Will Patent Reform Help Small Businesses and Independent Inventors?

How successful will the long-awaited patent reform prove to be?

Last Thursday the Senate passed the America Invents Act by an overwhelming 89-9 majority. Businesses hope that this is the first step in an era of sweeping patent reform, bringing the U.S. in line with the rest of the world, and on the other end of the spectrum, aiding small companies and independent inventors.

Bob Stoll, Commissioner for Patents, issued a statement explaining that this reform will “simplify the process of acquiring rights while maintaining a one-year grace period that protects innovators.”  It will also work to reduce legal costs, and improve fairness, objectivity and transparency.

What is the key reform? If signed in to law, the act will move the American system from a first-to-invent to a first-to-file.  This, legislators hope, should create a level playing field for small companies and independents.

The current system does not work in the sense that individuals who are slow to file but expect to benefit from being the original inventor are, more often than not, denied the resulting patent.

In the past seven years, over 3 million patent applications were filed, but only 25 were granted to small entities that despite being the second inventor to file were able to prove they were first to invent. Of those 25, only one patent was granted to an individual inventor.

Why? The cost of proving who was the first to invent is a significant barrier for smaller businesses.  Costing an average of $400,000 to $500,000 in legal fees, the systems prices almost all but the largest companies out of the market.

New reforms hope to change these statistics.

For big businesses, the reform is also being counted on to provide a much-needed boost to U.S. global competitiveness.

According to Fox Business, days before the Senate approved the bill, Microsoft Corp. vice president and general counsel Horacio Guitierrez urged lawmakers to pass the reforms.  He argued that the bill would “ensure that innovators in our troubled economy can benefit from a predictable and rational patent system, with new tools to eliminate patents that should not have been issued and to speed the processing of patents that should be issued.”

In this celebrated section of the act, a post-grant review process will be initiated to streamline and strengthen the process of re-examining bad patents.

In another statement, technology giant IBM, the largest filer of patents in the last 18 years, said that the legislation “puts our patent system in a much better position to spur innovation and economic growth in the 21st century” and would “improve the efficiency of the U.S. Patent and Trademark Office.”

Yet, despite the USPTO being granted more leverage in setting fees for patent applications, the office will still have to go through the appropriations process for funding, through which it might remain hostage to the current political dysfunction in Congress.

A government official close to the negotiations acknowledged that the biggest plus in the legislation as far as the USPTO is concerned is that it would “prevent USPTO funds from going to other government programs.”

But, with a four percent expected increase in the number of patent applications this year, the USPTO might continue to find themselves in hot water. Held back by budget problems, a hiring freeze and only modest investment in IT modernization, the system is so backed-up that it might take three years for a decision to be made on a single patent application!

So while businesses large and small will rejoice over the long-awaited actions of the government on patent reform, analysts and observers, including a former Under Secretary of Commerce, say it will take a lot more than the America Invents Act to make the USPTO a champion of growth in a stalled economy.

[Update, 9/16/11: President Obama signs the bill in to law, saying repeatedly that the reform will spur job growth, despite skepticism from patent experts.]