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Big Business Tries to Knock Out Startups through Special Patent Rules

According to a former appeals court chief judge, some provisions of patent reform in the Senate favor banks and high tech companies at the expense of start-ups. And, apparently, some of the biggest financial services companies aren't happy that word is getting around.

Former Chief Judge Paul Michel of the U.S. Court of Appeals for the Federal Circuit, the appeals court that hears patent cases, isn't a fan of the patent reform bills in either the House or the Senate. The House bill's flaw, he thinks, is that the U.S. Patent and Trademark Office wouldn't get access to all the fees it collects, which it uses to operate. For years, Congress diverted money from the fees to subsidize other areas of spending:

For a decade, lack of funding caused intolerable delays that grew steadily worse. Inventors must now wait three years, on average, and often longer.
But what eventually set off financial services were Michel's remarks about the Senate version and provisions that he says would add unnecessarily delay to the patent process:
In addition these same provisions serve narrow special interests of a few industries at the expense of all others. And, they do so based not on demonstrated need, but on massive lobbying power exerted primarily by a dozen big banks and investment houses on Wall Street and a dozen giant IT companies in Silicon Valley.
Here are some examples of ways in which these provisions could favor large companies:
  • For four years, small companies would not be able to challenge business method patents -- one of the most controversial around, because they effectively protect ideas for new services, particularly in financial services -- of large companies unless the giants had sued them. That would make it increasingly risky for start-ups to enter areas where the big companies were established because they couldn't challenge the patents until they were sued, at which point they probably couldn't afford to defend themselves.
  • Section 18 is specifically limited to patents for financial products or services, which means one industry gets an entire section of the law all for itself. (It's caused some patent watchers to ask if banks have bought patent reform amendments.
  • Section 5 would expand the ability of companies to claim prior usage rights. If charged with patent infringement, they could avoid prosecution by showing that they had previous practiced what the patent describes, only kept it as a trade secret. It makes a patent easier to ignore, especially for large companies with wide ranging R&D.
  • The bill invalidates all tax strategy patents through section 14, even if legally granted. Large companies benefit by not needing permission to implement any tactics they come across.
What caused the spit to hit the public fan was when Harold Wegner, a partner with law firm Foley & Lardner, circulated some of Michel's remarks in an email. The Financial Services Roundtable, which represents huge financial services companies, said that the action was a betrayal of the firm's clients.

In retrospect, the uproar is simple. The more public attention the special provisions get, the greater a chance that they'll be watered down.

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Image: Flickr user Todd Klassy, CC 2.0.
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