Dems, Republicans Unite on Patent Reform

WASHINGTON –Intellectual property leaders from both sides of the aisle in the U.S. Senate and House of Representatives introduced legislation today targeting patent reform, setting the stage for extensive and expensive lobbying campaigns for and against the measure.

The Patent Reform Act of 2007 would more narrowly define willful infringement, which brings treble damages. The bill would also reduce the amount of infringement awards to the actual value of the covered patent, as opposed to the overall value of a product containing the technology.

In addition, the bill seeks to reform U.S. Patent Office procedures by creating a first-inventor-to-file system to replace the current first-to-invent standard. The legislation would also create a post-grant review scheme to help weed out questionable patents.

Identical versions of the bill were introduced in the House and the Senate. House sponsors include Howard Berman (D-Calif.), chairman of the House IP Committee and Lamar Smith (R-Tex.), the former chairman of the panel. Patrick Leahy (D-Vt.), the chairman of the Senate Judiciary Committee and Orrin Hatch (R-Utah), the former head of the committee, are Senate sponsors.

“High patent quality is essential to continued innovation,” Berman said. “Litigation abuses, especially ones committed by those who thrive on low quality patents, impede the promotion of the progress of science and the useful arts.”

All four lawmakers have long advocated patent reform. The legislation introduced Wednesday represents a compromise between Republicans and Democrats with a helping hand from the U.S. Supreme Court, which has already begun reshaping patent law. Last year, the high court decided automatic injunctions against using infringed technology are not mandatory, long a contentious issue in patent law.

The decision allows eBay to continue using its popular Buy It Now feature even though two courts determined the service infringes on patents held by MercExchange, a Virginia patent holding concern. The case is back in the lower court, where U.S. District Court Judge Jerome Friedman has set June 12 for arguments from both sides on the merits of a permanent injunction.

The Supreme Court is also expected to rule this summer if copies of Windows shipped abroad should be subject to U.S. infringement laws. U.S. courts have already ruled Microsoft infringed on AT&T’s speech technology patents in U.S. copies of Windows and the two companies reached an undisclosed settlement. AT&T, however, insists copies of Windows shipped overseas also infringe its patents.

Dropped from last year’s Republican version is a provision that would have shifted attorneys’ fees and expenses to the non-prevailing party.

“This bill is not perfect – we all know that – but it represents a commitment from both sides of the aisle to move forward in streamlining and strengthening our patent system,” Hatch said. “I am hopeful refinements will be made to this bill during the legislative process.”

The technology industry contends the patent system encourages litigation and large infringement damage awards that chill innovation, most recently pointing to a February $1.52 billion judgment against Microsoft for infringing on Alcatel-Lucent’s MP3 patents. Although Microsoft holds a license to use the technology, the jury decided Redmond obtained them from the wrong party. Damage calculations included all international sales of Windows containing MP3 technology. Microsoft is appealing the decision.

Other industry groups, primarily biotech and pharmaceuticals, praise the current system for providing infringement protection in return for expensive research and development that ultimately serves the public. Both sides are expected to launch high profile, high pressure lobbying efforts.

“This legislation is critical to modernizing the existing patent system, which will, in turn, promote greater innovation and productivity,” Robert Holleyman, president and CEO of the Business Software Alliance, said in a statement. “Unfortunately, opportunistic enforcement of patent rights and patent quality issues have become impediments to innovation and continued economic prosperity.”

Lezlee Westine, president and CEO of TechNet, a coalition of technology executives, said in a statement, “New products and technologies are the lifeblood of the U.S. economy, but the current patent system often times allows patent litigation opportunists to bog down the system.”

The Coalition for 21st Century Patent Reform, which includes Eli Lilly, 3M, Caterpillar and General Electric, was far more tepid in its support. While acknowledging a need to improve the examination of patent applications and issues of cost and uncertainty associated with patent lawsuits, the group said it was concerned the legislation as introduced “does not adequately address several critical reforms.”

The coalition did not name the bill’s missing reforms but its members usually are the companies suing for infringement while the technology industry frequently finds itself as defendants.

“The legislative effort to adopt meaningful patent reform is a vital process that will affect all companies and sectors; it is not a battle between a few companies,” Steven Miller, Procter & Gamble’s vice president and general counsel for intellectual property and a member of the coalition’s steering committee, insisted in a statement.

Wednesday, Berman said, “The bottom line in this is there should be no question that the U.S. patent system produces high quality patents. Since questions have been raised about whether this is the case, the responsibility of Congress is to take a close look at the functioning of the patent system.”

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