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Lawyers say patent reforms bad for San Diego

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Patent reform legislation working its way through Congress could adversely affect San Diego because the proposed changes will lower the value of individual patents, which will be particularly troublesome to biotech companies, according to attorneys specializing in patent prosecution and litigation.

"In general terms, these reforms are unfavorable to the San Diego community," said David Doyle, a patent litigator and partner with Morrison & Foerster.

"I would agree with that, it's an anti-patent bill," said Kate Murashige, a senior partner at Morrison & Foerster, who specializes in patent prosecution and counseling.

The Senate Judiciary Committee's bill, S.1145, which is known as the Patent Reform Act of 2007, was placed on the Senate calendar Jan. 24. The House passed similar

legislation, H.R. 1908, on Sept. 7, 2007. Lawmakers have long argued that the U.S. patent system is broken and deluged by frivolous lawsuits and patent claims. The bills mark the first major reforms to the system in 50 years and are supported by large technology companies like Hewlett Packard (NYSE: HPQ) and Cisco (Nasdaq: CSCO).

Doyle said lawmakers are particularly concerned about so-called "troll litigation," in which third-party patent licensing companies buy up patents and then search for evidence that other companies are infringing the patent. Then they sue.

Michael Fuller, a patent prosecutor with Knobbe, Martens, Olson & Bear, said the fight over patent reforms is directly related to the very different ways in which biotech and high-tech companies pursue patents. A pharmaceutical company may hold just a handful of patents on a new drug, while electronics companies will have 50 or hundreds of patents for a single product.

If each individual patent has high value, electronics companies have more to lose if the company is sued for patent infringement by an upstart working out of his garage who claims to have invented the item first. By comparison, a pharmaceutical company with a small patent portfolio has an interest in keeping its value high.

For life sciences startups or university researchers with no plans to become large companies, the value of a patent portfolio is a "core asset" when it's time to sell, said Doyle. "This has real dollars and cents ramifications for San Diego," said Doyle.

San Diego has more than 500 life sciences companies, according to the San Diego Regional Economic Development Corp.

Fuller declined to say whether the reforms are good or bad because he has clients on both sides of the issue. Instead, he focused on the likely effects of the reforms, which he believes will reach some middle ground as a result of intense lobbying by the life sciences sector.

"I think, like all things, it will be watered down," said Fuller. He said one of the more problematic proposals included in the reform bills is "prior art subtraction," which mandates that damages be limited to the value of the invention in dispute and not the whole product. For example, if the market value of an entire mobile phone is $500 and the antenna is worth just five cents, then damages in a claim of infringement on the antenna patent would be five cents. Fuller said this would likely lead to a "battle of experts" over how to determine the market value of a product's individual components.

What if consumers buy the phone because of the antenna? And how would one prove as much?

Also onerous are provisions that would expand the rulemaking authority of the U.S. Patent and Trademark Office and a post-grant opposition process that would make it too easy for large companies with extensive resources to bully startups, said Murashige.

The reforms include 23 provisions changing how patent applications are prosecuted, challenged and litigated. And not all of the provisions are controversial. For example, industry groups in high-tech and biotech sectors generally favor one of the major reforms included in the bill, a move to the "first-to-file" system of patents used by most of the world. The United States currently uses a "first-to-invent" system, which requires extensive effort to prove. In a first-to-file system, the patent is issued to the first person to file an application and demonstrate that he or she is the true inventor.

One aspect of the European patent system that should not be incorporated in the United States is the lack of a grace period from publication of findings to the actual patent application, said Murashige. She wants to the United States to pressure the rest of the world, namely Europe, to allow for a grace period between publication and application. A grace period gives the inventor the opportunity to disclose significant findings, which is consistent with the principles of scientific inquiry and exchange, and allow for feedback. In the U.S. first-to-invent system, the inventor has a yearlong grace period during which the public disclosure of research cannot be used as "prior art" to challenge the inventor's application. Prior art refers to what is publicly known about an invention and is used in patent challenges to undermine the invention's originality and the patent's validity.

Hockmuth is a San Diego-based freelance writer.

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