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US Senate Moves Toward Vote On Reform To Patent Regime

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By Dugie Standeford for Intellectual Property Watch
Legislation for sweeping patent reform in the United States could see Senate floor action as soon as early April. Majority Leader Harry Reid, Democrat-Nevada, said the congressional body could consider S 1145 next month but the Senate Judiciary Committee has not been given a firm date, a committee aide said. With a vote looming – and several hot issues unresolved – lobbying efforts are ratcheting up.

S 1145 is the companion to HR 1908, the Patent Reform Act of 2007, which passed the House of Representatives last September (IPW, US Policy, 9 September 2007). The Senate version cleared the Senate Judiciary Committee last July but has stalled for months over several controversial provisions, one of which, relating to damages in infringement cases, drew opposition from the Bush administration as well as from powerful industry sectors (IPW, US Policy, 6 February 2008).

Recent weeks have seen a flurry of letters from various groups for and against the measure, as well as a request from 15 House members for a hearing on its international implications if it wins Senate approval.

On 12 March, committee members circulated over a dozen amendments likely to be offered during the debate, the aide said. However, she said, amendments on the “big four” issues – damages, venue, post-grant review and inequitable conduct – are expected later.

Damage Calculation Squabbles Continue

The issue of how to assess damages for patent infringement continues to spur disagreement. The current language allows damages of “no less than a reasonable royalty” calculated on either the entire market value of an invention, an established royalty based on marketplace licensing, or on the proportional contribution of a patented component. Judges and juries must establish an invention’s “specific contribution over prior art” in gauging the actual harm of an infringement.

In a 5 March letter to Senate Judiciary Committee leaders, the Patent for Coalition Fairness and the Financial Services Roundtable, representing the telecommunications, energy, banking, retail, financial services, computer, software, and cable sectors, said the current language on damage calculation is correct but needs clarification.

The organisations proposed basing damages on the economic value of an infringing product attributable to the infringer’s use of the elements that were novel and non-obvious when the patent application was submitted, rather than on the committee’s proposal to set damages based on an invention’s specific contribution over prior art. The groups also criticised the lack of guidance juries are given to set damages, and the inadequate information judges have on how to gauge reasonable royalties.

The next day, the Innovation Alliance, whose members are technology companies and patent holders in various sectors, called the proposal “anything but a compromise.” The coalition language is unpalatable to the “entire rest of the patent stakeholder community,” the alliance said, because it seeks to minimise the value of new technology by forcing judges and juries to ignore the context and contribution new inventions make to existing products, fundamentally altering the nature of damages law.

Last month, 14 major trade unions said they oppose the damages provision, among others. The Coalition for 21st Century Patent Reform, whose members include pharmaceutical and chemical corporations, called the use of the phrases “novel” and “non-obvious”, and value properly attributable to the patent’s specific contribution over the period art, “toxic language that should not be used in any compromise.”

The Professional Inventors Association, which consists of independent inventors, small-to-mid-sized companies and colleges and universities, is on record opposing the use of the economic contribution over prior art test, saying royalties should be determined on a case-by-case basis.

International Impact?

Complaints by some developing nations and trading partners about US patent reform efforts prompted several lawmakers to ask the House leadership for a hearing on the measure’s global implications.

In their 5 March letter, lawmakers noted criticism by Chinese IP scholar Yongshun Cheng, who said the House bill was bad news for Chinese products, though not for developing countries with less technological development and relatively fewer patents. Chinese inventions often “encounter trouble in the US market” due to their weak foundation, Cheng wrote. By making patent challenges easier and cutting the cost of infringement, the legislation will make infringement more attractive, he said.

The measure “apparently contradicts the long term stance the US has been holding to press China for strengthening IP protection,” Cheng wrote. He also “ominously” suggested, lawmakers said, that when China enacts new changes to its patent law, it consider combining Chinese practical experience with the patent infringement damages calculation method proposed in the US legislation.

In January, German patent expert Professor Gernot Pehnelt, research associate at the European Centre for International Political Economy, said US patent reform efforts threaten to “undermine German innovation,” legislators wrote. Pehnelt recommended that Congress “think twice” before “fixing” a patent system that is already the envy of the world, lawmakers said. If S 1145 passes the Senate, they said, the House should hold at least one hearing to consider its global implications before taking any further action.

Patent reform will also have a “profound effect” in Israel, which is second only to Silicon Valley (in California) in driving innovation, technology consultant Bernard Frieder wrote in the 20 February Jerusalem Post. Proposals to allow patent challenges during the course of a patent’s life would mean “no closure,” Frieder said. New methods of setting damages would reduce compensation for those whose patents are violated and allow “deep-pocket” challengers to wear down smaller entrepreneurial companies. Israelis “ignore the bill’s implications at our peril,” he said.

Bill’s Fate Still Unknown
With Congress in recess until after Easter, work on S 1145 continues. Many senators still have concerns, said an industry source working closely on the legislation. The amendments in circulation are not the core issues, but are an attempt to move the measure closer to the House version, the source said. With damages, post-grant relief, venue and other hot issues still in play, it is “a bit of an unknown,” the source said.

But claims that patent reform is dead this year are overblown, the industry source said. Many people have put a great deal of effort into the bill, and there is likely to be a “real hard push” to get something done, the source said.

Even the question of whether the legislation will be subject to cloture – a process to limit debate that requires 60 affirmative votes – is up in the air, the Judiciary Committee aide said. “Once we see what all the amendments will be, how they address various concerns across the spectrum, and when the bill actually comes up for consideration, we can better gauge whether cloture will be filed and where the votes will fall if it is,” she said.

Dugie Standeford may be reached at info@ip-watch.ch.

Creative Commons License"US Senate Moves Toward Vote On Reform To Patent Regime" by Intellectual Property Watch is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

Comments

  1. Paul Principo says

    S-1145 Patent Reform Bill 2007/Boondoggle

    The “REAL” meaning of special interests:
    After an exhausting 6 months, all eyes cautiously look towards March, where the next installment of “Who Wants to Reform the Patent System?” is being prepared in the Congress. As a small inventor I might concur that our patent system is in need of some reform, but I am very concerned that the bill in its present form picks winners and losers among industries with different business models in a way that has never before been attempted in patent law or practice.

    A gross example of this objective: Sen. Jeff Sessions (R-Ala.) has sponsored an unusual provision at the urging of the nation’s banks granting them immunity against an active patent lawsuit, potentially saving them billions of dollars. Adopted with little fanfare, the amendment would prevent a small Texas company called DataTreasury from collecting damages from banks for infringing on its patented method for digitally scanning, sending and archiving checks.The provision introduced by Sessions did not name DataTreasury but was carefully tailored to apply to that company and its “check collection” system. The patents were upheld last summer by the U.S. Patent and Trademark Office after they were thoroughly challenged.

    Justification of the Sessions Amendment seems to be that the Check 21 Act forced the banks to adopt new check processing procedures with the innocent banks (who were merely complying with government regulation) thereby finding themselves opportunistically and indiscriminately sued for infringement by a“patent troll.” This view, however, fails to recognize that the (Data Treasury) patents in question were filed years before the Check 21 Act, that thus far the key Data Treasury patents have withstood the best legal challenges the banks could buy, and that some of the more responsible banks have admitted the validity of the patents by licensing them. And every entity that has been sued almost surely had opportunity to negotiate a license before being sued.

    But two added facts make the bank’s legislative duplicity even more reprehensible.

    The first is simply that nothing in the Check 21 Act requires banks infringe the Data Treasury patents.

    The second is that Check 21 made it possible for the banks to dramatically reduce check clearance costs, relative to then current processes. ( $3.75 per cleared paper check as opposed to two to three cents per check using Data Treasury’s Technology). Check 21 was opportunity, not burden!!

    The Data Treasury Technology is a roadmap to pocketing these savings. Banks remain free to process checks the old way or themselves invent a non-infringing new way or license use of the Data Treasury roadmap for a modest portion of the savings it offers. But some banks are just plain greedy. They expect to use the Data Treasury road map, realize huge savings, and pay Data Treasury nothing. A number of financial institutions considered themselves above the patent law that applies to the rest of us and now, after 5 years of infringing and ongoing litigation, are on the cusp of facing huge damage awards for willful infringement. Any idea that the Sessions Amendment is justified as “relief” is simply preposterous. It is no more or less than the financial lobby buying a “Get out of Jail Free” card from congress.

    Although the amendment would not invalidate DataTreasury’s patents, it would spare the banks from paying for infringing them should courts decide that’s warranted. If DataTreasury collected a royalty of just a couple pennies per check, the cost would run into billions of dollars. It seems that Sessions and his Ilk are ready to, once again, throw the American taxpayer under the bus. This time to the tune of a billion dollar and more back door bail out for the banking industry. The federal government would have to pay $1 billion + (albeit grossly undervalued) to DataTreasury over 10 years as compensation for taking its property under the amendment, according to estimates by the Congressional Budget Office. Hence, let us not forget the poor victims, (banking industry) who have realized almost
    $300 Billion in profit during the period they have utilized this valuable technology. And all of this on the heels of the sub prime loan mess!! Apparently the financial industry feels that there is no downside to their risky business practices. As long as they continue to contribute generously to the right politicians the taxpayers will continue to bear the burden of their mistakes while they reap the fruit of their exuberant gains. Who would invest in developing a new technology if the big corps can steal it and then buy off Congress to pass a law giving them immunity from liability? Those that wish to see a clear and crass example of who gets bought in Congress and how,

    might read the amendment in contrast to the act and then examine who gives how much to Sessions and Schumer. Political action committees of financial institutions were the largest single category of industry donors to Sessions, with $52,300 in the current election cycle.

    The Commerce Department has objected to the amendment, including in a letter last week to Sen. Patrick J. Leahy (D-Vt.), the Judiciary Committee chairman. “Limiting patent holders’ rights and remedies in this instance could reduce innovation in this technology area,” wrote Assistant Secretary Nathaniel F. Wienecke. “The Administration does not support exceptions to patent protection based on a particular technology.”

    Overall, this bill is a great disservice to the small technology companies and independent inventors that drive American innovation. Reforms are needed. But this Bill, with or without Sessions, should go back to committee in a Congress with a “Purer Heart.”

    Reply

  2. Ronald J Riley says

    Patent Deform legislation (S. 1145 and HR 1908) was dealt a mortal blow last week. The Coalition for Patent fairness & PIRACY (CPF or “C-poof”) and their high-priced lobbyists are having a panic attack behind closed doors while publishing press releases painting a rosy picture of imminent passage.

    I expect that we will have another month to six weeks of the bill going through its death throws, but it will then expire.

    At that point the Professional Inventors Alliance (PIAUSA.org) will be looking at which of the proponents of the bill might be held accountable in upcoming elections.

    Perhaps next year we can address the real problem. Poor examiner working conditions is driving very high attrition. We only have one third as many examiners as we need. While USPTO management collects fees based on patent complexity, examiners are allocated a strict 20.5 hours for each patent application no matter the complexity.

    USPTO management is either grossly incompetent and/or corrupt. A cynic might surmise that USPTO management is perfectly willing to promote the interests of thieving transnational companies in the hope of improving their post USPTO employment opportunities.

    Problems at the USPTO are due to classic labor issues and PIAUSA is extremely pleased that a broad spectrum organized labor is recognizing this to be the core problem with the patent system.

    The Professional Inventors Alliance (PIAUSA.org) has been working with the American Ingenuity Alliance for many years to save American ingenuity, jobs, and the tax base of our communities from the excesses and shortsightedness of transnational corporate greed.

    PIAUSA is working hard to halt transnational corporations from stealing American inventor’s work and shipping it to slave wage countries. It is ironic that these hypocritical corporations constantly whine about theft of their intellectual property while they are systematically destroying independent and small business to facilitate theft of other’s patent properties. This practice is killing startup companies who could create decent paying jobs and a solid tax base which America desperately needs to replace jobs which these transnational corporations are exporting to low wage counties.

    Furthermore, we believe that all employed inventors should receive a royalty in addition to their base pay and we believe that assignments should by law have to be renewed annually as part of the employee’s review. At this time companies stick a pile of papers in front of new employees to sign, including assignments and the assignments are open ended. When the employee starts producing inventions, often many years later, the assignment comes into play. Once the assignment is in force it is not a factor in ongoing wage and benefit discussions.

    Even more egregious is the fact that companies use these outrageously broad assignment agreements with all employees, including those at the lowest pay scale such as secretaries and janitors. The result is that much of the time employees have jobs which have nothing to do with inventing which they are expected to do while producing an invention as unpaid overtime.

    A side effect of this situation is that employees quickly learn that disclosing an invention is not in their interest. Surely this is an unintended consequence of short sighted and short-term gain oriented management. Can America afford to have this situation continue at a time when innovation has become so important to our competitiveness?

    On a related matter, PIAUSA would also like to see the abomination which has been misnamed “free trade” turned into responsible and equitable trade. We recognize that globalization is inevitable, but we believe that it is long past time that management of this transition is taken from transnational corporations who have used it as cover to drive obscene profits at the expense of people in both developed and developing countries.

    Ronald J. Riley,

    Speaking only on my own behalf.
    Affiliations:
    President – http://www.PIAUSA.org – RJR at PIAUSA.org
    Executive Director – http://www.InventorEd.org – RJR at InvEd.org
    Senior Fellow – http://www.patentPolicy.org
    President – Alliance for American Innovation
    Caretaker of Intellectual Property Creators on behalf of deceased founder Paul Heckel
    Washington, DC
    Direct (202) 318-1595 – 9 am to 9 pm EST.

    Reply

  3. Sarah Smith says

    The fact of the matter is Patent Reform is sorely needed. Innovation is going to crumble if the system stays the same. Bogus patents and questionable “companies” who are merely patent trolls can be incredibly detrimental to the creation of new ideas. If it’s not addressed we’ll be facing an environment in which it’s impossible to create anything new without treading on somebody’s “patent.” Have you ever thought about the fact that expensive litigation actually imposes a burden on inventors?

    Reply

  4. Ronald J Riley says

    The problem is that “Patent Reform” is not reform, rather it is a stack of get out of jail free cards for patent pirates.

    What we do need is reform of the patent office. The examining core needs to be tripled and corrupt and incompetent management needs to be replaced.
    Ronald J. Riley,

    Speaking only on my own behalf.
    Affiliations:
    President – http://www.PIAUSA.org – RJR at PIAUSA.org
    Executive Director – http://www.InventorEd.org – RJR at InvEd.org
    Senior Fellow – http://www.patentPolicy.org
    President – Alliance for American Innovation
    Caretaker of Intellectual Property Creators on behalf of deceased founder Paul Heckel
    Washington, DC
    Direct (202) 318-1595 – 9 am to 9 pm EST.

    Reply

  5. John says

    I think America needs far better patent protection not only from foreign companies but also from American corporations who steal patented technology just as fast as anyone else. The way that Intellectual property is stolen is either out right or usually by DELEGATION, upper management or a CEO will come across a new technology and then will pass the decision down the chain of command, What happens then is it reaches a point within the culture where there is no discretionary power at about that point engineering people begin to reverse engineer or just take the invention, the credit is then moved back up the chain of command and if it is viable and they get away with it, then upper management takes the credit if they get caught and risk management fails then they play stupid.
    The simple truth is most corporations that steal technology do a poor job of it and many times more money is spent stealing than what it would cost to buy honestly. The other part that has to go with the problems of congress and the senate and government employees or military, they retire from public service and go to work in executive positions for many of the same corporations that steal. The whole idea of publication during the patent pending cycle is only for one reason, it is so corporations can steal a technology. The loss of the secret status of patent pending hurts inventors and hurts technical development and encourages the lack of ethics that has caused intellectual property to become such a high risk for individuals and that is the main source of progress.
    The problem with congress is they are so used to being dishonest about honesty is that when ever they say reform, that means that inventors get screwed, again. I know this first hand as I have more than one patent that has been stolen, and it was by an English company and an American company. The English steal patents like crazy and it is by data mining and now during the publication cycle that technology that used to take a few years to steal now while the inventor is working on the patent process, some lower level snake in a corporation is stealing it and of course this is all down BELOW the level of the top guy and legal people within the company, but at some point they are still always willing to spend more to steal, than what it would cost to do honest business.
    I suspect it was the drug companies and interest in their R and D or perhaps the computer people that had things that others wanted to read, So the thieves got their way and congress the senate and the USPTO said lets publish while it is still pending.
    Stupid, what the CONGRESS and SENATE should do and if they had any ethical or moral worth is they should give Design Plant and Utility patents the same protection that COPYRIGHT gives and not leave it up to just civil courts but to make it a felony to steal a patented technology, especially from an individual. So that if it is found in a civil court that they did steal then they should have to deal with the regular courts as thieves.
    This has a lot to do with why our economy is in the toilet. American corporations just do not know how to ethically make anything anymore, we have a lot of inept management,. Treat every invention as if it was MICROSOFT. Treat every inventor with respect.

    Reply

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