WASHINGTON – A proposal in a Senate bill to 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 new study commissioned by the Biotechnology Industry Organization (BIO).

BIO opposes the Senate legislation, S. 1145, arguing that it seeks to enshrine and potentially 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 the provision is enacted, the authors of the BIO study wrote, it would “dampen innovation” in the U.S.

In addition, say co-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, 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, said BIO CEO Jim Greenwood, during a media briefing last week. The House, in a 220-175 vote, passed similar legislation in September.

If enacted, the patent reform legislation would make several changes impacting intellectual property rights.

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 in their analysis that fortification has raised new concerns and exacerbated some old ones, particularly about the granting of patents of allegedly poor quality and lengthening delays in the time from application to approval.

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 specifically to address issues surrounding poor-quality patents, the BIO study authors noted.

Shapiro and Mathur assert 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, which could lead to investment in innovation being diminished, the BIO study contends.

Even if a firm has to pay millions of dollars in a damages judgment, Greenwood said, the infringer could ultimately garner billions of dollars from products based on the patent. Therefore, the millions they might have to pay is nothing more than “the cost of doing business,” he said.

The pending patent reform legislation also would create a new, complicated procedure and standard for determining reasonable royalty damages as the default approach for many cases, the BIO study authors contend.

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 in their analysis.

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.

Greenwood called Congress’ attempt to enshrine in federal patent law and possibly even broaden it “non-sensical.”

The inequitable conduct provisions in the bill would undermine the commercialization of innovative research, BIO has argued. The codification of the doctrine, in the absence of true reforms to it, would discourage the spread of innovations across the economy by increasing investor uncertainties about the value of patents which they might buy or license, the industry group maintained.

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, the authors assert, will likely come from resources that firms otherwise could use to develop new technologies, products and processes. Shapiro and Mathur argue that the current doctrine of inequitable conduct should not become statutory law.

Instead, they suggest that the best outcome would be a reform that either abolishes the doctrine or holds that inequitable conduct render a patent unenforceable only if the misrepresentation or omission materially affected the outcome of the original grant by the U.S. Patent and Trade Office.

The three provisions concerning the apportioning of damages, post-grant opposition and inequitable conduct, Greenwood told reporters, “would quite significantly reduce the incentive for investors to invest in companies that are heavily reliable on intellectual property,” such as biotech firms.

BIO, he said, has “worked assiduously with the players in the Senate and their staff to work out some kind of an agreement on this bill. We’re not there.”

The industry group, Greenwood said, is “eagerly” anticipating what, if any, revisions Sens. Patrick Leahy (D-Vermont), chairman of the Senate Judiciary Committee, and ranking member Orrin Hatch (R-Utah) will make to the current bill.

If the Senate fails to respond to BIO’s “serious concerns” and moves forward with the bill in its current form, Greenwood said, “we will vigorously object to it and try to block its passage in the Senate.”