Key Cleantech Players Oppose Patent Reform Legislation
By: THOMAS R. HIPKINS & MIA E. MENDOZA
March 13, 2009
Patent reform is once again on Congress’s to-do list, and important representatives from the cleantech industry have joined a growing list of constituencies opposing the proposed legislation. On March 3, 2009, the Patent Reform Act of 2009 was introduced in both the House and the Senate. Less than a week later, on March 9, 2009, representatives from the cleantech industry wrote a letter to key legislators expressing their opposition to the bill. The full text of the letter can be found here.
This article provides a brief overview of the Patent Reform Act of 2009 and summarizes the points made in opposition by the cleantech industry representatives.
The Patent Reform Act of 2009
The Patent Reform Act of 2009 comes on the heels of several unsuccessful attempts to reform the Patent Act. One noteworthy provision would move the U.S. from a first to invent system to a first to file system, as is the law in most other countries. Other provisions include expanding the opportunities for post grant review of issued patents, reducing “venue shopping” in patent infringement and declaratory judgment suits, and raising the standard for finding willful infringement (thus reducing the likelihood of treble damages).
But what has proven to be the most controversial provision in the Patent Reform Act relates to damages—specifically the way in which a reasonable royalty is calculated. Under the bill, a reasonable royalty may be based on the entire market value of an infringing product only if the invention’s specific contribution over the prior art is the predominant basis for market demand for the product. Alternatively, the reasonable royalty may be determined based on existing nonexclusive licenses for either the claimed product or for similar noninfringing substitutes. If neither of these can be shown, then the reasonable royalty is determined based upon the portion of the infringing product’s value which is due to the invention’s “specific contribution over the prior art,” rather than on the entire market value of the infringing product.
This third method of calculating a reasonable royalty, based on only a part of an infringing product’s value, is referred to as “apportionment” and forms the crux of the controversy. The reason is simple: Apportionment results in smaller damages awards.
Representatives from several industries have taken sides on the apportionment issue. The primary proponents come from the software industry, while opponents include those in the pharmaceutical, biotech, and manufacturing industries, as well as labor unions.
The March 9, 2009 Letter
On March 9, 2009, representatives from the cleantech industry joined the opponents of the apportionment provision. A group of cleantech organizations and companies sent a letter to the chairmen and ranking members of the Judiciary Committees of both houses of Congress—Patrick Leahy (D-VT) and Arlen Specter (R-PA) in the Senate, and John Conyers (D-MI) and Lamar Smith (R-TX) in the House. Among those that signed the letter were the American Council on Renewable Energy (ACORE), the Biomass Coordinating Council, and the Ocean Renewable Energy Coalition.
The letter criticized the damages apportionment provision, asserting that it would reduce the consequences of patent infringement, thereby diminishing the value of U.S. patents. According to the letter, weakening patents would obstruct “the innovation pipeline and subsequent domestic manufacturing capacity that will build the next generation of energy efficient, renewable energy, and renewable fuel technologies, creating thousands of American jobs in the process.”
The letter points to two specific concerns about how weakening U.S. patents through damages apportionment would adversely affect cleantech companies. Both concerns seem rightly premised on the notion that start-up and early-stage companies will play key roles in much of the breakthrough innovation that will occur in the cleantech space.
The first concern involves cleantech companies’ ability to attract venture capital. According to the letter, weakening U.S. patents through the damages apportionment provision “will have an effect on the availability of the venture capital required, decreasing the speed at which innovation will occur.” Robust patent protection helps offset the risk venture capitalists take in start-up and early-stage cleantech companies. If the venture succeeds, and the technology becomes highly sought after, the venture capitalist reaps the benefit of exclusive rights to the technology. Moreover, even if the venture fails, the venture capitalist may nevertheless have recourse based on the value of the underlying patent(s). Under this line of reasoning, if U.S. patents are significantly weakened, venture capitalists will simply be inclined to direct their funds elsewhere.
The second concern relates to the ability of U.S. cleantech companies to compete globally and create green jobs in the United States. Weakening U.S. patents through the damages apportionment provision would disproportionately burden start-up and early-stage technology-driven companies that rely heavily on patents. If those companies are beaten in the marketplace by foreign competitors, the associated manufacturing jobs will likely be located near the competitors and not in the U.S. According to the letter, the damages apportionment provision would result in “lost jobs at a time when the country can least afford it.”
It will be interesting to observe whether others in the cleantech industry decide to weigh in on the damages apportionment issue. We at Fredrikson & Byron will continue to monitor developments surrounding the Patent Act of 2009. Please contact your Fredrikson & Byron attorney with any comments, questions, or concerns about this legislation.