Archive for March, 2009

Patent Reform 3-10 Hearing Commentary

March 14, 2009

Senator Leahy convened a hearing earlier this week, and as predicted the bulk of commentary and controversy was over the issue of damages.  

CNNMoney and eweek noted this in their summaries early in the week.  

The press has generally reported the now familiar rift between “High Tech” companies favoring reforms that may serve to limit patent damages, and the representatives of “Bio/Pharma” arguing that the case for reform has not been made.  Phillip Johnson of Johnson & Johnson was quoted the most in articulating that position, while various persons in favor of the reform were cited, including Stanford professor Mark Lemley.  

Lemley was quoted as decrying the “significant judicially created problem with litigation abuse of the patent system that Congress should address: the problem of damages calculation in reasonable royalty cases”.  In fact, Lemley’s position is more nuanced than that.  His prepared testimony noted that since Congress began debating patent reform, several decisions by the Supreme Court and the Federal Circuit have fixed some of the problems he saw in patent law.  These include eBay v. Mercexchange (regarding the availability of injunctive relief), KSR v. Teleflex (relating to obviousness), In Re Seagate (willful infringement), and others.  In fact, Lemley recommended holding off on patent damages reform until after the Federal Circuit has ruled on several cases that will affect the reasonable royalty analysis, including the entire market value doctrine potentially at issue in the Lucent v. Gateway case currently pending before the Federal Circuit.

Richard Cauley has an excellent guest post in PatentlyO about the proposed reforms to patent damages. He notes that while the intent of the proposed reforms are noble – limiting patent damages to the economic value of the patent – the effect will be to create a judicial nightmare of hearings on how to apply the Georgia Pacific factors – or “damages Markmans”.

Patent Reform Legislation Introduced In Congress

March 6, 2009

Patent Law blogs are buzzing about the patent reform legislation introduced this week in Congress.  PatentlyO has a good summary here, including a link to the proposed legislation.  Probably the most contoversial provision, indeed the provision that derailed patent reform in 2008, is the proposed amendment to the current patent damages regime.  The proposed amendment directs the Court to determine which of three methods a jury should use to calculate damages:

(A) Entire Market Value – if the Court finds that the claimed invention’s specific contribution over the prior art is the decisive generator of revenues, damages can be based on the entire market value;

(B) Established Royalty Based on Marketplace licensing – damages will be based on the value of an established rate of the patent, or of a non-infringing substitute.

(C) Valuation Calculation – Damages based on an the portion of the product that can be attributed to the patent (apportionment).

The intended effect is to significantly curtail the application of the Georgia Pacific factors, which require consideration of these among several other factors, but do not mandate that damages be limited to a minimal license rate or an apportioned value of the patent.

Patent reform opponents lost no time in beginning to fight the measure.  EE Times reports:

“Within hours after the new bill was introduced, two industry groups and two members of the House of Representatives came out against the new measure. The issue of damages quickly emerged as the central issue.”

Indeed, the two HR members, Don Manzullo (R-Ill.) and Mike Michaud (D-Maine, put out a joint statement saying:

“By diminishing the damage awards in patent infringement cases, this bill would encourage intellectual property theft by foreign competitors, putting 298,000 American manufacturing jobs at risk and curtailing U.S. research and development spending by $66 billion, according to a recent economic study”.

The congressmen are likely getting their numbers from a study put out by the anti patent reform group Innovation Alliance, by Case Western economist Scott Shane.  Shane argues that the reform would cause a reduction in the value of U.S. patents, which in turn would cause a reduction in the public value of U.S. Companies, causing a drop in R&D investment of $66 billion and a loss of anywhere from 51,000 – 298,000 manufacturing jobs.  Julian Sanchez’s excellent analysis of the patent reform bill dismantles Shane’s study, noting the fallacies in (1) assuming that any increase in patent damages automatically increases the value of U.S. companies, without accounting for the savings in reduced awards paid by accused infringers, and (2) assuming that a reduction in patent damages will cause a dollar for dollar reduction in the value of U.S. patents (in fact anticipated damages are only one factor in the complex formulas used to value intellectual property).