(yes…’patent reform’ has received syllabus-level attention in the country’s leading law schools for some time)

You can download a .pdf of my presentation here. Feel free to use the whole presentation or any individual slide any way you like…I only ask that you provide attribution and a linkback to Promote the Progress if it’s possible.

My presentation style is fairly loose - not much text on the slides and the bulk of the material comes from my talk. If you have any questions when reviewing the slides, please feel free to send an e-mail.

Jeff’s students were great - full of wonderful questions about patent reform and patent practice in general. Thanks, Jeff, for the opportunity.

Most important to patent applicants, the report estimates that the required ’search reports’ would add an additional $5,000 to $10,000 to each patent application (a range apparently provided by the Patent and Trademark Office). The Office notes that the sum total to the private sector for this provision alone would “substantially exceed the annual threshold” for unfunded private sector mandates established by the Unfunded Mandates Reform Act (UMRA).

Those costs are easy to get a handle on…and are probably fairly accurate (and, notably, are considerably less than the $26k that the dreaded examination support document could cost if the new rules survive).

According to the CBO estimate, though, there’s a lot of budgetary uncertainty that arises out of the two special-interest provisions of the bill.

First, section 13 would allow the Director of the Office to accept late filings of applications in certain cases of unintentional delay. This special-interest provision has been kicked around for nearly two years and now it seems that it is directed at a particular pharmaceutical patent (we suspected so). Indeed, the Office calls the drug out specifically:

“CBO anticipates that enacting this provision would lead PTO to accept an application for extension of the patent term for a drug known by the trade-name Angiomax. The firm that holds the patent for Angiomax missed the statutory filing deadline by one day for its application to restore the patent term authorized under the Drug Price Competition and Patent Term Restoration Act. Under the bill, we expect that PTO would grant nearly five years of additional patent protection to that product.” (emphasis added)

The Office notes that this provision would not only have a direct impact on the generic drug industry (via lost revenue due to the extended patent term), but also that it would indirectly impact health insurance premiums and tax revenues:

“CBO anticipates that the increase in net costs for private health insurance plans would result in higher insurance premiums, thus increasing the amount spent by employers for tax-favored health insurance and reducing the amount spent on taxable wages. That change would reduce federal revenues from income taxes and payroll taxes by an estimated $3 million over the 2010-2013 period and $30 million over the 2010-2018 period. Social Security payroll taxes, which are off-budget, would account for about 30 percent of those totals.”

Second, section 14 would essentially eliminate infringement of patents relating to “check collection systems,” all but guaranteeing lawsuits against the federal government for Fifth Amendment takings. CBO estimates that the affected patent holders will ultimately prevail in such lawsuits…to the tune of “about $1 billion, representing a royalty of 0.5 cents per check on more than 200 billion checks cleared by financial institutions that would be authorized to infringe on the rights of patent holders under the bill.”

You can view/download a .pdf of the Congressional Budget Office Cost Estimate for s.1145, the Patent Reform Act of 2007, here.

The primary rationale advanced by the Senators can be paraphrased as such:

Congress has neglected to modernize our patent system to keep pace with the boom in American innovation. Recent Supreme Court decisions have nudged things in the right direction…[b]ut the Court is constrained in its decisions by the laws on the books….If we are to maintain our position at the forefront of the global economy and continue to lead the world in innovation and production, we need an efficient and streamlined patent system that issues high-quality patents while limiting wheel spinning and counterproductive litigation.

The article specifically notes the post grant review, forum shopping (venue), and inequitable conduct reform measures contained in the bill. It also carefully addresses the controversial damages provision which appears to be the key sticking point at this time:

We must also restore fairness to the rules that govern how courts determine damages when a patent is infringed. The threat of excessive damages is ruthlessly curtailing progress, and the loss of jobs and innovation is directly linked to litigation costs. But we must be careful to strike the right balance so that violating the intellectual property rights of others does not just become an acceptable cost of doing business. The goal of our reforms is to ensure that patent holders will be able to obtain appropriate compensation in case of infringement.

The Senators close with an interesting note about the bill’s progress to date:

As legislators, we know we are headed in the right direction when everyone is complaining that the entire bill is not going their way. We see this as a necessary, albeit somewhat difficult, part of the legislative process. But we welcome it. But at the end of day, we are confident that we will resolve the remaining issues in ways that should make everyone comfortable and will ensure final passage.

In an attempt to get the best information for its audience, Fortune went straight to the United States Patent and Trademark Office.

Good idea, right?

I’m not so sure.

Jennifer Rankin Byrne, the Office spokeswoman interviewed for the article, properly told the author that patentability might exist for any business method that underlies the web site idea.

So far, so good.

She didn’t stop there, though. Nope. In an apparent attempt to reference the basic requirements for patentability (utility, novelty, and nonobviousness), Ms. Rankin Byrne noted that:

“…it would have to be representing something very innovative and new….”

(emphasis mine)

What?

It has to be ‘very innovative‘? Since when? Since the Supreme Court decided KSR v. Teleflex, perhaps?

To make matters worse, she never mentioned the nonobviousness requirement:

“It would have to be some new, novel technology or old technology that’s used in a new way. It would have to be representing something very innovative and new. It would have to be something more than a concept. The person applying for the patent would have to explain in a very detailed way how it would work,” Rankin Byrne said.

Some PTO watchers may see this official comment as harmless, while others may view it as accurately reflecting current examination policy.

No matter.

What matters to me is how the article’s audience views it.

Seems to me that the Patent Office just sent a strong message directly to our small business community: We only grant patents on very innovative inventions, so please don’t waste your time disclosing your plain old novel, useful and nonobvious inventions.

NOTE: Fortunately, the author of the article included a paragraph that notes the proper requirements for patentability.

Now we’ve got a sense of the “defense” being mounted by those on the other side of the battle (which, interestingly enough, isn’t limited to just pharma and biotech companies). According to this CNN report, recently-filed lobbyist disclosures reveal that the Coalition for 21st Century Patent Reform “paid a lobbying firm nearly $1.2 million in 2007 to lobby on patent reform legislation.”

Some interesting details:

Of the $1.2M, more than 60% ($760k) was spent in the second half of 2007, the same time that the House bill (HR 1908) picked up a bit of steam

The Coalition’s lobbying firm is Akin Gump Strauss Hauer & Feld LLP, which currently reports 77 attorneys in its intellectual property practice group.

In this Op/Ed piece on STLtoday.com, Mr. Raclin invokes two powerful concepts - loopholes and frivolous lawsuits - that immediately resonate with folks having no legal background.

“Loopholes? Yes, those are always bad. Frivolous lawsuits? Outrage!”

Unfortunately, Mr. Raclin offers no details on the “loopholes” of which he speaks. Nor does he tell us what constitutes a “frivolous” patent lawsuit. I hate to make assumptions, but it seems fair to surmise that he would characterize continuation practice as a “loophole” and would equate frivolity with the much-maligned practice of owning patents and not making products.

Oh, and patent reform is about protecting American jobs, too:

“[The Patent Reform Act of 2007] would rectify the current imbalances in the patent system that are working against American innovation, job growth and consumer welfare…Patent reform is the key to cutting down on frivolous lawsuits and placing the focus back where it should be — on introducing ground-breaking innovations and promoting American jobs.”

Odd that he didn’t mention the letter of opposition to S.1145, the Patent Reform Act of 2007, that was recently signed by more than a dozen major labor unions.

The letters are, for the most part, non-revealing because we’ve known where the lines have been drawn in this battle for so long.  Most contain the same recycled language and few present any new or interesting information, causing many of us that follow the issue to glaze over them quickly.

At least one should have raised our eyebrows, though.  According to this article from Inside Higher Ed, the Coalition for Patent Fairness, which counts Google, Microsoft, Intel, Micron and other computer/software companies as members, circulated a memorandum last week that claimed that the concerns raised by various educational institutions and related associations had been “addressed” by the bill and the committee review process.

Universities have strongly opposed several provisions of the various vintages of the Patent Reform Act…so an impression that their concerns had been “addressed” could cause one to believe that the legislation was a step or two closer to significant movement.

Not so fast, though.  Turns out the CPF memorandum was not, um, blessed by any single university or association.

A call-to-action alert from the National Association of State Universities and Land-Grant Colleges aimed to set the record straight:

“The briefing paper implies that all of the university community’s concerns with S. 1145, the Patent Reform Act of 2007, have been addressed.  CPF’s assertion is factually incorrect and misrepresents the position of the university community and individual institutions on patent reform legislation.”

Looks like there’s no harm from the gaffe, though…CPF claims it didn’t intend to suggest that the heavy lifting was done, and the Association of American Universities acknowledged that several important changes that address university concerns have been made to the bill.

Director Dudas characterized the bill (and legislative reform proposals in general) as creating “a false choice on innovation.” How can it be that some folks believe the bill will end innovation as we know it while others see it is downright necessary for innovation to continue?

Following the theme of the opposition letter, he noted that the section on damages is a deal breaker. The administration believes that the current language in the bill unnecessarily ties the hands of federal judges and fears that, over the long term, the language would inhibit innovation and might even encourage infringement.

Interestingly, Director Dudas, in discussing the damages provision, noted that “the overall goal of reform is to promote innovation across all business models and industries” and that the damages provision needs to respect that goal. In that light, he reiterated the administration’s position on damages reform: a flexible approach that gives federal judges the “ability and responsibility” to apply discretion based on the “facts, technology and business model” involved in a particular case.

He also shed light on the administration’s position on post grant review. It favors the two window approach, but wants bigger teeth in the bill in order to make the new system “a true alternative to litigation.” How? Include very strong estoppel measures, including an “anything raised or that could have been raised” standard for challenges brought in the second window.

Director Dudas had several other insights on patent reform legislation in general:

“Reform needs to be technology neutral.”

“First-to-file needs to be a ‘pure first-to-file‘ system.”

(He explained that a “pure first-to-file” system would not exclude inventor disclosures from the scope of prior art. This seemingly major point of disagreement with the language of S1145 is not explicitly mentioned in the letter of opposition, unless this veiled reference counts: “we would like to work with you to address technical issues regarding the scope and application of prior art and the grace period.”)

“We support the fee-setting authority provision. Some fees should be lowered, some raised, and, quite honestly, some should go away….”

…and offered his outlook on reform legislation:

“We think a balance can be struck on the damages issue.”

“several reform measures could stand on their own or together in a smaller reform package” (ala the focused v. comprehensive approach to reform)

“It varies from Senator to Senator. Some want it done now. Others are saying ‘let’s take the time to get this right, no matter how long it takes’.” (answering a question about the prospect for passage this year)

I was able to participate on the call and will post an analysis soon, but wanted to push this tidbit out quickly:

In his opening remarks, Jon Dudas noted that the allowance rate for the first quarter of the current fiscal year is “about 44%.”

And so the precipitous drop in the allowance rate that started in about 2000 continues….

Kaptur, the most senior Democratic woman on the influential House Appropriations Committee, recently issued a letter to Attorney General Michael Mukasey urging the application of a ’strict scrutiny’ standard of review to Microsoft’s recently announced hostile bid for Yahoo! Inc.

Interestingly, the letter’s focus (and purpose?) seems to be more on patent reform than on the takeover bid.

To wit:

She characterized the bid as appearing “against the backdrop of [Microsoft’s] current aggressive posture in Congress seeking to reform and diminish the effectiveness of our nation’s intellectual property protections.”

She specifically pointed to the company’s lobbying for the passage of two controversial reform efforts, apportionment of damages and the “second window” in a post grant review system:

“Microsoft is seeking to fundamentally transform the treatment for those entities that infringe on the intellectual property of other innovators by minimizing the damages the victim could receive and to ensure that the potential for harassment would extended (sic) dramatically by allowing for virtually endless attacks on patent validity.”

Download a .pdf of Representative Kaptur’s letter here.

Kaptur has made several spirited floor speeches against patent reform efforts over the years, including one that included a statement of disgust with the politics played by members of her own party in setting the ‘debate’ on H.R. 1907, The Patent Reform Act of 2007.

Representative Kaptur’s district includes my beloved Toledo, OH, but just misses my current hometown of Perrysburg, OH.