New Study Concludes Patent ‘Reform’ Legislation Would Impose Significant Costs on Patent System and Could Undermine U.S. Innovation and Economic Growth

WASHINGTON, D.C. (February 14, 2008) – Certain controversial elements of the patent ‘reform’ legislation pending before the Congress would sharply increase patent costs and risks, undermining innovation with potentially serious consequences for the U.S. economy, concluded two independent experts in a new analysis released today by the Biotechnology Industry Organization (BIO).

The study, entitled “The Economic Implications of Patent Reform: The Deficiencies and Costs of Proposals Regarding the Apportionment of Damages, Post-Grant Opposition and Inequitable Conduct,” was conducted by Robert J. Shapiro, a renowned economist and senior government official in the Clinton Administration, and Aparna Mathur, a leading health care policy expert. 

“U.S. intellectual property is estimated to be worth more than $5 trillion.  This new analysis finds that elements of the patent reform legislation pending before the Congress would put this value at risk by raising both the costs and uncertainties of the patent system,” stated BIO President and CEO Jim Greenwood.  “This legislation, as currently written, would undermine one of the fundamental pillars of U.S. economic growth and innovation – our strong patent system – putting the United States at an economic and technological leadership disadvantage.  If enacted into law without substantial changes, this bill would serve as an unwelcome, and unnecessary, jolt to an economy already on the brink of recession, jeopardizing hundreds of thousands of high-wage American jobs in biotechnology and other patent-intensive industries.”

The Shapiro-Mathur study examined three controversial provisions contained in the legislation:  apportionment of damages, a broad new post-grant opposition system, and codification of the inequitable conduct doctrine. 

Among the key findings:

These Provisions Would Sharply Increase Patent-Related Costs

• Changing the rules for apportioning damages would increase the cost of patent litigation.  The new rules will likely increase the costs of patent suits by requiring that judges and juries assess massive amounts of new data in a misguided attempt to “value” only certain elements of an infringed patent claim as compared to everything in the same area that came before it.
• A new post-grant opposition system would sharply increase the cost of adjudicating patents.  The current patent reexamination procedures cost less than $15 million a year, compared to an estimated $1.6 billion a year for a post-grant opposition system modeled after the European Union (EU), with even greater costs if the U.S. adopts an even broader system, as under consideration in the U.S. Senate.  And this excludes the direct costs to the PTO itself of operating such an expanded system.
• The codification of harmful elements of the “inequitable conduct” doctrine imposed by some courts would increase litigation and patent transaction costs.  Even though allegations of inequitable conduct rarely succeed, the doctrine’s broad availability and use drive up the length and cost of patent suits, and increase the costs of patenting and technology transfer activities due to fears of inequitable conduct charges years after the fact.

These Same Provisions Also Would Undermine U.S. Technological Leadership

• Changing the rules for apportioning damages would undermine innovation.  By reducing the costs of being caught infringing a patent, the new rules would encourage more infringements, which in turn will dampen investment in innovation.
• A new post-grant opposition system would further harm innovation by dramatically increasing investor uncertainties.  Based on the EU’s track record with post-grant opposition, the odds of a U.S. patent being challenged could go up 40-fold under a similar system, and even more under the broader system under consideration in the U.S. Senate.  
• The “inequitable conduct” provisions in the bill would undermine the commercialization of innovative research.  The codification of this doctrine, in the absence of true reforms to it, would discourage the spread of innovations across the economy by increasing investor uncertainties about the value of patents which they might buy or license.

“This study confirms our long-held views about these provisions, which as currently drafted make it easier to challenge patents and harder to enforce them,” stated Greenwood.  “While a limited post-grant opposition system may make sense, the costs and risks of a broad new challenge system are too high for the Congress to ignore.”

“A wide range of industries, labor unions, and universities have joined us in expressing grave concerns about the Patent Reform Act of 2007 in its current form.  At a time of increased economic anxiety, we encourage the Senate to take these concerns seriously and to make major changes to these provisions before bringing this bill to the Senate floor,” concluded Greenwood.

The study is available at http://www.bio.org/reg/media/Patent_Reform_Study.pdf.

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March 10-12, 2008
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About BIO

BIO represents more than 1,150 biotechnology companies, academic institutions, state biotechnology centers and related organizations across the United States and in more than 30 other nations. BIO members are involved in the research and development of innovative healthcare, agricultural, industrial and environmental biotechnology technologies. BIO also produces the annual BIO International Convention, the world’s largest gathering of the biotechnology industry, along with industry-leading investor and partnering meetings held around the world.

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