Commerce Department calls on Judiciary to modify Patent Reform Act

WASHINGTON The House of Representatives in mid-September passed the Patent Reform Act and now the Senate is considering a similar bill this month. But before it is approved, the Senate Judiciary Committee will continue to work disputed sections of the bill, including the damages provision.

The damages provision is being questioned by the Commerce Department, who notified the Senate Judiciary Committee that the, “damages section will seriously harm the U.S. intellectual property system.”

In its Feb. 4 letter to Sen. Patrick Leahy, D-Vt., chairman of the Senate Judiciary Committee and other committee members, the Commerce Department said the bill’s damages provision “will create more problems than it solves.” The damages language in S. 1145, the Senate’s bill, would establish a system for courts to use when calculating reasonable royalty awards in patent litigation.

The damages provision aims “to give judges, and juries, better guidance on the proper way to calculate a reasonable royalty,” according to a Jan. 24 Judiciary Committee report on S. 1145. Rather than leaving juries to calculate royalties using various factors, the Patent Reform Act would require judges to tell juries which factors to consider. The judge also would decide whether royalties are supposed to be calculated based on the entire market value of the invention or on the specific patent’s contribution over prior art.

This proposed method for calculating damages is too narrow and would discourage innovation, according to Commerce. Judges should be required to identify all possible factors to use when calculating reasonable royalties, and juries should be required to apply all factors. “Innovation can and will be encouraged in all industries by giving federal juries the flexibility to apply appropriate economic principles to the facts of each case, consistent with the business model or technology,” the department wrote.