Small Business

Patent Reform: First to File Isn't as Bad for Startups as You Think

By Elise Craig

Updated on: April 1, 2011 / 12:37 PM EDT / MoneyWatch

The patent reform bill that Rep. Lamar Smith (R-Texas) dropped in the House of Representatives yesterday looks strikingly similar to the version the Senate passed on March 8 -- including the controversial first-to-file provision, which would award a patent to the first person to get the paperwork in instead of the original inventor. Small tech companies and trade associations have argued that such a move would make it too easy for big companies with more resources to steal the rights to inventions from small shops. It would basically kill all American innovation, they say. Hardly. First to file isn't nearly as bad as it seems.

As David J. Kappos, director of the U.S. Patent and Trademark Office, testified before a House committee yesterday, first to file is a far less subjective system than first to invent, and it's also the system that the rest of the world uses. Getting in line with the regulations used in the rest of the industrialized world would help "support U.S. innovators seeking to market their products and services in other countries," Kappos said. The change could be a big help for small- and medium-sized U.S. businesses to increase their exports -- a move the government has been pushing for -- and prevent companies from moving operations abroad to seek better legal protections under foreign systems.

What's more, even though contrarians have argued that first to file slights the little guy, Kappos makes a pretty good argument that first to invent almost never favors independent inventors. Think about it. First to file is a cut and dried rule. First to invent can be much harder to prove, often involving legal action and costly lawyer fees -- an average of $400,000-$500,000 -- before any sort of appeal -- something that smaller firms can't afford. Even a midsize company has a lot more legal muscle than a garage inventor or a self-funded startup, not to mention giants like Google or Intel. Meanwhile, under the new system, a provisional application to get first-to-file status costs a mere $110.

Even if smaller companies can scrape together the money to fight for first-to-invent status, few end up winning their cases. "In the past seven years, of over three million applications filed, only 25 patents were granted to small entities that were the second inventor to file but were able to prove they were first to invent," he testified. "Of those 25, only one patent was granted to an individual inventor." To break it down, over the last 7 years, only one inventor out of a stack of 3 million patent applications filed would have had a different response to her application.

Though first to file will be point of contention in the House debate -- Rep. Mel Watt (D-N.C.) has already questioned the change -- lawmakers and business interests alike should worry less about first to file and more about how effectively the overhaul is going to address the U.S.P.T.O.'s major backlog -- there are 700,000 patent applications awaiting approval and inventors can expect a three-year wait before getting approved. The PTO doesn't even have enough office space -- about 2,000 of its 6,000 officers have to work from home. The new legislation addresses those problems, giving the agency increased power over its own fees in an effort to speed up the process. Let's hope it's enough.

What do you think?

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