Legislation aimed at changing U.S. patent law now inching its way through Congress would disproportionately hurt San Diego’s technology economy, which depends on biotechs and small start-ups being able to assert their intellectual property rights, say local tech leaders.
A bill scheduled for debate this week by the Senate Judiciary Committee would, among other things, limit the damages that a patent holder could receive in a patent infringement lawsuit, and make it so patents are granted to the first to file with the Patent Office. Under current law, the patent goes to the person or organization that can prove themselves the first inventor.
The biotechnology industry and alliances of small technology companies are working to defeat the bill. Biotechs live and die by the patents they hold on drugs, and a small technology company’s intellectual property is often the only asset it has. They say the bill, proposed by Senator Patrick Leahy, D-Vt., devalues patents.
“Small innovators who come up with these ideas should have damages that are quite severe if they win in court,” said Duane Roth, CEO of Connect, a local technology industry association, who has traveled to Washington in recent weeks to lobby against the bill. “[A large company] could force the little guy to sue in court, and then even if they lost, not lose a lot.”
Dubbed the Patent Reform Act of 2009, the bill is receiving strong support from large technology companies like IBM, Microsoft and Oracle, which are frequent targets of patent infringement lawsuits.
San Diego has one of the most diverse technology clusters in the nation — strong in biotech, software, wireless communications and defense technologies. But aside from a few big names like Qualcomm, SAIC and General Atomics, San Diego is a hub for the “little guy.”
And even San Diego’s larger tech employers tend to want strong patent protections. Qualcomm’s business model is based on the thousands of patents it holds on the chips that go inside cell phone and other devices. And a biotech like San Diego-based Amylin Pharmaceuticals or Carlsbad’s Isis Pharmaceuticals spends billions of dollars developing a drug based on the assumption that it can vigorously defend the underlying patent.
Supporters of the bill say opponents paint a misleading picture of weaker patent protection under the proposed law. Under the current system, the Patent Office has 7,000 employees handling 460,000 patents each year, a workload that guarantees inferior patents, supporters say.
Also, they argue that laws on the books now are not equipped to handle the complex technologies of the information age, and as a result overly broad patents are issued. These patents end up being used against companies by individuals and organizations known as “patent trolls” that exist solely to file patent infringement lawsuits.
“The patent system hasn’t been updated in a significant way since the 1950s,” said David DiMartino, a spokesman for the Washington D.C.-based Coalition for Patent Fairness, an industry group that has for years lobbied for changes to patent laws. “We have an economy that is completely different than it was 50 years ago, and the [patent] system does not take into account the way the modern economy works.”
The system, DiMartino argued, was designed in an era when a product would have at most a handful of patents associated with it. These days, 10,000 patents might be attached to a single smart cell phone, he said.
Using the cell phone as an example, a holder of a patent of similar technology to one of the 10,000 patents held by the phone maker could, under current law, sue for damages based on all of the revenues generated by the phone.
Leahy’s bill would change the law to allow courts to calculate damages based on the specific contribution of the invention to the overall product. So if the inventor of the antenna on the phone sued for patent infringement, he could only seek damages equal to the value associated with the antenna, not the entire phone.
Currently, “it’s like having to pay for the total value of the car when you are only responsible for scratching the bumper,” DiMartino said.
Ron Katznelson, president of locally based Bi-Level Technologies and an activist on behalf of opponents of the bill, said such a change would significantly reduce the damages a patent holder could seek, and take away the only means a small company might have to prevent a large company from willfully infringing on a patent and accepting a small damage award as simply a cost of doing business.
And, he said, it would uniquely hurt San Diego because the vast majority of technology companies here rely on patents. “It would hurt investment in San Diego companies,” Katznelson said. “It would have a chilling effect on a company’s ability to convince investors that the intellectual property will allow the company to acquire and maintain market position.”
Small companies would also be hurt, Katznelson said, by the first-inventor-to-file provision in the bill. As things stand now, the United States is the only nation in the world that allows a person or organization to claim a patent on an invention based on proof of having been the first to make the invention. Every other nation grants the patent to the first inventor to file a patent.
Supporters say the bill would harmonize U.S. patent law with the rest of the globe, and therefore reduce confusion about who patented what and when. But, say opponents, it would mean that companies would have to file patents more often, and large companies with a lot of resources would end up with the upper hand.
“Small entities who cannot throw money at accelerating their development, would be disadvantaged compared to larger entities who can do so and thereby win the race to the patent office,” said Katznelson, a former University of California, San Diego electrical engineering professor.
Support for the legislation in Congress does not fall strictly along partisan lines. Joining Leahy in sponsorship of the bill are Republicans Orrin Hatch and Lamar Smith of Utah and Texas, respectively, and Michigan Democrat John Conyers. Opposition comes mainly from the GOP, with Pennsylvania Sen. Arlen Specter the most vocal.
California Sens. Dianne Feinstein and Barbara Boxer, both Democrats, have yet to publicly choose a side. However Feinstein has said she would not want to support the bill if it does not have broad consensus.
The bill is scheduled to be debated by the Judiciary Committee Thursday. However, the sense among those close to the issue is that it will be hotly debated and is not likely to reach the Senate floor soon. A similar bill is before the House Judiciary Committee.