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Patent Reform Act of 2009: benefit v. detriment

Photonics Spectra
Jun 2009
Amanda D. Francoeur, amanda.francoeur@laurin.com

If put into effect, the Patent Reform Act of 2009 will change US patent law considerably for the first time since 1952. Already the bill has ignited a conflict between those who say it will improve the quality of patents while limiting needless infringement cases and those who believe that the changes will stifle invention, decrease patent values, and weaken protection and enforceability of patents for small and start-up companies.

Sens. Patrick Leahy (D-Vt.) and Orrin Hatch (R-Utah) sponsored the proposal in March during the 111th US Congress. Reps. John Conyers (D-Mich.) and Lamar Smith (R-Texas) introduced the same bill in the House. In 2008 a comparable bill, Patent Reform Act of 2007, was introduced and passed by the House but failed in the Senate. The Senate version was later amended, and in April the Judiciary Committee approved it by a vote of 15 to 4. It is now awaiting a vote on the Senate floor. On April 30, a Judiciary Committee hearing kept the House version unaltered, so it differs considerably from the Senate version.

Provisions

Several provisions of the act were amended, but a few aroused substantial controversy. One issue is the first-to-file procedure, which gives credit for an invention based solely on the application’s filing date rather than on the date of the invention itself. A drawback of this provision is that it may create a more competitive approach to filing an application. Essentially, independent inventors and small businesses would be up against large companies in the race to the patent office finish line.

A post-grant review procedure was also added that would allow a third party to submit a cancellation request to the US Patent and Trademark Office a full 12 months after the patent was issued. With the current law, individuals who raise a question of patentability may file an ex parte or inter partes re-examination request, which informs the US Patent and Trademark Office of new prior art. A problem with the post-grant review is that the re-examination process could further delay patent authorization and enforcement while also squandering the time of an already undersized examiner staff.

A compromise

Another much-contested provision is a proposal in the House version to change the way damages are calculated in patent infringement suits. Called “apportionment of damages,” the proposal would require courts to apply a reasonable royalty rate by subtracting the value of prior art from the value of the infringed product. As a compromise, the Senate version offers a gatekeeper provision that gives district judges leeway in guiding juries and in identifying appropriate damages based on the value of the product itself rather than on the value of its entire spectrum of patents. Currently, a patent infringer typically is fined for the entire market value of a product; if the infringement is deemed willful or voluntary, the penalty could be tripled.

High-technology companies such as Microsoft, Apple, Google, IBM, Hewlett-Packard and Intel have been advocating this reform because a typical computer or phone component usually incorporates numerous patents and can incur million dollar damage fees. In contrast, many small companies as well as pharmaceutical and biopharmaceutical businesses – such as Eli Lilly and Co. and Monsanto Co., for instance – stand by the current law, because they typically have only a few patents associated with a product. They depend on patents to protect them from larger corporations, and they object to the possibility of lower patent infringement fines.

If the House version of the act passes, damage fees would be significantly reduced, which opponents fear will encourage larger corporations to infringe, so that small and start-up companies would become more vulnerable.

Some companies are concerned that apportioning damages and creating post-grant opposition will lessen patent values considerably. According to Dr. Alexander Poltorak, chairman and CEO of General Patent Corporation, which manages intellectual property, the bill will serve only to hold back innovation. The damages apportionment is trying to “make patents so devalued that it will be uneconomical to enforce patents,” he said. The legislation is “aiming at simply reducing the strength of the patent system.”

Agree to disagree

Without a doubt, the US patent system has needed change for quite some time. Since 2005, attempts to improve it have been made each year, with the 2005 and 2007 bills being especially comparable to the currently proposed reform act.

Even those in favor of it consider the Patent Reform Act of 2009 imperfect, but they are optimistic that it will make progress in addressing most of the flaws of the patent system. As for the act’s opponents, they also know that the current system needs improvement, but they argue that the bill fails to concentrate on the essential problems of protecting patents and avoiding unnecessary litigation. “Our patent system does need to be modernized,” Poltorak said. However, “none of the real problems the patent system is facing are addressed in this proposal.”


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