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U.S. patent system overhaul stirs uncertainty

Posted: 19 Sep 2007 ?? ?Print Version ?Bookmark and Share

Keywords:U.S. patent system? patent reform bill? patent overhaul?

The U.S. patent system is shifting under a building head of political steam. But just what all the changes and their fallout will be is still unclear, given the lack of coordination among those driving the changes in Congress, the courts and the patent office itself.

Congress passed a broad and controversial patent reform bill on Sept. 7 that aims to raise the quality of patents and reduce patent litigation and abuse. A companion bill could come before the Senate within a month, setting up a tussle among legislators, lobbyists and the administration on a final bill.

Some critics have already slammed the House legislation. For one thing, they said, a handful of decisions in the past year from the nation's top courts have already rendered some of the legislation's mandates redundant or unnecessary. For another, the patent office!which some say should be the main focus of change!rolled out a handful of new rulings itself in August.

After years of discussion, the idea of patent reform is at last "coming together!but no one is talking about what the long-term impact will be and whether the pendulum will move too much to one side," said patent attorney Allen Baum, president of the Licensing Executive Society (LES), a 6,000 member cross-industry group of managers who deal with patents.

The issues related to patent reform are so varied and so complex, Baum said, that LES been unable to develop d a unified position on the matter. "We have people on all sides of these issues," he said.

'Virtually no coordination'
A representative of one major electronics company said tracking the various reform efforts has become a full-time job for multiple people at the company. At Ocean Tomo LLC, a banking and consulting firm that launched the first patent auctions last year, CEO James Malackowski complained that there has been "virtually no" coordination in Washington on patent reform. In a recent paper, Malackowski called for a cabinet-level position on intellectual-property (IP) policy and enforcement.

"There needs to be leadership from the White House regarding what the president wants to see in terms of intellectual-property policy, and it has to be more than just saying that innovation is good," he told EE Times.

Jon Dudas, director of the United States Patent and Trademark Office (USPTO), countered that the administration has had conversations on patent reform with "scores of legislators," including sponsors of the latest House and Senate bills. White House representatives have also held talks on patent reform with a dozen judges from a wide range of districts, he added.

But "there will be more discussions," Dudas said, "because this is a work in progress. We will go back and forth with senators and their staffs, and we have shown them our draft language" for a final bill. Some reformers are tackling the growing problem of so-called patent trolls!companies that exist purely to buy and enforce patents. In some cases, especially in electronics, such operations have netted huge settlements.

"People have gotten tired of paying all this money" in patent licensing and infringement suits, said Baum of LES.

The number of patent lawsuits heard in U.S. District Courts doubled between 1988 and 2001, from 1,200 to nearly 2,400, according to a report from the National Research Council. Meanwhile, the number of patent attorneys in the United States rose 39 percent!more than six times the growth rate overall for attorneys, the report found.

Both the patent office and the legal system have been under increasing strain. The USPTO has a backlog of as many as 750,000 patent applications.

The problem came to national prominence when a small patent company sued Research in Motion, claiming the BlackBerry phone infringed its patents. Legislators, who widely use the phones, got a wake-up call when court proceedings threatened an injunction on BlackBerry e-mail service.

"All of a sudden, every legislator had a personal experience of patent litigation," said Baum.

While attention is currently focused on Capitol Hill, a number of decisions by the Supreme Court and federal appeals courts have already made inroads on patent reform, particularly in the area of limiting damage awards.

"The best patent reform in the last few years has come out of the court system," said Michael Barclay, a partner and patent attorney with Wilson Sonsini Goodrich and Rosati.

A Supreme Court ruling in an eBay case last year limited the use of injunctions in cases such as the one involving the BlackBerry. A case involving Microsoft and AT&T struck down the practice of granting damages for sales outside the United States. And a case involving Seagate Technology raised the standard of proof for "wilful infringement," which carries a penalty of treble damages.

Some worry the rulings may have gone too far. "It takes some of the teeth out of the patent system," said Baum of LES. "You start wondering whether more foreign companies will decide to roll the dice and risk infringement."

Some observers note that the House bill passed this month, H.R. 1908, does not take into account the recent court actions and thus calls for redundant measures in reducing damages and limiting use of wilful-infringement suits.

The bill also limits patent lawsuit venues to courts in jurisdictions where the infringement took place or where the parties do business. Currently, many suits are filed in the East Texas district, known for having juries favorable to small companies suing large corporations.

'First-to-file' policy
Further, the legislation defines a streamlined administrative process for re-examining patents when they are challenged. And it calls for a U.S. patent office shift from a "first-to-invent" to a "first-to-file" policy more in line with the policies of patent offices around the world.

The IEEE-USA came out strongly opposed to the bill, saying it would weaken the patent system and thereby worsen the already bad job market for U.S. engineers. The group also compiled a list of about 200 companies and universities that opposed the bill. The list includes some large concerns, such as the AFL-CIO, the American Intellectual Property Lawyers Association, General Electric, Medtronic and Texas Instruments.

"I fundamentally believe this reform bill is wrong," said Keith D. Grzelak, chairman of the IEEE-USA's intellectual-property committee. "The patent system has been working fine for 200 years, especially for small, growing companies!the startup companies where a lot of the new hiring will be for engineers in this country," added Grzelak, who is also an IP lawyer with Wells St. John P.S.

Grzelak said the first-to-file provision would benefit big companies over startups and individual inventors. "If it's a race to the patent office," he said, "the big behemoths will win."

"We've seen that concern [about an unfair advantage for larger companies] narrowing to a smaller but more ardent band of opponents [of reform]," said Don Kelly, president of the United Inventors Association. "Others say the 200-year-old patent system has made the U.S. a world technology leader and should not be changed to suit international harmonization."

The move to limit damages and create an easier method to challenge existing patents will also weaken the system, said Grzelak of IEEE-USA. "The new system brings a lot of debate about the value of patents, and that value will be diminished," he said.

In a speech earlier this year on the House floor, Rep. Dana Rohrabacher of California called the bill the "Steal American Technologies Act" because it would mandate the publication of all patent applications 18 months after the patent is applied for, whether or not the patent has been granted.

"This legislation will facilitate China, India and other countries in their efforts to steal our creative genius," he said.

Administration's opposition
Perhaps most damning opposition has come from the administration, which released a statement through the patent office the day the bill went to the floor for a vote. The nearly 900-word statement notes that the administration supports patent reform but disagrees with at least seven aspects of H.R. 1908.

"The basis of our opposition to the bill is in its changes to damages provisions," said Dudas of the USPTO. Specifically, the administration said the bill puts too many limits on a court's discretion in assessing damages in patent infringement cases. It also said the recent court decision in the Seagate case set limits on litigants' ability to claim wilful infringement and thus made that part of the bill unnecessary.

The administration broadly supports the idea of moving to a first-to-file system and of setting up a post-grant review process as low-cost alternative to litigation of existing patents, according to the statement. On both scores, however, the statement calls H.R. 1908 to task for how it would enact those moves.

The administration said it would work with Congress on addressing its concerns in future legislation. But the statement does not explain why the administration failed to engage with lawmakers on H.R. 1908, since the bill was introduced back in April.

- Rick Merritt
EE Times

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