American Innovators Lose Big in Newly Passed Patent Bill

9/9/11

American innovation lost big again as the U.S. Senate passed “patent reform” and caved to big business lobbyists at the expense of true innovators in small companies and universities. Bottom line: America has dominated innovation in the world for 100 years based on our patent system and protection of risk-takers. Innovation is the one thing we still dominate in the world economy. It is our job engine. The first rule of governing should apply here: If it aint broke don’t “fix” it.

The sponsors, Senator Patrick Leahy of Vermont and Representative Lamar Smith of Texas, worked extremely hard and were well-meaning, but the big lobbyists hijacked the process. The bill was conceived to solve the problem of truly frivolous lawsuits in the technology and banking industries. That problem was solved in five minutes, and then the big companies got ahold of the Bill and added all their bells and whistles and it passed based on sheer inertia. Few in Congress like this law, but they went along because big companies have more power than true innovators. Many will cheer it just to suck up to their representatives. Not me. Few, like Senator Maria Cantwell of Washington state, had the courage to call the bill what it is and that it “tramples the rights of small inventors.”

We gave some real competitive advantage to Europe and China with our “first-to-file” from first to invent. Now big companies and foreign firms with fleets of patent lawyers can “scoop” university professors and independent inventors by filing first. Our national investment in research and development has been devalued.

A lot of the reform was driven by the fat and happy tech companies like Intel, Cisco, Google and large New York banks. I call them the “infringers lobby” because their overt goal is to use their market power to steal other’s ideas without paying. That is what this bill does with its business methods section and also the new “post grant review” provisions.

These poor companies, most with market caps over $100 billion, whine loudly about how they are being harassed by the little guy. Never a larger load of horse manure have I heard in my 25 years of starting companies. They have forgotten their roots as venture capital-funded companies who relied on patents to get their funding in the first place. Now that they are less innovative, bloated bureaucracies, they want to repress the innovations of the little guy.

These technology companies and big pharmaceutical companies and others will use the new post-grant review clause to slow the patent process down, and to bleed small companies dry. It happens now, and will be much worse in the future, by big companies filing objections to the true innovations over and over, drying up small inventors’ ability to raise capital.

We have inadvertently put another nail in the coffin of American competitiveness. Our future, and the only way we can compete with China, is our unique ability to invent. It is the core American ideal. We can find our way out of any problem, and the little guy, be he Henry Ford, Thomas Edison, Alexander Graham Bell, Steve Jobs, Jonas Salk, or Gordon Moore, can dream big and invent new industries. All protected in their infancy by a strong patent system.

Not a single job will be created by this bill. Just happy smiles from big oil, big tech, and big pharma, lawyers and lobbyists, and with downright glee in China and the EU.

The most alarming fact is this law is just part of an even larger assault on innovation in the USA. Everywhere you turn, there is less capital available, higher taxes proposed on small business investors, more regulations on IPO companies and investors, an FDA gone wild, and crazy immigration and border policies that drive the best and brightest from our shores. The talk in Washington seems to be all about innovation saving us, and the policies seem to be all about killing it.

Robert Nelsen is a co-founder and a Managing Director of ARCH Venture Partners. He focuses on biotechnology, pharmaceuticals, and nanotechnology. Follow @

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  • Chris Miller

    As an independent inventor, I couldn’t agree more. Writing to my representatives on this bill resulted in generalized form letter responses or no response, they didn’t even have a category to fit it in. All this shows that despite giving lip service to innovation, so few really understand the nature of creativity and how to protect it.
    One beacon of hope lies in the Supreme Court, as there have been murmurs that this “first to file” concept may be unconstitutional. Regardless, a new bill should be introduced down the road, one that would effectively restore “first to invent”.

  • Philip Skinner

    I couldn’t disagree more with the concept that First to File will somehow stifle innovation, in fact I believe the opposite. It removes the whole requirement to waste time and resources on documenting and verifying time of invention, which is generally done incredibly poorly by small inventors. It also favors the more nimble small inventors and organizations who have less bureaucracy to overcome before filing. It removes the risk of lawsuits on the small inventor by larger corporations.

    First to File has worked successfully through the rest of the world for years without stifling innovation there, or in the US that has had to respect those laws simultaneously.

    If Americans have a “unique ability to invent” then this is a good thing for them as it allows inventors to concentrate on actually inventing and not on dealing with all the red tape to properly verify their invention dates.

  • http://www.lymanbiopharma.com Stewart Lyman

    One minor point. I’m not quite sure how Jonas Salk became lumped in with the other innovators, as all accounts I have read indicate that Salk famously refused to patent the polio vaccine. When asked in a TV interview who owned the patent to the vaccine, he is quoted as replying “There is no patent. Could you patent the sun?” He also didn’t invent the vaccine industry, as there were many of these in use before his polio vaccine. Perhaps you were simply referring to general industries, not the individuals themselves, and the fact that they make use of patents?

    It was also interesting to note that BIO, the trade and lobbying organization that supposedly represents the economic interests of the industry that you invest in, came out today applauding the passage of the patent reform bill. This would suggest that their interests are not aligned with the smaller companies that you speak of in your article.

  • http://www.archventure.com Robert Nelsen

    Philip, I respectfully disagree. I have seen many many times, large companies get wind of an invention from a university scientist at a conference, and put a bunch of folks on it, and file before the actual inventor files. These can be critical, industry creating inventions and just the knowledge through the scientific grapevine that it can be done gives the company the edge. First to file violates the fundamental fairness and respect for the individual that the US is based on and is likely not constitutional. We have done 150 start-ups, and only in one case or two has large corporate innovation trumped the university/start-up combination. As to other countries innovating, it is clear for the big stuff that matters that probably 90% of it happens in the USA even still.

    Stewart is correct in the Salk, although an innovator had times when he was anti-patent. A rare example. Should his invention happen today with no patent, many would be dead from polio given no one would invest the billion dollars it takes to make a drug, given the ridiculous bars the FDA sets. Since the government has yet to make a drug, the private sector and private investment in patents still drives the system.

    Re BIO’s response, you will have to ask them. They are a very good group of folks. I dont know many small biotech companies that think the idea of giving big companies more ways to challenge patents is good for innovation. Could it be that BIO, whose board is made of of larger companies in the industry, has other things to talk to the politicians about and is making a political calculation? (healthcare reform, FDA reform, etc.) You can make the call.

  • Daniel

    In fact, the patent office has already analyzed extant patents and case law and decided that the impact to small inventors would be negligible.

  • Robert Nelsen

    Daniel, although I appreciate the PTO, (and interestingly off the record, many of them would not prefer this bill to pass) I dont care what their analysis is–they have no domain expertise in the value of patents in the market, the relative value of patents that are fundamental, or the relationships between patents and corporate partners. Its the game theory between big and small companies that is impacted. That is what I do all day, 7 days a week for 25 years, and every VC I know save a few billionaires who have checked out, and some IT VC’s in the Valley who have forgotten what the whole Valley is based on, basically agree that this bill sucks and hurts true innovators.

  • Jake Schaible

    Bob, I agree with you that our Congress has given great lip service to innovation, only to do just as much to stifle it. The annual budget raids of the USPTO user fees is a classic example.

    And count me among those who are “pro-troll”.

    But having long slaved in the business development fields of emerging biotechs and startups, I feel a “post grant review” akin to the EPO opposition process is an idea who’s time has come. One of the major challenges of getting VC groups like yours to consider an investment – or for a pharma co to pay top dollar for a license deal – is to have confidence in the IP behind an invention. Sure, the opposition process may add some costs, but such costs are small compared to the past and future investments in the research and development. This opposition process provides an accelerated path to additional clarity that a claim in a patent has a higher probability of validity or is rubbish. Also we have all seen issued patents that are not worth the paper they are printed on… but it can take years to formulate such an opinion … and more years to get the marketplace to agree to your position. In the US, we lacked a process to proactively and routinely challenge such IP that may appear to block freedom to operate. The EPO opposition process is already a well known and commonly used tactic by all skilled patent practitioners. And sure the US process will have some nuances. But in general, I just don’t see it being that much of an added burden when also implemented here.

  • Les Fritzemeier

    I agree with the author 100%. As an inventor, innovator and entrepreneur, we constantly make decisions on how to spend scarce capital. Inventions are often shelved or filed as provisionals as we develop additional data to determine whether the idea has commercial value. First to file means a small business MUST rush everything to file and spend dollars that could alternatively be used to push the state of the art faster. The decision on whether to patent has just become much harder and innovation will suffer in small businesses as a result.

    With regard to foreign first to file. The U.S. remains the undisputed innovation leader worldwide. I cannot prove whether our patent system has enabled this condition or it is just a correlation, but why jeopardize continued success?

  • ckaspereli

    Does anybody recall the name the name of the inventer of the TV? Or the LASER? Or critical components of radio or AC electricity? These are just some of the cornerstones of modern civilization and all invented by individuals that were forced to battle large corporations in the courts. This is just the tip of the patent iceberg however. Most died broke and bitter and anonymous. Looks like we’ve got more of the same to look forward to in the years ahead.

  • Brian Horsburgh

    I agree with the author that the change from first to invent to first to file will be detrimental to US innovation. I have spent many years investing in start ups in both the US and UK and can comment on the differences relating to patents generated from the university base. In the UK, I often see patents that have been filed too early (got to publish and don’t want to be scooped) and as a result the patents don’t always have sufficient data to exemplify the claims. This makes commercialization much more challenging.

  • Carl Weissman

    A few of you have read things I have written on this site, so none will be surprised that I have this to say:

    Bob is so close to completely correct it is painful; but,

    a patent is neither an exclusive grant nor an admission of invention. A patent is Title and Deed to your own property. And it became your own property the minute that YOU invented it. Not when you filed for you Title and Deed.

    Now, it is not something crazy like, “I found a diamond/gene/protein so all things like it are mine.” It is that the product of my intellect, narrowly interpreted by the PTO, belongs to me and me only – I have no need to license it from any government.

    I do not understand how the product of your own intellect, your most precious property, is ownable only in a limited sense and only for a limited time. It is illogical and unethical.

    This patent reform has gone exactly the wrong direction, and Bob had the courage to point it out.

    Just think…the next time you think up something novel and inventive, if I can patent ahead of you and prevent you from doing what you intended. Until you are in that spot, you should not be considered qualified to comment on this change.

  • Jake Schaible

    Carl is on the right track with his comment; “I do not understand how the product of your own intellect, your most precious property, is ownable only in a limited sense and only for a limited time.”

    In my humble opinion, the US innovation community needs to focus any disappointments with this bill productively – towards seeking gains in the duration of exclusivity. Yes, this topic may be broader than the scope of the current bill, which aims towards global harmonization of the patent process. But there is no time like the present to spark the genesis of the next chapter in this story.

    Our leaders frequently lament that fewer and fewer kids seek careers in science & engineering, and rather yearn for the siren call in music, movies, webpages and even sport. But the reason is clear… its the incentives.

    Write a song or a book, and under the Berne Convention one automatically is granted an exclusive copyright for at least 50 years after the author’s death.

    But as we all know, exclusivity of an issued patent is generally just 20 yrs from filing, and requires an extensive barriers to get that patent issued. In drug development, this limited duration now means the median new drug never creates a return that allows even a recovery the median investment to get to the market.

    In the drug R&D space, we often hear that “the model is broken”. The evidence includes the rise of astronomical pricing on new orphan market medicines and the mass exit by pharma from the primary care markets.

    And yet fundamentally, I disagree.

    The drug R&D model is not broken… but clearly, the incentive in this space supported primarily by patent exclusivity has not kept up with the ever rising costs and risks.

    At the risk of going way off topic, maybe help for life sciences can be found in what is working; the copyright space. The concept of enforcing copyrights on research studies used commercially may be worth exploring. Perhaps in the form of using the copyright “fair use” doctrine to create a compulsory licensing program for generics when research of the innovator is referenced in support an ANDA.

  • Linden Rhoads

    Bob, as our office assesses the implications of the bill on our efforts to spin innovation out of $1.5B in mostly federally funded research, we don’t see anything good. This is painful. And it will be expensive.

    Linden Rhoads
    UW Center for Commercialization

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  • Dr.A.Jagadeesh

    I differ from your views Mr.Robert Nelsen. The new patent bill will be a boon to inventors to patent their inventions.Even outsiders from US will benefit by the new patent bill.

    Dr.A.Jagadeesh Nellore(AP),India
    E-mail: anumakonda.jagadeesh@gmail.com

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