quickly and accurately disclose their idea in the hopes of exploiting their invention for profit, as well as allowing other individuals and business to see and benefit from this new development. Hence, it should come as no surprise countries are constantly re-evaluating their patent granting process to ensure that they have the most effective process.

Over the last decade, the United States has assessed whether it was time to change its patent granting system.  This evaluation culminated in the recent passage of the Leahy-Smith America Invents Act (AIA) which dramatically overhauled the US’ patent granting system in an effort to spur innovation and put the US patent system on par with the rest of the world.

Policymakers who support the AIA point to three primary reasons why the AIA will serve as a catalyst for innovation among small business and startups alike.  First, it will make the patent process easier by diminishing the backlog of patent applications and reducing the cost to apply for one (for those who qualify). Second, awarding patents to those who are “first to file” (FTF) instead of “first to invent” (FTI) harmonizes the United States patent system with patent systems commonly used in most other countries, creating greater certainty about patent ownership in the United States which will ultimately lead to reduced need for costly litigation. Third, according to Politico, the AIA will promote efficiency in the patent granting process by streamlining the post grant review process.

Although the ideas behind the AIA are laudable, the ultimate question is will the AIA help or hurt startups, the very entities it aspires to protect and assist. Unfortunately the ramifications of the new laws contained in the AIA will likely be devastating from a startups perspective. It is undeniable that switching to a FTF system will certainly benefit companies who can move quickly to file a patent, but there is no guarantee that startups will be the entities capitalizing on this. Navigating a patent application can be complicated and taxing, especially to inventors who have no prior experience doing so and this heavily favors companies who are familiar with the process. This leaves many startups susceptible to patent thieves – companies who catch wind of an idea and are able to file a patent application faster than the inventors can.

Aside from establishing the FTF patent granting policy, the AIA also added a new form of reexamination – the post-grant review. Prior to this new addition, the only ways to challenge the validity of a patent were to see ex parte or inter partes reexamination before the Patent Office. In general, post-grant review allows parties an opportunity to appeal a patent provided they file for the review within nine months of the grant or issuance of the patent.

The post-grant review process presents a serious challenge to the viability of startup by creating yet another way for “[b]ig companies armed with savvy lawyers . . . [to] use the reexamination process as a way of quashing smaller companies.” As retired Judge Paul Michel of the United States Court of Appeals for the Federal Circuit notes there are now three separate and “potentially serial challenge proceedings: Ex Parte Reexamination as under current law, an entirely new Post-Grant Review, and Inter Partes Review ” that could face patent applicants.4 Because Inter Partes Review will not begin until Post Grant Review has finished, Judge Michel’s estimates that a patent could “still be under a cloud for three to four years after issuance.” In fact, Judge Michel’s has gone on record as saying, “I can guarantee you that if I went into private practice, I could hold up any patent for almost a decade in post-grant proceedings. It would never get to trial in the district court.” It is unlikely that startups can afford to pay the costs of these expensive litigation costs, and thus may decide it is not worth pursuing their invention.

In short, the combination of the time and money required to protect each individual patent from “patent thieves” under the new FTF process with the potential litigation costs, and time in court because of the new post-grant review process will almost certainly curtail innovation and make it increasingly difficult for startups with a genuine patentable idea to have that idea materialize as a patent under the new AIA.

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