Politics and Law

WASHINGTON--Democratic and Republican leaders in Congress on Tuesday introduced a patent reform bill (PDF) that aims to pick up where previous patent reform efforts left off.

The controversial provisions of the legislation will be subject to serious debate and may very well be altered before the bill is passed, the bill's co-sponsors said Tuesday. Nevertheless, they said, they are confident the legislation--some form of which has gone before Congress three times over the last five years--will finally pass this year.

"This is the Congress and this is the year bipartisan patent reform should be enacted," said Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.), one of the co-sponsors of the legislation. "If we're going to allow our innovators to flourish in the Information Age, we need new patent laws. It's about economic development, it's about jobs, it's about innovation. It's also about consumers."

Senator Patrick Leahy announces the introduction of the Patent Reform Act of 2009 while Senator Orrin Hatch looks on.

(Credit: Stephanie Condon/ CNET Networks)

Identical bills are being introduced in the Senate and House of Representatives. Senator Orrin Hatch (R-Utah) joins Leahy as a co-sponsor of the Senate bill, while House Judiciary Committee Chairman John Conyers (D-Mich.) and ranking minority member Lamar Smith (R-Texas) are co-sponsoring the House version.

"My prediction is this will be the most significant bill introduced this year that enjoys bicameral and bipartisan support," Smith said.

One of the most controversial provisions of the Patent Reform Act of 2007--limitations on damages for patent infringement--remains in the legislation.

"We kept the language the same because we want to start where we left off and give us something to work on," Leahy said.

The inequitable conduct provision added to the bill last Congress has been removed, though Leahy said he intends to continue working with Hatch on that issue.

The latest version of the bill also strikes the 18-month publication requirement previously included, since labor unions and small inventors expressed concern that patent applicants not seeking protection abroad would see their inventions used overseas without compensation. The new bill also adopts the language from the House version of the 2007 bill that would alter the post-grant review process.

Leahy said that recent court decisions on patent issues have had a positive impact on the patent system, and the Senate Judiciary Committee will discuss the court decisions at a hearing next week.

Industry representatives had mixed reactions to the legislation, noting that issues like damages limitations will need further review.

"We hope this legislation will get the attention and floor time it deserves," said Ed Black, president and CEO of the Computer and Communications Industry Association. "Leaving (the issue of damages) to the courts could have a chilling effect on innovation due to rulings that have been wildly disproportionate to the relative economic contribution of the intellectual property rights at issue."

Mike Holston, general counsel and executive vice president for Hewlett-Packard, said regulations were needed to protect businesses like HP.

"We are the constant target of patent lawsuits, many of which are frivolous," he said. "More than half have been filed from non-operating entities. Instead of having our inventors and lawyers developing new technology, time is diverted fending against these lawsuits."

Still, many in the innovation industry are opposed to the damages limitations. Brian Pomper, the executive director for the Innovation Alliance, called the bill "divisive."

"The U.S. patent system has been critical to the success of countless American entrepreneurs, large and small businesses, and workers for over two hundred years," he said. "At this time of grave economic uncertainty, Congress should not make changes recklessly, without compelling evidence that the proposed changes will positively strengthen the U.S. economy."

The co-sponsors of the bill said the current state of the economy only gave more reason to move forward with the legislation.

"Intellectual property has grown in significance beyond anybody's imagination," Smith said. "If there's any time to encourage industries that do generate jobs to prosper, now is the time to do that."

Even though divisions remain on damages limitations and some other issues, Leahy said the increasingly urgent need to reform the patent system will compel both sides to reach a compromise.

"We will work out the differences," Leahy said. "I know when you have something extremely important to get done, it does get done."

Members of the U.S. Congress plan to introduce a pair of patent reform bills on Tuesday, lending stronger support to a complicated political topic that has failed to win congressional approval in previous years.

Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) and former chair Orrin Hatch (R-Utah), along with House Judiciary Committee Chairman John Conyers (D-Mich.) and ranking minority member Lamar Smith (R-Texas), will discuss the reforms they see as necessary at a Capitol Hill press conference Tuesday.

The Patent Reform Act of 2007, a bill that would have introduced sweeping changes to the U.S. patent system, passed in the House but never made it to the Senate floor. An earlier version of the bill introduced in 2005 never made it through congressional committees.

"I've always believed this legislation would be a multi-Congress process," Hatch, one of the legislators who helped bring bipartisan support for the bill in 2007, wrote in an e-mail to CNET News last month. "We are in the third, and I believe, final round of fine-tuning the bill. Of course, there are some remaining issues that need to be dealt with before full Senate consideration."

While some likely provisions in the anticipated legislation, such as reforms to the U.S. Patent and Trademark Office, could easily garner widespread support, other potential provisions have had major companies and patent coalitions scrambling for the attention of key congressional offices for months.

The debate over damages
One of the most controversial measures of previous versions of the legislation has been a provision to limit the damages patent holders can collect in infringement cases to the value of the specific infringing technology, rather than the entire product.

In anticipation of the legislation's reintroduction this year, the technology sector, along with other industries, has responded with stepped-up lobbying efforts. Representatives from major companies have been meeting with key congressmen and committees this year to discuss the legislation, forming new lobbying groups, and commissioning studies to provide evidence for reform that suits their interests.

"We are constantly receiving language and proposals to improve last year's bill, and we review all of the good ideas that come to us," Hatch said.

Hatch said he has an "open door policy" for all interested parties. Taking advantage of that policy is the Coalition for 21st Century Patent Reform, which is composed of about 40 large companies such as 3M, Caterpillar, Eli Lilly, Motorola, Procter & Gamble, Pfizer, and Texas Instruments.

The coalition met with Hatch and other members of the House and Senate judiciary committees last year. This year, the group has met with Leahy and Conyers, as well as some committee staff members like the legislative directors, according to Bill Mashek, a spokesman for the coalition. The coalition is pressing for Congress to introduce a more tailored bill focused simply on reforming the PTO.

"The last two times it has been the whole ball of wax, and the legislation did not advance," Mashek said. "Perhaps with a fresh look at the system, you could see a different type of bill advancing."

The damages provision should stay out of the bill, the coalition argues, because the issue is being addressed by the courts. In Microsoft v. AT&T, they point out, the Supreme Court limited offshore infringement liability.

"They've held up their poster boy cases and found out those were overturned," Mashek said in reference to proponents of damages limitations.

The potential economic impact
Groups in favor of broader legislation agree that recent court rulings have altered the debate, but members of the Coalition for Patent Fairness, including the Business Software Alliance, Apple, Symantec, and Google, say there is still plenty of room for clarification in the courts in the area of damages.

"There have been a number (of court decisions) since April, but none of them dramatically change our perceptions," said BSA counselor Emery Simon. "Under current law, juries are given very little guidance."

Both the BSA and Google have also been in communication with key congressmen and congressional committees. Google has faced an onslaught of patent litigation lawsuits that are driven by the potential for large damages to be awarded, said Michelle Lee, Google's head of patents and patent strategy.

"Especially in this environment where we're looking for innovation to bring us out" of a recession, Lee said, "the incentives to innovate have to be tied to the underlying reality of the contribution."

Some of the companies represented by the Coalition for 21st Century Patent Reform are also taking an economic approach to their argument. The like-minded Manufacturers Alliance on Patent Policy represents some of the same companies as the Coalition for 21st Century Reform, such as Dow Corning, DuPont, and Texas Instruments. Members of MAPP met with key legislators this year to discuss a report it commissioned to show the potential economic effects of a damages provision.

The analysis, released January 14 by Case Western Reserve economics professor Scott Shane, concludes that limiting patent infringement damages could reduce patent value by between $34.4 billion and $85.3 billion. That lowered value would supposedly lead to a decrease in the value of U.S. public companies by $38.4 billion to $225.4 billion, which would supposedly jeopardize 51,000 to 298,000 U.S. manufacturing jobs. (On the other hand, the market value of companies that might want to use patents owned by someone else might increase.)

"There's been a lot of interest on the Hill and around Washington in trying to quantify what the results would be" of limiting infringement damages, said Stan Fendley, director of legislative and regulatory policy for Corning."Until now the whole debate has been anecdotal, and we are hoping policy makers will take a closer look."

There are many opposing viewpoints on the issue of patent reform, but at least one thing can be agreed upon: patent law is complicated.

Comprehensive patent reform will likely have to take a multifaceted approach, including reform of patent office procedures and the litigation process. A bill introduced this week, however, takes a focused approach to patent reform by aiming to make the subject less confusing for judges.

Rep. Adam Schiff (D-Calif.) and Rep. Darrell Issa (R-Calif.) reintroduced legislation this week that would start a 10-year pilot program to educate district judges on patent issues. Judges from courts that meet certain criteria would be able to opt into the program, which would provide funds for them to pursue educational opportunities such as patent seminars. The participating courts would also be assigned a clerk with expertise in patent law or the technical issues associated with patent cases. The bill authorizes $5 million a year to carry out the program.

At least six district courts, chosen from the 15 that saw the most patent and plant variety protection cases in the previous year, would have to join the pilot program. The courts chosen must house at least 10 judges, so that the courts are not perceived as specialized patent courts. Patent cases would still be randomly assigned to district courts, to avoid "court shopping," but the judges who receive a patent case would have the option of handing it over to a judge enrolled in the pilot program.

"I do think this bill is part and parcel of broader patent reform, which I do hope we're able to move this session," Schiff said. "Broad patent reform has a great number of challenges associated with it, since when you change the patent system in one way or another, you create advantages for some industries and concerns for others."

This bill, though "is an across-the-board winner," he said. "It doesn't affect different patent holders in different ways."

The legislation passed in the House of Representatives both in 2006 and 2007, but Schiff and Issa are more confident it will become law this year because Sen. Arlen Specter (R-Penn.) has introduced matching legislation in the Senate. Specter is the ranking Republican in the Senate Judiciary Committee, which has jurisdiction over patent issues. Committee Chair Patrick Leahy has yet to come out in support of the legislation, but he has said patent reform is a priority for him.

By cultivating more expertise on the bench, the congressmen are hoping to move cases along more quickly, thereby reducing the cost of litigation. The types of educational development the judges in the program could pursue would be left up to the judiciary, Schiff said.

"It's not something we want to micro-manage," he said.

The legislation could be particularly important for small companies that cannot afford lengthy trials.

"For small entities, it really is a situation that delayed justice is no justice," said Ron Riley, president of the Professional Inventors Alliance.

While Riley said educating judges would be a positive step for small businesses, he expressed concern over other potential patent reforms like limiting monetary damages awarded in infringement lawsuits.

"In order for a start-up to have a decent profit margin, they need intellectual property," he said, adding that bringing U.S. patent law in line with other countries' laws may not benefit U.S. companies.

Schiff said, however, he would like to see some patent reforms that harmonize U.S. laws with other systems around the world, such as granting patents to the applicant who first files for it, rather than the applicant who first invented the entity in question. He also said he'd like to see the patent review process become more efficient and would like to modify the inequitable defense doctrine, a controversial rule that allows federal judges to void a patent if the holder deceived the U.S. Patent and Trademark Office to receive it.

Technology firms are often hampered by patent disputes, but the U.S. Patent and Trademark Office called into question last week a patent that had the potential to disrupt the habits of millions of Internet users.

The PTO rejected all 20 patent claims over Internet subdomains held by a company called Hoshiko, which were used to bully sites like LiveJournal and Freehomepage.com and pursue litigation against larger companies like Google. The idea behind how to manage subdomains--domains hosted within larger domains, such as news.cnet.com--is too obvious to patent, the PTO ruled after the nonprofit Electronic Frontier Foundation requested the patent be re-examined.

The EFF was able to provide ample evidence that the idea of virtual subdomains had developed long before a company called IdeaFlood applied for the patent in 1999 or was granted the patent in 2004. Nevertheless, the company used its patent to threaten companies like LiveJournal, which hosts more than 3 million personalized subdomains for its users. The company also threatened Freehomepage.com and T35 Hosting.

IdeaFlood acted more aggressively against larger companies, filing suit against Google in October 2004 and against About.com in May 2005. The Google case was dismissed in March 2005, and IdeaFlood reached a settlement with About.com within months.

With both disputes short-lived, neither company pushed back that hard against the validity of IdeaFlood's patent, so EFF filed its own complaint, said Michael Kwun, a senior staff attorney for EFF.

"It's an incremental process of change in the world of patents," he said.

The patent rights were transferred to Hoshiko after IdeaFlood's two lawsuits came to a close. The company now has two months to try to narrow its patent claims to make them more reasonable or convince the PTO to reverse its January 15 ruling.

Meanwhile, judicial actions like the Supreme Court's 2007 decision in KSR v. Teleflex have chipped away at the threat of dubious patents, and Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) has called patent reform his top priority.