Patent reform bill works its way through Senate, again

The SE Texas Record Mar. 26, 2009, 11:50am

Leahy (D)

This story is the fourth in a series about the future of patent litigation and the East Texas 'rocket docket' in Marshall.

The Patent Reform Act of 2009 introduced by U.S. Sen. Patrick Leahy, D- Vt., is working its way through the Senate after failing to gain approval in either 2005 or 2007. But despite what some claim is progress, Sen. Dianne Feinstein, D-Calif., said the bill is not ready for a committee vote, according to published reports.

"I do not think its ready," Feinstein told the Congressional Quarterly, which also reported that disagreements remain over patent damages among other issues. The Senate Judiciary Committee will begin working over the bill on Thursday in the hopes of resolving lingering issues that could cause the committee to block its progress.

Leahy is the co-chairman of the committee. He introduced the bill in early March saying it was similar to versions attempted in previous years. Patent damage reform was then, and remains now, the largest sticking point, because frankly, it has the greatest financial impact.

"There's a lot of money at stake in all of this," Washington, D.C.-based patent attorney Peter Stand said of the patent system.

Intellectual property professionals from around the state offer a wide variety of views on reform efforts, what needs to be done and the problems within the patent office itself. Most agree that the reforms have been enacted in recent years have come more from the courts than from the efforts of Congress.

About the act

Sen. Leahy's bill removed some of the more controversial sections from the acts of 2005 and 2007, including regulations that required patent applicants to research previous patents prior to filing, and efforts to give the U.S. Patent & Trademark Office considerably more power in terms of writing the rules for patent filing.

The act focuses on giving defendants in patent lawsuits more legal standing to combat the allegations and limit damages, specifically limiting acceptable locations of filing a claim.

With complicated patent lawsuits, most plaintiffs prefer to file in courts with both experience in patent litigation and with reputations for plaintiff-friendly juries. This practice funnels patent cases into specific courts that defendants claim tilt in favor, often heavily in favor, of the plaintiffs.

The Eastern District of Virginia was once known as the best place for plaintiff's attorneys to file infringement lawsuits. But starting with the arrival of Judge T. John Ward in1999, the Eastern District of Texas quickly become the preferred location.

Ward's local court rules pushed cases through on a rapid timeline, as the number of cases filed each year rose from around a dozen, to a high of a couple of hundred cases annually.

But the famed Texas "rocket docket," dubbed for the speed in which cases were settled, ran out of fuel in 2009, following legal decisions that give defendants a strong footing to challenge the venue and have cases transferred to friendlier jurisdictions.

In late December, the U.S. Court of Appeals for the Federal Circuit issued a powerful writ of mandamus against the East Texas court overturning the decision of Judge Ward to deny TS Tech's motion to transfer its patent case from the Texas court to Ohio.

The ruling, according to legal experts across the country, has already changed the pace of patent case filings in East Texas. Where the next "rocket docket" might arise next is a subject of debate, though Leahy's reform act seeks to ensure it doesn't arise anywhere.

In his testimony before the Senate Judiciary Committee, Intellectual Property Owners Association Executive Director Herbert Wamsley testified that this and other legal decisions have already begun to reform intellectual property lawsuits.

"These decisions may have eliminated or mitigated the need for some legislation that was proposed in the last two Congresses," he said.

Specifically, Wamsley cited the Fifth Circuit's writ of mandamus and its impact.

"Several commentators view these as watershed decisions that will make it easier to obtain transfer of cases filed in inappropriate district for forum shopping or harassment purposes," he said.

Los Angeles Intellectual Property Attorney Steve Sereboff said he believes the courts are producing the only effective patent reform at present.

"Patent reform hasn't taken place in Congress," he said. "But it is taking place right now in the courts. The shift in power from these reforms has already begun. Patent owners don't have the power they used to, and it's much harder and slower to get a patent."

But Wamsley still sees the need for passing of the reform act.

"We congratulate Chairman Leahy on introducing (this bill) to continue a difficult but critically important effort to improve America's patent laws," he testified. "We strongly support patent reform and a majority of the provisions within it."

The poison pill of damages

Just as it was in previous years, the issue of limiting patent damages remains the most likely poison pill to the eventual passage of the patent reform act.

The solutions in the act seek to measure the true economic worth of a patent and the reasonable return an inventor is entitled, according to a Web site dedicated to patent issues.

"What these damage provisions attempt to accomplish is to force the court to limit the patent holders recovery to the real economic worth of an invention," wrote Richard Cauley, an author of a book on patent litigation.

Defense attorneys argue that ridiculous financial awards force companies to settle rather than risk their case in court.

"Damage reform needs to get done," Atlanta-based patent attorney Alan McDonald said.

The poster-child for ridiculous awards is one of the few patent cases that people outside of the professional know something about.

When a small Virginia-based company called NTP sued Research in Motion, the makers of Blackberry, it was one of any number of similar cases involving technological advancements.

But the case filed in the plaintiff-friendly Virginia court proved to be something far more expensive. When a judge threatened to place an injunction on RIM that would have stopped all email traffic for the three million users on the Blackberry network, the case screamed to the top of the national news cycle.

Eventually, Research in Motion settled with NTP for $612.5 million, one of the largest settlements of its kind.

"There is no way that the patent Blackberry settled for is worth $600 million," McDonald said. "Not a chance. It all came down to a judge in Virginia who was going to issue that injunction. That patent was not worth that money."

McDonald said the courts continue to make strides, including ruling against the type of injunction that would have shut down Blackberry.

But, the battle for patent damage reform is not neatly divided among plaintiffs and defendants as so many tort reform issues are. Thomas Melsheimer, a Texas-based plaintiff's attorney with Fish and Richardson, does not think the most of the current reform act is needed, but does see a role for limited laws about damages.

"I think the need for patent reform is largely overblown," he said. "There are certainly some tweaks that could be made to improve the system. The way damages are considered and calculated by the jury, for example, is not a failure of the ability of jurors but a failure of the convoluted way we instruct jurors on the law."

Those instructions, and specifics on what damage reform can actually pass through Congress, remains a "hotly-debated issue," even within the IPO membership, according to Wamsley.

"The five-member IPO board of directors in 2007 by majority vote passed a resolution supporting legislation that would codify existing law on damages for calculating reasonable royalty. Unfortunately, we have been unable to develop any consensus language to recommend," he said.

Neither has the Senate, which has a lot to do with why Feinstein said the bill is not ready for a vote this week.

It's the economy

For all the news coming out of the Senate this week, few are hopeful that this will be the year that a bill is passed. The issues are too complicated and the priority is not as high as it would be in light of the current issues.

"It's not happening," Sereboff said of the Patent Reform Act. "Why would they mess around with patent reform when they have bigger issues to deal with? I just don't see it."

Wamsley admitted as much in his testimony before the Senate, but said the economy's impact also should be incentive for meaningful reform.

"The severe worldwide economic recession is having a dramatic effect on the resources available to patent and trademark departments in U.S. companies," he said, expecting a much lower number of patent filings in 2009 than previous years. "In the depressed economic environment, the cost of the patent system to innovative companies, individuals and universities becomes critical."

Inventor Michael Thomas said he opposes patent reform in its present state, precisely because it offers little financial protection and hope for the lone inventor from the interest of big business, precisely the people, he said need it most.

"We must reform the present legislation in order to realize the precarious financial situation that small inventors and startup businesses are in," he said. "The patent system must shelter and nurture them instead of allowing big businesses to steal the inventions from them and reward them with multi-year lawsuits that they can't even afford to file."

Thomas, who now is marketing for patents from other inventors on his Web site, said the entire system is broken and the efforts on Congress are geared to further harming the small inventor.

"The entire patent is skewed against inventors receiving awards for their patents or compensation," he said.

While Wamsley would likely not agree with Thomas on the role of businesses, he does agree that economic factors should be motivation for serious reform.

"Patent reform is a jobs issue," he said. "The best hope for restoring America's manufacturing base and creating new jobs in this country lies in American workers and American companies innovating new products and services that the people in this country and the rest of the world want to buy. The patent system, properly operating, is a huge stimulus to U.S. innovation and jobs."

But Sereboff said the system is doing fine, especially as the courts continue to rule in ways that provide balanced venues for litigation. He likens the patent system to the tax code.

"It is what it is," he said. "My job as an attorney is to help my clients get the best they can from the system in its present format. In any system at the margins there are going to be problems, but as whole this system works."

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