Avoiding Poison Apples and Tending to Blackberries: Did Canada’s 1989 Shift To First-To-File Nip Small-Time Innovation In the Bud?

New legal research from the University of Pennsylvania Law School suggests so. The aim of the study, according to Professors David S. Abrams and R. Polk Wagner, is to empirically predict how the recent changes to American patent laws, introduced by section 3 (s3) of the Leahy-Smith America Invents Act (AIA), will affect American innovation after it comes into force on March 16, 2013.

To achieve this end, Abrams & Wagner looked to Canada’s shift from a “first-to-invent” (FTI) to “first-to-file” (FTF) system for claiming priority. The study finds that the shift to FTF resulted in a reduction in the number of patents granted to individual Canadian inventors and small businesses and warns American law makers of similar consequences could result from the implementation of s3 of the AIA.

From First-To-Invent to First-To-File
Currently (and until March 16, 2013) the US follows an FTI-priority rule.  This means that in a dispute between two applicants for a patent of the same invention, the party which had the inventive idea first is entitled to the patent.  This is typically established by using lab notebooks, emails and other documentation that may have recorded the date of invention.  Conversely, a system based on FTF-priority rules relies on the date when a patent application was filed with the Patent Office for the determination of priority.

The Resulting Issues
This change is not without controversy (see previous blog). Some critics argue that a shift away from FTI-priority rules reduces the inventive process to a “race to the patent office” –a race that ultimately favors large corporations over individual inventors given that large firms have the financial capacity to keep expensive legal teams on call. Others have argued that the AIA’s streamlining of the priority  determination process is actually better for small businesses since it reduces overall legal costs in the event of a dispute (click here to read about a constitutional challenge to the AIA). Still others have raised relevant concerns pertaining to protection of the public good and prior art identification.

Contribution of the Abrams & Wagner Study
Abrams & Wagner lend an empirical perspective to this debate by considering a similar law change that occurred in Canada on Oct 1, 1989.  This study finds that: (1) the overall rate of patent applications experienced a sudden drop after the law change (from an average of 1700 applications/month to 1000 applications/month), (2) patents awarded to individual inventors dropped by 15% after the legislative change, and (3) there was no apparent change in the quality of the patents granted after the law change – but is not conclusive as to the cause of these phenomena.

Caveats of the Abrams & Wagner Study and Areas for Further Research
The authors submit that contemporaneous legal changes to the patent laws may have also affected the sudden drop in applications in 1989.  These include: changing patent term from 17 to 20 years, the introduction of maintenance fees, and the introduction of deferred examination.

Additionally, socio-economic causes may have contributed to a reduction in the number of patent applications submitted by individual inventors.  These include: fewer resources available to inventors, less invention by individuals, demoralization in the light of the legal changes and an increase in the number of individual
inventors that joined firms.  Further academic research into these possible causes should be conducted to test the conclusion reached by Abrams and Wagner.

Regarding conclusion (3), Dr. Ron Bouchard wrote an interesting entry on this blog, describing a new way of incrementally grading the value, not only for patents in the life sciences and other technology-intensive sectors, but also for associated regulatory approvals, chemical components, patent characteristics (the “innovative index”).  It would be interesting to see if the methodology developed by Dr. Bouchard could be used to expand upon the picture created by the Abrams & Wagner study.  (For other IPilogue entries pertaining to patent valuation click here and here.)

Takeaway for Canadians
As Canadian business leaders and law makers alike watch our largest tech giant reinvent itself through product reinvention, downsizing, and shuffling of management – the Abrams & Wagner study may raise some appropriate questions in this time of self-reflection.  Does the Canadian patent system stifle true grassroots innovation in our tech sector?  If so, is there room for reform?  If not, what are the consequences of the American harmonization with the rest of the world’s FTF priority laws?  Could we be seeing the levelling of a procedural playing field? Could we start to see a reduction in the traditional Canadian-to-US brain drain?

“Poisoning the Next Apple? How the America Invents Act Harms Inventors” can be viewed here and is scheduled for publication in the current volume of the Stanford Law Review.

Beatrice Sze is a JD Candidate at Osgoode Hall Law School.