The following is a guest post by Mobile Guru.

After six years in limbo and significant changes from past years proposed patent reform legislation, the Patent Reform Act of 2011 is going to get hotly debated as it was approved by the Senate Judiciary committee on February 3rd and is currently on it’s way to the Senate. What’s interesting to see is who has lined up on each side of the argument for reform and why. Keep in mind even if the bill survives and stays somewhat intact as it makes it’s way through the Senate, it still must be approved by the House. Let’s take a look at what are some of the key items being proposed. Click here for link.

As you review the list of subjects, it’s also interesting to see some of the unique areas being addressed that were obvious deal makers needed to get all sides to agree.  It’s interesting that there are 17 topics and 16 people on the committee, and it was approved 15-0, to send to the Senate with one abstention. Just a coincidence I’m sure.

From my standpoint, there are two areas that are of most interest to companies who have a lot of Intellectual Property “IP” being filed. The first being the requested change in the first to file vs first to invent portion of the bill. Today in the United States being the first to the patent office to file your patent does not necessarily mean you will be the first one to eventually get awarded a valid patent. If you come in and file after someone else, but can prove you disclosed the invention anywhere up to a year prior, you can get the patent awarded to your company based on the disclosure being prior art. This is unique from any other patent system in the world which follows the first to file procedure.

Why do companies disclose but not file?

In some cases, it’s to expand the scope of the current invention and make it as broad as possible prior to filing. Many companies also don’t want to let other companies know what areas they are working in and want to keep research under wraps until they’re ready to submit the entire package. I believe large companies with vast armies of engineers developing IP will have an advantage. There also will be a much lower quality but much higher volume of IP submitted as inventors rush to get filed before competitors. Small companies will get over burdened with more submitters of less value that take a lot of time to get through or risk the chance of not getting filed. The real winners will be the companies such as Google (GOOG), Apple (AAPL), Qualcomm (QCOM) and Microsoft (MSFT) who have the infrastructure to generate extreme amounts of IP per year.

The second area that may be significant going forward is in the area of challenging newly issued patents. As with any organization that is government run, the USPTO is under pressure approve/refuse patents in a certain time frame and under the current structure and backlog it’s approximately three years. There are going to be patents that get approved, yet probably should not have. What is being proposed is the ability to try and invalidate an approved patent in a much faster process where both parties have an opportunity to prove their side of the argument. In terms of what evidence would be allowed, only prior publications or prior art would be utilized. This post grant review system, recently highlighted by Microsoft, is typical of patent practices from elsewhere in the world–particularly Europe. Microsoft claims this system is effective at “invalidating weak patents that didn’t deserve to be granted.” This is of special note given Microsoft’s upcoming Supreme Court hearing over its request for a reexamination of i4i’s patent of XML technology. The request had previously been denied twice by lower courts following Microsoft’s attempts at invalidating the patent.

Where is the line in the sand in this debate?

The Biotechnology Industry Organization, the National Association of Manufacturers, National Venture Capital Association, and the Association of American Universities are among those who support passage of the legislation in its current form. BIO represents more than 1,100 biotechnology companies including Johnson and Johnson (JNJ), Pfizer (PFE) and Merck (MRK) which should come as no surprise since the bill also covers areas of limiting potential damages resulting from litigation.

Two other supporters of the bill are Microsoft and IBM but a group representing fourteen technology companies that include some of the biggest names in Silicon Valley — such as Apple, Google, Cisco, Intel and Symantec issued a statement Thursday saying that the senate judiciary bill still needs a lot of work. These companies are all part of a group called the Coalition for Patent Fairness which is a diverse group of companies and industry associations dedicated to enhancing U.S. innovation, job creation, and competitiveness in the global market by modernizing and strengthening our nation’s patent system. Coalition for Patent Fairness members include Adobe, Apple, Autodesk, Cisco, Dell, Google, Intel, Intuit, Micron, Oracle, RIM, SAP, Symantec, Verizon.

In the long run I’m sure the bill will have many changes and compromises if it is every going to get through the Senate and the House. I think the winners are going to be the companies that have the ability to generate large amounts of IP that they can file for first. Additionally, companies that already own certain valuable patents may see their values increase as the burden to receive a patent on certain technologies will have increased. It may overburden the small inventor who cannot afford the cost or time to file IP that may not be very valuable in the long run, but needs to do it so they can get into the patent office first. In terms of job creation, it should create many jobs for patent attorneys. Regardless of what changes, the focus only further illustrates the more prevalent role IP is playing in changing the technology landscape.

I’m a long time investor with investment experience in high tech, biotechs and precious metals. I blog on topics that are of interest to me and my goal is to generate intelligent discussion. I don’t consider myself an expert in any one area, but continue to further my education as I believe it is a key to a productive life. You can connect with me at SeekingAlpha.

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7 Responses to “Patent Reform Act 2011: Winners and Losers”

  1. Gale Says:

    I found your discussion lucid and clear. As an avid investor (and lawyer) I try to dig down to keep up with what’s happening prior to and outside the media hype. You have provided good perspective here and made a link I believe vital to good investing-knowledge of policy vital to making reasoned and informed investment decisions. Thanks. Keep me posted.

  2. mobileguru Says:

    Gale,

    This is also an interesting site with a different view. I have to say I agree with a lot of it.

    http://truereform.piausa.org/

  3. Ray Says:

    Thanks for summarizing this information. I have an interview with the USPTO soon and this is some good background info to know.

    With the new system, the USPTO will definitely need to hire more examiners. Adding to the burden, technology is moving so quickly and new companies and innovations are sprouting, causing patents applications to flow into the PTO in larger numbers.

  4. Robert Syputa Says:

    Thanks for article.

    I agree with your review of proposed law but also think patent reform is needed to bring the US into consensus with the worldwide PTOs.

    Points are well taken: the USPTO has been short-changed in funding and this contributes to the burden on small companies and individuals who pursue filing on a shoestring compared to firms that have well oiled patent mill machinery. Unfortunately, under the circumstances, its unlikely that Congress will increase funding to a level that will remedy the situation.

  5. Doug Morgan Says:

    This Act is UNCONSTITUTIONAL because it provides a means for NON-INVENTORS to obtain a patent right out from under the INVENTOR. Congress is NOT permitted to pass a law as such by the consitition. Rather they are specifically tasked with:

    “[promiting] the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;”

    The offending language is in the oath section. It now indicates that a NON-INVENTOR can obtain a patent if the INVENTOR is under obligation to ASSIGN the invention. Being under the obligation to assign an invention or to obtain a patent are two totally different matters that the congress is NOT allowed to be involved in.

  6. Doug Morgan Says:

    The tax strategy prohibition leads me to belive the act was written by a certain legal firm whose silly worthless asses were kicked back to the stoneage by moi. Someone just paid the WPOS to spend 3 years trying to get the law changed to their liking. The fact is, when I proposed patenting the strategy, it was legal. They were wrong from the start and their cleint suffered.

  7. Mobile Guru Says:

    Doug,

    Excellent point. Its not small inventors creating this new bill but large companies with their own interests in mind. Maybe there will be PR2(patent reform 2).

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