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The Back Room Politics of Patent Reform

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President Obama took a political swing through the Western United States in mid-February and was a guest of Intel and several other Big Tech corporations. On February 18, he went to an Intel facility and spoke with the employees about what his Administration is doing about "Winning the Future."

He could not have chosen a more fitting venue. Robert Noyce and Gordon Moore, two brilliant engineers, founded Intel in the summer of 1968. The third employee was Andrew Grove, who served as the corporate manager. Noyce and Moore created innovations in the semiconductor field that led to the creation of an entire industry.

Today, that little Silicon Valley start-up has grown into a company that does business in 50 nations and employs almost 80,000 people, half of whom work inside the United States. As President Obama noted, Intel is a dynamic corporate citizen in the communities where it operates, providing education to its workers and assisting in local projects.

As a start-up, Intel lacked the capital of competitors such as IBM, Motorola and Japanese manufacturers. What they did possess were unique inventions, patents and the protections provided by the U.S. Constitution - that is, their patent rights and the means to defend them in the federal courts.

Amazingly, Intel is among a handful of Big Tech corporations, including IBM and Cisco, which are lobbying the President and Congress to weaken patent laws in a way that will make infringement of the patents owned by others easier and deny to others the same opportunity that they had.

These companies use a business model termed "efficient infringement" by which they instruct their engineers to aggressively avoid doing a due diligence test as to whether the technology they are using is patented by others. The goal is to deniability in court whenever they are found to infringe and thus avoid paying the patent owner triple damages as current law provides.

The draft legislation that these Big Tech corporations drafted and persuaded the Senate Judiciary Committee to adopt in early February 2011 would make America's extraordinarily effective patent system more like that of Europe and Japan, which are structurally biased against small companies, entrepreneurs and inventors.

Their legislation would grant a patent not to the person who invented the creation but to the first-inventor-to-file the application at the Patent Office. The presumption is that an invention can simultaneously have multiple inventors and the winner is the one who beats the clock and gets the stamp first.

In practice, the existing U.S. patent system has no such problem determining who merits the patent. Of the more than 500,000 patent applications filed last year, there were only 47 contested patents as to who was the inventor. Moreover, the Patent Office has a well-oiled process to make that determination.

The real goal of this change is to take away what is known as the "grace period" - the one year prior to filing a patent application that inventors can use to reveal their secrets to potential investors and partners without worrying about their disclosures making their creation a "prior art" that is ineligible for a patent. This exists no where else and gives American inventors an advantage in their home country.

After stripping away this provision with a globalized patent award standard, the Big Tech companies will then ask that patents granted in China, India, Japan and elsewhere automatically be adopted in the U.S., allowing them to accelerate their movement of R&D offshore.

Indeed, this patent bill would do for the outsourcing of R&D jobs what NAFTA did for the outsourcing of manufacturing jobs.

The bill would also create a new European-style post-grant challenge process to invalidate a patent. In Europe, competitors use this process to tie up new technology in long, expensive administrative law reviews.

In effect, Intel and its corporate allies have climbed the economic ladder and reached success, but now it is trying to kick over the ladder for others.

Without question, the U.S. Patent Office is in trouble. A third of its 6,000 examiners must work at home because the Agency lacks enough office space. The computers are so antiquated that many parts must be found on eBay because they are no longer produced. The turnover rate of employees is more than 30 percent annually. The backlog of applications is more than 700,000 and the Agency will receive more than 500,000 new ones this year.

To make matters worse, the Agency relies on fees paid by patent owners for its revenues, but over the past decade Congress has diverted more than $800 million of those to the Treasury.

If President Obama and the Congress want to create more dynamic companies such as Intel, then they must recognize that Intel's advice on patents is short-sighted. The patent legislation that Intel, IBM and the other Big Tech corporations support will do nothing to cure the problems faced by the Patent Office.

The smartest move that the President and Congress can do now towards "Winning the Future" is to (1) enact legislation that will stop the diversion of patent funds to the Treasury, (2) return to the Patent Office the $810 million that has been taken away, (3) reject the bill that Big Tech supports (S. 23), and (4) have Congress hold hearings on what really needs to be done so that constructive legislation can be introduced in early 2012.