WASHINGTON—A patent-system overhaul nearly a decade in the making is expected to receive final congressional passage this month, significantly altering how anyone with an invention—from a garage tinkerer to a large corporation—will vie for profitable control of that idea's future.
Patent Battles
Automobile: George Selden was granted a patent for the automobile in 1895. Henry Ford refused to pay and won his case on appeal in 1911. FM radio: Inventor Edwin H. Armstrong sued many companies he believed infringed on his FM radio patents. He committed suicide in 1954. Television: David Sarnoff's RCA battled inventor Philo T. Farnsworth, finally agreeing to license his patents in 1939.
The bill, which passed a key Senate vote Tuesday and is expected to get President Barack Obama's signature, will reverse centuries of U.S. patent policy by awarding patents to inventors who are "first to file" their invention with the U.S. Patent and Trademark Office. Currently the "first to invent" principle reigns, which often spawns costly litigation between dueling inventors.
The new system puts a premium on inventors with the wits—or deep pockets—to dash to the patent office as soon as they discover something useful and nonobvious.
Many big companies say that change will help forestall drawn-out disputes. "You'll end up with a patent system that's more predictable and far more certain," said Bob Armitage, general counsel of drug maker Eli Lilly & Co.
But small inventors fear the first-to-file approach will cause companies to overwhelm patent examiners with applications, a pace of activity individuals can't afford to match. Critics include Raymond Damadian, the doctor who invented magnetic resonance imaging technology and has said the MRI would never have been invented under the proposed rules.
"This is very, very harmful for small companies, and they're by and large completely unaware of what's about to happen," said venture capitalist Gary Lauder. "The biggest harm will come for companies ages zero to one." Right now, entrepreneurs can talk to potential investors and others to gauge the potential for an invention without much risk of the idea will be stolen, he said, and first-to-file reduces that opportunity.
The bill also includes provisions that larger companies have sought for years. They will gain a new way to challenge patents that have just been granted, and the U.S. Patent and Trademark Office will get the right to set its own fees and hire more examiners.
That could make getting a patent quicker. Currently, there's a three-year wait for patent applications and some patent-office programs—such as a fast lane for applicants that are willing to pay extra fees—are on hold because of funding shortfalls.
"Is it a perfect bill? No," said David Simon, associate general counsel at chip maker Intel Corp., who estimated he has been working on a patent overhaul for nine years. "But it has a lot of good steps forward that will help things."
The Senate voted 93 to five Tuesday to limit debate on the bill, which passed the House in June. Aides said final passage could come by next week, and then the bill would go to President Obama's desk for signature.
Mr. Simon said the new challenge procedure may cut down on patents that shouldn't have been granted and are now seldom tested until costly litigation has begun.
Another provision, he said, would make it harder for patent holders to file blanket suits against dozens of companies in dissimilar industries.
Companies like Intel that manufacture products have often found themselves at odds with companies that live solely on their patents, sometimes buying and selling them like stocks in a portfolio.
But Intellectual Ventures, one of the best-known companies in the latter category, said it generally supports the current version of the legislation, including the post-patent review.
Matt Rainey, the firm's chief counsel for intellectual-property policy, said the bill's provisions giving the patent office more control over its own funding are critical. "If we don't give the patent office the money it needs and the people it needs to carry it out, it could be worse," he said.
Larger companies argue that the change to a first-to-file system will make it easier for companies by bringing the U.S. in line with Europe and Japan.
Already, companies "should be running to the patent office as soon as they can because in the rest of the world you have to," said Stuart Meyer, an intellectual property partner at law firm Fenwick & West.
When Canada instituted a similar change to "first to file" in 1989, the number of individual inventors who filed patents dropped and didn't go back up in the following years, according to new research by a pair of University of Pennsylvania Law School professors.
"To the extent we think the patent systems in the U.S. and Canada are similar, we might expect to see a similar outcome in the U.S.," said David S. Abrams, assistant professor of law, business and public policy at the University of Pennsylvania Law School and a co-author of the study.
In response to the complaints from the small business community, the legislation sets up an ombudsman program to help start-ups and provides new discounts on patent filing fees for small companies.
Passage of the legislation would mark the end of a decade-long battle by companies to persuade Congress to overhaul patent rules and jump-start the slow-moving Patent and Trademark Office. Previous attempts to pass legislation died as various industry groups haggled over details in the bill, but some of the largest disagreements – such as how damages on patent cases are determined – have been settled by the courts.
The Senate passed an earlier version of the bill in March on a 95-5 vote. The House passed its version 304-117 in June. The House bill—the same one the Senate voted on Tuesday—creates a reserve fund for excess patent fees instead of allowing the patent office to automatically keep all the fees its collects.
That displeased some senators who believed the new system might continue to give Congress the leeway to take patent fees and use the money elsewhere, but the objections weren't enough to derail the bill in Tuesday's vote. —Siobhan Hughes contributed to this article.
Write to Amy Schatz at Amy.Schatz@wsj.com and Don Clark at don.clark@wsj.com