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First-Inventor-to-File system creates uncertainty

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Indiana Lawyer Focus

With the United States switching to a First-Inventor-to-File patent system, innovators developing new products in their garages and in small shops may have to invest in a good pair of running shoes.

Previously, the U.S. patent system operated under the First-to-Invent concept where, in broad terms, whoever invented the technology or pharmaceutical first got the patent pretty much regardless of when they filed the application. On March 16, 2013, the country converted to the First-Inventor-to-File system which means, loosely speaking, that the inventor who shows up at the patent office first will get the patent even if that individual was not the first to create the device.

blinkless-inverter-15col.jpg Daniel Rittmeyer, employee at Mechanical Electrical Systems, wires the patented Blinkless Grid Synchronization Inverter that can switch power sources without interruption. (Submitted photo)

This is the third major provision to be implemented of the 2011 Leahy-Smith America Invents Act. The U.S. Patent and Trademark Office hailed the switch as bringing greater transparency, predictably and simplicity to the patent granting process. In addition, it is another step in harmonizing U.S. patent law with that of other industrialized countries.

However, critics contend that switching systems gives larger, better-financed companies an advantage over smaller companies and start-ups. Some even go so far as to worry the rate of innovation in the U.S. will decline as a result.

Indiana attorneys do not foresee the end of American invention and creativity because of the new system, but they acknowledge the change could be harder on smaller entities than larger ones. What they are sure of, though, is that innovators, regardless of size, will have to get to the patent office quickly.

“It places a premium on filing a patent application as early as possible,” said Jason Houdek, partner at Krieg DeVault LLP. “There always was a premium on that, but it’s just more important now.”

houdek Houdek

Small v. large

Large businesses are not untouched by the switch to the First-Inventor-to-File system. They will have to make decisions sooner about what to patent, which could be difficult to do since the company will have an internal bureaucracy to maneuver.

Moreover, the push to file quickly may be more of an obstacle for some larger companies because of what they develop. For example, a pharmaceutical company filing too soon could be denied patent protection because it submitted an application before the research on the new drug was completed.

Schantz-Matthew.jpg Schantz

Still, the heavier burden of the new system will be born by smaller companies.

The garage innovators and little shops usually have neither the financial resources to immediately file a patent application nor the processes in place to capture what is being developed, said Matthew Schantz, attorney at Frost Brown Todd LLC. Small companies are less likely to have a system for the technicians or developers to alert management that the invention they are working on is special enough to warrant a patent.

“I think the effect on small inventors is unfortunate,” Schantz said, noting many of them have good innovations and are often thinking of something new. “They’ll have a hard time protecting it under the new system.”

Another burden will be marshalling the resources needed to file the patent application. Citing statistics from the American Intellectual Property Law Association, Schantz noted the average cost of filing a provisional patent application is $3,500. On top of that, filling out the application and providing the very detailed explanations of the new item require a company to put in a lot of time and effort.

Houdek agreed that companies, large and small, will have to dedicate more resources to filing a patent application in a shorter period of time, but the costs will probably not be an insurmountable hurdle to small entities. Compared to the costs of opening the company and running daily operations, the $1,000 to $5,000 needed to apply for a provisional patent is minor.

“I’m in the camp (the First-Inventor-to File system) does make it harder, but it is not an end to innovation mainly because the expense of starting a business is much greater than filing a patent application,” Houdek said.

This new patent system may be a wake-up call to the start-ups and solo inventors, said Charles Schmal, partner at Woodard Emhardt Moriarty McNett & Henry LLP. Often small entities do not think about filing applications and are not aware of the law, let alone of the change in patent system. Now, with the need to file first, they may start paying attention.

Protecting innovation

Mechanical Electrical Systems in Indianapolis received its first patent about six months ago. The company, founded in 1979, used off-the-shelf technology to create the Blinkless Grid Synchronization Inverter which can switch power sources without interruption.

Gary Gengenbach, engineer and a silent partner at the company, said MES decided to get a patent after colleagues encouraged them to protect the Blinkless product. He noted infringement could still happen, and then the company would then have to decide whether to put the resources into litigation.

schmal-chuck1.jpg Schmal

In the “First-Inventor-to-File” world, many small companies are worried that the bigger players will steal their ideas then hide behind the new patent system.

“I’m really skeptical whether, in the long term, that (having to file quickly) will be a problem for them,” Mark Janis, director of the Center of Intellectual Property Research at the Indiana University Maurer School of Law, said of smaller entities.

In the short term, he expects there to be some fear and uncertainty, but he is hopeful that after awhile those concerns will dissipate and the patent world will not be all that different from what it was before March 16.

“I think a half-dozen years from now, people will say this was not as big a change as some said,” Janis predicted.

The America Invents Act does contain protections for inventors who discover something first but arrive at the patent office second. Included in the provisions are the derivation proceedings.

According to the patent office, the new procedure will ensure that individuals who did not actually invent the item will not be able to obtain a patent. True inventors will be able to challenge any first applicant’s right to a patent by demonstrating that the first application is claiming an invention derived from the true inventor.

Still, the derivation proceeding, like the former interference proceeding, is complex and expensive. Schmal does not recommend that companies rely on the proceeding to protect their inventions but rather they should file their patents early.

Inventors can also gain some protection by publicly disclosing their discoveries. Publishing in a journal or making a presentation at a trade show could establish who conceived the idea first.

The true impact of the First-Inventor-to-File system will not be known for years, but Schantz sees potential benefits. He believes the need to patent more quickly will spur companies to capture their inventions sooner. On top of that, with the public disclosure rule, innovators will have an incentive to unveil their devices whether they ultimately apply for a patent or not.

All of the innovation becoming public will boost the American economy, Schantz said. The U.S. competes globally not by having the most unskilled labor but by being creative. If First-Inventor-to-File makes companies more aware of their inventions and gets these inventions into the public domain, that will be good for the economy.•

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