Patent System Receives Long Overdue Reforms

On September 16, President Obama signed the America Invents Act (AIA), enacting the first patent reform legislation in over 60 years. Primary goals of the act include: bringing the U.S. patent system in line with most of the other patent systems in the world; improving patent quality; and most importantly, adequately funding the United States Patent and Trademark Office (PTO). This article discusses some provisions of the America Invents Act and how they could impact patenting and portfolio strategies of inventors and businesses.

The AIA changed the U.S. patent system from a first-to-invent to a first-to-file system. This change brings the U.S. in line with the majority of jurisdictions worldwide which are already on a first-to-file system. Inventors with the earliest-filed application are now entitled to the patent. As part of this change, the AIA replaces interference proceedings with derivation proceedings which are a safe-harbor provision for inventors claiming misappropriation of their invention by the first-to-file party.

The first-to-file system will have little effect on large U.S. businesses already operating under a first-to-file patenting strategy. These businesses typically file in multiple jurisdictions including first-to-file jurisdictions. First-to-file will have the most impact on smaller businesses and sole inventors that typically only file in the U.S. Such businesses and inventors often do not have the resources to develop their inventions and file applications quickly. Small businesses and individual inventors may obtain relief by claiming small entity status and taking advantage of provisional patent application filing.

Post-Grant Review (PGR) is similar to the European Union’s Opposition in that PGR allows third parties to challenge the validity of one or more claims of a patent. The AIA allows third parties to submit patents and printed publications regarding issued patents for consideration during examination of a patent application. While PGR and third-party submission are targeted to improve patent quality, these procedures place additional burdens on an already under-funded PTO.
In July 2011 the PTO had a backlog of almost 700,000 patent applications, and the average application pendency was over 33 months. Most businesses and experts agree that delays in the PTO are stifling innovation and job growth. Even small and start-up businesses are affected by patenting delays as these businesses often use their patents to secure financing. Earlier this year, Judge Paul Michel, former Chief Justice of the Federal Circuit, told the Congressional Subcommittee on Intellectual Property the most important step to patent reform was adequate funding of the PTO so it can examine applications quickly and carefully. Judge Michel stated, the PTO desperately needs thousands of additional examiners, dozens of additional board members, and modernized IT systems.

Ironically, the PTO generates more revenue than the money it receives from Congress. The PTO has lost over $800 million in revenue since 1992 as a result of fee diversion. Fee diversion is a process where congressional appropriators can spend taxpayer revenues elsewhere in the government by withholding fees paid to the PTO. The AIA contains provisions aimed at ending fee diversion by creating an account, or “reserve fund” for the PTO to receive its fees. This provision will also provide for a 15% surcharge in fees and allow the PTO to set its own fees. The PTO, however, must petition Congress to receive money from the reserve fund. Thus it is unlikely that this reserve fund will stop fee diversion.

In short, the AIA’s provisions for improving the patent system may well fail unless the PTO can be adequately funded to implement these much needed reforms.

Iken S. Sans is a patent agent in WHV’s Intellectual Property group. Iken may be reached at (216) 642-3342 or by e-mail at