Patent reform: What startups need to know

Patent reform: What startups need to know (guest post)

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Courtesy | Wolf, Greenfield & Sacks

Steve Henry is a shareholder in the intellectual property law firm of Wolf, Greenfield & Sacks P.C. in Boston.

Steven J. Henry, Wolf, Greenfield & Sacks P.C.

Signed into law on Sept. 16, the America Invents Act introduced the most significant changes to the U.S. patent system since 1952. The U.S. Patent and Trademark Office is now readying 10 proposals for rules to implement the act, which could have a significant impact on small businesses — including startups.

The U.S. long has been unique in granting a patent to the first person or first group to make an invention (when two or more parties concurrently file applications). Other countries give the patent to the first party to file.

Determining the first inventor requires a patent office litigation called an "interference," which sometimes takes many years and costs hundreds of thousands of dollars — and results in the first filer declared the inventor around 80 percent of the time.

Effective March 2013, the first inventor to file will be entitled to the patent — unless that first applicant "derived" the invention from a later applicant (which will require a proceeding similar to an interference, but much rarer).

For startups, the fear of costly and protracted interference proceedings should fade. But in its place, startups will likely face increased pressure to file as early as possible, to avoid loss of novelty from another's public disclosure.

Startups may also need to place increased emphasis on strong non-disclosure agreements and documenting their disclosures to others. If the other party makes a public disclosure or files a patent application, the inventor can assert there was derivation and the public disclosure is protected by the inventor's personal one-year grace period, which was not eliminated.

Another major change involves new proceedings for challenging issued patents.

As challengers, startups will generally find the patent office cheaper than federal court litigation. But as patent holders defending a challenge, they may find new difficulties because the patent office is more likely than a court to declare a patented invention obvious.

Because of this, accused infringers, licensees and others may drag patent holders back to the patent office even more frequently than now — even serially — one after another. In Europe and Japan, with somewhat similar systems to this, large companies use these proceedings to tie up a small patent owner for years (wearing down the patent owner's will to fight).

A small business with a potentially significant patent thus may face even higher hurdles to enforcement and licensing, as well as difficulties finding investors.

There may also be fewer contingent fee lawyers taking on infringement litigation for startups because of the additional patent office battles now likely.

Some have speculated the America Invents Act may prompt more trade secret use for all size companies, at least for certain inventions. Startups thus need to educate themselves and adapt their patent strategies as experience is gained with this law.