House Passes Patent Reform Act

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The U.S. House of Representatives on Friday passed a bill to overhaul the nation's patent system, overcoming objections by many Republicans, small inventors and some labor unions.

The Patent Reform Act, supported by several large tech vendors including Microsoft Corp. and IBM Corp., would allow courts to change they way they assess damages in patent infringement cases. Currently, courts generally consider the value of the entire product when a small piece of the product infringes a patent; the bill would allow, but not require, courts to base damages only on the value of the infringing piece.

The bill would also allow a new way to challenge patents within one year after they've been granted.

The House passed the Patent Reform Act by a vote of 225-175. The Senate has not yet acted on a similar piece of legislation.

However, the White House Office of Management and Budget (OMB) issued a statement on Thursday saying it opposes the bill. It said that the changes in assessment of damages would "introduce new complications and risks reducing incentives to innovate." The OMB objections raise the possibility that President George Bush could veto the legislation.

Large tech vendors have been pushing for patent reform for close to five years. The Software & Information Industry Association (SIIA), the Business Software Alliance, and the Computing Technology Industry Association, all praised the House for passing the bill.

House passage is a "significant step toward improving our patent system," said Mark Bohannon, SIIA's senior vice president of public policy.

Asked about the OMB's opposition to the bill, Bohannon said recent changes have addressed many concerns. Apportionment of damages, one of the OMB's major concerns, needs to change, he added. "If we don't address the problem, we're not going to improve the system," he said.

Many Democrats and some Republicans argued the bill is needed because patent infringement lawsuits have gotten out of hand. It's too easy for patent holders to sue and collect huge damage awards when a small piece of a tech product is found to infringe, supporters argued.

The patent system "is getting near broken," said Representative Howard Berman, a California Democrat and primary sponsor of the bill. "Doing nothing is not a good answer for a Congress that wants the economy strong."

Opponents argued the bill favors tech giants at the expense of small inventors. "The legislation ... helps a small group of powerful people," said Representative Dana Rohrabacher, a California Republican.

Representative Marcy Kaptur, an Ohio Democrat, noted that between 1993 and 2005, four major tech vendors supporting the bill paid out US$3.5 billion in patent infringement settlements. But those same unnamed tech vendors had revenues of $1.4 trillion during that time period, she said.

Tech vendors want to reduce patent infringement costs "not by changing their obviously unfair and often illegal business practices, but by persuading Congress and the Supreme Court to weaken U.S. patent protections," she said. "We ought to stand up for American inventors."

The bill also sets into motion a change in the way patents are awarded, from the first-to-invent system unique to the U.S. to the first-to-file system used by the rest of the world.

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