Thursday, March 29, 2007

The Politics of Patent Reform

The House Small Business Committee will hold a hearing this morning entitled, “The Importance of Patent Reform on Small Business.” Organizations appearing before the committee include the USPTO, Proctor & Gamble, the National Venture Capital Association, and the Innovation Alliance.

So far, the patent reform debate has been largely a discussion between “big tech,” which wants sweeping changes, and “big pharma,” which does not. The overall issue of the hearing will focus on the roles technology transfer-oriented firms play in the U.S. economy, and how difficult it should be for companies to obtain, defend, and infringe, patents.

Historically, pharmaceutical manufacturers and their employees have given more than twice as much — $29.9 million versus $14.8 million – to Republicans than to Democrats. Democrats have returned the favor by pushing for re-importation of prescription drugs, lower drug prices, and other anathema topics. Changing patent laws fits into the same category. Computer and software companies have been more even-handed. They dispensed $31.5 million, versus $30.2 million, for Republicans over Democrats during a similar period.

Now that the balance of power has changed in Congress, it appears the traditional battle lines between computer-tech and biotech are becoming more fragmented.

The Pharmaceutical Research and Manufacturers of America (PhRMA) is the pharmaceutical industry's top trade organization, and is the biggest pharmaceutical lobby. The group maintains that patent protection should be strong, and that opportunities for invalidating patents should be limited.

Taking a middle-of-the-road approach, the Coalition for 21st Century Patent Reform was created last week. Members of the group (referred to by lobbyists as "Pharma-lite") support the recommendations of the National Academy of Sciences, which advocate a stronger and more open USPTO, and also advocate eliminating subjective elements of patent litigation. Members include 3M, Caterpillar, Eli Lilly, General Electric, Johnson & Johnson and Proctor & Gamble (see patent reform positions here).

On the computer-tech side, the Business Software Alliance (BSA) includes members such as Microsoft, IBM, CA, Adobe, Cisco, HP, Intel and Apple. The BSA also wants a stronger and more open USPTO, and limits on damages. However, the BSA also wants a strong post-grant review system so that patents may be invalidated without going to court (see patent reform positions here).

In a similar vein, the Coalition for Patent Fairness, also wants more flexibility in challenging patents (see here). Many members of the Coalition also belong to the BSA.

However, an increasing minority of tech companies that rely on licensing revenue are fighting back efforts to challenge patents at any given time. Led by Qualcomm and other chip-design companies, a new lobbying force called Innovation Alliance is accusing dominant tech incumbents of using patent reform to weaken their less-capitalized brethren. According to the Alliance, allowing unlimited challenges in the PTO on issued patents would seriously disrupt the business models of companies that rely on licenses for generating revenue.

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