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Is the US finally fixing its patent system?

Or is the little guy just getting hosed?

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Valley Justice You're going to need to read the next sentence twice: The US patent system looks to be improving.

Two US Senators introduced a bill on August 3 designed to change some fundamental features of the US patent system and bring the regime into step with the rest of the world.

With the introduction of the new bill, Senators Orrin Hatch (R, Utah) and Patrick Leahy (D, Vermont) have tossed their hats into the patent-reform maelstrom that has consistently swept through the US legislature like an Atlantic hurricane in years past. The bill, entitled the Patent Reform Act of 2006, proposes some broad, fundamental changes to the US patent system, and exists as both a complement and a competitor to a similar bill introduced in the House of Representatives by Texas congressman Lamar Smith (R.)

After reading the bill into the record and passing it along to the Senate Judiciary Committee, the Senators promptly skipped town for their summer vacation. Since the Senate recess lasts until September 6, and since the differences between the House and Senate bills need some ironing out (to say nothing of the wrangling that will occur between industry groups along the way), it’s unlikely that patent-reform will come to a vote anytime soon.

Which gives us plenty of time to sit back and look at what the Senate bill, in its present form, actually proposes for the future of US patents. And, at the risk of launching a server-melting flame-war apocalypse, we’ll venture out on a limb and say that the bill actually makes a lot of sense. The concerns raised by small inventors, while important to note, don’t even come close to matching the benefits to the public that will result from the sweeping changes contained in the bill.

The Senate bill purports to bring the US in line with the rest of the world by creating a first-to-file patent system, replacing the ambiguous and difficult to prove first-to-invent system that US inventors must slog through now. The Senate bill also creates a new administrative review body to handle patent disputes, limits the jurisdiction of the federal courts to hear patent cases, and restricts the award of damages for patent-holders to the value of the contested patent’s unique features – not the economic worth of the infringing product as a whole.

Troll Bridge

The technology industry has long argued for the last change. In theory, it will limit massive payouts in litigation concerning complex multi-patent products that might only violate a single patent out of the thousands they utilize. Yes, we’re talking about patent-trolls, folks. The damages limit is meant to lower the incentive to stockpile patents for the sole purpose of litigation, which will increase the public good by ensuring that these government-sanctioned monopolies we know as patents end up in useful products and services, and not just as leverage for suits against the tech companies that actually produce the goods and services.

The bill aims to achieve this boon to the public weal by making the economic value of only the “novel or non-obvious features” of the disputed patent a consideration in determining a reasonable royalty upon a finding of infringement. Essentially, this means that courts must look to what the individual patent offers to the product, rather than examining how valuable the product as a whole is to its manufacturer or developer.

Small inventors have voiced concerns that this will rob them of the muscle they need to go up against large corporations in securing fair licenses for their inventions. Since the economic value of the novel features is merely a consideration in royalty awards, however, courts may still push the envelope a bit and give the victims of infringement a high royalty award. While the courts can’t go against the will of Congress, they can use the flexibility written into the bill to balance legal and equitable concerns against the patent’s economic value in order to push the award up just a tad.

Small inventors’ concerns that the damages provision will concentrate patent power in the hands of large companies are further diminished by the bill’s willful infringement clause. If the court finds that a manufacturer has infringed a patent knowing that it was protected, the court is authorized to increase damages by up to three times. These treble damages should be enough to ensure that individual patent rights will stand up in the face of any callous disregard by the tech giants. Of course, what’s $3m versus $1m if you’re Microsoft, right? Now some, most likely the trolls themselves, may argue that this limitation is unnecessary in the wake of the Supreme Court’s decision in eBay v. MercExchange. That case contained a concurring opinion by Justice Kennedy highlighting the aforementioned patent-troll dilemma and suggested that courts should look unfavorably on patent-trolls when deciding whether to enjoin patent-infringers from continuing to manufacture goods or employ business systems.

Since this was only a concurring, and not a majority, opinion, however, this statement amounts to mere legal dicta (or, in layperson’s terms, “a bunch of hot air”). While some courts may rely on it, it has no guaranteed effect as precedent. Moreover, that case dealt with injunctions, and not the legal damages referred to in the bill. (The former prohibits or compels actions, while the latter deals with money.)

While the damages provision in the bill will definitely limit the relief available to some legitimate patent plaintiffs, the overall benefit to the public weighs heavily in favor of this limitation. Once free from the threat of patent-troll suits, companies will be able to pay smaller license fees and create more innovative goods and services, which will benefit the consumer and generally improve the marketplace. Especially for the tech companies.

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