Patent reform floated in congress polarizes Biotech, tech interests: stakes are high for legal challenges to IP ownership in state.

Proposed changes to the U.S. patent system outlined in the Patent Reform Act of 2007 could drastically alter how companies protect their discoveries, but the bill that was passed in the U.S. House of Representatives in September is buried under lobbying from interests on both sides of the debate.

Even the Bush administration is fighting provisions of the bill, which, among other things, would transition the right to claim ownership to intellectual property in the U.S. system from "first-to-invent" to "first-to-file" a patent application, which is similar to methods used by most countries.

The act would also create a new way to challenge patents after they're granted, and alter how courts assess damages in patent infringement cases through "apportionment of damages."

"It's a radical change and departure to the patent laws in place," said John Karl Buche, a San Diego patent attorney who specializes in intellectual property law. "I think if you're a small startup or biotech company, you're naturally disposed against it."

After passing the House last year, the bill stalled in the Senate Judiciary Committee after objections were raised by independent inventors, pharmaceutical companies and small technology firms.

Large information technology companies such as Apple Inc., Hewlett-Packard Co., Google Inc., Intel Corp. and Microsoft Corp. favor patent reform, saying abuses in the current system and legal challenges stifle innovation.

Meanwhile, pharmaceutical companies and inventors say the act will limit patent holder rights.

The stakes are high in California, which wins more patents than any other state, according to the U.S. Patent and Trademark Office. California inventors won 22,888 patents in 2007. Texas was a far second with 6,316 patents.

"What's happened is that studies were done by the National Academy of Sciences and Federal Trade Commission that looked at ways to spur innovation across all industries," said Jim Green, president of the Biotechnology Industry Organization in Washington, D.C., which is lobbying against the current bill.

Patent Protection Vs. Speed To Market

Green says the one size fits all approach in the proposed bill doesn't balance the needs of biotechnology, which favors strict patent protection, versus the technology sector, which relies on speed to market.

"We may go 10 to 15 years to develop a drug," he said. "They've got to get out to market quickly to sell as many widgets as possible until it becomes obsolete."

Conversely, the Business Software Alliance, a trade group that supports the bill, says current patent law leans toward patent holders who try to collect huge damage awards with dubious claims--for instance, that a small piece of a technology product infringes their patent.

"Part of this effort is that we can't afford to wait. Look at the condition of the economy and the need to keep the U.S. edge of the global marketplace," said Diane Smiroldo, spokeswoman for the BSA, which represents Microsoft, Symantec Corp. and Apple. "We need patent reform now."

Senate committee members passed the bill out of committee in July and have been meeting with the stakeholders since then, either trying to get the bill introduced to the Senate floor, or trying to stop it.

"There hasn't been much movement since then," Smiroldo said. "All I can tell you is there have been a lot of conversations and there continues to be a lot of conversations with stakeholders at the table."

Green says he gives the bill a 50-50 chance of being introduced in the Senate before the end of the year.

"They'd have to come out with a compromise that no one has foreseen or strip the bill down to areas of consensus and call it a day," he said. "From our point of view, the patent bill was hijacked by a narrow band of large information technology companies to write a bill to change the patent law in their favor."

He added: "They're not terribly worried about information patents ... their bigger problem is someone who comes along and says, 'Hey, a little piece of your BlackBerry violates something that I have. I'm going to sue you for patent infringement for a lot of money."

Support For Some Of Bill's Provisions

Green says BIO supports some of the bill's provisions, such as first to file, but opposes weakening the ability for companies to pursue damages from infringement. The organization also wants to remove an existing provision in current law called "inequitable conduct."

Green says that inequitable conduct is abused by companies that challenge a patent on the basis that the patent holder withheld information.

"A generic company that wants to knock out my patent can accuse me of bad conduct and go on a fishing expedition requiring that I provide depositions, documents and search for little pieces of data I forgot to submit," Green said. "By proving that I withheld information, they can invalidate my (entire) patent."

Donna Janson, president and chief executive officer of San Diego boutique pharmaceutical company Novalar Pharmaceuticals Inc., said the patent reforms proposed could be hurtful to small companies like hers.

"Everything is wrapped up in our IR The high-tech guys and biotech guys have divergent interests, which is problematic. There's huge lobbying on both sides and they're not in agreement."

"There are very different needs between high-tech and biotech," added Derek Kelaita, Novalar's director of corporate development. "We need our patents to last as long as possible and be as strong as possible. High-tech changes every two years, with completely new technology. In our industry, that's not sustainable."

It typically takes 10 years for a pharmaceutical drug to pass the FDA trials and get approved, he says.

"If you're a medical device company or pharmaceutical company, you might ask yourself, 'Why spend $50 million to $100 million to invest in a product if there's a great chance that the patents will be unenforceable and easy to invalidate?' "said Buche, the patent attorney.

Favorable To Inventors

As opposed to the international standard, the U.S. patent laws, which allow a grace period after a product is commercialized to file for a patent, favor "inventorship," he said.

"In this case, there will be a race to the patent office," Buche said. "It will change the practice of a lot of businesses in the way they introduce products. It would be a serious thing to put a product on the market without having a patent application."

The Bush administration also opposes the bill, saying "it does not strike the right balance for all innovators."

In a Feb. 4 letter to Senate Judiciary Committee Chairman Patrick Leahy, DVt., a Department of Commerce representative said the bill contains "overwhelming" risks in how it assesses damages.

The administration wants more court discretion to determine damages. And it wants a provision for a post-grant patent review process that functions as a cheaper alternative to litigation for those who want to challenge a patent's validity.

"We believe the resulting harm to a reasonably well-functioning U.S. intellectual property system would outweigh all of the bill's useful reforms," said the Commerce Department official, Nathaniel F. Wienecke.