October 29, 2007 / 1:06 PM / 12 years ago

CORRECTED - RPT-Innovators take patent bill battle to US Senate

(Corrects paragraph 24 to show prior art change has been proposed, but does not go into effect on Nov 1, as earlier sent)

By Diane Bartz

WASHINGTON, Oct 28 (Reuters) - Executives and lobbyists from some of America’s richest and most influential companies are walking the halls of Congress, buttonholing senators to argue for strong patents to preserve U.S. innovation.

But they disagree on how to accomplish that goal.

High-tech firms like Intel (INTC.O), Hewlett-Packard (HPQ.N) and Cisco (CSCO.O) say they need patent legislation that reduces their vulnerability to a growing number of infringement suits.

While seed and herbicide giant Monsanto MON.N, pharmaceutical companies like Eli Lilly (LLY.N) and smaller tech firms say the bill weakens patents and threatens American competitiveness.

After the U.S. House of Representatives passed its version of a patent overhaul bill on Sept. 7, the battle has moved to the Senate where the measure could come up within weeks.

Both patent camps say they can win.

“If you brought this bill before the Senate tomorrow, I think it would pass,” said Steve Elmendorf, lobbyist for the pro-tech Coalition for Patent Fairness.

A coalition opposing the bill disagrees, saying there are 33 undecided senators — enough to put the bill’s future in doubt.

Since the House passed its version, the two sides have reached agreement on some areas in the bill but one big sticking point remains: damages.

Under current law, damages can be calculated as the entire market value of the product, and that number can be tripled if the patent infringement is found to be willful.

Those opposed to changes in the damages provision say the costs of infringement should be high to protect their patents.

But big high tech companies argue this calculation is inappropriate for cell phones, televisions or other gadgets that contain a dozen or more patented features. Under the patent reform bill, damages would be based on the contribution that the infringed patent makes to the product.

“That is the big thing that is holding up patent reform in Congress right now,” said Hans Sauer, associate general counsel for the Biotechnology Industry Organization. “Everything else is subject to resolution.”

WHY THEY FIGHT

The driving force behind the legislation has been complaints by tech companies of a sharp increase in patent infringement lawsuits over the past several years.

Cisco’s General Counsel Mark Chandler said the maker of communications equipment faced three lawsuits per year a decade ago while today the company has 30. Each can cost millions of dollars to fight.

“There is a small cottage industry using the secondary market for patents in a way they were never meant to be used, in my opinion,” said Bruce Sewell, general counsel at Intel.

And companies are suing each other at a rapid rate. There are more than a dozen lawsuits between wireless phone maker Nokia NOK1V.HE and chip maker Qualcomm (QCOM.O) on three continents.

Sometimes patent lawsuits stem from licensing disputes rather than infringement concerns. In other cases, companies have knowingly infringed or companies are shown in court to have brought an unfounded lawsuit, said Scott Kieff, a research fellow at the Hoover Institution at Stanford University.

“You see bad behavior in both directions,” said Kieff.

While the legislation is the current battleground, recent Supreme Court decisions and new rules from the U.S. Patent and Trademark Office could have profound effects.

In April, in KSR v. Teleflex, the U.S. high court essentially said patent applicants had to work harder to prove that their innovation was truly new, and not just an obvious extension of what was already known.

In eBay (EBAY.O) v. MercExchange, the Supreme Court took away the threat of an automatic injunction should a patent be found to have been infringed.

“I was hopeful we would see a slowdown (in lawsuits) after the Supreme Court but we’ve seen an increase,” said Tim Crean, chief intellectual property officer for SAP (SAPG.DE), the world’s biggest business software maker.

The patent office has new rules that go into effect Nov. 1, and has proposed another that restricts the amount of supporting information applicants can file that might have a bearing on whether the innovation should be patented.

The rule is an effort to speed the patent process, but critics say a court could later invalidate a patent for failure to present a relevant piece of “prior art.”

Drug maker GlaxoSmithKline (GSK.L) has filed a suit against the government’s planned changes.

Anat Hakim, a patent attorney with Foley & Lardner, said the combined effects of the Supreme Court rulings, patent office changes and legislation could have unforeseen consequences, as have some previous patent overhaul efforts.

“The incentives that were created were not the ones that were intended,” she said.

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