Medical Device Daily Washington Editor

WASHINGTON – The House Judiciary Committee finally held a hearing on the Patent Reform Act of 2009 (H.R. 1260), but readers of tea leaves might have left the hearing unsure as to where the committee stands on several key issues, including provisions dealing with how juries should calculate damages in infringement lawsuits.

The committee had invited a good mix of viewpoints to testify on damages and other issues, including post-grant review, but while neither the committee chairman nor the ranking minority party member suggested their positions were cast in concrete, it seemed that neither of them is particularly sympathetic to the damages provisions in the Senate bill (S. 515), which the Senate Judiciary Committee recently passed (Medical Device Daily, April 3, 2009).

Committee chairman John Conyers (D-Michigan) opened the hearing with a jab at the Senate, remarking that the House had passed a patent bill in 2007 and that a similar Senate bill "did not receive dispositive action in the other body" in reference to the Senate's failure to pass its bill during the 110th Congress.

"In a time of economic crisis, it seems to me we need reform now more than ever," Conyers said, mentioning the possibility that the U.S. may well "invent our way out of recession." He promised that the House bill will be "as fair as we can get it, and [that it] will also serve the public interest."

Conyers said he sees "an acceptable compromise on a damages provision [as] crucial to moving this bill forward," and said of the Senate's approach that "we will not blindly accept or reject their work." The Senate bill removes the apportionment language appearing in the House bill and replaces it with a requirement that judges spend more time instructing juries on the factors it should consider in determining damages. Those instructions would be based on 15 factors commonly referred to as the Georgia Pacific factors, a reference to the landmark 1970 case Georgia Pacific v. U.S. Plywood.

"The bill does not yet provide for a permanent end to the diversion of [U.S. Patent and Trademark Office] fees" into the federal government's operating budget, Conyers said, noting that this practice of diversion will have to end in order for PTO to deal with what he claimed is a patent backlog of more than one million applications.

The committee's ranking GOP member Lamar Smith (R-Texas) asserted a preference for H.R. 1260 over S. 515 for several issues, stating, "our bill does most of these better" than the Senate's version.

Smith said he is "concerned about the Senate bill's treatment of damages," specifying that "the Senate's gatekeeper treatment needs more review" because the instructions might confuse jurors when trying to peg a value on the infringed item.

As for post-grant opposition, Smith commented that previous patent reform bills created "a robust one-year window ... coupled with an enhanced inter-partes re-examination construct" in lieu of a second window that would extend beyond 12 months. He made the case that a reversal of this construct would be a move "backwards on an issue of significant importance."

Underscoring the importance of the subject was the raft of press releases flying across the Internet yesterday. One of those was from two members of the House, Mike Michaud (D-Maine) and Don Manzullo (R-Illinois), who argue that the Senate's approach to damages determination is "a constructive compromise," seemingly a break from the prevailing views expressed by committee members during the hearing.

Regarding post-grant review, the April 30 statement by Michaud and Manzullo posits a need for "a clear time-line for concluding administrative challenges" and provisions to halt patent challenges "to avoid serial challenges of the same patent by the same infringer or a group of infringers."

David Simon, chief counsel at Intel (Santa Clara, California) laid out the case for information technology (IT) firms, who tend to favor apportionment. "We spend over five billion a year" to defend against patent trollers, he said.

"In 2007, the number of defendants in patent litigation cases doubled," Simon remarked, with a disproportionate portion of that increase hitting IT firms. "The issue that we have is [that] a complex subject matter" is presented to juries along with "a relatively short time period for testimony," an implicit argument that the gatekeeper function is unwieldy.

"Though patent cases are a small percentage," of total patents granted, Simon acknowledged, verdicts in the cases that do go to court drive a lot of activity that is not economical or supportive of economic growth, such as patent trolling.

Philip Johnson, chief intellectual property counsel for Johnson & Johnson (New Brunswick, New Jersey), said "we strongly agree ... that patent reform is about stimulating our economy," but argued that one of Congress's imperatives ought to be "giving our patent office a reliable source of funding" in reference to the diversion of funds addressed by Conyers in his opening remarks.

Johnson said the post grant provisions in the House bill "come very close to striking the proper balance," but noted that his employer would "urge the committee to adopt the gatekeeper compromise" on the damages issue as written in the Senate bill. This formulation of the damages question "has the most support of any" such provision ever proposed, Johnson said, adding, "most importantly, it will not pick winners and losers."

Representing the National Venture Capital Association (NVCA; Arlington, Virginia), Jack Lasersohn of venture capital firm the Vertical Group (Summit, New Jersey), said the current approach to damages "is appropriate and working," and that some proposals would encourage infringement. This argument is based on the idea that "most innovation takes place in small, incremental steps" that nonetheless can induce "dramatic shifts in market share."

"A better drug on a drug-eluting stent can shift the entire market," Lasersohn noted. He said that NVCA members are not fond of a post-grant review window that extends beyond 12 months and that the association's members "believe the most important reform we can make is to improve the quality of patents" by increasing the funds available to PTO.

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