In the early 1800s, the U.S. patent office was housed at a converted hotel in Washington, D.C., and when applications were approved, a clerk would ride the agency’s pony across town to get the president’s signature on them.

Reliance on the horse was a sign of the “primitive state of the country and of the patent office at the time, where the quickest way to deliver messages around the city of Washington was by a boy on a pony,” according to “The Patent Office Pony,” by Kenneth W. Dobyns. He also writes that in 1835, the office issued 757 patents.

If only things had stayed so simple. In fiscal 2004, the U.S. Patent and Trademark Office approved about half of the 376,810 applications it received, according to preliminary data, and it expects a flood of new activity this year. Although the office has raised application fees and hired new examiners, by many accounts the agency is struggling with its workload.

Lawyers, companies, inventors and politicians all agree that the nation’s patent system is in desperate need of reform. They cite concerns about proliferating litigation, questionable licenses and a potential decline in American competitiveness. The question is how to reform: For all the complaints, little consensus has emerged on how to fix the system.

In the worst-case scenarios, misguided reform efforts could unleash unintended consequences. For example, proposals to weaken the threat of court injunctions are designed to help defendants and reduce the number of lawsuits–but critics say this so-called reform could actually increase the amount of litigation.

The issue is coming to a head in Washington, where committees in the House and Senate are planning hearings on a host of proposals to change the nation’s patent law and how the Patent and Trademark Office operates. The ideas being proposed run a wide gamut, from forcing patent holders to license their inventions to others, to the elimination of software patents altogether.

“Whether it’s movies, music, software or telecommunications devices, the intellectual-property industries drive our economy,” Rep. Lamar Smith (R-Texas), vice chairman of the House Republican High-Tech Working Group, said in a statement. “Without adequate protection there will be no incentive to create, and the economy and job creation will be hurt.”

In June, Smith introduced the Patent Reform Act of 2005, which could make it more difficult to obtain patents and reduce the damages a plaintiff could receive. Even in its earliest stages at the House subcommittee level, however, the legislation has already shown why patent reform is a highly elusive goal.

The bill immediately generated controversy with a provision that would give more discretion to the courts when it comes to ordering injunctions.

Under current law, most victorious plaintiffs win injunctions that prevent companies from manufacturing products that infringe on the patents in question. Smith’s bill and other proposals would allow a judge greater leeway on whether to issue an injunction. Instead of having to force a product off the market, they would be able to require, for example, simply that the defendants pay royalties on future output to the plaintiffs.

Reformers say injunctions often force defendants to settle, sometimes unfairly, to avoid a court judgment. But lawyers, patent holders and former patent agency officials say that, without the threat of injunction, defendants would drag their heels and take more cases all the way to a verdict.

Attorney James Pooley, a partner specializing in intellectual property at the Palo Alto, Calif., office of international firm Milbank, Tweed, Hadley & McCloy, has proposed a compromise under which the courts would give liable defendants a grace period after a verdict but before an injunction is issued, during which they could change their products or cut a licensing deal with the plaintiffs.

“Nobody volunteers to take a patent license,” said Kent Richardson, vice president of intellectual property at Rambus, which designs chips. “The reality is that most people won’t get to a deal without the threat of an injunction. This makes it easier on fence sitters.”

Targeting the court system –
Reformers are also setting their sights on the appellate court process, which sends all patent appeals to the federal circuit. Years ago, changes in the court structure narrowed the number of federal courts that hear appeals. These changes were supposed to ensure that judges on these cases had experience; instead, by narrowing the number of appeals judges, some say, the changes introduced elements of personality into the system.

“There is a sense among people in this business that certain panels believe that certain facts should have preeminence,” said Tom Duston, a partner at the Chicago law firm of Marshall, Gerstein & Borun. Appeals court judges kick back a relatively high 20 percent to 40 percent of the appeals for claim reconstruction, he added. In such cases, the appeals court is essentially saying that the first court misinterpreted some aspect of the patent in question and that the case must be reheard.

Other reform proposals target the way patents are handled long before any litigation comes. Many of the most strenuous complaints about the system are directed at companies that obtain patents but never make products from them, choosing instead to extract money from others who might be in violation.

Some reformers advocate a system that would force companies to make products with their patents or at least license them for others to put into practical application. But critics warn that this change would impose a duty on an inventor to compete as an industrial conglomerate, which can be difficult on individuals.

Besides, says former patent office director James E. Rogan, individuals and companies have every right to do whatever they want with their patents–including nothing.

“You can create it. You can sell it. You can license it or you can sit on it,” said Rogan, now a partner at Venable, a Washington law firm. “It is not the job of the patent examiner to delve into the psyche of the inventor.”

Intellectual Ventures CEO Nathan Myhrvold, former chief technology officer of Microsoft, is equally blunt: “There isn’t compulsory licensing in essentially any other part of American life. The only thing that would be similar to that would be eminent domain, where the government can ultimately condemn your property and force you to sell it to them if they truly need it to develop a new highway or something.”

Another reform proposal would allow companies or individuals to file objections to a patent application while the patent office is determining whether to award the patent. As a result, questionable patents could be vetted before any litigation begins.

Europe has a system like this, but only 5 percent to 10 percent of applications are ever challenged, so it’s clearly no panacea. Still, reformers are looking to other continental measures that may hold answers for the U.S. patent system, most notably the European Parliament’s rejection of the concept of software patents.

International patent standards in general are drawing more attention as the U.S. system falls under increasing scrutiny. In the rest of the world, the inventor is the person who files the application with the patent office first, a so-called first-to-file standard.

In the United States, the inventor is the person who created the product, which makes it a “first-to-invent” standard–a far more ambiguous criterion. “Until 1997, we had company. But that January, the Philippines went to a first-to-file standard,” attorney Pooley said.

‘Ordinary skill in the art’ –
Part of the reason that patents are so often disputed can be traced to the definition of what can legally be protected. Patents are supposed to be awarded for inventions that are both new and non-obvious to a person “having ordinary skill in the art.”

“The real issue is that we should only grant patents for truly new and non-obvious inventions. Vagueness is another issue,” said Adam Jaffe, dean of arts and sciences at Brandeis University.

Unfortunately, terms like “non-obvious” and “vague” are themselves also subject to wide interpretation.

“Have you ever read a patent claim?” Duston asked. “It’s one sentence that runs on for a half a page with all of this jargon in it. It is not in English.”

In Myhrvold’s view, the whole issue of “vagueness” is overblown. “Usually it comes up from people who don’t like patents already. It’s a rationalization for their position,” he said. “The stock market has stocks of companies that are flaky and questionable, right? But does that mean we should just avoid all public security markets?”

Some reformers advocate a standard that would require patent holders to show that infringers knowingly violated their protections. “In copyright, they (the defendants) kind of know where they got it from. In patents, they may have generally invented it, but it was too late,” Rambus’ Richardson said.

While patents protect an invention, copyrights protect the “matter and form” of something, such as a piece of writing or music.

Reformers have suggested that liability applies only after the defendant receives a letter warning them of the potential infringement. Unfortunately, that could also encourage some to work quickly and kill a product after the letter arrives.

In spite of such seemingly daunting obstacles, recent progress offers reason for hope. In fact, some of the larger problems in the patent system have already been curbed because of reform efforts in recent years.

Patent applicants, for instance, can no longer repeatedly amend an application–a procedural peculiarity that let prolific patent collector Jerome Lemelson amass a fortune in legal settlements and licensing fees for products ranging from Velcro darts and wiper blades to medical equipment and chipmaking technologies.

And as the broader patent policies are debated, at least the chronically overworked and underfunded patent office is finally getting some relief. It has hired 900 new inspectors so far this year alone, bringing its total to 4,000.

The agency will also keep the estimated $1.5 billion in fees it collects from applicants annually. In the past, Congress often siphoned this money off for other projects.

“This office is critical to the health of our economy and to the lives of millions of Americans,” Congressman Smith said in a statement. “From the lone individual working in their garage to the small-business person with a breakthrough idea to the large high-tech company that applies for hundreds of patents, all rely on a responsive PTO.”

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