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Published: Mar 12, 2008 12:30 AM
Modified: Mar 12, 2008 06:41 AM

No need for new rules

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DURHAM - The argument for reform of the U.S. patent system hinges on the notion that the system is in crisis, that the patient has a disease. But in response to the Patent Reform Act of 2007 many companies in North Carolina -- ranging from Morrisville-based Salix Pharmaceuticals to global corporations such as DuPont and GlaxoSmithKline (the second-largest employer in Research Triangle Park) -- support the principle of "first, do no harm."

As a symptom of this crisis, proponents of reform note that patent litigation has increased substantially nationwide, more than tripling since 1990. Yet they fail to point out that the number of patents being granted has correspondingly increased. Given the economic expansion of the 1990s, fueled in no small part by innovations protected by U.S. patent law, this is not altogether surprising.

Economist Patrick Choate says the number of patent cases has actually held steady over this period, amounting to about 1.5 percent of patents granted. Moreover, according to the Administrative Office of the U.S. Courts, only 100 patent infringement cases went to trial in 2007, down 2 percent since 2006. This hardly seems a crisis meriting fundamental changes in patent law.

The main cause for concern, at least from the perspective of the patent reform bill's proponents, seems to stem from the size of recent jury awards leveled against them for infringing others' technology. It is no mistake that the strongest supporters the bill are those that have incurred some of the highest patent infringement verdicts on record. Yet, as shown in a recent study by Professor Paul Janicke of the University of Houston, these sizable verdicts by no means merely the result of "runaway juries" and are regularly set aside by judges when excessive. Shouldn't these verdicts rather be seen as signs of the patent system's health and efficacy in protecting inventors?

Defenders of the bill say no, asserting the need to change the law in order to limit the compensation inventors may obtain from patent infringers. They say rightly that the inventor of the windshield wiper should not be entitled to royalties from sales of the entire car; after all, when an invention is misused, an inventor should be compensated only for what he has invented.

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YET CASE LAW DEVELOPED OVER DECADES ALREADY PROVIDES FOR THIS NUANCE. Paul R. Michel, chief judge of the Federal Circuit Court of Appeal, the court that handles all patent appeals, has already registered his opposition, saying this bill would disturb an exceedingly refined body of law that he says is "highly stable and well understood by litigators as well as judges." Far from relieving burdens on the courts, it is his view that the reforms would themselves prove burdensome.

Companies calling for reform charge further that overworked patent examiners have been granting a large number of "low-quality" patents -- presumably the patents these companies are found to infringe -- and as a solution they have presented a post-grant review process that would institute a period during which the validity of newly granted patents might be challenged.

But this would permit infringers to conduct pre-emptive strikes against patent-holders. Infringers will be able to challenge each new patent, meanwhile making use of the technology, and force the inventor to engage in a costly and protracted legal defense if he hopes to retain his rights. The bill expands the grounds on which patents can be re-examined, while affording patent-holders no way to distinguish between good-faith challenges and groundless harassment, nor a means of punishing the latter. Indeed, there already exist patent re-examination processes that are often abused. We do not need another.

Most perplexing is a section sponsored by U.S. Sen. Jeff Sessions that would grant immunity to the financial services industry for claims of patent infringement concerning certain methods of electronic check imaging. But that immunity would be secured through government compensation to the inventors, which would in effect force taxpayers to finance the cost of patent infringement on behalf of banks, and to the tune of approximately $1 billion, according to the Congressional Budget Office. Scarcely any plausible justification has been given.

The proposed changes to the law thus appear far less like meaningful reforms and much more like licenses for infringers to steal. In view of the immense costs of research and development to companies such as those in the Research Triangle, it is vital that patent rights remain secure and undiluted by harmful provisions passed in the name of reform.

(Raymond Mercado, a doctoral student in political science at Duke University, has served as an intellectual property consultant to firms in San Diego and Houston.)

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