There has been much discussion and
escalating controversy in
recent years about patent damage awards for infringement. With each
iteration of proposed patent
law reforms, Congress has become increasingly aware of the impact patent
damages have in modern business.
This is particularly true in light of the role NPE’s (patent trolls)
play in the system and the steadily increasing rate of the average
damage
award. A recent PriceWaterhouseCoopers
study found the annual median damages award has ranges from $2.2 to
$10.6 million
and, more notably, damages awards for NPEs have averaged more than
double those
for practicing entities – meaning those that actually create - since
1995.
In this post, we look into the most
previously proposed
patent damage reforms, and reasons for the failure to pass. In
understanding its shortcomings, we
hope to provide insight into supporting new reforms, which have better
chances
of passing.
Bills have been introduced to reform the
patent system in
the current and two previous Congresses.
In the 109th Congress, the primary bills were H.R.
2795. S.
3818, and H.R.
5096. The stronger
bi-partisan, bi-cameral reform push occurred during the 110th
Congress, in 2007, with H.R. 1908 and S. 1145. In the current Congress,
patent reform has advanced in the
form of H.R. 1260 and S. 515.
Unfortunately, these efforts have been watered down over time as various
interests have lined up to protect the status quo (including the patent
bar
itself, which, as Supreme Court Chief Justice Roberts observed,
profits from our over-expansive patent system).
110th
Congress...
We’ll start where the House and Senate
jointly proposed
substantial new revisions to the patent laws in 2007. While the House
was
ultimately able to pass its version of reforms, the Senate did not;
forcing
this session of Congress to take up deliberation of the issue from the
start
again. These reforms were
noteworthy for the breadth of the reforms proposed, yet for the sake of
this
posting, we will focus solely on the statutes relevant to damages
reform.
In the House of Representatives, the
issue of patent reform
was led by Congressman Howard Berman (D-CA), who introduced H.R.
1908 in mid-April 2007. Under
the House bill, the individual judges would have been given tremendous
influence and power over damages determined by the use of reasonable
royalty
calculations. Specifically, the
bill would have mandated that judges serve essentially as gatekeepers;
whereby
they would have the responsibility for figuring out not only what type
of
evidence could be used in making this finding, but also the means of
measuring
it as well. As a corollary to this
methodology, the jury in an infringement case would be barred from
considering
anything besides what has been permitted by the judge.
Given that juries would be restricted by
the evidence which
they could use to find damages, the awards given to patentees would
likely be
much less vulnerable to the wild swings and inflated amounts that have
currently wreaked havoc on the patent system. The PriceWaterhouseCoopers
study, referenced above, found the disparity between jury and bench
awards
has widened and is likely the contributing factor in the significant
increase
in use of juries since 1995. Juries decided just 14 percent of cases in
the
1980’s and just 24 percent in the 1990’s, but in the last decade that
has
increased to 51 percent.
Judges could help juries sort through
the relevant evidence
to prevent an over focus on inapplicable material that would unfairly
inflate
the amount of damages that a patentee would be entitled to receive. In
the case of patent trolls, such a
proposal could work to limit recovery of damages. For example, judges
could require that a jury consider the
fact that the patentees do not produce any useful invention, or describe
the
patent trolls’ business method to be used as a factor in the finding of
damages. Alternatively, if a judge
prevents the consideration of what a patentee believes to be crucial in
the
finding of an acceptable reasonable royalty rate as part of their
gatekeeping
function, this may spur patent trolls to settle for lesser terms, rather
than
risk a lower amount in damages from a jury.
More tomorrow on apportionment of
damages and what the 2007
legislation would do…
