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Democracy & Technology Blog Good and Bad in Patent Reform Act of 2007

Fine-tuning patent law (as I have argued here and here) is a task the Supreme Court is best suited to handle, and the Leahy-Hatch / Berman-Smith Patent Reform Act of 2007, introduced yesterday in the Senate and House, thankfully is silent on some of the more contentious patent reform issues. According to Rep. Howard Berman (D-CA),

There are a number of issues which we have chosen not to include in the bill primarily because we hope they will be addressed without the need for legislation. For instance the Supreme Court recently resolved questions regarding injunctive relief. In that category we include amendments to Section 271(f) and the obviousness standard as both issues are currently before the Supreme Court. If either of those issues are not resolved, Congress may need to re-evaluate whether to include them in a patent bill.

Click here for Rep. Berman’s web page containing the text of the proposal and a section-by-section analysis. A very quick initial read indicates that a number of the ideas in the Congressional proposal sound okay in theory but could in practice lead to more uncertainty and new forms of abuse.
First of all, the proposal aims to limit obscene damage awards by requiring that when a court seeks to determine what a “reasonable royalty” would be, the analysis must be limited to the economic value “attributable to the patent’s specific contribution over the prior art.” But this is what the courts try to do already. The law doesn’t intentionally compensate someone for the harm done to another. So this is, in effect, a warning shot to judges to be more defendant-friendly and keep damage awards to a minimum. The proposal also says damages can’t be based on the “entire market value” of the infringing product or process, unless the patent’s specific contribution over the prior art is the “predominant basis for market demand” for that product or process. This is a very high threshold intended to exclude almost everything. I wonder what’s wrong with “significant,” for example, instead of “predominant”? Also, a “predominant basis for market demand” may not be the same as an essential ingredient. But right now if something is an essential ingredient the courts can take that into account.
Rep. Howard Berman (D-CA), one of the proposal’s sponsors, notes that what really grates on infringers is having to pay damage awards for “low quality” patents,

Litigation abuses, especially ones committed by those which thrive on low quality patents, impede the promotion of the progress of science and the useful arts.

On the positive side, the proposal permits third parties to submit relevant prior art references to the Patent Office. But it also creates a new post-grant opposition procedure. That’s because,

a party seeking to challenge the validity and enforceability of the patent has two avenues under current law: by reexamination proceeding at the USPTO or by litigation in federal district court. The former is used sparingly and is considered not very effective; the latter, district court litigation, is unwieldy and expensive

Why is reexamination considered not very effective? Well, for one thing, it has to be requested within three months of the issuance of a patent, unless the Director of the Patent Office decides to on his or her own initiative. The Director can trigger a reexamination at any time. This serves as an important safeguard in truly unusual or egregious situations, but one that’s tempered by the fact that the Director presumably is a disinterested third party. Post-grant review can be requested by an infringer at any time, throughout the life of the patent, if the patent is likely to cause the infringer “significant economic harm.” There is, therefore, little incentive for interested third parties to participate at the front end of the process when patents are issued. The result is unnecessary risk for innocent third parties who participate in the marketing of new products and processes, such as investors, employees and suppliers. Most if not all decisions of government agencies must be appealed within limited timeframes such as 30, 60 or 90 days, because finality is what allows people to get on with their lives and plan for the future. The proposal tries to solve this problem by making post-grant review just like reexamination,

§ 325. — The Director may not institute a post-grant review proceeding unless the Director determines that the information presented provides sufficient grounds to proceed.

It sounds like we’re back where we started, except that we now have three layers of review instead of two. But there’s more. Post-grant review will be an agreeable forum for an infringer:

§ 328.– The presumption of patent validity does not apply in post-grant review; burden of proof is preponderance of the evidence.

That’s not all. Berman acknowledges there’s a possibility of abuse, so new and unspecified regulations are going to be required,

Many have expressed concerns about the possibility of harassment of patent owners who want to assume quiet title over their invention. In an effort to address those concerns, the bill prohibits multiple bites at the apple by restricting the cancellation petitioner to opt for only one window one time. The bill also requires that the Director prescribe regulations for sanctions for abuse of process or harassment.

For those who have struggled to deal with the patent thickets in the newly patentable areas of software and business methods, there will appear to be some good stuff in the Leahy-Hatch / Berman-Smith Patent Reform Act of 2007. For many other holders of traditional patents, who are more or less satisfied with the current system, this isn’t a great starting point.

Hance Haney

Director and Senior Fellow of the Technology & Democracy Project
Hance Haney served as Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute, in Washington, D.C. Haney spent ten years as an aide to former Senator Bob Packwood (OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a B.A. in history from Willamette University and a J.D. from Lewis and Clark Law School in Portland, Oregon.