Patent Reform by SupremeLord


									Creating the “Good Old Days”
     Via Patent Reform:
      First-to-File Issues
               by Gary Lauder

       US Patent Reform Forum 2012
    Panel: First-to-file system: Implications of a
            significant change in the law
              Washington, DC 3/27/12

• Spare mental cycles => multitasking
• Multitasking leads to poor retention
• Since this has to be short
• Speed talking solves all of above
• In lieu of taking notes, this PPT on my web site (Patents link) (URL shown
  again at end of this presentation)
• As Henry VIII said to his wives…
    – “Don’t worry. I won’t keep you long.”
• I’m a venture capitalist (Lauder Partners LLC)
  – Have invested over $300M in VC over past 26 yrs.
     • In > 75 companies and > 50 VC funds
• Not a lawyer
• Co-inventor on a dozen patents
• My Expertise: VC & tech entrepreneurship
  – The role that patents (issued & applied) play in that
• Studying patent reform for the past 5 years,
  …in my spare time. ≠ day job.
• I’m pretty horrified
                Impact of patents
• America became most innovative country
• Not all due to patents, but they helped a lot
• Technology entrepreneurship blossomed here
• 11% of private sector workforce employed by VC-
  backed co’s
• We invest 10X more VC & angel capital /capita than
  next best place: Europe
• But this has been waning over last decade
• AIA will be another nail in startups’ coffins
    – The ones that rely on patents (not all)
• Let’s look at a startup from long ago…
        Hewlett & Packard (HP)
• They exhibited first product at trade show
• Resulted in first order (from Disney)
• Key innovations concealed inside box
• Applied for patent after (w/in grace period) &
  were fine (old rule)
• New rule: trade show demo = “on-sale” or
  “public use,” so no patent issuable
• Worse: patent issues, but years later,
  invalidated in suit after discovery
• Trade shows = great place for entrepreneurs to
  get potential market and investors’ feedback
  – AIA: triggers both on-sale and/or public use
• If someone else likes the idea, that person can:
  – Fraudulently apply for a patent first
  – Write about it w/o attribution such that derivation
    can’t be proven
• Same phenomenon at angel investor meetings
• Startup inventors always going outside org for:
  – Financing, hiring, market research, manufacturing
  More FTF/Grace Period SNAFUs
• Contract manufacturing, even of prototypes
  – Can trigger “on-sale” bar to patent
  – Comes in many forms: foundry, laboratories, etc.
• = site to fund making stuff
  – Takes orders for products not yet created
• Publication grace irrelevant outside academia
  = Publish and perish
• Grace period more harsh than other countries’
• FTF gives giant cash register to hackers
  – Try to prove derivation from Chinese hackers!      7
             Investor Perspective
• Much more risk (if business needs patents)
   – Senate colloquy notwithstanding, I am legally advised to
     assume no practical grace period
   – Can’t tell if they tripped public-use or on-sale
   – Will have to file earlier & more often
   – Greater risk of someone stealing idea & patenting or just
     pre-emptive publishing
• Additional (often prohibitive) investments required
  for making non-public experimentation or in-house
  pilot production.
• Even if patent is validly issued, PGR can tie up
• Will shift investing to fewer patent-dependent
  companies/innovations                                          8
  Individual inventor share in U.S. and Canadian
  patent grants during Canada’s transition to FTF


                      25% decrease                       Canada

Upper graph is US. Lower is Canadian. Canada’s decreased by 27%.
 State of Canadian Venture Capital
Canadian Venture Capital Industry Review (2010):
“long-term returns in the Canadian venture
capital industry are such that capital has fled the
•At least we have slightly “harmonized“ w/them!

     The next best region for VC
• Europe 1/10th as much VC & angel inv/capita
• European study (2009): "Lost property: The
  European patent system and why it doesn't
• Last May, U.K.’s Small Medium-sized Entity
  Innovation Alliance letter to prime minister
  complaining that they “know only too well the
  failure of the patent system and have given up.”
• 2/11: EU declared an “innovation emergency”
• At least we are slightly more harmonized!!
      Sage opinion from on high
Chief Judge Rader & Pauline Newman, Circuit
Judge in Classen Immunotherapies v. Biogen:
“Europe lost innovation investment to the
United States. Our country became the world
leader in biotechnology innovation.
Nevertheless, the tide can turn against us, too.“

            Purpose of patents
• To encourage innovation among those who lack
  market power & adequate resources
• To do the above with the most justice & fairness
• Perfectly just system probably not possible
• Therefore society should choose to encourage
  innovators at the expense of incumbents
• Other countries subsidize start-ups…
  – Complete failure compared to our private sector inv.
• AIA seems to go in the other direction             13
• The next time you are in a hospital room w/
  dying loved one, think about the cures that
  might have been if our patent system had
  continued to deliver the right incentives
• Not all is lost: anything congress does,
  congress can undo … or the courts can
• Lets hope it happens in our lifetimes…
  – so our lifetimes can be extended and improved

  Thank you for your attention
              Gary Lauder
           Lauder Partners
            (650) 323-5700

        Many causes of decline
• Mostly self-inflicted wounds
• Harder to go public or be public
  – Sarbanes-Oxley
  – Accounting changes (e.g. options expensing)
• Slower FDA
• Patent office delays (average time about 4 yrs)
  – I have seen allowances after 7 & 8 years
• AIA will be another nail in startups’ coffins
  – The ones that rely on patents (not all)
  – Today’s passage of the JOBS Act helps … a bit   17
Commitments TO funds is leading indicator of funds flowing out to startups
Last 4 years is down by about 2.5X due to “small changes to ecosystem”
Example of startup “Best Practices” from
     invention to product launch

Current patent law is geared around innovators’ “best
practices” that focus scarce resources on minimizing total
development time and reducing technical risks
    Source: Ron D. Katznelson, SBA Presentation, (2010).
The loss of a grace period under the AIA forces
    costly deviations from “Best Practices”

Under the AIA, innovators will be required to spend scarce
financial resources on premature and more frequent
patenting, instead of advancing toward product development
   Source: Ron D. Katznelson, SBA Presentation, (2010).
IP and all Federal civil suits filed

USPTO total patent pendency

 Applications with priority dependent on filing date
are less mature and are more likely to be abandoned

           Priority is determined by filing date                     Priority is NOT determined by filing date
Data Sources: EPO Data from G. Lazaridis et al. World Patent Information 29, pp. 317-326, (2007). “After SR, before Exam” and
“First Action” here means the withdrawal components (2)+(3) and (4) respectively, as defined in the heading of Table 2. Chart
Source: Ron D. Katznelson, FTC Presentation (2009).                                                                          23
 Ask an inventor: Ben Franklin (1755)
“One would not, ... of all faculties, or qualities of
the mind, wish for a friend, or a child, that he
should have that of invention.
For his attempts to benefit mankind in that way,
however well imagined, if they do not succeed,
expose him, though very unjustly, to general
ridicule and contempt; and,
if they do succeed, to envy, robbery, and abuse.”

         What Just Happened?
• Many changes in new law
  – from First-to-Invent (FTI) to First-to-File (FTF)
  – Inside FTF: “grace period” change:
  – Was: 1 year from “enabling disclosure”
  – Will be: immediate bar if in public use or on-sale
• Example 1: Science Friday Video Podcast:
• “Young Inventors Soup Up A Wheelchair”
• Many innovative improvements
  – Example:

Can move

          At end of video it said

• That summer, they could do it, but not 2013
  – They would have lost the right to patent it due to
    their “public use” of their technology

       Similar Stories From Past
• If this law had existed at time of Wright bros…
• Public use at Kitty Hawk would have
  precluded patenting it
• Patents must be useful, non-obvious & novel
• Novelty means not anticipated by “prior art”
  – New rule is your own invention is deemed prior
    art the moment you publicly use it or offer it for

          Why I’m so bothered
• The above examples are just one problem of
  many with this bill:
  – Failure to fix “fee-diversion”
  – FTF rewards theft of IP
  – “Post-grant review” (PGR) potential for abuse
• Lying and intentionally misleading statements
• Systemic dysfunctions: complexity vs. ADD

  “Creating the ‘good old days’”?
• The ‘good old days’ are times in the past when
  things were better
• The AIA has so many things wrong w/it that it
  will make the IP future worse in some ways
• Q: Why complain if it’s a fait accompli?
  – A: the 2 lobbying orgs need to justify existence
     • Will continue to try to “improve” patent laws
  – Similar to how trade unions serve themselves by
    appearing to serve their members
    Lying & misinfo.: grace period
• Provision is confusing w/triple negatives, so
  hard to interpret
• Colloquy = staged conversation meant to
  – Colloquy stated opposite of actual bill
  – When conflicting, courts go with bill, not colloquy
• Senators & staffers misleading each other


To top