Why Change a System That Fuels Invention?
What does it take to stop Congress from rolling off a cliff?
What about an extraordinary display of conviction by nearly 30 Nobel laureates in science and economics? In an open letter to the U.S. Senate, the laureates, among them economists Milton Friedman and Paul A. Samuelson, lined up against legislation affecting the “time-tested patent system,” warning of “lasting harm to the United States and the world” if the bill becomes law. They urged extensive hearings.
Championed by Sen. Orrin G. Hatch (R-Utah), the complex, mammoth bill would reinvent the U.S. patent system. The bill has been reported out of committee and is awaiting a Senate vote. A similar bill, pushed by Rep. Henry J. Hyde (R-Ill.) and Rep. Howard Coble (R-N.C.) has passed the House.
Among other things, the legislation would corporatize the U.S. Patent Office. This change, according to the Patent Office Professional Assn., which represents patent examiners, would threaten the integrity of the examiners’ quasi-judicial function as well as the public confidence that underpins a culture free of coercion and undue influence.
In addition, the legislation would make patent holders more vulnerable to challenges. The net effect of such expanded re-examination is to raise the potential legal costs of defending a patent, pressuring small entities to knuckle under to deep-pocket adversaries.
The push for change is chiefly coming from companies at the top of their respective markets that want to pull the intellectual property ladder up after them. This is especially shameful for companies that owe their very existence to their founder’s patents. As former Chief Judge Howard T. Markey of the federal patent court observed, patents are not needed by giant corporations except for defensive purposes. To those on top, patents that aren’t controlled are seeds of rival products.
Never mind that the U.S. patent system stimulates 10 times the significant discoveries of other nations’ systems combined, that it is the world’s most reliable engine for technological advance and job growth. It was James Madison and the framers of the Constitution who reasoned that the U.S. government should grant the creator of an invention an exclusive property right for a limited but definite period of time, currently 20 years from the date of application. Upon grant, all patent details would become public knowledge. After the term expires, everyone can freely use the invention. The details of nearly 6 million inventions are now available to everyone, and the world’s economy sails on the wind of ideas conceived in the U.S.
Any changes in the U.S. patent system must be judged in light of these principles and answer this question: How would the changes affect the ability of the patent system to attract new players to the game?
Hatch’s legislation would turn the core concept of the patent inside-out by providing an exception to the exclusive property right that is the hallmark of the U.S. patent. It would grant extended protection to trade secrets, while reducing the incentive to rely on limited-life patents. It would accomplish this, in part, through something called “prior user rights.” These would allow companies that seek to maintain trade secrets to acquire a special property right against inventors who disclose their discoveries with a patent. If a company were caught infringing upon a person’s patent, it could claim that the patent was also its trade secret, which was being commercialized, and thus it owed no royalties to the patent holder. It could manufacture and sell the patented product without limit, and even sell the business with the prior user rights intact.
Dr. Robert Rines, an inductee into the National Inventors Hall of Fame for high-definition radar and sonar, warns that by destroying the exclusivity of the patent contract, prior user rights would decimate capital formation for start-ups. After taking the sizable risks of R&D; and market testing, a fledgling enterprise would collapse if a market giant such as General Electric, 3M, Intel, Microsoft or Mitsubishi suddenly marketed a no-royalty product. According to Rines, this would “allow the big companies to finally have their cake and eat it, too.” This is not the feast the founding fathers had in mind.
Consider the legislation’s impact on university technology transfer. According to MIT, in 1995 alone, U.S. universities granted 2,142 licenses and options to license patented technology, most of them exclusive; 169 start-up companies were formed in 1995 (more than 1,100 from 1980-95), for which such exclusive patents were the key. The licensing of university-research spin-offs adds more than 150,000 jobs to the U.S. economy each year.
Cornelius J. Pings, president of the Assn. of American Universities, claims Hatch’s bill would effectively eliminate a university’s ability to exclusively license inventions, which is essential to induce the investment necessary to start a new company or to develop a drug or other products with high development costs. Invariably, the loss of exclusivity in patents would also make university research more dependent on the largess, and priorities, of large companies.
There is also a foreign component to efforts to tinker with the U.S. patent system. To foreign countries, U.S. patents are trade barriers to products derived from U.S. innovation. If you want to see trade deficits soar, weaken U.S. patents.
In 1994, Japan convinced the Department of Commerce to seek certain changes, among them prior user rights, incorporated in the current legislation, and a change in the term of the patent, which was completed two years ago. Japan is not famed for its quest to improve the ability of the U.S. to compete.
Proponents of the legislation contend that the United States is out of step with the world. They don’t mention that America has more than 35 times the number of Nobel laureates in the sciences as Japan does. Law reflects culture. Japan’s business culture, including its patent system, is woven around conglomerates well-practiced in suppressing potential competitors. Technical innovation goes nowhere except under terms dictated by the large companies.
What is at stake is nothing less than how we order our economic and business culture, and how that culture, in turn, defines us. The cumulative effect of the legislation is to threaten the delicate parity between large and small that is the heart of our patent system. Dr. Raymond Damadian, who revolutionized medicine and industry with the MRI, says that his company, Fonar Corp., would probably not exist if current proposals were in effect when he began. Nor would he be continuing to advance state-of-the-art machines to the benefit of countless patients.
Patents now agleam in their inventors’ eyes will build the industries of the next century. And the jobs. If we don’t muck it up, it will again be the American century. Either Congress will reveal itself as willing to sell anything, or it will find its spine and tell the big companies rolling through its doors to sober up and dance with the one that brought them.
