A Micro-Benefit For Small Businesses Under The America Invents Act

A Micro-Benefit For Small Businesses Under The America Invents Act

Leslie Chong is a JD candidate at Osgoode Hall Law School, and is currently enrolled in Professor Ikechi Mgbeoji’s Patents class, in Fall 2011. As part of the course requirements, students are asked to write a blog on a topic of their choice.

Touted as the most significant development in American patent law since 1952, the Leahy-Smith America Invents Act (“AIA”) aims to reform the current U.S. patent system in an effort to foster innovation by allowing “entrepreneurs and businesses to bring the inventions to market sooner, creating new businesses and new jobs”.

As the topic du jour shifts away from the U.S. becoming a “first-to-file” patent system and the introduction of a post-grant review process, commentators begin to unravel the intricacies of the AIA and the impact they will have on patent-reliant industries. The dust has begun to settle, and commentators have started to question whether the AIA will be effective in assisting small businesses and start-up companies.

As a means to help ease the financial cost of patent applications for small businesses, the AIA has introduced the concept of “micro entities” as new category of patent applicants. A “micro entity” is defined under section 35 U.S.C. § 123. To qualify, the applicant must “(i) qualify as a small entity; (ii) be named as inventor on no more than four previously-filed patent applications; (iii) have less than three times the median household income in the previous calendar year; and (iv) have not granted a license or ownership interest in the application to an entity who does not meet criteria (iii)” (see here for a detailed discussion of criteria).

Under the existing U.S. patent system, qualifying “small entities” received a 50% reduction in various fees as compared to “large entities” in the patent application process. Under the newly unveiled AIA provisions, a patent applicant that meets the requirements to become a “micro entity” is entitled to a 75% reduction in fees.

While this provision appears to support the government’s promise of reviving the U.S. economy by spurring innovation among entrepreneurs, these “micro entity” discounts are not available until 2013. Rather, the immediate increase of 15% to all patent fees actually makes the patent application process more expensive for small businesses – at least until the “micro entity” provisions become operable. With no indication as to whether refunds or credits for overages will be granted to qualifying “micro entities” who have made applications in this interim period, it is uncertain whether the AIA provision will provide any immediate stimulus to the U.S. economy.

With support from the Coalition for Patent Fairness, which represents well-established corporations like Google, Apple, Cisco and RIM, one might question whether the AIA is unintentionally helping big companies that already possess a sophisticated patent portfolio. Putting the issue of increased fees aside, groups representing small businesses and their investors have also argued that these changes place larger companies with deep pockets and fleets of patent lawyers at a clear advantage in the “first-to-file” system.

However, supporters of the AIA still believe that the changes will (in the end) benefit small businesses. They have cited the Prioritized Examination (“PE”) provision, for example, as a way of allowing smaller businesses to tailor their investments in a single area of expertise and to fast track the patent examination process. These provisions will allow businesses to reduce the average 3-4 year examination period to less than 12-months. This PE program is at a substantially reduced fee for smaller businesses, and allows them to “quickly ramp up the size of their patent portfolio”.

Furthermore, AIA proponents point to new provisions that reduce the need to rely on patent lawyers. For example, the AIA now reduces the need for opinions of counsel in order to establish a defense to willful patent infringement. While in the past these opinions of counsel were used as a defensive tactic to avoid the threat of excessive damages, they are very expensive to obtain and often put smaller businesses at a disadvantage. With the AIA, smaller businesses can operate without needing to incur costs in their defensive strategies since “the failure of an accused infringer to obtain an opinion of counsel… cannot be used to prove willful infringement”. And while some surmise that the AIA is actually increasing reliance on patent lawyers, it will be interesting to see if these changes (and others) will actually reduce the cost of the patent process for small businesses.