House Panel Approves Patent Reform

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The House Committee on the Judiciary approved far-reaching legislation to reform the nation's patent system Wednesday.

The Patent Reform Act of 2007 largely reflects the IT sector's lobbying effort to curtail lengthy, expensive patent infringement lawsuits, but Wednesday's committee deliberations centered on finding compromises acceptable to opponents--namely the pharmaceutical and biotechnology industries, manufacturers, and large research universities--so that the bill could win approval.

Committee Chairman John Conyers, D-Mich., described the current patent system as inefficient, bogged down by inappropriate litigation rules, unreliably funded, and resulting in patents of "questionable quality." The bill would make it harder to secure a patent and easier for rivals to challenge one, and it would change how courts determine an infringed patent's value. However, the version approved by the committee does not go as far on any of those fronts as the IT industry would have liked, and continued negotiations are underway.

"Needless to say, our journey has been rugged," Conyers said, urging members to pass the bill out of committee. "We meet here today with the realization that we haven't finished the discussions. The meetings have gone on almost endlessly in some people's minds because compromises are necessary."

The proposal Conyers brought forward addresses two of the most controversial provisions under discussion: How courts determine the damages paid to patent holders by infringers and whether challengers are allowed to review patents after they've been granted.

Assessing Damages

Calling the damages provision the most complex issue, the bill's original sponsor, Rep. Howard Berman, D-Calif., said that allowing judges to determine damages by assessing the value of a component within an invention that was infringed--rather than the value of the entire product--would correct "bizarre and wrong-headed trends" in patent litigation. Originally, the bill mandated that courts calculate damages by such an "apportionment" formula, which the IT industry largely supported.

However, the committee agreed to give judges the discretion to decide whether damages should be determined by apportionment, by the market value of the entire invention, or by other means.

Several committee members, including Rep. Tom Feeney, R-Fla., said they would like to see further refinement of the provision because Congress can?t predict the consequences of the apportionment analysis.

"It would be important to give the court flexibility," Feeney said, adding that the bill could unduly diminish the value of some patents. "We are in a whole new world of uncertainty."

Promoting Higher Quality Patents

In a move that would make it easier to challenge a patent without going through costly litigation--and simultaneously make it harder for inventors to secure patents--the bill allows the Patent and Trademark Office (PTO) to review patents after they've been granted. In response to concerns raised by research universities and others, however, it limits the timeframe for such review.

The legislation also makes it harder to secure a patent by giving third parties more opportunity to submit information to the PTO during the application process to ensure that only innovative inventions are patented.

The bill moves the patent system from a "first-to-invent" to a "first-to-file" system, but in another nod to large universities, the committee clarified a grace period on filing patent applications for inventors who disclose or publish inventions in advance of seeking a patent.

Discouraging Excessive Litigation

In an attempt to reduce abuses in patent litigation and discourage frivolous cases from being filed and non-frivolous cases from being unnecessarily drawn out, two other provisions were heavily debated and amended before the bill was approved: The ability of alleged infringers to charge patent holders with "inequitable conduct," and the patent holder's flexibility in selecting a venue for a case.

Currently, alleged infringers can argue that a patent is invalid on the grounds that the holder did not sufficiently disclose information about an invention and thereby engaged in inequitable conduct. The often-used tactic is widely seen as a way to divert attention from the merits of the patent itself. The bill narrows the circumstances under which this defense could be used and gives courts a range of options to remedy such conduct when it is found.

In an effort to curb forum shopping, the bill restricts patent holders to four options when choosing a venue to file a suit in. However, the bill provides leeway for individual inventors, universities, and "micro entities" to bring patent cases where they reside.

Noting that members of Congress cannot predict the consequences of the sweeping reform legislation, Rep. Sheila Jackson Lee, D-Texas, proposed requiring the PTO to conduct periodic studies of the impact of the most controversial provisions. The proposal was enthusiastically approved.

The Senate Judiciary Committee is scheduled to continue deliberating its version of the patent reform legislation Thursday.

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