Patent-law fight is becoming a case of pharma vs. tech

Big players in two giant industries - pharmaceuticals and computer technology - are squaring off in a high-stakes, multibillion-dollar battle about a congressional plan to alter the nation's patent laws.

Already facing heat from federal lawmakers for high drug prices and safety issues, the nation's major pharmaceutical and biotechnology companies are again on the defensive as they seek to thwart legislative changes they fear will undermine crucial patent protections on lucrative medications.

Many of those changes are being promoted by computer software and hardware makers, including Microsoft and Dell, which are pressing Congress to make it easier to challenge patents and to limit the damage awards for infringement.

The broader Capitol Hill debate is being driven by concern that increased patent litigation, an overburdened U.S. Patent and Trademark Office and an outdated patent system are stifling innovation and harming productivity.

"If we are to maintain our position at the forefront of the world's economy and continue to lead the globe in innovation and production, then we must have an efficient and streamlined patent system to allow for high-quality patents that limits counterproductive litigation," said Sen. Patrick Leahy (D-Vt.), the chairman of the Senate Judiciary Committee and sponsor of bipartisan legislation.

The drug and computer industries aren't ordinarily adversaries in the marketplace or the courtroom, but their needs and business models are in conflict about the patent issues.

"Big pharma's business depends on patents - it's how they survive," said John Thomas, an expert on patent law at Georgetown University Law School. "They enforce their rights for a set number of years, and when patents expire, everybody buys cheaper generic drugs."

While many high-tech companies seek to protect their own patents, Thomas said, they also regularly incorporate in their hardware or software hundreds, if not thousands, of patented components made by others. He said sometimes they pay royalties, but frequently they are sued and end up as defendants in court, fighting off patent infringement claims.

Adam Jaffe, a professor of economics at Brandeis University, said in basic terms, "the current system works for big pharma and doesn't work for the software and electronics industries."

One area of dispute involves a provision that would allow open-ended administrative challenges through the patent office after patents have been granted. There is a limited window to administratively question a patent's validity before going to court.

The pending bill also would restrict the possibility of winning triple damages available when a patent violation has been considered willful. In addition, the legislation would apportion damage awards based on the value of a patented technology or component, not the overall market value of the entire product.

THE PHARMA SIDE

Drugmakers invest between $800 million and $1.2 billion to create a successful medicine, a process that can take eight to 15 years to move from the laboratory to the market.

Patents are crucial for pharmaceutical manufacturers, which need the protection from competition to attract capital, invest in long-term research, recoup their investment and reap profits during the often-short time they can maintain exclusive patent rights.

Phil Johnson, chief patent counsel for New Brunswick-based Johnson & Johnson, said the proposed legislation would "so diminish the damages that could be awarded that there would be little or no consequence for infringement." He said the legislation would encourage companies to wait for others to innovate, and then effectively steal the intellectual property.

Kevin Sharer, chairman of biotechnology giant Amgen, recently told a congressional panel the proposed expansion of administrative challenges could "become a vehicle to harass legitimate patent owners and make it difficult for them to enforce their patents."

"The pending legislation allows patents to be challenged repeatedly through the Patent and Trademark Office throughout the life of a patent, resulting in more uncertainty, not less, and more litigation," Sharer said.

Those seeking to block the proposed patent changes include drugmakers Merck, Johnson & Johnson, Pfizer, Hoffmann-La Roche, Wyeth, Novartis, Bristol-Myers Squibb, Eli Lilly, AstraZeneca, Abbott and GlaxoSmithKline, as well as some manufacturing firms, including Dow Chemical, General Electric, Corning and Caterpillar. They have formed a 40-member Coalition for 21st Century Patent Reform to lobby Congress.

THE TECHNO SIDE

Microsoft, Apple, Dell, Intel, Sun Microsystems, Adobe, Hewlett-Packard, Cisco Systems, Oracle, Lexmark, Lenovo, Symantec and some financial service companies including MasterCard and Visa have countered with their more than 60-member Coalition for Patent Fairness, arguing the patent system is out of balance.

"Today, hundreds of patent infringement cases are pending against hardware and software companies, and these companies spend hundreds of millions of dollars each year defending themselves," Dell patent counsel Anthony Peterson said.

"That is not to say that all of these cases are without merit, but that is too often the case," he told a congressional committee last month.

Peterson said holders of even low-quality patents have a distinct advantage, often seeking to extract damages that far exceed the value of the component at issue because awards are often based on the value of the full product.

Peterson cited the recent Alcatel Lucent v. Microsoft patent case, in which a California jury awarded a record $1.5 billion in damages against Microsoft for infringing on two Alcatel MP3 technology patents used to play digital music on computers. Peterson said the jury relied on existing law, basing the award on the value of the computers, not just the MP3 technology, and ended with "an unjust result."

But drugmakers counter with examples of their own, including the case of Purdue Pharma, which initially lost and then won a patent infringement case against a generic firm involving its painkiller OxyContin. In the time it took to appeal, however, Purdue lost more than half of its sales for the $1 billion-a-year drug.

Robert Cohen may be reached at rcohen@starledger.com.