Patent (Regulation) Pending

Anthony Malakian, deputy editor, Buy-Side Technology

I'm tired of partisan politics. I would say, "like most Americans", but to be honest, I have my doubts as to how much supporters from either side of the political fence really want their representatives to reach across the aisle.

So upon perusing some press releases I got excited when I came across a statement from Steven Borsand, executive vice president of intellectual property for Trading Technologies (TT), on the dangers of congressional bill H.R. 1249-or, as it's more commonly known, the America Invents Act.

This is one of those sweet, sweet moments where Republicans and Democrats can shake hands and agree on one thing: They don't want to upset the people putting money into their coffers. This is a rare example of far-left liberals uniting with far-right Tea Partiers.

On Thursday, the House passed the Act by a vote of 304-117, with 136 Democrats and 168 Republicans in favor, and 50 Democrats and 67 Republicans against. Ahhhh, bi-partisanism.

For this bill, there are two parts that I find to be most interesting (even though there are several controversial sections, including where the fees for these patents will end up). The first is Section 3, which would change our current patent-filing system from that of a First-to-Invent to a First-to-File system, meaning that it doesn't necessarily matter whether you have an as-yet invented product or not, as long as you are first in the door at the US Patent and Trademark Office (USPTO).

First-to-File is the system that is most commonly used around the world and its proponents believe that changing to this method will create more innovation and, in this current environment, perhaps most importantly, more jobs.

But opponents say that a change away from First-to-Invent will greatly favor bigger institutions that have the money to flood the USPTO with filings, and that it destroys the idea of merit being most important and will create a massive strain on the USPTO.

"Ironically, this bill is not achieving one of the main reasons for patent reform in the first-place - reducing the patent office's backlog," Borsand told me. "This bill, due to first-to-file and post-grant review procedures, will do just the opposite."

I'll be honest: I'm not so sure that a first-to-file arrangement will spell doom for the system and this could actually stimulate job growth. I could be proved wrong on this, but if first-to-file works well for the rest of the world, maybe we can stop being so hegemonic.

But the section that interests me most is Section 18, which is being called the "Bank Bailout" part of the Bill in some circles. This provision was a "last minute" add-on, according to Borsand, that was created by the banking lobby.

The reason it is potentially dangerous is because it allows "Big Banks", as Borsand puts it, to retroactively challenge business method patents (BMPs) that have already been issued to, say, a company like TT, thus requiring a firm like TT to spend a lot more time and money defending an already-tested patent. Since the Big Banks have the deep pockets, this favors them.

"Members of Congress are realizing that Section 18 got inserted into the bill at the last minute in the Senate because of the powerful financial lobby," Borsand says. "All the things that people say that are wrong in Washington D.C. with provisions getting slipped into bills for a special interest, this is a pure example of that."

The reason this provision was created, it's defenders would argue, is to allow firms to challenge "suspect" patents and that many BMPs do not fit a high-quality standard.

But the worrisome thing is that Section 18 was made specifically for the financial technology space. This rule only applies to BMPs "used in practice, administration, or management of a financial product or service."

Now, this just doesn't pass the smell test. A) The banking lobby pushed to have this section included, and B) Why is this necessary just for the fintech space? Why shouldn't this affect all other industries?

"Statements that the patent office granted ‘suspect' business method patents are unsupported and incorrect," Borsand says. "If that was the case, why is Section 18 tailored to patents covering technology just for the financial industry?"

I have to agree. Sadly, those members of the House twho voted for the Bill do not, and have allowed this - and Section 3 - to pass. Up next is the Senate.

I'm all for patent reform, but like so much else in American politics, we are trying to change something with a broad stroke rather than examining all the little pieces.

Section 18 is one of those little pieces that could become a business-threatening issue for the vendor community in the fintech space. Let's hope the Senate does the right thing and strikes Section 18...although I'm not going to hold my breath.

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