Patents: "a map of the minefields".

Increasingly, the U.S. Patent and Trademark Office (PTO) has become a notoriously dysfunctional guardian of new technology. PTO examiners consistently take years to process a patent application.

And they routinely overlook well-known "prior art" and award protection to vaguely-worded ideas, such as the Freeny patent on all forms of electronic commerce (Soft*letter, 5/29/96), that end up causing legal battles that legitimate inventors often can't afford to fight.

But help may be on the way. A patent reform bill sponsored by Senator Orrin Hatch (R-Utah) has been working its way through Congress this summer. The bill promises to streamline the patent process, in part by turning the PTO into a semi-autonomous corporation that would be relatively free of government bureaucracy.

One of the Hatch bill's strongest fans is PowerQuest chief executive Eric Ruff, who recently testified before the Senate Judiciary Committee as an entrepreneur and patent-holder who "put my heart and soul--not to mention a second mortgage and all my credit cards--into developing the technology behind two of our software utilities."

Ruff recently answered several of our questions about patent reform:

Eric, PTO examiners have acquired a reputation for rubber-stamp approval of just about any software application they see. Is there anything in the Hatch bill that will help improve the quality of the examiners themselves?

"Right now, it's nearly impossible for the PTO to hire properly qualified examiners who are willing to work at sub-market wages. Under the Hatch bill, the Patent Office would have complete control over its revenues. It would be allowed to pay market wages to attract the additional human resources it needs to handle the increasing load of patent work."

You've been particularly enthusiastic about a part of the Hatch bill that requires the PTO to disclose the contents of a patent application 18 months after it's filed. Why is early publication so important?

"This is the most widely debated and misunderstood part of the proposed legislation. First of all, you need to remember that the 18-month publication requirement is tightly tied to additional provisional rights that kick in immediately upon publication. The way the patent process currently works, a software patent can take a very long time to be awarded, sometimes three to five years from the application date. By that time, the largest part of its useful life may already have expired, and the patent holder can do absolutely nothing about any infringement that occurred prior to the patent's issue date.

"Under the proposed changes, all patent applicants will receive 'provisional rights,' which begin the moment the patent application is published. Although these rights can be enforced only after the patent is awarded, the patent holder can go back in time, all the way to the first publication date, and assert royalty rights against any infringer.

"As a result, companies that might otherwise infringe will very quickly find it in their best interest to enter into a licensing arrangement with an inventor even before his patent is awarded. And in return the inventor may find an easier time of getting money several years earlier than otherwise--for which he'll probably be willing to give a discount."

Of course, critics of this theory predict that would-be infringers will simply take advantage of early disclosure to tweak their technology just enough to avoid direct infringement.

"That's a possible risk. But most people totally neglect the very big issue of business risk to the inventor, especially to the small inventor. With early publication, a patent applicant can look at what inventions others are already looking at, and can avoid those areas that already have invention patents underway. He's much less likely to get a letter from a lawyer out of the blue, three or four years after starting a company, that tells him his technology infringes a patent that a competitor has just been awarded."

Presumably this early disclose would also make venture capital firms more comfortable about investing in technology startups.

"Exactly. After performing a quick search of the latest patent applications, they'll have a map of all the potential patent minefields that could get in the new company's way. Their only real risk would be an 18-month window of uncertainty."

If the Hatch bill passes, a patent holder's competitors--in fact, virtually any third party--will be invited to offer evidence of prior art during the patent review process. But how do you keep big companies from overwhelming the examiners with mountains of 'prior art' that isn't really relevant?

"That concern has been raised several times, but I believe it won't become an issue. Congress is also looking into this area to make sure that such an effect does not occur, and may make a couple of minor changes before the legislation is ready for adoption.

Remember, though, that only totally unique points that were not raised initially can be raised by a third party, and once an issue has been ruled upon, it cannot be raised again."

What about President Clinton's proposal to cut nearly 20% from the PTO's budget next year? If Congress accepts these cuts, will the patent backlog get so bad that the Hatch reforms become meaningless?

"I think it's insane to even consider decreasing the PTO's budget."

Eric Ruff, president, PowerQuest Corp., 1083 North State St., Orem, Utah 84057; 80 1/437-8900. E-mail: [e-mail].