US patent reform back on track

Has the US Congress found a way through competing interests to develop patent reform proposals that will satisfy everyone? Unfortunately, the answer appears to be a frustrating "not yet".

Last month, Senators Patrick Leahy and Orrin Hatch together with Representatives Howard Berman and Lamar Smith introduced bipartisan, bicameral legislation to make the patent system more streamlined and efficient. The bills are HR1908 and S1145.

But the initial reaction suggests that while the bills address many concerns, particularly among the IT community, they also include provisions that many IP owners will find unacceptable.

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Steven Miller, vice president and general counsel intellectual property at Procter & Gamble and a member of the Coalition for 21st Century Patent Reform steering committee, said: "We are encouraged that the bills that Chairman Leahy and Chairman Berman have introduced will allow the legislative process on needed reforms to advance. However, we are concerned the bills as introduced do not adequately address several critical reforms."

The bills, known as the Patent Reform Act 2007, have three main features. First, they propose changing the US from first-to-invent to first-to-file. This is likely to be welcomed by most patent owners and applicants.

Second, they would introduce a European-style opposition system, with safeguards to ensure it is not misused. The aim of this system is to reduce the need for costly and time-consuming litigation in the federal district courts.

However, crucially this provision includes a so-called second window, allowing patents to be challenged after 12 months after grant. The second window appears to offer a broad scope for challenging patents, as anyone can file a challenge if they are sued for infringement or if they can show that the patent causes them "significant economic harm".

The third major part of the bills aims to align damages awards more closely to the harm caused by infringement. Courts should base damages awards on "that economic value properly attributable to the patent's specific contribution over the prior art" and exclude economic value attributable to the prior art and other features or improvements. The bills also rule out basing damages on the "entire market value" unless the patent's "specific contribution over the prior art is the predominant basis for market demand for an infringing product or process".

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The new legislation has dropped four significant proposals that were included in previous reform bills: the modification or elimination of the inequitable conduct defence; the elimination of the best-mode requirement; a plan to allow the award of attorneys' fees to the losing party; and repealing Section 271(f) on extra-territorial effects (a case on this issue, AT&T v Microsoft, is pending before the Supreme Court).

The biotech and pharmaceutical industries have already signalled that a number of the proposals are not acceptable. Jim Greenwood, president and CEO of the Biotechnology Industry Organization, said the draft legislation "contains provisions that will weaken the enforceability of validly issued patents, and fails to include necessary reforms to make the patent system more objective and efficient".

In particular, said Greenwood, the new post-grant opposition system would allow a patent to be broadly challenged during its term while the damages proposals "would de-value the contribution of many biotechnology patents".

Pharmaceutical Research and Manufacturers of America (PhRMA) senior vice president Ken Johnson said: "We are disappointed that bills introduced today in Congress do not include some important legislative reforms that were recommended by the National Academies of the Sciences in its report, A Patent System for the 21st Century. Other provisions in the new legislation may damage the patent system in ways that are important to innovative sectors of the US economy."

The Patent Reform Act 2007 is the sixth patent reform proposal put forward in the past two years, but the first that has the backing of both parties and to be introduced in both houses simultaneously.

Kathy Kelly Lutton, head of litigation at Fish & Richardson, told MIP: "It is a huge step that this Act is bicameral as well as bipartisan." But she said there would have to be further hearings, debate and mark-up before the Act would be acceptable. "I think it's likely to be enacted, but not as currently written."

Reform was first proposed following a National Academies report in 2004, which addressed deficiencies in the US patent system and proposed introducing a first-to-file procedure to harmonize with the rest of the world. But as the subject of reform was discussed, many other issues became raised as needing attention, particularly amid concern about so-called patent trolls abusing loopholes in the patent system.

With some demands favouring plaintiffs and some favouring defendants, it has so far proven impossible to find a consensus. And legislative proposals were further delayed when control of both Houses of Congress changed last year. The Patent Reform Act 2007 promises a final resolution, but only if agreement can be reached following Congressional hearings. If so, it is possible that the reform will be implemented before the end of this year.