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US Patent Reform Legislation On Bumpy Road To Completion

by , Intellectual Property Watch 1 Comment

By Liza Porteus Viana for Intellectual Property Watch
The Patent Reform Act of 2007, proposed legislation to modify United States patent law, is a step in the right direction, but in its current form threatens to undermine innovation, the Bush administration said this week.

The Commerce Department on Monday sent a letter to the Senate outlining the administration’s concern over S 1145, which was introduced by Vermont Democratic Senator Patrick Leahy, approved by the Senate Judiciary Committee and, on 24 January, was placed on the full Senate calendar for consideration, possibly this month.

Claiming that US intellectual property is valued at more than $5 trillion, the administration letter [pdf] said that “any changes intended to improve our nation’s intellectual property system must be made carefully and thoughtfully.”

“We recognise our patent system in the United States is the envy of the world … but it can be improved,” Jon Dudas, Commerce undersecretary and head of the US Patent and Trademark office, said Tuesday, adding that the administration has argued that innovation and competitiveness must be preserved in any reform bill.

Manufacturing, biotechnology and pharmaceutical industries, as well as venture capitalists, universities and small inventors and businesses are concerned about the measure, Dudas added.

The House of Representatives version of the bill passed that chamber last autumn (IPW, US Policy, 9 September 2008).

The administration opposes Section 4 of the Senate bill, which deals with rights of the inventor to obtain damages for infringement. The Senate Judiciary Committee’s report on the bill notes that royalties have overtaken lost profits as a measure of damages in patent cases. The panel wants to ensure judges and juries on these cases have the legal information needed to properly assess harm to a patent holder and calculate ‘reasonable’ royalties. [Link to the committee report here]

The administration does not believe a statutory directive that could be “rigidly” applied by the courts is necessary, but, rather, thinks it limits the discretion of federal courts to determine how damages are calculated and could create more uncertainty in the system. It also could give the impression that compensation for infringement may sometimes be too high, the administration argued.

“We believe the resulting harm to a reasonably well-functioning US intellectual property system would outweigh all the bill’s useful reforms,” the letter said.

Dudas said Tuesday that the damages provision actually undermines innovation and that the bill “doesn’t yet strike the right balance for all innovators.”

“This is a time we have to get it right in the United States,” he told reporters in a conference call.

Damages provision targeted

Groups such as the National Venture Capital Association and the American Intellectual Property Lawyers Association (AIPLA) are not supportive of the bill as a whole, but agree patent reform is needed, support with the administration’s damages argument. [Link to NVCA letter opposing bill from last November here {pdf}]

“The damages section of the bill as currently drafted will undermine innovation – both past and future, and send a terrible signal internationally to our foreign competitors that it’s OK to weaken the patent law,” AIPLA Executive Director Michael Kirk told Intellectual Property Watch. “We think this is just the wrong thing to do at this time. It hasn’t been demonstrated there’s a need for this.” He added: “The damages are by far and away the most significant but they are by no means the only problem with the bill.”

The Patent Office Professional Association, a union of professionals at the USPTO, in a letter last week to congressional members, argued that the bill will actually aid foreign IP infringers. The bill would “open a Pandora’s box of strategic possibilities that foreign competitors will use to invalidate and challenge the US patent system, and reduce the value of America’s intellectual capital,” a former congresswoman representing the association said in the letter. The letter highlighted press reports in China and India.

The Innovation Alliance, which represents innovators, patent owners and various stakeholders, also welcomed the administration’s views, said the administration letter outlines concerns shared by more than 600 companies and organizations in the United States. The alliance lists numerous letters on its website, www.innovationalliance.net.

Companies such as GlaxoSmithKline, Merck, PepsiCo, and Qualcomm have in recent weeks sent letters to senators opposing the legislation.

“The bill’s damages provisions will cause more problems than they solve, increase uncertainty, and thus potentially hike litigation costs for years to come,” said alliance spokeswoman Susan Mora. “We also have concerns with the current bill’s provisions regarding post-grant opposition, venue, applicant quality submissions, and inequitable conduct.”

But other groups, including the Coalition for Patent Fairness – which represents companies and groups like Apple, the Business Software Alliance, Information Technology Industry Council and various technology companies – oppose the administration’s stance. They issued a letter in opposition on 22 January.

“We respectfully disagree on damages but we are confident that as we move towards the floor we can work through concerns and achieve broad consensus on the bill, which would be a victory for the administration, the Congress and our economy,” said coalition spokesman Mark Isakowitz.

Suggestions for Improvement

Dudas said the bill can also go farther in ensuring higher patent quality. Although patent approval standards have been raised in the office, Dudas said, it still sees “a lot of bad applications coming through the door.” The onus is on the applicant – small entities exempted – to give as much and as a high a quality of information as he or she can provide.

Meanwhile, the United States is the only industrialised nation that does not use a “first-to-file” system that grants a patent to the first inventor to file an application. The US instead uses a “first-to-invent” system which must determine which applicant actually invented the claimed invention first.

S 1145 aims to combine the best aspects of the two systems to create a new “first-inventor-to-file” system that has efficiency benefits of first-to-file systems but which gives inventors a one-year grace period for applicants to file within a year of disclosing their invention or publication.

Dudas said the administration would be in favour of a first-to-file system, so long as the system’s best practices are adopted in other countries, as well. The administration has been working with other nations on that topic. The bill also gives the fee-funded USPTO the authority to adjust patent and trademark fees, which is favoured by the administration, but the executive branch opposes language that would fund the agency through a mandatory revolving fund account, which it says is unnecessary and would reduce oversight.

The administration also supports an effective post-grant review process as an alternative to costly litigation to those wanting to challenge a patent’s validity but one that does not allow endless challenges. The bill outlines first- and second-window procedures, but the administration thinks the threshold standards for both needs to be clarified.

“The idea is, people ought to be able to come before the office” once or twice to challenge a patent’s validity, Dudas said, “They ought not to have five, six, seven bites of the apple.”

He added: “With the right threshold and a true alternative to litigation, we believe the resources will be there.”

Some consumer-oriented groups, like the Electronic Frontier Foundation (EFF), say the bill’s post-grant review process an “inadequate substitute” for re-examination because it would only permit nonprofit organisations to question the validity of issued patents within 12 months of issuance.

“Since the true effect of a patent on the public is frequently not realised until well after the first year of its term, there would be no way for us to then have any concerns we may have regarding its validity addressed,” said EFF, which sent a letter [pdf] to Judiciary Committee leaders on Monday outlining its concerns.

Lawmakers have been receptive to the USPTO and administration’s concerns, the USPTO chief said. Agency officials have visited 40 Senate offices within the past two weeks. “I think almost all policymakers are saying, ‘We want to benefit innovators,'” Dudas said.

Leahy and Sen. Orrin Hatch, a Utah Republican and another member of the Senate Judiciary Committee, said Tuesday they have sought to address the concerns of lawmakers, the administration and many stakeholders. They called the damages measure a “critical piece” of the bill.

“Since its passage in committee, we have been working to strike the right balance to ensure patent holders obtain appropriate compensation in infringement cases,” the senators said in a statement. “We have worked and will continue to work with the White House as the Senate prepares to consider this important legislation.”

Global harmonisation efforts continue slowly

Separately, on the issue of patent harmonisation, Dudas said the US has been working informally to pull together 29 different countries on the issue but that there is no specific deadline.

“We came very, very close to an agreement and believe that the right agreement can be had soon as long as people don’t posture, but we’ll wait for the right deal,” Dudas said.

Talks on harmonisation are ongoing among the international group known as Group B+, which involves the Group B developed countries under World Intellectual Property Organization (WIPO), plus some European Patent Office members who are not in the WIPO group. Sticking points remain the issues of grace period and first-to-file.

“I think we’re on a path to finding commonality throughout Europe and Japan and the United States,” Dudas said. But it is unclear how long the path may be.

Liza Porteus Viana may be reached at info@ip-watch.ch.

Creative Commons License"US Patent Reform Legislation On Bumpy Road To Completion" by Intellectual Property Watch is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

Comments

  1. Stephen Wren says

    Thank you for your article. Please permit me to respond to a few things.

    All this talk of a need for patent deform is but a red herring fabricated by a handful of large tech firms as a diversion away from the real issue…that they have no valid defense against charges they are using other parties’ technologies without permission. Its not about reforming the system. Its about legalizing theft!

    The objective of these large firms is not to fix the patent system, but to destroy it or pervert it so only they may obtain and defend patents; to make it a sport of kings. Patents are a threat against their market dominance. They would rather use their size alone to secure their market position. Patents of others, especially small entities, jeopardize that. For example, the proposed change to eliminate the use of injunctions would only further encourage blatant infringement. Any large company would merely force you to make them take a license. They would havelittle to lose. Everything would be litigated to death -if a small entity can come up with the cash to pursue. That’s what these large multinationals are betting against. This legislation in regressive, not progressive.

    Sadly, some legislators and other parties have been duped by these slick firms and their well greased lawyers, lobbyists (some disguised as trade or public interest groups…EFF), and stealth PR firms. Don’t be surprised to find the Washington lobbyist scandal spreading into the patent deform proceedings. These companies are simply buying legislation.

    While some of these large firms pushing for reform such as Intel may own a lot of patents, the fact is more often than not they find themselves as defendants in patent cases. Many of their patents neither they or anyone else use. For them patents exist mostly for defensive use.

    Actually, even the present threat of injunction is not sufficient to deter would be infringers. Just look at the Blackberry case. RIM had to have known they were infringing or likely so and yet they still held out to the bitter end. They took the nuclear option and guess what…they got nuked. If anything, we need harsher penalties to force large aggressive firms into thinking twice before thumbing their nose at small patent holders. I recently noticed one country is considering jail time for infringers. That sounds like a great solution to me. “Don’t bother to pack boys, we’ve got your suits all ready…pinstripes!”

    The problem is that companies who are using your technology aren’t so genteel as to stop using it merely because you politely ask them to do so. Invention is rough and tumble. The fact is, a patent is merely a right to sue someone to not make your invention without permission.
    Unless you have the will and money to sue them, they will turn a deaf ear. Unless you have a good patent, you will not get the money. It’s sad, but it’s the reality of business. All this talk about patentees gaming the system with bad patents is then a hoax. Why do these detractors never identify these supposed bad patents? Surely if they exist they can be identified?

    If anyone is gaming the system, it is large multinationals. After losing in court they coerce the Patent Office into conducting a reexamination on the patents they have been found guilty of infringing. That is pure abuse of process!

    The fact is, there is no systematic abuse of the patent system by patentees which would require an overhaul of the system. To the contrary, there is a reason why the patent system works the way it does. We didn’t get here by accident. That’s because of past abuse of the system by large companies who used their wealth to give inventors the run around and make a sham of the system. Take a look at the RCA/Armstrong case of years ago on FM radio. RCA ruined Armstrong with a legion of attorneys. They so destroyed Armstrong and made a mockery of the patent system that he committed suicide. Check out Tom Lewis’s “Empire of the Air”, chapter 10, p313 and p356. Part of RCA’s outrageous conduct was to string Armstrong along making him think they were interested in his invention only to copy his work and file patent applications of their own. Later they then entered into an interference against him at the patent office -a fraudulent act. RCA committed similar abuses of the patent system against electronic television inventor Philo Farnsworth. See “The Boy Who Invented Television” by Paul Schatzkin.

    As to the quality of patents; based on court rulings of the last several years, roughly half of all litigated patents are upheld in court. That’s pretty balanced and suggests there is no problem with patent quality. Further, seldom do cases ever make it to trial as the parties settle out of court. The facts do not support the contention that there is a patent quality issue. Still, with almost half a million patent applications filed each year a few are bound to be issued that shouldn’t. However, rarely are they ever an issue because you can’t enforce them without money and you wont get the money unless you have a good patent. Keep in mind it costs the patent holder at least as much in a patent suit as it does the accused infringer. Sometimes it costs more because infringers will band together and share costs. Investors are not stupid. If they don’t have confidence in your patent, they will not invest. It’s that simple. Bad patents do not get funded.

    If there is a problem with the patent system, it is not that patents are issued too hastily but rather that many are issued too slowly. Witness the current backlog and pendency. I for example have applications with a pendency of 15 years! In one instance it took 3 years just to get a first office action. With this kind of pendency by the time an inventor gets their patent their technology is of no value. That is the problem everyone should be focused on -not this imaginary issue of patent quality trumped up and propped up by large multinationals as a way to stifle innovation and further cement their market control. Can you say “monopoly”?

    Further, certain large multinationals speak of the need for harmonization. Why is that necessary? If others are backward would we want to modify our system just to match theirs? When one looks at the efficacy of patent systems throughout the world the US patent system has produced far more innovation than those of other countries over the last several decades. If anything, other countries should be changing their systems to get inline with ours. Rather what’s going on is these large multinationals and those they have duped are using specious arguments to get what will benefit them personally. The rest of the country be damned.

    Ours is a finely tuned patent system developed over 200 years which has led to US dominance in technology. We had better think carefully and move cautiously lest we create more problems than we solve and reap unintended and unforseen consequences.

    All this is then not about present abuse of the system by inventors or a need for patent reform, but rather systematic past and present abuses by large companies. Witness the present conduct of firms like RIM in using the courts to drag out a final verdict. The judge in that case remarked about how delays frustrate justice. Also, look at the exploitations and predations of Medtronic.

    Even worse; not only is there no need for reform, but the proposed changes will actually damage our functional system. The proposed changes:

    1) Increase the costs to small entity patent holders, often by at least an order of magnitude.
    2) Shift costs from large corporate infringers to the small entity.
    3) Open new causes for large entities to litigate.
    4) Open our patent system to a multitude of patent system abuses common in Japan which very much favors big companies.
    5) Delay the possibility of start-ups obtaining investment capital by effectively increasing pendency.
    6) Increase the power and potential abuse of such power by the USPTO which has become increasingly politicized.
    7) Lowers the potential recovery for a patentee by at least one to two orders of magnitude.
    8) Will not decrease the role of attorneys or litigation, but rather will increase their role and legal expenses in a multitude of ways.
    9) Will lead to much higher filing rates for patents which will further bog down the USPTO.

    When corporate America agrees to not use our inventions without consent, American inventors and small entities will agree to stop suing them.

    For further balance and fairness, please contact the Professional Inventors Alliance, Washington, DC.

    Reply

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