The most contentious issue for patent reform (lately, at least) regards calculation of damages.  Damages consumed much if not most of the time during the Senate hearing on the Leahy-Hatch bill a few weeks ago.  At the risk of over-simplification, the Leahy-Hatch bill tried to ensure a couple of things regarding reasonable royalties for damages:

(1)  If a patent covers a discrete component of an infringing system (e.g., the modem in a computer), damages should ordinarily be based on the value of the modem and not the entire market value of the computer.  This is the “entire-market-value rule” question and is currently up for decision in the Court of Appeals for the Federal Circuit.  (Disclaimer:  Several years ago, I worked on that case at the trial level.)

(2)  Damages should be assessed with reference to the “claimed invention’s specific contribution over the prior art.”  (quoting from page 27 of the Leahy-Hatch bill).  An extensive critique of such methodology appears here.  Such critics argue that the “specific contribution” formulations are unreasonably vague and sell short the value of patented inventions.

The Kyl bill backs off of both of these reforms.

Jury verdicts are quite unpredictable, and because the royalty rules are so loose, damages appeals are rarely successful.

The new legislation appears to take on these problems in a way to (1) reduce the average damage award; (2) make damage awards more rational and predictable; and (3) make damages judgment more subject to appellate review.

The practical approach of the legislation is to create a “standard for calculating reasonable royalty” which require a determination of the “specific contribution over the prior art” to determine damages. Some courts already follow the rules set out in the proposed legislation. Thus, legislation advocates may refer to the damages reforms as simply a clarification that limits the actions of rogue courts.

So, is this the year that one of these two patent bills will be enacted?

I have long held the opinion that some type of patent reform is inevitable.  I represent clients in the on both sides of the issue, and there is no question that high tech has been hammered by lawsuits and that this is a major problem for the industry.  So, there is certainly a lot of support on the high tech side for some sort of reform.

As for whether or not it will happen this year, that is a tougher question.  While on one hand it seems incredible to think that in the midst of such economic turmoil a patent reform bill could be voted into law, on the other hand, the truth of the matter is that the economic turmoil could provide just the right climate for patent reform to actually be enacted.   If you question that premise, just take a look around at the other legislation on the table right now–regardless of your political persuasion, I think many Americans would agree that legislation is on the table right now and is getting voted through Congress that would never in normal times get through so easily.

Moreover, I think most commentators would agree that the reason we have been at standstill on patent reform is in large part due to the vigorous lobbying efforts by both the tech and life sciences industries.  I think there is some question given the economy that either industry will have the same level of funds to spend on patent reform lobbying efforts right now.  Biotech companies are running out of money and in some cases filing for bankruptcy.  Tech companies are doing mass layoffs in an attempt to try to stay solvent.  And pharma companies are out looking for bargain basement deals to fund.  Which of these parties will be able to really invest in patent reform lobbying this year?  Your guess is as good as mine.

The California Biotech Law Blog will continue to keep you posted on any patent reform developments as this bill moves through Congress.  This should be interesting. . . .