House Approves Patent Bill; High-Tech Groups Spar Over Reform

Earlier this month, the U.S. House of Representatives approved patent reform legislation that would represent the most significant reform of the U.S. patent system since the Bayh-Dole Act. The Patent Reform Act of 2007 (HR 1908) would move the U.S. to a first-to-file patent system rather than the first-to-invent system that has long made the U.S. an international outlier in intellectual property (IP) protection. A first-to-file system would help organize existing patents and simplify patent searches and challenges; however, this system also could lead to a rush to file new patents, placing those small businesses and individual inventors with fewer legal and financial resources at a significant disadvantage (see the June 6, 2006 issue of the Digest).



The bill has divided the tech community. For example, the Institute of Electrical and Electronic Engineers (IEEE) believes that the proposed changes would both stifle innovation and harm the ability of smaller firms to assert their intellectual property rights against large corporations. Other groups such as the Business Software Alliance believe that patent reform could help reduce frivolous suits and trivial patents.



The switch to a first-to-file system is one of several changes included in the House bill that has divided many within the TBED and high-tech communities. Other provisions raising controversy include:

• Post-Grant Reviews - HR 1908 creates a 12-month period following the grant of a patent during which a third party can provide evidence that the new patent infringes on existing IP. During this period, there is no presumption of validity for the questioned patent. Originally, the bill also provided a second window for challenging a patent, but this window was replaced with a challenge procedure that requires the written authorization of the accused infringer. The White House believes that this second window for review should be reinserted into the bill, preserving a legitimate means of challenging patents that have been found to infringe. The Biotechnology Industry Organization (BIO) believes that these reviews would unfairly increase the risks of investment in life sciences.
• Limits on Damages - Currently, judges may award a 'reasonable royalty' based upon the value of the entire patent to IP owners to compensate them for infringement. The House bill would limit damages to a royalty based on the unique contribution of the patent over prior IP. Biotechnology and pharmaceutical industry groups oppose the change noting that life science patents generally synthesize prior discoveries in a novel way.
• Expanded Prior User Rights - The original House bill expanded prior user rights for companies currently using technologies that may be patented by others under the first-to-file system to allow them to continue those technologies if the technology has been in use for at least a year or if substantial preparations have already been made for their use. The Association of American Universities (AAU) argued that these expanded rights would weaken the ability of universities to license their discoveries. An amendment eliminated these provisions shortly before the bill passed. AAU now supports the reform measure.

Many information technology industry groups have championed the bill as a necessary update to a system in which patent trolls – patent owners who collect IP rights only to seek infringement damages – are able to stifle innovation. IT advocates believe the reforms would help reduce litigation costs and limit escalating out-of-court settlements. On the other hand, life science and pharmaceutical companies oppose the reforms because they would place patents, which often require massive investment in the life sciences, in permanent jeopardy of cancellation through post-grant reviews. The reforms also would severely limit the damages that could be sought against infringing manufacturers of highly-profitable generic drugs.



The White House has joined the life science community in opposing the changes related to the apportionment of damages, but supports many of the bill's other reforms. In a statement of administration policy, President Bush indicated his support for the expansion of U.S. Patent and Trademark Office authority and many of the reforms related to the application process, including the first-to-file system and third-party submissions of prior art. The statement, however, contained reservations about the limits on infringement damages, and the elimination of the requirement that patent-seekers must disclose the best application of the new technology.



Meanwhile, Senate Majority Leader Harry Reid has included the Senate version of the bill in his agenda for the next few weeks; though, due to continued industry disagreement, any reform may not occur this year.



Track the progress of Senate Bill 1145 at: http://thomas.loc.gov/cgi-bin/bdquery/z?d110:s.01145:



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