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Patent Reform Bill Moves to Senate; Biotech, University Groups Provide Measured Support

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This story was originally posted on April 3.

A contentious patent reform bill that stalled in the markup phase in Senate last year is one step closer to fruition after it passed through the Senate Judiciary Committee yesterday.

The 19-member panel voted 15-4 to report the bill, a companion version of which already passed in the US House of Representatives in 2007. The legislation will now move on to be considered by the full Senate.

The bill, which has been bandied about in Senate Judiciary Committee meetings since 2005, had in the past generally been opposed in biotech, pharmaceutical, and higher education circles for various provisions that were viewed as weakening patent protection; but supported by many others in industry and government who felt that the US patent system in its current state is dated (see BTW, 9/10/2007 and 4/16/2008).

However, those communities are now voicing measured support for the bill after this week's markup addressed one of the bill's most controversial sections on apportionment of royalty damages in patent-infringement litigation.

Markups to the bill also retained the way the validity of patents can be challenged under current law, using only hard evidence such as previous patents or printed publications. However, the bill will retain one of its core components – language that would change the US patent system to a "first-to-file" as opposed to the current "first-to-invent" system.

In a statement released yesterday, the Biotechnology Industry Organization commended the Senate Judiciary Committee "for its success in developing a more consensus-oriented approach to patent reform legislation – one that makes encouraging progress toward reforms that will help strengthen and improve out nation's patent system."

BIO added that "while no compromise is ever perfect, we believe the Committee's product breaks the logjam on the major issues that have held up patent reform for the past several Congresses and will clear the path for a bill to be completed without undue delay."

In an interview with BTW, Hans Sauer, associate general counsel for intellectual property for BIO, further explained that the organization felt that "yesterday's compromise was really a big step forward. It now allows this bill to move forward and develop in a positive direction.

"Everything was in a stalemate [due to] the controversial damages provision," Sauer added. "The change that has been made, we think, gives both sides about 80 to 90 percent of what they ask for. No side gets everything in this debate. This bill was received with less-than-total enthusiasm by everyone, and our support was not unabashed."

Sauer said that the changes that were made to the bill this week will give courts more power to apply existing laws for calculating infringement damages in "a more predictable, reliable way."

Previous versions of the bill contained language that attempted to address damages in all cases with uniform language.

"Existing law is supposed to determine a reasonable royalty award based on what the parties would have negotiated under free-market conditions, had they sat down and negotiated," Sauer said. "In order to emulate that you have to look at a lot of different factors because every license is different. It's not easy … but at the end of the day, people decided that there was no other way. You just can't capture that with a few words in legislation."

Sauer also said that BIO was in favor of markups regarding the scope of inter partes re-examination procedures – or the way that existing patents can be challenged by outside parties through the US Patent and Trademark Office.

Currently, parties wishing to challenge a patent can only provide "hard" evidence such as prior patents or printed publications. However, previous versions of the bill had proposed to expand this to other, more subjective evidence – in particular that an invention was for sale or in use in the US before the patent application was filed.

"We had a big problem with that because this kind of evidence is very different," Sauer said. "Someone might testify that they used an invention before a patent was filed on it, and [the patent holder] would need to depose the person. This is a lengthy, expensive process. To allow this in the patent office re-examination, which is supposed to be a quick alternative to litigation, would have been self-defeating."

The new bill, which was introduced in early March by Senate Judiciary Committee Patrick Leahy (D-Vt.) and former Committee Chairman Orrin Hatch (R-Utah), also received a modicum of support from a coalition of six higher-education associations as committee deliberations progressed throughout this past week.

In a letter to Chairman Leahy this week, the Association of American Universities, on behalf of four other university organizations, expressed "strong support" for a specific amendment to the bill that addressed "the two primary concerns of the university community" – the aforementioned determination of damages and the scope of inter partes re-examination procedures.

Regarding the apportionment of damages, AAU said that it believed the "gatekeeper" language in the amendment "will provide clear and consistent directions to courts on the procedures for handling damage assessment cases."

Meantime, the coalition also supported the fact that the amendment will remove "the very problematic 'in public use or on sale' language from the inter partes re-examination," thereby limiting evidence that can be used in patent challenges to other patents and printed publications.

"A lay person might say that that's only six words, but the implications would have been huge," John Vaughn, executive vice president of AAU, told BTW today. By allowing parties challenging patents to be able to cite technologies or products that were previously "in public use or on sale" as part of their evidence, Vaughn explained, would have opened up patent challenge procedures "to all kinds of subjective evidence, and would have made the whole procedure much more costly and time-consuming" to the patent holders and the USPTO.

A sixth university organization, the Association of University Technology Managers, also allied with the AAU coalition in a position statement late last month, prior to the latest committee markup.

Though it did not release an official position statement on the amended bill, AUTM President Arundeep Pradhan told BTW today that "the compromises that have been reached on the damages and re-examination procedures make it more palatable. Are they ideal? No. Are they palatable? Yes.

"Before this compromise was reached the bill effectively weakened patent owner's rights," Pradhan added. "We're getting to the point where rights aren’t diluted, but you're tweaking the system so that it is better."

Pradhan further explained that "from a university and small biotech perspective, I think these changes are really good because it doesn’t change the patent owner's rights. If your patents can't be enforced or are continually challenged, you can't find partners and you can't find investors."

Although the Senate's patent bill will retain language that would change the system to grant patents based on the first to file an application rather than the "first to invent," Pradhan said that provision would not be as problematic to universities, their researchers, and tech-transfer officials as has been frequently reported.

"There have been so many studies saying that patenting doesn't really affect publishing," Pradhan said. "If this had gone through without these amendments, everybody would have been less compelled to use patent protection as a route to protect IP. The loser there would have been the public because nothing would have gotten out.

"Everywhere I've worked I can honestly say that patenting doesn't hold up publication," added Pradhan, who is also director of technology and research collaborations at Oregon Health and Sciences University. "We always make sure we get something filed if we know it's going to be disclosed. Effectively we're already working in a first-to-file system because the world is."

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