Last month, when the Senate Judiciary Committee reached a compromise on pending patent reform legislation, many believed that Congress was finally ready to reform the Patent Act. Some were even saying it could be done within a matter of months. Not so fast, my friend!
Although it’s difficult to read the tea leaves from a highly orchestrated political event like the House Judiciary Committee’s hearing yesterday, it appears that the battle is not yet over. BNA (subscription service) reported on the hearing.
Statements from the Chair
Chairman Rep. John Conyers, Jr. (D-MI), made it clear that the House will not simply “rubber stamp” the Senate bill, but will work to develop the best bill it can achieve. Rep. Conyers specifically referred to the contentious damages issue. The Senate removed language from its version of the bill that would have limited damages awards, but added a requirement that the court act as a gate-keeper for what evidence a jury may consider in determining an appropriate award. Specifically, Rep. Conyers said he did not think the Senate necessarily reached the best compromise.
I shouldn’t have to tell you that we will not blindly accept or reject their work, but will work to ensure that we arrive at a damages provision that is right for everyone.
Rep. Lamar Smith (R-TX), ranking member on the Committee, also expressed concerns with the Senate bill. He believes the Senate gate-keeping provision needs further review and that it may confuse jurors who have to apportion value fairly when calculating damages. He also expressed disagreement with the Senate bill on the issues of venue and post-grant opposition, stating that the House version of the bill addressed these issues better than the Senate bill.
David Simon, chief patent counsel for Intel and member of the Business Software Alliance, and Mark Chandler, senior vice president and general counsel for Cisco, both argued in favor of eliminating the entire market value when calculating damages. Specifically, they spent time disparaging non-practicing entities (NPE), or patent trolls, suggesting that change is needed to keep such entities from harassing companies like theirs. Chandler prefers the House version of the bill because currently vague and unclear litigation standards tend to overcompensate plaintiffs and permit abuses of the system.
Dean Kamen, inventor of Segway and founder of DEKA Research and Development, argued for reform at the PTO in the form of reduced pendency and improved patent quality. He also noted that his company is an NPE because it only license its patents and does not actually manufacture any products.
Phillip Johnson, chief IP counsel for Johnson & Johnson, and Bernard Cassidy, senior vice president and general counsel for Tessera Technologies, spoke against the limitations on damages in the current House bill. Mr. Johnson also represents the 21st Century Coalition for Patent Reform, a group of significant pharmaceutical and biotechnology companies. He urged the House to support the Senate’s gate-keeper provisions on damages reform.
Prof. John Thomas, of Georgetown Law School, spoke favorably about the gate-keeping role of the judge in the Senate version of the bill, but also supports comprehensive damages legislation such as in the House version. He urged that damages should be calculated by comparison of the invention against “the next best alternative” available to the infringer. Johnson responded that this is factor nine of the Georgia-Pacific factors used to calculate a reasonable royalty. As such, it is one factor to consider; it should not be the starting point as urged by Prof. Thomas.
There was significant discussion between the witnesses and the panel members of how to limit the power of NPEs. Neither the witnesses nor the panel seemed able to adequately define such entities. Kamen does not manufacture the products claimed in his patents, but there seemed to be agreement that he should be allowed to assign or license the technology to others.
The only real agreement was that plaintiffs with bad intent should be limited in what they can do. There did not seem to be a good way to determine the plaintiff’s intent or how to deal with it.
The hearing included discussion of a number of other provisions in the bill. Rep. Conyers indicated that a provision to reform inequitable conduct is still needed.
Further, the witnesses and the panel were concerned with the Senate’s changes to the post-grant opposition procedures. A major concern was whether the PTO is capable of handling a large number of post-grant opposition filings. Most agreed that it would be difficult at best for the PTO to handle them at present. Specifically, Kamen urged Congress to give the PTO the resources to deal with post-grant oppositions.
Other news on the future of the bill is also not encouraging for those hoping for quick passage. Reps. Mike Michaud (D-ME) and Don Manzullo (R-IL), members of the House Manufacturing Caucus, issued a joint press release entitled “Patent Bill Would Hurt U.S. Manufacturers, Inventors.” Reps. Michaud and Manzullo were responding to the written testimony submitted by the witnesses prior to yesterday’s hearing.
In the release, they argued that the damages provisions and post-grant opposition proceedings would hurt U.S. manufacturers by reducing the value of patents. They urged that the Senate’s compromise on damages should be included in the House version of the bill. Regarding post-grant opposition, they urged a number of changes to the current legislation:
· an appropriate threshold for initiating administrative proceedings,
· a presumption of validity in those proceedings so the challenger has the burden of establishing invalidity rather than requiring a patent holder to re-establish the validity already verified in the application process,
· strong estoppel provisions to avoid serial challenges of the same patent by the same infringer or a group of infringers, and
· a clear time-line for concluding administrative challenges.
The main take away from the hearing seems to be that we are not as close to the passage of Patent Reform legislation as we had thought. It will certainly not be sailing through Congress on its way to Pres. Obama’s desk in the coming weeks. It is encouraging that the House invited a venture capitalist and an inventor to the debate. These two important constituents to the debate were absent during the Senate hearings.
There was no representative of the administration present at the hearing. This is hardly surprising considering that Pres. Obama has not yet nominated a new Director of the PTO. There have been rumors in recent days that such a nomination is imminent; perhaps the nominee is being vetted.
This is the unknown quantity in the debate at this point. If the new director and the Obama Administration support one version of the reform bill over the other, it may be much easier to pass. Otherwise, it may be too early to tell what will happen with this legislation going forward.