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Patent Reform in Name Only

September 12, 2011 - by Donny Shaw

Congress has a funny way of handling things sometimes.

There’s a jobs crisis? I know, lets pass a “jobs bill.” The health care system sucks? How about a new “healthcare reform bill?” The financial sector is too big and interconnected? I know, let’s pass a “financial reform bill.”

It’s as if passing bills is more important to them than solving the problems.

Such is the case with the patent reform bill that the Senate passed last week and is now awaiting Obama’s signature. Obviously, the patent system is totally broken. It’s a system that was established under the Constitution to get inventors to share their ideas so that others could build on them and innovate. But it has turned into a massive scam, supporting shadow companies that don’t make anything but hoard the rights to ideas so they can sue companies that do make things. These companies are commonly referred to as “patent trolls,” and they are bad for innovation and bad for jobs. Yet the patent reform bill that is about to be passed into law doesn’t do anything about them.

At one point, back in 2007, a predecessor to the current bill did include a provision that would have addressed patent trolls. It looked like this:

(2) RELATIONSHIP OF DAMAGES TO CONTRIBUTIONS OVER PRIOR ART- The court shall conduct an analysis to ensure that a reasonable royalty under paragraph (1) is applied only to that economic value properly attributable to the patent’s specific contribution over the prior art. In a reasonable royalty analysis, the court shall identify all factors relevant to the determination of a reasonable royalty under this subsection, and the court or the jury, as the case may be, shall consider only those factors in making the determination. The court shall exclude from the analysis the economic value properly attributable to the prior art, and other features or improvements, whether or not themselves patented, that contribute economic value to the infringing product or process.

(3) ENTIRE MARKET VALUE- Unless the claimant shows that the patent’s specific contribution over the prior art is the predominant basis for market demand for an infringing product or process, damages may not be based upon the entire market value of that infringing product or process.

…In other words, if a company holds a patent that they have no intention of doing anything with (except possibly licensing it to another company or using it to sue someone), it can only sue a company for violation to the extent to which the violation affects their actual business model. That is, they could only sue for the amount of theoretical licensing fees, as determined by the court, not the entire value of all the inventions they are building upon. That would mainly affect companies whose sole business is to collect big settlements on overly broad patents from other companies that are doing legitimate work and actually trying to build stuff.

But that provision is gone. Wiped out from the bill. It was removed in 2007 under an amendment from Sen. Jon Kyl [R, AZ] during the Senate Judiciary Committee mark-up session. Unfortunately, because the Senate Judiciary Committee doesn’t release data about their meetings, there’s no way to no who voted for Kyl’s amendment and who voted against it.  

Until Kyl’s amendment passed, the language limiting the amount of damages patent trolls could collect via litigation was at the heart of the bill. Now that it’s been removed, the heart of the bill is a provision that changes the patent-filing system from a first-to-invent system to a first-to-file system. Once it’s law, inventors will no longer have a grace period for filing a patent after they invent something. If you’re an inventor and another company files a patent for your invention before you get around to it, you will no longer the opportunity to demonstrate to the patent office that you actually invented the thing before the company that rushed to file a patent on it before you. This, of course, favors big companies who can pay staff to monitor news on emerging inventions and file patent applications before small inventors, who are busy working on inventing stuff, can.

So, the bill once included real protection for small companies and inventors that have been getting wrapped up in an increasingly speculative and anti-innovative patent war. But the version that passed basically just streamlines the patent process and does it in a way that favors big and savvy companies over small and scrappy start-ups. Under our campaign finance and lobbying systems, that seems to be the only way to get things done these days. Address an issue by name at least (“Patent Reform”!!!), but do it in a way that protects the big, politically-active corporations, even if they are the ones causing the problems.

Above is a screenshot from Troll 2, one of the best movies ever made.

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