Patent Reform Legislation Aims to End Massive Settlement Fees

By Scott M. Fulton, III, BetaNews

April 18, 2007, 5:59 PM

In a move intended to end what so-called "counterproductive legislation" that they claim stifle US innovation and possibly drive technology development efforts overseas, congressmen from both parties and both houses simultaneously introduced equivalent bills to fundamentally change US patent law.

In a statement read into the Congressional Record this morning, Senate Judiciary Committee Chairman Patrick Leahy (D - VT) - the patent reform bill's principal co-sponsor - introduced his legislation as a fundamental change in the nation's patent system, commensurate with patent systems around the world. It would replace current law which favors individuals who are proven to be the first inventors of a certain art, with a "first-to-file" system that awards patents to the first applicants.

"The United States stands alone among nations that grant patents in giving priority for a patent to the first inventor, as opposed to the first to file a patent application for a claimed invention," reads Sen. Leahy's comments. "The result is a lack of international consistency, and a complex and costly system in the United States to determine inventors' rights. At the same time, our legislation provides important protections for inventors at universities, by permitting them to discuss publicly their work without losing priority for their inventions."

In comments to reporters this afternoon, Micron Technology deputy general counsel Joel Poppen voiced his company's support for the bill, coming from a company which holds more than 18,000 patents, and earns a considerable portion of revenue from portfolio licensing.

"Although the patent system was originally designed, and for a long time worked to foster innovation and growth, from our perspective, it's unfortunately evolved over the last number of years in a way that actually stifles or taxes innovation, and threatens technology manufacturers and many other important industries," Poppen remarked. "In fact, we've seen new business models that have been created, and indeed are flourishing, around patents, including doing things like buying patents out of bankruptcy, or putting engineers into a room and trying to tailor patents to cover products. What these essentially professional patent companies do is exploit loopholes in the patent system, and really take advantage of the shift we've seen in the patent system over time, and one that now sharply favors plaintiffs in patent litigation, but also one that has some real problems with patent quality.

"Patent litigation is enormously expensive and unproductive," Poppen continued, "and the current imbalances and problems that we see with the system cause Micron and many other manufacturers to spend millions of dollars defending a growing number of patent lawsuits each year, or entering into costly, unfair settlements because of the real risk realities that we face in that litigation. That includes things like litigating in places that are known to be plaintiff-friendly, places that Micron has no connection with, essentially no employees or facilities in those jurisdictions, and damages awards that are so significant that they lead to resolving litigation in ways that you wouldn't if you had a real opportunity to litigate dubious claims."

Micron itself was the beneficiary of a $288 million patent settlement with Toshiba last year, for an infringement case first brought on by Lexar Media prior to its acquisition by Micron.

Poppen's reference to foreign jurisdictions has to do with the fact that, of all the places in the United States where patent cases may be tried, applicants tend to choose three or four jurisdictions that they feel would be most likely to give them a victorious outcome. One in particular is Marshall, Texas, which is the home of one Texas firm's MP3 patent suit against Apple last February, HP's infringement suit against Acer last month, and Qualcomm's colossal, ongoing dispute against Nokia, which was extended two weeks ago.

Another provision of the Patent Reform bill would change existing language so that suits could not be brought in just any court the claimant chooses. The claimant could choose a jurisdiction that's convenient to or near its place of business, even though it may be far away from the defendant's place of business, but that's about the only concession.

As Jon Yarowsky, chief counsel for the Coalition for Patent Fairness, told reporters this afternoon, "There's been this explosion of patent litigation, but it's been concentrated in three or four courts in the country. That means that a lot of federal judges have no experience dealing with patent cases, and a very few judges deal with them every day."

Traditionally, Yarowsky said, the plaintiff in a lawsuit was given the right to choose venue, in a concession dating back to the founding of the country when transportation was somewhat more difficult. But under the original concept of choice of venue, a plaintiff can't just sue anywhere, especially to make life miserable for the defendant.

Amendments passed by Congress in 1988 were interpreted by courts, he remarked, to mean "you can sue a company in any state of the union, literally, if their goods are passing through commerce - and obviously, most goods go through national markets - whether it's convenient or not."

If the bill passes, federal courts all over the country could be trying patent cases for the very first time, even where judges have sat on the bench for decades. They'll also be asked to make judgments about damages to victorious claimants based on a new metric which measures damages based on the assessed value of the loss to the claimant of his or her invention's contribution to the market.

This may mean judges could find themselves taking refresher courses in economics, though it might also mean, Yarowsky believes, that the threat of huge damages, compelling companies like BlackBerry provider Research in Motion to settle with patent holders, could be eliminated.

Next: No more $1.5 billion verdicts against Microsoft?