Lisa A. Dolak
Patent Reform: A Necessary Evil?
Patent Matters
February / March 2008
Volume 6 Number 1
The pending patent reform legislation has divided the patent community. Its avid proponents, including a number of large high-tech companies, argue that it would reduce the number of "junk" patents and give accused patent infringers a much-needed fair chance in court.
Some opponents contend that the pending bills go too far in some respects and not far enough in others. Its most vocal opponents include some advocates for independent inventors, who have nothing good to say about the current legislation.
High-pitched rhetoric emanates from both sides. We hear from one side that high-tech companies are under siege from "trolls" who extort windfall settlements based on worthless patents. The other side claims that the proposed changes are unconstitutional, would injure the patent system, facilitate foreign piracy of domestic technology and cheat independent inventors. The truth lies somewhere in between.
The patent system is far from perfect. A few high-profile examples (remember the recently invalidated patent on the crustless peanut butter and jelly sandwich?) have focused attention on patent quality problems. The Patent Office is struggling to keep up with patent filings; some applications now take five years to process. Currently, some questionable patents can only be challenged in federal court —€”an impractically expensive forum for some. And in significant fundamental respects, the U.S. patent system is out of step with other major patent-granting countries.
Some of the proposed changes take aim at these problems. For example, the new law would provide an alternative, less expensive forum—€”inside the Patent Office—€”for challenging dubious patents. Another significant change would grant patent rights to the first inventor to file her application on a particular invention, regardless of whether she was the first to actually make the invention. Such "opposition proceedings" (or similar opportunities for public patent challenges) and "first inventor to file" rights are available in Europe, Japan and other major industrial countries.
The proposed reforms, however, go well beyond even these significant reworks. The new law would, for the first time, authorize courts to limit patent damage awards by "subtracting" the value the "prior art" contributed to the invention. It would change the law of "willful infringement," circumscribing the circumstances in which patent owners could ask for enhanced damages awards. It would expand the law requiring the publication of some pending patent applications.
It is highly debatable whether the proposed changes are entirely necessary or even prudent. Opponents of the legislation note that the Supreme Court has recently decided significant cases tightening the requirements for "patentability" and limiting the availability of injunctions once infringement is found. They argue that these changes will, over time, alleviate patent quality problems and constrain attempts to cash in on "paper patents." Even those who support aspects of the proposed reforms worry that Congress may be trying to do too much at once.
At present, the House has passed its version of the legislation and the Senate bill is pending. Which, if either, will become law is uncertain. One thing is clear: if enacted, the pending legislation would significantly change the patent landscape, and have particular impact on independent inventors and entrepreneurs. Key provisions found in both bills relate to "first inventor to file" priority, post-grant opposition proceedings and limitations on damages for patent infringement.
The proposed change to a "first inventor to file" system is one that concerns advocates for independent inventors. Large business concerns can more readily afford to file large numbers of patent applications, and to file earlier in the development process than individuals or small businesses. So, some worry that small entities will lose the race to the Patent Office when they are competing head to head with a large company for patent rights on the same invention.
It is important to keep in mind, though, that a tie-breaker rule, whether "first to invent" or "first inventor to file," is only invoked in those very rare situations where two inventors file patent applications seeking rights on the same invention at around the same time. Furthermore, studies have shown that the "first to invent" rule doesn't necessarily operate to the advantage of independent inventors or small concerns when they are involved in such contests.
And while inventors would no longer be able to rely on notebook invention records to overcome prior art, this change would affect all inventors—€”including those working in large corporations. Finally, independent inventors can obtain many of the benefits of early filing by filing inexpensive provisional patent applications.
Several other proposed changes, however, likely would disproportionately affect independent inventors. The new avenues for challenging issued patents in the Patent Office would diminish financial and procedural hurdles that currently deter patent challenges, and provide an additional opportunity for well-financed opponents to wear down independent inventors, despite the safeguards built into both bills. The most significant impact, however, may result from the bills' provisions relating to damages and willful infringement.
Under current law, damages for patent infringement are based on the entire "invention"—€”i.e., what is claimed in the patent, regardless of the significance of the inventor's advance over pre-existing technology. In some cases, damages are awarded based on the "entire market value" of the product that contains the patented invention. An example is an award of damages based on sales of razors where it can be shown that sales are driven by the patented blades they contain. Both pending bills would permit courts to reject the "entire market value" model. More significantly, both authorize courts to account for—€”and subtract from any damages award—€”the extent to which the prior art contributes to the economic value of the invention.
These changes, along with the proposed limits on assertions of "willful infringement," would significantly reduce the leverage that any patent owner has during license or settlement negotiations. But because large companies often have other bargaining chips, such as potential access to market channels and the ability to wage wars of litigation attrition, the changes to the law of patent damages would likely most significantly affect small concerns.
There is no question that the current pending patent reform legislation would effect a dramatic transformation of the U.S. patent system. And independent inventors and entrepreneurs are among those with the most to lose. But it's not as bad for those inventors as some have argued. The good news, and the bad, is that the current U.S. patent system is a victim of its own success. The demand for U.S. patents grows annually. The patent system needs updating to maintain its stature as the pre-eminent patent system in the world. And to the extent that the proposed changes would foster greater confidence in the patent system, they would benefit all concerned.
Lisa A. Dolak is a professor of law and associate director, Center on Property, Citizenship and Social Entrepreneurism, at the Syracuse University College of Law.
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