SMALL ENTITIES AND THE "FIRST TO INVENT" PATENT SYSTEM: AN EMPIRICAL ANALYSIS By The Honorable Gerald J. Mossinghoff INTRODUCTION As between two true inventors claiming the same invention as contrasted with copiers States, grants the patent to the inventor who first undertakes to use the patent system to disclose his/her invention to the public and gain protection. In shorthand, this is called a first-to-file system of priority, but it is more appropriately called a first-inventor-to-file system. For reasons that perhaps made sense historically, the United States has a so-called firstto-invent system of priority that is intended to grant a patent to the first "inventor," i.e., the first person to "conceive" and/or "reduce the invention to practice" under an arcane and burdensome complex of substantive and procedural rules and regulations governing what are called "interferences" every nation in the world, except the United 'At the end of 1997, there were two nations that used the so-called first-to-invent system: the United States and the Philippines. Effective January 1, 1998, under its Republic Act No. 8293, the Philippines adopted a first-to-file system, leaving the United States alone in the world in adhering to the first-to-invent system. 1 in the U.S. Patent and Trademark Office ("USPTO").2 As early as 1965, a major Presidential Commission studying the United States patent system strongly recommended that the United States adopt the otherwise universal first-to-file system.3 Given the increasing use of low-cost and easily filed provisional applications, such a system would be of significant benefit to small entities the class that comprises independent inventors, small businesses and nonprofit institutions. 2In an article published at 82 JPTOS 891 (December 2000), Charles L. Gholz, an internationally recognized expert on interference practice, described graphically what can happen in an interference: A couple of years ago I was handling a big ticket interference in which my side's inventors were named the Inventors of the Year by the Intellectual Property Owners Association. At about the same time, my client assigned the lead inventor to us full time. That is, it told him that it was more important for him to work with us to win the interference than it was for him to work at his laboratory bench making more inventions! My client's decision was good for us, but it was grotesquely bad for the nation. While the inventor spent his time racking his brain trying to remember what he had done and when he had done it years before (and more importantly, trying to find documents to substantiate his hazy memory), he could have been back at his bench making more important inventions. As things stand, important people (i.e., inventors—not patent attorneys!) spend enormous amounts of time on historical matters which, at least in most cases, are of absolutely no use to anyone apart from the interference and of no interest to anyone at all for any reason. 82 JPTOS at 894. 3"To Promote the Progress of ... Useful Arts" in an Age of Exploding Technology, Report of the President's Commission on the Patent System, Washington, D.C. (1966). This is not a partisan matter. The 1966 Commission Report was to President Johnson. In August 1992, the Advisory Commission on Patent Law Reform reached virtually identical conclusions in its report to the Secretary of Commerce in the Bush Administration. The Advisory Commission on Patent Law Reform, Report to the Secretary of Commerce (Aug. 1992). For a discussion of the advantages of a first-inventor-to-file system, see William S. Thompson, Reforming the Patent System for the 21st Century, 21 AM. INTELL. PROP. L. ASS'N. Q.J. 171 (1993). 2 However, assertions are heard that adopting a first-inventor-to-file system in the U.S. would somehow favor large companies to the disadvantage of small entities. I. ESTABLISHMENT OF THE SMALL ENTITY STATUS To provide adequate funding for the USPTO, I recommended in 1981 to the Secretary of Commerce and he in turn recommended to the President through the Office of Management and Budget (1) that the user fees for patents and trademarks be substantially increased and (2) that the USPTO be able to use the increased fees to fund its operations instead of those fees being deposited in the miscellaneous receipts of the U.S. Treasury. That recommendation was sent to the Congress in connection with the Administration's FY 1983 Budget, and Congress enacted it in P.L. 97-247. A key part of the statutory patent fee structure enacted at that time was that it established a two-tier fee system that we had recommended. That two-tier fee system allows qualifying independent inventors, small businesses and nonprofit institutions - referred to collectively as "small entities" to pay half of the standard patent filing fees, patent issue fees and patent maintenance fees.4 Thus, since fiscal year 1983, the USPTO has been able to keep track statistically of all patent applications that it receives and of all patents that it 435 U.S.C. § 41, 37 C.F.R. §§ 1.16 et seq. 3 grants by four categories: (1) independent inventors, (2) small businesses, (3) nonprofit institutions and (4) large entities. Using the data thus collected by the USPTO from the initiation of the small entity status in 1983 through fiscal year 2004 - this WORKING PAPER will document what happened historically to small entities when they became involved in interferences, i.e., the USPTO procedure used when two parties claim the same invention at nearly the same time. a small entity was advantaged by the first-to-invent system if the small entity was the junior party in an interference - i.e., the second person to file a patent application on the invention - and received a favorable decision. a small entity was disadvantaged by the first-to-invent system if the small entity was the senior party in an interference — i.e., the first person to file a patent application on the invention and received an adverse decision. III. STATISTICAL HISTORY, 1983 –2004 From 1983 through 2004, the USPTO received 4,500,649 utility, plant and reissue applications and granted 2,456,479 such patents. During that same period there were a total of 3,253 two-party decisions in interference cases, a tiny fraction of the applications filed and patents granted. Using the number of applications filed as the denominator, the 4 number of two-party decisions amounted to less than one in 1000 (0.1%) of the applications filed. Using the number of patents granted during the 22year period as the denominator, the percentage of two-party decisions increases but is still less than two in 1000 (0.2%) of the patents granted. Based upon an analysis of the small entity data that now exists, the USPTO reports that the number of small entities that were advantaged by the first-to-invent system during the 22 years 1983-2004 whereas the number of small entities disadvantaged was slightly higher, was 286, 97 Small Businesses were advantaged and 92 disadvantaged. (Figure 4) 139 independent inventors were advantaged and 167 were disadvantaged. (Figure 5) Figure 6 shows these data on the same scale. Those of us who believe that adopting the first-inventor-to-file system of priority in the United States would actually favor small entities point out that the current system of forcing a small entity into an interference proceeding with a large and determined company that filed a patent application after the small entity could cost the small entity hundreds of thousands of dollars, even if it ultimately received a favorable decision. More importantly, small entities by their very nature can move more quickly 5 |