Patent Overhaul now on D.C. Agenda

When Democrats took control of Congress last election, the lobbyists for all the big technology and telecom companies in Washington pulled out their wish lists, ripped them up, and re-arranged their legislative priorities.

Gone was the push for sweeping telecommunications legislation, hemispheric-wide free-trade agreements and limitations on Internet taxes. Only a Republican Congress and White House could agree upon those.

A new priority has emerged: overhauling the nation’s patent system. Seemingly out of nowhere, it is suddenly all the talk of Washington’s political-corporate machinations.

For the big boys of the technology industry – Apple, Cisco, Dell, Microsoft and Intel – swatting down patent litigation has been a steadily increasingly nuisance. Just last month, Microsoft defended against an infringement claim against AT&T at the U.S. Supreme Court.

But why should so-called “patent reform” rocket to prominence with Democrats in power? Two words: Big Pharma.

Drug companies have been never been chummy with the Democrats. In the past two decades, pharmaceutical manufacturers and their employees have given more than twice as much — $29.9 million versus $14.8 million – to Republicans than to Democrats. Democrats have returned the favor by pushing for re-importation of prescription drugs, lower drug prices, and other anathema topics. Changing patent laws fits into the same category.

Computer and software companies pride themselves on their even-handedness. They dispensed $31.5 million, versus $30.2 million, for Republicans over Democrats during a similar period. And the high-tech camp cannily plays to the vanities of those who govern, whether that is bridging the digital divide or keeping stock options from being listed on balance sheets.

Now the big tech titans have a new best friend: California Democrat Howard Berman, the chairman of the Judiciary Subcommittee on Courts, the Internet and Intellectual Property. Berman has been a patent skeptic for years, having sponsored legislation to limit the validity of “business method” patents. Last month Berman called patent legislation his panel’s “highest priority.” And he blasted Big Pharma, which is content with the status quo, for using their Republican ties to kill legislation last Congress.

With Democrats in charge, the big tech players love to frame the patent issue as one of Big Pharma versus Silicon Valley. They’ve formed a Coalition for Patent Fairness, and they say that patent law must adapt to the more inter-dependent nature of innovation.

There is some truth to this argument. Tech companies use patents differently than do drug companies. A laptop may encompass 1,000 patents or more. A blockbuster drug, by contrast, could be a single precious piece of intellectual property.

That makes the patent-blocking and patent trolling problem much more acute for information technology than for biotechnology. Threats of injunction (like Verizon vs. Vonage) loom large, as the long-running legal wrangling over BlackBerry made apparent. And with many ludicrously granted patents out there – like exercising a cat – patents indeed can be more of a burden than a benefit to innovation.

Now, however, an increasing minority of tech companies are crying foul and fighting back. Led by Qualcomm in a new lobbying force called Innovation Alliance, these chip-design companies see a thinly veiled ploy by dominant tech incumbents. “Patent reform,” they say, would hobble their disruptive technologies and their business model. It is centered on licensing, not manufacturing, their intellectual property.

Innovation Alliance is particularly concerned about the way the Patent Fairness group – with the active support of Berman, and also Sens. Patrick Leahy, D-Vt., and Orrin Hatch, R-Utah – want a “second window” where questions of validity linger at the Patent and Trademark Office.

“The proposed ‘second window’ allows a patent to be challenged throughout its life, and subjects patent owners to new kinds of administrative litigation,” Irwin Jacobs, the engineer who co-founded Qualcomm, said on Thursday at the Heritage Foundation. Jacobs has become a one-man Diogenes against the “patent fairness” trend. At least he is spoiling the IT vs. Big Pharma storyline.

Nervously in the middle is the rest of the business world. In a group that lobbyists are calling “Pharma-lite,” a third group was born last week: the Coalition for 21st Century Patent Reform. Its big players are 3M, Caterpillar, Eli Lilly, General Electric, Johnson & Johnson and Proctor & Gamble. It’s unclear where they come down on the key issues in dispute. But it is clear that Qualcomm and the chip-designers want nothing to do with their lobbying efforts.

As Congress digs into the weeds, they’ll discover how patents cut both ways. Qualcomm, for example, currently faces its own infringement suit from Broadcom. This reality at least drives a universally shared impulse to improve the quality of patents when the first emerge from the PTO.