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Reforming U.S. patent law is a high priority for industry, which depends on the patent system to protect its innovation-based assets, as well as for research institutions, independent inventors and the patent bar.

Recently, it has also become a high priority for Congress. This was apparent almost from the inception of the new Congress, when the Democratic leadership put identical patent law reform bills high on the agenda for both houses of Congress.

Unfortunately, the almost universal sentiment that some revision of the patent laws was needed may have tempted that leadership to believe that patent reform legislation was an easy target for demonstrating that Congress could move quickly to a legislative solution. The proposed legislation that resulted was directed to several worthwhile objectives, including conversion to a first-to-file system, the establishment of a post-grant opposition procedure, some narrowing of the inequitable conduct defense, and limitations on how and when willful patent infringement could be proven.

The actual provisions addressing these objectives turned out to be quite controversial. An ill-conceived attempt to redefine certain aspects of patent infringement damages was also included. Problems with the proposed legislation quickly became apparent from the public comment and congressional hearings that followed.

From this testimony and comment, it became clear that the drafters of the proposed legislation had not anticipated the degree to which the proposed legislation failed to address realistic and pragmatic concerns of those most knowledgeable about, and dependent on, the patent system. For those who continue to see patent law reform as a high priority, the response of the congressional committees responsible for the proposed legislation has not been encouraging. One can only speculate that with the competing pressures in Congress for dealing with other issues, such as those pertaining to Iraq and terrorism, enthusiasm for patent law reform waned. The easy target of patent reform legislation turned out to be not so easy.

Nevertheless, the commitment to pass something that could be labeled “patent law reform” persisted, and the House bill, admittedly with some improvements over the bill as originally proposed, was quickly taken to a vote and passed over a groundswell of objections by large segments of U.S. industry and trade and professional associations whose members rely on a healthy patent system. Many of those objections, as well as others, also apply to the pending Senate bill.

The Senate Judiciary Committee is expected to hold additional hearings on the Senate version of the bill this month. Sen. Patrick Leahy, D-Vt., chairs that committee and is one of the lead proponents of the bill. A growing body of industry and professional and trade group opposition is expected to mount a major effort to derail the legislation in its present form. One possible result of this opposition may be that the bill will never be brought to a vote in the Senate. That would be most unfortunate in view of the fact that two national study groups, as well as industry and patent experts, all agree on the need for changes to provide enhanced confidence in the validity and enforceability of patents, and to simplify patent litigation.

To break the logjam, new ideas need to be explored concerning at least the major points of disagreement. Considering the prodigious effort by industry, institutional, academic and government personnel that has gone into the legislation as now proposed, I hesitate to suggest that any idea can now be put on the table that has not already been fully vetted and dismissed. But then again, why hesitate when the only alternatives may be either no bill at all or a bill that is, on balance, counterproductive? The reality is that the patent system is in a continuously deepening morass created by the explosive growth of technical information and the increasing volume of patent applications generated by innovation-based business models. Blaming Congress for its inadequate solution is futile when major segments of industry differ significantly on how best to resolve certain problems that each acknowledge.

With this in mind, let me review a few of the more controversial or ill-conceived provisions in the proposed legislation and suggest some alternative approaches to the objectives that those provisions address.

One over-arching objective of the proposed legislation is to better ensure the validity of patents, as they are issued and as they are litigated. This is a daunting task in view of the overwhelming explosions in the volume of prior art available and in the volume of applications to be examined.

Current patent office efforts to address this problem by requiring more forthcoming assistance from patent applicants will fail as long as patent applicants must temper their participation in the patent examination process by the real possibility that essentially anything said in the process may be used in an inequitable conduct defense if the patent is litigated. The pending bills in both houses include cosmetic changes in evidentiary aspects of the inequitable conduct or “fraud on the patent office” defense. These changes will do little to mitigate the problem. As proposed in the last Congress, a much more effective solution would be to limit such fraud charges to situations in which invalidity has been proven and the patent would not have been issued but for the fraud.

If any bill is passed, it will include a post- grant opposition procedure so that patent validity challenges can be heard in the patent office first, rather than in court, and without benefit of the usual presumption of patent validity that attaches to an issued patent. As presently proposed in the Senate, this will include the possibility of challenge not only in a defined period following issuance of the patent but also, under certain conditions, throughout the life of the patent (a “second window of opportunity”). Many opponents of this second window of opportunity argue that this cloud lingering over patent validity will disincentivize development and investment in innovations.

The most persuasive case for this argument is made by the drug industry. An economic fact of life for that industry is that development of a typical new drug requires an investment on the order of $1 billion and 10 years. The possibility that a party may wait 10 years while a drug is being developed and then seek to invalidate a patent covering that drug would surely give pause to anyone faced with the prospect of investing research and development dollars in a potential new drug. But without such investment, the pipeline of new drugs may soon dry up.

A second window of opportunity, to initiate a patent opposition, is apparently critical to other segments of industry, however. Major companies in the information technology industry, for example, have urged that their products are typically composites of a multiplicity of components, any one of which may be alleged to infringe an obscure patent unknown to the product developer. This may become apparent only after a new product has been introduced. A post-grant opposition system will not be useful in this situation unless the opposition is brought when a possibly relevant patent does become known. Often, this will be long after the patent has been issued.

Is there some other way to deal with this confrontation between these two important industry segments? One possibility is to recognize that patents on new drugs are unique, as already recognized by the Hatch-Waxman Act. Under that act, the expiration date of a drug patent may be extended to compensate for patent term exclusivity lost due to regulatory review. Why not also exempt such patents from second window post-grant oppositions? This could go a long way toward preserving the incentive for investment that such patents provide.

Apart from the provisions addressing patent examination and patent validity or enforceability, the pending bills include a number of “reforms” that will benefit the system. These reforms – including conversion to a first-to-file priority system, the limitation of patent infringement litigation to venues with a real interest in the litigation, and possible rectification of the proposals to better ensure the issuance and enforcement of valid patents – more than justify renewed efforts to make much needed changes in U.S. patent law.

An unrelated provision of the pending patent reform bills that has generated much controversy would redefine certain aspects of patent infringement damages. This provision, much sought after by the information technology industry group comprised of such companies as Microsoft, Intel and Hewlett-Packard, would limit patent infringement damage awards to include only the perceived value contributed to the infringing product by new features of the patented invention and to exclude the perceived value contributed to the infringing product by features of the product which could be found in the prior art. While possibly beneficial to the Microsofts of the world, this provision would likely greatly diminish recoverable patent infringement damage awards, and coincidently diminish the incentive to invest and invent for which the patent system is intended.

Unlike the controversy surrounding whether or not a post-grant opposition system should include a second window of opportunity, this controversy should not be seen as a battle between the drug companies and the information technology companies. Indeed, the mischief of this provision would be visited on all developers and investors, including those smaller and newer entrants in the information technology field. Disincentivization of investment and development in that field is just as important as in the drug field.

Critics of this provision also point to the difficulty and impracticality of its application. Those critics include Chief Judge Paul Michel of the U.S. Court of Appeals for the Federal Circuit. In a letter about this provision to the committees responsible for the pending bills in both houses of Congress, Michel points out the difficulty that courts will have in interpreting and applying this new damage provision. To date, these committees have invited no further input on this issue and no member of the judiciary has been invited to testify in any of the hearings to date.

Terrorism? Iraq? Surely they are important, but hopefully Congress will give more than lip service to the patent system, a prime driver of innovation and investment, upon which a huge segment of the U.S. economy depends.

PAUL F. PRESTIA co-founded and presently manages the intellectual property law firm of Ratner Prestia. While his 40-plus years of experience includes a variety of intellectual property litigation, his current practice is focused largely on IP counseling for risk management, due diligence, strategic IP protection and IP value realization. Heis a past president of the Philadelphia Intellectual Property Law Association, a founder and first president of the Benjamin Franklin American Inn of Court, and a fellow and former director of the American Intellectual Property Association.

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