First-To-File in the U.S., Small Entity Inventors, and Grace Periods

University of Virginia law professor Margo A. Bagley has published a draft paper titled "The Need for Speed (and Grace): Issues in a First-Inventor-to-File World" that looks at various issues and concerns over a first-to-file regime (FITF) proposed recently in the Patent Reform Act. A refreshing aspect of the paper is that it is less concerned on the merits of "whether" the U.S. should switch to FITF and more on "when" and under what circumstances the change should happen to be most beneficial to small entity inventors in the U.S. and beyond:

Small entity inventors include those in universities and other non-profit organizations. The patenting activity of university inventors is of particular interest not only because it is increasing but also because it is associated with entrepreneurship. According to the Association of University Technology Managers (AUTM), its members, more than 80% of whom are colleges and universities, received over $45 billion in research support, filed 15,908 U.S. patent applications (compared to 10,687 in 2001), received 3255 patents, and launched 553 start-up companies in 2006 alone. In fact, since 1980, when the Bayh-Dole Act supporting university-industry technology transfer was passed, AUTM members have founded over 5,724 new companies, or more than one company every two days.

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Because academic researchers have traditionally focused on basic research, as opposed to applied research, inventions generated in universities and disclosed to Technology Transfer Offices (“TTOs”) for patent protection are often embryonic and have only speculative commercial value. University TTOs, having limited funds and an increasing number of invention disclosures, must decide which inventions to prosecute with little information on potential commercialization success. For example, in 2006, AUTM members received 18,874 new invention disclosures from researchers but filed only 11,622 new patent applications.

Interestingly, while the US remains alone in not having FITF, foreign knowledge tranfer offices view this as a good thing. According to ProTon Europe (link), the pan-European network of knowledge transfer offices and companies affiliated with universities and other public research organizations:

European universities and other public research organizations still file on average 5 times less patent applications than their U.S. counterparts, although the total research budgets are comparable. The lower propensity to patent is attributable to 2 main factors: . . . .

The fact that the U.S. patent system is much more favourable to universities than the European system. In addition to lower cost and single language, the U.S. universities are taking advantage of the protection of inventors by the first-to-invent principle, a grace period of one year, the continuation-in-part system, provisional applications, 50% reduction in filing and maintenance fees, no maintenance fees before grant, wider patentable inventions, etc. There is no question that the U.S. universities could not have achieved the reported benefits for the U.S. economy in terms of new products, new companies, and new jobs with the patent system available in Europe.

Thus, through a robust grace period, small entities can get time for commercialization assessments, revenue generation, and academic discourse. However, in order to be truly effective and "harmonized," Bagley argues that FITF in the U.S. must also be accompanied by grace periods in "absolute novelty" jurisdictions, like the EU:

A U.S. move to FITF is unlikely to signal “the end of the world” for small entity inventors, but it does not seem to offer enough benefits, as currently proposed, to justify its potential harms. Nevertheless, if the U.S. is to move to a FITF patent regime, when should it do so? Only when such a move will provide a clear advantage for small entities by facilitating the adoption of a one year grace period outside of the U.S.

[A] move by the United States to a FITF system will likely have negative ramifications for small entity inventors. Delaying a move to FITF until it can be used to facilitate the adoption of a one-year grace period in other countries will allow the United States to make the bitter pill of the race to the patent office considerably easier for many researchers and entrepreneurs to swallow by providing them with something very useful in return. The adage “haste makes waste” surely applies here: a hasty move to FITF may waste our best hope for obtaining from other countries the grace period that is so critical for small entity innovation, academic discourse and prompt dissemination of information.

Read/download a copy of Professor Bagley's draft paper here (link).