Interview with Jack Lasesohn

Jack Lasersohn is on the Board of Directors of the National Venture Capital Association and is a general partner of the Vertical Group, a venture capital firm.

The Vertical Group works with medical and medical device related companies?
LASERSOHN: The Vertical Group does substantial, massive investing in medical device companies, as well as the buyer technology sector. Historically, I also did substantial investing in high technology, semi-conductors, software, and personal computers.

From your perspective, what within the current patent process and laws needs correction?
LASERSOHN: The American patent system is an absolutely bedrock foundation for the innovation system that the United States leads the world in. So the entrepreneurial system that the venture capital community follows and the transfer of technology from the universities into the commercial sphere are all absolutely made possible by the patent system.

It’s been said that other countries consider U.S. patent law and the U.S. patent system to be, indeed, one of the strongest in the world.
LASERSOHN: That’s right. And more importantly, I think that other countries recognize that the patent system has been a critical element in making Silicon Valley possible. The venture capital community, has invested, oh, about 300 billion dollars in innovation. And that 300 billion dollars has created industries. It currently represents about 15% of the Gross National Product, about 1.5 trillion dollars. And the most profitable industries in the United States, are almost entirely clean industries. And we very strongly believe that the patent system — again, with other things. It’s not just the patent system. Obviously our financial system, the NASDAQ Market system, and frankly, the American culture, the culture of Silicon Valley has made all this possible. But we all understand that with a weaker patent system than what we’ve had over the past four years, many of these industries would never have been created. Period.

You don’t think that the current patent system is necessarily perfect but it certainly works well.

Most importantly, we should spend more money on the U.S. Patent Office. We should fund it. We should make sure, in particular, that the fees that we pay… are used to increase the number of examiners, increase the resources of the patent office, improve the iKey system, the computer systems of the U.S. Patent offices….

LASERSOHN: The way I would say this is given the data that I’ve just presented, and the facts that venture capital has been incredibly productive over the past four years under this patent system, I would say that the burden of proof is on those who want to dismantle it. I mean it’s certainly not perfect. And we believe there are things that could be improved. But a major change, a radical realignment of the patent system, basically away from favoring inventors to favoring infringers, or to reducing the penalties and the disincentives to infringement, before a step like that is taken, the burden of proof really should be on those making the argument to demonstrate that that is in our national interest and that it will not have very negative consequences. So we’re absolutely willing to listen. This is an important context in which to understand that the evidences that the patent system has been enormously valuable in fostering innovation. I don’t see how it’s possible to argue the other side of that in light of the success of the venture capital system in the United States as compared to many other parts of the world where the patent systems are not nearly as strong.

With respect to the question of how the venture capital community views the current patent system, we recognize that it could be improved. And I would say that our most important priority in terms of improving the patent system would be making it produce better patents. In other words, there are a number of steps that we can take to make sure that patents issued by the patent office and, ultimately, attempted to be enforced are high quality.

And there are many things we can do– and that many proposals that are currently in the reform legislation as well as others that are sort of less focused on– that we think would be productive. Most importantly, we should spend more money on the U.S. Patent Office. We should fund it. We should make sure, in particular, that the fees that we pay – and our companies pay hundreds of millions of dollars in fees to the patent office — are used to increase the number of examiners, increase the resources of the patent office, improve the iKey system, the computer systems of the U.S. Patent offices, and generally upgrade the patent office.

In the current legislation, I believe that one component is increasing financial resources to accomplish those things. Yes?
LASERSOHN: No, it’s unfortunately more complicated than that. The key issue is that the fees that are generated are not diverted by Congress into the general federal budget, which is counted off it in the past. So it isn’t enough to say let’s have more fees. If those fees are not used by the patent office, then it’s nothing but a tax, an unfair tax on the people who use the patent office. And we strongly believe that the revenues generated by those fees should be not divertible by Congress. That is being proposed in the legislation. It is controversial; there’s a lot of politics involved in this. We feel strongly that no diversion of fees should be a critical element of any reform legislation.

One other thought. We also believe that there are other steps that can be taken to improve the quality of patents before they get to litigation. That’s in everybody’s interest. Nobody wants to litigate a patent that is invalid, in which the plaintiff spends five years and five million dollars on it to find this out. So we are in favor of a very carefully constructed system of post grant review. That has been tried in Europe. There is, in fact, a very extensive system of post grant review. But we support something that is a little bit more carefully crafted. That would help the patent office to ensure that they have all the information they need to make the right decisions. We want to make sure that that information is gotten to the patent office in an effective way. There are other, more critical issues — but these are really important. The patent system is very valuable. It can work incredibly well. We should be very careful about making fundamental changes. But certainly, giving more money per patent office and being certain to insure the production of higher quality patents are something we very strongly support.

Do you have an opinion one way or the other regarding the change from first-to-file versus current first-to-invent?
LASERSOHN: We are both okay with moving to a first-to-file system. There are pros and cons of it. I think, in fairness, the companies that we support — and of course that’s not every entrepreneurial company– tend to be a very selective group of entrepreneurial companies. They tend to be the most scientifically advanced and technically advanced start-ups. Those companies usually have the resources and the sophistication to file and to protect themselves under a first-to-file system. But we believe in balance, administrative benefits, the certainty of a first-to-file system, and the fact that that is the way it works in the rest of the world. The economy is really a globalized economy that we should have the same system as the rest of the world, in that respect. We think it’s an acceptable trade-off.