Why Filing a Patent Just Got More Complicated For Startups (Opinion)

BY SCOTT SHANE | April 17, 2013 | Entrepreneur Magazine

 The major provisions of the America Invents Act — which made the most substantial changes to the U.S. patent system in the last 50 years — came into effect on March 16, dramatically changing the U.S. system for protecting intellectual property.

The Obama administration claims the new law will benefit small businesses by speeding up the patent application process and improving patent quality. While some of the new law’s provisions will undoubtedly help small business owners, I’m not sure the changes to the patent system will help entrepreneurs on balance.

For those of you with patentable technology, talking to an intellectual property attorney should be high on your to-do list. The Act has dramatically changed the patent system in ways that affect your intellectual property strategy.

Consider the following four provisions, which may negatively affect the patenting process for your small business:

1. First-to-file. Under the new law, patents go to the first inventor to file for them — a big change from the old law, which awarded patents to the first inventor to come up with an idea, whether he or she got to the patent office first.

First-to-file makes it more difficult for entrepreneurs to delay applying for patents until after they’ve developed and assessed the commercial potential of a new technology, a common practice among high tech entrepreneurs. If inventors wait rather than file patents right away, they run the risk that someone else will come up with the same invention and apply for a patent first. The end result: Small business owners will need to shell out cash for patents before they know if their inventions stand a chance in the marketplace.

2. Patentability of trade secrets. Under the old law, patents and trade secrets were mutually exclusive. If an inventor treated an invention as a trade secret — keeping its commercially valuable information undisclosed — for more than one year, it could no longer be patented, which would give the inventor a monopoly on the use of the invention granted by the government’s patent office. Under the America Invents Act, a company can treat an invention as a trade secret for many years – think the formula for Coca-Cola here – then later patent it.

The patentability of trade secrets will work in favor of existing large companies who can combine trade secrets and patents to protect their intellectual property for long periods of time and against new, small companies, most of whom who don’t have existing trade secrets.

3. Post-grant opposition. This term refers a third party’s right to challenge a patent’s validity during the first nine months after it has been issued. Under the old law, there was no post-grant opposition. This provision, which the new law introduced to the U.S. patent system, will disadvantage small companies by making broad patents less likely. That’s not good for new companies lacking other competitive advantages who are trying to raise money to challenge established competitors.

Moreover, it handicaps entrepreneurs from challenging existing companies. Evidence from Europe, which has had post-grant opposition for years, shows that large, established companies use this technique strategically to stop new companies, making post grant opposition the first of a series of legal challenges to their new competitors’ intellectual property.

4. Fast tracking for a fee. The new law allows companies to “fast track” a patent application, getting it processed in one year for an extra fee of $4,800 or $2,400 for businesses with fewer than 500 employees. That timeframe is much shorter than the more than three years it currently takes to process the average patent application.

While getting patents approved faster is a good thing, the fast-track approach favors those who can afford to pay the higher fees. Most observers believe big, established companies, not small start-ups, are the ones who are going to get their patents approved more quickly because they can afford the fast-track fees.

Scott Shane is the A. Malachi Mixon III professor of entrepreneurial studies at Case Western Reserve University. His books include Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live by (Yale University Press, 2008) and Finding Fertile Ground: Identifying Extraordinary Opportunities for New Businesses (Pearson Prentice Hall, 2005).

The author is an Entrepreneur contributor. The opinions expressed are those of the writer