Patent Reform Debate Opens in Congress

To no one's great surprise, the patent reform debate comes down to one thing: damages. Tech companies claim excessive infringement damages are killing innovation, while large manufacturers and pharmaceutical firms contend large damage awards barely even cover the litigation costs of multiyear infringement.

Congress resumed its long-running patent reform debate March 10 with the usual intractable foes lining up for and against the primary sticking point in legislation introduced March 3: damages. High-tech companies want the damages formula in patent infringement lawsuits gutted; traditional manufacturing and pharmaceutical firms like it just the way it is.
Bills introduced in both the House and Senate would more narrowly define willful infringement, determining infringement damages in relation to the economic value of the patent's contribution to an overall product. Currently, infringement damages are based on the entire value of the product.
Reducing damages rank as a top priority for many of the country's tech firms. As David J. Kappos, IBM's vice president and assistant general counsel, explained to the Senate Judiciary Committee, "Innovation today is characterized by diverse forms of collaboration, multidisciplinary problem solving, interconnected technologies and complex products involving multiple inventions. The patent system must adapt to these changes."
Kappos told lawmakers patent litigation has significantly increased over the last decade and that if it continues, "This excessive litigation threatens to sap America's innovative capacity and its ability to compete in the world if left unaddressed."
Kappos' claim of increasing litigation was challenged by Philip S. Johnson, chief intellectual property counsel at Johnson & Johnson. According to Johnson, of the approximately 2,700 patent lawsuits filed annually in the United States, fewer than five result in verdicts of more than $100 million, and most of those do not survive post-judgment review and appeal.
"A prime example is the Alcatel-Lucent vs. Microsoft verdict of $1.5 billion that was touted in the last Congress as the reason for patent damages reform, even though it was later promptly and finally vacated," Johnson said. "Critics from some large technology companies nonetheless contend that damages reform is needed because their fears that erratic or spurious awards will be granted cause them to settle their cases at higher amounts than are fair."
Johnson added that tech's excessive damages claims are "hard to vet, as settlement terms are normally private, and entered at a fraction of the damages that would be assessed were the case to proceed to judgment."
Congress has heard all of this before. In the 110th Congress, the House approved patent reform, but the legislation never gained traction in the Senate. The House vote came after six years of debate and more than 20 hearings, most of them covering the same material as the March 10 testimony before the Senate Judiciary Committee.
"Our bill is intended to establish a more efficient and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs, while making sure no party's access to court is denied," bill sponsor Sen. Patrick Leahy, the Vermont Democrat who heads the Judiciary panel, said in his opening remarks. "There is much work to do, but I am optimistic that by continuing to work together, we will find the right language. We may be closer to reaching consensus on language regarding damages and venue than ever before."
In addition to limiting damages, the bill would also create a post-grant review to challenge issued patents, call for a first-to-file system and grant broader rulemaking authority to the USPTO (U.S. Patent and Trademark Office).
Sen. Orrin Hatch, R-Utah, co-sponsored the bill with Leahy. Hatch said he hoped the third time would be the charm for patent reform.
"Today's introduction signals the third and what I hope will be the final round. If we are to continue to lead the globe in innovation and production, we must have an efficient and streamlined patent system," Hatch said. "For those who might say nothing has changed, I can attest that it has. Just look at the bill. We have listened to many of the concerns raised by stakeholders and have changed the legislative text accordingly."