BB&T

WASHINGTON — A Senate bill (S. 1145) that would change the U.S. rules for apportioning damages in cases of patent infringements would likely increase infringements and slow the pace of innovation, according to a study commissioned by the Biotechnology Industry Organization (BIO; Washington).

A qualifier to the objectivity of the study is that BIO is in staunch opposition to S. 1145, that seeks to broaden the doctrine of inequitable conduct, which holds that any intentional omission or misrepresentation in any part of a patent application will void the entire patent, even when the information in question would not have affected the outcome of the original application.

If enacted, the bill would "dampen innovation" in the U.S., the study authors write. And Jim Greenwood, chairman of BIO, said that if the Senate fails to respond to the organization's "serious concerns" and moves forward with the bill in its current form, "we will ... try to block its passage ... ."

Authors Robert Shapiro, chairman of Sonecon (Washington) and a former White House economic adviser during the Clinton administration, and Aparna Mathur, a research fellow at the conservative think tank the American Enterprise Institute (Washington), a proposal in the pending legislation to replace or supplement the current patent reexamination process with a post-grant opposition system modeled on European Union procedures "could significantly reduce investments in innovation."

The Senate patent reform bill is expected to be debated on the floor in the next few weeks. The House, in a 220-175 vote, passed similar legislation in September. While a series of administrative, judicial and legislative actions imposed over the past 20 years have strengthened the value of U.S. patents and extended their coverage in areas such as computer software and business methods, Shapiro and Mathur say that this fortification has raised issues, and highlighted previous ones, concerning the granting of patents of allegedly poor quality and lengthening the application-to-approval timeline.

The provisions about the new terms for apportioning damages in patent infringement cases and the creation of the new post-grant opposition process were devised in the House and Senate bills to address issues surrounding poor-quality patents, the BIO study authors note.

They argue that if Congress passes the legislation in its current form, damages in patent infringement judgments would no longer reflect the value of the use made of the invention by the infringer, or how much a patent owner has lost as a consequence. Instead, damages would only be the value of the patent's specific contribution compared with everything that came before. By reducing the costs of being caught infringing on someone's patent rights, the new rules will promote more infringement and reduce investment in innovation, the study contends.

Even if paying millions in a damage judgment, Greenwood said, the infringer could ultimately garner billions of dollars from products based on the patent — thus just a "cost of doing business," he said.

The pending legislation also would create a complicated procedure for determining reasonable royalty damages as the default approach for many cases, the BIO study authors say. Judges and juries in patent cases would be required to consider massive additional volumes of data and information — a burden that alone could add weeks, even months, to most trials and many appeals, "imposing significant new costs on innovators and the courts," the analysts argue.

Congress' proposal to impose an adversarial, post-grant opposition system in place of the current patent reexamination process would sharply increase the private costs of adjudicating patents, Shapiro and Mathur maintain.

Greenwood said that the current reexamination system costs about $15 million per year, but if the patent reform legislation is enacted, a post-grant opposition system could cost the nation $1.6 billion per year. Those costs could go higher if lawmakers impose a system broader that the one modeled on the EU's process, he said.

The inequitable conduct provisions in the bill would undermine the commercialization of innovative research, BIO argues. The codification of the doctrine would discourage the spread of innovations across the economy by increasing investor uncertainties about the true value of patents.

While allegations of inequitable conduct are typically unsuccessful, Shapiro and Mathur say, "its broad availability will encourage those charged with patent infringements to search for any evidence of misrepresentation or omissions years earlier, increasing the cost of patent litigation." Those additional costs, they say, will likely come from resources that firms otherwise could use to develop new technologies and new processes. They say that a better outcome would be a reform either abolishing the doctrine or holding that inequitable conduct rendered a patent unenforceable only if the misrepresentation or omission materially affected the outcome of the original grant by the USPTO.