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Thursday, June 23, 2011

Patent Reform and Entrepreneurs

Patent reform passed the U.S. Senate in March 2011 by an overwhelming vote of 95-5. The issue is finally being debated in the House, and is expected for a vote on Friday, June 24.

Some ask: Why bother? Doesn't our patent system work well?

Actually, real problems exist. An Associated Press report, for example, noted "that it takes an average of three years to get a patent approved and that the agency has a backlog of 1.2 million pending patents, including more than 700,000 that haven't reached an examiner's desk." Part of the problem here is that revenues from patent fees can be drained off by Congress to be spent elsewhere.

The funding issue remains a point of contention and debate. Patent fee revenues should be left with the Patent and Trademark Office, used to hopefully accelerate and improve the process. But how the funding question eventually gets answered in the House, at this point, remains an open question.

Another key area of reform is the U.S. "first-to-invent" system of granting patents. This not only is out of sync with all other patenting nations on the face of the planet, which creates problems for inventors and businesses in the international marketplace, but also is a complex and costly system to navigate. AP noted, "The PTO says it costs $400,000-$500,000 to pursue an interference proceeding, claiming the right to a patent based on an earlier invention."

A shift to a "first-inventor-to-file" system aligns the U.S. system with the rest of the world, creates greater certainty for patents, and amounts to a far simpler and more transparent system that would reduce costs in the rare cases when conflict exists over who has the right to a patent. By moving to a first-inventor-to-file system, small firms will in no way be disadvantaged, as some claim, while opportunities in international markets will expand.

Make no mistake, improving the patent system is particularly important for small enterprises. As the Congressional Research Service has reported: "Several studies commissioned by U.S. federal agencies have concluded that individuals and small entities constitute a significant source of innovative products and services. Studies have also indicated that entrepreneurs and small, innovative firms rely more heavily upon the patent system than larger enterprises."

The U.S. leads the world in entrepreneurship and innovation. The protection of intellectual property - including patents - plays a critical role in this global economic leadership. House Judiciary Committee Chairman Lamar Smith (R-TX), the primary sponsor of the House patent reform bill (America Invents Act, H.R. 1249), correctly observed: "Technological innovation from America's intellectual property is linked to three-quarters of our economic growth. American IP industries account for over half of all U.S. exports and provide millions of Americans with well-paying jobs."

Patent reform is needed to clarify and simplify the system; to properly protect legitimate patents; and to reduce costs in the system, including when it comes to litigation and the international marketplace. That, of course, would aid small businesses and the overall economy tremendously.


Raymond J. Keating serves as chief economist for the Small Business & Entrepreneurship Council.

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