House passes patent reform, as White House voices objections

The House of Representatives handed the technology industry a big win by passing the Patent Reform Act. The bill changes the way damages for patent infringement are calculated, InfoWorld reports. Under the current scheme, damages are calculated based on the value of the entire product containing the infringing invention. Under the new law, juries and courts could assess damages just on the value of the infringing piece. Republicans, the pharma and biotech industries, and small inventors opposed the bill. The White House Office of Management and Budget (OMB) said Thursday the changes "introduce new complications and risks reducing incentives to innovate."

House passage is a "significant step toward improving our patent system," said Mark Bohannon, SIIA's senior vice president of public policy.

Asked about the OMB's opposition to the bill, Bohannon said recent changes have addressed many concerns. Apportionment of damages, one of the OMB's major concerns, needs to change, he added. "If we don't address the problem, we're not going to improve the system," he said.

The recent record-setting judgment against Microsoft for a violation of an arcane patent that's part of the MP3 standard illustrates the problem. In that case, Microsoft had licensed the MP3 patents from the Fraunhofer Institute for use in Windows Media Player, but a federal jury found that Alcatel-Lucent had inherited from AT&T related patents not covered by the Fraunhofer license. Under the current patent regime, the damages were calculated according to the full value of Windows, rather than the incremental value of WMP. Opponents argued the bill favors tech giants at the expense of small inventors.

Representative Marcy Kaptur, an Ohio Democrat, noted that between 1993 and 2005, four major tech vendors supporting the bill paid out US$3.5 billion in patent infringement settlements. But those same unnamed tech vendors had revenues of $1.4 trillion during that time period, she said.

Tech vendors want to reduce patent infringement costs "not by changing their obviously unfair and often illegal business practices, but by persuading Congress and the Supreme Court to weaken U.S. patent protections," she said. "We ought to stand up for American inventors."

But this argument is a straw man, in which small inventors are getting ripped off by mega tech companies. But as the MP3 example above shows, patent disputes are far more likely to involve disputes between competitors of similar size, or between patent trolls and serious companies. Reform would close down the abuse of the patent system as a competitive sword, while small inventors would get damages rationally related to the actual harm they suffer.