Reality-based patent reform

The FTC Report’s impressive thoroughness (and length) may deter Congress and its staff from a full review before a ‘patent reform’ bill is introduced and marked up in the House Judiciary Committee. But proceeding without weighing the report and holding at least one hearing on its contents would be unfortunate, especially with so many potential technology-related jobs hanging in the balance.

The forthcoming House bill will reportedly adopt a similar approach to the Senate’s just-passed S. 23. If so, together they will end up scuttling the time-tested US system that now governs our IP marketplace and that brought America to technological greatness. 

Even a cursory reading of the FTC report indicates that the fundamentals of our current system – like first-to-invent with its accompanying ‘grace period’ (during which an idea is protected while it is refined and shopped for financial support) – is key to expanding our ‘innovation ecosystem.’ Drastically altering the current law would be a serious mistake.

The seminal importance of the FTC report is that it describes a very different IP reality than the one assumed by S. 23 and similar versions of congressional ‘patent reform.’ The report highlights the emergence of today's ‘open innovation,’ which most often emanates from public and private transfers of technology through licensing and the collaborative interactions of universities and smaller start-ups, spin-outs, and research firms.

This new, open-innovation dynamic is gradually replacing the formerly dominant, internal ‘closed innovation’ efforts of large companies. The scientific innovation model of our smaller firms, universities, and research consortia and the incremental innovation model of the large market incumbents both contribute to our world-class innovation. Unfortunately, S. 23 and its ilk ignore the needs of the fast-developing independent start-up model.

Unlike the ‘patent reform’ proposals offered thus far, the suggestions put forth by the FTC do not choose sides, favoring Big Tech and multinational firms against small entity inventors. Instead, the FTC recognizes the criticality of today’s emerging technology transfer and collaboration model, then crafts its recommendations to accommodate this new development, not hobble it – as S. 23 does. 

The FTC report accurately describes innovation as a "complex process" that requires, "a series of steps -- from idea to invention through development to commercialization -- each of which can be expensive, risky and unpredictable." It then supports the net new jobs provided by independent start-ups, unequivocally asserting that the "goal of the patent system is to promote innovation in the face of that expense and risk." In fact, the FTC seeks to promote all innovation, not just the incremental innovation model of the large market incumbents.

If S. 23 reflected the forward-looking FTC perspective, it would not be promoting the unwieldy ‘first-to-file’ procedure, which eliminates inventors’ critical ‘grace period’ protections. This and other provisions will cripple early-stage innovation by ‘harmonizing down’ our first-class patent system to the inferior systems of other countries, which should be persuaded to ‘harmonize up’ instead.

Europeanizing our system for the filing convenience of global multinational firms – that overwhelmingly practice the internal, ‘closed innovation’ approach – will cripple today’s innovation evolution with costly procedures while curtailing the beneficial ‘creative destruction’ inherent in technological progress. 

It is easy to understand why market-disruptive innovation might distress large incumbent firms, but forcing the American economy into a single, narrow innovation model favoring outsourcing, offshoring global giants will stamp out the local jobs generation capability of smaller firms. 

Congress should not intervene to distort the technology economy’s continued evolution by crippling the open, independent innovation efforts of small businesses, our nation’s leading job creators, at the very time we can least afford it.

What Congress should do instead is to follow the Hippocratic oath, “First do no harm,” and write a patent bill that all IP stakeholders can enthusiastically support: It should reject its past practice of diverting USPTO fees to other government uses ($800 billion over the last 17 years) and fully fund the agency. Fee-diversion is a stiff, hidden tax on desperately needed innovation.

In fact, Congress should return diverted application fees to the agency, mandating it to hire and train quality patent examiners, retain senior examiners, eliminate today's huge 700,000 patent application backlog, and streamline issuance of high-quality, and thus secure, new patents for the innovators of today.

If Congress follows the logic of the open innovation realities described in the FTC report and rejects the enshrinement of the outdated, large firm, closed model promoted by S. 23, the new technologies and their attendant jobs now stalled at the USPTO can be fed quickly into our economy – before they become obsolete in today’s fast-moving markets. 

Many more early stage innovations will follow. With reliable patents, independent firms can begin the "series of development and commercialization steps" the FTC describes – steps that will lead to sorely-needed economic revival and the creation of new, well-paid jobs here in the USA.

Chris Gallagher is Policy Director of New Venture Advisors, a firm providing strategy, policy, planning, and licensing advice to early stage innovators. Kevin L. Kearns is president of the US Business and Industry Council, which represents 2,000 small and mid-sized domestic American manufacturers.