Original URL: http://www.theregister.co.uk/2006/08/10/us_patent_reform/

Is the US finally fixing its patent system?

Or is the little guy just getting hosed?

By Kevin Fayle

Posted in Media, 10th August 2006 18:32 GMT

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.

Look Out World, We’re Catching Up

The most innovative, and potentially most beneficial, development contained in the Senate bill is the proposed switch to a first-to-file system. In a rare move for the US Senate, the bill would draw the US patent regime in line with, well, every other patent regime on the planet. Moving US law towards congruence with international norms is a new trick for the Senate, but one that should improve the state of the law in this area and move the world a little closer to global patent uniformity.

Right now, the US employs a first-to-invent system for establishing patent priority. The patent code allows a previous inventor to interfere with the issuance of a patent by claiming that they, in fact, invented the subject of the application first. If the first inventor has “abandoned, suppressed or concealed” the subject of the patent, however, he loses his priority. Thus, if an inventor or developer sits on a new invention and does nothing, a subsequent inventor can come along and claim the patent. The subsequent inventor must have come up with the idea on his or her own, though – stolen inventions cannot receive a patent.

While the first-to-invent system seems wonderfully fair, it’s a mess to uphold. Patent applications, already immensely complicated because of technical investigations, can get bogged down in evidentiary battles over whose research notes contain the earliest mention of a certain algorithm or chip design. This delays the issuance of the patent, and keeps valuable inventions out of the public’s hands while the dispute rages.

The Senate bill alters this system in favor of the nearly universal first-to-file system. The bill cuts out the language dealing with the rights of the first inventor, and simply states that no one can obtain a patent if an identical patent has already issued, or there is currently a patent application on file for the same invention. Nice and tidy, no?

Now, the small inventor lobby argues that a first-to-file system will result in large companies gaining all the patents, since many small inventors will lack the resources to file patent applications for their inventions. This constitutes a valid concern, since a first-to-file system will undoubtedly result in some first inventors losing the race to file and the right to patent the idea. Research has shown that actual inventors often file their applications last (if at all).

While an important issue, the greater good must again win out. Sure, a few inventors might lose a patent. But really, once the first-to-file system is in place, most inventors will simply realize that they have to file immediately and get on the ball with their paperwork. Plus, under the current system, a prior inventor has to retain the services of an attorney in order to state their priority claim and interfere with a patent application. If the inventor can afford to hire an attorney for that purpose, then surely he can hire an attorney for the purpose of filing a patent application. Hiring an attorney for transactional work is usually cheaper than hiring one for litigation anyway.

Moreover, a first-to-file system will improve the benefit to the public in two ways. First, it will encourage inventors to patent their inventions quickly, which will in turn result in the invention entering the public domain more rapidly. Second, the new system will streamline the patent application process and result in products delivered to consumers more quickly than before. Patent applications already take a long time – discussions of prior art and novelty can drag on for months. Tack on a lengthy period of disputes over patent priority, and the application process can stretch out even longer. This can delay product releases and prevent useful products from entering the market stream.

Obviously, people will still dispute patents under the first-to-file system, but in much fewer numbers. The dispute process should take less time as well, since evidentiary clashes will become less common. The public benefits, inventors cash in, and there is peace and prosperity across the land. That’s the theory, anyway.

And in the End . . .

The Patent Reform Act of 2006 will be a shot in the arm for the US patent system, if it can make it through the Congress without losing its core provisions. The grand ideas contained in the bill have a great deal of merit. That said, the bill has its kinks – ambiguous language and clumsy machinations will definitely need some refinement before the bill is ready for a vote. But, after all, that’s what the legislative process is for. We’re sure that after the lobbyists – er, we mean legislators, of course – have gotten their hands dirty and fine-tuned the inner workings, the bill will translate into good law for US inventors and IP practitioners. Then, once it’s enacted, we can all start griping about the new system. Won’t that be fun? ®

Kevin Fayle is an attorney, web editor and writer in San Francisco. He keeps a close eye on IP and International Law issues.