Patent Reform Update

Two weeks ago, the Senate Judiciary Committee approved and reported out of committee S. 515, the Patent Reform Act of 2009. Similar, earlier versions of this bill had been under consideration by both Houses of Congress for the past three years. The goal of this legislation is twofold: first, to improve quality of patents that issue; and second, to reform legal principles and procedures in the courts that have encouraged speculation on patents by patent “trolls”.

The Judiciary approved a bill that is a modified version of the original bill that was strongly supported by the technology community (find more information at www.patentfairness.org). Technology industry products are surrounded by what is commonly referred to as the “patent thicket”. By way of example, there are thousands of patents that are required to be licensed to produce a microprocessor. Because there are thousands more that cover technologies similar to, or which overlap, with those incorporated in our products, it is common for tech companies to be the target of lawsuits for infringement filed by owners of those patents. What is new is the growing business model of “patent speculation” – buy up patents in bankruptcy or other liquidations, and file mass claims of infringement.

From our perspective, a high percentage of these suits are specious or the possible infringement, if any, is of modest economic value. Yet because the courts have evolved doctrines and procedures which predominantly favor patent owners over manufacturers, the suits have a high “settlement value”. This means that larger computer, electronics and chip companies end up spending a lot to settle the cases because that is cheaper and less risky than litigating – even if the companies have a strong case. Because speculation in patents has become very profitable for the trolls, the costs of this litigation to companies in the patent thicket are growing every year, adding significant costs to consumer products.

Intel believes that real inventors, who have real claims of infringement, should get their day in court and should receive just compensation. But by the same token, we believe that good faith manufacturers should be able to innovate and develop new products for consumers without having to worry whether they are going to lose the “patent lottery”, where speculative companies that do not produce or sell anything are able to reap large rewards in court for small sums invested in buying up patents and suing on them.

Here are some of the problems fueling the litigation boom: unclear rules to guide damage assessments; the ability to file cases in jurisdictions with no real connection to the parties, the evidence, or substantial acts of infringement; and a low threshold for a finding of “willful patent infringement” (which can result in a tripling of damages). The legislation seeks to address these problems by: creating clearer rules for damage calculations; requiring cases to be filed where real parties in interest are located; and requiring some element of bad faith on the part of an infringer before willful patent infringement can be found. (Today, a company can be found to be a “willful infringer” just because some official, somewhere in the company, knew about a patent – regardless of whether the company had a good faith belief that it was not infringing the patent in its products.)

I’ll have more on this later – the House Judiciary is expected to take up the House companion bill (HR 1260) soon. The Senate bill is not as strong in dealing with the abuses as the House bill from the last Congress, and the technology community will be working to get a strong bill out of the House again this year. We are hopeful that 2009 will be the year meaningful patent reform finally gets done.

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