Patent Reform Legislation Introduced In Congress

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).

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One Response to “Patent Reform Legislation Introduced In Congress”

  1. Patent Reform Bill Passes Judiciary Committee « Patent Law Links and Commentary (Jaideep Venkatesan) Says:

    […] links to the bill as it passed the Committee.the controversial reform to damages, described in my post here, has been replaced with a provision that codified the current damages regime but makes the […]

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