Patent law overhaul: Bad for start-ups?

The list of companies favoring the proposed Patent Reform Act of 2007, which passed the U.S. House of Representatives in a 220 to 175 vote earlier this month, seemingly includes all of today's major tech-sector players--including Microsoft, Apple, Cisco, Google, eBay, Intel, Hewlett-Packard, Amazon.com and Oracle. But opponents of the bill say a tech-oriented side of the story is getting drowned out by those powerful lobbying forces as politicians press ahead with the most significant patent system changes in decades.

Among the inventors who showed up to deliver that message at a press conference here just steps from the U.S. Capitol building were Dean Kamen, best known for conceiving the Segway, and Steve Perlman, the chief developer of Apple's QuickTime video technology in the 1980s and inventor of WebTV, one of the first TV set-top boxes offering Internet access.

They--along with other members of the Innovation Alliance, a coalition of academic institutions and patent-dependent firms from the manufacturing, biotechnology and nanotechnology world--also planned to pay visits to politicians' offices later that day.

Kamen and Perlman claimed the proposed legislation will devalue patents and discourage investment, by making it easier to challenge patents and more difficult for patent holders to receive the damage awards they believe they deserve in infringement suits. Kamen, for one, said the bill would be bad for anyone like him who holds many patents but does not actually build his own products, leaving that instead to deeper-pocketed companies through licensing arrangements.

"I had learned from all the experts that a troll, which is a bad thing, is somebody who's abusing the patent system, and someone who abuses the patent system is somebody who never actually makes their own products," said Kamen, who runs a company called DEKA Research & Development. "I would sit there thinking, 'Hmm, that sounds awful, that describes me.'"

Joking aside, Kamen said he recognizes that patent system abusers exist, but he suggested the bills in Congress are not the way to go about addressing that issue.

To be sure, the bill that passed the House and a similar version pending in the Senate propose a number of significant changes.

In an attempt to weed out questionable patents, each would set up an out-of-court process within the U.S. Patent and Trademark Office for challenging recently issued patents.

One of the most contentious components of each bill would also change the way courts award damages to patent holders that win infringement suits, generally basing them on the value of the patented component, not the entire market value of the product. The bills' tech-industry supporters say that's necessary because their products often contain hundreds or even thousands of patented components, creating the potential for inflated settlements or damage awards unless Congress makes those changes.

Kamen and Perlman said they recognize that the U.S. patent system isn't perfect, but they suggested the best course of action is to start by beefing up the number of patent examiners in an attempt to deal with a backlog of more than 600,000 pending applications.

Perlman was particularly animated about the bills' movement, arguing that there has been an utter failure by its sponsors to seek out the perspective of Silicon Valley start-ups. He said Capitol Hill staffers told him they had sought input from eBay, whom they considered representative of the Silicon Valley set, but he scoffed at the idea that anyone would equate the online auction giant with a start-up. (Even he alone owns more than the 25 patents eBay has to its name, he said.)

Larger technology companies backing the patent proposals would be wise to consider the negative impact he and others believe those changes will have on the ability of Silicon Valley start-ups to obtain and enforce their patents, Perlman warned. Smaller venture capital firms have voiced similar concerns to Congress--albeit before a small-business committee with no control over the direction of patent law.

'Part of an ecosystem'
"A lot of the companies that are for the bill depend on the start-up companies that feed them," Perlman said. "We are part of an ecosystem. "They have market power, we don't. If we don't have patents, we cease to exist."

Perlman, who now runs a venture called Rearden Companies that bills itself as an "incubator of art and technologies," knows something about having his inventions scooped up by bigger firms. After all, Microsoft bought his WebTV venture back in 1997.

Although Perlman admitted he was "late to the party" and only found out about the patent reform proposal after it passed the House two weeks ago, others present at the press conference claimed the bill's sponsors have been ignoring the interests of engineers and inventors more generally. (Kamen, for his part, has testified at patent law-related hearings in recent years.)

Keith Grzelak, chairman of the intellectual property committee for IEEE-USA, which represents American electronics and electrical engineers, said his organization has long been aware of the movement toward patent system changes. "We were champing at the bit to have a say," he said. "We were not asked to participate in any of these discussions."

Claims that independent inventors and other stakeholders have been left out of the process aren't accurate, said Shanna Winters, chief counsel to Rep. Howard Berman (D-Calif.), the primary sponsor of the House patent bill.

"From the beginning, Mr. Berman reached out to independent inventors to try to get their perspectives and in fact made a number of changes to the bill based on what the independent inventors asked for," she said, adding that an inventor was asked to testify at a hearing about the bill earlier this year but was unable to attend.

Passage of patent law changes this year is hardly a sure thing, although the bills have moved further along than in any previous sessions of Congress. Berman has already acknowledged that the House version isn't perfect and has pledged to continue negotiating further changes. The prospects for the Senate version, which would have to be reconciled with the House bill even if passed, are even less clear.