Judiciary Testimony Hearing as they either pay the price of the litigation through increases in retail prices, or, in many cases, are never offered the new service. We have been following proposals for revision of the patent system that have been circulating in Congress with great interest, and continue to evaluate new ideas to improve the patent system. Like many others, we believe that there are three groups of issues that need to be addressed in order to improve the functioning of the patent system. First, the PTO needs to be adequately and consistently funded. Many criticisms are unfairly directed against the PTO. In the recent past, the PTO has been given an enormous task but highly inadequate funding to do its job. We appreciate the work done to make sure the PTO has the resources it needs in this fiscal year, and urge that adequate funding continue so that the laudable programs of Assistant Secretary Dudas and the professionals at the PTO can bear fruit. Second, to insure the long term viability of the patent system, and the continuation of the benefits it has historically brought to our nation, patent quality needs to be addressed. In this area, improvements we support include limits on abuse of continuation practice, meaningful post grant opposition procedures, publication of all patent applications, and improved ability of the public to submit prior art during prosecution. We recognize that many who support improving the quality of issued patents have concerns about some of the proposals in this area, and agree with them that it is important to retain both substantive and procedural fairness for patentees while fixing the problems. Third, with respect to patent injunctions and damages, the subject matter of today's hearing, we believe the following changes would address substantial problems in current patent law. We also believe these changes are fair to all and achievable. Judiciary Testimony Hearing June 14, 2005 Require Meaningful Proof Before Awarding Increased Damages in Patent Suits. Under current law, a finding of willfulness entitles the patent plaintiff to multiply its damages up to treble damages. As Judge Dyk's partial concurrence in Knorr Bremse v. Dana' noted, the current standard is inappropriate in view of the settled law of punitive damages. Willfulness has a very different meaning in patent law than in traditional tort law, and increased damages are routinely awarded in patent cases. In contrast, in other litigation, increased damages are awarded only where parties have clearly acted reprehensibly or egregiously. Moreover, to fend off possible willfulness allegations, companies must go to the expense of hiring patent counsel to produce exculpatory opinion letters. As courts have noted, such letters are only useful when they are wrong - after a defendant has been found to infringe - despite the letter's stated belief that he did not infringe. Willfulness accusations arise in almost every patent case, and inject great uncertainty as to the ultimate outcome. Allegations of willful infringement lead to substantial increases in discovery and trial costs, because they are difficult to dismiss at the summary judgment stage, and appear to produce very little benefit to the system. Moreover, as the FTC noted in its 2003 report, To Promote Innovation, the overbreath of the willfulness standard in current law introduces unnecessary uncertainty, raises risks, and reduces efficiency because it discourages parties from reading others' patents and from planning non-infringing business models. For all these reasons, the Patent Act should be amended so that the purpose behind increased damages, to punish those who have acted with disregard for the law, is actually the predicate for willfulness damages being imposed. 'Knorr-Bremse Systeme Fuer Nutzfahrzeuge Gmbh v. Dana Corp., 383 F.3d 1337, 1348-52 (Fed. Cir. 2004). Judiciary Testimony Hearing June 14, 2005 There are many proposals that attempt to amend the willfulness standard. We support all proposals that bring patent law into compliance with other litigation standards, and increase damages only in cases where parties have acted egregiously. In particular, we support requiring that willfulness be established through clear and convincing proof of actual, substantive, written notice to the defendant, deliberate copying of a patented product knowing it to be patented, or continued infringement not colorably distinguishable from activities previously judged to infringe. Conform Patent Damages to the Reality of Multiple Patents Covering Products. The current law requires that patentees who succeed in litigation receive damages fully adequate to compensate for the infringement. We support this standard for all owners of intellectual property, but note that in the patent area the elements of damages have been expanded by the courts far beyond the patented contribution to the public. Especially in the areas of complex computer and communication systems there can be many hundreds of patents covering a product or service. For example, there are more than 400 patents that are essential to produce a DVD. And others have commented on the hundreds of patents typically related to a computer operating system or a PC. Yet the patent law remains mired in a nineteenth century paradigm of essentially "one patent, one product." As a result, the courts have been required to create and modify complicated patent specific damage rules to give effect to the statutory purpose and underlying policy.2 Thus, in litigation and negotiation, legitimate patentees, as well as those who would twist the patent litigation system for private advantage despite potential harm to the 2 public, routinely urge that the measure of their damages must encompass any remotely relevant revenue of the defendant. 2 See, e.g., Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir), cert denied, 516 U.S. 867 (1995). Judiciary Testimony Hearing June 14, 2005 Time Warner supports reforming patent damages law by explicitly directing the courts to begin their damages analysis for combination inventions by focusing on the incremental value attributable to the patented invention. When the accused product or service involves a complicated system incorporating many public domain and patented contributions, full compensation to the patentee should not usually involve apportioning value unrelated to his or her invention. Fix the Patent Injunction Imbalance. Today, as a matter of course in patent litigation, the prevailing plaintiff is entitled to an injunction and the availability of such an equitable remedy is a key part of being able to protect our nation's intellectual property. The problem with today's system comes not in the availability of injunctions but in the application of that remedy over the last fifteen years. Due to changes in the way that courts consider irreparable harm, individuals and companies who do not innovate or put products into the market, but rather buy up paper patents and try to extract large license fees, have been able to shift the equities in the patent environment in a way that makes little sense. Thus, any patent owner can hold a company hostage by seeking an injunction and threatening to stop the company from operating part of its business. Instead of following traditional principles of equity and requiring a weighing of the equities in patent cases, the Federal Circuit has required district courts to presume irreparable harm in all cases. To make matters worse, this presumption is essentially an irrebutable one because the Federal Circuit has rejected nearly all attempts to rebut that presumption and discounted hardship to the defendant or the public. As a result, a patent owner can obtain an injunction, regardless of whether he or she is in fact irreparably injured, regardless of whether the patent owner makes a competing product, and Judiciary Testimony Hearing regardless of whether his or her invention is a major or a minor part of the defendant's product or service that is enjoined. Therefore, patent lawsuits frequently place core aspects of a defendant's business in jeopardy of being shut down if the plaintiff prevails. While large companies like Time Warner may be able to absorb some of these costs, one only need to look at patent cases over the last several years to see that small companies simply cannot. This recent judicially-created patent injunction doctrine has a number of harmful effects. First, it creates a litigation imbalance between plaintiffs and defendants that distorts the purpose of the Patent Act. The mere threat of an injunction produces a disproportionate in terrorem effect. Plaintiffs are able to assert far-fetched claims and extract settlements with the threat of stopping a company that is already in the marketplace from using a technology that is part of its product or service offering. In the vast majority of cases (most which never go to trial), companies that have not infringed pay what amounts to protection money to avoid the draconian threat of disruption of their businesses. Second, the doctrine permits a patent-holder to obtain (or to threaten to obtain) an injunction against an entire business model even when the patented item is a small element of the defendant's product or service offering. Third, the doctrine disproportionately rewards entities that own but do not practice patents because they can pursue litigation, threatening to shut down another company, without risk that the same strategy will be applied to them. Fourth, the doctrine is highly problematic in areas where, due to constraints on its resources, the PTO has been unable to maintain patent quality because plaintiffs with improperly issued patents can stop companies who have legitimately brought products and services to market from providing them to consumers. |