Small tech needs a louder voice in the patent reform debate
Congress introduced twin bills in the House and Senate proposing sweeping revisions to patent law on April 18, 2007: Representatives Howard Berman (D-Calif.) and Lamar Smith (R-Texas) introduced H.R. 1908 and Senators Patrick Leahy (D-Vt.) and Orrin Hatch (R-Utah) introduced S. 1145. Then, on May 18, the House IP Subcommittee approved the patent-reform bill for full consideration by the House Judiciary Committee-despite a lack of consensus among industry groups that provided input on the proposed legislation. That same day, the Commerce Department sent a letter supporting legislation to modify the law of inequitable conduct in patent cases, but saying it does not believe “that a sufficient case has been made” on patent damages. The letter also opposed “immediate conversion to first-to-file via this legislation,” noting that first-to-file is an issue in ongoing discussions with other countries on patent law harmonization.
Independently and over a short period of time prior to the bill’s introduction, the Supreme Court issued a series of decisions that may impact the value of patents and increase discretion for courts deciding such cases. The enactment of some or all of the bill’s provisions, together with the recent Supreme Court decisions, will impact not only the valuation of micro and nanotechnology patents, but also the extent to which investors may rely on patents to bring a return on investment, and the balance of power between innovation and competition.
Nano- and microtechnology companies and research institutions have so far not participated in an organized fashion in the patent-reform debate, which is currently dominated by groups that draw from the pharmaceutical, biotech, software, and electronics industries, as well as several associations. In the months ahead, as hearings take place on Capitol Hill to examine the proposed reforms in greater detail, it will be important for the micro/nano community to understand what is at stake, adopt positions on provisions, form a collective voice, and prepare to adopt new strategies to maximize the value of patent portfolios.
What has sparked the debate
Highly publicized patent litigation has cast a spotlight on patents. In the case between NTP and RIM over RIM’s BlackBerry devices, an injunction threatened to disrupt BlackBerry service in the U.S. After the court upheld the validity of the patents and after the failure of a belated attempt to have the Patent Office revoke the patents through a slow-moving reexamination proceeding (which continues without a final decision as this article goes to print), RIM agreed to pay more than $600 million to avoid an injunction that would have prevented it from using the communication method covered under the patents.
A growing number of patent-holding companies with little or no internal R&D operations (sometimes referred to as “patent trolls”) have been increasingly filing litigation, often targeting large groups of companies with a single suit filed in a jurisdiction perceived to offer favorable outcomes to patent owners (for example, a report by LegalMetric indicates an 88% success rate for plaintiffs in the Eastern District of Texas).
Groups such as the Business Software Alliance believe patent reform is needed to end such perceived abuses. Many groups associated with the software industry generally support efforts to rein in the injunctive power of patents, laws to limit damages, provisions to inhibit “forum shopping,” and a robust post-grant opposition system. The latter would provide a less-costly alternative for weeding out patents they believe should not have been granted in the first place.
On the opposite side of the spectrum, pharmaceutical and biotechnology companies depend on patents to recoup the huge costs of drug development. They rely on the absolute power of an injunction to deter generic companies from entering the market before patent expiration. Pharma and biotech groups support many aspects of the patent reform bill, but oppose other parts. In addition, other groups such as electronics companies and universities rely on patents to commercialize technology and protect investment.
The status quo and reform effects
Currently, the U.S. has two types of post-grant opposition for US patents: ex parte and inter partes reexamination. They may be initiated at any time during the enforceable life of a patent, but they may be based only on “printed publications or patents” that support an argument of “unpatentability” based on anticipation or obviousness. They may not be used to argue that a patent claim is “unpatentable” on the basis of lack of enablement (scope of claim broader than what is supported by the examples) or other statutory requirements for patentability.
The 2007 patent reform bill would create a third type of post-grant opposition to permit challenges on the full range of requirements. In addition, the existing inter partes reexamination-whereby a requester may participate in the proceeding after filing-would be enhanced by narrowing the scope of estoppel (which prevents a party from later raising a prior argument that was unsuccessful) for a failed bid to revoke a patent to the actual grounds of unpatentability. (Currently, a requester who files an inter partes reexamination request and is unsuccessful is subsequently estopped from attacking validity of the same patent in litigation on any grounds that “could have been” raised in the reexamination proceeding. This broader scope of estoppel has inhibited the use of inter partes reexamination proceedings.)
The 2007 patent reform bill would also attempt to rein in damages awards in patent litigation. One provision would limit damages by specifying-in the case of a patented invention that represents only one part of a larger product-that damages must be apportioned to the significance of that one part. Another provision would require the infringer to have actual notice of a patent before enhanced damages could be awarded.
The “supreme” impact
Adding to the complexity of the patent reform debate, the Supreme Court has shown an unprecedented interest in patent law over the last few years. In particular, four recent Supreme Court decisions may have the most impact on small tech-although their full impact may not be realized for years, as lower courts work to apply the rulings and determine boundaries.
Yet it is essential to understand that the Supreme Court has already re-shaped the patent system through these decisions in a way that may lessen the need for patent reform legislation in some respects and increase the need for patent reform legislation in others. Moreover, these Supreme Court decisions also need to be understood in relation to small tech, so that companies can adjust their patent-claiming and licensing strategies to maximize the value of their technologies.
Congress will act-with or without your input
As noted above, the software industry and biotechnology/pharmaceutical groups have very different viewpoints on the 2007 patent reform bill that are not easy to reconcile. Despite the diversity of micro- and nanotechnologies and applications, most companies in this arena share at least one important characteristic: long product-development cycles and significant expenditures on research. Thus, patents provide a significant stimulus for venture capital firms to invest money in them-and without a guaranteed period of exclusivity, there would be less incentive for investment. For these reasons, the nanotechnology community may fall closer to the bio-pharma end of the spectrum in the patent reform debate.
The chorus of voices calling for patent reform is pressuring Congress to do something. The community of micro/nano start-ups, publicly traded companies, universities, and research organizations have not yet spoken up, but it is now time to join the debate. Because small tech is an important economic sector that is creating high-tech jobs and helping the U.S. to remain competitive in vital areas, legislators and policymakers will listen if this community chooses to make itself heard.
STEPHEN B. MAEBIUS is a partner at Foley & Lardner LLP. He can be reached at firstname.lastname@example.org.