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By Mike Caggeso
Two key U.S. industries – the unlikeliest of opponents – are now squaring off in Congress, where bipartisan support for patent reform may drastically change the way U.S. patents are rewarded and patent infringement is punished.
“The Patent Reform Act of 2007” seeks to award patents on a first-to-file basis, dispensing with the longstanding tradition of rewarding patent rights to the actual original inventor.
Unclogging the Patent Process
This new approach is expected to “unclog” the U.S. Patent and Trademark Office, where. Patent Commissioner John Doll, who began as an examiner 33 years ago, told Reuters that the backlog could result in a conventional patent application taking two years to work its way through the process. A patent application with a computer focus can take up to six years to work its way through.
Reform will also establish a post-grant review that allows companies to challenge minor innovations and broad patents without the expensive litigation in the courts.
The most controversial reform concerns patent enforcement. If passed, the entire value of a product wouldn’t be considered in calculating damages because a patent-infringed component may only contribute a small percentage of the entire product.
It also makes it harder to prove “willful infringement,” which penalizes a violator with triple damages (and a few headlines to boot).
These suggested reforms sing to tech companies such as Microsoft Corp. (MSFT) and Cisco Systems Inc. (CSCO), whose inventions and products are the result of many technologies merged into one, which under the current rules makes them highly vulnerable to sticky legal battles. Cisco General Counsel Mark Chandler told Reuters that the cost of going to trial could reach $10 million a case.
“A huge amount of patent litigation now is initiated by companies that are created to go out and acquire patents, do nothing with them until they see something, and then they can send a threatening letter,” Rep. Howard Berman, sponsor of the House patent bill, told the Philadelphia Inquirer.
On the other hand, Big Pharma — whose popular products often involve no more than a handful of patents — claims that reduced penalties would weaken patent protection. And they have union support from the AFL-CIO and the United Steelworkers, who said the changes could hurt U.S. industry.
Though drafted in April, these patent measures are expected to be debated today (Friday) on the floors of both the House and Senate. But what does this mean to investors?
That depends on what industries they are investing in.
Reforms will give the big tech companies lots more breathing room, and could mean lots less litigation. The shorter span it would take to get a patent means that a company can grow faster and attract more investors.
Take Microsoft, for example, which many consider the poster child of this debate. Microsoft is currently fighting three-dozen patent-infringement lawsuits, Bloomberg News reported. In February, Microsoft was slapped with a $1.52 billion jury award to Alcatel-Lucent over MP3 technology. The verdict was appealed, and in August a San Diego judge reversed the decision and threw the case out.
Long story short, Microsoft won its case, but likely lost some investors in the process.
The proposed reforms also raise the standards to take a patent infringer to court, thus decreasing the time spent inside the legal system for all companies. But in raising the bar for filing a civil action, it quite possibly increases the chances that an alleged patent infringer will lose once in court, since only the best cases will be brought.
Conversely, it would make it harder for Big Pharma to stomp smaller, generic drug companies because willful infringement would be harder to prove.
Even so, this still ultimately benefits large corporations because it means there will be much less money will be dropped on legal fees and potentially much less money paid out in the form of penalties for patent infringements. And it might even save investors from putting a lot of money in small- or mid-cap companies that won millions in a patent-infringement lawsuit, only to have an appeal sweep away the award – and with it the entire market value of the company.
A woman from the Patent Office who asked not to be identified said the office couldn’t comment until the House and Senate pass a resolution.
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