First-to-File or First-to-Invent?

Table of Contents

I. It Is Time to Act

II. International/Harmonization Considerations

A. A Single Uniform International Patent Law is Desirable in Itself

B. We Need to Use the Bargaining Chip!

III. National Considerations

A. Priority Interferences Are an Enormous Waste of Scarce Economic Resources

B. Going to First-to-File Would Encourage Early Filing--And, Therefore, Early Disclosure

IV. Conclusion

I. It Is Time to Act

I clerked for Judge Rich. During my clerkship, I became fascinated by interference law, and I told the judge that I hoped to become an interference specialist. He responded that, shortly after he went to work for his dad (who was also a patent attorney), he had become fascinated by interference law and had told his dad that he hoped to become an interference specialist. His dad responded that that was a bad idea, because the country was likely to go to a first-to-file system within the next five years.

Judge Rich died recently at the age of 96. He started working for his dad in 1929. I think that that conversation must have taken place in 1932 or 1933. Nevertheless, we are still hearing that the country is likely to go to a first- to-file system "within the next five years."

Contrary to what some may think, I am a strong proponent of our going to a first-to-file system. Our doing so would not be good for my practice, but I think that it would be good for the country. I'm here to tell you why.

The reasons that I'm in favor of going to a first-to-file system can be divided into two areas--those relating to what I think would be good for the international patent system as a whole and those relating to what I think would be good for the U.S. patent system in particular. I will cover my points in that order.

II. International/Harmonization Considerations

A. A Single Uniform International Patent Law is Desirable in Itself

Most companies big enough to have a patent portfolio compete internationally. That means that they sell products or services in countries having different legal systems and different specific laws. That is a tremendous "cost of doing business." The more that that cost of doing business can be minimized, the better it will be for all of us.

International laws are not going to be fully harmonized in many respects within our lifetimes-- anymore than the laws of the various states in the United States are going to be fully harmonized within our life-times. However, patent laws are by their nature good candidates for harmonization. They are very important, but only to a relatively small number of people, and many of the people to whom they are very important are scientists, engineers, portfolio managers, and long range strategists working for large multi-national corporations--people not given to shooting one another to settle disputes. Moreover, many of the disputes over patent laws are subject to economic analysis and at least partially rational decision making. 1

From the perspective of companies that sell internationally, having patents that cover a single invention in the hands of different companies in different countries 2 is, on balance, undesirable. (Of course, most of us have, from time to time, relied on that fact to induce a settlement that is advantageous to our client. However, I'm trying to talk in general terms here!) It leads to irrationally carved up markets and high transportation and marketing costs. 3 The only possible thing to be said in favor of this situation is that local protection for an invention may shelter a start-up company long enough for it to grow up to be an international player--but, even then, to the extent that the local protection stems from the irrationality of the international patent system rather than from competitive factors specific to an individual market, the local protection leads to occasionally serious misallocation of scarce economic resources.

Accordingly, it would be good for the world market and for industrialized civilization as a whole if the United States would change its archaic first-to- invent system, which is undoubtedly the most significant idiosyncratic aspect of American patent law, to a first-to-file system.

B. We Need to Use the Bargaining Chip!

One of the most frequently heard arguments for retaining our first-to-invent system is that it is so annoying to our trading partners that we can use our refusal to change to a first-to-file system as a bargaining chip to force them to change something about their patent systems (or something totally unrelated to their patent systems) in return for our finally changing to a first-to-file patent system.

Well, a bargaining chip sitting on your side of the table has only potential value. In order to get real value from it, you have to either cash it in or use it to make or call a bet.

I think that the time has come to use the first-to-invent bargaining chip!

From where I sit (as the head of Oblon, Spivak's interference section), the most annoying thing about non-U.S. patent law is the absence in European and Japanese law of an effective, inter partes system for deciding the issues other than priority that we decide in interferences. Those issues are (1) derivation, (2) inventorship disputes among former colleagues, (3) interfering cases naming the same inventive entity but filed by different real parties in interest, (4) cases involving interleaving priorities, and (5) improvidently issued junior patents. 4 Our interference system deals quite well with all of those issues. However, the corresponding European and Japanese laws deal with those issues very badly. 5 Since those issues are, historically and logically, closely tied to the first-to-invent versus first-to-file issue, I think that it would make sense for us to move from our first- to-invent system to a first-to-file system in return for the Europeans and the Japanese bringing their own benighted "interference" systems up to international standards-- which, in this case, means up to U.S. standards.

If others think that we can get more for our first-to-invent bargaining chip, more power to their elbows--but I would hate to see us miss the opportunity to get at least that much in return for cashing in our first-to-invent bargaining chip.

III. National Considerations

A. Priority Interferences Are an Enormous Waste of Scarce Economic Resources

What is the scarcest economic resource in which Americans lead the world? Brains! Inventive genius! Call it what you will--there's never enough of it.

A couple of years ago I was handling a big ticket interference in which my side's inventors were named the Inventors of the Year by the Intellectual Property Owners Association. At about the same time, my client assigned the lead inventor to us full time. That is, it told him that it was more important for him to work with us to win the interference than it was for him to work at his laboratory bench making more inventions!

My client's decision was good for us, but it was grotesquely bad for the nation. While the inventor spent his time racking his brain trying to remember what he had done and when he had done it years before (and more importantly, trying to find documents to substantiate his hazy memory), he could have been back at his bench making more important inventions.

As things stand, important people (i.e., inventors--not patent attorneys!) spend enormous amounts of time on historical matters which, at least in most cases, are of absolutely no use to anyone apart from the interference and of no interest to anyone at all for any reason!

B. Going to First-to-File Would Encourage Early Filing--And, Therefore, Early Disclosure

The Patent Act of 1999 means that, in the overwhelming majority of cases involving commercially important inventions, the applications on those inventions will be published for all to see eighteen months after the earliest filing date of an application disclosing the invention. That's good. But the eighteen month clock does not start running until the earliest application disclosing the invention has been filed.

I once had occasion to compare the estimates of respected colleagues here and abroad concerning the average period of time between when an inventor shouts "Eureka!" and when a home country application is filed on the invention. Not surprisingly, the estimates were that the average time in Europe exceeds the average time in Japan and that the average time in the United States greatly exceeds the average time in Europe.

If the U.S. goes to a first-to-file system, it is reasonably predictable that the average time between Eureka! and filing will go down in the United States. I personally think that we'd get that average time down to less than the average time in Europe, but I don't kid myself that we'd get it down to the average time in Japan. Nevertheless, if we did get it down to less than (or even roughly the same as) the average time in Europe, we would have made a substantial positive contribution to the betterment of society.

IV. Conclusion

In the past, patent lawyers were notoriously bad at getting long overdue patent legislation enacted. However, in the last several years, we seem to have gotten much better at it. Perhaps the time has come to make good on Judge Rich's dad's prediction.

Published in the Journal of the Patent and Trademark Office Society, 82 JPTOS 891, December 2000.

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Endnotes

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* This is a slightly revised version of a paper delivered on October 06, 2000 in Arlington, Virginia at a conference entitled "Patent Interferences in the New Millennium" sponsored by the Intellectual Property Law Section of the Virginia State Bar.

** 2000 Charles L. Gholz is the head of the Interference Section at Oblon, Spivak, McClelland, Maier & Neustadt, P.C. in Arlington, Virginia. His email address is cgholz@oblon.com.

1. I say "at least partially rational decision making" because my son, Prof. C. Eugene Gholz of the Patterson School of Diplomacy and International Commerce at the University of Kentucky, asserted in response to an early draft that:

Economic analysis ideally would tell us what the value of different patent law changes would be for the global society, for each national GDP, and for each interest group that might seek to influence each national policy. But policy choices are the outcome of the pulling and hauling of specific interest group preferences: a diffuse good for the whole world that is costly to small, motivated groups would be unlikely to get adopted. The key point for you to make is that the patent law change that you are proposing is good for small, concentrated, motivated interest groups: the MNCs and export- oriented companies. On the other side, it is bad for another small, highly- motivated interest group: American patent lawyers. Which of those groups will be more influential in determining long-run policy choices remains to be seen, but frankly I'm betting on the American patent lawyers. And so I'm betting on non-harmonization. Especially because MNC's interests will be nonhomogeneous, depending on the specific characteristics of each firm's patent portfolio.

With respect, I disagree with my son. The patent law change that I am proposing is only bad for a very small subset of the set of American patent lawyers--namely, the interference bar. We may be highly motivated, but there aren't very many of us! As for American patent lawyers who are not members of the interference bar, according to recent polls of the members of the American Intellectual Property Law Association, a majority of its members supported the U.S.'s going to a first-to-file system if it did so as part of international harmonization and in return for a suitable quid pro quo. I deal with the quid- pro-quo issue in section II.B.

2. In theory, of course, the different companies could work this problem out in an economically rational fashion by assignments and licenses--and often they do. However, it has been my experience that, in practice, they often do not. Thus, the result of the issuance of patents that cover the same invention to different companies in different countries is often the Balkanization of what would otherwise be one world-wide market for the invention.

Incidentally, assuming that I am right that different holders of patent rights on the same invention in different countries often do not work out this problem in an economically rational fashion by assignments and licenses, I don't know why this is so. I think that this is an area which would benefit from some scholarly study.

3. I am assuming here that the world-wide market remains Balkanized. In that event, products embodying the invention will be shipped to and marketed in different countries by companies located in at least two different countries. For instance, a frequent result is that an American company manufactures in the U.S.A. and markets the invention in the U.S.A., that a European or Japanese company manufactures in its home country and markets the invention in Japan and the countries in which it obtained a so-called "European patent" (which are, of course, less than all of the countries of Europe), and that the two companies compete throughout the rest of the world (because neither company has patent protection outside those countries).

4. See generally Gholz, How the United States Currently Handles the Interference Issues that Will Remain in a First-to-File World, 18 AIPLAQJ 1 (1990).

5. See the other articles published in the same issue of the AIPLAQJ as my article cited in footnote 4. The title of that issue was "Interference Issues in a First-To-File World," and it contained articles on the subject by leading practitioners from Canada, Europe, and Japan.