U.S. Patent Reform Effort Narrowed in Congress; Could Resurface In Supreme Court

By Sarah Lai Stirland for Intellectual Property Watch

A wall of opposition from the biotechnology, pharmaceutical and independent inventor communities this year gutted some of the most controversial provisions from an ambitious patent reform bill introduced in July in the U.S. House of Representatives, the lower chamber of the U.S. Congress.

But one of the provisions is still being litigated in the U.S. court system. It could again become a live issue if the U.S. Supreme Court, the nation’s highest, agrees to hear a case about the use of court orders to stop the use of products that are judged to infringe upon another’s patents.

The issue is controversial in the United States because it cuts to the heart of the question of how far intellectual property owners can go when excluding others from the use of their government-granted monopoly. The question is whether the granting of this absolute control over the use of an idea serves to fulfill the U.S. constitutional goal of advancing science and “the useful arts” – or whether this absolute control in a highly-litigious era is an anachronism, and has come to impede “progress.”

This case at hand is MercExchange v. eBay and Half.com. In July, eBay asked the Supreme Court to review a March opinion from the U.S. appellate court for patent appeals (known as the U.S. Court of Appeals for the Federal Circuit) that sided with MercExchange. The opinion said that the lower court should have automatically issued an injunction against eBay and its subsidiary Half.com for their use of ideas that infringe upon MercExchange’s patents.

Two Washington, D.C. software industry associations that are usually at the opposite ends of the intellectual property political spectrum filed briefs Monday weighing in on eBay’s side. Both the Business Software Alliance (BSA), and the Computer & Communications Industry Association (CCIA) filed separate friend-of-the-court briefs Monday asking the court to take the case.

Upset by the rising level of litigation and the growing size of monetary damages awarded against their companies, the information technology industry has been among the prime movers on Capitol Hill (home of Congress) in pushing for patent reform this year.

The Federal Circuit’s March decision this year exacerbates existing problems inherent in the U.S. patent system, argued CCIA’s lawyers in their brief.

“The Federal Circuit’s expansionist jurisprudence has unbalanced and distorted the U.S. patent system, especially as it affects information technology, software, and business services,” they wrote. “In effect, it has transformed patent law from a rigorous technical specialty into a general law of novelty that reaches into every sector and all aspects of human activity.”

BSA’s lawyers echoed CCIA’s sentiments.

“The effects of the Federal Circuit’s per se rule is likely not limited to just the innovators and the providers of technology, but will extend downstream to the millions of businesses and consumers that rely on the technology as well,” they wrote in their brief.

Lawyers for eBay told the Supreme Court in its brief that the Federal Circuit’s ruling contradicts the U.S. patent statute by taking away judges’ explicitly-stated right to weigh the circumstances in each case, and then to decide whether it is fair to issue an injunction.

The court has yet to decide whether to hear the case.

The Slow Push To Globalise U.S. Patents

In the meantime, a more politically palatable patent reform bill in the U.S. Congress is puttering along. Rep. Lamar Smith, R-Texas, the chairman of the House subcommittee on the Courts, the Internet and Intellectual Property, introduced a bill, H.R. 2795, in late July, but that was quickly supplanted by a “red line” version of the bill in September in which many of the major changes to the law were eliminated. The Senate Judiciary Committee, the upper chamber’s counterpart committee, has yet to introduce its own proposed bill.

The reworked House bill that is supported by a coalition of 33 companies now focuses on shifting the American system to grant patents to inventors who file for an application first, rather than to inventors who invent first. The change would align the American patent system with the rest of the world’s procedures – the United States is the only country in the world that still relies on a first-to-invent system, according to Herb Wamsley, the Intellectual Property Owners Association’s executive director. The association, which represents a broad spectrum of companies across various industries, has endorsed the coalition draft bill.

The draft bill also tries to improve the quality of patents issued by the U.S. Patent and Trademark Office (USPTO) by allowing third parties to submit information to the USPTO pertinent to an application. The purpose is to prevent a patent from issuing on ideas that are not new or obvious. If questionable patents are approved, potential challengers could, within a limited time frame, dispute the patent through a new procedure that the bill would implement at the USPTO.

The proposed legislation would also try to reduce “frivolous” lawsuits by limiting the venues in which patent lawsuits can be brought.

The biggest remaining sticking point between the information technology industry and the biotechnology and pharmaceutical industries in the latest draft bill is its proposal to change the way courts award damages, said IPO’s Wamsley.

In testimony submitted to the House subcommittee, BSA’s Counsel Emery Simon said that his group opposes the coalition’s proposal to change the legal language covering damages to cover “claimed inventions” rather than “inventive contributions.”

This change could allow patent holders to claim monetary damages based on the value of an entire new product, rather than the value of an inventor’s partial contribution to a product, he said.

But “we think the law is functioning well as it exists,” said Wamsley. “We have not seen any legal cases that demonstrate that the law doesn’t work.”

“The proponents of ‘inventive contribution’ are trying to change the law in a way we don’t understand, but would appear to reduce the amount of patent damages and royalties than what we would have today,” he added.

While members of the House subcommittee earlier this month tried hard to bring industry representatives closer to consensus on the issue, it was clear that negotiations are going to be tough. BSA’s Simon warned legislators during his presentation to the subcommittee that “The support of our industry for this legislation should not be taken for granted.”

Georgetown University Law Professor John R. Thomas, for his part, noted in his testimony that this latest version of patent reform legislation omits many of the recommendations of two landmark patent law reform studies issued by the National Academies Board on Science Technology and Economic Policy (STEP) last year and the Federal Trade Commission in 2003.

Companies listed in support of the coalition bill, 1/9/2005:

3M
Abbott Laboratories
Air Liquide
Air Products
AstraZeneca
BASF Corporation
Baxter Healthcare Corporation
Bridgestone Americas Holding, Inc.
Bristol-Myers Squibb
Callaway Golf Company
Cargill, Incorporated
Caterpillar
CheckFree
Dow
Eastman Kodak Company
EFI – Electronics for Imaging
Eli Lilly and Company
General Electric
GlaxoSmithKline
Henkel Corporation
Hoffman-La Roche Inc.
Johnson & Johnson
Merck
Monsanto
Motorola
Novartis Corporation
Novo Nordisk
Patent Café.com, Inc.
Pfizer
Procter & Gamble
Rohm and Haas Company
United Technologies
Wyeth