Time to Act on Patent Reform

Posted by Brad Smith, Senior Vice President and General Counsel and Horacio Gutierrez, Corporate Vice President and Deputy General Counsel

As a new session of Congress begins, we have an opportunity to reassess the challenges confronting the U.S. patent system and to forge consensus around improvements that promote patent quality and the efficiency of the U.S. Patent and Trademark Office’s (USPTO) operations and programs.

When legislative discussions around patent reform first began nearly six years ago, a key objective for the IT industry was to address the abuses that many industry players saw in patent litigation – particularly litigation brought by non-practicing entities (NPEs).  Since then, we have seen an important series of judicial decisions that have helped curb the most troublesome  abuses, including decisions that (1) limit the availability of injunctions for NPEs (eBay), (2) address cherry-picking of plaintiff-friendly venues (Mediostream), and (3) address the calculation of reasonable royalty infringement damages (Lucent, Uniloc).  The Supreme Court will consider another important issue this spring when it hears the case involving Microsoft and i4i, which includes issues relating to the standard of judicial deference regarding prior art that was never put before the PTO.

These judicial deliberations and decisions have occurred against the backdrop of the careful attention and focus brought by the Congressional debate over patent reform.  Congress’s deliberations have deepened understanding among policymakers, stakeholders and the public of the litigation abuses confronting companies, particularly those in the tech sector, and of their potential to chill innovation, job creation and growth.  We applaud the leadership of Chairman Leahy, Senator Hatch, Chairman Lamar Smith, Rep. Berman and others who have worked tirelessly over the years to marshal support for a patent reform measure.

Yet, after many years of debate, U.S. industry remains divided over key patent reform issues.  Strong differences still exist as to whether the legislation should address litigation issues such as when a jury may find that the defendant willfully infringed a patent, the standard for finding a patent holder engaged in inequitable conduct, and how to calculate a reasonable royalty for damages, among others.  These differences have stymied progress and stood as an obstacle to moving forward on less controversial proposals.

As a participant in the policy debates about patent reform over the last six years, Microsoft has sought to take a balanced approach; one that would not favor the interests of some sectors of American industry (even our own) at the expense of other sectors.  Today, more than ever, American innovators need a fair, balanced and effective patent system to perform its role as a driver of R&D investment, and promoter of job creation, global competitiveness and economic growth.  This is why over the years Microsoft has made efforts to play a constructive role working with other stakeholders to bring about a pragmatic compromise that would enable the passage of legislation to address the most important challenges the U.S. patent system faces today.

In our view, the time has arrived to move beyond old controversies and focus on ensuring that the USPTO has the resources and tools it needs to improve patent quality and continue its efforts to tackle the enormous backlog it faces today.  The office has demonstrated that it has the talent necessary to succeed, if they are equipped with the tools and resources required to do their job.

This is the time for Congress to leave behind the handful of controversial issues that have made patent reform impossible so far (many of which already have been, or are in the process of being addressed by the courts), and focus on the core set of reforms that enjoy wide support and are vital to the ongoing health of the patent system.   Based on our dialogue with stakeholders in our industry as well as others, we believe that patent legislation needs to include:

• Funding the USPTO.  The USPTO needs the freedom to set its own fees in order to continue to reduce pendency.  But fee-setting authority will only solve the problem if fees cannot be diverted for other government uses beyond those in support of advancing USPTO’s vital mission.

• Joining the rest of the world in adopting a “First Inventor to File” system.  The U.S. should join the rest of the world by moving to a “first inventor to file” system for granting patents. In doing so, it is critical that it include expanded prior user rights similar to other major jurisdictions.  There is broad consensus that doing so is good policy.

• “Weeding out” bad patents.  A post-grant review system for patents should be established to provide an early opportunity to challenge newly-issued patents to improve overall patent quality.  The post-grant review system has proven effective in Europe and other jurisdictions in invalidating weak patents that didn’t deserve to be granted.  In addition, the inter partes reexamination process should be made more effective by removing existing disincentives and not adding new barriers to instituting a reexamination.

• Allowing third parties to submit prior art.  Third parties should be allowed to submit prior art for the USPTO to consider in connection with pending patent applications.

• Putting an end to the “False Marking” litigation cottage industry.  A veritable litigation cottage industry is emerging around qui tam litigation for false patent marking.  The damages regime for marking cases should be changed to prevent outsized awards where no one suffered any actual harm.  At a minimum, when an expired patent is at issue, there should be an opportunity for notice and cure.

The common denominator among these measures is that they all relate to improving the patent system and patent quality.  This is something that all innovators should be able to agree on, irrespective of their size or the industry they come from.

At the same time, there are certain issues that Congress can afford to drop from proposed legislation at this stage.  These include proposals around damages, the willfulness standard, and inequitable conduct, all of which have proven divisive in Congress but which the courts continue to assess.  By omitting these issues, it should be easier for all the groups interested in patent legislation to come together around a narrow and less controversial set of measures that addresses the patent system’s highest priorities – not the least of which is funding the PTO itself.

The time to act is now.  A narrower piece of legislation provides the best path ahead.

We look forward working with Congress and stakeholders as this important effort moves forward.

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Microsoft News Center Staff