Patently at Odds
Wednesday, April 18, 2007
Two of the country's leading industries, computer technology and drug manufacturing, are battling over an effort by Congress to overhaul the way inventors profit from ideas, with executives on both sides saying billions of dollars are at stake.
The shift in political control on Capitol Hill coupled with the Supreme Court's newfound interest in taking patent cases has energized a congressional drive to revamp the patent system for the first time since the 1950s.
Sponsors in both the House and Senate plan to unveil patent reform bills today, according to congressional officials. The measures would address the mounting litigation over disputed patents -- lawsuits have doubled in the past decade -- and the difficulty of ensuring accurate decisions by patent agency examiners.
Congressional initiatives to revise the patent system have drawn intense interest from sectors including traditional manufacturers, universities, banks and financial services, and small businesses. The industries vying to sway the outcome have dramatically ramped up their campaigns, engaging some of Washington's most prominent lobbying firms since the start of the year.
But the titans in this struggle are the drug industry, which seeks the strongest possible protection for its blockbuster patents, and the software industry, which wants more flexibility for its fast-moving companies.
For large tech companies, which are pushing several of the most substantial changes, a recent court case involving Microsoft exemplifies much of what's wrong with the current law. In February, a federal jury ordered Microsoft to pay $1.52 billion to Alcatel-Lucent for infringing two patents for the MP3 technology used to play digital music on computers, portable players and other mobile devices. Even if Microsoft was in the wrong, critics say, the damages, the largest ever in a patent case, were outrageous and reflected profound flaws in how judgments are calculated.
Large tech companies are more prone than many enterprises to trip over existing patents because the development of software is a fast-moving process that involves weaving together many small advances. So the computer industry seeks wider latitude to challenge patents while being protected against paying exorbitant damages, especially for unintended violations.
But drug companies, which often spend years and billions of dollars converting just a few patents into highly profitable products, want strong rights to turn back challenges and to ensure that violators pay hefty damages.
In resisting some of the major rewrites being discussed in Congress, the pharmaceutical industry points to the plight of Purdue Pharma, maker of the popular OxyContin painkiller, as an example. Purdue had filed suit against a generic drugmaker, claiming it infringed patents on OxyContin. Federal courts ruled that Purdue could not enforce its patent because it had misled patent examiners, but last year reversed the decision and upheld Purdue's claim. In the interim, however, generic drugmakers raced to enter the market and Purdue lost more than half the sales of its marquee drug, estimated at more than $1.2 billion a year, according to industry sources. Purdue was ultimately unable to reclaim its market share. As a result, the company said it had to lay off more than half its employees.
The drug and tech sectors, which rarely square off against each other in court, tend to play different roles in patent cases. Pharmaceutical companies are usually plaintiffs, while tech companies are more often defendants, and that difference explains their clashing views over the patent system.
"We start out from opposite sides of the courtroom," said former congressman Billy Tauzin, president of the Pharmaceutical Research and Manufacturers of America. "We're in a position of having to defend our patents against potential infringement and want a legal regime that gives us the best chance to do that."
Emery Simon, counsel to the Business Software Alliance, said the traditional justification for patents is that inventors get a limited monopoly over their technology in return for the public receiving new knowledge and products. "That balance has been tipped," he said, arguing that patent law now discourages innovators.