Professor Lerner goes to Washington

Over the past two decades, the US patent system has become more sand than lubricantin the wheels of technological progress. In particular, changes in both the courtappeals and patentapproval processes have made itmore difficult for young companies ? many of them venture-backed ? to defend their inventions from large corporate marauders armed with old patents and deep pockets.

But thatmay soon change in lightof a new bill introduced into the US House of Representatives in June. Dubbed the Patent Reform Act of 2005, it includes modifications to injunctions, increases emphasis on filing time, and allows opposition after a patent has been granted.

Venture capitalists in particular see new hope for many of their early stage businesses, which often have to pay exorbitantlicensing fees for developing their products to existing patentholders that do noteven manufacture such devices themselves.

The new bill would award intellectual property rights to the first entity to file a patent, doing away with the current one-year grace period for certain third-party disclosures that could invalidate a patent. The creation of a ?post-grant opposition,? however, would finally allow for a way to challenge existing US patents, and may open up a whole new area of contention in the patent arena.

One of the specialists called in to testify in frontof the House Subcommittee on Courts, the Internet and Intellectual Property was Harvard Business School professor Josh Lerner, co-author of the recently published Innovation and Its Discontents:How Our Broken Patent System is Endangering Innovation and Progress, and What to Do About It. In both his book and his testimony, Lerner argued that the fundamental problem of the patent system is that in the past two decades, the US has strengthened patent rights while weakening the standards for granting patents.

In the early 1980s, Congress created a centralized appellate court for hearing patent cases that expanded the realm of what could be patented, lowered the standards for receiving awards, and made it more likely that a challenged patent would stand up to legal scrutiny. It also gave patent holders more potent legal remedies.

In the early 1980s, Congress created a centralized appellate court for hearing patent cases that expanded the realm of what could be patented, lowered the standards for receiving awards, and made it more likely that a challenged patent would stand up to legal scrutiny. It also gave patent holders more potent legal remedies.

Furthermore, Lerner argued, in the 1990s, Congress turned the patentoffice into a profit center by pushing it to return excess revenue to the federal treasury. This shift, he contended, created pressure to grantmore patents, made it difficult to attract and retain skilled examiners, and allowed for too many of what are know as ?lowquality awards.? (Some examples include wristwatches for dogs, peanutbutter and jelly sandwiches and a method of swinging on a swing.)

?Big corporations filed aggressively and filings went up,? Lerner said in a recent interview with Private Equity Manager.?Money spent on litigation went up, as did the number of lawsuits. This has had a huge effect on innovation by companies backed by venture capitalists. These new companies typically have no existing portfolio of patents with which to cross-license, and therefore are often in difficult situations. The established corporations usually demand cash. There's a barrier to entry for new, innovative companies [since] they have to pay off these large companies with patent portfolios, even if those patents are not of the best quality.?

Breaking the vicious cycle of bad examinations and bad applications seems to be the key to reform of the patentprocess. But, as Lerner maintained in his testimony,?there are always going to be mistakes, and so it is important that the court system operate efficiently to rectify those mistakes while protecting holders of valid patents. Today, the legal playing field is significantly tilted in favor of patentees.?

PATENT REFORM ACT OF 2005 HIGHLIGHTS: