Small businesses call on Congress to reform patent system, citing expensive lawsuits, backlog

Small business owners pleaded Thursday for an overhaul of the U.S. patent system they say unfairly favors corporate titans who can afford lengthy approvals time and expensive litigation to protect patents.

At a House Small Business Committee hearing, Mitchell Gross, chief executive of Rye, N.Y.-based software maker Mobius Management Systems Inc., said, "I am here to stress the fact that the U.S. patent system is broken and needs to be fixed."

Various patent reform bills failed to garner support last year in a Republican-controlled Congress, but a Democrat-led House has made enacting reforms a priority this year. The Patent Office faces an application backlog that is expected to reach 800,000 in 2007, a 14 percent jump in one year. Getting an initial response takes between one and six years.

Reform is needed because getting patents approved is "too expensive, takes too long and poses too much risk that an overly broad patent" will be issued, Gross told the committee, which is chaired by Rep. Nydia M. Velasquez, D-N.Y.

Gross represented the Information Technology Association of America trade group of 325 companies, about half of which are small businesses. Facing court rulings that often overestimate the true value of infringement forces defendants to settle even if they believe they're innocent, he added.

There is a "chilling effect" on small businesses that may have legitimate infringement claims but are outgunned legally and financially by the resources of large corporations, said Rep. Charles Gonzalez, D-Texas. He said he sympathized with major technology and pharmaceutical firms that claim to be barraged with sometimes frivolous lawsuits, but noted that they would always have more resources than small businesses to defend and protect patents.

Patent Office Commissioner John Doll said one alternative available is paying about $2,500 to challenge a patent and have three senior examiners review it. Fees to get a patent approved are $2,400 and small businesses and individuals pay half that amount. However, the infringement remedy is rarely used because it is much more limited than what can be claimed in court.

Doll declined comment on specific legislative proposals until his office has reviewed them. Two programs that he repeatedly said could benefit small businesses are an online peer review pilot slated to begin this summer and a fast-track patent approval process that promises resolution within a year.

IBM Corp., Microsoft Corp., General Electric Co., Hewlett-Packard Co., Oracle Corp. and Red Hat Inc. have funded and agreed to community review of 250 software patent applications. Small businesses and individual inventors also are participating, but some have expressed concerns that they'll be picked apart by the larger firms, Doll said.

At the hearing, he said everyone benefits from a stronger patent they know will withstand legal challenge since the examiner's review will include the most relevant information an expert peer group can provide.

Earlier this month, the government approved the first patent under the fast-track program, which requires a more detailed-than-usual application and an extra $130 fee.

Critics of both programs say there are potential legal liabilities. In the peer review program, the concern is commenting on a rival's application and then later facing a "willful infringement" court finding, which can triple the damages. That pilot program's director says the law applies to approved patents, not applications.

In the accelerated exam program, the concern is the potential of "inequitable conduct" that can invalidate patents if courts rule that companies failed to submit all relevant information needed to assess whether an application should be approved.

The biggest problem with the patent system is the Patent Office's backlog, not unworkable laws, says Ronald J. Riley, a Michigan inventor and president of the Professional Inventors Alliance.

The 13,000-member advocacy group based here claims that the Patent Office's plan to increase the number of examiners 50 percent to 7,500 in four years isn't enough.

At least 15,000 are needed to reduce the backlog, Riley said.

Riley also blamed part of the backlog on tech giants, such as Microsoft and others. He said they face a "litigation crisis" because they focus on making incremental improvements to existing inventions and "stomp all over" the individual inventors and small businesses that are innovating.