Baseball, Steroids, and Patent Reform

3/10/08

If you have been following the news in the last month or so, you’ve probably watched in amazement as Congress tackles one of our country’s most pressing issues. I’m not talking about the war in Iraq or the failing economy or even high energy costs. I’m talking about steroids in baseball—a blight on our national pastime. While others at the water cooler expressed disbelief that our elected officials called Roger Clemens to testify, I cheered. I’m thrilled Congress is dealing with this issue. Do I really care about juiced-up pitchers? No, not really. I’m just happy Congress is focusing their energy on baseball and getting their minds off something they can really mess up, like “reforming” the patent system.

While the current patent system is not perfect, and I have no doubt that some changes will be made in the next few years, I am concerned that those who value patents as important for commercializing early-stage technology are not part of the discussion. The loudest voices are those who see patents not as essential for investment and commercialization, but as a nuisance.

These anti-patent forces—mainly those in the IT industry, like Microsoft—are working under names like the Coalition for Patent Fairness and have been looking to “reform” or fix what they perceive to be a broken system; a system they feel mires industry in patent disputes, hurting the U.S. economy by diverting investment away from creating jobs and developing innovations.

What are these reformers looking to do? The Patent Reform Act of 2007 has essentially three major goals:

  • Make patents harder to obtain by allowing submission of prior art by third parties and requiring applicants to do their own patent searches;
  • Make patents harder to maintain by introducing a procedure that allows third parties to more easily challenge patents after they are granted; and
  • Make patents less valuable by, among other things, changing the standard for assessing damages in the case of a patent infringement from one that looks at a range of factors that affect the patent’s market value to one that looks at only the novel feature(s) the patent is directed to.

Together, these and other sections of the legislation significantly diminish the value of patents.

This is the closest that we have gotten to a major overhaul of the patent system since the current Patent Act was passed in 1952. How did this happen? It’s easy. Anti-patent forces lobbied hard while pharma, bio, and university factions remained quiet. Why the silence? Some say the bio industry was focusing efforts on follow-on (generic) biologics legislation (still pending). It might also be that opponents of the legislation didn’t believe that the legislation would ever gain traction. However, there were some warnings about what could happen if it did. As Daphne Zohar, a fellow Xconomist, wrote in her July 22, 2007, column: “The proposed patent reform act would stifle innovation.” Daphne argued that “to arbitrarily limit damages and to make it easier to challenge patents shifts the balance further in favor of large companies and lowers the incentive of innovators and technology licensing offices at universities to file and support patents that could have an impact on healthcare, the environment and quality of life.”

Daphne hit it right on the head. The proposed legislation, by lowering the value of patents, is bad for anyone that relies on patent protection to promote innovation, including the biotechnology industry, universities, and non-profit research institutes. It hurts investment in early stage technology, an important part of the Massachusetts economy.

Unlike in past years, patent reform now does have real traction. The House passed a version of the bill (HR 1908) on September 9, 2007. The Senate bill (S 1145) is still pending. While there are some serious differences between the bills, compromise could be reached.

I recently received an e-mail from a colleague stating that the Senate Patent Reform Bill (S 1145) was delayed until April, and that an agreement on the “complex legislation remains elusive.” I cheered, thinking once again that the bill had stalled. I passed the e-mail on to my colleagues and expressed my delight that patent reform was looking unlikely this legislative session. Ron Eisenstein, my law partner who has been closely following the legislation, shot back the following message: “In view of how accurate all predictions have been, I wouldn’t count on anything. This may be a ploy to get those opposed to the bill to relax. Given the statements made by the proponents of the bill, paranoia is probably helpful.”

Ron’s right. A little paranoia is a good thing. Congress can’t deal with two wars, the lack of an energy policy, or a failing economy, but the patent system is something they can “fix.”

It’s not too late to let your position be known. Speak up. Be part of the debate. Let industry trade groups like the Massachusetts Biotechnology Counsel, BIO, and AUTM know how you feel. Contact the offices of Senators Kennedy and Kerry, and let them know that that passage of Senate bill No.1145 in its current form is bad for the Massachusetts economy. While you’re at it, ask them to redouble their efforts on performance enhancing drugs in baseball. If they have had enough of that, suggest that they call in Bill Belichick and look at spying in football. It’s better than patent reform!

David Resnick is a partner and the co-team leader of the Biotechnology/Chemistry team at Nixon Peabody. David assists clients in obtaining and defending intellectual property protection in the life sciences, including stem cells, RNAi and personalized medicine. The views expressed in this column represent only those of the author and not of Nixon Peabody or its clients. Follow @

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  • Arthur Bugs Baer, C.F.A>.

    David –
    I am a client of Nixon Peabody, a retured financial analyst, and a 0.1% stockholder in Data Treasury. It has been fascinating to see this assault on property rights. The banks are particularly offensive, carving out a special exemption for themselves for electroninc checking patent owned by Data Treasury.

    One of the worst arguments that the banking industry uses is, “Congress requires us to use electronic checkhandling, therefore we shouldn’t have to pay a royalty.” Oh, really? Today’s New York Times has the obituarly of the man who invented the first airplane anti-collision system. Congress mandated that everyone adopt it. And guess what? They all paid royalties.

    I suppose Nixon Peabody has banking clients, and can’t take the intellectualy honest approach to this issue. But I can hope.

  • http://www.flxpt.com Chris Noble

    David Resnick first states that the Patent Reform Act of 2007 will make patents harder to obtain. There is broad agreement on that point. He then expresses the opinion that patents will therefore become less valuable.

    Really? Things that are harder to get are generally more valuable. Please explain exactly how the three provisions you describe will make patents that are granted under those challenges less valuable than patents that would not be granted under those challenges.

    It is hard for patent attorneys to be impartial. They make their money filing, defending, and attacking patents. I’m not a patent attorney, and I’m not impartial either. But I have been reading a lot of patents recently as part of due diligence for one that I am filing, and many of the ones issued in the past decade are of amazingly low quality, with huge holes in the listed prior art.

    By the way, I’m one of those small-company entrepreneurs, not an employee of a Big Bad Company.

  • P G

    The banks want you to think they are victims of the 911 ckeck21 legislation, but that is not true.
    Before check21 they spent about 10 cents to process a check.
    When Datatreasury approached them with their patented system at lees than 1/2 of the banks current cost, the banks declined. They instead decided to infringe on Datatreasury’s patents, thinking Datatreasury did not have the money to fight the banks in court, but now that Datatreasury is winning in court the banks are trying to pressure Senators into section 14 of the patent reform act.
    Senator Session and the banks are also calling Datatreasury a Patent Troll. Datatreasury had over 100 employees before the law suits against the banks. The law suits have almost bankrupted the company and they now have less than 5 employees.
    The banks should pay…

  • http://www.xconomy.com/author/dresnick/ David Resnick

    Chris, my wording was less than clear. Making patent harder to obtain by placing the burden on the applicant significantly increases the cost of obtaining patent protection. This a problem for applicants with budgets, including start-ups and independent inventors. Shifting the burden doesn’t mean your going to have better patents; it only means the patent applicant is going to do the search. Low quality patent come from poor examination. If Congress and the patent office really cared about quality patents, they would allocate the funds to spend more money on hiring new examiners and retaining good one. I’m clearly not impartial. I make my living from the patent system and so do my clients. A system that provides strong examination is good for all of us. I see very little in the proposed legislation that will give us better examination.

  • http://www.wfva.net Milton Oliver

    Don’t forget to mention that the Patent Office Professional Association (POPA) also warns that the plan to “outsource” the search for prior art (perhaps abroad) would likely degrade the quality of US patents, and that a coalition of other unions has recently written to Senators Boxer and Feinstein that the bill as currently written would make life easier for foreign infringers, endangering US manufacturing jobs.

  • http://www.flxpt.com Chris Noble

    This conversation should be about the specific provisions of the various proposals, and whether or not they improve the quality of decision-making about which patents should be granted. Many of the comments in the previous posts are subjective opinions without supporting arguments, and thus impossible to debate pro or con.

    The cornerstone of our patent system should be a process that ensures as cost-effectively as possible that applications for real inventions get awarded and trivial or already-discovered inventions get rejected. It is enormously expensive and wasteful to overturn a patent that should never have been granted in the first place, and yet we have seen many instances of this in the recent past. Clearly, there are way too many trivial patents granted. We can put the entire onus and cost on the Patent Office, as David Resnick suggests (“If Congress and the patent office really cared about quality patents, they would allocate the funds to spend more money on hiring new examiners and retaining good one.”), or we can look at the other players involved as well.

    To take one example: What is the argument against allowing third parties to challenge a patent application before it is granted? There is a parallel in tort law: would anyone suggest that a defendant could only present evidence on appeal, after a judgment during which only the prosecution was heard?

  • Derek

    On the issue of property rights, Arthur’s argument for the Data Treasury patent is that property rights are being assaulted. But what is the exact patent in question? Is it specific technology or a more general business process? This is a line where things get murky.

  • http://www.xconomy.com/author/dresnick/ David Resnick

    A third-party post- grant opposition proceeding is part of the proposed legislation. This would allow anyone to challenge patents after they have been granted without going court. The Coalition for Patent Fairness and other anti-patent groups likes this idea and has proposed that opposition be available throughout the life of the patent. As I noted above, this would significantly increase uncertainty and diminish the value of patents. A more reasonable approach would be 9 months like the system in Europe. But why do we even need it? We have post-grant reexamination-a procedure that allows third parties to challenge patents based on prior art. Yet, because of estoppel-you can’t use prior art in litigation that you used in rexam-the procedure is hardly used. How about removing the estoppel provision?

  • wesley

    Chris Noble — you can file an interference as a third party … the patent application is published 18 months (generally) after it is filed … in fact, many large companies file lots of patents related to what they see in published applications (these are NOT patents, just what was filed — many call these patents “defensive patents” because the larger company is viewed as believing they may have “missed” something and must file just to have some chips in the game — not really innovation, is that?) …

    but to allow challenges after the fact when you are able to do it during prosecution? the argument is that patents are PRESUMED valid when issued (this is codified in the Patent Act itself as people know when the patent “starts” and “ends” and the metes and bounds – the actual claims themselves) … kinda like buying real property, the survey should describe just what you got so that you are fairly taxed …

    challenging after the fact is being pushed because once you lose an interference, guess what, you cannot challenge again … guess how many interferences in the “software arts” there are? close to none … so, there is part of your answer … this is not a prosecution but an inducement to get inventors to disclose so that even if the patent is never granted the patent exists for all the world to see … the Applicant, not the taxpayer pays the fees and costs of prosecution …

    you cannot predict what patents will be valuable in advance … or they would be obvious! by encouraging more patent filings and keeping the applicant fees in the system (the us patent office actually makes money which is diverted by congress to other activities!) you provide liquidity to ideas … don’t hear anyone complaining about bad movies or bad radio … and none of the legislation deals with the real issue that gets folks upset – “business method patents” & “software patents” — wonder why that is …

    the patents held by data treasury are :: US Pat Nos. 5910988 and 6032137, granted June 1999 and February 2000, respectively … they were recently UPHELD in a re-exam proceeding — meaning the pto has not found error in its examination, essentially …

    but intervening on behalf of a particular industry against a single patent holder is a lot like crafting legislation for terry schiavo … except the us public will be paying a lot to avoid a 5th amendment takings argument …

    everyone should contact their senators and express the outrage …

  • dinnerbell

    please see http://www.piausa.org/ for a different view on patent reform

  • http://www.mlnsports.com Brian Ross

    Steroids in baseball are far more endemic, I’m afraid, than the dog-and-pony show that you witnessed in Congress. There is no rule of the game preventing them. Gambling yes, throwing a game, yes. Drugs? No. We did a whole 2-1/2 month investigation into the smoke-and-mirrors that protect baseball’s biggest money maker: Drug-pumped athletes. See:

    http://www.mlnsports.com/baseball/affiliated/features/articles2009/09/17/01.php