This is the third installment on the Senate Committee for the Judiciary’s hearing on the new Patent Reform Act. This post will discuss the testimony of Mary E. Doyle, Senior Vice President and General Counsel for Palm, Inc. Readers can find the first two installments of this series here. Mary Doyle spoke not only of Palm Inc.’s position on the new bill, but also provided a window into the views of the Coalition for Patent Fairness. This is important to note, because the Coalition is one of the most powerful tech lobbying groups in Washington and represents many of the largest companies in the Silicon Valley. Additionally, it provides a counterpoint to the Innovation Alliance, a newly formed lobbying group that illustrates some of the different goals of tech companies here in the Valley. Readers may be interested to listen to the podcast with two of the IA’s members, Taraneh Maghame of Tessera, Inc. and Derek Minihane of Intermolecular, as they discussed many of the same issues addressed in Mary Doyle’s testimony. Doyle’s testimony began with a description of Palm’s experience with the patent system as it stands. Palm Inc. is a $1.6 billion company that utilizes a vast number of patents (some of which they own, many others which they license) in creating its products and services in the telecommunications industry. As such, Doyle voiced concerns over the escalating costs of litigation and the growing frequency of lawsuits for patent infringement. Doyle also has a problem with the increasing number of demand letters, though it would seem her concerns should have been allayed by MedImmune. Thus, she and the Coalition for Patent Fairness support: interlocutory appeals to the CAFC for Markman hearings, revised venue laws, new post-grant review procedures, codification of a method for apportionment of damages, and a more rigorous standard for finding willful infringement.
Doyle came out in favor of allowing interlocutory appeals from claim construction hearings for several reasons. She cites a wide range among courts in scheduling Markman hearings which can cause a delay of up to two years from the start of a trial for a court to finally interpret a claim. Additionally, Doyle points to the high number of District Court decisions being reversed by the Federal Circuit as a further obstacle to finalizing claim construction. Given the importance of claim construction in most patent cases, Doyle sees interlocutory appeals as a way to reduce both the time and cost of litigation.
Next Doyle railed against the forum shopping that currently abounds in patent cases.
Liberalization of the venue statute imposes a costly burden on businesses like ours that must collect evidence and witnesses and travel to remote jurisdictions to try complex patent cases over a period of weeks or months. It is also apparent to us that this change in the statute worked a perverse mischief, encouraging forum shopping.
Thus, she and the Coalition want to see the proposed Act limit the available forums to those with a “tangible nexus” to the defendants headquarters or significant place of business.
Doyle came out in favor of the proposed second window post-grant review, stating that it will lead to better patent quality. She went on to say that:
Allowing third parties to institute an administrative proceeding early in the process should also solidify the breadth and applicability of these patents, thereby leading to fewer later challenges.
She sees the current process of ex-parte or inter partes re-examination procedures as insufficient. The cost of reviewing the patents that go into complex products, such as Palm’s, is far too high. Also, companies cannot anticipate all of the potential uses for a patent when the patent is granted. In Doyle’s view, allowing a second window re-exam in response to a threat of suit provides a low cost solution.
Apportionment of Damages
Next, Doyle came out in favor of limiting excessive royalty awards and codifying the “Market Value Rule.” She emphasized the fact that court-ordered reasonable royalties should reflect those reached through real-life negotiations. She went on to say that the awards for infringement that exceed the profit on the entire product “fly in the face of the bedrock principle that the purpose of patent damages is to compensate, not to punish.”
Doyle then pointed out the problems with the current standard used to find willful infringement. Doyle stated that though courts have likened willfulness damages to punitives:
the standard applied to determine whether the defendant acted “willfully” is far lower than what is required to impose punitive damages in other contexts Ã¢â?¬â?? proof of bad faith or egregious conduct is not required and a patent holder may prevail simply by showing that “a potential infringer ha[d] actual notice of another’s patent rights” and failed to satisfy his “affirmative duty to exercise due care to determine whether or not he is infringing.
She finished up by stating that the effect of the lower standard is to incentivize companies to remain ignorant of other patents and patent applications for fear of increased damages. This activity runs counter to the purpose of the patent system which encourages evolutionary inventions as well as new ones. The new Reform Act will create a heightened standard for willfulness, of which both Palm Inc. and the Coalition for Patent Fairness are quite fond.