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America Invents Act of 2011: Good or Bad for Small Businesses?

With the new patent reform bill of 2011 under way (i.e. America Invents Act of 2011), it is clear that Congress and President Obama intended to help small businesses. The new micro-entity status reduces fees for individual inventors and very small businesses. The Act speeds up the patent prosecution process and clarifies some gray areas of patent law so that small businesses can save time and money on litigating complex areas of patent law.

The Act also establishes a “pro bono” division in the United States Patent and Trademark Office (“USPTO”) to help financially troubled small businesses. The USPTO, under the Act, is required to conduct studies focused on small business concerns. The USPTO will report to Congress on how the Act is impacting small businesses with regards to securing patent protection abroad, access to capital, and other matters.

However, there may be some negative consequences to the new bill. The National Small Business Association has cautioned lawmakers against such patent reforms. Some of the biggest changes of the Act included the switch from a first-to-invent to a first-to-file system. Patent protection now begins once the invention is “reduced to practice” rather than once it is “conceived.” This switch helps those who are better equipped with resources to achieve reduction of practice, which comes after conception. Thus, this first-to-file system favors entities with financial and staffing resources that are often not available to small businesses.

The Act also shortens the deadlines for how early a patent application must be filed. The removal of the existing grace period, which allows small firms up to a year to raise capital, perform tests, and build partnerships prior to filing for a patent, will force small businesses to file applications earlier. This may result in greater costs for small businesses at a financially difficult time in their development.

Prior to the change, startups and small businesses could initiate discussions with third parties such as investors, subcontractors, professors, or possible strategic partners prior to filing for the patent. They could test, perfect, and even experiment with the invention to show that it is technically feasible and marketable before paying money to hire an attorney and secure their patent rights.

The Act basically changes all of this. Now, small businesses and startups have a bit of a problem, which is the same one faced by inventors in Europe. They do not want to risk disclosing their secrets to investors prior to filing a patent application, but they often will not have the money for a patent application prior to getting an investor. It appears that nondisclosure and confidentiality agreements will likely come into play more often.

As with any new law, the Act casts clouds of new legal uncertainty over patent rights (even though some other areas are cleared up). Certain provisions will have ambiguous clauses, which will likely not be resolved until litigation in court. This Act, while enacted with good intentions for small businesses, does have some negative side effects.

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