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What The New Patent Reform Act Means For Innovation

President Obama is expected, without delay, to sign into law the first large-scale reform to U.S. patent laws in 60 years. It brings U.S. law into line with most international practices, and is designed to quash patent trolling, cut red tape, and spur innovation.

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Late last night the Senate voted 89-9 to pass the America Invents Act that would radically reshape patent laws, and President Obama is expected to sign it without delay. It's the first such significant bill in 60 years, and it has one key component: It moves the onus from merely "inventing" a patentable idea first to becoming the person who actually files for an innovation first.

If the subtlely of this eludes you, then here's what the big hopes are for the act: By making this structural change about who gets assigned a patent, U.S. law will line up better with international law (which may simplify global-scale IP problems). It may simplify red tape, let the USPTO tackle a massive backlog of patent applications that're snarled in existing red tape, and it could disable a class of patent troll who documents an idea but never applies for a patent until someone else does, replicating their invention.

Whew. Okay, before we explore that in greater depth, some quick backstory.

A patent represents a legal line in the sand that says "I own this" after an inventor innovates a new object, process, or design. Patents are there, in many ways, to protect the rights of the inventor to make a profit from their inventions, and to stop a competitor with better funding (but less original thinking) from quickly taking the idea to market. Current U.S. law works very much like this, with the emphasis on "first to invent" or otherwise demonstrate an innovation, thus "bookmarking" the idea, and giving a window for the inventor to get a creative business plan in action to bring the innovation into reality.

But "first to invent" has some big pitfalls, including the ability of an inventor to totally gut the hopes of someone else with a similar or identical idea, and who then files for a patent—because the original inventor, without necessarily having to make any move toward realizing the innovation, can claim they invented it. A complex legal battle may then ensue, and perhaps the second filer may choose to settle privately, license the idea, or fight the situation in an expensive court case.

This trolling completely destroys the idea that a successful new thing is built on 1% inspiration and 99% perspiration—a troll, perhaps even a rich troll who's made money from previous innovations they've dreamed up (or, more materialistically, bought from someone), can simply keep the legal upper hand by saying they're the real innovator without actually building anything.

In the newly reformed laws under the AI Act, the legal ownership of a patent is conferred on the entity that's the first to file for the innovation. Since this costs money, an inventor has more of an incentive, after having a radical idea, to file a patent and then try to turn it into something that can earn revenue. Whereas the inventor who merely dreams up a neat idea but does nothing with it has less recourse to cry foul at a later date. The idea is to stimulate more geniune innovation, and prevent too much money and time being wasted in court cases that in no way advance the state of technology or the revenue-earning potential of the U.S. Supporters have claimed the reduced red tape and boosted innovation could create up to 200,000 jobs.

IBM, among others, has already responded to the news positively—as one of the biggest, most numerous patenters in action at the moment, it's a key stakeholder. The company notes that it's long been a proponent of reform, and applauds the "common sense" bill and thinks the law places the country in a position to "spur innovation and economic growth." It's worth noting that IBM seems to patent more ideas than anyone else, and thus the law to some extent protects its position against "first to invent" claims, rather than facilitating IBM's own patenting processes (apart from reducing complications).

The bill is also unlikely to impact ongoing disputes between giant firms like Samsung and Apple, or the recent acquisition of Motorola's patent portfolio by Google—in these cases it's not necessarily the vailidity of the patent that's being questioned (though in the Apple case Samsung is trying to devalue Apple's design patent on the iPad by claiming, bizarrely, prior art exists in the form of a movie prop from Kubrick's 2001 movie) but rather that a peer is violating a patent that's been granted to protect a genuine innovation. 

Meanwhile, individual inventors and smaller companies are wary of the reform, because their smaller assets may make filing a patent and paying for it a more difficult process, even if they're innovative enough to have come up with a thoroughly novel idea. One can argue that this enables a new angle for venture capitalists to get in to smaller companies, with micro investments on the hope that a novel patent could turn into a serious income-earner, but there are still many detractors to the bill.

Ultimately the AI Act does reform U.S. patent law, and at least will radically shake up the entire system of innovation, IP protection, and IP legal cases—and it may prevent certain classes of patent troll. It may unsettle smaller innovators, and at first it may even spur a flurry of new lawsuits as interested parties see an opportunity to make money from the new rulings. And it won't affect many of the larger-scale extant cases, which will just roll on for years earning lawyers some serious cash. 

Chat about this news with Kit Eaton on Twitter and Fast Company too.

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