In Favour of First to Invent: If It Ain't (Too) Broke, Don't Fix It"

Whenever I am asked to give a talk about patent basics, I find myself invariably saying, at one point or another, that "it is different in the U.S." One of the most pronounced of these differences is the U.S. position in favour of "first to invent" (FTI), as opposed to the "first to file" (FTF) principle that dominates the patent system of most other countries in the world.

Various congressional attempts have been made over the years to bring the U.S. position into line with the prevailing practice in the rest of the world. The most recent congressional effort in this regard is a particularly vigorous attempt to do so. In its wake, it has given rise to a spirited defence of the current U.S. practice on this point.

One of the most vigorous opponents to such changes to the U.S. "first to invent" principle is Gary Lauder, a veteran venture capitalist who is also a co-inventor of 12 registered patents. Mr Lauder has set out his views in various places, including on the widely-viewed online site, The Huffington Post. Lauder has somewhat expanded his thoughts on that piece and he has shared them with this Kat. Set out below are Lauder's main points, as edited by this Kat but which are all Mr. Lauder's own words.

1 " [In March 2011], … the Senate passed S.23, the America Invents Act. Its main proponent, Senator Patrick Leahy (D-VT), says that we are the last industrialized nation using the antiquated subjective First-to-Invent (FTI) system, instead of the First-to File (FTF) system, which awards the patent to the first one to submit an application, rather than the one who can prove having invented it first. Isn’t it odd that ours is old, subjective and different, yet we are the world’s leader in innovation?"

2. " [I]f the bill in congress becomes law, it will make it much harder for inventors & entrepreneurs to use the patent system, and will therefore render many companies unattractive as investments. This is not just about investing and profiting; it is about moving society forward through innovation, which usually requires substantial investment."

3. "Most people agree that our patent system has problems. The logic of this bill seems to be: 'Something must be done! This is something that can be done, therefore let’s do it.' Unfortunately, the problems that people want to see fixed are largely unaddressed in the bill (e.g. software patents, trolls (boogeyman), patent office delays in processing patents, etc.). The “something” that this bill is addresses negligible problems, but will result in adverse unintended consequences for our innovation ecosystem."

4. "This attempt to conform to other countries is called “harmonization,” which is a melodious word for “succumbing to peer pressure.” We tell our children not to do so when we know it’s wrong. So should we. In reality, the FTF part of the bill harmonizes with no other law as it creates a system of bars and exceptions that no nation had experienced before".

5. "There remain substantial differences, such that the claimed benefits of cost-
reduction would not materialize. This bill “improves” so much on foreign law that it would make getting patents even harder here than overseas. For example, this potential law bars receiving a patent for inventions that were publicly used or offered for sale prior to filing. This rule, had it been in place then, would have prevented the Wright brothers from receiving their patent on their airplane due to its public use at Kitty Hawk five months before the Wrights filed for the patent".

6. "Under current law, we have what’s called a “grace period.” That is the one-year between public disclosure and the time by which the inventor must file the application. This enables entrepreneurs to present to investors, share plans with potential hires, or exhibit at trade shows during that time without concern that such acts would either preclude a patent or enable someone else to poison the well so that no one can get a patent. Under FTF, if someone else finds out about your invention, and if they apply first, they can win. Overturning that result requires proving that they derived their idea from yours. "

7. "What’s most scary to me is that this creates strong financial incentives for usurping patent rights by hacking and industrial espionage, which is starting to be done purely for selling to others for profit. …The flip side of the problem is that it will put a chill on the normal open discourse that occurs today between innovators, investors and customers."

8. "One of the great benefits of our FTI system is that inventors can refine and improve their inventions in private prior to filing for it. Under FTF, one should file early and often on each idea, however impractical it later proves to be. That burden falls disproportionately on smaller companies for whom patenting expenses are material. …. If ever there was an innovation tax, this is it".

9. " If harmonization were actually occurring in this bill, it would be harmonizing with the more stagnant economies of Europe and Japan, not the more competitive and growing economy of China. China is not likely to harmonize according to recent reporting. "

10." Canada shifted to FTF in 1989, and a 2009 study found an "adverse effect on domestic-oriented industries and skewed the ownership structure of patented inventions towards large corporations, away from independent inventors and small businesses."

11. The EU, which has had FTF for a while, last month declared an “innovation emergency” due to how far behind us they are falling in innovation and R&D investments. It’s not working for them. There is even a movement afoot among small businesses in the UK and Germany to try to change their system to be more like ours!"

12. "The opposition to patent reform is today mostly a bunch of startup inventors, small business entrepreneurs and venture capitalists who are volunteering their time purely out of passion for the preservation of this amazing innovation ecosystem. This is in stark contrast with the army of lobbyists …."

13. "The absence of viewpoints from small companies — America’s largest contributors of new jobs — being present around the negotiating table is the main reason why this bill is so bad. … The suppression of opposition has characterized all aspects of this process, so it is not surprising that the result will trade away that which was valuable to those not represented — and society as a whole. ….[S]mall companies are no match for the maneuvers of large companies."

14. "It is extremely hard to succeed as an inventor and entrepreneur, but America has created the most fertile ground in the world for doing so. Maintaining that fertility enables Schumpeter's "creative destruction" to reshape our world for the better. Patents confer power and protection to the otherwise powerless — not those incumbents who have sufficient market power to crush new innovative entrants. [Ironically perhaps,] [a]ll of the companies that are advocating for patent reform were once start-ups, but most of their founding entrepreneurs are long gone."