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A Primer on Patent Reform for Manufacturers

It is estimated by the Manufacturing Alliance on Patent Policy that two-thirds of the value of a modern manufacturer lies in its technologies and intangible assets. For several years, there have been efforts to reform the patent system that greatly affects the implementation of numerous technologies and thus the competitiveness of the manufacturing sector. An alternative to a trade secret strategy, the patent system stimulates and rewards innovation by awarding inventors with patents that both disclose the technology to the public and provide exclusivity to practice or license the invention.

With a new Congress and presidential administration in Washington, patent reform legislation has been reintroduced to address criticism that the patent system is out of balance. Some of the initial reforms were radical, but with renewed consideration by the courts of some controversial issues, such as patent enforcement by companies that do not produce or sell the patented products themselves, the current reforms have been softened considerably.

Comments and position papers have been submitted by a variety of organizations, in addition to those intellectual property focused organizations that typically dominate the debate on major patent issues. These new organizations include, for example, the U.S. Chamber of Commerce and the Manufacturing Alliance on Patent Policy. Many of these latest comments credibly assert that radical reform is no longer needed, and that less radical tweaks are more appropriate.

Changing the Current System– First to File

The Senate patent reform legislation (S 515) was pushed through the Senate Judiciary Committee by Chairman Senator Leahy, with Senator Arlen Specter and a few others having reservations. The Judiciary Committee of the House of Representatives held a hearing on April 30, 2009 focusing on the House Counterpart bill (HR 1260).

The bills are more similar than they are different. In the case of two competing inventors, both bills change the current system where, the patent is rewarded to the inventor shown to have developed the invention first (in public or in rivate), to the inventor who was first to apply for a patent. Neither bill would require mandatory publication of all patent applications while they are pending. This somewhat avoids the dilemma that many manufacturers face in a first-to-file system of whether to apply for patent protection or maintain a technical advance as a trade secret.

A first-to-file patent system obviously places a renewed emphasis on the need to quickly apply for patent protection rather than develop and refine a new technology in private. The change is controversial and there is a related disagreement about whether the one-year grace period, which an inventor currently enjoys to prepare their patent application after the invention has been first commercially exploited or made public, should be maintained. HR 1260 has a provision that the first-to-file system will not become effective until European countries and Japan adopt the one-year grace period, while S 515 does not have that provision.

Assessing Damages

The most contentious remaining issue is the manner of assessing damages for infringing on a patent. S 515 requires courts to identify the methods and factors that may be considered by juries in determining damages, and to guide juries in their application of those standards, with priority given to the portion of economic value of the infringing product or process attributable to the invention’s contribution over the prior art. For example, modern devices such as cellphones may utilize hundreds of patented inventions.

S 515 also requires that courts provide more rigorous supervision and management of the damages determination processes, including a requirement that parties provide their proposals for damages determination earlier in the lawsuit. It is the “apportionment” approach to damages that has proven most controversial and divisive between different industries. A study of the harmful effects of patent apportionment on many industry sectors has been published by the Manufacturing Alliance on Patent Policy and is available here.

The Road to Reform

Other details still need to be worked out in the legislation with respect to forum shopping for “patent-friendly” courts, diversion of patent fees to the general treasury, and improvements in the operations of the U.S. Patent and Trademark Office. The road to reforming the patent system will be bumpy with many valuable interests at stake. But, it seems that calmer heads will prevail, and the likely changes will be modest and manageable, with the only major adjustment being the need to file patent applications as quickly as possible.

For more information, contact Attorney Robert Bauer at MacDonald Illig
814/870-7754 or rbauer@mijb.com.