[Ecommerce] Software industry in favor of patent reform

[Manon Ress]

http://www.law.com/jsp/article.jsp?id=1115370308794
A Modest Proposal
After six years of the status quo, software companies urge Congress to
revamp the patent system

Brenda Sandburg
The Recorder
05-09-2005


Last year, the giants in the software industry got together to find a
cure for one of their biggest headaches: costly patent litigation.

The Business Software Alliance -- made up of in-house counsel from Apple
Computer, Intel, Microsoft, Hewlett-Packard and other technology
companies -- spent months drawing up a list of legislative proposals to
rein in what they regard as frivolous lawsuits.

The BSA sent its suggestions to Rep. Lamar Smith, R-Texas, who folded
them into a draft bill with the goal of overhauling the patent system.
Smith, the chairman of the House intellectual property subcommittee, is
expected to introduce the legislation in Congress within the next few
weeks; already, the text of the proposal is creating a stir in the
patent community.

While many of the provisions have been raised repeatedly over the years
-- such as developing a procedure for reviewing patents after they've
been granted -- others are raising the hackles of inventors and patent
attorneys.

The most contentious proposal -- intended to undercut the power of
patent-holding companies -- would limit the ability of a patentee to get
an injunction against an alleged infringer. Courts would have to
consider whether the patentee is likely to suffer irreparable harm in
deciding whether to grant an injunction. Specifically, courts would look
at whether the patent holder is commercializing his or her invention.

It's unclear whether the software industry will prevail: While the BSA
sees the reform as needed to decrease the amount and cost of patent
litigation, those opposed say the legislation would, in effect, impose
compulsory licensing on inventors.

"This is a critical reform for us," said David Simon, Intel Corp.'s
chief patent counsel. "Unfortunately there's been a growing business
model of [these entities] buying patents from distressed companies and
suing people."

Simon said Intel is facing seven suits from patent-holding companies.
They are able to use the threat of an injunction, he said, to push big
companies into a settlement.

"If someone buys a patent for 50,000 bucks and their business model is
suing people, should they be able to get an injunction?" he asked.

That's the situation Intel faced several years ago when TechSearch, a
patent-holding company in Northbrook, Ill., acquired a patent for
$50,000 and then sued Intel, demanding $5 billion to settle the case.
Simon cited this case in testimony before an April 21 Senate hearing on
patent reform. While Intel had won summary judgment in that case, Simon
testified that there are many district courts where judges are less
likely to grant summary judgment. He cited one forum, which he didn't
identify, where all the verdicts issued over an eight-year period were
in favor of the plaintiffs.

But many other groups are opposed to limiting the ability to obtain an
injunction. The American Intellectual Property Law Association, Eli
Lilly Co. and Dean Kaman, the inventor of the Segway scooter and head of
DEKA Research & Development Corp., testified against the provision at
the same hearing in front of Sen. Orrin Hatch.

"This would essentially destroy the exclusivity that a patent grants,"
AIPLA President William Rooklidge said in an interview. "It's telling
patentees, 'If you don't commercialize an invention ... we'll allow
others to come in and do so.'"

LONG WAIT

Smith's draft bill is the first time in six years that Congress has
undertaken a major overhaul of the patent system. In 1999 it passed the
American Inventors Protection Act after a lengthy battle. In the wake of
critical reports on the patent system issued last year by the Federal
Trade Commission and National Academy of Sciences, Congress decided to
delve into the issue again.

Legislators were also spurred into action by a book -- "Innovation and
Its Discontents: How Our Broken Patent System is Endangering Innovation
and Progress, and What to Do About It" -- published last year by
business professors Adam Jaffe and Josh Lerner.

Stephen Fox, Hewlett-Packard's deputy general counsel of IP, noted at a
conference in San Francisco on Wednesday that members of Congress have
been reading it and even marking particular pages.

"They're using it to get a perspective into the patent system," Fox
said. It's given them "an aha moment -- that's what it's all about."

Smith, who heads the House Judiciary Committee's Subcommittee on Courts,
the Internet and Intellectual Property, held two hearings on the topic
last month and Sen. Hatch, chairman of the newly formed Senate IP
subcommittee, held a similar hearing.

While the BSA has long been involved in helping to craft patent
legislation, its members have become more outspoken of late. One,
Microsoft, has even taken its ideas to the public. In March, Microsoft
ran full-page ads in The Washington Post and The New York Times calling
for Congress to enact reforms, saying the number of patent suits filed
annually in the United States has risen from less than 1,000 in the
early 1980s to more than 2,500 last year.

"Knowing that these are among the most technically complex cases that go
before judges and juries, some litigants exploit the system as a lottery
that can yield big jackpots," the ads say.

While the various constituencies -- inventors, patent attorneys and
corporations -- agree that the system needs to be reformed, they
disagree on what changes to make.

The proposals put forth by the AIPLA, which were also incorporated into
Lamar's bill, appear to be widely accepted. They include changing the
rules to award a patent to the first inventor to file an application
rather than the first to invent and instituting a post-grant review system.

Smith's draft bill would make it more difficult to file "continuation"
applications, which build on an initial application for the same
invention. At the Senate hearing, Jon Dudas, director of the U.S. Patent
and Trademark Office, advocated placing restrictions on these
applications. He said more than one-third of the 355,000 applications
filed with the PTO last year were continuation applications, which he
called a "form of rework."

Other provisions would restrict the award of treble damages for willful
infringement and allow companies to make "non-tangible" elements of an
invention overseas.

The latter provision was crafted by the BSA with Microsoft in mind. It
would overturn the Federal Circuit U.S. Court of Appeals' March 2 ruling
against the software company in Eolas Technologies v. Microsoft,
04-1234. The court found Microsoft was liable for damages on foreign
sales of its Windows and Internet Explorer products even though it had
only shipped a master disk of software code abroad, not the software itself.

Congress amended the patent statute in 1984 to prevent companies from
making parts of an infringing product overseas to avoid infringement
claims. BSA, AIPLA and others argue that this law has encouraged
companies to move their manufacturing facilities outside the United
States since a product made entirely abroad isn't covered by U.S. patent
law.

"Eolas triggered our concern," said BSA in-house counsel Emery Simon.
But the court ruling "could apply to any information transferable by
e-mail or the Internet."

PESKY PATENT TROLLS

While Smith's draft offers a cornucopia of reforms, the one limiting
injunctions is evoking the most passion. Hanging over the discussion is
the shadow of the "patent troll."

The term was coined several years ago by Peter Detkin, then assistant
general counsel at Intel Corp., to describe people who try to make a lot
of money off a patent they aren't using and have no intention of using.
Detkin left Intel in 2002 to join Intellectual Ventures, a company that
helps inventors enforce their patents.

But Intellectual Ventures -- founded by Microsoft's former chief
technology officer Nathan Myhrvold -- has been secretive about what it
actually does. Patent attorneys knowledgeable about the company say it
has been buying patents and encouraging companies to license rights to them.

Myhrvold testified at a House hearing last month that his company
provides financing to inventors and helps them get a share of the
profits from their inventions.

Simon, who said he regards Intellectual Ventures as a patent troll,
acknowledged that Intel has had discussions with the company, but
declined to say what they entailed.

Detkin has created a new definition for patent trolls, possibly in light
of his recent affiliation with Intellectual Ventures. He now says a
patent troll must own no more than a few patents of questionable merit
and is not in any business related to the patents.

With that definition, Detkin argues that Intellectual Ventures doesn't
qualify. For one, he argues, the company has a broad patent portfolio.
He declined to say how many patents the company owns, but a Newsweek
article last year said it had bought about 1,000.

He has also been lobbying the software industry to stop pushing for
limitations on injunctions. He spoke at a BSA meeting of general counsel
last month defending independent companies in the business of asserting
patents.

"They claim litigation by non-product companies is out of control,"
Detkin said. "The facts don't support that."

He contends that only 2 percent of patent cases filed in the past five
years were filed by entities that don't sell any products, and half of
those were filed by one company, Acacia Technologies Group, which
licenses rights to patents in a variety of industries.

But Intel's Simon doesn't buy that. He did his own analysis of U.S.
patent suits and found that in most cases Fortune 500 companies were
being sued by entities he had never heard of.

While the software industry has won Smith over, it's unclear whether the
injunction provision will remain in any final bill.

Chicago patent attorney Dennis Crouch says the injunction provision has
been far from popular among companies he works with.

"I showed it to a couple of clients who started yelling and screaming,"
Crouch, the author of the Patently O blog, said. "Anyone who's a
plaintiff will be upset."



--
Manon Anne Ress
manon.ress@cptech.org,
www.cptech.org

Consumer Project on Technology in Washington, DC PO Box 19367,
Washington, DC 20036, USA Tel.:  +1.202.387.8030, fax: +1.202.234.5176

Consumer Project on Technology in Geneva, 1 Route des  Morillons, CP
2100, 1211 Geneva 2, Switzerland. Tel: +41 22 791 6727

Consumer Project on Technology in London, 24 Highbury Crescent, London,
N5 1RX, UK. Tel:+44(0)207 226 6663 ex 252. Mob:+44(0)790 386 4642. Fax:
+44(0)207 354 0607