Tighter Damages Restrictions Sparks Opposition to Patent Reform Bill

For decades in America, claimants in a patent suit have been eligible for treble damages -- three times the assessed amount of the violation -- if a jury can establish that violation was willful on the part of the defendant. Now, new restrictions being proposed to not only the conditions under which treble damages can occur, but also the method for assessing the extent of violation, has raised the ire of lobbying groups following the forwarding of new language in the Patent Reform Bill to the full US House for approval.

As the bill now reads, a judge will make the determination of whether a patent's violation was willful, rather than a jury. Furthermore, the defendant will be entitled to make what's called a "good faith defense:" He can argue, for instance, that a lawyer advised him the patent he may be violating could be deemed invalid if it were reviewed.

And a claimant will be ineligible to even make the willful violation claim before a test takes place to establish the validity of the patent in dispute.

Immediately after the bill was recommended to the House floor, a coalition of biotech firms such as Monsanto, technology firms such as Qualcomm, and leading US universities registered their opposition to the new language.

In a letter to House Speaker Nancy Pelosi and House leaders, the Biotechnology Industry Coalition wrote, "For companies (directly, and as university licensees) in industries such as ours, the consequences - greater bureaucracy, inability to rely on valid patents, weakened protections against infringement and a decreased access to capital - would be devastating. The harm to investment in tomorrow's technologies would be felt immediately, and would hurt U.S. competitiveness for years to come."

The reference to "decreased access to capital" may raise some eyebrows, as both legislators and judges (including justices) have raised skepticism in recent months over whether businesses should consider litigation awards as principal sources of capital.

The Coalition for 21st Century Patent Reform also jumped in: "On the formula for determining how reasonable royalty damages are awarded in patent infringement cases," its statement from last week reads, "the Coalition shares the concerns of the American Bar Association Section of Intellectual Property Law that the bill would require a new test that has never been used by parties negotiating licenses. This test would reduce incentives for innovation by greatly diminishing damages obtainable from infringers."

The 21st Coalition also objects to language remaining from the bill's initial draft that would allow the validity of a patent to be challenged not only within the first twelve months of its having been granted, but by the same claimant for any time thereafter, if the claimant can make a new argument.

"There is no justification for expanding the opportunity to administratively challenge issued patents beyond an initial 9-month window," 21st wrote in a recent overview of that provision, "when the legislation retains and expands the existing...reexamination procedures which are available throughout the life of a patent."

An unlikely opponent of the bill's current language came last week in the form of counsel for the US Dept. of Commerce. In its own evaluation of the bill's worthiness, DOC makes a strange, but perhaps not unrealistic, argument: If it were more difficult for a claimant to be awarded triple damages, then claimants would not take the trouble to meet the burden of willful infringement when filing patent disputes. As a result, they may simply file three times as often, with the bar having been lowered to one third the burden.

"Modernization efforts should avoid perverse incentives that might make infringement simply 'a cost of doing business,"' counsel John R. Sullivan writes for DOC. "While not the only deterrent to patent infringement, the possibility of treble damages provides an important and substantial obstacle - more than might be seriously considered in a practical business calculus."

Other DOC objections include one to a provision of the bill that would only have a judge or jury take into account the full market value of a patented mechanism's improvement to another mechanism if the claimant can prove that improvement formed the basis of the market.

As a hypothetical example, Thomas Edison would only be able to defend his improvements to Alexander Graham Bell's telephone if he could prove that the electric receiver he added to the phone formed the basis for the current telephone market. Its objection has to do with whether such a test of both market value and practical improvement can apply to every device that's eligible for patent.

The deluge of opposition now puts Microsoft in a curious box, along with Intel, Sun, Red Hat, Adobe, and Apple, of technology corporations that actively support measures that would limit their own ability to attain "access to capital" from patent enforcement.

This while, at literally the same time, Microsoft referred to 235 as the number of its patents upon which it claims Linux technologies infringe. If the legislation it supports passes both houses, Microsoft would have to prove to a judge that all 235 of those patents were violated either after Microsoft presented the violators with written notice of warning, or with specific malicious intent toward Microsoft, before it could be eligible for treble damages.