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Congressional Patent Reform and the IT Industry

March 26, 2008 - by Donny Shaw

A major bill to reform America’s patent system has been sitting on the congressional back burner all winter. A version of the bill was passed by the House in October and the Senate has been vigorously debating their version behind closed doors for months. When Congress comes back from Easter recess on Monday, the Patent Reform Act of 2007 may finally move to the Senate floor for a full debate and votes.

Since the OpenCongress community seems to be a generally tech-savvy bunch, let me point out a really good analysis of the bill from tech-news site Ars Technica. The analysis goes over the bill broadly, but pays particular attention to what the bill lacks: a serious reform of how patents are awarded for software and high-tech innovation.

The author explains what he considers to be “the most serious flaws in the patent system”:

>A series of appeals court rulings in the 1990s greatly expanded patentable subject matter, making patents on software, business methods, and other abstract concepts unambiguously legal for the first time. The result has been a flood of patents of broad scope and dubious quality. With one very minor exception, none of the proposals being debated on the Hill would address these changes.

It’s a feature of the system that seems to scare away the little guys in the industry. The closest thing in the bill to addressing this issue is a change in how the size of damages are figured in patent lawsuits. Under current law, in cases involving infringement of a specific part of a complex product, courts are allowed to award damages based on the economic value of the entire product, and they do. They are also able to award treble damages if is determined that the infringement is “willful.”

These features of the law are both addressed in the bill:

>On the issue of apportionment of damages, both last fall’s House legislation and the pending Senate bill dictate that when a patent covers only a portion of an invention and an appropriate royalty cannot be computed from existing licensing agreements, that damages should be calculated based on “the economic value of the infringement attributable to the claimed invention’s specific contribution over the prior art.” Advocates hope that this provision will prevent the holder of a patent on one part of a complex system from holding the entire system ransom.
>Under patent law, infringement damages can be trebled if the court finds that infringement was done willfully. But critics charge that this rule causes many firms—especially in the software industry—to avoid looking at patents at all out of fear of heightened liability. Recent court decisions have reduced this problem somewhat, but both bills would go further by limiting findings of willful infringement to cases where the infringer had received specific written notice from the patentee, the infringer intentionally copied from the patent, or the infringer continued to infringe after losing in court. This would go a long way toward ensuring that software firms could conduct patent searches without fear of heightened liability.

But these provisions basically skirt the IT issue, avoiding the meat. As the article stresses:

>The legislation does almost nothing to rein in the Federal Circuit’s increasingly permissive attitude toward patents on abstract concepts like software, business methods, and mental processes. Only one provision of the Patent Reform Act addresses this issue: the House bill includes a prohibition on patents for tax planning methods.

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