By Rick Merritt, Published on EETimes.com, 03/03/2009

SAN JOSE, Calif. — A heated debate over how courts determine damages in patent infringement cases could make or break the latest attempt to reform the U.S. patent system. All sides signaled they are willing to negotiate to get a bill passed, but it's unclear whether they can overcome their differences.

Five Democrats and four Republicans introduced the Patent Reform Act of 2009 in Congress Tuesday (March 3.). They will hold a one-day hearing broadcast over the Web on March 10.

As reported last week, the Act in most respects picks up where the debate left off in Congress. The new bill includes many of the provisions in HR 1908 that was passed in the House in September 2007 and its companion bill--S.1145--that failed to make it to the Senate floor for a vote in 2008.

Within hours after the new bill was introduced, two industry groups and two members of the House of Representatives came out against the new measure. The issue of damages quickly emerged as the central issue.

Big computer and communications companies back the bill as a way to limit the number of patent infringement cases and damages they pay on them.

"We are the constant target of patent lawsuits, many of which are frivolous and more than half are filed by non-practicing entities," said Mike Holston, general counsel of Hewlett-Packard and a member of the Coalition on Patent Fairness that backs the bill. "We have to divert significant time and money to deal with these lawsuits," he said in a press conference sponsored by the group.

HP holds about 30,000 patents and is granted an average of four every day, he added.

"We find ourselves in a situation with more patent infringement suits than ever before and each one costs as much as $4 million," said John Thompson, chief executive of software developer Symantec, another member of the coalition.

On Feb. 17, Thomson hosted a $10,000 a plate fundraiser in his Silicon Valley home for Senator Patrick Leahy (D-Vt.), one of the sponsors of the new bill. Thomson said he did not know how much the event raised, but more than 75 representatives of Valley companies attended the event.

Opponents claim the mechanism called apportionment the new bill uses to determine damages won't work outside the computer and communications industries where hundreds of patents go into a single system.

"If you go to any other industry the amount of patents is small--it might be five or even one, said Tom Kelly, general counsel of Monsanto and a member of the Innovation Alliance, a group of technology licensing companies including Dolby Labs, Qualcomm and Tessera that organized a separate press conference.

"My fear is a jury will inevitably say there are a thousand components in an infringing product so you get one one-thousandth of its value in damages," said Stan Findley, general counsel of Corning Inc., another member of the group. "It's not fair. We're not persuaded apportionment in a vacuum is a good idea."

A separate industry group, the Coalition for 21st Century Patent Reform, also pointed to the damages issue as one of its major concerns. Provisions intentionally designed to reduce damages, such as prior art subtraction, should not be part of any patent reform enacted by Congress, said Gary Griswold, chairman of the 50-member coalition that includes 3M, Caterpillar, General Electric, Johnson & Johnson, Eli Lilly and Procter & Gamble.

U.S. Reps. Don Manzullo (R-Ill.) and Mike Michaud (D-Maine) issued a joint statement against the bill. The duo led a group of 64 members of Congress who opposed the previous bills.

"By diminishing the damage awards in patent infringement cases, this bill would encourage intellectual property theft by foreign competitors, putting 298,000 American manufacturing jobs at risk and curtailing U.S. research and development spending by $66 billion, according to a recent economic study," they said in their joint statement.

A crack in the door on damages

The two sides of the debate sent mixed signals on the extent to which they are open to negotiations. In the last debate, the opposition suggested a so-called "gatekeeper" concept, giving judges more latitude to instruct juries on how to reach a damages settlement based on the specifics of a case.

"It's our position that apportionment is unacceptable, but we would be willing to discuss the gatekeeper concept," said Michael Biber, vice president of IP strategy at Dolby Labs and a member of the Innovation Alliance.

In a press statement, Sen. Leahy said the damages language in the new bill is identical to the past legislation where the provision was "the most hotly debated topic." But he also cracked open a door on the issue.

"While I strongly support this language, I am prepared to continue the conversation and debate from the last Congress in order to find the best language we can," he said.

"We affirm our willingness to work with all interested parties," said Robert Holleyman, chairman Business Software Alliance that backs the new bill.

Others sent signals that there may be less flexibility in their positions.

The gatekeeper idea "is not a new concept," said Bruce Sewell, a general counsel for Intel and member of the Patent Fairness group. "There's nothing problematic about [employing that technique], but it doesn't go far enough," he added.

"What's being suggested to us is everything in this bill is negotiable except damages," said Findley of Corning. "It's my view that everyone else in this bill can be worked out," he added.

Among other concerns, opponents said the new bill still provides for new challenges to a patent's validity after it has been granted. Under some circumstances, third parties could potentially call for a re-examination of a patent for its entire life, said one attorney.

The bill also calls for the U.S. to switch from its current practice of granting patents to the first to invent an idea, adopting a first-to-file approach instead. The provision is aimed at bringing the U.S. into harmony with other patent offices around the world. However, individual inventors have said the provision favors large companies.

The provision is one of the few in the bill specifically intended to address the needs of the patent office which is facing a enormous backlog of applications.

"When Congress last overhauled the patent system in 1952, the patent office received approximately 60,000 patent applications; in 2006, it received 440,000," Leahy said.

In addition to Leahy, the new bill was sponsored by Senators Orrin Hatch (R-Utah), Chuck Schumer (D-N.Y.), Mike Crapo (R-Idaho), Sheldon Whitehouse (D-R.I.), James Risch (R-Idaho), and Kirsten Gillibrand (D-N.Y.). The House version was sponsored by John Conyers (D-Mich.) and Lamar Smith (R-Texas).