Patent Patience

Friday, October 9, 2009

Every good chef knows the benefits of letting things marinate; spices need time to soak in and intermingle. That’s why we call on the Obama administration and Congress to wait before acting on further patent reform.

Our two political branches of government are being inundated with calls for rapid change to most rules governing our markets. But the courts already have sprinkled across our patent system such a large number of potent changes over the past few years that only time will tell whether more would help or hurt, let alone which would be worth trying.

A well-functioning patent system is a critically important part of our economy. It fosters innovation, creates jobs, and helps generate capital investment and overall economic growth. But a patent system can also be plagued by frivolous suits, unending process, and extreme uncertainty.

During the past few years an intense debate has arisen between those focusing on the aspects of our system that showcase the benefits of strong patents and those focusing on the need to decrease baseless litigation and administrative process.

Both groups raised important concerns, and both lobbied Congress and the White House last year with great intensity and a curious set of political alignments. Focusing on the importance of strong patents were unions joining forces with Republicans and small business siding with Big Pharma. Focusing on the problems of overenforcement of patents, Democrats were joined by the big business interests of high-tech.

A patent system can be plagued by frivolous suits, unending process, and extreme uncertainty.

Where did it end up? Last-minute deals were put together; a bill passed in the House and then died on the floor of the Senate. Now, a new surge in lobbying is pushing the Hill to restart negotiations.

Why might it make sense to leave things be for a while? The curious political alignments alone suggest a complexity in the underlying legal and economic issues for patents that makes haste a real danger. In addition, most issues in the debate have already been addressed, not by Congress but by the Supreme Court and the court of appeals for most patent cases. Regardless of whether any of those court decisions were good or bad, standing alone or together, any prudent policy maker must at least take notice of their existence—and, better yet, observe and understand their impact on several crucial parts of the patent system.

Practically every major component of the patent system has been changed by the recent cases, from the rules governing patent validity, enforcement, and even what patent licenses can be struck to how to bring a case challenging a patent’s validity.

Specific examples include the Supreme Court cases eBay on injunctions, Seagate on enhanced damages, Merck on regulatory experimental use, KSR on the test for patentability, Medimmune on ability to challenge a patent in court, Quanta on licenses, and the appellate court case in Bilskii> on the patentability of business methods, software, and other controversial subject matter.

Most calls for legislative reform today target these very same aspects of the system. Others are hugely affected by them.

The new judicial precedents on injunctions and enhanced damages directly address the concerns lobbyists have raised about patent holdup and indirectly address those about royalty stacking. The new precedents on regulatory experimental use address concerns about drug pricing. The new precedents on the patentability standards of obviousness and subject matter address concerns about junk patents. The new precedents on contracting and litigating over patents directly address concerns about patent leverage.

Practically every major component of the patent system has already been changed by recent court cases.

All these work together to drastically shift the way patentees and alleged infringers can and do interact with each other in disputes and in deals.

It will take practitioners, businesses, courts, and agencies a while to figure out exactly how far each of these recent changes in the patent system will go and even longer to figure out how much they will interact with one another.

The intellectual property system we have long enjoyed helped generate our country’s third-largest balance-of-trade surplus, $57 billion in royalties and licensing fees. As we continue to try to end the economic crisis, we cannot afford to damage this economic engine with a host of unintended consequences.

Yes, we should improve the efficiency of Patent Office internal operations and continue court efforts to constrain baseless litigation. Better patents and court decisions can better the economy.

But these patent-handling bodies, as well as others, such as the Federal Trade Commission, the International Trade Commission, and the Department of Justice Antitrust Division, already have most of the tools they need; thus we counsel a pause before pursuing any more radical changes.

Sometimes Congress can do more by doing less; now is definitely not the time to act on patents. Before lawmakers add more ingredients to the complex patent dish, it is best to let things marinate for a while.