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Senate Takes Up Controversial Patent Legislation

February 28, 2011 - by Donny Shaw

The Senate has begun debating a bill that would fundamentally alter an important area of U.S. intellectual property laws, and it’s pitting small businesses and independent inventors against a broad coalition of powerful interests like drug companies, big software companies and some unions. The bill, known as the Patent Reform Act of 2011, would amend several areas of patent law, the most significant of which would be a change from the current application system that awards patents to the fist person to invent something to a new system that would award a patent to the first person to file an application.

This proposed first-to-file system is supported by the Obama Administration, most members of Congress from both parties, and dozens of major corporations. Big multi-nationals have been pushing it for years because it would make it easier for them to secure patents in multiple countries, including the U.S., at the same time. The U.S. is currently the only industrialized nation to not use a first-to-file system. This bill, they say, would harmonize the U.S. system with the rest of the world.

Recently, the bill’s supporters have begun using the jobs crisis to argue their case. They argue that another provision in the bill that would let the patent office retain more of the application fees for hiring personnel to cut down on the patent backlog would give companies the shot in the arm that they need ti start hiring again. “If we get patent reform legislation done and the USPTO is set free, deficit neutral, to go attack that backlog and put patents out so that Americans can create jobs, I believe that you are going to see at least hundreds of thousands and, over a period of years, literally millions of jobs created,” patent and trademark office Director David Kappos told Fox News recently. And Judiciary Committee Chairman Pat Leahy [D, VT] told The Hill that he is convinced the backlog contains the application for “the next great invention.”

But some other sectors that do a lot of job creating think the bill is unfairly tilted towards big, established corporations. Last week, nine organizations representing small businesses, start-up entrepreneurs, independent inventors, and technical professionals wrote to the Senate to express their opposition to the bill. In the letter they wrote…

The “first inventor to file” section of the bill has unique adverse effects on small business, startup entrepreneurs, independent inventors, and U.S.-based technical professionals. It disrupts the unique American start-up ecosystem that has led to America’s standing as the global innovation leader—the ecosystem that is vital to our businesses, but with which large firms have less expertise. Within the “first to file” section, the change to the filing grace period disadvantages small companies and independent inventors in favor of larger firms—the bill disadvantages companies that must seek outside financing and strategic partners, in favor of firms that can arrange all of their investment, testing, manufacturing, and marketing internally.

The bill favors multinational and foreign firms over start-up firms seeking an initial foothold in U.S. domestic markets, and favors market incumbents over new entrants with disruptive new technologies. Because S. 23 removes the option to delay patent expenses, the bill advantages established companies, and disadvantages start-ups that must seek and carefully shepherd their capital. S. 23 reduces current advantages for U.S. inventors and employees, and thus increases incentives for off-shoring jobs. S. 23 changes the rules to favor global companies, against the start-up business model that utilizes the American grace period.

So far, the bill seems to be sailing through the legislative process with ease. It passed the Judiciary Committee on February 3 by a vote of 15-0, indicating that the vote in the Senate will be strong and bipartisan as well. If you’re wondering why it’s doing so well despite the strong reservations of the entrepreneurial community, take a look at the money behind the bill. The industries that support the bill have dramatically outspent those that oppose it. For example, Senate Majority Leader Harry Reid [D, NV] has taken $2.25 million from the bill’s supporters over the years. He’s received far less — at least less than $162,000 — from the bill’s opponents.

The New York Times today reported that conservative activist Phyllis Schlafly has been working to get groups like the Christian Coalition and Gun Owners of America to actively fight the bill, so it’s possible that they could turn Republican freshmen against it by the time it hits the House. However, our original research at OC has found that the first-term Republicans have been very reliable votes for the Republican leadership so far this session, so I wouldn’t place any bets.

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