Patent Reform
posted on
Apr 18, 2007 06:26AM
Two of the country's leading industries, computer technology and drug manufacturing, are battling over an effort by Congress to overhaul the way inventors profit from ideas, with executives on both sides saying billions of dollars are at stake.
The shift in political control on Capitol Hill coupled with the Supreme Court's newfound interest in taking patent cases has energized a congressional drive to revamp the patent system for the first time since the 1950s.
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Sponsors in both the House and Senate plan to unveil patent reform bills today, according to congressional officials. The measures would address the mounting litigation over disputed patents -- lawsuits have doubled in the past decade -- and the difficulty of ensuring accurate decisions by patent agency examiners.
Congressional initiatives to revise the patent system have drawn intense interest from sectors including traditional manufacturers, universities, banks and financial services, and small businesses. The industries vying to sway the outcome have dramatically ramped up their campaigns, engaging some of Washington's most prominent lobbying firms since the start of the year.
But the titans in this struggle are the drug industry, which seeks the strongest possible protection for its blockbuster patents, and the software industry, which wants more flexibility for its fast-moving companies.
For large tech companies, which are pushing several of the most substantial changes, a recent court case involving Microsoft exemplifies much of what's wrong with the current law. In February, a federal jury ordered Microsoft to pay $1.52 billion to Alcatel-Lucent for infringing two patents for the MP3 technology used to play digital music on computers, portable players and other mobile devices. Even if Microsoft was in the wrong, critics say, the damages, the largest ever in a patent case, were outrageous and reflected profound flaws in how judgments are calculated.
Large tech companies are more prone than many enterprises to trip over existing patents because the development of software is a fast-moving process that involves weaving together many small advances. So the computer industry seeks wider latitude to challenge patents while being protected against paying exorbitant damages, especially for unintended violations.
But drug companies, which often spend years and billions of dollars converting just a few patents into highly profitable products, want strong rights to turn back challenges and to ensure that violators pay hefty damages.
In resisting some of the major rewrites being discussed in Congress, the pharmaceutical industry points to the plight of Purdue Pharma, maker of the popular OxyContin painkiller, as an example. Purdue had filed suit against a generic drugmaker, claiming it infringed patents on OxyContin. Federal courts ruled that Purdue could not enforce its patent because it had misled patent examiners, but last year reversed the decision and upheld Purdue's claim. In the interim, however, generic drugmakers raced to enter the market and Purdue lost more than half the sales of its marquee drug, estimated at more than $1.2 billion a year, according to industry sources. Purdue was ultimately unable to reclaim its market share. As a result, the company said it had to lay off more than half its employees.
The drug and tech sectors, which rarely square off against each other in court, tend to play different roles in patent cases. Pharmaceutical companies are usually plaintiffs, while tech companies are more often defendants, and that difference explains their clashing views over the patent system.
"We start out from opposite sides of the courtroom," said former congressman Billy Tauzin, president of the Pharmaceutical Research and Manufacturers of America. "We're in a position of having to defend our patents against potential infringement and want a legal regime that gives us the best chance to do that."
Emery Simon, counsel to the Business Software Alliance, said the traditional justification for patents is that inventors get a limited monopoly over their technology in return for the public receiving new knowledge and products. "That balance has been tipped," he said, arguing that patent law now discourages innovators.
Part of the concern, he said, is the steep penalty for treading on someone else's rights. In the Microsoft case, the jury in San Diego calculated damages based on the value of nearly all computers sold with the Microsoft Windows operating system rather than on the far lower value of the patented MP3 technology that Microsoft was found to have violated. Moreover, more than half the damages reflected Microsoft's sales worldwide instead of just within the United States, which tech executives said was an improper application of U.S. law beyond the borders.
In addition to the issue of how to assess damages, the struggle over revising the system focuses on how patents can be challenged, both at the patent office and in court, and where lawsuits can be filed.
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Shortly after Sen. Patrick J. Leahy (D-Vt.) emerged as the new chairman of the Senate Judiciary Committee following Democratic congressional wins in November, he named patent reform as one of his top legislative priorities.
"This leadership of America is only as good as the system that fosters and protects innovation. We have to update it," Leahy said during a December speech outlining his program.
On the House side, Rep. Howard L. Berman (D-Calif.), who has long advocated changes in the patent system, has become chairman of the Judiciary subcommittee overseeing patents. The first hearing he scheduled, "The Case for Patent Reform," drew an overflow crowd, prompting some participants who long toiled in relative obscurity to voice their amazement at people lining up for more than an hour to hear about patents.
But the growing momentum reflects more than personalities. Patent law experts said the shift in congressional control has weakened the overall influence of pharmaceutical companies, which have overwhelmingly supported Republicans.
Since 2000, drug manufacturers have given $61.5 million to political candidates, with more than three-quarters going to Republicans, according to figures compiled by the Center for Responsive Politics. Of the 15 most generous industries, only oil and gas and general contracting gave a higher proportion of their money to Republicans. By contrast, computer and Internet companies played both sides. Of the $112.6 million donated since 2000, each party received almost exactly half.
The Supreme Court, meantime, has raised the profile of patent issues by accepting a half-dozen cases in the past two years, reflecting what legal experts said was the personal interest of the new chief justice, John G. Roberts Jr. The court last year improved the prospect for congressional action by ruling in a prominent case involving eBay that judges are not required to bar patent infringers from using the patented technology. Before the court essentially settled this issue, the dispute between tech and drug companies over whether injunctions should be automatic was so intense that it threatened to derail any compromise over new legislation.
Representatives of the pharmaceutical industry chafe at the accusation their companies are blocking reform, insisting instead that they are trying to protect the durability of patents vital for producing life-saving drugs.
"We cannot have a system that can kick patents out from under us," said Hans Sauer, associate general counsel of the Biotechnology Industry Organization. "It takes us 10 years and a billion dollars to get a product from the bench to the bedside."
Yet Simon, of the software alliance, alleged that drug companies are less interested in promoting research and development than in using strong patents and stiff penalties to dominate the marketplace.
"They have a history of using it as a sword against generic competitors and other competitors," he said.
Staff researcher Richard Drezen contributed to this report.