WASHINGTON, May 2 (UPI) -- Technology industry representatives are urging Congress to reform the patent system to curb frivolous lawsuits, but experts caution the effort needs to take care not to disadvantage small companies and discourage innovation.
At the crux of the argument is how to curb so-called patent trolls -- firms that do not invent or manufacture, but who have made businesses out of acquiring patent rights and then suing other companies for patent infringement. Companies fear such lawsuits because they can result in a court injunction that forces them to stop selling a product with a patented component.
"Sometimes people will become pretty good at playing the patent game," Robert Merges, professor of law at the Center for Law and Technology at the University of California, Berkeley, told United Press International. "They'll get a patent and not really contribute anything significant in terms of technology, but just be a little ahead of the curve and be pretty clever about working the patent system."
Merges added Congress needs to consider carefully any reform, however, because only a few companies are gaming the patent system.
"It's kind of a tricky policy issue," he said. "How do you slap down and try to stop the illegitimate guys while not wrecking any of the beneficial uses people have found for patents?"
Government and industry representatives alike urged a legislative fix for the problem at a recent hearing of the Senate Judiciary Committee's Intellectual Property subcommittee. Litigation costs and delays threaten intellectual-property-based industries, they said.
"In the last several years, intellectual property assets have become an ever-more-essential ingredient of economic vitality," said Jon Dudas, the USPTO's director.
"Today," Dudas told senators, "economic success depends increasingly on intangible, information-based assets, such as the creativity of employees and the knowledge gained from research. As a result intellectual property-based industries such as biotechnology and entertainment now represent the largest single sector of the U.S. economy. In fact, IP industries export more American value to the world than the automobile, automobile parts, agricultural, and aircraft industries combined."
David Simon, chief patent counsel of the Business Software Alliance in Washington, said in prepared remarks the patent office needs to minimize disruptions caused by patent litigation.
"Too many of these (patent litigation lawsuits) are filed in search of a quick buck through settlement negotiations, rather than a party legitimately asserting a right, because the infringer is interfering with commercial objectives," Simon said.
He suggested to help reduce patent litigation disruptions, Congress should not allow the imposition of triple punitive damages -- which current law permits -- unless there is evidence of willful infringement. Congress also should make sure the courts assess damages based only on the value of the patented component, not the whole product -- "the cup holder and not the car," he said.
Simon also said Congress needs to address court injunctions that have disrupted computer and software companies by requiring them to stop making products, despite legal requirements for the courts to weigh the pros and cons to both parties before approving such actions.
"The jurisprudence in this area over the past 50 years ... has evolved in ways that no longer fully balances those equities," Simon said.
Michael Kirk, executive director of the American Intellectual Property Law Association of Arlington, Va., told lawmakers they should "limit or eliminate the subjective elements in patent litigation" that focus on an inventor's state of mind when applying for the patent.
Such concepts include the willful infringement mentioned by Simon, as well as inequitable conduct, a deliberate attempt to deceive the USPTO when applying for a patent, and best mode disclosure, which requires a patent applicant to disclose whether he or she knew of a way of pursuing the patent that was better than the one described in the application.
Dean Kamen, president DEKA Research and Development Corp. in Manchester, N.H. -- which invented the Segway Human Transporter -- said in his statement some of the proposed reforms, particularly limiting injunctions, could hurt smaller, independent inventors.
"I believe that reversing the burden of proof to obtain a permanent injunction will have catastrophic consequences in our patent system," particularly for independent inventors, Kamen said.
"Parties may be less likely to settle disputes if money is the only risk or penalty that party would face for trampling on the valuable property rights of others ... (and) may discourage parties from settling their disputes, thus prolonging and increasing the cost of litigation," he added.
Merges compared the abuses occurring in the patent system to those happening in the personal-injury realm: a small, highly visible portion of plaintiffs taking advantage of the system, which makes it more difficult for those with legitimate complaints to pursue them.
"Unfortunately, patent law has taken on some of the trappings of personal injury law in the last 10 years," he said. "The fixes being proposed are aimed at cutting down the number of these abuses."
Merges said a fitting analogy would be when someone is injured in an accident, "it's only fair to pay the medical bills. It's only fair to put them back on their feet, but that whole business can mutate into a kind of rent-seeking activity, a kind of extortionate activity to take advantage of the rules and perhaps tap the sympathy of the jury to extract really big settlements, and the threat of settlements leads to excessive litigation and all the kinds of concerns people have."
Tech companies that often fall victim to "extortionate" demands from patent holders are the biggest manufacturers, such as Microsoft and Intel, Merges said, but suggested if only manufacturers were allowed to obtain injunctions for patent infringement, it would hurt legitimate research and development companies that might injunctive relief.
"To require a patent owner to personally manufacture and sell products covered by his or her patent before being entitled to an injunction would diminish the individual inventor's incentive to invent," Kamen added.
Dar Haddix is UPI's Deputy Business Editor. E-mail: email@example.com