Tuesday, June 21, 2005

Techcentral on patent reform

Quick query: is the patent reform bill of Lamar Smith HR 2795?

from TechCentral:

And it is happening now, as intellectual property, including patents, is regarded, justly, as an important component of wealth and national prosperity. Proposals for change are working their way through Congress, with a good head of steam, and H.R. 2527, a reform bill, introduced last week by Lamar Smith, Chair of the IP subcommittee of the House Judiciary Committee, is given an excellent chance of passage. Smith intends to move to markup before the end of this month.

**Also from TechCentral, on mind-numbing:

Avoiding the technicalities -- and a major reason the patent system gets limited attention from the public is the mind-numbing opacity of its language and details -- the proposed changes break down roughly into three major categories:

(1) Reducing the transaction costs of the system, especially litigation;

(2) The "patent quality" issue;

(3) The enforcement of patent rights -- should injunctions be used, or should the infringer just pay a toll?

**Yes, there is a discussion of "patent quality":

Patent Quality

The in-group is virtually unanimous that in recent years too many patents have been granted that should not have been, in that if the examiners had only found the proper literature references or existing patents, these patents would have failed the criteria of novelty, utility, and non-obviousness.

**On windows for opposition:

This problem of incentives triggers one of the most contentious features of the Smith bill -- the "second window." The bill would allow an attack on a patent not only within nine months after the patent grant, but within six months after an alleged infringer receives notice that the patent holder thinks it is infringing. On this one, business is badly split, with those who see themselves as primarily patent producers opposed the second window and advocating the need for certainty, and those who see themselves as more likely to be the defendants in infringement suits wanting the opportunity to start over once the patent holder starts to threaten.

**Yes, obviousness is mentioned. Note my article in the June 2005 issue of Intellectual Property Today.

from techcentral:

A deeper issue of quality is raised by a Petition for Certiorari now pending before the Supreme Court in KSR v. Teleflex. The petitioners argue that the standard for determining whether an invention is "nonobvious" has been made too stringent by the lower court -- that is, too many patents are granted that should be denied because the invention is within the ken of someone skilled in the field -- and that the Supreme Court should restore right and justice.

The view of the filers here (including PFF and a group of 24 law professors, both of which filed as amici in support) is that the advocates of post-grant review are going to be chagrined when the new mechanisms produce the result "yep -- that's a patent, all right!" The review processes will not improve things if the standard is not fixed.

**Also, on MAD:

The tech companies often simply pass the ball down the field, pray, and stand willing to litigate. They have also developed some practical coping methods, such as filing for as many patents as possible to create bargaining chips. Then, because the big tech companies are all in the same situation, they engage in massive cross-licensing. As an alternative, they play the old cold war game of Mutual Assured Destruction (MAD). If a company plays hardball with its patent portfolio, others will respond in kind, so it is better not to start a war.

Creative things are taking place in the area of standards, where firms with patents on crucial technologies proclaim to all the world a generalized willingness to license on reasonable terms. This allows others to develop first and work out the details later.

But these mechanisms don't work when the patent holders are not part of the network of big companies, and over half of inventions come from other sources. Innovation has always been somewhat separated from product development and marketing, as Thomas Edison demonstrated 150 years ago, and this trend may be accentuating. Universities are fertile sources of invention, and specialized innovation firms are betting that separating innovation from the downstream processes will work better than integration.

Firms of this type are not subject to retaliatory threats and are not interested in cross-licensing, so the big tech companies have no lever. So what the tech companies want is a limit on injunctions, and court-determined damages that are set in an amount that does not recognize the strategic value of the hold-out position at a late stage in the decision process.

Their goal is strikingly similar to the solution to analogous problems in the field of real property. The techies want the power of eminent domain, the right to take property and then have a court determine just compensation.

This would not be as novel as it sounds, and again the 19th Century is illustrative. Many network-type industries have been granted eminent domain powers by state legislatures, especially those that were building rights-of-way, where the last parcel problem can be acute.

Naturally, the IP owners, the innovation shops, and the universities object.


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