The most sweeping changes to U.S. patent law in almost 60 years are closer to reality. At the heart of recent legislation is a shift from a “first-to-invent” to “first-inventor-to-file” system.

For years, inventors and innovation experts have claimed the United States patent system is broken. Now, after a decade of wrangling, Congress is close to enacting sweeping patent reform legislation. In June, the United States House of Representatives approved H.R.1249, legislation to overhaul the U.S. patent system for the first time in almost 60 years. The Senate passed similar legislation, S.23, in March.

Dubbed the America Invents Act (previously called the Patent Reform Act of 2011), the two bills must be reconciled by a joint Senate-House conference committee before being sent to the president and becoming law.

There are important differences between the two bills, which cover how patents will be awarded in the future, how challenges to just-issued patents can be pursued and what resources the U.S. Patent and Trademark Office (USPTO) will have to reduce its nearly three-year backlog of patents.

Among the chief differences is the funding mechanism for the USPTO.

The Senate bill permits the USPTO to keep all user fees it collects, putting an end to the practice of fee diversion. Since 1992, the office has purportedly lost nearly $1 billion because it gets less from Congress than the fees it collects, which go to the general Treasury — a major factor in the backlog in processing applications.

House lawmakers, however, “acceded to Appropriations and Budget committee demands that Congress retain control over the USPTO’s purse strings,” the Associated Press explains. As a compromise, it was agreed that the agency would keep patent fees but put any funds excess of its annual budget into a reserve account overseen by Congress.

While there are other differences between the Senate and House bills, the core reforms are consistent. The bills are similar in expanding pre-grant “prior art” submissions, implementing broader post-grant and inter partes review procedures and limiting private false marking actions for statutory damages.

Most notably, however, both bills replace the U.S. patent system’s “first-to-invent” (FTI) standard — meaning regardless of who files for a patent, it is awarded to the first person to invent the product — with a “first-inventor-to-file” (FITF) system comparable to patent systems in other countries, while retaining some aspects of the U.S. one-year grace period for inventors to file for patents after publicly disclosing their inventions. The U.S. patent system has long been a FTI system, while almost all countries have adopted the FITF system.

Under the new legislation, patents would be awarded to the first person or business to file a patent, regardless of who invented it.

Both systems concern the situation of two inventors independently inventing the same thing and filing competing patent applications that claim the invention.

“In a first-to-invent system, the second-to-file is given an opportunity to win the patent by proving, under strict rules, that he or she made the claimed invention before the first filer,” patent lawyer Richard Beem writes on his website. “A first-inventor-to-file system is simpler: The first inventor to file his or her application wins the patent. (The second filer also may have some limited rights, depending on the situation.)

“Both systems,” Beem continues, “reward only inventors; they do not reward anyone shown to have derived, that is, stolen, the invention from someone else.”

Legislators claim the reason for removing the FTI provision from patent law is to bring U.S. laws into “harmonization” with the rest of the world. A bill summary states transitioning to the FITF system will simplify the application system and bring it in line with the nation’s trading partners.

“Some inventors and small businesses complained that switching to a ‘first to file’ system would give large companies an advantage and hurt individual inventors,” the Wall Street Journal says. “Opponents argued there is no reason to change the U.S. system.”

Yet a comprehensive review of existing data in 2005, conducted by former Commissioner of Patents Gerald Mossinghoff, demonstrates that the current FTI system disserves “small entities” — independent inventors, small businesses and universities — relative to a system grounded on the FITF principle.

Although the House and Senate bills must now be reconciled, enactment appears likely and the White House has already signaled its support for the legislation to be signed into law.

The America Invents Act stands to transform the playing field for innovators and entrepreneurs within the patent process. For a closer look at the legislation and what it means for inventors, small and large businesses, investors, universities and the overall U.S. economy, see the resources listed below.

Related

Back to Work on Patent Reform

A Call for Changes at the Patent Office

USPTO Debuts New Patent Fast-Track Plan

Resources

Patent Reform – America Invents Act
by Tate L. Tischner and Shelley A. Jones
Lexology, July 7, 2011

House Moves Patent Reform toward Enactment
by Bradley W. Grout, Eric J. Hanson and Tyler Maddry
Lexology, July 8, 2011

Summary of the House and Senate Patent Reform Bills
McDermott Will & Emery, July 13, 2011

2011′s Patent Reform Legislation
by Glenn S. Tenney
IEEE-USA Today’s Engineer, March 2011

Patent Reform: First to Invent vs. First Inventor to File
by Richard P. Beem
BeemLaw.com, July 14, 2011

Comparison of the Current U.S. First-to-Invent System with the First-Inventor-To-File System…
by Ann McCrackin, Stephen Brodsky and Amrita Chiluwal
Patently-O, March 2, 2011

Patent Reform Passes: Who Won?
by Jonathan Ortmans
Entrepreneurship.org (Ewing Marion Kauffman Foundation), June 27, 2011

Debunking the Myths about First-Inventor-to-File
Coalition for 21st Century Patent Reform, May 10, 2011

Small Entities and the ‘First to Invent’ Patent System: An Empirical Analysis
by Gerald J. Mossinghoff
Washington Legal Foundation, 2005

House Version of Patent Reform Poses Challenges for Biotech Inventors
by Alex Philippidis
Genetic Engineering & Biotechnology News, June 28, 2011

First to File Will Create More Jobs
by Adrienne Selko
IndustryWeek, June 17, 2011

Manufacturers: Congress Must Protect Intellectual Property and Jobs
National Association of Manufacturers, June 23, 2011

House Approves Major Overhaul of Patent System
by Jim Abrams
The Associated Press, June 23, 2011

Patent-Overhaul Bill Clears House
by Amy Schatz
The Wall Street Journal, June 24, 2011

…Strategies for Coping with First to File Under the America Invents Act
by Eric W. Guttag
IPWatchdog, July 7, 2011