U.S. battle over patent reform headed for compromise?

WASHINGTON (Reuters) - High tech and pharmaceutical companies expressed unusual agreement on a patent reform bill on Tuesday, including on the most contentious issue: how to determine damages for infringement.

A patent revamp passed the U.S. House of Representatives last year but failed in the Senate largely because the tech and drug industries could not agree on whether damages for infringement should be reduced. Current law calls for damages to be the entire market value of the product, tripled in the case of willful infringement.

There appeared to be some agreement on Tuesday that the judge in a patent infringement trial should act as a gatekeeper, instructing juries on what factors to consider in determining damages.

A key issue in those instructions could be how critical the infringed patent was to the invention -- was it one of thousands of patents used in an electronic device or a drug that depended on just one patent?

"The simple concept that the inventor is due the value that he actually contributes to the value of the product is a good concept," said Steven Appleton, chairman of Micron Technology Inc MU.N.

"In the simplest form, where you don't have competing considerations, ... what you're looking at is the value contributed by the invention compared to its closest non-infringing substitute," agreed Philip Johnson, chief intellectual property counsel for Johnson & Johnson JNJ.N.

Sen. Arlen Specter, a Pennsylvania Republican, urged witnesses at a hearing of the Senate Judiciary Committee to reach agreement on language for the bill. “The critical factor, it seems to me, if we’re going to succeed with the legislation is the damages,” he said.

Both the Senate and House versions of the bill, which were introduced on March 3, call for damages for infringement to be limited to lost profits or to a “reasonable royalty,” an issue that has sharply divided the high-tech and pharmaceutical industries.

Big high-tech companies such as Cisco Systems Inc CSCO.O and Hewlett-Packard Co HPQ.N began pushing for the legislation years ago to cut the number of patent infringement lawsuits and the amount of damages paid.

Major tech companies, which sell devices that can have many patented elements, want to reduce damage awards to deter people from filing what tech companies say are unwarranted lawsuits.

But the bill has stalled several times on fervent opposition from drug maker Eli Lilly & Co LLY.N, seed and herbicide company Monsanto Co MON.N, and smaller tech companies, which feared lower damages would leave them vulnerable to infringers.

The pharmaceutical industry, whose drugs often have just one or two patents, says it needs the threat of high damages to protect its intellectual property.

Sen. Dianne Feinstein, a California Democrat, also pushed the sides to come to agreement on damages, and other issues like how extensive a post-grant review should be. Other elements of the Senate bill would create a new process for public challenges to patents within 12 months of their issue.

“High tech seems to feel that they’re going to get whatever they want out of this bill,” she said, noting that she had universities and biotechnology firms in California. “I’m not going to vote for a bill unless there is reconciliation between the various interests.”

Reporting by Diane Bartz; editing by Richard Chang