Tech, drug companies battle over U.S. patent reform

By Diane Bartz

WASHINGTON (Reuters) - Lawmakers returning from their summer break are expected to consider patent law changes that have pitted two of America's most invention-dependent industries against each other.

The theory behind patents -- which date back at least to pre-Renaissance Italy and possibly to ancient Greece -- is that inventors should profit from their work.

But in an economy powered by rapid innovation, battles over who owns a patent can cost corporations tens of millions of dollars annually.

The changes envisioned in pending bills would be good for high tech firms, whose software and gadgets often depend on a variety of innovations woven together. Most of these elements are protected by patents and any one of them could spark a legal battle.

But large pharmaceutical firms worry about the changes. Their big moneymakers tend to be drugs protected by one or two patents and they depend on the period of patent protection to make their profits.

Patent measures are expected to go to floor debate in both the Senate and House of Representatives early this month.

Both bills would change how damages are calculated and make it harder for inventors to prove willful infringement to win triple damages.

They would also scrap the practice of considering the entire value of a product in calculating damages, even if the patent infringed contributed only a small amount to the item.

These changes would be good news for companies like Cisco Systems, which has a $45 million dollar budget this year to defend itself in patent infringement cases. A single case going to trial can cost $10 million, said Cisco General Counsel Mark Chandler in a telephone interview from Chicago.

But Hans Sauer, associate general counsel for the Biotechnology Industry Organization, said that reduced damages would weaken patents. "Some people might ask themselves, 'well, is it going to be cheaper to infringe?'" Sauer said.

Bob Armitage, general counsel for Eli Lilly, told Reuters that some awards had been excessive but changing the law was not the answer. "Courts could have a greater role in making sure that awards are appropriate," he said.

UNIONS SIDE WITH DRUG MAKERS

The AFL-CIO union federation recently jumped into the debate to support the drug companies. It sent a letter to congressional leaders arguing that a proposed post-patent review process and reduced damages would hurt U.S. industry.

"Lots of pharmaceutical firms are unionized, including Merck," said Bob Baugh, head of the AFL-CIO's industrial union council. "We began hearing from some employers around this."

But the tech companies are confident they will prevail.