Wednesday, October 26, 2005

Software vs. wetware.

Nature 437, 1230-1231 (27 October 2005) | doi: 10.1038/4371230a

Patent reform prompts intellectual tug-of-war

Reform of the patent process in the United States is shaping up as a battle of wills between the software and biotechnology industries. The outcome has global consequences, as Emma Marris reports.

Two draft bills for patent reform are circulating in Congress, with the chance that one of them could pass into law as soon as next month. And the whole world of patents could be shaped by the reforms.

"The United States has been the experimental test bed for reform," says Francis Gurry, deputy director for patents at the World Intellectual Property Organization in Geneva, Switzerland. "The issues there often turn out later to be issues for the rest of the world. So the world watches them closely."

The reform plan has brought two of the industrial sectors that rely most heavily on intellectual property into conflict.

Biotechnology companies make their money by licensing out their inventions, or by using promising patents to attract venture capital. They spend a lot of money defending these patents — but have no strong incentive to change the current system.

The computer-software industry, on the other hand, is growing restless about 'patent trolls', who buy up software patents with the aim of filing lawsuits and extracting licensing fees or settlements from companies. The Washington DC-based Business Software Alliance has therefore been leading the charge for reform — and pushing for changes that would limit the rights of those suing for patent infringement.

Change to a 'first-to-file' system would clear a major obstacle to global harmonization of patent systems.

The two draft bills under consideration draw heavily from recommendations made by the National Academy of Sciences, the Federal Trade Commission and the US Patent and Trademark Office (PTO) itself.

They contain several provisions that have broad support. One such change is a 'first-to-file' provision, which would grant patent rights to the first inventor to file, rather than to whoever can prove they had the idea first. Although it might seem fairer that the person who thought of the idea first should get patent rights, determining who this is can require lengthy and costly adjudication. A change would bring the United States into line with the world's other main patent offices, in Europe and Japan — and remove a major obstacle to the global harmonization of patent systems.

Universities and independent inventors have expressed concern in the past that first-to-file would favour large corporations that can file patents fast, and in volume. But Gerald Mossinghoff, a former commissioner of the PTO who now works as a patent lawyer near Washington DC, says that when he totted up the winners and losers of such adjudications, he found that the large parties gained no advantage.

Both versions of the reform bill would retain another quirk of the US patent system — the one-year grace period. Under other systems, inventors are required to file for their patent at the time that they first disclose their invention to the world. In the United States and a few other countries, data on an invention can be published or presented up to a year before a patent is filed.

Joseph Straus, director of the Max Planck Institute for Intellectual Property, Competition and Tax Law in Munich, Germany, says that he hopes Europe will introduce the grace period in exchange for the United States accepting first-to-file patenting. He says the grace period helps innovation by letting scientists speak and write more freely about their work.

The draft bills also install a new vetting procedure called 'post-grant opposition', which would allow a patent to be contested in the first nine months after its approval, without a court hearing. The proceeding would take place in the patent office and the burden of proof would rest with the contester. Under present rules, companies dubious about the legitimacy of a competitor's patent must wait until the patent holder complains that they are infringing it. Only then can they make a counter-complaint that the patent is no good. Sometimes firms just avoid researching in the area of the patent.

Most agree that post-grant opposition could be a useful way of cutting down on litigation and improving patent quality. Earlier drafts of the bill allowed a second window for such challenges, in the six months after the patent holder sues someone for infringement. But biotechnology companies, in particular, feared the idea of patents with an air of reversibility about them, and successfully opposed its inclusion.

Capital attraction

Robert Chess, head of Nektar Therapeutics, a California-based biotechnology firm, says that early post-grant review could help innovative companies to attract capital. "We need certainty and early certainty, so investors will be willing to invest," he says. Under another provision, competitors' input could also be submitted during the patent examination process.

One early version of the bill, favoured by the software industry, included a provision that markedly curtailed a patent holder's right to stop another company that was infringing their patent from selling the invention. The industry hoped this would help them deal with their litigation woes. But such a provision would have been anathema to biotechnology firms, and it was eventually dropped.

The main outstanding disagreements concern whether damages should be calculated from the value of the whole product, or just the portion of it covered by the infringed patent, and rules that would limit the courts in which such infringement trials could be pursued. In both cases, software companies want to make things harder for those claiming infringement, whereas the biotechnology and pharmaceutical industries want to make it easier.

Despite these areas of dispute, Mossinghoff says he thinks a bill could be passed next month, before Congress packs up for the year. Nicholas Godici, another former PTO commissioner who also now works as a patent lawyer near Washington DC, says there is "a 50–50 chance" that the bill will pass either this year or next.

But the bill won't set funding for the over-worked PTO. As the number of patent applications increases, the office is stretched to its limit, and some observers say that the quality of patent decisions is suffering as a result. The PTO calls the situation a "workload crisis" in its strategic plan, but denies that its standards are dropping. "Questions of bad quality are overblown and anecdotal," claims Brigid Quinn, a spokeswoman for the PTO.

If there was single filing and examination of patents for the United States, Europe and Japan, the strain in each region would be considerably reduced. "The three major offices in the world are beginning to buckle under the workload, so we really have to get cooperation," says Mossinghoff. "This deep harmonization will remain theoretical until we get first-to-file in the United States."

Failure of the US bills would spell trouble on that front, declares Eugen Stohr, head of international affairs at the European Patent Office in Munich, "because then the rest of the world will know that the United States is not able to move to first-to-file — and that discussions on deep harmonization are useless".

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