Transcript Creating 'The Good Old Days' - Managing Intellectual Property

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
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Preamble
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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
LauderPartners.com (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.”
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Intro
• 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
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Impact of patents
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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 VCbacked 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…
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Hewlett & Packard (HP)
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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
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Huh?
• 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
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More FTF/Grace Period SNAFUs
• Contract manufacturing, even of prototypes
– Can trigger “on-sale” bar to patent
– Comes in many forms: foundry, laboratories, etc.
• Kickstarter.com = 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!
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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
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Individual inventor share in U.S. and Canadian
patent grants during Canada’s transition to FTF
U.S.
25% decrease
Canada
Upper graph is US. Lower is Canadian. Canada’s decreased by 27%.
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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 market.“
•At least we have slightly “harmonized“ w/them!
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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
work.”
• 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!!
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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.“
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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
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Hope?
• 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
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Thank you for your attention
Gary Lauder
Lauder Partners
[email protected]
(650) 323-5700
www.LauderPartners.com/PatentReform
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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
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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
Buy SmartDraw !- purchased copies print this
document without a watermark .
Visit www.smartdraw.com or call 1-800-768-3729.
Source: Ron D. Katznelson, SBA Presentation, (2010).
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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
Buy SmartDraw !- purchased copies print this
document without a watermark .
Visit www.smartdraw.com or call 1-800-768-3729.
Source: Ron D. Katznelson, SBA Presentation, (2010).
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IP and all Federal civil suits filed
All Federal Civil Suits
IP Suits
300,000
12,000
Source: Administrative Office of the United States Courts
Annual Reports
250,000
10,000
200,000
8,000
All Federal
Civil Suits
Copyright & Trademark
Suits
150,000
6,000
100,000
4,000
50,000
Patent
Suits
2,000
0
0
1970 1975 1980 1985 1990 1995 2000 2005 2010
YEAR
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Average
Pendency
(months)
USPTO Total
Patent
Application
Pendency
USPTO
total
patent
pendency
40
Surces: USPTO Annual Reports
35
30
25
20
15
10
1969
1974
1979
1984
1989
1994
1999
2004
2009
Fiscal Year
22
Applications with priority dependent on filing date
are less mature and are more likely to be abandoned
Fraction of
Applications
Abandoned
EPO Patent Application Abandonment Stages
(Euro-Direct filings in 1997-1999)
70%
60%
6.6%
50%
40%
After First Action
After SR, before Exam.
Before Search Report ("SR")
32.2%
30%
20%
10%
11.1%
25.7%
9.5%
2.6%
0%
EPO 1st Filings
EPO - 2nd Filings (Claiming Earlier Priority)
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).
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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.”
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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:
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Can move
sideways
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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
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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
sale.
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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
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“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
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Lying & misinfo.: grace period
• Provision is confusing w/triple negatives, so
hard to interpret
• Colloquy = staged conversation meant to
clarify
– Colloquy stated opposite of actual bill
– When conflicting, courts go with bill, not colloquy
• Senators & staffers misleading each other
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