Patent Reform: Serious implications for enterpreneurs and innovative businesses

On September 16, 2011, President Obama signed into law the Leahy-Smith America Invents Act. This new piece of legislation is undisputedly the most comprehensive overhaul to our nation's patent system in nearly six decades.

The new law aims to spur innovation nationally by improving patent quality and predictability, and to harmonize U.S. patent law with foreign countries. This patent reform ushers in considerable changes in how patents will be obtained and enforced. As local businesses and entrepreneurs continue to invent in our area, being aware of the effects of this new law will be key to maintaining a competitive edge.

Pieces of this legislation will go into effect at various times during the next 18 months. Here are some of the most significant changes in the new law – as well as a look at the impact those changes will have on sole inventors and small businesses in our community:

First to File

Arguably, the most fundamental change the new law provides is a shift from a first-to-invent system to a first-to-file system. Until this change, patents were granted to the first person to invent. This change attempts to eliminate the complex inquiry of determining the date of invention when disputes arise. The first-to-file system sets a clearer standard, granting patents to the first inventor to file their application with the United States Patent and Trademark Office (USPTO).

The new system will maintain a one-year grace period for inventors who disclose their invention in publications before they file. Practically, this will protect inventors from forfeiting potential patent rights by publishing aspects of their invention within a year prior to filing an application. However, it is still not good practice to publish before filing, as another person may file or publish during your grace period, making it difficult or impossible to prove your invention's novelty. Ultimately, this will put the U.S. patent system in closer conformity with the rest of the world; the U.S. has been the only remaining country with a first-to-invent standard.

Although implementation of this system will not officially take effect until March 16, 2013, it is important for inventors and businesses to start reconsidering their filing strategies.

Clearly, the first-to-file system encourages the filing of applications as soon as possible. For smaller applicants, this means that spending time raising funds or shopping for licensees before filing creates a risk of losing priority to an earlier-filed application.

A provisional patent application is an effective and relatively inexpensive means to secure an early filing date and buy one year's time to conduct some of these start-up activities. Provisional applications have fewer formalities and are not substantively examined upon filing. However, it is very important to be inclusive and detailed in a provisional application, as later applications must rely wholly on the information therein to benefit from the early filing date.

Micro Entity

The most beneficial change the new law provides for small businesses is the creation of the "micro entity" class of applicants. Currently, there is a "small entity" classification, which provides a 50-percent reduction for certain fees. To qualify for a "small entity" reduction, an inventor may either refrain from assigning the patent application to a business or the inventor's business must have fewer than 500 employees or be a nonprofit organization.

The "micro entity" classification provides a 75-percent reduction in fees for applicants. The new law defines a "micro entity" as an applicant who: 1) qualifies as a small entity, as explained above, 2) has not been named as an inventor on more than four previously filed patent applications, other than provisional applications or international application, 3) did not have a gross income, as defined by the IRS, exceeding three times the median household income for the preceding year, and 4) has not assigned, granted, or conveyed, and is not under an obligation by contract or law to assign, grant, or convey, a license or other ownership interest in the application to an entity that had a gross income exceeding three times the median household income for the preceding year. The law also carves out an exception to allow universities and other institutions of higher education to fall under this classification.

The "micro entity" discount will apply to most patent office fees, and will likely be implemented by the USPTO within the next year. In general, over the life of a patent, a 75 percent reduction from normal fees will equate to a savings of roughly $7,500. This new discount is highly anticipated, given the 15 percent fee surcharge that was also implemented by this law.

The new law contains many other changes to the patent system, some nuanced and others having more broad consequences for patent applicants and owners.

Overall, the America Invents Act provides real benefits to small business, but at the same time will likely cause some increased financial burden. The full effect of the new law will not be known until all its provisions are implemented and observed over the next few years. Certainly, creative and motivated entrepreneurs will take advantage of the benefits this new law provides.

Cummings is a licensed patent attorney and an associate attorney at Zimmerman, Kuhn, Darling, Boyd and Quandt, PLC.