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SAN FRANCISCO — Everyone agrees that intellectual property is a powerful engine that drives innovation in Silicon Valley. And most everyone also agrees that the United States’ patent system needs fixing. What companies here in the Valley — and across the country — are fighting fiercely over is just what, exactly, should be fixed. As two comprehensive patent-reform bills are expected to land in the Senate and House over the next month, patent-reform watchers say the issue, after years of wrangling, has gained considerable momentum. It’s no surprise, then, that Valley companies and their attorneys have hit the accelerator on lobbying, both here and in Washington. Millions of dollars in yearly litigation expenses are at stake for many of these companies. Cisco Systems general counsel Mark Chandler, together with the technology lobbying group TechNet, held a fund-raiser in February at Chandler’s home for Sen. Patrick Leahy (D-Vt.), one of the authors of a 2006 comprehensive patent-reform bill. Cisco, like the other big Valley names in TechNet — Apple, eBay, and Google among them — are frequently the targets of infringement complaints that are incredibly costly to resolve, Chandler told the Senate Judiciary Committee last May. Leahy now heads the committee. A spokesperson for Chandler did not respond to e-mails seeking an interview with him. The Vermont Democrat and his co-author, Utah Republican Sen. Orrin Hatch, are expected to reintroduce their bill soon. The legislative push will be mirrored in the House, where Reps. Rick Boucher (D-Va.) and Howard Berman (D-Calif.) are expected to introduce an identical bill within a month, according to news reports. Unlike so many debates in Congress, the differences of opinion on patent reform don’t fall cleanly along partisan lines but rather along industry ones. The Leahy-Hatch alliance is a bipartisan one. The debate breaks roughly into two camps. The software and information technology fields are sick and tired of facing down infringement allegations based on what they perceive to be shoddy patents. “There’s a common feeling that perhaps the quality of patents coming out of the [U.S. Patent and Trademark Office] have not been of optimal quality, and a lot of invalid patents get through,” says Google associate general counsel Michelle Lee. “Parties take invalid patents and go to legitimate businesses and say, �You’re infringing.’ “ The pharmaceutical industry, meanwhile, doesn’t want to see any weakening of the long-term power of patents because their business is based on patented drugs. The sector doesn’t view the patent system as perfect but doesn’t believe it needs a radical overhaul. The biotech and semiconductor industries, which have strong Valley presences, appear to align themselves with the pharmaceutical industry in what could be called the “if it ain’t that broke, don’t overfix it” stance. Groups representing various factions in the congressional debate have launched friendly-sounding yet confusingly named Web sites in the past month. On the software/IT side there’s the Coalition for Patent Fairness, whose local members include Apple, Intel, and eBay. By contrast, the Coalition for 21st Century Patent Reform is pharma-heavy, and its sole local member is Sacramento-area software maker PatentCafe. Then there’s the semiconductor-industry-heavy Innovation Alliance, which counts local companies Intermolecular, Immersion, and Tessera among its members. HATCHING A FIX If the coming Leahy-Hatch bill is anything like last year’s proposal, it will be generally more favorable to the software and IT camp. The 2006 Leahy-Hatch bill took on 12 different aspects of the patent system. Among the most disputed elements is the extent to which people can challenge patents that have already been granted. The biopharma industry generally wants to keep things as they are, while the software and IT sector wants to open a “second window” of redress, says Fish & Richardson partner Katherine Lutton, who has given presentations on the issue throughout the country. The bill, which died without a committee vote, was pro-software/IT in this regard. Another of the important points in last year’s bill dealt with the venue. The software/IT camp would like those who accuse them of infringement to file the suit in their state of residence. This, they argue, would cut down on filings in venues, such as the Eastern District of Texas, that are believed to be “pro-plaintiff.” The biopharma camp generally does not believe this change is necessary, Lutton says. Last year’s Hatch-Leahy bill included the pro-software/IT proposal. It’s important to note, Lutton says, that while Congress has been debating these issues, the Patent and Trademark Office has been trying to streamline its activities. The Supreme Court has also been weighing several huge intellectual-property issues, such as what constitutes an “obvious” technology and when it’s appropriate to issue an injunction to stop a company that’s infringing. “These things definitely work together,” says Stanford law professor Mark Lemley. “Some of things that the Supreme Court has done has actually made it easier to reach consensus on patent issues.” THE VC STAKE Meanwhile, another crucial force in Silicon Valley’s economy — venture capital — has taken a stance contrary to some of its biggest tech success stories. The National Venture Capital Association believes that giving people more leeway to challenge the quality of patents — which is what the big tech companies want — would be unfair to startups. “The cost of defending your intellectual-property rights is extraordinarily burdensome for a small company,” says Wisconsin venture capitalist John Neis, who spoke to the House Small Business Committee last month about the issue. Neis says large companies can afford to keep infringing because they can keep smaller companies whose patents they’re infringing lost in a tangle of litigation. “For these very small companies in their formative stages, they have a modest amount of resources and want to spend it on research and development. . . . They don’t want to be spending their money on attorneys,” Neis says. No matter what happens in Congress, the patent reform issue is one example of Washington sitting up and taking notice of what Silicon Valley wants, says Stanford’s Lemley. “Silicon Valley companies traditionally have not had a lot of influence in Congress,” he says. “They haven’t spent a lot of time and money investing in it. I think this is starting to change.”
Jessie Seyfer is a reporter for The Recorder , the ALM publication in which this story first appeared.

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