Patent Reform Pending

A new bill has small inventors on the defensive

Ronald J. Riley worries that Congress is out to quash him--and he doesn't like it. The Michigan inventor has already taken corporate giants to court to win hundreds of thousands of dollars in licensing fees for his industrial automation patents. Now, he's fighting changes in U.S. patent law that he says will destroy American inventors--and the innovation-fueled U.S. economy. He has even created a Web site,, to work against the reelection of Spencer Abraham (R-Mich.), if the senator continues to vote the wrong way. "They don't understand how strongly we feel about this--and they won't until we draw some blood," he says.

Don't underestimate the resolve of independent inventors. For the past four years, Riley & Co. have kept a powerful coalition of big businesses, such as Ford Motor Co. and 3M, along with their Capitol Hill backers, from revamping the U.S. patent system. Now, Congress is moving forward with a compromise patent reform bill that is less threatening to small inventors. But you'd never know it to listen to them. The bill is "a major victory for the small inventor," says Representative Dana Rohrabacher (R-Calif.), self-proclaimed champion of the little guy. "It is just unfortunate that some small inventors are too eccentric to see it."

At the heart of the dispute is a struggle over the ownership of ideas. Independent inventors have long accused big companies of stealing their inventions. Big company execs counter that some small inventors have exploited the patent system to impose the equivalent of a tax on whole industries. The bill--if it is signed into law--won't definitively solve these conflicts. But many patent experts say it will bring significant improvements to the system.

Currently, it's possible to keep a patent application alive but secret in the patent office for years. Big companies charge that some small inventors, most famously the late Jerome Lemelson, have filed rafts of broad patent claims and kept them submerged like submarines until companies actually began using the ideas. The inventors could then rush to get their patents issued--and to launch patent infringement suits. Some of Lemelson's industrial patents, for example, languished for decades at the U.S. Patent & Trademark Office (PTO). To date, they have earned his foundation and his lawyers hundreds of millions of dollars in settlements. Lemelson's heirs "are still shaking down the bar-code industry," says Washington lawyer Patrick J. Coyne.

That's why companies began pushing for changes in U.S. patent law in the mid-1990s. Congress has been trying to pass them ever since. One reform goal would be to publish all patent applications 18 months after filing. This is what most of the rest of the world already does, and it would prevent inventors from keeping their applications secret within the patent office, thus ending the threat of submarine patents.

PRIOR USER RIGHTS. Another provision on industry's wish list would give companies so-called "prior user" rights. If they can show that they have been using a technology before someone else patented it, the provision would protect them from suits and royalty claims. A third change would give companies greater powers to ask that patents be reexamined by the patent office. That would save them the big bucks required to challenge patents later in court.

But these provisions would do nothing less than "destroy the patent system," charges inventor George D. Margolin. The advance look companies would get because of the 18-month publication timetable would enable them to develop similar technology while avoiding infringing the eventual patent, say Margolin, Riley, and their allies. Moreover, companies could claim they didn't have to license inventors' patents because of the prior user rights provision. And the reexamination provisions "would put inventors out of business," says Riley, because companies might be able to hold up the issuance of patents for years.

"This is an absolutely critical battle for the United States," argues Beverly Selby, director of the Alliance for American Innovation, a pro-inventor group. The patent system is the engine of American innovation--and the key to the U.S. economic miracle, she says, "and these idiots in the House and Senate want to give it all away."

Who's right? To some extent, both sides. In some cases, the courts have ruled that big companies indeed ripped off or ignored the patents of small inventors. In a case that ended in 1997, General Electric was hit with $128.7 million in damages and interest for infringing on the magnetic resonance imaging (MRI) patents of inventor Dr. Raymond Damadian and his company, Fonar Corp. At the same time, there is widespread agreement that some inventors have used the patent system to their advantage.

The small inventors have been able to win a few supporters in Congress, such as Rohrabacher, along with a large group of Nobel laureates. And much to the surprise of industry and the White House, this unlikely coalition was able to block legislation from passing for several years. "The passion on the issue was stronger than originally anticipated," comments Acting PTO Commissioner Q. Todd Dickinson.

But the standoff is now close to ending, thanks to a new willingness of some key players to compromise. Rohrabacher, for instance, has backed off from his staunch opposition. And companies are willing to accept compromises in the wake of a Federal Court of Appeals ruling last year upholding a patent on a business method. Patent attorneys had long thought that business methods and processes could not be patented. Now, companies face the specter of rivals rushing to lock up--and demand royalties for--ideas they have already been using or plan to use, such as methods for online commerce. A case in point: Inc.'s patent on its "name your price" business model, which it is trying to enforce against copycat rivals such as Microsoft Corp.

The latest legislative compromise--contained in a measure passed by the Senate Judiciary Committee on Nov. 2--is to give companies prior user rights, but only for these business method patents. For small inventors, "narrowing the prior user rights provision is a huge coup," says Joanne Hayes-Rines, editor of Inventors' Digest. Another partial win for the small guys is limiting the 18-month publication to those patents that are also filed overseas, where the 18-month timetable is the law already. Publicly, business execs say they're pleased. "There are enough pieces of patent reform in the bill that we support it," says Gary L. Griswold, top patent expert at 3M. Privately, however, they grumble about what they had to give up.

But their dismay is nothing compared with that of the hard-line small inventors. They fear that bad things could still happen to the bill in conference. And more fundamentally, says Hayes-Rines, "I don't see why we need a damn bill in the first place." That's why Riley is putting lawmakers on notice: "We intend to nail Rohrabacher's sorry carcass to the wall," he vows.

Those are passionate words. But most patent experts agree that the proposed legislation is a step forward. The compromises mean that the threat to small inventors has been reduced. And there are provisions that will help everyone, such as ensuring that delays in the patent office don't cut into the overall term of a patent. While the small guys aren't happy, their clout has proven greater than anyone expected.

    Before it's here, it's on the Bloomberg Terminal.