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Patent Reform Effort Revived

Legislation could help the patent office reduce a massive backlog of applications

by Glenn Hess
February 21, 2011 | A version of this story appeared in Volume 89, Issue 8

Credit: Laurence Genon
Kappos talks about patents and job creation during an Innovation Alliance-sponsored forum.
Credit: Laurence Genon
Kappos talks about patents and job creation during an Innovation Alliance-sponsored forum.

The Obama Administration is calling on Congress to pass legislation to update U.S. patent law, saying a bipartisan Senate proposal would give the beleaguered Patent & Trademark Office (PTO) the resources it needs to help jump-start the economy and create jobs.

In his recent State of the Union address, President Barack Obama challenged U.S. scientists and engineers to “out-innovate” global competition. But the ability to commercialize the nation’s newest and most competitive technologies is currently hampered by an enormous backlog of applications at the patent office. As many as 1.2 million applications filed by inventors and entrepreneurs await disposition by PTO, with the average application taking almost three years to complete and many taking much longer.

“Proposals in this legislation—many that will help PTO do its job better—have been discussed for the better part of the last 10 years. And this is the Congress where we should and must finish those many years of work,” David J. Kappos, under secretary of commerce for intellectual property (IP) and director of PTO, said at a forum on patents and job creation in Washington, D.C., last month.

Lawmakers have been working on reform legislation since 2005 after criticism that the nearly 60-year-old U.S. patent system has become increasingly outdated and cumbersome. But it has been difficult to resolve the sometimes-conflicting interests of a diverse array of stakeholders that include big technology companies, manufacturers, the pharmaceutical and biotechnology sector, and research universities.

The Patent Reform Act of 2011 (S. 23), unanimously approved by the Senate Judiciary Committee on Feb. 3 and awaiting an eventual floor vote, closely mirrors a proposal that died in the previous session of Congress.

Although that earlier measure (S. 515) had broad support on both sides of the political aisle, the bill ultimately failed when a dozen high-tech companies lined up against it for not doing enough to limit the amount of damages courts can award in patent infringement cases.

Silicon Valley giants such as Dell, Oracle, and Intel, which are often the target of patent infringement lawsuits, contend that it’s too easy for patent holders to win multi-million-dollar awards when a court finds that one small piece of a product infringes a patent. But biotechnology and pharmaceutical firms have expressed fear that capping damages would reduce the value of their IP and invite more infringement.

S. 23 seeks to provide more certainty in the calculation of damages for patent infringement by instructing judges to act as “gatekeepers” to help juries determine whether requests for damages are appropriate and supported by evidence.

In addition, the bill would move the U.S. away from its unique “first to invent” system for awarding patents to the more common “first to file” system. Rather than attempting to determine who the true inventor of a product is through a lengthy and costly administrative proceeding, PTO would grant the patent to the first applicant.

Another goal of the legislation is to improve the quality of patents issued by PTO by streamlining the application process and establishing a new system for reviewing the validity of patents after they are granted, helping weed out “bad” patents that should not have been issued.

“If we’re going to compete with the rest of the world, we’ve got to have the most up-to-date patent system possible, provide the tools PTO needs to separate the wheat from the chaff, help business bring new products to market, and create jobs,” Sen. Patrick J. Leahy (D-Vt.), chairman of the Senate Judiciary Committee and the bill’s chief sponsor, remarked at the Feb. 3 meeting.

Leahy noted that the legislation has gained support from a range of groups, including the Coalition for 21st Century Patent Reform, whose 50 members include some of the U.S.’s largest chemical and pharmaceutical companies, such as Dow Chemical, DuPont, Pfizer, and Eli Lilly & Co.

“This is a strong starting point for proponents of patent reform,” says group spokesman Gary Griswold. “Our coalition believes we can have bipartisan legislation that improves our patent system, including providing PTO with the resources necessary to begin reducing its current backlog of patent applications and enhancing the quality of the patents that are granted.”

Biotech companies are also in favor of the bill. “Innovation in biotechnology is based upon the strong and predictable protection of intellectual property provided by our nation’s patent system,” says James C. Greenwood, president of the Biotechnology Industry Organization, a trade association.

Without dependable patent protection, Greenwood asserts, investors would “shy away from investing hundreds of millions of dollars, over a decade or more, in high-risk biotechnology companies and will simply put their money into projects or products that are less risky or offer a more immediate return but are of less value to society.”

IBM, which has been the recipient of the highest number of U.S. patents for the past 18 years, has also endorsed the reform measure. “We believe the new bill strikes a careful balance among various users of the U.S. patent system while updating a system that has not kept pace with dramatic changes in technology and innovation,” says Manny Schecter, IBM’s chief patent counsel.

But the Coalition for Patent Fairness, which includes tech heavyweights Google, Apple, and Cisco, said in a statement that the Senate proposal “does not reflect the needs of our nation’s most innovative companies who constantly face the growing burden of abusive, unjustified patent infringement claims.” The coalition “is encouraged the Senate is addressing patent reform, but the current approach is not yet the solution.”

The American Chemical Society, which publishes C&EN, has called for patent reform and has put forward 10 detailed policy recommendations. The society has not taken a formal position on S. 23 but has warned lawmakers that failure to update the existing patent system could hinder the U.S.’s ability to compete in the global marketplace.

“There is a strong link between protecting intellectual property and the ability of our domestic scientific, technological, business, and educational communities to compete and thrive in the international arena,” says Glenn S. Ruskin, director of the ACS Office of Public Affairs. “ACS is pleased to see that the Senate is working on this important issue. I hope that the various parties can work through their differences so that progress can be made and we can move forward.”

From the patent office’s perspective, Kappos argues that the Senate legislation would lift current legal restraints and enable his agency to tackle a massive backlog of more than 700,000 patent applications that have not even had a preliminary review by an examiner, hire and retain more staff, and modernize its aging information technology systems.

“As our country seeks to regain the 8 million jobs lost during the recent recession, PTO is a great place to start,” Kappos remarked in a keynote address at the January forum. “The next laser, the next energy breakthrough, the next cure for a debilitating disease are all buried in the files of PTO. And that is simply unacceptable to me. Countless inventions that can spark new businesses are right here, sitting in our backlog.”

Reducing the backlog of applications “should be our number one priority in U.S. patent policy,” says Brian Pomper, executive director of the Innovation Alliance, a coalition of small and midsized technology companies such as San Jose, Calif.-based Tessera Technologies and San Francisco-based Dolby Laboratories. “That backlog represents the potential of creating hundreds of thousands, if not millions, of new jobs.”

The alliance, which sponsored the Jan. 21 forum, believes that policymakers should first address “the serious and complex funding and administrative issues at PTO that gave rise to the backlog before creating any new programs at that already overburdened and understaffed agency,” Pomper remarks.

Kappos, who took office in August 2009 after a 26-year career at IBM, said the Administration “strongly supports” the legislative reform effort, which is “centrally focused on improving operations at PTO, first by giving us access to the fees that we collect in order to be able to do our work.”

PTO takes no money from taxpayers. Instead, the office is entirely supported by the fees paid by patent applicants and holders. In addition to determining how much money the office can charge for its services, Congress also sets PTO’s annual budget at an amount equal to the revenue the agency expects to collect over the course of the fiscal year. Consequently, PTO is not authorized to keep and use all of the money it collects; it is only allowed to keep and use what Congress permits.

The Senate legislation partially addresses the funding issue by giving PTO the authority to set its own fees, including discounts for small entities, and to impose surcharges.

“We can do a much better job of meeting the needs of the IP community—be much more responsive—if we’re able to adjust the amount of money that we’re charging for various things in rational, reasonable, balanced ways,” Kappos said. “We simply are hamstrung from doing that right now. So we clearly need fee-setting authority.”

However, the bill would not end so-called fee diversion. Beginning in the early 1990s, Congress began siphoning off a portion of the agency’s fee income, using the revenue for other unrelated government programs. From 1992 through 2004, lawmakers drained a total of $752 million from PTO, leaving the agency without adequate funding and staff to review applications in a timely manner.

For several years after 2004, as part of the annual budget process, Congress permitted PTO to keep all of the fees it collected. But in fiscal 2010, Congress imposed limits on PTO that resulted in the office not being allowed to keep $53 million in fees that it collected.

Before voting to send S. 23 to the Senate floor, several Judiciary Committee members described amendments they plan to offer when the bill comes up for debate before the full chamber. One of these amendments, which several senators indicated that they intend to support, is a proposal by Sen. Thomas A. Coburn (R-Okla.) to permanently halt the diversion of PTO fees by congressional appropriators. Patent fees should be used only for patent examination and not for funding other parts of the government, Coburn asserted. “If an American pays a fee, he should get what he pays for,” he remarked.

Sen. Orrin G. Hatch of Utah, the committee’s senior Republican member and a bill cosponsor, called fee diversion “despicable.” PTO, he said, is “one of the few agencies in government that can guarantee job growth in every sector of the economy. Fee diversion is nothing less than a tax on innovation.”

Pomper of the Innovation Alliance notes that ending fee diversion is an issue that unites virtually all stakeholders on all sides of the patent debate. “We wholeheartedly support Sen. Coburn’s efforts in this regard and will work hard to pass his fee diversion amendment into law,” he says.

With Congress likely to considerably reduce the budget for all federal agencies, Pomper says it is crucial that PTO be given the power to retain all of its fees. “Otherwise, a significant portion of those fees will be diverted, and PTO’s efforts to reduce the backlog will be seriously imperiled.”

But stopping fee diversion is likely to face opposition from at least some members of the powerful Senate Appropriations Committee, who may be reluctant to give up control over the allocation of that revenue.

Getting a patent reform bill to the President’s desk will also require the cooperation of Rep. Lamar S. Smith (R-Texas), the new chairman of the House Judiciary Committee. Smith has said he wants stakeholders to find common ground on patent overhaul, even if it means dropping some provisions.

“We are never going to make 100% of the people 100% happy 100% of the time, but that should not discourage our efforts. We can achieve meaningful patent reform that will help our economy grow,” Smith told reporters at a briefing earlier this month.

The committee, Smith added, will hold hearings to obtain more input before considering legislative changes. “We’ll have our own product,” he said.


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