Promote the Progress

The Congressional Budget Office released its analysis of the budgetary impact S.1145, the Patent Reform Act of 2007. The Office estimates that enacting the bill as reported by the Senate Committee on the Judiciary would increase direct spending by $26.9 billion while increasing revenues by $25.5 billion over the 2009-2018 period. The bulk of the revenue increase would come from making permanent PTO’s authority to collect and spend certain fees. The net effect of the bill is estimated to be a $1.4 billion deficit increase between 2009 and 2018.

Most important to patent applicants, the report estimates that the required ’search reports’ would add an additional $5,000 to $10,000 to each patent application (a range apparently provided by the Patent and Trademark Office). The Office notes that the sum total to the private sector for this provision alone would “substantially exceed the annual threshold” for unfunded private sector mandates established by the Unfunded Mandates Reform Act (UMRA).

Those costs are easy to get a handle on…and are probably fairly accurate (and, notably, are considerably less than the $26k that the dreaded examination support document could cost if the new rules survive).

According to the CBO estimate, though, there’s a lot of budgetary uncertainty that arises out of the two special-interest provisions of the bill.

First, section 13 would allow the Director of the Office to accept late filings of applications in certain cases of unintentional delay. This special-interest provision has been kicked around for nearly two years and now it seems that it is directed at a particular pharmaceutical patent (we suspected so). Indeed, the Office calls the drug out specifically:

“CBO anticipates that enacting this provision would lead PTO to accept an application for extension of the patent term for a drug known by the trade-name Angiomax. The firm that holds the patent for Angiomax missed the statutory filing deadline by one day for its application to restore the patent term authorized under the Drug Price Competition and Patent Term Restoration Act. Under the bill, we expect that PTO would grant nearly five years of additional patent protection to that product.” (emphasis added)

The Office notes that this provision would not only have a direct impact on the generic drug industry (via lost revenue due to the extended patent term), but also that it would indirectly impact health insurance premiums and tax revenues:

“CBO anticipates that the increase in net costs for private health insurance plans would result in higher insurance premiums, thus increasing the amount spent by employers for tax-favored health insurance and reducing the amount spent on taxable wages. That change would reduce federal revenues from income taxes and payroll taxes by an estimated $3 million over the 2010-2013 period and $30 million over the 2010-2018 period. Social Security payroll taxes, which are off-budget, would account for about 30 percent of those totals.”

Second, section 14 would essentially eliminate infringement of patents relating to “check collection systems,” all but guaranteeing lawsuits against the federal government for Fifth Amendment takings. CBO estimates that the affected patent holders will ultimately prevail in such lawsuits…to the tune of “about $1 billion, representing a royalty of 0.5 cents per check on more than 200 billion checks cleared by financial institutions that would be authorized to infringe on the rights of patent holders under the bill.”

You can view/download a .pdf of the Congressional Budget Office Cost Estimate for s.1145, the Patent Reform Act of 2007, here.

This morning’s Washington Times includes Meaningful Patent Reform, an op/ed piece co-authored by Senators Leahy and Hatch. Characterizing themselves as “close partners on intellectual property issues,” the current and immediate past chairman of the Senate Judiciary Committee pitched their case for passage of S.1145, the Patent Reform Act of 2007.

The primary rationale advanced by the Senators can be paraphrased as such:

Congress has neglected to modernize our patent system to keep pace with the boom in American innovation. Recent Supreme Court decisions have nudged things in the right direction…[b]ut the Court is constrained in its decisions by the laws on the books….If we are to maintain our position at the forefront of the global economy and continue to lead the world in innovation and production, we need an efficient and streamlined patent system that issues high-quality patents while limiting wheel spinning and counterproductive litigation.

The article specifically notes the post grant review, forum shopping (venue), and inequitable conduct reform measures contained in the bill. It also carefully addresses the controversial damages provision which appears to be the key sticking point at this time:

We must also restore fairness to the rules that govern how courts determine damages when a patent is infringed. The threat of excessive damages is ruthlessly curtailing progress, and the loss of jobs and innovation is directly linked to litigation costs. But we must be careful to strike the right balance so that violating the intellectual property rights of others does not just become an acceptable cost of doing business. The goal of our reforms is to ensure that patent holders will be able to obtain appropriate compensation in case of infringement.

The Senators close with an interesting note about the bill’s progress to date:

As legislators, we know we are headed in the right direction when everyone is complaining that the entire bill is not going their way. We see this as a necessary, albeit somewhat difficult, part of the legislative process. But we welcome it. But at the end of day, we are confident that we will resolve the remaining issues in ways that should make everyone comfortable and will ensure final passage.

According to Grier C. Raclin, executive vice president and general counsel of Charter Communications Inc., patent reform legislation is necessary to guard against “existing loopholes” and to protect against “frivolous lawsuits.”

In this Op/Ed piece on STLtoday.com, Mr. Raclin invokes two powerful concepts – loopholes and frivolous lawsuits – that immediately resonate with folks having no legal background.

“Loopholes? Yes, those are always bad. Frivolous lawsuits? Outrage!”

Unfortunately, Mr. Raclin offers no details on the “loopholes” of which he speaks. Nor does he tell us what constitutes a “frivolous” patent lawsuit. I hate to make assumptions, but it seems fair to surmise that he would characterize continuation practice as a “loophole” and would equate frivolity with the much-maligned practice of owning patents and not making products.

Oh, and patent reform is about protecting American jobs, too:

“[The Patent Reform Act of 2007] would rectify the current imbalances in the patent system that are working against American innovation, job growth and consumer welfare…Patent reform is the key to cutting down on frivolous lawsuits and placing the focus back where it should be — on introducing ground-breaking innovations and promoting American jobs.”

Odd that he didn’t mention the letter of opposition to S.1145, the Patent Reform Act of 2007, that was recently signed by more than a dozen major labor unions.