Medical Device Daily Washington Editor

WASHINGTON The casual observer of the latest efforts at patent reform might see the idea as a cat with nine very messy lives, so it would come as no surprise that the witnesses at yesterday's hearing on the subject had divergent views of the appropriateness of the latest patent reform bill, the Patent Reform Act of 2009 (S. 515 in the Senate).

Still, there does seem to be some convergence, however slight, between the varying views of the apportionment question, which has been the main sticking point in previous attempts at reform. Perhaps of equal significance is the fact that the two top members of the committee are on record as committing to take whatever time is needed to get it right.

Sen. Pat Leahy (D-Vermont), chairman of the Senate Judiciary Committee, said in his opening statement during a Tuesday committee meeting, "As we all know, intellectual property [IP] is critical to our nation's economy," adding that IP is a huge part of the U.S. export picture.

"My own state is a significant exporter ... and a majority of that is intellectual property," he said. Toward the end of the hearing, Leahy made a promise: "There will be new patent legislation" coming out of this Congress.

Leahy would make no promises as to when he would like to present a bill to the full Senate, but he told Medical Device Daily after the hearing, "I'm interested in as much bipartisan support as possible, so I'm flexible on the timeline."

The committee's ranking minority member, Arlen Specter (R-Pennsylvania), acknowledged in his opening remarks that the Senate "worked hard at [a bill] last year and could not come to a conclusion on the question of damages." He said that the information technology industry "argues that the entire market methodology [for determining damages] is undesirable and that there ought to be apportionment of damages," but noted most of the industries in the life sciences field see it very differently.

Specter, too, appeared to be willing to hit the brake pedal in favor of a bill that addresses apportionment in a way that all parties can live with. "It is of critical importance that we get it right, and if it takes more time, we'll have to spend more time," he stated.

Steve Appleton, CEO/chairman of Micron Technology (Boise, Idaho), a maker of computers and computer components, said "we strongly support the Senate bill," but said information technology [IT] companies are "victims of a growing wave of patent litigation." He reiterated the IT position that "the current patent system too easily allows damages to be based on the value of the entire product.

"Last year alone, Micron spent more than $30 million on needless lawsuits," Appleton said, adding that the U.S. economy would find 100,000 new jobs available over five years if Congress fixed the apportionment dilemma.

Philip Johnson, chief intellectual property officer at Johnson & Johnson (J&J; New Brunswick, New Jersey), spoke of the time and money J&J plows into research and development each year. "The jobs of about 60,000 depend on our patents," he said, adding that each patent "preserves and protects more than 100 job years."

However, Johnson made the case that investors are getting jittery over the current state of affairs, making the case that "we need to make it clear to inventors and investors alike that the promise of patents will be kept."

Johnson spent little time discussing the cost of defending against patent lawsuits, focusing on outcomes. According to Johnson's written testimony, a study of patent lawsuits conducted by Aron Levko of PriceWaterhouse Coopers (New York) published in February indicates that "the number of patent litigations in this country is at least leveling off." Johnson's argument was essentially that reform of how damages are calculated is "a solution in search of a problem," adding that of 2,700 cases filed each year, "fewer than five led to verdicts in excess of $100 million" and that "few, if any of these verdicts survive."

Mark Lemley, JD, a professor of law at Stanford Law School (Stanford, California), told the senators that while the courts have acted on some of the issues raised in recent editions of patent reform legislation, some problems remain. "The biggest remaining problem is damages," Lemley remarked, asserting that "it should not be the rule that you get more money for the invention of an intermittent windshield wiper" when its value is based on the value of the entire car rather than just on the value of the wiper.

Lemley made the case that an incremental improvement in a product brought about by a single patented item is not negligible, but setting an appropriate value is no mean feat. "To get that right, courts have to have the ability to figure out not just what you contribute, but what everyone contributed."

The right rule, he said, "is that patentees get paid according to what they contributed," he said. The question should be "what did they give us that we didn't have before?" The problem in court cases is that "a jury never hears about other contributions to that product," and "as a result, it's quite easy for a lawyer to say 'I want 1%,'" of the overall value of the product, which might not sound unreasonable unless there are several hundred other patents involved.

While the dais was not packed with senators thanks to wrangling elsewhere over the omnibus spending bill, several members of the committee made their way to the hearing. Dianne Feinstein (D-California), who represents a patent-rich state, set a high bar for resolution of the apportionment issue. "I'm not going to vote for a bill unless there can be reconciliation between the various interests," she said, adding that she has proposed that judges take the time to instruct juries as to which factors cited in the Georgia Pacific case should be considered. Several of the witnesses indicated a belief that such reforms might work to address the issue of apportionment.

In a statement, Stephen Ubl, president/CEO of the Advanced Medical Technology Association (AdvaMed; Washington), said "we are very concerned about the legislation's apportionment of damages provision," adding that as currently written, the bill "could limit the economic damages for which an infringer can be held accountable ... and could have the perverse consequence of encouraging infringement."

Mark Leahy, executive director of the Medical Device Manufacturers Association (Washington), told MDD, "We really don't buy into the premise that there are these runaway jury verdicts." As for the idea of using legislation to get judges to deal more effectively with instructions to juries, he said, "we have said the 15 factors of GP give the flexibility required," and that "if there's a way to better instruct the jury ... we're okay with that."

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