RIP Patent Reform 2010?

"I used to be indecisive; now I'm not sure."

      - Anonymous

Well, in the on-again-off-again world of patent reform, it appears that Congress has its finger on the "off" switch.  From a recent EE Times article:

Backing for a draft patent reform bill in the U.S. Senate appears to have waned while support is rising for a more recent proposal to give the patent office more funds to deal with its historic backlog of applications.

Observers say neither initiative is likely to pass in the current Congress though change is urgently needed.  A patent reform bill that passed out of the Senate Judiciary Committee last year has lost key industry backing, say several sources. A separate bill introduced in May to bolster funding for the patent office faces "a civil war" between warring House committees, said one observer.

"The prospects are fairly limited," for all the proposed bills, said Paul Michel, former  Chief Judge of the U. S. Court of Appeals for the Federal Circuit .

Read EE Times, "Support for patent office rises as reform bill wanes" (link)

Leahy Post-Bilski Comments and Patent Reform

As the summer recess approaches, it is all but certain that Congress will (again) postpone efforts to enact patent reform.  Since the manager's amendment (S. 515) was forwarded to the Senate in April, very little has been done in advancing the legislation.  Senate Judiciary Committee Chairman Patrick Leahy is understandably frustrated over the lack of any progress, stating in a recent interview "I don't know why this hasn't gotten floor time . . . This has nothing to do with ideology. We need an updated patent system to create and protect jobs, and it wouldn't add a penny to the deficit."

For whatever reason, Leahy apparently believes that the manager's amendment is a "done deal" in the Senate, and will be passed quickly, once the Senate has a chance to vote on it:

Leahy noted that the bill has three Republican co-signers, along with three Democrats. As a result, he predicted that once it gets floor time, the bill could get passed in just three days -- a blink of an eye compared to the marathon sessions it took to get stimulus, health care and financial reform passed.

What is even more interesting is that Leahy has openly come out against business method patents after Bilski, and appears to be under the impression that patent reform legislation can "fix" what Bilski could not.  From Leahy's website:

In Bilski v. Kappos, the Court unanimously affirmed the judgment of the Federal Circuit that the application for a patent on a business method should be rejected.  The Court’s opinion, joined by only five of the Justices, however, needlessly left the door open for business method patents to issue in the future, and I am concerned that it will lead to more unnecessary litigation.

Since the debate over comprehensive patent reform began many years ago, the Supreme Court has demonstrated an increased interest in patent law cases.  The Court’s decisions have moved in the direction of improving patent quality.  While today’s decision will take time to analyze and may not have advanced the law and created the stability and certainty that it could have, it appears to continue this trend, which is consistent with the goal of patent reform legislation pending in Congress.  The courts, however, are constrained by the text of our outdated statutes, and it is time for Congress to act.”

In the meantime, scholars, attorneys and businesspeople have continued to publish critiques of pending patent reform legislation, pointing out that many aspects of the Patent Reform Act have unintended, and potentially adverse, consequences.  Most recently, Medical Innovation & Business ran a special edition on patents and patent reform, which included articles such as:

Patent Reform: Effects On Medical Innovation Businesses
Kaswan, Renee; Boundy, David; Katznelson, Ron

Abstract

Abstract:

Go to Full Text of this Article

Alternatives to Legislative Patent Reform

Conversations with Two Chief Judges

Dowd, Matthew J.

Patent Reform's Weakened Grace Period: Its Effects On Startups, Small Companies, University Spin-Offs And Medical Innovators 

Boundy, David E.; Marquardt, Matthew J.  

Would Derivation Proceedings Be The Same As Derivation Interferences?

Gholz, Charles L. 

Post-Grant Review-Our Next Nightmare? VC Perspective 

Neis, John 

Post-Grant Review of U.S. Patents: Will Past Be Prologue?

Noonan, Kevin E  

The Gatekeeper Patent Damages Compromise of S. 515 

Johnson, Philip S.

The Proposed Interlocutory Appeals Provision of Patent Reform: Is It Dead Yet?

Reines, Edward; Greenblatt, Nathan

While patent reform is not a partisan issue, it is certainly a regional and industry-specific issue, and both parties are split on it.

To read these, and other articles from Medical Innovation and Business on patents and patent reform, click here (link)

Comprehensive Patent Reform Stalled; USPTO Fee -Setting Provisions to be Passed Tomorrow

Patent reform has stalled yet again in Congress; House Judiciary Chairman John Conyers Jr. recently remarked “we’re intransigent now. We seem to be stuck.”  Accordingly, The House is scheduled to vote on a bill tomorrow that would give the USPTO new authority to set or adjust patent and trademark fees. The measure will be considered under suspension of the rules, an expedited process that requires a two-thirds majority for passage.

Read CQ Politics: "With Overhaul of Patent Law Stalled, House To Consider Narrower Bill" (link)

On Tuesday, the House will meet at 12:30 p.m. for Morning Hour and 2:00 p.m. for legislative business with votes postponed until 6:30 p.m..  The "Patent and Trademark Office Fee Modernization Act of 2010" is one of 18 bills scheduled for a vote under suspended rules  (see more here)

Startups Push Congress to Maintain One-Year "Grace Period" for Patent Reform

A group of 100 startup companies sent a letter petitioning the U.S. Congress to support the current one-year grace period for filing a patent application.   Current reform measures directed to a "first-to-file" regime arguably weaken or eliminate any grace period for disclosed inventions.  That, according to the group, would be a really, really bad idea:

Without the grace period, the patent system would become far more expensive and less effective for small companies. It would create the need to “race to the patent office” more frequently and at great expense before every new idea is fully developed or vetted. The pressure for more filings will affect all American inventors – not only a few that end up in interferences under current law. Because filing decisions must be made based on information that will be preliminary and immature, the bill forces poor patenting decisions. Applicants will skip patent protection for some ultimately valuable inventions, and will bear great costs for applications for inventions that (with the additional information that is developed during the grace period year of current law) prove to be useless, and subsequently abandoned. The evidence for this high abandonment trend under systems having no grace period is readily available from European application statistics.

The proponents of S. 515 suggest that the harm of the weak grace period of proposed § 102(b) can be overcome if an inventor publishes a description of the invention, allowing filing within a year following such publication. Underlying this suggestion are two errors. First, no business willingly publishes complete technical disclosures that will tip-off all competitors to a company’s technological direction. We generally do not, and will not, publish our inventions right when we make them, some 2.5 years before the 18-month publication or 5-7 years before the patent grant. Confidentiality is crucial to small companies.

Second, even if we were to avail ourselves of such conditional grace period by publishing first before filing, we would instantly forfeit all foreign patent rights because such publication would be deemed prior art under foreign patent law. No patent attorney will advise their client to publish every good idea they conceive in order to gain the grace period of S. 515. The publication-conditioned “grace period” in S. 515 is a useless construct proposed by parties intent on compelling American inventors to “harmonize” de facto with national patent systems that lack grace periods. S. 515 forces U.S. inventors to make the “Hobson’s Choice” of losing their foreign patent rights or losing the American grace period. It should be clear that the only way for American inventors to continue to benefit from a grace period and be able to obtain foreign patent rights, is to keep intact the current secret grace period that relies on invention date and a diligent reduction to practice.

Read the letter in its entirety here (link)

See EETimes, "Startups petition Congress on patent reform" (link)

See also David Boundy letter of February 1, 2010:

Under the amendment to 35 U.S.C. § 102 proposed in S.515, the one-year grace period becomes extremely fragile—every business must assume there is no grace period, and that an application must be filed before any discussion of the invention with any other investor or strategic partner. S.515’s weak grace period will impose huge costs on every innovator that cannot assemble all necessary financial, R&D, manufacturing and marketing resources within a single firm, or that has to do significant testing outside the firm. Independent inventors, startups, and university inventors will be forced to make “use it or lose it” patent decisions about a year earlier than under current law, which in turn will require filing of many more patent applications. Each application drains many thousands of dollars of capital from productive uses to speculative patent filings, many of which will turn out to be useless. S.515 will strangle many companies in their cribs, by sucking capital out to the patent attorneys.

Senate Releases Lastest Amendments to the Patent Reform Act

The Senate Judiciary Committee announced today the details of an agreement on long-pending legislation to reform the patent system.  Senators Leahy, Hatch, and Senators Jeff Sessions (R-Ala.), the Committee’s ranking Republican, and Chuck Schumer (D-N.Y.), Jon Kyl (R-Ariz.), and Ted Kaufman (D-Del.) are pushing the latest amendments (see below) for Senate consideration.

According to Leahy's/Sessions' press release:

With this agreement, we are closer than ever to advancing patent reform legislation through the Senate . . . Senator Hatch and I have worked through many Congresses to make meaningful reforms to the nation’s patent system, and I appreciate his commitment to this effort.  This compromise may not be everything that everyone wants, but it makes important reforms to the outdated patent system.  Strengthening American patents will improve the quality of our inventions and innovations, which will translate into jobs and economic growth in Vermont and across the country.  Congress is committed to strengthening our economy, and the Patent Reform Act is an important component of that effort.  I hope the leaders will soon schedule floor time for this important legislation.

This important bipartisan agreement would institute reforms that significantly streamline and strengthen the U.S. Patent System . . . In doing so we are strengthening our ability to protect Americans’ ideas and inventions—developments that have done, and will continue doing, so much to improve and to enrich the world.  These reforms would guard individuals, small businesses, and universities from frivolous legal challenges and help prevent abuse of the administrative process.  They would also provide greater clarity and cut red tape that needlessly wastes time, money, and resources. American innovation goes to the heart of our economy, and our success as a nation must be protected.  I urge the Senate to consider and act on this legislation and hope these needed reforms will soon be signed into law.

The proposed agreement makes changes to first-window post-grant review, inter partes review, willfulness, interlocutory appeals, Patent and Trademark Office funding, and supplemental examinations.  The agreement retains several critical improvements in the Committee-reported bill, including the transition to a first-inventor-to-file system, the gatekeeper compromise on damages, the new district court pilot program, and more.

The full text of the substitute amendment is available here (link) 

Study: Post-Grant Review Could Increase PTO Pendency by 25%

Professor Scott Shane of Case Western Reserve University, released analysis of the impact of proposed post-grant review and expanded inter partes reexamination of U.S. patents. According to Shane, the proposed changes will have the following likely effects:

• Increase the length of patent pendency. Under the proposed changes, the length of time between patent application and patent issuance would increase from 32 months to 40 months.
• Increase the costs of defending patent validity by an estimated $2.2 billion over the current cost of litigation.
• Reduce investment in R&D. Reducing the value of patents significantly reduces investment in R&D. The proposed changes would lead to an annual reduction of $4.4 billion in industrial R&D.
• Compromise certainty about patent validity. The new post-grant review and expanded inter partes reexamination processes would make uncertain the validity of approximately $1.4 billion to $1.7 billion of patents issued annually, totaling $8.1 billion to $10.3 billion of patents over the six years it takes to get an outcome of the average review case.
• Hinder efforts of U.S. universities to transfer their inventions to the private sector.
• Weakening patent protections through expanded administrative challenges would jeopardize over $1 billion annually due to a reduction in the amount of university technology that would be commercialized by industry.
• Increase strategic patenting behavior by large, established firms. Strategic efforts to hinder the performance of competitors by forcing them to defend their patents against multiple challenges, beginning with reexamination and review proceedings and ending with litigation, are a likely outcome of the proposed changes.

Moreover, the study concludes that the proposed legislation will (1) not improve patent quality,
(2) not reduce the cost of patent litigation, and (3) not speed the determination of patent validity.

The study is made available through the Manufacturing Alliance on Patent Policy, and may be accessed here (link)

Judiciary ranking member Jeff Sessions requested that Shane examine the issue earlier this month as staffers for Leahy and Sessions continue meeting with stakeholders about the topic.

See Tech Daily Dose: "Study: Patent Proposal Could Be Costly" (link)

Judge Michel Speaks About "Junk Patents", Damages, Trolls, and the PTO

Last December, Chief Circuit Judge Michel gave the keynote address at the FTC hearings on "The Evolving IP Marketplace", where Judge Michel addressed the state of patent law and patent reform. Frankly, it's one of the most sober and rational patent reform speeches in recent years, and I thought it would be worthwhile to help distribute a transcript of the speech. While the FTC has a transcript available here (link), I cleaned up the FTC version and made it available at the link provided below.

Some key "highlights" from the speech:

Addressing the oft-cited contention that too many "junk" patents are issued:

But I suggest that as we move forward . . . that it's worth pausing to consider for just a minute what do we really mean when we're talking about more patent quality. Certainly lay people and maybe some lawyers could be forgiven if they take that as a suggestion that a very large number of patents are just flat-out invalid. That is, the entire patent is a piece of junk, worth nothing, illicitly granted.

I've been on the court for twenty years and eight months, and I cannot ever remember seeing a single patent, I'm sure they're out there, but I can't remember seeing one where every single claim was invalid. I've seen innumerable patents where some of the broader claims either were indefinitely broader or were damn close, but in all of those cases, the narrower claims seemed to me equally clearly to be plainly valid. So what we really have is a problem of some over-broad claims getting through the system, slipping through the sieve that in the ideal world would catch them.

On the "litigation explosion" and "wasteful litigation":

I keep hearing that we have a ‘litigation explosion’ in patent infringement cases. I keep hearing that we have lots of ‘wasteful litigation.’ I keep hearing we have excesses and abuses of certain types of defendants or maybe plaintiffs in some of these cases. I also read that for quite a number of decades now, the percentage of extant patents sued on has remained almost exactly the same, at about percent, so if you have a lot more patents out there, you would expect more lawsuits, and that's exactly what you get.

Now, of course you can say, yeah, but they're all bad patents. Well, maybe or maybe they're partly bad and partly good, so a little hard to be sure. I'm a skeptic about whether we have an excess amount of wasteful litigation or a crisis or a patent litigation explosion.

Now, as you may have heard me already throw out the number, about 3,000 patent suits filed a year, but the more interesting numbers that start to reduce that is that about 90 percent settle voluntarily. Now, of course now you may say, but yeah, only under coercion and under threats, under a gun at your head. All those kind of arguments. Well, maybe. Maybe. But 90 percent never go to trial, so when we're talking about trial expense, trial delay, not minor matters, we're not talking about 90 percent of the lawsuits. We're talking about 10 percent of the lawsuits. What happens to the 300 that don't fall out on voluntary settlements between the parties?

Well, over two-thirds of them get resolved on summary judgment. Now, summary judgment isn't cheap. I'm not trying to make that argument, but it's a lot less expensive than a full trial, lots less, and much faster almost always, not in every case, but normally.

So now we're down to about a hundred trials per year, ball park figure. (All these figures are just ball park figures). If we step back and we say, all right, we're a nation, highly developed, high technological, fully industrialized advanced nation of 300 million people. We have something like a million and a half patents in force, and we have what, 30,000 companies in the marketplace? I don't even know the exact number, but accept the notion that it may be somewhere like 30,000 players. Are a hundred trials excessive in a country of that size and that vitality with that many patents extant? And what happens when there are trials? Most of them get affirmed on appeal. Of course, that also means some get reversed, but the numbers again are kind of instructive.

On the PTO, and it's ability to deal with patent reform:

So, of course, the magic bullet is a new kind of reexamination in the Patent Office. That's what everybody says will solve the problem. Why? It will be faster and cheaper than court trials. Well, maybe. In the real world, we've got a Patent Office that struggles to keep up with its current work. What basis would we have for confidence, particularly if it doesn't have a tripled budget, that it can run in-house what amounts to a court system with cross examination and discovery rules and a Judge presiding and making fact findings or Administrative Patent Judges even trained for this? How hard would it be to get them up to speed to function just the way District Court Judges do or ITC administrative judges in patent cases? I think these are hard questions, and I don't think the answers are too obvious, but they certainly give me a lot of pause.

* * *

Now, certainly the existing reexamination process has been less than a stellar success, and it certainly doesn't look faster than the courts, as slow as the courts are, compared to how they should be. I can't testify about how much cheaper it is, but the stories I've heard don't sound too encouraging, and then there's a big question of: Is it adequately accurate? Is it more accurate than what would happen in a well-run district courtroom? I'm not sure.

* * *

I'm told that the average examiner has been in the corps less than three years. Less than three years! That's a horrible fact in this country, even for our ongoing system of ex parte examination. If you try to lay on top of that a new beefed up litigation-like re-exam process, are there people there who can do it? Can the examiners do it? Can the supervisors do it? Even the board is also drowning in cases. They've greatly expanded in recent years. I think it's somewhere up to in the neighborhood now of 80 Administrative Patent Judges. What do they need, 160, 390? No one even knows what they would need to run these trials.

On "excess" damages:

Now, of course when you talk about the courts, their awards, people talk about excess damages. Everyone can cite some example of what they consider a horrendously excess damage award. A fair number of what I've read in print turn out to be nonexistent cases. I kept reading about the windshield wiper case where the cost of the car was used as the metric of damages, but I haven't been able to find such a case.

And Professors Jaffee and Lerner, who are very highly qualified economists, wrote in their book, which many of you read, that the courts often give double damages and actually cited a case that I was involved in as an example of double damages, and they said that I gave both lost profit damage and reasonable royalty damages to the winning patentee. Well, yeah, the Court did. Of course it did, because it was for different products and different time ranges, two different forms of damages, but they weren't -- but that's not double payment. That's paying once, so there's a lot of misunderstanding out there.

There are a lot of apocryphal cases that turn out to not really exist, and there are certainly some very large damage numbers; no question about that. On the other hand, most of those large damage amounts involve very large markets, very large profits, so we shouldn't be surprised, I wouldn't think. In any event, a few examples, if they're not very representative, hardly prove that excesses are common, but that's the charge, that half the time the damages are wildly out of proportion to anything that would be sustainable in common sense. It's easy to use words like ‘appropriate.’ The FTC talks about whether damages are ‘appropriate.’ Well, it's a little bit in the eye of the beholder. What you might think was appropriate I might think was way too little or way too much, but it's a pretty inexact yardstick.

On "trolling" and NPEs:

Then the argument keeps shifting. Well, it's not so much the number of infringement suits filed every year, it's who's filing. Well, why should we assume that a non-manufacturing patent owner shouldn't be allowed to enforce its patent? What is wrong with a university owning patents based on research of its faculty scientists or research institutes or small inventors or small innovative companies that either can or don't want to try to manufacture products themselves but license their inventions so others can make them?

Well, are these patentees really illegitimate somehow? I mean, after all, at least up until now a patent has given its owner the right to exclude, not the obligation to make. Then some say, well, it's not so much the non-practicing entities, it's certain companies that don't invent at all, but merely acquire and enforce patents, and of course calling them ‘trolls’ just confuses the analysis because obviously a troll is a bad thing.

It's a pejorative label. (Some people who used to complain about trolls allegedly have become trolls). But I don't think that it's helpful -- it's a slogan. It's a label. It's an excuse to not think carefully about the problem, as far as I'm concerned. It's like talking about ‘questionable patents.’ It's an excuse to not think carefully about the problem as far as I'm concerned. It's like talking about questionable patents. It's not helpful if we're going to try to diagnose the real illness and prescribe a useful medicine.

Besides, patents, like any other form of property, the essential element of property is it is alienable. You can sell it. You can sell it to anybody you want to for whatever price you want to sell it. Why should that be prohibited? Why should I be prohibited from buying patents if that's what I want to do, whether I invented them or not, whether I am going to practice them or not, whether I'm a research institution or a university or not? There might be some reasons. Maybe some of them are good, but it's not self-evident, at least not to me.

Then there's certainly the debate about motives. Well, they just want to acquire patents so they can squeeze royalties out of infringers. Well, yeah. Hey, this is commerce. This is about money. This is not an altruistic system. The whole constitutional idea was that the incentive of monetary gains would motivate innovation at a greater rate and to better ends than if the lure of money wasn't there, so I'm a little dismayed when I see it even creep into footnotes of Supreme Court opinions, that certain patentees were just trying to squeeze money out of the accused infringer. Well, all kinds of patentees are trying to squeeze money out of the accused infringer. That's what the lawsuit is all about, so come on. Let's be a little more adult about it than to worry about the greedy motive of the patentee. Of course the patentee is greedy.

There's much more in the speech, and it's a very informative and entertaining read - download a (cleaned-up) copy of the transcript here (link)

Everything You Ever Wanted to Know About the Current State of Patents and Patent Law

Imagine a "who's who" list of patent scholars, practitioners, in-house counsel, government officials, IP brokers and policy makers - who were all placed in a single room with a microphone for 6 full days to speak individually about their experiences and opinions on various aspects of patent law. A transcript of the speeches/discussions would surely be a valuable asset to anyone looking to learn from the practices and observations of others.

The Federal Trade Commission (FTC), who recently completed a whirlwind tour of public hearings in California and Washington DC has now begun publishing transcripts of these meetings and has made many of them available, along with the presentation material provided with each session. While some of the transcripts are missing from the FTC site, the 271 Blog has done some sleuthing and has located copies elsewhere, with the exception of the May 4-5 hearings.


FTC HEARING ON THE EVOLVING IP MARKETPLACE


DECEMBER 5th (2008) HEARING
Panel 1: Developing Business Models
Panel 2: Recent and Proposed Changes in Remedies Law
Panel 3: Legal Doctrines That Affect the Value and Licensing of Patents

TRANSCRIPT (link)

Panelist Presentations:
• Thomas Cotter, Remedies for Patent Infringement: Theory and Practice
• Peter N. Detkin, To Promote the Progress…of Useful Arts: Investing in Invention
• Q. Todd Dickinson, Federal Trade Commission Workshop: Recent and Proposed Changes in Remedies Law
• Brian Kahin, The Patent Ecosystem in IT: Business Practice and Arbitrage [Written Version]
• Daniel P. McCurdy, Unique Operating Companies Involved in Patent Litigation with NPEs; Patent Litigation Involving NPEs and Operating Companies
• Roderick R. McKelvie, Seagate Plus One: How the District Courts are Implementing Seagate; Seagate Plus One (Article)
• Joseph Scott Miller, Testimony of Professor Joseph Scott Miller, Lewis & Clark Law School - Legal Doctrines That Affect the Value and Licensing of Patents (Panel 3)
• Raymond Millien, The IP Marketplace Players
• John A. Squires, Patent Remedies: Can Quanta Finish What eBay Started? [Written Version]
• Jay Thomas, Patent Damages: Principles and Current Problems
• Duane R. Valz, Yahoo! Inc- FTC Hearing on The Evolving IP Marketplace
• Mallun Yen, Cisco Systems, Inc. FTC Hearing on the Evolving IP Marketplace [Written Version]

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FEBRUARY 11th - 12th HEARING, WASHINGTON DC
February 11 - The Evolution of Remedies (Damages)
Panel 1: Patent Damages
Panel 2: Industry Roundtable discussion


TRANSCRIPT (link)


February 12 - The Evolution of Remedies (Damages)
Panel 1: Changes in Injunction Law
Panel 2: Industry Roundtable discussion

TRANSCRIPT (link)

Panelist Presentations:
• Paul Janicke, Patent Damages
• Aron Levko, 2009 Patent Damages Study - Preliminary Results
• Bryan P. Lord, Hearing on Patent Damages
• Steve Malin, Empirical Analysis Of Permanent Injunction Decisions Following eBay
• Marian Underweiser, Towards an Efficient Market for Innovation
• Donald R. Ware, Introductory Remarks and Presentation

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MARCH 18th - 19th HEARING, WASHINGTON DC

March 18 - Industry Roundtables
Panel 1: Universities and Entrepreneurs
Panel 2: The IT and Electronic Industries
Panel 3: Manufacturing and Diversified Companies
Panel 4: Life Sciences Industries


TRANSCRIPTS: Session 1 (link), Session 2 (link), Session 3 (link), Session 4 (link)


March 19 - The Operation of IP Markets
Panel 1: Economic Perspectives on IP and Technology Markets
Panel 2: Fulfilling the Patent System's Public Notice Function


TRANSCRIPTS: Session 1 (link), Session 2 (link), Session 3 (link)


Panelist Presentations:
• Ashish Arora, Markets for Technology and the Division of Innovative Labor: A View from the Ivory Tower
• James Bessen, Patent Notice and Markets for Technology
• Robert Hunt, The Federal Trade Commission’s Hearing on “The Evolving IP Marketplace”
• Ron D. Katznelson, “The Evolving IP Marketplace” Hearings on The Operation of IP Markets
• F. Scott Kieff, The Importance of Marinating on Patents
• Scott Stern, The Impact of the Patent System on the Market for Technology

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APRIL 17th HEARING, WASHINGTON DC

Panel 1: Roundtable Discussion
Panel 2: Recent Scholarship in Patent Markets

TRANSCRIPTS: Session 1 (link), Session 2 (link), Session 3 (link)

Panelist Presentations
• Iain M. Cockburn, Licensing: a view from the trenches (Selected findings from the LES Foundation Surveys)
• Stuart Graham, Patents and Technology Markets: How is the market operating, and can it be improved?
• James E. Malackowski, FTC Hearings on Developing Business Models and a National IP Economic Infrastructure
• Mark A. Lemley, Ignoring Patents; How To Make a Patent Market
• R. Polk Wagner, Patent Portfolios [Written]; Understanding Patent Quality Mechanisms

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MAY 4th-5th HEARING, BERKELEY, CA
May 4 - IP Marketplaces
Panel 1: The IP Marketplace in the Life Sciences Industries
Panel 2: The IP Marketplace in the IT Industry
Panel 3: Markets for IP and Technology: Academic Perspectives

May 5 - Notice and Remedies
Panel 1: The Notice Function of Patents
Panel 2: Patent Remedies

(Transcripts & Presentations not currently available)

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Anyone looking to get more insight on current patent issues and read first-hand accounts from industry and academic leaders are strongly advised to read through the materials. It's a lot of information - a few hundred pages in transcript material alone - but is well worth the read.

The FTC page for these hearings may be viewed here (link), which contains much of the aforementioned material, with the exception of some of the transcripts listed above.

Amendments to Patent Reform Bill To Be Submitted Tomorrow

After yesterday's announcement of "very significant" changes to the patent reform bill, copies of the proposed amendments have started to float about the blogosphere (courtesy of Hal Wegner).

Well, here is a peek at the language in the amendments, starting with damages:

§ 284. Damages

(a) IN GENERAL.—

(1) COMPENSATORY DAMAGES AUTHORIZED.—Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court. In determining damages, the court will direct the jury to consider any relevant factors or methodologies, under applicable law, based on the evidence presented.

(2) USE OF EXPERTS PERMITTED.—The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.

(b) PROCEDURE FOR DETERMINING DAMAGES.—

(1) IN GENERAL.—

The court shall identify the methodologies and factors that are relevant to the determination of damages, and the court or jury, shall consider only those methodologies and factors relevant to making such determination.

(2) DISCLOSURE OF CLAIMS.—By no later than the entry of the final pretrial order, unless otherwise ordered by the court, the parties shall state, in writing and with particularity, the methodologies and factors the parties propose for instruction to the jury in determining damages under this section, specifying the relevant underlying legal and factual bases for their assertions.

(3) SUFFICIENCY OF EVIDENCE.—Prior to the introduction of any evidence concerning the determination of damages, upon motion of either party or sua sponte, the court shall consider whether one or more of a party’s damages contentions lacks a legally sufficient evidentiary basis. After providing a nonmovant the opportunity to be heard, and after any further proffer of evidence, briefing, or argument that the court may deem appropriate, the court shall identify on the record those methodologies and factors as to which there is a legally sufficient evidentiary basis, and the court or jury shall consider only those methodologies and factors in making the determination of damages under this section. The court shall only permit the introduction of evidence relating to the determination of damages that is relevant to the methodologies and factors that the court determines may be considered in making the damages determination.

On willfulness:

[A]n infringer may not be found to have acted with objective recklessness where for
any period of time during which the infringer had an informed good faith belief that the patent was invalid or unenforceable, or would not be infringed by the conduct later shown to constitute infringement of the patent, and—

(i) there was reasonable reliance on advice of counsel;

(ii) the infringer sought to modify its conduct to avoid infringement once it had discovered the patent; or

(iii) there is sufficient evidence that the infringer had a good faith belief that the patent was invalid or unenforceable, or would not be infringed by conduct later shown to constitute infringement of the patent.

Interlocutory appeals are back on the table, and Best Mode "shall not be a basis on which any
claim of a patent may be canceled or held invalid or otherwise unenforceable."

While there have been reports that post-grant review would be based on "an interesting question" as opposed to "a substantial new question of patentability", such language is not seen in the presently proposed amendments.

-- Read a copy of the proposed amendments here (link)

See also

- Gene Quinn: "Huge Changes to Senate Patent Reform Bill Announced" (link)

- Kevin Noonan, "Progress on Senate Patent Reform Bill" (link)

- F. Scott Kieff & Kevin Rivette: "Congress — Let U.S. patent law 'marinate' before taking action" (link)

Hearings Begin in Senate On Patent Reform

The Senate Committee on the Judiciary has scheduled a hearing on "Patent Reform in the 111th Congress: Legislation and Recent Court Decisions" for Tuesday, March 10, 2009 at 10:00 a.m. in Room 226 of the Senate Dirksen Office Building.

A webcast of the hearings will be provided and may be accessed here (link)

The Witness List includes:

Steven R. Appleton
Chairman and CEO
Micron Technology, Inc.
Boise, ID
To view Appelton's written statement, click here (link)

Philip S. Johnson
Chief Intellectual Property Counsel
Johnson & Johnson
New Brunswick, NJ
To view Johnson's written statement, click here (link)

David J. Kappos
Vice President and Assistant General Counsel
Intellectual Property Law and Strategy
International Business Machines Corporation
Armonk, NY
To view Kappos' written statement, click here (link)

Taraneh Maghame
Vice President
Tessera, Inc.
San Jose, CA
To view Maghame's written statement, click here (link)

Herbert C. Wamsley
Executive Director
Intellectual Property Owners Association
Washington, DC
To view Wamsley's written statement, click here (link)

Mark A. Lemley
William H. Neukom Professor of Law
Stanford Law School
Stanford, CA
To view Lemley's written statement, click here (link)

Additional written statements were provided by The Computing Technology Industry Association, and photo sharing company FotoTime. Their statements may be downloaded here and here.

You can also download a zipped file of all the testimony here (link)

Special thanks to Hal Wegner for providing advanced copies of the written statements.

Say Hello To 2009 Patent Reform - Dual Bills Introduced In House, Senate

As expected, new patent reform legislation was introduced today as identical bills in the House and Senate. Senator Orrin Hatch (R-Utah) joins Leahy as a co-sponsor of the Senate bill, while House Judiciary Committee Chairman John Conyers (D-Mich.) and ranking minority member Lamar Smith (R-Texas) are co-sponsoring the House version.

For the most part, the legislation is largely the same as 2008. According to Leahy, "[w]e kept the language the same because we want to start where we left off and give us something to work on."

The notable omissions in the latest draft include:

• No broad USPTO rulemaking authority
• No "Check-21" exemption;
• No "Applicant Quality Submission" provision that would have required all applicants to submit and characterize prior art searches;
• No "automatic publication" at 18 months for all applications;
• No provisions on inequitable conduct.

Highlights include:

• "Hard" First-To-File Rule - providing no grace period, the first person to file gets the patent. Secret prior art (i.e., 102(e)) cannot be sworn behind.

• Damage Apportionment - Damages are determined by looking at the invention’s “specific contribution over the prior art.” Also, reasonable royalties may be calculated by looking at the price of licensing a “similar noninfringing substitute in the relative market.”

• Willfulness - Treble Damages will be limited to instances where the patent owner presents clear and convincing evidence that the defendant(s) acted with "objective recklessness" when infringing (intentionally copied, continued conduct that was not "colorably different" from previous infringement).

• Reexamination - expands reexamination requests so that "any person at any time may file a request for reexamination by the Office of any claim on a patent on the basis of any prior art or documentary evidence."

• Post Grant Review - "‘‘A post-grant proceeding may be instituted under this chapter pursuant to a cancellation petition filed under section 321 only if—‘‘(1) the petition is filed not later than 12 months after the issuance of the patent or a reissue patent, as the case may be." [as the case may be?]

• Interlocutory Appeals - "of an appeal from an interlocutory order or decree determining construction of claims in a civil action for patent infringement under section 271 of title 35. Application for an appeal under paragraph (3) shall be made to the court within 10 days after entry of the order or decree. The district court shall have discretion whether to approve the application and, if so, whether to stay proceedings in the district court during the pendency of such appeal.’’

• Venue - ‘‘(1) where the defendant has its principal place of business or in the location or place in which the defendant is incorporated or formed . . . (2) where the defendant has committed substantial acts of infringement and has a regular and established physical facility that the defendant controls and that constitutes a substantial portion of the operations of the defendant; (3) where the primary plaintiff resides, if the primary plaintiff in the action is—‘‘(A) an institution of higher education . . . or (B) a nonprofit organization . . . or (4) where the plaintiff resides, if the sole plaintiff in the action is an individual inventor . . ."

While the chances of passage is unknown, there is a large chance that further and substantial revisions will be made. Co-sponsor Orrin Hatch commented at the news conference that "[w]e all agree that more work needs to be done."

Download a Copy of the draft here (link)

See

CNET - "Controversial provisions remain in patent reform bill"

Reuters - "Congress takes up patent redo, damages fight looms"

CNNMoney.com - "Congress To Try Again On Patent Reform"

Study Proposes Modifications to Patent Venue

Sidney Rosenzweig, a visiting fellow at the Progress and Freedom Foundation, published a paper yesterday addressing issues related to patent reform and the venue statutes. Specifically, Rosenzweig identifies numerous deficiencies in the House and Senate bills. Essentially, he argues that, while recent congressional proposals are meant to prevent plaintiff forum-shopping, the proposals are "vaguely written and contain substantial gaps that will ensure that some cases cannot be brought in any venue. The effect of the enactment of either bill will be to cause a tidal wave of venue-related disputes to drown the federal courts."

As a result, Rosenzweig proposes the following revision to 28 U.S.C. § 1400(b) to address the only concrete problem identified by Congress, "namely the lax standard for venue against corporate defendants":

Notwithstanding subsection 1391(c) of this title, any civil action for patent infringement may be brought against a corporation only in a judicial district--

(1) where the defendant has its principal place of business or where the defendant is incorporated;

(2) where the defendant has committed a substantial portion of the acts of infringement and has a regular and established physical facility that it controls;

(3) where any defendant has committed a substantial portion of the acts of infringement and has a regular and established physical facility that it controls, if there is no other district in which the action may be brought under subsections (1) or (2); or

(4) where any defendant has its principal place of business, where any defendant is incorporated, where any defendant may be found, or where any defendant has committed acts of infringement, if there is no other district in which the action may be brought under subsections (1), (2) or (3).

Read/download the entire (20 page) report here.

Letter to Obama from U.S. Manufacturers Questions Rationales For Patent Reform

Earlier today, the Manufacturing Alliance on Patent Policy, representing more than 130 US manufacturing companies, sent a joint letter to President Obama voicing concerns over patent reform legislation. More specifically, the letter states that, if 2009's patent reform efforts are a repeat of 2007-08, the legislation would "harm the competitiveness, investment and employment of [the manufacturing] sector." Furthermore, the letter pointedly notes that "the prosperity of a few companies within two industries should not come at the expense of a larger group of stakeholders."

A few highlights:

• "[T]here is no explosion in patent litigation. In 1993, lawsuits were 1.45% of patents granted. In 2007, lawsuits were 1.48% of patents granted. The number fluctuates from year to year, but it has never indicated a system out of control. (Source: USPTO Annual Reports, Federal Judicial Statistics)"

• "[T]here is no explosion in patent damage awards. Adjusting for inflation, the median annual patent damages award has actually dropped slightly over the last 13 years. In constant dollars, the median was $3.9 million from 1995 through 2000, and $3.8 million from 2001 through 2007. (Source: 2008 Patent Litigation Study, PriceWaterhouseCoopers.)"

• "We view increased patent applications as a good thing, representing increased innovation that is crucial for American prosperity. It would be a terrible mistake to allow the increase in patent applications to become an excuse to undermine patent protections. Rather, Congress should take advantage of Americans’ growing desire to invent by ensuring that the U.S. Patent and Trademark Office ("USPTO") has the resources and management to handle the increased number of applications in a thorough and timely manner."

• "We encourage policy makers to reject the call for drastic changes to the law of patent damages. Reducing penalties for intellectual property theft will only encourage more of the same, which will deal a severe blow to the motivation of American inventors to create more and greater innovations in the future."

Read the entire letter here (link)

See also a related study, "The Likely Adverse Effects of an Apportionment-Centric System of Patent Damages" (link)

Patent Reform 2009 Gets Underway

While rumblings persisted over the last two weeks, Congressional spokespersons and staffers have now come out publicly to confirm that (1) patent reform will be a "top priority" over the coming year, and (2) any resulting legislation will be on a "fast track."

What's in the legislation? No one knows yet, but it is being reported that Congress will be picking up where they left off in 2007-08:

Staffers for Judiciary Chairman Patrick Leahy and Sen. Orrin Hatch, R-Utah, have resumed negotiations on legislation that passed the committee 13-5 in 2007 but died after Leahy could not win Judiciary ranking member Arlen Specter's support to bring the bill to the floor last spring.

Rumors are that a draft bill is expected early in the first session of this Congress, with possible hearings scheduled for March or April.

In light of judicial activity over the last 16 months, some are beginning to question the urgency of the reform. According to Taraneh Maghame, chief patent counsel for Tessera Inc., the patent bar should "let the dust settle on the effectiveness of the recent cases because they went a long way to address the needs people had raised . . . [p]utting a whole layer of patent reform on top of that could have ramifications for the economy." Kevin Rivette, chair of the USPTO's advisory board believes that Congress should wait up to three years before tackling patent reform again.

See, EE Times, "Congress to again take up patent reform" (link).

See also Gene Quinn's IP Watchdog, "Patent Reform Reportedly Top Priority in Congress" (link)

Of course, others believe that major aspects of patent reform are best left for the courts, not Congress. On Friday, the Coalition for 21st Century Patent Reform, formally issued a paper (presented earlier at meetings of the AIPLA and ACPC) arguing that the fast pace of change in patent law made the courts more suitable for change.

The paper is titled "Reform of a Fast-Moving Target: The Development of Patent Law Since the 2004 National Academies Report", written by litigator William C. Rooklidge:

“[T]he patent law changes that have occurred since 2004 suggest that the courts—not the legislature—should be entrusted with many of the patent reform topics that have been considered. Side benefits of this division of labor likely include that a legislative package stripped of the contentious issues more suitable to resolution by the courts that might well find agreement, or at least enough agreement to be enacted.”

Read a copy of the report here. For a summary of the paper, click here.

Study: Experienced Examiners Allow More, Cite Less

In what is sure to be an oft-cited paper in the "Great Patent Reform Debate", professors Mark Lemley and Bhaven Sampat have brandished their magnifying glasses on examiner processes at the USPTO to see if certain examiner characteristics had statistical effects on the examination process. Titled "Examiner Characteristics and the Patent Grant Rate," the paper finds that, with regard to PTO "patent quality," the effect of Office experience may be overblown, and more answers may be found in the HR department than on the Senate floor:

[W]e show that there are important differences across patent examiners, and that these relate to the most important decision made by the USPTO: whether or not to grant a patent. In particular we find that examiners differ in significant and important ways in their experience and the depth of their prior art searching, and that these examiner characteristics have qualitatively and statistically significant impacts on whether a patent application is granted.

The results are not encouraging as a public policy matter, because they suggest that the decision to allow or reject a patent application may not be driven by the merits of that application, but rather by the luck of the draw. At the same time, they suggest that human resource policies and incentive structures at the USPTO could affect patent grant rates, an important finding amidst growing concern that it grants too many "low quality'' patents and is in need of significant reform

With regard to examiner experience, the paper pulls no punches:

[W]e find that more experienced examiners are significantly more likely to grant, and, conditional on experience, examiners that conduct more intensive prior art searches are least likely to grant.

Taken alone, the result that more senior examiners are more likely to grant could suggest that they can more quickly figure out what is patentable in an application. But our data on prior art citation patterns do not support that conclusion. The finding that more senior examiners systematically cite less prior art reinforces the inference that senior examiners are doing less work, rather than that they are merely getting it right more often than junior examiners. And the fact that seniority is correlated with more first--action allowances is also inconsistent with the idea that more experienced examiners are simply negotiating the applicant to a narrower, patentable outcome; in the first--action allowance cases there is no negotiation at all . . . The tenure system, the count system, and examiner recruitment and retention policies should be a more prominent part of current patent reform deliberations.

And, lest anyone think this is the primary problem with software patents and the USPTO, the paper provides the following:

[T]he computer industry had by far the highest percentage of new examiners: more
than 60 percent of examiners in that art unit had less than a year of experience, compared with less than 20 percent in mechanics and chemistry. In our prior paper, we found that the computer industry had a surprisingly low grant rate: lower than any other industry. At least some of that result may be explained by the prevalence of new examiners in that industry.

Read/download a copy of the paper here.

Obama Administration Orders Reconsideration/Suspension of New Rules

Yesterday, the new White House Chief of Staff Rahm Emanuel issued a memo to government agencies (e.g., the USPTO) that "no proposed or final regulation should be sent to the Office
of the Federal Register (the "OFR") for publication unless and until it has been reviewed and approved by a department or agency head appointed or designated by the President after noon on January 20, 2009."

With regard to unpublished rules, the memo order agencies to "withdraw [the unpublished rules] so that they can be reviewed and approved by a department or agency head."

Also, for published rules that have not taken effect, the memo orders agencies to "[c]onsider extending for 60 days the effective date of regulations . . . for the purpose of reviewing questions of law and policy raised by those regulations. Where such an extension is made for this purpose, [the agency] should immediately reopen the notice-and-comment period for 30 days to allow interested parties to provide comments about issues of law and policy raised by those rules."

Thus, for the Continuation Rules, even if the CAFC reverses the district court in Tafas v. Dudas, the USPTO would not be able to implement final rulemaking without submitting the rules to the Under Secretary of Commerce (appointed by Obama) for consideration and approval.

Download the memo here (link)

Hat tip: Hal Wegner

Study: Apportioned Damages Would Decrease Patent Value Between $35-85B

Yesterday a group of U.S. manufacturers released research entitled “The Likely Adverse Effects of an Apportionment-Centric System of Patent Damages.” The research was conducted by Scott Shane, Ph.D., Professor of Economics at Case Western Reserve University in Cleveland.

The study sought to answer the threshold question of whether and how much average damage awards would be reduced by apportionment legislation. The following effects of apportionment legislation were estimated:

1. Reduction in U.S. patent value of between $34.4 billion and $85.3 billion.

2. Reduction in value of U.S. public companies of between $38.4 billion and $225.4 billion.

3. Reduction in R&D of between $33.9 billion and $66 billion per year.

4. Between 51,000 and 298,000 U.S. manufacturing jobs put at risk.

5. Industries employing fewer people favored over those employing more people.

The paper is provided by the Manufacturing Alliance on Patent Policy (link), and a PDF copy of the study may be downloaded here.

First-To-File in the U.S., Small Entity Inventors, and Grace Periods

University of Virginia law professor Margo A. Bagley has published a draft paper titled "The Need for Speed (and Grace): Issues in a First-Inventor-to-File World" that looks at various issues and concerns over a first-to-file regime (FITF) proposed recently in the Patent Reform Act. A refreshing aspect of the paper is that it is less concerned on the merits of "whether" the U.S. should switch to FITF and more on "when" and under what circumstances the change should happen to be most beneficial to small entity inventors in the U.S. and beyond:

Small entity inventors include those in universities and other non-profit organizations. The patenting activity of university inventors is of particular interest not only because it is increasing but also because it is associated with entrepreneurship. According to the Association of University Technology Managers (AUTM), its members, more than 80% of whom are colleges and universities, received over $45 billion in research support, filed 15,908 U.S. patent applications (compared to 10,687 in 2001), received 3255 patents, and launched 553 start-up companies in 2006 alone. In fact, since 1980, when the Bayh-Dole Act supporting university-industry technology transfer was passed, AUTM members have founded over 5,724 new companies, or more than one company every two days.

* * *

Because academic researchers have traditionally focused on basic research, as opposed to applied research, inventions generated in universities and disclosed to Technology Transfer Offices (“TTOs”) for patent protection are often embryonic and have only speculative commercial value. University TTOs, having limited funds and an increasing number of invention disclosures, must decide which inventions to prosecute with little information on potential commercialization success. For example, in 2006, AUTM members received 18,874 new invention disclosures from researchers but filed only 11,622 new patent applications.

Interestingly, while the US remains alone in not having FITF, foreign knowledge tranfer offices view this as a good thing. According to ProTon Europe (link), the pan-European network of knowledge transfer offices and companies affiliated with universities and other public research organizations:

European universities and other public research organizations still file on average 5 times less patent applications than their U.S. counterparts, although the total research budgets are comparable. The lower propensity to patent is attributable to 2 main factors: . . . .

The fact that the U.S. patent system is much more favourable to universities than the European system. In addition to lower cost and single language, the U.S. universities are taking advantage of the protection of inventors by the first-to-invent principle, a grace period of one year, the continuation-in-part system, provisional applications, 50% reduction in filing and maintenance fees, no maintenance fees before grant, wider patentable inventions, etc. There is no question that the U.S. universities could not have achieved the reported benefits for the U.S. economy in terms of new products, new companies, and new jobs with the patent system available in Europe.

Thus, through a robust grace period, small entities can get time for commercialization assessments, revenue generation, and academic discourse. However, in order to be truly effective and "harmonized," Bagley argues that FITF in the U.S. must also be accompanied by grace periods in "absolute novelty" jurisdictions, like the EU:

A U.S. move to FITF is unlikely to signal “the end of the world” for small entity inventors, but it does not seem to offer enough benefits, as currently proposed, to justify its potential harms. Nevertheless, if the U.S. is to move to a FITF patent regime, when should it do so? Only when such a move will provide a clear advantage for small entities by facilitating the adoption of a one year grace period outside of the U.S.

[A] move by the United States to a FITF system will likely have negative ramifications for small entity inventors. Delaying a move to FITF until it can be used to facilitate the adoption of a one-year grace period in other countries will allow the United States to make the bitter pill of the race to the patent office considerably easier for many researchers and entrepreneurs to swallow by providing them with something very useful in return. The adage “haste makes waste” surely applies here: a hasty move to FITF may waste our best hope for obtaining from other countries the grace period that is so critical for small entity innovation, academic discourse and prompt dissemination of information.

Read/download a copy of Professor Bagley's draft paper here (link).

Patent Reform Touches DNC in Denver

From the "Tech Daily Dose" for Congressional Daily:

Rep. Zoe Lofgren, D-Calif., told a crowd in Denver on Tuesday that it is crucial for Congress to pass legislation to update the U.S. patent system next year -- even if the measure is a scaled back version of the broad, controversial language that was in play during the 110th Congress. The House passed its patent bill but a companion stalled in the Senate.

Lofgren, who represents the Bay Area and is a key member of the House Judiciary Committee, said a new effort should begin with "things we know we can agree on." A proposal that would curb judicial "venue-shopping" for favorable courts is critical as is language to address patent abuses, she said. "How do you legally set a framework that prevents abuses and allows for a vigorous system that protects intellectual property?" Lofgren asked aloud. "It's not easy to come up with solutions."

Read the short article here (link)

Patent Reform Crawling Back In 2008? Lemley Proposal For Damages May Provide Answers

Friday's CongressDaily reported that Senate Minority Whip Kyl and his staff are in the process of drafting patent reform legislation, and they are expected to unveil their proposal in September. According to sources, the draft "is said to be much different from the version introduced by Senate Judiciary Chairman Patrick Leahy and Sen. Orrin Hatch."

While the details have not been revealed, the legislation is expected to address damages, post-grant review, inequitable conduct and "patent quality initiatives."

On damages, "litigants would be encouraged to use precise economic analyses to determine damages rather than less exact calculations." Post-grant reviews would be available for 12-18 months after issue, where reviews would be limited to issues of novelty and obviousness. On inequitable conduct, the legislation would "would require patent applicants to be more forthcoming to the PTO or face penalties." However, unlike previous legislation, the new proposal would address allegations of misconduct through administrative proceedings rather than in the courts.

Also, submission of search reports and analysis relevant to patentability will be required for every application. Commerce Secretary Gutierrez previously wrote to lawmakers that this provision would be "the strongest step toward improved patent quality."

For more information, see

- "Kyl Maps Out A Separate Course On Patent Legislation" (link)

- "Groups Plot Strategy For Patent Overhaul In Next Congress" (link)

Issues surrounding damages continues to divide the patent community however. Critics of the current regime argue that "reasonable royalty" damages are overcompensating (non-practicing) patentees. Accordingly, damage apportionment has been put forward as a means to curb the perceived overcompensation.

However, should Congress tweak reasonable royalty compensation, or should they look somewhere else? A recent paper by professor Mark Lemley suggests that easing restrictions on "lost profits" damages may provide a better means for market competitors to recoup damages, while reducing tendencies of courts to provide "kickers" on reasonable royalties. From the abstract:

[T]he lines between lost profits and reasonable royalties are blurring. In significant part this is because courts have insisted on strict standards of proof for entitlement to lost profits. Specifically, patentees must prove demand for the patented product, the absence of noninfringing substitutes, the ability to meet additional demand in the absence of infringement, and the proportion of those sales that represent profits. This in turn means that many patent owners who have in fact probably lost sales to infringement cannot prove lost profits damages, and turn to the reasonable royalty measure. The result is that courts have distorted the reasonable royalty measure in various ways, adding "kickers" to increase damages, artificially raising the reasonable royalty rate, or importing inapposite concepts like the "entire market value rule" in an effort to compensate patent owners whose real remedy probably should have been in the lost profits category.

In Part I, I explain the strict requirements for proving lost profits, and give examples of patentees who have failed to meet these requirements. In Part II, I explain how relegating these patentees to reasonable royalties has led to problematic changes in reasonable royalty law. Finally, I suggest in Part III that courts should draw a sharp division between the injury suffered by patentees who compete with infringers and those who do not. Patentees who compete should be entitled to the best estimate of lost profits, even if not all elements of proof are available. Doing so will avoid overcompensating patent owners in reasonable royalty cases.

Read more of Lemley's paper, titled "Distinguishing Lost Profits from Reasonable Royalties" here (link)