June 11, 2012

State of Alabama
Press Release: Alabama Department of Commerce

Keeping America's Best Ideas Under Wraps

June 7, 2012

Keeping America's Best Ideas Under Wraps

By and

Any inventor who applies for a patent runs the risk—admittedly small—that the federal government will snatch the idea away and lock it up in a vault, never to be seen again. That’s what happens when the Department of Defense declares an application to be a matter of national security. It’s rare for a random patent application to be flagged. Usually, national security secrecy is applied to the inventions of defense contractors working with the Pentagon on weapons systems, which the U.S. wants to keep foreign governments from copying.

Now, Congress is considering whether to extend similar secrecy to inventions that don’t have anything to do with defense. Virginia Republican Representative Frank Wolf tucked a provision into a November spending bill that calls on the U.S. Patent and Trademark Office to study the feasibility of locking away certain commercial patent applications in the name of “economic security.” The notion is that some product ideas are so good they should be hidden from countries such as China that have a history of ignoring U.S. patents and flooding overseas markets with cheap copycat products.

It takes, on average, 16 months to complete a patent application after it’s made public, often longer for chips and electronics. Wolf is concerned foreign companies could use that gap to get information or steal the idea, putting the U.S. at an economic disadvantage. “It may be some cutting-edge technology, game-changing technology, and we’re exposing it … with no protections,” says Thomas Culligan, Wolf’s legislative director.

Patent office officials, who are collecting public comment on Wolf’s proposal through this month, haven’t yet taken a position on its merits. Former agency employees have shown no such reluctance. “It’s ridiculous. Absurd,” says Robert Stoll, who ran the agency’s patent applications office before retiring in January to practice law. Opponents of the plan argue that shielding patents from public view would undermine the bargain, established in the U.S. Constitution, that gives inventors a limited monopoly on their ideas in exchange for revealing them to the world so others can build on them. And inventors whose applications are declared secret wouldn’t be able to patent the idea in other countries—including China—a common way of protecting against copying from abroad.

Most manufacturers won’t want to give up foreign patents even if they are tipping off rivals or counterfeiters, says Stoll. “Commercial espionage is rampant, and everyone’s trying to get a leg up on the leaders in the market. But secret patent applications are fraught with peril and would harm the United States in the long run.”

Each year the patent office is flooded with about half a million applications. The agency would have to figure out which of those to pluck out for secret status. Companies spend millions trying to divine which products will be hits and which will flop—it’s hard to imagine the government’s crystal ball would be any better. “No one knows if what’s in a published patent application is going to be a blockbuster,” says Don Pelto, a patent lawyer with Sheppard, Mullin, Richter & Hampton in Washington. “Nearly every patent applicant is hoping their invention becomes economically significant.”

Even if the government does find a way to pick which patent applications to keep in a black box, it’s unlikely to do much to protect U.S. markets from foreign companies intent on lifting ideas, says Willy Shih, a professor of management practice at Harvard Business School. Patents, he says, are a trailing indicator of economic value. Would-be infringers want to snap up the biggest ideas—especially software and other technology—early in their development, long before they’re ready to be revealed to the world. “The much more interesting stuff, the really good stuff, is probably not patented yet,” Shih says.

If commercial secret patents work the same way as national security patents, many companies will rebel, says Pelto, whose firm represents defense companies. “No applicant is very happy about having their application placed under a secrecy order.” There were 5,241 such orders in effect in 2011, most established by the Department of Defense. Some inventions can remain secret for decades. One application for a radar system developed by the Navy in 1948 didn’t become a patent for 45 years. “There’s no way for the applicant to have that secrecy order lifted,” Pelto says. “You’re stuck. If the same stuck-ness applies to this potential new rule, applicants are in a heap of trouble.”

The bottom line: To thwart Chinese theft of U.S. ideas, the patent office is studying whether to declare some inventions “economic security” secrets.

Decker is a reporter for Bloomberg News in Washington. Engleman is a reporter for Bloomberg Government in Washington.

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