This is the second installment of the Senate Committee for the Judiciary hearing on the new Patent Reform Act. This post will discuss the testimony of Bruce G. Bernstein, the Chief Intellectual Property and Licensing Officer for InterDigital Communications Corporation. Readers can find the post on the testimony of USPTO Director Jon Dudas here. Mr. Bernstein’s company, Interdigital, is a relatively small company that develops “advanced wireless technologies and products that drive voice and data communications.” Interdigital’s business model is one that relies on research and development of new technologies and then licensing the resulting patents. Interdigital has been quite successful in their business and has made over $1 billion utilizing this model. Given the way that Interdigital does business, it is unsurprising that Bernstein voiced concerns with the apportionment of damages and post-grant opposition clauses in the proposed legislation. Bernstein’s critique of the codification of a test for apportionment of damages centers upon the argument that such language will remove the “only leverage that a small patentee possesses to secure a licensing agreement with a corporate giant.” The relevant language of the Act states that a reasonable royalty:

is applied only to that economic value properly attributable to the patent�s specific contribution over the prior art except where a patent has been shown to be the predominant basis for market demand for an infringing product or process

Bernstein stated that this language will remove market-based damages awards and replace the market with expert testimony and the courts. This change will not only reduce the damages for infringement, but will also “undermine market-based licensing negotiations.” As a result, Bernstein argues that there will be an incentive to litigate (and try to invalidate the patent) instead of acquire a license to the patent(s) in question. Bernstein also cited eBay (and the resulting difficulties in getting permanent injunctions) as another reason to maintain the market-based damages as a remedy to patent holders. As a result, Bernstein, like Director Dudas, wishes to keep the Georgia-Pacific factors as the test for the apportionment of damages. Bernstein’s second problem with the Patent Reform Act of 2007 is the creation of new post-grant opposition proceedings. He believes that:

adding an expansive and duplicative new post-grant opposition process, while maintaining and expanding the existing inter-partes reexamination process, would subject patents to an unfair and unreasonable number of duplicative attacks on validity

Bernstein went on to say that the system would favor invalidation because it would significantly lower the evidentiary burden required to invalidate a patent, and remove the presumption of validity present in a full-fledged trial. Additionally, he believes that the post-grant review would invalidate many patents that should merely be reduced in scope. Lastly, he expressed displeasure with the increased costs of adding these proceedings, both upon the PTO and patent holders. Bernstein also came out against the increased rule making authority given to the USPTO and he was against interlocutory appeals to the CAFC after Markman hearings. Bernstein stated that the USPTO “lacks meaningful exposure to the commercial and economic complexities of patent post-issuance” to have the rule making authority granted by the new bill. Additionally, he said the addition of interlocutory claims appeals would only strain an already busy CAFC. Bernstein finished up by stating that Interdigital wants to see: a permanent end to fee diversion, enhanced third party prior art submissions, universal publication of patent applications, enhanced judicial training, elimination of the best mode requirement, and statutory clarification of the inequitable conduct defense as a part of the Act.