US Patent Reform Bills And Jobs: Critical Timing, Critical Differences

The United States patent reform bills offered up Tuesday fall well short of what is needed to protect innovation and intellectual property rights, say myriad small tech companies, large-cap manufacturers, pharmaceutical firms and inventors. In fact, they say, it even threatens jobs at a time when the economy is in desperate need of them.

But proponents argue that it is precisely the type of measure needed to promote jobs, and reduce lawsuits and poor patent quality that put a drag on innovation and the economy.

What is seen by opponents as helping to counter any job loss is a bill to be introduced by Senator Jon Kyl, an Arizona Republican, within the next week or so, that would include a damages plan more amenable to this group.

Representatives Don Manzullo, an Illinois Republican, and Mike Michaud, a Maine Democrat, who led members of the House of Representatives in opposing the bill last Congress, said the new bill weakens America’s patent system. “It makes no sense to us why we would threaten the jobs of hundreds of thousands of Americans at a time when our people are in desperate need of jobs,” they said.

Industry groups on both sides of the US patent-reform debate sounded off Tuesday after Sens. Patrick Leahy (Vermont) and Orrin Hatch (Utah) introduced their legislation in the Senate, which is similar to last year’s bill which passed the Senate Judiciary Committee and the full House. The Senate bill is available here.

Tuesday’s House version is sponsored by Judiciary Committee Chairman John Conyers, a Michigan Democrat, and ranking Republican Lamar Smith of Texas. At a time when unemployment in the US continues to rise amid global economic turmoil, both sides heavily emphasised the impact reform could have on jobs.

“This is a jobs issue,” said Stan Fendley, director of legislative and regulatory policy for glassmaker Corning, a member of the Manufacturing Alliance on Patent Policy (MAPP). “The calculus behind this is not difficult … if you undermine our intellectual property protections, we will be able to invest less, provide fewer products, create fewer jobs. That’s just the reality of it. Reducing the damages that are available when we’re infringed makes it difficult for us to invest. If we can’t be protected, we can’t invest.”

But the opposite argument relating to jobs was made as well.

“Patent reform will help facilitate new forms of innovation, improve patent quality, reduce unwarranted and costly litigation, and prompt inventors, entrepreneurs and companies to invest in technology and innovation that can stimulate jobs and economic growth,” said David Kappos, IBM’s vice president and assistant general counsel of IP law.

“Once a driver of creativity, our patent system now poses a hurdle for innovation,” Google’s Michelle Lee, head of patents and patent strategy, said in a 3 March blog post.

Debates: Damages and Reexamination

The biggest lightning rod is the damages provision, which essentially maintains current standards that say damages awarded should not be less than a “reasonable royalty” for the infringed patent. But it goes further, saying the courts must base the royalty rate on the economic value of the patent’s “specific contribution over the prior art.” MAPP, the Innovation Alliance, and the Coalition for 21st Century Patent Reform are opposed to that apportionment approach.

“A reduction in penalties – or damages – will clearly put the promise of IP protection at risk by leaving patent holders unable to recover their losses if infringed,” said Ken Johnson, senior vice president of the US Pharmaceutical Research and Manufacturers Association (PhRMA). “This reduces the overall value of the patents because holders will not be able to rely on that protection.”

But large technology companies such as IBM, Google and Microsoft, banks and high-tech councils – many of which are part of the Coalition for Patent Fairness, commonly referred to as “big tech” – argue that they are subject to excessive damages, particularly by so-called patent trolls who do not really use the patents they have. This group says reform is needed to keep the US at the forefront of global innovation.

“We believe that winds of change are really with patent reform at this time” – Robert Holleyman, president of the Business Software Alliance

“We believe that winds of change are really with patent reform at this time,” said Robert Holleyman, president of the Business Software Alliance, a “big-tech” coalition member. “This outdated patent system is really costing our economy jobs [and] economic growth.”

Leahy indicated that more work needs to be done on damages and is “prepared to continue the conversation and debate … to find the best language we can.” He said Congress would look to the Supreme Court’s Quanta decision for guidance on how to determine the truly inventive feature of a patent. Hatch said he hopes to rely “upon well-reasoned and persuasive case law, scholarship, and other texts” to reach agreement on that and the inequitable conduct provisions.

But the damages issue is not the only controversial one. Leahy adopted the House-passed language on this that expands inter partes reexamination, rather than offer a new post-grant review for second-window challenges. It also adds prior “public use or sale in the United States” as a basis for challenging a patent and calls for administrative patent judges to hear reexaminations. Critics say that could bog down the review process even more.

Expanding the inter partes reexamination period “seems to be only there to harass patent owners,” said Tom Kelly, patent counsel for Monsanto, part of the Innovation Alliance.

But Holleyman noted that that language passed the House in 2007, saying there’s “already a broad consensus.” Hewlett Packard General Counsel Mike Holston said the post-grant review language is “fair” and, “as large patent holders, [we] don’t view it as harassment.”

Room for Negotiation?

Holston did say there was wiggle room for negotiation, as did groups on the other side of the debate. “I think the coalition [for Patent Fairness] is prepared to have conversations to try to reach language that makes sense to accommodate the legitimate concerns of everybody,” Holston said.

The bill also deals with venue and residency of federal circuit judges, among other issues.

Changes in the new bill from last Congress include:

-Removal of the Applicant Quality Submissions requirement from last year’s legislation, which would have required applicants to submit search data, instead of having patent examiners do it

-Removal of the 18-month publication requirement which had labour unions and small inventors worried that patent applicants not seeking protection abroad would see their inventions used overseas without compensation.

-Removal of last year’s inequitable conduct provision

-Seagate standard for “objective recklessness” in determining wilful infringement

-Calls for the USPTO to move from a first-to-invent filing system to a first-to-file, which is more commonly used throughout the world

-Provides a grace period for publicly disclosing the subject matter of the claimed inventions, without losing priority.

Moving toward Harmonisation

Taraneh Maghame, vice president of patent policy and government relations for Tessera, said the latter two points will help bring the US patent-filing system more in line with that of other countries.

“Obviously it is a harmonisation with the way it’s done in other countries and it does to some extent simplify matters … you don’t have the interference process to determine who really was the first to invent,” she said.

Meanwhile, an aide to Kyl, who introduced legislation last session more favourable to the bio/inventor/small tech/manufacturer side of the debate, told Intellectual Property Watch that he is expected to reintroduce his bill within the next week. The language will be the same for the most part, except it will include a purely “gatekeeper” model for awarding damages. That gives more responsibility to the courts and juries to decide damage awards, based on the evidence produced. The gatekeeper concept could be the key middle ground on damages.

“We have supported pure gatekeeper language so there’s a consistency on how the courts handle what goes to the jury and how that’s handled,” Gary Griswold, president of the Coalition for 21st Century Patent Reform, told Intellectual Property Watch. “We’re hopeful that it can work. …I think that’s the kind of thing people probably could support, depending on what they are.”

The Senate Judiciary Committee has scheduled a hearing on the bill for next Tuesday. Pennsylvania Republican Sen. Arlen Specter, who has battled Leahy on damages in the past and supports a gatekeeper model, is asking Leahy and Specter to hold off until May, after the Court of Appeals for the federal circuit hears the Lucent Technologies, Inc v Gateway case, which will deal with damages.

“I believe that oral argument has the potential to facilitate a compromise or clarify the applicability of damages theories in various contexts,” Specter said.

Another factor is that the USPTO has no new director under the Obama administration; Patent Commission John Doll is the acting undersecretary in charge. With the Commerce Department – in which the USPTO is housed – lacking a secretary, the USPTO cannot formally weigh in on the discussion on behalf of the administration.