Patent law overhaul gets House panel OK

Measure calls for the most sweeping changes to U.S. patent system in decades, but its path forward could be jeopardized by lingering reservations from other sectors, including venture capitalists and biotech.

In a move that high-tech companies have been advocating for years, a House of Representatives panel on Wednesday unanimously approved a controversial patent bill that high-tech firms argue is critical to correcting perceived flaws in the U.S. system.

The Patent Reform Act of 2007 cleared the House Judiciary Committee with a handful of amendments, paving the way for its consideration by the full House. Supporters say its provisions would help curb litigation costs, weed out bad patents and restore balance to a system they argue tilts too heavily toward the rights of patent holders.

"Our objective in passing this bill is to reform the patent system so that patents continue to encourage innovation," Rep. Howard Berman (D-Calif.), the bill's chief sponsor, said in a statement after the vote. "When it functions properly, the patent system should encourage and enable inventors to push the boundaries of knowledge and possibility.

The bill proposes some of the most sweeping changes to the patent system in years, including replacing a system that awards patents to the "first to invent" with one based on the "first to file," which all other foreign patent systems use.

The approved version also includes a number of provisions long sought by technology companies--and contested by others. Most notable among the bunch are:

•  A new framework for calculating damages in patent suits: High-tech companies, whose products generally rely on many thousands of patented components, have griped that the current system allows winners of patent infringement suits to obtain disproportionate damage awards--in turn, fueling inflated settlements and royalty agreements.

The approved bill would generally require courts to consider only the value the patent brought to the product unless the patent holder can prove the patent was the "predominant" reason for the product's market demand.

•  A new, non-judicial body for mediating patent disputes early on: As an alternative to what is often time-consuming, expensive litigation, the bill would establish special review board within the Patent Office to handle challenges of recently issued patents. The final version removes a "second window" for such challenges that was criticized by pharmaceutical and manufacturing companies and venture capitalists as potentially undermining the value of their patents.

•  Limits on findings of "willful" patent infringement: Patent infringers found to have done so "willfully" face the prospect of paying triple damages. The final bill attempts to limit such findings by requiring that patent holders take a number of actions, including presenting a court with "clear and convincing evidence" that their inventions were intentionally copied or proving they have already notified alleged infringers of an imminent lawsuit and exactly which products or processes infringe.

Technology industry groups were quick to applaud the move. In a statement, Computer & Communications Industry Association President Ed Black called the bill's passage "a step towards restoring balance to the patent system, rewarding those who create and hindering those who would abuse the system for unjustified gain." (CCIA's members include Google, Microsoft and Sun Microsystems).

But the tech industry shouldn't get too excited yet about the bill's prospects for enactment into law.

There is still significant resistance to portions of the bill from some pharmaceutical makers, universities, venture capitalists and other patent-dependent manufacturers (think companies like 3M, General Electric and Procter & Gamble). They argue that the changes proposed by the bill would water down the fundamental rights of patent holders and harm their business models.

A group called the Innovation Alliance--which includes representatives from universities, venture capital, biotechnology, nanotechnology and emerging-tech companies--said the committee made no "real progress" Wednesday in addressing its concerns. As drafted, the bill "will significantly erode the patent protections that have driven America's innovation leadership," the organization said in a statement.

It remains to be seen if or when the bill will advance to the House floor for a vote. Another variable lies with the Senate, which is still considering its own version of the legislation .

Still, the House committee's move is significant if only because efforts at so-called patent reform legislation in the last congressional session sputtered without a single vote, amid similar industry-specific disagreements.

 

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