Leahy patent bill: Litigation, not innovation

America’s founders first recognized the importance of innovation to the nation, perhaps better than President Obama. They understood that its encouragement depended on enabling inventors to profit from their ingenuity, investments, and efforts. That’s why intellectual property protection is one of the main federal responsibilities enumerated in the Constitution. And that’s largely why America has so long been the world’s leader in science, technology, and industry.
 
Yet the new patent bill, being spearheaded by Judiciary Chairman Patrick Leahy (D-Vt.), will gut these longstanding innovation incentives, replacing them with “infringer friendly” provisions. Adding uncertainty to and subtracting time from a patent’s validity makes raising capital and commercialization very difficult, especially for small entity and individual inventors.
 
Leahy bill supporters claim that an overhaul of America’s patent system is sorely needed. Some immediate changes are required, but not as put forth in this bill. It would expand the so-called ‘patent reforms’ of the Clinton era that have devastated innovation by America’s small companies and individual inventors. Those ‘reforms’ doubled from 18 to 36 months the time required to process a patent, required the Patent Office to publish full patent applications on the Internet 18 months after filing - encouraging theft of American IP worldwide, and created a new post-grant challenge process to patent validity that can consume three or more years in bureaucratic proceedings inside the Patent Office. As a result, individual inventors who received 15 percent or more of all U.S. patents before the Clinton reforms, got barely 5 percent last year. The Leahy reforms will only worsen an already difficult process for inventors.
 
The principal advocates of the Leahy bill are the governments of Europe and Japan – along with boosters in China and India. They want the United States to “harmonize down” to their inferior systems. They and the bill have it backwards. Advocates also include a handful of Big Tech transnational corporations that want to make easier and less costly the infringement of other’s patent rights. Their business model has a unique name, “efficient infringement.”
 
The problems that exist do not require uprooting a successful 220-year-old system. The U.S. Patent and Trademark Office (USPTO) takes too long to issue new and genuinely secure patents. The “reformers” blame antiquated regulations and procedures, but it’s really an issue of funding, training, and retaining sufficient numbers of qualified patent examiners. Doing so will immediately improve the quality and validity of patents, and remove the scandalous 720,000 applications backlog at USPTO.
 
Notably, the Leahy backers argue the current system has spawned a patent “litigation explosion” in the courts and related venues. However, the data prove them wrong.  For the past three decades, the ratio of patent lawsuits to the number of patents filed has remained at a constant 1.5 percent.  There is no surge of patent lawsuits. Moreover only 100 or more lawsuits are actually tried annually. One hundred patent lawsuits a year is not a crisis by any measure.
 
America’s small companies, individual inventors, universities, and research institutes are the source of half or more of the “disruptive innovations” that spur entire new industries. Think Steve Jobs and Steve Wozniak in a garage creating first a personal computer and then a company that has continued to create technology improving the lives of people worldwide.  Our patent system has made possible this American model. But the Leahy bill’s response to our long-established, Constitutionally-enabled system and culture of innovation and job creation is to enable infringing on all patents, challenging all patent rights in administrative hearings at the Patent Office, and diminishing inventor rights in the courts.
 
Further, and perhaps most importantly, since over 70 percent of the value of American companies is now in their IP – historically it was in land, factories, machinery, and the like – the Leahy bill could well destabilize many American business through the wholesale devaluing of intellectual property assets. Making major changes to the US patent system at this time of economic distress could worsen the financial crisis. In the name of reform, this indiscriminate assault on a major American property right and corporate worth would fatally weaken the financial incentives undergirding more than two centuries of spectacular American technological and business success.   
 
While President Obama’s focus on innovation couldn’t be timelier or more on target, the Leahy bill, which promotes infringement and litigation at the price of innovation and commercialization, is the wrong way to go. Sen. Leahy’s shortcut to second-class global technology status for America should be scrapped by any competitiveness-minded President and Congress.
 
Kevin L. Kearns is President of the U.S. Business and Industry Council, which represents nearly 2,000 family-owned domestic manufacturers. Alan Tonelson is a Research Fellow at the Council and a contributor to its AmericanEconomicAlert.org website.

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