Is Patent Reform Fight Almost Over?

With Congress back from recess, the fight for sweeping legislation to
reform the patent system may be entering its final stages — according to
members of the Coalition for Patent Fairness, the association representing
companies supporting the bill.

Groups negotiating the Patent Reform Act reached a compromise on the majority of the provisions before the recess, leaving only a few issues still unresolved. Active discussions are currently taking place at both the staffer and member levels, said Mark Isakowitz, a spokesman for the coalition.

A spokeswoman for Sen. Harry Reid’s office confirmed that the majority
leader was committed to introducing the bill before the next recess eight
weeks from now, and possibly as early as next week.

“We feel like the momentum is on our side. I am personally optimistic
about this bill,” Isakowitz said. “We’re picking up some signals from people
around town that we are in endgame.”

The bill passed in the House in September.

If approved by the Senate, the bill would be the first major overhaul of
the U.S. patent system in more than 50 years. Firmly backed by a broad group
of companies within the tech industry, the legislation faces sharp
opposition from pharmaceutical and biotechnical companies, organized labor
and many industry groups.

Ronald J. Riley, president of the Professional Inventors Alliance (PIA),
argues that any crowing about the bill’s imminent passage is premature, and
that it still faces real obstacles in the Senate.

“They don’t have the votes,” said Riley. “Reid’s got to convince Democrats to go against organized labor. I just can’t imagine Senators who are Democrats going on an official position against organized labor.”

“If he brings it to the floor, it’s going to go down in flames,” he
added.

Chief among the criticisms of the bill is that it favors large companies
who can amass large portfolios of relatively insignificant patents, while
raising the entry barrier for small companies or individuals who could be
priced out of the patent application process.

Gregory Fossedal, co-founder and chairman of the financial services
company Freedmand’s LLC, is an outspoken critic of the bill, but he admitted
that its proponents had lobbied effectively on its behalf.

“I’ve got to take my hat off on this. They’ve moved it through the House
and Senate very quietly,” he told InternetNews.com.

The impact on future generations

Patent reform, Fossedal said, is “more important than the Bear Stearns
bailout, NAFTA and the Bush tax cuts combined in the impact it will have on
the next generation.”

Both opponents and supporters of the bill agree that the patent system is
not working as effectively as it should.

“We need patent reform; we just need the reform to go the other way,”
Fossedal said, arguing that the process needs to become less arcane and more
hospitable to smaller companies.

Joining Isakowitz on this morning’s conference call were attorneys who
had been lobbying for large tech companies in support of the bill.
According to Chuck Fish, a vice president and chief patent counsel for Time
Warner (NYSE: TWX), the only points on which the senators had yet to agree
were comparatively minor within the scope of the entire bill.

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For example, they are still wrestling with what constitutes reasonable
royalty damages, Fish said.

They are trying to find language they can agree on that ensures patent
holders are granted appropriate damages in the event of infringement, while
also keeping the reward in line with the real economic value of the relevant
intellectual property, he said.

Protection from patent trolls

Much of the tech industry’s push for patent reform comes from the desire
for protection from patent trolls, companies that hold patents just to file
infringement suits.

Unburdened by the time and expense required to fend off frivolous
litigation, companies could devote more resources to research and
innovation, said Mike Holston, executive vice president and general counsel
for Hewlett-Packard (NYSE: HPQ).

Some critics argue that the bill actually does very little to address the
issue of bad patents. Keith Grzelak, who chairs the intellectual property
policy committee of the Institute of Electrical and Electronics Engineers
(IEEE), told InternetNews.com that the fundamental breakdown is in
the way that patents are reviewed. Grzelak said the U.S. Patent Office,
which currently has a backlog of around 1 million patent applications,
cannot hire its way out of the situation. It needs better technology to
properly examine incoming patents, and some form of gatekeeper mechanism to
automatically dismiss bad patents.

Stripping inventors’ rights?

Critics also charge that the bill would undermine the incentive to
innovate by stripping inventors’ rights. Holston tried to defuse that
argument on this morning’s call.

“HP and the other companies that support this legislation are also
enormous patent holders and we’re not going to do anything to weaken the
patent system,” he said, noting that his company is awarded an average of
five patents daily.

“This will strengthen the patent system at the end of the day,” he added.

Riley was unmoved. He told InternetNews.com that in their patent
strategies, large companies “try to substitute quantity for quality. They
build a huge patent portfolio, but they’re of very little value.”

“When there’s a breakthrough invention, it usually comes from a
university or an individual inventor,” he said.

The good patents — the ones that can cost companies hundreds of millions
of dollars in court settlements — don’t come from the corporate
heavyweights, who, Riley claims, tend to outgrow their innovative phase as
they expand.

In addition to the issue of royalty damages, the senators debating the
bill are still trying to hammer out an agreement on the venue where
infringement cases should be heard, so that neither inventors nor defendants
are summoned too far from their homes to appear in court.

They are also looking at a measure that would allow challenges to a
patent after it has been awarded, and issue of stakeholders misleading the
patent office.

The final sticking point is an important one in the debate over the entry
barriers. It concerns the quality of submissions and could place the burden of assuring the uniqueness of a patent on the applicant.

The attorneys said that debate in Washington over the legislation has
entered a quiet period, which they claimed indicates that high-level
discussions are taking place among the Judiciary Committee members in
anticipation of the bill’s introduction to the floor during the next few
weeks.

A full court press

“No one’s predicting it’s a slam dunk,” Isakowitz said, noting that in
the run-up to the vote there would be a “full-court press in terms of
tactical lobbying” from both sides.

Given the substantive agreement reached before the recess, and Reid’s
indication that he wanted to fast-track a vote on the bill, Isakowitz said
he expects lingering objections to be resolved.

In the next few weeks, “we will see some of the opposing stakeholders
coming around,” he said.

IEEE’s Grzelak claimed that the quiet period really characterized the
entire process of the drafting and modifying of the legislation, but that
once it hit the floor, the opposition could gather quickly once people
realize the impact it would have on smaller businesses and the domestic
economy.

“A bill has been delivered by a very small and concise group that has
been acting very quietly,” he said. “There are going to be a lot of
surprised people when this comes to the floor.”

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