WASHINGTON - The U.S. House of Representatives on Thursday passed dramatic reforms to the patent law that supporters say will clarify how patent holders should be selected, limit frivolous lawsuits and streamline the patent application process.
Minnesota companies built on their own innovation say the revisions are critical as they pursue profits through invention. St. Paul-based 3M, which holds 7,000 U.S. patents and 40,000 patents worldwide, spent tens of thousands of dollars lobbying for the patent bill's passage.
"We do a billion dollars of research and development each year," said Kevin Rhodes, the vice president in charge of intellectual property at 3M. "We want to be a technology leader. It was time for an update."
The House bill allows a patent to go to the first inventor to file for one, not necessarily the first person who discovered a concept or device. Further, lawsuits for incorrect patent markings will be limited to those whose businesses would actually be hurt by those bad markings. Currently, anyone who finds bad markings, such as an expired or incorrect patent number, may sue.
The markings issue has led to a surge of unnecessary litigation, according to proponents of the patent bill, including Minnesota's St. Jude Medical Inc. and Boston Scientific. Marking lawsuits grew from one in 2006 to 674 in 2010, several businesses said in a letter supporting the reforms. Companies who get sued "face huge liability for mass-produced products," the group noted.
The House also agreed to hold patent fees in a special account, not the general fund, so the fees can be used to speed up the patent approval and review process. The legislation, approved 304-117, is similar to a bill already passed by the Senate and blessed by the White House.
A broad range of metro-area companies applauded the legislation, including medical-device maker Medtronic Inc. and Cargill, the giant international food producer. "Cargill believes in a strong global patent system that rewards innovation; parts of the [old] system created expense and ambiguity," said Dan Enebo, the company's chief intellectual property counsel. The Patent and Trademark Office (PTO) has a backlog of 1.2 million patent requests, three times what it was a decade ago, Rhodes said. Delays in patent approvals hurt inventors trying to protect their intellectual property, while keeping inventors from finding investors to get their discoveries to market, he said.
Fridley-based medical device maker Medtronic, which spent $1.5 billion on research and development in fiscal year 2011, said the U.S. Patent & Trademark Office lacks the resources to process patent applications efficiently. "This prevents new technologies, and the jobs that would result, from reaching the marketplace and benefitting the economy," the company said in a statement.
As House members debated the patent bill, spectators in the public gallery interrupted the proceedings over a separate issue. Capitol police arrested at least 10 people who stood in the gallery and shouted for the U.S. to close the military prison at Guantanamo Bay, Cuba.
The drama added an air of tension, but didn't change the result.
"This was a good bill," said Rep. Erik Paulsen, R-Minn., who co-chairs the House medical technology caucus. "There were lots of Minnesota companies in support. ... Innovation brings a lot of jobs to Minnesota."
Earlier attempts to pass the bill were stalled over questions regarding the constitutionality of awarding patents to inventors who file first rather than those who first made the discovery. The so-called "first to file" system is supposed to speed up the patent-granting process, which routinely takes at least three years. It gives preference to the first filer, then turns to a new post-patent review process to sort out any challenges.
Before the House bill passed Thursday, the first-to-file issue again sparked a lengthy debate. Such a system "violates the Constitution," said Rep. James Sensenbrenner, R-Wis. "This will be litigated all the way to the Supreme Court."
After the vote, Rep. Chip Cravaack, R-Minn., said he opposed the bill because he had concerns about "overturning over 220 years of patent practice."
"Entrepreneurs and small business owners with great, innovative ideas should not lose out on patents just because they don't have massive legal teams on staff," Cravaack said in a statement.
Rep. Lamar Smith, D-Texas, countered that America's Founding Fathers used a "first to register" system for patents not unlike the first-to-file system. "In the past seven years, out of 3 million patents, only one individual inventor has prevailed [over a first-to-file inventor]," Smith said.
The United States remains one of the few big countries that grants patents to the first to invent rather than the first inventor to file, said Rhodes of 3M. The process has led to "big fights" that take years to sort out, but almost never lead to patents being taken away from first filers, he added.
Among the Minnesota delegation, Reps. Tim Walz, Betty McCollum, Keith Ellison and John Kline, Collin Peterson and Paulsen voted for the legislation. Like Cravaack, Rep. Michele Bachmann, R-Minn., voted against it.
As part of the bill, the Republican-led House chose to place patent fees in a holding account controlled by Congress and not the Patent and Trademark Office (PTO). Democrats fought against the holding account, saying it violated House spending rules that required new expenses to be offset by new revenue.
In the past, patents fees went to the general fund and were doled out for whatever Congress chose. In recent years, $875 million in patent fees have been diverted to pay for other services, said 3M's Rhodes.
The patent reform bill passed by the Senate and House allows the patent office to set fees and spend the money strictly on improving the patent process. Democrats worried that Republicans would continue to raid the new holding account to pay for programs besides patents.
Changes in who may sue for bad patent markings came in reaction to court decisions that allowed anyone discovering bad markings to ask for money.
"Anyone could go through the shelves at Target and look for products with any reference to a patent, and then check the numbers against Internet databases," Cargill's Enebo said. If the numbers were expired or otherwise wrong, the shopper had legal standing to sue.
Worse, according to businesses, courts ruled that plaintiffs could claim individual damages for each wrongly marked device. That meant that a company that left an expired patent number on a widget was liable for a separate damage claim on each one of those widgets that was still on the market. Rhodes said a single mistake could conceivably lead to 1 million damage claims.
Said Enebo: "It was a windfall that came from an old section of the law."
Jim Spencer 202-408-2752