Biotechs are worried that limiting injunctive relief will undermine the value of their patents, says David Doyle, co-chair of the Intellectual Property Group at Morrison & Foerster. (photo/alandeckerphoto.com)

Ideas are the life blood of invention. Obtaining a patent turns an idea into intellectual property, with potentially huge economic significance. That’s why San Diego inventors and the attorneys who represent them are poring over the contents of H.R. 2795, the Patent Reform Act of 2005, called by its author Rep. Lamar Smith (R-San Antonio) the most comprehensive change to patent law since the ’50s. Smith says reform legislation will enhance the quality of patents and increase their integrity.

The target of the Smith bill is a proliferation of lawsuits, which has shifted the focus of invention from the laboratory to the courtroom. Obtaining a patent — and then enduring seemingly endless challenges to it in federal court and the U.S. Patent and Trademark Office — has become a high-stakes poker game with a million-dollar ante. Some companies, derisively known in the industry as “patent trolls,” buy up and collect patents so they can subsequently sue for damages.

Now that a change in the rules is under consideration in the House Subcommittee on the Courts, the Internet and Intellectual Property, representatives of a rainbow of technology interests descended on Smith’s subcommittee in recent hearings.

“There’s a lot of lobbying going on surrounding this bill with competing industry interests, like smaller inventor vs. large company interest, or biotech vs. computer,” says Mitchell Brook, a partner at Luce Forward Hamilton & Scripps.

The emerging consensus is that some form of reform is going to be passed in this term of Congress. With the stakes high, it’s not surprising that Johnson & Johnson sent its chief patent counsel to address Smith’s IP subcommittee.

“What I see is the larger, more significant companies getting into patent reform seriously,” says David Doyle, co-chair of the Intellectual Property Group at Morrison & Foerster.

The issues are fundamental, changing the way patents are obtained and how often and how long competing interests can present legal challenges to issued patents.

‘First To File’ Rules

The bill grants a patent to the first party to file instead of the first party to invent, which is current law. “First to file” aims to reduce “patent interferences,” or proceedings before an administrative law judge where two parties claim a patent for the same invention. These have been known to drag on for a decade or more. Moving to “first to file” not only makes the law clearer, but brings the U.S. in line with much of the rest of the world.

“First to file” affects both large corporations and small inventors. Large corporations like Johnson and Johnson can allocate multi-million dollar budgets to acquiring patent portfolios. But corporate behemoths may lose their advantage in their own internal red tape, sitting on valuable projects. The smaller company is focused on only the IP driving it.

“Large companies have the wherewithal to throw a lot of resources at acquiring IP,” says James Cleary, a patent attorney at Fish & Richardson. “But the sole inventor of the smaller company has the advantage of being more nimble and doesn’t have to present the invention to some bureaucratic structure.”

Look for “first to file” to anchor the bill that eventually passes Congress.

Injunctive Relief Returns

As introduced, the Smith bill all but eliminated the availability of preliminary injunctive relief, making it more likely a product that infringes on an inventor’s patent will wind up in the marketplace. To grant an injunction, a court would have to find that patent holder would suffer “irreparable harm” — something that couldn’t be solved with money damages — a high standard to hurdle. However, in the latest set of hearings, a coalition of IP interests, including pharmaceutical companies and the Business Software Alliance, offered a substitute amendment that gutted the original limitation on injunctive relief.

San Diego’s bioscience industry, while large collectively, is made up of relatively small businesses where intellectual property often is the sole reason for a firm’s existence. Losing the ability to turn to an injunction to immediately stop a larger firm for using a discovery is a serious issue.

“There was great concern mainly from pharmaceutical and life science interests about the limitations on injunctive relief,” Doyle says. That’s because businesses with heavy IP investments want to be able to use their patents as a weapon against major manufacturers. Taking away injunctive relief would have benefited larger manufacturers by taking away the threat of an injunction. “There’s a widespread belief that removing injunctive relief would have undermined the value of patents,” Doyle says.

Eliminating injunctive relief was a major and controversial plank in the original legislation. Its removal would make a patent reform package much easier to pass, so look for injunctive remedies to stay.

Verdicts Via Venue

It is no secret that juries in federal jurisdictions known as litigation hot spots are extremely friendly to lawsuits by plaintiffs against business interests. So it’s not surprising that thousands of lawsuits are filed each year in plaintiff-friendly locales such as the eastern district of Texas. It’s fairly easy to access the courts, so an aspirin manufacturer headquartered in Delaware, for example, can be sued in Texarkana by someone who happened to swallow a defendant’s aspirin there.

“The amended bill encourages discretion by district courts in handling venue transfer motions,” says Doyle. “You can still file wherever you want, but there’s a greater likelihood that the case will be moved to a more logical place. The judge can transfer the case to the home district of one of the parties, for example.”

How Willful Was It?

Mitchell Brook, a partner at Luce Forward Hamilton & Scripps, says competing interests are carrying out heavy lobbying efforts on the Patent Reform Act of 2005. (photo/alandeckerphoto.com)

The bill also contains a change in the standard for finding a party guilty of “willful infringement,” a trigger phrase that can spell major damages. “You can’t be found guilty of willful infringement for acts that happened before the patent owner gave (the defendant) specific notice of the patent,” says Don Martens, a patent expert at Knobbe Martens Olson & Bear. “It used to be you could be sued for willful infringement if you were merely aware of the patent, so engineers stopped reading patents.”

Finally, the bill curtails the amount of opposition to a patent once it has been granted. A certain amount of post opposition action has been accepted in the system on the grounds that the opposition can validate the claim with “prior art” not considered by the Patent Office. Under the amended bill, post grant opposition would be limited to nine months from the issuance of the patent. This is another instance in which U.S. practice is moving to an international standard; Europe’s patent system also places limits on post grant opposition.

It is tempting to think of patents as trophies for intellectual achievement, but they are often used as weapons and bargaining chips. The resulting legislation will attempt to wring excessive litigation from the patent system while retaining the legal significance that make patents treasured properties.

Brook says Congress may still work to find the balance. “The legislation is directed toward litigation abuse and so the question is, what are we going to do to address this problem and still keep the right of people to go to court to protect their patents?”

So far, we are going to reward early filers, keep injunctive relief and make it harder to shop for friendly juries in Texarkana.